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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549





FORM 10-K





(Mark One)

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

For the fiscal year ended December 31, 2009

OR



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

For the transition period fromto

Commission file number 000-53649





KBS REAL ESTATE INVESTMENT TRUST II, INC.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 26-0658752                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                                               |  |           
|-------------------------------------------------------------- |  | ----------
|620 Newport Center Drive, Suite 1300 Newport Beach, California |  | 92660     
|(Address of Principal Executive Offices)                       |  | (Zip Code)

(949)
417-6500

(Registrants Telephone Number, Including Area Code)





Securities registered pursuant to Section 12(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which
Registered
|None                |  | None                                     

Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

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

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



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

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

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

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 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   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | þ

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

There is no established market for the Registrants shares of common stock. The Registrant is currently conducting the ongoing initial public offering of its shares of common stock pursuant to
a Registration Statement on Form S-11, which shares are being sold at $10.00 per share, with discounts available for certain categories of purchasers. There were approximately 65,459,670 shares of common stock held by
non-affiliates at June 30, 2009, the last business day of the registrants most recently completed second fiscal quarter.

As of March 19, 2010, there were 103,083,088 outstanding shares of common stock of the Registrant.









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Table of Contents



|                              |  |                                                                                                              |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I                        |  | 4                                                                                                           
|                              |  |                                                                                                             
|ITEM 1.                       |  | BUSINESS                                                                                                     |  | 4 
|                              |  |                                                                                                             
|ITEM 1A.                      |  | RISK FACTORS                                                                                                 |  | 12
|                              |  |                                                                                                             
|ITEM 1B.                      |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 40
|                              |  |                                                                                                             
|ITEM 2.                       |  | PROPERTIES                                                                                                   |  | 40
|                              |  |                                                                                                             
|ITEM 3.                       |  | LEGAL PROCEEDINGS                                                                                            |  | 40
|                              |  |                                                                                                             
|ITEM 4.                       |  | (REMOVED AND RESERVED)                                                                                       |  | 40
|                              | 
|PART II                       |  | 41                                                                                                          
|                              |  |                                                                                                             
|ITEM 5.                       |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 41
|                              |  |                                                                                                             
|ITEM 6.                       |  | SELECTED FINANCIAL DATA                                                                                      |  | 45
|                              |  |                                                                                                             
|ITEM 7.                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 46
|                              |  |                                                                                                             
|ITEM 7A.                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 59
|                              |  |                                                                                                             
|ITEM 8.                       |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 60
|                              |  |                                                                                                             
|ITEM 9.                       |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 60
|                              |  |                                                                                                             
|ITEM 9A.                      |  | CONTROLS AND PROCEDURES                                                                                      |  | 60
|                              |  |                                                                                                             
|ITEM 9B.                      |  | OTHER INFORMATION                                                                                            |  | 61
|                              |  |                                                                                                             
|PART III                      |  |                                                                                                              |  | 62
|                              |  |                                                                                                             
|ITEM 10.                      |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 62
|                              |  |                                                                                                             
|ITEM 11.                      |  | EXECUTIVE COMPENSATION                                                                                       |  | 67
|                              |  |                                                                                                             
|ITEM 12.                      |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 68
|                              |  |                                                                                                             
|ITEM 13.                      |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                                     |  | 68
|                              |  |                                                                                                             
|ITEM 14.                      |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  | 71
|                              |  |                                                                                                             
|PART IV                       |  |                                                                                                              |  | 72
|                              |  |                                                                                                             
|ITEM 15.                      |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  | 72
|                              | 
|INDEX TO FINANCIAL STATEMENTS |  | F-1                                                                                                         



1



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FORWARD-LOOKING STATEMENTS

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

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



| |  |  | Both we and our advisor have limited operating histories. This inexperience makes our future performance difficult to predict.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | If we are unable to locate investments with attractive yields while we are investing the proceeds of our ongoing initial public offering, our
distributions and the long-term returns of our investors may be lower than they otherwise would.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Our current and future investments in real estate, mortgage loans, mezzanine loans, bridge loans, mortgage-backed securities, collateralized debt
obligations and other debt may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from the properties and other
assets directly securing our loan investments could decrease, making it more difficult for the borrower to meet its payment obligations to us, which could in turn make it more difficult for us to meet our debt service obligations and limit our
ability to pay distributions to our stockholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ongoing credit market disruptions have caused the spreads on prospective debt financing to increase. This could cause the costs and terms of new
financings to be less attractive than the terms of our current indebtedness and increase the cost of our variable rate debt. In addition, we may not be able to refinance our existing indebtedness or to obtain additional debt financing on attractive
terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, and/or dispose of some of our assets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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

All forward-looking statements should be read in light of the risks identified in Part I,
Item 1A of this annual report on Form 10-K.



3



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PART I



|ITEM 1. | BUSINESS
|------- | --------

Overview

KBS Real Estate Investment Trust II, Inc. (the Company) was formed on July 12, 2007 as a Maryland corporation that
elected to be taxed as a real estate investment trust (REIT) beginning with the taxable year ended December 31, 2008 and it intends to operate in such a manner. The Company intends to invest in a diverse portfolio of real
estate and real estate-related investments. As used herein, the terms we, our and us refer to the Company and as required by context, KBS Limited Partnership II, a Delaware limited partnership (the Operating
Partnership), and their subsidiaries. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is managed by KBS Capital
Advisors LLC (KBS Capital Advisors), our external advisor, pursuant to an advisory agreement. KBS Capital Advisors, conducts our operations and manages our portfolio of real estate investments. Our advisor owns 20,000 shares of our
common stock. We have no paid employees.

We intend to invest in a diverse portfolio of real estate investments. The types of
properties that we may invest in include office, industrial and retail properties located throughout the United States. Although we may invest in any of these types of properties, we expect to invest primarily in office and industrial properties.
All such real estate assets may be acquired directly by us or the Operating Partnership, though we may invest in other entities that make similar investments. We also expect to invest in real estate-related investments, including mortgage,
mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. As of December 31, 2009, we owned
five real estate properties and two real estate loans receivable.

On September 27, 2007, we filed a registration
statement on Form S-11 with the Securities and Exchange Commission (the SEC) to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public, of which 200,000,000 shares were
registered in our primary offering and 80,000,000 shares were registered under our dividend reinvestment plan. From the commencement of the offering on April 22, 2008 through December 31, 2009, we had sold
93,347,044 shares of common stock for gross offering proceeds of $929.9 million, including 2,440,176 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $23.2 million. Also as of
December 31, 2009, we had redeemed 199,883 of the shares sold in the offering for $1.9 million. We intend to use substantially all of the net proceeds from the ongoing initial public offering to invest in a diverse portfolio of
real estate and real estate-related investments as described above.

Objectives and Strategies

Our primary investment objectives are:



| |  |  | to provide our stockholders with attractive and stable cash distributions; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | to preserve and return our stockholders capital contributions.
| | - |  | ---------------------------------------------------------------



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We believe that we can achieve these objectives by investing in and managing a diverse
portfolio of real estate and real estate-related investments and by acquiring these investments through a combination of equity raised in our ongoing initial public offering and debt financing. We intend to diversify our portfolio by investment
size, investment type, investment risk and geographic region. We intend to allocate between 60% and 70% of our portfolio to investments in core properties and allocate between 30% and 40% of our portfolio to real estate-related investments such as
mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. Though these percentages represent
our target portfolio, we will not forego a good investment because it does not precisely fit our expected portfolio composition and we may adjust our target portfolio based on real estate market conditions and investment opportunities. Thus, to the
extent that our advisor presents us with good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code of 1986, as amended (the Code), the portfolio may consist of a greater percentage of real
estate-related investments. The following chart illustrates the diversification of our investment portfolio as of December 31, 2009, across investment types based on the gross acquisition price of the investments (including acquisition and
origination costs and fees):

LOGO

2009 Investment Highlights

During 2009, we purchased:



| |  |  | one office property containing 570,038 rentable square feet located on approximately 11.4 acres of land in Fairfax, Virginia. The purchase price of
this property was $112.2 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | at a discount, two promissory notes secured by a first lien mortgage for $66.7 million plus closing costs. These promissory notes are two of six
pari-passu participation interests created in connection with a first mortgage loan obtained by the borrower. The property securing the loan is a 53-story Class A office building containing 2,186,163 square feet located in lower Manhattan.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | at a discount, AAA/Aaa rated commercial mortgage backed securities (CMBS) for $3.9 million, which we subsequently disposed of in 2009
for $4.2 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Real Estate Portfolio

Real Estate Investments

We expect to invest in core properties,
which are generally lower risk, existing properties with at least 80% occupancy and minimal near-term lease rollover. The types of properties that we may invest in include office, industrial, and retail properties located throughout the United
States. Although we may invest in any of these types of properties, the primary property types in which we intend to invest are as follows (in no order of priority):



| |  |  | office properties  including low-rise, mid-rise and high-rise office buildings and office parks in urban and suburban locations,
especially those that are in or near central business districts or have access to transportation; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | industrial properties  including warehouse and distribution facilities, office/warehouse flex properties, research and development
properties and light industrial properties.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We will generally hold fee title or a long-term leasehold estate in the properties we
acquire. We may also invest in or acquire operating companies or other entities that own and operate assets that meet our investment objectives. We will make investments in other entities when we consider it more efficient to acquire an entity that
already owns assets meeting our investment objectives than to acquire such assets directly. We may also participate with other entities (including non-affiliated entities) in property ownership through joint ventures, limited liability companies,
partnerships and other types of common ownership.

We generally intend to hold our core properties for four to seven years,
which we believe is the optimal period to enable us to capitalize on the potential for increased income and capital appreciation of properties. However, economic and market conditions may influence us to hold our investments for different periods of
time.

As of December 31, 2009, we owned five real estate properties. The real estate portfolio was comprised of
four office properties and one office/flex property encompassing 2.0 million square feet. The following charts illustrate our geographic distribution based on total leased square feet and total annualized base rent:

LOGO

LOGO



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We have a stable tenant base and we intend to increase the diversity of our tenant base as
we continue to acquire properties in order to limit exposure to any one tenant or industry. As of December 31, 2009, our largest tenant, BASF Americas Corporation, represents 11.8% of our total annualized base rent. We had no other tenants
that represent more than 10% of our total annualized base rent and our top ten tenants represent approximately 57% of our total annualized base rent. The chart below illustrates the diversity of tenant industries in our portfolio based on total
annualized base rent:

LOGO





* All others include any industry less than 2% of total.

As of December 31, 2009, our real estate portfolios highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:



|                                      |  |                  |  |                                      |        |                                  |    |  
|------------------------------------- |  | ---------------- |  | ------------------------------------ | ------ | -------------------------------- | -- | -
|Industry                              |  | Number ofTenants |  | AnnualizedBase Rent(1)(in thousands) |        | Percentage ofAnnualizedBase Rent |   
|Manufacturing                         |  | 3                |  | $                                    | 9,549  |                                  | 18 | %
|Finance                               |  | 11               |  |                                      | 9,182  |                                  | 17 | %
|Computer Systems Design & Programming |  | 4                |  |                                      | 7,616  |                                  | 14 | %
|Legal Services                        |  | 3                |  |                                      | 6,442  |                                  | 12 | %
|Other Professional Services           |  | 6                |  |                                      | 6,132  |                                  | 11 | %
|                                      |  |                  |  |                                      |        |                                  |    |  
|                                      |  |                  |  | $                                    | 38,921 |                                  | 72 | %
|                                      |  |                  |  |                                      |        |                                  |    |  



(1)Annualized base rent represents annualized
contractual base rental income, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.

The total cost of our real estate portfolio as of December 31, 2009 was $551.6 million. Our real estate portfolio accounted for 77% and
99% of total revenues for the years ended December 31, 2009 and 2008, respectively.



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Real Estate-Related Investments

We also expect to make substantial investments in real estate loans, including first and second mortgage loans, mezzanine loans, B-Notes,
bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans and participations in such loans. We intend to structure, underwrite and originate some of the debt products in which we invest. Our underwriting process
will involve comprehensive financial, structural, operational and legal due diligence to assess the risks of investments so that we can optimize pricing and structuring. By originating loans directly, we will be able to efficiently structure a
diverse range of products. For instance, we may sell some components of the debt we originate while retaining attractive, risk-adjusted strips of the debt for ourselves. Our advisor or a wholly owned subsidiary of our advisor will source our debt
investments.

We also expect to invest in debt and equity securities. The debt securities in which we may invest include
mortgage-backed securities, collateralized debt obligations and debt securities issued by other real estate companies. While we may invest in any of these debt-related investments, we expect that the majority of these investments would be CMBS. With
respect to equity securities, we may purchase the common or preferred stock of REITs or other real estate companies or options to acquire their stock. We may target a public company that owns commercial real estate or real estate-related investments
when we believe its stock is trading at a discount to that companys net asset value. We may eventually seek to acquire or gain a controlling interest in companies that we target. We do not expect our non-controlling equity investments in other
public companies to exceed 5% of the proceeds of our public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time.

As of December 31, 2009, we owned two real estate loans receivable. The total cost of these two real estate loans receivable was
$125.6 million and these investments accounted for 22% of total revenues for the year ended December 31, 2009.

Financing
Objectives

We financed the majority of our real estate acquisitions with a combination of the proceeds we received from
our initial public offering and debt. In addition, we purchased our real estate-related investments primarily with proceeds we received from our initial public offering. Debt financing was used to increase the amounts available for investment and to
increase overall investment yields to us and our stockholders. As of December 31, 2009, the weighted-average interest rate on our debt was 5.4%.

We borrow funds at a combination of fixed and variable rates; at December 31, 2009, we had $93.9 million and $32.8 million of fixed and variable rate debt outstanding, respectively.
The weighted-average interest rates of our fixed rate debt and variable rate debt at December 31, 2009 were 5.9% and 4.1%, respectively.

The following table shows the contractual maturities of our debt as of December 31, 2009:



|           |  |                  |        
|---------- |  | ---------------- | -------
|           |  | Current Maturity
|2010       |  | $                | 32,810 
|2011       |  |                  |       
|2012       |  |                  |       
|2013       |  |                  |       
|2014       |  |                  | 93,850 
|Thereafter |  |                  |       
|           |  |                  |        
|           |  | $                | 126,660
|           |  |                  |        

Our charter limits our borrowings to 75% of the cost
(before deducting depreciation or other noncash reserves) of all of our tangible assets; however, we may exceed that limit if the majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such
borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. During the early stages of our ongoing initial public offering, and to the extent financing
in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. We did not exceed our charter limitation on borrowings during any quarter of 2009. Once we have fully invested the proceeds
of our ongoing initial public offering, we expect our debt financing to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). From time to time, our debt financing may be below 50% of
the cost of our tangible assets due to the lack of availability of debt financing. As of December 31, 2009, our borrowings were approximately 13% of both the cost (before depreciation or other noncash reserves) and book value (before
depreciation) of our tangible assets.



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Market Outlook  Real Estate and Real Estate Finance Markets

During 2008 and 2009, significant and widespread concerns about credit risk and access to capital have been present in the global financial
markets. Economies throughout the world have experienced substantially increased unemployment, sagging consumer confidence and a downturn in economic activity. In addition, the failure (and near failure) of several large financial institutions and
the failures and expectations of additional failures of smaller financial institutions have led to increased levels of uncertainty and volatility in the financial markets and a continued skepticism in the general business climate.

As a result of the decline in general economic conditions, the U.S. commercial real estate industry has been experiencing deteriorating
fundamentals across all major property types and in most geographic markets. In general, tenant defaults are on the rise, rental rates are falling, and demand for commercial real estate space in most markets is still contracting. These trends have
created a highly competitive leasing environment that has resulted in downward pressure on both occupancy and rental rates, resulting in leasing incentives becoming more common. Mortgage delinquencies and defaults have trended upward, with many
industry analysts predicting significant credit defaults, foreclosures and capital losses still to come.

Currently, benchmark
interest rates, such as LIBOR, are near historic lows, allowing some borrowers with variable rate real estate loans to continue making debt service payments even as the properties securing these loans experience decreased occupancy and lower rental
rates. These low rates have benefitted borrowers with floating rate debt who have experienced lower revenues due to decreased occupancy or lower rental rates. Low short-term rates have allowed them to meet their debt obligations but the borrowers
would not meet the current underwriting requirements needed to refinance this debt today. As these loans near maturity, borrowers will find it increasingly difficult to refinance these loans in the current underwriting environment.

Additionally, overall transaction volume for real estate acquisitions has declined dramatically across all property types. Lack of available
credit and poor investor confidence have translated into generally declining real estate values and a corresponding rise in required investment returns and capitalization rates. Although many owners of real estate prefer not to be sellers in a
declining market, the tight credit conditions and increased refinancing risk may force an increasing number of real property owners into distressed sales, or to otherwise consider liquidating their holdings in an effort to enhance liquidity on their
own balance sheet. Following a prolonged period of inactivity, transaction activity has slowly increased and some measure of liquidity has began to make its way into the market; however, the volume is well below that seen just 18 months ago.

From a financing perspective, severe dislocations and liquidity disruptions in the credit markets in late 2008 and early 2009
impacted both the cost and availability of commercial real estate debt. The CMBS market, formerly a significant source of liquidity and debt capital, was inactive for over a year and left a void in the market for long-term, affordable, fixed rate
debt. This void has been partially filled by portfolio lenders such as insurance companies, but at very different terms than were available in the past five years. These remaining lenders have generally increased credit spreads, lowered the amount
of available proceeds, required recourse security and credit enhancements, and otherwise tightened underwriting standards, while simultaneously limiting lending to existing relationships with borrowers that invest in high quality assets in top tier
markets. In addition, lenders have limited the amount of financing available to existing relationships in an effort to manage capital allocations and credit risk.

Recently, new CMBS issuances and increased trading of legacy CMBS, both of which were spurred to varying degrees by the governments Term Asset-Backed Securities Loan Facility program
(TALF), coupled with the increased volume and relatively low cost of debt issuances over the past 12 months by public REITs has led many to believe that commercial real estate lending will be revived as the markets appetite for
risk slowly returns. Leasing activity in some markets has shown gradual improvement and the CMBS market has had success in issuing new transactions with attractive financing terms, creating a tempered optimism in the commercial real estate market.
It is important to remember that these trends have only recently begun and an improvement in one aspect of the market does not provide an indication of a general market recovery or provide any indication of the duration of the existing downturn, or
the speed of any expected recovery.

Despite certain recent positive economic indicators such as an improved stock market
performance, and improved access to capital for some companies, the aforementioned economic conditions have sustained the ongoing global recession. Global government interventions in the banking system and the persistence of a highly expansionary
monetary policy by the U.S. Treasury have introduced additional complexity and uncertainty to the markets. The U.S. government is currently assessing a regulatory overhaul of the financial markets, including the banking, insurance and brokerage
sectors. Increased disclosure requirements and changes to accounting principles involving the valuation of investments have also been a source of uncertainty. These conditions are expected to continue, and combined with a challenging macro-economic
environment, may interfere with the implementation of our business strategy and/or force us to modify it.



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Impact on Our Real Estate Investments

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

Impact on Our Real Estate-Related
Investments

Our real estate-related investments are directly secured by commercial real estate. As a result, our real
estate-related investments have been impacted to some degree by the same factors impacting our real estate investments.

As of
December 31, 2009, we had real estate loans receivable with a principal value of $209.5 million and a carrying value of $130.8 million, all of which are fixed rate and mature in 2017.

Impact on Our Financing Activities

In light of the risks associated with projected declines of operating cash flows on our properties and the current underwriting environment for commercial real estate mortgages, we may have difficulty
refinancing some of our mortgage notes at maturity or may not be able to refinance our obligations at terms as favorable as the terms on our existing indebtedness. As of December 31, 2009, we had debt obligations in the aggregate principal
amount of $126.7 million. Short-term variable rate loans, representing $32.8 million of our total debt, mature within the next year, and a long-term fixed rate loan, representing the remaining $93.9 million of our total debt, matures
in 2014. We intend to extend or refinance these mortgage loans upon their initial maturity dates.

Economic Dependency

We are dependent on our advisor and the dealer manager of our public offering for certain services that are essential to us, including the
sale of our shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of our real estate
and real estate-related investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, we will be required to obtain such services from other sources. Our
dealer manager, KBS Capital Markets Group LLC, is an affiliate of our advisor.

Competitive Market Factors

The United States commercial real estate investment and leasing markets remain competitive. We face competition from various entities for
investment opportunities in commercial and office properties, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships, and developers. Many of these entities have substantially greater financial
resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of its investments. In addition, many of these entities have capital
structures that allow them to make investments at higher prices than what we can prudently offer while still generating a return to their investors that is commensurate with the return we are seeking to provide our investors. Competition from these
entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, tightened underwriting standards for financing have materially impacted the cost and
availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage
for other entities that have greater financial resources than we do. All of the above factors could result in delays in the investment of proceeds from our ongoing initial public offering. Further, as a result of their greater resources, those
entities may have more flexibility than we do in their ability to offer rental concessions to attract tenants. This could put pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. As
a result, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay distributions to our stockholders may be adversely affected.



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The success of our portfolio of real estate-related investments depends, in part, on our
ability to acquire and originate investments with spreads over our borrowing cost. In acquiring and originating these investments, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, many of which have greater financial resources and lower costs of capital available to them than we
do. In addition, there are numerous REITs with asset acquisition objectives similar to ours, and others may be organized in the future, which may increase competition for the investments suitable for us. Competitive variables include market presence
and visibility, size of loans offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential
loans than we are, our acquisition and origination volume and profit margins for our investment portfolio could be impacted. Our competitors may also be willing to accept lower returns on their investments and may succeed in buying the assets that
we have targeted for acquisition. Although we believe that we are well-positioned to compete effectively in each facet of our business, there is enormous competition in our market sector and there can be no assurance that we will compete effectively
or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.

Compliance with Federal, State and Local Environmental Law

Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be
substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for
noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous
substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending
against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders.

All of our properties have been subject to Phase I environmental assessments at the time they were acquired. Some of the properties we
have acquired are subject to potential environmental liabilities arising primarily from historic activities at or in the vicinity of the properties. Based on our environmental diligence and assessments of our properties and our purchase of pollution
and remediation legal liability insurance with respect to some of our properties, we do not believe that environmental conditions at our properties are likely to have a material adverse effect on our operations.

Employees

We have no paid
employees. The employees of our advisor or its affiliates provide management, acquisition, advisory and certain administrative services for us.

Industry Segments

We operate in two business segments. Our segments are based on our method of internal
reporting which classifies operations by investment type: real estate and real estate-related. For financial data by segment, see Note 10 Segment Information in the notes to our consolidated financial statements filed herewith.

Available Information

Access to copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other filings with the SEC, including amendments to such filings, may
be obtained free of charge from the following website, http://www.kbsreitii.com, through a link to the SECs website, http://www.sec.gov. These filings are available promptly after we file them with, or furnish them to, the SEC.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

The
following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do
represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to an Investment in Us

Because no public trading market for our shares currently exists, it will be difficult for our stockholders to sell their shares and, if they are able to sell their shares, it will likely be at a substantial discount to the public
offering price.

Our charter does not require our directors to seek stockholder approval to liquidate our assets by a
specified date, nor does our charter require our directors to list our shares for trading on a national securities exchange by a specified date. There is no public market for our shares and we currently have no plans to list our shares on a national
securities exchange. Until our shares are listed, if ever, stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. In addition, our charter prohibits the ownership of more than 9.8% of
our stock, unless exempted by our board of directors, which may inhibit large investors from purchasing our shares. In its sole discretion, our board of directors could amend, suspend or terminate our share redemption program upon 30 days
notice. Further, the share redemption program includes numerous restrictions that would limit a stockholders ability to sell his or her shares. Therefore, it will be difficult for our stockholders to sell their shares promptly or at all. If a
stockholder is able to sell his or her shares, it would likely be at a substantial discount to the public offering price. It is also likely that our shares would not be accepted as the primary collateral for a loan. Because of the illiquid nature of
our shares, investors should purchase them only as a long-term investment and be prepared to hold them for an indefinite period of time.

If we are unable to find suitable investments, we may not be able to achieve our investment objectives or pay distributions.

Our ability to achieve our investment objectives and to pay distributions depends upon the performance of KBS Capital Advisors, our advisor, in the acquisition of our investments, including the
determination of any financing arrangements, and the ability of our advisor to source loan origination opportunities for us. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the
bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our
acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We will also depend
upon the performance of our property managers in the selection of tenants and negotiation of leasing arrangements. Rising vacancies across commercial real estate have resulted in increased pressure on real estate investors and their property
managers to find new tenants and keep existing tenants. In order to do so, we may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. We are also subject to competition in seeking to acquire real
estate-related investments. The more shares we sell in our ongoing initial public offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms. Our investors must rely entirely on the management
abilities of KBS Capital Advisors, the property managers KBS Capital Advisors selects and the oversight of our board of directors. We can give no assurance that KBS Capital Advisors will be successful in obtaining suitable investments on financially
attractive terms or that, if KBS Capital Advisors makes investments on our behalf, our objectives will be achieved. If we, through KBS Capital Advisors, are unable to find suitable investments promptly, we will hold the proceeds from our public
offering in an interest-bearing account or invest the proceeds in short-term assets. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate. In the event we are unable to timely locate
suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.



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Continued disruptions in the financial markets and uncertain economic conditions could adversely
impact the commercial mortgage market as well as the market for real estate-related debt investments generally, which could hinder our ability to implement our business strategy and generate returns to our stockholders.

We intend to allocate approximately 30% to 40% of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and
other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. The returns available to investors in these investments are
determined by: (i) the supply and demand for such investments, (ii) the performance of the assets underlying the investments and (iii) the existence of a market for such investments, which includes the ability to sell or finance such
investments.

During periods of volatility, the number of investors participating in the market may change at an accelerated
pace. As liquidity or demand increases the returns available to investors on new investments will decrease. Conversely, a lack of liquidity will cause the returns available to investors on new investments to increase.

During 2008 and 2009, concerns pertaining to the deterioration of credit in the residential mortgage market have expanded to almost all
areas of the debt capital markets including corporate bonds, asset-backed securities and commercial real estate bonds and loans. We cannot foresee when these markets will stabilize. This instability may interfere with the successful implementation
of our business strategy.

Continued disruptions in the financial markets and uncertain economic conditions could adversely affect our
ability to service our existing indebtedness, our ability to refinance or secure additional debt financing on attractive terms and the values of our investments.

Despite certain recent positive economic indicators such as an improved stock market performance and improved access to capital for some companies, the capital and credit markets continue to be affected
by the extreme volatility and disruption during 2008 and 2009. Liquidity in the global credit market is severely contracted by these market disruptions, making it costly to obtain new lines of credit or refinance existing debt. We rely on debt
financing to finance our properties and we expect to continue to use debt to acquire properties and possibly other real estate-related investments. As a result of the ongoing credit market turmoil, we may not be able to refinance our existing
indebtedness or to obtain additional debt financing on attractive terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, and/or
to dispose of some of our assets. If the current debt market environment persists we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on
those higher yielding investments that do not require the use of leverage to meet our portfolio goals.

The continued
disruptions in the financial markets and uncertain economic conditions could adversely affect the values of our investments. Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate,
resulting in fewer buyers seeking to acquire commercial properties and possible increases in capitalization rates and lower property values. Furthermore, declining economic conditions could negatively impact commercial real estate fundamentals and
result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in the collateral securing our loan investments. These could have the following negative effects on us:



| |  |  | the values of our investments in commercial properties could decrease below the amounts paid for such investments;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the value of collateral securing our loan investments could decrease below the outstanding principal amounts of such loans;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay dividends or meet
our debt service obligations on debt financing; and/or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | revenues on the properties and other assets underlying our loan investments could decrease, making it more difficult for the borrower to meet its
payment obligations to us, which could in turn make it more difficult for us to pay dividends or meet our debt service obligations on debt financing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of these factors could impair our ability to make distributions to our investors and decrease the value of an investment in us.



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We may suffer from delays in locating suitable investments, which could limit our ability to make
distributions and lower the overall return on our stockholders investment.

We rely upon our sponsors and the
other real estate professionals at our advisor, including Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr., to identify suitable investments. The private KBS-sponsored
programs, especially those that are currently raising offering proceeds, as well as the institutional investors for whom KBS affiliates serve as investment advisors, also rely upon Messrs. Bren and Schreiber for investment opportunities. In
addition, KBS Real Estate Investment Trust, Inc. (KBS REIT I), which is managed by our advisor, relies upon Messrs. Bren, Hall, McMillan and Schreiber to actively manage its assets , and the other public KBS programs
 KBS Strategic Opportunity REIT, Inc. (KBS SOR), KBS Legacy Partners Apartment REIT, Inc. (KBS Legacy Partners Apartment REIT) and KBS Real Estate Investment Trust III, Inc. (KBS REIT III)
 rely or will rely on Messrs. Bren, Hall, McMillan and Schreiber to identify potential investment opportunities and to actively management their assets. To the extent that our sponsors and the other real estate professionals at our
advisor face competing demands upon their time at times when we have capital ready for investment, we may face delays in locating suitable investments. Further, the more money we raise in our ongoing initial public offering, the more difficult it
will be to invest the net offering proceeds promptly and on attractive terms. Therefore, the large size of our public offering and the competition from other entities that may be better positioned to acquire the types of properties and other
investments we desire to purchase increase the risk of delays in investing our net offering proceeds. Delays we encounter in the selection and acquisition or origination of income-producing assets would likely limit our ability to pay distributions
to our stockholders and lower their overall returns. Further, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available
space. Therefore, our stockholders could suffer delays in the distribution of cash distributions attributable to those particular properties. Our stockholders should expect to wait at least several months after the closing of a property acquisition
before receiving cash distributions attributable to that property.

Our stockholders will not have the opportunity to evaluate our
investments before we make them, which makes our stockholders investment more speculative.

We will seek to
invest substantially all of the net proceeds from our ongoing initial public offering, after the payment of fees and expenses, in the acquisition of or investment in interests in real estate and real estate-related assets. However, because our
stockholders will be unable to evaluate the economic merit of specific real estate projects before we invest in them, they will have to rely entirely on the ability of our advisor to select suitable and successful investment opportunities.
Furthermore, our board of directors will have broad discretion in implementing policies regarding tenant or mortgagor creditworthiness and our stockholders will not have the opportunity to evaluate potential tenants, managers or borrowers. These
factors increase the risk that our stockholders investment may not generate returns consistent with their expectations.

If we are
unable to raise substantial funds, we will be limited in the number and type of investments we make and the value of our stockholders investment in us will fluctuate with the performance of the specific assets we acquire.

Our initial public offering is being made on a best efforts basis, meaning that our dealer manager is only required to use
its best efforts to sell our shares and has no firm commitment or obligation to purchase any of the shares. As a result, the amount of proceeds we raise in the offering may be substantially less than the amount we would need to achieve a diversified
portfolio of investments. If we are unable to raise substantial funds, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments that we make. In that case, the likelihood that any single
assets performance would adversely affect our profitability will increase. Additionally, we are not limited in the number or size of our investments or the percentage of net proceeds we may dedicate to a single investment. Our
stockholders investment in our shares will be subject to greater risk to the extent that we lack a diversified portfolio of investments. Further, we will have certain fixed operating expenses, including certain expenses as a publicly offered
REIT, regardless of whether we are able to raise substantial funds in our ongoing initial public offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income
and cash flow and limiting our ability to make distributions.



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We are a recently formed company; we and our advisor have limited operating histories, which makes our
future performance difficult to predict.

We are a recently formed company and have a limited operating history. We
were incorporated in the State of Maryland on July 12, 2007. Our stockholders should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by affiliates of our advisor,
including KBS REIT I.

Our advisor was formed on October 18, 2004. KBS REIT I, which launched its initial
public offering and commenced real estate operations in 2006, was the first publicly offered investment program sponsored by Messrs. Bren, Hall, McMillan and Schreiber and advised by KBS Capital Advisors. The private KBS-sponsored programs were
not subject to the up-front commissions, fees and expenses associated with a public offering nor all of the laws and regulations that will apply to us. For all of these reasons, our stockholders should be especially cautious when drawing conclusions
about our future performance and they should not assume that it will be similar to the prior performance of other KBS-sponsored programs. Our limited operating history, our advisors limited operating history and the differences between us and
the private KBS-sponsored programs significantly increase the risk and uncertainty our stockholders face in making an investment in our shares.

Because we are dependent upon our advisor and its affiliates to conduct our operations, any adverse changes in the financial health of our advisor or its affiliates or our relationship with them could hinder our operating performance
and the return on our stockholders investment.

We are dependent on KBS Capital Advisors to manage our operations
and our portfolio of real estate and real estate-related assets. Our advisor has a limited operating history and it will depend upon the fees and other compensation that it will receive from us and the other public KBS-sponsored programs in
connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of KBS Capital Advisors or our relationship with KBS Capital Advisors could hinder its ability to successfully
manage our operations and our portfolio of investments.

Our dealer manager, KBS Capital Markets Group, has a limited operating history
and our ability to implement our investment strategy is dependent, in part, upon the ability of KBS Capital Markets Group to successfully conduct our initial public offering, which makes an investment in us more speculative.

We have retained KBS Capital Markets Group, an affiliate of our advisor, to conduct our initial public offering. KBS Capital Markets Group
has a limited operating history. The initial public offering of KBS REIT I, which commenced its initial public offering in January 2006 and ceased offering shares in its primary initial public offering on May 30, 2008, was
the first offering conducted by our dealer manager. Our initial public offering, which commenced in 2008, is the second public offering conducted by our dealer manager. KBS Capital Markets Group is also acting as dealer manager for KBS SOR and
KBS Legacy Partners Apartment REIT and will act as dealer manager for KBS REIT III. The success of our offering, and our ability to implement our business strategy, is dependent upon the ability of KBS Capital Markets Group to build and maintain a
network of broker-dealers to sell our shares to their clients. If KBS Capital Markets Group is not successful in establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through our offering will be limited
and we may not have adequate capital to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, our stockholders could lose all or a part of their investment.

If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and
other assets and the overall return to our stockholders may be reduced.

