**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

**FORM10-Q**

| **[Mark One]** |
|----------------|
| x              |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   | ** ** |
| ** **     |   | **For the  quarterly period ended June 30, 2007** |
| ** **     |   | ** ** |
| ** **     |   | **OR** |
| ** **     |   | ** ** |
| o              |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   | ** ** |
| ** **     |   | **For the  transition period from                       to                    ** |

 

**CommissionFile Number: 000-51961**

**BehringerHarvard Opportunity REIT I, Inc.**

(Exact Name ofRegistrant as Specified in Its Charter)

| **Maryland**                                                     |   | **20-1862323**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |

 

**15601Dallas Parkway, Suite 600, Addison, Texas 75001**

(Address of PrincipalExecutive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code:**(866) 655-1605**

**None**

(Formername, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the Registrant:  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days.  Yes x   No o

Indicate by checkmark whether the Registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

| Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|--------------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).Yes o   No x

As of August 1,2007, Behringer Harvard Opportunity REIT I, Inc. had 40,574,628****shares of common stock, $.0001 par value,outstanding.

 

----

**BEHRINGERHARVARD OPPORTUNITY REIT I, INC.**

**FORM10-Q**

**QuarterEnded June 30, 2007**

**PARTI**

**FINANCIALINFORMATION**
|                       | ** ** | ** **                                                                                                                         | ** ** | **Page**   |
|-----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| **Item 1.**           | ** ** | **Financial Statements  (Unaudited).**                                                                                             |       | ** ** |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
|                  |       | Consolidated Balance  Sheets as of June 30, 2007 and December 31, 2006                                                        |       | 3          |
|                  |       |                                                                                                                               |       |       |
|                  |       | Consolidated  Statements of Operations for the three and six months ended June 30, 2007 and  2006                                  |       | 4          |
|                  |       |                                                                                                                               |       |       |
|                  |       | Consolidated  Statements of Stockholders’ Equity for the year ended December 31, 2006 and  the six months ended June 30, 2007 |       | 5          |
|                  |       |                                                                                                                               |       |       |
|                  |       | Consolidated  Statements of Cash Flows for the six months ended June 30, 2007 and 2006                                        |       | 6          |
|                  |       |                                                                                                                               |       |       |
|                  |       | Notes to  Consolidated Financial Statements                                                                                        |       | 7          |
|                  |       |                                                                                                                               |       |       |
| **Item 2.**           | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations.**                                   |       | 22         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 3.**           | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk.**                                                                   |       | 30         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 4T.**          | ** ** | **Controls and Procedures.**                                                                                                       |       | 30         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **PART II**           |       | ** **                                                                                                                         |
| **OTHER INFORMATION** |       |                                                                                                                               |
| ** **            |       | ** **                                                                                                                         |       |       |
| **Item 1.**           | ** ** | **Legal Proceedings.**                                                                                                             |       | 31         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 1A.**          | ** ** | **Risk Factors.**                                                                                                                  |       | 31         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 2.**           | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds.**                                                                  |       | 31         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 3.**           | ** ** | **Defaults Upon  Senior Securities.**                                                                                              |       | 32         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 4.**           | ** ** | **Submission of  Matters to a Vote of Security Holders.**                                                                          |       | 32         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item 5.**           | ** ** | **Other Information.**                                                                                                             |       | 32         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Item  6.**          | ** ** | **Exhibits.**                                                                                                                      |       | 32         |
| ** **            | ** ** | ** **                                                                                                                         |       |       |
| **Signature**         |       | 33                                                                                                                                 |

 

2

----

**PART I**

**FINANCIAL INFORMATION**

**Item 1.Financial Statements.**

**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Balance Sheets**

(Unaudited)
| ** **                                                                                                                                                                                    | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                    | ** ** | **2007**          | ** **  | **2006**              | ** ** |
|                                                                                                                                                                                          |       |              |        |                  |       |
| **Assets**                                                                                                                                                                                    | ** ** | ** **        | ** **  | ** **            | ** ** |
| **Real  estate**                                                                                                                                                                              | ** ** | ** **        | ** **  | ** **            | ** ** |
| Land and  improvements, net                                                                                                                                                                   |       | $                 | 71,610,355  |                  | $          | 15,353,818 |   |
| Buildings and  improvements, net                                                                                                                                                              |       | 202,527,773       |        | 118,998,957           |       |
| Real estate  under development                                                                                                                                                                |       | 70,761,288        |        | 38,418,150            |       |
| **Total  real estate**                                                                                                                                                                        |       | 344,899,416       |        | 172,770,925           |       |
| ** **                                                                                                                                                                                    | ** ** | ** **        | ** **  | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                                                                                    |       | 71,652,200        |        | 54,639,099            |       |
| Restricted cash                                                                                                                                                                               |       | 7,716,537         |        | 2,335,492             |       |
| Accounts  receivable, net                                                                                                                                                                     |       | 5,314,798         |        | 1,207,613             |       |
| Prepaid expenses  and other assets                                                                                                                                                            |       | 1,331,397         |        | 476,624               |       |
| Investment in  unconsolidated joint venture                                                                                                                                                   |       | 22,158,067        |        | —                |       |
| Furniture,  fixtures and equipment, net                                                                                                                                                       |       | 9,252,852         |        | 7,840,693             |       |
| Deferred  financing fees, net                                                                                                                                                                 |       | 3,047,883         |        | 1,788,365             |       |
| Notes receivable                                                                                                                                                                              |       | 16,008,726        |        | 1,718,359             |       |
| Lease  intangibles, net                                                                                                                                                                       |       | 20,471,479        |        | 13,564,476            |       |
| Other  intangibles, net                                                                                                                                                                       |       | 11,029,392        |        | 10,826,332            |       |
| **Total  assets**                                                                                                                                                                             |       | $                 | 512,882,747 |                  | $          | 267,167,978 |   |
|                                                                                                                                                                                          |       |              |        |                  |       |
| **Liabilities and Stockholders'  Equity**                                                                                                                                                     | ** ** | ** **        | ** **  | ** **            | ** ** |
| Mortgages  payable                                                                                                                                                                            |       | $                 | 149,624,786 |                  | $          | 89,203,539 |   |
| Accounts payable                                                                                                                                                                              |       | 1,799,224         |        | 470,354               |       |
| Payables to  affiliates                                                                                                                                                                       |       | 1,713,195         |        | 2,410,501             |       |
| Acquired  below-market leases, net                                                                                                                                                            |       | 17,585,502        |        | 4,365,090             |       |
| Distributions  payable                                                                                                                                                                        |       | 856,102           |        | 1,694,594             |       |
| Accrued  liabilities                                                                                                                                                                          |       | 9,734,322         |        | 5,539,770             |       |
| Subscriptions  for common stock                                                                                                                                                               |       | 1,806,990         |        | 569,673               |       |
| Other  liabilities                                                                                                                                                                            |       | 613,857           |        | 820,000               |       |
| **Total  liabilities**                                                                                                                                                                        |       | 183,733,978       |        | 105,073,521           |       |
|                                                                                                                                                                                          |       |              |        |                  |       |
| **Commitments and contingencies  (Note 14)**                                                                                                                                                  | ** ** | ** **        | ** **  | ** **            | ** ** |
|                                                                                                                                                                                          |       |              |        |                  |       |
| **Minority interest**                                                                                                                                                                         |       | 6,144,010         |        | 2,647,878             |       |
|                                                                                                                                                                                          |       |              |        |                  |       |
| **Stockholders' Equity**                                                                                                                                                                      | ** ** | ** **        | ** **  | ** **            | ** ** |
| Preferred stock,  $.0001 par value per share; 50,000,000 shares authorized, none outstanding                                                                                                  |       | —            |        | —                |       |
| Convertible  stock, $.0001 par value per share; 1,000 shares authorized, 1,000 shares  issued and outstanding                                                                                 |       | —            |        | —                |       |
| Common stock,  $.0001 par value per share; 350,000,000 shares authorized, 36,869,308 and  18,202,576 shares issued and outstanding at  June 30, 2007 and December 31, 2006, respectively |       | 3,687             |        | 1,820                 |       |
| Additional  paid-in capital                                                                                                                                                                   |       | 327,631,795       |        | 159,905,677           |       |
| Accumulated  distributions in excess of net income (loss)                                                                                                                                     |       | (4,601,639        | )           | (460,918              | )          |
| Accumulated  other comprehensive loss                                                                                                                                                         |       | (29,084           | )           | —                |       |
| **Total  stockholders' equity**                                                                                                                                                               |       | 323,004,759       |        | 159,446,579           |       |
| ** **                                                                                                                                                                                    | ** ** | ** **        | ** **  | ** **            | ** ** |
| **Total  liabilities and stockholders' equity**                                                                                                                                               |       | $                 | 512,882,747 |                  | $          | 267,167,978 |   |

 

*See Notes to ConsolidatedFinancial Statements.*

3

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statementsof Operations**

(Unaudited)
| ** **                                       | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                                          | ** ** | **2006**                                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Revenues**                                     | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental revenue                                   |       | $                                                                 | 6,112,113  |                                                            | $          | 355,201 |   | $ | 11,321,235 |   | $ | 474,244 |   |
| Hotel revenue                                    |       | 617,692                                                           |       | —                                                          |       | 617,692 |   | — |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Total  revenues**                              |       | 6,729,805                                                         |       | 355,201                                                         |       | 11,938,927 |   | 474,244 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Expenses**                                     | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property operating expenses                      |       | 2,008,686                                                         |       | 113,918                                                         |       | 3,383,717 |   | 135,642 |   |
| Interest expense                                 |       | 1,373,097                                                         |       | —                                                          |       | 2,302,356 |   | — |   |
| Real estate taxes                                |       | 673,480                                                           |       | 60,532                                                          |       | 1,233,224 |   | 81,516 |   |
| Property management fees                         |       | 151,515                                                           |       | 14,742                                                          |       | 278,629 |   | 19,647 |   |
| Asset management fees                            |       | 471,187                                                           |       | 16,485                                                          |       | 794,080 |   | 21,980 |   |
| General and administrative                       |       | 401,011                                                           |       | 211,610                                                         |       | 708,333 |   | 371,768 |   |
| Advertising costs                                |       | 158,848                                                           |       | —                                                          |       | 623,245 |   | — |   |
| Depreciation and amortization                    |       | 2,399,224                                                         |       | 131,429                                                         |       | 4,348,542 |   | 174,253 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Total  expenses**                              |       | 7,637,048                                                         |       | 548,716                                                         |       | 13,672,126 |   | 804,806 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| Interest income                                  |       | 803,834                                                           |       | 633,493                                                         |       | 1,573,623 |   | 901,811 |   |
| Equity in losses of unconsolidated joint venture |       | (67,686                                                           | )          | —                                                          |       | (67,686 | ) | — |   |
| Minority interest                                |       | (218,607                                                          | )          | —                                                          |       | (355,304 | ) | — |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Income  (loss) before tax**                    |       | (389,702                                                          | )          | 439,978                                                         |       | (582,566 | ) | 571,249 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| Current income tax                               |       | 17,371                                                            |       | —                                                          |       | 17,371 |   | — |   |
| Deferred income tax                              |       | 7,716                                                             |       | —                                                          |       | 7,716 |   | — |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Net  income (loss)**                           |       | $                                                                 | (414,789   | )                                                               | $          | 439,978 |   | $ | (607,653 | ) | $ | 571,249 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Weighted  average shares outstanding:**        | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                            |       | 30,023,233                                                        |       | 7,914,406                                                       |       | 25,387,830 |   | 5,851,111 |   |
| Diluted                                          |       | 30,023,233                                                        |       | 7,926,986                                                       |       | 25,387,830 |   | 5,860,605 |   |
|                                             |       |                                                              |       |                                                            |       |   |   |   |   |
| **Earnings  (loss) per share:**                  | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                            |       | $                                                                 | (0.01      | )                                                               | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.10 |   |
| Diluted                                          |       | $                                                                 | (0.01      | )                                                               | $          | 0.06 |   | $ | (0.02 | ) | $ | 0.10 |   |

 

*See Notesto Consolidated Financial Statements.*

4

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statements ofStockholders’ Equity**

(Unaudited)
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Accumulated**     | ** **  | ** **        | ** ** | ** **        | ** ** |
|----------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|----------------------------|------------|-------------|------------|---------------------|-------------|-------------------|------------|-------------------|------------|
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Distributions**   | ** **  | **Accumulated**   | ** ** | ** **        | ** ** |
| ** **                                                     | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | **in Excess of** | ** ** | **Other**   | ** ** | **Total**           | ** **  |
| ** **                                                     | ** ** | **Number of**         | ** ** | **Par**               | ** ** | **Number of** | ** ** | **Par**                    | ** ** | **Paid-In** | ** ** | **Net Income** | ** **  | **Comprehensive** | ** ** | **Stockholders'** | ** ** |
| ** **                                                     | ** ** | **Shares**                 | ** ** | **Value**             | ** ** | **Shares**         | ** ** | **Value**                  | ** ** | **Capital** | ** ** | **(Loss)**          | ** **  | **Loss**          | ** ** | **Equity**        | ** ** |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Balance at  January 1, 2006                                    |       | 1,000                      |       | $                     | —     |               | 2,034,005  |                       | $          | 203         |       | $                   | 16,516,376  |              | $          | (102,920          | )          | $ | — |   | $ | 16,413,659 |   |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Issuance of common stock, net                                  |       | —                     |       | —                |       | 16,056,984         |       | 1,606                      |       | 142,336,285 |       | —              |        | —            |       | 142,337,891       |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Redemption of common stock                                     |       | —                     |       | —                |       | (7,782             | )          | (1                         | )          | (70,241     | )          | —              |        | —            |       | (70,242           | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Distributions declared on common stock                         |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (2,748,816          | )           | —            |       | (2,748,816        | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Shares issued pursuant to Distribution Reinvestment  Plan, net |       | —                     |       | —                |       | 119,369            |       | 12                         |       | 1,123,257   |       | —              |        | —            |       | 1,123,269         |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Net income                                                     |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | 2,390,818           |        | —            |       | 2,390,818         |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Balance at  December 31, 2006                                  |       | 1,000                      |       | —                |       | 18,202,576         |       | 1,820                      |       | 159,905,677 |       | (460,918            | )           | —            |       | 159,446,579       |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Issuance of common stock, net                                  |       | —                     |       | —                |       | 18,327,268         |       | 1,833                      |       | 164,492,057 |       | —              |        | —            |       | 164,493,890       |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Redemption of common stock                                     |       | —                     |       | —                |       | (38,018            | )          | (4                         | )          | (351,870    | )          | —              |        | —            |       | (351,874          | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Distributions declared on common stock                         |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (3,533,068          | )           | —            |       | (3,533,068        | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Shares issued pursuant to Distribution Reinvestment  Plan, net |       | —                     |       | —                |       | 377,482            |       | 38                         |       | 3,585,931   |       | —              |        | —            |       | 3,585,969         |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Net loss                                                       |       |                       |       |                  |       |               |       |                       |       |        |       | (607,653            | )           | —            |       | (607,653          | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Unrealized losses on interest rate caps                        |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | —              |        | (29,084           | )          | (29,084           | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Total comprehensive loss                                       |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       | (636,737          | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |              |       |
| Balance at June  30, 2007                                      |       | 1,000                      |       | $                     | —     |               | 36,869,308 |                       | $          | 3,687       |       | $                   | 327,631,795 |              | $          | (4,601,639        | )          | $ | (29,084 | ) | $ | 323,004,759 |   |

 

