##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended September 30, 2007

OR



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

For the transition period from  to

Commission file number 000-52606



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KBS REAL ESTATE INVESTMENT
TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

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

As of November 14, 2007, there were 76,390,051 outstanding shares of common stock of KBS Real Estate Investment Trust,
Inc.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST, INC.

FORM 10-Q

September 30, 2007

INDEX



|           |  |                       |  |                                                                                                                                           |  |   
|---------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION |  |                                                                                                                                          
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                                                                      |  |   
|           |  |                       | 
|           |  |                       |  | Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006                                                    |  | 2 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006 (unaudited)                         |  | 3 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2006 and Nine Months Ended September 30, 2007 (unaudited) |  | 4 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (unaudited)                                   |  | 5 
|           |  |                       | 
|           |  |                       |  | Condensed Notes to Consolidated Financial Statements as of September 30, 2007 (unaudited)                                                 |  | 6 
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                     |  | 45
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                |  | 59
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                                                                   |  | 63
|           |  |                      
|PART II.   |  | OTHER INFORMATION     |  |                                                                                                                                          
|           |  |                       | 
|           |  | Item 1.               |  | Legal Proceedings                                                                                                                         |  | 64
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors                                                                                                                              |  | 64
|           |  |                       | 
|           |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                               |  | 65
|           |  |                       | 
|           |  | Item 3.               |  | Defaults upon Senior Securities                                                                                                           |  | 67
|           |  |                       | 
|           |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                       |  | 68
|           |  |                       | 
|           |  | Item 5.               |  | Other Information                                                                                                                         |  | 68
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                                                                  |  | 68
|           | 
|SIGNATURES |  | 78                   



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)



|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                     |  | September 30,2007 |           |   | December 31,2006 |  
|                                                                                                                                                                                     |  | (unaudited)       |           |   |                  |  
|Assets                                                                                                                                                                               |  |                   |           |   |                  |   |         |  
|Real estate:                                                                                                                                                                         |  |                   |           |   |                  |   |         |  
|Land                                                                                                                                                                                 |  | $                 | 187,778   |   |                  | $ | 18,344  |  
|Buildings and improvements, less accumulated depreciation of $12,162 and $1,441 as of September 30, 2007 and December 31, 2006,
respectively                                         |  |                   | 886,913   |   |                  |   | 178,136 |  
|Tenant origination and absorption costs, less accumulated amortization of $11,182 and $1,097 as of September 30, 2007 and
December 31, 2006, respectively                            |  |                   | 109,134   |   |                  |   | 17,648  |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total real estate, net                                                                                                                                                               |  |                   | 1,183,825 |   |                  |   | 214,128 |  
|Real estate loans receivable                                                                                                                                                         |  |                   | 150,723   |   |                  |   | 13,798  |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total real estate investments, net                                                                                                                                                   |  |                   | 1,334,548 |   |                  |   | 227,926 |  
|Cash and cash equivalents                                                                                                                                                            |  |                   | 102,260   |   |                  |   | 48,754  |  
|Restricted cash and cash at consolidated joint venture                                                                                                                               |  |                   | 8,977     |   |                  |   |        |  
|Marketable securities                                                                                                                                                                |  |                   | 16,600    |   |                  |   |        |  
|Rents and other receivables                                                                                                                                                          |  |                   | 5,206     |   |                  |   | 752     |  
|Above-market leases, net of accumulated amortization of $1,061 and $66 as of September 30, 2007 and December 31, 2006, respectively                                                  |  |                   | 12,703    |   |                  |   | 3,141   |  
|Deferred financing costs, prepaid and other assets                                                                                                                                   |  |                   | 31,920    |   |                  |   | 2,642   |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total assets                                                                                                                                                                         |  | $                 | 1,512,214 |   |                  | $ | 283,215 |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Liabilities and stockholders equity                                                                                                                                                 |  |                   |           |   |                  |   |         |  
|Notes payable                                                                                                                                                                        |  | $                 | 855,071   |   |                  | $ | 179,750 |  
|Accounts payable and accrued liabilities                                                                                                                                             |  |                   | 15,051    |   |                  |   | 1,839   |  
|Due to affiliates                                                                                                                                                                    |  |                   | 5,378     |   |                  |   | 1,404   |  
|Distributions payable                                                                                                                                                                |  |                   | 3,708     |   |                  |   | 582     |  
|Below-market leases, net of accumulated amortization of $3,033 and $258 as of September 30, 2007 and December 31, 2006, respectively                                                 |  |                   | 36,429    |   |                  |   | 4,994   |  
|Other liabilities                                                                                                                                                                    |  |                   | 4,904     |   |                  |   | 621     |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total liabilities                                                                                                                                                                    |  |                   | 920,541   |   |                  |   | 189,190 |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Commitments and contingencies (Note 15)                                                                                                                                              |  |                   |           |   |                  |   |         |  
|Minority interest                                                                                                                                                                    |  |                   | 20,525    |   |                  |   |        |  
|Redeemable common stock                                                                                                                                                              |  |                   | 8,037     |   |                  |   | 369     |  
|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, 66,945,144 and 11,309,222 shares issued and outstanding as of
September 30, 2007 and December 31, 2006, respectively |  |                   | 669       |   |                  |   | 113     |  
|Additional paid-in capital                                                                                                                                                           |  |                   | 587,871   |   |                  |   | 97,400  |  
|Other comprehensive loss                                                                                                                                                             |  |                   | (1,084    | ) |                  |   |        |  
|Cumulative distributions and net losses                                                                                                                                              |  |                   | (24,345   | ) |                  |   | (3,857  | )
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                           |  |                   | 563,111   |   |                  |   | 93,656  |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                           |  | $                 | 1,512,214 |   |                  | $ | 283,215 |  
|                                                                                                                                                                                     |  |                   |           |   |                  |   |         |  

See accompanying notes.



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 EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                        |  | 2007                            |            |   | 2006                           |   |           | 2007 |  |   | 2006       |  
|Revenues:                                                               |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Rental income                                                           |  | $                               | 20,005     |   |                                | $ | 757       |      |  | $ | 35,256     |   |  | $ | 757     |  
|Tenant reimbursements                                                   |  |                                 | 3,591      |   |                                |   | 119       |      |  |   | 6,109      |   |  |   | 119     |  
|Interest income from real estate loans receivable                       |  |                                 | 4,263      |   |                                |   | 350       |      |  |   | 7,406      |   |  |   | 350     |  
|Parking revenues and other operating income                             |  |                                 | 420        |   |                                |   |          |      |  |   | 1,158      |   |  |   |        |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Total revenues                                                          |  |                                 | 28,279     |   |                                |   | 1,226     |      |  |   | 49,929     |   |  |   | 1,226   |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Operating expenses:                                                     |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Operating, maintenance, and management                                  |  |                                 | 3,582      |   |                                |   | 200       |      |  |   | 6,379      |   |  |   | 200     |  
|Real estate and other property-related taxes                            |  |                                 | 2,952      |   |                                |   | 78        |      |  |   | 5,394      |   |  |   | 78      |  
|Asset management fees to affiliate                                      |  |                                 | 1,481      |   |                                |   | 71        |      |  |   | 2,847      |   |  |   | 71      |  
|General and administrative expenses                                     |  |                                 | 1,136      |   |                                |   | 337       |      |  |   | 2,682      |   |  |   | 800     |  
|Depreciation and amortization                                           |  |                                 | 12,196     |   |                                |   | 395       |      |  |   | 20,806     |   |  |   | 395     |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Total operating expenses                                                |  |                                 | 21,347     |   |                                |   | 1,081     |      |  |   | 38,108     |   |  |   | 1,544   |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Operating income (loss)                                                 |  |                                 | 6,932      |   |                                |   | 145       |      |  |   | 11,821     |   |  |   | (318    | )
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Other income (expenses):                                                |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Interest expense                                                        |  |                                 | (10,719    | ) |                                |   | (707      | )    |  |   | (17,629    | ) |  |   | (707    | )
|Interest income                                                         |  |                                 | 1,523      |   |                                |   | 33        |      |  |   | 3,773      |   |  |   | 33      |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Total other income (expenses), net                                      |  |                                 | (9,196     | ) |                                |   | (674      | )    |  |   | (13,856    | ) |  |   | (674    | )
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Net loss before minority interest                                       |  |                                 | (2,264     | ) |                                |   | (529      | )    |  |   | (2,035     | ) |  |   | (992    | )
|Minority interest in loss of consolidated entity                        |  |                                 | (850       | ) |                                |   |          |      |  |   | (850       | ) |  |   |        |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Net loss                                                                |  | $                               | (1,414     | ) |                                | $ | (529      | )    |  | $ | (1,185     | ) |  | $ | (992    | )
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Loss per common share, basic and diluted                                |  | $                               | (0.02      | ) |                                | $ | (0.46     | )    |  | $ | (0.03      | ) |  | $ | (2.48   | )
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                                 | 58,315,091 |   |                                |   | 1,148,531 |      |  |   | 36,874,092 |   |  |   | 400,311 |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  
|Distributions declared per common share                                 |  | $                               | 0.18       |   |                                | $ | 0.14      |      |  | $ | 0.52       |   |  | $ | 0.14    |  
|                                                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |         |  

See accompanying notes.



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 STOCKHOLDERS EQUITY

For the Year Ended December 31, 2006 and Nine Months Ended September 30, 2007

(unaudited)

(dollar amounts in thousands)



|                                         |  |              |   |  |                            |     |   |                         |   |         |                                        |  |   |                           |   |  |   |         |   |  |   |         |  
|---------------------------------------- |  | ------------ | - |  | -------------------------- | --- | - | ----------------------- | - | ------- | -------------------------------------- |  | - | ------------------------- | - |  | - | ------- | - |  | - | ------- | -
|                                         |  | Common Stock |   |  | Additional Paid-in Capital |     |   | OtherComprehensive Loss |   |         | Distributionsand Cumulative Net Losses |  |   | TotalStockholders' Equity |  
|                                         |  | Shares       |   |  | Amount                     |     |   |                         |   |        
|Balance, December 31, 2005               |  | 20,000       |   |  | $                          | 1   |   |                         | $ | 199     |                                        |  | $ |                          |   |  | $ |        |   |  | $ | 200     |  
|Issuance of common stock                 |  | 11,289,222   |   |  |                            | 112 |   |                         |   | 112,318 |                                        |  |   |                          |   |  |   |        |   |  |   | 112,430 |  
|Redeemable common stock                  |  |             |   |  |                            |    |   |                         |   | (369    | )                                      |  |   |                          |   |  |   |        |   |  |   | (369    | )
|Distributions declared                   |  |             |   |  |                            |    |   |                         |   |        |                                        |  |   |                          |   |  |   | (1,286  | ) |  |   | (1,286  | )
|Commissions and dealer-manager fees      |  |             |   |  |                            |    |   |                         |   | (10,241 | )                                      |  |   |                          |   |  |   |        |   |  |   | (10,241 | )
|Other offering costs                     |  |             |   |  |                            |    |   |                         |   | (4,507  | )                                      |  |   |                          |   |  |   |        |   |  |   | (4,507  | )
|Net loss                                 |  |             |   |  |                            |    |   |                         |   |        |                                        |  |   |                          |   |  |   | (2,571  | ) |  |   | (2,571  | )
|                                         |  |              |   |  |                            |     |   |                         |   |         |                                        |  |   |                           |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2006               |  | 11,309,222   |   |  |                            | 113 |   |                         |   | 97,400  |                                        |  |   |                          |   |  |   | (3,857  | ) |  |   | 93,656  |  
|Issuance of common stock                 |  | 55,725,682   |   |  |                            | 557 |   |                         |   | 554,105 |                                        |  |   |                          |   |  |   |        |   |  |   | 554,662 |  
|Redemptions of common stock              |  | (89,760      | ) |  |                            | (1  | ) |                         |   | (896    | )                                      |  |   |                          |   |  |   |        |   |  |   | (897    | )
|Redeemable common stock                  |  |             |   |  |                            |    |   |                         |   | (7,668  | )                                      |  |   |                          |   |  |   |        |   |  |   | (7,668  | )
|Distributions declared                   |  |             |   |  |                            |    |   |                         |   |        |                                        |  |   |                          |   |  |   | (19,303 | ) |  |   | (19,303 | )
|Commissions and dealer-manager fees      |  |             |   |  |                            |    |   |                         |   | (50,163 | )                                      |  |   |                          |   |  |   |        |   |  |   | (50,163 | )
|Other offering costs                     |  |             |   |  |                            |    |   |                         |   | (4,907  | )                                      |  |   |                          |   |  |   |        |   |  |   | (4,907  | )
|Unrealized loss on marketable securities |  |             |   |  |                            |    |   |                         |   |        |                                        |  |   | (1,084                    | ) |  |   |        |   |  |   | (1,084  | )
|Net loss                                 |  |             |   |  |                            |    |   |                         |   |        |                                        |  |   |                          |   |  |   | (1,185  | ) |  |   | (1,185  | )
|                                         |  |              |   |  |                            |     |   |                         |   |         |                                        |  |   |                           |   |  |   |         |   |  |   |         |  
|Balance, September 30, 2007              |  | 66,945,144   |   |  | $                          | 669 |   |                         | $ | 587,871 |                                        |  | $ | (1,084                    | ) |  | $ | (24,345 | ) |  | $ | 563,111 |  
|                                         |  |              |   |  |                            |     |   |                         |   |         |                                        |  |   |                           |   |  |   |         |   |  |   |         |  

See accompanying notes.



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

(unaudited)

(in thousands)



|                                                                                |  |                                    |            |   |                                    |   |          |  
|------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | -------- | -
|                                                                                |  | Nine MonthsEndedSeptember 30, 2007 |            |   | Nine MonthsEndedSeptember 30, 2006 |  
|Cash Flows from Operating Activities:                                           |  |                                    |            |   |                                    |   |          |  
|Net loss                                                                        |  | $                                  | (1,185     | ) |                                    | $ | (992     | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                    |            |   |                                    |   |          |  
|Deferred rent                                                                   |  |                                    | (1,210     | ) |                                    |   | (19      | )
|Depreciation and amortization                                                   |  |                                    | 20,806     |   |                                    |   | 395      |  
|Amortization of investment in master lease                                      |  |                                    | 107        |   |                                    |   |         |  
|Amortization of notes receivable closing costs                                  |  |                                    | 369        |   |                                    |   |         |  
|Amortization of deferred financing costs                                        |  |                                    | 1,451      |   |                                    |   | 39       |  
|Amortization of above- and below-market leases, net                             |  |                                    | (1,780     | ) |                                    |   | (59      | )
|Minority interest in loss of consolidated entity                                |  |                                    | (850       | ) |                                    |   |         |  
|Changes in operating assets and liabilities:                                    |  |                                    |            |   |                                    |   |          |  
|Cash at consolidated joint venture                                              |  |                                    | (1,428     | ) |                                    |   |         |  
|Restricted cash for operational expenditures                                    |  |                                    | (5,503     | ) |                                    |   |         |  
|Rents and other receivables                                                     |  |                                    | (3,244     | ) |                                    |   | (437     | )
|Deferred financing costs, prepaid and other assets                              |  |                                    | (4,678     | ) |                                    |   | (334     | )
|Accounts payable and accrued liabilities                                        |  |                                    | 13,212     |   |                                    |   | 1,974    |  
|Due to affiliates                                                               |  |                                    | 2,847      |   |                                    |   | 71       |  
|Other liabilities                                                               |  |                                    | 4,283      |   |                                    |   | 92       |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Net cash provided by operating activities                                       |  |                                    | 23,197     |   |                                    |   | 730      |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Cash Flows from Investing Activities:                                           |  |                                    |            |   |                                    |   |          |  
|Acquisitions of real estate                                                     |  |                                    | (964,834   | ) |                                    |   | (119,007 | )
|Additions to real estate                                                        |  |                                    | (2,015     | ) |                                    |   |         |  
|Investment in master lease                                                      |  |                                    | (13,358    | ) |                                    |   |         |  
|Investments in real estate loans receivable                                     |  |                                    | (133,818   | ) |                                    |   | (12,950  | )
|Payments of real estate loans receivable closing costs                          |  |                                    | (1,220     | ) |                                    |   |         |  
|Advances on real estate loans receivable                                        |  |                                    | (3,107     | ) |                                    |   | (372     | )
|Restricted cash for capital expenditures                                        |  |                                    | (2,046     | ) |                                    |   |         |  
|Investments in marketable securities                                            |  |                                    | (17,684    | ) |                                    |   |         |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Net cash used in investing activities                                           |  |                                    | (1,138,082 | ) |                                    |   | (132,329 | )
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Cash Flows from Financing Activities:                                           |  |                                    |            |   |                                    |   |          |  
|Proceeds from notes payable                                                     |  |                                    | 756,526    |   |                                    |   | 104,098  |  
|Payments on notes payable                                                       |  |                                    | (94,466    | ) |                                    |   | (3,300   | )
|Advances from affiliates                                                        |  |                                    | 700        |   |                                    |   | 987      |  
|Payments of deferred financing costs                                            |  |                                    | (11,950    | ) |                                    |   | (631     | )
|Proceeds from repurchase agreement                                              |  |                                    | 13,261     |   |                                    |   | 7,279    |  
|Proceeds from note payable to affiliate                                         |  |                                    |           |   |                                    |   | 8,447    |  
|Payments on note payable to affiliate                                           |  |                                    |           |   |                                    |   | (500     | )
|Minority interest contributions                                                 |  |                                    | 21,375     |   |                                    |   |         |  
|Proceeds from issuance of common stock                                          |  |                                    | 554,662    |   |                                    |   | 22,925   |  
|Redemptions of common stock                                                     |  |                                    | (897       | ) |                                    |   |         |  
|Payments of commissions on stock sales and related dealer manager fees          |  |                                    | (49,600    | ) |                                    |   | (2,143   | )
|Payments of other offering costs                                                |  |                                    | (5,043     | ) |                                    |   | (1,296   | )
|Distributions paid                                                              |  |                                    | (16,177    | ) |                                    |   | (82      | )
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Net cash provided by financing activities                                       |  |                                    | 1,168,391  |   |                                    |   | 135,784  |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Net increase in cash and cash equivalents                                       |  |                                    | 53,506     |   |                                    |   | 4,185    |  
|Cash and cash equivalents, beginning of period                                  |  |                                    | 48,754     |   |                                    |   | 200      |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Cash and cash equivalents, end of period                                        |  | $                                  | 102,260    |   |                                    | $ | 4,385    |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Supplemental Disclosure of Cash Flow Information:                               |  |                                    |            |   |                                    |   |          |  
|Interest paid                                                                   |  | $                                  | 13,668     |   |                                    | $ | 528      |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Supplemental Disclosure of Non-Cash Transactions:                               |  |                                    |            |   |                                    |   |          |  
|Commissions on stock sales and related dealer manager fees due to affiliates    |  | $                                  | 563        |   |                                    | $ |         |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Distributions payable                                                           |  | $                                  | 3,708      |   |                                    | $ | 107      |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Above-market leases from purchases of real estate                               |  | $                                  | 10,557     |   |                                    | $ |         |  
|                                                                                |  |                                    |            |   |                                    |   |          |  
|Below-market leases from purchases of real estate                               |  | $                                  | 34,210     |   |                                    | $ |         |  
|                                                                                |  |                                    |            |   |                                    |   |          |  

See accompanying notes.



5



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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

September 30, 2007

(unaudited)

1. ORGANIZATION

KBS Realty Corporation was formed on
June 13, 2005 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT) beginning with the taxable year that ended December 31, 2006. On June 15, 2005, KBS Realty Corporation and KBS Real
Estate Investment Trust, Inc., a Maryland corporation (KBS REIT), filed Articles of Merger (the Articles of Merger) with the State of Maryland. Pursuant to the Articles of Merger, KBS REIT was merged into KBS Realty
Corporation with KBS Realty Corporation surviving the merger, and KBS Realty Corporations name was changed to KBS Real Estate Investment Trust, Inc. (the Company).

Prior to the merger, KBS Capital Advisors LLC (the Advisor) owned 20,000 shares of common stock of KBS REIT, which were all of the outstanding shares of KBS REIT. Pursuant to the Articles of Merger, the
Advisors 20,000 shares in KBS REIT were converted on a one-for-one basis into shares of common stock of the Company. As of September 30, 2007, the Advisor owned 20,000 shares of the Companys common stock.

As a result of the merger, the Company succeeded, without other transfer, to all of the rights and assets of KBS REIT. The Company also became subject to all of the
debts and liabilities of KBS REIT in the same manner as if the Company itself had incurred those debts and liabilities. As of June 15, 2005, the effective date of the merger, the Company directly owned all of the interests in KBS REIT Holdings
LLC, a Delaware limited liability company (KBS REIT Holdings). Also as of June 15, 2005, the Company became the sole general partner of and directly owned a 0.1% partnership interest in KBS Limited Partnership, a Delaware limited
partnership (the Operating Partnership). KBS REIT Holdings owned the remaining 99.9% partnership interest in the Operating Partnership and was the sole limited partner of the Operating Partnership.

In connection with securing financing for a property acquisition, on June 29, 2006, KBS REIT Holdings transferred the majority of its partnership interests in the
Operating Partnership to the Company. As a result of the transfer, KBS REIT Holdings retained a 1% partnership interest in the Operating Partnership and remained the sole limited partner of the Operating Partnership, and the Company, as sole general
partner, became the direct owner of the remaining 99% partnership interest in the Operating Partnership. On July 5, 2006, the Company elected to treat KBS REIT Holdings as a taxable REIT subsidiary. On April 30, 2007, the Company revoked
its election to treat KBS REIT Holdings as a taxable REIT subsidiary. The Company anticipates that it will conduct substantially all of its operations through the Operating Partnership.

The Company invests in a diverse portfolio of real estate assets. The primary types of properties the Company invests in include office, industrial, and retail properties located throughout the United States. All such
real estate assets may be acquired directly by the Company or the Operating Partnership, though the Company may invest in other entities that make similar investments. The Company also invests in mezzanine loans and mortgage loans and intends to
make investments in other real estate-related assets, including mortgage-backed securities and other structured finance investments. As of September 30, 2007, the Company owned ten office buildings, one light industrial property, two corporate
research buildings, one distribution facility, one industrial portfolio consisting of nine distribution and office/warehouse properties, and an 80% membership interest in a joint venture that owns a portfolio of 23 institutional quality industrial
properties and holds a master lease with a remaining term of 15.5 years with respect to another industrial property. In addition, the Company owns three mezzanine real estate loans, a partial ownership interest in two mezzanine real estate loans,
and a partial ownership interest in a senior mortgage loan. The Company has also originated three secured loans. See Note 3, Real Estate, and Note 5, Real Estate Loans Receivable.

Subject to certain restrictions and limitations, the business of the Company is managed by the Advisor pursuant to an Advisory Agreement with the Company (the
Advisory Agreement) in effect through November 8, 2008. 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.



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)

September 30, 2007

(unaudited)



On June 23, 2005, the Company filed a registration statement on Form S-11 with the Securities and Exchange
Commission (the SEC) to offer a minimum of 250,000 shares (the Minimum Number of Shares) and a maximum of 280,000,000 shares of common stock for sale to the public (the Offering), of which 80,000,000 shares are
being offered pursuant to the Companys dividend reinvestment plan. The SEC declared the Companys registration statement effective on January 13, 2006, and the Company launched the Offering on January 27, 2006, upon retaining
KBS Capital Markets Group LLC (the Dealer Manager), an affiliate of the Advisor, to serve as the dealer manager of the Offering. The Dealer Manager is responsible for marketing the Companys shares in the Offering. The Company
intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate assets as described above. From commencement of the Offering through September 30, 2007, including shares sold through the
Companys dividend reinvestment plan, the Company had sold 67,014,904 shares in the Offering for gross offering proceeds of $667.1 million. As of September 30, 2007, the Company had redeemed 89,760 of the shares sold in the Offering
pursuant to its share redemption program for approximately $897,000.

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 minority interest. All significant intercompany balances and transactions are eliminated in consolidation.

The Company evaluates the need to consolidate joint ventures based on standards set forth in Financial Accounting Standards Board (FASB) Financial Interpretation (FIN) No. 46R, Consolidation of Variable
Interest Entities(FIN 46R), and Statement of Position 78-9, Accounting for Investments in Real Estate Ventures (SOP 78-9), as amended by Emerging Issues Task Force No. 04-5, Investors Accounting for
an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights. In accordance with these accounting standards, the Company 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.

The consolidated financial statements are prepared in accordance with the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures required by
U.S. generally accepted accounting principles (GAAP) for complete financial statements have been condensed or omitted; although, management believes the disclosures are adequate to make the information presented not misleading. In the
opinion of management, the consolidated financial statements for the unaudited interim periods presented include all adjustments (which are of a normal recurring nature) considered necessary to fairly present the results for those periods. These
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2006 included in the Companys Annual Report on Form 10-K.

Use of Estimates

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



7



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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)

September 30, 2007

(unaudited)



Real Estate Assets

Depreciation

Real estate costs related to the acquisition, development, construction, and improvement of properties are capitalized. Repair
and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers
the period of future benefit of an asset to determine its appropriate useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:



|                      |  |                                              
|--------------------- |  | ---------------------------------------------
|Buildings             |  | 25-40 years                                  
|Building improvements |  | 10-25 years                                  
|Land improvements     |  | 20-25 years                                  
|Tenant improvements   |  | Shorter of lease term or expected useful life

Real Estate Purchase Price Allocation

In accordance with standards set forth in Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, the Company records above-market and below-market in-place lease
values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and
(ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market
lease values as a reduction or increase to rental income, respectively, over the remaining non-cancelable terms of the respective leases, which range from one month to 12.5 years.

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the
property valued as if vacant. The value of these intangible assets is classified as tenant origination and absorption costs and is amortized over the remaining non-cancelable terms of the respective leases. Managements estimates of value are
made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods
considering current market conditions and costs to execute similar leases.

The Company also considers information obtained about each property as a result
of its preacquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other
operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that
such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible
assets acquired is further allocated to in-place lease values and customer relationship intangible values, if any, based on managements evaluation of the specific characteristics of each tenants lease and the Companys overall
relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the Companys existing business relationships with the tenant, growth prospects for developing new
business with the tenant, the tenants credit quality, and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the initial term of the respective leases, which range from one month to 12.5 years. The value of customer relationship intangibles, if any, are
amortized to expense over the initial term and any renewal periods in the respective leases, but in no event do the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its
lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.



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)

September 30, 2007

(unaudited)



Impairment of Real Estate Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential
impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset
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 asset, the Company records an impairment loss to the extent
that the carrying value exceeds the estimated fair value of the asset as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. There were no impairment losses recorded by the Company during the three or
nine months ended September 30, 2007 and 2006.

Real Estate Loans Receivable

The real estate loans receivable are recorded at cost and reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information,
that the Company will be unable to collect all amounts due according to the loans contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan receivable to the present value of the expected
cash flows or the fair value of the collateral. If a loan was deemed to be impaired, the Company would record a reserve for loan losses through a charge to income for any shortfall. There were no impairment losses on real estate loans receivable
recorded by the Company during the three or nine months ended September 30, 2007 and 2006.

Cash and Cash Equivalents

The Company considers all short-term (with an original maturity of three months or less), highly liquid investments utilized as part of the Companys cash-management
activities to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.

The Companys account balance exceeds federally insurable limits as of September 30, 2007. The Company mitigates this risk by depositing funds with a major financial institution.

Restricted Cash and Cash at Consolidated Joint Venture

Restricted
cash consists primarily of the following as of September 30, 2007 (in thousands):



|                                                                                            |  |   |      
|------------------------------------------------------------------------------------------- |  | - | -----
|Capital expenditure reserve accounts required by mortgage loans (1)                         |  | $ | 2,046
|Operational expenditure reserve accounts required by mortgage loans (1)                     |  |   | 3,503
|Separate cash accounts related to security deposits as required by certain lease agreements |  |   | 2,000
|Cash at consolidated joint venture (2)                                                      |  |   | 1,428
|                                                                                            |  |   |      
|Total restricted cash                                                                       |  | $ | 8,977
|                                                                                            |  |   |      

---

|(1) | The terms of several of the Companys mortgage loans payable require the
Company to deposit certain replacement and other reserves with its lenders. Such restricted cash is generally available only for property-level requirements for which the reserve was established and is not available to fund other property-level or
Company-level obligations.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The joint venture partnership agreement requires, among other things, that the
joint venture maintain separate cash accounts for the operation of the joint venture and that distributions to the partners be strictly controlled.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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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)

September 30, 2007

(unaudited)



Marketable Securities

In accordance with the standards set forth in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company classifies its investments in marketable 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 based on quoted market prices, when available, or on estimates provided by independent pricing sources or
dealers who make markets in such securities. Upon the sale of a security, the realized net gain or loss is computed on a specific identification basis.

The Company monitors its available-for-sale securities for impairments. A loss is recognized when the Company determines that a decline in the estimated fair value of a security below its amortized cost is other-than-temporary. The Company
considers many factors in determining whether the impairment of a security is deemed to be other-than-temporary, including, but not limited to, the length of time the security has had a decline in estimated fair value below its amortized cost, the
amount of the unrealized loss, the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, external credit ratings and recent changes in such
ratings.

