**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-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 March 31, 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**

**Behringer Harvard 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’sTelephone Number, Including Area Code: (866) 655-1605**

**None**

(Former name,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 check markwhether the Registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.

See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (checkone):

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

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes oNo x

As of May 1, 2007,Behringer Harvard Opportunity REIT I, Inc. had 27,439,945****shares of common stock, $.0001 par value,outstanding.

 

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**BEHRINGERHARVARD OPPORTUNITY REIT I, INC.**

**FORM10-Q**

**QuarterEnded March 31, 2007**

**PART I**

**FINANCIAL INFORMATION**
| ** **             | ** ** | ** **                                                                                                                           | ** ** | Page   |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------|
| **Item 1.**            | ** ** | **Financial  Statements (Unaudited)**                                                                                                |       |   |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
|                   |       | Consolidated Balance Sheets as of March 31, 2007 and  December 31, 2006                                                         |       | 3      |
|                   |       |                                                                                                                                 |       |   |
|                   |       | Consolidated Statements of Operations for the three  months ended March 31, 2007 and 2006                                            |       | 4      |
|                   |       |                                                                                                                                 |       |   |
|                   |       | Consolidated Statements of Stockholders’ Equity for  the year ended December 31, 2006 and the three months ended March 31, 2007 |       | 5      |
|                   |       |                                                                                                                                 |       |   |
|                   |       | Consolidated Statements of Cash Flows for the three  months ended March 31, 2007 and 2006                                       |       | 6      |
|                   |       |                                                                                                                                 |       |   |
|                   |       | Notes to Consolidated Financial Statements                                                                                           |       | 7      |
|                   |       |                                                                                                                                 |       |   |
| **Item 2.**            | ** ** | **Management’s Discussion and Analysis of Financial  Condition and Results of Operations**                                      |       | 19     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item 3.**            | ** ** | **Quantitative and Qualitative Disclosures About Market  Risk**                                                                      |       | 26     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item 4T.**           | ** ** | **Controls and Procedures**                                                                                                          |       | 26     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **PART II**            |
| **OTHER  INFORMATION** |
| ** **             |       | ** **                                                                                                                           |       |   |
| **Item  1.**           | ** ** | **Legal  Proceedings**                                                                                                               |       | 27     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item  1A.**          | ** ** | **Risk  Factors**                                                                                                                    |       | 27     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item 2.**            | ** ** | **Unregistered Sales of Equity Securities and Use of  Proceeds**                                                                     |       | 27     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item 3.**            | ** ** | **Defaults Upon Senior Securities**                                                                                                  |       | 28     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item 4.**            | ** ** | **Submission of Matters to a Vote of Security Holders**                                                                              |       | 28     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item  5.**           | ** ** | **Other  Information**                                                                                                               |       | 28     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Item  6.**           | ** ** | **Exhibits**                                                                                                                         |       | 28     |
| ** **             | ** ** | ** **                                                                                                                           |       |   |
| **Signature**          |       | 29                                                                                                                                   |

 

2

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**PART I**

**FINANCIALINFORMATION**

**Item 1.    Financial Statements.**

**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Balance Sheets**

(Unaudited)
| ** **                                                                                                                                                                                | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2007**           | ** **  | **2006**              | ** ** |
|                                                                                                                                                                                      |       |               |        |                  |       |
| **Assets**                                                                                                                                                                                | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Real  estate**                                                                                                                                                                          | ** ** | ** **         | ** **  | ** **            | ** ** |
| Land and  improvements, net                                                                                                                                                               |       | $                  | 15,352,849  |                  | $          | 15,353,818 |   |
| Buildings and  improvements, net                                                                                                                                                          |       | 124,662,287        |        | 118,998,957           |       |
| Real estate  under development                                                                                                                                                            |       | 44,733,549         |        | 38,418,150            |       |
| **Total  real estate**                                                                                                                                                                    |       | 184,748,685        |        | 172,770,925           |       |
| ** **                                                                                                                                                                                | ** ** | ** **         | ** **  | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                                                                                |       | 79,363,953         |        | 54,639,099            |       |
| Restricted cash                                                                                                                                                                           |       | 3,432,131          |        | 2,335,492             |       |
| Accounts  receivable, net                                                                                                                                                                 |       | 2,862,956          |        | 1,207,613             |       |
| Prepaid expenses  and other assets                                                                                                                                                        |       | 852,138            |        | 476,624               |       |
| Furniture,  fixtures and equipment, net                                                                                                                                                   |       | 8,974,694          |        | 7,840,693             |       |
| Escrow deposits                                                                                                                                                                           |       | 4,000,000          |        | —                |       |
| Deferred  financing fees, net                                                                                                                                                             |       | 2,058,012          |        | 1,788,365             |       |
| Notes receivable                                                                                                                                                                          |       | 15,883,359         |        | 1,718,359             |       |
| Lease  intangibles, net                                                                                                                                                                   |       | 12,899,268         |        | 13,564,476            |       |
| Other  intangibles, net                                                                                                                                                                   |       | 10,649,886         |        | 10,826,332            |       |
| **Total assets**                                                                                                                                                                          |       | $                  | 325,725,082 |                  | $          | 267,167,978 |   |
|                                                                                                                                                                                      |       |               |        |                  |       |
| **Liabilities and stockholders’  equity**                                                                                                                                            | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Liabilities**                                                                                                                                                                           | ** ** | ** **         | ** **  | ** **            | ** ** |
| Mortgages  payable                                                                                                                                                                        |       | $                  | 92,218,818  |                  | $          | 89,203,539 |   |
| Accounts payable                                                                                                                                                                          |       | 1,316,747          |        | 470,354               |       |
| Payables to  affiliates                                                                                                                                                                   |       | 2,534,804          |        | 2,410,501             |       |
| Acquired  below-market leases, net                                                                                                                                                        |       | 4,011,857          |        | 4,365,090             |       |
| Dividends  payable                                                                                                                                                                        |       | 482,616            |        | 1,694,594             |       |
| Accrued  liabilities                                                                                                                                                                      |       | 6,836,417          |        | 5,539,770             |       |
| Subscriptions  for common stock                                                                                                                                                           |       | 1,509,151          |        | 569,673               |       |
| Other  liabilities                                                                                                                                                                        |       | 796,505            |        | 820,000               |       |
| **Total liabilities**                                                                                                                                                                     |       | 109,706,915        |        | 105,073,521           |       |
| ** **                                                                                                                                                                                | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Commitments and contingencies**                                                                                                                                                         | ** ** | ** **         | ** **  | ** **            | ** ** |
| ** **                                                                                                                                                                                | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Minority interest**                                                                                                                                                                     |       | 3,469,620          |        | 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, 24,272,227 and  18,202,576 shares issued and outstanding at March 31, 2007 and December 31,  2006, respectively |       | 2,427              |        | 1,820                 |       |
| Additional  paid-in capital                                                                                                                                                               |       | 214,479,007        |        | 159,905,677           |       |
| Accumulated  distributions in excess of net income (loss)                                                                                                                                 |       | (1,932,887         | )           | (460,918              | )          |
| **Total stockholders’ equity**                                                                                                                                                       |       | 212,548,547        |        | 159,446,579           |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                       |       | $                  | 325,725,082 |                  | $          | 267,167,978 |   |

 

*SeeNotes to Consolidated Financial Statements.*

3

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**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statements of Operations**

(Unaudited)

 
| ** **                                                 | ** ** | **Three months  ended  March 31, 2007** | ** ** | **Three months  ended  March 31, 2006** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                                                       |       |                                                   |       |                                                   |       |
| **Rental revenue**                                         |       | $                                                      | 5,209,122  |                                                   | $          | 119,043 |   |
| ** **                                                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| **Expenses**                                               | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Property  operating expenses                               |       | 1,375,031                                              |       | 21,724                                                 |       |
| Interest expense                                           |       | 929,259                                                |       | —                                                 |       |
| Real estate  taxes                                         |       | 559,744                                                |       | 20,984                                                 |       |
| Property  management fees                                  |       | 127,114                                                |       | 4,905                                                  |       |
| Asset management  fees                                     |       | 322,893                                                |       | 5,495                                                  |       |
| General and  administrative                                |       | 307,321                                                |       | 160,158                                                |       |
| Advertising  costs                                         |       | 464,397                                                |       | —                                                 |       |
| Depreciation and  amortization                             |       | 1,949,319                                              |       | 42,824                                                 |       |
| **Total expenses**                                         |       | 6,035,078                                              |       | 256,090                                                |       |
| ** **                                                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Interest income                                            |       | 769,789                                                |       | 268,318                                                |       |
| Minority interest                                          |       | (136,697                                               | )          | —                                                 |       |
| **Net income (loss)**                                      |       | $                                                      | (192,864   | )                                                      | $          | 131,271 |   |
| ** **                                                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| **Basic and diluted weighted average  shares outstanding** | ** ** | 20,700,400                                             | ** ** | 3,764,889                                              | ** ** |
| ** **                                                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| **Basic and diluted income (loss) per share**              |       | $                                                      | (0.01      | )                                                      | $          | 0.03 |   |

