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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, 2010

OR



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

For the transition period from  to

Commission file number 000-53649





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 or 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

While there is no established market for the Registrants shares of common stock, the Registrant has made an initial public offering
of its shares of common stock pursuant to a Registration Statement on Form S-11. The Registrant ceased offering shares of common stock in its primary offering on December 31, 2010. The last price paid to acquire a share in the
Registrants primary public offering was $10.00. There were approximately 123,385,548 shares of common stock held by non-affiliates at June 30, 2010, the last business day of the registrants most recently
completed second fiscal quarter.

As of March 9, 2011, there were 188,044,880 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                                                                                                 |     |  | 13 | 
|                              |  |                                                                                                             
|ITEM 1B.                      |  | UNRESOLVED STAFF COMMENTS                                                                                    |     |  | 40 | 
|                              |  |                                                                                                             
|ITEM 2.                       |  | PROPERTIES                                                                                                   |     |  | 41 | 
|                              |  |                                                                                                             
|ITEM 3.                       |  | LEGAL PROCEEDINGS                                                                                            |     |  | 41 | 
|                              |  |                                                                                                             
|ITEM 4.                       |  | (REMOVED AND RESERVED)                                                                                       |     |  | 41 | 
|                              | 
|PART II                       |  |                                                                                                              | 42  | 
|                              |  |                                                                                                             
|ITEM 5.                       |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |     |  | 42 | 
|                              |  |                                                                                                             
|ITEM 6.                       |  | SELECTED FINANCIAL DATA                                                                                      |     |  | 46 | 
|                              |  |                                                                                                             
|ITEM 7.                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |     |  | 47 | 
|                              |  |                                                                                                             
|ITEM 7A.                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |     |  | 62 | 
|                              |  |                                                                                                             
|ITEM 8.                       |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |     |  | 63 | 
|                              |  |                                                                                                             
|ITEM 9.                       |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |     |  | 63 | 
|                              |  |                                                                                                             
|ITEM 9A.                      |  | CONTROLS AND PROCEDURES                                                                                      |     |  | 63 | 
|                              |  |                                                                                                             
|ITEM 9B.                      |  | OTHER INFORMATION                                                                                            |     |  | 64 | 
|                              |  |                                                                                                             
|PART III                      |  |                                                                                                              |     |  | 65 | 
|                              |  |                                                                                                             
|ITEM 10.                      |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |     |  | 65 | 
|                              |  |                                                                                                             
|ITEM 11.                      |  | EXECUTIVE COMPENSATION                                                                                       |     |  | 70 | 
|                              |  |                                                                                                             
|ITEM 12.                      |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |     |  | 71 | 
|                              |  |                                                                                                             
|ITEM 13.                      |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                                     |     |  | 72 | 
|                              |  |                                                                                                             
|ITEM 14.                      |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |     |  | 75 | 
|                              |  |                                                                                                             
|PART IV                       |  |                                                                                                              |     |  | 76 | 
|                              |  |                                                                                                             
|ITEM 15.                      |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |     |  | 76 | 
|                              | 
|INDEX TO FINANCIAL STATEMENTS |  |                                                                                                              | F-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:



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



| |  |  | All of our executive officers, some of our directors and other key real estate and debt finance professionals are also officers, directors, managers,
key professionals and/or holders of a direct or indirect controlling interest in our advisor, the entity that acted as our dealer manager and other KBS-affiliated entities. As a result, they face conflicts of interest, including significant
conflicts created by our advisors compensation arrangements with us and other KBS-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated
actions. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This
arrangement could influence our advisor to recommend riskier transactions to us.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We pay substantial fees to and expenses of our advisor and its affiliates and, in connection with our public offering, we paid substantial fees to
participating broker-dealers. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have used and expect to continue to use proceeds from financings to fund a portion of our distributions until the proceeds from our initial public
offering are fully invested and from time to time during our operational stage in anticipation of cash flow to be received in later periods. 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we are unable to locate investments with attractive yields while we are investing the proceeds of our 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 our properties and the
properties and other assets directly securing our loan investments could decrease. Such events would make it more difficult for the borrowers under our loan investments to meet their payment obligations to us. It could also make it more difficult
for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | 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.



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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 has invested 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.

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. We ceased offering shares of common stock in our primary offering on December 31, 2010 and are completing subscription processing procedures, as set forth in our prospectus. We continue
to offer shares of common stock under our dividend reinvestment plan. From the commencement of our primary offering on April 22, 2008 through December 31, 2010, we had sold 179,185,669 shares of common stock for gross offering
proceeds of $1.8 billion, including 6,999,082 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $66.5 million. Also as of December 31, 2010, we had redeemed 2,465,804 of the shares sold in
our offering for $23.2 million.

As of December 31, 2010, we owned 17 real estate properties (consisting of 14
office properties, one office/flex property and two industrial properties), a leasehold interest in one industrial property and six real estate loans receivable.

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.
| | - |  | ---------------------------------------------------------------

We intend to 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 initial public offering and debt financing. We intend to diversify our portfolio by investment size, investment type, investment risk and geographic region. Based on
our investments to date, we expect to allocate between 80% and 90% of our portfolio to investments in core properties and allocate between 10% and 20% 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 Internal Revenue Code), the portfolio may consist of a greater percentage of real estate-related
investments.



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The following chart illustrates the diversification of our investment portfolio as of
December 31, 2010, across investment types based on the gross acquisition or origination price of the investments (including acquisition and origination costs and fees):

LOGO

2010 Investment Highlights

During 2010, we purchased or originated:



| |  |  | 10 office properties encompassing 4,607,860 rentable square feet located throughout the United States for $1.4 billion plus closing costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | two industrial properties encompassing 545,358 rentable square feet located in Plano, Texas and Austell, Georgia for $27.4 million plus closing costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the rights to a ground lease with respect to an industrial property containing 400,000 rentable square feet located in Irving, Texas for
$19.0 million plus closing costs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | four first mortgage loans totaling $286.3 million plus closing costs. With respect to one of the first mortgage loans, we sold a pari passu
participation interest with respect to 50% of the outstanding principal balance at par, or $87.5 million, to an unaffiliated buyer.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Real Estate Portfolio

Real Estate Investments

We have made investments in core properties, which are generally lower risk, existing properties with at least 80% occupancy and minimal
near-term lease rollover. To date we have invested in:



| |  |  | 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 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, 2010, we owned 14 office properties, one office/flex property, two industrial properties
and a leasehold interest in one industrial property encompassing 7.5 million square feet. The following charts illustrate our geographic distribution based on total leased square feet and total annualized base rent:

LOGO





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LOGO





* Other includes any states less than 2% of total.

We have a stable tenant base and we have tried to diversify our tenant base in order to limit exposure to any one tenant or industry. As of December 31, 2010, our largest tenant,
Kirkland & Ellis, represented 13.6% of our total annualized base rent. We had no other tenants that represented more than 10% of our total annualized base rent and our top ten tenants represented approximately 42.7% of our total annualized
base rent as of December 31, 2010. 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.



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As of December 31, 2010, 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 | 
|Legal Services              |  |                  | 52 |  |                                      | $ | 47,511  |                                   |  |  | 26 | %
|Finance                     |  |                  | 52 |  |                                      |   | 38,060  |                                   |  |  | 20 | %
|Other Professional Services |  |                  | 50 |  |                                      |   | 19,373  |                                   |  |  | 10 | %
|                            |  |                  |    |  |                                      |   |         |                                   |  |  |    |  
|                            |  |                  |    |  |                                      | $ | 104,944 |                                   |  |  | 56 | %
|                            |  |                  |    |  |                                      |   |         |                                   |  |  |    |  



(1)Annualized base rent represents annualized contractual base rental income as of December 31, 2010, 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, 2010 was $2.0 billion. Our real estate portfolio
accounted for 82%, 77% and 99% of total revenues for the years ended December 31, 2010, 2009 and 2008, respectively.

Real
Estate-Related Investments

As of December 31, 2010, we owned (i) four mortgage loans; (ii) an
A-Note loan and (iii) a participation in a mortgage loan. During 2009, we acquired and then sold a CMBS investment. We generally intend to hold our real estate-related investments until maturity. However, economic and market conditions may
influence the length of time that we hold these investments.

The total cost and book value of our real estate-related
investments as of December 31, 2010 were $325.2 million and $336.8 million, respectively. Our real estate-related investments accounted for 18% and 23% of total revenues for the years ended December 31, 2010 and 2009,
respectively. As of December 31, 2010, we had invested in fixed and variable rate loans receivable with book values of $248.3 million and $88.5 million, respectively, and the weighted-average annualized effective interest rates on the
fixed and variable rate loans receivable were 11.7% and 7.2%, respectively.

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 wholly with proceeds we received from our initial public offering. We used debt financing to increase the amount available for investment and to increase overall investment
yields to us and our stockholders. As of December 31, 2010, the weighted-average interest rate on our debt was 4.4%.

We borrow funds at both fixed and variable rates; at December 31, 2010, we had $460.8 million and $367.4 million of
fixed and variable rate debt outstanding, respectively. Of the variable rate debt outstanding, approximately $316.8 million was effectively fixed through the use of interest rate swap agreements. The weighted-average interest rates of our fixed
rate debt and variable rate debt at December 31, 2010 were 4.7% and 4.1%, respectively. The weighted-average interest rate represents the actual interest rate in effect at December 31, 2010 (consisting of the contractual interest
rate and the effect of interest rate swaps and floors), using interest rate indices as of December 31, 2010, where applicable.

We have tried to spread the maturity dates of our debt to minimize maturity and refinance risk in our portfolio. In addition, a majority of our debt allows us to extend the maturity dates, subject to
certain conditions. Although we believe we will satisfy the conditions to extend the maturity of our debt obligations, we can give no assurance in this regard. The following table shows the contractual and fully extended maturities of our debt as of
December 31, 2010:



|           |  |                  |         |  |                   |   |         | 
|---------- |  | ---------------- | ------- |  | ----------------- | - | ------- | 
|           |  | Current Maturity |         |  | Extended Maturity |  
|2011       |  | $                | 57,507  |  |                   | $ | 57,507  | 
|2012       |  |                  |        |  |                   |   |        | 
|2013       |  |                  | 13,000  |  |                   |   |        | 
|2014       |  |                  | 213,850 |  |                   |   | 93,850  | 
|2015       |  |                  | 524,000 |  |                   |   | 483,000 | 
|Thereafter |  |                  | 19,800  |  |                   |   | 193,800 | 
|           |  |                  |         |  |                   |   |         | 
|           |  | $                | 828,157 |  |                   |   | 828,157 | 
|           |  |                  |         |  |                   |   |         | 



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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. We did not exceed our charter limitation on borrowings during any quarter of 2010. Once we have fully invested the proceeds of our
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, 2010, our borrowings were approximately 36% of both the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our
tangible assets.

Market Outlook  Real Estate and Real Estate Finance Markets

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

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

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

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

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

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



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

Impact on Our Real Estate Investments

These market conditions have and will likely continue to have a significant impact on our real estate investments and create a highly competitive leasing environment. 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.

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, 2010, we
had fixed rate real estate loans receivable with a principal balance of $320.8 million and a carrying value of $248.3 million that mature between 2014 and 2017 and a variable rate real estate loan receivable with a principal balance of
$87.5 million and a carrying value (including origination and closing costs) of $88.5 million that matures in 2013.

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, 2010, we had debt obligations in the aggregate principal amount of $828.2 million, all of which mature between 2011 and 2016. As of December 31, 2010, $57.5 million of our mortgage
debt outstanding is scheduled to mature within 12 months of that date. We have a total of $460.8 million of fixed rate notes payable and $367.4 million of variable rate notes payable. The interest rates on $316.8 million of our
variable rate notes payable are effectively fixed through interest rate swap agreements.

Economic Dependency

We are dependent on our advisor for certain services that are essential to us, including 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 our advisor is unable to provide these services, we will be required to obtain such services from other sources.



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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, we could be materially impacted by the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition
strategy. A 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. 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.

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.



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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 11 Segment Information in the notes to our consolidated financial statements filed herewith.

Employees

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

Principal Executive Office

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.

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. As such, investors should purchase shares in our dividend reinvestment plan only if they will not need to realize the cash value of their investment
for an extended period.

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 shares in our dividend reinvestment plan 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. 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. 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.

Based on our investments to date, we expect to allocate approximately 10% to 20% 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 the past three years, 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. Amid signs of recovery in the economic and financial markets, 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 the past three years. Bank earnings and liquidity have rebounded, particularly among larger financial institutions. Smaller financial institutions have continued to work with borrowers to amend and
extend existing loans. Looking forward, it is widely assumed that mortgage delinquencies have not yet peaked. Liquidity in the global credit market has been severely contracted by these market disruptions, and new lending is expected to remain
subdued in the near term. 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 uncertainties in the credit market, 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.

The recent positive economic developments do
not provide an indication of a general market recovery or provide an indication of the duration of the existing downturn, or the speed of any expected recovery. Further 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 conditions 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 Strategic Opportunity REIT), KBS Legacy Partners Apartment REIT, Inc. (KBS Legacy Partners Apartment REIT) and KBS Real Estate Investment Trust
III, Inc. (KBS REIT III)  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. 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.

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.

We have a limited operating history, 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.

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 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 depends on the fees and other compensation that it receives 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.



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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, proceeds from our offering or sources other than our cash flow from operations, 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. To date, we have funded total distributions paid, which includes net cash distributions and dividends
reinvested by stockholders, with operating cash flows and debt financing. 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 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.

The loss of or the inability to obtain key real estate and debt finance professionals at our
advisor 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 and Charles J. Schreiber, Jr., each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with Messrs. Bren, Hall, McMillan or Schreiber. Messrs. Bren,
Hall, McMillan and Schreiber 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 investments 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.



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We may change our targeted investments without stockholder consent.

Based on our investments to date, we expect to allocate approximately 80% to 90% of our portfolio to investments in core properties and
approximately 10% to 20% 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 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.

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 KBS Capital Advisors, our advisor, KBS Capital Markets Group, LLC (KBS Capital Markets Group), the entity that acted as 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | public offerings of equity by us, which would entitle KBS Capital Markets Group to dealer-manager fees and would 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 Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT and KBS REIT III are also advised by KBS Capital Advisors and 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 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 David E. Snyder and Ms. Stacie K. Yamane for the day-to-day operation of our business. KBS REIT I,
KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT and KBS REIT III are also advised by KBS Capital Advisors and 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 face conflicts of interest in allocating their time among us, KBS REIT I, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS REIT III, KBS Capital Advisors, 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, 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 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 other KBS
programs, including KBS REIT I, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT and KBS REIT III. 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. 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. 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.

Our boards loyalties to KBS REIT I, KBS Strategic Opportunity REIT, KBS REIT III 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 and KBS REIT III. One of our directors is also a director of
KBS Strategic Opportunity REIT. The loyalties of our directors serving on the boards of KBS REIT I, KBS REIT III and KBS Strategic Opportunity REIT, or possibly on the boards of future KBS-sponsored programs, may
influence the judgment of our board of directors 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decision of the board or the conflicts committee regarding whether or when we seek to list our common shares on a national securities exchange could
be influenced by concerns that such listing could adversely affect the sales efforts for other KBS-sponsored programs, depending on the price at which our shares trade.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because our independent directors are also independent directors of KBS REIT I and KBS REIT III, they receive
compensation for service on the board of KBS REIT I and upon breaking escrow in KBS REIT IIIs initial public offering, they will receive compensation for service on the board of KBS REIT III. Like us, KBS REIT I pays and
KBS REIT III will pay 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 and KBS REIT III will reimburse 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, 2010, the independent directors of
KBS REIT I earned compensation as follows:



|                        |  |                             |        |     |                              |   |        | 
|----------------------- |  | --------------------------- | ------ | --- | ---------------------------- | - | ------ | 
|Independent Director    |  | Compensation Earned in 2010 |        |     | Compensation Paid in
2010(1) |  
|                        |  |                            
|Hank Adler              |  | $                           | 91,996 | (2) |                              | $ | 93,496 | 
|                        |  |                            
|Barbara Cambon          |  | $                           | 85,496 | (3) |                              | $ | 87,996 | 
|                        |  |                            
|Stuart A. Gabriel, Ph.D |  | $                           | 89,496 | (4) |                              | $ | 90,496 | 



(1)Compensation Paid in 2010 includes meeting fees earned during 2009 but paid or reimbursed in 2010 as follows: Mr. Adler $7,333; Ms. Cambon $8,333; and Mr. Gabriel $7,333.

(2)This amount includes (i) fees earned for attendance at nine board meetings, seven 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.

(3)This amount includes (i) fees earned for attendance at eight board meetings, six conflicts committee meetings and four 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 nine board meetings, seven 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.

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 Internal Revenue 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, an
investment company is any issuer that:



| |  |  | is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities
(the primarily engaged test); or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire
investment securities having a value exceeding 40% of the value of such issuers 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.) As reflected in no-action letters, 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, or qualifying assets; at least 80% of its assets in qualifying assets plus 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, which we refer
to as miscellaneous assets. To constitute a qualifying asset under this 55% requirement, a real estate interest must meet various criteria based on no-action letters.

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. The SEC staff has issued little interpretive guidance with respect to Section 3(c)(6); however, it is our view 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, the SEC may issue interpretations with respect to various types of assets that are contrary to our views and current SEC staff interpretations 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 we may redeem 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 initial public offering or follow-on public offerings, 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. 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 and every 12 to 18 months thereafter.
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 paid. We may use the most recent price paid to acquire a share in our primary initial public offering or follow-on public offerings 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 was 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 participated
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. For this purpose, KBS Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2010. The basis for this valuation is the fact that the most recent public offering
price of our shares of common stock in our primary offering was $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it may use the most recent price paid to acquire a share
in our initial 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 and have not done so for up to 18 months. We ceased offering shares in our initial public offering on December 31, 2010 but we may conduct follow-on public
equity 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.) Once we establish an estimated value per share we currently expect to update the estimated value per share every 12 to 18 months thereafter. 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.

Although the estimated value set forth above represents the most recent price at which most investors were 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 was 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 an 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 or 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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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, leasing and disposition of our properties and the management, structuring and 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 expected to be paid 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 ever 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, if our board of directors ever did decide that we should
become self-managed, then we may 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.

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.



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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 property tax laws), 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 based on an underwriting analysis with respect to each asset and how the asset fits into our portfolio. 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.

We acquired the 300 N. LaSalle
Building on July 29, 2010. A significant percentage of our assets is invested in the 300 N. LaSalle Building and the value of our stockholders investment in us will fluctuate with the performance of this investment.

The 300 N. LaSalle Building represents approximately 26% of our total assets and represents approximately 24% of our
total annualized base rent as of December 31, 2010. In addition, the largest tenant at the property, Kirkland and Ellis, leases approximately 53% of the 300 N. LaSalle Building and represents approximately 14% of our total annualized base
rent as of December 31, 2010. Further, as a result of this acquisition, the geographic concentration of our portfolio makes us particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse
economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local
business climate, could adversely affect our operating results and our ability to make distributions to our stockholders.



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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.

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.



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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.

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.



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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.

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 were 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.



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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 to 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. Many of our investments are in major metropolitan areas.
Insurance risks associated with potential acts of terrorism against office and other properties in major metropolitan areas 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 specific coverage against terrorism be purchased by commercial owners as a condition for providing loans. 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. In addition, certain losses resulting from these
types of events are uninsurable and others may not be covered by our terrorism insurance. The costs of obtaining terrorism insurance and any uninsured losses we may suffer as a result of terrorist attacks could reduce the returns on our investments
and limit our ability to make distributions to our stockholders.

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. The values of the properties ultimately securing our loans may change
after we acquire or originate 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.

Our investments in mortgage, mezzanine, bridge or other real estate loans are subject to interest rate fluctuations that will affect our returns as compared to market interest rates; accordingly,
the value of our stockholders investment in us is subject to fluctuations in interest rates.

With respect to our
fixed rate, long-term loans, if 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. With respect to our variable-rate loans, if interest rates decrease, our revenues will also decrease. For these reasons, our returns on these loans and the value of our stockholders
investment in us will be subject to fluctuations in interest rates.



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The mortgage loans we invest in and the mortgage loans underlying the mortgage securities we may
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 there are defaults under our mortgage loan investments, 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.

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

We may invest in mezzanine loans that take the form of
subordinated loans secured by a pledge of the ownership interests of the entity owning (directly or indirectly) 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.



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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.

We may invest in subordinated loans and subordinated mortgage-backed
securities that 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.

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.



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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 and loans, 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.

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.



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We depend on debtors 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 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.

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 have entered and in the future 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.



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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.

There can be no assurance that the direct or indirect effects of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, enacted in July 2010 for the purpose of stabilizing or reforming the financial markets, will not have an adverse effect on our interest rate hedging activities.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) became law
in the United States. Title VII of the Dodd-Frank Act contains a sweeping overhaul of the regulation of privately negotiated derivatives. The provisions of Title VII become effective on July 16, 2011 or, with respect to
particular provisions, on such other date specified in the Dodd-Frank Act or by subsequent rulemaking. While the full impact of the Dodd-Frank Act on our interest rate hedging activities cannot be assessed until implementing rules and
regulations are promulgated, the requirements of Title VII may affect our ability to enter into hedging or other risk management transactions, may increase our costs in entering into such transactions, and may result in us entering into
such transactions on more unfavorable terms than prior to effectiveness of the Dodd-Frank Act. The occurrence of any of the foregoing events may have an adverse effect on our business.

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 we received from our initial public offering 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.



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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 may 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 may 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 will estimate the fair value of any
such 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.

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. We have acquired many of our
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.



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If we 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.

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.



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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.

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, 2010, our borrowings were approximately 36% of both the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets, respectively. 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 Internal Revenue 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.

Failure to qualify as a REIT would subject us to federal income tax, which would reduce
the cash available for distribution to our stockholders.

We expect to operate in a manner that will allow us to
continue to qualify as a REIT for federal income tax purposes. However, the federal income tax laws governing REITs are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Qualifying
as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis. While we intend to operate so that we will qualify as a
REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the tax treatment of certain investments we may make, and the possibility of future changes in our circumstances, no
assurance can be given that we will so qualify for any particular year. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we would be required to pay federal income tax on our taxable
income. We might need to borrow money or sell assets to pay that tax. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, if we fail to maintain our qualification as a REIT
and we do not qualify for certain statutory relief provisions, we no longer would be required to distribute substantially all of our REIT taxable income to our stockholders. Unless our failure to qualify as a REIT were excused under federal tax
laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.



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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, if any. As a result, unless our stockholders are tax-exempt entities, 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 elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or certain leasehold terminations as
foreclosure property, we may avoid the 100% tax on gain from a resale of that property, but the income from the sale or operation of that property may be subject to corporate income tax at the highest applicable 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 Internal Revenue Code.

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

We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order for federal corporate income tax not to apply to
earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed REIT taxable income. In
addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our
stockholders to comply with the REIT requirements of the Internal Revenue Code.

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.



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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 securitizations or other borrowings we may make 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.

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 Internal Revenue
Service 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.

Dividends payable by REITs do not qualify for the reduced tax rates.

Legislation enacted in 2003 and modified in 2005 and 2010 generally reduces the maximum tax rate for dividends payable to domestic
stockholders that are individuals, trusts and estates to 15% (through 2012). Dividends payable by REITs, however, are generally not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or
dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in stock of
non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.



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Retirement Plan Risks

If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of
the Internal Revenue Code (such as an individual retirement account (IRA)) 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 penalties and other sanctions.

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 and IRA owners 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 an unacceptable amount of 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 make no claim whether such estimated value will or will not 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.

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, including liability for investment
losses. 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 addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be
deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with counsel before making an investment in our common shares.



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

We have no unresolved staff comments.



40



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##### Table of Contents

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

As of
December 31, 2010, we owned 17 real estate properties (consisting of 14 office properties, one office/flex property and two industrial properties) and a leasehold interest in one industrial property, encompassing in the aggregate
7.5 million rentable square feet. The total cost of our real estate portfolio was $2.0 billion. At December 31, 2010, our portfolio was approximately 96% occupied and the average annualized base rent per square foot of our real
estate portfolio was $25.83. The weighted-average remaining lease term of our real estate portfolio is 6.9 years. As of December 31, 2010, the following property represented more than 10% of our total assets:



|                        |  |          |             |  |                    |  |           |                                      |  |   |                          |  |  |                                      |      |   |                                       |   |        |           |  |   |       |  |  |  |      |  
|----------------------- |  | -------- | ----------- |  | ------------------ |  | --------- | ------------------------------------ |  | - | ------------------------ |  |  | ------------------------------------ | ---- | - | ------------------------------------- | - | ------ | --------- |  | - | ----- |  |  |  | ---- | -
|Property                |  | Location |             |  | RentableSquareFeet |  |           | TotalReal Estate, 
Net(in thousands) |  |   | Percentageof TotalAssets |  |  | AnnualizedBase
Rent(in thousands)(1) |      |   | AverageAnnualizedBase Rentper sq. ft. |   |        | Occupancy | 
|300 N. LaSalle Building |  |          | Chicago, IL |  |                    |  | 1,302,901 |                                      |  | $ | 607,044                  |  |  |                                      | 25.5 | % |                                       | $ | 43,838 |           |  | $ | 34.16 |  |  |  | 98.5 | %



(1)Annualized base rent represents annualized contractual base rental income as of December 31, 2010, adjusted to straight-line any contractual rent increases or decreases from the
leases inception through the balance of the lease term.