The Company accounts for its commercial mortgage-backed securities (CMBS) in accordance with the Emerging Issues Task Force 99-20,
Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets(EITF 99-20).Under EITF 99-20, the Company evaluates whether there is other-than-temporary
impairment by discounting projected cash flows using credit, prepayment and other assumptions compared to prior period projections. If the discounted projected cash flows have decreased due to a change in the credit, prepayment and other
assumptions, then the CMBS must be written down to fair value if the fair value is below the amortized cost basis. This will create a new carrying basis for the CMBS and a revised yield will be calculated based on the future estimated cash flows for
purposes of revenue recognition. If there have been no changes to the Companys assumptions and the change in value is solely due to interest rate changes, the Company does not recognize an impairment of its CMBS investments in its consolidated
statements of operations. It is difficult to predict the timing or magnitude of these other-than-temporary impairments and significant judgments, including, but not limited to, assumptions regarding estimated prepayments, loss assumptions, and
assumptions with respect to changes in interest rates, are required in determining impairment. As a result, actual impairment losses could materially differ from these estimates.

Unamortized premiums and discounts on securities available-for-sale are recognized in interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

Rents and Other Receivables

The Company periodically
evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company
maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing
these estimates.

Deferred Financing Costs

Deferred
financing costs represent commitment fees, legal fees and other third party costs associated with obtaining commitments for financing, which result in a closing of such financing. These costs are amortized over the terms of the respective agreements
using the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in
which it is determined that the financing will not close.



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)

September 30, 2007

(unaudited)



Redeemable Common Stock

The Company has adopted a share redemption program for stockholders who have held their shares for at least one year, unless the shares are being redeemed in connection with a stockholders death or qualifying disability
(as defined under the program).

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



| |  |  | Unless the shares are being redeemed in connection with a stockholders death or qualifying disability, the Company may not redeem shares until
they have been outstanding for one year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the net proceeds from the sale 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As the use of the proceeds of the dividend reinvestment plan
for redemptions is outside the Companys control, they are considered to be temporary equity under Accounting Series Release No. 268, Presentation in Financial Statements of Redeemable Preferred Stock.

The Company has adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity(SFAS
150), which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be classified as liabilities and reported at settlement value. The Companys redeemable common
shares are contingently redeemable at the option of the holder. As such, SFAS 150 is not applicable until such shares are tendered for redemption by the holder, at which time the Company will reclassify such obligations from mezzanine equity to a
liability based upon their respective settlement values.



11



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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)

September 30, 2007

(unaudited)



During the nine months ended September 30, 2007, the Company redeemed shares pursuant to its share redemption
program as follows:



|               |  |                                     |  |                                  |       |                                                                                         |    
|-------------- |  | ----------------------------------- |  | -------------------------------- | ----- | --------------------------------------------------------------------------------------- | ---
|Month          |  | Total Number of Shares Redeemed (1) |  | Average Price Paid Per Share
(2) |       | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
|January 2007   |  |                                    |  |                                  |      |                                                                                         | (3)
|February 2007  |  |                                    |  |                                  |      |                                                                                         | (3)
|March 2007     |  |                                    |  |                                  |      |                                                                                         | (3)
|April 2007     |  |                                    |  |                                  |      |                                                                                         | (3)
|May 2007       |  |                                    |  |                                  |      |                                                                                         | (3)
|June 2007      |  | 34,020                              |  | $                                | 9.99  |                                                                                         | (3)
|July 2007      |  | 6,472                               |  | $                                | 9.99  |                                                                                         | (3)
|August 2007    |  | 13,189                              |  | $                                | 9.98  |                                                                                         | (3)
|September 2007 |  | 36,079                              |  | $                                | 10.00 |                                                                                         | (3)

---

|(1) | The Company 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) and August 1, 2007 (which amendment became effective on September 13, 2007).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Prior to September 13, 2007, the Company redeemed shares at the lower of
$9.00 or 90% of the price paid to acquire the shares from the Company, unless the shares were being redeemed in connection with a stockholders death or qualifying disability (as defined under the program). The redemption price for
shares being redeemed upon a stockholders death or qualifying disability was the amount paid to acquire the shares from the Company. Pursuant to the amendment to the program adopted by the board of directors on July 6, 2007 and which
became effective on September 13, 2007, the Company currently redeems shares as follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.25 or 92.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least one year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.50 or 95.0% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least two years;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.75 or 97.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least three years; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $10.00 or 100% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least four years.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Notwithstanding the above, once the Company establishes a net asset value per share of common stock, the redemption price per share for
all stockholders will be equal to the net asset value per share, as estimated by the Advisor or another firm chosen for that purpose. The Company expects to establish a net asset value per share beginning three years after the completion of its
offering stage. The Company will consider its offering stage complete when it is no longer publicly offering equity securities and has not done so for one year. Until the Company establishes a net asset value per share, the redemption price for
shares being redeemed upon a stockholders death or qualifying disability will be the amount paid to acquire the shares from the Company.



|(3) | The Company limits the dollar value of shares that may be redeemed under the
program as described above.
|--- | --------------------------------------------------------------------------------------------------------



12



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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)

September 30, 2007

(unaudited)



Organization, Offering, and Related Costs

Organization and offering costs (other than selling commissions and the dealer manager fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company. These other
organization and offering costs include all expenses to be paid by the Company in connection with the Offering, including but not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) charges of the escrow holder;
(iii) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (iv) reimbursement to the Advisor for the salaries of its employees and other costs in connection with
preparing supplemental sales materials; (v) the cost of educational conferences held by the Company (including the travel, meal, and lodging costs of registered representatives of broker-dealers); and (vi) reimbursement to the Dealer
Manager for travel, meals, lodging and attendance fees incurred by employees of the Dealer Manager to attend retail seminars conducted by broker-dealers. Pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated
to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and offering costs paid by them on behalf of the Company, provided that the Advisor is obligated to reimburse the Company to the extent selling
commissions, the dealer manager fee and other organization and offering costs incurred by the Company in the Offering exceed 15% of gross offering proceeds.

As a result, these costs are only a liability of the Company to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the Offering. Through
September 30, 2007, including shares sold through the Companys dividend reinvestment plan, the Company had sold 67,014,904 shares for gross offering proceeds of $667.1 million and recorded organization and offering costs of $9.4 million
and selling commissions and dealer manager fees of $60.4 million. Organization costs are expensed as incurred, and offering costs, which include selling commissions and dealer manager fees, are charged to stockholders equity as such amounts
are reimbursed from the gross proceeds of the Offering.

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease, and amounts expected to
be received in later years are recorded as deferred rents. 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 recognizes gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real
Estate (SFAS 66). The specific timing of a sale is measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit
recognition under the full-accrual method are not met, the Company defers gain recognition and accounts for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery
methods, as appropriate, until the appropriate criteria are met.

Interest income from loans receivable is recognized based on the contractual terms of the
related debt instrument. Fees related to buydowns of interest rates are deferred as prepaid interest income and amortized over the term of the loans as an adjustment to interest income using the effective interest method. Closing costs related to
the purchase of loans receivable are amortized over the term of the loans and accreted as an adjustment against interest income using the effective interest method.



13



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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)

September 30, 2007

(unaudited)



General and Administrative Expenses

General and administrative expenses totaled $1.1 million and $2.7 million for the three and nine months ended September 30, 2007, respectively, and consisted primarily of legal, audit and other professional fees.
In addition, asset management fees to affiliates totaled $1.5 million and $2.8 million for the three and nine months ended September 30, 2007, respectively. To the extent included in the definition of total operating expenses (as set forth in
Note 12), general and administrative expenses, along with asset management fees due to affiliates, are an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor (as discussed in Note 12).
Pursuant to the operating expense reimbursement obligation, the Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2% of its
average invested assets or 25% of its net income, unless the conflicts committee of the Companys board of directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company's conflicts
committee approved total operating expenses in excess of the operating expense reimbursement obligation for the four trailing fiscal quarters ending December 31, 2006. The Companys total operating expenses were not in excess of the
operating expense reimbursement obligation for the four trailing fiscal quarters ending March 31, 2007, June 30, 2007 and September 30, 2007. See Note 12, Related Party TransactionsFees to Affiliates.

Independent Director Compensation

The Company pays
each of its independent directors an annual retainer of $25,000. In addition, the independent directors are paid for attending meetings as follows: (i) $2,500 for each board meeting attended, (ii) $2,000 for each committee meeting attended
(except that the committee chairman is paid $3,000 for each meeting attended), (iii) $1,000 for each teleconference board meeting attended, and (iv) $1,000 for each teleconference committee meeting attended (except that the committee
chairman is paid $3,000 for each teleconference committee meeting attended). All directors also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. For the three
and nine months ended September 30, 2007, the Company incurred independent director fees of $75,250 and $205,750, respectively, which are included in general and administrative expenses in the accompanying financial statements. At
September 30, 2007, $75,250 of fees payable to the independent directors was included in accounts payable and accrued liabilities. Director compensation is an operating expense of the Company that is subject to the operating expense
reimbursement obligation of the Advisor discussed in Note 12.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and intends to operate as such beginning with its taxable year ended December 31, 2006. 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 will not be subject to federal income tax on income that it distributes to 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 adversely affect the
Companys net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT.

The Company elected to treat KBS REIT Holdings as a taxable REIT subsidiary on July 5, 2006. KBS REIT Holdings is the sole limited partner of the Operating
Partnership and owns a 1% ownership interest in the Operating Partnership. On April 30, 2007, the Company revoked its election to treat KBS REIT Holdings as a taxable REIT subsidiary. As a result, KBS REIT Holdings will be taxed on income
allocable to it from the Operating Partnership in respect of its limited partnership interest from the time of its election on July 5, 2006 through April 30, 2007. In accordance with SFAS No. 109, Accounting for Income Taxes,
deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted rates expected to be in effect when the temporary differences reverse. As
of September 30, 2007, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.



14



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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)

September 30, 2007

(unaudited)



In July 2006, the Financial Accounting Standards Board (the FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a
tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax
position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a
substitute for derecognition of tax positions, and it has expanded disclosure requirements. FIN 48 is effective for fiscal years beginning after December 15, 2006, in which the impact of adoption should be accounted for as a cumulative-effect
adjustment to the beginning balance of retained earnings. The Company adopted FIN 48 on January 1, 2007. The Companys policy is to classify interest related to the underpayment of income taxes as a component of interest expense and
penalties related to the underpayment of income taxes as a component of general and administrative expenses. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its
financial statements, nor has the Company or its subsidiaries been assessed interest or penalties by any major tax jurisdictions. The Companys evaluation was performed for tax years ending December 31, 2006, the only tax year which
remains subject to examination by major tax jurisdictions as of September 30, 2007.

Per Share Data

Income (loss) per basic share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding
during such period. Diluted income (loss) per share of common stock equals basic income (loss) per share of common stock as there were no potentially dilutive shares of common stock during the three and nine months ended September 30, 2007 and
2006.

Distributions declared per common share assumes the share was issued and outstanding each day during the three and nine months ended
September 30, 2007 and 2006, and are based on a daily distribution for the period of $0.0019178 per share per day. Each day during the period from July 18, 2006 through September 30, 2007 was a record date for distributions.

Industry Segments

Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public entities report information about operating segments in their financial statements. The Company
acquires and operates commercial properties and invests in real estate-related assets, including real estate loans, and as a result, the Company operates in two business segments. For financial data by segment, see Note 14.

Recently Issued Accounting Standards

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value and establishes a framework for measuring fair value under GAAP. The key changes to current practice are (1) the definition of fair value, which focuses on an
exit price rather than an entry price; (2) the methods used to measure fair value, such as emphasis that fair value is a market-based measurement, not an entity-specific measurement, as well as the inclusion of an adjustment for risk,
restrictions, and credit standing and (3) the expanded disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company is required to adopt SFAS 157 in the first quarter of 2008. The Company is currently evaluating the impact that SFAS 157 will have on its financial statements.



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact that SFAS 159 will have on its financial statements.



15



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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)

September 30, 2007

(unaudited)



In June 2007, the FASB cleared for issuance the Statement of Position 07-1, Clarification of the Scope of the
Audit and Accounting, Investment Companies, and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies(SOP 07-1). SOP 07-1 addresses whether the accounting principles of the Audit and
Accounting Guide, Investment Companies, may be applied to an entity by clarifying the definition of an investment company and whether those accounting principles may be retained by a parent company in consolidation or by an investor in the
application of the equity method of accounting. SOP 07-1 initially applied to periods beginning on or after December 15, 2007. In October 2007, the FASB issued an Exposure Draft to delay the effective date of SOP 07-1 indefinitely.

3. REAL ESTATE

As of September 30, 2007, the Companys
real estate portfolio was comprised of approximately 16.6 million rentable square feet with a weighted average occupancy of 95%. The properties are located throughout the United States. The following table provides summary information regarding
the properties the Company owned as of September 30, 2007 (in thousands):



|                                                        |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        
|------------------------------------------------------- |  | --------------- | ------- | ------------- |  | ------- | - | ---------- | ------- | -------------------------------------- | - | ------ | ---------------- |  | - | -------
|Asset Name                                              |  | AcquisitionDate |         | City          |  | State   |   | Total Cost |         | AccumulatedDepreciationandAmortization |   |        | Real Estate, Net
|Properties Held Through Wholly Owned Subsidiaries       |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        
|                                                        |  |                 |         |               |  |        
|Opus National Industrial Portfolio                      |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        
|Cardinal Health                                         |  | 07/07           |         | Champlin      |  | MN      |   | $          | 13,310  |                                        | $ | (82    | )                |  | $ | 13,228 
|Cedar Bluffs Business Center                            |  | 07/07           |         | Eagan         |  | MN      |   |            | 6,627   |                                        |   | (55    | )                |  |   | 6,572  
|Crystal Park II-Buildings D & E                         |  | 07/07           |         | Round Rock    |  | TX      |   |            | 20,636  |                                        |   | (205   | )                |  |   | 20,431 
|Corporate Express                                       |  | 07/07           |         | Arlington     |  | TX      |   |            | 9,324   |                                        |   | (62    | )                |  |   | 9,262  
|Park 75-Dell                                            |  | 07/07           |         | West Chester  |  | OH      |   |            | 18,692  |                                        |   | (126   | )                |  |   | 18,566 
|Plainfield Business Center                              |  | 07/07           |         | Plainfield    |  | IN      |   |            | 17,359  |                                        |   | (160   | )                |  |   | 17,199 
|Hartman Business Center One                             |  | 07/07           |         | Austell       |  | GA      |   |            | 16,805  |                                        |   | (105   | )                |  |   | 16,700 
|Rickenbacker IV-Medline                                 |  | 07/07           |         | Groveport     |  | OH      |   |            | 16,907  |                                        |   | (152   | )                |  |   | 16,755 
|Advo-Valassis Building                                  |  | 07/07           |         | Van Buren     |  | MI      |   |            | 9,019   |                                        |   | (57    | )                |  |   | 8,962  
|                                                        |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        
|                                                        |  |                 |         |               |  |         |   |            | 128,679 |                                        |   | (1,004 | )                |  |   | 127,675
|Sabal Pavilion Building                                 |  | 07/06           |         | Tampa         |  | FL      |   |            | 25,839  |                                        |   | (1,855 | )                |  |   | 23,984 
|Plaza in Clayton                                        |  | 09/06           |         | Saint Louis   |  | MO      |   |            | 94,116  |                                        |   | (5,070 | )                |  |   | 89,046 
|Southpark Commerce Center II Buildings                  |  | 11/06           |         | Austin        |  | TX      |   |            | 30,161  |                                        |   | (1,635 | )                |  |   | 28,526 
|825 University Avenue Building                          |  | 12/06           |         | Norwood       |  | MA      |   |            | 31,249  |                                        |   | (1,034 | )                |  |   | 30,215 
|Midland Industrial Buildings                            |  | 12/06           |         | McDonough     |  | GA      |   |            | 35,618  |                                        |   | (853   | )                |  |   | 34,765 
|Crescent Green Buildings                                |  | 01/07           |         | Cary          |  | NC      |   |            | 48,734  |                                        |   | (2,062 | )                |  |   | 46,672 
|625 Second Street Building                              |  | 01/07           |         | San Francisco |  | CA      |   |            | 51,844  |                                        |   | (1,638 | )                |  |   | 50,206 
|Sabal VI Building                                       |  | 03/07           |         | Tampa         |  | FL      |   |            | 17,820  |                                        |   | (472   | )                |  |   | 17,348 
|The Offices at Kensington                               |  | 03/07           |         | Sugar Land    |  | TX      |   |            | 28,894  |                                        |   | (794   | )                |  |   | 28,100 
|Royal Ridge Building                                    |  | 06/07           |         | Alpharetta    |  | GA      |   |            | 36,706  |                                        |   | (496   | )                |  |   | 36,210 
|9815 Goethe Road Building                               |  | 06/07           |         | Sacramento    |  | CA      |   |            | 17,242  |                                        |   | (218   | )                |  |   | 17,024 
|Bridgeway Technology Center                             |  | 06/07           |         | Newark        |  | CA      |   |            | 46,024  |                                        |   | (587   | )                |  |   | 45,437 
|Plano Corporate Center I & II                           |  | 08/07           |         | Plano         |  | TX      |   |            | 50,617  |                                        |   | (332   | )                |  |   | 50,285 
|2200 West Loop South Building                           |  | 09/07           |         | Houston       |  | TX      |   |            | 38,465  |                                        |   | (69    | )                |  |   | 38,396 
|                                                        |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        
|Total Properties Held Through Wholly Owned Subsidiaries |  |                 | 682,008 |               |  | (18,119 | ) |            |         | 663,889                               
|                                                        |  |                 |         |               |  |         |   |            |         |                                        |   |        |                  |  |   |        



16



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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)

September 30, 2007

(unaudited)



|                                                                                 |  |                 |  |               |           |       |   |            |        |                                        |   |           |                |  |  |       
|-------------------------------------------------------------------------------- |  | --------------- |  | ------------- | --------- | ----- | - | ---------- | ------ | -------------------------------------- | - | --------- | -------------- |  |  | ------
|Asset Name                                                                       |  | AcquisitionDate |  | City          |           | State |   | Total Cost |        | AccumulatedDepreciationandAmortization |   |           | RealEstate,Net
|Properties Held Through Consolidated Joint Venture                               |  |                 |  |               |           |       |   |            |        |                                        |   |          
|                                                                                 |  |                 |  |               |           |      
|National Industrial Portfolio                                                    |  |                 |  |               |           |       |   |            |        |                                        |   |           |                |  |  |       
|9410 Heinz Way                                                                   |  | 08/07           |  | Commerce City |           | CO    |   |            | 10,673 |                                        |   | (49       | )              |  |  | 10,624
|74 Griffin Street South                                                          |  | 08/07           |  | Bloomfield    |           | CT    |   |            | 22,995 |                                        |   | (377      | )              |  |  | 22,618
|85 Moosup Pond Road                                                              |  | 08/07           |  | Plainfield    |           | CT    |   |            | 25,761 |                                        |   | (198      | )              |  |  | 25,563
|555 Taylor Road                                                                  |  | 08/07           |  | Enfield       |           | CT    |   |            | 82,770 |                                        |   | (1,189    | )              |  |  | 81,581
|15 & 30 Independence Drive                                                       |  | 08/07           |  | Devens        |           | MA    |   |            | 32,580 |                                        |   | (109      | )              |  |  | 32,471
|50 Independence Drive                                                            |  | 08/07           |  | Devens        |           | MA    |   |            | 13,954 |                                        |   | (71       | )              |  |  | 13,883
|1040 Sheridan                                                                    |  | 08/07           |  | Chicopee      |           | MA    |   |            | 4,137  |                                        |   | (31       | )              |  |  | 4,106 
|1045 Sheridan                                                                    |  | 08/07           |  | Chicopee      |           | MA    |   |            | 3,692  |                                        |   | (37       | )              |  |  | 3,655 
|151 Suffolk Lane                                                                 |  | 08/07           |  | Gardner       |           | MA    |   |            | 3,672  |                                        |   | (36       | )              |  |  | 3,636 
|1111 Southampton Road                                                            |  | 08/07           |  | Westfield     |           | MA    |   |            | 30,214 |                                        |   | (349      | )              |  |  | 29,865
|100 & 111 Adams Road                                                             |  | 08/07           |  | Clinton       |           | MA    |   |            | 40,816 |                                        |   | (306      | )              |  |  | 40,510
|100 Simplex Drive                                                                |  | 08/07           |  | Westminster   |           | MA    |   |            | 25,318 |                                        |   | (443      | )              |  |  | 24,875
|495-515 Woburn                                                                   |  | 08/07           |  | Tewksbury     |           | MA    |   |            | 69,316 |                                        |   | (520      | )              |  |  | 68,796
|480 Sprague Street                                                               |  | 08/07           |  | Dedham        |           | MA    |   |            | 15,398 |                                        |   | (146      | )              |  |  | 15,252
|625 University Avenue(1)                                                         |  | 08/07           |  | Norwood       |           | MA    |   |            | 1,458  |                                        |   | (55       | )              |  |  | 1,403 
|57-59 Daniel Webster Highway                                                     |  | 08/07           |  | Merrimack     |           | NH    |   |            | 24,255 |                                        |   | (289      | )              |  |  | 23,966
|133 Jackson Avenue                                                               |  | 08/07           |  | Jamestown     |           | NY    |   |            | 10,322 |                                        |   | (48       | )              |  |  | 10,274
|1200 State Fair Boulevard                                                        |  | 08/07           |  | Geddes        |           | NY    |   |            | 17,504 |                                        |   | (71       | )              |  |  | 17,433
|3407 Walters Road                                                                |  | 08/07           |  | Van Buren     |           | NY    |   |            | 9,354  |                                        |   | (39       | )              |  |  | 9,315 
|851 Beaver Drive                                                                 |  | 08/07           |  | Du Bois       |           | PA    |   |            | 7,385  |                                        |   | (30       | )              |  |  | 7,355 
|Shaffer Road and Route 255                                                       |  | 08/07           |  | Du Bois       |           | PA    |   |            | 11,219 |                                        |   | (51       | )              |  |  | 11,168
|9700 West Gulf Bank Road                                                         |  | 08/07           |  | Houston       |           | TX    |   |            | 11,557 |                                        |   | (221      | )              |  |  | 11,336
|1000 East I-20                                                                   |  | 08/07           |  | Abilene       |           | TX    |   |            | 10,159 |                                        |   | (40       | )              |  |  | 10,119
|2200 South Business 45                                                           |  | 08/07           |  | Corsicana     |           | TX    |   |            | 40,652 |                                        |   | (520      | )              |  |  | 40,132
|                                                                                 |  |                 |  |               |           |       |   |            |        |                                        |   |           |                |  |  |       
|Total Properties Held Through Consolidated Joint Venture                         |  |                 |  |               | 525,161   |       |   | (5,225     | )      |                                        |   | 519,936  
|                                                                                 |  |                 |  |               |           |       |   |            |        |                                        |   |           |                |  |  |       
|Total Properties Held by Wholly Owned Subsidiaries or Consolidated Joint Venture |  |                 |  | $             | 1,207,169 |       | $ | (23,344    | )      |                                        | $ | 1,183,825
|                                                                                 |  |                 |  |               |           |       |   |            |        |                                        |   |           |                |  |  |       

---

|(1) | The joint venture purchased the rights to a master lease with a remaining term of
15.5 years with respect to this property as part of the National Industrial Portfolio acquisition.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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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)

September 30, 2007

(unaudited)



Real Estate Acquisitions During the Nine Months Ended September 30, 2007

During the nine months ended September 30, 2007, the Company acquired nine properties, one industrial portfolio consisting of nine distribution and office/warehouse
properties, and an 80% membership interest in a joint venture that owns a portfolio totaling approximately 11.4 million rentable square feet and consists of 23 institutional quality industrial properties and holds a master lease with a
remaining term of 15.5 years with respect to another industrial property. The aggregate purchase price of these properties was $963.6 million plus closing costs. The acquisitions and joint venture membership interest were funded with proceeds from
loans from unaffiliated lenders and with proceeds from the Offering. Each acquisition is discussed below.

Crescent Green Buildings

On January 31, 2007, the Company, through an indirect wholly owned subsidiary, purchased three office buildings comprising 248,832 rentable square feet (the
Crescent Green Buildings) from an unaffiliated seller. The Crescent Green Buildings are located on an approximate 24-acre parcel of land at 1100 Crescent Green, 1200 Crescent Green, and 1300 Crescent Green in Cary, North Carolina. The
purchase price of the Crescent Green Buildings was $48.1 million plus closing costs.

625 Second Street Building

On January 31, 2007, the Company, through an indirect wholly owned subsidiary, purchased a four-story office building containing 134,847 rentable square feet (the
625 Second Street Building) from an unaffiliated seller. The 625 Second Street Building is located on an approximate 0.8-acre parcel of land at 625 Second Street in San Francisco, California. The purchase price of the 625 Second Street
Building was $51.0 million plus closing costs.

Sabal VI Building

On March 5, 2007, the Company, through an indirect wholly owned subsidiary, purchased a two-story office building containing 96,346 rentable square feet (the Sabal VI Building) from an unaffiliated
seller. The Sabal VI Building is located on an approximate 10-acre parcel of land at 3611 Queen Palm Drive in Tampa, Florida. The purchase price of the Sabal VI Building was $16.5 million plus closing costs.

The Offices at Kensington

On March 29, 2007, the Company,
through an indirect wholly owned subsidiary, purchased two four-story office buildings containing 170,436 rentable square feet (The Offices at Kensington) from an unaffiliated seller. The Offices at Kensington are located on an
approximate 9-acre parcel of land at 1600 and 1650 Highway 6 South in Sugar Land, Texas. The purchase price of the Offices at Kensington was $28.0 million plus closing costs.

Royal Ridge Building

On June 21, 2007, the Company, through an indirect wholly owned subsidiary, purchased a
six-story office building containing 160,539 rentable square feet (the Royal Ridge Building) from an unaffiliated seller. The Royal Ridge Building is located on an approximate 13.2-acre parcel of land at 11680 Great Oaks Way in
Alpharetta, Georgia. The purchase price of the Royal Ridge Building was $33.0 million plus closing costs.

9815 Goethe Road Building

On June 26, 2007, the Company, through an indirect wholly owned subsidiary, purchased a two-story office building containing approximately 80,000 usable square feet
(the 9815 Goethe Road Building) from an unaffiliated seller. The 9815 Goethe Road Building is located on an approximate 5-acre parcel of land at 9815 Goethe Road in Sacramento, California. The purchase price of the 9815 Goethe Road
Building was $15.8 million plus closing costs.



18



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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)

September 30, 2007

(unaudited)



Bridgeway Technology Center

On June 27, 2007, the Company, through an indirect wholly owned subsidiary, purchased two single-story office/research and development buildings containing 187,268 rentable square feet (the Bridgeway
Technology Center) from an unaffiliated seller. The Bridgeway Technology Center is located on an approximate 13-acre parcel of land at 7007-7015 Gateway Boulevard and 7151 Gateway Boulevard in Newark, California. The purchase price of the
Bridgeway Technology Center was approximately $49.9 million plus closing costs.

Opus National Industrial Portfolio

On July 25, 2007, the Company, through indirect wholly owned subsidiaries, purchased a portfolio of nine distribution and office/warehouse properties located in six
states (the Opus National Industrial Portfolio) from unaffiliated sellers. The portfolio consists of properties totaling approximately 2.3 million rentable square feet. The purchase price of the Opus National Industrial Portfolio
was $124.5 million plus closing costs. As of September 30, 2007, the purchase price allocation is preliminary and is pending the receipt of information necessary to complete the valuation of certain tangible assets.

National Industrial Portfolio

On August 8, 2007, the Company,
through an indirect wholly owned subsidiary, joined New Leaf Industrial Partners Fund, L.P. (New Leaf) to make an approximately $106.9 million equity investment in New Leaf  KBS JV, LLC (the JV), the owner of a
portfolio of 23 institutional-quality industrial properties and the holder of a master lease with a remaining term of 15.5 years with respect to another industrial property (the National Industrial Portfolio). These properties are
located in seven states and contain approximately 11.4 million rentable square feet. The Company owns an 80% membership interest in the JV. Neither New Leaf nor the sellers of the portfolio are affiliated with the Company or the Advisor. The
purchase price of the National Industrial Portfolio was $515.9 million plus closing costs. For more information with respect to the JV, see Note 16. As of September 30, 2007, the purchase price allocation is preliminary and is pending the
receipt of information necessary to complete the valuation of certain tangible and intangible assets.

Plano Corporate Center I & II

On August 28, 2007, the Company, through an indirect wholly owned subsidiary, purchased two three-story office buildings containing 308,038 rentable square feet
(Plano Corporate Center I & II) from an unaffiliated seller. Plano Corporate Center I & II is located on two parcels of land totaling approximately 20 acres at 2201 and 2301 West Plano Parkway in Plano, Texas. The purchase price
of the Plano Corporate Center I & II was $45.8 million plus closing costs.

2200 West Loop South Building

On September 5, 2007, the Company, through an indirect wholly owned subsidiary, purchased an 11-story office building containing 196,217 rentable square feet with a
four-level parking structure (the 2200 West Loop South Building) from an unaffiliated seller. The 2200 West Loop South Building is located on an approximate 4.3-acre parcel of land at 2200 West Loop South in Houston, Texas. The purchase
price of the 2200 West Loop South Building was $35.1 million plus closing costs.