*See Notesto Consolidated Financial Statements.*

5

----

**Behringer Harvard Opportunity REIT I, Inc.**

**Consolidated Statements of Cash Flows**

(Unaudited)
| ** **                                                                                      | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                      | ** ** | **June 30,**                                | ** ** |
| ** **                                                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                                                      |       |                                             |       |   |   |
| Net income (loss)                                                                               |       | $                                                | (607,653   | ) | $ | 571,249 |   |
| Adjustments to reconcile net income (loss) to net cash  flows provided by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                                   |       | 3,531,760                                        |       | 151,663 |   |
| Amortization of deferred financing fees                                                         |       | 604,462                                          |       | — |   |
| Minority interest                                                                               |       | 355,304                                          |       | — |   |
| Change in accounts receivable                                                                   |       | (3,057,481                                       | )          | (24,990 | ) |
| Change in prepaid expenses and other assets                                                     |       | 500,742                                          |       | 58,688 |   |
| Change in accounts payable                                                                      |       | 1,485,228                                        |       | — |   |
| Change in other liabilities                                                                     |       | (206,142                                         | )          | — |   |
| Change in accrued liabilities                                                                   |       | 1,142,438                                        |       | 95,176 |   |
| Change in payables to affiliates                                                                |       | 487,267                                          |       | — |   |
| **Cash provided by operating activities**                                                       |       | 4,235,925                                        |       | 851,786 |   |
|                                                                                            |       |                                             |       |   |   |
| **Cash  flows from investing activities:**                                                      |       |                                             |       |   |   |
| Escrow deposits and pre-acquisition costs on real  estate to be acquired                        |       | (7,812                                           | )          | (4,224,538 | ) |
| Purchases of real estate properties, net of cash  acquired                                      |       | (136,015,507                                     | )          | (9,069,627 | ) |
| Acquisition of interest in unconsolidated joint  venture                                        |       | (22,158,067                                      | )          | — |   |
| Capital expenditures for real estate under  development                                         |       | (18,729,968                                      | )          | — |   |
| Capital expenditures for real estate under  development of consolidated borrowers               |       | (12,746,415                                      | )          | — |   |
| Additions of property and equipment                                                             |       | (2,122,469                                       | )          | — |   |
| Purchase of interest rate cap                                                                   |       | (154,450                                         | )          | — |   |
| Change in restricted cash                                                                       |       | (4,173,727                                       | )          | (4,099 | ) |
| Investment in notes receivable                                                                  |       | (14,290,367                                      | )          | — |   |
| Receivable from investment property                                                             |       | (820,014                                         | )          | — |   |
| Fees paid to affiliate for mezzanine loan  arrangements                                         |       | (545,348                                         | )          | — |   |
| **Cash used in investing activities**                                                           |       | (211,764,144                                     | )          | (13,298,264 | ) |
|                                                                                            |       |                                             |       |   |   |
| **Cash  flows from financing activities:**                                                      |       |                                             |       |   |   |
| Proceeds from bridge note                                                                       |       | 52,115,000                                       |       | — |   |
| Proceeds from mortgages of consolidated borrowers                                               |       | 8,306,247                                        |       | — |   |
| Issuance of common stock                                                                        |       | 182,923,761                                      |       | 78,054,998 |   |
| Redemptions of common stock                                                                     |       | (351,874                                         | )          | — |   |
| Financing costs                                                                                 |       | (1,227,413                                       | )          | — |   |
| Offering costs                                                                                  |       | (18,231,011                                      | )          | (8,342,485 | ) |
| Distributions                                                                                   |       | (984,452                                         | )          | — |   |
| Contributions from minority interest holders                                                    |       | 3,140,827                                        |       | — |   |
| Change in subscriptions for common stock                                                        |       | 1,237,317                                        |       | (73,325 | ) |
| Change in subscription cash received                                                            |       | (1,207,317                                       | )          | 86,812 |   |
| Change in payables to affiliates                                                                |       | (1,179,765                                       | )          | (545,864 | ) |
| **Cash provided by financing activities**                                                       |       | 224,541,320                                      |       | 69,180,136 |   |
|                                                                                            |       |                                             |       |   |   |
| Net change in  cash and cash equivalents                                                        |       | 17,013,101                                       |       | 56,733,658 |   |
| Cash and cash  equivalents at beginning of period                                               |       | 54,639,099                                       |       | 18,560,885 |   |
|                                                                                            |       |                                             |       |   |   |
| Cash and cash  equivalents at end of period                                                     |       | $                                                | 71,652,200 |   | $ | 75,294,543 |   |

 

*See Notes to Consolidated Financial Statements.*

6

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**1.****         Business**

***Organization***

BehringerHarvard Opportunity REIT I, Inc. (which may be referred to as the “Company,” “we,”“us,” or “our”) was organized in Maryland on November 23, 2004 and will make anelection to be taxed, and qualify, as a real estate investment trust (“REIT”)for federal income tax purposes, effective for our taxable year ending December31, 2006.  We invest in and operate realestate or real estate related assets on an opportunistic basis.  In particular, we focus on acquiringproperties with significant possibilities for short-term capital appreciation,such as those requiring development, redevelopment or repositioning or thoselocated in markets and submarkets with higher volatility, lower barriers toentry, and high growth potential.   Wemay acquire office, industrial, retail, hospitality, recreation and leisure,multifamily and other properties.  We maypurchase existing or newly constructed properties or properties underdevelopment or construction, including multifamily properties for conversioninto condominiums.  Further, we mayinvest in real estate related securities, including securities issued by otherreal estate companies, either for investment or in change of controltransactions completed on a negotiated basis or otherwise.  We also may invest in collateralizedmortgage-backed securities, mortgage, bridge or mezzanine loans and Section1031 tenant-in-common interests, or in entities that make investments similarto the foregoing.  We are currentlyoffering our common stock pursuant to a public offering that commenced onSeptember 20, 2005 (the “Offering”) and is described below.

Substantially all of our business is conducted throughBehringer Harvard Opportunity OP I, LP, a Texas limited partnership organizedin November 2004 (“Behringer Harvard OP”). Our wholly-owned subsidiary, BHO, Inc., a Delaware corporation, ownsless than a 0.1% interest in Behringer Harvard OP as its sole generalpartner.  The remaining interest ofBehringer Harvard OP is held as a limited partner’s interest by BHO BusinessTrust, a Maryland business trust, which is our wholly-owned subsidiary.

We are externally managed and advised by BehringerHarvard Opportunity Advisors I, LLC (“Behringer Opportunity Advisors”), a Texaslimited liability company formed in June 2007. Behringer Opportunity Advisorsis responsible for managing our affairs on a day-to-day basis and foridentifying and making acquisitions and investments on our behalf.  Priorto June 30, 2007, we were advised by Behringer Harvard Opportunity Advisors ILP, which was merged into Behringer Opportunity Advisors solely to reorganizethe entity as a limited liability company.

***Public Offering***

On September 20, 2005, we commenced a public offering of up to40,000,000 shares of common stock at a price of $10 per share pursuant to aRegistration Statement on Form S-11 declared effective under the Securities Actof 1933, as amended (the “Securities Act”). On November 17, 2006, we registered an additional 6,587,065 shares ofcommon stock pursuant to the Offering through the filing of a RegistrationStatement on Form S-11 pursuant to Rule 462(b) under the Securities Act.  The Registration Statement declared effectiveas of September 20, 2005 also covers the offering of up to 8,000,000 shares ofcommon stock to be offered at a price of $9.50 per share pursuant to ourdistribution reinvestment plan (the “DRIP”). We subsequently reallocated the shares of common stock in the Offeringto provide $520 million, or 52,000,000 shares, for sale in the primary offeringand $21.9 million, or 2,302,173 shares, for sale through our DRIP.

Stockholders,after their initial purchase of shares, may elect to make cash investments of$25.00 or more in additional shares of common stock at regular intervals aspart of our automatic purchase plan.

As of June 30, 2007, we had issued 36,915,108 sharesof our common stock, including 21,739 shares owned by Behringer HarvardHoldings, LLC (“Behringer Harvard Holdings”) and 496,851 shares through theDRIP.  As of June 30, 2007, we hadredeemed 45,800 shares of our common stock and had 36,869,308 shares of ourcommon stock outstanding.  As of June 30,2007, we had 1,000 shares of non-participating, non-voting convertible stockissued and outstanding and no shares of preferred stock issued and outstanding.

Weadmit new stockholders pursuant to the Offering at least monthly.  All subscription proceeds are held in aseparate account until the subscribing investors are admitted asstockholders.  Upon admission of newstockholders, subscription proceeds are transferred to operating cash and maybe utilized as consideration for investments and the payment or reimbursementof dealer manager fees, selling commissions, organization and offering expensesand operating expenses.  Until requiredfor such purposes, net offering proceeds are held in short-term, liquidinvestments.

We intend to use the proceeds from our Offering, after deductingoffering expenses, primarily to acquire commercial properties, such as officebuildings, shopping centers, business and industrial parks, manufacturingfacilities, apartment buildings, warehouse and distribution facilities, andmotel and hotel properties.

7

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

Our common stock is not currently listed on a national exchange.  Unless liquidated earlier, we anticipatecausing the shares of common stock to be listed for trading on a nationalsecurities exchange or liquidating our real estate portfolio on or before thesixth anniversary of the termination of the Offering.  Depending upon the then-prevailing marketconditions, it is our intention to consider beginning the process of listing orliquidating within three to six years after the termination of theOffering.  In the event that we do notobtain such listing prior to the sixth anniversary of the termination of theOffering, unless a majority of our board of directors and a majority of ourindependent directors extend such date, our charter requires us to begin thesale of our properties and liquidation of our assets.

**2.****         Interim UnauditedFinancial Information**

The accompanying consolidated financial statements should be read inconjunction with the consolidated financial statements and notes theretoincluded in our Annual Report on Form 10-K for the year ended December 31,2006, which was filed with the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America (“GAAP”)have been condensed or omitted in this report on Form 10-Q pursuant to therules and regulations of the SEC.

The results for the interim periods shown in this report are notnecessarily indicative of future financial results.  The accompanying consolidated balance sheetand consolidated statement of stockholders’ equity as of June 30, 2007 andconsolidated statements of operations and cash flows for the periods ended June30, 2007 and 2006 have not been audited by our independent registered publicaccounting firm.  In the opinion ofmanagement, the accompanying unaudited consolidated financial statementsinclude all adjustments necessary to present fairly our consolidated financialposition as of June 30, 2007 and December 31, 2006 and our consolidated resultsof operations and cash flows for the periods ended June 30, 2007 and 2006.  Such adjustments are of a normal recurringnature.

**3.****         Summary of SignificantAccounting Policies**

***Use of Estimates in thePreparation of Financial Statements***

Thepreparation of financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period.  These estimatesinclude such items as purchase price allocation for real estate acquisitions,impairment of long-lived assets, depreciation and amortization, and allowancefor doubtful accounts.  Actual resultscould differ from those estimates.

***Principlesof Consolidation and Basis of Presentation***

Ourconsolidated financial statements include our accounts, the accounts ofvariable interest entities (“VIEs”) in which we are the primary beneficiary andthe accounts of other subsidiaries over which we have control.  All inter-company transactions, balances andprofits have been eliminated in consolidation. Interests in entities acquired are evaluated based on FinancialAccounting Standards Board (“FASB”) Interpretation (“FIN”) 46R “Consolidationof Variable Interest Entities,” which requires the consolidation of VIEs inwhich we are deemed to be the primary beneficiary.  If the interest in the entity is determinedto not be a VIE under FIN 46R, then the entities are evaluated forconsolidation under the American Institute of Certified Public Accountants’ Statementof Position 78-9, “Accounting for Investments in Real Estate Ventures,” asamended by Emerging Issues Task Force 04-5, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnership orSimilar Entity When the Limited Partners Have Certain Rights.”

***RealEstate and Other Intangible Assets***

Uponthe acquisition of real estate properties, we allocate the purchase price ofthose properties to the tangible assets acquired, consisting of land, landimprovements, buildings, building improvements, furniture, fixtures andequipment, identified intangible assets, asset retirement obligations andassumed liabilities based on their relative fair values in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 141, “BusinessCombinations,” and No. 142, “Goodwill and Other Intangible Assets.”  Identified intangible assets consist of thefair value of above-market and below-market leases, in-place leases, in-placetenant improvements, tenant relationships, and other intangible assets.  Initial valuations are subject to changeuntil our information is finalized, which is no later than twelve months fromthe acquisition date.

Thefair value of the tangible assets acquired, consisting primarily of land, landimprovements, buildings, building improvements, and furniture, fixtures andequipment, is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then allocated to the tangible assets. Land values are derived from appraisals, and building and landimprovement values are calculated as replacement cost less depreciation ormanagement’s estimates of the relative fair value of

8

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

these assets usingdiscounted cash flow analyses or similar methods.  Furniture, fixtures, and equipment values aredetermined based on current reproduction or replacement cost less depreciationand other estimated allowances based on physical, functional, or economicfactors.  The values of the buildings aredepreciated over the estimated useful lives ranging from 25 years forcommercial office property to 39 years for hotel/mixed-use property using thestraight-line method.  Land improvementsare depreciated over the estimated useful life of 15 years, and furniture,fixtures, and equipment are depreciated over estimated useful lives rangingfrom five to seven years using the straight-line method.

Wedetermine the value of above-market and below-market in-place leases foracquired properties based on the present value (using an interest rate thatreflects the risks associated with the leases acquired) of the differencebetween (i) the contractual amounts to be paid pursuant to the in-place leasesand (ii) management’s estimate of current market lease rates for thecorresponding in-place leases, measured over a period equal to the remainingnon-cancelable terms of the respective leases. We record the fair value of above-market and below-market leases asintangible assets or intangible liabilities, respectively, and amortize them asan adjustment to rental income over the remaining non-cancelable terms of therespective leases.

Thetotal value of identified real estate intangible assets acquired is furtherallocated to in-place lease values, in-place tenant improvements, in-placeleasing commissions, and tenant relationships based on management’s evaluationof the specific characteristics of each tenant’s lease and our overallrelationship with that respective tenant. The aggregate value for tenant improvements and leasing commissions isbased on estimates of these costs incurred at inception of the acquired leases,amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationshipsis determined by applying a fair value model. The estimates of fair value of in-place leases include an estimate ofcarrying costs during the expected lease-up periods for the respective spacesconsidering current market conditions. In estimating the carrying costs that would have otherwise been incurredhad the leases not been in place, management includes such items as real estatetaxes, insurance and other operating expenses as well as lost rental revenueduring the expected lease-up period based on current market conditions.  The estimates of the fair value of tenantrelationships also include costs to execute similar leases including leasingcommissions, legal costs, and tenant improvements, as well as an estimate ofthe likelihood of renewal as determined by management on a tenant-by-tenantbasis.

Weamortize the value of in-place leases and in-place tenant improvements toexpense over the initial term of the respective leases.  The value of tenant relationship intangiblesis amortized to expense over the initial term and any anticipated renewalperiods, but in no event will the amortization period for intangible assetsexceed the remaining depreciable life of the building.  Should a tenant terminate its lease, theunamortized portion of the in-place lease value and tenant relationshipintangibles would be charged to expense. As of June 30, 2007, the estimated remaining useful lives for acquiredlease intangibles range from approximately 2 to 14 years.

Otherintangible assets include the value of identified hotel trade names andin-place property tax abatements.  Thesefair values are based on management’s estimates of the relative fair value ofthese assets using discounted cash flow analyses or similar methods.  The value of the trade names are amortizedover their estimated useful life of 20 years using the straight-line method andthe value of the in-place property tax abatement is amortized over itsestimated term of ten years using the straight-line method.

Wedetermine the fair value of assumed debt by calculating the net present valueof the scheduled note payments using interest rates for debt with similar termsand remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt is recorded as a discount or premium andamortized over the remaining life of the loan.

Anticipatedamortization expense associated with the acquired lease intangibles andacquired other intangible assets for the period from July 1, 2007 throughDecember 31, 2007 and for each of the following four years ended December31 is as follows:
|                                  | ** ** | **Lease / Other** | ** ** |
|----------------------------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **Intangibles**             | ** ** |
| July 1, 2007 - December 31, 2007 |       | $                           | 637,311    |   |
| 2008                             |       | 1,064,899                   |       |
| 2009                             |       | 881,878                     |       |
| 2010                             |       | 856,815                     |       |
| 2011                             |       | 879,591                     |       |
|                                  |            |                             |            |  |

 

9

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

Accumulated depreciation and amortization related toour consolidated investments in real estate assets and intangibles were asfollows:
| ** **                                  | ** ** | ** **             | ** **  | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** | ** **      | ** ** |
|---------------------------------------------|------------|------------------------|-------------|-------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **Buildings and** | ** **  | **Land and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** | **Other**       | ** ** |
| **As of June 30, 2007** | ** ** | **Improvements**       | ** **  | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** | **Intangibles** | ** ** |
| Cost                                        |       | $                      | 205,204,088 |              | $          | 71,612,055      |       | $                | 22,864,561 |            | $          | (19,186,014 | ) | $ | 11,354,978 |   |
| Less:  depreciation and amortization        |       | (2,676,315             | )           | (1,700            | )          | (2,393,082      | )          | 1,600,512        |       | (325,586        | )          |
|                                        |       |                   |        |              |       |            |       |             |       |            |       |
| Net                                         |       | $                      | 202,527,773 |              | $          | 71,610,355      |       | $                | 20,471,479 |            | $          | (17,585,502 | ) | $ | 11,029,392 |   |

 
| ** **                                      | ** ** | ** **             | ** **  | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** | ** **      | ** ** |
|-------------------------------------------------|------------|------------------------|-------------|-------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                                      | ** ** | **Buildings and** | ** **  | **Land and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** | **Other**       | ** ** |
| **As of December 31, 2006** | ** ** | **Improvements**       | ** **  | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** | **Intangibles** | ** ** |
| Cost                                            |       | $                      | 119,566,452 |              | $          | 15,353,818      |       | $                | 14,348,036 |            | $          | (4,938,723 | ) | $ | 10,826,332 |   |
| Less:  depreciation and amortization            |       | (567,495               | )           | —            |       | (783,560        | )          | 573,633          |       | —          |       |
|                                            |       |                   |        |              |       |            |       |             |       |            |       |
| Net                                             |       | $                      | 118,998,957 |              | $          | 15,353,818      |       | $                | 13,564,476 |            | $          | (4,365,090 | ) | $ | 10,826,332 |   |

 

***Cashand Cash Equivalents***

Weconsider investments in highly-liquid money market funds with originalmaturities of three months or less to be cash equivalents.  The carrying amount of cash and cashequivalents reported on the balance sheets approximates fair value.