 

*SeeNotes to Consolidated Financial Statements.*

4

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**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statements of Stockholders’ Equity**

(Unaudited)
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Accumulated**     | ** **  | ** **             | ** ** |
|----------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|----------------------------|------------|-------------|------------|---------------------|-------------|------------------------|------------|
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Distributions**   | ** **  | ** **             | ** ** |
| ** **                                                     | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | **in Excess of** | ** ** | **Total**   | ** ** |
| ** **                                                     | ** ** | **Number of**         | ** ** | **Par**               | ** ** | **Number of** | ** ** | **Par**                    | ** ** | **Paid-In** | ** ** | **Net Income** | ** **  | **Stockholders’** | ** ** |
| ** **                                                     | ** ** | **Shares**                 | ** ** | **Value**             | ** ** | **Shares**         | ** ** | **Value**                  | ** ** | **Capital** | ** ** | **(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                                 |       | —                     |       | —                |       | 5,872,107          |       | 588                        |       | 52,708,780  |       | —              |        | 52,709,368             |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |                   |       |
| Redemption of common  stock                                    |       | —                     |       | —                |       | (17,062            | )          | (2                         | )          | (154,558    | )          | —              |        | (154,560               | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |                   |       |
| Distributions declared  on common stock                        |       | —                     |       | —                |       | —             |       | –—               |       | —      |       | (1,279,105          | )           | (1,279,105             | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |                   |       |
| Shares issued pursuant  to Distribution Reinvestment Plan, net |       | —                     |       | —                |       | 214,606            |       | 21                         |       | 2,019,108   |       | —              |        | 2,019,129              |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |                   |       |
| Net loss                                                       |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (192,864            | )           | (192,864               | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |                   |       |
| Balance at March 31, 2007                                      |       | 1,000                      |       | $                     | —     |               | 24,272,227 |                       | $          | 2,427       |       | $                   | 214,479,007 |                   | $          | (1,932,887 | ) | $ | 212,548,547 |   |

 

*SeeNotes to Consolidated Financial Statements.*

5

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**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statements of Cash Flows**

(Unaudited)

 
| ** **                                                                                       | ** ** | **Three Months ended  March 31, 2007** | ** ** | **Three Months ended  March 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **Cash flows from operating  activities:**                                                       | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** |
| Net income  (loss)                                                                               |       | $                                                          | (192,864   | )                                                          | $          | 131,271 |   |
| Adjustments to  reconcile net income (loss) to net cash flows provided by operating  activities: |       |                                                       |       |                                                       |       |
| Depreciation and  amortization                                                                   |       | 1,703,254                                                  |       | 36,680                                                     |       |
| Amortization of  deferred financing fees                                                         |       | 244,085                                                    |       | —                                                     |       |
| Minority  interest                                                                               |       | 136,697                                                    |       | —                                                     |       |
| Change in  accounts receivable                                                                   |       | (1,655,343                                                 | )          | (112,899                                                   | )          |
| Change in  prepaid expenses and other assets                                                     |       | (238,922                                                   | )          | 28,781                                                     |       |
| Change in  accounts payable                                                                      |       | 461,893                                                    |       | —                                                     |       |
| Change in other  liabilities                                                                     |       | (23,495                                                    | )          | —                                                     |       |
| Change in  accrued liabilities                                                                   |       | 560,971                                                    |       | 160,222                                                    |       |
| Change in  payables to affiliates                                                                |       | 198,081                                                    |       | 10,400                                                     |       |
| **Cash provided by operating  activities**                                                       |       | 1,194,357                                                  |       | 254,455                                                    |       |
|                                                                                             |       |                                                       |       |                                                       |       |
| **Cash flows from investing  activities:**                                                       | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** |
| Escrow deposits  and pre-acquisition costs on real estate to be acquired                         |       | (4,136,591                                                 | )          | —                                                     |       |
| Purchases of  real estate                                                                        |       | (885,413                                                   | )          | (9,062,446                                                 | )          |
| Capital  expenditures for real estate under development                                          |       | (1,299,800                                                 | )          | —                                                     |       |
| Capital  expenditures for real estate under development of consolidated borrowers                |       | (5,424,208                                                 | )          | —                                                     |       |
| Additions of  property and equipment                                                             |       | (5,565,383                                                 | )          | —                                                     |       |
| Change in  restricted cash                                                                       |       | (127,161                                                   | )          | —                                                     |       |
| Investment in  notes receivable                                                                  |       | (14,165,000                                                | )          | —                                                     |       |
| Financing costs  for notes receivable                                                            |       | (545,348                                                   | )          | —                                                     |       |
| **Cash used in investing  activities**                                                           |       | (32,148,904                                                | )          | (9,062,446                                                 | )          |
|                                                                                             |       |                                                       |       |                                                       |       |
| **Cash flows from financing  activities:**                                                       | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** |
| Proceeds from  mortgages of consolidated borrowers                                               |       | 3,015,279                                                  |       | —                                                     |       |
| Issuance of  common stock                                                                        |       | 58,664,444                                                 |       | 41,380,683                                                 |       |
| Redemptions of  common stock                                                                     |       | (154,560                                                   | )          | —                                                     |       |
| Offering costs                                                                                   |       | (5,874,152                                                 | )          | (5,752,872                                                 | )          |
| Distributions                                                                                    |       | (552,876                                                   | )          | —                                                     |       |
| Contributions  from minority interest holders                                                    |       | 685,044                                                    |       | —                                                     |       |
| Change in  subscriptions for common stock                                                        |       | 939,478                                                    |       | (122,689                                                   | )          |
| Change in  subscription cash received                                                            |       | (969,478                                                   | )          | 99,309                                                     |       |
| Change in  payables to affiliates                                                                |       | (73,778                                                    | )          | (174,356                                                   | )          |
| **Cash provided by financing  activities**                                                       |       | 55,679,401                                                 |       | 35,430,075                                                 |       |
|                                                                                             |       |                                                       |       |                                                       |       |
| Net change in  cash and cash equivalents                                                         |       | 24,724,854                                                 |       | 26,622,084                                                 |       |
| Cash and cash  equivalents at beginning of period                                                |       | 54,639,099                                                 |       | 18,560,885                                                 |       |
| Cash and cash  equivalents at end of period                                                      |       | $                                                          | 79,363,953 |                                                       | $          | 45,182,969 |   |

 

*SeeNotes to Consolidated Financial Statements.*

6

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

**1.         Business**

***Organization***

Behringer HarvardOpportunity 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”) forfederal income tax purposes, effective for our taxable year ending December 31,2006.  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 and high growthpotential. We may acquire office, industrial, retail, hospitality, recreationand leisure, multifamily and other properties. We may purchase existing ornewly constructed properties or properties under development or construction,including multifamily properties for conversion into condominiums. Further, wemay invest in real estate related securities, including securities issued byother real estate companies, either for investment or in change of controltransactions, completed on a negotiated basis or otherwise. We also may investin collateralized mortgage-backed securities, mortgage, bridge or mezzanineloans and Section 1031 tenant-in-common interests, or in entities thatmake investments similar to the foregoing. We are currently offering our common stock pursuant to a public offeringthat commenced on September 20, 2005 (the “Offering”) and is describedbelow.

Substantially allof our business is conducted through Behringer Harvard Opportunity OP I, LP, aTexas limited partnership organized in November 2004 (“Behringer Harvard OP”).  Our wholly-owned subsidiary, BHO, Inc., aDelaware corporation, owns less than a 0.1% interest in Behringer Harvard OP asits sole general partner.  The remaininginterest of Behringer Harvard OP is held as a limited partner’s interest by BHOBusiness Trust, a Maryland business trust, which is our wholly-ownedsubsidiary.

We are externally managedand advised by Behringer Harvard Opportunity Advisors I LP (“BehringerOpportunity Advisors”), a Texas limited partnership organized in 2004.  Behringer Opportunity Advisors is responsiblefor managing our affairs on a day-to-day basis and for identifying and makingacquisitions and investments on our behalf.

***PublicOffering***

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”).

Stockholders, after theirinitial purchase of shares, may elect to make cash investments of $25.00 ormore in additional shares of common stock at regular intervals as part of ourautomatic purchase plan.

As of March 31, 2007, wehad issued 24,297,071 shares of our common stock, including 21,739 shares ownedby Behringer Harvard Holdings, LLC (“Behringer Harvard Holdings”) and 333,975shares through the DRIP.  As ofMarch 31, 2007, we had redeemed 24,844 shares of our common stock andhad 24,272,227 shares of our common stock outstanding.  As of March 31, 2007, we had 1,000shares of non-participating, non-voting convertible stock issued andoutstanding and no shares of preferred stock issued and outstanding.