Our organizational documents permit us, to
the extent permitted by Maryland law, to pay distributions from any source. If we fund distributions from financings, the net proceeds from our ongoing initial public offering or other sources, we will have less funds available for investment in
properties and other real estate-related assets and the overall return to our stockholders may be reduced. Because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations
during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash
flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we have funded our distributions in part with third-party borrowings and expect to utilize
third party borrowings in the future, if necessary, to help fund distributions. We may also fund such distributions from advances from our advisor or sponsors, from our advisors deferral of its asset management fee, from the net proceeds from
the sale of real estate and from the receipt of principal payments on our real estate-related investments. To the extent distributions exceed cash flow from operations, a stockholders basis in our stock will be reduced and, to the extent
distributions exceed a stockholders basis, the stockholder may recognize capital gain.



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The loss of or the inability to obtain key real estate and debt finance professionals at our advisor
and key employees at our dealer manager could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our shares.

Our success depends to a significant degree upon the contributions of Peter M. Bren, Keith D. Hall,
Peter McMillan III, Charles J. Schreiber , Jr. and, through our dealer manager, Mike Crimmins, each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with Messrs. Bren,
Hall, McMillan, Schreiber, or Crimmins. Messrs. Bren, Hall, McMillan, Schreiber and Crimmins may not remain associated with us. If any of these persons were to cease their association with us, our operating results could suffer. We do not
intend to maintain key person life insurance on any person. We believe that our future success depends, in large part, upon our advisors and its affiliates ability to attract and retain highly skilled managerial, operational and
marketing professionals. Competition for such professionals is intense, and our advisor and its affiliates may be unsuccessful in attracting and retaining such skilled individuals. Further, we intend to establish strategic relationships with firms
that have special expertise in certain services or detailed knowledge regarding real properties in certain geographic regions. Maintaining such relationships will be important for us to effectively compete with other investors for properties and
tenants in such regions. We may be unsuccessful in establishing and retaining such relationships. If we lose or are unable to obtain the services of highly skilled professionals or do not establish or maintain appropriate strategic relationships,
our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders investment may decline.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce our stockholders and our recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a
manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that no independent director shall be liable to us or our
stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, our stockholders and we may have more limited rights against our independent
directors than might otherwise exist under common law, which could reduce our stockholders and our recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our
independent directors (as well as by our other directors, officers, employees (if we ever have employees) and agents) in some cases, which would decrease the cash otherwise available for distribution to our stockholders.

We may change our targeted investments without stockholder consent.

We expect to allocate approximately 60% to 70% of our portfolio to investments in core properties and approximately 30% to 40% of our
portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real
estate companies. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount, or to represent a substantial
portion of our assets at any one time. Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and
investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments as described. A change in our targeted investments or
investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.



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Risks Related to Conflicts of Interest

KBS Capital Advisors and its affiliates, including all of our executive officers, some of our directors and other key real estate and debt finance professionals, face conflicts of interest caused by
their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

All of our executive officers, some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or
indirect controlling interest in our advisor, our dealer manager and other affiliated KBS entities. KBS Capital Advisors and its affiliates receive substantial fees from us. These fees could influence our advisors advice to us as well as the
judgment of affiliates of KBS Capital Advisors. Among other matters, these compensation arrangements could affect their judgment with respect to:



| |  |  | the continuation, renewal or enforcement of our agreements with KBS Capital Advisors and its affiliates, including the advisory agreement and the
dealer-manager agreement;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | public offerings of equity by us, which entitle KBS Capital Markets Group to dealer-manager fees and will likely entitle KBS Capital Advisors to
increased acquisition, origination and asset-management fees;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sales of properties and other investments, which entitle KBS Capital Advisors to disposition fees and possible subordinated incentive fees;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquisitions of properties and other investments and originations of loans, which entitle KBS Capital Advisors to acquisition or origination fees and
asset-management fees, and, in the case of acquisitions of investments from other KBS-sponsored programs, might entitle affiliates of KBS Capital Advisors to disposition fees and possible subordinated incentive fees in connection with its services
for the seller;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | borrowings to acquire properties and other investments and to originate loans, which borrowings will increase the acquisition, origination and
asset-management fees payable to KBS Capital Advisors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether and when we seek to list our common stock on a national securities exchange, which listing could entitle KBS Capital Advisors to a subordinated
incentive listing fee;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether we seek stockholder approval to internalize our management, which may entail acquiring assets (such as office space, furnishings and technology
costs) and negotiating compensation for real estate, debt finance, management and accounting professionals at our advisor and its affiliates that may result in such individuals receiving more compensation from us than they currently receive from our
advisor; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether and when we seek to sell the company or its assets, which sale could entitle KBS Capital Advisors to a subordinated incentive fee.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

The fees our advisor receives in connection with the acquisition, origination and management of assets are
based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us.



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KBS Capital Advisors faces conflicts of interest relating to the acquisition and origination of assets
and leasing of properties and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets and obtain less creditworthy tenants, which could limit our ability to make distributions and reduce our
stockholders overall investment return.

We rely on our sponsors and other key real estate professionals at our
advisor, including Peter M. Bren, Keith Hall, Peter McMillan III and Charles J. Schreiber, Jr., to identify suitable investment opportunities for us. KBS REIT I, KBS SOR, KBS Legacy Partners
Apartment REIT and KBS REIT III are also advised by KBS Capital Advisors and rely or will rely on our sponsors and many of the same real estate, debt finance, management and accounting professionals as will future public KBS-sponsored
programs. Messrs. Bren and Schreiber and several of the other key real estate professionals at KBS Capital Advisors are also the key real estate professionals at KBS Realty Advisors and its affiliates, the advisors to the private KBS-sponsored
programs and the investment advisors to institutional investors in real estate and real estate-related assets. As such, the other KBS-sponsored programs that are currently raising funds for investment and future programs all rely on many of the same
group of real estate and debt finance professionals. Many investment opportunities that are suitable for us may also be suitable for other KBS programs and investors. When these real estate and debt finance professionals direct an investment
opportunity to any KBS-sponsored program or KBS-advised investor, they, in their sole discretion, will offer the opportunity to the program or investor for which the investment opportunity is most suitable based on the investment objectives,
portfolio and criteria of each program or investor. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real
estate unless our advisor has recommended the investment to us. Thus, the real estate and debt finance professionals of KBS Capital Advisors could direct attractive investment opportunities to other entities or investors. Such events could result in
us investing in properties that provide less attractive returns, which may reduce our ability to make distributions to our stockholders.

We and other KBS-sponsored programs and KBS-advised investors also rely on these real estate professionals to supervise the property management and leasing of properties. If the KBS team of real estate
professionals direct creditworthy prospective tenants to properties owned by another KBS-sponsored program or KBS-advised investor when they could direct such tenants to our properties, our tenant base may have more inherent risk and our
properties occupancy may be lower than might otherwise be the case.

Further, Messrs. Bren, Hall, McMillan and
Schreiber and existing and future KBS-sponsored programs and KBS-advised investors are generally not prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including
businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments. Messrs. Bren, Hall, McMillan and Schreiber have agreed to restrictions with respect to sponsoring another multi-family REIT
while the KBS Legacy Partners Apartment REIT offering is ongoing.

KBS Capital Advisors, the real estate and debt finance professionals
assembled by our advisor, their affiliates and our officers will face competing demands relating to their time and this may cause our operations and our stockholders investment to suffer.

We rely on KBS Capital Advisors and the real estate and debt finance professionals our advisor has assembled, including Messrs. Bren,
Hall, McMillan, Schreiber and Snyder and Ms. Yamane for the day-to-day operation of our business. KBS REIT I, KBS SOR, KBS Legacy Partners Apartment REIT and KBS REIT III are also advised by KBS Capital Advisors and
rely or will rely on our sponsors and many of the same real estate, debt finance, management and accounting professionals as will future public KBS-sponsored programs. Further, our officers and directors are also officers and/or directors of some or
all of the other public KBS-sponsored programs. In addition, Messrs. Bren and Schreiber are executive officers of KBS Realty Advisors and its affiliates, the advisors of the private KBS-sponsored programs and the investment advisors
to institutional investors in real estate and real estate-related assets. As a result of their interests in other KBS programs, their obligations to other investors and the fact that they engage in and they will continue to engage in other business
activities, on behalf of themselves and others, Messrs. Bren, Hall, McMillan, Schreiber and Snyder and Ms. Yamane will face conflicts of interest in allocating their time among us, KBS REIT I, KBS SOR, KBS Legacy Partners
Apartment REIT, KBS REIT III, KBS Capital Advisors and other KBS-sponsored programs and other business activities in which they are involved. In addition, KBS Capital Advisors and KBS Realty Advisors and its affiliates share many of the
same real estate, management and accounting professionals. During times of intense activity in other programs and ventures, these individuals may devote less time and fewer resources to our business than are necessary or appropriate to manage our
business. Furthermore, some or all of these individuals may become employees of another KBS-sponsored program in an internalization transaction or, if we internalize our advisor, may not become our employees as a result of their relationship with
other KBS-sponsored programs. If this occurs, the returns on our investments, and the value of our stockholders investment, may decline.



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All of our executive officers, some of our directors and the key real estate and debt finance
professionals assembled by our advisor face conflicts of interest related to their positions and/or interests in KBS Capital Advisors and its affiliates, including our dealer manager, which could hinder our ability to implement our business strategy
and to generate returns to our stockholders.

All of our executive officers, some of our directors and the key real
estate and debt finance professionals assembled by our advisor are also executive officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other affiliated
KBS entities. Through KBS-affiliated entities, some of these persons also serve as the investment advisors to institutional investors in real estate and real estate-related assets and through KBS Capital Advisors and KBS Realty Advisors these
persons serve as the advisor to KBS REIT I, KBS SOR, KBS Legacy Partners Apartment REIT, KBS REIT III and other KBS-sponsored programs. As a result, they owe fiduciary duties to each of these entities, their members and
limited partners and these investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities and investors could result in action or inaction
that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate the cash needed
to make distributions to our stockholders and to maintain or increase the value of our assets.

Because other real estate programs
offered through our dealer manager are conducting offerings concurrently with our offering, our dealer manager may face potential conflicts of interest arising from competition among us and these other programs for investors and investment capital,
and such conflicts may not be resolved in our favor.

Our dealer manager, KBS Capital Markets Group, also acts as the
dealer manager for the initial public offerings of KBS Legacy Partners Apartment REIT and KBS Strategic Opportunity REIT. Both KBS Legacy Partners Apartment REIT and KBS Strategic Opportunity REIT are raising capital in their respective public
offerings concurrently with our offering. In addition, KBS REIT III and future KBS-sponsored programs may seek to raise capital through public offerings conducted concurrently with our offering. As a result, our dealer manager may face conflicts of
interest arising from potential competition with these other programs for investors and investment capital. Our sponsors generally seek to avoid simultaneous public offerings by programs that have a substantially similar mix of investment
characteristics, including targeted investment types and key investment objectives. Nevertheless, there may be periods during which one or more programs sponsored by our sponsors will be raising capital and may compete with us for investment
capital. Such conflicts may not be resolved in our favor and you will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making your investment.

Our boards loyalties to KBS REIT I and possibly to future KBS-sponsored programs could influence its judgment, resulting in actions
that may not be in our stockholders best interest or that result in a disproportionate benefit to another KBS-sponsored program at our expense.

All of our directors are also directors of KBS REIT I, another public, non-traded REIT sponsored by Messrs. Bren, Hall, McMillan and Schreiber. The loyalties of our directors serving on the
board of KBS REIT I or possibly on the board of future KBS-sponsored programs may influence the judgment of our board when considering issues for us that also may affect other KBS-sponsored programs, such as the following:



| |  |  | The conflicts committee of our board of directors must evaluate the performance of KBS Capital Advisors with respect to whether KBS Capital Advisors is
presenting to us our fair share of investment opportunities. If our advisor is not presenting a sufficient number of investment opportunities to us because it is presenting many opportunities to another KBS-sponsored program or if our advisor is
giving preferential treatment to another KBS-sponsored program in this regard, our conflicts committee may not be well suited to enforce our rights under the terms of the advisory agreement or to seek a new advisor.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We could enter into transactions with other KBS-sponsored programs, such as property sales, acquisitions or financing arrangements. Decisions of the
board or the conflicts committee regarding the terms of those transactions may be influenced by the boards or committees loyalties to such other KBS-sponsored programs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decision of the board or the conflicts committee regarding the timing of a debt or equity offering could be influenced by concerns that the offering
would compete with an offering of other KBS-sponsored programs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decision of the board or the conflicts committee regarding the timing of property sales could be influenced by concerns that the sales would compete
with those of other KBS-sponsored programs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because our independent directors are also independent
directors of KBS REIT I, they receive compensation for service on the board of KBS REIT I. Like us, KBS REIT I pays each independent director an annual retainer of $40,000 as well as compensation for attending meetings
as follows: (i) $2,500 for each board meeting attended, (ii) $2,500 for each committee meeting attended (except that the committee chairman is paid $3,000 for each meeting attended), (iii) $2,000 for each teleconference board meeting
attended, and (iv) $2,000 for each teleconference committee meeting attended (except that the committee chairman is paid $3,000 for each teleconference committee meeting attended). In addition, KBS REIT I reimburses directors for
reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors.



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For the year ended December 31, 2009, the independent directors of
KBS REIT I earned compensation as follows:



|                        |  |                                |         |     |                              |   |        
|----------------------- |  | ------------------------------ | ------- | --- | ---------------------------- | - | -------
|Independent Director    |  | Compensation Earned in 2009(1) |         |     | Compensation Paid in 2009(1)
|                        |  |                               
|Hank Adler              |  | $                              | 115,500 | (2) |                              | $ | 118,496
|                        |  |                               
|Barbara Cambon          |  | $                              | 111,500 | (3) |                              | $ | 116,496
|                        |  |                               
|Stuart A. Gabriel, Ph.D |  | $                              | 112,000 | (4) |                              | $ | 110,996



(1)Compensation Paid in 2009 includes meeting fees earned during 2008 but paid or reimbursed in 2009 as follows: Mr. Adler $10,333; Ms. Cambon $13,333; and Mr. Gabriel $6,333.

(2)This amount includes (i) fees earned for attendance at 12 board meetings, 12 conflicts committee meetings and
six audit committee meetings, (ii) the annual retainer and (iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at meetings.

(3)This amount includes (i) fees earned for attendance at 11 board meetings, 11 conflicts committee meetings and five audit committee meetings, (ii) the annual retainer and
(iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at meetings.

(4)This amount includes (i) fees earned for
attendance at 12 board meetings, 12 conflicts committee meetings and six audit committee meetings, (ii) the annual retainer and (iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at
meetings.

Risks Related to Our Corporate Structure

Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our
qualification as a REIT. To help us comply with the REIT ownership requirements of the Code, our charter prohibits a person from directly or constructively owning more than 9.8% of our outstanding shares, unless exempted by our board of directors.
This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a
premium price for holders of our common stock.

Our charter permits our board of directors to issue stock with terms that may
subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with
priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an
extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

Our stockholders investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we or our subsidiaries become an unregistered
investment company, we could not continue our business.

Neither we nor any of our subsidiaries intend to register as
investment companies under the Investment Company Act. If we or our subsidiaries were obligated to register as investment companies, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose,
among other things:



| |  |  | limitations on capital structure;
| | - |  | ---------------------------------



| |  |  | restrictions on specified investments;
| | - |  | --------------------------------------



| |  |  | prohibitions on transactions with affiliates; and
| | - |  | -------------------------------------------------



| |  |  | compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating
expenses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, we will
not be deemed to be an investment company if:



| |  |  | we are not engaged primarily, nor hold ourselves out as being engaged primarily, nor propose to engage primarily, in the business of investing,
reinvesting or trading in securities (the Primarily Engaged Test); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are not engaged and do not propose to engage in the business of investing, reinvesting, owning, holding or trading in securities and do not own or
propose to acquire investment securities having a value exceeding 40% of the value of our total assets on an unconsolidated basis (the 40% Test). Investment securities excludes U.S. government securities and
securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment
companies).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that we and our Operating Partnership satisfy both tests above. With respect to the
40% Test, most of the entities through which we and our Operating Partnership own our assets are majority-owned subsidiaries that are not themselves investment companies and are not relying on the exceptions from the definition of investment company
under Section 3(c)(1) or Section 3(c)(7).

With respect to the Primarily Engaged Test, we and our Operating
Partnership are holding companies. Through the majority-owned subsidiaries of our Operating Partnership, we and our Operating Partnership are primarily engaged in the non-investment company businesses of these subsidiaries.

We believe that most of the subsidiaries of our Operating Partnership may rely on Section 3(c)(5)(C) of the Investment Company Act for
an exception from the definition of an investment company. (Any other subsidiaries of our Operating Partnership should be able to rely on the exceptions for private investment companies pursuant to Section 3(c)(1) and Section 3(c)(7) of
the Investment Company Act.) The SEC staffs position on Section 3(c)(5)(C) generally requires that an issuer maintain at least 55% of its assets in mortgages and other liens on and interests in real estate (Qualifying
Assets); at least 80% of its assets in Qualifying Assets plus real estate-related assets (Real Estate-Related Assets); and no more than 20% of the value of its assets in other than Qualifying Assets and Real Estate-Related Assets
(Miscellaneous Assets). To constitute a Qualifying Asset under this 55% requirement, a real estate interest must meet various criteria; therefore, certain of our subsidiaries are limited with respect to the value and nature of the assets
that they may own at any given time.

If, however, the value of the subsidiaries of our Operating Partnership that must rely
on Section 3(c)(1) or Section 3(c)(7) is greater than 40% of the value of the assets of our Operating Partnership, then we and our Operating Partnership may seek to rely on the exception from registration under Section 3(c)(6) if we
and our Operating Partnership are primarily engaged, through majority-owned subsidiaries, in the business of purchasing or otherwise acquiring mortgages and other interests in real estate. Although the SEC staff has issued little
interpretive guidance with respect to Section 3(c)(6), we believe that we and our Operating Partnership may rely on Section 3(c)(6) if 55% of the assets of our Operating Partnership consist of, and at least 55% of the income of our
Operating Partnership is derived from, majority-owned subsidiaries that rely on Section 3(c)(5)(C).

To maintain
compliance with the Investment Company Act, our subsidiaries may be unable to sell assets we would otherwise want them to sell and may need to sell assets we would otherwise wish them to retain. In addition, our subsidiaries may have to acquire
additional assets that they might not otherwise have acquired or may have to forego opportunities to make investments that we would otherwise want them to make and would be important to our investment strategy. Moreover, SEC staff interpretations
with respect to various types of assets are subject to change, which increases the risk of non-compliance and the risk that we may be forced to make adverse changes to our portfolio.

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business and
criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement and a court could appoint a receiver to take control of us and liquidate our business.



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Rapid changes in the values of our assets may make it more difficult for us to maintain our
qualification as a REIT or our exception from the definition of an investment company under the Investment Company Act.

If the market value or income potential of our qualifying real estate assets changes as compared to the market value or income potential of our non-qualifying assets, or if the market value or income potential of our assets that are
considered real estate-related assets under the Investment Company Act or REIT qualification tests changes as compared to the market value or income potential of our assets that are not considered real estate-related assets
under the Investment Company Act or REIT qualification tests, whether as a result of increased interest rates, prepayment rates or other factors, we may need to modify our investment portfolio in order to maintain our REIT qualification or exception
from the definition of an investment company. If the decline in asset values or income occurs quickly, this may be especially difficult, if not impossible, to accomplish. This difficulty may be exacerbated by the illiquid nature of many of the
assets that we may own. We may have to make investment decisions that we otherwise would not make absent REIT and Investment Company Act considerations.

Our stockholders will have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face.

Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT
qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited
matters. Our boards broad discretion in setting policies and our stockholders inability to exert control over those policies increases the uncertainty and risks our stockholders face.

Our stockholders may not be able to sell their shares under our share redemption program and, if our stockholders are able to sell their shares under
the program, they may not be able to recover the amount of their investment in our shares.

Our share redemption
program includes numerous restrictions that limit our stockholders ability to sell their shares. Our stockholders must hold their shares for at least one year in order to participate in the share redemption program, except for redemptions
sought upon a stockholders death, qualifying disability (as defined in the plan) or determination of incompetence (as defined in the plan). We limit the number of shares redeemed pursuant to the share redemption program as follows:
(1) during any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year and (2) during each calendar year, redemptions will be limited to the amount of net proceeds
from the sale of shares under our dividend reinvestment plan during the prior calendar year. Further, we have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits
distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all redemption requests made in any year. Our board may amend, suspend or terminate the share redemption program
upon 30 days notice.

The prices at which we will initially redeem shares under the program are as follows:



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



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



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



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

Notwithstanding the above, once we establish an estimated value per share of common stock that is not based
on the price to acquire a share in our primary offering or a follow-on public offering, the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by our advisor or another firm chosen for that
purpose. The share redemption program document states that we expect to establish an estimated value per share no later than three years after the completion of our offering stage; however, to assist broker-dealers who sell shares in our ongoing
public offering meet their regulatory obligations, we currently expect to establish an estimated value per share no later than the expiration of the first 18-month period in which we do not sell shares in a public equity offering. Public
equity offering for this purpose does not include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership. The
restrictions of our share redemption program severely limit our stockholders ability to sell their shares should they require liquidity and limit their ability to recover the value they invested.



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If funds are not available from the dividend reinvestment plan offering for general corporate
purposes, then we may have to use a greater proportion of our cash flow from operations to meet our general cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under the share
redemption program.

We depend on the proceeds from our dividend reinvestment plan for general corporate purposes,
including capital expenditures on our real estate investments, tenant improvement costs and leasing costs related to our investments in real estate properties; reserves required by financings of our investments in real estate properties; the
repayment of debt; and the repurchase of shares under our share redemption program. We cannot predict with any certainty how much, if any, dividend reinvestment plan proceeds will be available for general corporate purposes. If such funds are not
available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet our general cash requirements, which would reduce cash available for distributions and could limit our
ability to redeem shares under the share redemption program.

The offering price of our shares was not established on an independent
basis; the actual value of our stockholders investment may be substantially less than what they pay. We may use the most recent price paid to acquire a share in our offering or a follow-on public offering as the estimated value of our shares
until we have completed our offering stage. Even when our advisor begins to use other valuation methods to estimate the value of our shares, the value of our shares will be based upon a number of assumptions that may not be accurate or complete.

We established the offering price of our shares on an arbitrary basis. The selling price of our shares bears no
relationship to our book or asset values or to any other established criteria for valuing shares. Because the offering price is not based upon any independent valuation, the offering price may not be indicative of the proceeds that our stockholders
would receive upon liquidation. Further, the offering price may be significantly more than the price at which the shares would trade if they were to be listed on an exchange or actively traded by broker-dealers.

To assist Financial Industry Regulatory Authority (FINRA) members and their associated persons that participate in our public
offering of common stock, pursuant to FINRA Conduct Rule 5110, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop
the estimated value. In addition, KBS Capital Advisors, our advisor, prepares annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their
reports relating to an investment in our shares. For these purposes, KBS Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2009. The basis for this valuation is the fact that the current
public offering price for our shares of common stock in our primary offering is $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it intends to use the most recent price
paid to acquire a share in our ongoing public offering (ignoring purchase price discounts for certain categories of purchasers) or a follow-on public offering as its estimated per share value of our shares until we have completed our offering stage.
We will consider our offering stage complete when we are no longer publicly offering equity securities  whether through our initial public offering or follow-on public offerings  and have not done so for 18 months. (For purposes of this
definition, we do not consider a public equity offering to include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our Operating
Partnership.) Our charter does not restrict our ability to conduct offerings in the future, and if our board of directors determines that it is in our best interest, we may conduct follow-on offerings upon the termination of our initial public
offering.

Although this initial estimated value represents the most recent price at which most investors are willing to
purchase shares in our primary offering, this reported value is likely to differ from the price at which a stockholder could resell his or her shares because (i) there is no public trading market for the shares at this time; (ii) the
estimated value does not reflect, and is not derived from, the fair market value of our properties and other assets, nor does it represent the amount of net proceeds that would result from an immediate liquidation of those assets, because the amount
of proceeds available for investment from our primary public offering is net of selling commissions, dealer manager fees, other organization and offering costs and acquisition and origination fees and expenses; (iii) the estimated value does
not take into account how market fluctuations affect the value of our investments, including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (iv) the estimated value does not
take into account how developments related to individual assets may have increased or decreased the value of our portfolio.

When determining the estimated value of our shares by methods other than the last price paid to acquire a share in our public offering, our advisor, or another firm we choose for that purpose, will estimate the value of our shares based
upon a number of assumptions that may not be accurate or complete. Accordingly, these estimates may not be an accurate reflection of the fair market value of our investments and will not likely represent the amount of net proceeds that would result
from an immediate sale of our assets.



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Because the dealer manager is one of our affiliates, our stockholders will not have the benefit of an
independent due diligence review of us, which is customarily performed in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty our stockholders face.

Our dealer manager, KBS Capital Markets Group, is one of our affiliates. Because KBS Capital Markets Group is an affiliate, its due diligence
review and investigation of us and our prospectus cannot be considered to be an independent review. Therefore, our stockholders do not have the benefit of an independent review and investigation of our initial public offering of the type normally
performed by an unaffiliated, independent underwriter in a public securities offering.

Our investors interest in us will be
diluted if we issue additional shares, which could reduce the overall value of their investment.

Our common
stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 1,010,000,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock and
10,000,000 shares are designated as preferred stock. Our board of directors may increase the number of authorized shares of capital stock without stockholder approval. After our investors purchase shares in our public offering, our board may
elect to (1) sell additional shares in future public offerings (including through the dividend reinvestment plan), (2) issue equity interests in private offerings, (3) issue shares to our advisor, or its successors or assigns, in
payment of an outstanding obligation or (4) issue shares of our common stock to sellers of properties or assets we acquire in connection with an exchange of limited partnership interests of the Operating Partnership. To the extent we issue
additional equity interests after our investors purchase shares in our initial public offering, their percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings, the use of the
proceeds and the value of our real estate investments, our investors may also experience dilution in the book value and fair value of their shares.

Payment of fees to KBS Capital Advisors and its affiliates reduces cash available for investment and distribution and increases the risk that our stockholders will not be able to recover the amount of their investment in our shares.

KBS Capital Advisors and its affiliates perform services for us in connection with the selection and acquisition or
origination of our investments, the management and leasing of our properties and the administration of our other investments. We pay them substantial fees for these services, which results in immediate dilution to the value of our stockholders
investment and reduces the amount of cash available for investment or distribution to stockholders.

We may also pay
significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our investors first receiving agreed-upon investment returns, affiliates of KBS Capital Advisors
could also receive significant payments even without our reaching the investment-return thresholds should we seek to become self-managed. Due to the apparent preference of the public markets for self-managed companies, a decision to list our shares
on a national securities exchange might be preceded by a decision to become self-managed. Given our advisors familiarity with our assets and operations, we might prefer to become self-managed by acquiring entities affiliated with our advisor.
Such an internalization transaction could result in significant payments to affiliates of our advisor irrespective of whether our stockholders enjoyed the returns on which we have conditioned other incentive compensation.

Therefore, these fees increase the risk that the amount available for distribution to common stockholders upon a liquidation of our
portfolio would be less than stockholders paid for our shares. These substantial fees and other payments also increase the risk that our stockholders will not be able to resell their shares at a profit, even if our shares are listed on a national
securities exchange.

If we are unable to obtain funding for future capital needs, cash distributions to our stockholders and the value
of our investments could decline.

When tenants do not renew their leases or otherwise vacate their space, we will
often need to expend substantial funds for improvements to the vacated space in order to attract replacement tenants. Even when tenants do renew their leases we may agree to make improvements to their space as part of our negotiation. If we need
additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain funding from sources other than our cash flow from operations, such as borrowings or future equity offerings. These sources of
funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make
distributions to our stockholders and could reduce the value of our stockholders investment.



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Our stockholders may be more likely to sustain a loss on their investment because our sponsors do not
have as strong an economic incentive to avoid losses as do sponsors who have made significant equity investments in their companies.

Our sponsors have only invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10 per share. With this limited exposure, our investors may be at a greater risk of
loss because our sponsors do not have as much to lose from a decrease in the value of our shares as do those sponsors who make more significant equity investments in their companies.

Although we will not currently be afforded the protection of the Maryland General Corporation Law relating to deterring or defending hostile takeovers, our board of directors could opt into these
provisions of Maryland law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

Under Maryland law, business combinations between a Maryland corporation and certain interested stockholders or affiliates of
interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances
specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation or an employee of the corporation who is also a director of the corporation are excluded from the vote on
whether to accord voting rights to the control shares. Should our board opt into these provisions of Maryland law, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly,
provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law could provide similar anti-takeover protection.

General Risks
Related to Investments in Real Estate

Economic and regulatory changes that impact the real estate market generally may decrease the
value of our investments and weaken our operating results.

Our properties and their performance are subject to the
risks typically associated with real estate, including:



| |  |  | downturns in national, regional and local economic conditions;
| | - |  | --------------------------------------------------------------



| |  |  | competition from other office and industrial buildings;
| | - |  | -------------------------------------------------------



| |  |  | adverse local conditions, such as oversupply or reduction in demand for office and industrial buildings and changes in real estate zoning laws that may
reduce the desirability of real estate in an area;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | changes in the supply of or the demand for similar or competing properties in an area;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or
unattractive;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in tax (including real and personal property tax law), real estate, environmental and zoning laws; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | periods of high interest rates and tight money supply.
| | - |  | ------------------------------------------------------

Any of the above factors, or a combination thereof, could result in a decrease in our cash flows from operations and a decrease in the value of our investments, which would have an adverse effect on our
operations, on our ability to pay distributions to our stockholders and on the value of our stockholders investment.

If our
acquisitions fail to perform as expected, cash distributions to our stockholders may decline.

Since breaking escrow in
June 2008, we have made acquisitions of properties and other real estate-related assets. If these assets do not perform as expected we may have less cash flow from operations available to fund distributions and investor returns may be reduced.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on these properties.

A property may incur vacancies either by the expiration of tenant leases or the continued default of tenants under their
leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available to distribute to stockholders. In addition, the resale value of the property could be diminished because the market value of a
particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce the value of our stockholders investment.



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We depend on tenants for our revenue, and, accordingly, our revenue and our ability to make
distributions to our stockholders is dependent upon the success and economic viability of our tenants.

The success of
our investments materially depends upon the financial stability of the tenants leasing the properties we own. The inability of a single major tenant or a number of smaller tenants to meet their rental obligations would lower our net income. A
default by a tenant on its lease payments would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a
mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord of a property and may incur substantial costs in protecting our investment and re-letting the property. Tenants may have the right
to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may be able to renew their leases on terms that are less favorable to us
than the terms of their initial leases. Further, some of the properties in which we invest may be outfitted to suit the particular needs of the tenants. We may have difficulty replacing the tenants of these properties if the outfitted space limits
the types of businesses that could lease that space without major renovation. Because the market value of a property depends principally upon the value of the leases associated with such property, we may incur a loss upon the sale of a property with
significant vacant space. These events could cause us to reduce the amount of distributions to stockholders.

Our inability to sell a
property when we want could limit our ability to pay cash distributions to our stockholders.

Many factors that are
beyond our control affect the real estate market and could affect our ability to sell properties for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing,
interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can
sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We
may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to our stockholders and could reduce the value of our
stockholders investment.

If we sell a property by providing financing to the purchaser, we will bear the risk of default by the
purchaser, which could delay or reduce the distributions available to our stockholders.

If we decide to sell any of
our properties, we intend to use our best efforts to sell them for cash; however, in some instances, we may sell our properties by providing financing to purchasers. When we provide financing to a purchaser, we will bear the risk that the purchaser
may default, which could reduce our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of the sale to our stockholders, or the reinvestment of the proceeds in other assets, will be
delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed.

Potential development and construction delays and resultant increased costs and risks may hinder our operating results and decrease our net income.

Although we expect that we will invest primarily in properties that have operating histories or whose construction is complete, from time to time we may acquire unimproved real property or properties that
are under development or construction. Investments in such properties will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental
concerns of governmental entities and/or community groups and our builders ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the
purchase or the construction contract or to compel performance. A builders performance may also be affected or delayed by conditions beyond the builders control. Delays in completing construction could also give tenants the right to
terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of
our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of
construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.



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Competition with third parties in acquiring properties and other investments may reduce our
profitability and the return on our stockholders investment.

We face competition from various entities for
investment opportunities in commercial and office properties, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships, and developers. Many of these entities have substantially greater financial
resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of its investments. Competition from these entities may reduce the
number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of
debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage for other
entities that have greater financial resources than we do. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire properties and other investments at higher prices and/or by using
less-than-ideal capital structures, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, our stockholders may experience a lower return
on their investment.

Our joint venture partners could take actions that decrease the value of an investment to us and lower our
stockholders overall return.

We may enter into joint ventures with third parties to acquire properties and other
assets. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present with other methods of investment, including, for
example, the following risks:



| |  |  | that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our
business interests or goals; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or
objectives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any of the above might subject a property to liabilities in excess of those contemplated and
thus reduce our returns on that investment and the value of our stockholders investment.

Costs imposed pursuant to governmental
laws and regulations may reduce our net income and the cash available for distributions to our stockholders.

Real
property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or
damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials, and other health and safety-related
concerns.

Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of
real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Our tenants operations, the
condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent
or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties, or damages we must pay will reduce our ability to make distributions and may reduce the value of our stockholders investment.



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The costs of defending against claims of environmental liability, of complying with environmental
regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator
may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Environmental laws also may impose liens on property or restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial
expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by
private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek
recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The costs of defending against claims of environmental liability, of complying with environmental
regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders. All of our properties have been subject to Phase I environmental
assessments at the time they were acquired.

Costs associated with complying with the Americans with Disabilities Act may decrease cash
available for distributions.

Our properties may be subject to the Americans with Disabilities Act of 1990, as amended.
Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for public
accommodations and commercial facilities that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Acts requirements could require removal of access
barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. Any funds used for Disabilities Act compliance will reduce our net income and the amount of cash available for distributions
to our stockholders.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce
our cash flows and the return on our stockholders investment.

There are types of losses, generally catastrophic
in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or
co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial
property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In
such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty
loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of our stockholders investment. In addition, other than any working capital reserve or other reserves we may
establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to
stockholders.

Terrorist attacks and other acts of violence or war may affect the markets in which we plan to operate, which could delay
or hinder our ability to meet our investment objectives and reduce our stockholders overall return.