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, 2010:



|                   |  |                          |     |  |                                      |   |         |                                    |  |  |                                    |   |  |                                             |           |  |  |  |       |  
|------------------ |  | ------------------------ | --- |  | ------------------------------------ | - | ------- | ---------------------------------- |  |  | ---------------------------------- | - |  | ------------------------------------------- | --------- |  |  |  | ----- | -
|Year of Expiration |  | Number 
ofLeasesExpiring |     |  | AnnualizedBase Rent(1)(in thousands) |   |         | % of 
PortfolioAnnualizedBase Rent |  |  | Leased RentableSquare
FeetExpiring |   |  | % of 
PortfolioRentable Square FeetExpiring |          
|Month to Month     |  |                          | 19  |  |                                      | $ | 599     |                                    |  |  | 0.3                                | % |  |                                             | 56,849    |  |  |  | 0.8   | %
|2011               |  |                          | 52  |  |                                      |   | 11,789  |                                    |  |  | 6.3                                | % |  |                                             | 450,444   |  |  |  | 6.2   | %
|2012               |  |                          | 48  |  |                                      |   | 13,619  |                                    |  |  | 7.3                                | % |  |                                             | 517,196   |  |  |  | 7.2   | %
|2013               |  |                          | 38  |  |                                      |   | 8,533   |                                    |  |  | 4.6                                | % |  |                                             | 382,212   |  |  |  | 5.3   | %
|2014               |  |                          | 42  |  |                                      |   | 23,013  |                                    |  |  | 12.3                               | % |  |                                             | 860,473   |  |  |  | 11.9  | %
|2015               |  |                          | 36  |  |                                      |   | 18,498  |                                    |  |  | 9.9                                | % |  |                                             | 904,989   |  |  |  | 12.5  | %
|2016               |  |                          | 18  |  |                                      |   | 13,571  |                                    |  |  | 7.3                                | % |  |                                             | 564,432   |  |  |  | 7.8   | %
|2017               |  |                          | 17  |  |                                      |   | 6,891   |                                    |  |  | 3.7                                | % |  |                                             | 301,350   |  |  |  | 4.2   | %
|2018               |  |                          | 11  |  |                                      |   | 13,996  |                                    |  |  | 7.5                                | % |  |                                             | 536,111   |  |  |  | 7.4   | %
|2019               |  |                          | 12  |  |                                      |   | 10,102  |                                    |  |  | 5.4                                | % |  |                                             | 348,304   |  |  |  | 4.8   | %
|2020               |  |                          | 14  |  |                                      |   | 3,956   |                                    |  |  | 2.1                                | % |  |                                             | 505,407   |  |  |  | 7.0   | %
|Thereafter(2)      |  |                          | 17  |  |                                      |   | 61,927  |                                    |  |  | 33.3                               | % |  |                                             | 1,790,901 |  |  |  | 24.9  | %
|                   |  |                          |     |  |                                      |   |         |                                    |  |  |                                    |   |  |                                             |           |  |  |  |       |  
|                   |  |                          | 324 |  |                                      | $ | 186,494 |                                    |  |  | 100.0                              | % |  |                                             | 7,218,668 |  |  |  | 100.0 | %
|                   |  |                          |     |  |                                      |   |         |                                    |  |  |                                    |   |  |                                             |           |  |  |  |       |  



(1)Annualized base rent represents annualized contractual base rental income as of December 31, 2010, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.

(2)Represents leases expiring from 2021 through 2029.



|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 9, 2011, we had approximately 188.0 million shares of common stock outstanding held by a total of approximately
52,000 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 participated 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. For this purpose, KBS Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2010. The basis for this valuation is the fact that the most recent public
offering price for our shares of common stock in our primary offering was $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it may use the most recent price paid to acquire
a share in our primary initial 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 and have not done so for up to 18 months. We ceased offering shares in our initial public offering on December 31, 2010, but we may conduct
follow-on public equity 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.) Once we establish an estimated value per share we currently expect to update the estimated value per share every 12 to 18 months thereafter. 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.

Although the estimated value set forth above represents the most recent price at which most investors were 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 was 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 Internal Revenue Code and have operated as such beginning with our taxable year ended December 31, 2008. To 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.



42



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##### Table of Contents

During 2009 and 2010, we declared distributions based on daily record dates for each day
during the period commencing January 1, 2009 through December 31, 2010. Distributions for all record dates of a given month are paid approximately 15 days after month-end. Distributions declared during 2009 and 2010, aggregated
by quarter, are as follows (dollars in thousands, except per share amounts):



|                                   |  |             |        |   |             |   |        |             |  |   |             |   |  |       |        |   |  |   |        |  
|---------------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                   |  | 2010        |       
|                                   |  | 1st Quarter |        |   | 2nd Quarter |   |        | 3rd Quarter |  |   | 4th Quarter |   |  | Total |       
|Total Distributions Declared       |  | $           | 15,803 |   |             | $ | 18,438 |             |  | $ | 21,972      |   |  | $     | 25,630 |   |  | $ | 81,843 |  
|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    | %
|                                   | 
|                                   |  | 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    | %

The tax composition of our
distributions declared for the years ended December 31, 2010 and 2009 was as follows:



| |                   |  |  |      |   |  |      |     |   |  |  | 
| | ----------------- |  |  | ---- | - |  | ---- | --- | - |  |  | 
| |                   |  |  | 2010 |   |  | 2009 |     |   | 
| | Ordinary Income   |  |  | 61   | % |  |      | 46  | % | 
| | Return of Capital |  |  | 39   | % |  |      | 54  | % | 
| |                   |  |  |      |   |  |      |     |   | 
| | Total             |  |  | 100  | % |  |      | 100 | % | 
| |                   |  |  |      |   |  |      |     |   | 

On November 5, 2010, our board of directors declared distributions based on daily
record dates for the period from January 1, 2011 through January 31, 2011, which we paid on February 15, 2011. On January 21, 2011, our board of directors declared distributions based on daily record dates for the
period from February 1, 2011 through February 28, 2011, which we expect to pay in March 2011, and distributions based on daily record dates for the period from March 1, 2011 through March 31, 2011, which
we expect to pay in April 2011. On March 4, 2011, our board of directors declared distributions based on daily record dates for the period from April 1, 2011 through April 30, 2011, which we expect to pay in May 2011, and
distributions based on daily record dates for the period from May 1, 2011 through May 31, 2011, which we expect to pay in June 2011. 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 these
periods at a rate of $0.00178082 per share per day and 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 ceased offering shares of common stock in our primary offering on December 31, 2010 and are completing subscription processing procedures, as set forth in our prospectus. We
may sell shares under the dividend reinvestment plan until we have sold all the shares under the plan.



43



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##### Table of Contents

We offered 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. As of December 31, 2010, we had sold 179,185,669 shares of common stock in our initial public offering for gross offering proceeds of $1.8 billion, including 6,999,082 shares of
common stock under the dividend reinvestment plan for gross offering proceeds of $66.5 million. Also as of December 31, 2010, we had redeemed 2,465,804 of the shares sold in the offering for $23.2 million pursuant to our
share redemption program. As of December 31, 2010, we had incurred selling commissions, dealer manager fees, other underwriting compensation and other organization and offering costs in the amounts set forth below. We pay selling
commissions and dealer manager fees to KBS Capital Markets Group, and KBS Capital Markets Group reallows all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse KBS Capital Advisors
and KBS Capital Markets Group for certain offering expenses as described in our prospectus, as amended and supplemented.



|                                                                            |  |                |         |  |                  |  |        | 
|--------------------------------------------------------------------------- |  | -------------- | ------- |  | ---------------- |  | ------ | 
|Type of Expense Amount                                                      |  | Amount         |         |  | Estimated/Actual | 
|                                                                            |  | (in thousands) |         |  |                  | 
|Selling commissions and dealer manager fees                                 |  | $              | 158,343 |  |                  |  | Actual | 
|Finders fees                                                               |  |                |        |  |                  |  | Actual | 
|Other underwriting compensation                                             |  |                | 9,717   |  |                  |  | Actual | 
|Other organization and offering costs (excluding underwriting compensation) |  |                | 9,675   |  |                  |  | Actual | 
|                                                                            |  |                |         |  |                  |  |        | 
|Total expenses                                                              |  | $              | 177,735 |  |                  |  |        | 
|                                                                            |  |                |         |  |                  |  |        | 

From the commencement of our initial public offering through December 31, 2010, the net
offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $1.6 billion, including net offering proceeds from our dividend reinvestment plan of $66.5 million.

We have used substantially all of the net proceeds from our 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, 2010, we have used the net proceeds from our initial public offering and debt financing to purchase $2.3 billion in real estate
and real estate-related investments, including $28.9 million of acquisition and origination fees and expenses.

During
the fiscal year ended December 31, 2010, 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 or determination of
incompetence (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



44



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##### Table of Contents

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

During the year ended December 31, 2010, 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 2010   |  |                                   | 311,769   |  |                                | $ | 9.39 |                                                                                        |  |  | (3) | 
|February 2010  |  |                                   | 111,461   |  |                                | $ | 9.46 |                                                                                        |  |  | (3) | 
|March 2010     |  |                                   | 190,153   |  |                                | $ | 9.39 |                                                                                        |  |  | (3) | 
|April 2010     |  |                                   | 107,402   |  |                                | $ | 9.43 |                                                                                        |  |  | (3) | 
|May 2010       |  |                                   | 312,251   |  |                                | $ | 9.30 |                                                                                        |  |  | (3) | 
|June 2010      |  |                                   | 278,060   |  |                                | $ | 9.24 |                                                                                        |  |  | (3) | 
|July 2010      |  |                                   | 163,746   |  |                                | $ | 9.45 |                                                                                        |  |  | (3) | 
|August 2010    |  |                                   | 239,038   |  |                                | $ | 9.42 |                                                                                        |  |  | (3) | 
|September 2010 |  |                                   | 121,698   |  |                                | $ | 9.48 |                                                                                        |  |  | (3) | 
|October 2010   |  |                                   | 186,733   |  |                                | $ | 9.47 |                                                                                        |  |  | (3) | 
|November 2010  |  |                                   | 154,413   |  |                                | $ | 9.38 |                                                                                        |  |  | (3) | 
|December 2010  |  |                                   | 89,197    |  |                                | $ | 9.38 |                                                                                        |  |  | (3) | 
|               |  |                                   |           |  |                                |   |      |                                                                                        |  |  |     | 
|Total          |  |                                   | 2,265,921 |  |                                |   |      |                                                                                        |  |  |     | 
|               |  |                                   |           |  |                                |   |      |                                                                                        |  |  |     | 



(1)We
announced the adoption and commencement of the program on April 8, 2008. We announced amendments to the program on May 13, 2009 (which amendment became effective on June 12, 2009) and on March 11, 2011
(which amendment will become effective on April 10, 2011). See Part II, Item 9B, Other Information.

(2)Pursuant
to the program, as amended, we currently redeem shares at prices determined 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, the redemption price for redemptions sought upon a stockholders death,
qualifying disability or determination of incompetence will initially be the amount paid to acquire the shares from us. Furthermore, 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. 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 and every 12 to 18 months thereafter. 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. We ceased offering shares in our initial public offering on December 31, 2010, but we may conduct follow-on public equity offerings
in the future.

(3)We limit the dollar value of shares that may be redeemed under the program as described above. For the year ended
December 31, 2010, we received investor redemption requests of $21.8 million. As of the December 2010 redemption date, we had redeemed $21.3 million of shares, which represents the dollar value of 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 2009. Effective January 2011, 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 2010, we have $43.3 million available for redemption in 2011. We redeemed the remaining outstanding and unfulfilled redemptions as of December 31, 2010 of $0.5 million on the
January 31, 2011 redemption date.



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##### Table of Contents

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

The following selected financial data as of December 31, 2010, 2009, 2008 and 2007 and for the years ended
December 31, 2010, 2009 and 2008 should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and Part II, 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,               |            
|                                                                        |  | 2010                             |             |   | 2009 |   |            | 2008 |  |   | 2007      |  
|Balance sheet data                                                      |  |                                  |             |   |      |   |            |      |  |   |           |   |  |   |     | 
|Total real estate and real estate-related investments, net              |  | $                                | 2,210,162   |   |      | $ | 672,169    |      |  | $ | 512,495   |   |  | $ |    | 
|Total assets                                                            |  |                                  | 2,379,654   |   |      |   | 953,868    |      |  |   | 572,862   |   |  |   | 200 | 
|Notes payable                                                           |  |                                  | 828,157     |   |      |   | 126,660    |      |  |   | 271,446   |   |  |   |    | 
|Total liabilities                                                       |  |                                  | 912,019     |   |      |   | 158,046    |      |  |   | 300,557   |   |  |   |    | 
|Redeemable common stock                                                 |  |                                  | 43,306      |   |      |   | 21,260     |      |  |   | 1,921     |   |  |   |    | 
|Total stockholders equity                                              |  |                                  | 1,424,329   |   |      |   | 774,562    |      |  |   | 270,384   |   |  |   | 200 | 
|                                                                        |  |                                 
|                                                                        |  | For the Years Ended December 31, |             |   |      |  
|                                                                        |  | 2010                             |             |   | 2009 |   |            | 2008 |  |   |           |  
|Operating data                                                          |  |                                  |             |   |      |   |            |      |  |   |           |   |  |   |     | 
|Total revenues                                                          |  | $                                | 160,133     |   |      | $ | 75,387     |      |  | $ | 14,087    |   |  |   |     | 
|Net income (loss)                                                       |  |                                  | 5,508       |   |      |   | 12,419     |      |  |   | (2,582    | ) |  |   |     | 
|Net income (loss) per common share - basic and diluted                  |  |                                  | 0.04        |   |      |   | 0.20       |      |  |   | (0.33     | ) |  |   |     | 
|                                                                        |  |                                  |             |  
|Other data                                                              |  |                                  |             |   |      |   |            |      |  |   |           |   |  |   |     | 
|Cash flows provided by operations                                       |  | $                                | 59,523      |   |      | $ | 29,937     |      |  | $ | 4,870     |   |  |   |     | 
|Cash flows used in investing activities                                 |  |                                  | (1,598,259  | ) |      |   | (181,717   | )    |  |   | (495,535  | ) |  |   |     | 
|Cash flows provided by financing activities                             |  |                                  | 1,347,328   |   |      |   | 368,992    |      |  |   | 547,074   |   |  |   |     | 
|                                                                        |  |                                  |             |  
|Distributions declared                                                  |  |                                  | 81,843      |   |      |   | 41,272     |      |  |   | 4,941     |   |  |   |     | 
|                                                                        |  |                                  |             |  
|Distributions declared per common share(1)                              |  |                                  | 0.650       |   |      |   | 0.650      |      |  |   | 0.263     |   |  |   |     | 
|                                                                        |  |                                  |             |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                                  | 125,894,756 |   |      |   | 63,494,969 |      |  |   | 7,926,366 |   |  |   |     | 
|                                                                        |  |                                  |             |  
|Reconciliation of funds from operations(2)                              |  |                                  |             |   |      |   |            |      |  |   |           |   |  |   |     | 
|Net income (loss)                                                       |  | $                                | 5,508       |   |      | $ | 12,419     |      |  | $ | (2,582    | ) |  |   |     | 
|Depreciation of real estate assets                                      |  |                                  | 20,924      |   |      |   | 9,919      |      |  |   | 2,315     |   |  |   |     | 
|Amortization of lease-related costs                                     |  |                                  | 40,762      |   |      |   | 18,186     |      |  |   | 4,659     |   |  |   |     | 
|Gain on sale of real estate securities                                  |  |                                  |            |   |      |   | (119       | )    |  |   |          |   |  |   |     | 
|                                                                        |  |                                  |             |   |      |   |            |      |  |   |           |   |  |   |     | 
|FFO                                                                     |  | $                                | 67,194      |   |      | $ | 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, 2010 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.

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.



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|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 and Part I, Item 1A, Risk Factors.

Overview

We were formed
on July 12, 2007 as a Maryland corporation that elected to be taxed as a REIT beginning with the taxable year ended December 31, 2008 and intend to operate in such a manner. We have invested 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, 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.

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. As of December 31, 2010, we owned 17 real estate properties (consisting of 14
office properties, one office/flex property and two industrial properties), a leasehold interest in one industrial property and six 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. We ceased offering shares of common stock in our primary offering
on December 31, 2010 and are completing subscription processing procedures, as set forth in our prospectus. From the commencement of the offering on April 22, 2008 through December 31, 2010, we had sold
179,185,669 shares of common stock in our public offering for gross offering proceeds of $1.8 billion, including 6,999,082 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $66.5 million.
Also as of December 31, 2010, we had redeemed 2,465,804 of the shares sold in the offering for $23.2 million. We intend to use substantially all of the net proceeds from the 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 the past three years, significant and widespread concerns about credit risk and access to capital have been
present in the U.S. and global financial markets. Economies throughout the world have experienced increased unemployment and sagging consumer confidence due to a downturn in economic activity. Despite improved stock market performance and some
positive economic indicators, a lack of job creation, low consumer confidence and a growing federal budget deficit temper the positive indicators. Amid signs of recovery in the economic and financial markets, concerns remain regarding job growth,
wage stagnation, credit restrictions and increased taxation. Over the past several months, the U.S. commercial real estate industry has experienced a slow-down in the deterioration of fundamental benchmarks. However, the current economic
conditions continue to create 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 persist or if recovery is slower than expected, 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.



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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 and create a highly
competitive leasing environment. 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.

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, 2010, we had fixed rate real estate loans receivable with a principal balance of $320.8 million and a carrying value of $248.3 million that mature between 2014 and
2017 and a variable rate real estate loan receivable with a principal balance of $87.5 million and a carrying value (including origination and closing costs) of $88.5 million that matures in 2013.

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, 2010, we had debt obligations in the aggregate principal
amount of $828.2 million, all of which mature between 2011 and 2016. We have a total of $460.8 million of fixed rate notes payable and $367.4 million of variable rate notes payable. As of December 31, 2010, $57.5 million of
our mortgage debt outstanding is scheduled to mature within 12 months of that date. The interest rates on $316.8 million of our variable rate notes payable are effectively fixed through interest rate swap agreements.

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; redemptions of common stock; and payments of distributions to stockholders. To date, we have had four primary sources of capital for meeting our cash
requirements:



| |  |  | Proceeds from our 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.
| | - |  | --------------------------------------------------------------------------------------

We ceased offering shares of common stock in our primary offering on December 31, 2010 and continue to offer shares under our
dividend reinvestment plan. To date, we have invested a significant amount of the proceeds from our initial public offering and anticipate making several more investments in the future. We intend to use our cash on hand, cash flow generated by our
real estate operations and real estate-related investments, proceeds from our dividend reinvestment plan and principal repayments on our real estate loans receivable as our primary sources of immediate and long-term liquidity. During the year ended
December 31, 2010, we entered into three secured credit facilities that further enhance our liquidity. As of December 31, 2010, we have an aggregate of $96.6 million available for future disbursements under these three
credit facilities, subject to certain conditions set forth in the respective loan agreements.



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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, 2010, our real estate portfolio was 96% occupied
and our bad debt reserve was less than 1% of annualized base rent. As of December 31, 2010, we had one tenant with a rent balance 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 are 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, 2010, the borrowers under our real estate loans receivable were all current.

For the year ended December 31, 2010, our cash needs for acquisitions, capital expenditures and payment of debt obligations
were met with the proceeds from our 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, 2010 using a combination of cumulative cash flows from operations and debt financing. We believe that our cash on hand, uninvested proceeds from our primary public
offering, proceeds from our dividend reinvestment plan, 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, 2010, we owned 17 real estate properties (consisting
of 14 office properties, one office/flex property and two industrial properties), a leasehold interest in one industrial property and six real estate loans receivable. During the year ended December 31, 2010, net cash provided by
operating activities was $59.5 million, compared to $29.9 million during the year ended December 31, 2009. Net cash from operations increased in 2010 primarily as a result of acquisitions of real estate and real
estate-related investments in 2010 as well as owning investments acquired in 2009 for an entire year. We expect that our cash flows from operating activities will increase in future periods as a result of owning investments acquired in 2010 for an
entire year and anticipated future acquisitions of real estate and real estate-related investments.

Cash Flows from Investing
Activities

Net cash used in investing activities was $1.6 billion for the year ended December 31, 2010
and primarily consisted of the following:



| |  |  | Acquisitions of 13 real estate investments for an aggregate purchase price of $1.4 billion;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Originations of four real estate loans receivable for $287.1 million; and
| | - |  | -------------------------------------------------------------------------



| |  |  | Proceeds to us from the sale of a 50% participation interest in a first mortgage for $87.5 million.
| | - |  | ---------------------------------------------------------------------------------------------------

Cash Flows from Financing Activities

Our cash flows from financing activities consist primarily of proceeds from our initial public offering, debt financings and distributions paid to our stockholders. During the year ended
December 31, 2010, net cash provided by financing activities was $1.3 billion and primarily consisted of the following:



| |  |  | $728.4 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 $81.6 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $677.4 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $717.4 million, partially
offset by principal payments on notes payable of $32.9 million and payments of deferred financing costs of $7.1 million;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $34.4 million of net cash distributions, after giving effect to dividends reinvested by stockholders of $43.3 million; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | $21.3 million of cash used for redemptions of common stock.
| | - |  | -----------------------------------------------------------



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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. 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 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. 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, 2010, our borrowings were approximately 36% of both the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our
tangible assets.

In addition to using our capital resources for investing purposes and meeting our debt obligations, we use
our capital resources to make certain payments to our advisor and the dealer manager. During our offering stage, these payments 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, 2011 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, 2010 (in thousands):



|                                                                   |  |       |         |  |                                                   |   |        |           |  |   |            |   |  |   |         |   |  |   |        | 
|------------------------------------------------------------------ |  | ----- | ------- |  | ------------------------------------------------- | - | ------ | --------- |  | - | ---------- | - |  | - | ------- | - |  | - | ------ | 
|Contractual Obligations                                            |  | Total |         |  | Payments Due During the Years Ending December 31, |  
|                                                                   |  | 2011  |         |  | 2012-2013                                         |   |        | 2014-2015 |  |   | Thereafter |  
|Outstanding debt obligations(1)                                    |  | $     | 828,157 |  |                                                   | $ | 57,507 |           |  | $ | 13,000     |   |  | $ | 737,850 |   |  | $ | 19,800 | 
|Interest payments on outstanding debt obligations(2)               |  |       | 144,020 |  |                                                   |   | 35,377 |           |  |   | 68,527     |   |  |   | 40,113  |   |  |   | 3      | 
|Outstanding funding obligations under real estate loans receivable |  |       | 18,000  |  |                                                   |   | (3     | )         |  |   | (3         | ) |  |   | (3      | ) |  |   |       | 



(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, 2010 (consisting of the contractual interest rate and the effect of interest rate floors). We incurred interest expense of $18.0 million, excluding amortization of deferred
financing costs totaling $1.2 million, during the year ended December 31, 2010.

(3)As of December 31, 2010, $31.9 million had been
disbursed under the Pappas Commerce First Mortgage Origination and another $18.0 million remains available for future funding, subject to certain conditions set forth in the loan agreement. This amount does not have a fixed funding date, but
may be funded in any future year, subject to certain conditions set forth in the loan agreement. The Pappas Commerce First Mortgage matures on July 1, 2014.

Results of Operations

Overview

As of December 31, 2009, we owned four office properties, one office/flex property and two real estate loans receivable. As of
December 31, 2010, we owned 14 office properties, one office/flex property, two industrial properties, a leasehold interest in one industrial property and six real estate loans receivable. In general, we expect that our income and expenses
related to our portfolio will increase in future periods as a result of owning investments acquired in 2010 for an entire year and anticipated future acquisitions of real estate and real estate-related investments. The results of operations
presented for the years ended December 31, 2010 and 2009 are not directly comparable because we were still investing the proceeds of our initial public offering in 2010.



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Comparison of the year ended December 31, 2010 versus year ended
December 31, 2009

The following table provides summary information about our results of operations for the
years ended December 31, 2010 and 2009 (dollar amounts in thousands):



|                                                        |  |                                      |         |  |                    |  |        |                  |  |   |                                               |   |  |                                                           |      |    |  |   |        |  |  |   |        |  
|------------------------------------------------------- |  | ------------------------------------ | ------- |  | ------------------ |  | ------ | ---------------- |  | - | --------------------------------------------- | - |  | --------------------------------------------------------- | ---- | -- |  | - | ------ |  |  | - | ------ | -
|                                                        |  | For the Year 
EndedDecember 31, 2010 |         |  | Increase(Decrease) |  |        | PercentageChange |  |   | $ Change Due 
toAcquisitions/Originations
(1) |   |  | $ Change Due to PropertiesHeld ThroughoutBoth Periods (2) |     
|                                                        |  | 2010                                 |         |  | 2009               |  |        |                  |  |  
|Rental income                                           |  | $                                    | 110,294 |  |                    |  | 49,548 |                  |  | $ | 60,746                                        |   |  |                                                           | 123  | %  |  | $ | 62,487 |  |  | $ | (1,741 | )
|Tenant reimbursements                                   |  |                                      | 18,066  |  |                    |  | 8,762  |                  |  |   | 9,304                                         |   |  |                                                           | 106  | %  |  |   | 10,401 |  |  |   | (1,097 | )
|Interest income fromreal estate loans receivable        |  |                                      | 28,255  |  |                    |  | 16,885 |                  |  |   | 11,370                                        |   |  |                                                           | 67   | %  |  |   | 11,040 |  |  |   | 330    |  
|Other operating income                                  |  |                                      | 3,518   |  |                    |  | 192    |                  |  |   | 3,326                                         |   |  |                                                           | 1732 | %  |  |   | 3,502  |  |  |   | (176   | )
|Property operating, maintenance, andmanagement costs    |  |                                      | 28,715  |  |                    |  | 12,265 |                  |  |   | 16,450                                        |   |  |                                                           | 134  | %  |  |   | 16,543 |  |  |   | (93    | )
|Real estate taxes, property-related taxes,and insurance |  |                                      | 12,977  |  |                    |  | 4,515  |                  |  |   | 8,462                                         |   |  |                                                           | 187  | %  |  |   | 8,491  |  |  |   | (29    | )
|Asset management fees to affiliate                      |  |                                      | 10,005  |  |                    |  | 4,482  |                  |  |   | 5,523                                         |   |  |                                                           | 123  | %  |  |   | 5,518  |  |  |   | 5      |  
|Real estate acquisition fees to affiliates              |  |                                      | 10,692  |  |                    |  | 846    |                  |  |   | 9,846                                         |   |  |                                                           | 1164 | %  |  |   | 9,846  |  |  |   |       |  
|Real estate acquisition fees and expenses               |  |                                      | 7,487   |  |                    |  | 678    |                  |  |   | 6,809                                         |   |  |                                                           | 1004 | %  |  |   | 6,809  |  |  |   |       |  
|General and administrative expenses                     |  |                                      | 3,947   |  |                    |  | 2,678  |                  |  |   | 1,269                                         |   |  |                                                           | 47   | %  |  |   | n/a    |  |  |   | n/a    |  
|Depreciation and amortization expense                   |  |                                      | 61,686  |  |                    |  | 28,105 |                  |  |   | 33,581                                        |   |  |                                                           | 119  | %  |  |   | 36,134 |  |  |   | (2,553 | )
|Interest expense                                        |  |                                      | 19,389  |  |                    |  | 10,164 |                  |  |   | 9,225                                         |   |  |                                                           | 91   | %  |  |   | 11,129 |  |  |   | (1,904 | )
|Other interest income                                   |  |                                      | 273     |  |                    |  | 646    |                  |  |   | (373                                          | ) |  |                                                           | (58  | %) |  |   | n/a    |  |  |   | n/a    |  
|Gain on sale of real estate securities                  |  |                                      |        |  |                    |  | 119    |                  |  |   | (119                                          | ) |  |                                                           | (100 | %) |  |   | n/a    |  |  |   | n/a    |  



(1)Represents the dollar amount increase for the year ended December 31, 2010 compared to the year ended December 31, 2009 as a result of properties and other real
estate-related assets acquired after January 1, 2009.