We admit new stockholderspursuant to the Offering at least monthly. All subscription proceeds are held in a separate account until thesubscribing investors are admitted as stockholders.  Upon admission of new stockholders,subscription proceeds are transferred to operating cash and may be utilized asconsideration for investments and the payment or reimbursement of dealermanager fees, selling commissions, organization and offering expenses andoperating expenses.  Until required forsuch 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.

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.

7

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**2.         InterimUnaudited Financial 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 March 31, 2007 andconsolidated statements of operations and cash flows for the periods endedMarch 31, 2007 and 2006 have not been audited by our independent registeredpublic accounting firm.  In the opinionof management, the accompanying unaudited consolidated financial statementsinclude all adjustments necessary to present fairly our consolidated financialposition as of March 31, 2007 and December 31, 2006 and our consolidatedresults of operations and cash flows for the periods ended March 31, 2007 and2006.  Such adjustments are of a normalrecurring nature.

**3.         Summaryof Significant Accounting Policies**

***Useof Estimates in the Preparation of Financial Statements***

The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Theseestimates include such items as purchase price allocation for real estateacquisitions, impairment of long-lived assets, depreciation and amortizationand allowance for doubtful accounts. Actual results could differ from those estimates.

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

Our consolidatedfinancial statements include our accounts, the accounts of variable interestentities (“VIEs”) in which we are the primary beneficiary and the accounts ofother subsidiaries over which we have control. All inter-company transactions, balances and profits have beeneliminated in consolidation.  Interestsin entities acquired are evaluated based on Financial Accounting StandardsBoard (“FASB”) Interpretation (“FIN”) 46R “Consolidation of Variable InterestEntities,” which requires the consolidation of VIEs in which we are deemed tobe the primary beneficiary.  If theinterest in the entity is determined to not be a VIE under FIN 46R, then theentities are evaluated for consolidation under the American Institute of CertifiedPublic Accountants’ Statement of Position 78-9, “Accounting for Investments inReal Estate 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.”

***RealEstate and Other Intangible Assets***

Upon the acquisition ofreal estate properties, we allocate the purchase price of those properties tothe tangible assets acquired, consisting of land, land improvements, buildings,building improvements, furniture, fixtures and equipment, identified intangibleassets, asset retirement obligations and assumed liabilities based on theirrelative fair values in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 141, “Business Combinations,” and No. 142, “Goodwill andOther Intangible Assets.”  Identifiedintangible assets consist of the fair value of above-market and below-marketleases, in-place leases, in-place tenant improvements, tenant relationships,and other intangible assets.  Initialvaluations are subject to change until our information is finalized, which isno later than 12 months from the acquisition date.

The fair value of thetangible assets acquired, consisting of land, land improvements, buildings,building improvements, furniture, fixtures and equipment, is determined byvaluing the property as if it were vacant, and the “as-if-vacant” value is thenallocated to the tangible assets.  Landvalues are derived from appraisals, and building and land improvement valuesare calculated as replacement cost less depreciation or management’s estimatesof the relative fair value of these assets using discounted cash flow analysesor similar methods.  Furniture, fixturesand equipment values are determined based on current reproduction orreplacement cost less depreciation and other estimated allowances based onphysical, functional or economic factors. The values of the buildings are depreciated over the estimated usefullives ranging from 25 years for commercial office property to 39 years forhotel/mixed-use 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.

We determine the value ofabove-market and below-market in-place leases for acquired properties based onthe present value (using an interest rate that reflects the risks associatedwith the leases acquired) of the difference between (i) the

8

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

contractual amounts to be paid pursuant to the in-place leases and (ii)management’s estimate of current market lease rates for the correspondingin-place leases, measured over a period equal to the remaining non-cancelableterms of the respective leases.  Werecord the fair value of above-market and below-market leases as intangibleassets or intangible liabilities, respectively, and amortize them as anadjustment to rental income over the remaining non-cancelable terms of therespective leases.

The total value ofidentified real estate intangible assets acquired is further allocated toin-place lease values, in-place tenant improvements, in-place leasingcommissions and tenant relationships based on management’s evaluation of thespecific characteristics of each tenant’s lease and our overall relationshipwith that respective tenant.  Theaggregate value for tenant improvements and leasing commissions is based onestimates 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 and tenant improvements, as well as an estimate of thelikelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize the value ofin-place leases and in-place tenant improvements to expense over the initialterm of the respective leases.  The valueof tenant relationship intangibles is amortized to expense over the initialterm and any anticipated renewal periods, but in no event will the amortizationperiod for intangible assets exceed the remaining depreciable life of thebuilding.  Should a tenant terminate itslease, the unamortized portion of the in-place lease value and tenantrelationship intangibles would be charged to expense.  As of March 31, 2007, the estimated remaininguseful lives for acquired lease intangibles range from approximately 2.0 yearsto 13.9 years.

Other intangible assetsconsist of the value of an identified hotel trade name and in-place propertytax abatements.  These fair values arebased on management’s estimates of the relative fair value of these assetsusing discounted cash flow analyses or similar methods.  The value of the trade name is amortized overthe estimated useful life of 20 years using the straight-line method and thevalue of the in-place property tax abatement is amortized over its estimatedterm of ten years using the straight-line method.

We determine the fairvalue of assumed debt by calculating the net present value of the schedulednote payments using interest rates for debt with similar terms and remainingmaturities that we believe we could obtain. Any difference between the fair value and stated value of the assumeddebt is recorded as a discount or premium and amortized over the remaining lifeof the loan.

Anticipated amortizationassociated with the acquired lease intangibles and acquired other intangibleassets for the period from April 1 through December 31, 2007 and for eachof the following four years ended December 31 is as follows: 

|                                    | ** ** | **Lease**       | ** ** |
|------------------------------------|------------|-----------------|------------|
| ** **                         | ** ** | **Intangibles** | ** ** |
| April 1, 2007 -  December 31, 2007 |       | $               | 1,455,154  |   |
| 2008                               |       | 1,880,905       |       |
| 2009                               |       | 1,697,884       |       |
| 2010                               |       | 1,672,821       |       |
| 2011                               |       | 1,695,597       |       |
|                                    |            |                 |            |  |

 

9

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

Accumulateddepreciation and amortization related to our consolidated investments in realestate assets and intangibles were as follows:
|                                              | ** ** | ** **             | ** **  | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** | **Other**       | ** ** |
|----------------------------------------------|------------|------------------------|-------------|-------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                                   | ** ** | **Buildings and** | ** **  | **Land and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** | **Hotel**       | ** ** |
| **As of March 31, 2007** | ** ** | **Improvements**       | ** **  | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** | **Intangibles** | ** ** |
| Cost                                         |       | $                      | 126,162,568 |              | $          | 15,353,818      |       | $                | 14,391,652 |            | $          | (4,938,723 | ) | $ | 10,826,332 |   |
| Less:  depreciation and amortization         |       | (1,500,281             | )           | (969              | )          | (1,492,384      | )          | 926,866          |       | (176,446        | )          |
| Net                                          |       | $                      | 124,662,287 |              | $          | 15,352,849      |       | $                | 12,899,268 |            | $          | (4,011,857 | ) | $ | 10,649,886 |   |

 
|                                                 | ** ** | ** **             | ** **  | ** **       | ** ** | ** **      | ** ** | **Acquired**     | ** ** | **Other**       | ** ** |
|-------------------------------------------------|------------|------------------------|-------------|------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                                      | ** ** | **Buildings and** | ** **  | **Land**         | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** | **Hotel**       | ** ** |
| **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***

We consider investmentsin highly-liquid money market funds with original maturities of three months orless to be cash equivalents.  Thecarrying amount of cash and cash equivalents reported on the balance sheetsapproximates fair value.

***Restricted Cash***

Restricted cash includessubscription proceeds that are held in a separate account until the subscribinginvestors are admitted as stockholders. We admit new stockholders at least monthly.  Upon acceptance of stockholders, subscriptionproceeds are transferred to operating cash and may be utilized as considerationfor investments and the payment or reimbursement of dealer manager fees,selling commissions, organization and offering expenses and operatingexpenses.  Restricted cash as of March31, 2007 and December 31, 2006 also includes approximately $1.9 million and$1.8 million, respectively, held in escrow accounts, as required by ourlenders, for real estate taxes and other reserves for our consolidatedproperties.

***AccountsReceivable***

Accounts receivableprimarily consists of receivables from the hotel operator, and lessee of thehotel portion, of Chase Park Plaza and tenants related to our other consolidatedproperties.  The allowance for doubtfulaccounts as of March 31, 2007 was approximately $5,000.  There was no allowance for doubtful accountsrecognized as of December 31, 2006.

