**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 

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

 

**For the transition period from           to           **

 

**Commission File Number: 000-51961**

 

**BehringerHarvard Opportunity REIT I, Inc.**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

(Addressof Principal Executive Offices)

(ZipCode)

 

Registrant’s Telephone Number, Including AreaCode:  **(866)655-3600**

 

**None**

(Former name, former addressand former fiscal year, if changed since last report)

 

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

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-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 |
|----------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o   No x

 

Asof November 1, 2007, Behringer Harvard Opportunity REIT I, Inc. had 50,565,889shares of common stock, $.0001 par value, outstanding.

 

 

----

 

**BEHRINGER HARVARD OPPORTUNITY REIT I, INC.**

**FORM 10-Q**

**Quarter Ended September 30, 2007**

 
| ** **                 | ** ** | ** **                                                                                                                               | ** ** | **Page**   |
|----------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|                       |       |                                                                                                                                     |       |       |
| **PART I**                 |       |                                                                                                                                     |
| **FINANCIAL  INFORMATION** |       |                                                                                                                                     |
|                       |       |                                                                                                                                     |       |       |
| **Item 1.**                | ** ** | **Financial  Statements (Unaudited)**                                                                                                    |       |       |
|                       |       |                                                                                                                                     |       |       |
|                       |       | Consolidated  Balance Sheets as of September 30, 2007 and December 31, 2006                                                         |       | 3          |
|                       |       |                                                                                                                                     |       |       |
|                       |       | Consolidated  Statements of Operations for the three and nine months ended September 30,  2007 and 2006                                  |       | 4          |
|                       |       |                                                                                                                                     |       |       |
|                       |       | Consolidated  Statements of Stockholders’ Equity for the year ended December 31, 2006 and  the nine months ended September 30, 2007 |       | 5          |
|                       |       |                                                                                                                                     |       |       |
|                       |       | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2007 and  2006                                            |       | 6          |
|                       |       |                                                                                                                                     |       |       |
|                       |       | Notes to  Consolidated Financial Statements                                                                                              |       | 7          |
|                       |       |                                                                                                                                     |       |       |
| **Item 2.**                | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                          | ** ** | **23**     |
| ** **                 | ** ** | ** **                                                                                                                               | ** ** | ** ** |
| **Item 3.**                | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                          | ** ** | **31**     |
| ** **                 | ** ** | ** **                                                                                                                               | ** ** | ** ** |
| **Item 4T.**               | ** ** | **Controls and  Procedures**                                                                                                             | ** ** | **32**     |
| ** **                 | ** ** | ** **                                                                                                                               | ** ** | ** ** |
| **PART II**                |       |                                                                                                                                     |
| **OTHER INFORMATION**      |       |                                                                                                                                     |
|                       |       |                                                                                                                                     |       |       |
| **Item  1.**               | ** ** | **Legal  Proceedings**                                                                                                                   |       | 33         |
|                       |       |                                                                                                                                     |       |       |
| **Item  1A.**              | ** ** | **Risk  Factors**                                                                                                                        |       | 33         |
|                       |       |                                                                                                                                     |       |       |
| **Item 2.**                | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                         |       | 33         |
|                       |       |                                                                                                                                     |       |       |
| **Item 3.**                | ** ** | **Defaults Upon  Senior Securities**                                                                                                     |       | 34         |
|                       |       |                                                                                                                                     |       |       |
| **Item 4.**                | ** ** | **Submission of  Matters to a Vote of Security Holders**                                                                                 |       | 34         |
|                       |       |                                                                                                                                     |       |       |
| **Item  5.**               | ** ** | **Other  Information**                                                                                                                   |       | 34         |
|                       |       |                                                                                                                                     |       |       |
| **Item 6.**                | ** ** | **Exhibits**                                                                                                                             |       | 34         |
|                       |       |                                                                                                                                     |       |       |
| **Signature**              |       |                                                                                                                                     |       | 35         |

 

2

----

 

**PART I**

 

**FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

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

**ConsolidatedBalance Sheets**

(Unaudited)