Operating Leases

Substantially all of the Company's real estate assets are leased to tenants under operating leases for which the terms and expirations vary. As of September 30,
2007, the leases have remaining terms of up to 12.5 years and 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. 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 tenants receivable exceeds the amount of its security deposit. Security
deposits related to tenant leases are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.



19



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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)

September 30, 2007

(unaudited)



As of September 30, 2007, the future minimum rental income from the Companys properties under
non-cancelable operating leases is as follows (in thousands):



|                                          |  |   |        
|----------------------------------------- |  | - | -------
|October 1, 2007 through December 31, 2007 |  | $ | 34,664 
|2008                                      |  |   | 89,801 
|2009                                      |  |   | 84,178 
|2010                                      |  |   | 65,157 
|2011                                      |  |   | 49,380 
|Thereafter                                |  |   | 141,670
|                                          |  |   |        
|                                          |  | $ | 464,850
|                                          |  |   |        

For the three and nine months ended September 30, 2007, the Company earned approximately 10% and 13% of its
rental income, respectively, from two tenants in the professional services industry. The leases of these two tenants expire in 2011 and 2012. Further, for the three and nine months ended September 30, 2007, the Company earned approximately 6%
and 9% of its rental income, respectively, from one tenant in the information services industry. The lease for this tenant expires in 2009.



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

As of September 30, 2007, the Company's tenant origination and absorption costs, above-market lease assets, and below-market lease liabilities are as follows (in
thousands):



|                         |  |                                       |         |   |                          |   |        |                               |  |   |        |  
|------------------------ |  | ------------------------------------- | ------- | - | ------------------------ | - | ------ | ----------------------------- |  | - | ------ | -
|                         |  | TenantOrigination andAbsorption Costs |         |   | Above-MarketLease Assets |   |        | Below-MarketLease Liabilities | 
|Cost                     |  | $                                     | 120,316 |   |                          | $ | 13,764 |                               |  | $ | 39,462 |  
|Accumulated Amortization |  |                                       | (11,182 | ) |                          |   | (1,061 | )                             |  |   | (3,033 | )
|                         |  |                                       |         |   |                          |   |        |                               |  |   |        |  
|Net Amount               |  | $                                     | 109,134 |   |                          | $ | 12,703 |                               |  | $ | 36,429 |  
|                         |  |                                       |         |   |                          |   |        |                               |  |   |        |  
|2007 Amortization        |  | $                                     | 10,085  |   |                          | $ | 995    |                               |  | $ | 2,775  |  
|                         |  |                                       |         |   |                          |   |        |                               |  |   |        |  

The remaining unamortized balance for these intangible assets will be amortized as follows (in thousands):



|                                          |  |   |           |  |   |            |  |   |           
|----------------------------------------- |  | - | --------- |  | - | ---------- |  | - | ----------
|October 1, 2007 through December 31, 2007 |  | $ | 10,595    |  | $ | 694        |  | $ | 2,914     
|2008                                      |  |   | 32,077    |  |   | 2,720      |  |   | 9,447     
|2009                                      |  |   | 24,340    |  |   | 2,690      |  |   | 7,753     
|2010                                      |  |   | 14,361    |  |   | 2,656      |  |   | 5,051     
|2011                                      |  |   | 7,954     |  |   | 1,065      |  |   | 3,430     
|Thereafter                                |  |   | 19,807    |  |   | 2,878      |  |   | 7,834     
|                                          |  |   |           |  |   |            |  |   |           
|                                          |  | $ | 109,134   |  | $ | 12,703     |  | $ | 36,429    
|                                          |  |   |           |  |   |            |  |   |           
|Weighted-Average Amortization Period      |  |   | 5.0 years |  |   | 5.97 years |  |   | 3.65 years



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)

September 30, 2007

(unaudited)



|5. | REAL ESTATE LOANS RECEIVABLE
|-- | ----------------------------

As of September 30, 2007, the
Company, through wholly owned subsidiaries, had invested in three mezzanine real estate loans, a partial ownership interest in two mezzanine real estate loans, a partial ownership interest in a senior mortgage loan and had originated three mortgage
loans, as follows (in thousands):



|                                         |  |                   |         |                  |   |       
|---------------------------------------- |  | ----------------- | ------- | ---------------- | - | ------
|                                         |  | September 30,2007 |         | December 31,2006
|First and Second Tribeca Mezzanine Loans |  | $                 | 46,720  |                  | $ | 13,798
|Tribeca Senior Mortgage Participation    |  |                   | 24,493  |                  |   |      
|Sandmar Mezzanine Loan                   |  |                   | 8,000   |                  |   |      
|Park Central Mezzanine Loan              |  |                   | 15,000  |                  |   |      
|200 Professional Drive Loan Origination  |  |                   | 7,452   |                  |   |      
|Lawrence Village Plaza Loan Origination  |  |                   | 6,159   |                  |   |      
|11 South LaSalle Loan Origination        |  |                   | 21,899  |                  |   |      
|One Madison Park Mezzanine Loan          |  |                   | 21,000  |                  |   |      
|                                         |  |                   |         |                  |   |       
|                                         |  | $                 | 150,723 |                  | $ | 13,798
|                                         |  |                   |         |                  |   |       

During the three and nine months ended September 30, 2007, the Company earned $4.3 million and $7.4 million,
respectively, in interest income from its interests in real estate loans, of which $1.5 million was receivable at September 30, 2007. During the three and nine months ended September 30, 2007, the Company also amortized as an increase to
interest income, $0.1 million and $0.2 million, respectively, of fees related to the buydown of the interest rates on the First and Second Tribeca Mezzanine Loans, 200 Professional Drive Loan Origination, Lawrence Village Plaza Loan Origination, and
11 South LaSalle Loan Origination and amortized, as an offset against interest income, $0.2 million and $0.4 million, respectively, of closing costs related to the purchase of these real estate loans.

The following is a schedule of maturities for all real estate loans receivable for the years ending December 31, (in thousands):



|                                         |  |   |        
|---------------------------------------- |  | - | -------
|October 1, 2007 Through December 1, 2007 |  | $ |       
|2008                                     |  |   | 86,213 
|2009                                     |  |   | 28,452 
|2010                                     |  |   | 28,058 
|2011                                     |  |   |       
|Thereafter                               |  |   | 8,000  
|                                         |  |   |        
|                                         |  | $ | 150,723
|                                         |  |   |        

Investments in Tribeca Loans

As of September 30, 2007, the Company had invested an aggregate of $46.7 million in two mezzanine loans and $24.5 million in a participation interest in the senior mortgage loans related to the conversion of an
eight-story loft building into a ten-story condominium building located at 415 Greenwich Street in New York, New York (the Tribeca Building). As of September 30, 2007, the Companys investments in the Tribeca loans represented
approximately 5% of the Companys total assets. Interest income from the Companys investments in the Tribeca loans represented approximately 11% of the Companys total revenues for both the three and nine months ended
September 30, 2007.



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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)

September 30, 2007

(unaudited)



As of September 30, 2007, over 60% of the condominiums in the Tribeca Building were under contract based on both
the total number of units available for sale (65 units) and the square feet represented by those units, subject to the construction being completed by the developer. As the property has no operations and is under construction, no meaningful
financial statements are available for the underlying property.

The Tribeca Mezzanine Loans

On July 18, 2006, the Company purchased, through an indirect wholly owned subsidiary, a $15.9 million junior mezzanine real estate loan (the First Tribeca
Mezzanine Loan) from an unaffiliated seller. The purchase price of the First Tribeca Mezzanine Loan was approximately $12.9 million plus closing costs, which was the amount funded to the borrower under the loan as of the date of acquisition.
After the closing, the Company remained obligated to fund an additional $3.0 million under the loan for future costs related to the conversion of the Tribeca Building. As of September 30, 2007, the Company had funded approximately $2.5 million
of these costs and the total balance outstanding under the First Tribeca Mezzanine Loan was approximately $15.5 million.

The First Tribeca Mezzanine Loan
bears interest at a variable rate equal to 30-day LIBOR plus 850 basis points, provided that at no time shall the interest rate exceed 13.25%. At September 30, 2007, the 30-day LIBOR rate was 5.1238%. In connection with the acquisition of the
Second Tribeca Mezzanine Loan (defined below), the initial maturity date of the First Tribeca Mezzanine Loan was changed from March 1, 2008 to May 1, 2008, with a one-year extension option subject to certain conditions. Prior to maturity,
the borrower under the First Tribeca Mezzanine Loan is required to make monthly interest-only payments to the Company, with the outstanding principal balance being due at maturity. Per the loan agreement, prior to satisfaction of the loan, the
borrower shall pay the Company an amount that brings the annualized internal rate of return on the First Tribeca Mezzanine Loan up to 25%. The First Tribeca Mezzanine Loan is expected to be used to fund costs related to the conversion of the Tribeca
Building.

On May 3, 2007, through an indirect wholly owned subsidiary, the Company closed on a second junior mezzanine loan investment in the
approximate amount of $31.2 million (Second Tribeca Mezzanine Loan) related to the conversion of the Tribeca Building. The investment was funded with proceeds from the Offering. The Second Tribeca Mezzanine Loan is in substantially the
form of an increase of the First Tribeca Mezzanine Loan.

The Second Tribeca Mezzanine Loan bears interest at a fixed rate of 25% per annum. The
Second Tribeca Mezzanine Loan has an initial maturity date of May 1, 2008 with a one-year extension option subject to certain conditions. Prior to maturity, the borrower under the Second Tribeca Mezzanine Loan is required to make monthly
interest-only payments to the Company, with the outstanding principal balance being due at maturity. The Second Tribeca Mezzanine Loan is being used to fund approximately $7.4 million of hard costs and the balance is being used to cover interest
reserves and other soft costs related to the conversion of the Tribeca Building.

The First and Second Tribeca Mezzanine Loans are subordinate to senior
mortgage loans totaling approximately $103.2 million and a $25.0 million senior mezzanine loan, of which approximately $123.0 million of the senior notes were outstanding as of September 30, 2007. As described below, on June 28, 2007, the
Company purchased a participation interest in the senior mortgage loans.

The First and Second Tribeca Mezzanine Loans are secured by, among other things,
a first lien priority pledge of the borrowers member interest (the Member Interest) in 415 Greenwich Senior Mezzanine Owner LLC (the Owner Member). The Owner Member is the sole member in 415 Greenwich Fee Owner LLC (the
Fee Owner), which is the owner of the Tribeca Building. With respect to certain bad boy acts, amounts outstanding under the First and Second Tribeca Mezzanine Loans are guaranteed by the two individuals who have indirect
interests in the Tribeca Building.



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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)

September 30, 2007

(unaudited)



Pursuant to an intercreditor agreement, the Companys right to payment under the First and Second Tribeca
Mezzanine Loans is subordinate to the right to payment of the lenders under a $103.2 million mortgage loan made to the Fee Owner and a $25.0 million senior mezzanine loan made to the Owner Member. The intercreditor agreement provides that in the
event of a default under the First and Second Tribeca Mezzanine Loans, the Company would be entitled to foreclose on the Member Interest and thereby take control and ownership of the Owner Member and the Fee Owner.

Tribeca Senior Mortgage Participation

On
June 28, 2007, the Company purchased, through an indirect wholly owned subsidiary, a 25% interest (the Senior Mortgage Participation) in the senior mortgage loans secured by the Tribeca Building from an unaffiliated seller. The
purchase price of the Senior Mortgage Participation was approximately $23.5 million plus closing costs. After the closing, the Company remains obligated to fund an additional $2.3 million under the Senior Mortgage Participation for costs related to
the conversion of the Tribeca Building. The Company purchased the Senior Mortgage Participation with proceeds from the Offering.

The Senior Mortgage
Participation is a 25% interest in three senior mortgage loans as well as an interest-only participation in the same mortgage loans. The three mortgage loans consist of (i) a senior mortgage loan in the principal amount of $62.5
million, (ii) a building mortgage loan in the principal amount of up to $37.9 million and (iii) a project mortgage loan in the principal amount of $2.8 million. As of September 30, 2007, all amounts under the three mortgage loans had
been advanced, except that only $32.6 million of the $37.9 million building mortgage loan had been advanced. Under the Senior Mortgage Participation, the Company is obligated to fund 25% of the $5.3 million that remains unfunded under the building
mortgage loan as of September 30, 2007. The borrower under each of the three mortgage loans is the Fee Owner (defined above). Neither the Company nor the Advisor is affiliated with the Fee Owner.

The $98.0 million currently outstanding under senior mortgage loans bears interest at a variable rate of 30-day LIBOR plus 2.70%, including the interest rate on the
interest-only participation in the mortgage loans. The future funding obligation under the building mortgage loan will bear interest at 30-day LIBOR plus 3.00%. The initial maturity date of the senior mortgage loans is May 1, 2008,
with a one-year extension option subject to certain conditions. Prior to maturity, the borrower under the senior mortgage loans is required to make monthly interest-only payments to the Company, with the outstanding principal balance being due at
maturity.

The remaining 75% interest in the three senior mortgage loans is held by AIG Annuity Insurance Company and the remaining 75% interest in the
interest-only participation in these three mortgage loans is held by AIG Mortgage Capital LLC. The Companys right to repayment under the Senior Mortgage Participation is pari passu with that of the other noteholders.

In the event that (i) payment of principal or interest on the mortgage loans becomes 90 days or more delinquent, (ii) the mortgage loan has been accelerated,
(iii) the principal balance on the mortgage loan is not paid at maturity, (iv) the borrower under the mortgage loans files for bankruptcy, (v) the holders of the participations in the three senior loans are unable to provide unanimous
consent on certain major decisions or (vi) the borrower fails to satisfy certain other conditions of the mortgage documents and all of the holders of the loans do not grant approval, the holder of the 75% participation in the senior mortgage
loans has the right to purchase the Companys Senior Mortgage Participation. In the event that the holder of the 75% participation in the senior mortgage loans does not purchase the Companys interest, the Company has the right to purchase
the 75% participation in the senior mortgage loans.

The holder of the 75% participation in the senior mortgage loans has exclusive authority with respect
to the administration of the mortgage loans and the exercise of rights and remedies with respect to the mortgage loan, except that unanimous consent of the holders is required with respect to (i) any material modification or waiver of a
monetary term of the mortgage loans, (ii) an extension of the maturity date, (iii) a reduction in the interest rate or monthly debt service payment, (iv) a sale of the secured property (other than the sale of condominiums) for an
amount less than necessary to ensure repayment plus certain costs incurred by the holders of the mortgage notes, and (v) other limited matters set forth in the participation agreement. With respect to certain bad boy acts, amounts
outstanding under the mortgage loans are guaranteed by the two individuals who have indirect interests in the Tribeca Building.



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)

September 30, 2007

(unaudited)



Investment in the Sandmar Mezzanine Loan

On January 9, 2007, the Company purchased, through an indirect wholly owned subsidiary, an $8.0 million mezzanine loan (the Sandmar Mezzanine Loan). The Company purchased this loan from AIG Mortgage
Capital, LLC, which is not affiliated with the Company or the Advisor. The purchase price of the Sandmar Mezzanine Loan was approximately $8.0 million plus closing costs. The Company funded the acquisition with proceeds from the Offering.

There are six borrowers under the Sandmar Mezzanine Loan: Westmarket Associates 2006 MB LLC, Little River Associates 2006 MB LLC, Clinton Associates 2006
MB LLC, Newmarket Associates 2006 MB LLC, Apopka Associates 2006 MB LLC and Westgate Associates 2006 MB LLC. Neither the Company nor the Advisor are affiliated with any of the borrowers. The Sandmar Mezzanine Loan bears interest at a fixed rate of
12% and has an initial maturity date of January 1, 2017. Prior to the maturity date, the borrowers under the Sandmar Mezzanine Loan are required to make monthly interest-only payments to the Company, with the outstanding principal balance being
due on the maturity date.

The borrowers are using the Sandmar Mezzanine Loan to partially fund the acquisition of six grocery-store anchored, small
neighborhood and single tenant retail centers, which together comprise 818,888 square feet (the Sandmar Portfolio), and are using approximately $2.8 million for future capital expenditures and leasing costs. The properties are located in
three states, North Carolina (three properties), Florida (two properties), and Tennessee (one property), and had an average occupancy of 91% as of the date of acquisition. Each borrower indirectly owns one of the six properties through a wholly
owned subsidiary that holds title to the property.

There is $49.6 million of senior financing on the Sandmar Portfolio. The senior financing is secured by
a mortgage on each of the six properties. Each mortgage is cross defaulted and cross collateralized with the other mortgages so that a default under one mortgage of the senior loan documents shall constitute a default under all of the
mortgages.

The Sandmar Mezzanine Loan is secured by, among other things, a pledge by each borrower of its interests in the respective wholly owned
subsidiary that each holds title to one of the six properties in the Sandmar Portfolio. The pledge agreements entered by the six borrowers provide that in the event of default under the Sandmar Mezzanine Loan, the Company may exercise its rights and
remedies against each of the mezzanine borrowers. With respect to certain bad boy acts, amounts outstanding under the Sandmar Mezzanine Loan are guaranteed by two individuals who have indirect interests in the Sandmar Portfolio.

Pursuant to an intercreditor agreement, the Companys right to payment under the Sandmar Mezzanine Loan is subordinate to the right to payment of the
lender under the mortgage loan made to the limited liability companies that directly hold title to the properties. The intercreditor agreement provides that in the event of a default under the Sandmar Mezzanine Loan, the Company would be entitled to
foreclose on the borrowers membership interests in the limited liability companies that hold title to the properties subject to the satisfaction of customary transfer provisions set forth in the intercreditor agreement.

Investment in the Park Central Mezzanine Loan

On March 23,
2007, the Company purchased, through an indirect wholly owned subsidiary, an interest in a mezzanine loan (the Park Central Mezzanine Loan) in the amount of $15.0 million from Column Financial, Inc., which is not affiliated with the
Company or the Advisor. The purchase price of the Companys interest in the Park Central Mezzanine Loan was approximately $15.0 million plus closing costs. The Company funded the acquisition with proceeds from the Offering.

The Park Central Mezzanine Loan is a $58.0 million mezzanine loan owned by four noteholders, each with a pari passu interest. The noteholders are: CPIM Structured Credit
Fund 1500 L.P., $10.0 million (17.2%); CPIM Structured Credit Fund 1000 L.P., $23.0 million (39.7%); CPIM Structured Credit Fund 20 L.P., $10.0 million (17.2%); and the Company, $15.0 million (25.9%). Neither the Company nor the Advisor are
affiliated with any of the other noteholders.



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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)

September 30, 2007

(unaudited)



The borrower under the Park Central Mezzanine Loan is W2001 Park Central Hotel Senior Mezz, LLC. Neither the Company
nor the Advisor are affiliated with the borrower. The Park Central Mezzanine Loan bears interest at a floating rate of 30-day LIBOR plus 448 basis points and has an initial maturity date of November 9, 2008 with three one-year extension
options. Prior to the maturity date, the borrower under the Park Central Mezzanine Loan is required to make monthly interest-only payments to the holders of the mezzanine loan, with the outstanding principal balance being due on the maturity date.
The loan is prepayable in full (i) during the first twelve months of the term, upon payment of a spread maintenance fee plus a 1.0% prepayment premium; (ii) during the thirteenth month through the eighteenth month of the term, upon payment
of a 1.0% prepayment premium; and (iii) without penalty after the eighteenth month of the term.

The Park Central Mezzanine Loan is being used to
refinance existing debt on the Park Central Hotel. The Park Central Hotel is a 934 room, four-star, full-service hotel located in Midtown Manhattan in New York, New York.

There is $407.0 million of senior financing on the Park Central Hotel. The senior financing is secured by a mortgage on the Park Central Hotel. The senior loan has a maturity date of November 2008 with three one-year
extensions.

The Park Central Mezzanine Loan is secured by, among other things, a pledge by the borrower of its interests in the limited liability company
that holds title to the Park Central Hotel. The pledge agreement entered into by the borrower provides that in the event of default under the Park Central Mezzanine Loan, the holders of the mezzanine loan may exercise their rights and remedies
against the borrower. Under the Park Central Mezzanine Loan Noteholders Agreement certain major decisions of the mezzanine lender require the approval of all the holders of the Park Central Mezzanine Loan. If any holder of a minority interest
in the Park Central Mezzanine Loan objects to the majority's decision regarding a major decision, the holders of a majority of the interests may elect to either (i) sell all of their interest in the Park Central Mezzanine Loan to the objecting
minority holder or (ii) purchase the objecting minority holder's interest in the Park Central Mezzanine Loan. The price for the purchase or sale, as applicable, is to be based on the fair market value of the interests being sold. The objecting
minority holder may then (i) accept the offer, (ii) make a counter proposal of the price based on an opinion of a qualified broker, or (iii) reject the offer, which would be a withdrawal of its objection to the major decision. If
there is an acceptance of the offer or a counter proposal, the majority then has the right to (i) accept the offer at the agreed upon price, (ii) if the minority holder made a counteroffer, accept the offer but elect to have the final
price be the average of the original price and the broker's price, or (iii) withdraw their original offer. With respect to certain bad boy acts, amounts outstanding under the Park Central Mezzanine Loan are guaranteed by Whitehall
Street Global Real Estate Limited Partnership 2001, an entity with an indirect interest in the borrower, and Devon (DE) Capital LLC.

Pursuant to an
intercreditor agreement, the right to repayment of the holders of the Park Central Mezzanine Loan is subordinate to the right to repayment of the senior lender under the mortgage loan. The intercreditor agreement provides that in the event of a
default under the Park Central Mezzanine Loan, the holders of the Park Central Mezzanine Loan may foreclose on the borrowers 100% membership interest in the limited liability company that holds title to the property, subject to the
satisfaction of customary transfer provisions set forth in the intercreditor agreement.

200 Professional Drive Loan Origination

On July 31, 2007, the Company, through an indirect wholly owned subsidiary, originated a senior, secured bridge loan of up to $10.5 million on 200 Professional
Drive, a 60,528 square foot office property in Gaithersburg, Maryland (the 200 Professional Drive Mortgage Loan). As of September 30, 2007, $7.5 million of the loan had been funded, and the remaining $3.0 million will be funded over
the term of the loan. The proceeds of the loan are expected to be used by the borrower to repay current mortgages, provide for future tenant improvements and leasing commissions and to provide funds for renovation. The 200 Professional Drive
Mortgage Loan is for a term of 24 months with one 12-month extension option and bears interest at a variable annual rate of 300 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 5.0%.



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)

September 30, 2007

(unaudited)



Lawrence Village Plaza Loan Origination

On August 6, 2007, the Company, through an indirect wholly owned subsidiary, originated a senior mortgage loan of up to $8.3 million on Lawrence Village Plaza, a 294,675 square foot retail property in New Castle,
Pennsylvania (the Lawrence Village Plaza Mortgage Loan). As of September 30, 2007, $6.2 million of the loan had been funded with $2.1 million remaining to be funded over the term of the loan. The proceeds of the loan are expected to
be used by the borrower for the acquisition of such property, funding for rehabilitation, tenant improvements, lease commissions and other closing costs. The Lawrence Village Plaza Mortgage Loan is for a term of 36 months and bears interest at a
variable annual rate of 250 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 7.5%.

11 South
LaSalle Loan Origination

On August 8, 2007, the Company, through an indirect wholly owned subsidiary, originated a senior mortgage loan of up to
$43.3 million on 11 South LaSalle (the 11 South LaSalle Mortgage Loan), a 35-story office building containing 329,271 square feet located in Chicago, Illinois (the 11 South LaSalle Building). As of September 30, 2007,
$21.9 million of the loan had been funded with $21.4 million remaining to be funded over the term of the loan. The proceeds of the loan are expected to be used by the borrower for payment of existing debt, tenant improvements and commissions and the
renovation and repositioning of the 11 South LaSalle Building. The 11 South LaSalle Building is located within the Central Loop area of the Chicago Central Business District.

The 11 South LaSalle Mortgage Loan bears interest at a variable annual rate of 295 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 7.95%. The maturity date of
the 11 South LaSalle Mortgage Loan is September 1, 2010, with one 12-month extension option upon satisfaction of certain conditions, including payment of a nonrefundable extension fee equal to 0.5% of the outstanding principal balance on the
loan, satisfaction of the 80% maximum loan-to-value test at the time of extension and, if required, funding of an interest reserve account for the extension period. Payments on the loan prior to maturity are interest-only except as described below.
The 11 South LaSalle Mortgage Loan may not be prepaid (in whole or in part) prior to the date of the first anniversary of the loan closing. After the date of the first anniversary of the loan closing and continuing until the date of the second
anniversary of the loan closing, the 11 South LaSalle Mortgage Loan may be prepaid in whole (but not in part) upon payment of a spread maintenance premium equal to the product of (i) the total number of days between the payment date on which
the prepayment occurs and the date that is the last day of the 24th month after the date of the promissory note divided by 360, (ii) 295 basis points and (iii) $43.3 million. After the second anniversary of the loan closing, prepayment of
the 11 South LaSalle Mortgage Loan in whole or in part is permitted without the payment of the spread maintenance premium or other prepayment premium or fee. The 11 South LaSalle Mortgage Loan is secured by the 11 South LaSalle Building, and the
Prime Group, Inc. has guaranteed the payment obligations under the loan.



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)

September 30, 2007

(unaudited)



Investment in the One Madison Park Mezzanine Loan

On September 24, 2007, the Company, through an indirect wholly owned subsidiary, purchased a $21.0 million interest in a $42.0 million mezzanine real estate loan
(the One Madison Park Mezzanine Loan) from Column Financial, Inc., which is not affiliated with the Company or the Advisor. The purchase price of the Companys interest in the One Madison Park Mezzanine Loan was $21.0 million
subject to closing adjustments. The One Madison Park Mezzanine Loan is now owned by two noteholders, including the Company, each with a pari passu interest.

The borrowers under the One Madison Park Mezzanine Loan are Slazer Enterprises Senior LLC, Madison Park Group Senior LLC, JMJS 23rd Street Realty Senior LLC and FKF Madison Group Senior LLC. Neither the Company nor the Advisor is affiliated
with the borrowers. The One Madison Park Mezzanine Loan bears interest at a floating rate of 30-day LIBOR plus the applicable spread which is (i) from the closing date through and including the initial maturity date, 611 basis points, and
(ii) for the extension period, 661 basis points. The One Madison Park Mezzanine Loan has an initial maturity date of January 9, 2009 with an option to extend the maturity date to July 9, 2009. At September 30, 2007, the 30-day
LIBOR rate was 5.1238%. Prior to maturity, the borrowers under the One Madison Park Mezzanine Loan are required to make monthly interest-only payments to the holders of the mezzanine real estate loan, with the outstanding principal balance being due
at maturity. The borrowers are expected to use the One Madison Park Mezzanine Loan as part of the initial project funding. The One Madison Park condominium project is a proposed development of a 50-story luxury residential mixed-use building
containing a total of 95 residential apartments and a retail component located at grade level, which will contain a total of approximately 3,647 square feet. The project is located at 20-24 East 23rd Street and 23 East 22nd Street in Manhattan near
Madison Square Park in New York, New York.

The One Madison Park Mezzanine Loan is secured by, among other things, a pledge by the borrowers of all such
borrowers right, title and interests in the limited liability companies that hold title to the One Madison Park condominium project. The pledge agreement entered into by the borrowers provides that in the event of default under the One Madison
Park Mezzanine Loan, the holders of the mezzanine loan may exercise their rights and remedies against the borrowers. With respect to certain bad boy acts, amounts outstanding under the One Madison Park Mezzanine Loan are guaranteed by
Ira J. Shapiro and Marc Jacobs.

There is up to $125.4 million of senior financing related to the One Madison Park condominium project. As of
September 30, 2007 approximately $15.7 million of the $125.4 million of senior financing had been drawn. The senior financing, composed of an acquisition loan, building loan and project loan, is secured by a mortgage for each loan on the One
Madison Park condominium project. The senior loans have a maturity date of January 9, 2009 with an option to extend the maturity date to July 9, 2009. Pursuant to an amended and restated intercreditor agreement, the Companys right to
payment under the One Madison Park Mezzanine Loan is subordinate to the right to payment of the lender under the senior mortgage loans. The amended and restated intercreditor agreement provides that in the event of a default under the One Madison
Park Mezzanine Loan, the holders of the One Madison Park Mezzanine Loan may foreclose on the borrowers membership interests in the limited liability companies that hold title to the property subject to the satisfaction of transfer provisions
set forth in the amended and restated intercreditor agreement.