***Restricted Cash***

Restrictedcash includes subscription proceeds that are held in a separate account untilthe subscribing investors are admitted as stockholders.  We admit new stockholders at leastmonthly.  Upon acceptance ofstockholders, subscription proceeds are transferred to operating cash and maybe utilized as consideration for investments and the payment or reimbursementof dealer manager fees, selling commissions, organization and offering expensesand operating expenses.  As required byour lenders, restricted cash as of June 30, 2007 and December 31, 2006 alsoincludes $5.9 million and $1.8 million, respectively, held in escrow accounts,for real estate taxes and other reserves for our consolidated properties.

***Accounts Receivable***

Accountsreceivable primarily consist of receivables from our hotel operators andtenants related to our other consolidated properties.  The allowance for doubtful accounts as ofJune 30, 2007 was approximately $15,000. There was no allowance for doubtful accounts recognized as of December31, 2006.

*** Prepaid Expenses and OtherAssets***

Prepaidexpenses and other assets include prepaid directors’ and officers’ insurance,prepaid advertising, pre-acquisition costs related to probable purchases ofproperties, the fair value of our interest rate caps, as well as inventory andprepaid insurance and real estate taxes of our consolidated properties.Inventory consists of food, beverages, linens, glassware, china, and silverwareand is carried at the lower of cost or market value.

***Furniture,Fixtures, and Equipment***

Furniture, fixtures, andequipment are recorded at cost and are depreciated using the straight-linemethod over estimated useful lives of five to seven years.  Maintenance and repairs are charged tooperations as incurred while renewals or improvements to such assets arecapitalized.  Accumulated depreciationassociated with our furniture, fixtures, and equipment was $0.5 million at June30, 2007.  There was no accumulateddepreciation recognized as of December 31, 2006.

***Investment and Notes Receivable Impairments***

Forreal estate we wholly own, our management monitors events and changes incircumstances indicating that the carrying amounts of the real estate assetsmay not be recoverable.  When such eventsor changes in circumstances are present, we assess potential impairment bycomparing estimated future undiscounted operating cash flows expected to begenerated over the life of the asset and from its eventual disposition, to thecarrying amount of the asset.  In theevent that the carrying amount exceeds the estimated future undiscountedoperating cash flows, we perform an impairment analysis to determine if the carryingamount of the asset needs to be reduced to estimated fair value.  We did not recognize an asset impairment forthe three or six months ended June 30, 2007 and 2006.

10

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

Forreal estate we own through an investment in a joint venture, tenant-in-commoninterest or other similar investment structure, at each reporting date,management compares the estimated fair value of our investment to the carryingvalue.  An impairment charge is recordedto the extent the fair value of our investment is less than the carrying amountand the decline in value is determined to be other than a temporary decline.

Fornotes receivable, management reviews the terms and conditions underlying theoutstanding notes receivable.  Ifmanagement determines that it is probable that all amounts due under the termsof the note will not be collected, an impairment charge is recorded to theextent that the investment in the note exceeds management’s estimate of thefair value of the collateral securing such note.  There were no impairment charges for thethree and six months ended June 30, 2007 or 2006.

***Deferred Financing Fees***

Deferredfinancing fees are recorded at cost and are amortized to interest income fornotes receivable and interest expense for mortgages payable using astraight-line method that approximates the effective interest method over thelife of the related debt.  Accumulatedamortization of deferred financing fees was $0.7 million and $0.1 million as ofJune 30, 2007 and December 31, 2006, respectively.

***Derivative Financial Instruments***

SFASNo. 133, *Accounting for DerivativeInstruments and Hedging Activities*, as amended and interpreted,establishes accounting and reporting standards for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities. Our objective in using derivatives is to add stability tointerest expense and to manage our exposure to interest rate movements or otheridentified risks.  To accomplish thisobjective, we use interest rate caps as part of our cash flow hedgingstrategy.  Interest rate caps designatedas cash flow hedges are entered into to limit our exposure to increases in theLIBOR rate above a “strike rate” on certain of our floating-rate debt.

Wemeasure our derivative instruments and hedging activities at fair value andrecord them as an asset or liability, depending on our rights or obligationsunder the applicable derivative contract. For derivatives designated as fairvalue hedges, the changes in the fair value of both the derivative instrumentand the hedged items are recorded in earnings. Derivatives used to hedge theexposure to variability in expected future cash flows, or other types offorecasted transactions, are considered cash flow hedges. For derivativesdesignated as cash flow hedges, the effective portions of changes in fair valueof the derivative are reported in other comprehensive income and aresubsequently reclassified into earnings when the hedged item affects earnings.Changes in fair value of derivative instruments not designated as hedges andineffective portions of hedges are recognized in earnings in the affectedperiod. We assess the effectiveness of each hedging relationship by comparingthe changes in fair value or cash flows of the derivative hedging instrumentwith the changes in fair value or cash flows of the designated hedged item ortransaction.

Asof June 30, 2007, we do not have any derivatives designated as fair valuehedges or hedges of net investments in foreign operations nor are derivativesbeing used for trading or speculative purposes.

***Asset Retirement Obligations***

Werecord the fair value of any conditional asset retirement obligations inaccordance with FIN 47, “Accounting for Conditional Asset RetirementObligations,” if they can be reasonably estimated.  As part of the anticipated renovation andredevelopment of an acquired property, we will incur future costs for theabatement of regulated materials, primarily asbestos-containing materials, asrequired under environmental regulations. Our estimate of the fair value of the liability is based on futureanticipated costs to be incurred for the legal removal or remediation of theregulated materials.  The balance of theasset retirement obligation was $0.6 million and $0.8 million as of June 30,2007 and December 31, 2006, respectively, and was included in otherliabilities.

***Revenue Recognition***

Werecognize rental income generated from leases on real estate assets on astraight-line basis over the terms of the respective leases, including theeffect of rent holidays, if any. Straight-line rental revenue of $1.0 million and $1.9 million wasrecognized in rental revenues for the three and six months ended June 30, 2007,respectively, and approximately $11,000 and $15,000 was recognized in rentalrevenues for the three and six months ended June 30, 2006,respectively.  Hotel revenue is derivedfrom the operations of The Lodge & Spa at Cordillera consisting of guestroom, food and beverage, and other revenue, which are recognized as theservices are rendered.

11

----

**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

***Advertising Costs***

Marketing costs, including the costs of model unitsand their furnishings, incurred in connection with the sale of condominiums aredeferred and recorded as costs of sales when revenue is recognized.  Certain prepaid costs are capitalized andexpensed over the stated terms of the contract. All other advertising costs are expensed as incurred.

***Organizationaland Offering Costs***

BehringerOpportunity Advisors funds organization and offering costs on our behalf.  We are required to reimburse BehringerOpportunity Advisors for such organization and offering costs up to 2% of thecumulative capital raised in the Offering. Organization and offering costs include items such as legal andaccounting fees, and marketing, promotional and printing costs.  All offering costs are recorded as an offsetto additional paid-in capital, and all organization costs are recorded as anexpense at the time we become liable for the payment of these amounts.

***Income Taxes***

Weintend to make an election to be taxed, and qualify, as a REIT under Sections856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”),for the year ended December 31, 2006.  Toqualify as a REIT, we must meet a number of organizational and operationalrequirements, including a requirement that we distribute at least 90% of ourREIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax at thecorporate level except for the operations of our wholly-owned taxable REITsubsidiary, Behringer Harvard Cordillera Residences, Inc., which providesmanagement and development services to The Lodge & Spa at Cordillera.  We are organized and operate in such a manneras to qualify for taxation as a REIT under the Code, and we intend to continueto operate in such a manner, but no assurance can be given that we will operatein a manner so as to qualify or remain qualified as a REIT.

On May 18, 2006, the State of Texas enacted a newlaw which replaced the existing state franchise tax with a “margin tax,”effective January 1, 2007.  For the threeand six months ended June 30, 2007, we had no significant tax liability orbenefit related to the Texas margin tax.

***Stock-BasedCompensation***

We have a stock-based incentive award plan for ourdirectors and consultants and for employees, directors, and consultants of ouraffiliates. We account for our incentive award plan in accordance with SFAS No.123R, “Share-Based Payment.” Awards are granted at the fair market value on thedate of grant with fair value estimated using the Black-Scholes-Merton optionvaluation model, which incorporates assumptions surrounding volatility,dividend yield, the risk-free interest rate, expected life, and the exerciseprice as compared to the underlying stock price on the grant date. SFAS No.123R also requires the tax benefits associated with these share-based paymentsto be classified as financing activities in the Consolidated Statement of CashFlows, rather than as operating cash flows as required under previousregulations. For the three and six months ended June 30, 2007 and 2006, we hadno significant compensation cost related to our incentive award plan.

***Concentration of Credit Risk***

AtJune 30, 2007, we had cash and cash equivalents and restricted cash on depositin financial institutions in excess of federally insured levels.  We regularly monitor the financial stabilityof the financial institutions and believe that we are not exposed to anysignificant credit risk.

***MinorityInterest***

Wehold a primary beneficiary interest as a lender in certain variable interestentities that own real estate properties and thus, we consolidate theiraccounts with and into our accounts. Minority interest represents the non-controlling ownership interest’sproportionate share of the equity in real estate properties including the 5%,15%, and 10% unaffiliated partners’ share of the equity in Chase Park Plaza,The Lodge & Spa at Cordillera, and Rio Salado Business Center,respectively.  Income and losses areallocated to minority interest holders based on their percentage ownership.

***Reportable Segments***

SFASNo. 131, “Disclosures about Segmentsof an Enterprise and Related Information,” establishes standards forreporting financial and descriptive information about an enterprise’sreportable segments.  Our currentbusiness consists only of owning, managing, operating, leasing, acquiring,developing, investing in and disposing of real estate assets.  Management evaluates operating performance onan individual property level.  However,as each of our properties will have similar economic characteristics, ourproperties will be aggregated into one reportable segment.

12

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

***Earningsper Share***

Earnings(loss) per share is calculated based on the weighted average number of sharesoutstanding during each period.  As ofJune 30, 2007, we had options to purchase 26,250 shares of common stockoutstanding at a weighted average exercise price of $9.10.  These options are excluded from thecalculation of earnings per share for the three and six months ended June 30,2007 because the effect would be anti-dilutive. The following table sets forth the reconciliation between weightedshares outstanding used for calculating basic and diluted earnings per sharefor the three and six months ended June 30, 2006.
|                                                         | ** ** | **Three Months  Ended June 30,  2006** | ** ** | **Six Months  Ended June 30,  2006** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Weighted average  shares for basic earnings per share   |       | 7,914,406                                             |       | 5,851,111                                           |       |
| Effect of stock  options                                |       | 11,580                                                |       | 8,494                                               |       |
| Effect of  convertible stock                            |       | 1,000                                                 |       | 1,000                                               |       |
| Weighted average  shares for diluted earnings per share |       | 7,926,986                                             |       | 5,860,605                                           |       |

 

# **4.****         RecentlyAnnounced Accounting Pronouncements**

InJuly 2006, the FASB issued FIN 48, “Accounting for Uncertainty in IncomeTaxes-an Interpretation of FASB Statement No. 109,” which clarifies theaccounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certainaspects of the recognition and measurement related to accounting for incometaxes.  We adopted FIN 48 effective January 1, 2007.  Inaccordance with the requirements of FIN 48, we evaluated all tax years stillsubject to potential audit under state and federal income tax law in reachingour accounting conclusions.  For the year ended December 31, 2006, we intendto make an election to qualify as a REIT under federal income tax law.  Asa result of our REIT status, we will be able to claim a dividends paiddeduction on our tax return to deduct the full amount of dividends paid tostockholders when computing our annual taxable income, which results in ourtaxable income being passed through to our stockholders.  Since we expectthe dividends paid deduction to exceed our taxable income, we expect a significantreturn of capital to our stockholders.  In order for us to be required torecord any unrecognized tax benefits or additional tax liabilities inaccordance with FIN 48, any adjustment for potential uncertain tax positionswould need to exceed the return of capital.

Wehave evaluated the potential impact of identified uncertain tax positions andconcluded that our return of capital would not be materially affected for anyof the years still subject to potential audit under state and federal incometax law.  As a result, we concluded we did not have any unrecognized taxbenefits or any additional tax liabilities after applying FIN 48 as of theJanuary 1, 2007 adoption date or as of the six months ended June 30,2007.  The adoption of FIN 48 therefore had no impact on our financialstatements.

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” whichestablishes a single authoritative definition of fair value, sets out aframework for measuring fair value, and requires additional disclosures aboutfair value measurements.  SFAS No. 157applies only to fair value measurements that are already required or permittedby other accounting standards.  SFAS No.157 is effective for fiscal years beginning after November 15, 2007.  We are currently evaluating the impact thatadopting SFAS No. 157 will have on our financial statements.

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities — Including an Amendment ofFASB Statement No. 115.”  The fairvalue option established by SFAS No. 159 permits all entities to choose tomeasure eligible items at fair value at specified election dates.  A business entity will report unrealizedgains and losses on items for which the fair value option has been elected inearnings (or another performance indicator if the business entity does notreport earnings) at each subsequent reporting date.  SFAS No. 159 is effective as of thebeginning of fiscal years beginning after November 15, 2007.  We are currently evaluating the impact thatadopting SFAS No. 159 will have on our financial statements and have notdecided if we will choose to measure any eligible financial assets andliabilities at fair value under SFAS No. 159.

InJune 2007, the American Institute of Certified Public Accountants (“AICPA”)issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of theAudit and Accounting Guide Investment Companies and Accounting for ParentCompanies and Equity Method Investors for Investments in Investment Companies.”  This SOP provides guidance for determining whetheran entity is within the scope of the AICPA Audit and Accounting GuideInvestment Companies (the “Guide”). Entities that are within the scope of the Guide are required, amongother things, to carry their investments at fair 

13

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

value, withchanges in fair value included in earnings. The provisions of this SOP are effective for us on January 1, 2008.  We are currently evaluating this new guidanceand have not determined whether we will be required to apply the provisions ofthe Guide in presenting our financial statements.

**5.****             Acquisitions**

***Real Estate Asset Acquisitions***

On May 2, 2007, we acquired aportfolio of three office buildings containing approximately 456,000 aggregaterentable square feet, located on approximately 22.8 acres of land in SantaClara, California (“Santa Clara Tech Center”). The total contract purchase price of Santa Clara Tech Center, exclusiveof closing costs, was $70 million.  Weused proceeds from the Offering plus borrowings under a bridge promissory notetotaling $52.1 million to pay the contract purchase price.

On May 3, 2007, we acquired a 31.3%interest through our operating partnership as a limited partner in Royal IslandPartners, LP (the “Royal Island Partnership”) for an aggregate capitalcontribution of $20 million.  Proceedsfrom the Offering were used to fund our capital contribution.  The Royal Island Partnership, or itssubsidiaries, owns or leases approximately 433 acres of undeveloped land onthree islands in the Commonwealth of the Bahamas - Royal Island, ChickenCay and Rat Cay.   We account for ourinterest in the Royal Island Partnership using the equity method, which isshown on the balance sheet at June 30, 2007 as an investment in unconsolidatedjoint venture.

On May 10, 2007, we acquired a datacenter facility in Arlington, Texas containing approximately 87,000 rentablesquare feet (“5000 S. Bowen Road”).  5000S. Bowen Road is situated on approximately 69.6 acres of land, of whichapproximately 13.8 acres is developable land. The total contract purchase price for 5000 S. Bowen Road, exclusive ofclosing costs, was $18.5 million.  Weused proceeds from the Offering to pay the contract purchase price.