** **
| ** **                                                                                                                                                                                   | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **2007**               | ** **  | **2006**              | ** ** |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| **Assets**                                                                                                                                                                                   |       |                   |        |                  |       |
| **Real estate**                                                                                                                                                                              |       |                   |        |                  |       |
| Land and improvements, net                                                                                                                                                                   |       | $                      | 98,309,175  |                  | $          | 15,353,818 |   |
| Buildings and improvements, net                                                                                                                                                              |       | 266,436,034            |        | 118,998,957           |       |
| Real estate under development                                                                                                                                                                |       | 79,546,085             |        | 38,418,150            |       |
| **Total real estate**                                                                                                                                                                        |       | 444,291,294            |        | 172,770,925           |       |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| Condominium inventory                                                                                                                                                                        |       | 66,615,391             |        | —                |       |
| Cash and cash equivalents                                                                                                                                                                    |       | 47,782,912             |        | 54,639,099            |       |
| Restricted cash                                                                                                                                                                              |       | 9,746,895              |        | 2,335,492             |       |
| Accounts receivable, net                                                                                                                                                                     |       | 5,297,410              |        | 1,207,613             |       |
| Prepaid expenses and other assets                                                                                                                                                            |       | 1,563,648              |        | 476,624               |       |
| Investments in unconsolidated joint  ventures                                                                                                                                                |       | 36,457,401             |        | —                |       |
| Furniture, fixtures and equipment, net                                                                                                                                                       |       | 9,078,895              |        | 7,840,693             |       |
| Deferred financing fees, net                                                                                                                                                                 |       | 2,674,456              |        | 1,788,365             |       |
| Notes receivable                                                                                                                                                                             |       | 1,779,189              |        | 1,718,359             |       |
| Lease intangibles, net                                                                                                                                                                       |       | 26,043,555             |        | 13,564,476            |       |
| Other intangibles, net                                                                                                                                                                       |       | 10,832,096             |        | 10,826,332            |       |
| **Total assets**                                                                                                                                                                             |       | $                      | 662,163,142 |                  | $          | 267,167,978 |   |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                |       |                   |        |                  |       |
| Mortgages payable                                                                                                                                                                            |       | $                      | 187,378,547 |                  | $          | 89,203,539 |   |
| Accounts payable                                                                                                                                                                             |       | 4,991,169              |        | 470,354               |       |
| Payables to related parties                                                                                                                                                                  |       | 745,024                |        | 2,410,501             |       |
| Acquired below-market leases, net                                                                                                                                                            |       | 18,674,610             |        | 4,365,090             |       |
| Distributions payable                                                                                                                                                                        |       | 1,142,632              |        | 1,694,594             |       |
| Accrued liabilities                                                                                                                                                                          |       | 14,386,966             |        | 5,539,770             |       |
| Subscriptions for common stock                                                                                                                                                               |       | 1,207,690              |        | 569,673               |       |
| Other liabilities                                                                                                                                                                            |       | 279,307                |        | 820,000               |       |
| **Total liabilities**                                                                                                                                                                        |       | 228,805,945            |        | 105,073,521           |       |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| **Commitments and contingencies**                                                                                                                                                            |       |                   |        |                  |       |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| **Minority interest**                                                                                                                                                                        |       | 13,075,132             |        | 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, 48,135,066 and 18,202,576 shares issued and outstanding at  September 30, 2007 and December 31, 2006, respectively |       | 4,814                  |        | 1,820                 |       |
| Additional paid-in capital                                                                                                                                                                   |       | 428,480,823            |        | 159,905,677           |       |
| Accumulated distributions in excess of net  income (loss)                                                                                                                                    |       | (8,106,962             | )           | (460,918              | )     |
| Accumulated other comprehensive loss                                                                                                                                                         |       | (96,610                | )           | —                |       |
| **Total stockholders’ equity**                                                                                                                                                          |       | 420,282,065            |        | 159,446,579           |       |
|                                                                                                                                                                                         |       |                   |        |                  |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                          |       | $                      | 662,163,142 |                  | $          | 267,167,978 |   |

 

*See Notes to Consolidated Financial Statements.*

 

3

----

 

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

**ConsolidatedStatements of Operations**

(Unaudited)