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)

September 30, 2007

(unaudited)



|6. | MARKETABLE SECURITIES
|-- | ---------------------

The following table shows fair value and
gross unrealized losses of the Companys marketable securities that are not deemed to be other-than-temporary impairments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss
position, at September 30, 2007.



|                                      |  |                                                                    |        |                       |                   |        |            |  |                       |   |            |   |                       |  |   |        |  |   |        |  
|------------------------------------- |  | ------------------------------------------------------------------ | ------ | --------------------- | ----------------- | ------ | ---------- |  | --------------------- | - | ---------- | - | --------------------- |  | - | ------ |  | - | ------ | -
|                                      |  | Holding Period of Gross Unrealized Losses of Marketable Securities |       
|                                      |  | (in thousands)                                                     |       
|                                      |  | Less than 12 Months                                                |        |                       | 12 Months or More |        | Total      | 
|Description of Securities             |  | Fair Value                                                         |        | GrossUnrealizedLosses |                   |        | Fair Value |  | GrossUnrealizedLosses |   | Fair Value |   | GrossUnrealizedLosses | 
|Commercial mortgage-backed securities |  | $                                                                  | 16,600 |                       | $                 | (1,084 | )          |  | $                     |  |            | $ |                      |  | $ | 16,600 |  | $ | (1,084 | )

On April 19, 2007, the Company purchased CMBS with a face amount of approximately $17.8 million at an $88,849
discount. These securities have a coupon rate of 30-day LIBOR plus 2.30%. As of September 30, 2007, the amortized cost of this investment and the fair value of this investment were approximately $17.7 million and $16.6 million, respectively.
The Company recognized an unrealized loss of approximately $1.1 million related to this investment for the three months ended September 30, 2007, which is included in other comprehensive loss on the accompanying consolidated balance sheet as of
September 30, 2007. The unrealized loss as of September 30, 2007 was not deemed to be an other-than-temporary impairment based upon (i) the length of time and the extent to which the fair value has been less than cost, (ii) an
analysis of the anticipated future cash flow from the underlying collateral and (iii) the Companys ability and intent to retain the investment for a period of time sufficient to allow for the recovery in the fair value. The Company
determined that these gross unrealized losses resulted from volatility in interest rates, widening of credit spreads and other qualitative factors relating to macro-credit conditions in the mortgage market. Additionally, as of September 30,
2007, management determined that the subordinate CMBS tranches below the Companys CMBS investment adequately protect its ability to recover the investment and that the Companys estimates of anticipated future cash flows from the CMBS
investment have not been adversely impacted by the deterioration in the creditworthiness of the specific CMBS issuers.



|7. | RENTS AND OTHER RECEIVABLES
|-- | ---------------------------

Rents and other receivables consist of
the following (in thousands):



|                                                                                                                                        |  |                   |       |                  |   |    
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---------------- | - | ---
|                                                                                                                                        |  | September 30,2007 |       | December 31,2006
|Tenant receivables, net of allowance for doubtful accounts of $131 and $14 as of September 30, 2007 and December 31, 2006,
respectively |  | $                 | 2,217 |                  | $ | 326
|Interest receivable on real estate loans receivable                                                                                     |  |                   | 1,456 |                  |   | 159
|Interest receivable on cash and cash equivalents                                                                                        |  |                   | 124   |                  |   | 166
|Interest receivable on marketable securities                                                                                            |  |                   | 98    |                  |   |   
|Deferred rent                                                                                                                           |  |                   | 1,311 |                  |   | 101
|                                                                                                                                        |  |                   |       |                  |   |    
|                                                                                                                                        |  | $                 | 5,206 |                  | $ | 752
|                                                                                                                                        |  |                   |       |                  |   |    



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)

September 30, 2007

(unaudited)



|8. | DEFERRED FINANCING COSTS AND PREPAID AND OTHER ASSETS
|-- | -----------------------------------------------------

Deferred
financing costs and prepaid and other assets consist of the following (in thousands):



|                                                                                                                                                |  |                   |        |                  |   |      
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                                                                                                                                                |  | September 30,2007 |        | December 31,2006
|Deferred financing costs, net of accumulated amortization of $1,629 and $178 as of September 30, 2007 and December 31, 2006,
respectively       |  | $                 | 12,566 |                  | $ | 939  
|Escrow deposits                                                                                                                                 |  |                   | 2,576  |                  |   | 1,162
|Prepaid insurance                                                                                                                               |  |                   | 2,082  |                  |   | 26   
|Closing costs on loans receivable, net of accumulated amortization of $440 and $71 as of September 30, 2007 and December 31, 2006,
respectively |  |                   | 1,032  |                  |   | 181  
|Investment in master lease, net of accumulated amortization of $107 as of September 30, 2007                                                    |  |                   | 13,251 |                  |   |     
|Other assets and prepaid expenses                                                                                                               |  |                   | 413    |                  |   | 334  
|                                                                                                                                                |  |                   |        |                  |   |      
|                                                                                                                                                |  | $                 | 31,920 |                  | $ | 2,642
|                                                                                                                                                |  |                   |        |                  |   |      



|9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|-- | ----------------------------------------

Accounts payable and
accrued liabilities consisted of the following (in thousands):



|                                               |  |                   |        |                  |   |      
|---------------------------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                                               |  | September 30,2007 |        | December 31,2006
|Accounts payable and other accrued liabilities |  | $                 | 6,807  |                  | $ | 1,178
|Real estate taxes payable                      |  |                   | 5,073  |                  |   |     
|Accrued interest expense                       |  |                   | 3,171  |                  |   | 661  
|                                               |  |                   |        |                  |   |      
|                                               |  | $                 | 15,051 |                  | $ | 1,839
|                                               |  |                   |        |                  |   |      



|10. | OTHER LIABILITIES
|--- | -----------------

Other liabilities consist of the following (in
thousands):



|                          |  |                   |       |                  |   |    
|------------------------- |  | ----------------- | ----- | ---------------- | - | ---
|                          |  | September 30,2007 |       | December 31,2006
|Rental security deposits  |  | $                 | 3,739 |                  | $ | 196
|Deferred income and other |  |                   | 1,165 |                  |   | 425
|                          |  |                   |       |                  |   |    
|                          |  | $                 | 4,904 |                  | $ | 621
|                          |  |                   |       |                  |   |    



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)

September 30, 2007

(unaudited)



|11. | NOTES PAYABLE
|--- | -------------

Notes payable, all of which are interest-only loans,
consist of the following as of September 30, 2007 (in thousands):



|                                                                              |  |           |         |                           |        |   |                             |          |              |                  
|----------------------------------------------------------------------------- |  | --------- | ------- | ------------------------- | ------ | - | --------------------------- | -------- | ------------ | -----------------
|                                                                              |  | Principal |         | EffectiveInterest Rate(1) |        |   | Fixed/VariableInterest Rate |          | Maturity (2)
|Sabal Pavilion Building - Mortgage Loan                                       |  | $         | 14,700  |                           | 6.3800 | % |                             | Fixed    |              | August 1, 2036   
|                                                                              |  |           |         |                          
|Plaza in Clayton - Mortgage Loan                                              |  |           | 62,200  |                           | 5.8990 | % |                             | Fixed    |              | October 6, 2016  
|                                                                              |  |           |         |                          
|Southpark Commerce Center II Buildings - Mortgage Loan                        |  |           | 18,000  |                           | 5.6725 | % |                             | Fixed    |              | December 6, 2016 
|                                                                              |  |           |         |                          
|825 University Avenue Building - Mortgage Loan                                |  |           | 19,000  |                           | 5.5910 | % |                             | Fixed    |              | December 6, 2013 
|                                                                              |  |           |         |                          
|Midland Industrial Buildings - Mortgage Loan                                  |  |           | 24,050  |                           | 5.7550 | % |                             | Fixed    |              | January 6, 2011  
|                                                                              |  |           |         |                          
|Crescent Green Building - Mortgage Loan                                       |  |           | 32,400  |                           | 5.6800 | % |                             | Fixed    |              | February 1, 2012 
|                                                                              |  |           |         |                          
|625 Second Street Building - Mortgage Loan                                    |  |           | 33,700  |                           | 5.8500 | % |                             | Fixed    |              | February 1, 2014 
|                                                                              |  |           |         |                          
|Sabal VI Building - Mortgage Loan                                             |  |           | 11,040  |                           | 5.9250 | % |                             | Fixed    |              | October 1, 2011  
|                                                                              |  |           |         |                          
|Sabal VI Building - Mezzanine Loan                                            |  |           | 3,000   |                           | 6.9725 | % |                             | Variable |              | May 5, 2008      
|                                                                              |  |           |         |                          
|The Offices at Kensington - Mortgage Loan                                     |  |           | 18,500  |                           | 5.5200 | % |                             | Fixed    |              | April 1, 2014    
|                                                                              |  |           |         |                          
|Bridgeway Technology Center - Mortgage Loan                                   |  |           | 26,824  |                           | 6.0700 | % |                             | Fixed    |              | August 1, 2013   
|                                                                              |  |           |         |                          
|Marketable Securities - Repurchase Agreement                                  |  |           | 13,261  |                           | 6.3247 | % |                             | Variable |              | January 23, 2008 
|                                                                              |  |           |         |                          
|Unsecured Bridge Loan                                                         |  |           | 52,134  |                           | 6.6361 | % |                             | Variable |              | October 24, 2007 
|                                                                              |  |           |         |                          
|Royal Ridge Building - Mortgage Loan                                          |  |           | 21,718  |                           | 5.9600 | % |                             | Fixed    |              | September 1, 2013
|                                                                              |  |           |         |                          
|Plano Corporate Center I & II - Mortgage Loan                                 |  |           | 30,591  |                           | 5.9000 | % |                             | Fixed    |              | September 1, 2012
|                                                                              |  |           |         |                          
|2200 West Loop South Building - Mortgage Loan                                 |  |           | 17,426  |                           | 5.8900 | % |                             | Fixed    |              | October 1, 2014  
|                                                                              |  |           |         |                          
|Cardinal Health, Corporate Express, & Hartman Business Center - Mortgage Loan |  |           | 20,900  |                           | 5.5600 | % |                             | Fixed    |              | October 1, 2013  
|                                                                              |  |           |         |                          
|Cedar Bluffs - Mortgage Loan                                                  |  |           | 4,627   |                           | 5.8600 | % |                             | Fixed    |              | July 1, 2011     
|                                                                              |  |           |         |                          
|National Industrial Portfolio - Mortgage Loan (3)                             |  |           | 315,000 |                           | 6.6447 | % |                             | Variable |              | August 9, 2009   
|                                                                              |  |           |         |                          
|National Industrial Portfolio - Mezzanine Loan (3)                            |  |           | 116,000 |                           | 6.6447 | % |                             | Variable |              | August 9, 2009   
|                                                                              |  |           |         |                           |        |   |                             |          |              |                  
|                                                                              |  | $         | 855,071 |                           |        |   |                             |          |              |                  
|                                                                              |  |           |         |                           |        |   |                             |          |              |                  

---

|(1) | Represents the effective
interest rate as of September 30, 2007.
|--- | ----------------------------------------------------------------

|(2) | Represents initial
maturity date; subject to certain conditions, the maturity dates of some loans may be extended.
|--- | ------------------------------------------------------------------------------------------------------------------

|(3) | Held through a
consolidated joint venture.
|--- | ------------------------------------------



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)

September 30, 2007

(unaudited)



During the three and nine months ended September 30, 2007, the Company incurred $9.7 million and $16.2 million,
respectively, of interest expense, of which $1.8 million was payable at September 30, 2007. The Company also incurred $1.0 million and $1.4 million of amortization of deferred financing costs, which is included in interest expense for the three
and nine months ended September 30, 2007, respectively.

The following is a schedule of maturities for all notes payable for the years ending
December 31, (in thousands):



|                                          |  |   |        
|----------------------------------------- |  | - | -------
|October 1, 2007 through December 31, 2007 |  | $ | 52,134 
|2008                                      |  |   | 16,261 
|2009                                      |  |   | 431,000
|2010                                      |  |   |       
|2011                                      |  |   | 39,717 
|Thereafter                                |  |   | 315,959
|                                          |  |   |        
|                                          |  | $ | 855,071
|                                          |  |   |        

During the nine months ended September 30, 2007, the Company entered into the following financings related to
its real property portfolio and its marketable securities.

Crescent Green Buildings Financing

On January 31, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the Crescent Green Buildings. The Company obtained
a five-year mortgage loan from a financial institution in the amount of approximately $32.4 million at a fixed rate of 5.18% per annum for the first two years, based on the payment of approximately $0.3 million to buy down the interest rate for
the first two years, and 5.68% thereafter. The effective interest rate as of September 30, 2007, after consideration of amortization of fees related to the interest rate buydown, was 5.68%. The loan matures on February 1, 2012. The Company
also obtained an $8.4 million mezzanine loan from a financial institution secured by a 100% equity interest in its indirect wholly owned subsidiary that holds title to the Crescent Green Buildings. The interest rate for the first full eight months
was 30-day LIBOR plus 150 basis points and 30-day LIBOR plus 250 basis points thereafter. The mezzanine loan had a maturity date of January 31, 2008. The mezzanine loan was repaid on March 31, 2007.

625 Second Street Building Financing

On January 31, 2007, the
Company, through an indirect wholly owned subsidiary, completed the secured financing of the 625 Second Street Building. The Company obtained a seven-year mortgage loan from a financial institution in the amount of approximately $33.7 million at a
fixed rate of 5.85% per annum. The loan matures on February 1, 2014.

Sabal VI Building Financing

On March 5, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the Sabal VI Building. The Company obtained a 4.5 year
mortgage loan from a financial institution in the amount of approximately $11.0 million at a fixed rate of 5.14% per annum for the first two years, based on the payment of approximately $0.2 million to buy down the interest rate for the first
two years, and 5.84% thereafter. The effective interest rate as of September 30, 2007, after consideration of amortization of fees related to the interest rate buydown, was 5.925%. The loan matures on October 1, 2011.

On July 23, 2007, the Company, through an indirect wholly owned subsidiary, completed the funding of the mezzanine financing on the Sabal VI Building. The Company
obtained a one-year mezzanine loan from a financial institution in the amount of approximately $3.0 million that matures on May 5, 2008. The loan bears interest at a variable rate. The interest rate for the first full eight months is 30-day
LIBOR plus 150 basis points and 30-day LIBOR plus 250 basis points thereafter.



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)

September 30, 2007

(unaudited)



The Offices at Kensington Financing

On March 29, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the Offices at Kensington. The Company obtained a seven-year mortgage loan from a financial
institution in the amount of approximately $18.5 million at a fixed rate of 5.52% per annum. The loan matures on April 1, 2014.

Bridgeway
Technology Center Financing

On July 20, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of
Bridgeway Technology Center. The Company obtained six-year financing from a financial institution in the amount of approximately $26.8 million at a fixed interest rate of 6.07% per annum. The loan matures on August 1, 2013.

Repurchase Agreement Financing

On July 24, 2007, the Company
entered into a repurchase agreement with a financial institution. Under this agreement, the Company sold its marketable securities with a face amount of $17.8 million to the financial institution and obtained approximately $13.3 million of financing
in return. The Company agreed to repurchase the marketable securities on January 23, 2008. The financial institution purchased the marketable securities at a percentage of their value on the date of origination of the repurchase agreement,
which is the purchase rate. The Company will pay interest to the financial institution at 30-day LIBOR plus 85 basis points. For financial reporting purposes, the Company characterizes all of the borrowing under the repurchase agreement as balance
sheet financing.

Bridge Loan Financing

On
July 24, 2007, the Operating Partnership entered into a $76.4 million unsecured, short-term bridge loan agreement (the Bridge Loan) with a financial institution. The entire $76.4 million borrowed under the Bridge Loan was used to
finance a portion of the Opus National Industrial Portfolio. The Bridge Loan has a maturity date of October 24, 2007. Pursuant to the Bridge Loan agreement, the Operating Partnership borrowed $76.4 million at an interest rate of 125 basis
points over 30-day LIBOR. Based on the purchase of 30-day LIBOR contracts, the interest rate was fixed at 6.57% for the first 30-day term, 6.76% for the second 30-day term, and 6.38% for the last 30-day term of the Bridge Loan. The Operating
Partnership may prepay the principal of the loan prior to the end of the 30-day period with a prepayment penalty equal to the present value (using a discount rate of LIBOR as of the prepayment date) of (i) the amount of interest that would have
accrued for the remainder of the 30-day period at an interest rate equal to the fixed rate in effect, less (ii) the amount of interest that would have accrued for the remainder of the 30-day period at an interest rate equal to LIBOR as of the
prepayment date. The Bridge Loan requires interest-only payments during the term of the loan.

The Bridge Loan is guaranteed by the Company. During the
term of the guaranty, the Company has agreed to (a) cause the Company and its subsidiaries to comply with certain financial covenants related to its net worth, ratio of total liabilities to gross asset value, ratio of EBITDA to fixed charges,
and total amount of unfunded commitments and (b) certain restrictions regarding its distributions, those of the Operating Partnership and the indebtedness of the Company and its subsidiaries.

On September 21, 2007, the Company made a payment against the principal balance of the loan in the amount of approximately $24.3 million. The loan paydown was
funded with proceeds obtained from the September 20, 2007 secured financing of three properties in the portfolio: the Cardinal Health Building, the Corporate Express Building and the Hartman Business Center One. For more information with
respect to the secured financing of these properties, see Cardinal Health, Corporate Express and Hartman Business Center Financing below.



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)

September 30, 2007

(unaudited)



Financing of the National Industrial Portfolio

On August 8, 2007, in connection with the acquisition of the National Industrial Portfolio, the JV obtained $315.0 million of secured financing (the Mortgage Loan) from a financial institution and the
JV obtained $116.0 million of mezzanine financing (the Mezzanine Loan A) from the same financial institution. In addition the JV obtained an additional $20.0 million of mezzanine financing (the Mezzanine Loan B and, together
with the Mezzanine Loan A, the Mezzanine Loans) from the same financial institution. As of September 30, 2007, no funds had been drawn on the Mezzanine Loan B.

The Mortgage Loan bears interest at a floating rate equal to 115 basis points (the Spread) over 30-day LIBOR, adjusted on a monthly basis, and matures on August 9, 2009, subject to the JVs right
to extend the maturity date for up to three additional years. The Mezzanine Loans also bear interest at a floating rate equal to 115 basis points (the Mezzanine Spread) over 30-day LIBOR, adjusted on a monthly basis, and mature on
August 9, 2009, subject to the JVs right to extend the maturity date for up to three additional years. In addition, the lender may increase the Spread or the Mezzanine Spread if it determines, in its sole discretion, that an increase is
advisable to ensure the sale, transfer or assignment of the loans or interests in the loans, provided that the weighted average of the Spread and the Mezzanine Spread may not exceed 125 basis points.

The JV may prepay the Mortgage Loan and the Mezzanine Loans together, pro rata, with (i) a prepayment premium equal to (a) if the prepayment occurs on or prior
to August 15, 2008, 0.5% of the principal amount being prepaid, (b) if the prepayment occurs after August 15, 2008 and on or prior to February 15, 2009, 0.25% of the principal amount being prepaid and (c) if the prepayment
occurs after February 15, 2009, 0% of the principal amount being prepaid and (ii) a spread premium equal to the present value of the interest that would have been payable if there were no prepayment, assuming an interest rate equal to the
Spread or Mezzanine Spread, as applicable, discounted at 30-day LIBOR as of the date of the prepayment; provided, however, no prepayment premium or spread premium will be due in connection with prepayments of the first $63,000,000 of the Mortgage
Loan or $27,200,000 of the Mezzanine Loans, regardless of when such prepayments are made.

The Mortgage Loan is secured by a first priority lien on the
National Industrial Portfolio properties. The Mezzanine Loans are secured by a pledge of 100% of the ownership interests in wholly owned subsidiaries of the JV that directly or indirectly own the National Industrial Portfolio properties. The
Mortgage Loan and the Mezzanine Loans are non-recourse to the Company.

Royal Ridge Building Financing

On August 10, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the Royal Ridge Building. The Company obtained
six-year financing from a financial institution in the amount of approximately $21.7 million at a fixed interest rate of 5.96% per annum. The loan matures on September 1, 2013.

Plano Corporate Center I & II Financing

On August 28, 2007, the Company, through an indirect wholly owned
subsidiary, completed the secured financing of Plano Corporate Center I & II. The Company obtained five-year financing from a financial institution in the amount of approximately $30.6 million at a fixed rate of 5.90% per annum. The loan
matures on September 1, 2012.

2200 West Loop South Building Financing

On September 5, 2007, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the 2200 West Loop South Building. The Company obtained seven-year financing from a financial
institution in the amount of approximately $17.4 million at a fixed rate of 5.89% per annum. The loan matures on October 1, 2014.



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)

September 30, 2007

(unaudited)



Cardinal Health, Corporate Express and Hartman Business Center Financing

On September 20, 2007, the Company, through two wholly owned subsidiaries, completed the secured financing of three distribution and office/warehouse properties
containing 706,773 rentable square feet located in Minnesota, Texas and Georgia (the Cardinal Health Building, the Corporate Express Building and the Hartman Business Center One, respectively). The Company
acquired the Cardinal Health Building, the Corporate Express Building and the Hartman Business Center One on July 25, 2007 as part of its acquisition of the Opus National Industrial Portfolio. The Company obtained six-year financing from a
financial institution in the amount of approximately $20.9 million at a fixed interest rate of 5.56% per annum (the Cardinal Health, Corporate Express and Hartman Business Center - Mortgage Loan). The loan matures on October 1,
2013.

In connection with the Cardinal Health, Corporate Express and Hartman Business Center - Mortgage Loan, the Company entered into a collateral
substitution agreement which provides that upon payment of a collateral substitution fee of $10,000, the Company may substitute replacement property of equal or greater value as security for the loan, including without limitation ADP Plaza. The
Company entered into an agreement to acquire ADP Plaza on August 7, 2007 (as discussed in Note 17).



|12. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

Fees to Affiliates

Upon the launch of the Offering, the Company executed a Dealer Manager Agreement with the Dealer Manager on January 27, 2006 and entered into an Advisory
Agreement with the Advisor that is in effect through November 8, 2008. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and the investment of funds
in real estate assets, 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) and certain costs incurred
by the Advisor in providing services to the Company.

Pursuant to the terms of the agreements described above, the Company has incurred the following
related-party costs for the three and nine months ended September 30, 2007 (in thousands):



|                                                          |  |                                      |        |                                     |   |       
|--------------------------------------------------------- |  | ------------------------------------ | ------ | ----------------------------------- | - | ------
|                                                          |  | Three Months EndedSeptember 30, 2007 |        | Nine Months EndedSeptember 30, 2007
|Selling commissions (1)                                   |  | $                                    | 10,432 |                                     | $ | 31,050
|Dealer-manager fees (1)                                   |  |                                      | 6,326  |                                     |   | 19,113
|Reimbursements of organization and offering costs (1) (2) |  |                                      | 1,272  |                                     |   | 2,838 
|Acquisition fees (3)                                      |  |                                      | 5,109  |                                     |   | 7,516 
|Asset-management fees                                     |  |                                      | 1,481  |                                     |   | 2,847 
|                                                          |  |                                      |        |                                     |   |       
|                                                          |  | $                                    | 24,620 |                                     | $ | 63,364
|                                                          |  |                                      |        |                                     |   |       

---

|(1) | Commissions, dealer-manager fees and reimbursements of organization and offering
costs are charged against stockholders equity in the accompanying consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Reimbursements of organization and offering costs represent the portion of the
Company's organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company and subsequently reimbursed by the Company. The Company has recorded organization and offering costs related to the Offering of
$1.8 million and $4.9 million for the three and nine months ended September 30, 2007, respectively, including both organization and offering costs incurred directly by the Company and those costs incurred by the Advisor and its affiliates
on behalf of the Company, which were subsequently reimbursed by the Company.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents acquisition
fees related to purchases of real estate and real estate-related investments during the three and nine months ended September 30, 2007. The acquisition fees for the real estate loans receivable are capitalized as other assets in the
accompanying consolidated financial statements and amortized over the life of the loans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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)

September 30, 2007

(unaudited)



The Company had granted no stock-based compensation awards and it had not incurred any disposition fees, subordinated
participation in net cash flows, or subordinated incentive listing fees during the three and nine months ended September 30, 2007.



|                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                               |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Selling Commission                                 |  | The Company pays the Dealer Manager up to 6% of the gross offering proceeds (up to 3% for sales of shares under the dividend reinvestment plan)
before reallowance of commissions earned by participating broker-dealers. The Dealer Manager reallows 100% of commissions earned to participating broker-dealers.  Assuming all shares are sold at the highest possible selling commissions (with no discounts to any categories of purchasers) and a $9.50 price for each share sold through
the dividend reinvestment plan, estimated selling commissions are approximately $142.8 million if the Company sells the maximum of 280,000,000 shares.
|                                                   | 
|Dealer Manager Fee                                 |  | The Company pays the Dealer Manager 3.5% of gross offering proceeds. No dealer manager fee is payable on shares sold under the dividend
reinvestment plan. The Dealer Manager may reallow to any participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee, provided that the Dealer Manager may increase the
amount of the reallowance in special cases. The dealer manager fee is reduced for certain volume discount sales.  The estimated dealer manager fee is approximately $70.0 million if the Company sells the maximum of 280,000,000 shares.               
|                                                   | 
|Reimbursement of Organizationand Offering Expenses |  | The Company reimburses the Advisor or its affiliates for organization and offering expenses (as discussed in Note 2) incurred by the Advisor or
its affiliates on behalf of the Company to the extent that reimbursement would not cause selling commissions, the dealer manager fee and the other organization and offering expenses borne by the Company to exceed 15% of gross offering proceeds as of
the date of reimbursement.  The Company estimates organization and offering costs of
approximately $22.4 million if the Company sells the maximum of 280,000,000 shares.                                                                  
|                                                   | 
|Acquisition Fee                                    |  | The Company pays the Advisor 0.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



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)

September 30, 2007

(unaudited)



|                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                 |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Asset Management Fee*                |  | The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the sum of the cost of all real estate investments
the Company owns and of the Companys investments in joint ventures, including acquisition fees, acquisition expenses and any debt attributable to such investments, provided that with respect to the Company's investment in the JV that owns the
National Industrial Portfolio, the asset management fee is calculated as a monthly fee equal to one-twelfth of 0.27% of the cost of the JV investment, which equals the product of (i) the amount actually paid or allocated to the purchase,
development, construction or improvement of properties by the JV, inclusive of expenses related thereto, and the amount of any outstanding debt associated with such properties and the JV and (ii) the percentage that represents the Companys
economic interest in the JV.  Although the asset management fees earned by the Advisor
through September 30, 2007 have been accrued for and expensed in the appropriate period in the Companys financial statements, the Advisor has deferred, without interest, payment of the asset management fees it has earned from July
2006 through September 2007. Per the terms of the advisory agreement, the Advisor may choose to be paid the accrued but unpaid asset management fees in such future period as the Advisor may determine.
|                                     | 
|Reimbursement of Operating Expenses* |  | The Company reimburses the expenses incurred by the Advisor or its affiliates in connection with their provision of services to the Company, including the Companys allocable share of
the Advisors overhead, such as rent, personnel costs, utilities and IT costs. However, the Company does not reimburse the Advisor or its affiliates for personnel costs in connection with services for which the Advisor or its affiliates receive
acquisition fees or disposition fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                     | 
|Disposition Fee                      |  | For substantial assistance in connection with the sale of properties or other investments, the Company will pay the Advisor or its affiliate 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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)

September 30, 2007

(unaudited)



|                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                          |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Subordinated Participation in Net Cash Flows* |  | After investors receive a return of their net capital contributions and an 8.0% per year cumulative, noncompounded return, the Advisor is entitled to receive 15.0% of the net cash flows
produced by the Company, whether from continuing operations, net sale proceeds or otherwise.                                                                                                                                                                           
|                                              | 
|Subordinated Incentive Listing Fee            |  | Upon listing the Companys common stock on a national securities exchange, the Advisor or its affiliates will receive 15% of the amount by which (1) the market value of the
Companys outstanding stock plus distributions paid by the Company prior to listing exceeds (2) the sum of invested capital and the amount of cash flow necessary to generate an 8.0% per year cumulative, noncompounded return to stockholders.                                    
|                                              | 
|Stock-based Compensation Awards*              |  | The Company may issue stock-based awards to affiliates of the Advisor. At September 30, 2007, no awards had been granted under the plan. The Company has no timetable for the grant of any
awards under the Employee and Independent Director Incentive Stock Plan, and the Company's board of directors has adopted a policy that prohibits grants of any awards of shares of common stock to any person under the Employee and Independent
Director Stock Plan.

---

|* | The Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2%
of its average invested assets or 25% of its net income for such year, unless the conflicts committee of the Companys board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. The
Company's conflicts committee approved total operating expenses in excess of the operating expense reimbursement obligation for the four trailing fiscal quarters ending December 31, 2006. The Company's total operating expenses were not in
excess of the operating expense reimbursement obligation for the four trailing fiscal quarters ending March 31, 2007, June 30, 2007 and September 30, 2007.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Average invested assets means the average monthly book value of the Companys assets during the 12-month period before deducting
depreciation, bad debts or other non-cash reserves. Total operating expenses means all expenses paid or incurred by the Company, as determined under GAAP, that are in any way related to the Companys operation, including advisory
fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing, and other such expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and stock exchange listing of the Companys stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization, and bad debt
reserves; (e) reasonable incentive fees based on the gain in the sale of the Companys assets; and (f) acquisition fees, acquisition expenses (including expenses relating to potential acquisitions that the Company does not close),
real estate commissions on the resale of property and other expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgage loans or other property (including the costs of foreclosure, insurance
premiums, legal services, maintenance, repair and improvement of property). To the extent the Advisor receives the fee described above at Subordinated Participation in Net Cash Flows and such fee is derived from cash flows other than net
sales proceeds, that fee may be limited by the restriction on total operating expenses. In addition, stock-based awards treated as an expense under GAAP will count toward the restriction on total operating expenses.



