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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended June 30, 2008



| ̈ | 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: 000-53200





CB RICHARD ELLIS REALTY TRUST

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 56-2466617                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

515 South Flower Street, Suite 3100, Los Angeles, California 90071

(Address of principal executive offices) (Zip Code)

(609) 683-4900

(Registrants telephone number, including area code)





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

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

Large accelerated
filer   ̈    Accelerated filer   ̈    Non-accelerated filer  x    Smaller reporting company   ̈

(Do not
check if a smaller reporting company)

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

The number of shares outstanding of the registrants common shares, $0.01 par value, was 48,926,245 as of August 1, 2008









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CB RICHARD ELLIS REALTY TRUST

INDEX



|                              |  |                                                                                                                    |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
|                              |  |                                                                                                                    |  | Page
|Part I. FINANCIAL INFORMATION |  |                                                                                                                   
|Item 1.                       |  | Condensed Consolidated Financial Statements (unaudited)                                                            |  |     
|                              |  | Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007                                    |  | 1   
|                              |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007          |  | 2   
|                              |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007                    |  | 3   
|                              |  | Condensed Consolidated Statement of Shareholders Equity for the Six Months Ended June 30, 2008                    |  | 4   
|                              |  | Notes to the Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2008 and
2007 |  | 5   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                              |  | 34  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                         |  | 56  
|Item 4.                       |  | Controls and Procedures                                                                                            |  | 56  
|Item 4T.                      |  | Controls and Procedures                                                                                            |  | 56  
|                              | 
|Part II. OTHER INFORMATION    |  |                                                                                                                   
|Item 1.                       |  | Legal Proceedings                                                                                                  |  | 57  
|Item 1A.                      |  | Risk Factors                                                                                                       |  | 57  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |  | 57  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                    |  | 57  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                |  | 57  
|Item 5.                       |  | Other Information                                                                                                  |  | 57  
|Item 6.                       |  | Exhibits                                                                                                           |  | 58  
|                              |  | Signatures                                                                                                         |  | 59  



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##### Table of Contents

PART I.

FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements (unaudited)
|------- | -------------------------------------------------------

CB RICHARD ELLIS REALTY TRUST

Condensed Consolidated Balance Sheets

as of June 30, 2008 and December 31, 2007 (unaudited)

(In Thousands, Except Share Data)



|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                     |  | June 30,2008 |         |   | December 31,2007 |  
|ASSETS:                                                                                                                                              |  |              |         |   |                  |   |         |  
|Investments in Real Estate:                                                                                                                          |  |              |         |   |                  |   |         |  
|Land                                                                                                                                                 |  | $            | 63,561  |   |                  | $ | 48,966  |  
|Site Improvements                                                                                                                                    |  |              | 22,381  |   |                  |   | 17,901  |  
|Buildings and Improvements                                                                                                                           |  |              | 234,678 |   |                  |   | 183,268 |  
|Tenant Improvements                                                                                                                                  |  |              | 10,721  |   |                  |   | 9,449   |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|                                                                                                                                                     |  |              | 331,341 |   |                  |   | 259,584 |  
|Less: Accumulated Depreciation and Amortization                                                                                                      |  |              | (11,242 | ) |                  |   | (7,233  | )
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Net Investments in Real Estate                                                                                                                       |  |              | 320,099 |   |                  |   | 252,351 |  
|Investments in Unconsolidated Entities                                                                                                               |  |              | 35,417  |   |                  |   | 101     |  
|Real Estate and Other Assets Held for Sale                                                                                                           |  |              | 61,169  |   |                  |   | 61,100  |  
|Cash and Cash Equivalents                                                                                                                            |  |              | 105,092 |   |                  |   | 77,554  |  
|Restricted Cash                                                                                                                                      |  |              | 232     |   |                  |   | 430     |  
|Accounts and Other Receivables                                                                                                                       |  |              | 1,135   |   |                  |   | 1,445   |  
|Deferred Rent                                                                                                                                        |  |              | 1,886   |   |                  |   | 1,196   |  
|Acquired Above Market Leases, Net of Accumulated Amortization of $1,435 and $921, respectively                                                       |  |              | 11,966  |   |                  |   | 11,735  |  
|Acquired In-Place Lease Value, Net of Accumulated Amortization of $11,191 and $8,181, respectively                                                   |  |              | 29,702  |   |                  |   | 26,324  |  
|Deferred Financing Costs, Net of Accumulated Amortization of $463 and $267, respectively                                                             |  |              | 1,351   |   |                  |   | 1,369   |  
|Lease Commissions, Net of Accumulated Amortization of $72 and $46, respectively                                                                      |  |              | 292     |   |                  |   | 180     |  
|Other Assets                                                                                                                                         |  |              | 4,488   |   |                  |   | 1,021   |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Total Assets                                                                                                                                         |  | $            | 572,829 |   |                  | $ | 434,806 |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                                                                                |  |              |         |   |                  |   |         |  
|LIABILITIES:                                                                                                                                         |  |              |         |   |                  |   |         |  
|Notes Payable, less discount of $2,873 and $3,049, respectively                                                                                      |  | $            | 130,350 |   |                  | $ | 116,876 |  
|Loan Payable                                                                                                                                         |  |              | 45,000  |   |                  |   | 45,000  |  
|Liabilities Related to Real Estate and Other Assets Held for Sale                                                                                    |  |              | 1,100   |   |                  |   | 729     |  
|Security Deposits                                                                                                                                    |  |              | 201     |   |                  |   | 155     |  
|Accounts Payable and Accrued Expenses                                                                                                                |  |              | 4,332   |   |                  |   | 3,891   |  
|Accrued Offering Costs Payable to Related Parties                                                                                                    |  |              | 4,864   |   |                  |   | 5,241   |  
|Distributions Payable                                                                                                                                |  |              | 5,907   |   |                  |   | 4,013   |  
|Acquired Below Market Leases, Net of Accumulated Amortization of $2,637 and $1,696, respectively                                                     |  |              | 15,840  |   |                  |   | 11,895  |  
|Property Management Fee Payable to Related Party                                                                                                     |  |              | 59      |   |                  |   | 50      |  
|Investment Management Fee Payable to Related Party                                                                                                   |  |              | 277     |   |                  |   | 429     |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Total Liabilities                                                                                                                                    |  |              | 207,930 |   |                  |   | 188,279 |  
|MINORITY INTEREST:                                                                                                                                   |  |              | 1,427   |   |                  |   | 1,495   |  
|SHAREHOLDERS EQUITY:                                                                                                                                |  |              |         |   |                  |   |         |  
|Common Shares of Beneficial Interest, $0.01 par value, 990,000,000 shares authorized; 45,634,077 and 31,076,709 issued and outstanding,
respectively |  |              | 456     |   |                  |   | 311     |  
|Additional Paid-in-Capital                                                                                                                           |  |              | 393,932 |   |                  |   | 264,954 |  
|Accumulated Deficit                                                                                                                                  |  |              | (30,967 | ) |                  |   | (20,274 | )
|Accumulated Other Comprehensive Income                                                                                                               |  |              | 51      |   |                  |   | 41      |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Total Shareholders Equity                                                                                                                           |  |              | 363,472 |   |                  |   | 245,032 |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Total Liabilities and Shareholders Equity                                                                                                           |  | $            | 572,829 |   |                  | $ | 434,806 |  
|                                                                                                                                                     |  |              |         |   |                  |   |         |  

See accompanying notes to condensed consolidated financial statements.



1



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CB RICHARD ELLIS REALTY TRUST

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)

(In Thousands, Except Share Data)



|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|----------------------------------------------------------------- |  | -------------------------- | ---------- | ------------------------ | ---- | - | ---------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                  |  | Three Months EndedJune 30, |            | Six Months EndedJune 30, |     
|                                                                  |  | 2008                       |            |                          | 2007 |   | 2008       |  |   | 2007       |  
|REVENUES:                                                         |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Rental                                                            |  | $                          | 6,722      |                          |      | $ | 1,974      |  | $ | 12,536     |   |  | $ | 3,657      |  
|Tenant Reimbursements                                             |  |                            | 1,261      |                          |      |   | 464        |  |   | 2,330      |   |  |   | 949        |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|                                                                  |  |                            | 7,983      |                          |      |   | 2,438      |  |   | 14,866     |   |  |   | 4,606      |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|                                                                  |  |                            |            |                         
|EXPENSES:                                                         |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Operating and Maintenance                                         |  |                            | 587        |                          |      |   | 221        |  |   | 1,070      |   |  |   | 435        |  
|Property Taxes                                                    |  |                            | 816        |                          |      |   | 295        |  |   | 1,447      |   |  |   | 590        |  
|Interest                                                          |  |                            | 2,344      |                          |      |   | 572        |  |   | 4,750      |   |  |   | 1,018      |  
|General and Administrative                                        |  |                            | 983        |                          |      |   | 521        |  |   | 1,392      |   |  |   | 744        |  
|Property Management Fee to Related Party                          |  |                            | 70         |                          |      |   | 11         |  |   | 134        |   |  |   | 20         |  
|Investment Management Fee to Related Party                        |  |                            | 798        |                          |      |   | 262        |  |   | 1,479      |   |  |   | 499        |  
|Depreciation and Amortization                                     |  |                            | 3,889      |                          |      |   | 1,327      |  |   | 7,039      |   |  |   | 2,470      |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|                                                                  |  |                            | 9,487      |                          |      |   | 3,209      |  |   | 17,311     |   |  |   | 5,776      |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|INTEREST AND OTHER INCOME                                         |  |                            | 534        |                          |      |   | 774        |  |   | 1,330      |   |  |   | 1,038      |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST |  |                            | (970       | )                        |      |   | 3          |  |   | (1,115     | ) |  |   | (132       | )
|MINORITY INTEREST                                                 |  |                            | 5          |                          |      |   | 1          |  |   | 7          |   |  |   | 4          |  
|PROVISION FOR INCOME TAXESCONTINUING OPERATIONS                  |  |                            | (81        | )                        |      |   |           |  |   | (140       | ) |  |   |           |  
|EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES                         |  |                            | (180       | )                        |      |   |           |  |   | (276       | ) |  |   |           |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|(LOSS) INCOME FROM CONTINUING OPERATIONS                          |  |                            | (1,226     | )                        |      |   | 4          |  |   | (1,524     | ) |  |   | (128       | )
|DISCONTINUED OPERATIONS                                           |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Revenues                                                          |  |                            | 1,340      |                          |      |   |           |  |   | 2,701      |   |  |   |           |  
|Expenses                                                          |  |                            | 306        |                          |      |   |           |  |   | 613        |   |  |   |           |  
|Property Management Fee to Related Party                          |  |                            | 35         |                          |      |   |           |  |   | 89         |   |  |   |           |  
|Minority Interest                                                 |  |                            | 3          |                          |      |   |           |  |   | 10         |   |  |   |           |  
|Provision for Income Taxes                                        |  |                            | 255        |                          |      |   |           |  |   | 367        |   |  |   |           |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|INCOME FROM DISCONTINUED OPERATIONS                               |  |                            | 741        |                          |      |   |           |  |   | 1,622      |   |  |   |           |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|NET (LOSS) INCOME                                                 |  | $                          | (485       | )                        |      | $ | 4          |  | $ | 98         |   |  | $ | (128       | )
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Basic and Diluted Loss from Continuing Operations per Share       |  | $                          | (0.03      | )                        |      | $ |           |  | $ | (0.04      | ) |  | $ | (0.01      | )
|Basic and Diluted Income from Discontinued Operations per Share   |  |                            | 0.02       |                          |      |   |           |  |   | 0.04       |   |  |   |           |  
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Basic and Diluted Net Loss per Share                              |  | $                          | (0.01      | )                        |      | $ |           |  | $ |           |   |  | $ | (0.01      | )
|                                                                  |  |                            |            |                          |      |   |            |  |   |            |   |  |   |            |  
|Weighted Average Common Shares OutstandingBasic and Diluted      |  |                            | 40,139,105 |                          |      |   | 14,483,988 |  |   | 37,083,587 |   |  |   | 11,751,023 |  

See accompanying notes to condensed consolidated financial statements.



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CB RICHARD ELLIS REALTY TRUST

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2008 and 2007 (unaudited)

(In Thousands)



|                                                                                               |  |                          |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                               |  | Six Months EndedJune 30, |         
|                                                                                               |  | 2008                     |          |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                          |  |                          |          |   |      |   |         |  
|Net Income (Loss)                                                                              |  | $                        | 98       |   |      | $ | (128    | )
|Adjustments to Reconcile Net Income (Loss) to Net Cash Flows Provided by Operating Activities: |  |                          |          |   |      |   |         |  
|Equity in Loss of Unconsolidated Entities                                                      |  |                          | 276      |   |      |   |        |  
|Minority Interest                                                                              |  |                          | 3        |   |      |   | (4      | )
|Depreciation and Amortization of Building and Improvements                                     |  |                          | 4,006    |   |      |   | 1,065   |  
|Amortization of Deferred Financing Costs                                                       |  |                          | 196      |   |      |   | 33      |  
|Amortization of Acquired In-Place Lease Value                                                  |  |                          | 3,006    |   |      |   | 1,395   |  
|Amortization of Above and Below Market Leases                                                  |  |                          | (427     | ) |      |   | (129    | )
|Amortization of Lease Commissions                                                              |  |                          | 27       |   |      |   | 13      |  
|Amortization of Discount on Notes Payable                                                      |  |                          | 176      |   |      |   |        |  
|Deferred Income Taxes                                                                          |  |                          | 347      |   |      |   |        |  
|Changes in Assets and Liabilities:                                                             |  |                          |          |   |      |   |         |  
|Accounts and Other Receivables                                                                 |  |                          | 310      |   |      |   | 8       |  
|Deferred Rent                                                                                  |  |                          | (690     | ) |      |   | (108    | )
|Other Assets                                                                                   |  |                          | (253     | ) |      |   | 108     |  
|Accounts Payable and Accrued Expenses                                                          |  |                          | 321      |   |      |   | 100     |  
|Investment Management and Property Management Fees Payable to Related Party                    |  |                          | (143     | ) |      |   | (59     | )
|                                                                                               |  |                          |          |   |      |   |         |  
|Net Cash Flows Provided By Operating Activities                                                |  |                          | 7,253    |   |      |   | 2,294   |  
|                                                                                               |  |                          |          |   |      |   |         |  
|                                                                                               |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                          |  |                          |          |   |      |   |         |  
|Acquisitions of Real Estate Property                                                           |  |                          | (73,260  | ) |      |   | (23,649 | )
|Investment in Real Estate Held for Sale                                                        |  |                          | (23      | ) |      |   |         |  
|Investments in Unconsolidated Entities                                                         |  |                          | (35,406  | ) |      |   |         |  
|Purchase Deposit                                                                               |  |                          | (3,799   | ) |      |   | (2,213  | )
|Restricted Cash                                                                                |  |                          | 198      |   |      |   |        |  
|Lease Commissions                                                                              |  |                          | (150     | ) |      |   | (76     | )
|Improvements to Investments in Real Estate                                                     |  |                          | (168     | ) |      |   | (171    | )
|                                                                                               |  |                          |          |   |      |   |         |  
|Net Cash Flows Used in Investing Activities                                                    |  |                          | (112,608 | ) |      |   | (26,109 | )
|                                                                                               |  |                          |          |   |      |   |         |  
|                                                                                               |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                          |  |                          |          |   |      |   |         |  
|Proceeds from Common Shares  Public Offering and Dividend Reinvestment                        |  |                          | 147      |   |      |   | 117     |  
|Proceeds from Additional Paid-in-Capital  Public Offering and Dividend Reinvestment           |  |                          | 141,333  |   |      |   | 114,065 |  
|Redemption of Common Shares                                                                    |  |                          | (1,515   | ) |      |   | (283    | )
|Payment of Public Offering Costs                                                               |  |                          | (11,219  | ) |      |   | (8,286  | )
|Payment of Distributions                                                                       |  |                          | (8,897   | ) |      |   | (2,015  | )
|Distribution to Minority Interest                                                              |  |                          | (71      | ) |      |   | (62     | )
|Proceeds from Note Payable                                                                     |  |                          | 14,865   |   |      |   | 10,945  |  
|Principal Payments on Notes Payable                                                            |  |                          | (1,671   | ) |      |   |        |  
|Deferred Financing Costs                                                                       |  |                          | (178     | ) |      |   | (98     | )
|Security Deposits                                                                              |  |                          | 46       |   |      |   | 43      |  
|                                                                                               |  |                          |          |   |      |   |         |  
|Net Cash Flows Provided by Financing Activities                                                |  |                          | 132,840  |   |      |   | 114,426 |  
|                                                                                               |  |                          |          |   |      |   |         |  
|EFFECT OF FOREIGN CURRENCY TRANSLATION:                                                        |  |                          | 53       |   |      |   | (2      | )
|                                                                                               |  |                          |          |   |      |   |         |  
|Net Increase in Cash and Cash Equivalents                                                      |  |                          | 27,538   |   |      |   | 90,609  |  
|Cash and Cash Equivalents, Beginning of Period                                                 |  |                          | 77,554   |   |      |   | 14,021  |  
|                                                                                               |  |                          |          |   |      |   |         |  
|Cash and Cash Equivalents, End of Period                                                       |  | $                        | 105,092  |   |      | $ | 104,630 |  
|                                                                                               |  |                          |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                              |  |                          |          |   |      |   |         |  
|Cash Paid During the Period for Interest                                                       |  | $                        | 4,262    |   |      | $ | 861     |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                        |  |                          |          |   |      |   |         |  
|Distributions Declared and Payable                                                             |  | $                        | 5,907    |   |      | $ | 1,992   |  
|Application of Deposit to Purchase Price of Carolina Portfolio                                 |  | $                        | 551      |   |      | $ |        |  
|Accrued Acquisition Costs Related to Real Property                                             |  | $                        | 143      |   |      | $ |        |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

Condensed Consolidated Statement of Shareholders Equity

For the Six Months Ended June 30, 2008 (unaudited)

(In Thousands, Except Share Data)



|                                                                         |  |               |   |  |                           |     |   |                    |   |         |                                            |  |                          |         |   |  |   |    |  |   |         |  
|------------------------------------------------------------------------ |  | ------------- | - |  | ------------------------- | --- | - | ------------------ | - | ------- | ------------------------------------------ |  | ------------------------ | ------- | - |  | - | -- |  | - | ------- | -
|                                                                         |  | Common Shares |   |  | AdditionalPaid-in-Capital |     |   | AccumulatedDeficit |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  | TotalShareholdersEquity |        
|                                                                         |  | Shares        |   |  | Amount                    |     |   |                    |   |        
|Balance at January 1, 2008                                               |  | 31,076,709    |   |  | $                         | 311 |   |                    | $ | 264,954 |                                            |  | $                        | (20,274 | ) |  | $ | 41 |  | $ | 245,032 |  
|Net Income                                                               |  |              |   |  |                           |    |   |                    |   |        |                                            |  |                          | 98      |   |  |   |   |  |   | 98      |  
|Foreign Currency Translation Loss                                        |  |              |   |  |                           |    |   |                    |   |        |                                            |  |                          |        |   |  |   | 10 |  |   | 10      |  
|                                                                         |  |               |   |  |                           |     |   |                    |   |         |                                            |  |                          |         |   |  |   |    |  |   |         |  
|Total Comprehensive Income                                               |  |              |   |  |                           |    |   |                    |   |        |                                            |  |                          | 98      |   |  |   | 10 |  |   | 108     |  
|                                                                         |  |               |   |  |                           |     |   |                    |   |         |                                            |  |                          |         |   |  |   |    |  |   |         |  
|Net Contributions From Public Offering of Common Shares, $0.01 Par Value |  | 14,731,984    |   |  |                           | 147 |   |                    |   | 141,333 |                                            |  |                          |        |   |  |   |   |  |   | 141,480 |  
|Costs Associated with Public Offering                                    |  |              |   |  |                           |    |   |                    |   | (10,842 | )                                          |  |                          |        |   |  |   |   |  |   | (10,842 | )
|Redemption of Common Shares                                              |  | (174,616      | ) |  |                           | (2  | ) |                    |   | (1,513  | )                                          |  |                          |        |   |  |   |   |  |   | (1,515  | )
|Distributions                                                            |  |              |   |  |                           |    |   |                    |   |        |                                            |  |                          | (10,791 | ) |  |   |   |  |   | (10,791 | )
|                                                                         |  |               |   |  |                           |     |   |                    |   |         |                                            |  |                          |         |   |  |   |    |  |   |         |  
|Balance at June 30, 2008                                                 |  | 45,634,077    |   |  | $                         | 456 |   |                    | $ | 393,932 |                                            |  | $                        | (30,967 | ) |  | $ | 51 |  | $ | 363,472 |  
|                                                                         |  |               |   |  |                           |     |   |                    |   |         |                                            |  |                          |         |   |  |   |    |  |   |         |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)

1. Organization and Nature of
Business

CB Richard Ellis Realty Trust (the Company) was formed on March 30, 2004 under the laws of the state of
Maryland. CBRE Operating Partnership, L.P. (CBRE OP) was formed in Delaware on March 30, 2004, with the Company as the sole general partner (the General Partner). The Company has elected to be taxed as a Real Estate
Investment Trust (REIT) under sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with its taxable period ended December 31, 2004. The Company was incorporated to raise capital and acquire ownership
interests in high quality real estate properties, including office, retail, industrial, and multi-family residential properties, as well as other real estate-related assets. CBRE OP was formed as a holding company to own investment interests in
properties and other assets, as well as for the purpose of operating these investment interests. This structure is commonly known in the real estate industry as an umbrella partnership REIT.

On July 1, 2004, the Company commenced operations and issued 6,844,313 common shares of beneficial interest in connection with the initial
capitalization of the Company. For each common share the Company issued, one class A partnership unit in CBRE OP was issued to the Company in exchange for the cash proceeds from the issuance of the common shares. In addition, CBRE REIT Holdings, LLC
(REIT Holdings), an affiliate of CBRE Advisors LLC (the Investment Advisor), purchased 29,937 class A partnership units in CBRE OP as a limited partner. During October 2004, the Company issued an additional 123,449 common
shares of beneficial interest to an unrelated third-party investor. On July 2, 2007, in conjunction with the Carolina Portfolio acquisition, the Company formed a taxable REIT subsidiary, CBRE RT Carolina TRS, Inc., (Carolina TRS),
to hold certain real estate assets designated by management as held for sale which represent non-qualified REIT assets.

The registration
statement relating to our initial public offering was declared effective on October 24, 2006. CNL Securities Corp., a related party, is the dealer manager of our offering. The registration statement covers up to $2,000,000,000 in common shares
of beneficial interest, 90% of which will be offered at a price of $10.00 per share, and 10% of which will be offered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95% of the fair market
value of a common share on the reinvestment date, as determined by CBRE Advisors LLC, the Investment Advisor, or another firm we choose for that purpose. During the period October 24, 2006 through June 30, 2008, the Company issued
38,911,634 additional common shares of beneficial interest.

The Company operates in an umbrella partnership REIT structure in which its
majority-owned subsidiary, CBRE OP, owns, directly or indirectly, substantially all of the properties acquired on behalf of the Company. The Company, as the sole general partner of CBRE OP, owns approximately 99.46% of the class A partnership units
therein. REIT Holdings, an affiliate of the Investment Advisor, holds the remaining interest through 246,361 class A partnership units representing approximately a 0.54% ownership interest in the total class A partnership units as of June 30,
2008. In exchange for services provided to the Company relating to its formation and future services, REIT Holdings also owns a class B limited partnership interest (class B interest). The Investment Advisor is affiliated with the
Company in that the two entities have common officers some of whom also own equity interests in the Investment Advisor and the Company. All business activities of the Company are managed by the Investment Advisor.

Unless the context otherwise requires or indicates, references to CBRE REIT, we, our, and us refer to the
activities of and the assets and liabilities of the business and operations of the Company and its subsidiaries.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed
consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (U.S. GAAP) and the rules applicable to Form 10-Q and reflect all adjustments, which are, in our opinion, of a normal
recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Certain information and footnotes required for annual financial statement presentation have been condensed
or excluded pursuant to SEC rules and regulations. Accordingly, our interim financial statements do not include all of the information and disclosures required under U.S. GAAP for complete financial statements. The condensed consolidated financial
statements and notes thereto should be read in conjunction with our current Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended
December 31, 2007.