** **
| ** **                                         | ** ** | **For the Three Months Ended** | ** ** | **For the Nine Months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                         | ** ** | **September 30,**                             | ** ** | **September 30,**                            | ** ** |
| ** **                                         | ** ** | **2007**                                           | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Revenues**                                       |       |                                               |       |                                              |       |   |   |   |   |
| Rental revenue                                     |       | $                                                  | 7,898,582  |                                              | $          | 1,316,884 |   | $ | 19,219,816 |   | $ | 1,791,128 |   |
| Hotel revenue                                      |       | 2,602,403                                          | ** ** | **—**                                        |       | 3,220,095 |   | — |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Total revenues**                                 |       | 10,500,985                                         |       | 1,316,884                                         |       | 22,439,911 |   | 1,791,128 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Expenses**                                       |       |                                               |       |                                              |       |   |   |   |   |
| Property operating expenses                        |       | 4,106,693                                          |       | 564,863                                           |       | 7,490,410 |   | 700,505 |   |
| Interest expense                                   |       | 1,758,591                                          |       | 127,665                                           |       | 4,060,947 |   | 127,665 |   |
| Real estate taxes                                  |       | 1,022,683                                          |       | 109,362                                           |       | 2,255,907 |   | 190,878 |   |
| Property management fees                           |       | 267,849                                            |       | 38,194                                            |       | 546,478 |   | 57,841 |   |
| Asset management fees                              |       | 714,585                                            |       | 65,416                                            |       | 1,508,665 |   | 87,396 |   |
| General and administrative                         |       | 307,182                                            |       | 206,845                                           |       | 1,015,514 |   | 578,613 |   |
| Advertising costs                                  |       | 158,067                                            |       | —                                            |       | 781,312 |   | — |   |
| Depreciation and amortization                      |       | 3,691,557                                          |       | 403,056                                           |       | 8,040,099 |   | 577,309 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Total expenses**                                 |       | 12,027,207                                         |       | 1,515,401                                         |       | 25,699,332 |   | 2,320,207 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| Interest income                                    |       | 1,365,703                                          |       | 885,094                                           |       | 2,939,326 |   | 1,786,905 |   |
| Equity in losses of unconsolidated joint  ventures |       | (227,353                                           | )          | —                                            |       | (295,039 | ) | — |   |
| Minority interest                                  |       | 145,672                                            |       | 130,697                                           |       | (209,632 | ) | 130,697 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Income (loss) before taxes**                     |       | (242,200                                           | )          | 817,274                                           |       | (824,766 | ) | 1,388,523 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| Provision for income taxes                         |       | 45,758                                             |       | —                                            |       | 70,845 |   | — |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Net income (loss)**                              |       | $                                                  | (287,958   | )                                                 | $          | 817,274 |   | $ | (895,611 | ) | $ | 1,388,523 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Weighted average shares outstanding:**           |       |                                               |       |                                              |       |   |   |   |   |
| Basic                                              |       | 42,499,702                                         |       | 11,340,747                                        |       | 31,154,323 |   | 7,701,098 |   |
| Diluted                                            |       | 42,499,702                                         |       | 11,367,997                                        |       | 31,154,323 |   | 7,716,576 |   |
|                                               |       |                                               |       |                                              |       |   |   |   |   |
| **Earnings (loss) per share:**                     |       |                                               |       |                                              |       |   |   |   |   |
| Basic                                              |       | $                                                  | (0.01      | )                                                 | $          | 0.07 |   | $ | (0.03 | ) | $ | 0.18 |   |
| Diluted                                            |       | $                                                  | (0.01      | )                                                 | $          | 0.07 |   | $ | (0.03 | ) | $ | 0.18 |   |

 

*See Notes to Consolidated Financial Statements.*

 

4

----

 

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

**ConsolidatedStatements of Stockholders’ Equity**

(Unaudited)

** **
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Accumulated**     | ** **  | ** **        | ** ** | ** **             | ** ** |
|----------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|----------------------------|------------|-------------|------------|---------------------|-------------|-------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | ** **                 | ** ** | ** **            | ** ** | ** **         | ** ** | ** **                 | ** ** | ** **  | ** ** | **Distributions**   | ** **  | **Accumulated**   | ** ** | ** **             | ** ** |
| ** **                                                     | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | **in Excess of** | ** ** | **Other**   | ** ** | **Total**           | ** **  |
| ** **                                                     | ** ** | **Number of**         | ** ** | **Par**               | ** ** | **Number of** | ** ** | **Par**                    | ** ** | **Paid-In** | ** ** | **Net Income** | ** **  | **Comprehensive** | ** ** | **Stockholders’** | ** ** |
| ** **                                                     | ** ** | **Shares**                 | ** ** | **Value**             | ** ** | **Shares**         | ** ** | **Value**                  | ** ** | **Capital** | ** ** | **(Loss)**          | ** **  | **Loss**          | ** ** | **Equity**             | ** ** |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Balance at  January 1, 2006                                    |       | 1,000                      |       | $                     | —     |               | 2,034,005  |                       | $          | 203         |       | $                   | 16,516,376  |              | $          | (102,920               | )          | $ | — |   | $ | 16,413,659 |   |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Issuance of  common stock, net                                 |       | —                     |       | —                |       | 16,056,984         |       | 1,606                      |       | 142,336,285 |       | —              |        | —            |       | 142,337,891            |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Redemption of  common stock                                    |       | —                     |       | —                |       | (7,782             | )          | (1                         | )          | (70,241     | )          | —              |        | —            |       | (70,242                | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Distributions  declared on common stock                        |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (2,748,816          | )           | —            |       | (2,748,816             | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Shares issued  pursuant to Distribution Reinvestment Plan, net |       | —                     |       | —                |       | 119,369            |       | 12                         |       | 1,123,257   |       | —              |        | —            |       | 1,123,269              |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Net income                                                     |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | 2,390,818           |        | —            |       | 2,390,818              |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Balance at  December 31, 2006                                  |       | 1,000                      |       | —                |       | 18,202,576         |       | 1,820                      |       | 159,905,677 |       | (460,918            | )           | —            |       | 159,446,579            |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Issuance of  common stock, net                                 |       | —                     |       | —                |       | 29,396,865         |       | 2,941                      |       | 263,465,647 |       | —              |        | —            |       | 263,468,588            |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Redemption of  common stock                                    |       | —                     |       | —                |       | (85,314            | )          | (9                         | )          | (788,981    | )          | —              |        | —            |       | (788,990               | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Distributions  declared on common stock                        |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (6,750,433          | )           | —            |       | (6,750,433             | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Shares issued  pursuant to Distribution Reinvestment Plan, net |       | —                     |       | —                |       | 620,939            |       | 62                         |       | 5,898,480   |       | —              |        | —            |       | 5,898,542              |       |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Comprehensive  loss:                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Net loss                                                       |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | (895,611            | )           | —            |       | (895,611               | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Other  comprehensive loss:                                     |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Foreign currency  translation loss                             |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | —              |        | (2,990            | )          | (2,990                 | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Unrealized losses  on interest rate caps                       |       | —                     |       | —                |       | —             |       | —                     |       | —      |       | —              |        | (93,620           | )          | (93,620                | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Total  comprehensive loss                                      |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       | (992,221               | )          |
|                                                           |       |                       |       |                  |       |               |       |                       |       |        |       |                |        |              |       |                   |       |
| Balance at  September 30, 2007                                 |       | 1,000                      |       | $                     | —     |               | 48,135,066 |                       | $          | 4,814       |       | $                   | 428,480,823 |              | $          | (8,106,962             | )          | $ | (96,610 | ) | $ | 420,282,065 |   |