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)

September 30, 2007

(unaudited)



Due to Affiliates

In order that the Companys investors could begin earning cash distributions, 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 October 31, 2007 exceeds the amount of the Companys funds from operations (as defined by the National Association of Real Estate Investment Trusts) from January 1, 2006 through
October 31, 2007. The Advisor agreed that the Company will only be obligated to reimburse the Advisor for these expenses 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 will accrue on the advance being made by the
Advisor. At September 30, 2007, the Advisor had advanced $1.6 million to the Company, all of which is outstanding, for the payment of distributions and to cover its expenses, excluding depreciation and amortization, in excess of its revenues,
which is included in due to affiliates on the accompanying balance sheet.

The remaining $3.8 million in due to affiliates at September 30, 2007
relates to $3.2 million of accrued but unpaid asset management fees due to the Advisor and $0.6 million of sales commissions and dealer manager fees due to the Dealer Manager. Although the $3.2 million of asset management fees earned by the Advisor
for the months of July 2006 through September 2007 have been accrued for and expensed in the appropriate periods in the Companys financial statements, the Advisor has deferred, without interest, payment of these asset management fees. Per the
terms of the advisory agreement, the Advisor may choose to be paid the accrued but unpaid asset management fees in such future period as the Advisor may determine.



|13. | PRO FORMA FINANCIAL INFORMATION
|--- | -------------------------------

The following table summarizes, on
an unaudited pro forma basis, the combined results of operations of the Company for the three and nine months ended September 30, 2007 and 2006, as if all the Companys acquisitions that were completed during the year ending
December 31, 2006 and nine months ended September 30, 2007 were completed as of January 1, 2006. As of September 30, 2007, the Company owned ten office buildings, one light industrial property, two corporate research buildings,
one distribution facility, one industrial portfolio consisting of nine distribution and office/warehouse properties, and an 80% membership interest in a joint venture that owns a portfolio of 23 institutional quality industrial properties and holds
a master lease with a remaining term of 15.5 years with respect to another industrial property. In addition, the Company owns three mezzanine real estate loans, a partial ownership interest in two mezzanine real estate loans, and a partial ownership
interest in a senior mortgage loan. The Company has also originated three secured loans. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred as
of January 1, 2006, nor do they purport to predict the results of operations for future periods (in thousands, except share and per share amounts).





|                                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|---------------------------------------------------- |  | ---------------------------------------- | ---------- | - | --------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                     |  | For the Three Months Ended September 30, |            |   | For the Nine Months Ended September 30, |  
|                                                     |  | 2007                                     |            |   | 2006                                    |   |            | 2007 |  |   | 2006       |  
|Revenues                                             |  | $                                        | 33,782     |   |                                         | $ | 31,647     |      |  | $ | 104,801    |   |  | $ | 93,076     |  
|                                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Depreciation and amortization                        |  | $                                        | (13,587    | ) |                                         | $ | (12,374    | )    |  | $ | (39,474    | ) |  | $ | (37,069    | )
|                                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Net Loss                                             |  | $                                        | (18,952    | ) |                                         | $ | (5,444     | )    |  | $ | (20,719    | ) |  | $ | (14,312    | )
|                                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Loss per common share, basic and diluted             |  | $                                        | (0.31      | ) |                                         | $ | (0.09      | )    |  | $ | (0.34      | ) |  | $ | (0.24      | )
|                                                     |  |                                          |            |   |                                         |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average number of common shares outstanding |  |                                          | 60,838,792 |   |                                         |   | 60,838,792 |      |  |   | 60,838,792 |   |  |   | 60,838,792 |  



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)

September 30, 2007

(unaudited)



|14. | SEGMENT INFORMATION
|--- | -------------------

The Company presently operates in two business
segments in the real estate markets: real property investments and investments in real estate-related assets. 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 following tables summarize total revenues and net loss for
each reportable segment for the three and nine months ended September 30, 2007 and 2006 and total assets and total liabilities for each reportable segment as of September 30, 2007 and December 31, 2006 (in thousands):



|                                   |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|---------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | - | ------- | ---- |  | - | ------ | - |  | - | ----- | -
|                                   |  | Three Months EndedSeptember 30, |           |   | Nine Months EndedSeptember 30, |  
|                                   |  | 2007                            |           |   | 2006                           |   |         | 2007 |  |   | 2006   |  
|Total Revenues                     |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|Real Property Investments Segment  |  | $                               | 24,016    |   |                                | $ | 876     |      |  | $ | 42,523 |   |  | $ | 876   |  
|Real Estate-Related Assets Segment |  |                                 | 4,263     |   |                                |   | 350     |      |  |   | 7,406  |   |  |   | 350   |  
|Corporate-Level Accounts           |  |                                 |          |   |                                |   |        |      |  |   |       |   |  |   |      |  
|                                   |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|Consolidated Total Revenues        |  | $                               | 28,279    |   |                                | $ | 1,226   |      |  | $ | 49,929 |   |  | $ | 1,226 |  
|                                   |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|Net Income (Loss)                  |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|Real Property Investments Segment  |  | $                               | (4,529    | ) |                                | $ | (248    | )    |  | $ | (6,769 | ) |  | $ | (248  | )
|Real Estate-Related Assets Segment |  |                                 | 4,457     |   |                                |   | 192     |      |  |   | 7,887  |   |  |   | 192   |  
|Corporate-Level Accounts           |  |                                 | (1,342    | ) |                                |   | (473    | )    |  |   | (2,303 | ) |  |   | (936  | )
|                                   |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|Consolidated Net Loss              |  | $                               | (1,414    | ) |                                | $ | (529    | )    |  | $ | (1,185 | ) |  | $ | (992  | )
|                                   |  |                                 |           |   |                                |   |         |      |  |   |        |   |  |   |       |  
|                                   |  |                                 |          
|                                   |  | September 30,2007               |           |   | December 31,2006               |   |         |      | 
|Total Assets                       |  |                                 |           |   |                                |   |         |      | 
|Real Property Investments Segment  |  | $                               | 1,245,586 |   |                                | $ | 220,107 |      | 
|Real Estate-Related Assets Segment |  |                                 | 170,412   |   |                                |   | 14,330  |      | 
|Corporate-Level Accounts (1)       |  |                                 | 96,216    |   |                                |   | 48,778  |      | 
|                                   |  |                                 |           |   |                                |   |         |      | 
|Consolidated Total Assets          |  | $                               | 1,512,214 |   |                                | $ | 283,215 |      | 
|                                   |  |                                 |           |   |                                |   |         |      | 
|Total Liabilities                  |  |                                 |           |   |                                |   |         |      | 
|Real Property Investments Segment  |  | $                               | 895,769   |   |                                | $ | 186,336 |      | 
|Real Estate-Related Assets Segment |  |                                 | 14,075    |   |                                |   | 124     |      | 
|Corporate-Level Accounts (2)       |  |                                 | 10,697    |   |                                |   | 2,730   |      | 
|                                   |  |                                 |           |   |                                |   |         |      | 
|Consolidated Total Liabilities     |  | $                               | 920,541   |   |                                | $ | 189,190 |      | 
|                                   |  |                                 |           |   |                                |   |         |      | 

---

|(1) | Total assets in the corporate-level accounts consisted primarily of offering
proceeds being held in the form of cash and cash equivalents of approximately $93.4 million and $47.0 million as of September 30, 2007 and December 31, 2006, respectively, for future real estate investments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of September 30, 2007 and December 31, 2006, total liabilities
consisted primarily of amounts due to affiliates for commissions, dealer manager fees, and reimbursements of organizational and offering costs and distributions payable.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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)

September 30, 2007

(unaudited)



|15. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Properties Under Purchase
Contract

Patrick Henry Corporate Center

On
September 19, 2007, the Company, through an indirect wholly owned subsidiary, entered into an agreement to acquire a four-story office building (Patrick Henry Corporate Center) totaling 98,883 rentable square feet for a purchase
price of $18.6 million plus closing costs. The Company will be obligated to purchase the property only after satisfactory completion of agreed-upon closing conditions. There can be no assurance that the Company will acquire Patrick Henry Corporate
Center. In some circumstances, if the Company fails to complete the acquisition, it may forfeit $500,000 of earnest money.

Economic Dependency

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

Concentration of Credit Risk

The Company invests in real estate
loans receivable that are in the form of mezzanine loans that are secured by a pledge of the ownership interests of an entity that indirectly owns real property. This type of investment involves a higher degree of risk relative to a long-term senior
mortgage secured by the underlying real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, the
Company may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy the loan.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing
environmental laws is not expected to have a material adverse effect on the Companys financial condition and results of operations as of September 30, 2007.

Legal Matters

From time to time, the Company is party to legal proceedings that arise in the ordinary course of its
business. The Company is not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on its results of operations or financial condition.

Magazine Article

On May 21, 2007, Real Estate
Finance & Investment newsweekly published an interview between Institutional Investor, Inc. reporter William Sprouse and Peter M. Bren, who is the Companys president, the president of the Advisor and the chairman of the board and
president of KBS Realty Advisors LLC. The interview was also made available to Real Estate Finance & Investment subscribers on the Institutional Investor, Inc. website on May 21, 2007. If the Companys involvement with the article
were held by a court to be in violation of Section 5 of the Securities Act of 1933, the Company could be required to repurchase the shares from investors in the Offering who received the newsweekly article before receiving a written prospectus.
Such potential repurchase obligation would last for a period of one year following the date of the alleged violation. The repurchase price would be the original purchase price, plus statutory interest from the date of purchase.



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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)

September 30, 2007

(unaudited)



The Company intends to contest vigorously any claim that a Section 5 violation occurred; nevertheless, the
Company can give no assurance that a court would agree with its determination. Because the Company does not know the amount of shares purchased in the Offering, if any, from those who received the newsweekly before receiving a prospectus, the
Company cannot know the amount of the Companys potential liability should a court hold that a Section 5 violation occurred. Therefore, the Company can give no assurance that the ultimate outcome with respect to any such Section 5
claim would not materially adversely affect the Companys operating results, financial position or liquidity.

Journal Article

The St. Louis Business Journal published an article dated October 27, 2006 related to the Companys acquisition of the Plaza in Clayton, a 16-story office
building containing 325,172 rentable square feet in St. Louis, Missouri. The article included statements about the acquisition and statements about the Company made by the national sales manager of the Dealer Manager. The article is also available
on the St. Louis Business Journals web site.

If the Dealer Managers involvement with the article were held by a court to be in violation of
Section 5 of the Securities Act of 1933, the Company could be required to repurchase the shares from investors in the Offering who received the article before receiving a written prospectus. Such potential repurchase obligation would last for a
period of one year following the date of the alleged violation. The repurchase price would be the original purchase price, plus statutory interest from the date of purchase.

The Company intends to contest any claim that a Section 5 violation occurred; nevertheless, the Company can give no assurance that a court would agree with its determination. Because the Company does not know the
amount of shares purchased in the Offering, if any, from those who received the article before receiving a prospectus, the Company cannot know the amount of the Companys potential liability should a court hold that a Section 5 violation
occurred. Therefore, the Company can give no assurance that the ultimate outcome with respect to any such Section 5 claim would not materially adversely affect the Companys operating results, financial position or liquidity.



|16. | MINORITY INTEREST
|--- | -----------------

On August 8, 2007, the Company entered into
an operating agreement with New Leaf for the JV (the Operating Agreement). The purpose of the JV, which is managed by New Leaf, is to invest in the National Industrial Portfolio. The Company made an initial capital contribution of
approximately $85.5 million and holds an 80% membership interest in the JV. The Company funded its equity investment in the JV with proceeds from the Offering. New Leaf made an initial capital contribution of approximately $21.4 million and owns a
20% membership interest in the JV. Pursuant to the Operating Agreement, the Company and New Leaf may be required to make additional capital contributions to the JV to fund operating reserves or expenses approved by the budget or business plan.

Although New Leaf is the manager of the JV, its authority is limited. It may not cause the JV 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 for (i) certain limited emergency expenditures not to exceed $100,000 in any 12-month period
unless necessary to prevent injury and (ii) subject to the restrictions of any of the JVs loans, costs for any particular approved budget expense line item up to 10% higher than the budgeted amount, provided that the total of such costs
does not exceed 5% of the approved budget for the budget period. More specifically, without the Companys consent, New Leaf may not cause the JV to make certain major decisions (the Major Decisions), including but not limited to
(i) entering into or amending any loans or financings or refinancing or encumbering any of the National Industrial Portfolio properties, (ii) selling, transferring or otherwise disposing of any of the National Industrial Portfolio
properties, (iii) executing any contracts on behalf of the JV unless authorized by the approved budget and terminable without cause on 30 days notice or less, (iv) entering into or amending leases for space in any of the National
Industrial Portfolio properties except pursuant to approved guidelines and an approved form, (v) undertaking any construction, environmental remediation or demolition on any of the National Industrial Portfolio properties except pursuant to an
approved budget or lease, or (vi) taking any action which would reasonably be expected to have a substantial or material effect upon the JV, any of its subsidiaries or the National Industrial Portfolio properties.



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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)

September 30, 2007

(unaudited)



New Leaf will perform certain asset management services for the JV itself. In return for providing such services, it
will receive asset management fees. New Leaf also received an acquisition fee, which was capitalized to real estate as part of the purchase closing costs, of approximately $3.9 million or 0.75% of the purchase price of the National Industrial
Portfolio properties, concurrently with the acquisition of the portfolio by the JV. Upon the sale or disposition of any of the National Industrial Portfolio properties (exclusive of any sale or disposition arising from the buy/sell provisions
discussed below), New Leaf will receive a disposition fee equal to 0.5% of the net sales price of such property, but only to the extent that the Company has earned a return of at least 10% compounded annually on such property.

So long as New Leaf is the manager of the JV, distributions will be made generally as follows: (i) first, to return to the members, pro rata, their capital
contributions, (ii) second, to pay the members a return of 8%, compounded annually, (iii) third, 36% of the distributable cash to New Leaf and 64% of the distributable cash to the Company, until the Company has received a return of 10%,
compounded annually, and (vi) thereafter, 44% of the distributable cash to New Leaf and 56% of the distributable cash to the Company. If New Leaf is no longer the manager in the JV, distributions will be made generally first to return to the
members, pro rata, their capital contributions and second to the members pro rata in proportion to each members membership interest. At all times, the following special distributions may be given a higher priority: (i) special
distributions to the Company necessary in connection with its status as real estate investment trust for federal income tax purposes and (ii) special distributions to a member that has made additional capital contributions on behalf of the
other.

If the members are unable to agree on certain Major Decisions, either with respect to certain properties or the entire National Industrial
Portfolio, either member may initiate buy/sell procedures for the relevant properties (if the impasse is with respect to certain properties) or for the other members interest (if the impasse is with respect to the entire portfolio).

The Company concluded that the JV meets the definition of a variable interest entity under FIN 46R and it is the primary beneficiary of the JV. Therefore,
the Company consolidates the JV in its financials statements and records a minority interest for the portions not owned by the Company.



|17. | SUBSEQUENT EVENTS
|--- | -----------------

Status of the Offering

Through November 14, 2007, the Company had accepted aggregate gross offering proceeds of approximately $761.1 million in its Offering.

Distributions Paid

On October 15, 2007, the Company paid
distributions of approximately $3.7 million, which related to distributions declared for each day in the period from September 1, 2007 through September 30, 2007.

Distributions Declared

On August 7, 2007, the Companys board of directors declared a daily distribution
for the period from October 1, 2007 through October 31, 2007, which distribution the Company expects to pay in November 2007. On October 26, 2007, the Companys board of directors declared a daily distribution for the period from
November 1, 2007 through November 30, 2007, which distribution the Company expects to pay in December 2007 and on November 2, 2007, the Companys board of directors declared a daily distribution for the period from
December 1, 2007 through December 31, 2007, which distribution the Company expects to pay in January 2008. Investors may choose to receive cash distributions or purchase additional shares through the Companys, dividend reinvestment
plan.



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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)

September 30, 2007

(unaudited)



The distributions are calculated based on stockholders of record each day during the period at a rate of $0.0019178
per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a purchase price of $10.00 per share. The Advisor has 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 January 31, 2008 exceeds the amount of the Companys funds from operations (as defined by NAREIT) from
January 1, 2006 through January 31, 2008, see Note 12 Related Party Transactions  Due to Affiliates.

Subsequent Investments
and Financing

South Towne Corporate Center I and II

On October 9, 2007, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement with an unaffiliated seller to acquire two six-story office buildings containing 269,233 rentable square feet
located in Sandy, Utah (South Towne Corporate Center I and II). Pursuant to the purchase and sale agreement, the Company would be obligated to purchase the property only after satisfactory completion of agreed-upon closing conditions.
The purchase price of South Towne Corporate Center I and II is $50.8 million plus closing costs. There can be no assurance that the Company will complete the acquisition. In some circumstances, if the Company fails to complete the acquisition, it
may forfeit $500,000 of earnest money.

ADP Plaza Acquisition

On November 7, 2007, the Company purchased, through an indirect wholly owned subsidiary, two four-story office buildings containing 180,772 rentable square feet with a four-story parking garage containing 117,614 square feet (ADP
Plaza) for a purchase price of $33.1 million plus closing costs. The Company funded the purchase of ADP Plaza with proceeds from the Offering. ADP Plaza will secure the loan described under Substitution of Assets under Mortgage Loan and
November 2007 Secured Bridge Loan.

Woodfield Preserve Office Center Acquisition

On November 13, 2007, the Company purchased, through an indirect wholly owned subsidiary, two six-story office buildings containing 647,196 square feet, which include 610,462 rentable square feet, plus 36,734
square feet consisting of storage space, a fitness center, a lower level deli and other amenities (the Woodfield Preserve Office Center) for a purchase price of $135.8 million plus closing costs. The Company funded the purchase of the
Woodfield Preserve Office Center with proceeds from the Offering and with proceeds from a $68.4 million secured 90-day bridge loan from an unaffiliated lender.

Nashville Flex Portfolio Acquisition

On November 15, 2007, the Company, through an indirect wholly owned subsidiary, purchased a
portfolio of six distribution and office/flex properties containing approximately 551,184 rentable square feet located in Nashville, Tennessee (the Nashville Flex Portfolio) for the purchase price of $53.5 million plus closing costs. The
Company funded the acquisition with proceeds from the Offering and from a $32.4 million loan from an unaffiliated lender.



Investment in the San Diego Office Portfolio B-Note

On
October 26, 2007, the Company purchased, through an indirect wholly owned subsidiary, a promissory note with an original and current principal balance of $20.0 million (the San Diego Office Portfolio B-Note) from an unaffiliated
seller. The Company paid $13.4 million for the San Diego Office Portfolio B-Note. The Company funded the acquisition with proceeds from the Offering. The San Diego Office Portfolio B-Note has a stated fixed interest rate of 5.775%, but an annual
effective interest rate of 11.3%, including amortization of the discount over the term of the note. The initial maturity date of the note is October 11, 2017. Prior to maturity, the borrower under the San Diego Office Portfolio B-Note is
required to make monthly interest-only payments, with the outstanding principal balance being due at maturity. The borrower used the proceeds from the San Diego Office Portfolio B-Note and other senior financing to acquire six office buildings and
one restaurant located in the San Diego, California area, which secure the San Diego Office Portfolio B-Note. The office buildings collectively contain approximately 372,000 square feet of space and the restaurant is approximately 9,000 square feet.
The San Diego Office Portfolio B-Note is junior to a $137.0 million promissory note secured by the same seven properties described above.



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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)

September 30, 2007

(unaudited)



Extension of Unsecured Bridge Loan

On October 23, 2007, the Operating Partnership extended the maturity date of the Bridge Loan from October 24, 2007 to November 24, 2007 for an extension fee of approximately $15,000. As of
October 23, 2007, there was $52.1 million outstanding under the Bridge Loan. The interest rate on the Bridge Loan was 6.1063% through November 15, 2007. The Bridge Loan was used to finance a portion of the acquisition price of the Opus
National Industrial Portfolio. On November 16, 2007, the Company paid off the Bridge Loan in full with $46.4 million of net proceeds from five new secured, one-year bridge loans and approximately $5.7 million of proceeds from the Offering.

Substitution of Assets under Mortgage Loan and November 2007 Secured Bridge Loan

In connection with the acquisition of ADP Plaza, on November 7, 2007, the Company substituted the collateral under the Cardinal Health, Corporate Express and Hartman Business Center - Mortgage Loan upon payment
of a $10,000 fee. ADP Plaza was substituted as the collateral for this loan in place of the Cardinal Health Building, the Corporate Express Building and the Hartman Business Center, which buildings are part of the Opus National Industrial Portfolio.

Also on November 9, 2007, the Company, through wholly owned subsidiaries, entered into three separate secured bridge loans for approximately
$6.9 million, $5.3 million and $9.5 million with a financial institution that are secured by the Cardinal Health Building, the Corporate Express Building and the Hartman Business Center, respectively (the Cardinal Health Building Mortgage
Loan, the Corporate Express Building Mortgage Loan and the Hartman Business Center Mortgage Loan). The maturity date for all three loans is November 9, 2008. Interest will accrue on these loans at either the Prime
Rate as established from time to time by the lender or LIBOR plus 1.40% (subject to adjustment for a reserve percentage established by the lender), at the Company's option. There is no prepayment fee for principal borrowed at the Prime Rate. For
principal borrowed at LIBOR plus 1.40%, there is a breakage fee for prepayment of the loan. In addition, under certain circumstances the Company must pay an exit fee in connection with repayment of each of the loans. If the Company repays one of the
loans, in whole or in part, on or before the maturity date, the Company must pay the lender an exit fee in an amount equal to 0.125% of the amount being repaid, unless (i) such amounts are being repaid with proceeds from a replacement financing
from the lender or (ii) the Company repays the entire amount of the respective loan with proceeds from the sale of the property securing the loan to a bona-fide third-party purchaser. Notwithstanding the above, the Company has no obligation to
pay an exit fee if (a) the Company repays the loan with proceeds other than from lender refinancing and the lender has not provided the Company a reasonable quote for replacement financing or (b) the Company is repaying a portion of a loan
for the sole purpose of reducing the outstanding amount of the loan to 50% of the lesser of the appraised value of the property securing the loan or the acquisition cost of the property securing the loan. The loan agreements for the Cardinal Health
Building Mortgage Loan, the Corporate Express Building Mortgage Loan and the Hartman Business Center Mortgage Loan all contain cross-default and cross-collateralization provisions such that each of these loans as well as secured loans the Company
may enter in the future with this lender with respect to eight other properties are cross-defaulted and cross-collateralized with each other.

Investment in Petra

On October 26, 2007, the Company, through an indirect wholly owned subsidiary, made an investment in senior
subordinated debt (the Petra Investment) of Petra Fund REIT Corp., a Maryland corporation that intends to elect to be taxed as a real estate investment trust (Petra). Petra is a subsidiary of Petra Offshore Fund L.P., a
private real estate fund organized as a Cayman Islands Exempted Limited Partnership. Petra invests primarily in a diversified portfolio of high-yield and structured assets secured by commercial and residential real estate.

The Companys investment is in the form of two $25 million loans to Petra (the Tranche A Loan and the Tranche B Loan, respectively) and the
Company will have the option at its discretion to make an additional $25 million loan to Petra (the Tranche C Loan). The loans bear interest at a rate of 11.5% per annum. Monthly installments on the loans are interest only with the
principal amount being due at maturity, assuming no prior principal prepayment. The maturity dates of the loans are 18 months from origination for the Tranche A Loan, 24 months from origination for the Tranche B Loan and 24 months from origination
for the Tranche C Loan. Petra has the right to prepay any or all of the loans, in whole or in part, upon the payment of a yield maintenance premium.



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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.

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



| |  |  | Neither we nor our advisor have a prior operating history and our advisor does not have any experience operating a public company. This inexperience makes our
future performance difficult to predict.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All of our executive officers and some of our directors are also officers, managers and/or holders of a direct or indirect controlling interest in our advisor, our
dealer manager and other KBS-affiliated entities. As a result, our executive officers, some of our directors, our advisor and its affiliates face conflicts of interest, including significant conflicts created by our advisors compensation
arrangements with us and other investors advised by KBS affiliates and conflicts in allocating time among us and these other investors. These conflicts could result in unanticipated actions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because investment opportunities that are suitable for us may also be suitable for other KBS-advised investors, our advisor and its affiliates face conflicts of
interest relating to the purchase of properties and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive properties, which could reduce the investment return to our stockholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we raise substantially less than the maximum offering in our ongoing initial public offering, we may not be able to invest in a diverse portfolio of real estate
assets and the value of an investment in us may vary more widely with the performance of specific assets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While we are raising capital and investing the proceeds of our ongoing initial public offering, the high demand for the type of properties we desire to acquire may
cause our distributions and the long-term returns of our investors to be lower than they otherwise would.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We depend on tenants for our revenue, and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

All forward-looking statements should be read in light of the risks identified in Part I, Item IA of our annual report on Form 10-K for
the year ended December 31, 2006 filed with the SEC and the risks identified in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended June 30, 2007 and this quarterly report.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Overview

We are
a Maryland corporation that elected to be taxed as a real estate investment trust, or REIT, beginning with the taxable year that ended December 31, 2006. On June 23, 2005, we filed a registration statement on Form S-11 (File
No. 333-126087) with the SEC to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public. The SEC declared the registration statement effective on January 13, 2006, and we launched our
ongoing initial public offering on January 27, 2006. On July 5, 2006, we broke escrow in our ongoing initial public offering and then commenced our real estate operations. As of September 30, 2007, we had sold 67,014,904 shares
of common stock in our ongoing public offering for gross offering proceeds of approximately $667.1 million. As of September 30, 2007, we had redeemed 89,760 of the shares sold in our ongoing initial public offering pursuant to our share
redemption program for approximately $897,000. We are dependent upon the net proceeds from the offering to conduct our proposed operations.

We intend to
use the proceeds of our ongoing initial public offering to acquire and manage a diverse portfolio of real estate properties and real estate-related investments. We plan to own substantially all of our assets and conduct our operations through our
Operating Partnership, of which we are the sole general partner. We have no paid employees. Our advisor, KBS Capital Advisors, conducts our operations and manages our portfolio of real estate investments.

As of September 30, 2007, we owned ten office buildings, one light industrial property, two corporate research buildings, one distribution facility, one industrial
portfolio consisting of nine distribution and office/warehouse properties, and an 80% membership interest in a joint venture that owns a portfolio of 23 institutional quality industrial properties and holds a master lease with a remaining term of
15.5 years with respect to another industrial property. In addition, we own three mezzanine real estate loans, a partial ownership interest in two mezzanine real estate loans, and a partial ownership interest in a senior mortgage loan. We have also
originated three secured loans. We expect the properties in which we invest will be composed primarily of office, industrial and retail properties located in large metropolitan areas in the United States. In constructing our portfolio, we intend to
target approximately 70% core investments, which are generally existing properties with at least 80% occupancy and minimal near-term lease rollover, and approximately 30% real estate-related investments and enhanced-return properties. Though our
target portfolio would consist of 30% real estate-related investments and enhanced-return properties, we will not forgo a good investment opportunity because it does not precisely fit our expected portfolio composition. Thus, to the extent that our
advisor presents us with good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code, our portfolio may consist of a greater percentage of enhanced-return properties and real estate-related investments.

Real estate-related investments and enhanced-return properties are higher-yield and higher-risk investments that our advisor will actively manage. The
real estate-related investments in which we may invest include: (i) mortgage loans; (ii) equity securities such as common stocks, preferred stocks and convertible preferred securities of real estate companies; (iii) debt securities
such as mortgage-backed securities, commercial mortgages, mortgage loan participations and debt securities issued by other real estate companies; and (iv) certain types of illiquid securities, such as mezzanine loans and bridge loans. While we
may invest in any of these real estate-related investments, we expect that the substantial majority of these investments will consist of mezzanine loans, commercial mortgage-backed securities and B-Notes as well as collateralized debt obligations.
The enhanced-return properties that we will seek to acquire and reposition include: properties with moderate vacancies or near-term lease rollovers; poorly managed and positioned properties; properties owned by distressed sellers; and built-to-suit
properties.

Market Outlook - Real Estate Finance Markets

Recent events in the residential mortgage market may impact the commercial mortgage market as well as the market for real estate related debt investments generally. Credit spreads on commercial mortgages (i.e., the interest rate spread
overall given benchmarks such as LIBOR or U.S. Treasury securities) are significantly influenced by: (i) supply and demand for such mortgage loans and (ii) capital markets execution for the sale or financing of such commercial mortgage
assets. In the case of the former, the number of potential lenders in the market place and the amount of funds they are willing to devote to commercial mortgage assets will impact credit spreads. As liquidity or demand increases, spreads
on equivalent commercial mortgage loans will decrease. Conversely, a lack of liquidity will result in credit spreads increasing. During periods of volatility, the number of lenders participating in the market may change at an accelerated pace.
Further, many lenders are subject to the capital markets in order to finance their portfolio of commercial loans. Lenders are forced to increase the credit spread at which they are willing to lend as liquidity in the capital markets decrease. As the
market tightens, many lenders have requested additional collateral or repayments with respect to their loans in order to maintain margins that are acceptable to them.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



For existing loans, when credit spreads widen, the fair value of these existing loans decrease in market price. If a
lender were to originate a similar loan today, such loan would carry a greater credit spread than the existing loan. Even though a loan may be performing in accordance with its loan agreement and the underlying collateral has not changed, the fair
value of the loan may be negatively impacted by the incremental interest foregone from the widened credit spread. Accordingly, when a lender wishes to sell the loan in a whole loan transaction, a commercial mortgage-backed securities
(CMBS) issuance, finance the loan under a warehouse facility, or pledge the loan in a commercial real estate collateralized debt obligations (CRE CDOs) financing, the reduced fair value of the loan will impact the total
proceeds that the lender will receive.