Principles of Consolidation

Because we are the sole general partner of CBRE OP and the owner of Carolina TRS and have majority control over their management and major operating decisions, the accounts of CBRE OP and Carolina TRS are consolidated
in our financial statements. The interests of REIT Holdings are reflected in minority interest in the accompanying condensed consolidated financial statements. All significant inter-company accounts and transactions are eliminated in consolidation.
CB Richard Ellis Investors, LLC (CBRE Investors), an affiliate of the Investment Advisor, also owns an interest in us through its ownership of 243,229 common shares of beneficial interest at June 30, 2008 and December 31, 2007.

Investments in Unconsolidated Entities

Our determination of the appropriate accounting method with respect to our investments in CB Richard Ellis Strategic Partners Asia II-A, L.P. (CBRE Strategic Partners Asia), which is considered a Variable Interest Entity
(VIE), is based on Financial Accounting Standards Board, or FASB, Interpretation No. 46 (revised in December 2003), Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51
(FIN46R). We account for this VIE, of which we are not the primary beneficiary, under the equity method of accounting.

We
determine if an entity is a VIE under FIN 46R based on several factors, including whether the entitys total equity investment at risk upon inception is sufficient to finance the entitys activities without additional subordinated
financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. In a quantitative analysis, we incorporate various estimates, including estimated
future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, we then determine whether we consolidate the entity as the primary beneficiary. We determine
whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could result in
differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity.

With respect to our majority
limited membership interest in the Duke/Hulfish, LLC joint venture (the Duke joint venture), we considered EITF 96-16, Investors Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or Veto Rights in determining that we did not have control over the financial and operating decisions of such entity due to the existence of substantive participating rights held by
the minority limited member who is also the managing member of the Duke joint venture.

We carry our investments in CBRE Strategic Partners
Asia and the Duke joint venture on the equity method of accounting because we have the ability to exercise significant influence (but not control) over operating and financial policies of each such entity. We eliminate transactions with such equity
method entity to the extent of our ownership in each such entity. Accordingly, our share of net income (loss) of these equity method entities is included in consolidated net income (loss). Under the equity method, impairment losses are recognized
upon evidence of other-than-temporary losses of value.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Segment Information

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, established standards for disclosure about operating
segments and related disclosure about products and services, geographic areas and major customers. We currently operate in two geographic areas, the United States and the United Kingdom. We view our operations as two reportable segments, a Domestic
segment and an International segment (which are each comprised of aggregated operating segments), which participate in the acquisition, development, ownership, and operation of high quality real estate in their respective regions.

Cash Equivalents

We consider short-term investments
with maturities of three months or less when purchased to be cash equivalents. As of June 30, 2008 and December 31, 2007, cash equivalents consisted primarily of investments in money market funds.

Restricted Cash

Restricted cash represents those
cash accounts for which the use of funds is restricted by loan covenants. As of June 30, 2008 and December 31, 2007, our restricted cash balance was $232,000 and $430,000, respectively, which represents amounts set aside as impounds for
future property tax payments as required by our agreements with our lenders.

Discontinued Operations and Real Estate Held for Sale

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (SFAS No. 144),
the income or loss and net gain on dispositions of operating properties and the income or loss on all properties classified as held for sale are reflected in the consolidated statements of operations as discontinued operations for all periods
presented. A property is classified as held for sale when certain criteria, as set forth under SFAS No. 144, are met. At such time, we present the respective assets and liabilities separately on the balance sheet and cease to record
depreciation and amortization expense. Properties held for sale are reported at the lower of their carrying value or their estimated current sales value less costs to sell. As of June 30, 2008 and December 31, 2007, we had 18 properties
classified as held for sale (see Notes 5 and 6).



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Accounting for Derivative Financial Investments and Hedging Activities

We account for our derivative and hedging activities, if any, in accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133) as amended, which requires all derivative instruments to be carried at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and
strategy for undertaking each hedge transaction. We periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges are accounted for by recording the fair value of the derivative
instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders equity. Calculation of a fair value of derivative instruments also requires management to
use estimates. Amounts will be reclassified from other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under SFAS No. 133. The changes in fair value hedges are accounted
for by recording the fair value of the derivative instruments on the balance sheet as either assets or liabilities, with the corresponding amount recorded in current period earnings.

Investments in Real Estate

Our investment in real estate is stated at depreciated cost. Depreciation
and amortization are recorded on a straight-line basis over the estimated useful lives as follows:



|                           |  |                                                               
|-------------------------- |  | --------------------------------------------------------------
|Buildings and Improvements |  | 39 years                                                      
|Site Improvements          |  | 15 years                                                      
|Tenant Improvements        |  | Shorter of the useful lives or the terms of the related leases

Improvements and replacements are capitalized when they extend the useful life, increase capacity,
or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred. As of June 30, 2008 and December 31, 2007, we owned 47 and 44 real estate investments, respectively.

On January 23, 2008, we acquired land parcels located in North Carolina and South Carolina. The purchase price was $857,000 including transaction
costs and acquisition fees. The purchase price was allocated to Fairforest Bldg. 6 located in Spartanburg, SC ($584,000), North Rhett III located in Charleston, SC ($69,000) and Kings Mountain I located in Charlotte, NC ($204,000).

On March 5, 2008, we acquired Lakeside Office Center, a multi-tenant office building, located in Lewisville, TX. The purchase price was
approximately $17,965,000 including transaction costs and acquisition fees.

On March 14, 2008, we acquired Kings Mountain III, a
warehouse distribution building, located in Charlotte, NC. The purchase price was approximately $25,662,000 including transaction costs and acquisition fees.

On March 20, 2008, we acquired Thames Valley Five, a single tenant office building, located in Reading, United Kingdom. The purchase price was approximately £14,698,000 ($29,463,000) including transaction
costs and acquisition fees.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Other Assets

Other assets consist primarily of purchase deposits paid in connection with future acquisitions that have not yet been applied to investments in real estate or investments in unconsolidated entities, and prepaid
insurance. Other assets will be amortized to expense or reclassified to other asset accounts upon being put into service in future periods.

Other assets include the following as of June 30, 2008 and December 31, 2007 (in thousands):



|                                |  |              |       |                  |   |      
|------------------------------- |  | ------------ | ----- | ---------------- | - | -----
|                                |  | June 30,2008 |       | December 31,2007
|Purchase deposit                |  | $            | 3,799 |                  | $ | 551  
|Prepaid insurance               |  |              | 246   |                  |   | 315  
|Interest rate cap at fair value |  |              | 80    |                  |   | 121  
|Other                           |  |              | 363   |                  |   | 34   
|                                |  |              |       |                  |   |      
|Total                           |  | $            | 4,488 |                  | $ | 1,021
|                                |  |              |       |                  |   |      

Concentration of Credit Risk

Our properties are located throughout the United States and in the United Kingdom. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory, and social
factors affecting the communities in which the tenants operate. Our credit risk relates primarily to cash, restricted cash, and interest rate cap agreements. Cash accounts at each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. We have not experienced any losses to date on its invested cash and restricted cash. The interest rate cap agreements create credit risk. Credit risk arises from the potential failure of counterparties to perform in accordance with
the terms of their contracts. Our risk management policies define parameters of acceptable market risk and limit exposure to credit risk. Credit exposure resulting from derivative financial instruments is represented by their fair value amounts,
increased by an estimate of potential adverse position exposure arising from changes over time in interest rates, maturities, and other relevant factors. We do not anticipate nonperformance by any of our counterparties.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Minority Interest in the Operating Partnership

The interest in CBRE OP not owned by us, which is reflected as minority interest as of June 30, 2008 and December 31, 2007, represents 0.54% and
0.79%, respectively, of the Operating Partnership. Of the 246,341 operating partnership units held as minority interest as of June 30, 2008 and December 31, 2007, 246,341 operating partnership units were exchangeable on a one for one basis
for common shares of CBRE REIT, with an estimated aggregate fair value of $2,463,000, based on the gross selling price of $10.00 per share of CBRE REITs common shares in our initial public offering.

Impairment of Long-Lived Assets

We assess whether
there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Management believes no impairment in the net carrying values of the investments
in real estate has occurred as of June 30, 2008.

Purchase Accounting for Acquisition of Investments in Real Estate

We apply purchase accounting to all acquired real estate investments. The purchase price of the real estate is allocated to the acquired tangible assets,
consisting primarily of land, building and tenant improvements and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, value of tenant relationships and
acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market loans, will be recorded based on the fair value of any loans assumed in connection
with acquiring the real estate.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if
it were vacant, and the as-if-vacant value is then allocated to land (or acquired ground lease if the land is subject to a ground lease), building and tenant improvements based on managements determination of the relative fair
values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying
costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost
rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



In allocating the purchase price of the identified intangible assets and liabilities of an acquired
property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which 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 and, for below-market
leases, over a period equal to the initial term plus any below-market fixed rate renewal periods. The capitalized below-market lease values, also referred to as acquired lease obligations, are amortized as an increase to rental income over the
initial terms of the respective leases and any below-market fixed rate renewal periods. The capitalized above-market lease values are amortized as a decrease to rental income over the initial terms of the prospective leases.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the estimated cost of
operations during a theoretical lease-up period to replace in-place leases, including lost revenues and any unreimbursed operating expenses, plus an estimate of deferred leasing commissions for in-place leases. This aggregate value is allocated
between in-place lease value and tenant relationships based on managements evaluation of the specific characteristics of each tenants lease; however, the value of tenant relationships has not been separated from in-place lease value for
the real estate acquired as such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to the value of tenant relationships,
an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be
terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written-off.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. In the accompanying consolidated balance sheets, accumulated other
comprehensive income consists of foreign currency translation adjustments.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code), beginning
with its taxable period ended December 31, 2004. To qualify as a REIT, we must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating
requirements. We generally will not be subject to U.S. federal income taxes if it distributes 100% of its taxable income for each year to its shareholders. If we fail to qualify as a REIT in any taxable year, it will be subject to U.S. federal
income taxes (including any applicable alternative minimum tax) on its taxable income at regular corporate rates and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, it may be subject
to certain state and local taxes on its income and property, and to U.S. federal income taxes and excise taxes on its undistributed taxable income. We believe that we have met all of the REIT distribution and technical requirements for the six
months ended June 30, 2008 and the year ended December 31, 2007. Management intends to continue to adhere to these requirements and maintain our REIT status.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the
underlying leases is recorded as deferred rent. In connection with various leases, we have received irrevocable stand-by letters of credit totaling $8,353,000 as security for such leases at June 30, 2008 and December 31, 2007.

Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance and other recoverable
costs, are recognized as revenue in the period the expenses are incurred. Tenant reimbursements are recognized and presented in accordance with Emerging Issues Task Force Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent (Issue 99-19). Issue 99-19 requires that these reimbursements be recorded on a gross basis, when we are the primary obligor with respect to incurring expenses and with respect to having the credit risk.

Tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent.
Managements determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual receivables, current economic conditions, and other relevant factors. The allowances are increased or
decreased through the provision for bad debts. Our management did not consider it necessary to have an allowance for uncollectible rent receivables as of June 30, 2008 and December 31, 2007.

Offering Costs

Offering costs totaling $6,106,000
and $7,628,000 were incurred during the three months ended June 30, 2008 and 2007, respectively, and are recorded as a reduction of additional paid-in-capital in the consolidated statement of shareholders equity. Offering costs incurred
through June 30, 2008 totaled $36,251,000. Of the total amount, $30,661,000 was incurred to CNL Securities Corp., as dealer manager; $3,969,000 was incurred to CB Richard Ellis Group, Inc., an affiliate of the Investment Advisor; $92,000 was
incurred to the Investment Advisor for reimbursable marketing costs and $1,529,000 was incurred to other service providers. Each party will be paid the amount incurred from proceeds of the public offering. As of June 30, 2008 and
December 31, 2007, the accrued offering costs payable to related parties included in our consolidated balance sheets were $4,864,000 and $5,241,000, respectively. Offering costs payable to unrelated parties of $42,000 at June 30, 2008 was
included in accounts payable and accrued expenses.

Deferred Financing Costs and Discounts on Notes Payable

Direct costs incurred in connection with obtaining financing are amortized over the respective term of the loan on a straight-line basis, which
approximates the effective interest method.

Discounts on notes payable are amortized to interest expense based on the effective interest
method.

Translation of Non-U.S. Currency Amounts

The financial statements and transactions of our United Kingdom real estate operation is reported in its functional currency, namely GBP-pound sterling and is then translated into U.S. dollars. Assets and liabilities
of this operation are denominated in the functional currency and are then translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate for the reporting period. Translation
adjustments are reported in Accumulated Other Comprehensive Income (Loss), a component of Shareholders Equity.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



The carrying value of our United Kingdom assets and liabilities fluctuate due to changes in the
exchange rate between the U.S. dollar and the GBP-pound sterling. The exchange rate of the U.S. dollar to the GBP-pound sterling was $1.9922 and $1.9869 as of June 30, 2008 and December 31, 2007, respectively.

Class B Interest  Related Party

Effective
July 1, 2004, REIT Holdings, an affiliate of the Investment Advisor, was granted a class B interest in CBRE OP. The class B interest is an equity instrument issued to non-employees in exchange for services. The holder is entitled to receive
distributions made by CBRE OP in an amount equal to 15% of all net proceeds of any disposition of properties to be distributed to the partners after subtracting (i) the costs of such distribution, (ii) the amount of equity capital invested
in such property which has not been reinvested or returned to the partners, and (iii) an amount equal to 7% annual, uncompounded return on such invested capital. The terms of the termination provision relating to the class B interest were
amended to require its forfeiture in the event the Advisor unilaterally terminates the Investment Advisory Agreement. As a result future changes in the fair value of the class B interest will be deferred from recognition in the financial
statements until a listing of the common shares on a national securities exchange or a change in a control transaction takes place. Basic net income (loss) per share from continuing operations and discontinued operations is computed by dividing
income (loss) from continuing operations and discontinued operations by the weighted average number of common shares outstanding during each period. The computation of diluted net income (loss) from continuing operations and discontinued operations
per share further assumes the dilutive effect of stock options, stock warrants and contingently issuable shares, if any. In accordance with SFAS No. 128, Earnings Per Share , as we have recorded net losses from continuing
operations and net income from discontinued operations for the six months ended June 30, 2008 and 2007, the effect, of stock options, stock warrants and contingently issuable shares, if any, would be antidilutive, and accordingly are
excluded from the earnings per share computation. In addition, no stock options, stock warrants or contingently issuable shares have ever been issued. As a result, there is no difference in basic and diluted shares.

Accounting Pronouncements Adopted January 1, 2008

Effective January 1, 2008, we adopted, on a prospective basis, SFAS No. 157, Fair Value Measurements (SFAS No. 157) as amended by FASB Staff Position SFAS No. 157-1, Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP FAS
No. 157-1) and FASB Staff Position SFAS No. 157-2, Effective Date of FASB Statement No. 157 (FSP FAS No. 157-2). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in U.S. GAAP and provides for expanded disclosure about fair value measurements. SFAS No. 157 applies prospectively to all other accounting pronouncements that require or permit fair value measurements. FSP FAS No. 157-1 amends
SFAS No. 157 to exclude from the scope of SFAS No. 157 certain leasing transactions accounted for under SFAS No. 13, Accounting for Leases . FSP FAS No. 157-2 amends SFAS No. 157 to defer the effective
date of SFAS No. 157 for all non-financial assets and non-financial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008.

The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements. Management is evaluating the
impact that SFAS No. 157 will have on our non-financial assets and non-financial liabilities since the application of SFAS No. 157 for such items was deferred to January 1, 2009. We believe that the impact of these items will not be
material to our consolidated financial statements. Assets and liabilities typically recorded at fair value on a non-recurring basis to which we have not yet applied SFAS No. 157 due to the deferral of SFAS No. 157 for such items include:



| |  |  | Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Long-lived assets measured at fair value due to an impairment assessment under SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset retirement obligations initially measured under SFAS No. 143, Accounting for Asset Retirement Obligations.
| | - |  | ------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Effective January 1, 2008, we adopted, on a prospective basis, SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of
the guidance is 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. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements since we did not elect to apply the fair value option for any of its eligible financial instruments or other items on the
January 1, 2008 effective date.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) changes the requirements for an acquirers
recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141(R) is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all
business combinations entered into after the date of adoption. We anticipate that the adoption of SFAS No. 141(R) will only have an impact on our financial statements in so far as we will not be able to capitalize indirect deal costs to our
acquisitions.

In December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 requires (i) that noncontrolling (minority) interests be reported as a component of shareholders equity, (ii) that net
income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parents ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) that any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that
clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively.
However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. Management does not expect the adoption of the provisions of SFAS No. 160 will have a material impact on our
consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161). This new standard enhances disclosure requirements for derivative instruments in order to provide users of financial statements with an enhanced understanding of (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activitiesand
its related interpretations and (iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS No. 161 is to be applied prospectively for the first annual
reporting period beginning on or after November 15, 2008. We believe that the adoption of SFAS No. 161 will not have a material impact on our financial statement disclosures since we do not currently have any derivative instruments.



14



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



3. Acquisitions of Real Estate

The Carolina land parcels were acquired on January 23, 2008 for $857,000, Lakeside Office Center was acquired on March 5, 2008 for $17,965,000,
Kings Mountain III was acquired on March 14, 2008 for $25,662,000 and Thames Valley Five was acquired on March 20, 2008 for £14,698,000 ($29,463,000).

These property acquisitions are accounted for in accordance with SFAS No. 141, Business Combinations. The fair value of the real estate acquired is allocated to the acquired tangible assets,
consisting of land, site improvements, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above and below-market leases and the value of in-place leases and tenant relationships, if any,
based in each case on their respective fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market loans, will be recorded based on the fair value of any loans assumed in connection with
acquiring the real estate. The purchase price allocation to the assets and liabilities acquired at Lakeside Office Center and Thames Valley Five are preliminary and are subject to revision based on the finalization of appraisals of the assets and
liabilities acquired.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed for the
above noted acquisitions during the six months ended June 30, 2008 and designated as real estate held for investment (in thousands):



|                       |  |      |        |                  |   |                      |  |                    |        |                              |   |                       |  |                       |       |  |                  |   |               |   |                     |   |                   |   |   |  |   |        |  |   |   |  |   |       
|---------------------- |  | ---- | ------ | ---------------- | - | -------------------- |  | ------------------ | ------ | ---------------------------- | - | --------------------- |  | --------------------- | ----- |  | ---------------- | - | ------------- | - | ------------------- | - | ----------------- | - | - |  | - | ------ |  | - | - |  | - | ------
|Property               |  | Land |        | SiteImprovements |   | BuildingImprovements |  | TenantImprovements |        | Acquired In-Place LeaseValue |   | AboveMarketLeaseValue |  | BelowMarketLeaseValue |       |  | Discounton Notes |   | PurchasePrice |   | NotesPayableAssumed |   | NetAssetsAcquired
|Carolina Land Parcels  |  | $    | 857    |                  | $ |                     |  | $                  |       |                              | $ |                      |  | $                     |      |  | $                |  |               | $ |                    |   |                   | $ |  |  | $ | 857    |  | $ |  |  | $ | 857   
|Lakeside Office Center |  |      | 4,420  |                  |   | 919                  |  |                    | 13,358 |                              |   | 1,164                 |  |                       | 2,103 |  |                  | 1 |               |   | (4,000              | ) |                   |   |  |  |   | 17,965 |  |   |  |  |   | 17,965
|Kings Mountain III     |  |      | 1,180  |                  |   | 2,340                |  |                    | 22,142 |                              |   |                      |  |                       |      |  |                  |  |               |   |                    |   |                   |   |  |  |   | 25,662 |  |   |  |  |   | 25,662
|Thames Valley Five     |  |      | 8,269  |                  |   | 1,213                |  |                    | 16,355 |                              |   | 99                    |  |                       | 4,416 |  |                  |  |               |   | (889                | ) |                   |   |  |  |   | 29,463 |  |   |  |  |   | 29,463
|                       |  |      |        |                  |   |                      |  |                    |        |                              |   |                       |  |                       |       |  |                  |   |               |   |                     |   |                   |   |   |  |   |        |  |   |   |  |   |       
|                       |  | $    | 14,726 |                  | $ | 4,472                |  | $                  | 51,855 |                              | $ | 1,263                 |  | $                     | 6,519 |  | $                | 1 |               | $ | (4,889              | ) |                   | $ |  |  | $ | 73,947 |  | $ |  |  | $ | 73,947
|                       |  |      |        |                  |   |                      |  |                    |        |                              |   |                       |  |                       |       |  |                  |   |               |   |                     |   |                   |   |   |  |   |        |  |   |   |  |   |       

Building Improvements are depreciated over 39 years; Site Improvements are depreciated over 15
years; Tenant Improvements, Value of In-Place Leases, Above-Market Lease Values and Below-Market Lease Values are amortized over the remaining lease terms at the time of acquisition.



15



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Unaudited pro forma results, assuming the above noted acquisitions had occurred as of January 1,
2007 for purposes of the 2008 and 2007 pro forma disclosures, are presented below. These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as increased depreciation and amortization
expenses as a result of tangible and intangible assets acquired in the acquisitions. These unaudited pro forma results do not purport to be indicative of what operating results would have been had the acquisitions occurred on January 1, 2007
and may not be indicative of future operating results (dollars in thousands, except share data):



|                                                                                                    |  |                          |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                    |  | Six Months EndedJune 30, |           
|                                                                                                    |  | 2008                     |            |   | 2007 |  
|Revenue                                                                                             |  | $                        | 15,220     |   |      | $ | 13,153     |  
|Operating Loss                                                                                      |  |                          | (2,553     | ) |      |   | (591       | )
|(Loss) from Continuing Operations                                                                   |  |                          | (1,612     | ) |      |   | 433        |  
|Basic and Diluted (Loss) Income from Continuing Operations Per Share                                |  |                          | (0.04      | ) |      |   | 0.04       |  
|Weighted Average Shares Outstanding for Basic and Diluted Loss from Continuing Operations Per Share |  |                          | 37,083,587 |   |      |   | 11,751,023 |  

4. Investments in Unconsolidated Entities

Investments in unconsolidated entities at June 30, 2008 and December 31, 2007 consist of the following:



|                             |  |              |        |                  |   |    
|---------------------------- |  | ------------ | ------ | ---------------- | - | ---
|                             |  | June 30,2008 |        | December 30,2007
|CBRE Strategic Partners Asia |  | $            | 10     |                  | $ | 101
|Duke joint venture           |  |              | 34,943 |                  |   |   
|                             |  |              |        |                  |   |    
|                             |  | $            | 34,953 |                  | $ | 101
|                             |  |              |        |                  |   |    

The following is a summary of the investments in unconsolidated entities for the six months ended
June 30, 2008:



|                                                    |  |   |        |  
|--------------------------------------------------- |  | - | ------ | -
|Investment Balance, January 1, 2008                 |  | $ | 101    |  
|Contributions                                       |  |   | 34,942 |  
|Other Comprehensive Income of Unconsolidated Entity |  |   | 186    |  
|Equity in Loss of Unconsolidated Entities           |  |   | (276   | )
|Distributions                                       |  |   |       |  
|                                                    |  |   |        |  
|Investment Balance, June 30, 2008                   |  | $ | 34,953 |  
|                                                    |  |   |        |  

CBRE Strategic Partners Asia

We have agreed to a capital commitment of $20,000,000 in CBRE Strategic Partners Asia, which extends for 24 months after the close of the final capital
commitment. On October 16, 2007, we contributed $200,000 of our capital commitment which was funded using net proceeds from our initial public offering. CBRE Investors, our sponsor, formed CBRE Strategic Partners Asia, to purchase, reposition,
develop, hold for investment and sell institutional quality real estate and related assets in targeted markets in Asia, including China, Japan, India, South Korea, Hong Kong, Singapore and other Asia Pacific markets. The initial closing date of the
CBRE Strategic Partners Asia was in July 2007, with additional commitments being accepted through January 2008. CBRE Strategic Partners Asia closed on January 31, 2008, with aggregate capital commitments of $394,200,000. CBRE Strategic Partners
Asia has an eight year term, which may be extended for up to two one-year periods with the approval of two-thirds of the limited partners.