 

*See Notes to Consolidated Financial Statements.*

 

5

----

 

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

**ConsolidatedStatements of Cash Flows**

(Unaudited)

** **
| ** **                                                                                      | ** ** | **For the Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                      | ** ** | **September 30,**                            | ** ** |
| ** **                                                                                      | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Cash flows from operating activities:**                                                       |       |                                              |       |   |   |
| Net income (loss)                                                                               |       | $                                                 | (895,611   | ) | $ | 1,388,523 |   |
| Adjustments to reconcile net income (loss)  to net cash flows provided by operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                                   |       | 6,435,032                                         |       | 449,875 |   |
| Amortization of deferred financing fees                                                         |       | 986,500                                           |       | 3,802 |   |
| Minority interest                                                                               |       | 209,632                                           |       | (130,697 | ) |
| Equity in losses of unconsolidated joint  ventures                                              |       | 295,039                                           |       | — |   |
| Change in condominium inventory                                                                 |       | (12,739,101                                       | )          | — |   |
| Change in accounts receivable                                                                   |       | (3,843,043                                        | )          | (750,771 | ) |
| Change in prepaid expenses and other assets                                                     |       | 669,957                                           |       | 89,500 |   |
| Change in accounts payable                                                                      |       | 3,261,888                                         |       | 1,005,739 |   |
| Change in other liabilities                                                                     |       | (540,693                                          | )          | — |   |
| Change in accrued liabilities                                                                   |       | 594,488                                           |       | 646,410 |   |
| Change in payables to related parties                                                           |       | 468,675                                           |       | — |   |
| Addition of lease intangibles                                                                   |       | (324,165                                          | )          | — |   |
| **Cash (used in) provided by operating  activities**                                            |       | (5,421,402                                        | )          | 2,702,381 |   |
|                                                                                            |       |                                              |       |   |   |
| **Cash flows from investing activities:**                                                       |       |                                              |       |   |   |
| Escrow deposits and pre-acquisition costs on  real estate to be acquired                        |       | —                                            |       | (360,500 | ) |
| Purchases of real estate properties, net of  cash acquired                                      |       | (243,171,095                                      | )          | (36,932,424 | ) |
| Acquisition of interest in unconsolidated  joint ventures                                       |       | (22,587,440                                       | )          | (17,379,912 | ) |
| Capital expenditures for real estate under  development                                         |       | (11,587,089                                       | )          | — |   |
| Capital expenditures for real estate under  development of consolidated borrowers               |       | (21,017,553                                       | )          | — |   |
| Additions of property and equipment                                                             |       | (9,458,115                                        | )          | — |   |
| Change in restricted cash                                                                       |       | (6,773,385                                        | )          | (1,540,434 | ) |
| Investment in notes receivable                                                                  |       | (14,225,830                                       | )          | — |   |
| Fees paid to related party for mezzanine  loan arrangements                                     |       | (552,684                                          | )          | — |   |
| **Cash used in investing activities**                                                           |       | (329,373,191                                      | )          | (56,213,270 | ) |
|                                                                                            |       |                                              |       |   |   |
| **Cash flows from financing activities:**                                                       |       |                                              |       |   |   |
| Financing costs                                                                                 |       | (1,260,742                                        | )          | (1,009,883 | ) |
| Proceeds from bridge note                                                                       |       | 52,115,000                                        |       | — |   |
| Proceeds from mortgages payable                                                                 |       | 2,488,483                                         |       | 18,000,000 |   |
| Proceeds from mortgages of consolidated  borrowers                                              |       | 13,651,827                                        |       | 5,778,459 |   |
| Payments on mortgages payable                                                                   |       | (29,968                                           | )          | — |   |
| Purchase of interest rate cap                                                                   |       | (154,450                                          | )          | — |   |
| Issuance of common stock                                                                        |       | 293,214,605                                       |       | 110,127,445 |   |
| Redemptions of common stock                                                                     |       | (788,989                                          | )          | — |   |
| Offering costs                                                                                  |       | (29,440,041                                       | )          | (12,332,021 | ) |
| Distributions                                                                                   |       | (1,709,832                                        | )          | (87,066 | ) |
| Contributions from minority interest  holders                                                   |       | 2,003,728                                         |       | 246,851 |   |
| Change in subscriptions for common stock                                                        |       | 638,017                                           |       | 4,798 |   |
| Change in subscription cash received                                                            |       | (638,017                                          | )          | 8,688 |   |
| Change in payables to related parties                                                           |       | (2,151,215                                        | )          | 392,118 |   |
| **Cash provided by financing activities**                                                       |       | 327,938,406                                       |       | 121,129,389 |   |
|                                                                                            |       |                                              |       |   |   |
| Net change in cash and cash equivalents                                                         |       | (6,856,187                                        | )          | 67,618,500 |   |
| Cash and cash equivalents at beginning of  period                                               |       | 54,639,099                                        |       | 18,560,885 |   |
|                                                                                            |       |                                              |       |   |   |
| Cash and cash equivalents at end of period                                                      |       | $                                                 | 47,782,912 |   | $ | 86,179,385 |   |