(2)Represents dollar amount increase (decrease) for the year ended December 31, 2010 compared to the year
ended December 31, 2009 with respect to properties and other real estate-related investments owned by us as of January 1, 2009.

Rental income and tenant reimbursements increased from $58.3 million for the year ended December 31, 2009 to $128.4 million for the year ended December 31, 2010, primarily as
a result of the growth in our real estate portfolio. The increase was partially offset by a $2.8 million net decrease in rental income and tenant reimbursements from properties held throughout both periods, which is primarily due to lease
incentives provided to new tenants at these properties and lease expirations subsequent to December 31, 2009. We expect rental income and tenant reimbursements to increase in future periods as a result of owning the assets acquired during
2010 for an entire year and anticipated future acquisitions of real estate.

Interest income from our real estate loans
receivable, recognized using the interest method, increased from $16.9 million for the year ended December 31, 2009 to $28.3 million for the year ended December 31, 2010, primarily as a result of the growth in our real
estate loans receivable portfolio. Interest income included $6.4 million and $5.2 million in accretion of purchase price discounts, net of amortization of closing costs, for the years ended December 31, 2010 and 2009,
respectively. We expect interest income to increase in future periods as a result of owning the assets acquired during 2010 for an entire year and anticipated future acquisitions of real estate-related investments.

Other operating income increased from $0.2 million for the year ended December 31, 2009 to $3.5 million for the year ended
December 31, 2010, primarily as a result of the growth in our real estate portfolio. Other operating income consisted primarily of parking revenues related to properties acquired during the year ended December 31, 2010. We expect
other operating income to increase in future periods as a result of owning the assets acquired during 2010 for an entire year and anticipated future acquisitions of real estate.

Property operating, maintenance and management costs increased from $12.3 million for the year ended December 31, 2009 to
$28.7 million for the year ended December 31, 2010, primarily as a result of the growth in our real estate portfolio. We expect property operating, maintenance and management costs to increase in future periods as a result of owning
the assets acquired during 2010 for an entire year and anticipated future acquisitions of real estate.

Real estate taxes and
insurance increased from $4.5 million for the year ended December 31, 2009 to $13.0 million for the year ended December 31, 2010, primarily as a result of the growth in our real estate portfolio. We expect real estate
taxes and insurance to increase in future periods as a result of owning the assets acquired during 2010 for an entire year and anticipated future acquisitions of real estate.



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Asset management fees with respect to our real estate and real estate-related investments
increased from $4.5 million for the year ended December 31, 2009 to $10.0 million for the year ended December 31, 2010, as a result of the growth in our real estate and real estate-related investment portfolio. All
asset management fees incurred as of December 31, 2010 have been paid. We expect asset management fees to increase in future periods as a result of owning the assets acquired during 2010 for an entire year and anticipated future
acquisitions of real estate and real estate-related investments.

Real estate acquisition fees and expenses increased from
$1.5 million for year ended December 31, 2009 to $18.2 million for the year ended December 31, 2010 due to the growth in our real estate portfolio. We expect real estate acquisition fees and expenses to decrease in
future periods as we have invested the majority of the proceeds from our public offering.

General and administrative expenses
increased from $2.7 million for the year ended December 31, 2009 to $3.9 million for the year ended December 31, 2010. These general and administrative costs consisted primarily of legal fees, audit fees, transfer agent
fees and other professional fees. We expect general and administrative costs to vary in future periods.

Depreciation and
amortization expenses increased from $28.1 million for the year ended December 31, 2009 to $61.7 million for the year ended December 31, 2010, primarily due to the growth in our real estate portfolio. This increase was
partially offset by a $2.6 million decrease in amortization due to lease expirations subsequent to December 31, 2009 from properties held throughout both periods. We expect these amounts to increase in future periods as a result of
owning the assets acquired during 2010 for an entire year and anticipated future acquisitions of real estate.

Interest
expense increased from $10.2 million for the year ended December 31, 2009 to $19.4 million for the year ended December 31, 2010. Included in interest expense is the amortization of deferred financing costs of
$1.0 million for the year ended December 31, 2009 and $1.2 million for the year ended December 31, 2010. The increase in interest expense is primarily a result of our use of debt in acquiring real property investments
subsequent to January 1, 2010. This increase was partially offset by a $1.9 million decrease due to the decrease in the average loan balance and interest rate related to debt outstanding for properties held throughout both periods.
Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our credit facilities and the opportunity to acquire real estate and real
estate-related investments meeting our investment objectives.

Other interest income decreased from $0.6 million for the
year ended December 31, 2009 to $0.3 million for the year ended December 31, 2010 and consisted of interest earned on our cash and cash equivalent accounts. The decrease in other interest income is primarily due to a
decrease in our average cash balance as a result of an increase in investing activities during the year ended December 31, 2010. 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 invest those funds.

Comparison of the year ended December 31, 2009 versus year ended December 31, 2008

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 initial public offering on June 24, 2008 and as of December 31, 2009 had not yet met our capital raise or investment goals. 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.

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.

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 of accretion of purchase price discounts, net of amortization of closing costs, for the years ended December 31, 2009 and 2008, respectively.



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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.

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.

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.

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.

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.

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.

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.

Organization and Offering Costs

Organization and offering costs (other
than selling commissions and dealer manager fees) of the primary offering were paid in part by our advisor, the dealer manager or their affiliates on our behalf and they may continue to pay these costs on our behalf with respect to the offering
under our dividend reinvestment plan. Other offering costs include all expenses to be incurred by us in connection with our 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 initial public offering. As of December 31, 2010, selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross
offering proceeds. Through December 31, 2010, including shares issued through our dividend reinvestment plan, we had sold 179,185,669 shares in the offering for gross offering proceeds of $1.8 billion and recorded organization
and other offering costs of $19.4 million and selling commissions and dealer manager fees of $158.3 million.

We
ceased offering shares of common stock in our primary offering on December 31, 2010 and are completing subscription processing procedures, as forth in our prospectus. We may sell shares under the dividend reinvestment plan until we have
sold all the shares under the plan.



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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 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 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, 2010, 2009 and 2008, respectively (in thousands):



|                                       |  |                                  |        |  |      |   |        |      |  |   |        |  
|-------------------------------------- |  | -------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | -
|                                       |  | For the Years Ended December 31, |       
|                                       |  | 2010                             |        |  | 2009 |   |        | 2008 | 
|Net income (loss)                      |  | $                                | 5,508  |  |      | $ | 12,419 |      |  | $ | (2,582 | )
|Add:                                   |  |                                  |        |  |      |   |        |      |  |   |        |  
|Depreciation of real estate assets     |  |                                  | 20,924 |  |      |   | 9,919  |      |  |   | 2,315  |  
|Amortization of lease-related costs    |  |                                  | 40,762 |  |      |   | 18,186 |      |  |   | 4,659  |  
|Less:                                  |  |                                  |        |  |      |   |        |      |  |   |        |  
|Gain on sale of real estate securities |  |                                  |       |  |      |   | (119   | )    |  |   |       |  
|                                       |  |                                  |        |  |      |   |        |      |  |   |        |  
|FFO                                    |  | $                                | 67,194 |  |      | $ | 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 $8.7 million for the year ended December 31, 2010,
$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 $4.3 million for the year
ended December 31, 2010, $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
$6.4 million for the year ended December 31, 2010 and $5.3 million for the year ended December 31, 2009;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisition fees and expenses related to the purchase of real estate of approximately $18.2 million for the year ended December 31, 2010
and 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense from the amortization of deferred financing costs related to notes payable of approximately $1.2 million for the year ended
December 31, 2010, approximately $1.0 million for the year ended December 31, 2009 and approximately $0.5 million for the year ended December 31, 2008; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adjustment to valuation of contingent consideration related to the purchase of real estate of approximately $0.3 million for the year ended
December 31, 2010.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.

Distributions

Until we
have fully invested the proceeds of our primary offering, 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 2010 (in thousands, except per share amounts):



|                    |  |                           |        |  |                                        |            |       |                        |       |   |                           |  |  |   |        |  |  |   |        |  |  |   |        | 
|------------------- |  | ------------------------- | ------ |  | -------------------------------------- | ---------- | ----- | ---------------------- | ----- | - | ------------------------- |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|Period              |  | DistributionsDeclared (1) |        |  | DistributionsDeclared
PerShare (1) (2) |            |       | Distributions Paid
(3) |       |   | Cash 
FlowsFromOperations | 
|                    |  |                           | Cash   |  |                                        | Reinvested |       |                        | Total |   |                          
|First Quarter 2010  |  | $                         | 15,803 |  |                                        | $          | 0.160 |                        |       | $ | 6,790                     |  |  | $ | 8,369  |  |  | $ | 15,159 |  |  | $ | 8,215  | 
|Second Quarter 2010 |  |                           | 18,438 |  |                                        |            | 0.162 |                        |       |   | 7,836                     |  |  |   | 9,842  |  |  |   | 17,678 |  |  |   | 14,495 | 
|Third Quarter 2010  |  |                           | 21,972 |  |                                        |            | 0.164 |                        |       |   | 9,185                     |  |  |   | 11,640 |  |  |   | 20,825 |  |  |   | 12,655 | 
|Fourth Quarter 2010 |  |                           | 25,630 |  |                                        |            | 0.164 |                        |       |   | 10,560                    |  |  |   | 13,455 |  |  |   | 24,015 |  |  |   | 24,158 | 
|                    |  |                           |        |  |                                        |            |       |                        |       |   |                           |  |  |   |        |  |  |   |        |  |  |   |        | 
|                    |  | $                         | 81,843 |  |                                        | $          | 0.650 |                        |       | $ | 34,371                    |  |  | $ | 43,306 |  |  | $ | 77,677 |  |  | $ | 59,523 | 
|                    |  |                           |        |  |                                        |            |       |                        |       |   |                           |  |  |   |        |  |  |   |        |  |  |   |        | 



(1) Distributions for the period from January 1, 2010 through December 31, 2010 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, 2010, we paid aggregate distributions of $77.7 million,
including $34.4 million of distributions paid in cash and $43.3 million of distributions reinvested through our dividend reinvestment plan. FFO for the year ended December 31, 2010 was $67.2 million and cash flow from
operations was $59.5 million. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $59.5 million of current period operating cash flows and $18.2 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

Real Estate

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 receivable. 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, 2010, 2009 and 2008, we recognized deferred rent from tenants of $8.7 million,
$2.2 million and $0.6 million, respectively. As of December 31, 2010 and 2009, the cumulative deferred rent receivable balance was $15.5 million and $2.8 million, respectively, and is included in rents and other
receivables on the accompanying balance sheets. The cumulative deferred rent balance included $3.9 million of unamortized lease incentives as of December 31, 2010. 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 deferred rent receivable, expense
reimbursements and other revenue or income. We specifically analyze accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, 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, 2010, we recorded bad debt expense related to our tenant receivables of $22,000.
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.

Real Estate Loans Receivable

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 will resume the accrual of interest if we determine the collection of interest according to the contractual terms of the
loan is probable.

Real Estate Securities

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.



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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.

Cash and Cash Equivalents

We recognize interest income on our cash and cash equivalents as it is earned and record 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. 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, including below-market renewal periods

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. During the year ended December 31, 2010, we acquired 13 real estate assets, recorded each acquisition
as a business combination and expensed $18.2 million of acquisition costs. 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, 2010, 2009 and 2008.



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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.

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, 2010, 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, 2010. 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 a loan are lower than the carrying value of that loan.

The portfolio-based reserve component covers the pool of loans that do not have asset-specific reserves. A provision for loan
losses is recorded when available information as of each balance sheet date indicates that it is probable that 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 independent third-party sources 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 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. 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 that 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, 2010, 2009, and 2008. As of December 31, 2010, returns for the
calendar years 2007 through 2009 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 initial public offering of 280,000,000 shares of common stock on April 22, 2008. We ceased offering shares
of common stock in our primary offering on December 31, 2010 and are completing subscription processing procedures, as set forth in the prospectus. As of March 9, 2011, we had sold 190,824,532 shares of common stock in the offering
for gross offering proceeds of $1.9 billion, including 8,140,021 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $77.3 million. We may continue to sell shares under the dividend reinvestment plan until
we have sold all of the shares under the plan.

Distributions Paid

On January 14, 2011, we paid distributions of $9.2 million, which related to distributions declared for each day in the
period from December 1, 2010 through December 31, 2010. On February 15, 2011, we paid distributions of $10.2 million, which related to distributions declared for each day in the period from
January 1, 2011 through January 31, 2011.

Distribution Declaration

On January 21, 2011, our board of directors declared distributions based on daily record dates for the period from
February 1, 2011 through February 28, 2011, which we expect to pay in March 2011, and distributions based on daily record dates for the period from March 1, 2011 through March 31, 2011, which we expect to pay
in April 2011. On March 4, 2011, our board of directors declared distributions based on daily record dates for the period from April 1, 2011 through April 30, 2011, which we expect to pay in May 2011, and
distributions based on daily record dates for the period from May 1, 2011 through May 31, 2011, which we expect to pay in June 2011. 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 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, 2010

Acquisition of Gateway Corporate Center

On January 26, 2011, we, through an indirect wholly owned subsidiary, acquired two three-story office buildings totaling 233,836 rentable square feet located on approximately 13.3
total acres of land in Sacramento, California (Gateway Corporate Center). The seller is not affiliated with us or our advisor. The total contractual purchase price of Gateway Corporate Center was approximately
$47.4 million plus closing costs. We initially funded the purchase of Gateway Corporate Center with proceeds from our initial public offering and subsequently placed financing of $26.3 million on Gateway Corporate Center. See
Portfolio Loan below.

At acquisition, Gateway Corporate Center was 91% leased to 13 tenants.

Portfolio Loan

On January 28, 2011,we, through indirect wholly owned subsidiaries (the Borrowers), entered into a five-year portfolio loan with Wells Fargo Bank, N.A. (the Lender) dated
January 27, 2011 for an amount up to $360.0 million (the Portfolio Loan). As of March 11, 2011, $348.3 million had been disbursed to the Borrowers with the remaining loan balance of $11.7 million (the
Holdback) available for future disbursements, subject to certain conditions set forth in the loan agreement. In addition, in the event of tenant expansions meeting requirements set forth in the loan agreement, the principal amount of the
Portfolio Loan may be increased to $372.0 million. We incurred approximately $1.5 million in net loan costs in conjunction with the initial funding of the Portfolio Loan. The initial maturity date of the Portfolio Loan is
January 27, 2016, with two one-year extension options, subject to the satisfaction of certain conditions by the Borrowers. The Portfolio Loan bears interest at a floating rate of 215 basis points over one-month LIBOR during the initial
term of the loan, 240 basis points over one-month LIBOR during the first extension period of the loan and 265 basis points over one-month LIBOR during the second extension period of the loan. Monthly payments are interest only with the entire
principal amount due at maturity, assuming no prior prepayment. The Borrowers may, upon no less than three business days notice to the Lender, prepay all or a portion of the Portfolio Loan, subject to possible exit fees. Any prepayment made on
or after October 27, 2015 will not be subject to a prepayment fee.



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In connection with the closing of the Portfolio Loan, we consolidated into the Portfolio
Loan, a portfolio bridge loan with an outstanding balance of $40.6 million and a mortgage loan secured by National City Tower with an outstanding principal balance of $69.0 million. The $348.3 million outstanding under the Portfolio Loan
reflects the consolidated loans. On March 10, 2011, we used proceeds from the Portfolio Loan to repay in full a $16.8 million mortgage loan secured by Torrey Reserve West.

The Portfolio Loan is secured by Hartman II Business Center, Plano Business Park, Horizon Tech Center, Dallas Cowboys Distribution Center, Crescent VIII, National City Tower, Granite Tower, Gateway
Corporate Center, I-81 Industrial Portfolio, Two Westlake Park, Torrey Reserve West and, in the future, the Portfolio Loan may be secured by certain additional real estate properties currently owned by us or that may be acquired by us, subject
to certain terms of the loan agreement.

Acquisition of 601 Tower at Carlson Center

On February 3, 2011, we, through an indirect wholly owned subsidiary, acquired a 15-story office building containing 288,458
rentable square feet located on approximately 2.3 acres of land within the Carlson Center office park in Minnetonka, Minnesota (601 Tower at Carlson Center). The seller is not affiliated with us or our advisor. The total
contractual purchase price of 601 Tower at Carlson Center was approximately $54.4 million plus closing costs. We funded the purchase of 601 Tower at Carlson Center with proceeds from our initial public offering but may later place mortgage
debt on the property.

At acquisition, 601 Tower at Carlson Center was 90% leased to 42 tenants.

Acquisition of I-81 Industrial Portfolio

On February 16, 2011, we, through an indirect wholly owned subsidiary, acquired a portfolio of four warehouse properties totaling 1,644,480 rentable square feet (the I-81 Industrial
Portfolio). The four properties encompass 133.4 acres of land and are located in Pennsylvania. The seller is not affiliated with us or our advisor. The total contractual purchase price of the I-81 Industrial Portfolio was approximately
$90.0 million plus closing costs. We funded the purchase of the I-81 Industrial Portfolio with proceeds from the Portfolio Loan and proceeds from our initial public offering.

At acquisition, the I-81 Industrial Portfolio was 100% leased to seven tenants.

Acquisition of Two Westlake Park

On February 25, 2011, we, through an indirect wholly owned subsidiary, acquired a 17-story office building containing 388,142 rentable square feet located on approximately 5.4 acres of land
within the Westlake office park in Houston, Texas (Two Westlake Park). The seller is not affiliated with us or our advisor. The total contractual purchase price of Two Westlake Park was approximately $80.5 million plus closing
costs. We funded the purchase of Two Westlake Park with proceeds from the Portfolio Loan and proceeds from our initial public offering.

At acquisition, Two Westlake Park was 95% leased to 13 tenants.

Second Amended and
Restated Share Redemption Program

On March 4, 2011, our board of directors approved a second amended and
restated share redemption program. See Part II, Item 9B, Other Information.



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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, 2010 based on the maturity dates and the notional amounts and average pay and receive rates of our derivative instruments as of December 31, 2010 based on maturity
dates (dollars in thousands):



|                                                    |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | ------------- | ------ | - | ---- | - | - | ---- |  | - | ------ | - |  | ---- | ------- | - | ---------- | - | ------- | ----------------------------------- |  | - | --------- | - |  | - | ------- | - |  | - | ------- | -
|                                                    |  | Maturity Date |        |   |      |   |   |      | 
|                                                    |  | 2011          |        |   | 2012 |   |   | 2013 |  |   | 2014   |   |  | 2015 |         |   | Thereafter |   |         | TotalBook Value 
orNotional Amounts |  |   | FairValue |  
|Assets                                              |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Loans receivable                                    |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|Fixed rate                                          |  | $             |       |   |      | $ |  |      |  | $ |       |   |  | $    | 31,900  |   |            | $ | 79,245  |                                     |  | $ | 137,158   |   |  | $ | 248,303 |   |  | $ | 325,923 |  
|Weighted-average annual effective interest rate
(1) |  |               |       |   |      |   |  |      |  |   |       |   |  |      | 9.6     | % |            |   | 8.5     | %                                   |  |   | 14.1      | % |  |   | 11.7    | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Variable rate                                       |  | $             |       |   |      | $ |  |      |  |   | 88,456 |   |  | $    |        |   |            | $ |        |                                     |  | $ |          |   |  | $ | 88,456  |   |  | $ | 87,500  |  
|Weighted-average annual effective interest rate
(1) |  |               |       |   |      |   |  |      |  |   | 7.2    | % |  |      |        |   |            |   |        |                                     |  |   |          |   |  |   | 7.2     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Derivative instruments                              |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|Interest rate swaps, notional amount                |  | $             |       |   |      | $ |  |      |  | $ |       |   |  | $    |        |   |            | $ | 105,000 |                                     |  | $ |          |   |  | $ | 105,000 |   |  | $ | 1,092   |  
|                                                    |  |               |        |   |      |   |   |     
|Average pay rate (2)                                |  |               |       |   |      |   |  |      |  |   |       |   |  |      |        |   |            |   | 1.7     | %                                   |  |   |          |   |  |   | 1.7     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Average receive rate (3)                            |  |               |       |   |      |   |  |      |  |   |       |   |  |      |        |   |            |   | 0.3     | %                                   |  |   |          |   |  |   | 0.3     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Liabilities                                         |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Notes payable                                       |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|Fixed rate                                          |  | $             | 16,885 |   |      | $ |  |      |  | $ |       |   |  | $    | 93,850  |   |            | $ | 350,000 |                                     |  | $ |          |   |  | $ | 460,735 |   |  | $ | 459,936 |  
|Weighted-average interest rate                      |  |               | 7.5    | % |      |   |  |      |  |   |       |   |  |      | 5.9     | % |            |   | 4.3     | %                                   |  |   |          |   |  |   | 4.7     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Variable rate                                       |  | $             | 40,622 |   |      | $ |  |      |  | $ | 13,000 |   |  | $    | 120,000 |   |            | $ | 174,000 |                                     |  | $ | 19,800    |   |  | $ | 367,422 |   |  | $ | 369,978 |  
|Weighted-average interest rate(4)                   |  |               | 2.5    | % |      |   |  |      |  |   | 4.3    | % |  |      | 5.0     | % |            |   | 3.7     | %                                   |  |   | 4.6       | % |  |   | 4.1     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Derivative instruments                              |  |               |        |   |      |   |   |      |  |   |        |   |  |      |         |   |            |   |         |                                     |  |   |           |   |  |   |         |   |  |   |         |  
|Interest rate swaps, notional amount                |  | $             |       |   |      | $ |  |      |  | $ | 13,000 |   |  | $    | 110,000 |   |            | $ | 69,000  |                                     |  | $ | 19,800    |   |  | $ | 211,800 |   |  | $ | (3,222  | )
|                                                    |  |               |        |   |      |   |   |     
|Average pay rate (2)                                |  |               |       |   |      |   |  |      |  |   | 1.3    | % |  |      | 2.0     | % |            |   | 1.9     | %                                   |  |   | 2.4       | % |  |   | 2.0     | % |  |   |         |  
|                                                    |  |               |        |   |      |   |   |     
|Average receive rate (3)                            |  |               |       |   |      |   |  |      |  |   | 0.3    | % |  |      | 0.3     | % |            |   | 0.3     | %                                   |  |   | 0.3       | % |  |   | 0.3     | % |  |   |         |  



(1)The
weighted-average annual effective interest rate represents the effective interest rate at December 31, 2010, using the interest method, that we use to recognize interest income on our real estate loans receivable.

(2)Average pay rate is the interest rate swap fixed rate.

(3)Average receive rate is the 30-day LIBOR rate at
December 31, 2010.

(4)The weighted-average interest rate represents the actual interest rate in effect at December 31, 2010
(consisting of the contractual interest rate and the effect of interest rate swaps and floors), using interest rate indices as of December 31, 2010, where applicable.



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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, 2010, the fair value and carrying value of our fixed rate real estate loans receivable were $325.9 million and $248.3 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, 2010, the fair value of our fixed rate debt was
$459.9 million and the carrying value of our fixed rate debt was $460.8 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, 2010. 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.

Conversely, movements in interest rates on our variable rate debt and loan 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, 2010, we were exposed to market risks
related to fluctuations in interest rates on $50.6 million of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $316.8 million of our variable rate debt. Based on
interest rates as of December 31, 2010, if interest rates were 100 basis points higher during the 12 months ending December 31, 2011, interest expense on our variable rate debt would increase by $0.4 million and if interest
rates were 100 basis points lower during the 12 months ending December 31, 2011, interest expense on our variable rate debt would decrease by $0.1 million. At December 31, 2010, we were exposed to market risks related to
fluctuations in interest rates on $88.5 million of our variable rate loan receivable outstanding. An increase or decrease of 100 basis points in interest rates would have no impact on our future earnings and cash flows due to an interest rate
floor on our variable rate loan receivable.

The weighted-average annual effective interest rates of our fixed rate real
estate loans receivable and variable rate real estate loan receivable at December 31, 2010 were 11.7% and 7.2%, respectively. The weighted-average annual effective interest rate represents the effective interest rate at
December 31, 2010, 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, 2010
were 4.7% and 4.1%, respectively. The weighted-average interest rate represents the actual interest rate in effect at December 31, 2010 (consisting of the contractual interest rate and the effect of interest rate swaps and floors), using
interest rate indices as of December 31, 2010 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.



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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, 2010. 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.

Based on its assessment,
our management believes that, as of December 31, 2010, 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, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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

As of
the quarter ended December 31, 2010, all items required to be disclosed under Form 8-K were reported under Form 8-K.

Second
Amended and Restated Share Redemption Program

On March 4, 2011, our board of directors approved a second amended
and restated share redemption program. The share redemption program has always provided that at the time we established an estimated value per share (not based on the price to acquire a share of common stock in our initial public offering or
follow-on public offerings) the redemption price for all stockholders would be equal to the estimated value per share, as determined by our external advisor, KBS Capital Advisors, or another firm chosen for that purpose. When we commenced our
initial public offering, we expected to establish an estimated value per share no later than three years after we completed our offering stage. We amended and restated our share redemption program to state our current intention to first establish an
estimated value per share upon the completion of 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 up to 18 months. We have previously disclosed our intention to establish an estimated value per share at this time.

The second amended and restated share redemption program will be effective 30 days after we file this annual report on Form 10-K. The complete plan document is filed as an exhibit to this annual report on
Form 10-K and is available at the SECs website at http://www.sec.gov.