As of June 30, 2008, CBRE Strategic Partners Asia had aggregate investor commitments of approximately $394,200,000 from institutional investors including CBRE Investors. We own an ownership interest of approximately 5.07% in CBRE
Strategic Partners Asia. As of June 30, 2008, CBRE Strategic Partners Asia had acquired ownership interests in nine properties, four in China and five in Japan. Our capital commitment is currently being pledged as collateral for borrowings of
CBRE Strategic Partners Asia of which of our pro-rata portion of such borrowing was $8,328,000, based on our 5.07% ownership interest at June 30, 2008. Currency translation gains recognized during the three months ended June 30, 2008 are
recognized as Other Comprehensive Income in the amount of $127,000.

We carry our investment in CBRE Strategic Partners Asia on the equity
method of accounting. Those investments where we have the ability to exercise significant influence (but not control) over operating and financial policies of such entities (including certain entities where we have less than 20% ownership) are
accounted for using the equity method. We eliminate transactions with such equity method entities to the extent of our ownership in such entities. Accordingly, our share of the earnings or losses of these equity method entities is included in
consolidated net loss. Under the equity method, impairment losses are recognized upon evidence of other-than-temporary losses of value.



16



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Consolidated Balance Sheets of CBRE Strategic Partners Asia as of June 30, 2008 and
December 31, 2007 (in thousands):



|                             |  |              |         |                  |   |        
|---------------------------- |  | ------------ | ------- | ---------------- | - | -------
|                             |  | June 30,2008 |         | December 31,2007
|Assets                       |  |              |         |                  |   |        
|Real Estate Net              |  | $            | 221,968 |                  | $ | 98,995 
|Other Assets                 |  |              | 10,742  |                  |   | 7,510  
|                             |  |              |         |                  |   |        
|Total Assets                 |  | $            | 232,710 |                  | $ | 106,505
|                             |  |              |         |                  |   |        
|Liabilities and Equity       |  |              |         |                  |   |        
|Notes Payable                |  | $            | 164,144 |                  | $ | 44,969 
|Loan Payable                 |  |              | 60,294  |                  |   | 57,389 
|Other Liabilities            |  |              | 7,822   |                  |   | 2,062  
|                             |  |              |         |                  |   |        
|Total Liabilities            |  |              | 232,260 |                  |   | 104,420
|                             |  |              |         |                  |   |        
|Companys Equity             |  |              | 10      |                  |   | 101    
|Other Investors Equity      |  |              | 440     |                  |   | 1,984  
|                             |  |              |         |                  |   |        
|Total Liabilities and Equity |  | $            | 232,710 |                  | $ | 106,505
|                             |  |              |         |                  |   |        

Consolidated Statements of Operations of CBRE Strategic Partners Asia for the three and six months
ended June 30, 2008 (unaudited) (in thousands); there were no activities for the three and six months ended June 30, 2007:



|                             |  |                                 |        |   |                               |   |        |  
|---------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | -
|                             |  | Three Months EndedJune 30, 2008 |        |   | Six Months EndedJune 30, 2008 |  
|Total Revenues               |  | $                               | 413    |   |                               | $ | 839    |  
|Total Expenses               |  |                                 | 3,798  |   |                               |   | 6,519  |  
|                             |  |                                 |        |   |                               |   |        |  
|Net Loss                     |  | $                               | (3,385 | ) |                               | $ | (5,680 | )
|                             |  |                                 |        |   |                               |   |        |  
|Companys Equity in Net Loss |  | $                               | (181   | ) |                               | $ | (277   | )
|                             |  |                                 |        |   |                               |   |        |  

Duke Joint Venture

On May 5, 2008, we entered into a contribution agreement with Duke Realty Limited Partnership, or Duke, a subsidiary of Duke Realty Corporation
(NYSE: DRE), to form the Duke joint venture to acquire $248,900,500 in industrial real property assets, or the Industrial Portfolio. The Industrial Portfolio consists of six bulk industrial built-to-suit, fully leased properties. We own an 80%
interest and Duke owns a 20% interest in the Duke joint venture.

On June 12, 2008, Buckeye Logistics Center was contributed to the
Duke joint venture by a subsidiary of Duke Realty Corporation. The Duke joint venture acquired Buckeye Logistics Center for approximately $43,600,000, exclusive of customary closing costs. At closing, we made a cash contribution of approximately
$34,700,000 (excluding a working capital reserve of $240,000) to the Duke joint venture in connection with the acquisition. Upon closing, we paid our Investment Advisor an acquisition fee of approximately $348,810 and other service providers
$114,860, which was not included in the acquisition cost of Buckeye Logistic Center. Buckeye Logistics Center is located at 6835 W. Buckeye Road, Phoenix, Arizona. It consists of a 604,678 square foot bulk distribution center that was
completed in September 2007 and has a limited operating history. Buckeye Logistics Center was built-to-suit and is 100% leased to Amazon.com.azdc, Inc., a wholly owned subsidiary of Amazon.com, Inc., or Amazon, one of the worlds largest
internet-based retailers of consumer goods. Buckeye Logistics Center is one of Amazons largest fulfillment centers in North America and is under a lease that expires in June 2018.

We have entered into an operating agreement for the Duke joint venture with Duke. The term of the Duke joint venture is 10 years, subject to certain
conditions. Duke acts as the managing member of the Duke joint venture and is entitled to receive fees in connection with the services it provides to the Duke joint venture, including asset management, construction, development, leasing and property
management services. Duke is also entitled to a promoted interest in the Duke joint venture. We have joint approval rights over all major decisions.

For a period of three years from the date of the operating agreement, the Duke joint venture will have the right to acquire additional newly developed bulk industrial built-to-suit properties from Duke if such
properties satisfy certain specified conditions. We will retain the right to approve the acquisition and purchase price of each such property. The total amount of properties (inclusive of the Industrial Portfolio) that may be contributed to the Duke
joint venture over this period may be up to $800,000,000.



We
carry our investment in the Duke joint venture on the equity method of accounting. Those investments where we have the ability to exercise significant influence (but not control) over operating and financial policies of such entities are
accounted for using the equity method. We eliminate transactions with such equity method subsidiaries to the extent of our ownership in such entities. Accordingly, our share of the earnings or losses of these equity method entities is included in
consolidated net loss. Under the equity method, impairment losses are recognized upon evidence of other-than-temporary losses of value.



17



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Consolidated Balance Sheet of the Duke joint venture as of June 30, 2008 (unaudited) (in
thousands):



|                             |  |              |       
|---------------------------- |  | ------------ | ------
|                             |  | June 30,2008
|Assets                       |  |              |       
|Real Estate Net              |  | $            | 39,657
|Other Assets                 |  |              | 4,727 
|                             |  |              |       
|Total Assets                 |  | $            | 44,384
|                             |  |              |       
|Liabilities and Equity       |  |              |       
|Other Liabilities            |  |              | 705   
|                             |  |              |       
|Total Liabilities            |  |              | 705   
|                             |  |              |       
|Companys Equity             |  |              | 34,943
|Other Investors Equity      |  |              | 8,736 
|                             |  |              |       
|Total Liabilities and Equity |  | $            | 44,384
|                             |  |              |       

Consolidated Statements of the Duke joint venture for the three and six months ended June 30,
2008 (unaudited) (in thousands); there were no activities for the three and six months ended June 30, 2007:



|                               |  |                                 |     |                               |   |    
|------------------------------ |  | ------------------------------- | --- | ----------------------------- | - | ---
|                               |  | Three Months EndedJune 30, 2008 |     | Six Months EndedJune 30, 2008
|Total Revenues                 |  | $                               | 217 |                               | $ | 217
|Total Expenses                 |  |                                 | 216 |                               |   | 216
|                               |  |                                 |     |                               |   |    
|Net Income                     |  | $                               | 1   |                               | $ | 1  
|                               |  |                                 |     |                               |   |    
|Companys Equity in Net Income |  | $                               | 1   |                               | $ | 1  
|                               |  |                                 |     |                               |   |    

5. Real Estate and Other Assets Held for Sale and Related Liabilities

Real estate and other assets held for sale include real estate for sale in their present condition that have met all of the held for sale
criteria of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, and other assets directly related to such projects. Liabilities related to real estate and other assets held for sale have been
included as a single line item in the accompanying consolidated balance sheets.

Real estate and other assets held for sale and related
liabilities as of June 30, 2008 and December 31, 2007 (in thousands):



|                                                                        |  |              |        |                  |   |       
|----------------------------------------------------------------------- |  | ------------ | ------ | ---------------- | - | ------
|                                                                        |  | June 30,2008 |        | December 31,2007
|Assets                                                                  |  |              |        |                  |   |       
|Real estate held for sale                                               |  | $            | 58,485 |                  | $ | 58,449
|In-place lease value                                                    |  |              | 2,125  |                  |   | 2,125 
|Other assets                                                            |  |              | 559    |                  |   | 526   
|                                                                        |  |              |        |                  |   |       
|Total real estate and other assets held for sale                        |  |              | 61,169 |                  |   | 61,100
|Liabilities                                                             |  |              |        |                  |   |       
|Other liabilities                                                       |  |              | 1,124  |                  |   | 753   
|                                                                        |  |              |        |                  |   |       
|Total liabilities related to real estate and other assets held for sale |  |              | 1,124  |                  |   | 753   
|                                                                        |  |              |        |                  |   |       
|Net real estate and other assets held for sale                          |  | $            | 60,045 |                  | $ | 60,347
|                                                                        |  |              |        |                  |   |       

Included in other liabilities is $24,000 in property management fee payable to a related party at
June 30, 2008 and December 31, 2007.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



6. Discontinued Operations

In accordance with SFAS No. 144, the income and the net gain on dispositions of operating properties are reflected in the consolidated statements of
operations as discontinued operations for all periods presented.

Revenues and expenses from discontinued operations for the six months
ended June 30, 2008 represent the activities of the held for sale portfolio of manufacturing and warehouse/distribution properties acquired during the year ended December 31, 2007 for $60,579,000. The properties are currently being
marketed for sale. There were no discontinued operations for the six months ended June 30, 2007.

The following table summarizes the
components that comprise total income from discontinued operations for the three and six months ended June 30, 2008 (in thousands):



|                                                       |  |                                 |       |                               |   |      
|------------------------------------------------------ |  | ------------------------------- | ----- | ----------------------------- | - | -----
|                                                       |  | Three Months EndedJune 30, 2008 |       | Six Months EndedJune 30, 2008
|REVENUES                                               |  |                                 |       |                               |   |      
|Rental                                                 |  | $                               | 1,170 |                               | $ | 2,328
|Tenant Reimbursements                                  |  |                                 | 170   |                               |   | 373  
|                                                       |  |                                 |       |                               |   |      
|Total Revenues                                         |  |                                 | 1,340 |                               |   | 2,701
|                                                       |  |                                 |       |                               |   |      
|EXPENSES                                               |  |                                 |       |                               |   |      
|Operating and Maintenance                              |  |                                 | 60    |                               |   | 107  
|Property Taxes                                         |  |                                 | 239   |                               |   | 468  
|General and Administrative                             |  |                                 | 7     |                               |   | 38   
|Property Management Fee to Related Party               |  |                                 | 35    |                               |   | 89   
|                                                       |  |                                 |       |                               |   |      
|Total Expenses                                         |  |                                 | 341   |                               |   | 702  
|                                                       |  |                                 |       |                               |   |      
|Minority Interest in Discontinued Operations           |  |                                 | 3     |                               |   | 10   
|Provision for Income Taxes for Discontinued Operations |  |                                 | 255   |                               |   | 367  
|                                                       |  |                                 |       |                               |   |      
|Total Income from Discontinued Operations              |  | $                               | 741   |                               | $ | 1,622
|                                                       |  |                                 |       |                               |   |      

7. Acquisition Related Intangible Assets

Our acquisition related intangible assets are included in the consolidated balance sheets as acquired in-place lease value, acquired above market lease
value and acquired below market lease value.

The following is a schedule of future amortization of acquisition related intangible assets
as of June 30, 2008 (in thousands):



|                                           |  |                             |        |                         |   |                         |  |   |       
|------------------------------------------ |  | --------------------------- | ------ | ----------------------- | - | ----------------------- |  | - | ------
|                                           |  | AcquiredIn-PlaceLease Value |        | Below MarketLease Value |   | Above MarketLease Value
|2008 (Six months ending December 31, 2008) |  | $                           | 3,270  |                         | $ | 1,105                   |  | $ | 502   
|2009                                       |  |                             | 5,947  |                         |   | 2,193                   |  |   | 1,000 
|2010                                       |  |                             | 4,030  |                         |   | 1,987                   |  |   | 906   
|2011                                       |  |                             | 3,202  |                         |   | 1,930                   |  |   | 818   
|2012                                       |  |                             | 3,017  |                         |   | 1,913                   |  |   | 816   
|2013                                       |  |                             | 2,444  |                         |   | 1,494                   |  |   | 791   
|Thereafter                                 |  |                             | 7,792  |                         |   | 5,218                   |  |   | 7,133 
|                                           |  |                             |        |                         |   |                         |  |   |       
|                                           |  | $                           | 29,702 |                         | $ | 15,840                  |  | $ | 11,966
|                                           |  |                             |        |                         |   |                         |  |   |       

The amortization of the above- and below- market lease values included in rental revenue were
$(251,000) and $540,000, respectively, for the three months ended June 30, 2008; $(48,000) and $126,000, respectively, for the three months ended June 30, 2007. The amortization of in-place lease value included in amortization expense
was $1,650,000 and $757,000 for the three months ended June 30, 2008 and 2007, respectively.

The amortization of the above- and
below- market lease values included in rental revenue were $(514,000) and $941,000, respectively, for the six months ended June 30, 2008; $(100,000) and $229,000, respectively, for the six months ended June 30, 2007. The amortization
of in-place lease value included in amortization expense was $3,010,000 and $1,395,000 for the six months ended June 30, 2008 and 2007, respectively.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



8. Debt

Notes Payable secured by real property is summarized as follows (in thousands):



|                            |  |                     |   |  |                  |   |                     |                  |              |   |         |                  |  |   |         |  
|--------------------------- |  | ------------------- | - |  | ---------------- | - | ------------------- | ---------------- | ------------ | - | ------- | ---------------- |  | - | ------- | -
|                            |  | Interest Rate as of |   |  | Maturity Date    |   | Notes Payable as of |                 
|Property                    |  | June 30,2008        |   |  | December 31,2007 |   |                     |                  | June 30,2008 |   |         | December 31,2007 | 
|REMEC                       |  | 4.79                | % |  | 4.79             | % |                     | November 1, 2011 |              | $ | 13,250  |                  |  | $ | 13,250  |  
|300 Constitution            |  | 4.84                |   |  | 4.84             |   |                     | April 1, 2012    |              |   | 12,000  |                  |  |   | 12,000  |  
|Deerfield Commons I(1)      |  | 5.23                |   |  | 5.23             |   |                     | December 1, 2015 |              |   | 9,725   |                  |  |   | 9,725   |  
|602 Central Blvd.(2)        |  | 6.56                |   |  | 6.94             |   |                     | April 27, 2014   |              |   | 10,957  |                  |  |   | 10,928  |  
|Bolingbrook Point III       |  | 5.26                |   |  | 5.26             |   |                     | January 1, 2015  |              |   | 9,000   |                  |  |   | 9,000   |  
|Fairforest Bldg. 5(3)       |  | 6.33                |   |  | 6.33             |   |                     | February 1, 2024 |              |   | 10,975  |                  |  |   | 11,177  |  
|Fairforest Bldg. 6(3)       |  | 5.42                |   |  | 5.42             |   |                     | June 1, 2019     |              |   | 3,635   |                  |  |   | 3,754   |  
|HJ ParkBldg. 1(3)          |  | 4.98                |   |  | 4.98             |   |                     | March 1, 2013    |              |   | 1,289   |                  |  |   | 1,407   |  
|North Rhett I(3)            |  | 5.65                |   |  | 5.65             |   |                     | August 1, 2019   |              |   | 4,721   |                  |  |   | 4,871   |  
|North Rhett II(3)           |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |              |   | 2,578   |                  |  |   | 2,652   |  
|North Rhett III(3)          |  | 5.75                |   |  | 5.75             |   |                     | February 1, 2020 |              |   | 2,104   |                  |  |   | 2,166   |  
|North Rhett IV(3)           |  | 5.80                |   |  | 5.80             |   |                     | February 1, 2025 |              |   | 10,940  |                  |  |   | 11,132  |  
|Mt Holly Bldg.(3)           |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |              |   | 2,578   |                  |  |   | 2,652   |  
|Orangeburg Park Bldg.(3)    |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |              |   | 2,622   |                  |  |   | 2,697   |  
|Kings Mountain I(3)         |  | 5.27                |   |  | 5.27             |   |                     | October 1, 2020  |              |   | 2,230   |                  |  |   | 2,294   |  
|Kings Mountain II(3)        |  | 5.47                |   |  | 5.47             |   |                     | January 1, 2020  |              |   | 6,706   |                  |  |   | 6,911   |  
|Union Cross Bldg. I(3)      |  | 5.50                |   |  | 5.50             |   |                     | July 1, 2021     |              |   | 3,196   |                  |  |   | 3,278   |  
|Union Cross Bldg. II(3)     |  | 5.53                |   |  | 5.53             |   |                     | June 1, 2021     |              |   | 9,775   |                  |  |   | 10,031  |  
|Thames Valley Five(4)       |  | 6.81                |   |  |                 |   |                     | May 30, 2013     |              |   | 14,942  |                  |  |   |        |  
|                            |  |                     |   |  |                  |   |                     |                  |              |   |         |                  |  |   |         |  
|Notes Payable               |  |                     |   |  |                  |   |                     |                  |              |   | 133,223 |                  |  |   | 119,925 |  
|Less Discount               |  |                     |   |  |                  |   |                     |                  |              |   | (2,873  | )                |  |   | (3,049  | )
|                            |  |                     |   |  |                  |   |                     |                  |              |   |         |                  |  |   |         |  
|Notes Payable Less Discount |  |                     |   |  |                  |   |                     |                  |              | $ | 130,350 |                  |  | $ | 116,876 |  
|                            |  |                     |   |  |                  |   |                     |                  |              |   |         |                  |  |   |         |  



|(1) | Interest only payments are due monthly for the first 60 months of the loan term. Principal and interest payments are due
monthly for the remaining 60 months of the loan term.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Variable interest rate of 6.56% and 6.94% at June 30, 2008 and December 31, 2007 based on three month GBP
based London Inter-Bank Offering Rate (LIBOR) plus 0.67%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | These notes payable were assumed from the seller of the Carolina Portfolio on August 30, 2007 as part of the
property acquisitions and were recorded at estimated fair value which includes the discount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Variable interest rate of 6.81% at June 30, 2008 based on three month GPB based LIBOR plus 1.01%.
|--- | -------------------------------------------------------------------------------------------------



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CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



In connection with our acquisition of the Carolina Portfolio on August 30, 2007, we assumed 13
loans with principal balances totaling $66,110,000 ($62,944,000 at estimated fair value including the discount of $3,166,000) from various lenders that are secured by first deeds of trust on the properties and the assignment of related rents and
leases. Assumption fees and other loan closing costs totaling $765,500 were capitalized as incurred. The loans bear interest at rates ranging from 4.98% to 6.33% per annum and mature between March 1, 2013 and February 1, 2025. The
loans require monthly payments of interest and principal, fully amortized over the lives of the loans. Principal payments totaling $1,671,000 were made during the six months ended June 30, 2008. We indemnify the lenders against environmental
costs and expenses and guarantee the loans under certain conditions.

In addition, we entered into a credit agreement with Bank of America,
N.A. to provide us a $65,000,000 term loan and a $10,000,000 revolving line of credit (collectively, the Credit Facility). The one year term loan was fully drawn upon at the closing of the Carolina Portfolio on August 30, 2007. None
of the revolving line of credit has been drawn. The Credit Facility matures in August 2008 and interest is payable monthly at a floating rate of LIBOR plus 1.25%, or 3.73% per annum as of June 30, 2008 and 6.10% per annum as of
December 31, 2007. Upfront fees and other loan closing cost totaling approximately $229,000 were capitalized as incurred. A fee of 0.2% per annum is accrued on unfunded balances under the revolving line of credit. The loan contains various
financial covenants and restrictions including a fixed charge coverage ratio of at least 1.6, as defined in the credit agreement. On November 29, 2007, we repaid a portion of the loan balance in the amount of $20,000,000 using net proceeds from
our initial public offering. As of June 30, 2008 and December 31, 2007, the term loan balance was $45,000,000 and we were in compliance with all such covenants and restrictions. The Credit Facility is unsecured, but we are required to
repay a proportion of the Credit Facility, as defined in the credit agreement, if any of the unencumbered properties in the Carolina Portfolio, including all of the properties held for sale, are financed or sold.

On April 27, 2007, we, in connection with the acquisition of 602 Central Blvd, entered into a £5,500,000 ($10,957,000 at June 30, 2008)
financing arrangement with the Royal Bank of Scotland secured by the property. The loan is for a term of seven years and bears interest at a variable rate of interest, adjusted quarterly, based on three month LIBOR plus 0.67%, or 6.56% and
6.94% per annum as of June 30, 2008 and December 31, 2007, respectively. Interest payments only are due quarterly for the term of the loan with principal due at maturity. The loan agreement requires us to maintain a rate cap agreement
pursuant to which we will be protected against an increase in the three month LIBOR over 6.25% through May 27, 2010.

On May 30,
2008, we entered into a £7,500,000 ($14,942,000 at June 30, 2008) financing arrangement with the Royal Bank of Scotland plc secured by the Thames Valley Five property. The loan is for a term of five years (with a two year extension
option) and bears interest at a variable rate of interest, adjusted quarterly, based on three month LIBOR plus 1.01%, or 6.81% per annum as of June 30, 2008. Interest payments only are due quarterly for the term of the loan with principal
due at maturity.

The minimum principal payments due for the notes payable, before the discount, and loan payable are as follows as of
June 30, 2008 (in thousands):



|                                           |  |   |        
|------------------------------------------ |  | - | -------
|2008 (Six months ending December 31, 2008) |  | $ | 46,718 
|2009                                       |  |   | 3,583  
|2010                                       |  |   | 3,787  
|2011                                       |  |   | 17,391 
|2012                                       |  |   | 16,378 
|2013                                       |  |   | 19,336 
|Thereafter                                 |  |   | 71,030 
|                                           |  |   |        
|                                           |  | $ | 178,223
|                                           |  |   |        



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Our organizational documents contain a limitation on the amount of indebtedness that we may incur, so
that unless our shares are listed on a national securities exchange, our aggregate borrowing may not exceed 300% of our net assets unless any excess borrowing is approved by a majority of our independent trustees and is disclosed to shareholders in
our next quarterly report.

9. Minimum Future Rents Receivable

The following is a schedule of minimum future rentals to be received on non-cancelable operating leases as of June 30, 2008 (in thousands):



|                                           |  |   |        
|------------------------------------------ |  | - | -------
|2008 (Six months ending December 31, 2008) |  | $ | 12,126 
|2009                                       |  |   | 23,611 
|2010                                       |  |   | 20,299 
|2011                                       |  |   | 19,085 
|2012                                       |  |   | 19,277 
|2013                                       |  |   | 17,239 
|Thereafter                                 |  |   | 93,809 
|                                           |  |   |        
|                                           |  | $ | 205,446
|                                           |  |   |        

10. Concentrations

Tenant Revenue Concentrations

For the six months ended June 30, 2008, the tenant in Jedburg
Commerce Park accounted for approximately $1,611,000, or 11%, of total revenues. This lease was modified subsequent to June 30, 2008 (see Note 20).