 

*See Notes to Consolidated FinancialStatements.*

 

6

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to ConsolidatedFinancial Statements**

**(Unaudited)**

 

**Business**

 

***Organization***

 

BehringerHarvard Opportunity REIT I, Inc. (which may be referred to as the “Company,” “we,”“us,” or “our”) was organized in Maryland on November 23, 2004 and has electedto be taxed, and has qualified, 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 real estate or real estate related assets on anopportunistic basis. In particular, we focus on acquiring properties withsignificant possibilities for short-term capital appreciation, such as thoserequiring development, redevelopment or repositioning, or those located inmarkets and submarkets with higher volatility, lower barriers to entry, andhigh growth potential. We may acquire office, industrial, retail, hospitality,recreation and leisure, multifamily, and other properties. We may purchaseexisting or newly constructed properties or properties under development orconstruction, including multifamily properties for conversion into condominiums.Further, we may invest in real estate related securities, including securitiesissued by other real estate companies, either for investment or in change ofcontrol transactions completed on a negotiated basis or otherwise. We also mayinvest in collateralized mortgage-backed securities, mortgage, bridge ormezzanine loans, and Section 1031 tenant-in-common interests, or in entitiesthat make investments similar to the foregoing. We are currently offering ourcommon stock pursuant to a public offering that commenced on September 20,2005 (the “Offering”) and is described below.

 

Substantiallyall of our business is conducted through Behringer Harvard Opportunity OP I,LP, a Texas limited partnership organized in November 2004 (“Behringer HarvardOpportunity OP”). Our wholly owned subsidiary, BHO, Inc., a Delawarecorporation, owns less than a 0.1% interest in Behringer Harvard Opportunity OPas its sole general partner. The remaining interest of Behringer Harvard OpportunityOP is held as a limited partner’s interest by BHO Business Trust, a Marylandbusiness trust, which is our wholly owned subsidiary.

 

Weare externally managed and advised by Behringer Harvard Opportunity Advisors I,LLC (“Behringer Opportunity Advisors”), a Texas limited liability companyformed in June 2007. Behringer Opportunity Advisors is responsible for managingour affairs on a day-to-day basis and for identifying and making acquisitionsand investments on our behalf.  Prior to June 30, 2007, we were advised byBehringer Harvard Opportunity Advisors I LP, which was merged into BehringerOpportunity Advisors solely to reorganize the entity as a limited liabilitycompany.