On June 29, 2007, we acquired a 90% ownership interestin a 65-acre undeveloped industrial tract of land located near Sky HarborInternational Airport in Phoenix, Arizona (“Rio Salado Business Center”).  The contract purchase price for Rio SaladoBusiness Center, exclusive of closing costs, was $7.4 million.  We used proceeds from the Offering to pay thecontract purchase price.

***Business Combination***

On June 6, 2007, we acquired an 85% ownership interestin a 56-room resort, which includes a 20,000 square foot spa, in Edwards,Colorado (“The Lodge & Spa at Cordillera”). The Lodge & Spa at Cordillera is situated on 8.3 acres of land,which includes 3.5 acres of land planned for development into 19 additionalunits.  In addition, The Lodge & Spaat Cordillera includes an adjacent 23.2 acres of vacant land, which is entitledfor residential development.  Thepurchase price for The Lodge & Spa at Cordillera was $36.5 million,including direct acquisition costs and the portion funded by our 15%unaffiliated partner.  We used proceedsfrom the Offering to pay the purchase price.

The following summary presents the initial estimatedallocation of the purchase price of The Lodge & Spa at Cordillera to theassets acquired and liabilities assumed.  We are in the process offinalizing the allocation, which is subject to change until our information isfinalized, no later than 12 months from the acquisition date.
| Land                                |   | $          | 27,401,962 |   |
|-------------------------------------|--------|------------|------------|--------|
| Site improvements                   |   | 412,643    |       |
| Building                            |   | 6,341,510  |       |
| Furniture,  fixtures, and equipment |   | 1,319,019  |       |
| Room and banquet  backlog           |   | 15,910     |       |
| Trademark /  trade name             |   | 1,487,361  |       |
| Other intangible  assets            |   | 32,847     |       |
| Cash                                |   | 8,000      |       |
| Receivables                         |   | 229,690    |       |
| Prepaid assets                      |   | 132,119    |       |
| Inventory                           |   | 235,895    |       |
| Deposits                            |   | 140,000    |       |
| Liabilities  assumed                |   | (1,232,061 | )          |
|                                |   |       |       |
| Net assets acquired                 |   | $          | 36,524,895 |   |

 

14

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

Thefollowing summary presents the results of operations for the three and sixmonths ended June 30, 2007 and 2006, on an unaudited pro forma basis, as if theacquisition of The Lodge & Spa at Cordillera had occurred as of January 1of the respective years.  The pro forma results are for illustrativepurposes only and do not purport to be indicative of the actual results thatwould have occurred had the transaction occurred on January 1 of the respectiveyears, nor are they indicative of results of operations that may occur in thefuture.
|                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Total revenues                            |       | $                                | 7,815,128  |                           | $          | 2,119,859 |   | $ | 14,777,628 |   | $ | 4,019,470 |   |
| Total expenses                            |       | (9,188,125                       | )          | (3,012,863                     | )          | (17,439,759 | ) | (5,733,101 | ) |
| Interest income                           |       | 803,871                          |       | 633,508                        |       | 1,573,715 |   | 901,841 |   |
| Minority  interest                        |       | (142,218                         | )          | 103,131                        |       | (164,332 | ) | 206,263 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Net loss                                  |       | $                                | (711,344   | )                              | $          | (156,365 | ) | $ | (1,252,748 | ) | $ | (605,527 | ) |
|                                      |       |                             |       |                           |       |   |   |   |   |
| **Weighted  average shares outstanding:** | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                     |       | 30,023,233                       |       | 7,914,406                      |       | 25,387,830 |   | 6,345,044 |   |
| Diluted                                   |       | 30,023,233                       |       | 7,926,986                      |       | 25,387,830 |   | 6,353,394 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| **Loss  per share:**                      | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                     |       | $                                | (0.02      | )                              | $          | (0.02 | ) | $ | (0.05 | ) | $ | (0.10 | ) |
| Diluted                                   |       | $                                | (0.02      | )                              | $          | (0.02 | ) | $ | (0.05 | ) | $ | (0.10 | ) |

 

**6.****         Real Estate**

Asof June 30, 2007, we wholly owned six properties and consolidated threeproperties through investments in limited liability companies.  In addition, we are the mezzanine lender fortwo development properties which we consolidate under FIN 46R.  We have a non-controlling, unconsolidatedownership interest in Royal Island that is accounted for using the equitymethod.  Capital contributions,distributions, and profits and losses of Royal Island are allocated inaccordance with the terms of the applicable partnership agreement.  The following table presents certaininformation about our consolidated properties as of June 30, 2007:
| **Property Name**             | ** ** | **Location**              | ** ** | **Approximate  Rentable  Square Footage** | ** ** | **Description**                   | ** ** | **Ownership  Interest** | ** ** |
|------------------------------------|------------|---------------------------|------------|------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|
| Whitewater  Property               |       | Minnetonka,  Minnesota    |       | 71,000                                         |       | 2-story  office building          |       | 100%                    |       |
| Ferncroft  Corporate Center        |       | Middleton,  Massachusetts |       | 226,000                                        |       | 8-story  office building          |       | 100%                    |       |
| Alexan Voss                        |       | Houston,  Texas           |       | —                                         |       | development  property             |       | Lender                  |       |
| Alexan Black  Mountain             |       | Henderson,  Nevada        |       | —                                         |       | development  property             |       | Lender                  |       |
| Chase Park Plaza                   |       | St.  Louis, Missouri      |       | —                                         |       | hotel  and redevelopment property |       | 95%                     |       |
| Bent Tree Green                    |       | Dallas,  Texas            |       | 138,000                                        |       | 3-story  office building          |       | 100%                    |       |
| Las Colinas  Commons               |       | Irving,  Texas            |       | 239,000                                        |       | 3-building  office complex        |       | 100%                    |       |
| Royal Island                       |       | Commonwealth  of Bahamas  |       | —                                         |       | development  property             |       | 31.3%                   |       |
| 5000 South Bowen  Road             |       | Arlington,  Texas         |       | 87,000                                         |       | 1-story  data center campus       |       | 100%                    |       |
| Santa Clara Tech  Center           |       | Santa  Clara, California  |       | 456,000                                        |       | 3-building  office complex        |       | 100%                    |       |
| The Lodge &  Spa at Cordillera |       | Edwards,  Colorado        |       | —                                         |       | hotel  and redevelopment property |       | 85%                     |       |
| Rio Salado Business  Center        |       | Phoenix, Arizona          |       | —                                         |       | development property              |       | 90%                     |       |

 

15

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**7.****         VariableInterest Entities**

In2006, we agreed to provide secured mezzanine financing with an aggregateprincipal amount up to $22.7 million to unaffiliated third-party entities thatown real estate under development (the “Alexan Voss” and “Alexan Black Mountain”properties, respectively).  Theseentities also have secured construction loans with third-party lenders, with anaggregate principal amount of up to $68.6 million.  Our mezzanine loans are subordinate to theconstruction loans.  In addition, we haveentered into option agreements allowing us to purchase the ownership interestsin Alexan Voss and Alexan Black Mountain after each project’s substantialcompletion.

Theloans finance the acquisition and development of apartment communities in Houston,Texas and Henderson, Nevada.  The AlexanVoss project in Houston, Texas consists of two parcels of land for development,known as La Scala and Hart.  The ownersof Alexan Voss acquired the La Scala parcel on September 22, 2006 and the Hartparcel on October 5, 2006.  The owners ofthe Alexan Black Mountain project in Henderson, Nevada acquired land fordevelopment on September 29, 2006.  Theseacquisitions were financed primarily by the mezzanine and construction loans.

Based on our evaluation, we have determined that theseentities meet the criteria of variable interest entities under FIN 46R and thatwe are the primary beneficiary of these variable interest entities.  Therefore, we have consolidated the entities,including the related real estate assets and third-party constructionfinancing.  As of June 30, 2007, therewas $46.1 million of real estate under development related to Alexan Voss andAlexan Black Mountain, which collateralizes the outstanding principal balanceof the construction loans of $41.3 million. The third-party construction lenders have no recourse to the generalcredit of us as the primary beneficiary, but their loans are guaranteed by theowners of the variable interest entities. As of June 30, 2007, the outstanding principal balance under ourmezzanine loans was $16.8 million, which is eliminated, along with accruedinterest and loan origination fees, upon consolidation.

**8.****         NotesReceivable**

InFebruary 2007, we made two mezzanine loans to provide financing for studenthousing apartment projects in Fort Worth, Texas and Charlottesville, Virginia (“GrandmarcLoans”).  The aggregate principal amountof the mezzanine loans is $14.2 million. The mezzanine loans accrue interest at 10% per annum and mature on February 25, 2008.  In addition, we have entered intocontribution agreements whereby we will acquire 50% ownership interests innewly formed joint ventures with the mezzanine borrowers to own the projectsfor a total contribution of $14.2 million upon the later of 30 days after eachproject’s completion or August 15, 2007. Prepayment of each mezzanine loan is required prior to the investmentcontemplated by the respective contribution agreement.

Welease the hotel portion of the Chase Park Plaza property to the hotel operator,an unaffiliated entity that owns the remaining 5% of Chase Park Plaza.  In conjunction with the lease agreement, wemade a working capital and inventory loan of up to $1.9 million to the hoteloperator in December 2006.  The interestrate under the note is fixed at 5% per annum. The term of the note is the earlier of December 31, 2016 or thetermination of the related hotel lease agreement.  Annual payments of interest only are requiredeach December with any remaining balance payable at the maturity date.  In accordance with the hotel lease agreement,the tenant will receive a reduction in its base rental payment due in Januaryin the amount of the interest paid on the promissory note in the previousDecember.  This reduction in the leasepayment is reflected as a straight-line adjustment to base rental revenue.

**9.****         Capitalized Costs**

Wecapitalize interest, property taxes, insurance, and construction costs on ourreal estate properties under development. For the three and six months ended June 30, 2007, we capitalized a totalof $20.1 million and $34.1 million, respectively, in such costs associated withreal estate under development, of which $2.0 million was placed into serviceduring the three months ended June 30, 2007.

Forthe three and six months ended June 30, 2007, we capitalized $0.8 millionand $1.2 million, respectively, in interest and less than $0.1 million and $0.1million, respectively, in amortization of deferred financing costs included ininterest expense, for real estate under development.  We had no real estate properties underdevelopment during the three and six months ended June 30, 2006.

16

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

# **10.****      Mortgages Payable**

The following table sets forth our mortgages payable on ourconsolidated properties, including the mortgage obligations of propertiesconsolidated under FIN 46R at June 30, 2007 and December 31, 2006:
| Description                 | ** ** | **June 30,  2007** | ** **  | **December 31,  2006** | ** ** | **Interest  Rate**  | ** ** | **Maturity  Date** | ** ** |
|-----------------------------|------------|-------------------------|-------------|-----------------------------|------------|---------------------|------------|--------------------|------------|
| Ferncroft  Corporate Center |       | $                       | 18,000,000  |                        | $          | 18,000,000          |       | 6.33               | %          | 9/1/2013 |   |
| Alexan Voss (1)             |       | 10,598,654              |        | 10,403,747                  |       | 30-day LIBOR + 1.6  | %(2)       | 3/22/2010          |       |
| Alexan Black  Mountain (1)  |       | 13,911,132              |        | 5,799,792                   |       | 30-day LIBOR + 1.6  | %(2)       | 9/29/2009          |       |
| Chase Park Plaza            |       | 55,000,000              |        | 55,000,000                  |       | 5.2                 | %          | 8/1/2010           |       |
| Santa Clara Tech  Center    |       | 52,115,000              |        | —                      |       | 30-day LIBOR + 1.75 | %(2)       | 6/9/2010           |       |
|                        |       | $                       | 149,624,786 |                        | $          | 89,203,539          |       |               |       |   |   |

 

----

(1)   Themortgages payable of our mezzanine borrowers consolidated under FIN 46R areobligations of our mezzanine borrowers and have no recourse to us.

(2)   30-dayLondon Interbank Offer Rate (“LIBOR”) was 5.32% at June 30, 2007.

The payment terms of our debt obligations vary.  In general, interest only is payable monthly(and is generally drawn on the underlying construction loan for propertiesunder development), with all unpaid principal and interest due atmaturity.  Our loan agreements stipulatethat we comply with certain reporting and financial covenants.  These covenants include, among other things,maintaining minimum debt service coverage ratios.

On May 2, 2007, we acquired the Santa Clara Tech Center usingapproximately $52.1 million under a bridge promissory note dated May 2, 2007(the “Santa Clara Bridge Note”) from a financial institution (the “Santa ClaraLender”) to pay a portion of the $70.0 million contract purchase price forthe Santa Clara Tech Center.  On June 8,2007, we obtained permanent financing for the acquisition of the Santa ClaraTech Center and paid off the Santa Clara Bridge Note through a loan agreement(the “Santa Clara Loan Agreement”) and a mezzanine loan agreement (the “SantaClara Mezzanine Loan Agreement”) with the Santa Clara Lender.  Borrowings under the Santa Clara LoanAgreement may total up to $59.5 million, and the Santa Clara Tech Center isheld as collateral for the Santa Clara Loan Agreement.  Borrowings under the Santa Clara MezzanineLoan may total up to $20.0 million.   Theinterest rate under the Santa Clara Loan Agreement and the Santa Clara MezzanineLoan Agreement is equal to the 30-day LIBOR rate plus one and three-quarterspercent (1.75%), with interest being calculated on the unpaid principal.  The LIBOR rate is capped at 6.0% throughinterest rate cap agreements. ** **Monthly payments of unpaid accruedinterest only are due beginning July 9, 2007. A final payment of the principal and unpaid accrued interest is due andpayable on June 9, 2010, the maturity date.

As of June 30, 2007, we were in compliance with the debt covenantsunder our loan agreements.

**11.****      Derivative Instruments andHedging Activities**

Weaccount for our derivatives and hedging activities under SFAS No. 133 “Accountingfor Derivative Instruments and Hedging Activities” as amended andinterpreted.  In June 2007, we entered into two interest rate capagreements associated with our Santa Clara Tech Center property.  During the six months ended June 30, 2007, werecognized other comprehensive loss of $29,084 to adjust the carrying amount ofthe interest rate caps to fair values at June 30, 2007.

Wemay be exposed to the risk associated with variability of interest rates thatmight impact our cash flows and the results of operations.  Thehedging strategy, therefore, is to eliminate or reduce, to the extent possible,the volatility of cash flows.  The following table summarizes thenotional values and fair values of our derivative financial instruments as ofJune 30, 2007. The notional values provide an indication of the extent of ourinvolvement in these instruments at June 30, 2007, but do not representexposure to credit, interest rate, or market risks.
| Hedge Type                | ** ** | **Notional Value** | ** ** | **Interest Rate** | ** ** | **Maturity** | ** **     | **Fair Value** | ** ** |
|--------------------------------|------------|-------------------------|------------|------------------------|------------|--------------|----------------|---------------------|------------|
| Interest rate  cap - cash flow |       | $                       | 35,115,000 |                   | 6%         |         | June  15, 2010 |                | $          | 84,472 |   |
| Interest rate  cap - cash flow |       | $                       | 17,000,000 |                   | 6%         |         | June  15, 2010 |                | $          | 40,895 |   |

 

17

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

The derivative instruments were reported at their fairvalue of $125,367 in prepaid expenses and other assets at June 30, 2007, with acorresponding adjustment to other comprehensive income for the unrealized gainsand losses.  Over time, the unrealized gains and losses held inaccumulated other comprehensive income will be reclassified to earnings, ofwhich none is expected to be reclassified in 2007.  Thisreclassification will correlate with the recognition of the hedged interestpayments in earnings.  There was no hedge ineffectiveness during thesix months ended June 30, 2007.

**12.****      Stockholders’ Equity**

On November 23, 2004(date of inception), we sold 1,000 shares of convertible stock and 21,739shares of common stock to Behringer Harvard Holdings for $201,000 in cash.  Pursuant to its terms, the convertible stock generallyis convertible into shares of our common stock with a value equal to 15% of theamount by which (1) our enterprise value, including the total amount ofdistributions paid to our stockholders, exceeds (2) the sum of the aggregatecapital invested by our stockholders plus a 10% cumulative, non-compounded,annual return on such capital. Conversion of the convertible stock may be limited by our board ofdirectors if it determines that full conversion may jeopardize ourqualification as a REIT.  Our board ofdirectors may authorize additional shares of capital stock and theircharacteristics without obtaining stockholder approval.