For the six months ended June 30, 2007, the tenant in REMEC accounted for approximately $1,267,000, or 28%, of total revenues, the tenant in 300 Constitution accounted for approximately $978,000, or 21%, of total
revenues and a tenant in Deerfield Commons I accounted for approximately $585,000 or 13% of total revenues.

The tenant in 300 Constitution
has the right of first offer if we decide to sell the property. The leases under which the tenants occupy the properties expire in April 2017 for the tenant in REMEC, March 2013 for the tenant in 300 Constitution and July 2027 for the tenant in
Jedburg Commerce Park.

Geographic Concentrations

As of June 30, 2008, we owned 45 domestic properties on a consolidated basis: one in each of Georgia, Illinois and Massachusetts; four in each of Texas and California; five in North Carolina and 29 in South
Carolina. We also owned two properties on a consolidated basis in the United Kingdom (UK).



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



Our geographic revenue concentrations from continuing operations for the six months ended
June 30, 2008 and 2007 are as follows:



|               |  |                          |   |  |        |  
|-------------- |  | ------------------------ | - |  | ------ | -
|               |  | Six Months EndedJune 30, |  
|               |  | 2008                     |   |  | 2007   |  
|Domestic       |  |                          |   |  |        |  
|California     |  | 9.12                     | % |  | 27.51  | %
|Georgia        |  | 9.08                     |   |  | 26.04  |  
|Massachusetts  |  | 6.72                     |   |  | 21.24  |  
|Texas          |  | 11.80                    |   |  | 18.78  |  
|Illinois       |  | 4.73                     |   |  |       |  
|North Carolina |  | 12.15                    |   |  |       |  
|South Carolina |  | 36.17                    |   |  |       |  
|               |  |                          |   |  |        |  
|Total Domestic |  | 89.77                    |   |  | 93.57  |  
|International  |  |                          |   |  |        |  
|UK             |  | 10.23                    |   |  | 6.43   |  
|               |  |                          |   |  |        |  
|Total          |  | 100.00                   | % |  | 100.00 | %
|               |  |                          |   |  |        |  

Our geographic long-lived asset concentrations from continuing operations as of June 30, 2008
and December 31, 2007 are as follows:



|               |  |              |   |  |                  |  
|-------------- |  | ------------ | - |  | ---------------- | -
|               |  | June 30,2008 |   |  | December 31,2007 |  
|Domestic       |  |              |   |  |                  |  
|California     |  | 6.70         | % |  | 8.44             | %
|Massachusetts  |  | 5.53         |   |  | 7.02             |  
|Georgia        |  | 4.65         |   |  | 6.11             |  
|Texas          |  | 10.30        |   |  | 5.50             |  
|Illinois       |  | 4.88         |   |  | 6.18             |  
|North Carolina |  | 18.51        |   |  | 14.56            |  
|South Carolina |  | 34.92        |   |  | 44.16            |  
|               |  |              |   |  |                  |  
|Total Domestic |  | 85.49        |   |  | 91.97            |  
|International  |  |              |   |  |                  |  
|UK             |  | 14.51        |   |  | 8.03             |  
|               |  |              |   |  |                  |  
|Total          |  | 100.00       | % |  | 100.00           | %
|               |  |              |   |  |                  |  

100% of the geographic revenue concentrations from discontinued operations and geographic asset
concentrations from discontinued operations are attributable to properties located in South Carolina as of and for the six months ended June 30, 2008. There were no discontinued operations for the six months ended June 30, 2007.

11.Segment Disclosure

Our reportable segments consist of two types of commercial real estate properties for which our management internally evaluates operating performance and financial results: the Domestic Properties and International Properties. Management
internally evaluates the operating performance and financial results of our segments based on net operating income. We also have certain general and administrative level activities including legal, accounting, tax preparation and shareholder
servicing costs that are not considered separate operating segments. Our reportable segments are on the same basis of accounting as described for our overall company in Note 2.

We evaluate the performance of our segments based on net operating income, defined as: rental income and tenant reimbursements less property and related
expenses (operating and maintenance, management fees and real estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and our general and administrative expenses. The following table
compares the net operating income for the three and six months ended June 30, 2008 and 2007 (in thousands):



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CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | ----- | -
|                                                                                                                              |  | Three Months EndedJune 30, |        | Six Months EndedJune 30, |     
|                                                                                                                              |  | 2008                       |        |                          | 2007 |   | 2008  |  |   | 2007   |  
|Domestic Properties                                                                                                           |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  | $                          | 5,749  |                          |      | $ | 1,681 |  | $ | 11,076 |   |  | $ | 3,364 |  
|Tenant Reimbursements                                                                                                         |  |                            | 1,235  |                          |      |   | 461   |  |   | 2,269  |   |  |   | 946   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 6,984  |                          |      |   | 2,142 |  |   | 13,345 |   |  |   | 4,310 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                            | 559    |                          |      |   | 216   |  |   | 1,010  |   |  |   | 430   |  
|General and Administrative                                                                                                    |  |                            | 150    |                          |      |   | 27    |  |   | 194    |   |  |   | 72    |  
|Property Management Fee to Related Party                                                                                      |  |                            | 65     |                          |      |   | 11    |  |   | 127    |   |  |   | 20    |  
|Property Taxes                                                                                                                |  |                            | 816    |                          |      |   | 295   |  |   | 1,447  |   |  |   | 590   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 1,590  |                          |      |   | 549   |  |   | 2,778  |   |  |   | 1,112 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income                                                                                                          |  |                            | 5,394  |                          |      |   | 1,593 |  |   | 10,567 |   |  |   | 3,198 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|International Properties                                                                                                      |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  |                            | 973    |                          |      |   | 293   |  |   | 1,461  |   |  |   | 293   |  
|Tenant Reimbursements                                                                                                         |  |                            | 26     |                          |      |   | 3     |  |   | 60     |   |  |   | 3     |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 999    |                          |      |   | 296   |  |   | 1,521  |   |  |   | 296   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                            | 28     |                          |      |   | 5     |  |   | 60     |   |  |   | 5     |  
|General and Administrative                                                                                                    |  |                            | 52     |                          |      |   |      |  |   | 52     |   |  |   |      |  
|Property Management Fee to Related Party                                                                                      |  |                            | 5      |                          |      |   |      |  |   | 7      |   |  |   |      |  
|Property Taxes                                                                                                                |  |                            |       |                          |      |   |      |  |   |       |   |  |   |      |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 85     |                          |      |   | 5     |  |   | 119    |   |  |   | 5     |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income                                                                                                          |  |                            | 914    |                          |      |   | 291   |  |   | 1,402  |   |  |   | 291   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Total Reportable Segments                                                                                                     |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  |                            | 6,722  |                          |      |   | 1,974 |  |   | 12,537 |   |  |   | 3,657 |  
|Tenant Reimbursements                                                                                                         |  |                            | 1,261  |                          |      |   | 464   |  |   | 2,329  |   |  |   | 949   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 7,983  |                          |      |   | 2,438 |  |   | 14,866 |   |  |   | 4,606 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                            | 587    |                          |      |   | 232   |  |   | 1,070  |   |  |   | 455   |  
|General and Administrative                                                                                                    |  |                            | 202    |                          |      |   | 27    |  |   | 246    |   |  |   | 72    |  
|Property Management Fee to Related Party                                                                                      |  |                            | 70     |                          |      |   |      |  |   | 134    |   |  |   |      |  
|Property Taxes                                                                                                                |  |                            | 816    |                          |      |   | 295   |  |   | 1,447  |   |  |   | 590   |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 1,675  |                          |      |   | 554   |  |   | 2,897  |   |  |   | 1,117 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income(1)                                                                                                       |  |                            | 6,308  |                          |      |   | 1,884 |  |   | 11,969 |   |  |   | 3,489 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Reconciliation of Non-GAAP to Consolidated Net (Loss) Income                                                                  |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Total Segment Net Operating Income                                                                                            |  |                            | 6,308  |                          |      |   | 1,884 |  |   | 11.969 |   |  |   | 3,489 |  
|Interest and Other Income                                                                                                     |  |                            | 534    |                          |      |   | 774   |  |   | 1,330  |   |  |   | 1,038 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                            | 6,842  |                          |      |   | 2,658 |  |   | 13,299 |   |  |   | 4,527 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Interest Expense                                                                                                              |  |                            | 2,344  |                          |      |   | 572   |  |   | 4,750  |   |  |   | 1,018 |  
|General and Administrative                                                                                                    |  |                            | 781    |                          |      |   | 494   |  |   | 1,146  |   |  |   | 672   |  
|Investment Management Fee to Related Party                                                                                    |  |                            | 798    |                          |      |   | 262   |  |   | 1,479  |   |  |   | 499   |  
|Depreciation and Amortization                                                                                                 |  |                            | 3,889  |                          |      |   | 1,327 |  |   | 7,039  |   |  |   | 2,470 |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|(Loss) Income From Continuing Operations Before Income Taxes, Minority Interest and Equity in Loss of Unconsolidated Entities |  |                            | (970   | )                        |      |   | 3     |  |   | (1,115 | ) |  |   | (132  | )
|Minority Interest                                                                                                             |  |                            | 5      |                          |      |   | 1     |  |   | 7      |   |  |   | 4     |  
|Provision for Income Taxes                                                                                                    |  |                            | (81    | )                        |      |   |      |  |   | (140   | ) |  |   |      |  
|Equity in Loss of Unconsolidated Entities                                                                                     |  |                            | (180   | )                        |      |   |      |  |   | (276   | ) |  |   |      |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|(Loss) Income from Continuing Operations                                                                                      |  |                            | (1,226 | )                        |      |   | 4     |  |   | (1,524 | ) |  |   | (128  | )
|Income from Discontinued Operation                                                                                            |  |                            | 741    |                          |      |   |      |  |   | 1,622  |   |  |   |      |  
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  
|Net (Loss) Income                                                                                                             |  | $                          | (485   | )                        |      | $ | 4     |  | $ | 98     |   |  | $ | (128  | )
|                                                                                                                              |  |                            |        |                          |      |   |       |  |   |        |   |  |   |       |  



|(1) | Total Reportable Segments net operating income is a Non-GAAP
financial measure which may be useful as a supplemental measure for evaluating the relationship of each reporting segment to the combined total. This measure should not be looked as an alternative measure of operating performance to our
U.S. GAAP presentations provided.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



|                                                        |  |                           |         |                  |   |        
|------------------------------------------------------- |  | ------------------------- | ------- | ---------------- | - | -------
|Condensed Assets                                        |  | June 30,2008              |         | December 31,2007
|Domestic Assets  Continuing Operations                 |  | $                         | 355,749 |                  | $ | 272,637
|Assets Related to Discontinued Operations               |  |                           | 61,169  |                  |   | 61,100 
|International Assets                                    |  |                           | 54,801  |                  |   | 24,236 
|Non-Segment Assets                                      |  |                           | 101,110 |                  |   | 76,833 
|                                                        |  |                           |         |                  |   |        
|Total Assets                                            |  | $                         | 572,829 |                  | $ | 434,806
|                                                        |  |                           |         |                  |   |        
|                                                        | 
|                                                        |  | Six Months Ended June 30,
|Capital Expenditures                                    |  | 2008                      |         | 2007            
|Domestic Continuing Operations  Capital Expenditures   |  | $                         | 44,659  |                  | $ | 171    
|Domestic Discontinued Operations  Capital Expenditures |  |                           | 23      |                  |   |       
|International Capital Expenditures                      |  |                           | 29,463  |                  |   | 23,649 
|                                                        |  |                           |         |                  |   |        
|Total Capital Expenditures                              |  | $                         | 74,145  |                  | $ | 23,820 
|                                                        |  |                           |         |                  |   |        



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



12. Investment Management and Other Fees to Related Parties

Pursuant to the agreement between us and the Investment Advisor (the Advisory Agreement), the Investment Advisor and its affiliates perform
services relating to our ongoing initial public offering and the management of our assets. Items of compensation and equity participation are as follows:

Investment Management Fee to Related Party

On October 24, 2006, the board of trustees, including our independent
trustees, approved and we entered into the Amended and Restated Agreement of Limited Partnership of CBRE OP (the Amended Partnership Agreement) and the Amended and Restated Advisory Agreement (the Amended Advisory Agreement
and, together with the Amended Partnership Agreement, the Amended Agreements). The Amended Advisory Agreement provides an investment management fee of (i) a monthly fee equal to one twelfth of 0.6% of the aggregate cost (before
non-cash reserves and depreciation) of all real estate investments within our portfolio and (ii) a monthly fee equal to 7.0% of the aggregate monthly net operating income derived from all real estate investments within our portfolio. The
Investment Advisor waived investment management fees of $298,000 and $609,000 for the three and six months ended June 30, 2008. The Investment Advisor waived investment management fees of $19,000 for the three and six months ended June 30,
2007. All or any portion of the investment management fee not taken as to any fiscal year may be deferred or waived without interest at the option of the Investment Advisor.

The Investment Advisor earned investment management fees of $798,000 and $262,000 for the three months ended June 30, 2008, and 2007, respectively;
$1,479,000 and $499,000 for the six months ended June 30, 2008 and 2007, respectively. In connection with services provided to the Investment Advisor, CNL Fund Management Company, the Sub-Advisor and affiliate of the Dealer Manager pursuant to
a sub-advisory agreement dated August 21, 2006, was paid by the Investment Advisor $110,000 and $36,000 for the three months ended June 30, 2008 and 2007, respectively; $204,000 and $69,000 for the six months ended June 30, 2008 and
2007, respectively.

Acquisition Fee to Related Party

The Investment Advisor may earn an acquisition fee of up to 1.0% of (i) the purchase price of real estate investments acquired by us, including any debt attributable to such investments, or (ii) when we make
an investment indirectly through another entity, such investments pro rata share of the gross asset value of real estate investments held by that entity. The Investment Advisor earned acquisition fees of $349,000 and $223,000 for the three
months ended June 30, 2008 and 2007, respectively; $1,064,000 and $223,000 for the six months ended June 30, 2008 and 2007, respectively. In connection with services provided to the Investment Advisor, the Sub-Advisor, pursuant to a sub
advisory agreement, was paid by the Investment Advisor acquisition fees of $65,000 and $42,000 for the three months ended June 30, 2008 and 2007, respectively; $199,000 and $42,000 for the six months ended June 30, 2008 and 2007,
respectively. These fees have been capitalized to investments in real estate and related intangibles.

Management Services to Related Party

Affiliates of the Investment Advisor may also provide leasing, brokerage, property management, or mortgage banking services for us. CB
Richard Ellis Group, Inc., an affiliate of the Investment Advisor, received property management fees of approximately $105,000, and $11,000, for the three months ended June 30, 2008 and 2007, respectively; $223,000 and $20,000 for the six
months ended June 30, 2008 and 2007, respectively. As of June 30, 2008 and December 31, 2007, the property management fee payable included in property management fees payable to related party in our consolidated balance sheets were
$59,000 and $50,000, respectively. No leasing, mortgage banking and brokerage fees were paid to affiliates of the Investment Advisor for the three and six months ended June 30, 2008 and 2007.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



13. Equity Incentive Plan and Performance Bonus Plan

Equity Incentive Plan

We have adopted a 2004 equity
incentive plan. The purpose of the 2004 equity incentive plan is to provide us with the flexibility to use share options and other awards to provide a means of performance-based compensation. Key employees, directors, trustees, officers, advisors,
consultants or other personnel of our company and our subsidiaries or other persons expected to provide significant services to our company or our subsidiaries, including employees of the Investment Advisor, would be eligible to be granted share
options, restricted shares, phantom shares, distribution equivalent rights and other share-based awards under the 2004 equity incentive plan. No awards of any kind have been made under this plan during the six months ended June 30, 2008 and
2007, respectively.

Performance Bonus Plan

We have adopted a 2004 performance bonus plan. Annual bonuses under our 2004 performance bonus plan are awarded by our Compensation Committee to selected key employees, including employees of the Investment Advisor, based on corporate
factors or individual factors (or a combination of both). Subject to the provisions of the 2004 performance bonus plan, the Compensation Committee will (i) determine and designate those key employees to whom bonuses are to be granted;
(ii) determine, consistently with the 2004 performance bonus plan, the amount of the bonus to be granted to any key employee for any performance period; and (iii) determine, consistently with the 2004 performance bonus plan, the terms and
conditions of each bonus. Bonuses may be so awarded by the Compensation Committee prior to the commencement of any performance period, during or after any performance period. No bonus shall exceed 200% of the key employees aggregate salary for
the year. The Compensation Committee may provide for partial bonus payments at target and other levels. Corporate performance hurdles for bonuses may be adjusted by the Compensation Committee in its discretion to reflect (i) dilution from
corporate acquisitions and share offerings, and (ii) changes in applicable accounting rules and standards. The Compensation Committee may determine that bonuses shall be paid in cash or shares or other equity-based grants, or a combination
thereof. The Compensation Committee may also provide that any such share grants be made under our companys 2004 equity incentive plan or any other equity-based plan or program we may establish. The Compensation Committee may provide for
programs under which the payment of bonuses may be deferred at the election of the employee. No bonuses were awarded and no bonus related expenses were incurred by us during the six months ended June 30, 2008 and 2007, respectively.

14. Shareholders Equity

Under our
declaration of trust, we have the authority to issue a total of 1,000,000,000 shares of beneficial interest. Of the total shares authorized, 990,000,000 shares are designated as common shares with a par value of $0.01 per share and 10,000,000 shares
are designated as preferred shares.

The registration statement relating to our initial public offering was declared effective on
October 24, 2006. CNL Securities Corp. is the dealer manager of our offering. The registration statement covers up to $2,000,000,000 in common shares of beneficial interest, 90% of which will be offered at a price of $10.00 per share, and 10%
of which will be offered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95% of the fair market value of a common share on the reinvestment date, as determined by the Investment Advisor, or
another firm we choose for that purpose. As of June 30, 2008, we had issued 38,911,634 common shares in our initial public offering.

On July 30, 2008, we filed another registration statement on Form S-11 with the Securities and Exchange Commission in connection with the proposed follow-on offering of up to $3.0 billion in common shares of beneficial interest, 90% of
which we expect will be offered to investors at a price of $10.00 per share, and 10% of which we expect will be offered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95% of the fair market
value of a common share on the reinvestment date, as determined by the Investment Advisor, or another firm we choose for that purpose. As of the date of this Quarterly Report on Form 10-Q, the registration statement has not been declared effective
by the Securities and Exchange Commission.

During the six months ended June 30, 2008 and 2007 we repurchased 174,616 and 35,371
common shares, respectively, under our Share Redemption Program.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



15. Distributions

Earnings and profits, which determine the taxability of distributions to shareholders, will differ from income reported for financial reporting purposes due to the differences for federal income tax purposes including
the treatment of loss on extinguishment of debt, revenue recognition, compensation expense and in the basis of depreciable assets and estimated useful lives used to compute depreciation.

The following table reconciles the distributions declared per common share to the distributions paid per common share during the six months ended
June 30, 2008 and 2007:



|                                                                                      |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                      |  | 2008 |        |   | 2007 |  
|Distributions declared per common share                                               |  | $    | 0.288  |   |      | $ | 0.262  |  
|Less: Distributions declared in the current period, and paid in the subsequent period |  |      | (0.144 | ) |      |   | (0.137 | )
|Add: Distributions declared in the prior period, and paid in the current period       |  |      | 0.144  |   |      |   | 0.125  |  
|                                                                                      |  |      |        |   |      |   |        |  
|Distributions paid per common share                                                   |  | $    | 0.288  |   |      | $ | 0.250  |  
|                                                                                      |  |      |        |   |      |   |        |  

Distributions paid to shareholders during the six months ended June 30, 2008 and 2007 totaled
$8,897,000 and $2,015,000, respectively.

16. Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, accounts and other receivables, as well as the loan payable, accounts payable and accrued expenses
approximate their fair value because of the short-term nature of these instruments. The fair value of payables to related parties is not determinable due to their related party nature. The fair value of notes payable was estimated based on current
interest rates available to us for debt instruments with similar terms. The interest rate cap is valued quarterly and the net change is recognized in earnings. The interest rate cap has a term of 33 months from August 27, 2007 to May 27,
2010 and has a notional amount of £5,500,000 ($10,957,000 at June 30, 2008) and caps the three month LIBOR at 6.25% during such period. Included in other assets is the fair value of the interest rate cap of $80,000, which includes
($42,000) in earnings for the decrease in fair value of the interest rate cap during the six months ended June 30, 2008.

The
following table summarizes our interest rate cap and its estimated fair value at June 30, 2008 (in thousands):



|                                |  |                     |    |                |   |                                |  |                                      |   |                                        |   |    |  |   |  
|------------------------------- |  | ------------------- | -- | -------------- | - | ------------------------------ |  | ------------------------------------ | - | -------------------------------------- | - | -- |  | - | -
|                                |  | As of June 30, 2008
|                                |  |                     |    |                |   | Fair Value Measurements Using:
|                                |  | CarryingValue       |    | TotalFairValue |   | QuotedMarketsPrices(Level 1)   |  | SignificantObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level 3)
|Financial Assets (Liabilities): |  |                     |    |                |   |                                |  |                                      |   |                                        |   |    |  |   |  
|Interest Rate Cap               |  | $                   | 80 |                | $ | 80                             |  | $                                    |  |                                        | $ | 80 |  | $ | 



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



SFAS No. 157 (see Note 2) establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. As presented in the table above, the statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:



|         |  |                                                                                            
|-------- |  | -------------------------------------------------------------------------------------------
|Level 1: |  | Quoted market prices in active markets for identical assets or liabilities.                
|         | 
|Level 2: |  | Observable market based inputs or unobservable inputs that are corroborated by market data.
|         | 
|Level 3: |  | Unobservable inputs that are not corroborated by market data.                              

We use appropriate valuation techniques based on the available inputs to measure the fair values
of our assets and liabilities. When available, we measure fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. The following methods and assumptions were used to estimate the fair values
of the assets and liabilities in the table above.

Level 2 Fair Value Measurements

Interest Rate Cap  The fair value of interest rate caps is estimated using internal discounted cash flow calculations based upon forward interest
rate curves and quotes obtained from counterparties to the agreements.

17. Commitments and Contingencies

We have agreed to a capital commitment of up to $20,000,000 in CBRE Strategic Partners Asia, which extends for 24 months after the close of the final
capital commitment. On October 16, 2007, we funded $200,000 of our capital commitment. CBRE Investors, our sponsor, formed CBRE Strategic Partners Asia to purchase, reposition, develop, hold for investment and sell institutional quality real
estate and related assets in targeted markets in China, Japan, India, South Korea, Hong Kong, Singapore and other Asia Pacific markets. If we and all other currently committed capital investors had funded our entire commitments in CBRE Strategic
Partners Asia as of June 30, 2008, we would have owned an ownership interest of approximately 5.07% in CBRE Strategic Partners Asia. A majority of our trustees (including a majority of our independent trustees) not otherwise interested in this
transaction approved the transaction as being fair, competitive and commercially reasonable. CBRE Strategic Partners Asia is managed by CB Richard Ellis Investors SP Asia II, LLC or the Fund Manager, a subsidiary of CBRE Investors.

On May 6, 2008, in connection with our investment with the Duke joint venture we funded a $4,000,000 earnest money deposit in conjunction with the
acquisition of the Industrial Portfolio as set forth in Note 4. $701,000 was used in conjunction with the June 12, 2008 Buckeye Logistics Center acquisition leaving a balance of $3,299,000 at June 30, 2008. The remaining balance will be
applied to future acquisitions as presented in the following table.



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##### Table of Contents

The following table summarizes the remaining properties expected to be contributed to the Duke joint
venture pursuant to the contribution agreement. These properties are currently under construction and none of the properties has an operating history. Closing of the contribution of each property to the Duke joint venture is subject to certain
contingencies set forth in the contribution agreement and there is no assurance that any of the properties listed below will be contributed to the Duke joint venture on the specific terms described therein, or at all.