 

***Public Offering***

 

OnSeptember 20, 2005, we commenced a public offering of up to 40,000,000 sharesof common stock at a price of $10 per share pursuant to a RegistrationStatement on Form S-11 declared effective under the Securities Act of 1933, asamended (the “Securities Act”). On November 17, 2006, we registered anadditional 6,587,065 shares of common stock pursuant to the Offering throughthe filing of a Registration Statement on Form S-11 pursuant to Rule 462(b)under the Securities Act. The Registration Statement declared effective as ofSeptember 20, 2005 also covers the offering of up to 8,000,000 shares of commonstock to be offered at a price of $9.50 per share pursuant to our distributionreinvestment plan (the “DRIP”). We subsequently reallocated the shares ofcommon stock in the Offering to provide $530 million, or 53,000,000 shares, forsale in the primary offering and $11.9 million, or 1,249,542 shares, for salethrough our DRIP.

 

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

 

Asof September 30, 2007, we had issued 48,228,163 shares of our common stock,including 21,739 shares owned by Behringer Harvard Holdings, LLC (“BehringerHarvard Holdings”) and 742,118 shares through the DRIP. As of September 30,2007, we had redeemed 93,096 shares of our common stock and had 48,135,066shares of our common stock outstanding. As of September 30, 2007, we had 1,000shares of non-participating, non-voting convertible stock issued andoutstanding and no shares of preferred stock issued and outstanding.

 

Weadmit new stockholders pursuant to the Offering at least monthly. Allsubscription proceeds are held in a separate account until the subscribinginvestors 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 for such purposes, net offering proceeds areheld in short-term, liquid investments.

 

We usethe proceeds from our Offering, after deducting offering expenses, primarily toacquire commercial properties, such as office buildings, shopping centers,business and industrial parks, manufacturing facilities, apartment buildings,warehouse and distribution facilities, and motel and hotel properties.

 

7

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

Ourcommon stock is not currently listed on a national exchange. Unless liquidated earlier,we anticipate causing the shares of common stock to be listed for trading on anational securities exchange or liquidating our real estate portfolio on orbefore the sixth anniversary of the termination of the Offering. Depending uponthe then-prevailing market conditions, it is our intention to considerbeginning the process of listing or liquidating within three to six years afterthe termination of the Offering. In the event that we do not obtain suchlisting prior to the sixth anniversary of the termination of the Offering,unless a majority of our board of directors and a majority of our independentdirectors extend such date, our charter requires us to begin the sale of ourproperties and liquidation of our assets.

 

**2.****                                      InterimUnaudited Financial Information**

 

Theaccompanying consolidated financial statements should be read in conjunctionwith the consolidated financial statements and notes thereto included in ourAnnual Report on Form 10-K for the year ended December 31, 2006, which wasfiled with the Securities and Exchange Commission (“SEC”). Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”) have been condensed or omitted in this report on Form 10-Qpursuant to the rules and regulations of the SEC.

 

Theresults for the interim periods shown in this report are not necessarilyindicative of future financial results. The accompanying consolidated balancesheet and consolidated statement of stockholders’ equity as of September 30,2007 and consolidated statements of operations and cash flows for the periodsended September 30, 2007 and 2006 have not been audited by our independentregistered public accounting firm. In the opinion of management, theaccompanying unaudited consolidated financial statements include alladjustments necessary to present fairly our consolidated financial position asof September 30, 2007 and December 31, 2006 and our consolidated results ofoperations and cash flows for the periods ended September 30, 2007 and 2006. Suchadjustments are of a normal recurring nature.

 

Thereporting of our purchase of interest rate caps on the accompanyingconsolidated statement of cash flows for the nine months ended September 30,2007 was reclassified to cash flows provided by financing activities from cashflows used in investing activities as  previously reported. The reclassification wasnot significant to either category.

 

**3.****                                      Summaryof Significant Accounting Policies**

 

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

 

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

 

***Principles of Consolidation andBasis of Presentation***

 

Ourconsolidated financial statements include our accounts, the accounts ofvariable interest entities (“VIEs”) in which we are the primary beneficiary,and the accounts of other subsidiaries over which we have control. Allinter-company transactions, balances, and profits have been eliminated inconsolidation. Interests in entities acquired are evaluated based on FinancialAccounting Standards Board (“FASB”) Interpretation (“FIN”) 46R, “Consolidationof Variable Interest Entities,” which requires the consolidation of VIEs inwhich we are deemed to be the primary beneficiary. If the interest in theentity is determined to not be a VIE under FIN 46R, then the entities areevaluated 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.”