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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 *
|Peter M. Bren             |  | President                                                   |  | 77   
|Charles J. Schreiber, Jr. |  | Chairman of the Board, Chief Executive Officer and Director |  | 59   
|Peter McMillan III        |  | Executive Vice President, Treasurer, Secretary and Director |  | 53   
|Keith D. Hall             |  | Executive Vice President                                    |  | 52   
|David E. Snyder           |  | Chief Financial Officer                                     |  | 39   
|Stacie K. Yamane          |  | Chief Accounting Officer                                    |  | 46   
|Hank Adler                |  | Independent Director                                        |  | 64   
|Barbara R. Cambon         |  | Independent Director                                        |  | 57   
|Stuart A. Gabriel, Ph.D.  |  | Independent Director                                        |  | 57   



* As of March 1, 2011.

Peter M. Bren is our President, a position he has held since August 2007. He is also the President of our advisor, KBS Capital
Advisors, KBS REIT I and KBS REIT III, positions he has held for these entities since October 2004, June 2005 and January 2010, respectively. In addition, Mr. Bren is President and a director of KBS Legacy Partners
Apartment REIT, a position he has held for this entity since August 2009. 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 owner of the entity that acted as the dealer manager of our public offering. All four of our sponsors,
Messrs. Bren, Hall, McMillan and Schreiber, 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 $12.8 billion of real estate investments on behalf of institutional investors, including public and
private pension plans, endowments and foundations, and the investors in us, KBS REIT I, KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT.

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 17 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, our Chief Executive Officer
and one of our directors, positions he has held since March 2008, August 2007 and July 2007, respectively. He is also the Chief Executive Officer of our advisor and the Chairman of the Board, Chief Executive Officer and a director of
KBS REIT I and KBS REIT III, positions he has held for these entities since October 2004, June 2005 and January 2010, 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 owner of the entity that acted as the dealer manager of our public offering. All four of our sponsors, Messrs. Bren, Hall, McMillan and Schreiber, 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 $12.8 billion of real estate investments on behalf of institutional investors,
including public and private pension plans, endowments and foundations, and the investors in us, KBS REIT I, KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT.

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 36
years and with the acquisition, origination, management, disposition and financing of real estate-related debt investments for more than 17 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 our Chairman of the Board
for reasons including his extensive industry and leadership experience. With 36 years of real estate experience and 17 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 advisor, Mr. Schreiber is best-positioned to provide our 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, KBS REIT III and us, Mr. Schreiber brings to our board of directors demonstrated management and
leadership ability.

Peter McMillan III is one of our Executive Vice Presidents and our Treasurer and Secretary,
positions he has held since August 2007, and he also is one of our directors, a position he has held since March 2008. He is an Executive Vice President, Treasurer, Secretary and a director of KBS REIT I and KBS REIT III,
positions he has held for these entities since June 2005 and January 2010, respectively. In addition, Mr. McMillan is President and Chairman of the Board of KBS Strategic Opportunity REIT and an Executive Vice President of KBS Legacy
Partners Apartment REIT, positions he has held for these entities since December 2008 and August 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 owner of the entity that acted as the dealer manager of our public offering. All four of our sponsors, Messrs. Bren, Hall, McMillan and Schreiber, actively participate in the management and operations of our
advisor.



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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 an 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 $75.0 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 $6.0 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 the real estate finance markets and with real estate-related investments. With over 26 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 able to direct our board of directors
to the critical issues facing our company. Further, his experiences as a director of KBS REIT I, KBS REIT III, 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 one of our Executive Vice Presidents, a position he has held since
August 2007. He is also an 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 for these entities since June
2005, January 2010 and December 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 owner of the entity that acted as the dealer manager of our public offering. All four of our sponsors, Messrs. Bren, Hall, McMillan and Schreiber, actively
participate in the management and operations of our advisor.

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
$18.0 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 $6.0 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 our advisor, KBS REIT I and KBS REIT III, positions he has held for these entities since November 2008, December 2008 and January 2010, respectively. He
is also the Chief Financial Officer, Treasurer and Secretary of KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT, positions he has held for these entities since December 2008 and August 2009, respectively. He is also a member of
the investment committee formed by our advisor to evaluate and recommend new investment opportunities for us.

From
January 1998 to May 2008, Mr. Snyder worked for Nationwide Health Properties, Inc., or 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, a position she has held since
December 2008. From August 2007 until December 2008, Ms. Yamane served as our Chief Financial Officer. She also held the position of Controller from August 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, KBS Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT, positions she has held for these entities since October 2004, December
2008, January 2010, August 2009 and August 2009, respectively. Additionally, Ms Yamane served as Chief Financial Officer of KBS REIT I from June 2005 to December 2008 and Controller of KBS REIT I from June 2005 to October 2008.

In addition, Ms. Yamane serves as Senior Vice President/Controller, Portfolio Accounting for
KBS Realty Advisors LLC, a position she has held for this entity 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, or 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 21 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 and is the chair
of our audit committee, positions he has held since March 2008. Professor Adler is also an independent director and chair of the audit committee of KBS REIT I and KBS REIT III, positions he has held for these entities since June
2005 and September 2010, respectively. 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 Memorial
Hospital 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 of directors
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 valuable member of our board of directors and our audit committee. In addition, as a director and chair of the audit committee of KBS REIT I, KBS REIT III and us and as a director of Corinthian
Colleges, Inc., Professor Adler is well aware of the corporate governance and regulatory issues facing public companies.



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Barbara R. Cambonis one of our independent directors and is the chair of our
conflicts committee, positions she has held since March 2008. Ms. Cambon is also an independent director and chair of the conflicts committee of KBS REIT I and KBS REIT III, positions she has held for these entities since June 2005
and September 2010, respectively. From April 2009 to December 2010, she served as Chief Operating Officer of Premium One Asset Management LLC, a company whose business focuses on providing investment management services to investors. From
October 2003 to October 2009, she also 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 provided asset management services to an institutional partnership investment in residential real estate development. She has been in the real estate investment business for 29 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 compensation committees of BioMed Realty Trust, Inc.,
on the board of Neighborhood National 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.

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 29 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 as a director and chair of the conflicts committee of KBS REIT I, KBS REIT III and us and as a director of BioMed Realty
Trust, Inc., all public REITs, gives her additional perspective and insight into large public real estate companies such as ours.

Stuart A. Gabriel, Ph.D.is one of our independent directors, a position he has held since March 2008. Professor Gabriel is also an independent director of KBS REIT I and KBS REIT III,
positions he has held for these entities since June 2005 and September 2010, respectively. Since June 2007, Professor Gabriel has served as 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 USC 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 1990 to 2007. In 2004, he was elected President of the American Real Estate
and Urban Economics Association. From September 2004 through July 2008, Professor Gabriel served as a director of IndyMac Bank, F.S.B. Professor Gabriel serves on the editorial boards of seven academic journals. 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 real estate and real estate
capital markets performance as well as structured finance products, including credit default swaps, commercial mortgage-backed securities and collateralized debt obligations. Also, he 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 of directors. 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 KBS REIT I, KBS REIT III, IndyMac Bank, F.S.B. and us, he also has an understanding of the requirements of serving on a public company board.



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The Audit Committee

Our board of directors 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, Ph.D. 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 our 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 2010.

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.



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

Compensation
of Executive Officers

Our conflicts committee, which is composed of all of our independent directors, discharges our board
of directors responsibilities relating to the compensation of our executives. However, we currently do not have any paid employees and our executive officers do not receive any 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
or our subsidiaries. See Part III, 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 2010.



|                             |  |                                    |         |  |                       |   |   |       |  |   |         | 
|---------------------------- |  | ---------------------------------- | ------- |  | --------------------- | - | - | ----- |  | - | ------- | 
|Name                         |  | Fees Earned orPaid 
in Cash in2010 |         |  | All OtherCompensation |   |   | Total | 
|Hank Adler                   |  | $                                  | 118,833 |  |                       | $ |  |       |  | $ | 118,833 | 
|Barbara R. Cambon            |  |                                    | 126,833 |  |                       |   |  |       |  |   | 126,833 | 
|Stuart A. Gabriel, Ph.D.     |  |                                    | 118,333 |  |                       |   |  |       |  |   | 118,333 | 
|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.



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Cash Compensation

We compensate each of our independent directors with an annual retainer of $40,000. In addition, we pay our independent directors for attending board and committee meetings as follows:



| |  |  | $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 of our directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with attendance at meetings of our board of directors.



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

Stock Ownership

The
following table shows, as of March 9, 2011, 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 Natureof 
BeneficialOwnership (2) |        |     | Percentage
|KBS Capital Advisors, LLC                |  |                                              | 20,000 | (3) |            | *
|Hank Adler                               |  |                                              |       |     |            | 
|Peter M. Bren                            |  |                                              | 20,000 | (3) |            | *
|Barbara R. Cambon                        |  |                                              |       |     |            | 
|Stuart A. Gabriel                        |  |                                              | 2,146  |     |            | *
|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    |  |                                              | 22,146 | (3) |            | *



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

|(1) | The address of
each beneficial owner listed is 620 Newport Center Drive, Suite 1300, Newport Beach, California 92660.
|--- | ---------------------------------------------------------------------------------------------------------------------

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

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



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|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, our 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). Our board of directors has determined that Hank Adler, Barbara R. Cambon and Stuart A. Gabriel, Ph.D. 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 or earned any compensation from us or any such other entities except for compensation directly related to service as a director of us. Therefore, we believe that all of these directors are independent
directors.

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, via the Ethics Hotline, to an internal audit
representative or directly to the audit committee chair, as appropriate.

Certain Transactions with Related Persons

As described further below, we have entered into agreements with certain affiliates pursuant to which they will provide services to us.
Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr. control and indirectly own our advisor, KBS Capital Advisors LLC, and KBS Capital Markets Group LLC, the entity that acted as the dealer manager in our public offering.
We refer to these individuals as our sponsors. They are also our executive officers. All four of our sponsors actively participate in the management and operations of our advisor. Our advisor has three managers: an entity owned and controlled by
Mr. Bren; an entity owned and controlled by Messrs. Hall and McMillan; and an entity owned and controlled by Mr. Schreiber.



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Our Relationship with KBS Capital Advisors.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 property and real estate-related investment opportunities consistent with our investment
policies and objectives;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | structuring the terms and conditions of our investments, sales and joint ventures;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | acquiring properties and other investments on our behalf in compliance with our investment objectives and policies;
| | - |  | -------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | entering into leases and service contracts for our properties;
| | - |  | --------------------------------------------------------------



| |  |  | supervising and evaluating each property managers performance;
| | - |  | ---------------------------------------------------------------



| |  |  | reviewing and analyzing the properties operating and capital budgets;
| | - |  | ----------------------------------------------------------------------



| |  |  | assisting us in obtaining insurance;
| | - |  | ------------------------------------



| |  |  | generating an annual budget for us;
| | - |  | -----------------------------------



| |  |  | reviewing and analyzing financial information for each of our assets and the overall portfolio;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | performing investor-relations services;
| | - |  | ---------------------------------------



| |  |  | maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the IRS and other regulatory
agencies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engaging and supervising the performance of our agents, including our registrar and transfer agent; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | performing any other services reasonably requested by us.
| | - |  | ---------------------------------------------------------

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, 2011 subject to an unlimited number of successive one-year renewals upon the mutual consent of the parties. From January 1, 2010 through the most recent date practicable, which was February 28, 2011, 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 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 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 raised in the primary offering. KBS
Capital Advisors will do the same after termination of the offering pursuant to our dividend reinvestment plan. From January 1, 2010 through February 28, 2011, our advisor incurred approximately $4.4 million of organization
and offering expenses on our behalf and as of February 28, 2011, our advisor has been reimbursed by us for approximately $4.1 million of such costs.

We incur acquisition fees payable to our advisor equal to 0.75% of the cost of investments acquired by us, 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, 2010 through February 28, 2011 totaled approximately $12.7 million and $2.9 million, respectively. As of February 28, 2011, we have paid
$15.0 million of acquisition and origination fees incurred from January 1, 2010 through February 28, 2011.



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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, 2010
through February 28, 2011, 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 property, we pay our advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment. This
amount includes any portion of the investment that was debt financed and is inclusive of acquisition fees and expenses related thereto. In the case of investments made through joint ventures, the asset management fee will be determined based on our
proportionate share of the underlying investment. With respect to investments in loans and any investments other than real property, 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 (which amount includes any portion of the investment that was debt financed and is inclusive of acquisition and origination fees and expenses related thereto) and
(ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. From
January 1, 2010 through February 28, 2011, our asset management fees totaled $12.9 million, of which $11.5 million has been paid as of February 28, 2011.

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. Our advisor may seek reimbursement for employee costs
under the advisory agreement. Commencing July 1, 2010, we have reimbursed our advisor for our allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to us. In the future, our advisor
may seek reimbursement for additional employee costs. However, we will not reimburse our advisor or its affiliates for employee costs in connection with services for which KBS Capital Advisors earns acquisition, origination or disposition fees
(other than reimbursement of travel and communication expenses) or for the salaries and benefits our advisor or its affiliates may pay to our executive officers. From January 1, 2010 through February 28, 2011, we have reimbursed our
advisor for $35,000 of operating expenses, including $33,000 of employee costs.

Our Relationship with KBS Capital Markets
Group. Pursuant to the dealer manager agreement with KBS Capital Markets Group, the 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, 2010 through February 28, 2011, we incurred selling commissions of $55.0 million, of which 100% was reallowed to participating broker-dealers. From January 1, 2010 through
February 28, 2011, we incurred dealer manager fees of $28.1 million, of which $9.9 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 our gross offering proceeds of the offering as of the date of the reimbursement. From
January 1, 2010 through February 28, 2011, we have reimbursed or intend to reimburse our dealer manager for approximately $3.6 million.

We ceased offering shares of common stock in our primary initial public offering on December 31, 2010 and as of February 28, 2011 were in the process of completing subscription processing
procedures, as set forth in our prospectus. We continue to offer shares under our dividend reinvestment plan.



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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.



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

Independent Registered Public Accounting Firm

During the year ended December 31, 2010, 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 registered public accounting firm since our formation.

Pre-Approval Policies

In order to ensure that the provision of such services does not impair the auditors independence, 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 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, 2010 and 2009, 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, 2010 and 2009, are set forth in the table below.



|                   |  |      |         |  |      |   |         | 
|------------------ |  | ---- | ------- |  | ---- | - | ------- | 
|                   |  | 2010 |         |  | 2009 |  
|Audit fees         |  | $    | 650,000 |  |      | $ | 589,000 | 
|Audit-related fees |  |      | 2,000   |  |      |   | 3,000   | 
|Tax fees           |  |      | 128,000 |  |      |   | 23,000  | 
|All other fees     |  |      |        |  |      |   |        | 
|                   |  |      |         |  |      |   |         | 
|Total              |  | $    | 780,000 |  |      | $ | 615,000 | 
|                   |  |      |         |  |      |   |         | 

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-37 through F-38 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 22, 2010, 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, incorporated by reference to Appendix B to the prospectus dated April 22, 2010, Commission File
No. 333-146341                                                                                                                                                                                                                                   
|     | 
|4.4  |  | Second Amended and Restated Share Redemption Program                                                                                                                                                                                                                                                                                                                                              
|     | 
|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 |  | Advisory Agreement between the Company and KBS Capital Advisors LLC, dated May 21, 2010, incorporated by reference to Exhibit 10.1 to Post-Effective Amendment
No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                                                                                         
|     | 
|10.2 |  | Amended and Restated Dealer Manager Agreement with Selected Dealer Agreement dated as of April 30, 2010, incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the period ended March 31, 2010                                                                                                                                                             
|     | 
|10.3 |  | Loan Agreement (related to the Portfolio Revolving Loan Facility) between KBSII 350 PLUMERIA, LLC, KBSII MOUNTAIN VIEW, LLC, KBSII ONE MAIN PLACE, LLC,
KBSII PIERRE LACLEDE CENTER, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of April 30, 2010, incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the three months ended
March 31, 2010
|     | 
|10.4 |  | Mortgage Agreement (related to the Portfolio Revolving Loan Facility) between KBSII MOUNTAIN VIEW, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of
April 30, 2010, incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2010                                                                                  
|     | 
|10.5 |  | Deed of Trust (related to the Portfolio Revolving Loan Facility) between KBSII PIERRE LACLEDE CENTER, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of
April 30, 2010, incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2010                                                                               



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                
|      | 
|10.6  |  | Deed of Trust (related to the Portfolio Revolving Loan Facility) between KBSII ONE MAIN PLACE, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of
April 30, 2010, incorporated by reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2010                                                                                                               
|      | 
|10.7  |  | Deed of Trust (related to the Portfolio Revolving Loan Facility) between KBSII 350 PLUMERIA, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of
April 30, 2010, incorporated by reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2010                                                                                                                 
|      | 
|10.8  |  | Limited Guaranty (related to the Portfolio Revolving Loan Facility) between KBS REIT PROPERTIES II, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of
April 30, 2010, incorporated by reference to Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2010                                                                                                          
|      | 
|10.9  |  | Secured Promissory Note (related to the Portfolio Revolving Loan Facility) by and between KBSII 350 PLUMERIA, LLC, KBSII MOUNTAIN VIEW, LLC, KBSII ONE MAIN
PLACE, LLC, KBSII PIERRE LACLEDE CENTER, LLC and WELLS FARGO BANK NATIONAL ASSOCIATION, dated as of April 30, 2010, incorporated by reference to Exhibit 10.8 to the Companys Quarterly Report on Form 10-Q for the three
months ended March 31, 2010         
|      | 
|10.10 |  | Agreement of Sale and Purchase (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by and between 300 LASALLE LLC and KBS CAPITAL ADVISORS
LLC, effective as of June 10, 2010, incorporated by reference to Exhibit 10.52 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                 
|      | 
|10.11 |  | First Amendment to Agreement of Sale and Purchase (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by and between 300 LASALLE LLC and KBS
CAPITAL ADVISORS LLC, dated July 1, 2010, incorporated by reference to Exhibit 10.53 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File
No. 333-146341                                         
|      | 
|10.12 |  | Second Amendment to Agreement of Sale and Purchase (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by and between 300 LASALLE LLC and
KBSII 300 NORTH LASALLE, LLC, dated July 2, 2010, incorporated by reference to Exhibit 10.54 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File
No. 333-146341                                    
|      | 
|10.13 |  | Assignment and Assumption of Purchase Agreement between KBS CAPITAL ADVISORS LLC and KBSII 300 NORTH LASALLE, LLC, dated as of July 1, 2010, incorporated by reference
to Exhibit 10.55 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                                                             
|      | 
|10.14 |  | Metropolitan Life Insurance Company Mortgage Loan Application (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois), by and between METROPOLITAN LIFE
INSURANCE COMPANY and KBSII 300 LASALLE, LLC, effective as of July 6, 2010, incorporated by reference to Exhibit 10.56 to Post-Effective Amendment No. 9 to the Companys Registration Statement on Form S-11,
Commission File No. 333-146341



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                          
|      | 
|10.15 |  | Promissory Note (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by and between KBSII 300 NORTH LASALLE, LLC and METROPOLITAN LIFE
INSURANCE COMPANY, dated as of July 29, 2010, incorporated by reference to Exhibit 10.15 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2010                                                                                           
|      | 
|10.16 |  | Mortgage, Security Agreement and Fixture Filing (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by KBSII 300 NORTH LASALLE, LLC, to METROPOLITAN
LIFE INSURANCE COMPANY, dated as of July 29, 2010, incorporated by reference to Exhibit 10.16 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2010                                                                       
|      | 
|10.17 |  | Guaranty Agreement (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) by KBS REIT PROPERTIES II, LLC and METROPOLITAN LIFE INSURANCE COMPANY, dated
as of July 29, 2010, incorporated by reference to Exhibit 10.17 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2010                                                                                                     
|      | 
|10.18 |  | Office Lease Agreement (related to the acquisition of 300 North LaSalle Street in Chicago, Illinois) between 300 LASALLE LLC and KIRKLAND & ELLIS LLP, dated as of
August 25, 2005, as amended, incorporated by reference to Exhibit 10.60 to Post-Effective Amendment No. 10 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                   
|      | 
|10.19 |  | Agreement of Sale and Purchase (related to the acquisition of Union Bank Plaza in Los Angeles, California) by and between HINES VAF UB PLAZA, L.P. and KBS CAPITAL ADVISORS LLC,
effective as of August 16, 2010, incorporated by reference to Exhibit 10.61 to Post-Effective Amendment No. 10 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                 
|      | 
|10.20 |  | First Amendment to Agreement of Sale and Purchase (related to the acquisition of Union Bank Plaza in Los Angeles, California) by and between HINES VAF UB PLAZA, L.P. and KBSII
445 SOUTH FIGUEROA, LLC, dated August 20, 2010, incorporated by reference to Exhibit 10.62 to Post-Effective Amendment No. 10 to the Companys Registration Statement on Form S-11, Commission File
No. 333-146341                                   
|      | 
|10.21 |  | Second Amendment to Agreement of Sale and Purchase (related to the acquisition of Union Bank Plaza in Los Angeles, California) by and between HINES VAF UB PLAZA, L.P. and
KBSII 445 SOUTH FIGUEROA, LLC, dated September 15, 2010, incorporated by reference to Exhibit 10.63 to Post-Effective Amendment No. 10 to the Companys Registration Statement on Form S-11, Commission File
No. 333-146341                               
|      | 
|10.22 |  | Assignment and Assumption of Purchase Agreement between KBS CAPITAL ADVISORS LLC and KBSII 445 SOUTH FIGUEROA, LLC, dated as of August 19, 2010, incorporated by
reference to Exhibit 10.64 to Post-Effective Amendment No. 10 to the Companys Registration Statement on Form S-11, Commission File No. 333-146341                                                                                                                  
|      | 
|10.23 |  | Amended and Restated and Consolidated Loan Agreement (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC, KBSII PLANO BUSINESS PARK, LLC, KBSII
HORIZON TECH CENTER, LLC, KBSII 2500 REGENT BOULEVARD, LLC, KBSII CRESCENT VIII, LLC, KBSII NATIONAL CITY TOWER, LLC, KBSII GRANITE TOWER, LLC, KBSII GATEWAY CORPORATE CENTER, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated
January 27, 2011



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      | 
|10.24 |  | Amended and Restated and Consolidated Secured Promissory Note (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC, KBSII PLANO BUSINESS PARK, LLC,
KBSII HORIZON TECH CENTER, LLC, KBSII 2500 REGENT BOULEVARD, LLC, KBSII CRESCENT VIII, LLC, KBSII NATIONAL CITY TOWER, LLC, KBSII GRANITE TOWER, LLC, KBSII GATEWAY CORPORATE CENTER, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated
January 27, 2011
|      | 
|10.25 |  | Amended and Restated Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII NATIONAL CITY
TOWER, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                           
|      | 
|10.26 |  | Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBS II GRANITE TOWER, LLC and WELLS
FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                                                
|      | 
|10.27 |  | First Modification of Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII HORIZON
TECH CENTER, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                     
|      | 
|10.28 |  | First Modification of Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII 2500
REGENT BOULEVARD, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                   
|      | 
|10.29 |  | First Modification of Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII PLANO
BUSINESS PARK, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                     
|      | 
|10.30 |  | First Modification of Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC
and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                                        
|      | 
|10.31 |  | First Modification of Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII
CRESCENT VIII, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated January 27, 2011                                                                                                                                                                           
|      | 
|10.32 |  | Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII GATEWAY CORPORATE CENTER, LLC
and WELLS FARGO BANK NATIONAL ASSOCIATION, dated January 27, 2011.                                                                                                                                                                                      
|      | 
|10.33 |  | Amended and Restated and Consolidated Limited Guaranty (relating to the Portfolio Loan) by KBS REIT PROPERTIES II, LLC, in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, dated
January 27, 2011                                                                                                                                                                                                                                            



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|      | 
|10.34 |  | Second Amended and Restated and Consolidated Secured Promissory Note (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC, KBSII PLANO BUSINESS PARK,
LLC, KBSII HORIZON TECH CENTER, LLC, KBSII 2500 REGENT BOULEVARD, LLC, KBSII CRESCENT VIII, LLC, KBSII NATIONAL CITY TOWER, LLC, KBSII GRANITE TOWER, LLC, KBSII GATEWAY CORPORATE CENTER, LLC, KBSII I-81 INDUSTRIAL PORTFOLIO TRUST, LLC and WELLS
FARGO BANK, NATIONAL ASSOCIATION, dated February 8, 2011                                                            
|      | 
|10.35 |  | Open-Ended Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (Alberigi Drive) (relating to the Portfolio Loan) by and between KBSII I-81
INDUSTRIAL PORTFOLIO TRUST, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 8, 2011                                                                                                                                                                                                                                                                       
|      | 
|10.36 |  | Open-Ended Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (CenterPoint Boulevard) (relating to the Portfolio Loan) by and between KBSII
I-81 INDUSTRIAL PORTFOLIO TRUST, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 8, 2011                                                                                                                                                                                                                                                                
|      | 
|10.37 |  | Open-Ended Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (Capital Road) (relating to the Portfolio Loan) by and between KBSII I-81
INDUSTRIAL PORTFOLIO TRUST, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 8, 2011                                                                                                                                                                                                                                                                         
|      | 
|10.38 |  | Open-Ended Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (Oak Ridge Road) (relating to the Portfolio Loan) by and between KBSII I-81
INDUSTRIAL PORTFOLIO TRUST, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 8, 2011                                                                                                                                                                                                                                                                       
|      | 
|10.39 |  | Third Amended and Restated and Consolidated Secured Promissory Note (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC, KBSII PLANO BUSINESS PARK,
LLC, KBSII HORIZON TECH CENTER, LLC, KBSII 2500 REGENT BOULEVARD, LLC, KBSII CRESCENT VIII, LLC, KBSII NATIONAL CITY TOWER, LLC, KBSII GRANITE TOWER, LLC, KBSII GATEWAY CORPORATE CENTER, LLC, KBSII I-81 INDUSTRIAL PORTFOLIO TRUST, LLC, KBSII TWO
WESTLAKE PARK, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 25, 2011                              
|      | 
|10.40 |  | Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII TWO WESTLAKE PARK, LLC and
WELLS FARGO BANK, NATIONAL ASSOCIATION, dated February 25, 2011                                                                                                                                                                                                                                                                                                           
|      | 
|10.41 |  | Fourth Amended and Restated and Consolidated Secured Promissory Note (relating to the Portfolio Loan) by and between KBSII HARTMAN BUSINESS CENTER, LLC, KBSII PLANO BUSINESS PARK,
LLC, KBSII HORIZON TECH CENTER, LLC, KBSII 2500 REGENT BOULEVARD, LLC, KBSII CRESCENT VIII, LLC, KBSII NATIONAL CITY TOWER, LLC, KBSII GRANITE TOWER, LLC, KBSII GATEWAY CORPORATE CENTER, LLC, KBSII I-81 INDUSTRIAL PORTFOLIO TRUST, LLC, KBSII TWO
WESTLAKE PARK, LLC, KBSII TORREY RESERVE WEST, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated March 10, 2011
|      | 
|10.42 |  | Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (relating to the Portfolio Loan) by and between KBSII TORREY RESERVE WEST, LLC and
WELLS FARGO BANK, NATIONAL ASSOCIATION, dated March 10, 2011                                                                                                                                                                                                                                                                                                            