List of Remaining Expected Properties



|                 |  |                           |  |                    |  |              |         |                     |           |                        |              
|---------------- |  | ------------------------- |  | ------------------ |  | ------------ | ------- | ------------------- | --------- | ---------------------- | -------------
|Market           |  | Property                  |  | Tenant             |  | EarnestMoney |         | Net RentableSq. Ft. |           | Estimated Closing Date
|Indianapolis, IN |  | Anson Building 1          |  | Amazon.com         |  | $            | 537,000 |                     | 630,570   |                        | November 2008
|Dallas, TX       |  | Unilever Texas            |  | Unilever           |  |              | 553,000 |                     | 822,550   |                        | November 2008
|Indianapolis, IN |  | Prime Distribution Center |  | Prime Distribution |  |              | 832,000 |                     | 1,200,420 |                        | November 2008
|Jacksonville, FL |  | Unilever Florida          |  | Unilever           |  |              | 607,000 |                     | 722,210   |                        | November 2008
|Columbus, OH     |  | Kelloggs                 |  | Kelloggs          |  |              | 770,000 |                     | 1,142,400 |                        | December 2008

Litigation  From time to time, we and our properties may be subject to legal proceedings,
which arise in the ordinary course of its business. Currently, neither we nor any of our properties are subject to, or threatened with, any legal proceedings for which the outcome is reasonably likely to have a material adverse effect on our results
of operations or our financial condition.

Environmental Matters  We are not aware of any environmental liability or any unasserted
claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



18. Comprehensive Income (Loss)

U.S. GAAP requires that the effect of foreign currency translation adjustments be classified as comprehensive income (loss). The following table sets
forth our comprehensive income (loss) for the three and six months ended June 30, 2008 and 2007 (in thousands):



|                                         |  |                            |      |                          |      |   |      |  |      |     |  |   |      |  
|---------------------------------------- |  | -------------------------- | ---- | ------------------------ | ---- | - | ---- |  | ---- | --- |  | - | ---- | -
|                                         |  | Three Months EndedJune 30, |      | Six Months EndedJune 30, |     
|                                         |  | 2008                       |      |                          | 2007 |   | 2008 |  | 2007 |    
|Net Income (Loss)                        |  | $                          | (485 | )                        |      | $ | 4    |  | $    | 98  |  | $ | (128 | )
|Foreign Currency Translation Gain (Loss) |  |                            | 267  |                          |      |   | 118  |  |      | 10  |  |   | 118  |  
|                                         |  |                            |      |                          |      |   |      |  |      |     |  |   |      |  
|Comprehensive (Loss) Income              |  | $                          | (218 | )                        |      | $ | 122  |  | $    | 108 |  | $ | (10  | )
|                                         |  |                            |      |                          |      |   |      |  |      |     |  |   |      |  

19. Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code with our taxable year ended December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements,
including a requirement that we distribute at least 90% of our taxable income to our shareholders. It is managements current intention to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to
corporate level federal income tax on net income it distributes currently to its shareholders. If we fail to qualify as a REIT in any taxable year, then we will be subject to federal income taxes at regular corporate rates (including any applicable
alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may not be subject to certain state and local taxes on our income and property and to federal income
and excise taxes on our undistributed taxable income, if any.

We have made Taxable REIT Subsidiary (TRS) elections for all of
our held for sale property subsidiaries. The elections, effective for the tax year beginning January 1, 2007 and future years, were made pursuant to section 856(I) of the Internal Revenue Code. Our TRS is subject to corporate level income taxes
which are recorded in our consolidated financial statements. Our TRS includes all of the held for sale properties at June 30, 2008.

The following table reconciles net income available to common shareholders to taxable income available to common shareholders for the six months ended June 30, 2008 (in thousands):



|                                        |  |   |      |  
|--------------------------------------- |  | - | ---- | -
|Net Income Available from TRS(1)        |  | $ | 984  |  
|Less: Tax Depreciation and Amortization |  |   | (863 | )
|Add: Receipts of Prepaid Rent           |  |   | 25   |  
|Less: Loss Carried Forward from 2007    |  |   | (17  | )
|                                        |  |   |      |  
|Taxable Income for TRS                  |  | $ | 129  |  
|                                        |  |   |      |  



|(1) | Net income available from the TRS is comprised of income,
excluding a $109,000 straight-line rent adjustment, from discontinued operations of $1,888,000 (before tax provision for income taxes of $367,000) less allocated term loan interest of $668,000, investment management fees of $182,000 and professional
fees of $54,000.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CB RICHARD ELLIS REALTY TRUST

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)



The following table summarizes the provision for income taxes of the TRS for the six months ended
June 30, 2008 (in thousands):



|                                 |  |   |    
|-------------------------------- |  | - | ---
|Current                          |  | $ | 20 
|Deferred                         |  |   | 347
|                                 |  |   |    
|Total Provision for Income Taxes |  | $ | 367
|                                 |  |   |    

The following table reconciles the provision for income taxes of the TRS for the six months ended
June 30, 2008 to the amount computed by applying the Federal Corporate tax rate (in thousands):



|                                                                           |  |   |     |  
|-------------------------------------------------------------------------- |  | - | --- | -
|Federal Income Taxes at Statutory Federal Rate for Taxable REIT Subsidiary |  | $ | 335 |  
|State Income Taxes                                                         |  |   | 49  |  
|Earnings not Subject to Federal Income Taxes and Other                     |  |   | (17 | )
|                                                                           |  |   |     |  
|Total Provision for Income Taxes                                           |  | $ | 367 |  
|                                                                           |  |   |     |  

SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred liabilities of the TRS relate primarily to differences in the book and tax depreciation method of property for
federal and state income tax purpose.

The following table summarizes the tax effects of temporary differences of the TRS included in the
accounts payable and accrued expenses as of June 30, 2008 and December 31, 2007 (in thousands):



|                                                                                                                 |  |              |      |   |                  |   |      |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------ | ---- | - | ---------------- | - | ---- | -
|                                                                                                                 |  | June 30,2008 |      |   | December 31,2007 |  
|Net Deferred Tax Liability, resulting primary from differences in depreciation and amortization in real property |  | $            | (564 | ) |                  | $ | (217 | )
|                                                                                                                 |  |              |      |   |                  |   |      |  

In addition, we have incurred income and other taxes related to our continuing operations in the
amount of $140,000 for franchise, local and state government, California, Georgia, Texas and North Carolina, and United Kingdom taxes impacting our operating properties during the six months ended June 30, 2008.

20. Subsequent Events

From July 1, 2008
through August 1, 2008, we received gross proceeds of approximately $33,834,651 from the sale of 3,395,966 common shares in our initial public offering.

On January 28, 2008, American LaFrance LLC, or ALF, the tenant in our Jedburg Commerce Park property, filed for Chapter 11 bankruptcy protection with the bankruptcy court for the District of Delaware. On
May 23, 2008, an order was entered in ALFs Chapter 11 case confirming its Plan of Reorganization, which became effective on July 23, 2008. In connection therewith, ALFs lease with us was modified to reduce the remaining lease
term from approximately 19 years to approximately five years and the current annual base rent from approximately $2,994,086 to $2,809,500. ALF has remained current on its rent obligations during the course of the Chapter 11 bankruptcy proceedings
and the lease remains secured, in part, by a letter of credit.



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##### Table of Contents

On July 1, 2008, we acquired, from unrelated third-parties, a fee interest in Enclave on the Lake,
located at 1255 Enclave Parkway, in Houston, Texas. This property had a total acquisition cost of approximately $37,732,000, which includes the application of a $500,000 purchase deposit, customary closing costs and an acquisition fee of $372,500
which was paid to our Investment Advisor. The property consists of a 171,091 square foot, six-story office building with structured and surface parking lots completed in 1999. The office building is 100% leased to SBM Atlantia, Inc., a Netherlands
based supplier of products and services to the oil and gas industry under a lease that expires in February 2012. The initial annual rent under the lease with SBM Atlantia, Inc. is $4,277,000. In connection with the acquisition of this property, we
assumed a $18,790,000 fixed-rate mortgage loan that bears interest at a rate of 5.45% per annum and matures on May 1, 2011.

On
July 11, 2008, we acquired, from an unrelated third-party, a fee interest in Albion Mills Retail Park located on Ings Road, Wakefield, United Kingdom. This property had a total acquisition cost of approximately £11,126,000 ($22,046,000
assuming an exchange rate of $1.9815/£1.00), which includes customary closing costs and an acquisition fee of $208,000 which was paid to our Investment Advisor. The property consists of a 55,294 square foot, two unit retail building and
surface parking lot completed in 2000. The retail building is 100% leased to Wickes Building Supplies Ltd, one of the United Kingdoms leading hardware and building supplies retailers, under a lease that expires in May 2030, and DSG Retail Ltd.
(d/b/a PC World), one of the largest retailers in the United Kingdom, under a lease that expires in September 2020. The initial annual rent under the lease with Wickes Building Supplies Ltd is $1,177,746 and the initial annual rent under the lease
with DSG Retail Ltd. (d/b/a PC World) is $404,060.

On July 25, 2008, we entered into a definitive purchase agreement with unrelated
third parties, to acquire, subject to customary closing conditions, Avion III and IV, located at 14550 and 14560 Avion Parkway, in Chantilly, Virginia. The contract purchase price for Avion III and IV is $41,700,000 exclusive of transaction costs,
financing fees and working capital reserves. We anticipate that the acquisition will be funded from the proceeds of our initial public offering. Each property consists of a three-story office building, with surface parking lots, completed in 2003.
Avion III has 71,507 rentable square feet and is 100% leased to Lockheed Martin Corporation, a leading supplier of aerospace and defense products and services. Avion IV has 71,504 rentable square feet and is 100% leased to the U.S. General Services
Administration. Both buildings have been improved to meet Sensitive Compartmentalized Information Facilities standards that include enhanced access control systems which meet specific security requirements for handling federal classified
information. While we anticipate this acquisition will close during the third quarter of 2008, this agreement is subject to a number of contingencies and there can be no assurances that this acquisition will occur.

On July 25, 2008, the lease on the 300 Constitution property was assigned to Womens Apparel Group, LLC, by Chadwicks of Boston, Inc.,
the previous tenant, Womens Apparel Group, LLC, an owner and operator of womens apparel companies, will now be the tenant of the 300 Constitution property.

On August 7, 2008, we obtained a $9,000,000 loan from 40/86 Mortgage Capital, Inc., secured by the Lakeside Office property originally acquired on March 5, 2008. The loan is for a term of seven years and
bears interest at a fixed rate of 6.03% with interest payments only for the first 36 months and principal and interest for the remaining 48 months of the loan term. In addition, we incurred financing costs of approximately $100,000 associated with
obtaining this loan.

On August 8, 2008, we entered into an amended and restated credit agreement with Bank of America, N.A.
(Bank of America), which amended the terms of our prior credit agreement with Bank of America, to provide us with a new $45,000,000 unsecured revolving line of credit (the Revolving Credit Facility), and to replace our prior
Bank of America term loan and revolving credit facility which was scheduled to mature in August 2008. The new Revolving Credit Facility was fully drawn upon at closing, with such proceeds utilized to pay down the full $45,000,000 amount
outstanding under our prior Bank of America term loan (as of August 8, 2008, no amount was outstanding under our prior $10,000,000 Bank of America revolving credit facility). The new Revolving Credit Facility matures in August 2010 and
bears interest at a floating rate of LIBOR plus 2.00% to 2.75%, based upon our leverage ratio as defined in the credit agreement (at our current leverage ratio, the Revolving Credit Facility bears interest at a floating rate of LIBOR plus 2.00%). An
upfront fee of $292,500 was paid to Bank of America, and a fee equal to the actual daily amount by which the aggregate commitments exceed the total outstandings (both as defined in the amended and restated credit agreement) times 0.20% per
annum if the total outstandings are equal to or more than 50% of the aggregate commitments, or 0.25% per annum otherwise, is accrued on unfunded balances under the Revolving Credit Facility. The loan contains various financial covenants and
restrictions including a fixed charge coverage ratio of less than 1.75 to 1.00, as defined in the amended and restated credit agreement. As of August 8, 2008, we were in compliance with all such covenants and restrictions. On August 13, 2008,
we paid down the full $45,000,000 amount initially outstanding under the Revolving Credit Facility.



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

Explanatory Note

The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our audited consolidated financial statements, the notes thereto, and the other financial data included elsewhere in this Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This document contains various
forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as believes, expects, may, will, would, could,
should, seeks, approximately, intends, plans, projects, estimates or anticipates or the negative of these words and phrases or similar words or phrases.
You can also identify forward-looking statements by discussions of strategy, plans or intentions. Statements regarding the following subjects may be impacted by a number of risks and uncertainties:



| |  |  | our business strategy;
| | - |  | ----------------------



| |  |  | our ability to obtain future financing arrangements;
| | - |  | ----------------------------------------------------



| |  |  | estimates relating to our future distributions;
| | - |  | -----------------------------------------------



| |  |  | our understanding of our competition;
| | - |  | -------------------------------------



| |  |  | market trends;
| | - |  | --------------



| |  |  | projected capital expenditures;
| | - |  | -------------------------------



| |  |  | the impact of technology on our products, operations and business; and
| | - |  | ----------------------------------------------------------------------



| |  |  | the use of the proceeds of our initial public offering and subsequent offerings.
| | - |  | --------------------------------------------------------------------------------

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information
currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business,
financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common shares,
along with the following factors that could cause actual results to vary from our forward-looking statements:



| |  |  | national, regional and local economic climates;
| | - |  | -----------------------------------------------



| |  |  | future terrorist attacks in the United States or abroad;
| | - |  | --------------------------------------------------------



| |  |  | changes in supply and demand for office, retail, industrial and multi-family residential properties;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain rental rates and maximize occupancy;
| | - |  | ------------------------------------------------------------



| |  |  | our ability to identify acquisitions;
| | - |  | -------------------------------------



| |  |  | our pace of acquisitions and/or dispositions of properties;
| | - |  | -----------------------------------------------------------



| |  |  | our corporate debt ratings and changes in the general interest rate environment;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the condition of capital and credit markets;
| | - |  | --------------------------------------------



| |  |  | the actual outcome of the resolution of any conflict;
| | - |  | -----------------------------------------------------



| |  |  | our ability to successfully operate acquired properties;
| | - |  | --------------------------------------------------------



| |  |  | our ability to qualify as a REIT;
| | - |  | ---------------------------------



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##### Table of Contents

| |  |  | availability of capital (debt and equity);
| | - |  | ------------------------------------------



| |  |  | unanticipated increases in financing and other costs, including a rise in interest rates;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes and our operating partnerships ability to
satisfy the rules in order for it to qualify as a partnership for U.S. federal income tax purposes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | accounting principles and policies and guidelines applicable to REITs;
| | - |  | ----------------------------------------------------------------------



| |  |  | legislative or regulatory changes adversely affecting REITs and the real estate business; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | environmental, regulatory and/or safety requirements.
| | - |  | -----------------------------------------------------

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

Overview

We are a Maryland real estate
investment trust that invests in real estate properties, focusing on office, retail, industrial and multi-family residential properties, as well as other real estate-related assets. We may also utilize our expertise and resources to capitalize on
unique opportunities that may exist elsewhere in the marketplace, in which we might also acquire interests in mortgages or other investments where we could seek to acquire the underlying property. We will not invest more than 20% of our total assets
in any single investment. In addition, we will seek to maintain a portfolio of geographically diverse assets and may invest up to 30% of our total assets outside of the United States. Investments outside of the United States are expected to be
focused in locations in which CBRE Investors has existing operations or previous investment experience, which today consist of metropolitan markets in Western Europe (including London, Paris, Milan and Frankfurt), China (Shanghai and Beijing) and
Japan. To the extent that we enter markets outside of the United States in which CBRE Investors does not already have existing operations or previous investment experience, we would expect to do so in partnership, utilizing joint venture or other
structures, with entities that have significant existing local expertise in these markets.

As of June 30, 2008, we owned 47 office
and industrial properties on a consolidated basis located in seven states (California, Georgia, Illinois, Massachusetts, North Carolina, South Carolina and Texas) and in the United Kingdom, as well as one undeveloped land parcel in Georgia. In
addition, we have ownership interests in two unconsolidated entities that, as of June 30, 2008, owned interests in nine properties with five of those nine properties located in China and the remaining four properties located in Japan and one
property in Arizona, respectively.

We are externally managed by CBRE Advisors LLC, (the Investment Advisor), and all of our
real estate investments are held directly by, or indirectly through wholly owned subsidiaries of, CBRE Operating Partnership, L.P., (CBRE OP). Generally, we contribute the proceeds we receive from the issuance of common shares for cash
to CBRE OP and CBRE OP, in turn, issues units of limited partnership to us, which entitle us to receive our share of CBRE OPs earnings or losses and net cash flow. Provided we have sufficient available cash flow, we intend to pay our
shareholders quarterly cash dividends. We are structured in a manner that allows CBRE OP to issue limited partnership interests from time to time in exchange for real estate properties. By structuring our acquisitions in this manner, the
contributors of real estate to CBRE OP are generally able to defer gain recognition for U.S. federal income tax purposes.

Our business
objective is to maximize shareholder value through: (1) maintaining an experienced management team of investment professionals; (2) investing in properties in certain markets where property fundamentals will support stable income returns
and where capital appreciation is expected to be above average; (3) acquiring properties at a discount to replacement cost and where there is expected positive rent growth; and (4) repositioning properties to increase their value in the
market place.



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Operating results at our individual properties are impacted by the supply and demand for office, retail,
industrial and multifamily space, trends of the national regional economies, the financial health of current and prospective tenants and their customers, capital market trends, construction costs, and interest rate movements. Individual
operating property performance is monitored and calculated using certain non-GAAP financial measures such as an analysis of net operating income. An analysis of net operating income as compared to local regional and national statistics may provide
insight into short or longer term trends exclusive of capital markets or capital structuring issues. Interest rates are a critical factor in our results of operations. Our properties may be financed with significant amounts of debt, so changes in
interest rates may affect both net income and the health of capital markets. For investments outside of the United States, in addition to monitoring local property market fundamentals and capital market trends, we evaluate currency hedging
strategies, taxes, the stability of the local government and economy and the experience of our management team in the region.

The real
estate financing and credit markets experienced significant deterioration since the second half of 2007, resulting in dramatic changes in credit spreads, liquidity and the availability and cost of debt and equity capital. The impact has been most
severe in the single-family residential real estate mortgage markets in the United States, but has more recently affected the commercial real estate markets. We believe the real estate financing and credit markets have yet to stabilize. If these
conditions persist in 2008 and beyond, debt financing available to us, even with our modest leverage, may have less favorable terms than we would have received in the past, in which case, we may elect to fund acquisitions without, or with minimal,
debt. Highly-levered real estate investors, in particular, are now facing significantly-reduced, or even eliminated, availability of funding sources, or at significantly increased cost. As such, under current market conditions and with our modest
levels of leverage, we expect to benefit from improved access to attractive investment opportunities and reduced competition to acquire real estate assets.

We commenced operations in July 2004, following an initial private placement of our common shares of beneficial interest. We raised aggregate net proceeds (after commissions and expenses) of approximately $55,500,000
from July 2004 to October 2004 in private placements of our common shares.

On October 24, 2006, we commenced an initial public
offering of up to $2,000,000,000 in our common shares, 90% of which are offered at a price of $10.00 per share, and 10% of which are offered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95%
of the fair market value of a common share on the reinvestment date, as determined by the Investment Advisor or another firm we choose for that purpose. As of August 1, 2008, we had accepted subscriptions from 9,027 investors, issued 42,307,600
common shares and received $422,683,000 in gross proceeds.

We have elected to be taxed as a REIT for U.S. federal income tax purposes.

The table below provides information regarding the properties we own. We purchased all of these properties from unaffiliated third
parties. These properties are subject to competition from similar properties within their market areas and their economic performance could be affected by changes in local economic conditions. In evaluating these properties for acquisition, we
considered a variety of factors including location, functionality and design, price per square foot, the credit worthiness of tenants, length of lease terms, market fundamentals and the in-place rental rates compared to market rates.



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|                                                         |  |              |  |           |  |                        |  |                       |   |  |                       |  |           |   |  |                                      |           
|-------------------------------------------------------- |  | ------------ |  | --------- |  | ---------------------- |  | --------------------- | - |  | --------------------- |  | --------- | - |  | ------------------------------------ | ----------
|Property and Market                                      |  | DateAcquired |  | YearBuilt |  | Property Type          |  | OurEffectiveOwnership |   |  | NetRentableSquareFeet |  | Occupancy |   |  | Approximate TotalAcquisition Cost(1)
|Domestic Consolidated Properties:                        |  |              |  |           |  |                        |  |                       |   |  |                       |  |           |   |  |                                      |           
|REMEC Corporate Campus 1San Diego, CA                    |  | 9/15/2004    |  | 1983      |  | Office                 |  | 100.00                | % |  | 34,000                |  | 100.00    | % |  | $                                    | 6,833,000 
|REMEC Corporate Campus 2San Diego, CA                    |  | 9/15/2004    |  | 1983      |  | Office                 |  | 100.00                | % |  | 30,477                |  | 100.00    | % |  |                                      | 6,125,000 
|REMEC Corporate Campus 3San Diego, CA                    |  | 9/15/2004    |  | 1983      |  | Office                 |  | 100.00                | % |  | 37,430                |  | 100.00    | % |  |                                      | 7,523,000 
|REMEC Corporate Campus 4San Diego, CA                    |  | 9/15/2004    |  | 1983      |  | Office                 |  | 100.00                | % |  | 30,778                |  | 100.00    | % |  |                                      | 6,186,000 
|300 Constitution DriveBoston, MA                         |  | 11/3/2004    |  | 1998      |  | Warehouse/Distribution |  | 100.00                | % |  | 330,000               |  | 100.00    | % |  |                                      | 19,805,000
|Deerfield Commons(2)Atlanta, GA                          |  | 6/21/2005    |  | 2000      |  | Office                 |  | 100.00                | % |  | 121,969               |  | 100.00    | % |  |                                      | 21,834,000
|505 CenturyDallas, TX                                    |  | 1/9/2006     |  | 1997      |  | Warehouse/Distribution |  | 100.00                | % |  | 100,000               |  | 72.40     | % |  |                                      | 6,095,000 
|631 InternationalDallas, TX                              |  | 1/9/2006     |  | 1998      |  | Warehouse/Distribution |  | 100.00                | % |  | 73,112                |  | 100.00    | % |  |                                      | 5,407,000 
|660 North DorothyDallas, TX                              |  | 1/9/2006     |  | 1997      |  | Warehouse/Distribution |  | 100.00                | % |  | 120,000               |  | 100.00    | % |  |                                      | 6,836,000 
|Bolingbrook Point IIIChicago, IL                         |  | 8/29/2007    |  | 2006      |  | Warehouse/Distribution |  | 100.00                | % |  | 185,045               |  | 100.00    | % |  |                                      | 18,170,000
|Cherokee Corporate Park(3)Spartanburg, SC                |  | 8/30/2007    |  | 2000      |  | Warehouse/Distribution |  | 100.00                | % |  | 60,000                |  | 100.00    | % |  |                                      | 3,928,000 
|Community Cash Complex 1(3)Spartanburg, SC               |  | 8/30/2007    |  | 1960      |  | Warehouse/Distribution |  | 100.00                | % |  | 205,360               |  | 63.00     | % |  |                                      | 3,212,000 
|Community Cash Complex 2(3)Spartanburg, SC               |  | 8/30/2007    |  | 1978      |  | Warehouse/Distribution |  | 100.00                | % |  | 144,978               |  | 93.57     | % |  |                                      | 2,268,000 
|Community Cash Complex 3(3)Spartanburg, SC               |  | 8/30/2007    |  | 1981      |  | Warehouse/Distribution |  | 100.00                | % |  | 116,413               |  | 100.00    | % |  |                                      | 1,821,000 
|Community Cash Complex 4(3)Spartanburg, SC               |  | 8/30/2007    |  | 1984      |  | Warehouse/Distribution |  | 100.00                | % |  | 33,120                |  | 0.00      | % |  |                                      | 518,000   
|Community Cash Complex 5(3)Spartanburg, SC               |  | 8/30/2007    |  | 1984      |  | Warehouse/Distribution |  | 100.00                | % |  | 53,033                |  | 0.00      | % |  |                                      | 829,000   
|Fairforest Building 1(3)Spartanburg, SC                  |  | 8/30/2007    |  | 2000      |  | Manufacturing          |  | 100.00                | % |  | 51,028                |  | 100.00    | % |  |                                      | 3,004,000 
|Fairforest Building 2(3)Spartanburg, SC                  |  | 8/30/2007    |  | 1999      |  | Manufacturing          |  | 100.00                | % |  | 104,160               |  | 100.00    | % |  |                                      | 6,133,000 
|Fairforest Building 3(3)Spartanburg, SC                  |  | 8/30/2007    |  | 2000      |  | Manufacturing          |  | 100.00                | % |  | 100,000               |  | 100.00    | % |  |                                      | 5,887,000 
|Fairforest Building 4(3)Spartanburg, SC                  |  | 8/30/2007    |  | 2001      |  | Manufacturing          |  | 100.00                | % |  | 100,606               |  | 100.00    | % |  |                                      | 5,923,000 
|Fairforest Building 5Spartanburg, SC                     |  | 8/30/2007    |  | 2006      |  | Warehouse/Distribution |  | 100.00                | % |  | 316,491               |  | 100.00    | % |  |                                      | 16,968,000
|Fairforest Building 6(4)Spartanburg, SC                  |  | 8/30/2007    |  | 2005      |  | Manufacturing          |  | 100.00                | % |  | 101,055               |  | 100.00    | % |  |                                      | 7,468,000 
|Fairforest Building 7Spartanburg, SC                     |  | 8/30/2007    |  | 2006      |  | Warehouse/Distribution |  | 100.00                | % |  | 101,459               |  | 0.00      | % |  |                                      | 5,626,000 
|Greenville/Spartanburg Industrial Park(3)Spartanburg, SC |  | 8/30/2007    |  | 1990      |  | Manufacturing          |  | 100.00                | % |  | 67,375                |  | 100.00    | % |  |                                      | 3,581,000 
|Highway 290 Commerce Park Building 1(3)Spartanburg, SC   |  | 8/30/2007    |  | 1995      |  | Warehouse/Distribution |  | 100.00                | % |  | 150,000               |  | 33.33     | % |  |                                      | 6,724,000 
|Highway 290 Commerce Park Building 3(3)Spartanburg, SC   |  | 8/30/2007    |  | 1993      |  | Warehouse/Distribution |  | 100.00                | % |  | 30,000                |  | 100.00    | % |  |                                      | 1,344,000 
|Highway 290 Commerce Park Building 5(3)Spartanburg, SC   |  | 8/30/2007    |  | 1994      |  | Warehouse/Distribution |  | 100.00                | % |  | 88,050                |  | 100.00    | % |  |                                      | 3,947,000 
|HJ Park Building 1Spartanburg, SC                        |  | 8/30/2007    |  | 2003      |  | Manufacturing          |  | 100.00                | % |  | 70,000                |  | 100.00    | % |  |                                      | 4,216,000 
|Jedburg Commerce ParkCharleston, SC                      |  | 8/30/2007    |  | 2007      |  | Manufacturing          |  | 100.00                | % |  | 512,686               |  | 100.00    | % |  |                                      | 41,967,000