 

***Real Estate and Other IntangibleAssets***

 

Uponthe acquisition of real estate properties, we allocate the purchase price ofthose properties to the tangible assets acquired, consisting of land, landimprovements, buildings, building improvements, furniture, fixtures andequipment, identified intangible assets, asset retirement obligations, andassumed liabilities based on their relative fair values in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,”and No. 142*,*“Goodwill and OtherIntangible 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. Initial valuations are subject to change until ourinformation is finalized, which is no later than twelve months from theacquisition date.

 

8

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

Thefair value of the tangible assets acquired, consisting primarily of land, landimprovements, buildings, building improvements, and furniture, fixtures andequipment, is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then allocated to the tangible assets. Land values are derived fromappraisals, and building and land improvement values are calculated asreplacement cost less depreciation or management’s estimates of the relativefair value of these assets using discounted cash flow analyses or similarmethods. Furniture, fixtures, and equipment values are determined based oncurrent reproduction or replacement cost less depreciation and other estimatedallowances based on physical, functional, or economic factors. The values ofthe buildings are depreciated over the estimated useful lives ranging from 25years for commercial office property to 39 years for hotel/mixed-use propertyusing 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 ofabove-market and below-market leases as intangible assets or intangibleliabilities, respectively, and amortize them as an adjustment to rental incomeover the remaining non-cancelable terms of the respective 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 tenantimprovements and leasing commissions is based on estimates of these costsincurred at inception of the acquired leases, amortized through the date ofacquisition. The aggregate value of in-place leases acquired and tenantrelationships is determined by applying a fair value model. The estimates offair value of in-place leases include an estimate of carrying costs during theexpected lease-up periods for the respective spaces considering current marketconditions. In estimating the carrying costs that would have otherwise beenincurred had the leases not been in place, management includes such items asreal estate taxes, insurance, and other operating expenses as well as lostrental revenue during the expected lease-up period based on current marketconditions. The estimates of the fair value of tenant relationships alsoinclude costs to execute similar leases including leasing commissions, legalcosts, and tenant improvements, as well as an estimate of the likelihood ofrenewal 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 non-cancelable term of the respective leases. Thevalue of tenant relationship intangibles is amortized to expense over theinitial non-cancelable term and any anticipated renewal periods, but in noevent will the amortization period for intangible assets exceed the remainingdepreciable life of the building. Should a tenant terminate its lease, theunamortized portion of the in-place lease value and tenant relationshipintangibles would be charged to expense. As of September 30, 2007, theestimated remaining useful lives for acquired lease intangibles range fromapproximately three months to 13 years.

 

Otherintangible assets include the value of identified hotel trade names andin-place property tax abatements. These fair values are based on management’sestimates of the relative fair value of these assets using discounted cash flowanalyses or similar methods. The value of the trade names are amortized overtheir 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 10 years using the straight-line method.

 

Wedetermine the fair value of assumed debt by calculating the net present valueof the scheduled note payments using interest rates for debt with similar termsand remaining maturities that we believe we could obtain. Any differencebetween the fair value and stated value of the assumed debt is recorded as adiscount or premium and amortized over the remaining life of the loan.

 

9

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

Anticipatedamortization expense associated with the acquired lease intangibles andacquired other intangible assets for the period from October 1, 2007 throughDecember 31, 2007 and for each of the following four years ended December31 is as follows: 

 
| ** **                          | ** ** | **Lease / Other** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **Intangibles**             | ** ** |
| October 1, 2007 - December 31, 2007 |       | $                           | 923,579    |   |
| 2008                                |       | 2,625,592                   |       |
| 2009                                |       | 2,366,659                   |       |
| 2010                                |       | 1,510,532                   |       |
| 2011                                |       | 1,221,053                   |       |
|                                     |            |                             |            |  |

 

Accumulateddepreciation and amortization related to our consolidated investments in realestate assets and intangibles were as follows:

 
| ** **                                       | ** ** | ** **             | ** **  | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** | ** **      | ** ** |
|--------------------------------------------------|------------|------------------------|-------------|-------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                                       | ** ** | **Buildings and** | ** **  | **Land and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** | **Other**       | ** ** |
| **As of September 30, 2007** | ** ** | **Improvements**       | ** **  | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** | **Intangibles** | ** ** |
| Cost                                             |       | $                      | 270,819,397 |              | $          | 98,339,822      |       | $                | 29,370,775 |            | $          | (21,166,165 | ) | $ | 11,339,067 |   |
| Less: depreciation and amortization              |       | (4,383,363             | )           | (30,647           | )          | (3,327,220      | )          | 2,491,555        |       | (506,971        | )          |
|                                             |       |                   |        |              |       |            |       |             |       |            |       |
| Net                                              |       | $                      | 266,436,034 |              | $          | 98,309,175      |       | $                | 26,043,555 |            | $          | (18,674,610 | ) | $ | 10,832,096 |   |

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

 

***Condominium Inventory***

*** ***

Condominiuminventory is stated at the lower of cost or fair market value. In addition toland acquisition costs, land development costs and construction costs, costsinclude interest and real estate taxes, which are capitalized during the periodbeginning with the commencement of development and ending with the completionof construction.