Recently, concerns pertaining to the deterioration of the residential mortgage market have expanded to almost all
areas of the debt capital markets including corporate bonds, asset based securities and commercial real estate finance. This has resulted in a general reduction of liquidity in the commercial real estate sector. It has also caused a significant
widening of the credit spreads on both CMBS and CRE CDOs in recent months. We can not foresee when these markets will stabilize.

Liquidity and Capital
Resources

Since breaking escrow in our ongoing initial public offering on July 5, 2006 and then commencing real estate operations with the
acquisition of our first real estate investment on July 7, 2006, our principal demand for funds during the short and long-term is and will be for the acquisition of properties, loans and other real estate-related investments, the payment of
operating expenses and distributions to stockholders.

Net cash flows from financing activities for the nine months ended September 30, 2007 were
$1,168.4 million, consisting primarily of net offering proceeds of $499.2 million (after payment of selling commissions, dealer manager fees and other organization and offering expenses of $54.6 million and redemptions of common stock of $0.9
million), proceeds from repurchase agreement financing of $13.3 million, aggregate borrowings related to the purchase of real estate and real estate-related investments of $756.5 million, and minority interest contributions of $21.4 million relating
to the National Industrial Portfolio joint venture. We paid distributions of $16.2 million to our investors and incurred deferred financing costs of $12.0 million from our aggregate borrowings related to the purchase of real estate and real
estate-related investments. We also repaid $94.5 million of borrowings related to our acquisitions during the nine months ended September 30, 2007, bringing our aggregate borrowings related to the purchase of real estate and real estate-related
investments to $855.1 million as of September 30, 2007. With capital and borrowings from our financing activities, we invested approximately $17.7 million in marketable securities and approximately $1,120.4 million in real estate and real
estate-related investments during the nine months ended September 30, 2007, including acquisition fees and closing costs of $17.3 million. Net cash provided by operating activities was $23.2 million from the operation of our real estate
investments and interest income from our investments in real estate loans. At September 30, 2007, we had cash and cash equivalents of $102.3 million available for investment in properties and real estate-related investments and the repayment of
debt.

As of September 30, 2007, our liabilities totaled $920.5 million and consisted primarily of long-term notes payable with a maturity of longer
than one year of $786.7 million and short-term notes payable with a maturity of one year or less of $68.4 million. Long-term notes payable consisted of $355.7 million of fixed-rate mortgage loans, a $315.0 million variable-rate mortgage loan with a
weighted-average interest rate of 6.64% and a $116.0 million variable-rate mezzanine loan with a weighted-average interest rate of 6.64% at September 30, 2007. Short-term notes payable of $68.4 million consisted primarily of a $52.1 unsecured
bridge loan with a weighted-average interest rate of 6.64% at September 30, 2007. These financings are described below under Contractual Commitments and Contingencies.

We expect to continue to use debt to acquire properties and other real estate-related investments. Once we have fully invested the proceeds of our ongoing initial public
offering, we expect our debt financing to be approximately 50% of the cost of our real estate investments (before deducting depreciation or other non-cash reserves) plus the value of our other assets. Our charter limits our borrowings to 75% of the
cost (before deducting depreciation or other non-cash reserves) of all our assets; however, we may exceed that limit if a majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowing
to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. We did not exceed our charter limitation on borrowings during the first, second or third quarters of
2007. As of September 30, 2007, our borrowings were approximately 62% of the cost (before depreciation or other non-cash reserves) of all of our real estate investments.



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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)
|------- | -------------------------------------------------------------------------------------------------



We expect to continue to generate capital from our ongoing initial public offering and to utilize indebtedness to
assist in the funding for and timing of our acquisitions. We are dependent upon the net proceeds from our ongoing initial public offering to conduct our operations. We will obtain the capital required to purchase properties and other investments and
conduct our operations from the proceeds of our ongoing initial public offering and any future offerings we may conduct, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our
advisor and the dealer manager. During our organization and offering stage, these payments will include payments to the dealer manager for selling commissions and the dealer manager fee and payments to the dealer manager, our advisor and their
affiliates for reimbursement of certain organization and offering expenses. However, our advisor has agreed to reimburse us to the extent that selling commissions, the dealer manager fee and other organization and offering expenses incurred by us
exceed 15% of our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and purchase of real estate investments, the management of our assets and costs
incurred by our advisor in providing services to us.

We have elected to be taxed as a REIT and to operate as a REIT beginning with our taxable year ended
December 31, 2006. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and
excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Provided
we have sufficient available cash flow, we intend to pay distributions on a monthly basis. We have not established a minimum distribution level.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of September 30, 2007 (in
thousands):



|                                |  |       |         |                                                  |   |           |  |           |         |            |   |        |  |   |        
|------------------------------- |  | ----- | ------- | ------------------------------------------------ | - | --------- |  | --------- | ------- | ---------- | - | ------ |  | - | -------
|                                |  |       |         | Payments Due During the Years Ending December 31
|Contractual Obligations         |  | Total |         | Remainder of 2007                                |   | 2008-2009 |  | 2010-2011 |         | Thereafter
|Outstanding debt obligations(1) |  | $     | 855,071 |                                                  | $ | 52,134    |  | $         | 447,261 |            | $ | 39,717 |  | $ | 315,959
|Purchase Obligations (2)        |  | $     | 187,450 |                                                  | $ | 187,450   |  | $         |        |            | $ |       |  | $ |       

---

|(1) | Amounts include principal
payments only. We incurred interest expense of $16.2 million, excluding amortization of deferred financing costs, during the nine months ending September 30, 2007, and expect to incur interest in future periods on outstanding debt obligations
based on the rates and terms disclosed below.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of September 30,
2007, we have entered into purchase and sale agreements to acquire two four-story office buildings containing approximately 180,772 rentable square feet in Portland, Oregon for $33,100,000; a four-story office building containing approximately
98,883 rentable square feet in Newport News, Virginia for $18,550,000; and two six-story office buildings containing 647,196 rentable square feet in Schaumburg, Illinois for $135,800,000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48



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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)
|------- | -------------------------------------------------------------------------------------------------



Our outstanding debt obligations as of September 30, 2007 were as follows (in thousands):



|                                                                              |  |           |         |                           |        |   |                            |          |              |                   |                                |        |  
|----------------------------------------------------------------------------- |  | --------- | ------- | ------------------------- | ------ | - | -------------------------- | -------- | ------------ | ----------------- | ------------------------------ | ------ | -
|                                                                              |  | Principal |         | EffectiveInterestRate (1) |        |   | Fixed/VariableInterestRate |          | Maturity (2) |                   | Percentage ofTotalIndebtedness |       
|Sabal Pavilion Building - Mortgage Loan                                       |  | $         | 14,700  |                           | 6.3800 | % |                            | Fixed    |              | August 1, 2036    |                                | 1.72   | %
|                                                                              |  |           |         |                           |       
|Plaza in Clayton - Mortgage Loan                                              |  |           | 62,200  |                           | 5.8990 | % |                            | Fixed    |              | October 6, 2016   |                                | 7.27   | %
|                                                                              |  |           |         |                           |       
|Southpark Commerce Center II Buildings - Mortgage Loan                        |  |           | 18,000  |                           | 5.6725 | % |                            | Fixed    |              | December 6, 2016  |                                | 2.11   | %
|                                                                              |  |           |         |                           |       
|825 University Avenue Building - Mortgage Loan                                |  |           | 19,000  |                           | 5.5910 | % |                            | Fixed    |              | December 6, 2013  |                                | 2.22   | %
|                                                                              |  |           |         |                           |       
|Midland Industrial Buildings - Mortgage Loan                                  |  |           | 24,050  |                           | 5.7550 | % |                            | Fixed    |              | January 6, 2011   |                                | 2.81   | %
|                                                                              |  |           |         |                           |       
|Crescent Green Building - Mortgage Loan                                       |  |           | 32,400  |                           | 5.6800 | % |                            | Fixed    |              | February 1, 2012  |                                | 3.79   | %
|                                                                              |  |           |         |                           |       
|625 Second Street Building - Mortgage Loan                                    |  |           | 33,700  |                           | 5.8500 | % |                            | Fixed    |              | February 1, 2014  |                                | 3.94   | %
|                                                                              |  |           |         |                           |       
|Sabal VI Building - Mortgage Loan                                             |  |           | 11,040  |                           | 5.9250 | % |                            | Fixed    |              | October 1, 2011   |                                | 1.29   | %
|                                                                              |  |           |         |                           |       
|Sabal VI Building - Mezzanine Loan                                            |  |           | 3,000   |                           | 6.9725 | % |                            | Variable |              | May 5, 2008       |                                | 0.35   | %
|                                                                              |  |           |         |                           |       
|The Offices at Kensington - Mortgage Loan                                     |  |           | 18,500  |                           | 5.5200 | % |                            | Fixed    |              | April 1, 2014     |                                | 2.16   | %
|                                                                              |  |           |         |                           |       
|Bridgeway Technology Center - Mortgage Loan                                   |  |           | 26,824  |                           | 6.0700 | % |                            | Fixed    |              | August 1, 2013    |                                | 3.14   | %
|                                                                              |  |           |         |                           |       
|Marketable Securities - Repurchase Agreement                                  |  |           | 13,261  |                           | 6.3247 | % |                            | Variable |              | January 23, 2008  |                                | 1.55   | %
|                                                                              |  |           |         |                           |       
|Unsecured - Bridge Loan                                                       |  |           | 52,134  |                           | 6.6361 | % |                            | Variable |              | October 24, 2007  |                                | 6.10   | %
|                                                                              |  |           |         |                           |       
|Royal Ridge Building - Mortgage Loan                                          |  |           | 21,718  |                           | 5.9600 | % |                            | Fixed    |              | September 1, 2013 |                                | 2.54   | %
|                                                                              |  |           |         |                           |       
|Plano Corporate Center I & II - Mortgage Loan                                 |  |           | 30,591  |                           | 5.9000 | % |                            | Fixed    |              | September 1, 2012 |                                | 3.58   | %
|                                                                              |  |           |         |                           |       
|2200 West Loop South Building - Mortgage Loan                                 |  |           | 17,426  |                           | 5.8900 | % |                            | Fixed    |              | October 1, 2014   |                                | 2.04   | %
|                                                                              |  |           |         |                           |       
|Cardinal Health, Corporate Express, & Hartman Business Center - Mortgage Loan |  |           | 20,900  |                           | 5.5600 | % |                            | Fixed    |              | October 1, 2013   |                                | 2.44   | %
|                                                                              |  |           |         |                           |       
|Cedar Bluffs - Mortgage Loan                                                  |  |           | 4,627   |                           | 5.8600 | % |                            | Fixed    |              | July 1, 2011      |                                | 0.54   | %
|                                                                              |  |           |         |                           |       
|National Industrial Portfolio - Mortgage Loan (3)                             |  |           | 315,000 |                           | 6.6447 | % |                            | Variable |              | August 9, 2009    |                                | 36.84  | %
|                                                                              |  |           |         |                           |       
|National Industrial Portfolio - Mezzanine Loan (3)                            |  |           | 116,000 |                           | 6.6447 | % |                            | Variable |              | August 9, 2009    |                                | 13.57  | %
|                                                                              |  |           |         |                           |        |   |                            |          |              |                   |                                |        |  
|                                                                              |  | $         | 855,071 |                           |        |   |                            |          |              |                   |                                | 100.00 | %
|                                                                              |  |           |         |                           |        |   |                            |          |              |                   |                                |        |  

---

|(1) | Represents the effective
interest rate as of September 30, 2007.
|--- | ----------------------------------------------------------------

|(2) | Represents initial
maturity date; subject to certain conditions, the maturity dates of some loans may be extended.
|--- | ------------------------------------------------------------------------------------------------------------------

|(3) | Held through a
consolidated joint venture.
|--- | ------------------------------------------



49



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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)
|------- | -------------------------------------------------------------------------------------------------



In addition to the contractual obligations set forth above, at September 30, 2007, we have contingent liability
with respect to advances to us from our advisor in the amount of $1.6 million for payment of distributions and to cover expenses, excluding depreciation and amortization, in excess of our revenues. We are only obligated to reimburse the advisor for
these advances 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 being made by the advisor. We also have a liability with respect to the deferred payment of asset management fees earned by the advisor of approximately $3.2 million at
September 30, 2007. Our advisor has agreed to defer, without interest, the payment of the asset management fees it has earned for the months of July 2006 through September 2007. Although pursuant to the advisory agreement, the advisor may
demand payment of accrued but unpaid asset management fees at any time, the advisor does not intend to request payment of accrued but unpaid asset management fees until our cumulative funds from operations for the period commencing January 1,
2006, plus the amount of the advance from the advisor through the date of payment of the accrued but unpaid asset management fees 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 payment. In addition,
the advisor intends to continue to defer payment of its asset management fee until such time as the cumulative amount of our funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor exceed
the cumulative amount of distributions declared and currently payable to our stockholders.

Results of Operations

Overview

Although the SEC declared the registration statement for our
ongoing initial public offering effective and we launched our ongoing initial public offering in January 2006, we did not break escrow or commence real estate operations until July 2006. Therefore, our results of operations for the three and nine
months ended September 30, 2006 are not indicative of those expected in future periods nor are they comparable to the three and nine months ended September 30, 2007.

Comparison of the three months ended September 30, 2006 versus the three months ended September 30, 2007

Rental income and tenant reimbursements increased from $0.8 million and $0.1 million, respectively, for the three months ended September 30, 2006 to $20.0 million and $3.6 million, respectively, for the three months ended
September 30, 2007, primarily as a result of the growth in the real property investment portfolio during the last three months of 2006 and the first nine months of 2007. Our real property portfolio grew from two real estate properties as of
September 30, 2006 to 14 real estate properties, one industrial portfolio consisting of nine distribution and office/warehouse properties, and an 80% membership interest in a consolidated joint venture that owns a portfolio of 23 institutional
quality industrial properties and holds a master lease with a remaining term of 15.5-years with respect to another industrial property as of September 30, 2007. Rental income and tenant reimbursements are expected to continue to increase in
future periods, as compared to historical periods, as a result of owning the assets acquired during the three months ended September 30, 2007 for an entire period and future acquisitions of real estate assets.

Interest income from real estate loans receivable increased from $0.4 million for the three months ended September 30, 2006 to $4.3 million for the three months
ended September 30, 2007, primarily as a result of the growth in the real estate loans receivable portfolio during the last three months of 2006 and the first nine months of 2007. Our portfolio of real estate loans receivable grew from one
mezzanine loan as of September 30, 2006 to three mezzanine real estate loans, a partial ownership in two mezzanine real estate loans, a partial ownership interest in a senior mortgage loan and the origination of three mortgage loans as of
September 30, 2007. Interest income from real estate loans receivable is expected to continue to increase in future periods, as compared to historical periods, as a result of owning the assets acquired during the three months ended
September 30, 2007 for an entire period and future acquisitions of real estate loans receivable.

Parking revenues and other operating income for the
three months ended September 30, 2007 was $0.4 million related primarily to parking revenues from the Plaza in Clayton of $0.3 million, which we acquired on September 27, 2006.



Property operating costs and real estate and other property-related taxes increased from $0.2
million and $0.1 million, respectively, for the three months ended September 30, 2006 to $3.6 million and $3.0 million, respectively, for the three months ended September 30, 2007, primarily as a result of the growth in the portfolio
during the last three months of 2006 and the first nine months of 2007. Property operating costs and real estate and other property-related taxes are expected to continue to increase in future periods, as compared to historical periods, due to
owning the assets acquired during the three months ended September 30, 2007 for an entire period and future acquisitions of additional real estate assets.



50



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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)
|------- | -------------------------------------------------------------------------------------------------



Asset management fees incurred and payable to our advisor with respect to real estate investments increased from $0.1
million for the three months ended September 30, 2006 to $1.5 million for the three months ended September 30, 2007 as a result of the growth in the portfolio during the last three months of 2006 and the first nine months of 2007. The
payment of asset management fees has been deferred by our advisor without interest. Although, pursuant to the advisory agreement, the advisor may demand payment of deferred asset management fees at any time, the advisor does not intend to request
payment of deferred asset management fees until our cumulative funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor through the date of payment of the deferred asset management
fees 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 payment. In addition, the advisor intends to continue to defer payment of its asset management fee until such time as the cumulative amount of our
funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor exceed the cumulative amount of distributions declared and currently payable to our stockholders.

General and administrative expenses increased from $0.3 million for the three months ended September 30, 2006 to $1.1 million for the three months ended
September 30, 2007. These general and administrative costs consisted primarily of legal, audit and other professional fees. We expect general and administrative costs to increase in the future as we make real estate investments, but to decrease
as a percentage of total revenue.

Depreciation and amortization increased from $0.4 million for the three months ended September 30, 2006 to $12.2
million for the three months ended September 30, 2007, primarily due to the acquisition of properties during the last three months of 2006 and the first nine months of 2007. We expect depreciation and amortization to continue to increase in
future periods, as compared to historical periods, due to future acquisitions of real estate assets.

Interest income increased from $0.03 million for the
three months ended September 30, 2006 to $1.5 million for the three months ended September 30, 2007 due to interest income earned on cash from offering proceeds being held throughout the period prior to its investment in real estate or
real estate-related investments.

We financed the acquisition of our property investments in part with debt. See above Contractual Commitments
and Contingencies. Interest expense (including amortization of deferred financing costs) increased from $0.7 million for the three months ended September 30, 2006 to $10.7 million for the three months ended September 30, 2007 related
to our use of this debt. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the cost of borrowings and the opportunity
to acquire real estate assets and real estate-related investments meeting our investment objectives.

Net loss increased from $0.5 million for the three
months ended September 30, 2006 to $1.4 million for the three months ended September 30, 2007, due primarily to rental income from our real estate properties and interest income from our real estate loans receivable offset by interest
expense from debt incurred from real estate acquisition financing.

Comparison of the nine months ended September 30, 2006 versus the nine months
ended September 30, 2007

Rental income and tenant reimbursements increased from $0.8 million and $0.1 million, respectively, for the nine months
ended September 30, 2006 to approximately $35.3 million and $6.1 million, respectively, for the nine months ended September 30, 2007, primarily as a result of the growth in the real property investment portfolio during the last three
months of 2006 and the first nine months of 2007. We acquired our first assets in July 2006 and our portfolio of real estate assets grew from two real estate properties as of September 30, 2006 to fourteen real estate properties, one industrial
portfolio consisting of nine distribution and office/warehouse properties, and an 80% membership interest in a consolidated joint venture that owns a portfolio of 23 institutional quality industrial properties and holds a master lease with a
remaining term of 15.5 years with respect to another industrial property as of September 30, 2007. Rental income and tenant reimbursements are expected to continue to increase in future periods, as compared to historical periods, as a result of
owning the assets acquired during the first nine months of 2007 for an entire period and future acquisitions of real estate assets.



51



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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)
|------- | -------------------------------------------------------------------------------------------------



Interest income from real estate loans receivable increased from $0.4 million for the nine months ended
September 30, 2006 to $7.4 million for the nine months ended September 30, 2007, primarily as a result of the growth in the real estate loans receivable portfolio during the last three months of 2006 and the first nine months of 2007. Our
portfolio of real estate loans receivable grew from one mezzanine loan as of September 30, 2006 to three mezzanine real estate loans, a partial ownership in two mezzanine real estate loans, a partial ownership interest in a senior mortgage loan
and the origination of three mortgage loans as of September 30, 2007. Interest income from real estate loans receivable is expected to continue to increase in future periods, as compared to historical periods, as a result of owning the assets
acquired during the first nine months of 2007 for an entire period and future acquisitions of real estate loans receivable.

Parking revenues and other
operating income for the nine months ended September 30, 2007 was $1.2 million related primarily to parking revenues from the Plaza in Clayton of $0.9 million, which we acquired on September 27, 2006.

Property operating costs and real estate and other property-related taxes increased from $0.2 million and $0.1 million, respectively, for the nine months ended
September 30, 2006 to $6.4 million and $5.4 million, respectively, for the nine months ended September 30, 2007, primarily as a result of the growth in the portfolio during the last three months of 2006 and the first nine months of 2007.
Property operating costs and real estate and other property-related taxes are expected to continue to increase in future periods, as compared to historical periods, due to owning the assets acquired during the first nine months of 2007 for an entire
period and future acquisitions of additional real estate assets.

Asset management fees incurred and payable to our advisor with respect to real estate
investments increased from $0.1 million for the nine months ended September 30, 2006 to $2.8 million for the nine months ended September 30, 2007 as a result of the growth in the portfolio during the last three months of 2006 and the first
nine months of 2007. The payment of asset management fees has been deferred by our advisor without interest as explained above.

General and administrative
expenses increased from $0.8 million for the nine months ended September 30, 2006 to $2.7 million for the nine months ended September 30, 2007. These general and administrative costs consisted primarily of legal, audit and other
professional fees. We expect general and administrative costs to increase in the future as we make real estate investments, but to decrease as a percentage of total revenue.

Depreciation and amortization increased from $0.4 million for the nine months ended September 30, 2006 to $20.8 million for the nine months ended September 30, 2007, primarily due to the acquisition of
properties during the last three months of 2006 and the first nine months of 2007. We expect depreciation and amortization to continue to increase in future periods, as compared to historical periods, due to future acquisitions of real estate
assets.

Interest income increased from $0.03 million for the nine months ended September 30, 2006 to $3.8 million for the nine months ended
September 30, 2007 due to interest income earned on cash from offering proceeds being held throughout the periods prior to its investment in real estate or real estate-related investments.

Interest expense (including amortization of deferred financing costs) increased from $0.7 million for the nine months ended September 30, 2006 to $17.6 million for
the nine months ended September 30, 2007 and is related to our use of debt to partially finance our investments. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the amount of
proceeds raised in our ongoing initial public offering, the cost of borrowings and the opportunity to acquire real estate assets and real estate-related investments meeting our investment objectives.

Net loss increased from $1.0 million for the nine months ended September 30, 2006 to $1.2 million for the nine months ended September 30, 2007, due primarily
to rental income from our real estate properties and interest income from our real estate loans receivable offset by interest expense from debt incurred from real estate acquisition financing.

Organization and Offering Costs

Our organization and offering costs
(other than selling commissions and the dealer manager fee) may be paid by our advisor, the dealer manager and their affiliates on our behalf. These other organization and offering costs include all expenses to be paid by us in connection with our
ongoing initial public offering, including but not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) charges of the escrow holder; (iii) reimbursement of the dealer manager for amounts it may pay to reimburse
the bona fide diligence expenses of broker-dealers; (iv) reimbursement to the advisor for the salaries of its employees and other costs in connection with preparing supplemental sales materials; (v) the cost of educational conferences held
by us (including the travel, meal, and lodging costs of registered representatives of broker-dealers); and (vi) reimbursement to the dealer manager for travel, meals, lodging, and attendance fees incurred by employees of the dealer manager to
attend retail seminars conducted by broker-dealers.



52



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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)
|------- | -------------------------------------------------------------------------------------------------



Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to reimburse the advisor, the
dealer manager or their affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee, and other
organization and offering costs incurred by us in the offering exceed 15% of our gross offering proceeds. Our advisor and its affiliates have incurred on our behalf organization and offering costs (excluding selling commissions and the dealer
manager fee) of $6.6 million through September 30, 2007. Such costs are only a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the
offering. From commencement of our ongoing initial public offering through September 30, 2007, including shares sold through our dividend reinvestment plan, we had sold 67,014,904 shares for gross offering proceeds of $667.1 million and
recorded organization and offering costs of $9.4 million and selling commissions and dealer manager fees of $60.4 million.

Funds from Operations

We believe that funds from operations (FFO) is a beneficial indicator of the performance of any equity REIT. Because FFO calculations exclude
such factors as depreciation and amortization of real estate assets and gains 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 between other REITs. Our management believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of
real estate assets diminishes predictability 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. Other REITs may not define FFO in accordance with the current National Association of Real Estate Investment
Trusts (NAREIT) definition or may 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 and nine months ended September 30, 2007 and 2006, respectively (in thousands,
except share amounts):



|                                                          |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  
|--------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ------- | -
|                                                          |  | For the Three Months Ended |            |   | For the Nine Months Ended |  
|                                                          |  | September 30,              |            |   | September 30,             |  
|                                                          |  | 2007                       |            |   | 2006                      |   |           | 2007 |  |   | 2006       |  
|Net income (loss)                                         |  | $                          | (1,414     | ) |                           | $ | (529      | )    |  | $ | (1,185     | ) |  | $ | (992    | )
|Add:                                                      |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  
|Depreciation of real estate assets                        |  |                            | 5,638      |   |                           |   | 192       |      |  |   | 10,721     |   |  |   | 192     |  
|Amortization of lease-related costs                       |  |                            | 6,558      |   |                           |   | 203       |      |  |   | 10,085     |   |  |   | 203     |  
|Deduct:                                                   |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  
|Adjustments for minority interestconsolidated entity (1) |  |                            | (1,044     | ) |                           |   |          |      |  |   | (1,044     | ) |  |   |        |  
|                                                          |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  
|FFO                                                       |  | $                          | 9,738      |   |                           | $ | (134      | )    |  | $ | 18,577     |   |  | $ | (597    | )
|                                                          |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  
|Weighted-average shares outstanding, basic and diluted    |  |                            | 58,315,091 |   |                           |   | 1,148,531 |      |  |   | 36,874,092 |   |  |   | 400,311 |  
|                                                          |  |                            |            |   |                           |   |           |      |  |   |            |   |  |   |         |  

---

|(1) | Relates to consolidated
joint venture minority-interest portion of depreciation of real estate assets in the amount of $294 and amortization of lease-related costs in the amount of $750.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53



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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)
|------- | -------------------------------------------------------------------------------------------------



Critical Accounting Policies

Below is a discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain
and because they are important for understanding and evaluating our reported financial results. These judgments 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.

Real
Estate Assets

Depreciation

We have to make
subjective assessments as to the useful lives of our depreciable assets. These assessments have a direct impact on our net income, because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these
investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis throughout the expected useful lives of these investments. We consider the period of future benefit of an asset to determine its appropriate
useful life. We anticipate the estimated useful lives of our assets by class to be as follows:



|                      |  |                                              
|--------------------- |  | ---------------------------------------------
|Buildings             |  | 25-40 years                                  
|Building improvements |  | 10-25 years                                  
|Land improvements     |  | 20-25 years                                  
|Tenant improvements   |  | Shorter of lease term or expected useful life

Real Estate Purchase Price Allocation

In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, we record above-market and below-market in-place lease values for acquired properties based
on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate
of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market or below-market lease values as a reduction or increase to
rental income, respectively, over the remaining non-cancelable terms of the respective leases, which range from one month to 12.5 years.

We measure the
aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. The value of these
intangible assets is classified as tenant origination and absorption costs and is amortized over the remaining non-cancelable terms of the respective leases. Managements estimates of value are made using methods similar to those used by
independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to
execute similar leases.

We also consider information obtained about each property as a result of our preacquisition due diligence, marketing, and leasing
activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates
during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new
lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and
customer relationship intangible values, if any, based on managements evaluation of the specific characteristics of each tenants lease and our overall relationship with that respective tenant. Characteristics considered by management in
allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenants credit quality and expectations of lease renewals
(including those existing under the terms of the lease agreement), among other factors.



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



We amortize the value of in-place leases to expense over the initial term of the respective leases. The value of
customer relationship intangibles, if any, are amortized to expense over the initial term and any renewal periods in the respective leases, but in no event do the amortization periods for the intangible assets exceed the remaining depreciable life
of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.

Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property operating expenses, carrying costs during lease-up
periods, discount rates, market absorption periods, and the number of years the property is held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocation, which would impact the
amount of our net income.

Valuation of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the
carrying value of real estate and related intangible assets may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its
eventual disposition. If based on this analysis we do not believe that we will be able to recover the carrying value of the asset, we record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset as
defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We did not record any impairment losses during the three or nine months ended September 30, 2007 and 2006.

Projections of future cash flows require us to estimate the expected future operating income and expenses related to an asset as well as market and other trends. The use
of inappropriate assumptions in our future cash flows analyses would result in an incorrect assessment of our assets future cash flows and fair values and could result in the overstatement of the carrying values of our real estate assets and
an overstatement of our net income.

Real Estate Loans Receivable

The real estate loans receivable are recorded at cost and reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information,
that we will be unable to collect all amounts due according to the loans contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the
fair value of the collateral. If a loan was deemed to be impaired, we would record a reserve for loan losses through a charge to income for any shortfall. Failure to recognize impairment would result in the overstatement of the carrying values
of our real estate loans receivable and an overstatement of our net income. We recorded no impairment losses during the three or nine months ended September 30, 2007 and 2006.