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|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|------------------------------------------------------ |  | ------------ |  | --------- |  | ---------------------- |  | --------------------- | --------- |  | --------------------- | - | --------- | - | ----------- | ------------------------------------ | ----------
|Property and Market                                    |  | DateAcquired |  | YearBuilt |  | Property Type          |  | OurEffectiveOwnership |           |  | NetRentableSquareFeet |   | Occupancy |   |             | Approximate TotalAcquisition Cost(1)
|Kings Mountain I(4)Charlotte, NC                       |  | 8/30/2007    |  | 1998      |  | Warehouse/Distribution |  | 100.00                | %         |  | 100,000               |   | 100.00    | % |             |                                      | 5,497,000 
|Kings Mountain IICharlotte, NC                         |  | 8/30/2007    |  | 2002      |  | Warehouse/Distribution |  | 100.00                | %         |  | 301,400               |   | 100.00    | % |             |                                      | 11,311,000
|Mount Holly BuildingCharleston, SC                     |  | 8/30/2007    |  | 2003      |  | Warehouse/Distribution |  | 100.00                | %         |  | 100,823               |   | 100.00    | % |             |                                      | 6,208,000 
|North Rhett ICharleston, SC                            |  | 8/30/2007    |  | 1973      |  | Warehouse/Distribution |  | 100.00                | %         |  | 284,750               |   | 100.00    | % |             |                                      | 10,302,000
|North Rhett IICharleston, SC                           |  | 8/30/2007    |  | 2001      |  | Warehouse/Distribution |  | 100.00                | %         |  | 101,705               |   | 100.00    | % |             |                                      | 7,073,000 
|North Rhett III(4)Charleston, SC                       |  | 8/30/2007    |  | 2002      |  | Warehouse/Distribution |  | 100.00                | %         |  | 79,972                |   | 100.00    | % |             |                                      | 4,812,000 
|North Rhett IVCharleston, SC                           |  | 8/30/2007    |  | 2005      |  | Warehouse/Distribution |  | 100.00                | %         |  | 316,040               |   | 100.00    | % |             |                                      | 17,060,000
|Orangeburg Park BuildingCharleston, SC                 |  | 8/30/2007    |  | 2003      |  | Warehouse/Distribution |  | 100.00                | %         |  | 101,055               |   | 100.00    | % |             |                                      | 5,474,000 
|Orchard Business Park 1(3)Spartanburg, SC              |  | 8/30/2007    |  | 1993      |  | Warehouse/Distribution |  | 100.00                | %         |  | 32,500                |   | 100.00    | % |             |                                      | 1,476,000 
|Union Cross Building IWinston-Salem, NC                |  | 8/30/2007    |  | 2005      |  | Warehouse/Distribution |  | 100.00                | %         |  | 100,853               |   | 100.00    | % |             |                                      | 6,585,000 
|Union Cross Building IIWinston-Salem, NC               |  | 8/30/2007    |  | 2005      |  | Warehouse/Distribution |  | 100.00                | %         |  | 316,130               |   | 100.00    | % |             |                                      | 17,216,000
|Highway 290 Commerce Park Building 2(3)Spartanburg, SC |  | 9/24/2007    |  | 1995      |  | Warehouse/Distribution |  | 100.00                | %         |  | 100,000               |   | 0.00      | % |             |                                      | 4,482,000 
|Highway 290 Commerce Park Building 4(3)Spartanburg, SC |  | 11/1/2007    |  | 1996      |  | Warehouse/Distribution |  | 100.00                | %         |  | 105,000               |   | 100.00    | % |             |                                      | 4,707,000 
|Orchard Business Park 2(3)Spartanburg, SC              |  | 11/1/2007    |  | 1994      |  | Warehouse/Distribution |  | 100.00                | %         |  | 17,500                |   | 100.00    | % |             |                                      | 795,000   
|Lakeside Office CenterDallas, TX                       |  | 3/5/2008     |  | 2006      |  | Office                 |  | 100.00                | %         |  | 98,750                |   | 97.88     | % |             |                                      | 17,965,000
|Kings Mountain IIICharlotte, NC                        |  | 3/14/2008    |  | 2007      |  | Warehouse/Distribution |  | 100.00                | %         |  | 541,910               |   | 0.00      | % |             |                                      | 25,662,000
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Total Domestic Consolidated Properties                 |  |              |  |           |  |                        |  |                       | 6,167,013 |  | 82.98                 | % |           |   | 376,803,000
|International Consolidated Properties:                 |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|602 Central BoulevardCoventry, UK                      |  | 4/27/2007    |  | 2001      |  | Office                 |  | 100.00                | %         |  | 49,985                |   | 100.00    | % |             |                                      | 23,847,000
|Thames Valley FiveReading, UK                          |  | 3/20/2008    |  | 1998      |  | Office                 |  | 100.00                | %         |  | 40,468                |   | 100.00    | % |             |                                      | 29,463,000
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Total International Consolidated Properties            |  |              |  |           |  |                        |  |                       | 90,453    |  | 100.00                | % |           |   | 53,310,000 
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Total Consolidated Properties                          |  |              |  |           |  |                        |  |                       | 6,257,466 |  | 83.23                 | % |           |   | 430,113,000
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Unconsolidated Properties(5):                          |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Buckeye Logistics Center (6)Phoenix, AZ                |  | 6/12/08      |  | 2008      |  | Warehouse/Distribution |  | 80.00                 | %         |  | 605,000               |   | 100.00    | % |             |                                      | 34,900,000
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           
|Total Properties(5)                                    |  |              |  |           |  |                        |  |                       | 6,862,466 |  | 84.71                 | % |           | $ | 465,013,000
|                                                       |  |              |  |           |  |                        |  |                       |           |  |                       |   |           |   |             |                                      |           



|(1) | Approximate total acquisition cost represents the purchase price inclusive of customary closing costs and acquisition
fees. Approximate total acquisition cost for partially-owned properties is at our pro rata share of effective ownership for each of these properties.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes ten acres of undeveloped land zoned for office use.
|--- | ------------------------------------------------------------



|(3) | Real estate held for sale.
|--- | --------------------------



|(4) | Includes the purchase prices of adjacent land parcels acquired on January 23, 2008.
|--- | -----------------------------------------------------------------------------------



|(5) | Does not include CBRE Strategic Partners Asia properties.
|--- | ---------------------------------------------------------



|(6) | This property is held through the Duke joint venture.
|--- | -----------------------------------------------------



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Critical Accounting Policies

Management believes our most critical accounting policies are accounting for lease revenues (including straight-line rent), regular evaluation of whether the value of a real estate asset has been impaired, real estate
purchase price allocations and accounting for our derivatives and hedging activities, if any. Each of these items involves estimates that require management to make judgments that are subjective in nature. Management relies on its experience,
collects historical data and current market data, and analyzes these assumptions in order to arrive at what it believes to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to
the accounting policies described below. In addition, application of these accounting policies involves the exercise of judgments on the use of assumptions as to future uncertainties and, as a result, actual results could materially differ from
these estimates.

Revenue Recognition and Valuation of Receivables

Our revenues, which are composed largely of rental income, include rents reported on a straight-line basis over the initial term of the lease. If our
leases provide for rental increases at specified intervals, we will be required to straight-line the recognition of revenue, which will result in the recording of a receivable for rent not yet due under the lease terms. Accordingly, our management
must determine, in its judgment, to what extent the unbilled rent receivable applicable to each specific tenant is collectible. We review unbilled rent receivable on a quarterly basis and take into consideration the tenants payment history,
the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Should the ability to collect unbilled rent with respect to any given
tenant be in doubt, we would be required to record an increase in our allowance for doubtful accounts or record a direct write-off of the specific rent receivable, which would have an adverse effect on our net income for the year in which the
reserve is increased or the direct write-off is recorded and would decrease our total assets and shareholders equity.

Investments in Real
Estate

We record investments in real estate at cost (including third-party acquisition expenses) and we capitalize improvements and
replacements when they extend the useful life or improve the efficiency of the asset. We expense costs of repairs and maintenance as incurred. We compute depreciation using the straight-line method over the estimated useful lives of our real estate
assets, which we expect to be approximately 39 years for buildings and improvements, three to five years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of
depreciation to record on an annual basis with respect to our investments in real estate. 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 the related assets.

We have adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), which establishes a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. SFAS No. 144 requires that the operations related
to properties that have been sold or that we intend to sell be presented as discontinued operations in the statement of operations for all periods presented, and properties we intend to sell be designated as held for sale on our balance
sheet.

When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we review the
recoverability of the propertys carrying value. The review of recoverability is based on our estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the propertys use and eventual disposition.
Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. These factors contain
subjectivity and thus are not able to be precisely estimated. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair
value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate.



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Real Estate Purchase Price Allocation

We allocate the purchase price to tangible assets of an acquired property (which includes land, building and tenant improvements) based on the estimated
fair values of those tangible assets, assuming the building was vacant. Estimates of fair value for land are based on factors such as comparisons to other properties sold in the same geographic area, adjusted for unique characteristics. Estimates of
fair values of buildings and tenant improvements are based on present values determined based upon the application of hypothetical leases with market rates and terms.

We record above-market and below-market, in-place lease values for acquired properties based on the present value (using an interest rate which 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 lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases. We amortize any capitalized below-market lease values as an
increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.

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. 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 pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of
the tangible and intangible assets acquired. In estimating carrying costs, management 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, legal and other related expenses to the extent that such costs are not already 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 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.

We amortize the value of in-place leases to expense over the remaining term of the respective leases,
which we primarily expect to range from five to fifteen years. The value of customer relationship intangibles is amortized to expense over the remaining term and any renewal periods in the respective leases, but in no event may the amortization
period for 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.

These assessments have a direct impact on net income and revenues. If we assign more fair value to the in-place leases versus buildings
and tenant improvements, assigned costs would generally be depreciated over a shorter period, resulting in more depreciation expense and a lower net income on an annual basis. Likewise, if we estimate that more of our leases in-place at acquisition
are on terms believed to be above the current market rates for similar properties, the calculated present value of the amount above market would be amortized monthly as a direct reduction to rental revenues and ultimately reduce the amount of net
income.



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Treatment of Management Compensation and Expense Reimbursements

Management of our operations is conducted by the Investment Advisor. Fees related to services provided by the Investment Advisor are accounted for based
on the nature of such service and the relevant accounting literature. Fees for services performed that represent period costs of our company, such as cash payments for investment management fees paid to the Investment Advisor, are expensed as
incurred. In addition, an affiliate of the Investment Advisor owns a partnership interest which represents a profits interest in CBRE OP related to these services.

Subject to certain limitations, we are obligated to reimburse the Investment Advisor for the organizational and offering costs incurred on our behalf. This treatment is consistent with Staff Accounting Bulletin, or
SAB, Topic 1.B.1, which requires that we include all of the costs associated with our operations and formation in our financial statements. These costs will then be analyzed and segregated between those which are organizational in nature, those
which are offering-related salaries and other general and administrative expenses of the Investment Advisor and its affiliates, and those which qualify as offering expenses in accordance with SAB Topic 5.A. Organizational costs are expensed as
incurred in accordance with AICPA Statement of Position 98-5,Reporting on the Costs of Start-Up Activities . Offering costs in the amount of $6,106,000 and $7,628,000 were incurred during the three months ended June 30, 2008 and 2007,
respectively, and are recorded as a reduction of additional paid-in-capital in the consolidated statement of shareholders equity. Offering costs incurred through June 30, 2008 totaled $36,251,000. Of the total amount, $30,661,000 was
incurred to CNL Securities Corp., as dealer manager; $3,969,000 was incurred to CB Richard Ellis Group, Inc., an affiliate of the Investment Advisor; $92,000 was incurred to the Investment Advisor for reimbursable marketing costs and $1,529,000 was
incurred to other service providers. Each party will be paid the amount incurred from proceeds of the public offering. As of June 30, 2008 and December 31, 2007, the accrued offering costs payable to related parties included in our
consolidated balance sheets were $4,864,000 and $5,241,000, respectively. Offering costs payable to unrelated parties of $42,000 at June 30, 2008 was included in accounts and payable accrued expenses.

The Investment Advisor earned investment management fees of $798,000 and $262,000 for the three months ended June 30, 2008, and 2007, respectively;
$1,479,000 and $499,000 for the six months ended June 30, 2008 and 2007, respectively. In connection with services provided to the Investment Advisor, CNL Fund Management Company, the Sub-Advisor and affiliate of the Dealer Manager pursuant to
a sub-advisory agreement dated August 21, 2006, was paid by the Investment Advisor $110,000 and $36,000 for the three months ended June 30, 2008 and 2007, respectively; $204,000 and $69,000 for the six months ended June 30, 2008 and
2007, respectively. The Investment Advisor waived investment management fees of $298,000 and $609,000 for the three and six months ended June 30, 2008. The Investment Advisor waived investment management fees of $19,000 for the three and six
months ended June 30, 2007. All or any portion of the investment management fee not taken as to any fiscal year may be deferred or waived without interest at the option of the Investment Advisor.

The Investment Advisor earned acquisition fees of $349,000 and $223,000 for the three and six months ended June 30, 2008, and 2007, respectively and
$1,064,000 and $223,000 for the six months and ended June 30, 2008 and 2007, respectively. In connection with services provided to the Investment Advisor. The Sub-Advisor, pursuant to a sub advisory agreement, was paid by the Investment Advisor
in acquisition fees of $65,000 and $42,000 for the three months ended June 30, 2008, and 2007, respectively and $199,000 and $42,000 for the six months ended June 30, 2008 and 2007, respectively. These fees have been capitalized to
investments in real estate and related intangibles.

Discontinued Operations and Real Estate Held for Sale

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (SFAS No. 144),
the income or loss and net gain on dispositions of operating properties and the income or loss on all properties classified as held for sale are reflected in the consolidated statements of operations as discontinued operations for all periods
presented. A property is classified as held for sale when certain criteria, as set forth under SFAS No. 144, are met. At such time, we present the respective assets and liabilities separately on the balance sheet and cease to record
depreciation and amortization expense. Properties held for sale are reported at the lower of their carrying value or their estimated current sales value less costs to sell. As of June 30, 2008, we had 18 buildings classified as held for sale
(see Notes 5 and 6).

Accounting for Derivative Financial Investments and Hedging Activities

We account for our derivative and hedging activities, if any, in accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133) as amended, which requires all derivative instruments to be carried at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and
strategy for undertaking each hedge transaction. We periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges are accounted for by recording the fair value of the derivative
instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders equity. Calculation of a fair value of derivative instruments also requires management to
use estimates. Amounts will be reclassified from other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under SFAS No. 133. The changes in fair value hedges are accounted
for by recording the fair value of the derivative instruments on the balance sheet as either assets or liabilities, with the corresponding amount recorded in current year earnings.



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Accounting for Share-Based Compensation

We have adopted the fair value based method of accounting for share-based compensation. Under this approach, we recognize an expense for the fair value of
any share-based compensation at the time it is granted, as well as for transactions with non-employees in which services are performed in exchange for equity instruments.

Investments in Unconsolidated Entities

Our determination of the appropriate accounting method
with respect to our investments in CBRE Strategic Partners Asia, which is considered a Variable Interest Entity (VIE), is based on Financial Accounting Standards Board, or FASB, Interpretation No. 46 (revised in December 2003),
Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51 (FIN46R). We account for this VIE, of which we are not the primary beneficiary, under the equity method of accounting.

We determine if an entity is a VIE under FIN 46R based on several factors, including whether the entitys total equity investment at risk upon
inception is sufficient to finance the entitys activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis,
if necessary. In a quantitative analysis, we incorporate various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a
VIE, we then determine whether we consolidate the entity as the primary beneficiary. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we
made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity.

With respect to our majority limited membership interest in the Duke/Hulfish, LLC joint venture, or the Duke joint venture, we considered EITF 96-16,
Investors Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights in determining that we did not have control over the
financial and operating decisions of such entity due to the existence of substantive participating rights held by the minority limited member who is also the managing member of the Duke joint venture.

We carry our investments in CBRE Strategic Partners Asia and the Duke joint venture on the equity method of accounting because we have the ability to
exercise significant influence (but not control) over operating and financial policies of each such entity. We eliminate transactions with such equity method subsidiary to the extent of our ownership in each such entity. Accordingly, our share of
net income (loss) of these equity method subsidiaries is included in consolidated net income (loss). Under the equity method, impairment losses are recognized upon evidence of other-than-temporary losses of value.

Our investments in unconsolidated entities in which we have the ability to exercise significant influence over operating and financial policies, but do
not control, or entities which are variable interest entities in which we are not the primary beneficiary are accounted for under the equity method. Accordingly, our share of the earnings from these equity method basis companies is included in
consolidated net income. Our determination of the appropriate accounting treatment for an investment in a an entity requires judgment of several factors, including the size and nature of our ownership interest and the other owners substantive
rights to make decisions for the entity. If we were to make different judgments or conclusions as to the level of our control or influence, it could result in a different accounting treatment. Accounting for an investment as either consolidated or
using the equity method generally would have no impact on our net income or stockholders equity in any accounting period, but a different treatment would impact individual income statement and balance sheet items, as consolidation would
effectively gross up our income statement and balance sheet.

Accounting Pronouncements Adopted January 1, 2008

Effective January 1, 2008, we adopted, on a prospective basis, SFAS No. 157, Fair Value Measurements (SFAS
No. 157) as amended by FASB Staff Position SFAS No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13(FSP FAS No. 157-1) and FASB Staff Position SFAS No. 157-2, Effective Date of FASB Statement No. 157(FSP FAS No. 157-2).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in U.S. GAAP and provides for expanded disclosure about fair value measurements. SFAS No. 157 applies prospectively to all other accounting pronouncements
that require or permit fair value measurements. FSP FAS No. 157-1 amends SFAS No. 157 to exclude from the scope of SFAS No. 157 certain leasing transactions accounted for under SFAS No. 13, Accounting for
Leases. FSP FAS No. 157-2 amends SFAS No. 157 to defer the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis to fiscal years beginning after November 15, 2008.



The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements. Management is evaluating the impact that SFAS
No. 157 will have on our non-financial assets and non-financial liabilities since the application of SFAS No. 157 for such items was deferred to January 1, 2009. We believe that the impact of these items will not be material to our
consolidated financial statements. Assets and liabilities typically recorded at fair value on a non-recurring basis to which we have not yet applied SFAS No. 157 due to the deferral of SFAS No. 157 for such items include:



| |  |  | Non-financial assets and liabilities initially measured at fair value in an acquisition or business combination;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Long-lived assets measured at fair value due to an impairment assessment under SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset retirement obligations initially measured under SFAS No. 143, Accounting for Asset Retirement Obligations.
| | - |  | ------------------------------------------------------------------------------------------------------------------



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Effective January 1, 2008, we adopted, on a prospective basis, SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the
guidance is 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. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements since we did not elect to apply the fair value option for any of our eligible financial instruments or other items on the
January 1, 2008 effective date.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (SFAS No. 141(R)). SFAS
No. 141(R) changes the requirements for an acquirers recognition and measurement of the assets acquired and the liabilities assumed in a business combination. SFAS No. 141(R) is effective for annual periods beginning after
December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption. We anticipate that the adoption of SFAS No. 141 (R) will only have an impact on our financial statements in
so far as we will not be able to capitalize indirect deal costs to our acquisitions.

In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 requires (i) that noncontrolling (minority) interests be reported as a
component of shareholders equity, (ii) that net income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parents
ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value,
and (v) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for annual periods beginning after
December 15, 2008 and should be applied prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. Management does not expect the adoption of the provisions
of SFAS No. 160 will have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS
No. 161 Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161). This new standard enhances disclosure requirements for derivative instruments in order to provide users of financial
statements with an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging Activitiesand its related interpretations and (iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and
cash flows. SFAS No. 161 is to be applied prospectively for the first annual reporting period beginning on or after November 15, 2008. We believe that the adoption of SFAS No. 161 will not have a material impact on our financial
statement disclosures since we do not currently have any derivative instruments.