***PrepaidExpenses and Other Assets***

Prepaid expenses andother assets includes prepaid directors’ and officers’ insurance, prepaidadvertising, pre-acquisition costs related to probable purchases of properties,as well as prepaid insurance and real estate taxes of our consolidatedproperties.

***EscrowDeposits***

Escrow deposits includedeposits for the purchase of properties that we have contracted to acquire.

***Furniture,Fixtures and Equipment***

Furniture, fixtures andequipment are recorded at cost and are depreciated using the straight-linemethod over the estimated useful lives of the assets.  Furniture, fixtures and equipment aredepreciated over five to seven-year lives. Maintenance and repairs are charged to operations as incurred whilerenewals or improvements to such assets are capitalized.  Accumulated depreciation associated with ourfurniture, fixtures and equipment was approximately $237,000 atMarch 31, 2007.  There was noaccumulated depreciation recognized as of December 31, 2006.

10

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

***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 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.  There were no impairment charges during thethree months ended March 31, 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 approximately $348,000 and $72,400as of March 31, 2007 and December 31, 2006, respectively.

***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 approximately $797,000 and $820,000 as of March31, 2007 and December 31, 2006, respectively and was included in otherliabilities.

***Revenue Recognition***

We recognize rental income generated from leases onreal estate assets on a straight-line basis over the terms of the respectiveleases, including the effect of rent holidays, if any.  The total net increase to rental revenues dueto straight-line rent adjustments for the three months ended March 31, 2007 and2006 was approximately $923,000 and $4,000, respectively.  As discussed above, our rental revenue alsoincludes amortization of above- and below-market in-place leases.

***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, 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.  We are organized andoperate in such a manner as to qualify for taxation as a REIT under the Code,and we intend to continue

11

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

to operate in sucha manner, but no assurance can be given that we will operate in a manner so asto 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 threemonths ended March 31, 2007, we had no significant tax liability or benefitrelated to the Texas margin tax.

***Stock-BasedCompensation***

Wehave a stock-based incentive award plan for our directors and consultants andfor employees, directors and consultants of our affiliates.  We account for this plan under the “modifiedprospective” method of SFAS No. 123R, “Share-Based Payment.”  In the “modified prospective” method,compensation cost is recognized for all share-based payments granted after theeffective date and for all unvested awards granted prior to the effectivedate.  In accordance with SFASNo. 123R, prior period amounts were not restated.  SFAS No. 123R also requires the tax benefitsassociated with these share-based payments to be classified as financingactivities in the Consolidated Statements of Cash Flows, rather than asoperating cash flows as required under previous regulations.  For the three months ended March 31,2007 and 2006, we had no significant compensation cost related to thisincentive award plan.

***Concentration of Credit Risk***

AtMarch 31, 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 consolidated underFIN 46R and the 5% unaffiliated partner’s share of the equity in Chase ParkPlaza.  Income and losses are allocatedto minority interest holders based on their percentage ownership.

***Earningsper Share***

Earningsper share (“EPS”) is calculated based on the weighted average number of sharesoutstanding during each period.  As ofMarch 31, 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 months ended March 31, 2007because the effect would be anti-dilutive. The weighted average shares outstanding used to calculate both basic anddiluted income per share were the same for the three months ended March 31,2006.

***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.

# **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 inpractice associated with certain aspects of the recognition and measurementrelated to accounting for income taxes. We adopted FIN 48 effective January 1, 2007.  In accordance with the requirements of FIN48, we evaluated all tax years still subject to potential audit under state andfederal income tax law in reaching our accounting conclusions.  For the year ended December 31, 2006, weintend to make an election to qualify as a REIT under federal income taxlaw.  As a result of our REIT status, weare able to claim a dividends paid deduction on our tax return to deduct thefull amount of common and preferred dividends paid to stockholders whencomputing our annual taxable income, which results in our taxable income beingpassed through to our stockholders. Since this dividends paid deduction has exceeded our taxable income, wedo not expect to be required to record any unrecognized tax benefits oradditional liabilities in accordance with FIN 48.

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

12

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

a result, weconcluded we did not have any unrecognized tax benefits or any additional taxliabilities after applying FIN 48 as of the January 1, 2007 adoption dateor as of the quarter ended March 31, 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 not reportearnings) at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of fiscal yearsbeginning after November 15, 2007. We have not decided if we will choose to measure any eligible financialassets and liabilities at fair value under SFAS No. 159.

**5.         Real Estate**

Asof March 31, 2007, we wholly owned four properties and consolidated oneproperty through an investment in a limited liability company.  In addition, we are the mezzanine lender fortwo development properties which we consolidate under FIN 46R.  The following table presents certaininformation about our consolidated properties as of March 31, 2007:
|                             | ** ** | ** **                | ** ** | **Approximate**    | ** ** | ** **                        | ** ** | ** **    |
|-----------------------------|------------|---------------------------|------------|--------------------|------------|-----------------------------------|------------|---------------|
| ** **                  | ** ** | ** **                | ** ** | **Rentable**       | ** ** | ** **                        | ** ** | **Ownership** |
| **Property Name**           | ** ** | **Location**              | ** ** | **Square Footage** | ** ** | **Description**                   | ** ** | **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%          |

 

**6.         VariableInterest Entities**

In2006, we agreed to provide secured mezzanine financing with an aggregateprincipal amount up to approximately $22,680,000 to unaffiliated third-partyentities that own real estate under development (the “Alexan Voss” and “AlexanBlack Mountain” properties, respectively). These entities also have secured construction loans with third-partylenders, with an aggregate principal amount up to approximately$68,611,000.  Our mezzanine loans aresubordinate to the construction loans. In addition, we have entered into option agreements allowing us topurchase the ownership interests in Alexan Voss and Alexan Black Mountain aftereach project’s substantial completion.

Theloans finance the acquisition and development of apartment communities inHouston, Texas and Henderson, Nevada. The Alexan Voss project in Houston, Texas consists of two parcels ofland for development, known as La Scala and Hart.  The owners of Alexan Voss acquired the LaScala parcel on September 22, 2006 and the Hart parcel on October 5, 2006.  The owners of the Alexan Black Mountainproject in Henderson, Nevada acquired land for development on September 29,2006.  These acquisitions were financedprimarily 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 March 31, 2007, therewas approximately $37,400,000 of real estate under development related to AlexanVoss and Alexan Black Mountain, which collateralizes the outstanding principalbalance of the construction loans of approximately $19,219,000.  The third-party construction lenders have norecourse to the general credit of us as the primary beneficiary, but theirloans are guaranteed by the owners of the

13

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

variable interest entities.  As of March 31, 2007, the outstandingprincipal balance under our mezzanine loans was approximately $15,876,000, whichis eliminated, along with accrued interest and loan origination fees, uponconsolidation.

**7.         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 $14,165,000. 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 $14,165,000 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.

We lease the hotelportion of the Chase Park Plaza property to the hotel operator, an unaffiliatedentity 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 approximately $1.9 millionto the hotel operator in December 2006. The interest rate under the note is fixed at 5% per annum.  The term of the note is the earlier ofDecember 31, 2016 or the termination 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.

**8.         Capitalized Costs**

Wecapitalize interest, property taxes, insurance and construction costs on ourreal estate properties under development. For the three months ended March 31, 2007, we capitalized a total ofapproximately $13,653,000 in costs associated with real estate underdevelopment, of which approximately $7,338,000 was placed into service beforethe end of the period.  For the threemonths ended March 31, 2007, we capitalized approximately $470,000 and$32,000, respectively, in interest and amortization of deferred financing costsincluded in interest expense, for real estate under development.  We had no real estate properties underdevelopment during the three months ended March 31, 2006.

# **9.         Mortgages Payable**

The following table sets forth our mortgages payable on ourconsolidated properties, including the mortgage obligations of propertiesconsolidated under FIN 46R at March 31, 2007 and December 31, 2006:
| ** **                  | ** ** | **Balance as of**  | ** ** | **Interest**                    | ** ** | **Maturity**            | ** ** |
|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|-------------------------|------------|
| **Description**             | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** | **Rate**                | ** ** | **Date** | ** ** |
| Ferncroft  Corporate Center |       | $                            | 18,000,000 |                            | $          | 18,000,000              |       | 6.33% |   | 9/1/2013 |   |
| Alexan Voss (1)             |       | 10,528,382                   |       | 10,403,747                      |       | 30-day  LIBOR + 1.6%(2) |       | 3/22/2010 |   |
| Alexan Black  Mountain (1)  |       | 8,690,436                    |       | 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 |   |
|                        |       | $                            | 92,218,818 |                            | $          | 89,203,539              |       |   |   |   |   |

 

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(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 March 31, 2007.