***Share Redemption Program***

Our board of directors has authorized and adopted a share redemptionprogram that enables our stockholders to sell their shares to us in limitedcircumstances after they have held them for at least one year.  The purchase price for the redeemed shares isset forth in the prospectus for the Offering of our common stock.  Our board of directors reserves the right inits sole discretion at any time, and from time to time, to (1) waive theone-year holding period in the event of the death, disability or bankruptcy ofa stockholder or other exigent circumstances, (2) reject any request forredemption, (3) change the purchase price for redemptions, or (4)terminate, suspend or amend the share redemption program.  Under the terms of the plan, during anycalendar year, we will not redeem in excess of 5% of the weighted averagenumber of shares outstanding during the twelve-month period immediately priorto the date of redemption.  In addition,our board of directors will determine whether we have sufficient cash fromoperations to repurchase shares, and such purchases will generally be limitedto proceeds of our DRIP plus 1% of operating cash flow for the previous fiscalyear (to the extent positive).  As ofJune 30, 2007, we had redeemed 45,800 shares of common stock.

***Incentive Award Plan***

TheBehringer Harvard Opportunity REIT I, Inc. Amended and Restated 2004 IncentiveAward Plan (“Incentive Award Plan”) was approved by our board of directors onJuly 19, 2005 and by our stockholders on July 25, 2005, and providesfor equity awards to our directors and consultants and to employees, directors,and consultants of our affiliates.  Atotal of 11,000,000 shares have been authorized and reserved for issuance underour Incentive Award Plan.  As of June 30,2007, options to purchase 26,250 shares of stock were outstanding, all of whichare fully vested, at a weighted average exercise price of $9.10.

## ***Distributions***

We initiated the payment of monthly distributions in August 2006 in theamount of a 2% annualized rate of return, based on an investment in our commonstock of $10.00 per share and calculated on a daily record basis of $0.0005479per share.  In December 2006, our boardof directors declared distributions to be paid in the first quarter of 2007 inthe amount of a 2.5% annualized rate of return, calculated on a daily recordbasis of $0.0006849 per share.  In March2007, our board of directors declared distributions to be paid in the secondquarter of 2007 in the amount of a 3% annualized rate of return, calculated ona daily record basis of $0.0008219 per share. Pursuant to our DRIP, stockholders may elect to reinvest any cashdistribution in additional shares of common stock.  We record all distributions when declared,except that the stock issued through the DRIP is recorded when the shares areactually issued.  Distributions declaredand payable as of June 30, 2007 were $0.9 million, which included $0.2 millionof cash distributions payable and $0.7 million of distributions payable thatwere reinvested pursuant to our DRIP.

18

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

The following are the distributions declared during the three and sixmonths ended June 30, 2007.  There wereno distributions declared during the three and six months ended June 30, 2006.
|            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** ** | ** ** | **2007**                         | ** ** | **2007**                       | ** ** |
| Cash       |       | $                                | 523,210    |                           | $          | 795,205 |   |
| DRIP       |       | 1,730,797                        |       | 2,737,864                      |       |
|       |       |                             |       |                           |       |
| Total      |       | $                                | 2,254,007  |                           | $          | 3,533,069 |   |

 

**13.****      Related Party Arrangements**

BehringerOpportunity Advisors and certain of its affiliates receive fees andcompensation in connection with our Offering, and in connection with theacquisition, management and sale of our assets.

Behringer Securities LP (“BehringerSecurities”), an affiliate of our advisor and the dealer manager for theOffering, receives commissions of up to 7% of gross offering proceeds beforereallowance of commissions earned by participating broker-dealers; providedthat Behringer Securities will receive 1% of the gross proceeds of purchasespursuant to our DRIP.  BehringerSecurities reallows 100% of the commissions earned to participatingbroker-dealers.  In addition, up to 2% ofgross proceeds before reallowance to participating broker-dealers will be paidto Behringer Securities as a dealer manager fee; provided that BehringerSecurities will not receive dealer manager fees for purchases pursuant to ourDRIP.  Behringer Securities may reallowall or a portion of its dealer manager fees in an aggregate amount up to 2% ofgross offering proceeds to broker-dealers participating in the Offering;provided, however, that Behringer Securities may reallow, in the aggregate, nomore than 1.5% of gross offering proceeds for marketing fees and expenses,conference fees and non-itemized, non-invoiced due diligence efforts, and nomore than 0.5% of gross offering proceeds for actual out-of-pocket and bonafide, separately invoiced due diligence expenses incurred as fees, costs orother expenses from third parties.  For thesix months ended June 30, 2007, Behringer Securities’ commissions and dealermanager fees totaled $12.3 million and $3.7 million, respectively, and wererecorded as a reduction to additional paid-in capital.  In the six months ended June 30, 2006, BehringerSecurities’ commissions and dealer manager fees totaled $5.3 million and $1.6million, respectively, and were recorded as a reduction to additional paid-incapital.

BehringerOpportunity Advisors, or its affiliates, receive up to 2% of gross offering proceedsfor organization and offering expenses incurred in connection with theOffering; except that no organization and offering expenses are reimbursed withrespect to purchases made pursuant to our DRIP. Since our inception through June 30, 2007, $7.4 million oforganization and offering expenses had been incurred by Behringer OpportunityAdvisors or its predecessor in interest on our behalf.  Of this amount, $7.3 million had beenreimbursed by us and $0.1 million of reimbursements payable is included inpayables to affiliates on our balance sheet. Of the $7.3 million of organization and offering expenses reimbursed byus through June 30, 2007, less than $0.1 million had been expensed asorganizational costs with the remainder recorded as a reduction of additionalpaid-in capital.  For the six monthsended June 30, 2007, $3.7 million of organization and offering expenses werereimbursed by us and were recorded as a reduction of additional paid-incapital.  In the six months endedJune 30, 2006, $1.6 million of offering and organization expenses had beenreimbursed by us and was recorded as a reduction of additional paid-incapital.  Behringer Opportunity Advisors,or its affiliates, determines the amount of organization and offering expensesowed based on specific invoice identification as well as an allocation of coststo us and other Behringer Harvard programs, based on respective equity offeringresults of those entities in offering.

Behringer OpportunityAdvisors, or its affiliates, receives acquisition and advisory fees of 2.5% ofthe contract purchase price of each asset for the acquisition, development orconstruction of real property or 2.5% of the funds advanced in respect of aloan.  Our advisor or its affiliates alsoreceives reimbursement of acquisition expenses up to 0.5% of the contractpurchase price of each asset, or with respect to a loan, up to 0.5% of thefunds advanced.  Behringer OpportunityAdvisors  or its predecessor in interestearned $8.9 million in acquisition and advisory fees and $1.8 million inacquisition expense reimbursements for our investments made during the sixmonths ended June 30, 2007.  In the sixmonths ended June 30, 2006, our advisor earned $0.2 million in acquisition andadvisory fees and less than $0.1 million in acquisition expense reimbursementsfor our first acquisition.  For propertyacquisitions, we capitalize these fees as part of our real estate and forloans, we defer these fees to be amortized over the loan term.

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

We pay BehringerOpportunity Advisors or its affiliates a debt financing fee equal to 1% of theamount of any debt made available to us. We incurred $0.8 million of debt financing fees during the six monthsended June 30, 2007.  No debt financingfees were incurred by us for the six months ended June 30, 2006.

Wepay HPT Management Services LP (“HPT Management”), an affiliate of our advisorand our property manager, fees for management and leasing of our properties,which may be subcontracted to unaffiliated third parties.  Such fees are equal to 4.5% of gross revenuesplus leasing commissions based upon the customary leasing commission applicableto the same geographic location of the respective property.  In the event that we contract directly with anon-affiliated third-party property manager in respect of a property, we willpay HPT Management an oversight fee equal to 1% of gross revenues of theproperty managed.  In no event will wepay both a property management fee and an oversight fee to HPT Management withrespect to any particular property.  Weincurred and expensed such fees to HPT Management of $0.3 million in the sixmonths ended June 30, 2007 and less than $0.1 million in the six months endedJune 30, 2006.

Wepay Behringer Opportunity Advisors an annual asset management fee of 0.75% ofthe aggregate asset value of acquired real estate.  The fee is payable monthly in an amount equalto one-twelfth of 0.75% of the aggregate asset value as of the last day of thepreceding month.  For the six monthsended June 30, 2007, we expensed $0.8 million of asset management fees andcapitalized $0.1 million of asset management fees to real estate.  For the six months ended June 30, 2006, weincurred and expensed less than $0.1 million of asset management fees.

We will reimburseBehringer Opportunity Advisors or its affiliates for all expenses paid orincurred by them in connection with the services they provide to us, subject tothe limitation that we will not reimburse for any amount by which our advisor’soperating expenses (including the asset management fee) at the end of the fourpreceding fiscal quarters immediately preceding the date reimbursement issought exceeds the greater of:  (1) 2% ofour average invested assets or (2) 25% of our net income for that four quarterperiod other than any additions to reserves for depreciation, bad debts orother similar non-cash reserves and any gain from the sale of our assets forthat period.

AtJune 30, 2007, we had a payable to our advisor and its affiliates of $1.7million.  This balance consists primarilyof reimbursable offering expenses payable to Behringer Opportunity Advisors (orits predecessor in interest), management fees payable to HPT Management and commissionspayable to Behringer Securities.

Weare dependent on Behringer Opportunity Advisors, Behringer Securities and HPTManagement for certain services that are essential to us, including the sale ofshares of our common stock, asset acquisition and disposition decisions,property management and leasing services and other general administrativeresponsibilities.  In the event thatthese companies were unable to provide us with the respective services, wewould be required to obtain such services from other sources.

# **14.****      Commitmentsand Contingencies**

We have made capital commitments in the redevelopmentof Chase Park Plaza to fund our 95% share of a portion of the anticipated costsfor the refurbishment of the hotel guest rooms and common areas and conversionof the residential component into additional hotel guest rooms, corporateapartments, and condominium units.  Ourcapital contributions per the related limited liability company agreements werescheduled through April 2007 and the total amount to be funded, includingamounts previously funded in 2006 for the initial acquisition, was $57.7million.  As of June 30, 2007, we hadfunded 100% of this total commitment.

Upon acquisition of one of our properties, we assumeda “guaranteed maximum price” contract with a construction manager for realestate under development where we may be obligated to pay up to $9.3 million intotal construction costs.  As of June 30,2007, $5.9 million had been paid under this contract, including amounts paid byus or by the previous owner prior to our acquisition.

Our mezzanine borrowers, which are consolidated underFIN 46R, have contracts with construction managers to build apartmentprojects.  One of these contracts is aguaranteed maximum price contract and the other contract is for total projectcost plus a fixed fee.  The guaranteedmaximum price contract is for up to $22.9 million in total construction costs,of which $9.8 million had been paid as of June 30, 2007.  As of June 30, 2007, $1.4 million had beenpaid under the other contract.  Theconsolidated members of the consolidated group, exclusive of our consolidatedborrowers, are not obligated to pay the construction costs for such contracts.

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**15.****      Supplemental Cash FlowInformation**

Supplemental cashflow information is summarized below for the six months ended June 30,2007.  There was no supplemental cashflow activity for the six months ended June 30, 2006.
|                                                                                                      | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                           | ** ** | **June 30, 2007**    | ** ** |
|                                                                                                 |       |                           |       |
| **Supplemental disclosure:**                                                                         | ** ** | ** **                     | ** ** |
| Interest paid,  net of amounts capitalized                                                           |       | $                              | 2,013,819  |   |
|                                                                                                 |       |                           |       |
| **Non-cash investing activities:**                                                                   | ** ** | ** **                     | ** ** |
| Property and  equipment additions and purchases of real estate in accrued liabilities                |       | $                              | 128,448    |   |
| Capital  expenditures for real estate under development in accounts payable and accrued  liabilities |       | $                              | 5,642,499  |   |
|                                                                                                 |       |                           |       |
| **Non-cash financing activities:**                                                                   | ** ** | ** **                     | ** ** |
| Common stock issued in  distribution reinvestment plan                                               |       | $                              | 3,419,432  |   |

 

# **16.****      Subsequent Events**

OnJuly 24, 2007, we supplemented the prospectus relating to the Offering to,among other things, reallocate the shares of common stock offered to increasethe number of shares being offered pursuant to the primary offering at $10 pershare to 52,000,000 and decrease the number of shares available to be issuedunder the DRIP at $9.50 per share to 2,302,173.

OnAugust 3, 2007, we acquired a 70% indirect ownership interest in a masterplanned mixed-use development in Frisco, Texas (“Frisco Square”), consisting ofapproximately 48 acres of entitled and unimproved land plus existingimprovements comprised of 114 multi-family units, approximately 57,000 squarefeet of retail and restaurant space, and approximately 43,500 square feet ofoffice space.  The total contractpurchase price of Frisco Square, exclusive of closing and other directacquisition costs, was $67.8 million.  Weused proceeds from the Offering plus assumed debt to pay the contract purchaseprice.

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**Item 2.**                   Management’s Discussion and Analysisof Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunctionwith the accompanying financial statements of the Company and the notesthereto:

### **Forward-LookingStatements**

Thissection contains forward-looking statements, including discussion and analysisof the financial condition of us and our subsidiaries, including entities we consolidateunder FIN 46R, our anticipated capital expenditures required to completeprojects, amounts of anticipated cash distributions to our stockholders in thefuture and other matters.  Theseforward-looking statements are not historical facts but are the intent, beliefor current expectations of our management based on their knowledge andunderstanding of our business and industry. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,”“seeks,” “estimates,” “would,” “could,” “should” and variations of these wordsand similar expressions are intended to identify forward-lookingstatements.  These statements are notguarantees of future performance and are subject to risks, uncertainties andother factors, some of which are beyond our control, are difficult to predictand could cause actual results to differ materially from those expressed orforecasted in the forward-looking statements.

### Forward-looking statements that were true at the time made mayultimately prove to be incorrect or false. We caution investors not to place undue reliance on forward-lookingstatements, which reflect our management’s view only as of the date of thisreport on Form 10-Q.  We undertake noobligation to update or revise forward-looking statements to reflect changedassumptions, the occurrence of unanticipated events or changes to futureoperating results.  Factors that couldcause actual results to differ materially from any forward-looking statementsmade in the Form 10-Q include changes in general economic conditions, changesin real estate conditions, construction costs that may exceed estimates,construction delays, increases in interest rates, lease-up risks, inability toobtain new tenants upon the expiration of existing leases, and the potentialneed to fund tenant improvements or other capital expenditures out of operatingcash flow.  The forward-lookingstatements should be read in light of the risk factors identified in the “RiskFactors” section of our Annual Report on Form 10-K for the year ended December31, 2006, as filed with the SEC.

**CautionaryNote**

Therepresentations, warranties, and covenants made by us in any agreement filed asan exhibit to this report on Form 10-Q are made solely for the benefit of theparties to the agreement, including, in some cases, for the purpose ofallocating risk among the parties to the agreement, and should not be deemed tobe representations, warranties or covenants to or with any other parties.  Moreover, these representations, warrantiesor covenants should not be relied upon as accurately describing or reflectingthe current state of our affairs.

**Critical Accounting Policies and Estimates**

Management’sdiscussion and analysis of financial condition and results of operations arebased upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America.  The preparation of thesefinancial statements requires our management to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues and expenses,and related disclosure of contingent assets and liabilities.  On a regular basis, we evaluate theseestimates, including investment impairment. These estimates are based on management’s historical industry experienceand on various other assumptions that are believed to be reasonable under thecircumstances.  Actual results may differfrom these estimates.

Below is a discussion of the accounting policies that we consider willbe critical in that they may require complex judgment in their application orrequire estimates about matters that are inherently uncertain.

***Principles of Consolidation and Basis of Presentation***

Ourconsolidated financial statements include our accounts, the accounts of VIEs inwhich we are the primary beneficiary and the accounts of other subsidiariesover which we have control.  Allinter-company transactions, balances and profits have been eliminated inconsolidation.  Interests in entitiesacquired are evaluated for consolidation based on FIN 46R, which requires theconsolidation of VIEs in which we are deemed to be the primarybeneficiary.  If the interest in theentity is determined to not be a VIE under FIN 46R, then the entity isevaluated for consolidation under the American Institute of Certified PublicAccountants’ Statement of Position 78-9, “Accounting for Investments in RealEstate Ventures,” as amended by Emerging Issues Task Force 04-5, “DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights.”