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|     |  |                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|Ex.  |  | Description                                                                                                                     
|     | 
|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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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                      |  |  |      | 
|----------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Consolidated Financial Statements                                                                     |  |  |      | 
|                                                                                                      | 
|Report of Independent Registered Public Accounting Firm                                               |  |  | F-2  | 
|                                                                                                      | 
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                          |  |  | F-3  | 
|                                                                                                      | 
|Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and
2008            |  |  | F-4  | 
|                                                                                                      | 
|Consolidated Statements of Stockholders Equity for the Years Ended December 31, 
2010, 2009 and 2008 |  |  | F-5  | 
|                                                                                                      | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 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-37 | 

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



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##### 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, 2010 and 2009, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2010. 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, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, 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 11, 2011



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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, |          
|                                                                                                                                                                                    |  | 2010         |           |   | 2009 |  
|Assets                                                                                                                                                                              |  |              |           |   |      |   |         |  
|Real estate:                                                                                                                                                                        |  |              |           |   |      |   |         |  
|Land                                                                                                                                                                                |  | $            | 190,507   |   |      | $ | 60,607  |  
|Buildings and improvements                                                                                                                                                          |  |              | 1,511,105 |   |      |   | 447,953 |  
|Tenant origination and absorption costs                                                                                                                                             |  |              | 252,264   |   |      |   | 66,867  |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total real estate, cost                                                                                                                                                             |  |              | 1,953,876 |   |      |   | 575,427 |  
|Less accumulated depreciation and amortization                                                                                                                                      |  |              | (80,473   | ) |      |   | (34,059 | )
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total real estate, net                                                                                                                                                              |  |              | 1,873,403 |   |      |   | 541,368 |  
|Real estate loans receivable, net                                                                                                                                                   |  |              | 336,759   |   |      |   | 130,801 |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total real estate and real estate-related investments, net                                                                                                                          |  |              | 2,210,162 |   |      |   | 672,169 |  
|Cash and cash equivalents                                                                                                                                                           |  |              | 82,413    |   |      |   | 273,821 |  
|Restricted cash                                                                                                                                                                     |  |              | 937       |   |      |   |        |  
|Rents and other receivables, net                                                                                                                                                    |  |              | 20,582    |   |      |   | 3,893   |  
|Above-market leases, net                                                                                                                                                            |  |              | 48,456    |   |      |   | 2,303   |  
|Deferred financing costs, prepaid expenses and other assets                                                                                                                         |  |              | 17,104    |   |      |   | 1,682   |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total assets                                                                                                                                                                        |  | $            | 2,379,654 |   |      | $ | 953,868 |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|                                                                                                                                                                                    |  |             
|Liabilities and stockholders equity                                                                                                                                                |  |              |           |   |      |   |         |  
|Notes payable                                                                                                                                                                       |  | $            | 828,157   |   |      | $ | 126,660 |  
|Accounts payable and accrued liabilities                                                                                                                                            |  |              | 20,287    |   |      |   | 2,664   |  
|Due to affiliates                                                                                                                                                                   |  |              | 373       |   |      |   | 206     |  
|Distributions payable                                                                                                                                                               |  |              | 9,179     |   |      |   | 5,013   |  
|Below-market leases, net                                                                                                                                                            |  |              | 35,487    |   |      |   | 19,664  |  
|Other liabilities                                                                                                                                                                   |  |              | 18,536    |   |      |   | 3,839   |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total liabilities                                                                                                                                                                   |  |              | 912,019   |   |      |   | 158,046 |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Commitments and contingencies (Note 14)                                                                                                                                             |  |              |           |   |      |   |         |  
|Redeemable common stock                                                                                                                                                             |  |              | 43,306    |   |      |   | 21,260  |  
|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, 176,739,865 and 93,167,161 shares issued and outstanding as of
December 31, 2010 and December 31, 2009, respectively |  |              | 1,767     |   |      |   | 932     |  
|Additional paid-in capital                                                                                                                                                          |  |              | 1,537,403 |   |      |   | 810,006 |  
|Cumulative distributions in excess of net income                                                                                                                                    |  |              | (112,711  | ) |      |   | (36,376 | )
|Accumulated other comprehensive loss                                                                                                                                                |  |              | (2,130    | ) |      |   |        |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total stockholders equity                                                                                                                                                          |  |              | 1,424,329 |   |      |   | 774,562 |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                          |  | $            | 2,379,654 |   |      | $ | 953,868 |  
|                                                                                                                                                                                    |  |              |           |   |      |   |         |  

See accompanying notes to consolidated financial statements.



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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, |            
|                                                                        |  | 2010                     |             |  | 2009 |   |            | 2008 | 
|Revenues:                                                               |  |                          |             |  |      |   |            |      |  |   |           |  
|Rental income                                                           |  | $                        | 110,294     |  |      | $ | 49,548     |      |  | $ | 11,898    |  
|Tenant reimbursements                                                   |  |                          | 18,066      |  |      |   | 8,762      |      |  |   | 2,166     |  
|Interest income from real estate loans receivable                       |  |                          | 28,255      |  |      |   | 16,885     |      |  |   | 21        |  
|Other operating income                                                  |  |                          | 3,518       |  |      |   | 192        |      |  |   | 2         |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Total revenues                                                          |  |                          | 160,133     |  |      |   | 75,387     |      |  |   | 14,087    |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Expenses:                                                               |  |                          |             |  |      |   |            |      |  |   |           |  
|Operating, maintenance, and management                                  |  |                          | 28,715      |  |      |   | 12,265     |      |  |   | 3,335     |  
|Real estate taxes and insurance                                         |  |                          | 12,977      |  |      |   | 4,515      |      |  |   | 937       |  
|Asset management fees to affiliate                                      |  |                          | 10,005      |  |      |   | 4,482      |      |  |   | 857       |  
|Real estate acquisition fees to affiliates                              |  |                          | 10,692      |  |      |   | 846        |      |  |   |          |  
|Real estate acquisition fees and expenses                               |  |                          | 7,487       |  |      |   | 678        |      |  |   |          |  
|General and administrative expenses                                     |  |                          | 3,947       |  |      |   | 2,678      |      |  |   | 810       |  
|Depreciation and amortization                                           |  |                          | 61,686      |  |      |   | 28,105     |      |  |   | 6,974     |  
|Interest expense                                                        |  |                          | 19,389      |  |      |   | 10,164     |      |  |   | 4,345     |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Total expenses                                                          |  |                          | 154,898     |  |      |   | 63,733     |      |  |   | 17,258    |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Other income:                                                           |  |                          |             |  |      |   |            |      |  |   |           |  
|Other interest income                                                   |  |                          | 273         |  |      |   | 646        |      |  |   | 589       |  
|Gain on sale of real estate securities                                  |  |                          |            |  |      |   | 119        |      |  |   |          |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Total other income                                                      |  |                          | 273         |  |      |   | 765        |      |  |   | 589       |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Net income (loss)                                                       |  | $                        | 5,508       |  |      | $ | 12,419     |      |  | $ | (2,582    | )
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Net income (loss) per common share, basic and diluted                   |  | $                        | 0.04        |  |      | $ | 0.20       |      |  | $ | (0.33     | )
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Weighted-average number of common shares outstanding, basic and diluted |  |                          | 125,894,756 |  |      |   | 63,494,969 |      |  |   | 7,926,366 |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  
|Distributions declared per common share                                 |  | $                        | 0.650       |  |      | $ | 0.650      |      |  | $ | 0.263     |  
|                                                                        |  |                          |             |  |      |   |            |      |  |   |           |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(dollars in thousands)



|                                                                        |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   |           |  
|----------------------------------------------------------------------- |  | ------------ | ----------- | - | ---------- | - | ----- | ----------------- |  | - | ----------------- | - |  | ------------- | -------- | - | ------ | - | ------ | - |  | - | --------- | -
|                                                                        |  |              |             |   |            |   |       |                   |  |   |                   |   |  | Accumulated   |          |   |        |  
|                                                                        |  |              |             |   |            |   |       |                   |  |   | Cumulative        |   |  | Other         |          |   | Total  |  
|                                                                        |  | Common Stock |             |   | Additional |   |       | Distributions and |  |   | Comprehensive     |   |  | Stockholders |         
|                                                                        |  | Shares       |             |   | Amounts    |   |       | Paid-in Capital   |  |   | Net Income (Loss) |   |  | 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 to affiliate |  |              |            |   |            |   |      |                   |  |   | (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 to affiliate |  |              |            |   |            |   |      |                   |  |   | (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   |  
|Comprehensive income:                                                   |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   |           |  
|Net income                                                              |  |              |            |   |            |   |      |                   |  |   |                  |   |  |               | 5,508    |   |        |   |       |   |  |   | 5,508     |  
|Unrealized losses on derivative instruments                             |  |              |            |   |            |   |      |                   |  |   |                  |   |  |               |         |   |        |   | (2,130 | ) |  |   | (2,130    | )
|                                                                        |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   |           |  
|Total comprehensive income                                              |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   | 3,378     |  
|Issuance of common stock                                                |  |              | 85,838,625  |   |            |   | 858   |                   |  |   | 852,417           |   |  |               |         |   |        |   |       |   |  |   | 853,275   |  
|Redemptions of common stock                                             |  |              | (2,265,921  | ) |            |   | (23   | )                 |  |   | (21,237           | ) |  |               |         |   |        |   |       |   |  |   | (21,260   | )
|Transfers to redeemable common stock                                    |  |              |            |   |            |   |      |                   |  |   | (22,046           | ) |  |               |         |   |        |   |       |   |  |   | (22,046   | )
|Distributions declared                                                  |  |              |            |   |            |   |      |                   |  |   |                  |   |  |               | (81,843  | ) |        |   |       |   |  |   | (81,843   | )
|Commissions on stock sales and related dealer manager fees to affiliate |  |              |            |   |            |   |      |                   |  |   | (74,346           | ) |  |               |         |   |        |   |       |   |  |   | (74,346   | )
|Other offering costs                                                    |  |              |            |   |            |   |      |                   |  |   | (7,391            | ) |  |               |         |   |        |   |       |   |  |   | (7,391    | )
|                                                                        |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   |           |  
|Balance, December 31, 2010                                              |  |              | 176,739,865 |   |            | $ | 1,767 |                   |  | $ | 1,537,403         |   |  | $             | (112,711 | ) |        | $ | (2,130 | ) |  | $ | 1,424,329 |  
|                                                                        |  |              |             |   |            |   |       |                   |  |   |                   |   |  |               |          |   |        |   |        |   |  |   |           |  

See accompanying notes to consolidated financial statements.



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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, |           
|                                                                                                                    |  | 2010                     |            |   | 2009 |   |          | 2008 | 
|Cash Flows from Operating Activities:                                                                               |  |                          |            |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                                                   |  | $                        | 5,508      |   |      | $ | 12,419   |      |  | $ | (2,582   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                            |  |                          |            |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                                                       |  |                          | 61,686     |   |      |   | 28,105   |      |  |   | 6,974    |  
|Noncash interest income on real estate-related investments                                                          |  |                          | (6,354     | ) |      |   | (5,304   | )    |  |   | (6       | )
|Deferred rent                                                                                                       |  |                          | (8,686     | ) |      |   | (2,187   | )    |  |   | (596     | )
|Bad debt expense (recovery)                                                                                         |  |                          | 22         |   |      |   | (5       | )    |  |   | 19       |  
|Amortization of above- and below-market leases, net                                                                 |  |                          | (4,290     | ) |      |   | (5,683   | )    |  |   | (1,666   | )
|Amortization of deferred financing costs                                                                            |  |                          | 1,165      |   |      |   | 996      |      |  |   | 541      |  
|Gain on sale of real estate securities                                                                              |  |                          |           |   |      |   | (119     | )    |  |   |         |  
|Increase in fair value of contingent consideration                                                                  |  |                          | (273       | ) |      |   |         |      |  |   |         |  
|Changes in operating assets and liabilities:                                                                        |  |                          |            |   |      |   |          |      |  |   |          |  
|Restricted cash for operational expenditures                                                                        |  |                          | (723       | ) |      |   |         |      |  |   |         |  
|Rents and other receivables                                                                                         |  |                          | (12,111    | ) |      |   | 549      |      |  |   | (1,673   | )
|Prepaid expenses and other assets                                                                                   |  |                          | (6,636     | ) |      |   | (973     | )    |  |   | (724     | )
|Accounts payable and accrued liabilities                                                                            |  |                          | 17,648     |   |      |   | (240     | )    |  |   | 3,124    |  
|Other liabilities                                                                                                   |  |                          | 12,567     |   |      |   | 2,379    |      |  |   | 1,459    |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                           |  |                          | 59,523     |   |      |   | 29,937   |      |  |   | 4,870    |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Cash Flows from Investing Activities:                                                                               |  |                          |            |   |      |   |          |      |  |   |          |  
|Acquisitions of real estate                                                                                         |  |                          | (1,389,288 | ) |      |   | (112,174 | )    |  |   | (437,434 | )
|Additions to real estate                                                                                            |  |                          | (9,153     | ) |      |   | (2,172   | )    |  |   | (100     | )
|Investment in real estate loans receivable                                                                          |  |                          | (287,104   | ) |      |   | (67,611  | )    |  |   | (58,001  | )
|Proceeds from sale of real estate-related investments                                                               |  |                          | 87,500     |   |      |   |         |      |  |   |         |  
|Investments in real estate securities                                                                               |  |                          |           |   |      |   | (3,958   | )    |  |   |         |  
|Sales of real estate securities                                                                                     |  |                          |           |   |      |   | 4,198    |      |  |   |         |  
|Increase in restricted cash for capital expenditures                                                                |  |                          | (214       | ) |      |   |         |      |  |   |         |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                                                               |  |                          | (1,598,259 | ) |      |   | (181,717 | )    |  |   | (495,535 | )
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Cash Flows from Financing Activities:                                                                               |  |                          |            |   |      |   |          |      |  |   |          |  
|Proceeds from notes payable                                                                                         |  |                          | 717,422    |   |      |   | 15,540   |      |  |   | 271,446  |  
|Principal payments on notes payable                                                                                 |  |                          | (32,910    | ) |      |   | (160,326 | )    |  |   |         |  
|Payments of deferred financing costs                                                                                |  |                          | (7,153     | ) |      |   | (650     | )    |  |   | (1,077   | )
|Contingent consideration related to acquisition of real estate                                                      |  |                          | (3,663     | ) |      |   |         |      |  |   |         |  
|Return of contingent consideration related to acquisition of real estate                                            |  |                          | 873        |   |      |   |         |      |  |   |         |  
|Proceeds from issuance of common stock                                                                              |  |                          | 809,969    |   |      |   | 594,440  |      |  |   | 312,295  |  
|Payments to redeem common stock                                                                                     |  |                          | (21,260    | ) |      |   | (1,921   | )    |  |   |         |  
|Payments of commissions on stock sales and related dealer manager fees                                              |  |                          | (74,348    | ) |      |   | (54,911  | )    |  |   | (29,084  | )
|Payments of other offering costs                                                                                    |  |                          | (7,231     | ) |      |   | (6,560   | )    |  |   | (5,108   | )
|Distributions paid to common stockholders                                                                           |  |                          | (34,371    | ) |      |   | (16,620  | )    |  |   | (1,398   | )
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                                                           |  |                          | 1,347,328  |   |      |   | 368,992  |      |  |   | 547,074  |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Net (decrease) increase in cash and cash equivalents                                                                |  |                          | (191,408   | ) |      |   | 217,212  |      |  |   | 56,409   |  
|Cash and cash equivalents, beginning of period                                                                      |  |                          | 273,821    |   |      |   | 56,609   |      |  |   | 200      |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents, end of period                                                                            |  | $                        | 82,413     |   |      | $ | 273,821  |      |  | $ | 56,609   |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|                                                                                                                    |  |                          |           
|Supplemental Disclosure of Cash Flow Information:                                                                   |  |                          |            |   |      |   |          |      |  |   |          |  
|Interest paid                                                                                                       |  | $                        | 15,773     |   |      | $ | 9,654    |      |  | $ | 2,881    |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|                                                                                                                    |  |                          |           
|Supplemental Disclosure of Noncash Transactions:                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Mortgage debt assumed on real estate acquisition                                                                    |  | $                        | 16,985     |   |      | $ |         |      |  | $ |         |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Increase in distributions payable                                                                                   |  | $                        | 4,166      |   |      | $ | 3,392    |      |  | $ | 1,621    |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Increase in capital expenses payable                                                                                |  | $                        | 3,960      |   |      | $ |         |      |  | $ | 470      |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Increase in lease incentives payable                                                                                |  | $                        | 4,086      |   |      | $ |         |      |  | $ |         |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  
|Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment
plan |  | $                        | 43,306     |   |      | $ | 21,260   |      |  | $ | 1,921    |  
|                                                                                                                    |  |                          |            |   |      |   |          |      |  |   |          |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010



|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 owns a diverse portfolio of real estate and real estate-related investments. As of December 31, 2010, the Company owned 17 real estate properties (consisting of 14 office properties,
one office/flex property and two industrial properties), a leasehold interest in one industrial property and six 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 renewed with the Advisor on May 21, 2010 (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.

Upon commencing its initial public offering (the Offering), the Company retained KBS Capital Markets Group LLC (the Dealer Manager), an affiliate of the Advisor, to serve as the
dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated on April 30, 2010 (the Dealer Manager Agreement). The Company ceased offering shares of common stock in its primary offering on
December 31, 2010 and continues to offer shares of common stock under its dividend reinvestment plan.

As of
December 31, 2010, the Company had sold 179,185,669 shares of common stock in the Offering for gross offering proceeds of $1.8 billion, including 6,999,082 shares of common stock under the dividend reinvestment plan for
gross offering proceeds of $66.5 million. Also as of December 31, 2010, the Company had redeemed 2,465,804 of the shares sold in the Offering for $23.2 million.



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

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, KBS REIT Holdings 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) as contained within the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) and the rules and regulations of the
Securities and Exchange Commission (SEC).

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.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Revenue Recognition

Real Estate

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



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



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



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



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



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

During the years ended December 31, 2010, 2009 and 2008, the Company recognized deferred rent from tenants of
$8.7 million, $2.2 million and $0.6 million, respectively. As of December 31, 2010 and 2009, the cumulative deferred rent receivable balance was $15.5 million and $2.8 million, respectively, and is included in
rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $3.9 million of unamortized lease incentives as of December 31, 2010. The Company records property operating expense
reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

The Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent, expense reimbursements and other revenue or income. Management specifically
analyzes accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition,
with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these
claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenants receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is
no longer in bankruptcy and has the ability to make rental payments. During the year ended December 31, 2010, the Company recorded bad debt expense related to its tenant receivables of $22,000. 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.

Real Estate Loans Receivable

Interest income on the Companys real estate loans receivable is recognized on an accrual basis over the life of the investment using
the interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company 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 will resume the accrual of interest if it determines the collection of interest
according to the contractual terms of the loan is probable.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Real Estate Securities

The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets and are
rated AA and above on an accrual basis according to the contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using the interest method. During the year ended
December 31, 2009, the Company acquired and disposed of AAA-rated commercial mortgage-backed securities (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.

Cash and Cash Equivalents

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

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, including below-market renewal periods

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. During the year ended December 31, 2010, the Company acquired 13 real
estate assets, recorded each acquisition as a business combination and expensed $18.2 million of acquisition costs. 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.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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, 2010, 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, 2010, there was no loan loss reserve and the Company did
not record any impairment losses related to the real estate loans receivable during the years ended December 31, 2010, 2009 and 2008. 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 a loan are lower than the carrying value of that loan.

The portfolio-based reserve component covers the pool of loans that do not have asset-specific reserves. A provision for loan losses is
recorded when available information as of each balance sheet date indicates that it is probable that 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.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



The Companys cash and cash equivalents balance exceeds federally insurable limits
as of December 31, 2010. 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 the majority of its funds.

Restricted Cash

Restricted cash is comprised of lender impound reserve accounts on the Companys borrowings for security deposits, property taxes, insurance, and capital improvements and replacements.

Derivative Instruments

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

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

For further information regarding the Companys derivative instruments, see Note 8, Derivative
Instruments.

Deferred Financing Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing. These costs are amortized over the terms of the respective
financing agreements using the interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such
costs to the refinanced debt. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. As of December 31, 2010 and 2009, the Companys
deferred financing costs were $6.2 million and $0.2 million, respectively, net of amortization.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Fair Value Measurements

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



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



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



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

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

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Redeemable Common Stock

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

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



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



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



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

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



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



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



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



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

Notwithstanding the above, the redemption price for redemptions sought upon a stockholders
death, qualifying disability or determination of incompetence will initially be the amount paid to acquire the shares from the Company. Furthermore, 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 Company currently expects to establish an estimated value per share no
later than the completion of its offering stage. The Company will consider its offering stage complete when it is no longer publicly offering equity securities  whether through the primary offering or follow-on public offerings  and has
not done so for up to 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.

The Company records amounts that are redeemable under the share
redemption program as redeemable common stock in the accompanying consolidated balance sheets because the shares are mandatorily redeemable at the option of the holder 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, because the amounts that can be redeemed in future periods are determinable and only contingent on an event that is likely to occur (e.g., the passage of time), the Company presents the net proceeds from the current year
dividend reinvestment plan as redeemable common stock in the accompanying consolidated balance sheets.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



The Company classifies financial instruments that represent a mandatory obligation of
the Company to redeem shares as liabilities. The Companys redeemable common shares are contingently redeemable at the option of the holder. 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. For the year ended December 31, 2010, the Company had received investor redemption
requests of $21.8 million. As of the December 31, 2010 redemption date, the Company had redeemed $21.3 million of common stock, which represents the dollar value of the number of shares that the Company could purchase with the
amount of the net proceeds from the issuance of shares under the dividend reinvestment plan in 2009. Effective January 2011, 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 2010, the Company has $43.3 million available for redemption in 2011. The Company redeemed the remaining outstanding and unfulfilled redemptions as of December 31, 2010 of $0.5 million on the
January 31, 2011 redemption date.

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, 2010 or during any previous periods.

Selling Commissions and Dealer Manager Fees

Through April 29, 2010, the Company paid the Dealer Manager up to 6.0% and 3.5% of the gross offering proceeds from the primary offering as selling commissions and dealer manager fees, respectively.
Effective April 30, 2010, the Company pays the Dealer Manager up to 6.5% and 3.0% 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 with respect to 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 incurred by the Company in connection with the Offering. Organization costs include all expenses 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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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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, the Company is only liable for these costs up to an amount that,
when combined with selling commissions and dealer manager fees, does not exceed 15% of the gross proceeds of the Offering. As of December 31, 2010, 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, 2010, including shares issued through the Companys dividend reinvestment plan, the Company had issued 179,185,669 shares in the Offering for
gross offering proceeds of $1.8 billion and recorded other offering costs of $19.4 million and selling commissions and dealer manager fees of $158.3 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
investments in 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. This amount
includes any portion of the investment that was debt financed and is inclusive of acquisition fees and expenses related thereto. In the case of investments made through joint ventures, the asset management fee will be determined based on the
Companys proportionate share of the underlying investment.

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

With respect to an
investment that has suffered an impairment in value, reduction in cash flow or other negative circumstances, such investment may either be excluded from the calculation of the asset management fee described above or included in such calculation at a
reduced value that is recommended by the Advisor and the Companys management and then approved by a majority of the Companys independent directors, and this change in the fee will be applicable to an investment upon the earlier to occur
of the date on which (i) such investment is sold, (ii) such investment is surrendered to a person other than the Company, its direct or indirect wholly owned subsidiary or a joint venture or partnership in which the Company has an
interest, (iii) the Advisor determines that it will no longer pursue collection or other remedies related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment. As of
December 31, 2010, the Company has not determined to calculate the asset management fee at an adjusted value for any investments or to exclude any investments from the calculation of the asset management fee.

Operating Expenses

The Advisor has the right to seek reimbursement from the Company for all costs and expenses it incurs in connection with the provision of
services to the Company, including the Companys allocable share of the Advisors overhead, such as rent, employee costs, utilities and information technology costs. Commencing July 1, 2010, the Company has reimbursed the Advisor
for the Companys allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. In the future, the Advisor may seek reimbursement for additional employee costs. The
Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries and
benefits the Advisor or its affiliates may pay to the Companys executive officers.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of the Companys annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income
as calculated in accordance with GAAP). As a REIT, the Company generally 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, 2010, 2009 and 2008. As of December 31, 2010, returns for the calendar years 2007 through 2009
remain subject to examination by major tax jurisdictions.

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, 2010, 2009 and 2008.

Distributions declared per common share assumes each share was issued and
outstanding each day during the year ended December 31, 2010 and 2009, respectively, and each day during the period from July 16, 2008 through December 31, 2008. For the years ended December 31, 2010 and 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, 2010 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.

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 11, 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.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Recently Issued Accounting Standards Updates

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements (ASU No. 2010-06). ASU No. 2010-06 requires additional disclosures regarding significant transfers in and out of Level 1 and Level 2 fair value measurements, including a description
of the reasons for the transfers. Further, this ASU requires additional disclosures about purchases, sales, issuances and settlements relating to the activity in Level 3 fair value measurements. ASU No. 2010-06 is effective for interim and
annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements relating to the activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of ASU No. 2010-06 did not have a material impact on the Companys consolidated financial statements.