The payment terms of our mortgage 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.  As of March 31, 2007, we were incompliance with the debt covenants under our loan agreements.

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**10.      Stockholders’ Equity**

***Capitalization***

As of March 31,2007, our authorized capital was 350,000,000 shares of common stock, 50,000,000shares of preferred stock and 1,000 shares of convertible stock.  All shares of such stock have a par value of$.0001 per share.  As of March 31,2007, we had 24,272,227 shares of our common stock outstanding, including21,739 shares owned by Behringer Harvard Holdings.  As of March 31, 2007, we had 1,000shares of our convertible stock issued and outstanding and no shares ofpreferred stock issued and outstanding.

As of March 31, 2007, wehad options to purchase 26,250 shares of stock outstanding at a weightedaverage exercise price of $9.10.  OnNovember 23, 2004 (date of inception), we sold 1,000 shares of convertiblestock and 21,739 shares of common stock to Behringer Harvard Holdings for$201,000 in cash.  Pursuant to its terms,the convertible stock generally is convertible into shares of our common stockwith a value equal to 15% of the amount by which (1) our enterprise value,including the total amount of distributions paid to our stockholders, exceeds(2) the sum of the aggregate capital invested by our stockholders plus a 10%cumulative, non-compounded, annual return on such capital.  Conversion of the convertible stock may belimited by our board of directors if it determines that full conversion mayjeopardize our qualification as a REIT. Our board of directors may authorize additional shares of capital stockand their characteristics 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 ofMarch 31, 2007, we had redeemed 24,844 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, directorsand consultants of our affiliates.  Atotal of 11,000,000 shares have been authorized and reserved for issuance underour Incentive Award Plan.  An option toacquire 1,250 shares was awarded to an independent board member onFebruary 17, 2006 when he was elected to our board of directors.  In addition, on that date, an option toacquire 5,000 shares of our common stock was awarded to each of the other twoindependent board members. On June 29, 2006, an option to acquire anadditional 5,000 shares of our common stock was awarded to each of the threeindependent board members.  As of March31, 2007, options to purchase 26,250 shares of stock were outstanding, of which11,250 had 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 record basisof $0.0006849 per share.  In March 2007,our board of directors declared distributions to be paid in the second quarterof 2007 in the amount of a 3% annualized rate of return, calculated on a dailyrecord 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 March 31, 2007 were $482,616, which included $102,627 of cashdistributions payable and $379,989 of distributions payable that werereinvested pursuant to our DRIP.

The following are the distributions declared during the three monthsended March 31, 2007.  There were nodistributions declared during the three months ended March 31, 2006.

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

| Total | ** ** | ** ** | ** ** | **Cash** | ** ** | **DRIP** | ** ** |
|-------|------------|------------|------------|----------|------------|----------|------------|
| $     | 1,279,105  |       |       |     | $          | 271,994  |       | $ | 1,007,111 |   |
|       |            |            |            |          |            |          |            |  |  |  |

 

**11.      RelatedParty 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 participating broker-dealers.  In addition, up to 2% of gross proceedsbefore reallowance to participating broker-dealers will be paid to BehringerSecurities as a dealer manager fee; provided that Behringer Securities will notreceive dealer manager fees for purchases pursuant to our DRIP.  Behringer Securities may reallow all or aportion of its dealer manager fees in an aggregate amount up to 2% of grossoffering proceeds to broker-dealers participating in the Offering; provided,however, that Behringer Securities may reallow, in the aggregate, no more than1.5% of gross offering proceeds for marketing fees and expenses, conferencefees and non-itemized, non-invoiced due diligence efforts, and no more than0.5% of gross offering proceeds for actual out-of-pocket and bona fide,separately invoiced due diligence expenses incurred as fees, costs or otherexpenses from third parties.  In thethree months ended March 31, 2007, Behringer Securities’ commissions anddealer manager fees totaled approximately $3,960,000 and $1,180,000,respectively, and were recorded as a reduction to additional paid-incapital.  In the three months endedMarch 31, 2006, Behringer Securities’ commissions and dealer manager feestotaled approximately $2,703,000 and $802,000, respectively, and were recordedas a reduction to additional paid-in capital.

BehringerOpportunity Advisors, or its affiliates, receive up to 2% of gross offeringproceeds for 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 March 31, 2007, approximately$6,081,000 of organization and offering expenses had been incurred by BehringerOpportunity Advisors on our behalf.  Ofthis amount, approximately $4,845,000 had been reimbursed by us andapproximately $1,236,000 of reimbursements payable is included in payables toaffiliates on our balance sheet.  Of theapproximately $4,845,000 of organization and offering expenses reimbursed by usthrough March 31, 2007, approximately $4,833,000 had been recorded as areduction of additional paid-in capital and approximately $12,000 had beenexpensed as organizational costs.  Forthe three months ended March 31, 2007, approximately $1,180,000 oforganization and offering expenses were reimbursed by us and were recorded as areduction of additional paid-in capital. In the three months ended March 31, 2006, approximately $802,000 ofoffering and organization expenses had been reimbursed by us and was recordedas a reduction of additional paid-in capital. Behringer Opportunity Advisors, or its affiliates, determines the amountof organization and offering expenses owed based on specific invoiceidentification as well as an allocation of costs to us and other Behringer Harvardprograms, based on respective equity offering results of those entities inoffering.

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 earned approximately $354,000 in acquisition and advisory fees and$71,000 in acquisition expense reimbursements for our investments made duringthe three months ended March 31, 2007. In the three months ended March 31, 2006, our advisor earnedapproximately $225,000 in acquisition and advisory fees and $45,000 inacquisition expense reimbursements for our first acquisition.  For property acquisitions, we capitalizethese fees as part of our real estate and for loans, we defer these fees to beamortized over the loan term.

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 no such debt financing fees in the three months ended March31, 2007 or 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 with

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

respect to anyparticular property.  We incurred andexpensed such fees to HPT Management of approximately $121,000 in the threemonths ended March 31, 2007 and approximately $5,000 in the three months endedMarch 31, 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 three monthsended March 31, 2007, we expensed $323,000 of asset management fees andcapitalized $29,000 of asset management fees to real estate.  For the three months ended March 31, 2006, weincurred and expensed approximately $5,000 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.

AtMarch 31, 2007, we had a payable to our advisor and its affiliates ofapproximately $2.5 million.  This balanceconsists primarily of reimbursable offering expenses payable to BehringerOpportunity Advisors, 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.

# **12.      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 commitments per the related limited liability company agreements arescheduled through April 2007 and the total amount to be funded, includingamounts previously funded in 2006 for the initial acquisition, is approximately$57,715,000.  As ofMarch 31, 2007, we had funded approximately $52,882,000 of this totalcommitment.

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 approximately$9,251,000 in total construction costs. As of March 31, 2007, approximately $5,475,000 had been paid under thiscontract, including amounts paid by us or by the previous owner prior to ouracquisition.

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 $22,927,000 in total construction costs, ofwhich approximately $5,700,000 had been paid as of March 31, 2007.  Approximately $1,132,000 had been paid underthe other contract as of March 31, 2007. We are not obligated to pay the construction costs for such contractsentered into by our consolidated borrowers.

**13.      Supplemental Cash Flow Information**

Supplemental cashflow information is summarized below for the three months ended March 31,2007.  There was no supplemental cashflow activity for the three months ended March 31, 2006.

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**BehringerHarvard Opportunity REIT I, Inc.**

**Notes toConsolidated Financial Statements**

**(Unaudited)**
|                                                                                       | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **March 31, 2007**     | ** ** |
|                                                                                  |       |                             |       |
| **Supplemental  disclosure:**                                                         | ** ** | ** **                       | ** ** |
| Interest paid, net of amounts capitalized                                             |       | $                                | 877,991    |   |
|                                                                                  |       |                             |       |
| **Non-cash  investing activities:**                                                   | ** ** | ** **                       | ** ** |
| Property and equipment additions and purchases of  real estate in accrued liabilities |       | $                                | 173,554    |   |
| Capital expenditures for real estate under development  in accrued liabilities        |       | $                                | 4,729,786  |   |
|                                                                                  |       |                             |       |
| **Non-cash  financing activities:**                                                   | ** ** | ** **                       | ** ** |
| Common stock issued  in distribution reinvestment plan                                |       | $                                | 1,938,207  |   |

 

# **14.      Subsequent Events**

# On May 2, 2007, weacquired a portfolio of three office buildings, containing approximately456,000 aggregate rentable square feet, located on approximately 22.8 acres ofland in Santa Clara, California (“Santa Clara Tech Center”).  The total contract purchase price of SantaClara Tech Center, exclusive of closing costs, was $70 million.  We used proceeds from the Offering of commonstock to the public to pay the entire cost of this portfolio.