Terrorist
attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. KBS-sponsored programs and KBS-advised investors have historically owned properties in major metropolitan
areas. We expect that we will also invest in such markets. We may not be able to obtain insurance against the risk of terrorism because it may not be available or may not be available on terms that are economically feasible. The terrorism insurance
that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. The inability to obtain sufficient terrorism insurance or any terrorism insurance at all could limit our investment options as some
mortgage lenders have begun to insist that specific coverage against terrorism be purchased by commercial owners as a condition of providing loans.



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Risks Related to Real Estate-Related Investments

Our investments in real estate-related investments are subject to the risks typically associated with real estate.

Our investments in mortgage, mezzanine or other real estate loans will generally be directly or indirectly secured by a lien on real property
(or the equity interests in an entity that owns real property) that, upon the occurrence of a default on the loan, could result in our taking ownership of the property. We will not know whether the values of the properties ultimately securing our
loans will remain at the levels existing on the dates of origination of those loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans. In this manner, real
estate values could impact the values of our loan investments. Our investments in mortgage-backed securities and other real estate-related investments may be similarly affected by real estate property values. Therefore, our real estate-related
investments will be subject to the risks typically associated with real estate, which are described above under the heading General Risks Related to Investments in Real Estate.

If we make or invest in mortgage, mezzanine, bridge or other real estate loans, our loans will be subject to interest rate fluctuations that will
affect our returns as compared to market interest rates; accordingly, the value of our stockholders investment would be subject to fluctuations in interest rates.

If we make or invest in fixed rate, long-term loans and interest rates rise, the loans could yield a return that is lower than then-current
market rates. If interest rates decrease, we will be adversely affected to the extent that loans are prepaid because we may not be able to reinvest the proceeds at as high of an interest rate. If we invest in variable-rate loans and interest rates
decrease, our revenues will also decrease. For these reasons, if we invest in mortgage, mezzanine, bridge or other real estate loans, our returns on those loans and the value of our stockholders investment will be subject to fluctuations in
interest rates.

The mortgage loans we invest in and the mortgage loans underlying the mortgage securities we invest in are subject to
delinquency, foreclosure and loss, which could result in losses to us.

Commercial real estate loans are secured by
multifamily or commercial property and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such
property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrowers ability to repay the loan may be impaired. Net operating income of an
income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that
increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions
and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental
rules, regulations and fiscal policies, including environmental legislation, natural disasters, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and
accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations. Foreclosure of a mortgage loan can be an expensive and lengthy process that could have a substantial negative effect on our
anticipated return on the foreclosed mortgage loan. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time
of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Delays in liquidating defaulted mortgage loans could reduce our investment returns.

If we make or invest in mortgage loans and there are defaults under those mortgage loans, we may not be able to repossess and sell the
underlying properties quickly. The resulting time delay could reduce the value of our investment in the defaulted mortgage loans. An action to foreclose on a property securing a mortgage loan is regulated by state statutes and regulations and is
subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the
mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.



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The mezzanine loans in which we may invest would involve greater risks of loss than senior loans
secured by the same properties.

We expect to invest in mezzanine loans that take the form of subordinated loans
secured by a pledge of the ownership interests of either the entity owning (directly or indirectly) the real property or the entity that owns the interest in the entity owning the real property. These types of investments may involve a higher degree
of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of
its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our
loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than
conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.

The B-Notes in
which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

We may invest in B-Notes. A B-Note is a mortgage loan typically (i) secured by a first mortgage on a single large commercial property or
group of related properties and (ii) subordinated to an A-Note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-Note holders after payment to the
A-Note holders. Since each transaction is privately negotiated, B-Notes can vary in their structural characteristics and risks. For example, the rights of holders of B-Notes to control the process following a borrower default may be limited in
certain investments. We cannot predict the terms of each B-Note investment. Further, B-Notes typically are secured by a single property, and so reflect the increased risks associated with a single property compared to a pool of properties.

Bridge loans may involve a greater risk of loss than conventional mortgage loans.

We may provide bridge loans secured by first-lien mortgages on properties to borrowers who are typically seeking short-term capital to be
used in an acquisition, development or refinancing of real estate. The borrower may have identified an undervalued asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover
according to the borrowers projections, or if the borrower fails to improve the quality of the assets management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we
may not recover some or all of our investment.

In addition, owners usually borrow funds under a conventional mortgage loan to
repay a bridge loan. We may, therefore, be dependent on a borrowers ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors. Bridge loans are also subject to risks of borrower
defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees
to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the bridge loan. To the extent we suffer such losses with respect to our investments in bridge loans, the value of our company and of our common
stock may be adversely affected.

Investment in non-conforming and non-investment grade loans may involve increased risk of loss.

Loans we may acquire or originate may not conform to conventional loan criteria applied by traditional lenders and may
not be rated or may be rated as non-investment grade. Non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the
borrowers credit history, the properties underlying cash flow or other factors. As a result, loans we acquire or originate may have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to
stockholders and adversely affect the value of our common stock.

Our investments in subordinated loans and subordinated mortgage-backed
securities may be subject to losses.

We may acquire or originate subordinated loans and invest in subordinated
mortgage-backed securities. In the event a borrower defaults on a subordinated loan and lacks sufficient assets to satisfy our loan, we may suffer a loss of principal or interest. In the event a borrower declares bankruptcy, we may not have full
recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the loan. If a borrower defaults on our loan or on debt senior to our loan, or in the event of a borrower bankruptcy, our loan will be satisfied
only after the senior debt is paid in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through
standstill periods), and control decisions made in bankruptcy proceedings relating to borrowers.



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In general, losses on a mortgage loan included in a securitization will be borne first by
the equity holder of the property, then by a cash reserve fund or letter of credit, if any, and then by the first loss subordinated security holder. In the event of default and the exhaustion of any equity support, reserve fund, letter
of credit and any classes of securities junior to those in which we invest, we may not be able to recover all of our investment in the securities we purchase. In addition, if the underlying mortgage portfolio has been overvalued by the originator,
or if the values subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related mortgage-backed securities, the securities in which we invest may effectively become the first
loss position behind the more senior securities, which may result in significant losses to us.

Risks of cost overruns and
non-completion of the construction or renovation of the properties underlying loans we make or acquire may materially adversely affect our investment.

The renovation, refurbishment or expansion by a borrower under a mortgaged or leveraged property involves risks of cost overruns and non-completion. Costs of construction or improvements to bring a
property up to standards established for the market position intended for that property may exceed original estimates, possibly making a project uneconomical. Other risks may include: environmental risks and construction, rehabilitation and
subsequent leasing of the property not being completed on schedule. If such construction or renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of net operating income
and may not be able to make payments on our investment and we may not recover some or all of our investment.

To close transactions
within a time frame that meets the needs of borrowers of loans we may originate, we may perform underwriting analyses in a very short period of time, which may result in credit decisions based on limited information.

We may gain a competitive advantage by, from time to time, being able to analyze and close transactions within a very short period of time.
Our underwriting guidelines require a thorough analysis of many factors, including the underlying propertys financial performance and condition, geographic market assessment, experience and financial strength of the borrower and future
prospects of the property within the market. If we make the decision to extend credit to a borrower prior to the completion of one or more of these analyses, we may fail to identify certain credit risks that we would otherwise have identified.

The CMBS in which we may invest are subject to all of the risks of the underlying mortgage loans and the risks of the securitization
process.

CMBS, or commercial mortgage-backed securities, are securities that evidence interests in, or are secured by,
a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to all of the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the securitys
effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the markets perception of issuers and regulatory or tax changes adversely affecting the
mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third-party guarantees or other forms of credit support can reduce
the credit risk.

CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid
interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes delinquent loans, there is a risk that interest payments on subordinate CMBS will not be fully paid. Subordinate CMBS are also
subject to greater credit risk than those CMBS that are more highly rated.

To the extent that we make investments in real
estate-related securities, a portion of those investments may be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

Certain of the real estate-related securities that we may purchase in connection with privately negotiated transactions will not be
registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with,
those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short
life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrowers default.



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Delays in restructuring or liquidating non-performing real estate securities could reduce the return
on our stockholders investment.

Real estate securities may become non-performing after acquisition for a wide
variety of reasons. Such non-performing real estate investments may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and a substantial
write-down of such loan or asset. However, even if a restructuring is successfully accomplished, upon maturity of such real estate security, replacement takeout financing may not be available. We may find it necessary or desirable to
foreclose on some of the collateral securing one or more of our investments. Intercreditor provisions may substantially interfere with our ability to do so. Even if foreclosure is an option, the foreclosure process can be lengthy and expensive.
Borrowers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses, including, without limitation, lender liability claims and defenses, in an effort to prolong the foreclosure action. In some states, foreclosure
actions can take up to several years or more to litigate. At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure
process. Foreclosure litigation tends to create a negative public image of the collateral property and may result in disrupting ongoing leasing and management of the property. Foreclosure actions by senior lenders may substantially affect the amount
that we may earn or recover from an investment.

We will depend on debtors for our revenue, and, accordingly, our revenue and our
ability to make distributions to our stockholders will be dependent upon the success and economic viability of such debtors.

The success of our real estate-related investments such as loans and debt and derivative securities will materially depend on the financial stability of the debtors underlying such investments. The inability of a single major debtor or a
number of smaller debtors to meet their payment obligations could result in reduced revenue or losses. In the event of a debtor default or bankruptcy, we may experience delays in enforcing our rights as a creditor, and such rights may be
subordinated to the rights of other creditors. These events could negatively affect the cash available for distribution to our stockholders and the value of our stockholders investment.

Prepayments can adversely affect the yields on our investments.

The yields on our debt investments may be affected by the rate of prepayments differing from our projections. Prepayments on debt instruments, where permitted under the debt documents, are influenced by
changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If we are unable to invest the proceeds of such prepayments
received, the yield on our portfolio will decline. In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, our anticipated yield may be impacted. Under certain interest rate and prepayment scenarios
we may fail to recoup fully our cost of acquisition of certain investments.

If credit spreads widen before we obtain long-term
financing for our assets, the value of our assets may suffer.

We will price our assets based on our assumptions about
future credit spreads for financing of those assets. We expect to obtain longer-term financing for our assets using structured financing techniques in the future. In such financings, interest rates are typically set at a spread over a certain
benchmark, such as the yield on United States Treasury obligations, swaps, or LIBOR. If the spread that borrowers will pay over the benchmark widens and the rates we charge on our assets to be securitized are not increased accordingly, this may
reduce our income or cause losses.



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Hedging against interest rate exposure may adversely affect our earnings, limit our gains or result in
losses, which could adversely affect cash available for distribution to our stockholders.

We may enter into interest
rate swap agreements or pursue other interest rate hedging strategies. Our hedging activity will vary in scope based on the level of interest rates, the type of portfolio investments held, and other changing market conditions. Interest rate hedging
may fail to protect or could adversely affect us because, among other things:



| |  |  | interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the duration of the hedge may not match the duration of the related liability or asset;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the amount of income that a REIT may earn from hedging transactions to offset interest rate losses is limited by federal tax provisions governing
REITs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of
the hedging transaction;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the party owing money in the hedging transaction may default on its obligation to pay; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money.
| | - |  | ---------------------------------------------------------------------------------------------------

Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distribution to our
stockholders. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging
transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a
variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended accounting treatment and may
expose us to risk of loss.

Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing
house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs.

The cost of using
hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates. We may increase our hedging activity and thus increase our hedging costs during periods when interest rates are
volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign
governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative
transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty
with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any,
at the then-current market price. Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty,
and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot be certain that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until
exercise or expiration, which could result in losses.



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Our investments in real estate-related debt securities and preferred and common equity securities will
be subject to the specific risks relating to the particular issuer of the securities and may involve greater risk of loss than secured debt financings.

We may make equity investments in REITs and other real estate companies. We may target a public company that owns commercial real estate or real estate-related assets when we believe its stock is trading
at a discount to that companys net asset value. We may eventually seek to acquire or gain a controlling interest in the companies that we target. We do not expect our non-controlling equity investments in other public companies to exceed 5% of
the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time. We may also invest in debt securities and preferred equity securities issued by
REITs and other real estate companies. Our investments in debt securities and preferred and common equity securities will involve special risks relating to the particular issuer of the securities, including the financial condition and business
outlook of the issuer. Issuers that are REITs and other real estate companies are subject to the inherent risks associated with real estate and real estate-related investments. Furthermore, debt securities and preferred and common equity securities
may involve greater risk of loss than secured debt financings due to a variety of factors, including that such investments are generally unsecured and may also be subordinated to other obligations of the issuer. As a result, investments in debt
securities and preferred and common equity securities are subject to risks of (i) limited liquidity in the secondary trading market, (ii) substantial market price volatility resulting from changes in prevailing interest rates,
(iii) subordination to the prior claims of banks and other senior lenders to the issuer, (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to
reinvest redemption proceeds in lower yielding assets, (v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (vi) the declining creditworthiness and potential for
insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding debt securities and preferred and common equity securities and the ability of the issuers thereof to
make principal, interest and/or distribution payments to us.

Declines in the market values of our investments may adversely affect
periodic reported results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

A portion of our assets may be classified for accounting purposes as available-for-sale. These investments are carried at estimated fair value and temporary changes in the market values of
those assets will be directly charged or credited to stockholders equity without impacting net income on the income statement. Moreover, if we determine that a decline in the estimated fair value of an available-for-sale security below its
amortized value is other-than-temporary, we will recognize a loss on that security on the income statement, which will reduce our earnings in the period recognized.

A decline in the market value of our assets may adversely affect us particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets
declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit
available may reduce our earnings and, in turn, cash available for distribution to stockholders.

Further, credit facility
providers may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be
able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.

Market values of our investments may decline for a number of reasons, such as changes in prevailing market rates, increases in defaults,
increases in voluntary prepayments for those investments that we have that are subject to prepayment risk, widening of credit spreads and downgrades of ratings of the securities by ratings agencies.

Some of our portfolio investments will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the
value of these investments.

Some of our portfolio investments will be in the form of securities that are recorded at
fair value but that have limited liquidity or are not publicly traded. The fair value of securities and other investments that have limited liquidity or are not publicly traded may not be readily determinable. We estimate the fair value of these
investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates, our determinations of fair value may differ materially from the values that would
have been used if a ready market for these securities existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately
realize upon their disposal.



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Risks Associated with Debt Financing

We obtain lines of credit, mortgage indebtedness and other borrowings, which increases our risk of loss due to potential foreclosure.

We may obtain lines of credit and long-term financing that may be secured by our properties and other assets. In some instances, we may
acquire real properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. We may also incur mortgage debt on properties that we already own in order to
obtain funds to acquire additional properties, to fund property improvements and other capital expenditures, to pay distributions and for other purposes. In addition, we may borrow as necessary or advisable to ensure that we maintain our
qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends-paid
deduction and excluding net capital gain). We, however, can give our stockholders no assurance that we will be able to obtain such borrowings on satisfactory terms.

If we do mortgage a property and there is a shortfall between the cash flow from that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for
distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we
could lose the property securing the loan that is in default, reducing the value of our stockholders investment. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to
the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure even though we would not necessarily
receive any cash proceeds. We may give full or partial guaranties to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible
to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.

We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term,
variable rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash
payments to maintain the loan-to-collateral value ratios.

We may also obtain recourse debt to finance our acquisitions and
meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, our lenders could institute proceedings against us to foreclose upon our assets. If a lender successfully forecloses upon any of our
assets, our ability to pay cash distributions to our stockholders will be limited and our stockholders could lose all or part of their investment.

High mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of
cash distributions we can make.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the
purchase of properties. If we place mortgage debt on a property, we run the risk of being unable to refinance part or all of the property when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when
we refinance properties, our income could be reduced. We may be unable to refinance or may only be able to partly refinance properties if underwriting standards, including loan to value ratios and yield requirements, among other requirements, are
more strict than when we originally financed the properties. If any of these events occurs, our cash flow could be reduced and/or we might have to pay down existing mortgages. This, in turn, would reduce cash available for distribution to our
stockholders, could cause us to require additional capital and may hinder our ability to raise capital by issuing more stock or by borrowing more money.



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We expect to use leverage in connection with our investments in real estate-related assets, which
increases the risk of loss associated with this type of investment.

We may finance the acquisition and origination of
certain real estate-related investments with warehouse lines of credit and repurchase agreements. In addition, we may engage in various types of securitizations in order to finance our loan originations. Although the use of leverage may enhance
returns and increase the number of investments that we can make, it may also substantially increase the risk of loss. There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the
terms of such financing will parallel the maturities of the underlying assets acquired. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. The return on our investments and
cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.

Our debt service payments will reduce our cash flow available for distributions. We may not be able to meet our debt service obligations
and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements
economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide
additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying assets. Further, credit facility
providers and warehouse facility providers may require us to maintain a certain amount of cash reserves or to set aside unleveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral
obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. In the event that we are unable to meet these collateral obligations, our financial condition could deteriorate
rapidly.

We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our
business plan.

We may finance our assets over the long-term through a variety of means, including repurchase
agreements, credit facilities, issuance of commercial mortgage-backed securities, collateralized debt obligations and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in
this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will
have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase facilities may not accommodate long-term financing. This could subject us to more recourse indebtedness and the risk that
debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make
distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our
distribution and operating policies and our ability to incur additional debt. Loan agreements we enter may contain covenants that limit our ability to further mortgage a property or that prohibit us from discontinuing insurance coverage or replacing
KBS Capital Advisors as our advisor. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives.

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

We expect that we will incur additional debt in the future and increases in interest rates will increase the cost of that debt, which could
reduce the cash we have available for distributions. Additionally, if we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to our
stockholders. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on such
investments.



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We have broad authority to incur debt and high debt levels could hinder our ability to make
distributions and decrease the value of our stockholders investment.

Our policies do not limit us from incurring
debt until our borrowings would exceed 75% of the cost of our tangible assets (before deducting depreciation or other noncash reserves) and we may exceed this limit with the approval of the conflicts committee of our board of directors. As of
December 31, 2009, our borrowings were 13% of both the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets. High debt levels would cause us to incur higher interest charges and higher
debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders investment.

Federal Income Tax Risks

Failure to
qualify as a REIT would reduce our net earnings available for investment or distribution.

Our qualification as a REIT
will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. If we fail to qualify as a REIT for
any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of
losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the
dividends-paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Our stockholders may have current tax liability on distributions they elect to reinvest in our common stock.

If our stockholders participate in our dividend reinvestment plan, they will be deemed to have received, and for income tax purposes will be
taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, our stockholders will be treated for tax purposes as having received an additional distribution to
the extent the shares are purchased at a discount to fair market value. As a result, unless our stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the shares of common stock
received.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash
flow and our ability to make distributions to our stockholders.

Even if we qualify as a REIT for federal income tax
purposes, we may be subject to some federal, state and local taxes on our income or property. For example:



| |  |  | In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without
regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed
income.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of
85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other
non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would
be subject to the 100% prohibited transaction tax unless such sale were made by one of our taxable REIT subsidiaries.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.



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REIT distribution requirements could adversely affect our ability to execute our business plan.

From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our
taxable income may be greater than our cash flow available for distribution to stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available
in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the
REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to
operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forego otherwise attractive
opportunities, which may delay or hinder our ability to meet our investment objectives and reduce our stockholders overall return.

To qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders.
We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder
our ability to operate solely on the basis of maximizing profits and the value of our stockholders investment.

The taxable
mortgage pool rules may increase the taxes that we or our stockholders incur and may limit the manner in which we conduct securitizations.

We may be deemed to be, or make investments in entities that own or are themselves deemed to be taxable mortgage pools. Similarly, certain of our securitizations or other borrowings could be considered to
result in the creation of a taxable mortgage pool for federal income tax purposes. As a REIT, provided that we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the
securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject
to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax-exempt
disqualified organizations, such as certain government-related entities that are not subject to tax on unrelated business income, we will incur a corporate-level tax on a portion of our income from the taxable mortgage pool. In that
case, we are authorized to reduce and intend to reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax by the amount of such tax paid by us that is attributable to such stockholders
ownership. Moreover, we would be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests
for federal income tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for federal income tax
purposes.

A REITs net income from prohibited transactions is subject to a 100% tax. In general, prohibited
transactions are sales or other dispositions of assets, other than foreclosure property, deemed held primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were to dispose of or securitize loans in
a manner that was treated as a sale of the loans for federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans at the REIT level, and may limit the structures we
utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us.

It may
be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through taxable REIT subsidiaries. However, to the extent that we engage in such activities through taxable REIT subsidiaries, the income associated
with such activities may be subject to full corporate income tax.



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The IRS may challenge our characterization of certain income from offshore taxable REIT subsidiaries.

We may form offshore corporate entities treated as taxable REIT subsidiaries. If we form such subsidiaries, we may
receive certain income inclusions with respect to our equity investments in these entities. We intend to treat such income inclusions, to the extent matched by repatriations of cash in the same taxable year, as qualifying income for
purposes of the 95% gross income test but not the 75% gross income test. Because there is no clear precedent with respect to the qualification of such income inclusions for purposes of the REIT gross income tests, no assurance can be given that the
IRS will not assert a contrary position. If such income does not qualify for the 95% gross income test, we could be subject to a penalty tax or we could fail to qualify as a REIT, in both events only if such inclusions (along with certain other
non-qualifying income) exceed 5% of our gross income.

We may be subject to adverse legislative or regulatory tax changes.

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those
laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will
be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or
administrative interpretation.

Retirement Plan Risks

If the fiduciary of an employee pension benefit plan subject to ERISA (such as profit sharing, Section 401(k) or pension plan) or any other retirement plan or account fails to meet the
fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, the fiduciary could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to the Employee Retirement Income Security Act
(ERISA) (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares. Fiduciaries
investing the assets of such a plan or account in our common stock should satisfy themselves that:



| |  |  | the investment is consistent with their fiduciary and other obligations under ERISA and the Internal Revenue Code;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plans or accounts
investment policy;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable
provisions of ERISA and the Internal Revenue Code;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment will not produce unrelated business taxable income for the plan or IRA;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | our stockholders will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA
annually; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

With respect to the annual valuation requirements described above, we will provide an estimated value for
our shares annually. For information regarding our estimated value per share, see Part II, Item 5, Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities  Market
Information of this annual report on Form 10-K. We can give no assurances that such estimated value will satisfy the applicable annual valuation requirements under ERISA and the Internal Revenue Code. The Department of Labor or the Internal
Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common shares. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may
be subject to damages, penalties or other sanctions.



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Failure to satisfy the fiduciary standards of conduct and other applicable requirements of
ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares constitutes a prohibited
transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction
involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA custodians should consult with counsel before making an investment in our common
shares.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

We have no unresolved staff comments.



|ITEM 2. | PROPERTIES
|------- | ----------

As of
December 31, 2009, we owned five real estate properties consisting of four office properties and one office/flex property encompassing 2.0 million rentable square feet. The total cost of our real estate portfolio was
$551.6 million. At December 31, 2009, our portfolio was approximately 98% leased and the average annualized base rent per square foot of our real estate portfolio was $28.18. The weighted-average remaining lease term of our real
estate portfolio is 4.6 years. For a discussion of our real estate portfolio, see Part I, Item 1, Business of this annual report on Form 10-K.

Portfolio Lease Expirations

The following table sets forth a
schedule of expiring leases for our real estate portfolio by square footage and by average annualized base rent as of December 31, 2009:



|                   |  |                         |  |                                      |        |                                   |       |   |                                    |           |                                            |       |  
|------------------ |  | ----------------------- |  | ------------------------------------ | ------ | --------------------------------- | ----- | - | ---------------------------------- | --------- | ------------------------------------------ | ----- | -
|Year of Expiration |  | Number ofLeasesExpiring |  | AnnualizedBase Rent(1)(in thousands) |        | % of PortfolioAnnualizedBase Rent |       |   | Leased RentableSquare FeetExpiring |           | % of PortfolioRentable Square FeetExpiring |      
|Month to Month     |  | 5                       |  | $                                    | 18     |                                   | 0.1   | % |                                    | 17,366    |                                            | 0.9   | %
|2010               |  | 9                       |  |                                      | 7,563  |                                   | 13.9  | % |                                    | 277,451   |                                            | 14.4  | %
|2011               |  | 5                       |  |                                      | 2,556  |                                   | 4.7   | % |                                    | 76,371    |                                            | 3.9   | %
|2012               |  | 8                       |  |                                      | 7,084  |                                   | 13.0  | % |                                    | 252,003   |                                            | 13.1  | %
|2013               |  | 5                       |  |                                      | 2,473  |                                   | 4.6   | % |                                    | 81,656    |                                            | 4.2   | %
|2014               |  | 8                       |  |                                      | 8,260  |                                   | 15.2  | % |                                    | 291,965   |                                            | 15.1  | %
|2015               |  | 6                       |  |                                      | 12,171 |                                   | 22.4  | % |                                    | 447,894   |                                            | 23.3  | %
|2016               |  | 4                       |  |                                      | 7,211  |                                   | 13.3  | % |                                    | 224,971   |                                            | 11.7  | %
|2017               |  | 1                       |  |                                      | 519    |                                   | 1.0   | % |                                    | 16,852    |                                            | 0.9   | %
|2018               |  | 5                       |  |                                      | 4,378  |                                   | 8.0   | % |                                    | 183,991   |                                            | 9.6   | %
|2019               |  | 2                       |  |                                      | 2,066  |                                   | 3.8   | % |                                    | 56,026    |                                            | 2.9   | %
|                   |  |                         |  |                                      |        |                                   |       |   |                                    |           |                                            |       |  
|Total              |  | 58                      |  | $                                    | 54,299 |                                   | 100.0 | % |                                    | 1,926,546 |                                            | 100.0 | %
|                   |  |                         |  |                                      |        |                                   |       |   |                                    |           |                                            |       |  



(1)Annualized base rent represents annualized
contractual base rental income as of December 31, 2009, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.

Our principal executive offices are located at 620 Newport Center Drive, Suite 1300, Newport Beach, CA 92660. Our telephone number, general
facsimile number and website address are (949) 417-6500, (949) 417-6520 and http://www.kbsreitii.com, respectively.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

From
time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of
operations or financial condition. Nor are we aware of any such legal proceedings contemplated by government agencies.



|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------



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##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Stockholder Information

As
of March 19, 2010, we had approximately 103.1 million shares of common stock outstanding held by a total of approximately 30,000 stockholders. The number of stockholders is based on the records of DST Systems, Inc., who serves as
our transfer agent.

Market Information

No public market currently exists for our shares of common stock, and we currently have no plans to list our shares on a national securities exchange. Until our shares are listed, if ever, our
stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase requirements. In addition, our charter prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors.
Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them.

To assist the Financial Industry Regulatory Authority (FINRA) members and their associated persons that participate in the ongoing initial public offering of our common stock, pursuant to FINRA Conduct Rule 5110, we disclose in
each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, KBS Capital Advisors, our advisor, will
prepare annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in our shares. For these purposes, KBS
Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2009. The basis for this valuation is the fact that the current public offering price for our shares of common stock in our primary
offering is $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it intends to use the most recent price paid to acquire a share in our ongoing public offering (ignoring
purchase price discounts for certain categories of purchasers) or follow-on public offerings as its estimated per share value of our shares until we have completed our offering stage. We will consider our offering stage complete when we are no
longer publicly offering equity securities  whether through this offering or follow-on public offerings  and have not done so for 18 months. If our board of directors determines that it is in our best interest, we may conduct follow-on
public offerings upon the termination of this offering. Our charter does not restrict our ability to conduct offerings in the future. (For purposes of this definition, we do not consider a public equity offering to include offerings on
behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.)

Although this initial estimated value represents the most recent price at which most investors are willing to purchase shares in our primary offering, this reported value is likely to differ from the
price at which a stockholder could resell his or her shares because (i) there is no public trading market for the shares at this time; (ii) the estimated value does not reflect, and is not derived from, the fair market value of our
properties and other assets, nor does it represent the amount of net proceeds that would result from an immediate liquidation of those assets, because the amount of proceeds available for investment from our primary public offering is net of selling
commissions, dealer manager fees, other organization and offering costs and acquisition and origination fees and expenses; (iii) the estimated value does not take into account how market fluctuations affect the value of our investments,
including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (iv) the estimated value does not take into account how developments related to individual assets may have increased or
decreased the value of our portfolio.

Distribution Information

We intend to authorize and declare distributions based on daily record dates that will be paid on a monthly basis. We have elected to be
taxed as a REIT under the Code and have operated as such beginning with our taxable year ended December 31, 2008. To qualify and maintain our qualification as a REIT, we must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S.
generally accepted accounting principles (GAAP)). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of
directors deems relevant.



41



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##### Table of Contents

During 2008 and 2009, we declared distributions based on daily record dates for each day
during the period commencing July 16, 2008 through December 31, 2009. Distributions for all record dates of a given month are paid approximately 15 days after month-end. Distributions declared during 2008 and 2009, aggregated by
quarter, are as follows (dollars in thousands, expect per share amounts):



|                                   |  |             |       |   |             |   |       |             |  |   |             |   |  |       |        |   |  |   |        |  
|---------------------------------- |  | ----------- | ----- | - | ----------- | - | ----- | ----------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                   |  | 2009        |      
|                                   |  | 1st Quarter |       |   | 2nd Quarter |   |       | 3rd Quarter |  |   | 4th Quarter |   |  | Total |       
|Total Distributions Declared       |  | $           | 6,117 |   |             | $ | 9,160 |             |  | $ | 11,877      |   |  | $     | 14,118 |   |  | $ | 41,272 |  
|Total Per Share Distribution       |  | $           | 0.160 |   |             | $ | 0.162 |             |  | $ | 0.164       |   |  | $     | 0.164  |   |  | $ | 0.650  |  
|Annualized Rate Based on           |  |             |       |   |             |   |       |             |  |   |             |   |  |       |        |   |  |   |        |  
|Purchase Price of $10.00 Per Share |  |             | 6.5   | % |             |   | 6.5   | %           |  |   | 6.5         | % |  |       | 6.5    | % |  |   | 6.5    | %
|                                   | 
|                                   |  | 2008        |      
|                                   |  | 1st Quarter |       |   | 2nd Quarter |   |       | 3rd Quarter |  |   | 4th Quarter |   |  | Total |       
|Total Distributions Declared       |  | $           |      |   |             | $ |      |             |  | $ | 1,006       |   |  | $     | 3,935  |   |  | $ | 4,941  |  
|Total Per Share Distribution       |  | $           |      |   |             | $ |      |             |  | $ | 0.099       |   |  | $     | 0.164  |   |  | $ | 0.263  |  
|Annualized Rate Based on           |  |             |       |   |             |   |       |             |  |   |             |   |  |       |        |   |  |   |        |  
|Purchase Price of $10.00 Per Share |  |             | N/A   |   |             |   | N/A   |             |  |   | 4.7         | % |  |       | 6.5    | % |  |   | 5.7    | %

The tax composition of our
distributions declared for the years ended December 31, 2009 and 2008 was as follows:



| |                   |  |     |      |  |     |      |  |  | 
| | ----------------- |  | --- | ---- |  | --- | ---- |  |  | 
| |                   |  |     | 2009 |  |     | 2008 |  |  | 
| | Ordinary Income   |  | 46  | %    |  | 10  | %    | 
| | Return of Capital |  | 54  | %    |  | 90  | %    | 
| |                   |  |     |      |  |     |      | 
| | Total             |  | 100 | %    |  | 100 | %    | 
| |                   |  |     |      |  |     |      | 

Our board of directors declared distributions based on daily record dates for the period
from January 1, 2010 through January 31, 2010, which we paid on February 12, 2010, and declared distributions based on daily record dates for the period from February 1, 2010 through February 28, 2010,
which we paid on March 15, 2010. Our board of directors has also declared distributions based on daily record dates for the period from March 1, 2010 through March 31, 2010, which we expect to pay in April 2010;
distributions based on daily record dates for the period from April 1, 2010 through April 30, 2010, which we expect to pay in May 2010; and distributions based on daily record dates for the period from May 1, 2010
through May 31, 2010, which we expect to pay in June 2010. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan. Distributions for these periods are calculated based
on stockholders of record each day during the distribution period at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of
$10.00 per share.

Use of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity Securities

On April 22, 2008, our Registration Statement on Form S-11 (File No. 333-146341), covering a public offering of up to
200,000,000 shares of common stock in our primary offering and 80,000,000 shares of common stock under our dividend reinvestment plan, was declared effective under the Securities Act of 1933. We commenced our initial public offering on
April 22, 2008 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. We are offering 200,000,000 shares of common stock in our primary offering at an aggregate offering price
of up to $2.0 billion, or $10.00 per share with discounts available to certain categories of purchasers. The 80,000,000 shares offered under our dividend reinvestment plan are initially being offered at an aggregate offering price of
$760 million, or $9.50 per share. We expect to sell the shares registered in our primary offering over a two-year period. Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date. We may
sell shares under the dividend reinvestment plan beyond the termination of the primary offering until we have sold all the shares under the plan.



42



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##### Table of Contents

As of December 31, 2009, we had sold 93,347,044 shares of common stock in our
ongoing initial public offering for gross offering proceeds of $929.9 million, including 2,440,176 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $23.2 million. Also as of
December 31, 2009, we had redeemed 199,883 of the shares sold in the offering for $1.9 million pursuant to our share redemption program. As of December 31, 2009, we had incurred selling commissions, dealer manager fees
and organization and other offering costs in the amounts set forth below (in thousands). The dealer manager reallowed all of the selling commissions and a portion of the dealer manager fees to participating broker-dealers.



|                                            |  |        |        |                  |       
|------------------------------------------- |  | ------ | ------ | ---------------- | ------
|Type of Expense Amount                      |  | Amount |        | Estimated/Actual
|Selling commissions and dealer manager fees |  | $      | 83,997 |                  | Actual
|Finders fees                               |  |        |       |                  |       
|Expenses paid to or for underwriters        |  |        |       |                  |       
|Other organization and offering costs       |  |        | 12,001 |                  | Actual
|                                            |  |        |        |                  |       
|Total expenses                              |  | $      | 95,998 |                  |       
|                                            |  |        |        |                  |       

From the commencement of our ongoing initial public offering through December 31, 2009,
the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $833.9 million, including net offering proceeds from our dividend reinvestment plan of $23.2 million.