Thereare judgments and estimates involved in determining if an entity in which wehave made an investment is a VIE and if so, if we are the primarybeneficiary.  The entity is evaluated todetermine if it is a VIE by, among other things, 

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calculating thepercentage of equity being risked compared to the total equity of theentity.  FIN 46R provides some guidelinesas to what the minimum equity at risk should be, but the percentage can varydepending upon the industry and/or the type of operations of the entity and itis up to management to determine that minimum percentage as it relates to ourbusiness and the facts surrounding each of our acquisitions.  In addition, even if the entity’s equity atrisk is a very low percentage, we are required by FIN 46R to evaluate theequity at risk compared to the entity’s expected future losses to determine ifthere could still in fact be sufficient equity at the entity.  Determining expected future losses involvesassumptions of various possibilities of the results of future operations of theentity, assigning a probability to each possibility and using a discount rateto determine the net present value of those future losses.  A change in the judgments, assumptions andestimates outlined above could result in consolidating an entity that shouldnot be consolidated or accounting for an investment on the equity method thatshould in fact be consolidated, the effects of which could be material to ourfinancial statements.

***RealEstate and Other Intangible Assets***

Uponthe acquisition of real estate properties, we allocate the purchase price ofthose properties to the tangible assets acquired, consisting of land, landimprovements, buildings, building improvements, furniture, fixtures andequipment, identified intangible assets, asset retirement obligations andassumed liabilities based on their relative fair values in accordance with SFASNo. 141, “Business Combinations,” and No. 142, “Goodwill and Other IntangibleAssets.”  Identified intangible assetsconsist of the fair value of above-market and below-market leases, in-placeleases, in-place tenant improvements, tenant relationships, and otherintangible assets.  Initial valuationsare subject to change until our information is finalized, which is no laterthan 12 months from the acquisition date.

Thefair value of the tangible assets acquired, consisting of land, landimprovements, buildings, building improvements, furniture, fixtures, andequipment, is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then allocated to the tangible assets. Land values are derived from appraisals, and building and landimprovement values are calculated as replacement cost less depreciation ormanagement’s estimates of the relative fair value of these assets usingdiscounted cash flow analyses or similar methods.  Furniture, fixtures and equipment values aredetermined based on current reproduction or replacement cost less depreciationand other estimated allowances based on physical, functional or economicfactors.  The values of the buildings aredepreciated over the estimated useful lives ranging from 25 years for officeproperty to 39 years for hotel property using the straight-line method.  Land improvements are depreciated over theestimated useful life of 15 years, and furniture, fixtures, and equipment aredepreciated over estimated useful lives ranging from five to seven years usingthe straight-line method.

Wedetermine the value of above-market and below-market in-place leases foracquired properties based on the present value (using an interest rate thatreflects the risks associated with the leases acquired) of the differencebetween (i) the contractual amounts to be paid pursuant to the in-place leasesand (ii) management’s estimate of current market lease rates for thecorresponding in-place leases, measured over a period equal to the remainingnon-cancelable terms of the respective leases. We record the fair value of above-market and below-market leases asintangible assets or intangible liabilities, respectively, and amortize them asan adjustment to rental income over the remaining non-cancelable terms of therespective leases.

Thetotal value of identified real estate intangible assets acquired is furtherallocated to in-place lease values, in-place tenant improvements, in-placeleasing commissions and tenant relationships based on management’s evaluationof the specific characteristics of each tenant’s lease and our overallrelationship with that respective tenant. The aggregate value for tenant improvements and leasing commissions isbased on estimates of these costs incurred at inception of the acquired leases,amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationshipsis determined by applying a fair value model. The estimates of fair value of in-place leases include an estimate ofcarrying costs during the expected lease-up periods for the respective spacesconsidering current market conditions. In estimating the carrying costs that would have otherwise been incurredhad the leases not been in place, management includes such items as real estatetaxes, insurance and other operating expenses as well as lost rental revenueduring the expected lease-up period based on current market conditions.  The estimates of the fair value of tenantrelationships also include costs to execute similar leases including leasingcommissions, legal costs, and tenant improvements, as well as an estimate ofthe likelihood of renewal as determined by management on a tenant-by-tenantbasis.

Weamortize the value of in-place leases and in-place tenant improvements to expenseover the initial term of the respective leases. The value of tenant relationship intangibles is amortized to expenseover the initial term and any anticipated renewal periods, but in no event willthe amortization period for intangible assets exceed the remaining depreciablelife of the building.  Should a tenantterminate its lease, the unamortized portion of the in-place lease value andtenant relationship intangibles would be charged to expense.

Otherintangible assets consist of the value of an identified hotel trade name andin-place property tax abatements.  Thesefair values are based on management’s estimates of the relative fair value ofthese assets using discounted cash flow 

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analyses orsimilar methods.  The value of tradenames are amortized over the estimated useful life of 20 years using thestraight-line method and the value of the in-place property tax abatement isamortized over its estimated term using the straight-line method.

Wedetermine the fair value of assumed debt by calculating the net present valueof the scheduled note payments using interest rates for debt with similar termsand remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt is recorded as a discount or premium andamortized over the remaining life of the loan.

Inallocating the purchase price of each of our properties, management makesassumptions and uses various estimates, including, but not limited to, theestimated useful lives of the assets, the cost of replacing certain assets,discount rates used to determine present values, market rental rates per squarefoot and the period required to lease the property up to its occupancy atacquisition if it were vacant.  Many ofthese estimates are obtained from independent third party appraisals.  However, management is responsible for thesource and use of these estimates.  Achange in these estimates and assumptions could result in the variouscategories of our real estate assets and/or related intangibles beingoverstated or understated, which could result in an overstatement orunderstatement of depreciation and/or amortization expense.  These variances could be material to ourfinancial statements.

***Investment and Notes ReceivableImpairments***

Forreal estate we wholly own, our management monitors events and changes incircumstances indicating that the carrying amounts of the real estate assetsmay not be recoverable.  When such eventsor changes in circumstances are present, we assess potential impairment bycomparing estimated future undiscounted operating cash flows expected to begenerated over the life of the asset and from its eventual disposition to thecarrying amount of the asset.  In theevent that the carrying amount exceeds the estimated future undiscountedoperating cash flows, we recognize an impairment loss to adjust the carryingamount of the asset to estimated fair value.

Forreal estate we own through an investment in a joint venture, tenant-in-commoninterest or other similar investment structure, at each reporting date,management compares the estimated fair value of our investment to the carryingvalue.  An impairment charge is recordedto the extent the fair value of our investment is less than the carrying amountand the decline in value is determined to be other than a temporary decline.

Fornotes receivable, management reviews the terms and conditions underlying theoutstanding notes receivable.  Ifmanagement determines that it is probable that all amounts due under the termsof the note will not be collected, an impairment charge is recorded to theextent that the investment in the note exceeds management’s estimate of thefair value of the collateral securing such note.  We had no impairment charges in the three andsix months ended June 30, 2007 or 2006.

Inevaluating our investments and notes receivable for impairment, managementmakes several estimates and assumptions, including, but not limited to, theprojected date of disposition of the properties, the estimated future cashflows of the properties during our ownership and the projected sales price ofeach of the properties.  A change inthese estimates and assumptions could result in understating or overstating thebook value of our investments, which could be material to our financialstatements.

**Overview**

Wewere formed primarily to invest in and operate real estate or real estaterelated assets on an opportunistic basis. In particular, we focus on acquiring properties with significantpossibilities for short-term capital appreciation, such as those requiringdevelopment, redevelopment or repositioning or those located in markets withhigher volatility, lower barriers to entry, and high growth potential.  We may acquire office, industrial, retail,hospitality, multi-family and other real properties, including existing ornewly constructed properties or properties under development orconstruction.  Further, we may invest inreal estate related securities, including securities issued by other realestate companies, either for investment or in change of control transactionscompleted on a negotiated basis or otherwise. We also may invest in collateralized mortgage-backed securities,mortgage, bridge or mezzanine loans and Section 1031 tenant-in-commoninterests, or in entities that make investments similar to the foregoing.

On September 20, 2005, our Registration Statement on Form S-11 (FileNo. 333-120847) covering the Offering of up to 40,000,000 shares of commonstock to be offered at a price of $10.00 per share and up to 8,000,000 sharesof common stock at a price of $9.50 per share pursuant to our DRIP was declaredeffective under the Securities Act.  OnNovember 17, 2006, we registered an additional 6,587,065 shares of common stockpursuant to the Offering through the filing of a Registration Statement on FormS-11 (File No. 333-138804) pursuant to Rule 462(b) under the SecuritiesAct.  We subsequently reallocated theshares of common stock in the Offering to provide $520 million, or 52,000,000shares, for sale in the primary offering and $21.9 million, or 2,302,173shares, for sale through our DRIP.

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OnOctober 27, 2005, the conditions of our escrow agreement with Citibank Texas,N.A. were satisfied and as a result, operations commenced on November 9, 2005upon acceptance of initial subscriptions. On November 9, 2005, we had received and accepted subscriptions for441,204 shares of common stock for gross offering proceeds of $4.4million.  As of June 30, 2007, we hadsold 36,893,369 shares of our common stock, including 496,851 shares throughthe DRIP, for gross offering proceeds of $367.7 million.  In addition, 21,739 shares owned by BehringerHarvard Holdings were outstanding as of June 30, 2007.  As of June 30, 2007, we had no shares ofpreferred stock issued or outstanding and 1,000 shares of convertible stockissued and outstanding.

**Results of Operations**

Asof June 30, 2007, we wholly-owned six properties, consolidated three propertiesthrough investments in limited liability companies including two mixed-use hoteland residential properties, and had one investment in an island developmentaccounted for under the equity method. We also consolidated two apartment development properties as a mezzaninelender under FIN 46R.  The properties arelocated in the Commonwealth of the Bahamas, Arizona, California, Colorado,Massachusetts, Minnesota, Missouri, Nevada, and Texas.  In the first quarter of 2007, we mademezzanine loans to two student housing projects in Texas and Virginia that wedo not consolidate under FIN 46R.

*Three months ended June 30, 2007 as compared tothree months ended June 30, 2006*

*Revenues.* Our total revenuesincreased by $6.3 million to $6.7 million for the three months ended June 30,2007 as compared to the three months ended June 30, 2006, primarily due toincreased rental revenue resulting from the acquisition of new properties fromwhich we receive rent.  For the threemonths ended June 30, 2006, we consolidated the rental revenues of only oneproperty.  In addition, rental revenuefor the three months ended June 30, 2007 includes revenue from the lease of thehotel-related management and operations of Chase Park Plaza, a mixed-use hoteland residential property acquired in December 2006.  Hotel revenues for the three months endedJune 30, 2006 totaled $0.6 million and consisted of revenues generated by theoperations of The Lodge & Spa at Cordillera, a resort and spa propertyacquired in June 2007.  We expectincreases in rental revenue in the future as we purchase additional real estateproperties.

*Property Operating Expenses.*Property operating expenses for the three months ended June 30, 2007 were $2.0million as compared to $0.1 million for the three months ended June 30, 2006and were comprised of property operating expenses from our consolidatedproperties.  The increase in propertyoperating expenses is primarily due to the increased number of real estateproperties acquired throughout the second half of 2006 and first six months of2007.  We expect increases in propertyoperating expenses in the future as we purchase additional real estateproperties.

*Interest Expense.*Interestexpense, net of amounts capitalized, for the three months ended June 30, 2007was $1.4 million and was primarily comprised of interest expense attributableto the debt on Ferncroft Corporate Center and Chase Park Plaza.  We had no outstanding mortgages or notespayable during the three months ended June 30, 2006.   We expect continued increases in mortgagespayable and in the related interest expense in the future as we purchase andinvest in additional real estate properties.

*Real Estate Taxes.*Real estatetaxes, net of amounts capitalized, for the three months ended June 30, 2007were $0.7 million as compared to $0.1 million for the three months ended June30, 2006 and were comprised of real estate taxes from each of our consolidatedproperties. The increase in real estate taxes is primarily due to our increasednumber of consolidated real estate properties. For the three months ended June 30, 2006, our real estate taxes resultedfrom only one consolidated property, the Whitewater property.  We expect increases in real estate taxes inthe future as we purchase additional real estate properties.

*Property / Asset Management Fees.*Propertyand asset management fees for the three months ended June 30, 2007 totaled $0.6million compared to less than $0.1 million for the same period in 2006 and werecomprised of fees incurred by our consolidated properties.  Property and asset management fees increaseddue to additional properties acquired throughout the second half of 2006 andfirst six months of 2007.  We expectincreases in property and asset management fees in the future as we invest inadditional real estate properties.

*General and Administrative Expenses.*General and administrative expenses for the three months ended June 30, 2007were $0.4 million as compared to $0.2 million for the three months ended June30, 2006 and were comprised of corporate general and administrative expensesincluding directors’ and officers’ insurance premiums, auditing fees, legalfees and other administrative expenses.  The increase is due to increased corporate activity.  We expect increases in general and administrativeexpenses in the future as we invest in additional real estate properties.

*Depreciationand Amortization Expense.*Depreciation and amortizationexpense for the three months ended June 30, 2007 was $2.4 million as comparedto $0.1 million for the three months ended June 30, 2006 and was comprised ofdepreciation and amortization expense from each of our consolidated operationalproperties.  For the three months endedJune 30, 2006, depreciation and amortization expense resulted from only oneconsolidated property, the Whitewater

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property.  We expect increases in depreciation andamortization expense in the future as we purchase additional real estateproperties and as properties under development become operational.

*Interest Income*. Interest incomewas $0.8 million and $0.6 million for the three months ended June 30, 2007 and2006, respectively, and was comprised of interest income associated with ournotes receivable and funds on deposit with banks.   For the three months ended June 30, 2007,interest income on our notes receivable totaled $0.4 million.  We did not have any notes receivable duringthe three months ended June 30, 2006.

*Minority Interest*.  Minority interest at June 30, 2007 representsprimarily the net income of the two VIEs that we consolidate under FIN 46R as amezzanine lender, the 5% unaffiliated partner’s share of the net loss of ChasePark Plaza, and the 15% unaffiliated partner’s share of the net loss of TheLodge & Spa at Cordillera.

*Six months ended June 30, 2007 as compared to sixmonths ended June 30, 2006*

*Revenues.* Our total revenuesincreased by $11.4 million to $11.9 million for the six months ended June 30,2007 as compared to $0.5 million for the six months ended June 30, 2006,primarily due to increased rental revenue resulting from the acquisition of newproperties from which we receive rent. For the six months ended June 30, 2006, we consolidated the rentalrevenues of only one property.  Inaddition, rental revenue for the six months ended June 30, 2007 includesrevenue from the lease of the hotel-related management and operations of ChasePark Plaza, a mixed-use hotel and residential property acquired in December2006.  Hotel revenues for the six monthsended June 30, 2007 totaled $0.6 million and consist of revenues generated bythe operations of The Lodge & Spa at Cordillera, a resort and spa propertyacquired in June 2007.  We expectincreases in rental revenue in the future as we purchase additional real estateproperties.

*Property Operating Expenses.*Property operating expenses for the six months ended June 30, 2007 were $3.4million as compared to $0.1 million for the six months ended June 30, 2006 andwere comprised of property operating expenses from our consolidatedproperties.  The increase in propertyoperating expenses is primarily due to the increased number of real estateproperties acquired throughout the second half of 2006 and first six months of2007.  We expect increases in propertyoperating expenses in the future as we purchase additional real estateproperties.

*Interest Expense.*Interestexpense, net of amounts capitalized, for the six months ended June 30, 2007 was$2.3 million and was primarily comprised of interest expense attributable tothe debt on Ferncroft Corporate Center and Chase Park Plaza.  We had no outstanding mortgages or notespayable during the six months ended June 30, 2006.   We expect continued increases in mortgagespayable and in the related interest expense in the future as we purchase andinvest in additional real estate properties.

*Real Estate Taxes.*Real estatetaxes, net of amounts capitalized, for the six months ended June 30, 2007 were$1.2 million as compared to $0.1 million for the six months ended June 30, 2006and were comprised of real estate taxes from each of our consolidatedproperties. The increase in real estate taxes is primarily due to our increasednumber of consolidated real estate properties. For the six months ended June 30, 2006, our real estate taxes resultedfrom only one consolidated property, the Whitewater property.  We expect increases in real estate taxes inthe future as we purchase additional real estate properties.

*Property / Asset Management Fees.*Propertyand asset management fees for the six months ended June 30, 2007 totaled $1.1million as compared to less than $0.1 million for the same period in 2006 andwere comprised of fees incurred by our consolidated properties.  Property and asset management fees increaseddue to additional properties acquired throughout the second half of 2006 andfirst six months of 2007.  We expectincreases in property and asset management fees in the future as we invest inadditional real estate properties.