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Rental Operations

We evaluate the performance of our segments based on net operating income, defined as: rental income and tenant reimbursements less property and related expenses (operating and maintenance, management fees and real
estate taxes) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and our company level general and administrative expenses. The following tables compare the net operating income for the three and
six months ended June 30, 2008 and 2007 (in thousands):



|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---------------------- | ---- | - | ----- |  | - | ------ | - |  | - | ----- | -
|                                                                                                                              |  | Three MonthsEndedJune 30 |        | Six MonthsEndedJune 30 |     
|                                                                                                                              |  | 2008                     |        |                        | 2007 |   | 2008  |  |   | 2007   |  
|Domestic Properties                                                                                                           |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  | $                        | 5,749  |                        |      | $ | 1,681 |  | $ | 11,076 |   |  | $ | 3,364 |  
|Tenant Reimbursements                                                                                                         |  |                          | 1,235  |                        |      |   | 461   |  |   | 2,269  |   |  |   | 946   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 6,984  |                        |      |   | 2,142 |  |   | 13,345 |   |  |   | 4,310 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                          | 559    |                        |      |   | 227   |  |   | 1,010  |   |  |   | 450   |  
|General and Administrative                                                                                                    |  |                          | 150    |                        |      |   | 27    |  |   | 194    |   |  |   | 72    |  
|Property Management Fee to Related Party                                                                                      |  |                          | 65     |                        |      |   |      |  |   | 127    |   |  |   |      |  
|Property Taxes                                                                                                                |  |                          | 816    |                        |      |   | 295   |  |   | 1,447  |   |  |   | 590   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 1,590  |                        |      |   | 549   |  |   | 2,778  |   |  |   | 1,112 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income                                                                                                          |  |                          | 5,394  |                        |      |   | 1,593 |  |   | 10,567 |   |  |   | 3,198 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|International Properties                                                                                                      |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  |                          | 973    |                        |      |   | 293   |  |   | 1,461  |   |  |   | 293   |  
|Tenant Reimbursements                                                                                                         |  |                          | 26     |                        |      |   | 3     |  |   | 60     |   |  |   | 3     |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 999    |                        |      |   | 296   |  |   | 1,521  |   |  |   | 296   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                          | 28     |                        |      |   | 5     |  |   | 60     |   |  |   | 5     |  
|General and Administrative                                                                                                    |  |                          | 52     |                        |      |   |      |  |   | 52     |   |  |   |      |  
|Property Management Fee to Related Party                                                                                      |  |                          | 5      |                        |      |   |      |  |   | 7      |   |  |   |      |  
|Property Taxes                                                                                                                |  |                          |       |                        |      |   |      |  |   |       |   |  |   |      |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 85     |                        |      |   | 5     |  |   | 119    |   |  |   | 5     |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income                                                                                                          |  |                          | 914    |                        |      |   | 291   |  |   | 1,402  |   |  |   | 291   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Total Reportable Segments                                                                                                     |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Revenues:                                                                                                                     |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Rental                                                                                                                        |  |                          | 6,722  |                        |      |   | 1,974 |  |   | 12,537 |   |  |   | 3,657 |  
|Tenant Reimbursements                                                                                                         |  |                          | 1,261  |                        |      |   | 464   |  |   | 2,329  |   |  |   | 949   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 7,983  |                        |      |   | 2,438 |  |   | 14,866 |   |  |   | 4,606 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Property and Related Expenses:                                                                                                |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Operating and Maintenance                                                                                                     |  |                          | 587    |                        |      |   | 232   |  |   | 1,070  |   |  |   | 455   |  
|General and Administrative                                                                                                    |  |                          | 202    |                        |      |   | 27    |  |   | 246    |   |  |   | 72    |  
|Property Management Fee to Related Party                                                                                      |  |                          | 70     |                        |      |   |      |  |   | 134    |   |  |   |      |  
|Property Taxes                                                                                                                |  |                          | 816    |                        |      |   | 295   |  |   | 1,447  |   |  |   | 590   |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 1,675  |                        |      |   | 554   |  |   | 2,897  |   |  |   | 1,117 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Net Operating Income(1)                                                                                                       |  |                          | 6,308  |                        |      |   | 1,884 |  |   | 11,969 |   |  |   | 3,489 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Reconciliation of Non-GAAP Measure to Consolidated Net (Loss) Income                                                          |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Total Segment Net Operating Income                                                                                            |  |                          | 6,308  |                        |      |   | 1,884 |  |   | 11,969 |   |  |   | 3,489 |  
|Interest and Other Income                                                                                                     |  |                          | 534    |                        |      |   | 774   |  |   | 1,330  |   |  |   | 1,038 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|                                                                                                                              |  |                          | 6,842  |                        |      |   | 2,658 |  |   | 13,299 |   |  |   | 4,527 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Interest Expense                                                                                                              |  |                          | 2,344  |                        |      |   | 572   |  |   | 4,750  |   |  |   | 1,018 |  
|General and Administrative                                                                                                    |  |                          | 781    |                        |      |   | 494   |  |   | 1,146  |   |  |   | 672   |  
|Investment Management Fee to Related Party                                                                                    |  |                          | 798    |                        |      |   | 262   |  |   | 1,479  |   |  |   | 499   |  
|Depreciation and Amortization                                                                                                 |  |                          | 3,889  |                        |      |   | 1,327 |  |   | 7,039  |   |  |   | 2,470 |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|(Loss) Income From Continuing Operations Before Income Taxes, Minority Interest and Equity in Loss
of Unconsolidated Entities |  |                          | (970   | )                      |      |   | 3     |  |   | (1,115 | ) |  |   | (132  | )
|Minority Interest                                                                                                             |  |                          | 5      |                        |      |   | 1     |  |   | 7      |   |  |   | 4     |  
|Provision for Income Taxes                                                                                                    |  |                          | (81    | )                      |      |   |      |  |   | (140   | ) |  |   |      |  
|Equity in Loss of Unconsolidated Entities                                                                                     |  |                          | (180   | )                      |      |   |      |  |   | (276   | ) |  |   |      |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|(Loss) Income from Continuing Operations                                                                                      |  |                          | (1,226 | )                      |      |   | 4     |  |   | (1,524 | ) |  |   | (128  | )
|Income from Discontinued Operation                                                                                            |  |                          | 741    |                        |      |   |      |  |   | 1,622  |   |  |   |      |  
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  
|Net (Loss) Income                                                                                                             |  | $                        | (485   | )                      |      | $ | 4     |  | $ | 98     |   |  | $ | (128  | )
|                                                                                                                              |  |                          |        |                        |      |   |       |  |   |        |   |  |   |       |  



|(1) | Total Reportable Segments net operating income is a Non-GAAP
financial measure which may be useful as a supplemental measure for evaluating the relationship of each reporting segment to the combined total. This measure should not be looked as an alternative measure of operating performance to our
U.S. GAAP presentations provided.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Consolidated Results of Continuing Operations

Comparison of Three Months Ended June 30, 2008 to Three Months Ended June 30, 2007

Revenues

Rental

Rental revenue
increased $4,748,000, or 241%, to $6,722,000 during the three months ended June 30, 2008 compared to $1,974,000 for the three months ended June 30, 2007. The increase was due to the acquisition of 602 Central Blvd., Bolingbrook Point III,
the Carolina Portfolio, Lakeside Office Center and Thames Valley Five as well as increased occupancy at Deerfield Commons I.

Tenant Reimbursements

Tenant reimbursements increased $797,000, or 172%, to $1,261,000 for the three months ended June 30, 2008 compared to $464,000 for the
three months ended June 30, 2007, primarily as a result of increased tenant operating expense recovery for Deerfield Commons I, Bolingbrook Point III, the Carolina Portfolio and Lakeside Office Center.

Expenses

Operating and Maintenance

Property operating and maintenance expenses increased $366,000, or 166%, to $587,000 for the three months ended June 30, 2008 compared to $221,000
for the three months ended June 30, 2007. The increase was primarily due to the acquisition of Bolingbrook Point III, the Carolina Portfolio and Lakeside Office Center and increased operating expenses at Deerfield Commons I.

Property Taxes

Property tax expense increased
$521,000, or 177%, to $816,000 for the three months ended June 30, 2008 compared to $295,000 for the three months ended June 30, 2007. The increase was due to a combination of increased assessments and expenses associated with the
Bolingbrook Point III, the Carolina Portfolio and Lakeside Office Center.

Interest

Interest expense increased $1,772,000, or 310%, to $2,344,000 for the three months ended June 30, 2008 compared to $572,000 for the three months
ended June 30, 2007 as a result of interest expense associated with the 602 Central Blvd., the Carolina Portfolio and Thames Valley Five notes payable and the Bank of America term loan.

General and Administrative

General and
administrative expense increased $462,000, or 89%, to $983,000 for the three months ended June 30, 2008 compared to $521,000 for the three months ended June 30, 2007. Of the total increase, $209,000 was due to the increase in professional
fees; $101,000 was due to increase in organization costs associated with formation of the Duke joint venture; $82,000 was due to the increase in general corporate legal expense for the three months ended June 30, 2008 as compared to
June 30, 2007; $82,000 was due to the increase in general audit fees and Sarbanes-Oxley assistance fees for the three months ended June 30, 2008 as compared to June 30, 2007; $21,000 was due to the increase in shareholder servicing
fees and report production costs for the three months ended June 30, 2008 as compared to June 30, 2007, offset by the reductions of directions and officers insurance of $33,000 for the three months ended June 30, 2008 as
compared to June 30, 2007.



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Property Management Fee and Investment Management Fee

Property management fee and investment management fee increased $595,000, or 218%, to $868,000 for three months ended June 30, 2008 compared to
$273,000 for the three months ended June 30, 2007. The increase was due to fees earned relative to the management of 602 Central Blvd., Bolingbrook Point III, the Carolina Portfolio, Lakeside Office Center and Thames Valley Five.

Depreciation and Amortization

Depreciation and
amortization expense increased $2,562,000, or 193%, to $3,889,000 for the three months ended June 30, 2008 as compared to $1,327,000 for the three months ended June 30, 2007. The net increase was related to tenant improvement and leasing
commission activities at Deerfield Commons I and 660 N. Dorothy and the acquisitions of 602 Central Blvd., Bolingbrook Point III, the Carolina Portfolio, Lakeside Office Center and Thames Valley Five.

Interest and Other Income

Interest and other income
decreased $240,000, or 31%, to $534,000 for the three months ended June 30, 2008 compared to $774,000 for the three months ended June 30, 2007. The decrease was due to lower year to year cash balances and money market interest rates.

Equity in Loss of Unconsolidated Entities

Our investment in CBRE Strategic Partners Asia and the Duke joint venture resulted in a loss of $180,000 for the three months ended June 30, 2008. There were no comparable activities for the three months ended June 30, 2007.

Comparison of Six Months Ended June 30, 2008 to Six Months Ended June 30, 2007

Revenues

Rental

Rental revenue increased $8,879,000, or 243%, to $12,536,000 during the six months ended June 30, 2008 compared to $3,657,000 for the six months
ended June 30, 2007. The increase was due to the acquisition of 602 Central Blvd., Bolingbrook Point III, the Carolina Portfolio, Lakeside Office Center and Thames Valley Five as well as increased occupancy at Deerfield Commons I.

Tenant Reimbursements

Tenant reimbursements
increased $1,381,000, or 146%, to $2,330,000 for the six months ended June 30, 2008 compared to $949,000 for the six months ended June 30, 2007, primarily as a result of increased tenant operating expense recovery for Deerfield Commons I,
Bolingbrook Point III, the Carolina Portfolio and Lakeside Office Center.

Expenses

Operating and Maintenance

Property operating and
maintenance expenses increased $635,000, or 146%, to $1,070,000 for the six months ended June 30, 2008 compared to $435,000 for the six months ended June 30, 2007. The increase was primarily due to the acquisition of Bolingbrook Point III,
the Carolina Portfolio, Lakeside Office Center and Thames Valley Five as well as increased operating expenses at Deerfield Commons I.

Property Taxes

Property tax expense increased $857,000, or 145%, to $1,447,000 for the six months ended June 30, 2008 compared to $590,000 for
the six months ended June 30, 2007. The increase was due to a combination of increased assessments and expenses associated with the Bolingbrook Point III, the Carolina Portfolio and Lakeside Office Center.

Interest

Interest expense increased $3,732,000, or
367%, to $4,750,000 for the six months ended June 30, 2008 compared to $1,018,000 for the six months ended June 30, 2007 as a result of interest expense associated with the 602 Central Blvd., the Carolina Portfolio, Thames Valley Five and
the Bank of America term loan.



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##### Table of Contents

General and Administrative

General and administrative expense increased $648,000, or 87%, to $1,392,000 for the six months ended June 30, 2008 compared to $744,000 for the six months ended June 30, 2007. Of the total increase,
$232,000 was due to the increase in general audit fees and Sarbanes-Oxley assistance fees for the six months ended June 30, 2008 as compared to June 30, 2007; $194,000 was due to the increase in professional fees; $173,000 was due to the
increase in general corporate legal expense for the six months ended June 30, 2008 as compared to June 30, 2007; $101,000 was due to the payment of organization costs associated with the formation of the Duke joint venture; offset by the
reductions of directions and officers insurance of $64,000 for the six months ended June 30, 2008 as compared to June 30, 2007.

Property Management Fee and Investment Management Fee

Property management fee and investment management fee increased
$1,094,000, or 211%, to $1,613,000 for six months ended June 30, 2008 compared to $519,000 for the six months ended June 30, 2007. The increase was due to fees earned relative to the management of 602 Central Blvd., Bolingbrook Point III,
the Carolina Portfolio, Lakeside Office Center and Thames Valley Five.

Depreciation and Amortization

Depreciation and amortization expense increased $4,569,000, or 185%, to $7,039,000 for the six months ended June 30, 2008 as compared to $2,470,000
for the six months ended June 30, 2007. The net increase was related to tenant improvement and leasing commission activities at Deerfield Commons I and 660 N. Dorothy and the acquisitions of 602 Central Blvd., Bolingbrook Point III, the
Carolina Portfolio and Thames Valley Five.

Interest and Other Income

Interest and other income increased $292,000, or 28%, to $1,330,000 for the six months ended June 30, 2008 compared to $1,038,000 for the six months ended June 30, 2007. The increase was due to the investing
of our public offering net cash proceeds in interest earning cash equivalents.

Equity in Loss of Unconsolidated Entities

Our investment in CBRE Strategic Partners Asia and the Duke joint venture resulted in a loss of $276,000 for the six months ended June 30, 2008.
There were no comparable activities for the six months ended June 30, 2007.



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##### Table of Contents

Financial Condition, Liquidity and Capital Resources

Overview

Our sources of funds will primarily
be the net proceeds of our initial public offering, operating cash flows and borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements and we do not anticipate a need to raise funds from other than these
sources within the next twelve months. Depending on market conditions, we expect that once the net proceeds of our initial public offering are fully invested, our debt financing will be no greater than 65% of the value of the cost of our assets
before non-cash reserves and depreciation. The amount of debt we place on an individual property, or the amount of debt incurred by an individual entity in which we invest, may be more or less than 65% of the value of such property or the value of
the assets owned by such entity, depending on market conditions and other factors. In fact, depending on market conditions and other factors, we may choose not to place debt on our portfolio or our assets and may choose not to borrow to finance our
operations or to acquire properties. Our declaration of trust limits our borrowing to 300% of our net assets unless any excess borrowing is approved by a majority of our independent trustees and is disclosed to our shareholders in our next quarterly
report. Our declaration of trust defines net assets as our total assets (other than intangibles) at cost, before deducting depreciation, reserves for bad debts or other non-cash reserves, less total liabilities, calculated at least
quarterly by us on a basis consistently applied; provided, however, that during such periods in which we are obtaining regular independent valuations of the current value of its net assets for purposes of enabling fiduciaries of employee benefit
plan shareholders to comply with applicable Department of Labor reporting requirements, net assets means the greater of (i) the amount determined pursuant to the foregoing and (ii) the assets aggregate valuation
established by the most recent such valuation report without reduction for depreciation, bad debts or other non-cash reserves. Any indebtedness we do incur will likely be subject to continuing covenants, and we will likely be required to make
continuing representations and warranties in connection with such debt. Moreover, some or all of our debt may be secured by some or all of our assets. If we default in the payment of interest or principal on any such debt, breach any representation
or warranty in connection with any borrowing or violate any covenant in any loan document, our lender may accelerate the maturity of such debt requiring us to immediately repay all outstanding principal. If we are unable to make such payment, our
lender could foreclose on our assets that are pledged as collateral to such lender. The lender could also sue us or force us into bankruptcy. Any such event would have a material adverse effect on the value of our common shares. We believe that,
even without any proceeds raised from our initial public offering, we have sufficient cash flow from operations to continue as a going concern for the next twelve months and into the foreseeable future.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to the
Investment Advisor and the Dealer Manager. During the offering stage, assuming all of the shares in our primary offering are sold, these payments will include payments of up to $126,000,000 for selling commissions, up to $27,000,000 for the dealer
manager fee, up to $18,000,000 for the marketing support fee and up to $28,000,000 for organizational and offering expenses. During the acquisition and operational stages, certain services related to the acquisition and management of our investments
and our operations will be provided to us by the Investment Advisor pursuant to an advisory agreement entered into in July 2004 which was amended and restated in October 2006. Pursuant to that agreement, we expect to make various payments to the
Investment Advisor, including acquisition fees, investment management fees and payments for reimbursements of certain costs incurred by the Investment Advisor in providing related services to us. As the actual amounts to be paid are dependent upon
the total equity and debt capital we raise and our results of operations, we cannot determine these amounts at this time.

In order to
avoid corporate-level tax on our net taxable income, we are required to pay distributions to our shareholders equal to our net taxable income. In addition, to qualify as a REIT, we are required to pay distributions to our shareholders equal to at
least 90% of our net ordinary taxable income. Therefore, once the net proceeds we receive from our initial public offering are substantially fully invested, we will need to raise additional capital in order to grow our business and acquire
additional real estate investments. We anticipate borrowing funds to obtain additional capital, but there can be no assurance that we will be able to do so on terms acceptable to us, if at all.



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Historical Cash Flows

Our net cash provided by operating activities increased by $4,959,000 to $7,253,000 for the six months ended June 30, 2008, compared to $2,294,000 for the six months ended June 30, 2007. The increase was due
to the acquisitions of Bolingbrook Point III, the Carolina Portfolio, Lakeside Office Center and Thames Valley Five.

Net cash used in
investing activities increased by $86,499,000 to $112,608,000 for the six months ended June 30, 2008, compared to $26,109,000 for the six months ended June 30, 2007. The increase was due to the acquisitions of Carolina land parcels,
Lakeside Office Center, Kings Mountain III, and Thames Valley Five during the six months ended June 30, 2008.

Net cash provided by
financing activities increased by $18,414,000 to $132,840,000 for the six months ended June 30, 2008, compared to net cash provided by financing activities of $114,426,000 for the six months ended June 30, 2007. The increase was due to the
$24,365,000 increase in net proceeds, after offering costs, received from the public offering, $3,920,000 increase in proceeds from notes payable and $3,000 increase in security deposit, offset by increases in distributions to shareholders and
minority interest holder of $6,891,000, shareholder redemptions of $1,232,000, principal payments on notes payable of $1,671,000, and deferred financial costs of $80,000.

Non-GAAP Supplemental Financial Measure: Funds from Operations

Management uses Funds from
Operations, or FFO, as a supplemental measure of REIT performance. We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to FFO reported by other
REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do. The revised White Paper defines FFO as net income or loss computed in accordance with U.S. GAAP, excluding
extraordinary items, as defined by U.S. GAAP, and gains and losses from sales of depreciable operating property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real
estate assets), and after adjustment for unconsolidated partnerships and joint ventures.

Because FFO excludes depreciation and
amortization, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates and operating
costs. Management believes that FFO provides useful information to the investment community about our financial performance when compared to other REITs since FFO is generally recognized as the industry standard for reporting the operations of
REITs.

FFO does not represent cash generated from operating activities in accordance with U.S. GAAP and should not be considered as an
alternative to net income (determined in accordance with U.S. GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with U.S. GAAP) as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability to make cash distributions.



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The following table presents our FFO for the three and six months ended June 30, 2008 and 2007 (in
thousands):



|                                                              |  |                             |       |   |                           |   |       |      |  |      |       |  |   |       |  
|------------------------------------------------------------- |  | --------------------------- | ----- | - | ------------------------- | - | ----- | ---- |  | ---- | ----- |  | - | ----- | -
|                                                              |  | Three Months Ended June 30, |       |   | Six Months Ended June 30, |  
|                                                              |  | 2008                        |       |   | 2007                      |   |       | 2008 |  | 2007 |      
|Reconciliation of net (loss) income to funds from operations: |  |                             |       |   |                           |   |       |      |  |      |       |  |   |       |  
|Net Income (Loss)                                             |  | $                           | (485  | ) |                           | $ | 4     |      |  | $    | 98    |  | $ | (128  | )
|Adjustments:                                                  |  |                             |       |   |                           |   |       |      |  |      |       |  |   |       |  
|Minority interest                                             |  |                             | (2    | ) |                           |   | (1    | )    |  |      | 3     |  |   | (4    | )
|Net effect of FFO adjustment from unconsolidated entities(1)  |  |                             | 224   |   |                           |   |       |      |  |      | 224   |  |   |       |  
|Real estate depreciation and amortization                     |  |                             | 3,889 |   |                           |   | 1,327 |      |  |      | 7,039 |  |   | 2,470 |  
|                                                              |  |                             |       |   |                           |   |       |      |  |      |       |  |   |       |  
|Funds from operations                                         |  | $                           | 3,626 |   |                           | $ | 1,330 |      |  | $    | 7,364 |  | $ | 2,338 |  
|                                                              |  |                             |       |   |                           |   |       |      |  |      |       |  |   |       |  



|(1) | Represents our share of the FFO adjustments allowable under the
NAREIT definition (primarily depreciation).
|--- | -----------------------------------------------------------------------------------------------------------

Financing

In connection with our acquisition of the Carolina Portfolio on August 30, 2007, we assumed 13 loans with principal balances totaling $66,110,000
($62,944,000 at estimated fair value including the discount of $3,166,000) from various lenders that are secured by first deeds of trust on the properties and the assignment of related rents and leases. Assumption fees and other loan closing costs
totaling $765,500 were capitalized as incurred. The loans bear interest at rates ranging from 4.98% to 6.33% per annum and mature between March 1, 2013 and February 1, 2025. The loans require monthly payments of interest and
principal, fully amortized over the lives of the loans. Principal payments totaling $1,671,000 were made during the six months ended June 30, 2008. We indemnify the lenders against environmental costs and expenses and guarantee the loans under
certain conditions.

In addition, we entered into a credit agreement with Bank of America, N.A. to provide us a $65,000,000 term loan and a
$10,000,000 revolving line of credit (collectively, the Credit Facility). The one year term loan was fully drawn upon at the closing of the Carolina Portfolio on August 30, 2007. None of the revolving line of credit has been drawn.
The Credit Facility matures in August 2008 and interest is payable monthly at a floating rate of LIBOR plus 1.25%, or 3.73% per annum as of June 30, 2008 and 6.10% per annum as of December 31, 2007. Upfront fees and other loan
closing cost totaling approximately $229,000 were capitalized as incurred. A fee of 0.2% per annum is accrued on unfunded balances under the revolving line of credit. The loan contains various financial covenants and restrictions including a
fixed charge coverage ratio of at least 1.6, as defined in the credit agreement. On November 29, 2007, we repaid a portion of the loan balance in the amount of $20,000,000 using net proceeds from our initial public offering. As of June 30,
2008 and December 31, 2007, the term loan balance was $45,000,000 and we were in compliance with all such covenants and restrictions. The Credit Facility is unsecured, but we are required to repay a proportion of the Credit Facility, as defined
in the credit agreement, if any of the unencumbered properties in the Carolina Portfolio, including all of the properties held for sale, are financed or sold.

On April 27, 2007, we, in connection with the acquisition of 602 Central Blvd, entered into a £5,500,000 ($10,957,000 at June 30, 2008) financing arrangement with the Royal Bank of Scotland plc secured
by the property. The loan is for a term of seven years and bears interest at a variable rate of interest, adjusted quarterly, based on three month LIBOR plus 0.67%, or 6.56% and 6.94% per annum as of June 30, 2008 and December 31,
2007, respectively. Interest payments only are due quarterly for the term of the loan with principal due at maturity. The loan agreement requires us to maintain a rate cap agreement pursuant to which we will be protected against an increase in the
three month LIBOR over 6.25% through May 27, 2010.

On May 30, 2008, we entered into a £7,500,000 ($14,942,000 at
June 30, 2008) financing arrangement with the Royal Bank of Scotland plc secured by the Thames Valley Five property. The loan is for a term of five years (with a two year extension option) and bears interest at a variable rate of interest,
adjusted quarterly, based on three month LIBOR plus 1.01%, or 6.81% per annum as of June 30, 2008. Interest payments only are due quarterly for the term of the loan with principal due at maturity.