We expect to use substantially all of the net proceeds from our ongoing initial public offering to invest in and manage a diverse portfolio
of real estate and real estate-related investments. We may use the net proceeds from the sale of shares under our dividend reinvestment plan for general corporate purposes, including, but not limited to, the redemption of shares under our share
redemption program; capital expenditures; tenant improvement costs and other funding obligations. As of December 31, 2009, we have used the net proceeds from our ongoing primary public offering and debt financing to purchase
$680.7 million in real estate and real estate-related investments, including $12.3 million of acquisition and origination fees and expenses.

During the fiscal year ended December 31, 2009, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

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

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



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



| |  |  | The share redemption program limits the number of shares we may redeem during any calendar year to those that we could purchase with the amount of the
net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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



43



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##### Table of Contents

During the year ended December 31, 2009, we redeemed shares pursuant to our share
redemption program as follows:



|               |  |                                   |  |                                |      |                                                                                       |    |  
|-------------- |  | --------------------------------- |  | ------------------------------ | ---- | ------------------------------------------------------------------------------------- | -- | -
|Month          |  | Total Numberof SharesRedeemed (1) |  | AveragePrice PaidPer Share (2) |      | Approximate Dollar Value of SharesAvailable That May Yet Be RedeemedUnder the Program |   
|January 2009   |  |                                  |  | $                              | 0.00 |                                                                                       | (3 | )
|February 2009  |  |                                  |  | $                              | 0.00 |                                                                                       | (3 | )
|March 2009     |  |                                  |  | $                              | 0.00 |                                                                                       | (3 | )
|April 2009     |  | 5,403                             |  | $                              | 9.99 |                                                                                       | (3 | )
|May 2009       |  | 11,420                            |  | $                              | 9.98 |                                                                                       | (3 | )
|June 2009      |  | 30,233                            |  | $                              | 9.61 |                                                                                       | (3 | )
|July 2009      |  | 13,607                            |  | $                              | 9.79 |                                                                                       | (3 | )
|August 2009    |  | 58,195                            |  | $                              | 9.85 |                                                                                       | (3 | )
|September 2009 |  | 42,417                            |  | $                              | 9.38 |                                                                                       | (3 | )
|October 2009   |  | 38,608                            |  | $                              | 9.29 |                                                                                       | (3 | )
|November 2009  |  |                                  |  | $                              | 0.00 |                                                                                       | (3 | )
|December 2009  |  |                                  |  | $                              | 0.00 |                                                                                       | (3 | )
|               |  |                                   |  |                                |      |                                                                                       |    |  
|Total          |  | 199,883                           |  |                                |      |                                                                                       |    |  
|               |  |                                   |  |                                |      |                                                                                       |    |  



(1)We
announced adoption and commencement of the program on April 8, 2008 and an amendment to the program on May 13, 2009 (which amendment became effective on June 12, 2009).

(2)Pursuant to the program, as amended, we currently redeem shares as follows:



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



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



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



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



| |  |  | Notwithstanding the above, upon the death, qualifying disability or determination of incompetence of a stockholder, the
redemption price would be the amount paid to acquire the shares from us.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Notwithstanding the above, once we
establish an estimated value per share of common stock, the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by our advisor or another firm chosen for that purpose. The share redemption
program document states that we expect to establish an estimated value per share no later than three years after the completion of our offering stage; however, to assist broker-dealers who sell shares in our ongoing public offering meet their
regulatory obligations, we currently expect to establish an estimated value per share no later than the expiration of the first 18-month period in which we do not sell shares in a public equity offering. Public equity offering for this
purpose does not include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership.



|(3) | We limit the dollar value of shares that may be redeemed under the program as described above. As of the October 30, 2009 redemption date, we
had redeemed the number of shares that we could purchase with the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan in 2008. Effective January 2010, this limitation was re-set, and based on the amount
of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2009, we have $21.3 million available for redemption in 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following selected financial data as of December 31, 2009, 2008, and 2007 and for the years ended December 31, 2009 and 2008 should be read in conjunction with the accompanying consolidated financial statements and
related notes thereto and Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except share and per share amounts):



|                                                                        |  |                                  |            |   |      |   |           |      |  |   |    
|----------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---- | - | --------- | ---- |  | - | ---
|                                                                        |  | As of December 31,              
|                                                                        |  | 2009                             |            |   | 2008 |   |           | 2007
|Balance sheet data                                                      |  |                                  |            |   |      |   |           |      |  |   |    
|Total real estate and real estate-related investments, net              |  | $                                | 672,169    |   |      | $ | 512,495   |      |  | $ |   
|Total assets                                                            |  |                                  | 953,868    |   |      |   | 572,862   |      |  |   | 200
|Notes payable                                                           |  |                                  | 126,660    |   |      |   | 271,446   |      |  |   |   
|Total liabilities                                                       |  |                                  | 158,046    |   |      |   | 300,557   |      |  |   |   
|Redeemable common stock                                                 |  |                                  | 21,260     |   |      |   | 1,921     |      |  |   |   
|Total stockholders equity                                              |  |                                  | 774,562    |   |      |   | 270,384   |      |  |   | 200
|                                                                        |  |                                 
|                                                                        |  | For the Years Ended December 31, |            |   |     
|                                                                        |  | 2009                             |            |   | 2008 |   |           |     
|Operating data                                                          |  |                                  |            |   |      |   |           |      |  |   |    
|Total revenues                                                          |  | $                                | 75,387     |   |      | $ | 14,087    |      |  |   |    
|Net income (loss)                                                       |  |                                  | 12,419     |   |      |   | (2,582    | )    |  |   |    
|Net income (loss) per common share - basic and diluted                  |  |                                  | 0.20       |   |      |   | (0.33     | )    |  |   |    
|                                                                        |  |                                  |           
|Other data                                                              |  |                                  |            |   |      |   |           |      |  |   |    
|Cash flows provided by operations                                       |  | $                                | 29,937     |   |      | $ | 4,870     |      |  |   |    
|Cash flows used in investing activities                                 |  |                                  | (181,717   | ) |      |   | (495,535  | )    |  |   |    
|Cash flows provided by financing activities                             |  |                                  | 368,992    |   |      |   | 547,074   |      |  |   |    
|                                                                        |  |                                  |           
|Distributions declared                                                  |  |                                  | 41,272     |   |      |   | 4,941     |      |  |   |    
|                                                                        |  |                                  |           
|Distributions declared per common share(1)                              |  |                                  | 0.650      |   |      |   | 0.263     |      |  |   |    
|                                                                        |  |                                  |           
|Weighted-average number of common shares outstanding, basic and diluted |  |                                  | 63,494,969 |   |      |   | 7,926,366 |      |  |   |    
|                                                                        |  |                                  |           
|Reconciliation of funds from operations(2)                              |  |                                  |            |   |      |   |           |      |  |   |    
|Net income (loss)                                                       |  | $                                | 12,419     |   |      | $ | (2,582    | )    |  |   |    
|Depreciation of real estate assets                                      |  |                                  | 9,919      |   |      |   | 2,315     |      |  |   |    
|Amortization of lease-related costs                                     |  |                                  | 18,186     |   |      |   | 4,659     |      |  |   |    
|Gain on sale of real estate securities                                  |  |                                  | (119       | ) |      |   |          |      |  |   |    
|                                                                        |  |                                  |            |   |      |   |           |      |  |   |    
|FFO                                                                     |  | $                                | 40,405     |   |      | $ | 4,392     |      |  |   |    
|                                                                        |  |                                  |            |   |      |   |           |      |  |   |    



(1)Distributions declared per common share assumes each share was
issued and outstanding each day from July 16, 2008 through the last day of the period presented. Distributions for the period from July 16, 2008 through August 15, 2008 are based on daily record dates and calculated at
a rate of $0.00054795 per share per day. Distributions for the period from August 16, 2008 through December 31, 2009 are based on daily record dates and calculated at a rate of $0.00178082 per share per day.

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



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##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the Selected Financial Data above and our accompanying
consolidated financial statements and the notes thereto. Also see Forward-Looking Statements preceding Part I.

Overview

We were formed on July 12, 2007 as a Maryland corporation that elected to be taxed as a real estate investment
trust (REIT) beginning with the taxable year ended December 31, 2008 and intend to operate in such a manner. We intend to invest in a diverse portfolio of real estate and real estate-related investments. We conduct our business
primarily through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is managed by KBS Capital Advisors LLC (KBS Capital Advisors), our external advisor,
pursuant to an advisory agreement. KBS Capital Advisors, conducts our operations and manages our portfolio of real estate investments. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

We intend to invest in a diverse portfolio of real estate investments. The types of properties that we may invest in include office,
industrial and retail properties located throughout the United States. Although we may invest in any of these types of properties, we expect to invest primarily in office and industrial properties. All such real estate assets may be acquired
directly by us or the Operating Partnership, though we may invest in other entities that make similar investments. We also expect to invest in real estate-related investments, including mortgage, mezzanine, bridge and other loans; debt and
derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. As of December 31, 2009, we owned five real estate properties and two real
estate loans receivable.

On September 27, 2007, we filed a registration statement on Form S-11 with the Securities
and Exchange Commission (the SEC) to offer a maximum of 280,000,000 shares of common stock for sale to the public, of which 200,000,000 shares were registered in our primary offering and 80,000,000 shares were registered
under our dividend reinvestment plan. From the commencement of the offering on April 22, 2008 through December 31, 2009, we had sold 93,347,044 shares of common stock in our ongoing initial public offering for gross offering
proceeds of $929.9 million, including 2,440,176 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $23.2 million. Also as of December 31, 2009, we had redeemed 199,883 of the
shares sold in the offering for $1.9 million. We intend to use substantially all of the net proceeds from the ongoing initial public offering to invest in a diverse portfolio of real estate and real estate-related investments as described
above.

Market Outlook  Real Estate and Real Estate Finance Markets

During 2008 and 2009, significant and widespread concerns about credit risk and access to capital have been present in the global financial
markets. Economies throughout the world have experienced substantially increased unemployment, sagging consumer confidence and a downturn in economic activity. As a result of the decline in general economic conditions, the U.S. commercial real
estate industry has been experiencing deteriorating fundamentals, including rental rates, tenant defaults, tenant demands and overall occupancy, across all major property types and in most geographic markets. This has created a highly competitive
leasing environment which impacts our investments in real estate properties as well as the collateral securing a majority of our real estate-related investments. If these challenging economic conditions continue, our liquidity and financial
condition (as well as the liquidity and financial condition of our tenants and borrowers) may be adversely affected. For further discussion of current market conditions, see Part I, Item 1, Business  Market
Outlook  Real Estate and Real Estate Finance Markets.

Impact on Our Real Estate Investments

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



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Impact on Our Real Estate-Related Investments

Our real estate-related investments are directly secured by commercial real estate. As a result, our real estate-related investments have
been impacted to some degree by the same factors impacting our real estate investments.

As of December 31, 2009, we
had real estate loans receivable with a principal value of $209.5 million and a carrying value of $130.8 million, all of which are fixed rate and mature in 2017.

Impact on Our Financing Activities

In light of the risks associated
with projected declines of operating cash flows on our properties and the current underwriting environment for commercial real estate mortgages, we may have difficulty refinancing some of our mortgage notes at maturity or may not be able to
refinance our obligations at terms as favorable as the terms of our existing indebtedness. As of December 31, 2009, we had debt obligations in the aggregate principal amount of $126.7 million. Short-term variable rate loans,
representing $32.8 million of our total debt, mature within the next year, and a long-term fixed rate loan, representing the remaining $93.9 million of our total debt, matures in 2014. We intend to extend or refinance these mortgage loans
upon their initial maturity dates. See Subsequent Events  Investments and Financings Subsequent to December 31, 2009  100 & 200 Campus Drive Financing.

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the acquisition of properties, loans and other real estate-related investments; the payment of operating expenses, capital expenditures and general and
administrative expenses; payments under debt obligations; and payments of distributions to stockholders. To date, we have had four primary sources of capital for meeting our cash requirements:



| |  |  | Proceeds from our ongoing initial public offering;
| | - |  | --------------------------------------------------



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



| |  |  | Debt financings; and
| | - |  | --------------------



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

From June 2008 through December 2009, we raised significant funds through the issuance of common stock in our initial public offering.
The proceeds from the issuance of common stock, net of organization and offering costs and selling commissions and dealer manager fees, were primarily used to acquire real estate and real estate-related investments. Proceeds from our dividend
reinvestment plan were primarily used to fund redemptions of shares under our share redemption program and capital expenditures on our real estate investments. We anticipate receiving additional proceeds from the issuance of common stock and intend
to continue making real estate and real estate-related investments using the proceeds from our ongoing initial public offering and debt financing. In addition, on February 26, 2010, we entered into a $64.6 million secured credit
facility that will further enhance our liquidity.

We intend to refinance mortgage debt expiring in the near future with new,
longer term mortgage financing. We also intend to continue to pay monthly distributions to our shareholders primarily from cash flows from operations. Timing differences arise between when we raise capital and when we acquire investments.
Accordingly, we have and may continue to utilize short-term debt financing through the use of our credit facility to cover cash shortfalls related to distributions.

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, debt service payments and corporate general and
administrative expenses. Cash flow from operations from real estate investments is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from
our tenants and how well we manage our expenditures. As of December 31, 2009, our real estate portfolio was 98% leased and our bad debt reserve was less than 1% of annualized base rent. As of December 31, 2009, we had no tenants
with rent balances outstanding for over 90 days. Our real estate-related investments generate cash flow in the form of interest income, which is reduced by loan servicing fees. Cash flows from operations from our real estate-related investments
is primarily dependent on the operating performance of the underlying collateral and the borrowers ability to make their debt service payments. As of December 31, 2009, the borrowers under our real estate loans receivable were all
current.



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For the year ended December 31, 2009, our cash needs for acquisitions, capital
expenditures and payment of debt obligations were met with the proceeds from our ongoing initial public offering, including our dividend reinvestment plan. Operating cash needs during the same period were met through cash flow generated by our real
estate and real estate-related investments. We made distributions to our stockholders during the year ended December 31, 2009 using a combination of cumulative cash flows from operations and debt financing. We believe that our cash on
hand, proceeds from our ongoing initial public offering, cash flow from operations, availability under our credit facility and anticipated financing activities are sufficient to meet our liquidity needs for the foreseeable future.

Cash Flows from Operating Activities

We commenced real estate operations with the acquisition of our first real estate investment on July 30, 2008. As of December 31, 2009, we owned five real estate properties and two
real estate loans receivable. During the year ended December 31, 2009, net cash provided by operating activities was $29.9 million, compared to $4.9 million during the year ended December 31, 2008. Net cash from
operations increased in 2009 primarily as a result of owning investments acquired in 2008 for an entire year as well as acquisitions of real estate and real estate-related investments in 2009. We expect that our cash flows from operating activities
will increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

Cash
Flows from Investing Activities

Our cash used in investing activities will depend on how quickly we raise funds in our
ongoing initial public offering and how quickly we invest those funds. During the year ended December 31, 2009, net cash used in investing activities was $181.7 million consisting primarily of $112.2 million used for the
acquisition of one real estate investment and $67.6 million cash used for the acquisition of one real estate loan receivable.

Cash
Flows from Financing Activities

Our cash flows from financing activities consist primarily of proceeds from our
ongoing initial public offering, debt financings and distributions paid to our stockholders. During the year ended December 31, 2009, net cash provided by financing activities was $369.0 million and consisted of the following:



| |  |  | $533.0 million of cash provided by offering proceeds related to our initial public offering, net of payments of commissions, dealer manager fees
and other organization and offering expenses of $61.5 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $16.6 million of net cash distributions, after giving effect to dividends reinvested by stockholders of $21.3 million;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | $1.9 million of cash used for redemptions of common stock; and
| | - |  | --------------------------------------------------------------



| |  |  | $145.5 million of net cash used in debt and other financings as a result of principal payments on notes payable of $160.3 million and
payments of deferred financing costs of $0.7 million, partially offset by proceeds from notes payable of $15.5 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Contractual Commitments and Contingencies

In order to execute our investment strategy, we primarily utilize
secured debt, and, to the extent available, may in the future utilize unsecured debt, to finance a portion of our investment portfolio; however, given the current debt market environment, we may elect to forego the use of debt on some or all of our
future real estate acquisitions. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinance and interest rate risks, are properly balanced
with the benefit of using leverage. We may elect to obtain financing subsequent to the acquisition date on future real estate acquisitions and initially acquire investments without debt financing. Once we have fully invested the proceeds of our
ongoing initial public offering, we expect our debt financing to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). Our charter limits our borrowings to 75% of the cost (before
deducting depreciation or other noncash reserves) of our tangible assets; however, we may exceed that limit if the majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowings to our
stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. During the early stages of our ongoing initial public offering, and to the extent financing in excess of this
limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our debt financing may be below 50% of the cost of our tangible assets due to the lack of availability of debt financing or
repayment of debt. As of December 31, 2009, our borrowings were approximately 13% of both the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets.



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In addition to using our capital resources for investing purposes and meeting our debt
obligations, we expect to use our capital resources to make certain payments to our advisor and the dealer manager. During our organization and offering stage, these payments will include payments to the dealer manager for selling commissions and
dealer manager fees and payments to the dealer manager and our advisor for reimbursement of certain organization and other offering expenses. However, our advisor has agreed to reimburse us to the extent that selling commissions, dealer manager fees
and organization and other offering expenses incurred by us exceed 15% of our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and origination or
purchase of real estate and real estate-related investments, the management of our assets and costs incurred by our advisor in providing services to us. The advisory agreement is in effect through May 21, 2010 and has a one-year term but may be
renewed for an unlimited number of successive one-year periods upon the mutual consent of KBS Capital Advisors and our conflicts committee.

The following is a summary of our contractual obligations as of December 31, 2009 (in thousands):



|                                                     |  |       |         |                                                   |   |           |  |            |        |  |   |        |  |   |  
|---------------------------------------------------- |  | ----- | ------- | ------------------------------------------------- | - | --------- |  | ---------- | ------ |  | - | ------ |  | - | -
|Contractual Obligations                              |  | Total |         | Payments Due During the Years Ending December 31,
|                                                     |  | 2010  |         | 2011-2012                                         |   | 2013-2014 |  | Thereafter
|Outstanding debt obligations(1)                      |  | $     | 126,660 |                                                   | $ | 32,810    |  | $          |       |  | $ | 93,850 |  | $ | 
|Interest payments on outstanding debt obligations(2) |  | $     | 23,796  |                                                   | $ | 5,668     |  | $          | 11,074 |  | $ | 7,054  |  | $ | 



(1)Amounts include principal payments only.

(2)Projected interest payments are based on the outstanding principal
amounts and interest rates in effect at December 31, 2009 (consisting of the contractual interest rate and the effect of interest rate floors). We incurred interest expense of $9.2 million, excluding amortization of deferred financing
costs totaling $1.0 million, during the year ended December 31, 2009.

Results of Operations

Our results of operations for the years ended December 31, 2009 and 2008 are not indicative of those expected in future periods as
we broke escrow in our ongoing initial public offering on June 24, 2008 and as of December 31, 2009 had not yet met our capital raise or investment goals. We have not yet invested all of the proceeds from our offering received to
date and expect to continue to raise additional capital and make future acquisitions, which would have a significant impact on our future results of operations. We commenced real estate operations on July 30, 2008 in connection with the
acquisition of our first investment. We acquired four real estate properties and one real loan receivable during the year ended December 31, 2008 and acquired one real estate property, one real estate loan receivable and an investment in
CMBS during the year ended December 31, 2009. During the year ended December 31, 2009, we subsequently disposed of our interest in the CMBS investment. As of December 31, 2009, we owned four office properties, one
office/flex property and two real estate loans receivable. Therefore, our results of operations for year ended December 31, 2009 are not directly comparable to the year ended December 31, 2008. In general, we expect that our
income and expenses related to our portfolio will increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

Rental income and tenant reimbursements increased from $14.1 million for the year ended December 31, 2008 to
$58.3 million for the year ended December 31, 2009, primarily as a result of the growth in our real estate portfolio and holding the properties acquired in 2008 for an entire year. We expect rental income and tenant reimbursements to
increase in future periods as a result of anticipated future acquisitions of real estate.

Interest income from our real
estate loans receivable, recognized using the interest method, increased from $21,000 for the year ended December 31, 2008 to $16.9 million for the year ended December 31, 2009, primarily as a result of the growth in our
real estate loans receivable portfolio and holding the loan acquired on December 31, 2008 for an entire year. Interest income included $5.2 million and $6,000 in accretion of purchase price discounts, net of amortization of closing
costs, for the years ended December 31, 2009 and 2008, respectively. We expect interest income to increase in future periods as a result of anticipated future acquisitions of real estate-related investments.

Interest income from real estate securities totaled $0.1 million for the year ended December 31, 2009 and relates to the
floating rate CMBS we purchased on August 3, 2009. On November 16, 2009, we disposed of this investment and as a result, we recognized a gain of $0.1 million.



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Property operating costs increased from $3.3 million for the year ended
December 31, 2008 to $12.3 million for the year ended December 31, 2009. Real estate taxes and insurance increased from $0.9 million for the year ended December 31, 2008 to $4.5 million for the year ended
December 31, 2009. The increase in property operating costs, real estate taxes and insurance was due to the growth in our real estate portfolio and holding the properties acquired in 2008 for an entire year. We expect these amounts to
increase in future periods as a result of anticipated future acquisitions of real estate.

Asset management fees with respect
to our real estate and real estate-related investments increased from $0.9 million for the year ended December 31, 2008 to $4.5 million for the year ended December 31, 2009, as a result of the growth in our real estate
and real estate-related investment portfolio and the amount of time we held these investments in 2009 as compared to 2008. All asset management fees incurred as of December 31, 2008 and 2009 have been paid. We expect asset management fees
to increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

Real estate acquisition fees and expenses were $1.5 million for year ended December 31, 2009 and relate to the acquisition of one real estate property. Prior to January 1, 2009, expenses and fees related to the
acquisition of real estate were capitalized.

General and administrative expenses increased from $0.8 million for the
year ended December 31, 2008 to $2.7 million for the year ended December 31, 2009. These general and administrative costs consisted primarily of insurance premiums and professional fees. We expect general and administrative
costs to increase in future periods as we acquire additional real estate and real estate-related investments but to decrease as a percentage of total revenue.

Depreciation and amortization expenses increased from $7.0 million for the year ended December 31, 2008 to $28.1 million for the year ended December 31, 2009, primarily due
to the growth in our real estate portfolio and holding the properties acquired in 2008 for an entire year. We expect these amounts to increase in future periods as a result of anticipated future acquisitions of real estate.

Interest expense increased from $4.3 million for the year ended December 31, 2008 to $10.2 million for the year ended
December 31, 2009. Included in interest expense is the amortization of deferred financing costs of $0.5 million for the year ended December 31, 2008 and $1.0 million for the year ended December 31, 2009. The
increase in interest expense is due to the increase in average principal outstanding during the year ended December 31, 2009 compared to the year ended December 31, 2008. Our interest expense in future periods will vary based on
our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the availability and cost of debt financing, and the opportunity to acquire real estate and real estate-related investments
meeting our investment objectives.

Other interest income was $0.6 million for the years ended
December 31, 2008 and 2009 and consisted of interest earned on our cash and cash equivalent accounts. Average interest rates earned on our cash and cash equivalent accounts decreased from the year ended December 31, 2008 to
December 31, 2009. The decrease in interest rates was offset by the increase in our average cash balance during the same periods. Other interest income in future periods will vary based on the interest rates earned on our cash and cash
equivalent accounts and the level of cash on hand, which will depend in part on how quickly we raise funds in our ongoing initial public offering and how quickly we invest those funds.

Organization and Offering Costs

Our organization and offering costs (other
than selling commissions and dealer manager fees) may be paid by our advisor, the dealer manager or their affiliates on our behalf. Other offering costs include all expenses to be incurred by us in connection with our ongoing initial public
offering. Organization costs include all expenses incurred by us in connection with our formation, including but not limited to legal fees and other costs to incorporate. Organization costs are expensed as incurred and offering costs, which include
selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders equity.

Pursuant to
the advisory agreement and the dealer manager agreement, we are obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on our behalf; however, our advisor is
obligated to reimburse us to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by us exceed 15% of gross proceeds from our ongoing initial public offering. As of December 31, 2009,
selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2009, including shares issued through our dividend reinvestment plan, we had issued
93,347,044 shares in the offering for gross offering proceeds of $929.9 million and recorded organization and other offering costs of $12.0 million and selling commissions and dealer manager fees of $84.0 million.



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Funds from Operations

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

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

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the
following table for the years ended December 31, 2009 and 2008, respectively (in thousands):



|                                       |  |                                  |        |   |      |   |        |  
|-------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | -
|                                       |  | For the Years Ended December 31, |       
|                                       |  | 2009                             |        |   | 2008 |  
|Net income (loss)                      |  | $                                | 12,419 |   |      | $ | (2,582 | )
|Add:                                   |  |                                  |        |   |      |   |        |  
|Depreciation of real estate assets     |  |                                  | 9,919  |   |      |   | 2,315  |  
|Amortization of lease-related costs    |  |                                  | 18,186 |   |      |   | 4,659  |  
|Less:                                  |  |                                  |        |   |      |   |        |  
|Gain on sale of real estate securities |  |                                  | (119   | ) |      |   |       |  
|                                       |  |                                  |        |   |      |   |        |  
|FFO                                    |  | $                                | 40,405 |   |      | $ | 4,392  |  
|                                       |  |                                  |        |   |      |   |        |  

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

Significant Items Included in Net Income (Loss):



| |  |  | Revenues in excess of actual cash received as a result of straight-line rent of $2.2 million for the year ended December 31, 2009 and
$0.6 million for the year ended December 31, 2008;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues in excess of actual cash received as a result of amortization of above-market/below-market in-place leases of $5.7 million for the year
ended December 31, 2009 and $1.7 million for the year ended December 31, 2008;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest income from the accretion of discounts on real estate loans receivable and real estate securities, net of amortization of closing costs, of
$5.3 million for the year ended December 31, 2009;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense from the amortization of deferred financing costs related to notes payable of approximately $1.0 million for the year ended
December 31, 2009 and approximately $0.5 million for the year ended December 31, 2008; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisition fees and expenses related to the purchase of real estate of approximately $1.5 million for the year ended December 31, 2009.
Prior to January 1, 2009, acquisition fees and expenses related to the purchase of real estate were capitalized.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating cash flow and FFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as tenant improvements, building improvements and deferred leasing
costs.



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Distributions

During our offering stage, when we may raise capital in our ongoing initial public offering more quickly than we acquire income-producing assets, and for some period after our offering stage, we may not
be able to pay distributions solely from our cash flow from operations or FFO, in which case distributions may be paid in part from debt financing. Distributions declared, distributions paid and cash flows from operations were as follows during 2009
(in thousands, except per share amounts):



|                    |  |                           |        |                                        |            |                        |       |                          |        |  |   |        |  |   |        |  |   |       
|------------------- |  | ------------------------- | ------ | -------------------------------------- | ---------- | ---------------------- | ----- | ------------------------ | ------ |  | - | ------ |  | - | ------ |  | - | ------
|Period              |  | DistributionsDeclared (1) |        | DistributionsDeclared PerShare (1) (2) |            | Distributions Paid (3) |       | Cash FlowsFromOperations
|                    |  |                           | Cash   |                                        | Reinvested |                        | Total |                         
|First Quarter 2009  |  | $                         | 6,117  |                                        | $          | 0.160                  |       | $                        | 2,258  |  | $ | 3,089  |  | $ | 5,347  |  | $ | 3,427 
|Second Quarter 2009 |  |                           | 9,160  |                                        |            | 0.162                  |       |                          | 3,541  |  |   | 4,649  |  |   | 8,190  |  |   | 8,172 
|Third Quarter 2009  |  |                           | 11,877 |                                        |            | 0.164                  |       |                          | 4,935  |  |   | 6,193  |  |   | 11,128 |  |   | 6,616 
|Fourth Quarter 2009 |  |                           | 14,118 |                                        |            | 0.164                  |       |                          | 5,886  |  |   | 7,329  |  |   | 13,215 |  |   | 11,722
|                    |  |                           |        |                                        |            |                        |       |                          |        |  |   |        |  |   |        |  |   |       
|                    |  | $                         | 41,272 |                                        | $          | 0.650                  |       | $                        | 16,620 |  | $ | 21,260 |  | $ | 37,880 |  | $ | 29,937
|                    |  |                           |        |                                        |            |                        |       |                          |        |  |   |        |  |   |        |  |   |       



(1)Distributions for the period from January 1, 2009 through December 31, 2009 are based on daily record dates and calculated at a rate of $0.00178082 per share per
day.

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

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

For the year ended December 31, 2009, we paid aggregate distributions of $37.9 million, including $16.6 million of
distributions paid in cash and $21.3 million of distributions reinvested through our dividend reinvestment plan. FFO for the year ended December 31, 2009 was $40.4 million and cash flow from operations was $29.9 million. We
funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $29.9 million of current period operating cash flows, $2.8 million of operating cash reserves from prior periods and
$5.2 million of debt financing. See the reconciliation of FFO to net income (loss) above.

Over the long-term, we expect
that a greater percentage of our distributions will be paid from cash flow from operations and FFO (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under investments we make
in mortgage, mezzanine and other loans). However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under Forward-Looking Statements,
Part I, Item 1, BusinessMarket Outlook  Real Estate and Real Estate Finance Markets, Part I, Item 1A, Risk Factors and Part II, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations  Results of Operations. Those factors include: the future operating performance of our investments in the existing real estate and financial environment; our ability to identify
investments that are suitable to execute our investment objectives; the success and economic viability of our tenants; the ability of our borrowers and their sponsors to continue to make their debt service payments and/or to repay their loans upon
maturity; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on our variable rate debt obligations; and the level of participation in our dividend reinvestment plan. In the event our FFO and/or cash flow
from operations decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operations.

Critical Accounting Policies

Below is a discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are
important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates
that may impact the comparability of our results of operations to those of companies in similar businesses.



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Revenue Recognition

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



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



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



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



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



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

During the years ended December 31, 2009 and 2008, we recognized deferred rent from tenants of $2.2 million and
$0.6 million, respectively. As of December 31, 2009 and 2008, the cumulative deferred rent balance was $2.8 million and $0.6 million, respectively, and is included in rents and other receivables on the accompanying balance
sheets. We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

We make estimates of the collectibility of our tenant receivables related to base rents, including straight-line rent, expense
reimbursements and other revenue or income. We specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance
for doubtful accounts. In addition, with respect to tenants in bankruptcy, we make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the
ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, we will record a bad debt reserve for the tenants receivable balance and generally will not recognize subsequent rental revenue until cash is received or
until the tenant is no longer in bankruptcy and has the ability to make rental payments. During the year ended December 31, 2009, we reduced our bad debt reserve and recorded a net recovery of bad debt related to our tenant receivables of
$5,000. We did not record any bad debt expense related to our deferred rent receivables during the year ended December 31, 2009.

Interest income on our real estate loans receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination fees and origination or acquisition
costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. We will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier
when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, we will reverse the accrual for unpaid interest and generally will not recognize subsequent interest income until the cash is
received, or the loan returns to accrual status.

We recognize interest income on real estate securities that are beneficial
interests in securitized financial assets and are rated AA and above on an accrual basis according to the contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using
the interest method. During the year ended December 31, 2009, we acquired and disposed of a AAA-rated CMBS. We recognized $0.1 million of interest income related to this security and recognized a gain on sale of $0.1 million
during the year ended December 31, 2009.

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

We recognize interest income on our cash and cash equivalents as it is earned and record such amounts as other interest income.



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Real Estate

Depreciation and Amortization

Real estate costs related to the
acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments
are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. We consider the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant
improvements are capitalized and amortized over the shorter of the tenants lease term or expected useful life. We anticipate the estimated useful lives of our assets by class to be generally as follows:



|                                        |  |                                              
|--------------------------------------- |  | ---------------------------------------------
|Buildings                               |  | 25-40 years                                  
|Building improvements                   |  | 10-25 years                                  
|Tenant improvements                     |  | Shorter of lease term or expected useful life
|Tenant origination and absorption costs |  | Remaining term of related leases             

These
assessments have a direct impact on our net income, because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower
net income on an annual basis throughout the expected useful lives of these investments.

Real Estate Acquisition
Valuation

We record the acquisition of income-producing real estate or real estate that will be used for the
production of income as a business combination. Prior to January 1, 2009, real estate acquired in a business combination, consisting of land, buildings and improvements, was recorded at cost. We allocated the cost of tangible assets,
identifiable intangibles and assumed liabilities (consisting of above and below-market leases and tenant origination and absorption costs) acquired in a business combination based on their estimated fair values. Beginning January 1, 2009,
all assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the
acquisition date are expensed in periods subsequent to the acquisition date. In addition, changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period are recorded to income tax
expense. During the year ended December 31, 2009, we acquired one real estate asset in a business combination and expensed $1.5 million of acquisition costs.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant
assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate
assumptions would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of our net income.

Impairment of Real Estate and Related Intangible Assets and Liabilities

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related
intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the
recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, we do not
believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate
and related intangible assets and liabilities. We did not record any impairment loss on our real estate and related intangible assets and liabilities during the years ended December 31, 2009 and 2008.

Projecting future cash flows involves estimating expected future operating income and expenses related to the real estate and its related
intangible assets and liabilities as well as market and other trends. Using inappropriate assumptions to estimate cash flows could result in incorrect fair values of the real estate and its related intangible assets and liabilities and could result
in the overstatement of the carrying values of our real estate and related intangible assets and liabilities and an overstatement of our net income.



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Real Estate Loans Receivable

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

As of December 31, 2009, there was no loan loss reserve and we did not record any
impairment losses related to the real estate loans receivable during the year ended December 31, 2009. However, in the future, we may experience losses from our investments in loans receivable requiring us to record loan loss reserves.
Realized losses on individual loans could be material and significantly exceed any recorded reserves.