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

In December 2010, the FASB issued ASU
No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force)(ASU No. 2010-29).
ASU No. 2010-29 updated accounting guidance to clarify that pro forma disclosures should be presented as if a business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting
period and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the nature and amount of material, nonrecurring pro forma adjustments. The new accounting guidance is
effective for business combinations consummated in periods beginning after December 15, 2010, and should be applied prospectively as of the date of adoption. Early adoption is permitted. The Company adopted ASU No. 2010-29 for
the year ended December 31, 2010 and the adoption of this ASU did not have a material impact to the Companys consolidated financial statements.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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

During the year ended December 31, 2010, the Company acquired the following properties (in thousands):



|                                       |  |      |                   |  |       |  |    |                 |  |  |            |  |  |                          |         |  |                                       |   |           |                          |  |   |                               |  |  |                     |        |  |  |   |         |   |  |   |           | 
|-------------------------------------- |  | ---- | ----------------- |  | ----- |  | -- | --------------- |  |  | ---------- |  |  | ------------------------ | ------- |  | ------------------------------------- | - | --------- | ------------------------ |  | - | ----------------------------- |  |  | ------------------- | ------ |  |  | - | ------- | - |  | - | --------- | 
|                                       |  |      |                   |  |       |  |    |                 |  |  |            |  |  |                          |         |  | Intangibles                           |   |           |                          | 
|Property Name                          |  | City |                   |  | State |  |    | AcquisitionDate |  |  | Land       |  |  | Building andImprovements |         |  | TenantOrigination andAbsorption Costs |   |           | Above-MarketLease Assets |  |   | Below-MarketLease Liabilities |  |  | Total PurchasePrice |       
|Pierre Laclede Center                  |  |      | Clayton           |  |       |  | MO |                 |  |  | 02/04/2010 |  |  | $                        | 15,200  |  |                                       | $ | 46,246    |                          |  | $ | 15,261                        |  |  | $                   | 112    |  |  | $ | (2,645  | ) |  | $ | 74,174    | 
|One Main Place                         |  |      | Portland          |  |       |  | OR |                 |  |  | 02/05/2010 |  |  |                          | 7,200   |  |                                       |   | 38,009    |                          |  |   | 9,634                         |  |  |                     | 531    |  |  |   | (932    | ) |  |   | 54,442    | 
|Plano Business Park                    |  |      | Plano             |  |       |  | TX |                 |  |  | 03/15/2010 |  |  |                          | 3,050   |  |                                       |   | 10,299    |                          |  |   | 3,349                         |  |  |                     | 548    |  |  |   | (637    | ) |  |   | 16,609    | 
|Hartman II                             |  |      | Austell           |  |       |  | GA |                 |  |  | 04/07/2010 |  |  |                          | 2,900   |  |                                       |   | 6,243     |                          |  |   | 1,224                         |  |  |                     | 433    |  |  |   |        |   |  |   | 10,800    | 
|Crescent VIII                          |  |      | Greenwood Village |  |       |  | CO |                 |  |  | 05/26/2010 |  |  |                          | 2,300   |  |                                       |   | 7,600     |                          |  |   | 1,952                         |  |  |                     | 648    |  |  |   |        |   |  |   | 12,500    | 
|Horizon Tech Center                    |  |      | San Diego         |  |       |  | CA |                 |  |  | 06/17/2010 |  |  |                          | 7,900   |  |                                       |   | 25,096    |                          |  |   | 4,141                         |  |  |                     | 3,363  |  |  |   |        |   |  |   | 40,500    | 
|Dallas Cowboys Distribution
Center (1) |  |      | Irving            |  |       |  | TX |                 |  |  | 07/08/2010 |  |  |                          |        |  |                                       |   | 15,775    |                          |  |   | 2,738                         |  |  |                     | 487    |  |  |   |        |   |  |   | 19,000    | 
|300 N. LaSalle Building                |  |      | Chicago           |  |       |  | IL |                 |  |  | 07/29/2010 |  |  |                          | 41,200  |  |                                       |   | 502,476   |                          |  |   | 71,864                        |  |  |                     | 31,197 |  |  |   | (2,097  | ) |  |   | 644,640   | 
|Torrey Reserve West (2)                |  |      | San Diego         |  |       |  | CA |                 |  |  | 09/09/2010 |  |  |                          | 5,300   |  |                                       |   | 15,762    |                          |  |   | 3,675                         |  |  |                     | 2,397  |  |  |   | (25     | ) |  |   | 27,109    | 
|Union Bank Plaza                       |  |      | Los Angeles       |  |       |  | CA |                 |  |  | 09/15/2010 |  |  |                          | 24,000  |  |                                       |   | 160,901   |                          |  |   | 29,331                        |  |  |                     | 896    |  |  |   | (7,133  | ) |  |   | 207,995   | 
|Emerald View at Vista Center           |  |      | West Palm Beach   |  |       |  | FL |                 |  |  | 12/09/2010 |  |  |                          | 5,300   |  |                                       |   | 22,972    |                          |  |   | 5,483                         |  |  |                     | 2,219  |  |  |   |        |   |  |   | 35,974    | 
|Granite Tower                          |  |      | Denver            |  |       |  | CO |                 |  |  | 12/16/2010 |  |  |                          | 8,850   |  |                                       |   | 125,167   |                          |  |   | 16,271                        |  |  |                     | 1,942  |  |  |   | (3,265  | ) |  |   | 148,965   | 
|National City Tower                    |  |      | Louisville        |  |       |  | KY |                 |  |  | 12/17/2010 |  |  |                          | 6,700   |  |                                       |   | 76,681    |                          |  |   | 32,183                        |  |  |                     | 3,845  |  |  |   | (5,844  | ) |  |   | 113,565   | 
|                                       |  |      |                   |  |       |  |    |                 |  |  |            |  |  |                          |         |  |                                       |   |           |                          |  |   |                               |  |  |                     |        |  |  |   |         |   |  |   |           | 
|                                       |  |      |                   |  |       |  |    |                 |  |  |            |  |  | $                        | 129,900 |  |                                       | $ | 1,053,227 |                          |  | $ | 197,106                       |  |  | $                   | 48,618 |  |  | $ | (22,578 | ) |  | $ | 1,406,273 | 
|                                       |  |      |                   |  |       |  |    |                 |  |  |            |  |  |                          |         |  |                                       |   |           |                          |  |   |                               |  |  |                     |        |  |  |   |         |   |  |   |           | 



(1)The
Company acquired the rights to a ground lease with respect to this property. The ground lease expires in February 2050.

(2)In connection with the acquisition of Torrey Reserve West, the Company assumed an existing mortgage loan from an unaffiliated lender with an outstanding principal balance of $17.0 million.

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



|                                   |  |                  |      |  |              |  |      |                   |  |  |      | 
|---------------------------------- |  | ---------------- | ---- |  | ------------ |  | ---- | ----------------- |  |  | ---- | 
|                                   |  | Tenant           |      |  |              |  |      |                   | 
|                                   |  | Origination and  |      |  | Above-Market |  |      | Below-Market      | 
|                                   |  | Absorption Costs |      |  | Lease Assets |  |      | Lease Liabilities | 
|Pierre Laclede Center              |  |                  | 5.0  |  |              |  | 3.3  |                   |  |  | 5.7  | 
|One Main Place                     |  |                  | 3.4  |  |              |  | 5.5  |                   |  |  | 3.4  | 
|Plano Business Park                |  |                  | 5.2  |  |              |  | 5.5  |                   |  |  | 6.0  | 
|Hartman II                         |  |                  | 5.2  |  |              |  | 5.2  |                   |  |  |     | 
|Crescent VIII                      |  |                  | 3.7  |  |              |  | 3.9  |                   |  |  |     | 
|Horizon Tech Center                |  |                  | 3.9  |  |              |  | 4.0  |                   |  |  |     | 
|Dallas Cowboys Distribution Center |  |                  | 9.7  |  |              |  | 9.7  |                   |  |  |     | 
|300 N. LaSalle Building            |  |                  | 16.0 |  |              |  | 16.7 |                   |  |  | 16.4 | 
|Torrey Reserve West                |  |                  | 4.0  |  |              |  | 4.0  |                   |  |  | 3.7  | 
|Union Bank Plaza                   |  |                  | 9.6  |  |              |  | 10.8 |                   |  |  | 6.6  | 
|Emerald View at Vista Center       |  |                  | 5.2  |  |              |  | 6.3  |                   |  |  |     | 
|Granite Tower                      |  |                  | 6.3  |  |              |  | 5.8  |                   |  |  | 7.2  | 
|National City Tower                |  |                  | 7.1  |  |              |  | 6.4  |                   |  |  | 9.3  | 

For the year ended
December 31, 2010, the Company recognized $65.2 million of total revenues and $28.9 million of operating income from these properties.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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

As of
December 31, 2010, the Companys real estate portfolio was composed of 14 office properties, one office/flex property, two industrial properties and a leasehold interest in one industrial property, encompassing in the aggregate
approximately 7.5 million rentable square feet, and the portfolio was 96% occupied. The following table provides summary information regarding the properties owned by the Company as of December 31, 2010 (in thousands):



|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|------------------------------------- |  | ---- | ------- |  | ------------------------- | - | --------- | ------------------------------------- |  | - | ----------------- | - |  | - | --------- | -
|Property                              |  | Land |         |  | Buildings
andImprovements |   |           | Tenant Originationand AbsorptionCosts |  |   | Total Real Estate |  
|As of December 31, 2010:              |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Office                                |  | $    | 184,557 |  |                           | $ | 1,478,777 |                                       |  | $ | 244,967           |   |  | $ | 1,908,301 |  
|Industrial(1)                         |  |      | 5,950   |  |                           |   | 32,328    |                                       |  |   | 7,297             |   |  |   | 45,575    |  
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Cost                                  |  | $    | 190,507 |  |                           | $ | 1,511,105 |                                       |  | $ | 252,264           |   |  | $ | 1,953,876 |  
|Accumulated depreciation/amortization |  |      |        |  |                           |   | (47,307   | )                                     |  |   | (33,166           | ) |  |   | (80,473   | )
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Net Amount                            |  | $    | 190,507 |  |                           | $ | 1,463,798 |                                       |  | $ | 219,098           |   |  | $ | 1,873,403 |  
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|                                      |  |      |         | 
|As of December 31, 2009:              |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Office                                |  | $    | 60,607  |  |                           | $ | 447,953   |                                       |  | $ | 66,867            |   |  | $ | 575,427   |  
|Industrial                            |  |      |        |  |                           |   |          |                                       |  |   |                  |   |  |   |          |  
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Cost                                  |  | $    | 60,607  |  |                           | $ | 447,953   |                                       |  | $ | 66,867            |   |  | $ | 575,427   |  
|Accumulated depreciation/amortization |  |      |        |  |                           |   | (18,190   | )                                     |  |   | (15,869           | ) |  |   | (34,059   | )
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  
|Net Amount                            |  | $    | 60,607  |  |                           | $ | 429,763   |                                       |  | $ | 50,998            |   |  | $ | 541,368   |  
|                                      |  |      |         |  |                           |   |           |                                       |  |   |                   |   |  |   |           |  



(1)Includes
an investment in the rights to a ground lease. The ground lease expires in February 2050.

As of December 31, 2010,
the following property represented more than 10% of the Companys total assets:



|                        |  |          |             |  |          |  |           |                  |  |   |            |  |  |                     |         |  |             |  |      |           |  |   |         |  |  |  |        |  |  |   |  |  |  |  |       |  |  |  |      |  
|----------------------- |  | -------- | ----------- |  | -------- |  | --------- | ---------------- |  | - | ---------- |  |  | ------------------- | ------- |  | ----------- |  | ---- | --------- |  | - | ------- |  |  |  | ------ |  |  | - |  |  |  |  | ----- |  |  |  | ---- | -
|                        |  |          |             |  |          |  |           |                  |  |   |            |  |  |                     |         |  |             |  |      |           |  |   | Average |  |  |  |       
|                        |  |          |             |  | Rentable |  |           | Total            |  |   | Percentage |  |  | Annualized          |         |  | Annualized  |  |      |           | 
|                        |  |          |             |  | Square   |  |           | Real Estate, Net |  |   | of Total   |  |  | Base Rent           |         |  | Base Rent   |  |      |           | 
|Property                |  | Location |             |  | Feet     |  |           | (in thousands)   |  |   | Assets     |  |  | (in thousands) 
(1) |         |  | per sq. ft. |  |      | Occupancy | 
|300 N. LaSalle Building |  |          | Chicago, IL |  |          |  | 1,302,901 |                  |  | $ |            |  |  |                     | 607,044 |  |             |  | 25.5 | %         |  | $ |         |  |  |  | 43,838 |  |  | $ |  |  |  |  | 34.16 |  |  |  | 98.5 | %



(1)Annualized base rent represents annualized contractual base rental income as of December 31, 2010, adjusted to straight-line any contractual rent increases or decreases from the
leases inception through the balance of the lease term.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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, 2010, the leases have remaining terms of up to
18.2 years with a weighted-average remaining term of 6.9 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 $2.7 million and $0.8 million as of December 31, 2010 and 2009, respectively.

As of December 31, 2010, the future minimum rental income from the Companys properties under non-cancelable operating leases is as follows (in thousands):



|           |  |   |           | 
|---------- |  | - | --------- | 
|2011       |  | $ | 167,290   | 
|2012       |  |   | 165,631   | 
|2013       |  |   | 154,018   | 
|2014       |  |   | 142,663   | 
|2015       |  |   | 123,296   | 
|Thereafter |  |   | 739,056   | 
|           |  |   |           | 
|           |  | $ | 1,491,954 | 
|           |  |   |           | 

As of December 31, 2010, the Companys highest tenant industry concentrations (greater than
10% of annualized base rent) were as follows:



|                            |  |           |  |                |         |  |               |  |    |  
|--------------------------- |  | --------- |  | -------------- | ------- |  | ------------- |  | -- | -
|                            |  |           |  | Annualized     |         |  | Percentage of | 
|                            |  | Number of |  | Base Rent (1)  |         |  | Annualized    | 
|Industry                    |  | Tenants   |  | (in thousands) |         |  | Base Rent     | 
|Legal Services              |  | 52        |  | $              | 47,511  |  |               |  | 26 | %
|Finance                     |  | 52        |  |                | 38,060  |  |               |  | 20 | %
|Other Professional Services |  | 50        |  |                | 19,373  |  |               |  | 10 | %
|                            |  |           |  |                |         |  |               |  |    |  
|                            |  |           |  | $              | 104,944 |  |               |  | 56 | %
|                            |  |           |  |                |         |  |               |  |    |  



(1)Annualized base rent represents annualized contractual base rental income as of December 31, 2010, adjusted to straight-line any contractual rent increases or decreases from the leases inception through the balance of the lease term.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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, 2010, the Company has a bad debt reserve of approximately $34,000, which represents less than 1% of annualized base rent. As of December 31, 2010, the
Company has one tenant with a rent balance outstanding over 90 days.

As of December 31, 2010, 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:



|                 |  |                         |  |                 |  |                      |         |  |                                 |  |     |                                       |  |   |                                   |  |  |                                    |      |   |                      |   |       |  |  |  |            | 
|---------------- |  | ----------------------- |  | --------------- |  | -------------------- | ------- |  | ------------------------------- |  | --- | ------------------------------------- |  | - | --------------------------------- |  |  | ---------------------------------- | ---- | - | -------------------- | - | ----- |  |  |  | ---------- | 
|                 |  |                         |  |                 |  | Net Rentable Sq. Ft. |         |  | Annualized Base Rent Statistics | 
|Tenant           |  | Property                |  | Tenant Industry |  | SquareFeet           |         |  | % ofPortfolio                   |  |     | AnnualizedBase Rent
(1)(in thousands) |  |   | % of PortfolioAnnualizedBase Rent |  |  | AnnualizedBase Rent perSquare Feet |      |   | LeaseExpiration 
(2) |  
|Kirkland & Ellis |  | 300 N. LaSalle Building |  | Legal Services  |  |                      | 687,857 |  |                                 |  | 9.5 | %                                     |  | $ | 25,351                            |  |  |                                    | 13.6 | % |                      | $ | 36.86 |  |  |  | 02/28/2029 | 



(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, 2010 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, 2010 and 2009, 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 and |         |   | Above-Market |   |         | Below-Market      | 
|                         |  | Absorption Costs       |         |   | Lease Assets |   |         | Lease Liabilities | 
|                         |  | 2010                   |         |   | 2009         |   |         | 2010              |  |   | 2009   |   |  | 2010 |       |   | 2009 |  
|Cost                     |  | $                      | 252,264 |   |              | $ | 66,867  |                   |  | $ | 51,024 |   |  | $    | 2,499 |   |      | $ | 44,100 |   |  | $ | 26,888 |  
|Accumulated Amortization |  |                        | (33,166 | ) |              |   | (15,869 | )                 |  |   | (2,568 | ) |  |      | (196  | ) |      |   | (8,613 | ) |  |   | (7,224 | )
|                         |  |                        |         |   |              |   |         |                   |  |   |        |   |  |      |       |   |      |   |        |   |  |   |        |  
|Net Amount               |  | $                      | 219,098 |   |              | $ | 50,998  |                   |  | $ | 48,456 |   |  | $    | 2,303 |   |      | $ | 35,487 |   |  | $ | 19,664 |  
|                         |  |                        |         |   |              |   |         |                   |  |   |        |   |  |      |       |   |      |   |        |   |  |   |        |  

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, 2010, 2009 and 2008 are as follows (in thousands):



|             |  |                        |         |   |                    |   |         |                    |  |   |        |   |  |      |        |   |      |   |      |      |  |   |      |   |  |      |       |  |  |   |       |  |  |   |       | 
|------------ |  | ---------------------- | ------- | - | ------------------ | - | ------- | ------------------ |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ---- | ---- |  | - | ---- | - |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|             |  | Tenant Origination and |         |   | Above-Market       |   |         | Below-Market       | 
|             |  | Absorption Costs       |         |   | Lease Assets       |   |         | Lease Liabilities  | 
|             |  | For the Year Ended     |         |   | For the Year Ended |   |         | For the Year Ended | 
|             |  | December 31,           |         |   | December 31,       |   |         | December 31,       | 
|             |  | 2010                   |         |   | 2009               |   |         | 2008               |  |   | 2010   |   |  | 2009 |        |   | 2008 |   |      | 2010 |  |   | 2009 |   |  | 2008 |      
|Amortization |  | $                      | (29,005 | ) |                    | $ | (13,141 | )                  |  | $ | (3,484 | ) |  | $    | (2,466 | ) |      | $ | (170 | )    |  | $ | (26  | ) |  | $    | 6,756 |  |  | $ | 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, 2010



The remaining unamortized balance for these outstanding intangible assets and
liabilities as of December 31, 2010 will be amortized for the years ending December 31 as follows:



|                                               |  |                                       |           |   |                          |   |            |                               |  |   |           | 
|---------------------------------------------- |  | ------------------------------------- | --------- | - | ------------------------ | - | ---------- | ----------------------------- |  | - | --------- | 
|                                               |  | TenantOrigination andAbsorption Costs |           |   | Above-MarketLease Assets |   |            | Below-MarketLease Liabilities | 
|2011                                           |  | $                                     | (42,008   | ) |                          | $ | (5,927     | )                             |  | $ | 7,309     | 
|2012                                           |  |                                       | (34,710   | ) |                          |   | (5,773     | )                             |  |   | 6,206     | 
|2013                                           |  |                                       | (26,352   | ) |                          |   | (5,403     | )                             |  |   | 5,560     | 
|2014                                           |  |                                       | (22,074   | ) |                          |   | (4,463     | )                             |  |   | 5,025     | 
|2015                                           |  |                                       | (17,094   | ) |                          |   | (3,489     | )                             |  |   | 3,688     | 
|Thereafter                                     |  |                                       | (76,860   | ) |                          |   | (23,401    | )                             |  |   | 7,699     | 
|                                               |  |                                       |           |   |                          |   |            |                               |  |   |           | 
|                                               |  | $                                     | (219,098  | ) |                          | $ | (48,456    | )                             |  | $ | 35,487    | 
|                                               |  |                                       |           |   |                          |   |            |                               |  |   |           | 
|Weighted-Average Remaining Amortization Period |  |                                       | 9.2 years |   |                          |   | 12.3 years |                               |  |   | 6.7 years | 



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

As of December 31, 2010 and 2009, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):



|                                                                             |  |                         |            |  |              |  |                   |          |  |  |                                                       |  |  |                                     |         |  |                                     |   |         |                             |  |   |                                     |  |  |                 |     |   |  |  |      |   |  |  |            | 
|---------------------------------------------------------------------------- |  | ----------------------- | ---------- |  | ------------ |  | ----------------- | -------- |  |  | ----------------------------------------------------- |  |  | ----------------------------------- | ------- |  | ----------------------------------- | - | ------- | --------------------------- |  | - | ----------------------------------- |  |  | --------------- | --- | - |  |  | ---- | - |  |  | ---------- | 
|Loan Name
Location of Related Property or
Collateral                         |  | DateAcquired/Originated |            |  | PropertyType |  |                   | LoanType |  |  | OutstandingPrincipalBalance as
ofDecember 31,2010 (1) |  |  | Book Valueas
ofDecember 31,2010 (2) |         |  | Book Valueas
ofDecember 31,2009 (2) |   |         | ContractualInterestRate
(3) |  |   | AnnualizedEffectiveInterestRate (3) |  |  | MaturityDate(4) |    
|Northern Trust Building A-NoteSan Diego, California                          |  |                         | 12/31/2008 |  |              |  | Office            |          |  |  | A-Note                                                |  |  | $                                   | 94,500  |  |                                     | $ | 63,244  |                             |  | $ | 60,535                              |  |  |                 | 5.6 | % |  |  | 13.0 | % |  |  | 10/01/2017 | 
|One Liberty Plaza Notes (5)New York, New
York                                |  |                         | 02/11/2009 |  |              |  | Office            |          |  |  | Mortgage                                              |  |  |                                     | 115,000 |  |                                     |   | 73,914  |                             |  |   | 70,266                              |  |  |                 | 6.1 | % |  |  | 15.0 | % |  |  | 08/06/2017 | 
|Tuscan Inn First Mortgage OriginationSan Francisco, California               |  |                         | 01/21/2010 |  |              |  | Hotel             |          |  |  | Mortgage                                              |  |  |                                     | 20,200  |  |                                     |   | 20,027  |                             |  |   |                                    |  |  |                 | 8.3 | % |  |  | 8.6  | % |  |  | 01/21/2015 | 
|Chase Tower First Mortgage Origination (6)Austin,
Texas                      |  |                         | 01/25/2010 |  |              |  | Office            |          |  |  | Mortgage                                              |  |  |                                     | 59,200  |  |                                     |   | 59,218  |                             |  |   |                                    |  |  |                 | 8.4 | % |  |  | 8.5  | % |  |  | 02/01/2015 | 
|Pappas Commerce First Mortgage Origination
(7)Boston, Massachusetts          |  |                         | 04/05/2010 |  |              |  | Industrial        |          |  |  | Mortgage                                              |  |  |                                     | 31,900  |  |                                     |   | 31,900  |                             |  |   |                                    |  |  |                 | 9.5 | % |  |  | 9.6  | % |  |  | 07/01/2014 | 
|One Kendall Square First Mortgage Origination
(8)(9)Cambridge, Massachusetts |  |                         | 11/22/2010 |  |              |  | Mixed-useFacility |          |  |  | Mortgage                                              |  |  |                                     | 87,500  |  |                                     |   | 88,456  |                             |  |   |                                    |  |  |                 | (8  | ) |  |  | 7.2  | % |  |  | 12/01/2013 | 
|                                                                             |  |                         |            |  |              |  |                   |          |  |  |                                                       |  |  |                                     |         |  |                                     |   |         |                             |  |   |                                     |  |  |                 |     |   |  |  |      |   |  |  |            | 
|                                                                             |  |                         |            |  |              |  |                   |          |  |  |                                                       |  |  | $                                   | 408,300 |  |                                     | $ | 336,759 |                             |  | $ | 130,801                             |  |  |                 |     |   |  |  |      |   |  |  |            | 
|                                                                             |  |                         |            |  |              |  |                   |          |  |  |                                                       |  |  |                                     |         |  |                                     |   |         |                             |  |   |                                     |  |  |                 |     |   |  |  |      |   |  |  |            | 



(1)Outstanding principal balance as of December 31, 2010 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 2010, 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, 2010.

(4)Maturity dates are as of December 31, 2010.

(5)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.

(6)Monthly installments on the Chase Tower First Mortgage are interest-only for the first three years, followed by
principal and interest payments with principal calculated using an amortization of 30 years for the balance of the term, with the remaining principal balance due at maturity.

(7)As of December 31, 2010, $31.9 million had been disbursed under the Pappas Commerce First Mortgage and an additional $18.0 million remains available for future
funding, subject to certain conditions set forth in the loan agreement.

(8)Monthly installments on One Kendall Square First Mortgage are
interest-only during the initial term of the loan. The One Kendall Square First Mortgage bears interest at a floating rate of 550 basis points over one-month LIBOR, but at no point shall the interest rate be less than 7.5%.

(9)On November 22, 2010, the Company originated the One Kendall Square First Mortgage in the amount of $175.0 million. On November 30, 2010, the Company sold a pari-passu
participation interest with respect to 50% of the outstanding principal balance at par to an unaffiliated buyer. The outstanding principal and book value reflect the Companys pari-passu participation interest in the One Kendall Square First
Mortgage.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



The following summarizes the activity related to the real estate loans receivable for
the year ended December 31, 2010:



|                                                                                                           |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Real estate loans receivable - December 31, 2009                                                           |  | $ | 130,801 |  
|Face value of real estate loans receivable originated                                                      |  |   | 286,300 |  
|Accretion of discounts on purchased real estate loans receivable                                           |  |   | 6,470   |  
|Closing costs, net of origination fees, on origination of real estate loans receivable                     |  |   | 804     |  
|Amortization of closing costs and origination fees on purchasedand originated real estate loans receivable |  |   | (116    | )
|Sale of 50% participation interest in One Kendall                                                          |  |   | (87,500 | )
|                                                                                                           |  |   |         |  
|Real estate loans receivable - December 31, 2010                                                           |  | $ | 336,759 |  
|                                                                                                           |  |   |         |  

For the years ended December 31, 2010, 2009 and 2008, interest income from real estate loans
receivable consists of the following (in thousands):



|                                                                |  |                    |        |   |      |   |        |      |  |   |    | 
|--------------------------------------------------------------- |  | ------------------ | ------ | - | ---- | - | ------ | ---- |  | - | -- | 
|                                                                |  | For the Year Ended |       
|                                                                |  | December 31,       |       
|                                                                |  | 2010               |        |   | 2009 |   |        | 2008 | 
|Contractual interest income                                     |  | $                  | 21,901 |   |      | $ | 11,702 |      |  | $ | 15 | 
|Accretion of purchase discounts                                 |  |                    | 6,470  |   |      |   | 5,275  |      |  |   | 6  | 
|Amortization of closing costs on purchases and origination fees |  |                    | (116   | ) |      |   | (92    | )    |  |   |   | 
|                                                                |  |                    |        |   |      |   |        |      |  |   |    | 
|Interest income from real estate loans receivable               |  | $                  | 28,255 |   |      | $ | 16,885 |      |  | $ | 21 | 
|                                                                |  |                    |        |   |      |   |        |      |  |   |    | 

As of December 31, 2010 and 2009, interest receivable from real estate loans receivable was
$2.4 million and $1.0 million, respectively, and was included in rents and other receivables.