*General and Administrative Expenses.*General and administrative expenses for the six months ended June 30, 2007 were$0.7 million as compared to $0.4 million for the six months ended June 30, 2006and were comprised of corporate general and administrative expenses includingdirectors’ and officers’ insurance premiums, auditing fees, legal fees andother administrative expenses.   Theincrease is due to increased corporate activity.  We expect increases in general andadministrative expenses in the future as we invest in additional real estateproperties.

*Depreciation and Amortization Expense.*Depreciationand amortization expense for the six months ended June 30, 2007 was $4.3million as compared to $0.2 million for the six months ended June 30, 2006 andwas comprised of depreciation and amortization expense from each of ourconsolidated operational properties.  Forthe six months ended June 30, 2006, depreciation and amortization expenseresulted from only one consolidated property, the Whitewater property.  We expect increases in depreciation andamortization expense in the future as we purchase additional real estateproperties and as properties under development become operational.

*Interest Income*. Interest incomewas $1.6 million and $0.9 million for the six months ended June 30, 2007 and2006, respectively, and was comprised of interest income associated with ournotes receivable and funds on deposit with 

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banks.  For thesix months ended June 30, 2007, interest income on our notes receivable totaled$0.6 million.  We did not have any notesreceivable during the six months ended June 30, 2006.

*Minority Interest*.  Minority interest for the six months endedJune 30, 2007 represents primarily the net income of the two VIEs that weconsolidate under FIN 46R as a mezzanine lender, the 5% unaffiliated partner’sshare of the net loss of Chase Park Plaza, and the 15% unaffiliated partner’sshare of the net loss of The Lodge & Spa at Cordillera.

**Cash Flow Analysis**

Cashflows provided by operating activities for the six months ended June 30, 2007were $4.2 million and were comprised primarily of the net loss of $0.6 million,adjusted for depreciation and amortization expense of $3.5 million, amortizationof deferred financing fees of $0.6 million, and net changes in working capitalof $0.4 million.  During the six monthsended June 30, 2006, cash flows provided by operating activities were $0.9million and were comprised of the net income of $0.6 million, adjusted fordepreciation and amortization expense of $0.2 million and net changes inworking capital of $0.1 million. Operating cash flows were significantly lower than the six months endedJune 30, 2007 due to a smaller amount of real estate investments and lesscorporate activity.

Cashflows used in investing activities for the six months ended June 30, 2007 were$211.8 million and primarily represented acquisitions of real estate totaling$136 million, acquisition of an interest in unconsolidated joint venture of$22.2 million, capital expenditures for real estate under development includingcapital expenditures of consolidated borrowers totaling $31.5 million,investment in notes receivable of $14.3 million, and additions to property andequipment, including costs for assets placed into service, of $2.1million.  During the six months endedJune 30, 2006, cash flows from investing activities were $13.3 million andrepresented the acquisition of the Whitewater Property and escrow deposits forthe acquisition of Ferncroft Corporate Center.

Cashflows provided by financing activities for the six months ended June 30, 2007were $224.5 million and were comprised primarily of funds received from theissuance of stock, net of offering costs, of $164.7 million, proceeds from bridgenote of $52.1 million related to our acquisition of Santa Clara Tech Center, proceedsfrom mortgages of consolidated borrowers related to our VIEs consolidated underFIN 46R totaling $8.3 million, offset by financing fees totaling $1.2 million,change in subscription cash received totaling $1.2 million, and change inpayables to affiliates of $1.2 million. During the six months ended June 30, 2006, cash flows provided byfinancing activities were $69.2 million and were comprised primarily of fundsreceived from the issuance of stock, net of offering costs, of $69.7 million.

**Liquidity and Capital Resources**

The amount of distributions payable to our stockholders is determinedby our board of directors and is dependent on a number of factors, includingfunds available for distribution, financial condition, capital expenditurerequirements and annual distribution requirements needed to qualify andmaintain our status as a REIT under the Code. Operating cash flows are expected to increase as additional propertiesare acquired in the development of our investment portfolio.

Our principal demands for funds will continue to be for propertyacquisitions, either directly or through investment interests, for mortgageloan investments, for the payment of operating expenses and distributions, andfor the payment of interest on our outstanding indebtedness and otherinvestments.  Generally, cash needs foritems other than property acquisitions and mortgage loan investments areexpected to be met from operations, and cash needs for property acquisitionsare expected to be met from the public offering of our shares.  However, there may be a delay between thesale of our shares and our purchase of properties and mortgage loaninvestments, which could result in a delay in the benefits to our stockholders,if any, of returns generated from our operations.  Our advisor evaluates potential acquisitionsof real estate and real estate related assets and engages in negotiations withsellers and borrowers on our behalf. Investors should be aware that after a purchase contract is executedthat contains specific terms, the property will not be purchased until thesuccessful completion of due diligence and negotiation of final bindingagreements.  During this period, we maydecide to temporarily invest any unused proceeds from the Offering in certaininvestments that could yield lower returns than the properties.  These lower returns may affect our ability tomake distributions.

Weexpect to meet our future short-term operating liquidity requirements throughnet cash provided by our current property operations and the operations ofproperties to be acquired in the future. Management also expects that our properties will generate sufficientcash flow to cover operating expenses and the payment of a monthlydistribution.  Other potential futuresources of capital include proceeds from secured or unsecured financings frombanks or other lenders, proceeds from the sale of properties and undistributedfunds from operations.  If necessary, wemay use financings or other sources of capital in the event of unforeseensignificant capital expenditures.

Thepayment terms of our loan obligations vary. In general, interest only is payable monthly (and is generally drawn onthe underlying construction loan for properties under development), with allunpaid principal and interest due at 

27

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maturity.  Our loan agreements stipulate that we complywith certain reporting and financial covenants. These covenants include, among other things, maintaining minimum debtservice coverage ratios.  As of June30, 2007, we were in compliance with the debt covenants under our loanagreements.

**Fundsfrom Operations**

Fundsfrom operations (“FFO”) is a non-GAAP financial measure that is widely recognizedas a measure of REIT operating performance. FFO is defined by the National Association of Real Estate InvestmentTrusts as net income (loss), computed in accordance with GAAP excludingextraordinary items, as defined by GAAP, and gains (or losses) from sales ofproperty, plus depreciation and amortization on real estate assets, and afteradjustments for unconsolidated partnerships, joint ventures andsubsidiaries.  We believe that FFO ishelpful to investors and our management as a measure of operating performanceof our operating assets because it excludes depreciation and amortization,gains and losses from property dispositions, and extraordinary items, and as aresult, when compared year to year, reflects the impact on operations fromtrends in occupancy rates, rental rates, operating costs, developmentactivities, general and administrative expenses, and interest costs, which isnot immediately apparent from net income. Historical cost accounting for real estate assets in accordance withGAAP implicitly assumes that the value of real estate diminishes predictablyover time.  Since real estate values havehistorically risen or fallen with market conditions, many industry investorsand analysts have considered the presentation of operating results for realestate companies that use historical cost accounting alone to beinsufficient.  As a result, ourmanagement believes that the use of FFO, together with the required GAAPpresentations, provides a supplemental understanding of our performance and amore informed and appropriate basis on which to make decisions involvingoperating, financing and investing activities. Factors that impact FFO include start-up costs, fixed costs, delay inbuying assets, lower yields on cash held in accounts pending investment, incomefrom portfolio properties and other portfolio assets, interest rates onacquisition financing and operating expenses. FFO should not be considered as an alternative to net income (loss) oras an indication of our liquidity, nor is it indicative of funds available tofund our cash needs, including our ability to make distributions.  Our calculation of FFO for the three and sixmonths ended June 30, 2007 and 2006 is presented below:
|                                              | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                   | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Net income (loss)                            |       | $                                | (414,789   | )                              | $          | 439,978 |   | $ | (607,653 | ) | $ | 571,249 |   |
| Preferred stock  dividends                   |       | —                           |       | —                         |       | — |   | — |   |
| Net income (loss)  allocable to common stock |       | (414,789                         | )          | 439,978                        |       | (607,653 | ) | 571,249 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Real estate  depreciation (1)                |       | 1,423,037                        |       | 71,863                         |       | 2,558,808 |   | 95,690 |   |
| Real estate  amortization (1)                |       | 959,886                          |       | 43,120                         |       | 1,733,280 |   | 55,973 |   |
| Funds from operations  (FFO)                 |       | $                                | 1,968,134  |                           | $          | 554,961 |   | $ | 3,684,435 |   | $ | 722,912 |   |
|                                         |       |                             |       |                           |       |   |   |   |   |
| Weighted average shares                      |       | 30,023,233                       |       | 7,914,406                      |       | 25,387,830 |   | 5,851,111 |   |

 

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(1)           This represents thedepreciation and amortization expense of the properties we wholly own and our95% ownership share of depreciation and amortization expense for Chase ParkPlaza.

Provided below is additional information related toselected non-cash items included in net income (loss) above, which may behelpful in assessing our operating results.

·      Straight-linerental revenue of $0.9 million and $1.9 million was recognized for the threeand six months ended June 30, 2007, respectively, and $11,000 and $15,000 wasrecognized for the three and six months ended June 30, 2006, respectively;

·      Amortizationof intangible lease assets and liabilities was recognized as a net increase torental revenues of $0.6 million and $1.0 million for the three and six monthsended June 30, 2007, respectively, and $17,000 and $23,000 for the three andsix months ended June 30, 2006, respectively;

·      Amortizationof intangible property tax abatement assets was recognized as an increase toreal estate tax expense of $0.1 million and $0.2 million for the three and sixmonths ended June 30, 2007, respectively. There were no property tax abatement intangibles or related amortizationrecognized during the three and six months ended June 30, 2006;

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·      Baddebt expense of $5,000 and $10,000 was recognized for the three and six monthsended June 30, 2007, respectively.  Therewas no bad debt expense recognized during the three and six months ended June30, 2006; and

·      Amortizationof deferred financing costs of $0.1 million and $0.2 million was recognized asinterest expense for mortgages and notes payable for the three and six monthsended June 30, 2007, respectively, and $0.2 million and $0.4 million wasrecognized as a reduction of interest income for notes receivable for the threeand six months ended June 30, 2007. There were no deferred financing costs or related amortizationrecognized for the three and six months ended June 30, 2006.

In addition, cash flows generated from FFO may be usedto fund all or a portion of certain capitalizable items that are excluded fromFFO, such as capital expenditures and payments of principal on debt, eachof which may impact the amount of cash available for distribution to ourstockholders.

Duringthe three and six months ended June 30, 2007, we declared and paiddistributions almost entirely from FFO and expect to continue to do so, exceptto the extent of distributions from the sale of our assets.  However, given the uncertainty arising fromnumerous factors, including both the raising and placing of capital in thecurrent real estate environment, ultimate FFO performance cannot be predictedwith certainty.  For example, if we arenot able to timely invest net proceeds of the Offering at favorable yields,future distributions declared and paid may exceed FFO.

**NetOperating Income**

Netoperating income (“NOI”) is a non-GAAP financial measure that is defined as netincome (loss), computed in accordance with GAAP, generated from propertiesbefore interest expense, asset management fees, interest income, general andadministrative expenses, depreciation, amortization, equity in unconsolidatedjoint ventures, minority interest, income taxes, and the gain or loss on thesale of assets.  We believe that NOIprovides an accurate measure of the operating performance of our operatingassets because NOI excludes certain items that are not associated withmanagement of the properties.  Tofacilitate understanding of this financial measure, a reconciliation of NOI tonet income in accordance with GAAP for the three and six months ended June 30,2007 and 2006 is provided below.
|                                                  | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                       | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue                                          |       | $                                | 6,729,805  |                           | $          | 355,201 |   | $ | 11,938,927 |   | $ | 474,244 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses:                             |       |                             |       |                           |       |   |   |   |   |
| Property operating expenses                      |       | 2,008,686                        |       | 113,918                        |       | 3,383,717 |   | 135,642 |   |
| Real estate taxes                                |       | 673,480                          |       | 60,532                         |       | 1,233,224 |   | 81,516 |   |
| Property management fees                         |       | 151,515                          |       | 14,742                         |       | 278,629 |   | 19,647 |   |
| Total operating  expenses                        |       | 2,833,681                        |       | 189,192                        |       | 4,895,570 |   | 236,805 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Net operating  income                            |       | $                                | 3,896,124  |                           | $          | 166,009 |   | $ | 7,043,357 |   | $ | 237,439 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Reconciliation  to Net Income                    |       |                             |       |                           |       |   |   |   |   |
| Net operating  income                            |       | $                                | 3,896,124  |                           | $          | 166,009 |   | $ | 7,043,357 |   | $ | 237,439 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Less:   Depreciation  and amortization |       | (2,399,224                       | )          | (131,429                       | )          | (4,348,542 | ) | (174,253 | ) |
| General and administrative expense               |       | (401,011                         | )          | (211,610                       | )          | (708,333 | ) | (371,768 | ) |
| Interest expense                                 |       | (1,373,097                       | )          | —                         |       | (2,302,356 | ) | — |   |
| Asset management fees                            |       | (471,187                         | )          | (16,485                        | )          | (794,080 | ) | (21,980 | ) |
| Advertising costs                                |       | (158,848                         | )          | —                         |       | (623,245 | ) | — |   |
| Provision for income tax                         |       | (25,087                          | )          | —                         |       | (25,087 | ) | — |   |
| Equity loss on unconsolidated JV                 |       | (67,686                          | )          | —                         |       | (67,686 | ) | — |   |
| Add:    Interest income           |       | 803,834                          |       | 633,493                        |       | 1,573,623 |   | 901,811 |   |
| Minority Interest                                |       | (218,607                         | )          | —                         |       | (355,304 | ) | — |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Net income  (loss)                               |       | $                                | (414,789   | )                              | $          | 439,978 |   | $ | (607,653 | ) | $ | 571,249 |   |

 

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**Off-BalanceSheet Arrangements**

Wehave no off-balance sheet arrangements that are reasonably likely to have acurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

**Item 3.**                    Quantitativeand Qualitative Disclosures About Market Risk.

Wemay be exposed to interest rate changes primarily as a result of long-term debtused to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard tointerest rate risks, are to limit the impact of interest rate changes onearnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrow primarilyat fixed rates or variable rates with the lowest margins available and in somecases, with the ability to convert variable rates to fixed rates.  With regard to variable rate financing, wewill assess interest rate cash flow risk by continually identifying andmonitoring changes in interest rate exposures that may adversely impactexpected future cash flows and by evaluating hedging opportunities.  We may enter into derivative financialinstruments such as options, forwards, interest rate swaps, caps, or floors tomitigate our interest rate risk on a related financial instrument or toeffectively lock the interest rate portion of our variable rate debt.  Of our $149.6 million in mortgages and notespayable at June 30, 2007, $76.6 million represented debt subject to variableinterest rates, which included the mortgages payable of borrowers weconsolidated under FIN 46R.  If ourvariable interest rates increased 1%, we estimate that total annual interestcosts, including interest expensed, interest capitalized, and the effects ofthe interest rate cap on the Santa Clara Tech Center note, would increase by$0.6 million.

InJune 2007, we entered into two interest rate cap agreements (the “Caps”) for atotal notional amount of $52.1 million to hedge changes in LIBOR above 6% (the “StrikeRate”) on our LIBOR-based $52.1 million note payable related to our Santa ClaraTech Center property.  The note matureson June 9, 2010.  The Caps are treated ascash flow hedges for accounting purposes in accordance with SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” as amended andinterpreted.  The Caps are with highlyrated counterparties and limit the base LIBOR rate to increases not higher thanthe Strike Rate.  At June 30, 2007, theCaps were reported at their fair value of $125,367 within prepaid expenses andother assets.  A 1% increase in interestrates would not result in any significant change in fair value.

Wedo not have any foreign operations and thus we are not exposed to foreigncurrency fluctuations.

**Item 4T.**                 Controls and Procedures.

As required by Rule 13a-15(b) and Rule 15d-15(b)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated, as of June 30, 2007, the effectiveness of our disclosure controlsand procedures as defined in Exchange Act Rule 13a-15(e) and Rule15d-15(e).  Based on that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures, as of June 30, 2007, were effective for thepurpose of ensuring that information required to be disclosed by us in thisreport is recorded, processed, summarized and reported within the time periodsspecified by the rules and forms of the Exchange Act and is accumulated andcommunicated to management, including the Chief Executive Officer and ChiefFinancial Officer, as appropriate to allow timely decisions regarding requireddisclosures.