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

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

The portfolio-based reserve component covers
the pool of loans that do not have asset-specific reserves. A provision for loan losses is recorded when available information as of each balance sheet date indicates that it is probable that the pool of loans will incur a loss and the amount of the
loss can be reasonably estimated. Required reserve balances for this pool of loans are derived from estimated probabilities of default and estimated loss severities assuming a default occurs. On a quarterly basis, we assign estimated probabilities
of default and loss severities to each loan in the portfolio based on factors such as the debt service coverage of the underlying collateral, the estimated fair value of the collateral, the significance of the borrowers investment in the
collateral, the financial condition of the borrower and/or its sponsors, the likelihood that the borrower and/or its sponsors would allow the loan to default, our willingness and ability to step in as owner in the event of default, and other
pertinent factors.

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

Fair Value
Measurements

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



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



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



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



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

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

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

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

Income Taxes

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

We have concluded that there are no significant uncertain tax positions requiring
recognition in our financial statements. Neither we nor our subsidiaries have been assessed interest or penalties by any major tax jurisdictions. Our evaluations were performed for the tax years ending December 31, 2009, 2008, and 2007. As
of December 31, 2009, returns for the calendar years 2007 and 2008 remain subject to examination by major tax jurisdictions.



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Subsequent Events

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

Status of Offering

We commenced our ongoing initial public offering of 280,000,000 shares of
common stock on April 22, 2008. As of March 19, 2010, we had sold 103,686,200 shares of common stock in the offering for gross offering proceeds of $1.0 billion, including 3,321,455 shares of common stock under the dividend
reinvestment plan for gross offering proceeds of $31.6 million.

Distributions Paid

On January 15, 2010, we paid distributions of $5.0 million, which related to distributions declared for each day in the period
from December 1, 2009 through December 31, 2009. On February 12, 2010, we paid distributions of $5.2 million, which related to distributions declared for each day in the period from January 1, 2010
through January 31, 2010, and on March 15, 2010, we paid distributions of $4.9 million, which related to distributions declared for each day in the period from February 1, 2010 through February 28, 2010.

Distribution Declaration

On January 15, 2010, our board of directors declared distributions based on daily record dates for the period from February 1, 2010 through February 28, 2010, which we paid
on March 15, 2010, and distributions based on daily record dates for the period from March 1, 2010 through March 31, 2010, which we expect to pay in April 2010. On March 19, 2010, our board of directors
declared distributions based on daily record dates for the period from April 1, 2010 through April 30, 2010, which we expect to pay in May 2010, and distributions based on daily record dates for the period from
May 1, 2010 through May 31, 2010, which we expect to pay in June 2010. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of
$0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share.

Investments and Financings Subsequent to December 31, 2009

Tuscan Inn First Mortgage

On January 21, 2010, we, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $20.2 million (the Tuscan Inn First Mortgage) from a
borrower unaffiliated with us or our advisor. The borrower used the proceeds from the loan to acquire a four-story, 221-room hotel located in San Francisco. The property includes a 68-car parking garage, 1,900 square feet of meeting facilities and a
restaurant.

The Tuscan Inn First Mortgage matures on January 21, 2015. The annual effective interest rate of this
investment is expected to be 8.5% and we receive interest-only payments during the term of the loan. The Tuscan Inn First Mortgage may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the
term of the loan.

Chase Tower First Mortgage

On January 25, 2010, we, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of
$59.2 million (the Chase Tower First Mortgage) from a borrower unaffiliated with us or our advisor. The borrower used the proceeds from the loan to acquire a 22-story Class A office tower located in Austin, Texas. The office
tower contains 389,503 square feet and at January 1, 2010 was approximately 94% leased.

The Chase Tower
First Mortgage matures on February 1, 2015. The annual effective interest rate of this investment is expected to be 8.4% and we receive interest-only payments for the first three years, followed by payments calculated using an amortization
schedule of 30 years for the balance of the term. The Chase Tower First Mortgage may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan.

Acquisition of Pierre Laclede Center

On February 4, 2010, we, through an indirect wholly owned subsidiary, acquired two office buildings containing 579,846 rentable square feet located on approximately 5.1 acres of land
in Clayton, Missouri (the Pierre Laclede Center). The seller is not affiliated with us or our advisor. The purchase price (net of closing adjustments) of the Pierre Laclede Center was $74.2 million plus closing costs. We funded
the purchase of the Pierre Laclede Center with proceeds from our public offering, but may later place mortgage debt on the property.



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The Pierre Laclede Center is located at 7701 and 7733 Forsyth Boulevard in Clayton, Missouri
and consists of two office buildings that were built in 1964 and 1970, respectively. Currently, the Pierre Laclede Center is 95% leased to 64 tenants. None of the tenants in this property represent more than 10% of our portfolios
annualized base rent.

Acquisition of One Main Place

On February 5, 2010, we, through an indirect wholly owned subsidiary, acquired a Class A office building containing
315,133 rentable square feet located on approximately 0.9 acres of land in Portland, Oregon (the One Main Place). The seller is not affiliated with us or our advisor. The purchase price (net of closing adjustments) of One
Main Place was $54.4 million plus closing costs. We funded the purchase of One Main Place with proceeds from our public offering, but may later place mortgage debt on the property.

One Main Place is located at 101 SW Main Street in Portland, Oregon and was built in 1980. One Main Place is 99% leased to
39 tenants. None of the tenants in this property represent more than 10% of our portfolios annualized base rent.

Acquisition of Plano Business Park

On March 15, 2010, we, through an indirect wholly owned
subsidiary, acquired three light industrial buildings containing 283,559 rentable square feet located on approximately 19.9 acres of land in Plano, Texas (the Plano Business Park). The seller is not affiliated with the us or our
advisor. The purchase price of the Plano Business Park was $16.8 million plus closing costs. We funded the purchase of the Plano Business Park with proceeds from our public offering, but may later place mortgage debt on the property.

The Plano Business Park is located at 3801, 3901 and 4001 E. Plano Parkway in Plano, Texas and consists of three light
industrial buildings that were built in 2001. Currently, the Plano Business Park is 94% leased to 7 tenants. None of the tenants in this property represent more than 10% of our portfolios annualized base rent.

Purchase Agreement for Hartman II

On March 19, 2010, we, through an indirect wholly owned subsidiary, entered into a purchase agreement to purchase an industrial building containing 261,799 rentable square feet located on approximately
23.3-acres of land in Austell, Georgia (Hartman II). The seller is not affiliated with us or our advisor. The purchase price of Hartman II is approximately $10.8 million plus closing costs. Pursuant to the purchase agreement, we
would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that we will complete the acquisition. In some circumstances, if we fail to complete the acquisition, we may forfeit
$0.3 million of earnest money. Hartman II is 100% leased to Nexen Tire America, Inc.

100 & 200 Campus Drive
Financing

On February 26, 2010, we obtained a four-year mortgage loan with TD Bank, N.A. and US Bank
National Association (collectively, the Lenders) for $64.6 million secured by the 100 & 200 Campus Drive Buildings (the 100 & 200 Campus Drive Mortgage Loan). As of February 26, 2010,
$20.0 million had been disbursed to us with the remaining loan balance available for future disbursements, subject to certain conditions set forth in the loan agreement. The 100 & 200 Campus Drive Mortgage Loan matures on
February 26, 2014, with an option to extend the maturity date to February 26, 2015, subject to certain conditions. The 100 & 200 Campus Drive Mortgage Loan bears interest at a floating rate of 325 basis points over
one-month LIBOR and monthly payments are interest only with the entire principal balance due at maturity, assuming no prior prepayment. We have entered into interest rate swap agreements with the Lenders on the initial $20.0 million funded,
which effectively fix the interest rate at approximately 5.55% through the initial term of the loan. We will be required to enter future interest rate swap agreements if the amount drawn on the loan and not subject to a swap is equal or greater than
$10.0 million. The 100 & 200 Campus Drive Mortgage Loan may be prepaid in whole or in part at any time without penalty, subject to certain conditions.



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|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

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

The table below summarizes the book values and the weighted-average interest rates of our real estate loans
receivable and notes payable for each category as of December 31, 2009 based on the maturity dates (dollars in thousands):



|                                                   |  |               |        |   |      |   |      |  |      |   |      |   |   |            |   |        |                 |  |   |            |   |  |   |         |   |  |   |        
|-------------------------------------------------- |  | ------------- | ------ | - | ---- | - | ---- |  | ---- | - | ---- | - | - | ---------- | - | ------ | --------------- |  | - | ---------- | - |  | - | ------- | - |  | - | -------
|                                                   |  | Maturity Date |        |   |      |   |      | 
|                                                   |  | 2010          |        |   | 2011 |   | 2012 |  | 2013 |   | 2014 |   |   | Thereafter |   |        | TotalBook Value |  |   | Fair Value
|Assets                                             |  |               |        |   |      |   |      |  |      |   |      |   |   |            |   |        |                 |  |   |            |   |  |   |         |   |  |   |        
|Loans receivable                                   |  | $             |       |   |      | $ |     |  | $    |  |      | $ |  |            | $ |       |                 |  | $ | 130,801    |   |  | $ | 130,801 |   |  | $ | 174,387
|Weighted-average annual effective interest rate(1) |  |               |       |   |      |   |     |  |      |  |      |   |  |            |   |       |                 |  |   | 14.1       | % |  |   | 14.1    | % |  |   |        
|Liabilities                                        |  |               |        |   |      |   |      |  |      |   |      |   |   |            |   |        |                 |  |   |            |   |  |   |         |   |  |   |        
|Notes payable                                      |  |               |        |   |      |   |      |  |      |   |      |   |   |            |   |        |                 |  |   |            |   |  |   |         |   |  |   |        
|Fixed rate                                         |  | $             |       |   |      | $ |     |  | $    |  |      | $ |  |            | $ | 93,850 |                 |  | $ |           |   |  | $ | 93,850  |   |  | $ | 92,490 
|Average interest rate                              |  |               |       |   |      |   |     |  |      |  |      |   |  |            |   | 5.9    | %               |  |   |           |   |  |   | 5.9     | % |  |   |        
|Variable rate                                      |  | $             | 32,810 |   |      | $ |     |  | $    |  |      | $ |  |            | $ |       |                 |  | $ |           |   |  | $ | 32,810  |   |  | $ | 32,795 
|Weighted-average interest rate(2)                  |  |               | 4.1    | % |      |   |     |  |      |  |      |   |  |            |   |       |                 |  |   |           |   |  |   | 4.1     | % |  |   |        



(1)The
weighted-average annual effective interest rate represents the effective interest rate at December 31, 2009, using the interest method, that we use to recognize interest income on our real estate loans receivable.

(2)The weighted-average interest rate represents the actual interest rate in effect at December 31, 2009 (consisting of the contractual interest rate and the effect of interest rate
floors), using interest rate indices as of December 31, 2009, where applicable.

We borrow funds and make
investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate loans receivable unless such instruments mature or are
otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2009, the fair value and carrying value of our fixed rate real estate loans receivable were $174.4 million
and $130.8 million, respectively. The fair value estimate of our real estate loans receivable is estimated using an internal valuation model that considers the expected cash flows for the loans, underlying collateral values (for
collateral-dependent loans) and the estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. At
December 31, 2009, the fair value of our fixed rate debt was $92.5 million and the carrying value of our fixed rate debt was $93.9 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow
analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at December 31, 2009. As we expect to hold our fixed rate instruments to maturity and the amounts due under such
instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a
significant impact on our operations.



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Conversely, movements in interest rates on variable rate debt and loans receivable would
change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. At
December 31, 2009, we did not own any floating rate loans receivable but were exposed to market risks related to fluctuations in interest rates on $32.8 million of variable rate debt outstanding. Certain of our variable rate debt
outstanding is subject to interest rate floors, whereby an increase or decrease in interest rates may have no impact on our future earnings and cash flows. Based on interest rates as of December 31, 2009, if interest rates were 100 basis
points higher during the 12 months ending December 31, 2010, interest expense on our variable rate debt outstanding would increase by $0.3 million and if interest rates were 100 basis points lower during the 12 months ending
December 31, 2010, interest expense on our variable rate debt outstanding would decrease by $12,000.

The
weighted-average annual effective interest rate of our fixed rate real estate loans receivable at December 31, 2009 was 14.1%. The weighted-average annual effective interest rate represents the effective interest rate at
December 31, 2009, using the interest method, that we use to recognize interest income on our real estate loans receivable. The weighted-average interest rates of our fixed rate debt and variable rate debt at December 31, 2009
were 5.9% and 4.1%, respectively. The weighted-average interest rate represents the actual interest rate in effect at December 31, 2009 (consisting of the contractual interest rate and the effect of interest rate floors), using interest
rate indices as of December 31, 2009 where applicable.

For a discussion of the interest rate risks related to the
current capital and credit markets, see Part I, Item 1, Business  Market Outlook and Part I, Item 1A, Risk Factors.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

See the Index to Financial Statements at page F-1 of this report.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure
Controls and Procedures

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

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities
Exchange Act of 1934, as amended.

In connection with the preparation of our Form 10-K, our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2009. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.



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Based on its assessment, our management believes that, as of December 31, 2009,
our internal control over financial reporting was effective based on those criteria. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only managements report in this annual
report.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

Information Regarding Our Amended and Restated Dividend Reinvestment Plan

On March 19, 2010, our board of directors approved an amended and restated dividend reinvestment plan, which will be effective upon 10 days notice to participants. Pursuant to the amended and restated
dividend reinvestment plan, until we establish an estimated value per share of common stock that is not based on the price to acquire a share of common stock in our initial public offering or a follow-on public offering, plan participants will
acquire common stock at a price of $9.50 per share. Upon our announcement in a public filing with the SEC that we have established an estimated value per share of common stock that is not based on the price to acquire common stock in our primary
offering or a follow-on public offering, plan participants will acquire shares of common stock at a price equal to the estimated value per share of our common stock.

We expect to establish an estimated value per share of common stock that is not based on the price to acquire a share of common stock in our initial public offering or a follow-on public offering after
the completion of our offering stage and to provide updated estimates of the per share value of our common stock from time to time thereafter. Our offering stage will be complete when we are no longer publicly offering equity securities 
whether through our initial public offering or follow-on public offerings  and have not done so for 18 months. For the purpose of determining when our offering stage is complete, public equity offerings do not include offerings on
behalf of selling stockholders or offerings related to any dividend reinvestment plan, employee benefit plan, or the redemption of interests in our Operating Partnership.

The amended and restated dividend reinvestment plan also provides a special termination provision for plan participants after we publicly announce a new estimated value per share. Under the amended and
restated plan, a participant may terminate participation in the dividend reinvestment plan at any time by delivering written notice to us. To be effective for any distribution, such notice must be received by us at least 10 business days prior to
the last day of the month to which the distribution relates. In addition, and notwithstanding the preceding sentence, if we publicly announce in a filing with the SEC a new estimated value per share of our common stock, then a participant shall have
no less than two business days after the date of such announcement to notify us in writing of the participants termination of participation in the dividend reinvestment plan, and the participants termination will be effective for the
next date shares are purchased under the dividend reinvestment plan.

We also amended the notice provision of the dividend
reinvestment plan to provide that we may amend or terminate the dividend reinvestment plan for any reason upon 10 days notice to the participants. We may provide this notice by including such information (a) in a Current Report on Form 8-K or in our
annual or quarterly reports, all publicly filed with the SEC or (b) in a separate mailing to the participants.

As of the
quarter ended December 31, 2009, all items required to be disclosed under Form 8-K were reported under Form 8-K.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

We have provided below certain information about our executive officers and directors.



|                          |  |                                                             |  |     |  |                           
|------------------------- |  | ----------------------------------------------------------- |  | --- |  | --------------------------
|Name                      |  | Position(s)                                                 |  | Age |  | Year FirstBecame aDirector
|Peter M. Bren             |  | President                                                   |  | 76  |  | N/A                       
|Charles J. Schreiber, Jr. |  | Chairman of the Board, Chief Executive Officer and Director |  | 58  |  | 2007                      
|Peter McMillan III        |  | Executive Vice President, Treasurer, Secretary and Director |  | 52  |  | 2007                      
|Keith D. Hall             |  | Executive Vice President                                    |  | 51  |  | N/A                       
|David E. Snyder           |  | Chief Financial Officer                                     |  | 39  |  | N/A                       
|Stacie K. Yamane          |  | Chief Accounting Officer                                    |  | 45  |  | N/A                       
|Hank Adler                |  | Director                                                    |  | 63  |  | 2008                      
|Barbara R. Cambon         |  | Director                                                    |  | 56  |  | 2008                      
|Stuart A. Gabriel         |  | Director                                                    |  | 56  |  | 2008                      

Peter M. Bren
is our President, a position he has held since our inception in 2007. He is also the President of our advisor, KBS Capital Advisors, and the President of KBS REIT I, KBS REIT III and KBS Legacy Partners Apartment REIT.
Mr. Bren has served as President of these entities since their formations in 2004, 2005, 2009 and 2009, respectively. Mr. Bren is also a sponsor of KBS Strategic Opportunity REIT, which was formed in 2008. Other than de minimis amounts
owned by family members or family trusts, Mr. Bren indirectly owns and controls a 33 1/3% interest in KBS Holdings LLC, which entity is the sole owner of our advisor and the dealer manager of our ongoing public offering. Messrs. Bren and
Schreiber are the managers of our advisor, although all four of our sponsors actively participate in the management and operations of our advisor.

Mr. Bren is also a principal of KBS Realty Advisors LLC and Koll Bren Schreiber Realty Advisors, Inc., each an active and nationally recognized real estate investment advisor. These entities were
first registered as investment advisors with the SEC in 2002 and 1999, respectively. The first investment advisor affiliated with Messrs. Bren and Schreiber was formed in 1992. KBS Realty Advisors, together with KBS affiliates, including KBS Capital
Advisors, has been involved in the investment in or management of over $10.9 billion of real estate investments on behalf of institutional investors, including public and private pension plans, endowments and foundations, and the investors in us and
KBS REIT I.

Peter Bren oversees all aspects of KBS Capital Advisors and KBS Realty Advisors business activities,
including the acquisition, management and disposition of assets. He is a member of the investment committee formed by KBS Capital Advisors to evaluate and recommend new investment opportunities for us. Mr. Bren is also responsible for investor
relationships. Through KBS-affiliated entities, Mr. Bren has teamed with Mr. Schreiber since 1992 to acquire, manage, develop and sell high-quality U.S. commercial real estate assets for institutional investors.

Mr. Bren has been involved in real estate development, management, acquisition, disposition and financing for 40 years and with
the acquisition, origination, management, disposition and financing of real estate-related debt investments for more than 16 years as the President of The Bren Company; a former Senior Partner of Lincoln Property Company; President of Lincoln
Property Company, Europe; and Chairman of the Board and President of KBS Realty Advisors and KBS Capital Advisors. Mr. Bren is also a founding member of The Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management.



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Charles J. Schreiber, Jr. is the Chairman of our Board of Directors and our Chief
Executive Officer, positions he has held since our inception in 2007. He is also the Chief Executive Officer of our advisor and the Chairman of the Board and Chief Executive Officer of KBS REIT I and KBS REIT III.
Mr. Schreiber has served in these positions for these entities since their formations in 2004, 2005 and 2009, respectively. He is also a sponsor of KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT, which were formed in 2008
and 2009, respectively. Other than de minimis amounts owned by family members or family trusts, Mr. Schreiber indirectly owns and controls a 33 1/3% interest in KBS Holdings LLC, which entity is the sole owner of our advisor and the dealer
manager of our ongoing public offering. Messrs. Bren and Schreiber are the managers of our advisor, although all four of our sponsors actively participate in the management and operations of our advisor.

Mr. Schreiber is also a principal of KBS Realty Advisors LLC and Koll Bren Schreiber Realty Advisors, Inc., each an active and
nationally recognized real estate investment advisor. These entities were first registered as investment advisors with the SEC in 2002 and 1999, respectively. The first investment advisor affiliated with Messrs. Bren and Schreiber was formed in
1992. KBS Realty Advisors, together with KBS affiliates, including KBS Capital Advisors, has been involved in the investment in or management of over $10.9 billion of real estate investments on behalf of institutional investors and the investors in
us and KBS REIT I.

As Chief Executive Officer of KBS Capital Advisors and KBS Realty Advisors, Mr. Schreiber
oversees all operations of the companies, including the acquisition and management of individual investments for KBS-advised investors and their portfolios of income-producing real estate assets. He directs all facets of the companys business
activities. He is also a member of the investment committee formed by KBS Capital Advisors to evaluate and recommend new investment opportunities for us. Mr. Schreiber is also responsible for investor relationships.

Mr. Schreiber has been involved in real estate development, management, acquisition, disposition and financing for more than
35 years and with the acquisition, origination, management, disposition and financing of real estate-related debt investments for more than 16 years. Prior to teaming with Mr. Bren in 1992, he served as the Executive Vice President of Koll
Investment Management Services and Executive Vice President of Acquisitions/Dispositions for The Koll Company. During the mid-1970s through the 1980s, he was Founder and President of Pacific Development Company and was previously Senior Vice
President/Southern California Regional Manager of Ashwill-Burke Commercial Brokerage.

Mr. Schreiber graduated from the
University of Southern California with a Bachelors Degree in Finance with an emphasis in Real Estate. During his four years at USC, he did graduate work in the then newly-formed Real Estate Department in the USC Graduate School of Business. He
is currently an Executive Board Member for the USC Lusk Center for Real Estate at the University of Southern California Marshall School of Business/School of Policy, Planning and Development.

Our Board of Directors has concluded that Mr. Schreiber is qualified to serve as one of our directors and the Chairman of our Board for
reasons including his extensive industry and leadership experience. With 35 years of real estate experience and 16 years of experience with debt-related investments, Mr. Schreiber has the depth and breadth of experience to implement our
business strategy. He gained his understanding of the real estate and real estate-finance markets through hands-on experience with acquisitions, asset and portfolio management, asset repositioning, and dispositions. As our Chief Executive Officer
and a principal of our external adviser, Mr. Schreiber is best-positioned to provide the Board of Directors with insights and perspectives on the execution of our business strategy, our operations and other internal matters. Further, as a
principal of KBS-affiliated investment advisors and as Chief Executive Officer, Chairman of the Board and a director of KBS REIT I, Mr. Schreiber brings to the Board demonstrated management and leadership ability.

Peter McMillan III is our Executive Vice President, Treasurer, Secretary and one of our directors, positions he has held since our
inception in 2007. He is Executive Vice President, Treasurer, Secretary and a director of KBS REIT I and KBS REIT III, positions he has held since 2005 and 2009, respectively. In addition, Mr. McMillan is President and
Chairman of the Board of KBS Strategic Opportunity REIT and Executive Vice President of KBS Legacy Partners Apartment REIT, positions he has held since the respective formations of these entities in 2008 and 2009. Mr. McMillan also owns and
controls a 50% interest in GKP Holding LLC. GKP Holding owns a 33 1/3% interest in KBS Holdings LLC, which entity is the sole owner of our advisor and the dealer manager of our ongoing public offering.



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Mr. McMillan is a co-founder and the Managing Partner of Willowbrook Capital Group,
LLC. Prior to forming Willowbrook in 2000, Mr. McMillan served as the Executive Vice President and Chief Investment Officer of SunAmerica Investments, Inc., which was later acquired by AIG. As Chief Investment Officer, he was responsible for
over $75 billion in assets, including residential and commercial mortgage-backed securities, public and private investment grade and non-investment grade corporate bonds and commercial mortgage loans and real estate investments. Before joining
SunAmerica in 1989, he served as Assistant Vice President for Aetna Life Insurance and Annuity Company with responsibility for the companys $6 billion fixed income portfolios. Mr. McMillan received his Master of Business
Administration in Finance from the Wharton Graduate School of Business at the University of Pennsylvania and his Bachelor of Arts Degree with honors in Economics from Clark University. Mr. McMillan is a director of Steinway Musical Instruments,
Inc. and Metropolitan West Funds.

Our Board of Directors has concluded that Mr. McMillan is qualified to serve as one of
our directors for reasons including his expertise in real estate finance and with real estate-related investments. With over 25 years of experience investing in and managing real estate-related debt investments, Mr. McMillan offers insights and
perspective with respect to our real estate-related investment portfolio as well as our real estate portfolio. As one of our executive officers and a principal of our advisor, Mr. McMillan is also able to direct the Board of Directors to the
critical issues facing our company. Further, his experiences as a director of KBS REIT I, Steinway Musical Instruments, Inc., Metropolitan West Funds and us provide him with an understanding of the requirements of serving on a public
company board.

Keith D. Hallis our Executive Vice President, a position he has held since our inception in 2007. He
is also the Executive Vice President of KBS REIT I and KBS REIT III and Chief Executive Officer and a director of KBS Strategic Opportunity REIT, positions he has held since the respective formations of these entities in 2005,
2009 and 2008. Mr. Hall is also a sponsor of KBS Legacy Partners Apartment REIT, which was formed in 2009. Mr. Hall also owns and controls a 50% interest in GKP Holding LLC. GKP Holding owns a 33 1/3% interest in KBS Holdings LLC, which
entity is the sole owner of our advisor and the dealer manager of our ongoing public offering.

Mr. Hall is a co-founder
of Willowbrook Capital Group, LLC, an asset management company. Prior to forming Willowbrook in 2000, Mr. Hall was a Managing Director at CS First Boston, where he managed CSFBs distribution strategy and business development for the
Principal Transaction Groups $18 billion real estate securities portfolio. Mr. Halls two primary business unit responsibilities were Mezzanine Lending and Commercial Real Estate Development. Before joining CSFB in 1996, he
served as a Director in the Real Estate Products Group at Nomura Securities, with responsibility for the companys $6 billion annual pipeline of fixed-income, commercial mortgage-backed securities. Mr. Hall spent the 1980s as a Senior
Vice President in the High Yield Department of Drexel Burnham Lamberts Beverly Hills office, where he was responsible for distribution of the groups high yield real estate securities. Mr. Hall received a Bachelor of Arts Degree with
honors in Finance from California State University, Sacramento.

David E. Snyder is our Chief Financial Officer, a
position he has held since December 2008. He is also the Chief Financial Officer of KBS REIT I and KBS REIT III, positions he has held since December 2008 and 2009, respectively. He is also the Chief Financial
Officer, Treasurer and Secretary of KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT, which were formed in 2008 and 2009, respectively. In addition, in late November 2008, Mr. Snyder was appointed Chief Financial
Officer of KBS Capital Advisors. He is also a member of the investment committee formed by KBS Capital Advisors to evaluate and recommend new investment opportunities for us.

From January 1998 to May 2008, Mr. Snyder was at Nationwide Health Properties, Inc. (NHP), a real estate
investment trust specializing in healthcare related property. He served as the Vice President and Controller from July 2005 to February 2008 and Controller from January 1998 to July 2005. At NHP, Mr. Snyder was responsible
for internal and external financial reporting, Sarbanes-Oxley compliance, budgeting, debt compliance, negotiation and documentation of debt and equity financing and the negotiation of acquisition and leasing documentation. In addition,
Mr. Snyder was part of the senior management team that approved investments, determined appropriate financing and developed strategic goals and plans. As part of his investment and financing responsibilities, Mr. Snyder participated in the
origination, modification and refinancing of mortgage loans made to customers, mortgages obtained on real estate and unsecured credit facilities.

Mr. Snyder was an adjunct accounting professor at Biola University from 1998 to 2005, teaching courses in auditing and accounting. He was the director of financial reporting at Regency Health
Services, Inc., a skilled nursing provider, from November 1996 to December 1997. From October 1993 to October 1996, Mr. Snyder worked for Arthur Andersen LLP. Mr. Snyder received a Bachelor of Arts Degree in Business
Administration with an emphasis in Accounting from Biola University in La Mirada, California. Mr. Snyder is a Certified Public Accountant.



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Stacie K. Yamane is our Chief Accounting Officer and has served in that capacity
since October 2008. From our inception in 2007 until December 2008, Ms. Yamane served as our Chief Financial Officer. She also held the position of Controller from 2007 until October 2008. Ms. Yamane is also the Fund
Controller of our advisor and Chief Accounting Officer of KBS REIT I, KBS REIT III and KBS Legacy Partners Apartment REIT. She has been an officer of these entities since their formations in 2004, 2005, 2009 and 2009,
respectively. In August 2009, she was also appointed Chief Accounting Officer of KBS Strategic Opportunity REIT.

In
addition, Ms. Yamane serves as Senior Vice President/Controller, Portfolio Accounting for KBS Realty Advisors LLC, a position she has held since 2004. She served as a Vice President/ Portfolio Accounting with KBS-affiliated investment advisors
from 1995 to 2004. At KBS Realty Advisors, Ms. Yamane is responsible for client accounting/ reporting for four real estate portfolios. These portfolios consist of industrial, office and retail properties as well as land parcels. Ms. Yamane
works closely with portfolio managers, asset managers, property managers and clients to ensure the completion of timely and accurate accounting, budgeting and financial reporting. In addition, she assists in the supervision and management of KBS
Realty Advisors accounting department.

Prior to joining an affiliate of KBS Realty Advisors in February of 1995,
Ms. Yamane was an audit manager at Kenneth Leventhal & Company, a CPA firm specializing in real estate. During her eight years at Kenneth Leventhal & Company, Ms. Yamane performed or supervised a variety of auditing,
accounting and consulting engagements including the audit of financial statements presented under the U.S. generally accepted accounting principles (GAAP) basis, as well as financial statements presented on a cash and tax basis, the
valuation of asset portfolios and the review and analysis of internal control systems. Her experiences at KBS and Kenneth Leventhal & Company give her 20 years of real estate experience.

Ms. Yamane received a Bachelor of Arts Degree in Business Administration with a dual concentration in Accounting and Management
Information Systems from California State University, Fullerton. She is a Certified Public Accountant (inactive California).

Hank Adleris one of our independent directors. Professor Adler is also an independent director of KBS REIT I. He is currently an Assistant Professor of Accounting at Chapman University. Prior to his retirement from
Deloitte & Touche, LLP in 2003, Professor Adler was a partner with that firm where he had been employed for over 30 years. He specialized in tax accounting and served as client service and tax partner for a variety of public and
private companies. He received a Bachelor of Science in Accounting and a Master of Business Administration from the University of California, Los Angeles. Professor Adler currently serves on the board of directors, compliance committee and as
chairman of the audit committee of Corinthian Colleges, Inc. From 1998 to 2007, he also chaired the Toshiba Senior Classic charity event, a PGA Senior Tour championship event. In the 1990s, he served on the board of trustees and as President of the
Irvine Unified School District. From 1994 to 2006, he served on the board of directors of Hoag Hospital Memorial Presbyterian.

Our Board of Directors has concluded that Professor Adler is qualified to serve as one of our independent directors and as the chair of our audit committee for reasons including his extensive experience in public accounting. With over
30 years at one of the big four accounting firms, Professor Adler brings to our Board critical insights to and an understanding of the accounting principles and financial reporting rules and regulations affecting our company. His expertise in
evaluating the financial and operational results of public companies and overseeing the financial reporting process makes him a critical member of our Board of Directors and our audit committee. In addition, as a director of KBS REIT I,
Corinthian Colleges, Inc. and us, Professor Adler is well aware of the corporate governance and regulatory issues facing public companies.

Barbara R. Cambonis one of our independent directors. Ms. Cambon is also an independent director of KBS REIT I. Since October 2003, she has served as a Managing Member of
Snowcreek Management LLC, a real estate asset-management company whose business activities focus on residential development projects for institutional investors. As Managing Member, Ms. Cambon provides asset management services to an
institutional partnership investment in residential real estate development. She has been in the real estate investment business for 25 years, principally working with institutional capital sources and investment programs. From November 1999 until
October 2002, she served as a Principal of Los Angeles-based Colony Capital, LLC, a private real estate investment firm, and from April 2000 until October 2002 she also served as Chief Operating Officer of Colony. Prior to joining
Colony in 1999, Ms. Cambon was President and Founder of Institutional Property Consultants, Inc., a real estate consulting company. She is a past Director and Chairman of the Board of the Pension Real Estate Association and past Director of the
National Council of Real Estate Investment Fiduciaries. Ms. Cambon serves on the board of directors and on the audit and corporate governance committees of BioMed Realty Trust, Inc., on the board of Neighborhood Bancorp and on the University of
San Diego Burnham-Moores Real Estate Institute Policy Advisory Board. Ms. Cambon received a Master of Business Administration from Southern Methodist University and a Bachelor of Science Degree in Education from the University of Delaware.



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Our Board of Directors has concluded that Ms. Cambon is qualified to serve as one of
our independent directors and as the chair of our conflicts committee for reasons including her expertise in real estate investment and management. Ms. Cambons 25 years of experience investing in, managing and disposing of real estate on
behalf of investors give her a wealth of knowledge and experiences from which to draw in advising our company. As a managing member of her own real estate asset-management company, Ms. Cambon is acutely aware of the operational challenges
facing companies such as ours. Further, her service on the boards of KBS REIT I and BioMed Realty Trust, Inc., both public REITs, gives her additional perspective and insight into large public real estate companies such ours.

Stuart A. Gabriel, Ph.D.is one of our independent directors. Professor Gabriel is also an independent director of
KBS REIT I. On June 1, 2007, Professor Gabriel was appointed Director and Arden Realty Chair at the Richard S. Ziman Center for Real Estate and Professor of Finance in the Anderson School of Management at the University of
California, Los Angeles. Prior to joining UCLA he was Director and Lusk Chair in Real Estate at the Lusk Center for Real Estate, a position he held from 1999 to 2007. Professor Gabriel also served as Professor of Finance and Business Economics in
the Marshall School of Business at the University of Southern California, a position he held from 1994 to 2007. In 2004, he was elected President of the American Real Estate and Urban Economics Association. Professor Gabriel serves on the editorial
boards of Journal of Real Estate Finance and Economics, Journal of Housing Economics, Housing Policy Debate, Real Estate Finance and Journal of Real Estate Research. He is also a Fellow of the Homer Hoyt Institute for Advanced Real Estate Studies.
Professor Gabriel has published extensively on topics of real estate finance and urban and regional economics. His teaching and academic research experience include analysis of structured finance products, including credit default swaps, mezzanine
loan participations, B-Notes, commercial mortgage-backed securities and collateralized debt obligations. Also, he has received a number of awards at USC for outstanding graduate teaching. Professor Gabriel serves as a consultant to numerous
corporate and governmental entities. Prior to joining the USC faculty in 1990, Professor Gabriel served on the economics staff of the Federal Reserve Board in Washington, D.C. He also has been a Visiting Scholar at the Federal Reserve Bank of
San Francisco. Professor Gabriel holds a Ph.D. in Economics from the University of California, Berkeley.