Marketable Securities

In accordance with the standards set forth in SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, we classify our investments in marketable securities as available-for-sale since we may sell them prior to their maturity but do 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. Estimated
fair values are based on quoted market prices, when available, or on estimates provided by independent pricing sources or dealers who make markets in such securities. Upon the sale of a security, the realized net gain or loss is computed on a
specific identification basis.

We monitor our available-for-sale securities for impairments. A loss is recognized when we determine that a decline in the
estimated fair value of a security below its amortized cost is other-than-temporary. We consider many factors in determining whether the impairment of a security is deemed to be other-than-temporary, including, but not limited to, the length of time
the security has had a decline in estimated fair value below its amortized cost, the amount of the unrealized loss, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the
issuer or industry, external credit ratings and recent changes in such ratings.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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We account for our commercial mortgage-backed securities (CMBS) in accordance with the Emerging Issues
Task Force 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets(EITF 99-20).Under EITF 99-20, we evaluate whether there is
other-than-temporary impairment by discounting projected cash flows using credit, prepayment and other assumptions compared to prior period projections. If the discounted projected cash flows have decreased due to a change in the credit, prepayment
and other assumptions, then the CMBS must be written down to fair value if the fair value is below the amortized cost basis. This will create a new carrying basis for the CMBS and a revised yield will be calculated based on the future estimated cash
flows for purposes of revenue recognition. If there have been no changes to our assumptions and the change in value is solely due to interest rate changes, we do not recognize an impairment of our CMBS investments in our consolidated statements of
operations. It is difficult to predict the timing or magnitude of these other-than-temporary impairments and significant judgments, including, but not limited to, assumptions regarding estimated prepayments, loss assumptions, and assumptions with
respect to changes in interest rates, are required in determining impairment. As a result, actual impairment losses could materially differ from these estimates. Unamortized premiums and discounts on securities available-for-sale are recognized in
interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

Revenue
Recognition

We recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a
straight-line basis over the term of the related lease and amounts expected to be received in later years are recorded as deferred rent. We record 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.

We make estimates of the collectibility of our tenant receivables
related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. We specifically analyze accounts receivable and analyze 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, we make 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. These estimates have a direct impact on our net income because a higher bad debt reserve results in less net income.

We recognize gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate
(SFAS 66). The specific timing of a sale is measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit
recognition under the full-accrual method are not met, we defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as
appropriate, until the appropriate criteria are met.

Interest income from loans receivable is recognized based on the contractual terms of the debt
instrument. Fees related to any buydown of interest rate are deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income using the effective interest method. Closing costs related to the purchase
of the loan receivable are amortized over the term of the loan and accreted as an adjustment against interest income using the effective interest method.

Income Taxes

We have elected to be taxed as a REIT under the Code and intend to operate as such beginning with our taxable year
ending December 31, 2006. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our 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, we generally will not be subject to federal income tax on income that we distribute
to stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our 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 us relief under certain statutory provisions. Such an event could materially adversely affect
our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.



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



We elected to treat KBS REIT Holdings, our wholly owned subsidiary, as a taxable REIT subsidiary on July 5,
2006. KBS REIT Holdings is the sole limited partner of the Operating Partnership and owns a 1% ownership interest in the Operating Partnership. On April 30, 2007, we revoked our election to treat KBS REIT Holdings as a taxable REIT subsidiary.
As a result, KBS REIT Holdings will be taxed on income allocable to it from the Operating Partnership in respect of its limited partnership interest from the time of its election on July 5, 2006 through April 30, 2007. As of
September 30, 2007, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

Subsequent Events

Status of Offering

We commenced our ongoing
initial public offering of 280,000,000 shares of common stock on January 27, 2006. As of November 14, 2007, we had accepted aggregate gross offering proceeds of approximately $761.1 million.

Distribution Declaration and Advance from Advisor

On
August 7, 2007, our board of directors declared a daily distribution for the period from October 1, 2007 through October 31, 2007, which distribution we expect to pay in November 2007. On October 26, 2007, our board of directors
declared a daily distribution for the period from November 1, 2007 through November 30, 2007, which distribution we expect to pay in December 2007 and on November 2, 2007, our board of directors declared a daily distribution for the
period from December 1, 2007 through December 31, 2007, which distribution we expect to pay in January 2008. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan. The
distributions are calculated based on stockholders of record each day during these periods at a rate of $0.0019178 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a
purchase price of $10.00 per share.

Generally, our policy is to pay distributions from cash flow from operations. In order that our stockholders could
begin earning cash distributions, our advisor, KBS Capital Advisors, has 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 January 31, 2008 exceeds the amount of our funds from operations (as defined by NAREIT) from January 1, 2006 through January 31, 2008. We are only obligated to reimburse the 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 being made by the advisor. Through September 2007, our advisor had advanced $1.6 million to us for cash distributions and expenses in excess of revenues, all of which is outstanding.

In addition, our advisor deferred payment of its asset management fee, without interest, for the months of July 2006 through September 2007. As of September 30,
2007, asset management fees deferred by our advisor totaled approximately $3.2 million. Although pursuant to the advisory agreement, the advisor may demand payment of deferred asset management fees at any time, the advisor does not intend to request
payment of deferred asset management fees until our cumulative funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor through the date of payment of the deferred asset management fees
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 payment. In addition, the advisor intends to continue to defer payment of its asset management fee until such time as the cumulative amount of our
funds from operations for the period commencing January 1, 2006, plus the amount of the advance from the advisor exceed the cumulative amount of distributions declared and currently payable to our stockholders.



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



Investments and Financings Subsequent to September 30, 2007

South Towne Corporate Center I and II

On October 9, 2007, we,
through an indirect wholly owned subsidiary, entered into a purchase and sale agreement with an unaffiliated seller to acquire two six-story office buildings containing 269,233 rentable square feet located in Sandy, Utah (the South Towne
Corporate Center I and II). Pursuant to the purchase and sale agreement, we would be obligated to purchase the property only after satisfactory completion of agreed upon closing conditions. The purchase price of the South Towne Corporate
Center I and II is $50.8 million plus closing costs. There can be no assurance that we will complete the acquisition. In some circumstances, if we fail to complete the acquisition, we may forfeit $500,000 of earnest money.

ADP Plaza Acquisition

On November 7, 2007, we purchased,
through an indirect wholly owned subsidiary, two four-story office buildings containing 180,772 rentable square feet with a four-story parking garage containing 117,614 square feet (ADP Plaza) for a purchase price of $33.1 million plus
closing costs. We funded the purchase of ADP Plaza with proceeds from our ongoing initial public offering. ADP Plaza will secure the loan described under Substitution of Assets under Mortgage Loan and November 2007 Secured Bridge Loan.

Woodfield Preserve Office Center Acquisition

On
November 13, 2007, we purchased, through an indirect wholly owned subsidiary, two six-story office buildings containing 647,196 square feet, which include 610,462 rentable square feet, plus 36,734 square feet consisting of storage space, a
fitness center, a lower level deli and other amenities (the Woodfield Preserve Office Center) for a purchase price of $135.8 million plus closing costs. We funded the purchase of the Woodfield Preserve Office Center with proceeds from
our ongoing initial public offering and with proceeds from a $68.4 million secured 90-day bridge loan from an unaffiliated lender.

Nashville Flex
Portfolio Acquisition

On November 15, 2007, we, through an indirect wholly owned subsidiary, purchased a portfolio of six distribution and
office/flex properties containing approximately 551,184 rentable square feet located in Nashville, Tennessee (the Nashville Flex Portfolio) for a purchase price of $53.5 million plus closing costs. We funded the acquisition with proceeds
from our ongoing initial public offering and from a $32.4 million loan from an unaffiliated lender.

Investment in the San Diego Office Portfolio B-Note

On October 26, 2007, we purchased, through an indirect wholly owned subsidiary, a promissory note with an original and current principal balance
of $20.0 million (the San Diego Office Portfolio B-Note) from an unaffiliated seller. We paid $13.4 million for the San Diego Office Portfolio B-Note. We funded the acquisition with proceeds from our ongoing initial
public offering. The San Diego Office Portfolio B-Note has a stated fixed interest rate of 5.775%, but an annual effective interest rate of 11.3%, including amortization of the discount over the term of the note. The initial maturity date of
the note is October 11, 2017. Prior to maturity, the borrower under the San Diego Office Portfolio B-Note is required to make monthly interest-only payments, with the outstanding principal balance being due at
maturity. The borrower used the proceeds from the San Diego Office Portfolio B-Note and other senior financing to acquire six office buildings and one restaurant located in the San Diego, California area, which secure the San Diego Office
Portfolio B-Note. The office buildings collectively contain approximately 372,000 square feet of space and the restaurant is approximately 9,000 square feet. The San Diego Office Portfolio B-Note is junior to a $137.0 million promissory note
secured by the same seven properties described above.

Extension of Unsecured Bridge Loan

On October 23, 2007, our Operating Partnership extended the maturity date of the unsecured bridge loan entered into on July 24, 2007 (the Bridge
Loan) from October 24, 2007 to November 24, 2007 for an extension fee of approximately $15,000. As of October 23, 2007, there was $52.1 million outstanding under the Bridge Loan. The interest rate on the Bridge Loan was 6.1063%
through November 15, 2007. The Bridge Loan was used to finance a portion of the acquisition price of the Opus National Industrial Portfolio. On November 16, 2007, we paid off the existing Bridge Loan in full with $46.4 million of net
proceeds from five new secured, one-year bridge loans and proceeds from our ongoing initial public offering.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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Substitution of Assets under Mortgage Loan and November 2007 Secured Bridge Loan

In connection with the acquisition of ADP Plaza, on November 7, 2007, we substituted the collateral under the secured financing entered September 20, 2007 (the
Cardinal Health, Corporate Express and Hartman Business CenterMortgage Loan) upon payment of a $10,000 fee. ADP Plaza was substituted as the collateral for this loan in place of the Cardinal Health Building, the Corporate Express
Building and the Hartman Business Center, which buildings are part of the Opus National Industrial Portfolio.

Also on November 9, 2007, we, through
wholly owned subsidiaries, entered into three separate secured bridge loans for approximately $6.9 million, $5.3 million and $9.5 million with a financial institution that are secured by the Cardinal Health Building, the Corporate Express
Building and the Hartman Business Center, respectively (the Cardinal Health Building Mortgage Loan, the Corporate Express Building Mortgage Loan and the Hartman Business Center Mortgage Loan). The maturity date
for all three loans is November 9, 2008. Interest will accrue on these loans at either the Prime Rate as established from time to time by the lender or LIBOR plus 1.40% (subject to adjustment for a reserve percentage established by the lender),
at our option. There is no prepayment fee for principal borrowed at the Prime Rate. For principal borrowed at LIBOR plus 1.40%, there is a breakage fee for prepayment of the loan. In addition, under certain circumstances we must pay an exit fee in
connection with repayment of each of the loans. If we repay one of the loans, in whole or in part, on or before the maturity date, we must pay the lender an exit fee in an amount equal to 0.125% of the amount being repaid, unless (i) such
amounts are being repaid with proceeds from a replacement financing from the lender or (ii) we repay the entire amount of the respective loan with proceeds from the sale of the property securing the loan to a bona-fide third-party purchaser.
Notwithstanding the above, we have no obligation to pay an exit fee if (a) we repay the loan with proceeds other than from lender refinancing and the lender has not provided us a reasonable quote for replacement financing or (b) we are
repaying a portion of a loan for the sole purpose of reducing the outstanding amount of the loan to 50% of the lesser of the appraised value of the property securing the loan or the acquisition cost of the property securing the loan. The loan
agreements for the Cardinal Health Building Mortgage Loan, the Corporate Express Building Mortgage Loan and the Hartman Business Center Mortgage Loan all contain cross-default and cross-collateralization provisions such that each of these loans as
well as secured loans we may enter in the future with this lender with respect to eight other properties are cross-defaulted and cross-collateralized with each other.

Investment in Petra

On October 26, 2007, we, through an indirect wholly owned subsidiary, made an investment in
senior subordinated debt (the Petra Investment) of Petra Fund REIT Corp., a Maryland corporation that intends to elect to be taxed as a real estate investment trust (Petra). Petra is a subsidiary of Petra Offshore Fund L.P.,
a private real estate fund organized as a Cayman Islands Exempted Limited Partnership. Petra invests primarily in a diversified portfolio of high-yield and structured assets secured by commercial and residential real estate.

Our investment is in the form of two $25 million loans to Petra (the Tranche A Loan and the Tranche B Loan, respectively) and we have the option
at our discretion to make an additional $25 million loan to Petra (the Tranche C Loan). The loans bear interest at a rate of 11.5% per annum. Monthly installments on the loans are interest only with the principal amount being due at
maturity, assuming no prior principal prepayment. The maturity dates of the loans are 18 months from origination for the Tranche A Loan, 24 months from origination for the Tranche B Loan and 24 months from origination for the Tranche C Loan, Petra
has the right to prepay any or all of the loans, in whole or in part, upon the payment of a yield maintenance premium.



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

We are
exposed to the effects of changes in interest rates on borrowings used to maintain liquidity and fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We borrow funds at a combination of fixed and
variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may also enter into derivative financial
instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk (continued)
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As of September 30, 2007, we had $355.7 million of fixed-rate debt and $499.4 million of variable-rate debt
outstanding. The weighted-average interest rate on the fixed-rate debt was 5.7616% and the weighted-average interest rate on the variable-rate debt was 6.6456% as of September 30, 2007. At September 30, 2007, the estimated fair market
value of our fixed-rate debt was $335.8 million. If interest rates increase by 100 basis points, the aggregate fair market value of our fixed-rate debt as of September 30, 2007, would decrease by approximately $18.9 million. If interest rates
decrease by 100 basis points, the aggregate fair market value of our fixed-rate debt as of September 30, 2007 would increase by approximately $20.4 million. If the weighted-average interest rate on our variable-rate debt outstanding at
September 30, 2007 is 100 basis points higher or lower during the twelve months ended September 30, 2008, our interest expense would be increased or decreased by approximately $5.0 million annually.

We are also exposed to the effects of changes in interest rates as a result of our acquisition and origination of mortgage and mezzanine loans. As of September 30,
2007, we had acquired, through wholly owned subsidiaries, three mezzanine real estate loans, a partial ownership interest in two mezzanine real estate loans, a partial ownership interest in a senior mortgage loan and had originated three mortgage
loans as follows:

Investments in Tribeca Loans

As of
September 30, 2007, we had invested an aggregate of $46.7 million in two mezzanine loans and $24.5 million in a participation interest in the senior mortgage loans related to the conversion of an eight-story loft building into a ten-story
condominium building located at 415 Greenwich Street in New York, New York (the Tribeca Building).

The Tribeca Mezzanine
Loans

On July 18, 2006, we purchased, through an indirect wholly owned subsidiary, a $15.9 million junior mezzanine real estate loan (the
First Tribeca Mezzanine Loan). The purchase price of the First Tribeca Mezzanine Loan was approximately $12.9 million plus closing costs, which was the amount funded to the borrower under the loan as of the date of acquisition. After the
closing, we remained obligated to fund an additional $3.0 million under the loan for future costs related to the conversion of the Tribeca Building. As of September 30, 2007, we had funded approximately $2.5 million of these costs and the total
balance outstanding under the First Tribeca Mezzanine Loan was approximately $15.5 million.

The First Tribeca Mezzanine Loan bears interest at a variable
rate equal to 30-day LIBOR plus 850 basis points, provided that at no time shall the interest rate exceed 13.25%. At September 30, 2007, the 30-day LIBOR rate was 5.1238%. In connection with the acquisition of the Second Tribeca Mezzanine Loan
(defined below), the initial maturity date of the First Tribeca Mezzanine Loan was changed from March 1, 2008 to May 1, 2008, with a one-year extension option subject to certain conditions. Prior to maturity, the borrower under the First
Tribeca Mezzanine Loan is required to make monthly interest-only payments to us, with the outstanding principal balance being due at maturity. Prior to satisfaction of the loan, the borrower shall pay us an amount that brings the annualized internal
rate of return on the First Tribeca Mezzanine Loan up to 25%. If 30-day LIBOR is 100 basis points lower during the 12 months ended September 30, 2008, interest income from the First Tribeca Mezzanine Loan would be decreased by approximately
$97,000 annually assuming the outstanding $15.5 million of principal remains outstanding throughout the period. An increase in 30-day LIBOR would not impact interest income as the interest rate at September 30, 2007 was at the maximum interest
rate under the loan agreement of 13.25%.

On May 3, 2007, through an indirect wholly owned subsidiary, we closed on a second junior mezzanine loan
investment in the approximate amount of $31.2 million (the Second Tribeca Mezzanine Loan) related to the conversion of the Tribeca Building. The Second Tribeca Mezzanine Loan is in substantially the form of an increase of the First
Tribeca Mezzanine Loan.

The Second Tribeca Mezzanine Loan bears interest at a fixed rate of 25% per annum. The Second Tribeca Mezzanine Loan has an
initial maturity date of May 1, 2008 with a one-year extension option subject to certain conditions. Prior to maturity, the borrower under the Second Tribeca Mezzanine Loan is required to make monthly interest-only payments to us, with the
outstanding principal balance being due at maturity. If interest rates increase by 100 basis points, the fair market value of the Second Tribeca Mezzanine Loan as of September 30, 2007 would decrease by approximately $190,000. If interest rates
decrease by 100 basis points, the aggregate fair market value of the Second Tribeca Mezzanine Loan as of September 30, 2007 would increase by approximately $191,000.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk (continued)
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Tribeca Senior Mortgage Participation

On June 28, 2007, we purchased, through an indirect wholly owned subsidiary, a 25% interest (the Senior Mortgage Participation) in the senior mortgage
loans secured by the Tribeca Building. The purchase price of the Senior Mortgage Participation was approximately $23.5 million plus closing costs. After the closing, we remained obligated to fund an additional $2.3 million under the Senior Mortgage
Participation for costs related to the conversion of the Tribeca Building.

The Senior Mortgage Participation is a 25% interest in three senior mortgage
loans as well as an interest-only participation in the same mortgage loans. The three mortgage loans consist of (i) a senior mortgage loan in the principal amount of $62.5 million, (ii) a building mortgage loan in the principal
amount of up to $37.9 million and (iii) a project mortgage loan in the principal amount of $2.8 million. As of September 30, 2007, all amounts under the three mortgage loans had been advanced, except that only $32.6 million of the $37.9
million building mortgage loan had been advanced. Under the Senior Mortgage Participation, we are obligated to fund 25% of the $5.3 million that remains unfunded under the building mortgage loan as of September 30, 2007.

The $98.0 million currently outstanding under senior mortgage loans bears interest at a variable rate of 30-day LIBOR plus 2.70%, including the interest rate on the
interest-only participation in the mortgage loans. The future funding obligation under the building mortgage loan will bear interest at 30-day LIBOR plus 3.00%. The initial maturity date of the senior mortgage loans is May 1, 2008,
with a one-year extension option subject to certain conditions. Prior to maturity, the borrower under the senior mortgage loans is required to make monthly interest-only payments to us, with the outstanding principal balance being due at maturity.
If 30-day LIBOR is 100 basis points higher or lower during the 12 months ended September 30, 2008, interest income from the Senior Mortgage Participation would be increased or decreased by approximately $245,000 annually, assuming the
outstanding $24.5 million of principal remains outstanding throughout the period.

Sandmar Mezzanine Loan

On January 9, 2007, we purchased, through an indirect wholly owned subsidiary, an $8.0 million mezzanine real estate loan (the Sandmar Mezzanine Loan).
The Sandmar Mezzanine Loan bears interest at a fixed rate of 12% and has an initial maturity date of January 1, 2017. Prior to the maturity date, the borrowers under the Sandmar Mezzanine Loan are required to make monthly interest-only payments
to us, with the outstanding principal balance being due on the maturity date (or on the extended maturity date, if applicable). If interest rates increase by 100 basis points, the fair market value of the Sandmar Mezzanine Loan as of
September 30, 2007 would decrease by approximately $431,000. If interest rates decrease by 100 basis points, the aggregate fair market value of the Sandmar Mezzanine Loan as of September 30, 2007 would increase by approximately $466,000.

Park Central Mezzanine Loan

On March 23, 2007,
we purchased, through an indirect wholly owned subsidiary, a $15.0 million interest in a $58.0 million mezzanine real estate loan (the Park Central Mezzanine Loan). The Park Central Mezzanine Loan bears interest at a floating rate of
30-day LIBOR plus 448 basis points and has an initial maturity date of November 9, 2008 with three one-year extension options. Prior to the maturity date, the borrower under the Park Central Mezzanine Loan is required to make monthly
interest-only payments to the holders of the mezzanine real estate loan, with the outstanding principal balance being due on the maturity date (or on the extended maturity date, if applicable). The loan is prepayable in full (i) during the
first twelve months of the term, upon payment of a spread maintenance fee plus a 1.0% prepayment premium; (ii) during the thirteenth month through the eighteenth month of the term, upon payment of a 1.0% prepayment premium; and
(iii) without penalty after the eighteenth month of the term.

If 30-day LIBOR is 100 basis points higher or lower during the 12 months ended
September 30, 2008, interest income from the Park Central Mezzanine Loan would be increased or decreased by $150,000 annually assuming our $15.0 million interest in the principal of the Park Central Mezzanine Loan remains outstanding throughout
the period.

200 Professional Drive Loan Origination

On July 31, 2007, we originated, through an indirect wholly owned subsidiary, a senior, secured bridge loan of up to $10.5 million on 200 Professional Drive (the 200 Professional Drive Mortgage Loan). As of
September 30, 2007, $7.5 million of the loan had been funded, and the remaining $3.0 million will be funded over the term of the loan. The 200 Professional Drive Mortgage Loan is for a term of 24 months with one 12-month extension option and
bears interest at a variable annual rate of 300 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 5.0%.



If 30-day LIBOR is 100 basis points higher or lower during the 12 months ended September 30, 2008, interest income from the 200 Professional Drive Mortgage Loan
would be increased or decreased by $75,000 annually, assuming the $7.5 million in principal remains outstanding throughout the period.



61



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



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



Lawrence Village Plaza Loan Origination

On August 6, 2007, we originated, through an indirect wholly owned subsidiary, a senior mortgage loan of up to $8.3 million on Lawrence Village Plaza (the Lawrence Village Plaza Mortgage Loan). As of
September 30, 2007, $6.2 million of the loan had been funded, and the remaining $2.1 million will be funded over the term of the loan. The Lawrence Village Plaza Mortgage Loan is for a term of 36 months and bears interest at a variable annual
rate of 250 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 7.5%.

If 30-day LIBOR is 100 basis
points lower during the 12 months ended September 30, 2008, interest income from the Lawrence Village Plaza Mortgage Loan would decrease by $8,000, assuming the $6.2 million in principal remains outstanding throughout the period, since the
minimum interest rate under the loan agreement is 7.5%. If 30-day LIBOR is 100 basis points higher during the 12 months ended September 30, 2008, interest income from the Lawrence Village Plaza Mortgage Loan would be increased by $62,000,
assuming the $6.2 million in principal remains outstanding throughout the period.

11 South LaSalle Loan Origination

On August 8, 2007, we originated, through an indirect wholly owned subsidiary, a senior mortgage loan of up to $43.3 million on 11 South LaSalle (the 11 South
LaSalle Mortgage Loan). As of September 30, 2007, $21.9 million of the loan had been funded with $21.4 million remaining to be funded over the term of the loan.

The 11 South LaSalle Mortgage Loan bears interest at a variable annual rate of 295 basis points over 30-day LIBOR, adjusted on a monthly basis, provided that the rate may not be less than 7.95%. The maturity date of
the 11 South LaSalle Mortgage Loan is September 1, 2010, with one 12-month extension option upon satisfaction of certain conditions, including payment of a nonrefundable extension fee equal to 0.5% of the outstanding principal balance on the
loan, satisfaction of the 80% maximum loan-to-value test at the time of extension and, if required, funding of an interest reserve account for the extension period. Payments on the loan prior to maturity are interest-only except as described below.
The 11 South LaSalle Mortgage Loan may not be prepaid (in whole or in part) prior to the date of the first anniversary of the loan closing. After the date of the first anniversary of the loan closing and continuing until the date of the second
anniversary of the loan closing, the 11 South LaSalle Mortgage Loan may be prepaid in whole (but not in part) upon payment of a spread maintenance premium equal to the product of (i) the total number of days between the payment date on which
the prepayment occurs and the date that is the last day of the 24th month after the date of the promissory note divided by 360, (ii) 295 basis points and (iii) $43.3 million. After the second anniversary of the loan closing, prepayment of
the 11 South LaSalle Mortgage Loan in whole or in part is permitted without the payment of the spread maintenance premium or other prepayment premium or fee.

If 30-day LIBOR is 100 basis points lower during the 12 months ended September 30, 2008, interest income from 11 South LaSalle Mortgage Loan would decrease by $27,000, assuming the $21.9 million in principal remains outstanding
throughout the period, since the minimum interest rate under the loan agreement is 7.95%. If 30-day LIBOR is 100 basis points higher during the 12 months ended September 30, 2008, interest income from the Lawrence Village Plaza Mortgage Loan
would be increased by $219,000, assuming the $21.9 million in principal remains outstanding throughout the period.

Investment in the One Madison Park
Mezzanine Loan

On September 24, 2007, we purchased, through an indirect wholly owned subsidiary, a $21.0 million interest in a $42.0 million
mezzanine real estate loan (the One Madison Park Mezzanine Loan). The purchase price of our interest in the One Madison Park Mezzanine Loan was $21.0 million subject to closing adjustments. The One Madison Park Mezzanine Loan is now
owned by two noteholders, including us, each with a pari passu interest.

The One Madison Park Mezzanine Loan bears interest at a floating rate of 30-day
LIBOR plus the applicable spread which is (i) from the closing date through and including the initial maturity date, 611 basis points, and (ii) for the extension period, 661 basis points. The One Madison Park Mezzanine Loan has an initial
maturity date of January 9, 2009 with an option to extend the maturity date to July 9, 2009. At September 30, 2007, the 30-day LIBOR rate was 5.1238%. Prior to maturity, the borrowers under the One Madison Park Mezzanine Loan are
required to make monthly interest-only payments to the holders of the mezzanine real estate loan, with the outstanding principal balance being due at maturity.

If 30-day LIBOR is 100 basis points higher or lower during the 12 months ended September 30, 2008, interest income from the One Madison Park Mezzanine Loan would be increased or decreased by $210,000 annually assuming our $21.0 million
interest in the principal of the One Madison Park Mezzanine Loan remains outstanding throughout the period.



62



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##### Table of Contents

|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 has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



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

None.



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

The following risks should be read together with the
risk factors disclosed under Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2006 and the risk factors disclosed under Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended
June 30, 2007.

If our dealer manager's involvement in an October 2006 article published by the St. Louis Business Journal was held to be in
violation of the Securities Act of 1933, we could be subject to potential liability. Investors in our initial public offering should rely only on the statements made in the prospectus as supplemented to date in determining whether to purchase our
shares.

The St. Louis Business Journal published an article dated October 27, 2006 related to our acquisition of the Plaza in Clayton, a 16-story
office building containing 325,172 rentable square feet in St. Louis, Missouri. The article included statements about the acquisition and statements about us made by the national sales manager of KBS Capital Markets Group, our dealer manager. The
article is also available on the St. Louis Business Journal's web site. The article was not reviewed by us prior to its publication, nor were we aware of the publication of the article prior to October 16, 2007.

Given the local focus of the St. Louis Business Journal, we do not expect that material investment proceeds have been raised from those who received the article or
viewed it online. If our dealer manager's involvement with the article were held by a court to be in violation of Section 5 of the Securities Act of 1933, we could be required to repurchase the shares from investors in the offering who received
the article before receiving a written prospectus. Such potential repurchase obligation would last for a period of one year following the date of the alleged violation. The repurchase price would be the original purchase price, plus statutory
interest from the date of purchase.

We intend to contest any claim that a Section 5 violation occurred; nevertheless, we cannot assure you
that a court would agree with us. Because we do not know the amount of shares purchased from us, if any, from those who received the article before receiving a prospectus, we cannot know the amount of our potential liability should a court hold that
a Section 5 violation occurred. Therefore, we cannot assure you that the ultimate outcome with respect to any such Section 5 claim would not materially adversely affect our operating results, financial position or liquidity.

The amount of cash available for distributions in future periods will be decreased by the repayment of the advance from the advisor and the payment
of the advisor's deferred asset management fee.

Our advisor has advanced $1.6 million to us for cash distributions and expenses in excess of revenues
through September 30, 2007, all of which is outstanding. No amounts were advanced for distributions declared for the months of July, August or September 2007. Our advisor also deferred its asset management fee without interest from July 2006
through September 2007. As of September 30, 2007, asset management fees earned by our advisor and accrued by us, the payment of which the advisor deferred, were approximately $3.2 million. We are obligated to reimburse our advisor on demand for
the $1.6 million advance 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 being made by the advisor. Although pursuant to the advisory agreement, the advisor may demand payment of accrued but unpaid asset management fees at
any time, the advisor does not intend to request payment of accrued but unpaid asset management fees until our cumulative funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor through
the date of payment of accrued but unpaid asset management fees 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 payment. In addition, the advisor intends to continue to defer payment of its asset
management fee until such time as the cumulative amount of our funds from operations for the period commencing January 1, 2006 plus the amount of the advance from the advisor exceed the cumulative amount of distributions declared and currently
payable to our stockholders. The amount of cash available for distributions in future periods will be decreased by the repayment of the advance from the advisor and the payment of the advisor's accrued but unpaid asset management fee. Repayment of
the advance and payment of the accrued but unpaid asset management fee would affect investor returns as less cash flow would be available for distribution due to the payment of these amounts to the advisor.