We believe, however, that a controls system, no matterhow well designed and operated, can only provide reasonable assurance, notabsolute assurance, that the objectives of the controls system are met, and noevaluation of controls can provide absolute assurance, only reasonableassurance, that all control issues and instances of fraud or error, if any,within a company have been detected.

There have been no changes in internal controls overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgatedunder the Exchange Act) that occurred during the quarter ended June 30, 2007that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

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**PART II**

**OTHER INFORMATION**

### **Item 1.****                    LegalProceedings.**

We are not party to, and our properties are not subject to, anymaterial pending legal proceedings.

### **Item 1A.****                 Risk Factors.**

There have been no material changes from the risk factors set forth inour Annual Report on Form 10-K for the year ended December 31, 2006.

### **Item 2.****                    UnregisteredSales of Equity Securities and Use of Proceeds.**

**Use of Proceeds from Registered Securities**

Pursuantto a Registration Statement on Form S-11 (SEC Registration No. 333-120847)filed under the Securities Act and declared effective by the SEC on September20, 2005 and a Registration Statement on Form S-11 (SEC Registration No.333-138804) filed pursuant to Rule 462(b) under the Securities Act on November17, 2006, as of June 30, 2007, we were offering for sale to the public on a “bestefforts” basis (1) a maximum of 46,587,065 shares of our common stock at aprice of $10.00 per share and (2) up to 8,000,000 additional shares pursuant tothe DRIP pursuant to which our stockholders could elect to have theirdistributions reinvested in additional shares of our common stock at a price ofup to $9.50 per share, for a total aggregate offering price of $541.9million.  As of June 30, 2007, we hadsold 36,893,369 shares of our common stock on a best efforts basis pursuant tothe Offering for aggregate gross offering proceeds of $367.7 million.  On July 24, 2007, we amended our RegistrationStatement on Form S-11 (SEC Registration No. 333-120847) with Post-EffectiveAmendment No. 9 to increase the number of shares of common stock being offeredat $10 per share to 52,000,000 and decrease the number of shares available tobe issued under the DRIP to 2,302,173.

Theabove-stated number of shares sold and the gross offering proceeds receivedfrom such sales does not include 21,739 shares of common stock purchased byBehringer Harvard Holdings in a private placement in 2004, prior to thecommencement of the Offering.

From the commencement of the Offering through June 30,2007, we incurred the following expenses in connection with the issuance anddistribution of the registered securities pursuant to the Offering:
| Type of Expense         | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |
| Other expenses to  affiliates *   |       | $          | 39,261,583 |   |
| Other expenses to  non-affiliates |       | 575,094    |       |
|                              |       |       |       |
| Total expenses                    |       | $          | 39,836,677 |   |

 

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*“Other expenses to affiliates” includes commissionsand dealer manager fees paid to Behringer Securities, our affiliate, whichreallowed all or a portion of the commissions and fees to soliciting dealers.

Fromthe commencement of the Offering through June 30, 2007, the net offeringproceeds to us from the Offering, after deducting the total expenses incurreddescribed above, were $327.8 million. From the commencement of the Offering through June 30, 2007, we had used$198.5 million of such net proceeds to purchase interests in real estate andfund development for real estate, net of mortgages payable, and $32.0 millionwas invested through mezzanine loans.  Ofthe amount used for the purchase of these investments, $15.6 million was paidto Behringer Opportunity Advisors (or its predecessor in interest), ouraffiliate, as acquisition and advisory fees and acquisition expensereimbursement.

**ShareRedemption Program**

InFebruary 2006, our board of directors adopted a share redemption program forour investors.  The purchase price forthe redeemed shares is set forth in the prospectus for our Offering of commonstock, as supplemented.  Our board ofdirectors reserves the right in its sole discretion at any time, and from timeto time, to (1) waive the one-year holding period in the event of the death,disability or bankruptcy of a stockholder or other exigent circumstances, (2)reject any request for redemption, (3) change the purchase price forredemptions, or (4) terminate, suspend or amend the share redemption program.  Under the terms of the program, during anycalendar year, we will not redeem in excess of 5% of the weighted averagenumber of shares outstanding during the twelve-month period immediately prior tothe date of

31

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redemption.  In addition, our board of directors willdetermine whether we have sufficient cash from operations to repurchase shares,and such purchases will generally be limited to proceeds from our DRIP plus 1%of operating cash flow for the previous fiscal year (to the extent positive).  During the quarter ended June 30, 2007,we redeemed shares as follows:
| Month      | ** ** | **Total Number   of Shares  Redeemed** | ** ** | **Average Price  Paid Per Share** | ** ** | **Total Number of  Shares Purchased  as Part of  Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number of Shares  that May Yet Be  Purchased Under   the Plans or  Programs** | ** ** |
|------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 2007 |       | —                                                |       | $                                                | —     |                                                                                                                         | —     |                                                                                                                                  | (1)        |   |
| May 2007   |       | 20,956                                                |       | $                                                | 9.42       |                                                                                                                         | 20,956     |                                                                                                                                  | (1)        |   |
| June 2007  |       | —                                                |       | $                                                | —     |                                                                                                                         | —     |                                                                                                                                  | (1)        |   |
| Total      |       | 20,956                                                |       | $                                                | 9.42       |                                                                                                                         | 20,956     |                                                                                                                                  | (1)        |   |

 

(1)   A description of the maximumnumber of shares that may be purchased under our redemption program is includedin the narrative preceding this table.

**Item 3.****                    Defaults UponSenior Securities.**

None.

### **Item 4.****                    Submission ofMatters to a Vote of Security Holders.**

The Annual Meeting of our stockholders (the “Annual Meeting”) was heldon June 21, 2007.  All nominees standingfor election as directors were elected. The following directors were elected to hold office for a term expiringat the 2008 Annual Meeting or until their successors are elected and qualified,with the vote for each director being reflected below:
| Director Nominee | ** ** | **Number of  Votes  For** | ** ** | **Number of  Votes  Withheld** | ** ** |
|-----------------------|------------|--------------------------------|------------|-------------------------------------|------------|
| Robert M. Behringer   |       | 12,475,952                     |       | 241,170                             |       |
| Robert S. Aisner      |       | 12,475,952                     |       | 241,170                             |       |
| Barbara C. Bufkin     |       | 12,470,894                     |       | 246,228                             |       |
| Robert J. Chapman     |       | 12,469,497                     |       | 247,625                             |       |
| Steven J. Kaplan      |       | 12,458,703                     |       | 258,419                             |       |

 

The affirmative vote of the holders of a majority of the outstandingshares of common stock represented at the Annual Meeting was required to electeach director.

### **Item 5.****                    OtherInformation.**

None.

### **Item 6.****                    Exhibits.**

The exhibits filed in response to Item 601 ofRegulation S-K are listed on the Exhibit Index attached hereto.

32

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**SIGNATURE**

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|                              | **Behringer Harvard Opportunity REIT  I, Inc.** |
|------------------------------|-------------------------------------------------|
|                         | ** **                                      |
|                         |                                            |
| Dated:  August 14, 2007 | By:                                             |   /s/ Gary S. Bresky |   |
|                         |                                            | Gary S. Bresky |
|                         |                                            | Chief Financial Officer |
|                         |                                            | (Principal Financial Officer) |

 

33

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**Index toExhibits**
| Exhibit Number | ** ** | **Description** |
|----------------|------------|-----------------|
|           | 3.1        |            | Articles of Amendment and Restatement of the  Registrant (previously filed in and incorporated by reference to  Pre-Effective Amendment No. 4 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on September 12, 2005) |
|           |       |            |   |
|           | 3.1(a)     |            | Articles of Amendment to Articles of Amendment and  Restatement of the Registrant (previously filed in and incorporated by  reference to Post-Effective Amendment No. 3 to Registration Statement on Form  S-11, Commission File No. 333-120847, filed on July 6, 2006) |
|           |       |            |   |
|           | 3.2        |            | Bylaws of the Registrant (previously filed in and  incorporated by reference to Registration Statement on Form S-11, Commission  File No. 333-120847, filed on November 30, 2004) |
|           |       |            |   |
|           | 3.2(a)     |            | Amendment to Bylaws of the Registrant (previously  filed in and incorporated by reference to Form 8-K filed on February 24,  2006) |
|           |       |            |   |
|           | 4.1        |            | Form of Subscription Agreement and Subscription  Agreement Signature Page (included as Exhibit B to prospectus dated June 1,  2006) |
|           |       |            |   |
|           | 4.2        |            | Amended and Restated Distribution Reinvestment Plan,  effective as of April 5, 2006 (included as Exhibit C to prospectus dated June  1, 2006) |
|           |       |            |   |
|           | 4.3        |            | Automatic Purchase Plan of the Registrant, effective  as of September 20, 2005 (included as Appendix D to prospectus dated June 1,  2006) |
|           |       |            |   |
|           | 10.1       |            | Purchase and Sale Agreement for Santa Clara Tech  Center between Sobrato Development Company No. 051, Real Estate Trust at  Community Foundation Silicon Valley and Harvard Property Trust, LLC  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 8 to Registrant’s Registration Statement on Form S-11,  Commission File No. 333-120847, filed on April 24, 2007) |
|           |       |            |   |
|           | 10.2       |            | Promissory Note made between Citigroup Global  Markets Realty Corp. and Behringer Harvard Santa Clara LP regarding Santa  Clara Tech Center (previously filed in and incorporated by reference to Form  8-K filed on May 8, 2007) |
|           |       |            |   |
|           | 10.3       |            | Payment Guaranty made by Registrant, as guarantor in  favor of Citigroup Global Markets Realty Corp., regarding Santa Clara Tech  Center (previously filed in and incorporated by reference to Form 8-K filed  on May 8, 2007) |
|           |       |            |   |
|           | 10.4       |            | Purchase and Sale and Joint Escrow Instructions  between Colorado Hotel Holdings, LLC, Cordillera Lodge and Spa, LLC, Colorado  Hotel Operator, Inc. and Cordillera Land, LLC and Cordillera Partners, LLC  regarding The Lodge & Spa at Cordillera (previously filed in and  incorporated by reference to Form 8-K filed on June 12, 2007) |
|           |       |            |   |
|           | 10.5       |            | First Amendment to Purchase and Sale and Joint  Escrow Instructions between Colorado Hotel Holdings, LLC, Cordillera Lodge  and Spa, LLC, Colorado Hotel Operator, Inc. and Cordillera Land, LLC and  Cordillera Partners, LLC regarding The Lodge & Spa at Cordillera  (previously filed in and incorporated by reference to Form 8-K filed on  June 12, 2007) |

 

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|        | 10.6   |   | Reinstatement and Second Amendment of Purchase and  Sale and Joint Escrow Instructions between Colorado Hotel Holdings, LLC,  Cordillera Lodge and Spa, LLC, Colorado Hotel Operator, Inc. and Cordillera  Land, LLC and Behringer Harvard Cordillera, LLC as assignee of Cordillera  Partners, LLC regarding The Lodge & Spa at Cordillera (previously filed  in and incorporated by reference to Form 8-K filed on June 12, 2007) |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.7   |   | Agreement regarding Acquisition between Cordillera  Partners, LLC and Behringer Harvard Opportunity OP I, LP regarding The Lodge  & Spa at Cordillera (previously filed in and incorporated by reference to  Form 8-K filed on June 12, 2007)                                                                                                                                                                                            |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.8   |   | Limited Liability Company Agreement of Behringer  Harvard Cordillera, LLC regarding The Lodge & Spa at Cordillera  (previously filed in and incorporated by reference to Form 8-K filed on June  12, 2007)                                                                                                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.9   |   | Limited Liability Company Agreement of Behringer  Harvard Residences at Cordillera, LLC regarding The Lodge & Spa at  Cordillera (previously filed in and incorporated by reference to Form 8-K  filed on June 12, 2007)                                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.10  |   | Development Agreement by and between Behringer  Harvard Cordillera, LLC and TP Cordillera, LLC (Hotel Renovation) regarding  The Lodge & Spa at Cordillera (previously filed in and incorporated by  reference to Form 8-K filed on June 12, 2007)                                                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.11  |   | Development Agreement by and between Behringer  Harvard Cordillera, LLC and TP Cordillera, LLC (Additional Units) regarding  The Lodge & Spa at Cordillera (previously filed in and incorporated by  reference to Form 8-K filed on June 12, 2007)                                                                                                                                                                                       |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.12  |   | Lease Agreement between Behringer Harvard  Cordillera, LLC and Behringer Harvard Residences at Cordillera, LLC regarding  The Lodge & Spa at Cordillera (previously filed in and incorporated by  reference to Form 8-K filed on June 12, 2007)                                                                                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.13  |   | Promissory Note between Behringer Harvard  Cordillera, LLC as borrower, and Registrant, as lender, regarding The Lodge  & Spa at Cordillera (previously filed in and incorporated by reference to  Form 8-K filed on June 12, 2007)                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.14  |   | Deed of Trust between Behringer Harvard Cordillera,  LLC as grantor, and the Public Trustee of Eagle County, Colorado, as trustee,  regarding The Lodge & Spa at Cordillera (previously filed in and  incorporated by reference to Form 8-K filed on June 12, 2007)                                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.15  |   | Security Agreement between Behringer Harvard  Cordillera, LLC as grantor, and Registrant, as lender, regarding The Lodge  & Spa at Cordillera (previously filed in and incorporated by reference to  Form 8-K filed on June 12, 2007)                                                                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.16  |   | Hotel Management Agreement between Colorado Hotel  Operator, Inc. and RockResorts International, LLC regarding The Lodge &  Spa at Cordillera (previously filed in and incorporated by reference to Form  8-K filed on June 12, 2007)                                                                                                                                                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.17  |   | Loan Agreement by and between Behringer Harvard  Santa Clara LP and Citigroup Global Markets Realty Corp. regarding Santa  Clara Tech Center (previously filed in and incorporated by reference to Form  8-K filed on June 14, 2007)                                                                                                                                                                                                         |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | 10.18  |   | Promissory Note made between Citigroup Global  Markets Realty Corp. and Behringer Harvard Santa Clara LP regarding Santa  Clara Tech Center (previously filed in and incorporated by reference to Form  8-K filed on June 14, 2007)                                                                                                                                                                                                          |

 

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|        | 10.19  |   | Guaranty of Recourse Obligations made by Registrant,  as guarantor in favor of Citigroup Global Markets Realty Corp., regarding  Santa Clara Tech Center (previously filed in and incorporated by reference to  Form 8-K filed on June 14, 2007)                                                                                                                              |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 10.20  |   | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Behringer Harvard Santa Clara LP, as  borrower, to First American Title Insurance Company as trustee for the  benefit of Citigroup Global Markets Realty Corp. regarding Santa Clara Tech  Center (previously filed in and incorporated by reference to Form 8-K filed  on June 14, 2007) |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 10.21  |   | Mezzanine Loan Agreement by and between Behringer  Harvard Santa Clara M, LLC and Citigroup Global Markets Realty Corp.  regarding Santa Clara Tech Center (previously filed in and incorporated by  reference to Form 8-K filed on June 14, 2007)                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 10.22  |   | Mezzanine Promissory Note made between Citigroup  Global Markets Realty Corp. and Behringer Harvard Santa Clara M, LLC  regarding Santa Clara Tech Center (previously filed in and incorporated by reference  to Form 8-K filed on June 14, 2007)                                                                                                                                  |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 10.23  |   | Mezzanine Guaranty of Recourse Obligations made by  Registrant, as guarantor in favor of Citigroup Global Markets Realty Corp.  regarding Santa Clara Tech Center (previously filed in and incorporated by  reference to Form 8-K filed on June 14, 2007)                                                                                                                          |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 10.24  |   | Pledge and Security Agreement by Behringer Harvard  Santa Clara M, LLC as borrower in favor of Citigroup Global Markets Realty  Corp. regarding Santa Clara Tech Center (previously filed in and incorporated  by reference to Form 8-K filed on June 14, 2007)                                                                                                                    |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification (filed  herewith)                                                                                                                                                                                                                                                                                                                           |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 31.2   |   | Rule 13a-14(a)/15d-14(a) Certification (filed  herewith)                                                                                                                                                                                                                                                                                                                           |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                               |
|   | 32.1*  |   | Section 1350 Certifications (furnished herewith)                                                                                                                                                                                                                                                                                                                                   |

 

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* In accordance with Item 601(b)(32) of RegulationS-K, this Exhibit is not deemed “filed” for purposes of Section 18 of theExchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemedincorporated by reference into any filing under the Securities Act or theExchange Act, except to the extent that the registrant specificallyincorporates it by reference.

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