The following is a
schedule of maturities for all real estate loans receivable outstanding as of December 31, 2010 (in thousands):



|           |  |                  |         |  |                             |   |         |            |  |   |            |  |  |   |         | 
|---------- |  | ---------------- | ------- |  | --------------------------- | - | ------- | ---------- |  | - | ---------- |  |  | - | ------- | 
|           |  | Current Maturity |         |  | Fully Extended 
Maturity(1) |  
|           |  | Face Value       |         |  |                             |   |         | Face Value |  |   |            | 
|           |  | (Funded)         |         |  | Book Value                  |   |         | (Funded)   |  |   | Book Value | 
|2011       |  | $                |        |  |                             | $ |        |            |  | $ |           |  |  | $ |        | 
|2012       |  |                  |        |  |                             |   |        |            |  |   |           |  |  |   |        | 
|2013       |  |                  | 87,500  |  |                             |   | 88,456  |            |  |   |           |  |  |   |        | 
|2014       |  |                  | 31,900  |  |                             |   | 31,900  |            |  |   | 31,900     |  |  |   | 31,900  | 
|2015       |  |                  | 79,400  |  |                             |   | 79,245  |            |  |   | 166,900    |  |  |   | 167,701 | 
|Thereafter |  |                  | 209,500 |  |                             |   | 137,158 |            |  |   | 209,500    |  |  |   | 137,158 | 
|           |  |                  |         |  |                             |   |         |            |  |   |            |  |  |   |         | 
|           |  | $                | 408,300 |  |                             | $ | 336,759 |            |  | $ | 408,300    |  |  | $ | 336,759 | 
|           |  |                  |         |  |                             |   |         |            |  |   |            |  |  |   |         | 



(1)The
schedule of current maturities above represents the contractual maturity dates and outstanding balances as of December 31, 2010. Certain of the real estate loans receivable have extension options available to the borrowers, subject to
certain conditions, that have been reflected in the schedule of fully extended maturities.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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

As of
December 31, 2010 and 2009, the Companys notes payable consisted of the following (dollars in thousands):



|                                                |  |                                  |         |  |                                  |   |         |                                                    |  |  |                                      |  |  |             |      |                  |  |                      |  |           
|----------------------------------------------- |  | -------------------------------- | ------- |  | -------------------------------- | - | ------- | -------------------------------------------------- |  |  | ------------------------------------ |  |  | ----------- | ---- | ---------------- |  | -------------------- |  | ----------
|                                                |  | Principal as ofDecember 
31,2010 |         |  | Principal as ofDecember 
31,2009 |   |         | ContractualInterest Rate 
as ofDecember 31,2010(1) |  |  | Interest Rate atDecember 
31,2010(1) |  |  | PaymentType |      | MaturityDate (2)
|Portfolio Mortgage Loan (3)                     |  | $                                |        |  |                                  | $ | 27,810  |                                                    |  |  | (3)                                  |  |  |             | (3)  |                  |  | Interest Only        |  | (3)       
|                                                |  |                                  |         |  |                                  |  
|100 & 200 Campus Drive Mortgage Loan
(4)        |  |                                  | 55,000  |  |                                  |   | 5,000   |                                                    |  |  | One-month LIBOR + 3.25%(5)           |  |  |             | 5.1% |                  |  | Interest Only        |  | 02/26/2014
|                                                |  |                                  |         |  |                                  |  
|300-600 Campus Drive Mortgage Loan              |  |                                  | 93,850  |  |                                  |   | 93,850  |                                                    |  |  | 5.90%                                |  |  |             | 5.9% |                  |  | Interest Only        |  | 04/10/2014
|                                                |  |                                  |         |  |                                  |  
|Portfolio Revolving Loan Facility (6)
(7)       |  |                                  | 65,000  |  |                                  |   |        |                                                    |  |  | One-month LIBOR + 3.00%(7)           |  |  |             | 5.0% |                  |  | Interest Only        |  | 04/30/2014
|                                                |  |                                  |         |  |                                  |  
|Willow Oaks Revolving Loan (8)                  |  |                                  | 13,000  |  |                                  |   |        |                                                    |  |  | (8)                                  |  |  |             | 4.3% |                  |  | Interest Only        |  | 08/01/2013
|                                                |  |                                  |         |  |                                  |  
|300 N. LaSalle Building Mortgage Loan           |  |                                  | 350,000 |  |                                  |   |        |                                                    |  |  | 4.25%                                |  |  |             | 4.3% |                  |  | Interest Only        |  | 08/01/2015
|                                                |  |                                  |         |  |                                  |  
|Torrey Reserve West Mortgage Loan               |  |                                  | 16,885  |  |                                  |   |        |                                                    |  |  | 7.54%                                |  |  |             | 7.5% |                  |  | Principal + Interest |  | 03/10/2011
|                                                |  |                                  |         |  |                                  |  
|Union Bank Plaza Mortgage Loan (9)              |  |                                  | 105,000 |  |                                  |   |        |                                                    |  |  | One-month LIBOR + 1.75%              |  |  |             | 3.4% |                  |  | Interest Only        |  | 09/15/2015
|                                                |  |                                  |         |  |                                  |  
|Portfolio Bridge Loan (10)                      |  |                                  | 40,622  |  |                                  |   |        |                                                    |  |  | One-month LIBOR + 2.25%              |  |  |             | 2.5% |                  |  | Interest Only        |  | 09/30/2011
|                                                |  |                                  |         |  |                                  |  
|Emerald View at Vista Center Mortgage Loan
(11) |  |                                  | 19,800  |  |                                  |   |        |                                                    |  |  | One-month LIBOR + 2.25%              |  |  |             | 4.6% |                  |  | Interest Only        |  | 01/01/2016
|                                                |  |                                  |         |  |                                  |  
|National City Tower Mortgage Loan (12)          |  |                                  | 69,000  |  |                                  |   |        |                                                    |  |  | One-month LIBOR + 2.15%              |  |  |             | 4.1% |                  |  | Interest Only        |  | 12/16/2015
|                                                |  |                                  |         |  |                                  |   |         |                                                    |  |  |                                      |  |  |             |      |                  |  |                      |  |           
|                                                |  | $                                | 828,157 |  |                                  | $ | 126,660 |                                                    |  |  |                                      |  |  |             |      |                  |  |                      |  |           
|                                                |  |                                  |         |  |                                  |   |         |                                                    |  |  |                                      |  |  |             |      |                  |  |                      |  |           



(1)Contractual interest rate represents the interest rate in effect under the loan as of December 31, 2010. Interest rate is calculated as the actual interest rate in effect at December 31, 2010 (consisting of the contractual
interest rate and the effect of interest rate swaps and contractual floor rates), using interest rate indices at December 31, 2010, where applicable.

(2)Represents the initial maturity date or the maturity date as extended as of December 31, 2010; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(3)Represented a portfolio consisting of two separate loans. The individual deeds of trust and mortgages on the respective properties securing the loans were cross-defaulted and
cross-collateralized. During the year ended December 31, 2010, the Company paid off this loan with proceeds from a revolving loan facility. See footnote (6) below.

(4)On February 26, 2010, the Company paid in full the outstanding principal and accrued interest on a mortgage loan secured by the 100 & 200 Campus Drive Buildings that was
to mature on March 9, 2010, and obtained a new $64.6 million four-year mortgage loan. As of December 31, 2010, $55.0 million had been disbursed to the Company and $9.6 million remains available for future disbursements,
subject to certain conditions set forth in the loan agreement.

(5)The Company entered into two interest rate swap agreements on the initial $20.0 million funded, which effectively fix
the interest rate on that amount at approximately 5.55% through the initial term of the loan. The Company also entered into two interest rate swap agreements on the additional $35.0 million funded, which effectively fix the interest rate on
that amount at approximately 4.78% through the initial term of the loan.

(6)On April 30, 2010, the Company entered into a four-year
revolving loan facility for an amount up to $100.0 million. As of December 31, 2010, $65.0 million had been disbursed to the Company and $35.0 million remains available for future disbursements, subject to certain conditions
set forth in the loan agreement.

(7)The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month LIBOR, but at
no point shall the interest rate be less than 4.25%; however, there shall be no minimum floor rate for any portion of the loan that is subject to a swap contract with a minimum initial term of two years or any shorter term expiring on the maturity
date. The Company entered into an interest rate swap agreement that effectively fixes the interest rate on the initial $55.0 million drawn under the loan at approximately 5.17% for the first three years of the loan and fixes the interest rate
on $45.0 million of this amount at approximately 5.17% for the last year of the initial loan term.

(8)On July 26, 2010, the Company entered into a $65.0 million revolving loan. As of December 31, 2010,
$13.0 million had been disbursed to the Company and $52.0 million remains available for future disbursements, subject to certain conditions set forth in the loan agreement. The interest rate under this loan is calculated at a variable rate of
300 basis points over one-month, three-month or six-month LIBOR, but at no point may the interest rate be less than 4.5% for portions of the loan that are not subject to a swap contract. The Company entered into two interest rate swap agreements
with the lenders that effectively fix the interest rate on $13.0 million drawn under the loan at approximately 4.33% during the initial loan term.

(9)On
September 15, 2010, in connection with the acquisition of the Union Bank Plaza, the Company entered into a five-year mortgage loan for borrowings of up to $119.3 million secured by the Union Bank Plaza. As of December 31, 2010,
$105.0 million had been disbursed to the Company with the remaining loan balance of $14.3 million available for future disbursements, subject to certain conditions set forth in the loan agreement. The Company has entered into an interest rate
swap agreement with the lender on the initial $105.0 million funded, which effectively fixed the interest rate at 3.445% through the initial term of the loan.

(10)On
September 30, 2010, the Company, entered into a 12-month bridge loan agreement for an amount of $50.0 million. As of December 31, 2010, $40.6 million had been disbursed to the Company with the remaining loan balance of $9.4
million available for future disbursements, subject to certain conditions set forth in the loan agreement. Subsequent to December 31, 2010, this loan was repaid in full. See Note 15, Subsequent Events  Investments and Financings
Subsequent to December 31, 2010  Portfolio Loan.

(11)The Company entered into an interest rate swap agreement with the
lender on the $19.8 million funded, which effectively fixed the interest rate at 4.635% through the initial term of the loan.

(12)The
Company entered into an interest rate swap agreement with the lender on the $69.0 million funded, which effectively fixed the interest rate at 4.085% through June 16, 2015. Subsequent to December 31, 2010, this loan was consolidated
into a new portfolio loan. See Note 15, Subsequent Events  Investments and Financings Subsequent to December 31, 2010  Portfolio Loan.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



During the years ended December 31, 2010, 2009 and 2008, the Company incurred
$19.4 million, $10.2 million and $4.3 million of interest expense, respectively. Of these amounts, $2.9 million and $0.4 million were payable at December 31, 2010 and 2009, respectively. Included in interest
expense for the years ended December 31, 2010, 2009 and 2008 were $1.2 million, $1.0 million and $0.5 million, respectively, of amortization of deferred financing costs. Interest expense for the year ended
December 31, 2010 also included $1.6 million incurred as a result of the Companys interest rate swap agreements.

The following is a schedule of maturities for all notes payable outstanding as of December 31, 2010 (in thousands):



|           |  |                  |         |  |                             |   |         | 
|---------- |  | ---------------- | ------- |  | --------------------------- | - | ------- | 
|           |  | Current Maturity |         |  | Fully Extended 
Maturity(1) |  
|2011       |  | $                | 57,507  |  |                             | $ | 57,507  | 
|2012       |  |                  |        |  |                             |   |        | 
|2013       |  |                  | 13,000  |  |                             |   |        | 
|2014       |  |                  | 213,850 |  |                             |   | 93,850  | 
|2015       |  |                  | 524,000 |  |                             |   | 483,000 | 
|Thereafter |  |                  | 19,800  |  |                             |   | 193,800 | 
|           |  |                  |         |  |                             |   |         | 
|           |  | $                | 828,157 |  |                             | $ | 828,157 | 
|           |  |                  |         |  |                             |   |         | 



(1)Represents the maturities of all notes payable outstanding as of December 31, 2010 assuming the Company exercises all extension options available per the terms of the loan agreements. The Company can give no assurance that it will be able
to satisfy the conditions to extend the terms of the loan agreements.

Certain of our notes payable contain financial and
non-financial debt covenants. As of December 31, 2010, the Company was in compliance with all debt covenants.



|8. | DERIVATIVE INSTRUMENTS
|-- | ----------------------

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by
changing interest rates. The primary goal of the Companys risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Companys ability to achieve its investment return
objectives. The Company does not enter into the derivatives for speculative purposes.

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



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



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



|                                                   |  |               |            |  |              |  |            |               |  |   |                |     |  |                                 |                                |  |                        |   |        |   |  |  |                                                            | 
|-------------------------------------------------- |  | ------------- | ---------- |  | ------------ |  | ---------- | ------------- |  | - | -------------- | --- |  | ------------------------------- | ------------------------------ |  | ---------------------- | - | ------ | - |  |  | ---------------------------------------------------------- | 
|                                                   |  |               |            |  |              |  |            |               |  |   |                |     |  | Fair Value of Asset (Liability) |                                |  |                        |  
|Derivative Instruments                             |  | EffectiveDate |            |  | MaturityDate |  |            | NotionalValue |  |   | Reference Rate |     |  | December 31,2010                |                                |  | Balance Sheet Location |  
|Interest Rate Swap                                 |  |               | 02/26/2010 |  |              |  | 02/26/2014 |               |  | $ | 10,000         |     |  |                                 | One-month LIBOR/Fixed at
2.30% |  |                        | $ | (322   | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 02/26/2010 |  |              |  | 02/26/2014 |               |  |   | 10,000         |     |  |                                 | One-month LIBOR/Fixed at
2.30% |  |                        |   | (322   | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 04/30/2010 |  |              |  | 04/30/2014 |               |  |   | 55,000         | (1) |  |                                 | One-month LIBOR/Fixed at
2.17% |  |                        |   | (1,520 | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 07/26/2010 |  |              |  | 08/01/2013 |               |  |   | 6,500          |     |  |                                 | One-month LIBOR/Fixed at
1.33% |  |                        |   | (57    | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 07/26/2010 |  |              |  | 08/01/2013 |               |  |   | 6,500          |     |  |                                 | One-month LIBOR/Fixed at
1.33% |  |                        |   | (56    | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 09/15/2010 |  |              |  | 09/15/2015 |               |  |   | 105,000        |     |  |                                 | One-month LIBOR/Fixed at
1.70% |  |                        |   | 1,092  |   |  |  | Deferred financing costs,prepaid expenses and other assets | 
|Interest Rate Swap                                 |  |               | 12/15/2010 |  |              |  | 02/26/2014 |               |  |   | 17,500         |     |  |                                 | One-month LIBOR/Fixed at
1.53% |  |                        |   | (149   | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 12/15/2010 |  |              |  | 02/26/2014 |               |  |   | 17,500         |     |  |                                 | One-month LIBOR/Fixed at
1.53% |  |                        |   | (149   | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 12/16/2010 |  |              |  | 01/01/2016 |               |  |   | 19,800         |     |  |                                 | One-month LIBOR/Fixed at
2.39% |  |                        |   | (329   | ) |  |  | Other liabilities                                          | 
|Interest Rate Swap                                 |  |               | 12/20/2010 |  |              |  | 06/16/2015 |               |  |   | 69,000         |     |  |                                 | One-month LIBOR/Fixed at
1.94% |  |                        |   | (318   | ) |  |  | Other liabilities                                          | 
|                                                   |  |               |            |  |              |  |            |               |  |   |                |     |  |                                 |                                |  |                        |   |        |   |  |  |                                                            | 
|Total derivatives designatedas hedging instruments |  |               |            |  |              |  |            |               |  | $ | 316,800        |     |  |                                 |                                |  |                        | $ | (2,130 | ) |  |  |                                                            | 
|                                                   |  |               |            |  |              |  |            |               |  |   |                |     |  |                                 |                                |  |                        |   |        |   |  |  |                                                            | 



(1)In
connection with entering into the Portfolio Revolving Loan Facility, the Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A. which effectively fixes the interest rate on the initial $55.0 million drawn under the loan at
approximately 5.17% for the first three years of the loan and fixes the interest rate on $45.0 million of this amount at approximately 5.17% for the last year of the initial loan term.

The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other
comprehensive income (loss) in the accompanying consolidated statements of equity. The Company recorded unrealized losses of $2.1 million on derivative instruments designated as cash flow hedges in accumulated other comprehensive loss for the
year ended December 31, 2010. Amounts in other comprehensive income will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. As a result of utilizing derivative instruments designated
as cash flow hedges to hedge our variable rate notes payable, the Company recognized an additional $1.6 million of interest expense related to the effective portion of cash flow hedges during the year ended December 31, 2010. The
change in fair value of the ineffective portion is recognized directly in earnings. During year ended December 31, 2010, there was no ineffective portion related to the change in fair value of the cash flow hedges. During the next
12 months, the Company expects to recognize additional interest expense related to derivative instruments designated as cash flow hedges. The present value of this additional interest expense totaled $4.9 million as of
December 31, 2010 and was included in accumulated other comprehensive loss.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



|9. | FAIR VALUE OF FINANCIAL DISCLOSURES
|-- | -----------------------------------

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 for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors
when determining if a market is inactive or when market transactions are not orderly. See Note 2, Summary of Significant Accounting Policies. The following is a summary of the methods and assumptions used by management in estimating the
fair value of each class of financial instruments for which it is practicable to estimate the fair value:

Cash and cash
equivalents, restricted cash, rent and other receivables, and accounts payable and accrued liabilities:These balances 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.

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

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. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in
an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities
when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.

Contingent consideration: The fair value of the Companys contingent consideration is estimated using a probability-weighted
discounted cash flow analysis. The discounted cash flow analysis is based on managements estimates of current market interest rates for instruments with similar characteristics and expected cash flows under this arrangement.

The following are the carrying amounts and fair values of the Companys financial instruments as of December 31, 2010 and
2009, for which carrying amounts do not approximate fair value (in thousands):



|                             |  |                   |         |  |                   |   |         |           |  |   |           |  |  |                |         |  |           |   |         |  |  |   |         | 
|---------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | --------- |  | - | --------- |  |  | -------------- | ------- |  | --------- | - | ------- |  |  | - | ------- | 
|                             |  | December 31, 2010 |         |  | December 31, 2009 |  
|                             |  | FaceValue         |         |  | CarryingAmount    |   |         | FairValue |  |   | FaceValue |  |  | CarryingAmount |         |  | FairValue |  
|Financial assets:            |  |                   |         |  |                   |   |         |           |  |   |           |  |  |                |         |  |           |   |         |  |  |   |         | 
|Real estate loans receivable |  | $                 | 408,300 |  |                   | $ | 336,759 |           |  | $ | 413,423   |  |  | $              | 209,500 |  |           | $ | 130,801 |  |  | $ | 174,387 | 
|Financial liabilities:       |  |                   |         |  |                   |   |         |           |  |   |           |  |  |                |         |  |           |   |         |  |  |   |         | 
|Notes payable                |  |                   | 828,157 |  |                   |   | 828,157 |           |  |   | 829,914   |  |  |                | 126,660 |  |           |   | 126,660 |  |  |   | 125,285 | 



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Disclosure of the fair value of financial instruments is based on pertinent information
available to the Company at December 31, 2010 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, 2010, the Company held the following assets and liabilities measured at fair value (in thousands):



|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|------------------------------------------------ |  | ----- | --------- | - | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | --------------------------------------- | - |  | - | --------- | 
|                                                 |  |       |           |   | Fair Value Measurements Using                               |  
|                                                 |  | Total |           |   | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservableInputs(Level
 3) |  
|Nonrecurring Basis:                              |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Investments in real estate(1)                    |  | $     | 1,406,273 |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 1,406,273 | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Total Assets                                     |  | $     | 1,406,273 |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 1,406,273 | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|                                                 |  |       |           |  
|Mortgage debt assumed on real estate acquisition |  | $     | 16,985    |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 16,985    | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Total Liabilities                                |  | $     | 16,985    |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 16,985    | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|                                                 |  |       |           |  
|Recurring Basis:                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Contingent consideration                         |  | $     | 3,063     |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 3,063     | 
|Asset derivatives                                |  |       | 1,092     |   |                                                             |   |  |                                             |  |   | 1,092                                   |   |  |   |          | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Total Assets                                     |  | $     | 4,155     |   |                                                             | $ |  |                                             |  | $ | 1,092                                   |   |  | $ | 3,063     | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|                                                 |  |       |           |  
|Liability derivatives                            |  | $     | (3,222    | ) |                                                             | $ |  |                                             |  | $ | (3,222                                  | ) |  | $ |          | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 
|Total Liabilities                                |  | $     | (3,222    | ) |                                                             | $ |  |                                             |  | $ | (3,222                                  | ) |  | $ |          | 
|                                                 |  |       |           |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |           | 



(1)Amount
reflects acquisition date fair value of real estate acquired in 2010.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



|10. | 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/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering, the investment of funds in real estate and real estate-related investments 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, 2010 and 2009, 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, 2010, 2009 and 2008, respectively, and any related amounts payable as of December 31, 2010 and 2009 (in thousands):



|                                       |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 
|-------------------------------------- |  | -------- | ------- |  | ------------- | - | ------ | ---- |  | - | ------ |  |  | ---- | --- |  |  | - | --- | 
|                                       |  | Incurred |         |  | Payable as of |  
|                                       |  | 2010     |         |  | 2009          |   |        | 2008 |  |   | 2010   |  |  | 2009 |    
|Expensed                               |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 
|Asset management fees(1)               |  | $        | 10,005  |  |               | $ | 4,482  |      |  | $ | 857    |  |  | $    |    |  |  | $ |    | 
|Reimbursement of operating expenses(2) |  |          | 35      |  |               |   | 44     |      |  |   | 182    |  |  |      | 9   |  |  |   |    | 
|Acquisition fees                       |  |          | 10,692  |  |               |   | 846    |      |  |   |       |  |  |      |    |  |  |   |    | 
|                                       |  |          |         |  |              
|Additional Paid-in Capital             |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 
|Selling commissions                    |  |          | 49,277  |  |               |   | 34,108 |      |  |   | 18,152 |  |  |      |    |  |  |   |    | 
|Dealer manager fees                    |  |          | 25,069  |  |               |   | 20,805 |      |  |   | 10,932 |  |  |      |    |  |  |   |    | 
|Reimbursable other offering costs      |  |          | 4,302   |  |               |   | 2,845  |      |  |   | 5,362  |  |  |      | 364 |  |  |   | 206 | 
|                                       |  |          |         |  |              
|Capitalized                            |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 
|Acquisition and origination fees       |  |          | 2,865   |  |               |   | 697    |      |  |   | 3,832  |  |  |      |    |  |  |   |    | 
|                                       |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 
|                                       |  | $        | 102,245 |  |               | $ | 63,827 |      |  | $ | 39,317 |  |  | $    | 373 |  |  | $ | 206 | 
|                                       |  |          |         |  |               |   |        |      |  |   |        |  |  |      |     |  |  |   |     | 



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

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



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



|11. | 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, office/flex and industrial properties. Under the real
estate-related segment, the Company has invested in mortgage loans, an A-Note and 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, 2010



The following tables summarize total revenues and NOI for each reportable segment for
the years ended December 31, 2010, 2009 and 2008 and total assets and total liabilities for each reportable segment as of December 31, 2010 and 2009 (in thousands):



|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|------------------------------ |  | ------------------------ | --------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|                               |  | Years Ended December 31, |          
|                               |  | 2010                     |           |  | 2009 |   |         | 2008 | 
|Revenues:                      |  |                          |           |  |      |   |         |      |  |   |        | 
|Real estate segment            |  | $                        | 131,878   |  |      | $ | 58,374  |      |  | $ | 14,066 | 
|Real estate-related segment    |  |                          | 28,255    |  |      |   | 17,013  |      |  |   | 21     | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total segment revenues         |  | $                        | 160,133   |  |      | $ | 75,387  |      |  | $ | 14,087 | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|                               |  |                          |          
|Interest Expense:              |  |                          |           |  |      |   |         |      |  |   |        | 
|Real estate segment            |  | $                        | 18,241    |  |      | $ | 9,596   |      |  | $ | 4,329  | 
|Real estate-related segment    |  |                          |          |  |      |   |        |      |  |   |       | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total segment interest expense |  |                          | 18,241    |  |      |   | 9,596   |      |  |   | 4,329  | 
|Corporate-level                |  |                          | 1,148     |  |      |   | 568     |      |  |   | 16     | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total interest expense         |  | $                        | 19,389    |  |      | $ | 10,164  |      |  | $ | 4,345  | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|                               |  |                          |          
|NOI:                           |  |                          |           |  |      |   |         |      |  |   |        | 
|Real estate segment            |  | $                        | 63,751    |  |      | $ | 28,434  |      |  | $ | 4,611  | 
|Real estate-related segment    |  |                          | 26,444    |  |      |   | 16,095  |      |  |   | 18     | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total NOI                      |  | $                        | 90,195    |  |      | $ | 44,529  |      |  | $ | 4,629  | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|                               |  |                         
|                               |  | December 31,             |           |  |      |  
|                               |  | 2010                     |           |  | 2009 |   |         |      | 
|Assets:(1)                     |  |                          |           |  |      |   |         |      |  |   |        | 
|Real estate segment            |  | $                        | 1,981,974 |  |      | $ | 552,076 |      |  |   |        | 
|Real estate-related segment    |  |                          | 339,146   |  |      |   | 131,776 |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total segment assets           |  |                          | 2,321,120 |  |      |   | 683,852 |      |  |   |        | 
|Corporate-level(2)             |  |                          | 58,534    |  |      |   | 270,016 |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total assets                   |  | $                        | 2,379,654 |  |      | $ | 953,868 |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|                               |  |                          |          
|Liabilities:                   |  |                          |           |  |      |   |         |      |  |   |        | 
|Real estate segment            |  | $                        | 901,270   |  |      | $ | 151,923 |      |  |   |        | 
|Real estate-related segment    |  |                          | 61        |  |      |   |        |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total segment liabilities      |  |                          | 901,331   |  |      |   | 151,923 |      |  |   |        | 
|Corporate-level(3)             |  |                          | 10,688    |  |      |   | 6,123   |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 
|Total liabilities              |  | $                        | 912,019   |  |      | $ | 158,046 |      |  |   |        | 
|                               |  |                          |           |  |      |   |         |      |  |   |        | 



(1)The
Company had $13.1 million and $1.9 million in additions to long-lived assets in the real estate segment during the years ended December 31, 2010 and 2009, 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 $58.5 million and $270.0 million as of December 31, 2010 and 2009, respectively.