Our Board of
Directors has concluded that Professor Gabriel is qualified to serve as one of our independent directors for reasons including his extensive knowledge and understanding of the real estate and finance markets and real estate finance products. As a
professor of real estate finance and economics, Professor Gabriel brings unique perspective to our Board. His years of research and analysis of the real estate and finance markets make Professor Gabriel well-positioned to advise us with respect to
our investment and financing strategy. This expertise also makes him an invaluable resource for assessing and managing risks facing our company. Through his experience as a director of us and KBS REIT I, he also has an understanding of the
requirements of serving on a public company board.

The Audit Committee

Our board has established an audit committee. The audit committees function is to assist our board of directors in fulfilling its
responsibilities by overseeing (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditors qualifications and independence, and (iv) the
performance of the independent auditors and our internal audit function. The members of the audit committee are Hank Adler (Chairman), Barbara R. Cambon and Stuart A. Gabriel. All of the members of the audit committee are independent as
defined by the New York Stock Exchange. All members of the audit committee have significant financial and/or accounting experience, and the board of directors has determined that Professor Adler satisfies the SECs requirements for an
audit committee financial expert.

Section 16(a) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, executive officers, and any persons beneficially owning more than 10% of our common stock are required
to report their initial ownership of the common stock and most changes in that ownership to the SEC. The SEC has designated specific due dates for these reports, and we are required to identify in this Annual Report on Form 10-K those persons who
did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and written representations of our directors and executive officers, we believe all persons subject to these reporting requirements filed the
reports on a timely basis in 2009.

Code of Conduct and Ethics

We have adopted a Code of Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our
principal executive officer and principal financial officer. Our Code of Conduct and Ethics can be found at http://www.kbsreitii.com.



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|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Compensation
of Executive Officers

Our executive officers do not receive compensation directly from us for services rendered to us. Our
executive officers are officers and/or employees of, or hold an indirect ownership interest in, KBS Capital Advisors, our advisor, and/or its affiliates, and our executive officers are compensated by these entities, in part, for their services to
us. See Item 13, Certain Relationships and Related Transactions, and Director Independence  Certain Transactions with Related Persons for a discussion of the fees paid to KBS Capital Advisors and its affiliates.

Compensation of Directors

If a director is also one of our executive officers, we do not pay any compensation to that person for services rendered as a director. The amount and form of compensation payable to our independent directors for their service to us is
determined by our board of directors, based upon recommendations from our advisor. Four of our executive officers, Messrs. Bren, Hall, McMillan and Schreiber, manage and control our advisor, and through the advisor, they are involved in recommending
and setting the compensation to be paid to our independent directors.

We have provided below certain information regarding
compensation earned by or paid to our directors during fiscal year 2009.



|                             |  |                                   |         |                       |   |       |  |   |        
|---------------------------- |  | --------------------------------- | ------- | --------------------- | - | ----- |  | - | -------
|Name                         |  | Fees Earned orPaid in Cash in2009 |         | All OtherCompensation |   | Total
|Hank Adler                   |  | $                                 | 101,330 |                       | $ |      |  | $ | 101,330
|Barbara R. Cambon            |  |                                   | 100,330 |                       |   |      |  |   | 100,330
|Stuart A. Gabriel            |  |                                   | 98,830  |                       |   |      |  |   | 98,830 
|Peter McMillan III(1)        |  |                                   |        |                       |   |      |  |   |       
|Charles J. Schreiber, Jr.(1) |  |                                   |        |                       |   |      |  |   |       



(1)Directors who are also our executive officers do not receive compensation for services rendered as a director.

Cash Compensation

We pay each of our independent directors:



| |  |  | an annual retainer of $40,000;
| | - |  | ------------------------------



| |  |  | $2,500 for each board meeting attended;
| | - |  | ---------------------------------------



| |  |  | $2,500 for each committee meeting attended (committee chairpersons receive an additional $500 per committee meeting for serving in that capacity);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2,000 for each teleconference meeting of the board; and
| | - |  | --------------------------------------------------------



| |  |  | $2,000 for each teleconference meeting of any committee (committee chairpersons receive an additional $1,000 per teleconference committee meeting for
serving in that capacity).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with attendance at meetings of the board of directors.



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|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Stock Ownership

The
following table shows, as of March 19, 2010, the amount of our common stock beneficially owned (unless otherwise indicated) by (1) any person who is known by us to be the beneficial owner of more than 5% of the outstanding shares of
our common stock, (2) our directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.



|                                         |  |                                              |     |  |            |  
|---------------------------------------- |  | -------------------------------------------- | --- |  | ---------- | -
|Name and Address of Beneficial Owner (1) |  | Amount and Nature ofBeneficial Ownership (2) |     |  | Percentage |  
|Hank Adler                               |  |                                             |     |  |           |  
|Peter M. Bren                            |  | 20,000                                       | (3) |  |            | *
|Barbara R. Cambon                        |  |                                             |     |  |           |  
|Stuart A. Gabriel                        |  |                                             |     |  |           |  
|Keith D. Hall                            |  | 20,000                                       | (3) |  |            | *
|Peter McMillan III                       |  | 20,000                                       | (3) |  |            | *
|Charles J. Schreiber, Jr.                |  | 20,000                                       | (3) |  |            | *
|David E. Snyder                          |  |                                             |     |  |           |  
|Stacie K. Yamane                         |  |                                             |     |  |           |  
|All officers and directors as a group    |  | 20,000                                       | (3) |  |            | *



|* | Less than 1% of the outstanding common stock.
|- | ---------------------------------------------

|(1) | The address of
each named beneficial owner is c/o KBS Real Estate Investment Trust II, Inc., 620 Newport Center Drive, Suite 1300, Newport Beach, California 92660.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | None of the shares
are pledged as security.
|--- | -------------------------------------------

|(3) | Includes 20,000
shares owned by KBS Capital Advisors, which is indirectly owned and controlled by Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ------------------------------------------------------------------------

Director Independence

Although our shares are not listed for trading on
any national securities exchange, a majority of the members of our board of directors, and all of the members of the audit committee and the conflicts committee are independent as defined by the New York Stock Exchange. The New York
Stock Exchange standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no material relationship with us (either
directly or as a partner, stockholder or officer of an organization that has a relationship with us). The board of directors has determined that Hank Adler, Barbara R. Cambon and Stuart A. Gabriel each satisfies the bright-line criteria and that
none has a relationship with us that would interfere with such persons ability to exercise independent judgment as a member of the board. None of these directors has ever served as (or is related to) an employee of ours or any of our
predecessors or acquired companies or received any compensation from us or any such other entities except for compensation directly related to service as a director. Therefore, we believe that all of these directors are independent directors.



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Our Policy Regarding Transactions with Related Persons

Our charter requires our conflicts committee, which consists of all of our independent directors, to review and approve all transactions
between us and our advisor, any of our officers or directors or any of their affiliates. Prior to entering into a transaction with a related party, a majority of the conflicts committee must conclude that the transaction is fair and reasonable to us
and on terms and conditions not less favorable to us than those available from unaffiliated third parties. In addition, our Code of Conduct and Ethics lists examples of types of transactions with related parties that would create prohibited
conflicts of interest and requires our officers and directors to be conscientious of actual and potential conflicts of interest with respect to our interests and to seek to avoid such conflicts or handle such conflicts in an ethical manner at all
times consistent with applicable law. Our executive officers and directors are required to report potential and actual conflicts to a designated compliance officer, currently our chief financial officer, or, if the compliance officer is affected by
the conflict, directly to the Chairman of our conflicts committee.

Certain Transactions with Related Persons

Our Relationship with KBS Capital Advisors.Our executive officers, Peter M. Bren and Charles J. Schreiber, Jr., indirectly own a
controlling interest in and are the managers of KBS Capital Advisors, our advisor. Two other of our executive officers, Peter McMillan III and Keith D. Hall, also indirectly own an ownership interest in our advisor. Messrs. Bren, Hall,
McMillan and Schreiber all actively participate in the management and operations of the advisor and, collectively, indirectly own 100% of our advisor. Since our inception, our advisor has provided day-to-day management of our business. Among the
services provided by our advisor under the terms of the advisory agreement are the following:



| |  |  | finding, presenting and recommending to us real estate investment opportunities consistent with our investment policies and objectives;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquiring properties and other investments on our behalf;
| | - |  | ---------------------------------------------------------



| |  |  | sourcing and structuring our loan originations;
| | - |  | -----------------------------------------------



| |  |  | arranging for financing and refinancing of properties and our other investments;
| | - |  | --------------------------------------------------------------------------------



| |  |  | formulating and overseeing the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement,
financing and refinancing, marketing, leasing and disposition of our properties and other investments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engaging and supervising our agents;
| | - |  | ------------------------------------



| |  |  | performing administrative services and maintaining our accounting; and
| | - |  | ----------------------------------------------------------------------



| |  |  | assisting us with our regulatory compliance.
| | - |  | --------------------------------------------

Our advisor is subject to the supervision of our board of directors and only has such authority as we may delegate to it as our agent. Our advisory agreement has a one-year term expiring
May 21, 2010 subject to an unlimited number of successive one-year renewals upon the mutual consent of the parties. From January 1, 2009 through the most recent date practicable, which was February 28, 2010, we have
compensated our advisor as set forth below.

Our advisor or its affiliates may pay some of our organization and offering costs
(other than selling commissions and dealer manager fees) incurred in connection with our ongoing public offering, including our legal, accounting, printing, mailing and filing fees. We reimburse our advisor for these costs, but only to the extent
that the reimbursement would not cause selling commissions, the dealer manager fee and other organization and offering expenses borne by us to exceed 15% of the gross offering proceeds of our ongoing public offering as of the date of the
reimbursement. In addition, our advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee and other organization and offering costs incurred by us in the offering exceed 15% of gross offering proceeds. From
January 1, 2009 through February 28, 2010, our advisor incurred approximately $3.1 million of organization and offering expenses on our behalf and has been reimbursed by us for approximately $3.0 million of such costs.

We incur acquisition fees payable to our advisor equal to 0.75% of the cost of our acquired investments, including
acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, in lieu of an acquisition fee we pay our advisor an origination fee equal to 1.0% of the amount funded by us to acquire or
originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investment and any debt we use to fund the acquisition or origination of the loan. Acquisition and origination fees relate to services provided in
connection with the selection and acquisition or origination of real estate and real estate-related investments. Acquisition fees and origination fees from January 1, 2009 through February 28, 2010 totaled approximately
$1.8 million and $1.5 million, respectively. All acquisition and origination fees incurred as of February 28, 2010 have been paid.



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In addition to acquisition and origination fees, we reimburse our advisor for amounts that
it pays in connection with the selection, acquisition or development of a property or the selection and acquisition or origination of a real estate-related investment, whether or not we ultimately acquire the asset. From January 1, 2009
through February 28, 2010, our advisor and its affiliates did not incur any such costs on our behalf.

For asset
management services, we pay our advisor a monthly fee. With respect to investments in real estate, we pay the advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, inclusive
of acquisition fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our
proportionate share of the underlying investment. With respect to investments in loans and any investments other than real estate, we pay the advisor a monthly fee calculated, each month, as one twelfth of 0.75% of the lesser of (i) the amount
actually paid or allocated to acquire or fund the loan or other investment, inclusive of acquisition or origination fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and
(ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. From
January 1, 2009 through February 28, 2010, our asset management fees totaled $5.4 million, all of which has been paid as of February 28, 2010.

Under our advisory agreement our advisor and its affiliates have the right to seek reimbursement from us for all costs and expenses they
incur in connection with their provision of services to us, including our allocable share of our advisors overhead, such as rent, employee costs, utilities and information technology costs. We do not, however, reimburse our advisor for
personnel costs in connection with services for which our advisor receives acquisition, origination or disposition fees (though we may reimburse travel and communication expenses). Although the advisor has the right to seek reimbursement for our
allocable share of its employee costs, to date it has not done so. From January 1, 2009 through February 28, 2010, our advisor and its affiliates did not incur any operating expenses on our behalf.

Our Relationship with KBS Capital Markets Group. Four of our executive officers, Messrs. Bren, Hall, McMillan and Schreiber,
indirectly own 100% of KBS Capital Markets Group, the dealer manager for our ongoing public offering. On April 22, 2008, upon the launch of our public offering, we entered into an agreement with our dealer manager, pursuant to which our dealer
manager is entitled to receive selling commissions and a dealer manager fee of up to 9.5% of the gross offering proceeds (except that no selling commissions or dealer manager fees are payable with respect to sales under the dividend reinvestment
plan). The selling commissions are subject to reduction for volume discount sales and sales through certain distribution channels. Also, a reduced dealer manager fee is paid with respect to certain volume discount sales. The dealer manager reallows
100% of selling commissions to broker-dealers participating in the public offering. From its dealer manager fee, KBS Capital Markets Group may reallow to any participating broker-dealer up to 1.0% of the gross offering proceeds attributable to that
participating broker-dealer as a marketing fee (in special cases, the dealer manager has the option to increase the amount of this reallowance). From January 1, 2009 through February 28, 2010, we incurred selling commissions of
$37.8 million, of which 100% was reallowed to participating broker-dealers. From January 1, 2009 through February 28, 2010, we incurred dealer manager fees of $23.1 million, of which $7.6 million was reallowed to
participating broker-dealers.

In addition to selling commissions and dealer manager fees, we are also obligated to reimburse
the dealer manager and its affiliates for certain offering related expenses that they incur on our behalf. These include attendance and sponsorship fees payable to participating broker-dealers hosting a retail seminar and travel, meals and lodging
costs incurred by registered persons associated with the dealer manager and officers and employees of our affiliates to attend retail conferences sponsored by participating broker-dealers, other meetings with participating broker-dealers and
industry conferences; expense reimbursements to broker-dealers for actual costs incurred in connection with attending bona fide training and education meetings hosted by us; certain technology costs associated with the offering; certain legal fees
allocable to the dealer manager; and reimbursement of bona fide due diligence expenses of broker-dealers (provided that our reimbursement of the bona fide due diligence expenses of broker-dealers shall not exceed in the aggregate 0.5% of the gross
offering proceeds from the offering). Under our dealer manager agreement, we are responsible for reimbursing our dealer manager and its affiliates for offering related expenses they incur provided that our reimbursement payments shall not cause
(i) total underwriting compensation (excluding reimbursement of bona fide due diligence expenses) to exceed 10% of the gross proceeds from the offering, or (ii) total organization and offering expenses borne by us to exceed 15% of the
gross offering proceeds of the offering as of the date of the reimbursement. From January 1, 2009 through February 28, 2010, we have reimbursed or intend to reimburse our dealer manager for approximately $2.5 million.

Currently Proposed Transactions. There are no currently proposed material transactions with related persons other than
those covered by the terms of the agreements described above.



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|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

Independent Registered Public Accounting Firm

During the year ended December 31, 2009,
Ernst & Young LLP served as our independent registered public accounting firm and provided certain tax and other services. Ernst & Young has served as our independent auditor since our formation.

Pre-Approval Policies

The
audit committee charter imposes a duty on the audit committee to pre-approve all auditing services performed for us by our independent auditors as well as all permitted non-audit services in order to ensure that the provision of such services does
not impair the auditors independence. In determining whether or not to pre-approve services, the audit committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit
committee, may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided any such approval is presented to and approved by the full
audit committee at its next scheduled meeting.

All services rendered by Ernst & Young for the years ended
December 31, 2009 and 2008 were pre-approved in accordance with the policies and procedures described above.

Principal Independent
Registered Public Accounting Firm Fees

The audit committee reviewed the audit and non-audit services performed by
Ernst & Young, as well as the fees charged by Ernst & Young for such services. In its review of the non-audit service fees, the audit committee considered whether the provision of such services is compatible with maintaining the
independence of Ernst & Young. The aggregate fees billed to us for professional accounting services, including the audit of our annual financial statements by Ernst & Young for the years ended December 31, 2009 and 2008
are set forth in the table below.



|                   |  |      |         |      |   |        
|------------------ |  | ---- | ------- | ---- | - | -------
|                   |  | 2009 |         | 2008
|Audit fees         |  | $    | 589,000 |      | $ | 460,000
|Audit-related fees |  |      | 3,000   |      |   |       
|Tax fees           |  |      | 23,000  |      |   | 12,000 
|All other fees     |  |      |        |      |   |       
|                   |  |      |         |      |   |        
|Total              |  | $    | 615,000 |      | $ | 472,000
|                   |  |      |         |      |   |        

For purposes of the preceding table, Ernst &
Youngs professional fees are classified as follows:



| |  |  | Audit fees  These are fees for professional services performed for the audit of our annual financial statements and the required review of
quarterly financial statements and other procedures performed by Ernst & Young in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by
independent auditors in connection with statutory and regulatory filings or engagements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Audit-related fees  These are fees for assurance and related services that traditionally are performed by independent auditors that are
reasonably related to the performance of the audit or review of the financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews
and consultation concerning financial accounting and reporting standards.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tax fees  These are fees for all professional services performed by professional staff in our independent auditors tax division, except
those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before
the IRS and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All other fees  These are fees for any services not included in the above-described categories.
| | - |  | ------------------------------------------------------------------------------------------------



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PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|(a) | Financial Statement Schedules
|--- | -----------------------------

See the Index to Financial Statements at page F-1 of this report.

The following financial statement schedule is
included herein at pages F-31 through F-32 of this report:

Schedule III  Real Estate Assets and Accumulated Depreciation
and Amortization



|(b) | Exhibits
|--- | --------



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EXHIBIT LIST



|     |  |                                                                                                                                                                                                                                                                                                                                                                                          
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.  |  | Description                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|3.1  |  | Second Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the period
ended March 31, 2008                                                                                                                                                                                        
|     | 
|3.2  |  | Second Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 2 to the Companys Registration Statement on Form
S-11, Commission File No. 333-146341                                                                                                                                                                        
|     | 
|4.1  |  | Form of Subscription Agreement, incorporated by reference to Appendix A to the prospectus dated April 30, 2009, Commission File No. 333-146341                                                                                                                                                                                                                                           
|     | 
|4.2  |  | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued
shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341          
|     | 
|4.3  |  | Amended and Restated Dividend Reinvestment Plan                                                                                                                                                                                                                                                                                                                                          
|     | 
|4.4  |  | Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.4 to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 2009                                                                                                                                                                                                               
|     | 
|4.5  |  | Amended and Restated Escrow Agreement, dated June 2, 2008 by and between KBS Real Estate Investment Trust II, Inc., KBS Capital Markets Group LLC and First Republic Trust
Company, incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed June 6, 2008                                                                                              
|     | 
|10.1 |  | Assignment and Assumption Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and KBS Debt Holdings II X, LLC, dated
as of February 11, 2009, incorporated by reference to Exhibit 10.32 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008                                                
|     | 
|10.2 |  | Amended, Restated and Consolidated Note A-2-B-2-B (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA
CO. LLC) and Goldman Sachs Mortgage Company, dated as of August 8, 2007, incorporated by reference to Exhibit 10.33 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008
|     | 
|10.3 |  | Amended, Restated and Consolidated Note A-2-B-2-C (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA
CO. LLC) and Goldman Sachs Mortgage Company, dated as of August 8, 2007, incorporated by reference to Exhibit 10.34 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008
|     | 
|10.4 |  | Intercreditor and Servicing Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and itself as A-1 Lender and A-2
Lender, dated as of October 1, 2007, incorporated by reference to Exhibit 10.35 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008                                        



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                           
|      | 
|10.5  |  | Loan Agreement (related to the acquisition of the One Liberty Plaza Notes) between GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P. and BFP ONE LIBERTY PLAZACO. LLC, dated as of
August 8, 2007, incorporated by reference to Exhibit 10.36 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008                                                                                                          
|      | 
|10.6  |  | Amended and Restated Promissory Note Secured by Mortgage (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by KBSII
100-200 CAMPUS DRIVE, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009, incorporated by reference to Exhibit 10.37 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008                                      
|      | 
|10.7  |  | Modification Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by and between KBSII 100-200 CAMPUS DRIVE, LLC and WELLS
FARGO BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009, incorporated by reference to Exhibit 10.38 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008                                                            
|      | 
|10.8  |  | Advisory Agreement between the Company and KBS Capital Advisors LLC, dated May 21, 2009, incorporated by reference to Exhibit 10.1 to Post-Effective Amendment No. 5 to the
Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                                                                                                                             
|      | 
|10.9  |  | Second Amended and Restated Promissory Note Secured by Mortgage (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by KBSII 100-200
CAMPUS DRIVE, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated June 12, 2009, incorporated by reference to Exhibit 10.38 to Post-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11, Commission File No.
333-146341
|      | 
|10.9  |  | Second Modification Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by and between KBSII 100-200 CAMPUS DRIVE, LLC and
WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of June 12, 2009, incorporated by reference to Exhibit 10.39 to Post-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11, Commission File No.
333-146341                
|      | 
|10.10 |  | Purchase and Sale Agreement (related to the acquisition of the Willow Oaks Corporate Center in Fairfax, Virginia) by and between COGNAC WILLOW OAKS, LLC, and KBS Capital Advisors
LLC, effective as of August 5, 2009, incorporated by reference to Exhibit 10.40 to Post-Effective Amendment No. 6 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                             
|      | 
|10.12 |  | First Amendment to Purchase and Sale Agreement (related to the acquisition of the Willow Oaks Corporate Center in Fairfax, Virginia) by and between COGNAC WILLOW OAKS, LLC, and KBS
Capital Advisors LLC, dated August 12, 2009 , incorporated by reference to Exhibit 10.41 to Post-Effective Amendment No. 6 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                  
|      | 
|10.13 |  | Second Amendment to Purchase and Sale Agreement (related to the acquisition of the Willow Oaks Corporate Center in Fairfax, Virginia) by and between COGNAC WILLOW OAKS, LLC, and KBS
Capital Advisors LLC, dated August 14, 2009, incorporated by reference to Exhibit 10.42 to Post-Effective Amendment No. 6 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                  



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.14 |  | Third Amendment to Purchase and Sale Agreement (related to the acquisition of the Willow Oaks Corporate Center in Fairfax, Virginia) by and between COGNAC WILLOW OAKS, LLC, and
KBSII WILLOW OAKS, LLC, dated August 19, 2009, incorporated by reference to Exhibit 10.43 to Post-Effective Amendment No. 6 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341
|      | 
|10.15 |  | Assignment and Assumption of Purchase Agreement between KBS Capital Advisors LLC, and KBSII Willow Oaks, LLC, dated as of August 18, 2009, incorporated by reference to
Exhibit 10.44 to Post-Effective Amendment No. 6 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                                     
|      | 
|21.1  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                               
|      | 
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                               
|      | 
|32.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                 
|      | 
|32.2  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                 



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                |  |     
|----------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements                                                               |  |     
|                                                                                                | 
|Report of Independent Registered Public Accounting Firm                                         |  | F-2 
|                                                                                                | 
|Consolidated Balance Sheets as of December 31, 2009 and 2008                                    |  | F-3 
|                                                                                                | 
|Consolidated Statements of Operations for the Years Ended December 31, 2009 and
2008            |  | F-4 
|                                                                                                | 
|Consolidated Statements of Stockholders Equity for the Years Ended December 31, 
2009 and 2008 |  | F-5 
|                                                                                                | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and
2008            |  | F-6 
|                                                                                                | 
|Notes to Consolidated Financial Statements                                                      |  | F-7 
|                                                                                                | 
|Financial Statement Schedule                                                                    |  |     
|                                                                                                | 
|Schedule III  Real Estate Assets and Accumulated Depreciation and Amortization                 |  | F-31

All other schedules are omitted
because they are not applicable or the required information is shown in the financial statements or notes thereto.



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

KBS Real Estate Investment Trust II, Inc.

We have audited the accompanying consolidated balance sheets of KBS Real
Estate Investment Trust II, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. Our audits also included the financial statement
schedule in Item 15(a), Schedule III-Real Estate Assets and Accumulated Depreciation and Amortization. These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of KBS Real Estate Investment Trust II, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.

/s/ Ernst & Young LLP

Irvine, California

March 23, 2010



F-2



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                   |  | December 31, |        
|                                                                                                                                                                                   |  | 2009         |         |   | 2008 |  
|Assets                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Real estate:                                                                                                                                                                       |  |              |         |   |      |   |         |  
|Land                                                                                                                                                                               |  | $            | 60,607  |   |      | $ | 35,307  |  
|Buildings and improvements                                                                                                                                                         |  |              | 447,953 |   |      |   | 379,076 |  
|Tenant origination and absorption costs                                                                                                                                            |  |              | 66,867  |   |      |   | 46,396  |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total real estate, cost                                                                                                                                                            |  |              | 575,427 |   |      |   | 460,779 |  
|Less accumulated depreciation and amortization                                                                                                                                     |  |              | (34,059 | ) |      |   | (6,436  | )
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total real estate, net                                                                                                                                                             |  |              | 541,368 |   |      |   | 454,343 |  
|Real estate loans receivable, net                                                                                                                                                  |  |              | 130,801 |   |      |   | 58,152  |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total real estate and real estate-related investments, net                                                                                                                         |  |              | 672,169 |   |      |   | 512,495 |  
|Cash and cash equivalents                                                                                                                                                          |  |              | 273,821 |   |      |   | 56,609  |  
|Rents and other receivables, net                                                                                                                                                   |  |              | 3,893   |   |      |   | 2,250   |  
|Above-market leases, net                                                                                                                                                           |  |              | 2,303   |   |      |   | 248     |  
|Deferred financing costs, prepaid expenses and other assets                                                                                                                        |  |              | 1,682   |   |      |   | 1,260   |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                                                       |  | $            | 953,868 |   |      | $ | 572,862 |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|                                                                                                                                                                                   |  |             
|Liabilities and stockholders equity                                                                                                                                               |  |              |         |   |      |   |         |  
|Notes payable                                                                                                                                                                      |  | $            | 126,660 |   |      | $ | 271,446 |  
|Accounts payable and accrued liabilities                                                                                                                                           |  |              | 2,664   |   |      |   | 3,253   |  
|Due to affiliates                                                                                                                                                                  |  |              | 206     |   |      |   | 413     |  
|Distributions payable                                                                                                                                                              |  |              | 5,013   |   |      |   | 1,621   |  
|Below-market leases, net                                                                                                                                                           |  |              | 19,664  |   |      |   | 22,364  |  
|Other liabilities                                                                                                                                                                  |  |              | 3,839   |   |      |   | 1,460   |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                  |  |              | 158,046 |   |      |   | 300,557 |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Commitments and contingencies (Note 13)                                                                                                                                            |  |              |         |   |      |   |         |  
|Redeemable common stock                                                                                                                                                            |  |              | 21,260  |   |      |   | 1,921   |  
|Stockholders equity:                                                                                                                                                              |  |              |         |   |      |   |         |  
|Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding                                                                                    |  |              |        |   |      |   |        |  
|Common stock, $.01 par value; 1,000,000,000 shares authorized, 93,167,161 and 31,515,364 shares issued and outstanding as of
December 31, 2009 and December 31, 2008, respectively |  |              | 932     |   |      |   | 315     |  
|Additional paid-in capital                                                                                                                                                         |  |              | 810,006 |   |      |   | 277,592 |  
|Cumulative distributions and net losses                                                                                                                                            |  |              | (36,376 | ) |      |   | (7,523  | )
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                         |  |              | 774,562 |   |      |   | 270,384 |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                         |  | $            | 953,868 |   |      | $ | 572,862 |  
|                                                                                                                                                                                   |  |              |         |   |      |   |         |  

See accompanying notes.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)



|                                                                        |  |                          |            |      |   |           |  
|----------------------------------------------------------------------- |  | ------------------------ | ---------- | ---- | - | --------- | -
|                                                                        |  | Years Ended December 31, |           
|                                                                        |  | 2009                     |            | 2008 |  
|Revenues:                                                               |  |                          |            |      |   |           |  
|Rental income                                                           |  | $                        | 49,548     |      | $ | 11,898    |  
|Tenant reimbursements                                                   |  |                          | 8,762      |      |   | 2,166     |  
|Interest income from real estate loans receivable                       |  |                          | 16,885     |      |   | 21        |  
|Interest income from real estate securities                             |  |                          | 128        |      |   |          |  
|Other operating income                                                  |  |                          | 64         |      |   | 2         |  
|                                                                        |  |                          |            |      |   |           |  
|Total revenues                                                          |  |                          | 75,387     |      |   | 14,087    |  
|                                                                        |  |                          |            |      |   |           |  
|Expenses:                                                               |  |                          |            |      |   |           |  
|Operating, maintenance, and management                                  |  |                          | 12,265     |      |   | 3,335     |  
|Real estate taxes and insurance                                         |  |                          | 4,515      |      |   | 937       |  
|Asset management fees to affiliate                                      |  |                          | 4,482      |      |   | 857       |  
|Real estate acquisition fees and expenses                               |  |                          | 1,524      |      |   |          |  
|General and administrative expenses                                     |  |                          | 2,678      |      |   | 810       |  
|Depreciation and amortization                                           |  |                          | 28,105     |      |   | 6,974     |  
|Interest expense                                                        |  |                          | 10,164     |      |   | 4,345     |  
|                                                                        |  |                          |            |      |   |           |  
|Total expenses                                                          |  |                          | 63,733     |      |   | 17,258    |  
|                                                                        |  |                          |            |      |   |           |  
|Other income:                                                           |  |                          |            |      |   |           |  
|Other interest income                                                   |  |                          | 646        |      |   | 589       |  
|Gain on sale of real estate securities                                  |  |                          | 119        |      |   |          |  
|                                                                        |  |                          |            |      |   |           |  
|Total other income                                                      |  |                          | 765        |      |   | 589       |  
|                                                                        |  |                          |            |      |   |           |  
|Net income (loss)                                                       |  |                          | 12,419     |      |   | (2,582    | )
|                                                                        |  |                          |            |      |   |           |  
|Net income (loss) per common share, basic and diluted                   |  | $                        | 0.20       |      | $ | (0.33     | )
|                                                                        |  |                          |            |      |   |           |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                          | 63,494,969 |      |   | 7,926,366 |  
|                                                                        |  |                          |            |      |   |           |  
|Distributions declared per common share                                 |  | $                        | 0.650      |      | $ | 0.263     |  
|                                                                        |  |                          |            |      |   |           |  

See accompanying notes.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(dollars in thousands)



|                                                           |  |              |   |  |                   |     |   |                             |   |         |                    |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ------------ | - |  | ----------------- | --- | - | --------------------------- | - | ------- | ------------------ |  | - | ------- | - |  | - | ------- | -
|                                                           |  | Common Stock |   |  | AdditionalPaid-in |     |   | CumulativeDistributions and |   |         | TotalStockholders | 
|                                                           |  | Shares       |   |  | Amounts           |     |   | Capital                     |   |         | Net Income (Loss)  |  |   | Equity  |  
|Balance, December 31, 2007                                 |  | 20,000       |   |  | $                 | 1   |   |                             | $ | 199     |                    |  | $ |        |   |  | $ | 200     |  
|Issuance of common stock                                   |  | 31,495,364   |   |  |                   | 314 |   |                             |   | 313,903 |                    |  |   |        |   |  |   | 314,217 |  
|Transfers to redeemable common stock                       |  |             |   |  |                   |    |   |                             |   | (1,921  | )                  |  |   |        |   |  |   | (1,921  | )
|Distributions declared                                     |  |             |   |  |                   |    |   |                             |   |        |                    |  |   | (4,941  | ) |  |   | (4,941  | )
|Commissions on stock sales and related dealer manager fees |  |             |   |  |                   |    |   |                             |   | (29,084 | )                  |  |   |        |   |  |   | (29,084 | )
|Other offering costs                                       |  |             |   |  |                   |    |   |                             |   | (5,505  | )                  |  |   |        |   |  |   | (5,505  | )
|Net loss                                                   |  |             |   |  |                   |    |   |                             |   |        |                    |  |   | (2,582  | ) |  |   | (2,582  | )
|                                                           |  |              |   |  |                   |     |   |                             |   |         |                    |  |   |         |   |  |   |         |  
|Balance, December 31, 2008                                 |  | 31,515,364   |   |  |                   | 315 |   |                             |   | 277,592 |                    |  |   | (7,523  | ) |  |   | 270,384 |  
|Issuance of common stock                                   |  | 61,851,680   |   |  |                   | 619 |   |                             |   | 615,081 |                    |  |   |        |   |  |   | 615,700 |  
|Redemptions of common stock                                |  | (199,883     | ) |  |                   | (2  | ) |                             |   | (1,919  | )                  |  |   |        |   |  |   | (1,921  | )
|Transfers to redeemable common stock                       |  |             |   |  |                   |    |   |                             |   | (19,339 | )                  |  |   |        |   |  |   | (19,339 | )
|Distributions declared                                     |  |             |   |  |                   |    |   |                             |   |        |                    |  |   | (41,272 | ) |  |   | (41,272 | )
|Commissions on stock sales and related dealer manager fees |  |             |   |  |                   |    |   |                             |   | (54,913 | )                  |  |   |        |   |  |   | (54,913 | )
|Other offering costs                                       |  |             |   |  |                   |    |   |                             |   | (6,496  | )                  |  |   |        |   |  |   | (6,496  | )
|Net income                                                 |  |             |   |  |                   |    |   |                             |   |        |                    |  |   | 12,419  |   |  |   | 12,419  |  
|                                                           |  |              |   |  |                   |     |   |                             |   |         |                    |  |   |         |   |  |   |         |  
|Balance, December 31, 2009                                 |  | 93,167,161   |   |  | $                 | 932 |   |                             | $ | 810,006 |                    |  | $ | (36,376 | ) |  | $ | 774,562 |  
|                                                           |  |              |   |  |                   |     |   |                             |   |         |                    |  |   |         |   |  |   |         |  

See accompanying notes.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                                    |  |                          |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                    |  | Years Ended December 31, |         
|                                                                                                                    |  | 2009                     |          |   | 2008 |  
|Cash Flows from Operating Activities:                                                                               |  |                          |          |   |      |   |          |  
|Net income (loss)                                                                                                   |  | $                        | 12,419   |   |      | $ | (2,582   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                            |  |                          |          |   |      |   |          |  
|Depreciation and amortization                                                                                       |  |                          | 28,105   |   |      |   | 6,974    |  
|Noncash interest income on real estate-related investments                                                          |  |                          | (5,304   | ) |      |   | (6       | )
|Deferred rent                                                                                                       |  |                          | (2,187   | ) |      |   | (596     | )
|Allowance for doubtful accounts                                                                                     |  |                          | (5       | ) |      |   | 19       |  
|Amortization of above- and below-market leases, net                                                                 |  |                          | (5,683   | ) |      |   | (1,666   | )
|Amortization of deferred financing costs                                                                            |  |                          | 996      |   |      |   | 541      |  
|Gain on sale of real estate securities                                                                              |  |                          | (119     | ) |      |   |         |  
|Changes in operating assets and liabilities:                                                                        |  |                          |          |   |      |   |          |  
|Rents and other receivables                                                                                         |  |                          | 549      |   |      |   | (1,673   | )
|Prepaid expenses and other assets                                                                                   |  |                          | (973     | ) |      |   | (724     | )
|Accounts payable and accrued liabilities                                                                            |  |                          | (240     | ) |      |   | 3,124    |  
|Other liabilities                                                                                                   |  |                          | 2,379    |   |      |   | 1,459    |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                                                                           |  |                          | 29,937   |   |      |   | 4,870    |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                                                               |  |                          |          |   |      |   |          |  
|Acquisitions of real estate                                                                                         |  |                          | (112,174 | ) |      |   | (437,434 | )
|Additions to real estate                                                                                            |  |                          | (2,172   | ) |      |   | (100     | )
|Investment in real estate loans receivable                                                                          |  |                          | (67,611  | ) |      |   | (58,001  | )
|Investments in real estate securities                                                                               |  |                          | (3,958   | ) |      |   |         |  
|Sales of real estate securities                                                                                     |  |                          | 4,198    |   |      |   |         |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Net cash used in investing activities                                                                               |  |                          | (181,717 | ) |      |   | (495,535 | )
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                                                               |  |                          |          |   |      |   |          |  
|Proceeds from notes payable                                                                                         |  |                          | 15,540   |   |      |   | 271,446  |  
|Principal payments on notes payable                                                                                 |  |                          | (160,326 | ) |      |   |         |  
|Payments of deferred financing costs                                                                                |  |                          | (650     | ) |      |   | (1,077   | )
|Proceeds from issuance of common stock                                                                              |  |                          | 594,440  |   |      |   | 312,295  |  
|Payments to redeem common stock                                                                                     |  |                          | (1,921   | ) |      |   |         |  
|Payments of commissions on stock sales and related dealer manager fees                                              |  |                          | (54,911  | ) |      |   | (29,084  | )
|Payments of other offering costs                                                                                    |  |                          | (6,560   | ) |      |   | (5,108   | )
|Distributions paid to common stockholders                                                                           |  |                          | (16,620  | ) |      |   | (1,398   | )
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Net cash provided by financing activities                                                                           |  |                          | 368,992  |   |      |   | 547,074  |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                                                           |  |                          | 217,212  |   |      |   | 56,409   |  
|Cash and cash equivalents, beginning of period                                                                      |  |                          | 56,609   |   |      |   | 200      |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                                            |  | $                        | 273,821  |   |      | $ | 56,609   |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|                                                                                                                    |  |                         
|Supplemental Disclosure of Cash Flow Information:                                                                   |  |                          |          |   |      |   |          |  
|Interest paid                                                                                                       |  | $                        | 9,654    |   |      | $ | 2,881    |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|                                                                                                                    |  |                         
|Supplemental Disclosure of Noncash Transactions:                                                                    |  |                          |          |   |      |   |          |  
|Increase in distributions payable                                                                                   |  | $                        | 3,392    |   |      | $ | 1,621    |  
|                                                                                                                    |  |                          |          |   |      |   |          |  
|Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment
plan |  | $                        | 21,260   |   |      | $ | 1,921    |  
|                                                                                                                    |  |                          |          |   |      |   |          |  

See accompanying notes.