OnMay 3, 2007, we acquired an interest through our operating partnership as alimited partner in Royal Island Partners, LP (the “Royal Island Partnership”)for a $10 million initial contribution and two additional contributions in theamount of $5 million each to be made on May 15, 2007 and June 15, 2007 (subjectto earlier contribution if the Royal Island Partnership has an immediate needfor capital).  Proceeds of the Offeringwere used to fund our first capital contribution of $10 million and willbe used to fund the capital contributions due on May 15, 2007 and June 15,2007.  The Royal Island Partnership, orits subsidiaries, owns or leases approximately 433 acres of undeveloped land onthree islands in the Commonwealth of the Bahamas - Royal Island, ChickenCay and Rat Cay.  The Royal IslandPartnership currently plans to develop on the land a project comprised of aluxury boutique hotel, a spa and fitness center, restaurant facilities, anoceanfront golf course, residential lots, villas, townhomes and lofts, amarina, and associated infrastructure and amenities.

OnMay 10, 2007, we acquired a data center facility in Arlington, Texas containingapproximately 87,000 rentable square feet (“5000 S. Bowen Road”).  5000 S. Bowen Road is situated onapproximately 69.6 acres of land, of which approximately 13.8 acres isdevelopable land.  The total contractpurchase price of 5000 S. Bowen Road, exclusive of closing costs, was $18.5million.  We used proceeds from theOffering of common stock to the public to pay the contract purchase price.

OnMay 10, 2007, we entered into agreements to acquire 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.  Thecontract purchase price for The Lodge & Spa at Cordillera will be$35,000,000, excluding closing costs and including the portion funded by our15% unaffiliated partner.

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**Item 2.                 Management’s Discussion andAnalysis of 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 weconsolidate under FIN 46R, our anticipated capital expenditures required tocomplete projects, amounts of anticipated cash distributions to ourstockholders in the future and other matters. These forward-looking statements are not historical facts but are theintent, belief or current expectations of our management based on theirknowledge and understanding of our business and industry.  Words such as “may,” “anticipates,” “expects,”“intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should”and variations of these words and similar expressions are intended to identifyforward-looking statements.  Thesestatements are not guarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond our control, aredifficult to predict and could cause actual results to differ materially fromthose expressed or forecasted 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 Securities and Exchange Commission.

**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.

### **CriticalAccounting 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.”

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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, calculating the percentage ofequity being risked compared to the total equity of the entity.  FIN 46R provides some guidelines as to whatthe minimum equity at risk should be, but the percentage can vary dependingupon the industry and/or the type of operations of the entity and it is up tomanagement to determine that minimum percentage as it relates to our businessand 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 and tenant improvements, as well as an estimate of thelikelihood of renewal as determined by management on a tenant-by-tenant basis.

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.

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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 analyses or similar methods.  The value of the trade name is amortized overthe estimated useful life of 20 years using the straight-line method and thevalue of the in-place property tax abatement is amortized over its estimated termusing the straight-line method.

We determinethe fair value of assumed debt by calculating the net present value of thescheduled note payments using interest rates for debt with similar terms andremaining 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 at acquisitionif it were vacant.  Many of theseestimates 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 various categoriesof our real estate assets and/or related intangibles being overstated orunderstated, which could result in an overstatement or understatement ofdepreciation and/or amortization expense. These variances could be material to our financial 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 threemonths ended March 31, 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 and high growth potential. We may acquire office, industrial, retail, hospitality, multi-family andother real properties, including existing or newly constructed properties orproperties under development or construction. Further, we may invest in real estate related securities, includingsecurities issued by other real estate companies, either for investment or inchange of control transactions completed on a negotiated basis orotherwise.  We also may invest incollateralized mortgage-backed securities, mortgage, bridge or mezzanine loansand Section 1031 TIC interests, or in entities that make investments similar tothe 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 was declared effective underthe Securities Act.  On November 17,2006, we registered an additional 6,587,065 shares of common stock pursuant tothe Offering through the filing of a Registration Statement on Form S-11 (FileNo. 333-138804) pursuant to Rule 462(b) under the Securities Act.  The Offering also includes up to 8,000,000shares of common stock at a price of $9.50 per share pursuant to ourdistribution reinvestment plan.

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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 $4,408,510.  As of March 31, 2007, we had soldapproximately 24,275,000 shares of our common stock, including approximately334,000 shares through the distribution reinvestment plan, for gross offeringproceeds of approximately $242 million. In addition, 21,739 shares owned by Behringer Harvard Holdings wereoutstanding as of March 31, 2007.  As ofMarch 31, 2007, we had no shares of preferred stock issued or outstanding and1,000 shares of convertible stock issued and outstanding.

**Results of Operations**

As ofMarch 31, 2007, we wholly-owned four office properties and we consolidated onemixed-use hotel and residential property through an investment in a limitedliability company.  We also consolidatedtwo apartment development properties as a mezzanine lender under FIN 46R.  The properties are located in Minnesota,Massachusetts, Texas, Nevada and Missouri. In the first quarter of 2007, we made mezzanine loans to two studenthousing projects in Texas and Virginia which we do not consolidate under FIN46R.

*Three months ended March 31, 2007 as compared tothree months ended March 31, 2006*

*Rental Revenue.*  Rental revenue was $5,209,122 for the threemonths ended March 31, 2007 and was comprised of revenue, including adjustmentsfor straight-line rent and amortization of above-market and below-marketleases, from our four office properties acquired in 2006.  In addition, rental revenue includes revenuefrom the lease of the hotel-related management and operations of Chase ParkPlaza, a mixed-use hotel and residential property acquired in December2006.  Rental revenue was $119,043 forthe three months ended March 31, 2006 and was comprised of one month of revenuefrom the Whitewater Property, our first property acquisition, made on March 1,2006.  Management expects futureincreases in rental revenue as we continue to invest in additional real estateproperties.

*Property Operating Expenses.*  Property operating expenses for the threemonths ended March 31, 2007 and 2006 were $1,375,031 and $21,724,respectively.  Property operatingexpenses were comprised of operating expenses from our consolidated propertiesand increased due to the additional properties acquired throughout 2006.  We expect increases in property operatingexpenses in the future as we purchase additional real estate properties.

*Interest Expense.*  Interest expense, net of amounts capitalized,for the three months ended March 31, 2007 was $929,259 and was primarilycomprised of interest expense from Ferncroft Corporate Center and Chase ParkPlaza.  For the three months endedMarch 31, 2007, we capitalized aggregate interest costs of approximately$470,000 for our real estate under development. Interest costs for the development of these properties will continue tobe capitalized until development is complete. During the three months ended March 31, 2006, we had nointerest expense or borrowings.  Weexpect increases in interest expense in the future as we purchase and invest inadditional real estate properties.

*Real Estate Taxes. *Real estate taxes, net of amounts capitalized, for thethree months ended March 31, 2007 were $559,744 and were comprised of realestate taxes from our four operational office properties and Chase ParkPlaza.  During the three months endedMarch 31, 2006, our real estate taxes, net of amounts capitalized, were$20,984 and were comprised of real estate taxes from the Whitewater Propertysubsequent to its acquisition.  We expectincreases in real estate taxes in the future as we purchase additional realestate properties.

*Property Management Fees. *Property management feesfor the three months ended March 31, 2007 were $127,114 and were comprised ofproperty management fees from our consolidated properties.  During the three months ended March 31, 2006,our property management fees were $4,905 and were comprised of propertymanagement fees from the Whitewater Property subsequent to itsacquisition.  We expect increases inproperty management fees in the future as we invest in additional real estateproperties.

*Asset Management Fees.  *Asset management fees forthe three months ended March 31, 2007 and 2006 were $322,893 and $5,495,respectively, and were comprised of asset management fees from our consolidatedproperties.  Asset management fees increaseddue to the additional properties acquired throughout 2006, and we expectincreases in property operating expenses in the future as we purchaseadditional real estate properties.

*General and Administrative Expenses.* General and administrative expenses for thethree months ended March 31, 2007 were $307,321, as compared to$160,158 for the three months ended March 31, 2006, and were comprised ofcorporate general and administrative expenses, including directors’ andofficers’ insurance premiums, auditing fees, legal fees and other administrativeexpenses.  The increased amount was dueto increased corporate activity.

*Advertising Costs.* Advertisingcosts for the three months ended March 31, 2007 were $464,397 and werecomprised primarily of advertising costs to promote the sale of condominiums tobe developed at Chase Park Plaza.  We

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incurred noadvertising costs during the three months ended March 31, 2006.  Management expects future advertising coststo increase if we purchase additional real estate properties for condominiumdevelopment.