(3)As of
December 31, 2010 and 2009, 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, 2010



The following table reconciles the Companys net income (loss) to its NOI for the
years ended December 31, 2010, 2009 and 2008 (in thousands):



|                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                           |  | Years Ended December 31, |       
|                                           |  | 2010                     |        |   | 2009 |   |        | 2008 | 
|Net income (loss)                          |  | $                        | 5,508  |   |      | $ | 12,419 |      |  | $ | (2,582 | )
|Other interest income                      |  |                          | (273   | ) |      |   | (646   | )    |  |   | (589   | )
|Gain on sale of real estate securities     |  |                          |       |   |      |   | (119   | )    |  |   |       |  
|Real estate acquisition fees to affiliates |  |                          | 10,692 |   |      |   | 846    |      |  |   |       |  
|Real estate acquisition fees and expenses  |  |                          | 7,487  |   |      |   | 678    |      |  |   |       |  
|General and administrative expenses        |  |                          | 3,947  |   |      |   | 2,678  |      |  |   | 810    |  
|Depreciation and amortization              |  |                          | 61,686 |   |      |   | 28,105 |      |  |   | 6,974  |  
|Corporate-level interest expense           |  |                          | 1,148  |   |      |   | 568    |      |  |   | 16     |  
|                                           |  |                          |        |   |      |   |        |      |  |   |        |  
|NOI                                        |  | $                        | 90,195 |   |      | $ | 44,529 |      |  | $ | 4,629  |  
|                                           |  |                          |        |   |      |   |        |      |  |   |        |  



|12. | 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, 2010 and 2009. The Company acquired 12
properties and a leasehold interest in one industrial property during the year ended December 31, 2010, all of which were accounted for as business combinations. The following unaudited pro forma information for the years ended
December 31, 2010 and 2009 has been prepared to give effect to the acquisitions of (i) 300 N. LaSalle Building, (ii) Union Bank Plaza, (iii) Granite Tower and (iv) National City Tower, as if the acquisitions
occurred on 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, |            
|                                                                       |  | 2010                            |             |  | 2009 |  
|Revenues                                                               |  | $                               | 241,548     |  |      | $ | 164,855     |  
|                                                                       |  |                                 |             |  |      |   |             |  
|Depreciation and amortization                                          |  | $                               | 89,495      |  |      | $ | 64,285      |  
|                                                                       |  |                                 |             |  |      |   |             |  
|Net income (loss)                                                      |  | $                               | 23,364      |  |      | $ | (11,338     | )
|                                                                       |  |                                 |             |  |      |   |             |  
|Net income (loss) per common share, basic and diluted                  |  | $                               | 0.13        |  |      | $ | (0.09       | )
|                                                                       |  |                                 |             |  |      |   |             |  
|Weighted-average number of commonshares outstanding, basic and diluted |  |                                 | 173,609,478 |  |      |   | 129,686,958 |  
|                                                                       |  |                                 |             |  |      |   |             |  

The pro forma information for the year ended December 31, 2010 was adjusted to exclude
$14.6 million of acquisition costs related to the above properties incurred in 2010. These costs were recognized in the pro forma information for the year ended December 31, 2009.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



|13. | SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- | ---------------------------------------------

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2010 and 2009 (in thousands, except per share amounts):



|                                                      |  |               |        |  |                |   |        |               |  |   |                |   |  |   |        | 
|----------------------------------------------------- |  | ------------- | ------ |  | -------------- | - | ------ | ------------- |  | - | -------------- | - |  | - | ------ | 
|                                                      |  | 2010          |       
|                                                      |  | First Quarter |        |  | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|Revenues                                              |  | $             | 27,336 |  |                | $ | 31,470 |               |  | $ | 43,266         |   |  | $ | 58,061 | 
|Net income (loss)                                     |  | $             | 3,828  |  |                | $ | 5,410  |               |  | $ | (7,642         | ) |  | $ | 3,912  | 
|Net income (loss) per common share, basic and diluted |  | $             | 0.04   |  |                | $ | 0.05   |               |  | $ | (0.06          | ) |  | $ | 0.03   | 
|Distributions declared per common share(1)            |  | $             | 0.160  |  |                | $ | 0.162  |               |  | $ | 0.164          |   |  | $ | 0.164  | 
|                                                      | 
|                                                      |  | 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  | 



(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, 2010. Each day during the period from January 1, 2009 through December 31, 2010 was a record date for distributions. Distributions were calculated at a rate of $0.00178082 per share per day from
January 1, 2009 through December 31, 2010.



|14. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Economic Dependency

The
Company is dependent on the Advisor for certain services that are essential to the Company, including 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 the Advisor is unable to provide the respective services, the Company will be required to
obtain such services from other sources.

Geographic Concentration

The 300 N. LaSalle Building represents approximately 26% of the Companys total assets. As a result of this investment, the
geographic concentration of the Companys portfolio makes it particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse economic or real estate developments in this market, such as business layoffs
or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Companys operating results.

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, 2010.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Legal Matters

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



|15. | SUBSEQUENT EVENTS
|--- | -----------------

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

Status of Offering

The Company commenced the Offering on April 22, 2008. The Company ceased offering shares of common stock in its primary offering
on December 31, 2010 and is completing subscription processing procedures, as set forth in the Companys prospectus. As of March 9, 2011, the Company had sold 190,824,532 shares of common stock in the Offering for gross
offering proceeds of $1.9 billion, including 8,140,021 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $77.3 million. The Company may continue to sell shares under the dividend reinvestment plan
until it has sold all the shares under the plan.

Distributions Paid

On January 14, 2011, the Company paid distributions of $9.2 million, which related to distributions declared for each day
in the period from December 1, 2010 through December 31, 2010. On February 15, 2011, the Company paid distributions of $10.2 million, which related to distributions declared for each day in the period from
January 1, 2011 through January 31, 2011.

Distributions Declared

On January 21, 2011, the Companys board of directors declared distributions based on daily record dates for the period
from February 1, 2011 through February 28, 2011, which the Company expects to pay in March 2011, and distributions based on daily record dates for the period from March 1, 2011 through March 31, 2011,
which the Company expects to pay in April 2011. On March 4, 2011, the Companys board of directors declared distributions based on daily record dates for the period from April 1, 2011 through April 30, 2011,
which the Company expects to pay in May 2011, and distributions based on daily record dates for the period from May 1, 2011 through May 31, 2011, which the Company expects to pay in June 2011. 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 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, 2010

Acquisition of Gateway Corporate Center

On January 26, 2011, the Company, through an indirect wholly owned subsidiary, acquired two three-story office buildings totaling 233,836 rentable square feet located on approximately 13.3
total acres of land in Sacramento, California (Gateway Corporate Center). The seller is not affiliated with the Company or the Advisor. The total contractual purchase price of Gateway Corporate Center was approximately
$47.4 million plus closing costs. The Company initially funded the purchase of Gateway Corporate Center with proceeds from the Offering and subsequently placed financing of $26.3 million on Gateway Corporate Center. See
Portfolio Loan below.

At acquisition, Gateway Corporate Center was 91% leased to 13 tenants.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Portfolio Loan

On January 28, 2011, the Company, through indirect wholly owned subsidiaries (the Borrowers), entered into a five-year portfolio loan with Wells Fargo Bank, N.A. (the
Lender) dated January 27, 2011 for an amount up to $360.0 million (the Portfolio Loan). As of March 11, 2011, $348.3 million had been disbursed to the Borrowers with the remaining loan balance of
$11.7 million (the Holdback) available for future disbursements, subject to certain conditions set forth in the loan agreement. In addition, in the event of tenant expansions meeting requirements set forth in the loan agreement, the
principal amount of the Portfolio Loan may be increased to $372.0 million. The Company incurred approximately $1.5 million in net loan costs in conjunction with the initial funding of the Portfolio Loan. The initial maturity date of the
Portfolio Loan is January 27, 2016, with two one-year extension options, subject to the satisfaction of certain conditions by the Borrowers. The Portfolio Loan bears interest at a floating rate of 215 basis points over one-month LIBOR
during the initial term of the loan, 240 basis points over one-month LIBOR during the first extension period of the loan and 265 basis points over one-month LIBOR during the second extension period of the loan. Monthly payments are interest only
with the entire principal amount due at maturity, assuming no prior prepayment. The Borrowers may, upon no less than three business days notice to the Lender, prepay all or a portion of the Portfolio Loan, subject to possible exit fees. Any
prepayment made on or after October 27, 2015 will not be subject to a prepayment fee.

In connection with the closing of
the Portfolio Loan, the Company consolidated into the Portfolio Loan, a portfolio bridge loan with an outstanding balance of $40.6 million and a mortgage loan secured by National City Tower with an outstanding principal balance of $69.0 million. The
$348.3 million outstanding under the Portfolio Loan reflects the consolidated loans. On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay in full a $16.8 million mortgage loan secured by Torrey Reserve West.

The Portfolio Loan is secured by Hartman II Business Center, Plano Business Park, Horizon Tech Center, Dallas Cowboys Distribution
Center, Crescent VIII, National City Tower, Granite Tower, Gateway Corporate Center, I-81 Industrial Portfolio, Two Westlake Park, Torrey Reserve West and in the future, the Portfolio Loan may be secured by certain additional real estate
properties currently owned by the Company or that may be acquired by the Company, subject to certain terms of the loan agreement.

Acquisition of 601 Tower at Carlson Center

On February 3, 2011, the Company, through an indirect wholly owned subsidiary, acquired a 15-story office building containing 288,458 rentable square feet located on approximately 2.3 acres
of land within the Carlson Center office park in Minnetonka, Minnesota (601 Tower at Carlson Center). The seller is not affiliated with the Company or the Advisor. The total contractual purchase price of 601 Tower at Carlson Center
was approximately $54.4 million plus closing costs. The Company funded the purchase of 601 Tower at Carlson Center with proceeds from the Offering but may later place mortgage debt on the property.

At acquisition, 601 Tower at Carlson Center was 90% leased to 42 tenants.

Acquisition of I-81 Industrial Portfolio

On
February 16, 2011, the Company, through an indirect wholly owned subsidiary, acquired a portfolio of four warehouse properties totaling 1,644,480 rentable square feet (the I-81 Industrial Portfolio). The four properties
encompass 133.4 acres of land and are located in Pennsylvania. The seller is not affiliated with the Company or the Advisor. The total contractual purchase price of the I-81 Industrial Portfolio was approximately $90.0 million plus closing
costs. The Company funded the purchase of the I-81 Industrial Portfolio with proceeds from the Portfolio Loan and proceeds from the Offering.

At acquisition, the I-81 Industrial Portfolio was 100% leased to seven tenants.

Acquisition of Two Westlake Park

On February 25, 2011, the Company, through an indirect wholly owned subsidiary, acquired a 17-story office building containing 388,142 rentable square feet located on approximately
5.4 acres of land within the Westlake office park in Houston, Texas (Two Westlake Park). The seller is not affiliated with the Company or the Advisor. The total contractual purchase price of Two Westlake Park was approximately
$80.5 million plus closing costs. The Company funded the purchase of Two Westlake Park with proceeds from the Portfolio Loan and proceeds from the Offering.

At acquisition, Two Westlake Park was 95% leased to 13 tenants.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2010



Second Amended and Restated Share Redemption Program

On March 4, 2011, the Companys board of directors approved a second amended and restated share redemption program. The
share redemption program has always provided that at the time the Company established an estimated value per share (not based on the price to acquire a share of common stock in the Companys initial public offering or follow-on public
offerings) the redemption price for all stockholders would be equal to the estimated value per share, as determined by the Advisor or another firm chosen for that purpose. When the Company commenced its Offering, it expected to establish an
estimated value per share no later than three years after the Company completed its offering stage. The Company amended and restated its share redemption program to state its current intention to first establish an estimated value per share upon the
completion of its offering stage. The Company will consider its offering stage complete when it is no longer publicly offering equity securitieswhether through its initial public offering or follow-on public offeringsand has not done so
for up to 18 months. The Company has previously disclosed its intention to establish an estimated value per share at this time.

The second amended and restated share redemption program will be effective 30 days after the Company files its annual report on Form 10-K for the year ended December 31, 2010.



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KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2010

(in thousands)



|                                       |  |                     |  |                  |     |         |              |   |         |                         |  |   |                                           |           |  |                                                  |         |           |                                         |      |         |                             |                             |              |       |           |  |   |        |           |  |   |         |           |  |   |         |        |  |   |        |  |  |                |  |           
|-------------------------------------- |  | ------------------- |  | ---------------- | --- | ------- | ------------ | - | ------- | ----------------------- |  | - | ----------------------------------------- | --------- |  | ------------------------------------------------ | ------- | --------- | --------------------------------------- | ---- | ------- | --------------------------- | --------------------------- | ------------ | ----- | --------- |  | - | ------ | --------- |  | - | ------- | --------- |  | - | ------- | ------ |  | - | ------ |  |  | -------------- |  | ----------
|                                       |  |                     |  |                  |     |         |              |   |         | Initial Cost to Company |  |   | Cost 
CapitalizedSubsequentto Acquisition |           |  | Gross Amount at 
whichCarried at Close of Period |         |           | AccumulatedDepreciation andAmortization |      |         | OriginalDate ofConstruction |                             | DateAcquired
|Description                            |  | Location            |  | OwnershipPercent |     |         | Encumbrances |   |         | Land                    |  |   | Building
andImprovements(1)               |           |  | Total                                            |         |           |                                         | Land |         |                             | Building
andImprovements(1) |              |       | Total (2) |  |   |        |          
|Mountain View Corporate Center         |  | BaskingRidge, NJ    |  |                  | 100 | %       |              | $ | 10,223  |                         |  | $ | 3,600                                     |           |  | $                                                | 27,138  |           |                                         | $    | 30,738  |                             |                             | $            | 265   |           |  | $ | 3,600  |           |  | $ | 27,403  |           |  | $ | 31,003  |        |  | $ | 3,891  |  |  | 2001           |  | 07/30/2008
|100 & 200 Campus Drive Buildings       |  | FlorhamPark, NJ     |  |                  | 100 | %       |              |   | 55,000  |                         |  |   | 10,700                                    |           |  |                                                  | 188,509 |           |                                         |      | 199,209 |                             |                             |              | 5,269 |           |  |   | 10,700 |           |  |   | 183,824 |           |  |   | 194,524 |        |  |   | 17,073 |  |  | 1988/1989      |  | 09/09/2008
|300-600 Campus Drive Buildings         |  | FlorhamPark, NJ     |  |                  | 100 | %       |              |   | 93,850  |                         |  |   | 9,717                                     |           |  |                                                  | 185,445 |           |                                         |      | 195,162 |                             |                             |              | 1,799 |           |  |   | 9,717  |           |  |   | 185,325 |           |  |   | 195,042 |        |  |   | 18,773 |  |  | 1997/1999      |  | 10/10/2008
|350 E. Plumeria Building               |  | San Jose,CA         |  |                  | 100 | %       |              |   | 12,010  |                         |  |   | 11,290                                    |           |  |                                                  | 24,819  |           |                                         |      | 36,109  |                             |                             |              | 13    |           |  |   | 11,290 |           |  |   | 24,832  |           |  |   | 36,122  |        |  |   | 2,293  |  |  | 1984/2008      |  | 12/18/2008
|Willow Oaks Corporate Center           |  | Fairfax,VA          |  |                  | 100 | %       |              |   | 13,000  |                         |  |   | 25,300                                    |           |  |                                                  | 87,802  |           |                                         |      | 113,102 |                             |                             |              | 1,240 |           |  |   | 25,300 |           |  |   | 87,614  |           |  |   | 112,914 |        |  |   | 10,168 |  |  | 1986/1989/2003 |  | 08/26/2009
|Pierre Laclede Center                  |  | Clayton,MO          |  |                  | 100 | %       |              |   | 24,664  |                         |  |   | 15,200                                    |           |  |                                                  | 61,507  |           |                                         |      | 76,707  |                             |                             |              | 2,711 |           |  |   | 15,200 |           |  |   | 62,568  |           |  |   | 77,768  |        |  |   | 5,529  |  |  | 1964/1970      |  | 02/04/2010
|One Main Place                         |  | Portland,OR         |  |                  | 100 | %       |              |   | 18,103  |                         |  |   | 7,200                                     |           |  |                                                  | 47,643  |           |                                         |      | 54,843  |                             |                             |              | 2,439 |           |  |   | 7,200  |           |  |   | 49,307  |           |  |   | 56,507  |        |  |   | 5,321  |  |  | 1980           |  | 02/05/2010
|Plano Business Park                    |  | Plano, TX           |  |                  | 100 | %       |              |   | 9,131   |                         |  |   | 3,050                                     |           |  |                                                  | 13,648  |           |                                         |      | 16,698  |                             |                             |              | 10    |           |  |   | 3,050  |           |  |   | 13,645  |           |  |   | 16,695  |        |  |   | 995    |  |  | 2001           |  | 03/15/2010
|Hartman II                             |  | Austell,GA          |  |                  | 100 | %       |              |   | 5,331   |                         |  |   | 2,900                                     |           |  |                                                  | 7,467   |           |                                         |      | 10,367  |                             |                             |              |      |           |  |   | 2,900  |           |  |   | 7,467   |           |  |   | 10,367  |        |  |   | 301    |  |  | 2006           |  | 04/07/2010
|Crescent VIII                          |  | GreenwoodVillage,CO |  |                  | 100 | %       |              |   | 6,170   |                         |  |   | 2,300                                     |           |  |                                                  | 9,552   |           |                                         |      | 11,852  |                             |                             |              | 410   |           |  |   | 2,300  |           |  |   | 9,962   |           |  |   | 12,262  |        |  |   | 706    |  |  | 1996           |  | 05/26/2010
|Horizon Tech Center                    |  | San Diego,CA        |  |                  | 100 | %       |              |   | 19,990  |                         |  |   | 7,900                                     |           |  |                                                  | 29,237  |           |                                         |      | 37,137  |                             |                             |              |      |           |  |   | 7,900  |           |  |   | 29,237  |           |  |   | 37,137  |        |  |   | 1,205  |  |  | 2009           |  | 06/17/2010
|Dallas Cowboys Distribution Center (3) |  | Irving, TX          |  |                  | 100 | %(3)    |              |   |        |                         |  |   |                                          |           |  |                                                  | 18,513  |           |                                         |      | 18,513  |                             |                             |              |      |           |  |   |       |           |  |   | 18,513  |           |  |   | 18,513  |        |  |   | 329    |  |  | 2010           |  | 07/08/2010
|300 N. LaSalle Building                |  | Chicago,IL          |  |                  | 100 | %       |              |   | 350,000 |                         |  |   | 41,200                                    |           |  |                                                  | 574,340 |           |                                         |      | 615,540 |                             |                             |              | 360   |           |  |   | 41,200 |           |  |   | 574,700 |           |  |   | 615,900 |        |  |   | 8,856  |  |  | 2009           |  | 07/29/2010
|Torrey Reserve West                    |  | San Diego,CA        |  |                  | 100 | %       |              |   | 16,885  |                         |  |   | 5,300                                     |           |  |                                                  | 19,437  |           |                                         |      | 24,737  |                             |                             |              | 380   |           |  |   | 5,300  |           |  |   | 19,817  |           |  |   | 25,117  |        |  |   | 552    |  |  | 2000           |  | 09/09/2010
|Union Bank Plaza                       |  | LosAngeles,CA       |  |                  | 100 | %       |              |   | 105,000 |                         |  |   | 24,000                                    |           |  |                                                  | 190,232 |           |                                         |      | 214,232 |                             |                             |              | 205   |           |  |   | 24,000 |           |  |   | 190,359 |           |  |   | 214,359 |        |  |   | 3,522  |  |  | 1967           |  | 09/15/2010
|Emerald View at Vista Center           |  | West PalmBeach, FL  |  |                  | 100 | %       |              |   | 19,800  |                         |  |   | 5,300                                     |           |  |                                                  | 28,455  |           |                                         |      | 33,755  |                             |                             |              |      |           |  |   | 5,300  |           |  |   | 28,455  |           |  |   | 33,755  |        |  |   | 98     |  |  | 2007           |  | 12/09/2010
|Granite Tower                          |  | Denver,CO           |  |                  | 100 | %       |              |   |        |                         |  |   | 8,850                                     |           |  |                                                  | 141,438 |           |                                         |      | 150,288 |                             |                             |              | 40    |           |  |   | 8,850  |           |  |   | 141,478 |           |  |   | 150,328 |        |  |   | 386    |  |  | 1983           |  | 12/16/2010
|National City Tower                    |  | Louisville,KY       |  |                  | 100 | %       |              |   | 69,000  |                         |  |   | 6,700                                     |           |  |                                                  | 108,864 |           |                                         |      | 115,564 |                             |                             |              |      |           |  |   | 6,700  |           |  |   | 108,863 |           |  |   | 115,563 |        |  |   | 475    |  |  | 1972           |  | 12/17/2010
|                                       |  |                     |  |                  |     |         |              |   |         |                         |  |   |                                           |           |  |                                                  |         |           |                                         |      |         |                             |                             |              |       |           |  |   |        |           |  |   |         |           |  |   |         |        |  |   |        |  |  |                |  |           
|                                       |  | TOTAL               |  |                  | $   | 828,157 |              |   | $       | 190,507                 |  |   | $                                         | 1,764,046 |  |                                                  | $       | 1,954,553 |                                         |      | $       | 15,141                      |                             |              | $     | 190,507   |  |   | $      | 1,763,369 |  |   | $       | 1,953,876 |  |   | $       | 80,473 |  |   |        |  | 
|                                       |  |                     |  |                  |     |         |              |   |         |                         |  |   |                                           |           |  |                                                  |         |           |                                         |      |         |                             |                             |              |       |           |  |   |        |           |  |   |         |           |  |   |         |        |  |   |        |  |  |                |  |           



(1)Building
and improvements include tenant origination and absorption costs.

(2)The aggregate cost of real estate for federal income tax purposes was $2.0 billion as of December 31, 2010.

(3)The Company acquired the rights to a ground lease with respect to this property. The ground lease expires in February 2050.



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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, 2010

(in thousands)



|                                                          |  |      |           |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                          |  | 2010 |           |   | 2009 |   |         | 2008 | 
|Real estate:                                              |  |      |           |   |      |   |         |      |  |   |         |  
|Balance at the beginning of the year                      |  | $    | 575,427   |   |      | $ | 460,779 |      |  | $ |        |  
|Acquisitions                                              |  |      | 1,380,233 |   |      |   | 113,102 |      |  |   | 461,218 |  
|Improvements                                              |  |      | 13,112    |   |      |   | 1,929   |      |  |   | 100     |  
|Write-off of fully depreciated and fully amortized assets |  |      | (14,896   | ) |      |   | (383    | )    |  |   | (539    | )
|                                                          |  |      |           |   |      |   |         |      |  |   |         |  
|Balance at the end of the year                            |  | $    | 1,953,876 |   |      | $ | 575,427 |      |  | $ | 460,779 |  
|                                                          |  |      |           |   |      |   |         |      |  |   |         |  
|                                                          |  |      |          
|Accumulated depreciation:                                 |  |      |           |   |      |   |         |      |  |   |         |  
|Balance at the beginning of the year                      |  | $    | 34,059    |   |      | $ | 6,436   |      |  | $ |        |  
|Depreciation expense                                      |  |      | 61,310    |   |      |   | 28,006  |      |  |   | 6,974   |  
|Write-off of fully depreciated and fully amortized assets |  |      | (14,896   | ) |      |   | (383    | )    |  |   | (538    | )
|                                                          |  |      |           |   |      |   |         |      |  |   |         |  
|Balance at the end of the year                            |  | $    | 80,473    |   |      | $ | 34,059  |      |  | $ | 6,436   |  
|                                                          |  |      |           |   |      |   |         |      |  |   |         |  



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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 11, 2011.



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 11, 2011
|Charles J. Schreiber, Jr.        |  | Director                                           |  |               
|                                 |  |                                                   
|/S/    DAVID E.
SNYDER           |  | Chief Financial Officer                            |  | March 11, 2011
|David E. Snyder                  |  |                                                    |  |               
|                                 |  |                                                   
|/S/    PETER
MCMILLAN III        |  | Executive Vice President, Treasurer, Secretary and |  | March 11, 2011
|Peter McMillan III               |  | Director                                           |  |               
|                                 |  |                                                   
|/S/    STACIE K.
YAMANE          |  | Chief Accounting Officer                           |  | March 11, 2011
|Stacie K. Yamane                 |  |                                                    |  |               
|                                 |  |                                                   
|/S/    HANK
ADLER                |  | Director                                           |  | March 11, 2011
|Hank Adler                       |  |                                                    |  |               
|                                 |  |                                                   
|/S/    BARBARA R.
CAMBON         |  | Director                                           |  | March 11, 2011
|Barbara R. Cambon                |  |                                                    |  |               
|                                 |  |                                                   
|/S/    STUART A.
GABRIEL, PH.D.  |  | Director                                           |  | March 11, 2011
|Stuart A. Gabriel, Ph.D.         |  |                                                    |  |