Distribution Policy

In order to qualify as a
REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, we must make distributions to our shareholders each year in an amount at least equal to 90% of our REIT taxable income.



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It is anticipated that distributions generally will be taxable as ordinary income to our shareholders,
although a portion of such distributions may be designated by us as a return of capital or as capital gain. We will furnish annually to each of our shareholders a statement setting forth distributions paid during the preceding year and their
characterization as ordinary income, return of capital or capital gains.

To the extent that our cash available for distribution is less
than the amount we are required to distribute to qualify as a REIT, we may consider various funding sources to cover any shortfall, including borrowing funds on a short-term, or possibly long-term, basis or selling properties. In addition, we may
utilize these funding sources to make distributions that exceed the amount we are required to distribute to qualify as a REIT; however, we will not use offering proceeds for this purpose.

Off-Balance Sheet Arrangements

As of
June 30, 2008, we had two investments in unconsolidated entities. These investments are discussed in Note 4 in the accompanying consolidated financial statements.

Contractual Obligations and Commitments

The following table provides information with respect
to our contractual obligations at June 30, 2008 (in thousands):



|                                                                              |  |       |          |   |                   |   |         |                   |  |   |                    |   |  |                     |         |   |  |   |         |  
|----------------------------------------------------------------------------- |  | ----- | -------- | - | ----------------- | - | ------- | ----------------- |  | - | ------------------ | - |  | ------------------- | ------- | - |  | - | ------- | -
|Contractual Obligations                                                       |  | Total |          |   | Less thanOne Year |   |         | One to ThreeYears |  |   | Three toFive Years |   |  | More thanFive Years |        
|Note Payable (and interest payments) Collateralized by REMEC Corporate Campus |  | $     | (15,418  | ) |                   | $ | (635    | )                 |  | $ | (1,269             | ) |  | $                   | (13,514 | ) |  | $ |        |  
|Note Payable (and interest payments) Collateralized by 300 Constitution Drive |  |       | (14,227  | ) |                   |   | (581    | )                 |  |   | (1,162             | ) |  |                     | (12,484 | ) |  |   |        |  
|Note Payable (and interest payments) Collateralized by Deerfield Commons I    |  |       | (13,445  | ) |                   |   | (509    | )                 |  |   | (1,084             | ) |  |                     | (1,286  | ) |  |   | (10,566 | )
|Note Payable (and interest payments) Collateralized by 602 Central Blvd.      |  |       | (15,267  | ) |                   |   | (718    | )                 |  |   | (1,437             | ) |  |                     | (1,437  | ) |  |   | (11,675 | )
|Note Payable (and interest payments) Collateralized by Bolingbrook Point III  |  |       | (12,117  | ) |                   |   | (473    | )                 |  |   | (947               | ) |  |                     | (947    | ) |  |   | (9,750  | )
|Note Payable (and interest payments) Collateralized by the Carolina Portfolio |  |       | (90,862  | ) |                   |   | (6,980  | )                 |  |   | (13,961            | ) |  |                     | (13,885 | ) |  |   | (56,036 | )
|Note Payable (and interest payments) Collateralized by Thames Valley Five     |  |       | (20,089  | ) |                   |   | (1,029  | )                 |  |   | (2,059             | ) |  |                     | (17,001 | ) |  |   |         |  
|Unsecured Loan Payable*                                                       |  |       | (45,000  | ) |                   |   | (45,000 | )                 |  |   |                   |   |  |                     |        |   |  |   |        |  
|                                                                              |  |       |          |   |                   |   |         |                   |  |   |                    |   |  |                     |         |   |  |   |         |  
|Total                                                                         |  | $     | (226,425 | ) |                   | $ | (55,925 | )                 |  | $ | (21,919            | ) |  | $                   | (60,554 | ) |  | $ | (88,027 | )
|                                                                              |  |       |          |   |                   |   |         |                   |  |   |                    |   |  |                     |         |   |  |   |         |  



|* | Excludes interest for this presentation because of the short-term nature of the loan.
|- | -------------------------------------------------------------------------------------

As of June 30, 2008, we were committed to pay $4,906,000 in accrued offering costs to related and other parties. The timing of future payments is uncertain.

As of June 30, 2008, we had an unfunded investment commitment in CBRE Strategic Partners Asia totaling $19,800,000. The timing of future payments is
uncertain.

As of June 30, 2008, we had an unfunded investment commitment in the Duke joint venture totaling $164,240,000. The timing
of future payments is uncertain.



51



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Income Taxes

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2004. As a REIT, we generally will not be subject to U.S. federal income tax on
income that we distribute currently to our shareholders. Under the Internal Revenue Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute at least 90% of their annual net
taxable income (excluding net capital gains) to their shareholders. If we fail to qualify for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for
the four-year period following our failure to qualify. Even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to state, local and foreign taxes on our income and property and to U.S. federal income and excise
taxes on our undistributed gross income.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. With the exception of leases with tenants in multifamily properties, we
expect to include provisions in the majority of our tenant leases designed to protect us from the impact of inflation. These provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance
reimbursements, or in some cases, annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below
market. Leases in multifamily properties generally turn over on an annual basis and do not typically present the same issue regarding inflation protection due to their short-term nature.

Quantitative and Qualitative Disclosures About Market Risk

Market risk includes risks that
arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which
we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of long-term
debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve our objectives, we will borrow primarily at fixed rates or variable rates and, in some cases, with the ability to convert variable rates to fixed rates. 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 will not enter into derivative or interest rate transactions for speculative purposes.



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Notes Payable secured by real property are summarized as follows (in thousands):



|                            |  |                     |   |  |                  |   |                     |                  |  |              |         |   |                  |   |         |  
|--------------------------- |  | ------------------- | - |  | ---------------- | - | ------------------- | ---------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                            |  | Interest Rate as of |   |  |                  |   | Notes Payable as of |                 
|Property                    |  | June 30,2008        |   |  | December 31,2007 |   |                     | Maturity Date    |  | June 30,2008 |         |   | December 31,2007 |  
|REMEC                       |  | 4.79                | % |  | 4.79             | % |                     | November 1, 2011 |  | $            | 13,250  |   |                  | $ | 13,250  |  
|300 Constitution            |  | 4.84                |   |  | 4.84             |   |                     | April 1, 2012    |  |              | 12,000  |   |                  |   | 12,000  |  
|Deerfield Commons I(1)      |  | 5.23                |   |  | 5.23             |   |                     | December 1, 2015 |  |              | 9,725   |   |                  |   | 9,725   |  
|602 Central Blvd.(2)        |  | 6.56                |   |  | 6.94             |   |                     | April 27, 2014   |  |              | 10,957  |   |                  |   | 10,928  |  
|Bolingbrook Point III       |  | 5.26                |   |  | 5.26             |   |                     | January 1, 2015  |  |              | 9,000   |   |                  |   | 9,000   |  
|Fairforest Bldg. 5(3)       |  | 6.33                |   |  | 6.33             |   |                     | February 1, 2024 |  |              | 10,975  |   |                  |   | 11,177  |  
|Fairforest Bldg. 6(3)       |  | 5.42                |   |  | 5.42             |   |                     | June 1, 2019     |  |              | 3,635   |   |                  |   | 3,754   |  
|HJ ParkBldg. 1(3)          |  | 4.98                |   |  | 4.98             |   |                     | March 1, 2013    |  |              | 1,289   |   |                  |   | 1,407   |  
|North Rhett I(3)            |  | 5.65                |   |  | 5.65             |   |                     | August 1, 2019   |  |              | 4,721   |   |                  |   | 4,871   |  
|North Rhett II(3)           |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |  |              | 2,578   |   |                  |   | 2,652   |  
|North Rhett III(3)          |  | 5.75                |   |  | 5.75             |   |                     | February 1, 2020 |  |              | 2,104   |   |                  |   | 2,166   |  
|North Rhett IV(3)           |  | 5.80                |   |  | 5.80             |   |                     | February 1, 2025 |  |              | 10,940  |   |                  |   | 11,132  |  
|Mt Holly Bldg.(3)           |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |  |              | 2,578   |   |                  |   | 2,652   |  
|Orangeburg Park Bldg.(3)    |  | 5.20                |   |  | 5.20             |   |                     | October 1, 2020  |  |              | 2,622   |   |                  |   | 2,697   |  
|Kings Mountain I(3)         |  | 5.27                |   |  | 5.27             |   |                     | October 1, 2020  |  |              | 2,230   |   |                  |   | 2,294   |  
|Kings Mountain II(3)        |  | 5.47                |   |  | 5.47             |   |                     | January 1, 2020  |  |              | 6,706   |   |                  |   | 6,911   |  
|Union Cross Bldg. I(3)      |  | 5.50                |   |  | 5.50             |   |                     | July 1, 2021     |  |              | 3,196   |   |                  |   | 3,278   |  
|Union Cross Bldg. II(3)     |  | 5.53                |   |  | 5.53             |   |                     | June 1, 2021     |  |              | 9,775   |   |                  |   | 10,031  |  
|Thames Valley Five(4)       |  | 6.81                |   |  |                 |   |                     | May 30, 2013     |  |              | 14,942  |   |                  |   |        |  
|                            |  |                     |   |  |                  |   |                     |                  |  |              |         |   |                  |   |         |  
|Notes Payable               |  |                     |   |  |                  |   |                     |                  |  |              | 133,223 |   |                  |   | 119,925 |  
|Less Discount               |  |                     |   |  |                  |   |                     |                  |  |              | (2,873  | ) |                  |   | (3,049  | )
|                            |  |                     |   |  |                  |   |                     |                  |  |              |         |   |                  |   |         |  
|Notes Payable Less Discount |  |                     |   |  |                  |   |                     |                  |  | $            | 130,350 |   |                  | $ | 116,876 |  
|                            |  |                     |   |  |                  |   |                     |                  |  |              |         |   |                  |   |         |  



|(1) | Interest only payments are due monthly for the first 60 months of the loan term. Principal and interest payments are due
monthly for the remaining 60 months of the loan term.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Variable interest rate of 6.56% at June 30, 2008, based on three month GBP based London Inter-Bank Offering Rate,
or LIBOR, plus 0.67%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(3) | These notes payable were assumed from the seller of the Carolina Portfolio on August 30, 2007 as part of the
property acquisitions and were recorded at estimated fair value which includes the discount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Variable interest rate of 6.81% at June 30, 2008 based on three month GBP based LIBOR plus 1.01%.
|--- | -------------------------------------------------------------------------------------------------

Upon the maturity of our debt, there is a market risk as to the prevailing rates at the time of refinancing. Changes in
market rates on our fixed-rate debt affect the fair market value of our debt but it has no impact on interest expense or cash flow. A 100 basis point increase or decrease in interest rates on our fixed rate debt would not increase or decrease our
annual interest expense on fixed rate debt.

The interest rate cap has a term of 33 months from August 27, 2007 to May 27, 2010
and has a notional amount of £5,500,000 ($10,957,000 at June 30, 2008) and caps the three month LIBOR at 6.25% during such period. Included in other assets is the fair value of the interest rate cap of $80,000, which includes ($42,000) in
earnings for the decrease in fair value of the interest rate cap during the six months ended June 30, 2008.



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The fair value of long-term debt was estimated based on current interest rates available to us for debt
instruments with similar terms. The following table summarizes our financial instruments and their calculated fair values at June 30, 2008 and December 31, 2007 (in thousands):



|                                |  |                     |          |   |                 |   |          |  
|------------------------------- |  | ------------------- | -------- | - | --------------- | - | -------- | -
|                                |  | As of June 30, 2008 |         
|                                |  | CarryingValue       |          |   | Total FairValue |  
|Financial Assets (Liabilities): |  |                     |          |   |                 |   |          |  
|Interest Rate Cap               |  | $                   | 80       |   |                 | $ | 80       |  
|Notes Payable                   |  | $                   | (130,350 | ) |                 | $ | (127,885 | )
|Loan Payable                    |  | $                   | (45,000  | ) |                 | $ | (45,000  | )

A 100 basis point increase or decrease in interest rates would increase or decrease the fair
market value of our notes payable by $6,195,000 at June 30, 2008. In addition, a 100 basis point increase or decrease in interest rates would either increase or decrease annual variable interest expense on the 602 Central Boulevard Property by
approximately $110,000 (net of the effect of the interest rate cap) and approximately $149,000 on the Thames Valley Five property.



|                                |  |                         |          |   |                 |   |          |  
|------------------------------- |  | ----------------------- | -------- | - | --------------- | - | -------- | -
|                                |  | As of December 31, 2007 |         
|                                |  | CarryingValue           |          |   | Total FairValue |  
|Financial Assets (Liabilities): |  |                         |          |   |                 |   |          |  
|Interest Rate Cap               |  | $                       | 121      |   |                 | $ | 121      |  
|Notes Payable                   |  | $                       | (116,876 | ) |                 | $ | (114,174 | )
|Loan Payable                    |  | $                       | (45,000  | ) |                 | $ | (45,000  | )

The fair value of the loan payable of $45,000,000 approximates the carrying value due to its
short-term nature.

In addition to changes in interest rates, the value of our real estate is subject to fluctuations based on changes in
local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary.



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Subsequent Events

From July 1, 2008 through August 1, 2008, we received gross proceeds of approximately $33,834,651 from the sale of 3,395,966 common shares in our initial public offering.

On January 28, 2008, American LaFrance LLC, or ALF, the tenant in our Jedburg Commerce Park property, filed for Chapter 11 bankruptcy protection
with the bankruptcy court for the District of Delaware. On May 23, 2008, an order was entered in ALFs Chapter 11 case confirming its Plan of Reorganization, which became effective on July 23, 2008. In connection therewith, ALFs
lease with us was modified to reduce the remaining lease term from approximately 19 years to approximately five years and the current annual base rent from approximately $2,994,086 to $2,809,500. ALF has remained current on its rent obligations
during the course of the Chapter 11 bankruptcy proceedings and the lease remains secured, in part, by a letter of credit.

On July 1,
2008, we acquired, from unrelated third-parties, a fee interest in Enclave on the Lake, located at 1255 Enclave Parkway, in Houston, Texas. This property had a total acquisition cost of approximately $37,732,000, which includes the application of a
$500,000 purchase deposit, customary closing costs and an acquisition fee of $372,500 which was paid to our Investment Advisor. The property consists of a 171,091 square foot, six-story office building with structured and surface parking lots
completed in 1999. The office building is 100% leased to SBM Atlantia, Inc., a Netherlands based supplier of products and services to the oil and gas industry under a lease that expires in February 2012. The initial annual rent under the lease with
SBM Atlantia, Inc. is $4,277,000. In connection with the acquisition of this property, we assumed a $18,790,000 fixed-rate mortgage loan that bears interest at a rate of 5.45% per annum and matures on May 1, 2011.

On July 11, 2008, we acquired, from an unrelated third-party, a fee interest in Albion Mills Retail Park located on Ings Road, Wakefield, United
Kingdom. This property had a total acquisition cost of approximately £11,126,000 ($22,046,000 assuming an exchange rate of $1.9815/£1.00), which includes customary closing costs and an acquisition fee of $208,000 which was paid to our
Investment Advisor. The property consists of a 55,294 square foot, two unit retail building and surface parking lot completed in 2000. The retail building is 100% leased to Wickes Building Supplies Ltd, one of the United Kingdoms leading
hardware and building supplies retailers, under a lease that expires in May 2030, and DSG Retail Ltd. (d/b/a PC World), one of the largest retailers in the United Kingdom, under a lease that expires in September 2020. The initial annual rent under
the lease with Wickes Building Supplies Ltd is $1,177,746 and the initial annual rent under the lease with DSG Retail Ltd. (d/b/a PC World) is $404,060.

On July 25, 2008, we entered into a definitive purchase agreement with unrelated third parties, to acquire, subject to customary closing conditions, Avion III and IV, located at 14550 and 14560 Avion Parkway, in
Chantilly, Virginia. The contract purchase price for Avion III and IV is $41,700,000 exclusive of transaction costs, financing fees and working capital reserves. We anticipate that the acquisition will be funded from the proceeds of our initial
public offering. Each property consists of a three-story office building, with surface parking lots, completed in 2003. Avion III has 71,507 rentable square feet and is 100% leased to Lockheed Martin Corporation, a leading supplier of aerospace and
defense products and services. Avion IV has 71,504 rentable square feet and is 100% leased to the U.S. General Services Administration. Both buildings have been improved to meet Sensitive Compartmentalized Information Facilities standards that
include enhanced access control systems which meet specific security requirements for handling federal classified information. While we anticipate this acquisition will close during the third quarter of 2008, this agreement is subject to a number of
contingencies and there can be no assurances that this acquisition will occur.

On July 25, 2008, the lease on the 300 Constitution
property was assigned to Womens Apparel Group, LLC, by Chadwicks of Boston, Inc., the previous tenant, Womens Apparel Group, LLC, an owner and operator of womens apparel companies, will now be the tenant of the 300
Constitution property.

On August 7, 2008, we obtained a $9,000,000 loan from 40/86 Mortgage Capital, Inc., secured by the Lakeside
Office property originally acquired on March 5, 2008. The loan is for a term of seven years and bears interest at a fixed rate of 6.03% with interest payments only for the first 36 months and principal and interest for the remaining 48 months
of the loan term. In addition, we incurred financing costs of approximately $100,000 associated with obtaining this loan.

On
August 8, 2008, we entered into an amended and restated credit agreement with Bank of America, N.A. (Bank of America), which amended the terms of our prior credit agreement with Bank of America, to provide us with a new $45,000,000
unsecured revolving line of credit (the Revolving Credit Facility), and to replace our prior Bank of America term loan and revolving credit facility which was scheduled to mature in August 2008. The new Revolving Credit Facility was
fully drawn upon at closing, with such proceeds utilized to pay down the full $45,000,000 amount outstanding under our prior Bank of America term loan (as of August 8, 2008, no amount was outstanding under our prior $10,000,000 Bank of America
revolving credit facility). The new Revolving Credit Facility matures in August 2010 and bears interest at a floating rate of LIBOR plus 2.00% to 2.75%, based upon our leverage ratio as defined in the credit agreement (at our current leverage
ratio, the Revolving Credit Facility bears interest at a floating rate of LIBOR plus 2.00%). An upfront fee of $292,500 was paid to Bank of America, and a fee equal to the actual daily amount by which the aggregate commitments exceed the total
outstandings (both as defined in the amended and restated credit agreement) times 0.20% per annum if the total outstandings are equal to or more than 50% of the aggregate commitments, or 0.25% per annum otherwise, is accrued on unfunded
balances under the Revolving Credit Facility. The loan contains various financial covenants and restrictions including a fixed charge coverage ratio of less than 1.75 to 1.00, as defined in the amended and restated credit agreement. As of
August 8, 2008, we were in compliance with all such covenants and restrictions. On August 13, 2008, we paid down the full $45,000,000 amount initially outstanding under the Revolving Credit Facility.



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

For a discussion of quantitative and qualitative disclosures about market risk, see the Quantitative and Qualitative Disclosures About Market Risk section of Managements Discussion and Analysis of Financial Condition and
Results of Operations above.



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

Not Applicable.



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

Disclosure Controls and Procedures

We have formally adopted a policy for disclosure controls and procedures that provides guidance on the evaluation of disclosure
controls and procedures and is designed to ensure that all corporate disclosure is complete and accurate in all material respects and that all information required to be disclosed in the periodic reports submitted by us under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time periods and in the manner specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal
executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports. Also, we have an investment in two unconsolidated entities. As we do not control these
entities, our disclosure controls and procedures with respect to these entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as required by the Securities Exchange Act Rule 13a-15(c), our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls Over Financial Reporting

No changes in internal control over financial reporting
occurred during the fiscal quarter ended June 30, 2008 that have materially affected, or are 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
|------- | -----------------

We are not party to any material
legal proceeding as of June 30, 2008.



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

There have been no material changes
to the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2007.



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

Unregistered Sales of Securities

None.

Use of Proceeds from Sale of Registered Securities

During the quarter ended June 30, 2008, we
did not sell any equity securities that are not registered under the Securities Act of 1933, as amended, and we repurchased 159,269 common shares.

The registration statement relating to our initial public offering (No. 333-127405) was declared effective on October 24, 2006. CNL Securities Corp. is the Dealer Manager of our offering. The registration statement covers up to
$2,000,000,000 in common shares of beneficial interest, 90% of which will be offered at a price of $10.00 per share, and 10% of which will be offered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per
share or 95% of the fair market value of a common share on the reinvestment date, as determined by CBRE Advisors LLC, the Investment Advisor, or another firm we choose for that purpose.

We reserve the right to reallocate the shares between the primary offering and our dividend reinvestment plan. From October 24, 2006 (effective
date) through June 30, 2008, we received gross offering proceeds of approximately $388,849,000 from the sale of 38,911,634 shares. After payment of approximately $3,684,000 in acquisition fees, payment of approximately $16,338,000 in selling
commissions, $5,756,000 in dealer manager fees, $2,498,000 in marketing support fees and payment of approximately $11,660,000 in organization and offering expenses, as of June 30, 2008, we had raised aggregate net offering proceeds of
approximately $348,913,000.



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

None.



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

None.



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

On August 8, 2008, we
entered into an amended and restated credit agreement with Bank of America, N.A. (Bank of America), which amended the terms of our prior credit agreement with Bank of America, to provide us with a new $45,000,000 unsecured revolving line
of credit (the Revolving Credit Facility), and to replace our prior Bank of America term loan and revolving credit facility which was scheduled to mature in August 2008. The new Revolving Credit Facility was fully drawn upon at
closing, with such proceeds utilized to pay down the full $45,000,000 amount outstanding under our prior Bank of America term loan (as of August 8, 2008, no amount was outstanding under our prior $10,000,000 Bank of America revolving credit
facility). The new Revolving Credit Facility matures in August 2010 and bears interest at a floating rate of LIBOR plus 2.00% to 2.75%, based upon our leverage ratio as defined in the credit agreement (at our current leverage ratio, the
Revolving Credit Facility bears interest at a floating rate of LIBOR plus 2.00%). An upfront fee of $292,500 was paid to Bank of America, and a fee equal to the actual daily amount by which the aggregate commitments exceed the total outstandings
(both as defined in the amended and restated credit agreement) times 0.20% per annum if the total outstandings are equal to or more than 50% of the aggregate commitments, or 0.25% per annum otherwise, is accrued on unfunded balances under
the Revolving Credit Facility. The loan contains various financial covenants and restrictions, including a fixed charge coverage ratio of less than 1.75 to 1.00, as defined in the amended and restated credit agreement. As of August 8, 2008, we
were in compliance with all such covenants and restrictions. On August 13, 2008, we paid down the full $45,000,000 amount initially outstanding under the Revolving Credit Facility.



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



|     |  |                                                                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Contribution Agreement, dated May 5, 2008, by and among Duke Realty Limited Partnership, Duke/Hulfish, LLC and CBRE Operating Partnership, L.P. (Previously filed as Exhibit 10.1 to Form 8-K
(file 000-53200) filed May 6, 2008 and incorporated herein by reference).
|     | 
|10.2 |  | Amended and Restated Credit Agreement, dated August 8, 2008, by and among CBRE Operating Partnership, L.P., CB Richard Ellis Realty Trust and Bank of America, N.A., filed
herewith.                                                                                   
|     | 
|31.1 |  | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                
|     | 
|31.2 |  | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                
|     | 
|32.1 |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.                                                                                                 
|     | 
|32.2 |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.                                                                                                 



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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.



|                      |  |                                      
|--------------------- |  | -------------------------------------
|                      |  | CB RICHARD ELLIS REALTY TRUST        
|                      | 
|Date: August 14, 2008 |  | /s/ JACK A. CUNEO                    
|                      |  | Jack A. Cuneo                        
|                      |  | President and Chief Executive Officer
|                      | 
|Date: August 14, 2008 |  | /s/ LAURIE ROMANAK                   
|                      |  | Laurie Romanak                       
|                      |  | Chief Financial Officer              



59