F-6



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009



|1. | ORGANIZATION
|-- | ------------

KBS Real
Estate Investment Trust II, Inc. (the Company) was formed on July 12, 2007 as a Maryland corporation that elected to be taxed as a real estate investment trust (REIT) beginning with the taxable year ended
December 31, 2008. The Company conducts its business primarily through KBS Limited Partnership II, a Delaware limited partnership formed on August 23, 2007 (the Operating Partnership), and its subsidiaries. The
Company is the sole general partner of and directly owns a 0.1% partnership interest in the Operating Partnership. The Companys wholly-owned subsidiary, KBS REIT Holdings II LLC, a Delaware limited liability company formed on
August 23, 2007 (KBS REIT Holdings II), owns the remaining 99.9% partnership interest in the Operating Partnership and is its sole limited partner.

The Company intends to invest in a diverse portfolio of real estate and real estate-related investments. As of December 31, 2009,
the Company owned five real estate properties (consisting of four office properties and one office/flex property) and two real estate loans.

Subject to certain restrictions and limitations, the business of the Company is managed by KBS Capital Advisors LLC (the Advisor), an affiliate of the Company, pursuant to an advisory
agreement the Company entered into with the Advisor on May 21, 2009 (the Advisory Agreement). The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the
Company. Either party may terminate the Advisory Agreement upon 60 days written notice. The Advisor owns 20,000 shares of the Companys common stock.

On September 27, 2007, the Company filed a registration statement on Form S11 with the Securities and Exchange Commission (the SEC) to offer a maximum of 280,000,000 shares of
common stock for sale to the public (the Offering), of which 200,000,000 shares were registered in the Companys primary offering and 80,000,000 shares were registered under the Companys dividend reinvestment plan. The SEC
declared the Companys registration statement effective on April 22, 2008. Also on April 22, 2008, the Company retained KBS Capital Markets Group LLC (the Dealer Manager), an affiliate of the Advisor, to serve as the
dealer manager of the Offering. The Dealer Manager is responsible for marketing the Companys shares in the Offering pursuant to a dealer manager agreement (the Dealer Manager Agreement). The Company intends to use substantially all
of the net proceeds from the Offering to invest in a diverse portfolio of real estate and real estate-related investments.

As
of December 31, 2009, the Company had sold 93,347,044 shares of common stock in the Offering for gross offering proceeds of $929.9 million, including 2,440,176 shares of common stock under the dividend reinvestment plan for
gross offering proceeds of $23.2 million. Also as of December 31, 2009, the Company had redeemed 199,883 of the shares sold in the Offering for $1.9 million.



F-7



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the
accounts of the Company, KBS REIT Holdings II, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Effective September 15, 2009, the Accounting Standards Codification (ASC) was established as the single
source of authoritative nongovernmental GAAP. Prior to the issuance of the ASC, all GAAP pronouncements were issued in separate topical pronouncements in the form of statements, staff positions or Emerging Issues Task Force Abstracts, and were
referred to as such. While the ASC does not change GAAP, it introduces a new structure and supersedes all previously issued non-SEC accounting and reporting standards. In addition to the ASC, the Company is still required to follow SEC rules and
regulations relating to the preparation of financial statements. The Companys accounting policies are consistent with the guidance set forth in the ASC.

Use of Estimates

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

Reclassifications

Certain amounts in the Companys prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.

Revenue Recognition

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



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



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



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



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



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

During the years ended December 31, 2009 and 2008, the Company recognized deferred rent from tenants of $2.2 million and
$0.6 million, respectively. As of December 31, 2009 and 2008, the cumulative deferred rent balance was $2.8 million and $0.6 million, respectively, and is included in rents and other receivables on the accompanying balance
sheets. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.



F-8



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



The Company makes estimates of the collectibility of its tenant receivables related to
base rents, including straight-line rent, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer
payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the
estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenants receivable balance and
generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. During the year ended December 31, 2009, the Company reduced its bad
debt reserve and recorded a net recovery of bad debt related to its tenant receivables of $5,000. The Company did not record any bad debt expense related to its deferred rent receivables during the year ended December 31, 2009.

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

The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets and are rated AA and above on an accrual basis according to the
contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using the interest method. During the year ended December 31, 2009, the Company acquired and disposed of a
AAA-rated CMBS. The Company recognized $0.1 million of interest income related to this security and recognized a gain on sale of $0.1 million during the year ended December 31, 2009.

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

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

Real Estate

Depreciation and Amortization

Real estate costs related to the acquisition and improvement of
properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and
maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are
capitalized and amortized over the shorter of the tenants lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:



|                                        |  |                                              
|--------------------------------------- |  | ---------------------------------------------
|Buildings                               |  | 25-40 years                                  
|Building improvements                   |  | 10-25 years                                  
|Tenant improvements                     |  | Shorter of lease term or expected useful life
|Tenant origination and absorption costs |  | Remaining term of related leases             



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Real Estate Acquisition Valuation

The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a
business combination. Prior to January 1, 2009, real estate acquired in a business combination, consisting of land, buildings and improvements, was recorded at cost. The Company allocated the cost of tangible assets, identifiable
intangibles and assumed liabilities (consisting of above and below-market leases and tenant origination and absorption costs) acquired in a business combination based on their estimated fair values. Beginning January 1, 2009, all assets
acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date
are expensed in periods subsequent to the acquisition date. In addition, changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period are recorded to income tax expense. During
the year ended December 31, 2009, the Company acquired one real estate asset in a business combination and expensed $1.5 million of acquisition costs.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating
expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the
Companys acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Companys net income.

Impairment of Real Estate and Related Intangible Assets and Liabilities

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of
potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of
the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the
real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. The
Company did not record any impairment loss on its real estate and related intangible assets and liabilities during the years ended December 31, 2009 and 2008.

Real Estate Loans Receivable

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

As of December 31, 2009, there was no loan loss reserve and the Company did not record any impairment losses related to the real estate loans receivable during the year ended
December 31, 2009. However, in the future, the Company may experience losses from its investments in loans receivable requiring the Company to record loan loss reserves. Realized losses on individual loans could be material and
significantly exceed any recorded reserves.

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

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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



The portfolio-based reserve component covers the pool of loans that do not have
asset-specific reserves. A provision for loan losses is recorded when available information as of each balance sheet date indicates that it is probable that the pool of loans will incur a loss and the amount of the loss can be reasonably estimated.
Required reserve balances for this pool of loans are derived from estimated probabilities of default and estimated loss severities assuming a default occurs. On a quarterly basis, the Companys management assigns estimated probabilities of
default and loss severities to each loan in the portfolio based on factors such as the debt service coverage of the underlying collateral, the estimated fair value of the collateral, the significance of the borrowers investment in the
collateral, the financial condition of the borrower and/or its sponsors, the likelihood that the borrower and/or its sponsors would allow the loan to default, the Companys willingness and ability to step in as owner in the event of default,
and other pertinent factors.

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

Cash and Cash Equivalents

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

The Companys cash and cash equivalents balance exceeds federally insurable limits as of
December 31, 2009. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject
to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts. The Company has a corporate banking relationship with Wells Fargo Bank, N.A. in which it deposits
all funds. There are no restrictions on the use of the Companys cash as of December 31, 2009 and 2008.

Deferred Financing
Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated
with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity.
Costs incurred in seeking financings that do not close are expensed in the period in which it is determined that the financing will not close. As of December 31, 2009 and 2008, the Companys deferred financing costs were
$0.2 million and $0.5 million, respectively, net of amortization.

Fair Value Measurements

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



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



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



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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



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

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

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

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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Redeemable Common Stock

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

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



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



| |  |  | During each calendar year, the share redemption program limits the number of shares the Company may redeem to those that the Company could purchase
with the amount of the net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

Pursuant to the
program, the Company will initially redeem shares as follows:



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



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



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



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



| |  |  | Notwithstanding the above, until the Company establishes an estimated value per share, the redemption price for shares being redeemed upon a
stockholders death, qualifying disability or determination of incompetence will be the amount paid to acquire the shares from the Company.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Once the Company establishes an estimated value per share of common stock, the redemption price per share for all stockholders will be equal
to the estimated value per share, as determined by the Advisor or another firm chosen for that purpose. The Advisor has indicated that it intends to use the most recent price paid to acquire a share in the Offering (ignoring purchase price discounts
for certain categories of purchasers) or follow-on public offerings as its estimated value per share until the Company has completed its offering stage. The Company will consider its offering stage complete when the Company is no longer publicly
offering equity securities  whether through the Offering or follow-on public offerings  and has not done so for 18 months. Public equity offering for this purpose does not include offerings on behalf of selling stockholders
or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership.

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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



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

The Company classifies financial instruments that
represent a mandatory obligation of the Company to redeem shares as liabilities. The Companys redeemable common shares may become mandatorily redeemable at the option of the holder. When the Company determines it has a mandatory obligation to
redeem shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

The Company limits the dollar value of shares that may be redeemed under the program as described above. During the year ended December 31, 2009, the Company redeemed $1.9 million of common
stock. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2009, the Company has $21.3 million available for redemption in 2010.

Related Party Transactions

Pursuant to the Advisory Agreement and Dealer Manager Agreement, the Company is obligated to pay the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Offering, the investment of funds in
real estate and real estate-related investments, management of the Companys investments and for other services (including, but not limited to, the disposition of investments). The Company is also obligated to reimburse the Advisor and Dealer
Manager for organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, and the Company is obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses
incurred on behalf of the Company or incurred in connection with providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the
Advisory Agreement.

The Company records all related party fees as incurred, subject to any limitations described in the
Advisory Agreement. The Company had not incurred any disposition fees, subordinated participation in net cash flows, or subordinated incentive listing fees during the year ended December 31, 2009.

Selling Commissions and Dealer Manager Fees

The Company pays the Dealer Manager up to 6% and 3.5% of the gross offering proceeds from the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales commission and
dealer manager fee is paid with respect to certain volume discount sales. No sales commission or dealer manager fee is paid on shares issued through the dividend reinvestment plan. The Dealer Manager reallows 100% of sales commissions earned to
participating broker-dealers. The Dealer Manager may reallow to any participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and, in special cases, the Dealer Manager may
increase the reallowance.

Organization and Offering Costs

Organization and offering costs (other than selling commissions and dealer manager fees) of the Company may be paid by the Advisor, the
Dealer Manager or their affiliates on behalf of the Company. Other offering costs include all expenses to be incurred by the Company in connection with the Offering. Organization costs include all expenses to be incurred by the Company in connection
with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is
obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that the Advisor would be obligated to reimburse the Company to the
extent selling commissions, dealer manager fees and organization and other offering costs incurred by the Company in the Offering exceed 15% of gross offering proceeds. As a result, these costs are only a liability of the Company to the extent
selling commissions, dealer manager fees and organization and other offering costs incurred by the Company do not exceed 15% of the gross proceeds of the Offering. As of December 31, 2009, the Companys selling commissions, dealer
manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2009, including shares issued through the Companys dividend reinvestment plan, the Company had issued
93,347,044 shares in the Offering for gross offering proceeds of $929.9 million and recorded organization and other offering costs of $12.0 million and selling commissions and dealer manager fees of $84.0 million. Organization
costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders equity.

Acquisition and Origination Fees

The Company pays the Advisor an
acquisition fee equal to 0.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, the Company pays an origination fee equal to
1% of the amount funded by the Company to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt the Company uses to fund the acquisition or origination of these loans. The
Company does not pay an acquisition fee with respect to such loans.

Asset Management Fee

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

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

Income Taxes

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

The Company has concluded that there are no significant
uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed interest or penalties by any major tax jurisdictions. The Companys evaluations were performed for the tax
years ending December 31, 2009, 2008, and 2007. As of December 31, 2009, returns for the calendar years 2007 and 2008 remain subject to examination by major tax jurisdictions.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted
net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the years ended December 31, 2009 and 2008.

Distributions declared per common share assumes each share was issued and outstanding each day during the year ended
December 31, 2009. For the year ended December 31, 2009, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the period from January 1, 2009
through December 31, 2009 was a record date for distributions.

Distributions for the period from
July 16, 2008 through August 15, 2008 were based on daily record dates and calculated at a rate of $0.00054795 per share per day. Distributions for the period from August 16, 2008 through
December 31, 2008 were based on daily record dates and calculated at a rate of $0.00178082 per share per day. No day during the period from January 1, 2008 through July 15, 2008 was a record date for distributions.

Industry Segments

The Companys segments are based on the Companys method of internal reporting which classifies its operations by investment type: real estate and real estate-related. For financial data by segment, see Note 10, Segment
Information.

Square Footage, Occupancy and Other Measures

Square footage, occupancy and other measures used to describe real estate and real estate-related investments included in the Notes to
Consolidated Financial Statements are presented on an unaudited basis.

Recently Issued Accounting Standards Updates

In May 2009, the FASB issued ASC Topic 855, Subsequent Events (ASC 855). ASC 855 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. This ASC also requires public entities to evaluate subsequent events through the date that the financial statements are issued. ASC 855 is effective for interim periods and fiscal years
ending after June 15, 2009. In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09. ASU No. 2010-09 amends ASC 855 and eliminates the requirement to disclose the date through which
subsequent events have been evaluated for SEC filers. ASU No. 2010-09 is effective upon issuance. The adoption of ASC 855 and ASU No. 2010-09 did not have a material impact on the Companys consolidated financial
statements.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



|3. | RECENT ACQUISITIONS OF REAL ESTATE
|-- | ----------------------------------

During the year ended December 31, 2009, the Company acquired the following property (in thousands):



|                                         |  |                 |  |                                       |        |                          |   |                               |  |   |                     |  |   |       |  |   |        |   |  |   |        
|---------------------------------------- |  | --------------- |  | ------------------------------------- | ------ | ------------------------ | - | ----------------------------- |  | - | ------------------- |  | - | ----- |  | - | ------ | - |  | - | -------
|Property Name Location of Property       |  | AcquisitionDate |  | Land                                  |        | Building andImprovements |   | Intangibles                   |  |   | Total PurchasePrice
|                                         |  |                 |  | TenantOrigination andAbsorption Costs |        | Above-MarketLease Assets |   | Below-MarketLease Liabilities |  |  
|Willow Oaks Corporate Center Fairfax, VA |  | 08/26/2009      |  | $                                     | 25,300 |                          | $ | 67,016                        |  | $ | 20,786              |  | $ | 2,226 |  | $ | (3,154 | ) |  | $ | 112,174

The intangible
assets and liabilities acquired in connection with the Willow Oaks Corporate Center acquisition have weighted-average amortization periods as of the date of acquisition as follows (in years):



|                             |  |                                       |  |                          |  |                              
|---------------------------- |  | ------------------------------------- |  | ------------------------ |  | -----------------------------
|                             |  | TenantOrigination andAbsorption Costs |  | Above-MarketLease Assets |  | Below-MarketLease Liabilities
|Willow Oaks Corporate Center |  | 5.5                                   |  | 9.0                      |  | 5.5                          

For the year ended
December 31, 2009, the Company recognized $6.0 million of total revenues from this property.



|4. | REAL ESTATE
|-- | -----------

As of
December 31, 2009, the Companys real estate portfolio was composed of four office properties and one office/flex property encompassing 2.0 million rentable square feet and was 98% leased. The following table provides
summary information regarding the properties owned by the Company as of December 31, 2009 (in thousands):



|                                 |  |              |  |               |  |       |  |              |  |                         |         |                                        |   |         |                      |  |   |        
|-------------------------------- |  | ------------ |  | ------------- |  | ----- |  | ------------ |  | ----------------------- | ------- | -------------------------------------- | - | ------- | -------------------- |  | - | -------
|Property                         |  | DateAcquired |  | City          |  | State |  | PropertyType |  | TotalReal Estateat Cost |         | AccumulatedDepreciationandAmortization |   |         | TotalReal Estate,Net
|Mountain View Corporate Center   |  | 07/30/2008   |  | Basking Ridge |  | NJ    |  | Office       |  | $                       | 31,003  |                                        | $ | (2,295  | )                    |  | $ | 28,708 
|                                 |  |              |  |               |  |       | 
|Campus Drive Buildings           |  |              |  |               |  |       |  |              |  |                         |         |                                        |   |         |                      |  |   |        
|100 & 200 Campus Drive Buildings |  | 09/09/2008   |  | Florham Park  |  | NJ    |  | Office       |  |                         | 199,195 |                                        |   | (15,802 | )                    |  |   | 183,393
|300-600 Campus Drive Buildings   |  | 10/10/2008   |  | Florham Park  |  | NJ    |  | Office       |  |                         | 195,986 |                                        |   | (11,634 | )                    |  |   | 184,352
|                                 |  |              |  |               |  |       |  |              |  |                         |         |                                        |   |         |                      |  |   |        
|Total Campus Drive Buildings     |  |              |  |               |  |       |  |              |  |                         | 395,181 |                                        |   | (27,436 | )                    |  |   | 367,745
|                                 |  |              |  |               |  |       | 
|350 E. Plumeria Building         |  | 12/18/2008   |  | San Jose      |  | CA    |  | Office/Flex  |  |                         | 36,121  |                                        |   | (1,169  | )                    |  |   | 34,952 
|                                 |  |              |  |               |  |       | 
|Willow Oaks Corporate Center     |  | 08/26/2009   |  | Fairfax       |  | VA    |  | Office       |  |                         | 113,122 |                                        |   | (3,159  | )                    |  |   | 109,963
|                                 |  |              |  |               |  |       |  |              |  |                         |         |                                        |   |         |                      |  |   |        
|                                 |  |              |  |               |  |       |  |              |  | $                       | 575,427 |                                        | $ | (34,059 | )                    |  | $ | 541,368
|                                 |  |              |  |               |  |       |  |              |  |                         |         |                                        |   |         |                      |  |   |        



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Operating Leases

The Companys real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of December 31, 2009, the leases have remaining terms of up to
9.5 years with a weighted-average remaining term of 4.6 years. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property
at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the
Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but
generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in
other liabilities in the accompanying consolidated balance sheets and totaled $0.8 million and $0.6 million as of December 31, 2009 and 2008, respectively.

As of December 31, 2009, the future minimum rental income from the Companys properties under non-cancelable operating leases
is as follows (in thousands):



|           |  |   |        
|---------- |  | - | -------
|2010       |  | $ | 49,323 
|2011       |  |   | 45,455 
|2012       |  |   | 42,488 
|2013       |  |   | 36,029 
|2014       |  |   | 32,389 
|Thereafter |  |   | 50,706 
|           |  |   |        
|           |  | $ | 256,390
|           |  |   |        

As of December 31, 2009, the Companys
highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:



|                                      |  |                  |  |                                       |        |                                  |    |  
|------------------------------------- |  | ---------------- |  | ------------------------------------- | ------ | -------------------------------- | -- | -
|Industry                              |  | Number ofTenants |  | AnnualizedBase Rent (1)(in thousands) |        | Percentage ofAnnualizedBase Rent |   
|Manufacturing                         |  | 3                |  | $                                     | 9,549  |                                  | 18 | %
|Finance                               |  | 11               |  |                                       | 9,182  |                                  | 17 | %
|Computer Systems Design & Programming |  | 4                |  |                                       | 7,616  |                                  | 14 | %
|Legal Services                        |  | 3                |  |                                       | 6,442  |                                  | 12 | %
|Other Professional Services           |  | 6                |  |                                       | 6,132  |                                  | 11 | %
|                                      |  |                  |  |                                       |        |                                  |    |  
|                                      |  |                  |  | $                                     | 38,921 |                                  | 72 | %
|                                      |  |                  |  |                                       |        |                                  |    |  



(1)Annualized base rent represents annualized
contractual base rental income, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.



F-18



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



No other tenant industries accounted for more than 10% of annualized base rent. No
material tenant credit issues have been identified at this time. As of December 31, 2009, the Company has a bad debt reserve of approximately $12,000, which represents less than 1 % of annualized base rent. As of December 31, 2009,
the Company has no tenants with rent balances outstanding over 90 days.

As of December 31, 2009, the Company
had a concentration of credit risk related to the following tenant lease that represents more than 10% of the Companys annualized base rent:



|                          |  |                                  |            |                |               |                      |  |                                       |                                 |                                   |                     |       |                                    |      |   |  |   |       |  |           
|------------------------- |  | -------------------------------- | ---------- | -------------- | ------------- | -------------------- |  | ------------------------------------- | ------------------------------- | --------------------------------- | ------------------- | ----- | ---------------------------------- | ---- | - |  | - | ----- |  | ----------
|Tenant                    |  | Property                         |            | TenantIndustry |               | Net Rentable Sq. Ft. |  |                                       | Annualized Base Rent Statistics |                                   | LeaseExpiration (2)
|                          |  |                                  | SquareFeet |                | % ofPortfolio |                      |  | AnnualizedBase Rent (1)(in thousands) |                                 | % of PortfolioAnnualizedBase Rent |                     |       | AnnualizedBase Rent perSquare Feet |     
|BASF Americas Corporation |  | 100 & 200 Campus Drive Buildings |            | Manufacturing  |               | 199,024              |  | 10.1                                  | %                               |                                   | $                   | 6,415 |                                    | 11.8 | % |  | $ | 32.23 |  | 11/30/2016
|                          |  |                                  |            |                |               |                      |  |                                       |                                 |                                   |                     |       |                                    |      |   |  |   |       |  |           
|                          |  |                                  |            |                |               | 199,024              |  | 10.1                                  | %                               |                                   | $                   | 6,415 |                                    | 11.8 | % |  | $ | 32.23 |  |           
|                          |  |                                  |            |                |               |                      |  |                                       |                                 |                                   |                     |       |                                    |      |   |  |   |       |  |           



(1)Annualized base rent represents annualized contractual base rental income, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.

(2)Represents the expiration date of the lease at December 31, 2009 and does not take into account any tenant renewal options.



|5. | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
|-- | -----------------------------------------------------------------------------------------------------

As of December 31, 2009 and 2008, the Companys tenant origination and absorption costs, above-market lease assets and
below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) are as follows (in thousands):



|                         |  |                                        |         |   |                          |   |        |                               |  |   |       |   |  |      |     |   |      |   |        |   |  |   |        |  
|------------------------ |  | -------------------------------------- | ------- | - | ------------------------ | - | ------ | ----------------------------- |  | - | ----- | - |  | ---- | --- | - | ---- | - | ------ | - |  | - | ------ | -
|                         |  | Tenant Origination andAbsorption Costs |         |   | Above-MarketLease Assets |   |        | Below-MarketLease
Liabilities | 
|                         |  | 2009                                   |         |   | 2008                     |   |        | 2009                          |  |   | 2008  |   |  | 2009 |     |   | 2008 |  
|Cost                     |  | $                                      | 66,867  |   |                          | $ | 46,396 |                               |  | $ | 2,499 |   |  | $    | 273 |   |      | $ | 26,888 |   |  | $ | 23,835 |  
|Accumulated Amortization |  |                                        | (15,869 | ) |                          |   | (3,043 | )                             |  |   | (196  | ) |  |      | (25 | ) |      |   | (7,224 | ) |  |   | (1,471 | )
|                         |  |                                        |         |   |                          |   |        |                               |  |   |       |   |  |      |     |   |      |   |        |   |  |   |        |  
|Net Amount               |  | $                                      | 50,998  |   |                          | $ | 43,353 |                               |  | $ | 2,303 |   |  | $    | 248 |   |      | $ | 19,664 |   |  | $ | 22,364 |  
|                         |  |                                        |         |   |                          |   |        |                               |  |   |       |   |  |      |     |   |      |   |        |   |  |   |        |  

Increases (decreases) in net income as a result of amortization of the Companys tenant origination and
absorption costs, above-market lease assets and below-market lease liabilities for the years ended December 31, 2009 and 2008 are as follows (in thousands):



|             |  |                                        |         |   |                                |   |        |                                |  |   |      |   |  |      |     |      |  |   |       |  |   |      
|------------ |  | -------------------------------------- | ------- | - | ------------------------------ | - | ------ | ------------------------------ |  | - | ---- | - |  | ---- | --- | ---- |  | - | ----- |  | - | -----
|             |  | Tenant Origination andAbsorption Costs |         |   | Above-MarketLease Assets       |   |        | Below-MarketLease Liabilities 
|             |  | For the Year EndedDecember 31,         |         |   | For the Year EndedDecember 31, |   |        | For the Year EndedDecember 31,
|             |  | 2009                                   |         |   | 2008                           |   |        | 2009                           |  |   | 2008 |   |  | 2009 |     | 2008
|Amortization |  | $                                      | (13,141 | ) |                                | $ | (3,484 | )                              |  | $ | (170 | ) |  | $    | (26 | )    |  | $ | 5,853 |  | $ | 1,692
|             |  |                                        |         |   |                                |   |        |                                |  |   |      |   |  |      |     |      |  |   |       |  |   |      



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



The remaining unamortized balance for these outstanding intangible assets and
liabilities as of December 31, 2009 will be amortized for the years ending December 31 as follows:



|                                               |  |                                       |           |   |                          |   |           |                               |  |   |          
|---------------------------------------------- |  | ------------------------------------- | --------- | - | ------------------------ | - | --------- | ----------------------------- |  | - | ---------
|                                               |  | TenantOrigination andAbsorption Costs |           |   | Above-MarketLease Assets |   |           | Below-MarketLease Liabilities
|2010                                           |  | $                                     | (13,351   | ) |                          | $ | (337      | )                             |  | $ | 4,989    
|2011                                           |  |                                       | (10,115   | ) |                          |   | (323      | )                             |  |   | 3,340    
|2012                                           |  |                                       | (8,679    | ) |                          |   | (313      | )                             |  |   | 3,044    
|2013                                           |  |                                       | (6,496    | ) |                          |   | (228      | )                             |  |   | 2,859    
|2014                                           |  |                                       | (5,551    | ) |                          |   | (221      | )                             |  |   | 2,608    
|Thereafter                                     |  |                                       | (6,806    | ) |                          |   | (881      | )                             |  |   | 2,824    
|                                               |  |                                       |           |   |                          |   |           |                               |  |   |          
|                                               |  | $                                     | (50,998   | ) |                          | $ | (2,303    | )                             |  | $ | 19,664   
|                                               |  |                                       |           |   |                          |   |           |                               |  |   |          
|Weighted-Average Remaining Amortization Period |  |                                       | 5.2 years |   |                          |   | 8.2 years |                               |  |   | 5.4 years



|6. | REAL ESTATE LOANS RECEIVABLE
|-- | ----------------------------

As of December 31, 2009 and 2008, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):



|                                                     |  |              |  |              |  |          |  |                                                       |         |                                     |   |                                     |  |                             |        |  |                                     |   |  |                 |   |  |           
|---------------------------------------------------- |  | ------------ |  | ------------ |  | -------- |  | ----------------------------------------------------- | ------- | ----------------------------------- | - | ----------------------------------- |  | --------------------------- | ------ |  | ----------------------------------- | - |  | --------------- | - |  | ----------
|Loan Name Location of Related Property or Collateral |  | DateAcquired |  | PropertyType |  | LoanType |  | OutstandingPrincipalBalance as ofDecember 31,2009 (1) |         | Book Valueas ofDecember 31,2009 (2) |   | Book Valueas ofDecember 31,2008 (2) |  | ContractualInterestRate (3) |        |  | AnnualizedEffectiveInterestRate (3) |   |  | MaturityDate(3)
|Northern Trust Building A-NoteSan Diego, California  |  | 12/31/2008   |  | Office       |  | A-Note   |  | $                                                     | 94,500  |                                     | $ | 60,535                              |  | $                           | 58,152 |  | 5.60                                | % |  | 13.0            | % |  | 10/01/2017
|One Liberty Plaza Notes (4)New York, New York        |  | 02/11/2009   |  | Office       |  | Mortgage |  |                                                       | 115,000 |                                     |   | 70,266                              |  |                             |       |  | 6.14                                | % |  | 15.0            | % |  | 08/06/2017
|                                                     |  |              |  |              |  |          |  |                                                       |         |                                     |   |                                     |  |                             |        |  |                                     |   |  |                 |   |  |           
|                                                     |  |              |  |              |  |          |  | $                                                     | 209,500 |                                     | $ | 130,801                             |  | $                           | 58,152 |  |                                     |   |  |                 |   |  |           
|                                                     |  |              |  |              |  |          |  |                                                       |         |                                     |   |                                     |  |                             |        |  |                                     |   |  |                 |   |  |           



(1)Outstanding principal balance as of December 31, 2009 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

(2)Book value of real estate loans receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees, and direct origination and acquisition
costs.

(3)Contractual interest rates are the stated interest rates on the face of the loans. Annualized effective interest
rates are calculated as the actual interest income recognized in 2009, using the interest method, divided by the average amortized cost basis of the investment. The annualized effective interest rates and contractual interest rates presented are for
the year ended December 31, 2009. Maturity dates are as of December 31, 2009.

(4)Monthly installments on the One Liberty Plaza Notes are interest
only until August 2011. For the final six years on the notes, principal on the loan amortizes on a 30-year amortization schedule, with the remaining principal balance due at maturity.