64



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



|Item 1A. | Risk Factors (continued)
|-------- | ------------------------



Recent events in the residential mortgage market may impact the commercial mortgage market as well as the market
for real estate related debt investments generally, which could hinder our ability to implement our business strategy and generate returns to you.

We
are targeting to build a portfolio of approximately 30% real estate-related investments and enhanced-return properties. The real estate-related investments in which we may invest include: (i) mortgage loans; (ii) equity securities such as
common stocks, preferred stocks and convertible preferred securities of real estate companies; (iii) debt securities such as mortgage-backed securities, commercial mortgages, mortgage loan participations and debt securities issued by other real
estate companies; and (iv) certain types of illiquid securities, such as mezzanine loans and bridge loans.

Recent events in the residential mortgage
market may impact the commercial mortgage market as well as the market for real estate related debt investments generally. Credit spreads on commercial mortgages (i.e., the interest rate spread overall given benchmarks such as LIBOR or U.S. Treasury
securities) are significantly influenced by: (i) supply and demand for such mortgage loans and (ii) capital markets execution for the sale or financing of such commercial mortgage assets. In the case of the former, the number of potential
lenders in the market place and the amount of funds they are willing to devote to commercial mortgage assets will impact credit spreads. As liquidity or demand increases, spreads on equivalent commercial mortgage loans will decrease.
Conversely, a lack of liquidity will result in credit spreads increasing. During periods of volatility, the number of lenders participating in the market may change at an accelerated pace. Further, many lenders are subject to the capital markets in
order to finance their portfolio of commercial loans. Lenders are forced to increase the credit spread at which they are willing to lend as liquidity in the capital markets decrease. As the market tightens, many lenders have requested additional
collateral or repayments with respect to their loans in order to maintain margins that are acceptable to them. For existing loans, when credit spreads widen, the fair value of these existing loans decrease in market price.

Recently, concerns pertaining to the deterioration of the residential mortgage market have expanded to almost all areas of the debt capital markets including corporate
bonds, asset based securities and commercial real estate finance. This has resulted in a general reduction of liquidity in the commercial real estate sector. It has also caused a significant widening of the credit spreads on both CMBS and CRE CDOs
in recent months. We can not foresee when these markets will stabilize.



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



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



| | b) | On January 13, 2006, our Registration Statement on Form S-11 (File No. 333-126087), covering a public offering of up to 280,000,000 shares of common stock, was declared
effective under the Securities Act of 1933. The offering commenced on January 27, 2006 and is ongoing. We expected to sell the 200,000,000 shares offered in our primary offering over a two-year period. Under rules recently promulgated by the
SEC, in some circumstances we may continue the offering beyond this date. We are offering the 200,000,000 shares in our primary offering at an aggregate offering price of up to $2.0 billion, or $10.00 per share with discounts available to certain
categories of purchasers. The 80,000,000 shares offered under our dividend reinvestment plan are initially being offered at an aggregate offering price of $760.0 million, or $9.50 per share. We may sell the shares offered under the dividend
reinvestment plan beyond the termination date of the primary offering until we have sold all the shares under the plan. KBS Capital Markets Group LLC, an affiliate of our advisor, is the dealer manager of our offering.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



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



As of September 30, 2007, including shares sold through our dividend reinvestment plan, we had
sold 67,014,904 shares for gross offering proceeds of $667.1 million. As of September 30, 2007, we had redeemed 89,760 of the shares sold in our ongoing initial public offering pursuant to our share redemption program for approximately
$897,000. At September 30, 2007, we had incurred selling commissions, dealer manager fees and other organization and offering costs in the amounts set forth below (in thousands). The dealer manager reallowed all of the selling commissions and a
portion of the dealer manager fees to participating broker-dealers.



|                                            |  |        |        |                   |       
|------------------------------------------- |  | ------ | ------ | ----------------- | ------
|Type of Expense Amount                      |  | Amount |        | Estimated/ Actual
|Selling commissions and dealer manager fees |  | $      | 60,404 |                   | Actual
|Finders fees                               |  |        |       |                   |       
|Expenses paid to or for underwriters        |  |        |       |                   |       
|Other organization and offering costs       |  |        | 9,414  |                   | Actual
|                                            |  |        |        |                   |       
|Total expenses                              |  | $      | 69,818 |                   | Actual
|                                            |  |        |        |                   |       

From the commencement of our ongoing initial public offering through September 30, 2007, the
net offering proceeds to us, after deducting the total expenses paid as described above, were $597.3 million, including net offering proceeds from our dividend reinvestment plan of $8.0 million, which are available for the purchase of shares under
our share redemption program. We have used the net proceeds from our ongoing initial public offering and debt financing to purchase or fund $1,358 million of real estate and real estate-related investments, including $20.8 million in acquisition
fees and closing costs.



| | c) | We have adopted a share redemption program for investors who have held their shares for at least one year, unless the shares are being redeemed in connection with a
stockholders death or qualifying disability (as defined).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are several limitations on our ability to
redeem shares:



| |  |  | Unless the shares are being redeemed in connection with a stockholders death or qualifying disability, we may not redeem shares until they have
been outstanding for one year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our share redemption program limits the number of shares we may redeem to those that we could purchase with the net proceeds from the sale of shares under our
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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may amend, suspend or terminate the program
upon 30 days notice.



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



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



During the nine months ended September 30, 2007, we redeemed shares pursuant to our share redemption program as
follows:



|               |  |                                   |  |                                |       |                                                                                        |    
|-------------- |  | --------------------------------- |  | ------------------------------ | ----- | -------------------------------------------------------------------------------------- | ---
|Month          |  | Total Numberof SharesRedeemed (1) |  | AveragePrice PaidPer Share (2) |       | Approximate Dollar Value of SharesAvailable That May Yet Be Redeemed Under the Program
|January 2007   |  |                                  |  |                                |      |                                                                                        | (3)
|February 2007  |  |                                  |  |                                |      |                                                                                        | (3)
|March 2007     |  |                                  |  |                                |      |                                                                                        | (3)
|April 2007     |  |                                  |  |                                |      |                                                                                        | (3)
|May 2007       |  |                                  |  |                                |      |                                                                                        | (3)
|June 2007      |  | 34,020                            |  | $                              | 9.99  |                                                                                        | (3)
|July 2007      |  | 6,472                             |  | $                              | 9.99  |                                                                                        | (3)
|August 2007    |  | 13,189                            |  | $                              | 9.98  |                                                                                        | (3)
|September 2007 |  | 36,079                            |  | $                              | 10.00 |                                                                                        | (3)

---

|(1) | We announced the commencement of the program on April 6, 2006 and amendments
to the program on August 16, 2006 (which amendment became effective December 14, 2006) and August 1, 2007 (which amendment became effective on September 13, 2007).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Prior to September 13, 2007, we redeemed shares at the lower of $9.00 or 90%
of the price paid to acquire the shares from us, unless the shares were being redeemed in connection with a stockholders death or qualifying disability (as defined under the program). The redemption price for shares being redeemed
upon a stockholders death or qualifying disability was the amount paid to acquire the shares from us. Pursuant to the amendment to the program adopted by our board of directors on July 6, 2007 and which became effective on
September 13, 2007, we currently redeem shares as follows:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.25 or 92.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.50 or 95.0% of the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.75 or 97.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $10.00 or 100% of the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| | Notwithstanding the above, once we establish a net asset value per share of our common stock, the redemption price per share for all stockholders will be equal to the net asset
value per share, as estimated by our advisor or another firm chosen for that purpose. We expect to establish a net asset value per share beginning three years after the completion of our offering stage. We will consider our offering stage complete
when we are no longer publicly offering equity securities and have not done so for one year. Until we establish a net asset value per share, the redemption price for shares being redeemed upon a stockholders death or qualifying disability will
be the amount paid to acquire the shares from us.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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.



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



| | a) | On July 12, 2007, we held our annual meeting of stockholders at 660 Newport Center Drive, Suite 1200, Newport Beach, California.
| | -- | --------------------------------------------------------------------------------------------------------------------------------



| | b) | Our stockholders elected the following individuals to the board of directors: Charles J. Schreiber, Jr., Peter McMillan III, Hank Adler, Barbara R. Cambon, and Stuart A. Gabriel,
PhD.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | The number of votes cast for and votes withheld from each of the director nominees was as follows:
| | -- | --------------------------------------------------------------------------------------------------



|                          |  |            |  |               
|------------------------- |  | ---------- |  | --------------
|Name                      |  | Vote For   |  | Votes Withheld
|Charles J. Schreiber, Jr. |  | 16,190,739 |  | 267,950       
|Peter McMillan III        |  | 16,190,695 |  | 267,994       
|Hank Adler                |  | 16,188,924 |  | 269,765       
|Barbara R. Cambon         |  | 16,182,475 |  | 276,214       
|Stuart A. Gabriel, PhD    |  | 16,192,239 |  | 266,450       



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

None.



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



|       |  |                                                                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | 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    |  | Form of Subscription Agreement, incorporated by reference to Appendix A to the prospectus that is part of Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form
S-11, Commission File No. 333-126087                                                                                                                  
|       | 
|4.2    |  | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares
without certificates), incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087
|       | 
|4.3    |  | Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Appendix B to the prospectus that is part of Pre-Effective Amendment No. 5 to the Companys Registration
Statement on Form S-11, Commission File No. 333-126087                                                                                                 
|       | 
|4.4    |  | Amended Share Redemption Program, incorporated by reference from the description under Share Redemption Program in Supplement No. 28 included in Post-Effective Amendment No. 8 to
the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                        
|       | 
|10.1   |  | Amendment no. 4 to Advisory Agreement between the Company and KBS Capital Advisors LLC, dated July 17, 2007, incorporated by reference to Exhibit 10.5 to Post-Effective Amendment No. 9 to the
Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                 
|       | 
|10.2   |  | Amendment no. 5 to Advisory Agreement between the Company and KBS Capital Advisors LLC, dated August 7, 2007, incorporated by reference to Exhibit 10.6 to Post-Effective Amendment No. 9 to
the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                            
|10.3   |  | First Amendment to Purchase Agreement (related to the acquisition of the Opus National Industrial Portfolio) between KBS Industrial Portfolio (MI), LLC and OIRE Michigan, L.L.C., dated as of
July 5, 2007, incorporated by reference to Exhibit 10.97 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                         
|       | 
|10.4   |  | First Amendment to Purchase Agreement (related to the acquisition of the Opus National Industrial Portfolio) between KBS Industrial Portfolio, LLC and MBS Arlington Limited Partnership, dated
as of July 5, 2007, incorporated by reference to Exhibit 10.98 to Post- Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                 
|       | 
|10.5   |  | First Amendment to Purchase Agreement (related to the acquisition of the Opus National Industrial Portfolio) between KBS Industrial Portfolio, LLC and Opus Real Estate VI Limited Partnership,
dated as of July 5, 2007, incorporated by reference to Exhibit 10.99 to Post- Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087           
|       | 
|10.6   |  | Operating Agreement of New Leaf-KBS JV, LLC (related to the acquisition of the National Industrial Portfolio) between New Leaf Industrial Partners Fund, L.P. and KBS REIT Acquisition XXIII
LLC, dated August 8, 2007, incorporated by reference to Exhibit 10.110 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087             
|       | 
|10.7   |  | Second Amendment to Purchase and Sale Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio Buyer, LLC and Sellers dated August 8,
2007, incorporated by reference to Exhibit 10.113 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                
|       | 
|10.8   |  | Loan Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio Borrower, LLC and Citigroup Global Markets Realty Corp., dated August 8,
2007, incorporated by reference to Exhibit 10.114 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                               
|       | 
|10.9   |  | Pricing Letter related to the Loan Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio Borrower, LLC and Citigroup Global Markets
Realty Corp., dated August 8, 2007, incorporated by reference to Exhibit 10.115 to Post- Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087
|       | 
|10.10  |  | Promissory Note (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio Borrower, LLC and Citigroup Global Markets Realty Corp., dated August
8, 2007, incorporated by reference to Exhibit 10.116 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                              



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.11  |  | Mezzanine A Loan Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Mezz A, LLC, National Industrial Mezz B, LLC and Citigroup Global Markets
Realty Corp., dated August 8, 2007, incorporated by reference to Exhibit 10.117 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                  
|       | 
|10.12  |  | Pricing Letter related to the Mezzanine Loan (related to the acquisition of the National Industrial Portfolio) between National Industrial Mezz A, LLC and Citigroup Global Markets Realty Corp.,
dated August 8, 2007, incorporated by reference to Exhibit 10.118 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                 
|       | 
|10.13  |  | Mezzanine A Promissory Note (Note A) (related to the acquisition of the National Industrial Portfolio) between National Industrial Mezz A, LLC and Citigroup Global Markets Realty Corp., dated
August 8, 2007, incorporated by reference to Exhibit 10.119 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                         
|       | 
|10.14  |  | Mezzanine A Promissory Note (Note B) (related to the acquisition of the National Industrial Portfolio) between National Industrial Mezz A, LLC and Citigroup Global Markets Realty Corp., dated
August 8, 2007, incorporated by reference to Exhibit 10.120 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                         
|       | 
|10.15  |  | Form of Mortgage[Deed of Trust], Assignment of Leases and Rents and Security Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio
Borrower, LLC and Citigroup Global Markets Realty Corp., dated August 8, 2007, incorporated by reference to Exhibit 10.121 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                           
|       | 
|10.16  |  | Form of Mortgage, Assignment of Leases and Rents and Security Agreement and Consolidation, Modification and Restatement Agreement (related to the acquisition of the National Industrial
Portfolio) between National Industrial Portfolio Borrower, LLC and Citigroup Global Markets Realty Corp., dated August 8, 2007, incorporated by reference to Exhibit 10.122 to Post-Effective Amendment No. 9 to the Companys Registration
Statement on Form S-11, Commission File No. 333-126087
|       | 
|10.17  |  | Form of Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement (related to the acquisition of the National Industrial Portfolio) between National Industrial Portfolio
Borrower, LLC and Citigroup Global Markets Realty Corp., dated August 8, 2007, incorporated by reference to Exhibit 10.123 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                
|       | 
|10.18  |  | Purchase and Sale Agreement (related to the acquisition of Plano Corporate Center in Plano, Texas) between PCCP Lincoln Plano Corporate Center, L.P. and KBS Capital Advisors LLC, dated as of
July 18, 2007, incorporated by reference to Exhibit 10.124 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                           



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                              
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                  
|10.19  |  | Assignment and Assumption of Purchase Agreement (related to the acquisition of Plano Corporate Center in Plano, Texas) between KBS Capital Advisors LLC and KBS Plano Corporate Center, LLC, dated
as of August 10, 2007, incorporated by reference to Exhibit 10.125 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                 
|       | 
|10.20  |  | First Amendment to Purchase and Sale Agreement (related to the acquisition of Plano Corporate Center in Plano, Texas) between KBS Plano Corporate Center, LLC, and PCCP Lincoln Plano Corporate
Center, L.P., dated as of August 13, 2007, incorporated by reference to Exhibit 10.126 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087
|       | 
|10.21  |  | Promissory Note (related to the acquisition of Plano Corporate Center) between KBS Plano Corporate Center, LLC and AIG Annuity Insurance Company, dated as of August 22, 2007, incorporated by
reference to Exhibit 10.127 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                            
|       | 
|10.22  |  | Deed of Trust (related to the acquisition of Plano Corporate Center in Plano, Texas) between KBS Plano Corporate Center, LLC, and AIG Annuity Insurance Company, dated as of August 22, 2007,
incorporated by reference to Exhibit 10.128 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                             
|       | 
|10.23  |  | Purchase and Sale Agreement (related to the acquisition of the 2200 West Loop South Building in Houston, Texas) between KBS 2200 West Loop, LLC and 2200 West Loop South, L.P., dated as of July
27, 2007, incorporated by reference to Exhibit 10.129 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333- 126087                               
|       | 
|10.24  |  | Promissory Note (related to the acquisition of the 2200 West Loop South Building in Houston, Texas) between KBS 2200 West Loop, LLC and The Variable Annuity Life Insurance Company, dated as of
September 5, 2007, incorporated by reference to Exhibit 10.130 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                       
|       | 
|10.25  |  | Deed of Trust (related to the acquisition of the 2200 West Loop South Building in Houston, Texas) between KBS 2200 West Loop, LLC and The Variable Annuity Life Insurance Company, dated September
5, 2007, incorporated by reference to Exhibit 10.131 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                               
|       | 
|10.26  |  | Real Property Purchase Agreement (related to the acquisition of ADP Plaza in Portland, Oregon) between Antares-A, Inc. and KBS Capital Advisors LLC, dated July 2, 2007, incorporated by reference
to Exhibit 10.132 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                  
|       | 
|10.27  |  | Assignment and Assumption of Purchase Agreement (related to the acquisition of ADP Plaza in Portland, Oregon) between KBS Capital Advisors LLC and KBS ADP Plaza, LLC, dated August 7, 2007,
incorporated by reference to Exhibit 10.133 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                              



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##### Table of Contents

PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                         
|10.28  |  | Purchase and Sale Agreement (related to the acquisition of Patrick Henry Corporate Center in Newport News, Virginia) between KBS Capital Advisors LLC and Patrick Henry Corporate Center, LLC,
dated as of September 13, 2007, incorporated by reference to Exhibit 10.134 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                   
|       | 
|10.29  |  | First Amendment to Purchase and Sale Agreement (related to the acquisition of Patrick Henry Corporate Center in Newport News, Virginia) between KBS Capital Advisors LLC and Patrick Henry
Corporate Center, LLC, dated as of September 19, 2007, incorporated by reference to Exhibit 10.135 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087
|       | 
|10.30  |  | Assignment and Assumption of Purchase Agreement (related to the acquisition of Patrick Henry Corporate Center in Newport News, Virginia) between KBS Capital Advisors LLC and KBS 12350 Jefferson
Avenue, LLC, dated as of September 19, 2007, incorporated by reference to Exhibit 10.136 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087   
|       | 
|10.31  |  | Promissory Note (related to the acquisition of the Bridgeway Technology Center in Newark, CA) between KBS Bridgeway Technology Center, LLC and Merit Life Insurance Company, dated as of July 16,
2007, incorporated by reference to Exhibit 10.137 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                          
|       | 
|10.32  |  | Deed of Trust (related to the acquisition of the Bridgeway Technology Center in Newark, CA) between KBS Bridgeway Technology Center, LLC and Merit Life Insurance Company, dated as of July 16,
2007, incorporated by reference to Exhibit 10.138 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                            
|       | 
|10.33  |  | Promissory Note (related to the Royal Ridge Building in Alpharetta, GA) between KBS Royal Ridge, LLC and AIG Annuity Insurance Company, dated as of August 1, 2007, incorporated by reference to
Exhibit 10.139 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                              
|       | 
|10.34  |  | Deed to Secure Debt (related to the Royal Ridge Building in Alpharetta, GA) between KBS Royal Ridge, LLC and AIG Annuity Insurance Company, dated as of August 1, 2007, incorporated by reference
to Exhibit 10.140 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                          
|       | 
|10.35  |  | Promissory Note (related to the Opus National Industrial Portfolio Buildings) between KBS Industrial Portfolio, LLC, KBS ADP Plaza, LLC and American General Life Insurance Company, dated as of
September 13, 2007, incorporated by reference to Exhibit 10.141 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                             



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.36  |  | Deed to Secure Debt Security Agreement and Assignment of Leases and Rents (related to the Opus National Industrial Portfolio Buildings) between KBS Industrial Portfolio, LLC and American General
Life Insurance Company, dated as of September 13, 2007, incorporated by reference to Exhibit 10.142 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                
|       | 
|10.37  |  | Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents (related to the Opus National Industrial Portfolio Buildings) between KBS Industrial
Portfolio, LLC and American General Life Insurance Company, dated as of September 13, 2007, incorporated by reference to Exhibit 10.143 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No.
333-126087
|       | 
|10.38  |  | Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents (related to the Opus National Industrial Portfolio Buildings) between KBS Industrial
Portfolio, LLC and American General Life Insurance Company, dated as of September 13, 2007, incorporated by reference to Exhibit 10.144 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No.
333-126087     
|       | 
|10.39  |  | Collateral Substitution Agreement (related to the Opus National Industrial Portfolio Buildings) between KBS Industrial Portfolio, LLC, KBS ADP Plaza, LLC and American General Life Insurance
Company, dated as of September 13, 2007, incorporated by reference to Exhibit 10.145 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                    
|       | 
|10.40  |  | Loan Agreement (related to the origination of the 11 S. LaSalle Mortgage Loan) between Prime LaSalle/Madison Partners, LLC and KBS Debt Holdings, LLC, dated August 8, 2007, incorporated by
reference to Exhibit 10.146 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                              
|       | 
|10.41  |  | Promissory Note (related to the origination of the 11 S. LaSalle Mortgage Loan) between Prime LaSalle/Madison Partners, LLC and KBS Debt Holdings, LLC, dated as of August 8, 2007, incorporated
by reference to Exhibit 10.147 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                       
|       | 
|10.42  |  | Mortgage Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (related to the origination of the 11 S. LaSalle Mortgage Loan) between Prime LaSalle/Madison
Partners, LLC and KBS Debt Holdings, LLC, dated as of August 8, 2007, incorporated by reference to Exhibit 10.148 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No.
333-126087                   
|       | 
|10.43  |  | Loan Agreement (related to the Bridge Loan) between KBS Limited Partnership and Wells Fargo Bank, National Association, dated July 24, 2007, incorporated by reference to Exhibit 10.149 to
Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                                                              
|       | 
|10.44  |  | Promissory Note (related to the Bridge Loan) between KBS Limited Partnership and Wells Fargo Bank, National Association, dated July 24, 2007, incorporated by reference to Exhibit 10.150 to
Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                                                             



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.45  |  | General Assignment and Assumption (related to the acquisition of the One Madison Park Mezzanine Loan) between Column Financial, Inc. and KBS One Madison Park, LLC, dated as of September 24,
2007, incorporated by reference to Exhibit 10.154 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                          
|       | 
|10.46  |  | Amended and Restated Intercreditor Agreement between PB Capital Corporation, LaSalle Bank National Association, Column Financial, Inc. and CBRE Realty Finance CDO 2007-1, LTD., dated as of
September 24, 2007, incorporated by reference to Exhibit 10.155 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                             
|       | 
|10.47  |  | Contract of Sale (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between Woodfield Preserve Phase I LLC, Woodfield Preserve Phase II LLC and KBS Capital
Advisors LLC, dated August 27, 2007, incorporated by reference to Exhibit 10.156 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                       
|       | 
|10.48  |  | First Amendment to Contract of Sale (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between Woodfield Preserve Phase I LLC, Woodfield Preserve Phase II
LLC and KBS Capital Advisors LLC, dated September 21, 2007, incorporated by reference to Exhibit 10.157 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087 
|       | 
|10.49  |  | Second Amendment to Contract of Sale (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between Woodfield Preserve Phase I LLC, Woodfield Preserve Phase II
LLC and KBS Capital Advisors LLC, dated September 24, 2007, incorporated by reference to Exhibit 10.158 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087
|       | 
|10.50  |  | Third Amendment to Contract of Sale (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between Woodfield Preserve Phase I LLC, Woodfield Preserve Phase II
LLC and KBS Capital Advisors LLC, dated September 25, 2007, incorporated by reference to Exhibit 10.159 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087 
|       | 
|10.51  |  | Assignment and Assumption of Purchase Agreement (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between KBS Capital Advisors LLC, KBS Woodfield Preserve,
LLC, dated September 25, 2007, incorporated by reference to Exhibit 10.160 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                            
|       | 
|10.52  |  | Fourth Amendment to Contract of Sale (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between Woodfield Preserve Phase I LLC, Woodfield Preserve Phase II
LLC and KBS Capital Advisors LLC, dated September 26, 2007, incorporated by reference to Exhibit 10.161 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                                                              
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                  
|10.53  |  | Purchase Agreement for Real Property and Escrow Instructions (related to the acquisition of South Towne Corporate Center I and II in Sandy, Utah) between Workers Compensation Fund and KBS
Capital Advisors LLC, dated as of September 10, 2007             
|       | 
|10.54  |  | Assignment and Assumption of Purchase Agreement (related to the acquisition of South Towne Corporate Center I and II in Sandy, Utah) between KBS Capital Advisors LLC and KBS South Towne, LLC,
dated as of October 9, 2007                                  
|       | 
|10.55  |  | First Amendment to Purchase Agreement for Real Property and Escrow Instructions (related to the acquisition of South Towne Corporate Center I and II in Sandy, Utah) between Workers Compensation
Fund and KBS South Towne, LLC, dated as of October 10, 2007
|       | 
|10.56  |  | Agreement of Purchase and Sale (related to the acquisition of the Nashville Flex Portfolio in Nashville, Tennessee) between FirstCal Industrial 2 Acquisition, LLC and KBS Nashville Industrial
Portfolio I, LLC, dated as of October 25, 2007               
|       | 
|10.57  |  | Modification Agreement to Loan Agreement (related to the Bridge Loan) between KBS Limited Partnership and Wells Fargo Bank, National Association, dated as of October 23, 2007                                                                               
|       | 
|10.58  |  | Loan Agreement, including Promissory Notes (related to the Petra Investment) between Petra Fund REIT Corp. and KBS Preferred Holding 1, LLC, dated as of October 26, 2007                                                                                    
|       | 
|10.59  |  | Deed of Trust, Security Agreement and Fixture Filing (related to the San Diego Office Portfolio B-Note) between UTC Properties LLC and Wachovia Bank, National Association, dated as of March 30,
2007                                                       
|       | 
|10.60  |  | Amended and Restated Promissory Note A (related to the San Diego Office Portfolio B-Note) between UTC Properties LLC and Wachovia Bank, National Association, dated as of July 11,
2007                                                                      
|       | 
|10.61  |  | Amended and Restated Promissory Note B (related to the San Diego Office Portfolio B-Note) between UTC Properties LLC and Wachovia Bank, National Association, dated as of July 11,
2007                                                                      
|       | 
|10.62  |  | Intercreditor and Servicing Agreement (related to the San Diego Office Portfolio B-Note) between Wachovia Bank, National Association and MW1-2002, LLC, dated as of August 15,
2007                                                                          
|       | 
|10.63  |  | Amendment No. 6 to Advisory Agreement between the Company and KBS Capital Advisors LLC, dated as of October 26, 2007                                                                                                                                         
|       | 
|10.64  |  | Advisory Agreement between the Company and KBS Capital Advisors LLC, dated as of November 8, 2007                                                                                                                                                            



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                           
|10.65  |  | Amended and Restated Promissory Note (related to the financing of ADP Plaza) between KBS ADP Plaza, LLC and American General Life Insurance Company, dated as of November 7, 2007                                     
|       | 
|10.66  |  | Deed of Trust (related to the financing of ADP Plaza) between KBS ADP Plaza, LLC and American General Life Insurance Company, dated as of November 7, 2007                                                            
|       | 
|10.67  |  | Loan Agreement (related to the financing of the Corporate Express Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                            
|       | 
|10.68  |  | Promissory Note (related to the financing of the Corporate Express Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                           
|       | 
|10.69  |  | Deed Of Trust (related to the financing of the Corporate Express Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                             
|       | 
|10.70  |  | Loan Agreement (related to the financing of the Hartman Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7, 2007                                      
|       | 
|10.71  |  | Promissory Note (related to the financing of the Hartman Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7, 2007                                     
|       | 
|10.72  |  | Deed Of Trust (related to the financing of the Hartman Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7, 2007                                       
|       | 
|10.73  |  | Loan Agreement (related to the financing of the Cardinal Health Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                              
|       | 
|10.74  |  | Promissory Note (related to the financing of the Cardinal Health Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                             
|       | 
|10.75  |  | Mortgage (related to the financing of the Cardinal Health Building) between KBS Industrial Portfolio, LLC and Wells Fargo Bank, National Association, dated as of November 7,
2007                                    
|       | 
|10.76  |  | Loan Agreement (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between KBS Woodfield Preserve, LLC and Wells Fargo Bank, National Association, dated as
of November 13, 2007 
|       | 
|10.77  |  | Promissory Note (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between KBS Woodfield Preserve, LLC and Wells Fargo Bank, National Association, dated as
of November 13, 2007



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PART II. OTHER INFORMATION (CONTINUED)



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



|       |  |                                                                                                                                                                                                                
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                    
|10.78  |  | Mortgage (related to the acquisition of Woodfield Preserve Office Center in Schaumburg, Illinois) between KBS Woodfield Preserve, LLC and Wells Fargo Bank, National Association, dated as of
November 13, 2007
|       | 
|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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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: November 19, 2007 |  | By:                                    |  | /s/ Charles J. Schreiber, Jr.         
|                        |  |                                        |  | Charles J. Schreiber, Jr.             
|                        |  |                                        |  | Chief Executive Officer and Director  
|                        |  |                                       
|Date: November 19, 2007 |  | By:                                    |  | /s/ Stacie K. Yamane                  
|                        |  |                                        |  | Stacie K. Yamane                      
|                        |  |                                        |  | Chief Financial Officer and Controller



78