*Depreciation and Amortization Expense. *Depreciation andamortization expense for the three months ended March 31, 2007 was$1,949,319 and was comprised of depreciation and amortization of ourconsolidated operational properties. During the three months ended March 31, 2006, depreciation andamortization expense was $42,824 and was comprised of depreciation andamortization of the Whitewater Property subsequent to its acquisition.  We expect increases in depreciation andamortization expense in the future as we purchase additional real estateproperties.

*Interest Income*.  Interest income for the three months endedMarch 31, 2007 was $769,789 as compared to $268,318 for the three months endedMarch 31, 2006.  Interest incomeprimarily represented interest income on funds on deposit, net of bankfees.  As we admit new stockholders,subscription proceeds are released to us and may be utilized as considerationfor investments in real properties and the payment or reimbursement of dealermanager fees, selling commissions, organization and offering expenses andoperating expenses.  Until required forsuch purposes, net offering proceeds are held in short-term, liquid investmentsand earn interest income.  The increasein interest income is due to higher cash balances on deposit with banks as aresult of increased proceeds from investor subscriptions.  In addition, during the three months endedMarch 31, 2007, we earned interest income from mezzanine loans made to twostudent-housing properties on February 1, 2007.

*Minority Interest. *Minority interest expense for the three months endedMarch 31, 2007 was $136,697 and represents the net income of the two variableinterest entities that we consolidate under FIN 46R as a mezzanine lender andthe 5% unaffiliated partner’s share of the net income of Chase Park Plaza.  During the three months ended March 31,2006, we had no investments with minority interest holders.

**Cash Flow Analysis**

Cashflows provided by operating activities for the three months ended March 31,2007 were $1,194,357 and were comprised primarily of the net loss of $192,864,adjusted for depreciation and amortization expense of $1,703,254, and netchanges in working capital accounts of $696,815.  During the three months endedMarch 31, 2006, cash flows provided by operating activities were$254,455 and were comprised of the net income of $131,271, adjusted fordepreciation and amortization expense of $36,680, and net changes in workingcapital accounts of $86,504, and were significantly lower than the three monthsended March 31, 2007 due to a smaller amount of real estate investmentsand less corporate activity.

Cashflows used in investing activities for the three months ended March 31, 2007were $32,148,904 and primarily represented mezzanine loans to finance studenthousing projects totaling $14,165,000, capital expenditures of real estateunder development, excluding costs for assets placed into service and includingreal estate of our consolidated borrowers, of $6,724,008, and additions toproperty and equipment, including costs for assets placed into service, of$5,565,383.  During the three monthsended March 31, 2006, cash flows from investing activities were $9,062,446 andrepresented the acquisition of the Whitewater Property.

Cashflows provided by financing activities for the three months ended March 31,2007 were $55,679,401 and were comprised primarily of funds received from theissuance of stock, net of offering costs, of $52,790,292.  During the three months ended March 31, 2006,cash flows provided by financing activities were $35,430,075 and were comprisedprimarily of funds received from the issuance of stock, net of offering costs,of $35,627,811.

**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 for itemsother than property acquisitions and mortgage loan investments are expected tobe met from operations, and cash needs for property acquisitions are expectedto be met from the public offering of our shares.  However, there may be a delay between the saleof our shares and our purchase of properties and mortgage loan investments,which could result in a delay in the benefits to our stockholders, if any, ofreturns generated from our operations. Our advisor evaluates potential acquisitions of real estate and realestate related assets and engages in negotiations with sellers and borrowers onour behalf.  Investors should be awarethat after a purchase contract is executed that contains specific terms, theproperty will not be purchased until the successful completion of due diligenceand negotiation of final binding agreements. During this period, we may decide to

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temporarily invest any unused proceeds from theOffering in certain investments that could yield lower returns than theproperties.  These lower returns mayaffect our ability to make 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 maturity. Our loan agreements stipulate that we comply with certain reporting andfinancial covenants.  These covenantsinclude, among other things, maintaining minimum debt service coverageratios.  As of March 31, 2007,we were in compliance with the debt covenants under our loan agreements.

**Fundsfrom Operations**

Fundsfrom operations (“FFO”) is a non-GAAP financial measure that is widelyrecognized as a measure of REIT operating performance.  FFO is defined by the National Association ofReal Estate Investment Trusts as net income (loss), computed in accordance withGAAP excluding extraordinary items, as defined by GAAP, and gains (or losses)from sales of property, plus depreciation and amortization on real estateassets, and after adjustments for unconsolidated partnerships, joint venturesand subsidiaries.  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 more complete 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 monthsended March 31, 2007 and 2006 is presented below:
|                                              | ** ** | **Three months ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **March 31,**               | ** ** |
| ** **                                   | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                                         |       |                             |       |   |   |
| Net income  (loss)                           |       | $                                | (192,864   | ) | $ | 131,271 |   |
| Preferred stock  dividends                   |       | —                           |       | — |   |
| Net income  (loss) allocable to common stock |       | (192,864                         | )          | 131,271 |   |
|                                         |       |                             |       |   |   |
| Real estate  depreciation (1)                |       | 1,135,771                        |       | 23,828 |   |
| Real estate  amortization (1)                |       | 773,393                          |       | 18,996 |   |
| Funds from  operations (FFO)                 |       | $                                | 1,716,300  |   | $ | 174,095 |   |
|                                         |       |                             |       |   |   |
| Weighted average shares                      |       | 20,700,400                       |       | 3,764,889 |   |

----

(1)                                 Thisrepresents the depreciation and amortization expense of the properties wewholly own and our 95% ownership share of depreciation and amortization expensefor Chase Park Plaza.

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

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·                  Straight-linerental revenue of approximately $923,000 was recognized for the three monthsended March 31, 2007 and approximately $4,000 was recognized for the threemonths ended March 31, 2006;

·                  Amortizationof intangible lease assets and liabilities was recognized as a net increase torental revenues of approximately $328,000 and $6,000 for the three months endedMarch 31, 2007 and 2006, respectively;

·                  Amortizationof intangible property tax abatement assets was recognized as an increase toreal estate tax expense of approximately $82,000 for the three months endedMarch 31, 2007.  There were no propertytax abatement intangibles or related amortization recognized during the threemonths ended March 31, 2006;

·                  Baddebt expense of approximately $5,000 was recognized for the three months endedMarch 31, 2007.  There was no bad debtexpense recognized during the three months ended March 31, 2006; and

·                  Amortizationof deferred financing costs of approximately $88,000 was recognized as interestexpense for mortgages payable and approximately $156,000 was recognized as areduction of interest income for notes receivable for the three months endedMarch 31, 2007.  There were no deferredfinancing costs or related amortization recognized for the three months endedMarch 31, 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 months ended March 31, 2007, we declared and paid distributions fromFFO and expect to continue to do so, except to the extent of distributions fromthe sale of our assets.  However, giventhe uncertainty arising from numerous factors, including both the raising andplacing of capital in the current real estate environment, ultimate FFO performancecannot be predicted with certainty.  Forexample, if we are not able to timely invest net proceeds of the Offering atfavorable 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, computed in accordance with GAAP, generated from properties beforeinterest expense, asset management fees, interest income, general andadministrative expenses, depreciation, amortization, and the sale of assets.  We believe that NOI provides an accuratemeasure of the operating performance of our operating assets because NOIexcludes certain items that are not associated with management of theproperties.  To facilitate understandingof this financial measure, a reconciliation of net operating income to netincome has been provided in accordance with GAAP.  Our calculation of NOI for the three monthsended March 31, 2007 and 2006 is presented below:
|                               | ** **                          | **Three months ended** | ** ** |
|-------------------------------|-------------------------------------|----------------------------------|------------|
| ** **                    | ** **                          | **March 31,**               | ** ** |
| ** **                    | ** **                          | **2007**                         | ** ** | **2006** | ** ** |
| Rental revenue                |                                | $                                | 5,209,122  |   | $ | 119,043 |   |
|                          |                                |                             |       |   |   |
| Operating  expenses:          |                                |                             |       |   |   |
| Property operating expenses   |                                | 1,375,031                        |       | 21,724 |   |
| Real estate taxes             |                                | 559,744                          |       | 20,984 |   |
| Property management fees      |                                | 127,114                          |       | 4,905 |   |
| Total operating  expenses     |                                | 2,061,889                        |       | 47,613 |   |
|                          |                                |                             |       |   |   |
| Net operating  income         |                                | $                                | 3,147,233  |   | $ | 71,430 |   |
|                          |                                |                             |       |   |   |
| Reconciliation  to Net Income |                                |                             |       |   |   |
| Net operating  income         |                                | $                                | 3,147,233  |   | $ | 71,430 |   |
|                          |                                |                             |       |   |   |
| Less:                         | Depreciation and  amortization      |                             | (1,949,319 | ) | (42,824 | ) |
|                          | General and  administrative expense |                             | (307,321   | ) | (160,158 | ) |
|                          | Interest expense                    |                             | (929,259   | ) | — |   |
|                          | Asset management  fees              |                             | (322,893   | ) | (5,495 | ) |
|                          | Advertising  costs                  |                             | (464,397   | ) | — |   |
| Add:                          | Interest income                     |                             | 769,789    |   | 268,318 |   |
|                          | Minority  Interest                  |                             | (136,697   | ) | — |   |
|                          |                                |                             |       |   |   |
| Net income (loss)             |                                | $                                | (192,864   | ) | $ | 131,271 |   |