The following summarizes the activity related to the real estate loans receivable for the year ended December 31, 2009:



|                                                                        |  |   |         |  
|----------------------------------------------------------------------- |  | - | ------- | -
|Real estate loan receivable - December 31, 2008                         |  | $ | 58,152  |  
|Face value of real estate loan receivable acquired                      |  |   | 115,000 |  
|Discount on purchase of real estate loan receivable                     |  |   | (48,300 | )
|Accretion of discounts on purchased real estate loans receivable        |  |   | 5,275   |  
|Closing costs on purchase of real estate loan receivable                |  |   | 766     |  
|Amortization of closing costs on purchased real estate loans receivable |  |   | (92     | )
|                                                                        |  |   |         |  
|Real estate loans receivable - December 31, 2009                        |  | $ | 130,801 |  
|                                                                        |  |   |         |  



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



For the years ended December 31, 2009 and 2008, interest income from real
estate loans receivable consists of the following (in thousands):



|                                                  |  |                                |        |   |      |   |   
|------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | --
|                                                  |  | For the Year EndedDecember 31,
|                                                  |  | 2009                           |        |   | 2008
|Contractual interest income                       |  | $                              | 11,702 |   |      | $ | 15
|Accretion of purchase discounts                   |  |                                | 5,275  |   |      |   | 6 
|Amortization of closing costs on purchases        |  |                                | (92    | ) |      |   |  
|                                                  |  |                                |        |   |      |   |   
|Interest income from real estate loans receivable |  | $                              | 16,885 |   |      | $ | 21
|                                                  |  |                                |        |   |      |   |   

As of December 31, 2009 and 2008, interest
receivable from real estate loans receivable was $1.0 million and $0.5 million, respectively, and was included in rents and other receivables.



|7. | NOTES PAYABLE
|-- | -------------

As of
December 31, 2009 and 2008, the Companys notes payable, all of which are interest-only loans during the terms of the loans with principal payable upon maturity, consist of the following (dollars in thousands):



|                                                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|----------------------------------------------- |  | ------------------------------- | ------- | ------------------------------- | - | ------------------------------------------------- |  | ----------------------------------- |  | ---------------- |  | ----------
|                                                |  | Principal as ofDecember 31,2009 |         | Principal as ofDecember 31,2008 |   | ContractualInterest Rate as
ofDecember 31,2009(1) |  | Interest Rate atDecember 31,2009(1) |  | MaturityDate (2)
|Mountain View Corporate Center Mortgage Loan(3) |  | $                               |        |                                 | $ | 12,270                                            |  | (3)                                 |  | (3)              |  | (3)       
|                                                |  |                                 |         |                                 |  
|Portfolio Mortgage Loan (4) (5)                 |  |                                 | 27,810  |                                 |   |                                                  |  | LIBOR + 3.75% (6)                   |  | 4.10%            |  | 01/30/2010
|                                                |  |                                 |         |                                 |  
|Campus Drive Buildings                          |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|100 & 200 Campus Drive Buildings                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|100 & 200 Campus Drive Mortgage Loan (7)        |  |                                 | 5,000   |                                 |   | 89,800                                            |  | One-month LIBOR + 3.75%             |  | 3.98%            |  | 03/09/2010
|100 & 200 Campus Drive Mezzanine Loan (8)       |  |                                 |        |                                 |   | 28,526                                            |  | (8)                                 |  | (8)              |  | (8)       
|                                                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|Total 100 & 200 Campus Drive Buildings          |  |                                 | 5,000   |                                 |   | 118,326                                           |  |                                     |  |                  |  |           
|                                                |  |                                 |         |                                 |  
|300-600 Campus Drive Buildings                  |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|300-600 Campus Drive Mortgage Loan              |  |                                 | 93,850  |                                 |   | 93,850                                            |  | 5.90%                               |  | 5.90%            |  | 04/10/2014
|300-600 Campus Drive Mezzanine Loan(8)          |  |                                 |        |                                 |   | 47,000                                            |  | (8)                                 |  | (8)              |  | (8)       
|                                                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|Total 300-600 Campus Drive Buildings            |  |                                 | 93,850  |                                 |   | 140,850                                           |  |                                     |  |                  |  |           
|                                                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           
|                                                |  | $                               | 126,660 |                                 | $ | 271,446                                           |  |                                     |  |                  |  |           
|                                                |  |                                 |         |                                 |   |                                                   |  |                                     |  |                  |  |           



(1)Contractual interest rate as of December 31, 2009 represents the interest rate in effect under the loan as of December 31, 2009. Interest rate at December 31, 2009 is calculated as the actual interest rate in effect at
December 31, 2009 (consisting of the contractual interest rate and the effect of contractual floor rates), using interest rate indices at December 31, 2009, where applicable.

(2)Represents the initial maturity date or the maturity date as extended as of December 31, 2009; subject to certain conditions, the maturity dates of certain loans may be extended
beyond the date shown.

(3)During the year ended December 31, 2009, the Company modified the terms of the loan. As part of the
modification, the loan is cross-defaulted and cross-collateralized with another property and represented under Portfolio Mortgage Loan. See footnote (4) below.

(4)Represents a portfolio of two separate loans. The individual deeds of trust and mortgages on the respective properties securing the loans are cross-defaulted and cross-collateralized. At inception, this loan provided the Company with the ability to
draw up to $4.0 million for general cash management purposes and as of December 31, 2009, the Company had drawn the entire $4.0 million.

(5)Subsequent to December 31, 2009, the Company extended the maturity date of this loan to March 30, 2010. The Company is currently negotiating a long-term refinancing of this loan.

(6)The interest rate under this loan is calculated at a variable rate of 375 basis points over one-month LIBOR, but at no point shall the interest rate be less than 4.10%.

(7)Subsequent to December 31, 2009, this
loan was refinanced. See Note 14, Subsequent Events - Investments and Financings Subsequent to December 31, 2009 - Subsequent Financings.

(8)During the year ended
December 31, 2009, the Company repaid in full the principal and accrued interest on this loan.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



During the years ended December 31, 2009 and 2008, the Company incurred
$10.2 million and $4.3 million, respectively, of interest expense. Of this amount, $0.4 million and $0.9 million were payable at December 31, 2009 and 2008, respectively. Included in interest expense for the years ended
December 31, 2009 and 2008 were $1.0 million and $0.5 million, respectively, of amortization of deferred financing costs.

The following is a schedule of maturities for all notes payable outstanding as of December 31, 2009 (in thousands):



|     |  |   |        
|---- |  | - | -------
|2010 |  | $ | 32,810 
|2011 |  |   |       
|2012 |  |   |       
|2013 |  |   |       
|2014 |  |   | 93,850 
|     |  |   |        
|     |  | $ | 126,660
|     |  |   |        



|8. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|-- | -----------------------------------

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

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

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

Notes Payable:The fair value of the Companys notes payable is estimated using a discounted cash flow analysis based on
managements estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements.

The following are the carrying amounts and fair values of the Companys financial instruments as of December 31, 2009 and
2008, whose carrying amounts do not approximate their fair value:



|                             |  |                                 |         |                                 |   |           |  |           |         |                |   |           |  |   |         |  |   |        
|---------------------------- |  | ------------------------------- | ------- | ------------------------------- | - | --------- |  | --------- | ------- | -------------- | - | --------- |  | - | ------- |  | - | -------
|                             |  | December 31, 2009(in
thousands) |         | December 31, 2008(in
thousands)
|                             |  | FaceValue                       |         | CarryingAmount                  |   | FairValue |  | FaceValue |         | CarryingAmount |   | FairValue
|Financial assets:            |  |                                 |         |                                 |   |           |  |           |         |                |   |           |  |   |         |  |   |        
|Real estate loans receivable |  | $                               | 209,500 |                                 | $ | 130,801   |  | $         | 174,387 |                | $ | 94,500    |  | $ | 58,152  |  | $ | 58,152 
|Financial liabilities:       |  |                                 |         |                                 |   |           |  |           |         |                |   |           |  |   |         |  |   |        
|Notes payable                |  |                                 | 126,660 |                                 |   | 126,660   |  |           | 125,285 |                |   | 271,446   |  |   | 271,446 |  |   | 265,928



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Disclosure of the fair value of financial instruments is based on pertinent information
available to the Company at December 31, 2009 and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has
made the estimation of fair values difficult and, therefore, both the actual results and the Companys estimate of value at a future date could be materially different.

At December 31, 2009, the Company held the following asset measured at fair value on a non-recurring basis (in thousands):



|                          |  |                                                             |         |                                             |   |                                        |  |   |   |  |   |        
|------------------------- |  | ----------------------------------------------------------- | ------- | ------------------------------------------- | - | -------------------------------------- |  | - | - |  | - | -------
|                          |  | Total                                                       |         | Fair Value Measurements Using              
|                          |  | Quoted Prices inActive Markets forIdentical Assets(Level 1) |         | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservableInputs(Level 3)
|Investment in real estate |  | $                                                           | 112,174 |                                             | $ |                                       |  | $ |  |  | $ | 112,174
|                          |  |                                                             |         |                                             |   |                                        |  |   |   |  |   |        
|                          |  | $                                                           | 112,174 |                                             | $ |                                       |  | $ |  |  | $ | 112,174
|                          |  |                                                             |         |                                             |   |                                        |  |   |   |  |   |        



|9. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

The Company has entered into an Advisory Agreement with the Advisor and a Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain services
with regard to the Offering, the investment of funds in real estate and real estate-related investments and the management of those investments, among other services, as well as reimbursement of organization and offering costs incurred by the
Advisor and the Dealer Manager on behalf of the Company (as discussed in Note 2, Summary of Significant Accounting Policies) and certain costs incurred by the Advisor in providing services to the Company. The Advisor and Dealer
Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust I, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Legacy Partners Apartment REIT, Inc. During
the years ended December 31, 2009 and 2008, no transactions occurred between the Company and these entities.

Pursuant to
the terms of these agreements, summarized below are the related-party costs incurred by the Company for the years ended December 31, 2009 and 2008, respectively, and any related amounts payable as of December 31, 2009 and 2008
(in thousands):



|                                    |  |          |        |               |   |        |  |      |     |  |   |    
|----------------------------------- |  | -------- | ------ | ------------- | - | ------ |  | ---- | --- |  | - | ---
|                                    |  | Incurred |        | Payable as of
|                                    |  | 2009     |        | 2008          |   | 2009   |  | 2008
|Expensed                            |  |          |        |               |   |        |  |      |     |  |   |    
|Asset management fees(1)            |  | $        | 4,482  |               | $ | 857    |  | $    |    |  | $ |   
|Reimbursement of operating expenses |  |          | 44     |               |   | 182    |  |      |    |  |   |   
|Acquisition fees                    |  |          | 846    |               |   |       |  |      |    |  |   |   
|                                    |  |          |        |              
|Additional Paid-in Capital          |  |          |        |               |   |        |  |      |     |  |   |    
|Selling commissions                 |  |          | 34,108 |               |   | 18,152 |  |      |    |  |   |   
|Dealer manager fees                 |  |          | 20,805 |               |   | 10,932 |  |      |    |  |   |   
|Reimbursable other offering costs   |  |          | 2,845  |               |   | 5,362  |  |      | 206 |  |   | 268
|                                    |  |          |        |              
|Capitalized                         |  |          |        |               |   |        |  |      |     |  |   |    
|Acquisition and origination fees    |  |          | 697    |               |   | 3,832  |  |      |    |  |   | 145
|                                    |  |          |        |               |   |        |  |      |     |  |   |    
|                                    |  | $        | 63,827 |               | $ | 39,317 |  | $    | 206 |  | $ | 413
|                                    |  |          |        |               |   |        |  |      |     |  |   |    



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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



|10. | SEGMENT INFORMATION
|--- | -------------------

The
Company presently operates in two business segments based on its investment types: real estate and real estate-related. Under the real estate segment, the Company has invested in office and office/flex properties. Under the real estate-related
segment, the Company has invested in a mortgage loan, an A-Note and CMBS. During the year ended December 31, 2009, the Company purchased and subsequently sold its investment in CMBS. All revenues earned from the Companys two operating
segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts to its operating segments. Corporate-level accounts include corporate general and administrative
expenses, non-operating interest income, non-operating interest expense and other corporate-level expenses. The accounting policies of the segments are consistent with those described in Note 2, Summary of Significant Accounting
Policies.

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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



The following tables summarize total revenues and NOI for each reportable segment for
the years ended December 31, 2009 and 2008 and total assets and total liabilities for each reportable segment as of December 31, 2009 and 2008 (in thousands):



|                               |  |                          |         |      |   |        
|------------------------------ |  | ------------------------ | ------- | ---- | - | -------
|                               |  | Years Ended December 31,
|                               |  | 2009                     |         | 2008
|Revenues:                      |  |                          |         |      |   |        
|Real estate segment            |  | $                        | 58,374  |      | $ | 14,066 
|Real estate-related segment    |  |                          | 17,013  |      |   | 21     
|                               |  |                          |         |      |   |        
|Total segment revenues         |  | $                        | 75,387  |      | $ | 14,087 
|                               |  |                          |         |      |   |        
|                               |  |                         
|Interest Expense:              |  |                          |         |      |   |        
|Real estate segment            |  | $                        | 9,772   |      | $ | 4,314  
|Real estate-related segment    |  |                          |        |      |   |       
|                               |  |                          |         |      |   |        
|Total segment interest expense |  |                          | 9,772   |      |   | 4,314  
|Corporate-level                |  |                          | 392     |      |   | 31     
|                               |  |                          |         |      |   |        
|Total interest expense         |  | $                        | 10,164  |      | $ | 4,345  
|                               |  |                          |         |      |   |        
|                               |  |                         
|NOI:                           |  |                          |         |      |   |        
|Real estate segment            |  | $                        | 28,258  |      | $ | 4,626  
|Real estate-related segment    |  |                          | 16,095  |      |   | 18     
|                               |  |                          |         |      |   |        
|Total NOI                      |  | $                        | 44,353  |      | $ | 4,644  
|                               |  |                          |         |      |   |        
|                               | 
|                               |  | December 31,            
|                               |  | 2009                     |         | 2008
|Assets:(1)                     |  |                          |         |      |   |        
|Real estate segment            |  | $                        | 552,076 |      | $ | 461,043
|Real estate-related segment    |  |                          | 131,776 |      |   | 58,608 
|                               |  |                          |         |      |   |        
|Total segment assets           |  |                          | 683,852 |      |   | 519,651
|Corporate-level(2)             |  |                          | 270,016 |      |   | 53,211 
|                               |  |                          |         |      |   |        
|Total assets                   |  | $                        | 953,868 |      | $ | 572,862
|                               |  |                          |         |      |   |        
|                               |  |                         
|Liabilities:                   |  |                          |         |      |   |        
|Real estate segment            |  | $                        | 151,923 |      | $ | 298,184
|Real estate-related segment    |  |                          |        |      |   | 4      
|                               |  |                          |         |      |   |        
|Total segment liabilities      |  |                          | 151,923 |      |   | 298,188
|Corporate-level(3)             |  |                          | 6,123   |      |   | 2,369  
|                               |  |                          |         |      |   |        
|Total liabilities              |  | $                        | 158,046 |      | $ | 300,557
|                               |  |                          |         |      |   |        



(1)The Company had $1.9 million and $0.1 million in additions to long-lived assets in the real estate segment during the years ended December 31, 2009 and 2008,
respectively. There are no long-lived assets in the real estate-related segment.

(2)Total corporate-level assets consisted primarily of proceeds from the Offering being held in the form of cash and cash
equivalents of approximately $270.0 million and $53.2 million as of December 31, 2009 and 2008, respectively.

(3)As of December 31, 2009 and 2008, corporate-level liabilities consisted primarily of distributions payable.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



The following table reconciles the Companys net income (loss) to its NOI for the
years ended December 31, 2009 and 2008 (in thousands):



|                                          |  |                          |        |   |      |   |        |  
|----------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                          |  | Years Ended December 31, |       
|                                          |  | 2009                     |        |   | 2008 |  
|Net income (loss)                         |  | $                        | 12,419 |   |      | $ | (2,582 | )
|Other interest income                     |  |                          | (646   | ) |      |   | (589   | )
|Gain on sale of real estate securities    |  |                          | (119   | ) |      |   |       |  
|Real estate acquisition fees and expenses |  |                          | 1,524  |   |      |   |       |  
|General and administrative expenses       |  |                          | 2,678  |   |      |   | 810    |  
|Depreciation and amortization             |  |                          | 28,105 |   |      |   | 6,974  |  
|Corporate-level interest expense          |  |                          | 392    |   |      |   | 31     |  
|                                          |  |                          |        |   |      |   |        |  
|NOI                                       |  | $                        | 44,353 |   |      | $ | 4,644  |  
|                                          |  |                          |        |   |      |   |        |  



|11. | PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
|--- | -------------------------------------------

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 2009 and 2008. The Company acquired four
properties during the year ended December 31, 2008 and one property during the year ended December 31, 2009, all of which were accounted for as business combinations. The following unaudited pro forma information for the year
ended December 31, 2008 has been prepared as if all the property acquisitions during 2008 and 2009 were completed as of January 1, 2008. The following unaudited pro forma information for the year ended December 31, 2009
has been prepared as if the property acquisition during the year ended December 31, 2009 had been completed as of January 1, 2009. This pro forma information does not purport to represent what the actual results of operations of
the Company would have been had these acquisitions occurred on these dates, nor do they purport to predict the results of operations for future periods (in thousands, except share and per share amounts).



|                                                                        |  |                                 |            |      |   |            |  
|----------------------------------------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ---------- | -
|                                                                        |  | For the Year Ended December 31, |           
|                                                                        |  | 2009                            |            | 2008 |  
|Revenues                                                                |  | $                               | 85,920     |      | $ | 68,337     |  
|                                                                        |  |                                 |            |      |   |            |  
|Depreciation and amortization                                           |  | $                               | 31,970     |      | $ | 27,422     |  
|                                                                        |  |                                 |            |      |   |            |  
|Net income (loss)                                                       |  | $                               | 14,852     |      | $ | (3,539     | )
|                                                                        |  |                                 |            |      |   |            |  
|Net income (loss) per common share, basic and diluted                   |  | $                               | 0.21       |      | $ | (0.10      | )
|                                                                        |  |                                 |            |      |   |            |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                                 | 71,617,033 |      |   | 34,729,658 |  
|                                                                        |  |                                 |            |      |   |            |  



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



|12. | QUARTERLY RESULTS (UNAUDITED)
|--- | -----------------------------

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2009 and 2008 (in thousands, except per share amounts):



|                                               |  |               |        |   |                |   |        |               |  |   |                |   |  |   |        |  
|---------------------------------------------- |  | ------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | -
|                                               |  | 2009          |       
|                                               |  | First Quarter |        |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|Revenues                                       |  | $             | 16,408 |   |                | $ | 17,436 |               |  | $ | 19,518         |   |  | $ | 22,025 |  
|Net income                                     |  | $             | 1,205  |   |                | $ | 3,863  |               |  | $ | 2,408          |   |  | $ | 4,943  |  
|Net income per common share, basic and diluted |  | $             | 0.03   |   |                | $ | 0.07   |               |  | $ | 0.03           |   |  | $ | 0.06   |  
|Distributions declared per common share(1)     |  | $             | 0.160  |   |                | $ | 0.162  |               |  | $ | 0.164          |   |  | $ | 0.164  |  
|                                               | 
|                                               |  | 2008          |       
|                                               |  | First Quarter |        |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|Revenues                                       |  | $             |       |   |                | $ |       |               |  | $ | 2,024          |   |  | $ | 12,063 |  
|Net loss                                       |  | $             | (21    | ) |                | $ | (104   | )             |  | $ | (383           | ) |  | $ | (2,074 | )
|Net loss per common share, basic and diluted   |  | $             | (1.08  | ) |                | $ | (1.64  | )             |  | $ | (0.05          | ) |  | $ | (0.09  | )
|Distributions declared per common share(2)     |  | $             |       |   |                | $ |       |               |  | $ | 0.099          |   |  | $ | 0.164  |  



(1)Distributions declared per common share assumes each share was issued and outstanding each day during the respective quarterly period from January 1, 2009 through
December 31, 2009. Each day during the period from January 1, 2009 through December 31, 2009 was a record date for distributions.

(2)Distributions declared per common share for the third quarter of 2008 assumes each share was issued and outstanding each day during the period from July 16, 2008 through September 30, 2008. Distributions declared per common share
for the fourth quarter of 2008 assumes each share was issued and outstanding each day during the fourth quarter. Each day during the period from July 16, 2008 through December 31, 2008 was a record date for distributions.



|13. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Economic Dependency

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

Concentration of Credit Risk

The Company has two investments in real estate loans receivable, the Northern Trust Building A-Note and the One Liberty Plaza Notes,
that, as of and for the year ended December 31, 2009, comprised 6% and 7% of the Companys total assets, respectively, and provided 10% and 12% of the Companys revenues, respectively. The borrowers under these loans depend on
the cash flows generated by the properties securing these loans to cover the borrowers respective periodic debt service obligations. To the extent that these properties do not provide sufficient cash flows to cover debt service obligations,
the borrowers would rely on their sponsors to fund the remaining debt service obligations. If the borrowers sponsors were to experience a substantial deterioration in financial condition and no longer possessed the ability or intent to fund
the borrowers debt service shortfalls, the borrowers might default on the loans. Under such a scenario, the Company may incur losses to the extent that the value of the collateral is less than its recorded basis in the note. The Company
believes the sponsors of the borrowers under these loans are sufficiently capitalized to fund any of the borrowers debt service shortfalls; however, there can be no guarantee that they would do so.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material
adverse effect on the Companys financial condition and results of operations as of December 31, 2009.

Legal Matters

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



|14. | SUBSEQUENT EVENTS
|--- | -----------------

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

Status of Offering

The Company commenced its Offering on April 22, 2008. As of March 19, 2010, the Company had sold
103,686,200 shares of common stock in the Offering for gross offering proceeds of $1.0 billion, including 3,321,455 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $31.6 million.

Distributions Paid

On
January 15, 2010, the Company paid distributions of $5.0 million, which related to distributions declared for each day in the period from December 1, 2009 through December 31, 2009. On February 12, 2010,
the Company paid distributions of $5.2 million, which related to distributions declared for each day in the period from January 1, 2010 through January 31, 2010 and on March 15, 2010, the Company paid distributions
of $4.9 million, which related to distributions declared for each day in the period from February 1, 2010 through February 28, 2010.

Distributions Declared

On January 15, 2010, the Companys
board of directors declared distributions based on daily record dates for the period from February 1, 2010 through February 28, 2010, which the Company paid on March 15, 2010, and distributions based on daily record dates
for the period from March 1, 2010 through March 31, 2010, which the Company expects to pay in April 2010. On March 19, 2010, the Companys board of directors declared distributions based on daily record dates
for the period from April 1, 2010 through April 30, 2010, which the Company expects to pay in May 2010, and distributions based on daily record dates for the period from May 1, 2010 through May 31, 2010,
which the Company expects to pay in June 2010. Investors may choose to receive cash distributions or purchase additional shares through the Companys dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of
$0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share.

Investments and Financings Subsequent to December 31, 2009

Tuscan Inn First Mortgage

On January 21, 2010, the
Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $20.2 million (the Tuscan Inn First Mortgage) from a borrower unaffiliated with the Company or the Advisor. The borrower
used the proceeds from the loan to acquire a four-story, 221-room hotel located in San Francisco. The property includes a 68-car parking garage, 1,900 square feet of meeting facilities and a restaurant.

The Tuscan Inn First Mortgage matures on January 21, 2015. The annual effective interest rate of this investment is expected to be
8.5% and the Company receives interest-only payments during the term of the loan. The Tuscan Inn First Mortgage may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the
loan.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Chase Tower First Mortgage

On January 25, 2010, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of
$59.2 million (the Chase Tower First Mortgage) from a borrower unaffiliated with the Company or the Advisor. The borrower used the proceeds from the loan to acquire a 22-story Class A office tower located in Austin, Texas.
The office tower contains 389,503 square feet and at January 1, 2010 was approximately 94% leased.

The
Chase Tower First Mortgage matures on February 1, 2015. The annual effective interest rate of this investment is expected to be 8.4% and the Company receives interest-only payments for the first three years, followed by payments calculated
using an amortization schedule of 30 years for the balance of the term. The Chase Tower First Mortgage may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan.

Acquisition of Pierre Laclede Center

On February 4, 2010, the Company, through an indirect wholly owned subsidiary, acquired two office buildings containing 579,846 rentable square feet located on approximately 5.1 acres
of land in Clayton, Missouri (the Pierre Laclede Center). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing adjustments) of the Pierre Laclede Center was $74.2 million plus closing
costs. The Company funded the purchase of the Pierre Laclede Center with proceeds from the Offering, but may later place mortgage debt on the property.

The Pierre Laclede Center is located at 7701 and 7733 Forsyth Boulevard in Clayton, Missouri and consists of two office buildings that were built in 1964 and 1970, respectively. Currently, the Pierre
Laclede Center is 95% leased to 64 tenants. None of the tenants in this property represent more than 10% of the Companys total annualized base rent.

Acquisition of One Main Place

On February 5, 2010, the
Company, through an indirect wholly owned subsidiary, acquired a Class A office building containing 315,133 rentable square feet located on approximately 0.9 acres of land in Portland, Oregon (One Main Place). The
seller is not affiliated with the Company or the Advisor. The purchase price (net of closing adjustments) of One Main Place was $54.4 million plus closing costs. The Company funded the purchase of One Main Place with proceeds from the
Offering, but may later place mortgage debt on the property.

One Main Place is located at 101 SW Main Street in
Portland, Oregon and was built in 1980. One Main Place is 99% leased to 39 tenants. None of the tenants in this property represent more than 10% of the Companys total annualized base rent.

Acquisition of Plano Business Park

On March 15, 2010, the Company, through an indirect wholly owned subsidiary, acquired three light industrial buildings containing 283,559 rentable square feet located on approximately
19.9 acres of land in Plano, Texas (the Plano Business Park). The seller is not affiliated with the Company or the Advisor. The purchase price of the Plano Business Park was $16.8 million plus closing costs. The Company funded
the purchase of the Plano Business Park with proceeds from the Offering, but may later place mortgage debt on the property.

The Plano Business Park is located at 3801, 3901 and 4001 E. Plano Parkway in Plano, Texas and consists of three light industrial buildings that were built in 2001. Currently, the Plano Business Park is 94% leased to 7 tenants.
None of the tenants in this property represent more than 10% of the Companys total annualized base rent.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2009



Purchase Agreement for Hartman II

On March 19, 2010, the Company, through an indirect wholly owned subsidiary, entered into a purchase agreement to purchase an industrial
building containing 261,799 rentable square feet located on approximately 23.3-acres of land in Austell, Georgia (Hartman II). The seller is not affiliated with the Company or the Advisor. The purchase price of Hartman II is
approximately $10.8 million plus closing costs. Pursuant to the purchase agreement, the Company would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that the Company
will complete the acquisition. In some circumstances, if the Company fails to complete the acquisition, the Company may forfeit $0.3 million of earnest money. Hartman II is 100% leased to Nexen Tire America, Inc.

100 & 200 Campus Drive Financing

On February 26, 2010, the Company obtained a four-year mortgage loan with TD Bank, N.A. and US Bank National Association (collectively, the Lenders) for $64.6 million secured by
100 & 200 Campus Drive Buildings (the 100 & 200 Campus Drive Mortgage Loan). As of February 26, 2010, $20.0 million had been disbursed to the Company with the remaining loan balance available for future
disbursements, subject to certain conditions set forth in the loan agreement. The 100 & 200 Campus Drive Mortgage Loan matures on February 26, 2014, with an option to extend the maturity date to February 26, 2015,
subject to certain conditions. The 100 & 200 Campus Drive Mortgage Loan bears interest at a floating rate of 325 basis points over one-month LIBOR and monthly payments are interest only with the entire principal balance due at
maturity, assuming no prior prepayment. The Company has entered into interest rate swap agreements with the Lenders on the initial $20.0 million funded, which effectively fix the interest rate at approximately 5.55% through the initial term of
the loan. The Company will be required to enter future interest rate swap agreements if the amount drawn on the loan and not subject to a swap is equal or greater than $10.0 million. The 100 & 200 Campus Drive Mortgage Loan may be prepaid
in whole or in part at any time without penalty, subject to certain conditions.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2009

(in thousands)



|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                 |         |                                         |   |                             |  |              |       |  |   |        |  |   |         |  |   |         |  |   |        |  |                |  |           
|-------------------------------- |  | ----------------- |  | ---------------- | - | --------------------------- | ------------ | ------- | ----------------------- | - | ---------------------------------------- |  | ----------------------------------------------- | ------- | --------------------------------------- | - | --------------------------- |  | ------------ | ----- |  | - | ------ |  | - | ------- |  | - | ------- |  | - | ------ |  | -------------- |  | ----------
|Description                      |  | Location          |  | OwnershipPercent |   |                             | Encumbrances |         | Initial Cost to Company |   | Cost CapitalizedSubsequent toAcquisition |  | Gross Amount at whichCarried at Close of Period |         | AccumulatedDepreciation andAmortization |   | OriginalDate
ofConstruction |  | DateAcquired
|                                 |  |                   |  | Land             |   | Building andImprovements(1) |              | Total   |                         |   | Land                                     |  | Building andImprovements(1)                     |         | Total (2)                               |   |                             | 
|Mountain View Corporate Center   |  | Basking Ridge, NJ |  | 100              | % |                             | $            | 13,500  |                         | $ | 3,600                                    |  | $                                               | 27,138  |                                         | $ | 30,738                      |  | $            | 265   |  | $ | 3,600  |  | $ | 27,403  |  | $ | 31,003  |  | $ | 2,295  |  | 2001           |  | 07/30/2008
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                
|Campus Drive Buildings           |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                 |         |                                         |   |                             |  |              |       |  |   |        |  |   |         |  |   |         |  |   |        |  |                |  |           
|100 & 200 Campus Drive Buildings |  | Florham Park, NJ  |  | 100              | % |                             |              | 5,000   |                         |   | 10,700                                   |  |                                                 | 188,509 |                                         |   | 199,209                     |  |              | 908   |  |   | 10,700 |  |   | 188,495 |  |   | 199,195 |  |   | 15,802 |  | 1988/1989      |  | 09/09/2008
|300-600 Campus Drive Buildings   |  | Florham Park, NJ  |  | 100              | % |                             |              | 93,850  |                         |   | 9,717                                    |  |                                                 | 185,445 |                                         |   | 195,162                     |  |              | 824   |  |   | 9,717  |  |   | 186,269 |  |   | 195,986 |  |   | 11,634 |  | 1997/1999      |  | 10/10/2008
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                 |         |                                         |   |                             |  |              |       |  |   |        |  |   |         |  |   |         |  |   |        |  |                |  |           
|Total Campus Drive Buildings     |  |                   |  |                  |   |                             |              | 98,850  |                         |   | 20,417                                   |  |                                                 | 373,954 |                                         |   | 394,371                     |  |              | 1,732 |  |   | 20,417 |  |   | 374,764 |  |   | 395,181 |  |   | 27,436 |  |                |  |           
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                
|350 E. Plumeria Building         |  | San Jose, CA      |  | 100              | % |                             |              | 14,310  |                         |   | 11,290                                   |  |                                                 | 24,819  |                                         |   | 36,109                      |  |              | 12    |  |   | 11,290 |  |   | 24,831  |  |   | 36,121  |  |   | 1,169  |  | 1984/2008      |  | 12/18/2008
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                
|Willow Oaks Corporate Center     |  | Fairfax, VA       |  | 100              | % |                             |              |        |                         |   | 25,300                                   |  |                                                 | 87,802  |                                         |   | 113,102                     |  |              | 20    |  |   | 25,300 |  |   | 87,822  |  |   | 113,122 |  |   | 3,159  |  | 1986/1989/2003 |  | 08/26/2009
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                 |         |                                         |   |                             |  |              |       |  |   |        |  |   |         |  |   |         |  |   |        |  |                |  |           
|                                 |  |                   |  | TOTAL            |   |                             | $            | 126,660 |                         | $ | 60,607                                   |  | $                                               | 513,713 |                                         | $ | 574,320                     |  | $            | 2,029 |  | $ | 60,607 |  | $ | 514,820 |  | $ | 575,427 |  | $ | 34,059 |  |                |  |           
|                                 |  |                   |  |                  |   |                             |              |         |                         |   |                                          |  |                                                 |         |                                         |   |                             |  |              |       |  |   |        |  |   |         |  |   |         |  |   |        |  |                |  |           



(1)Building
and improvements include tenant origination and absorption costs.

(2)The aggregate cost of real estate for federal income tax purposes was $551.0 million as of
December 31, 2009.



F-31



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION (CONTINUED)

December 31, 2009

(in thousands)



|                                                          |  |      |         |   |      |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                          |  | 2009 |         |   | 2008 |  
|Real estate:                                              |  |      |         |   |      |   |         |  
|Balance at the beginning of the year                      |  | $    | 460,779 |   |      | $ |        |  
|Acquisitions                                              |  |      | 113,102 |   |      |   | 461,218 |  
|Improvements                                              |  |      | 1,929   |   |      |   | 100     |  
|Write-off of fully depreciated and fully amortized assets |  |      | (383    | ) |      |   | (539    | )
|                                                          |  |      |         |   |      |   |         |  
|Balance at the end of the year                            |  | $    | 575,427 |   |      | $ | 460,779 |  
|                                                          |  |      |         |   |      |   |         |  
|                                                          |  |     
|Accumulated depreciation:                                 |  |      |         |   |      |   |         |  
|Balance at the beginning of the year                      |  | $    | 6,436   |   |      | $ |        |  
|Depreciation expense                                      |  |      | 28,006  |   |      |   | 6,974   |  
|Write-off of fully depreciated and fully amortized assets |  |      | (383    | ) |      |   | (538    | )
|                                                          |  |      |         |   |      |   |         |  
|Balance at the end of the year                            |  | $    | 34,059  |   |      | $ | 6,436   |  
|                                                          |  |      |         |   |      |   |         |  



F-32



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Newport Beach, State of California, on March 23, 2010.



KBS REAL ESTATE INVESTMENT TRUST II, INC.By:

/S/    CHARLES J. SCHREIBER,
JR.Charles J. Schreiber, Jr.Chairman of the Board, Chief Executive Officer and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:



|                                 |  |                                                    |  |               
|-------------------------------- |  | -------------------------------------------------- |  | --------------
|Name                             |  | Title                                              |  | Date          
|                                 |  |                                                   
|/S/    CHARLES J.
SCHREIBER, JR. |  | Chairman of Board, Chief Executive Officer and     |  | March 23, 2010
|Charles J. Schreiber, Jr.        |  | Director                                           |  |               
|                                 |  |                                                   
|/S/    DAVID E.
SNYDER           |  | Chief Financial Officer                            |  | March 23, 2010
|David E. Snyder                  |  |                                                    |  |               
|                                 |  |                                                   
|/S/    PETER
MCMILLAN III        |  | Executive Vice President, Treasurer, Secretary and |  | March 23, 2010
|Peter McMillan III               |  | Director                                           |  |               
|                                 |  |                                                   
|/S/    STACIE K.
YAMANE          |  | Chief Accounting Officer                           |  | March 23, 2010
|Stacie K. Yamane                 |  |                                                    |  |               
|                                 |  |                                                   
|/S/    HANK
ADLER                |  | Director                                           |  | March 23, 2010
|Hank Adler                       |  |                                                    |  |               
|                                 |  |                                                   
|/S/    BARBARA R.
CAMBON         |  | Director                                           |  | March 23, 2010
|Barbara R. Cambon                |  |                                                    |  |               
|                                 |  |                                                   
|/S/    STUART A.
GABRIEL, PH.D.  |  | Director                                           |  | March 23, 2010
|Stuart A. Gabriel, Ph.D.         |  |                                                    |  |