 

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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.                   Quantitative and QualitativeDisclosures 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 borrowprimarily at fixed rates or variable rates with the lowest margins availableand in some cases, with the ability to convert variable rates to fixedrates.  With regard to variable ratefinancing, we will assess interest rate cash flow risk by continually identifyingand monitoring changes in interest rate exposures that may adversely impactexpected future cash flows and by evaluating hedging opportunities.  We do not 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 approximately $92,200,000 in mortgagespayable at March 31, 2007, approximately $19,200,000 represented debt subjectto variable interest rates, which included the mortgages payable of borrowerswe consolidated under FIN 46R.  If ourvariable interest rates increased 100 basis points, we estimate that totalannual interest costs, including interest expensed and interest capitalized,would increase by approximately $195,000.

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 March 31, 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 March 31, 2007, were effective forthe purpose 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 March 31,2007 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II**

**OTHER INFORMATION**

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

We are not party to, and our property is not subject to, any materialpending legal proceedings.

### **Item 1A.                RiskFactors.**

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, we are currently offering for sale to the public on a “best efforts”basis (1) a maximum of 46,587,065 shares of our common stock at a price of$10.00 per share and (2) up to 8,000,000 additional shares pursuant to a distributionreinvestment plan pursuant to which our stockholders could elect to have theirdistributions reinvested in additional shares of our common stock.  As of March 31, 2007, we had soldapproximately 24,275,000 shares of our common stock on a best efforts basispursuant to the Offering for aggregate gross offering proceeds of approximately$242.0 million.

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 March31, 2007, we incurred the following expenses in connection with the issuanceand distribution of the registered securities pursuant to the Offering:

| Type of Expense         | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |
| Other expenses  to affiliates *   |       | $          | 27,048,164 |   |
| Other expenses  to non-affiliates |       | 418,952    |       |
|                              |       |       |       |
| Total expenses                    |       | $          | 27,467,116 |   |

----

*“Other expensesto affiliates” includes commissions and dealer manager fees paid to BehringerSecurities, which reallowed all or a portion of the commissions and fees tosoliciting dealers.

Fromthe commencement of the Offering through March 31, 2007, the net offeringproceeds to us from the Offering, after deducting the total expenses incurreddescribed above, were approximately $214.5 million.  From the commencement of the Offering throughMarch 31, 2007, we had used approximately $104.9 million of such net proceedsto purchase interests in real estate and fund development for real estate, netof mortgages payable, and $30.0 million was invested through mezzanineloans.  Of the amount used for thepurchase of these investments, approximately $5.4 million was paid to BehringerOpportunity Advisors, 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 time totime, 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

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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 from our distribution reinvestment plan plus 1% of operating cashflow for the previous fiscal year (to the extent positive).  During the quarter endedMarch 31, 2007, we redeemed shares as follows:
|               | ** ** | ** **         | ** ** | ** **          | ** ** | ** **                             | ** ** | **Maximum**                        | ** ** |
|---------------|------------|--------------------|------------|---------------------|------------|----------------------------------------|------------|------------------------------------|------------|
| ** **    | ** ** | ** **         | ** ** | ** **          | ** ** | **Total Number of**          | ** ** | **Number of Shares**     | ** ** |
| ** **    | ** ** | **Total**          | ** ** | ** **          | ** ** | **Shares Purchased**              | ** ** | **that May Yet Be** | ** ** |
| ** **    | ** ** | **Number of** | ** ** | **Average**         | ** ** | **as Part of Publicly** | ** ** | **Purchased Under**           | ** ** |
| ** **    | ** ** | **Shares**         | ** ** | **Price Paid** | ** ** | **Announced Plans**               | ** ** | **the Plans or**         | ** ** |
| ** **    | ** ** | **Redeemed**       | ** ** | **Per Share**  | ** ** | **or Programs**                   | ** ** | **Programs**                       | ** ** |
| January 2007  |       | —             |       | $                   | —     |                                   | —     |                               | (1)        |   |
| February 2007 |       | 17,062             |       | $                   | 9.06       |                                   | 17,062     |                               | (1)        |   |
| March 2007    |       | —             |       | $                   | —     |                                   | —     |                               | (1)        |   |
| Total         |       | 17,062             |       | $                   | 9.06       |                                   | 17,062     |                               | (1)        |   |

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(1)   A description of the maximum number of sharesthat may be purchased under our redemption program is included in the narrativepreceding this table.

**Item 3.                   Defaults Upon SeniorSecurities.**

None.

### **Item 4.                   Submissionof Matters to a Vote of Security Holders.**

No matters were submitted to a vote of security holders during thethree months ended March 31, 2007.

### **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.

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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: May 15,  2007 | By:                                             | /s/ Gary S. Bresky |   |
|                 |                                            | Gary S. Bresky |
|                 |                                            | Chief Financial  Officer |
|                 |                                            | (Principal  Financial Officer) |

 

29

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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 Registrant’s 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 Registrant’s 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 Registrant’s 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, as  supplemented)                                                                                                                                                     |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 4.2            |       | Amended and Restated Distribution Reinvestment Plan,  effective as of April 5, 2006 (included as Exhibit C to prospectus dated June  1, 2006, as supplemented)                                                                                                                                           |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 4.3            |       | Automatic Purchase Plan (included as Appendix D to  prospectus dated June 1, 2006, as supplemented)                                                                                                                                                                                                      |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 10.1           |       | Mezzanine Loan Agreement by and among BREOF TCU GP  LLC, BREOF TCU LLC, Phoenix Berry Street Limited Partnership and Phoenix G.P.  XVIII, Inc. as Borrowers and Behringer Harvard TCU, LLC as Lender (previously  filed in and incorporated by reference to Form 8-K filed on February 7, 2007)          |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 10.2           |       | Mezzanine Loan Agreement by and among BREOF UVA GP  LLC, BREOF UVA LLC, PPC-UVA 15th Street Limited Partnership and PPC  Charlottesville GP, Inc. as Borrowers and Behringer Harvard UVA, LLC as  Lender (previously filed in and incorporated by reference to Form 8-K filed  on February 7, 2007) |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 10.3           |       | Mezzanine Promissory Note made between BREOF TCU GP  LLC, BREOF TCU LLC, Phoenix Berry Street Limited Partnership and Phoenix G.P.  XVIII, Inc. and Behringer Harvard TCU, LLC (previously filed in and  incorporated by reference to Form 8-K filed on February 7, 2007)                      |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 10.4           |       | Mezzanine Promissory Note made between BREOF UVA GP  LLC, BREOF UVA LLC, PPC-UVA 15th Street Limited Partnership and PPC  Charlottesville GP, Inc. and Behringer Harvard UVA, LLC (previously filed in  and incorporated by reference to Form 8-K filed on  February 7, 2007)             |
|           |       |                                                                                                                                                                                                                                                                                                     |
| 10.5           |       | Mezzanine Pledge and Security Agreement made by  BREOF TCU GP LLC, BREOF TCU LLC, Phoenix Berry Street Limited Partnership and  Phoenix G.P. XVIII, Inc. and Behringer Harvard TCU, LLC (previously filed in  and incorporated by reference to Form 8-K filed on February 7, 2007)                       |

 

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| 10.6   |   | Mezzanine Pledge and Security Agreement made by  BREOF UVA GP LLC, BREOF UVA LLC, PPC-UVA 15th Street Limited Partnership and PPC  Charlottesville GP, Inc. and Behringer Harvard UVA, LLC (previously filed in  and incorporated by reference to Form 8-K filed on February 7, 2007)                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.7   |   | Contribution Agreement made by and among BREOF TCU  GP LLC, BREOF TCU LLC, Phoenix Berry Street Limited Partnership and Phoenix  G.P. XVIII, Inc. and Behringer Harvard TCU, LLC (previously filed in and  incorporated by reference to Form 8-K filed on February 7, 2007)                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.8   |   | Contribution Agreement made by and among BREOF UVA  GP LLC, BREOF UVA LLC, PPC-UVA 15th Street Limited Partnership and PPC  Charlottesville GP, Inc. and Behringer Harvard UVA, LLC (previously filed in  and incorporated by reference to Form 8-K filed on February 7, 2007)                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.9   |   | 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) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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 (filed 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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