*** ***

***Cash and Cash Equivalents***

 

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

 

***Restricted Cash***

 

Restrictedcash includes subscription proceeds that are held in a separate account untilthe subscribing investors are admitted as stockholders. We admit new stockholdersat least monthly. Upon acceptance of stockholders, subscription proceeds aretransferred to operating cash and may be utilized as consideration forinvestments and the payment or reimbursement of dealer manager fees, sellingcommissions, organization and offering costs, and operating expenses. Asrequired by our lenders, restricted cash as of September 30, 2007 and December31, 2006 also includes $8.5 million and $1.8 million, respectively, held inescrow accounts, for real estate taxes and other reserves for our consolidatedproperties.

 

***Accounts Receivable***

 

Accountsreceivable primarily consist of receivables from our hotel operators andtenants related to our other consolidated properties. The allowance fordoubtful accounts as of September 30, 2007 was approximately $14,000. There wasno allowance for doubtful accounts recognized as of December 31, 2006.

 

***Prepaid Expenses and Other Assets***

 

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

 

10

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

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

 

Furniture,fixtures, and equipment are recorded at cost and are depreciated using thestraight-line method over their estimated useful lives of five to seven years. Maintenanceand repairs are charged to operations as incurred while renewals or improvementsto such assets are capitalized. Accumulated depreciation associated with ourfurniture, fixtures, and equipment was $1 million at September 30, 2007. Therewas no accumulated depreciation recognized as of December 31, 2006.

 

***Impairment of Long-Lived Assets***

 

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 events or changes in circumstances arepresent, we assess potential impairment by comparing estimated futureundiscounted operating cash flows expected to be generated over the life of theasset and from its eventual disposition, to the carrying amount of the asset. Inthe event that the carrying amount exceeds the estimated future undiscountedoperating cash flows, we perform an impairment analysis to determine if thecarrying amount of the asset needs to be reduced to estimated fair value. Wedid not recognize an asset impairment for the nine months ended September 30,2007 and 2006.

 

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 recorded to the extent the fair value of ourinvestment is less than the carrying amount and the decline in value isdetermined to be other than a temporary decline.

 

Fornotes receivable, management reviews the terms and conditions underlying theoutstanding notes receivable. If management determines that it is probable thatall amounts due under the terms of the note will not be collected, animpairment charge is recorded to the extent that the investment in the note exceedsmanagement’s estimate of the fair value of the collateral securing such note. Therewere no impairment charges for the nine months ended September 30, 2007 or2006.

 

***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. Accumulated amortization of deferred financing feeswas $1.2 million and $0.1 million as of September 30, 2007 and December31, 2006, respectively.

 

***Derivative Financial Instruments***

 

SFASNo. 133, “Accounting for Derivative Instruments and Hedging Activities,”as amended and interpreted, establishes accounting and reporting standards forderivative instruments, including certain derivative instruments embedded inother contracts, and for hedging activities. Our objective in using derivativesis to add stability to interest expense and to manage our exposure to interestrate movements or other identified risks. To accomplish this objective, we useinterest rate caps as part of our cash flow hedging strategy. Interest ratecaps designated as cash flow hedges are entered into to limit our exposure toincreases in the LIBOR rate above a “strike rate” on certain of ourfloating-rate debt.

 

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

 

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

 

***Asset Retirement Obligations***

 

Werecord the fair value of any conditional asset retirement obligations inaccordance with FIN 47, “Accounting for Conditional Asset RetirementObligations.”  As part of the anticipatedrenovation and redevelopment of an acquired property, we will incur futurecosts for the abatement of regulated materials, primarily asbestos-containingmaterials, as required under 

 

11

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

environmentalregulations. 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 the asset retirement obligation was $0.2million and $0.8 million as of September 30, 2007 and December 31, 2006,respectively, and was included in other liabilities.

 

***Foreign Currency Translation***

 

SFAS No. 52, “ForeignCurrency Translation,” establishes standards requiring the financial results ofinternational investments to be properly measured and reported in the primarycurrency of our business, which is the U.S. dollar. We maintainEuro-denominated bank accounts that are translated into U.S. dollars at thecurrent exchange rate at each reporting period. The resulting translationadjustment is recorded as a separate component of accumulated othercomprehensive loss in our consolidated statement of stockholders’ equity. Thecumulative foreign currency translation adjustment at September 30, 2007 was aloss of $2,990.

 

***Accumulated Other Comprehensive Loss***

 

Accumulated othercomprehensive loss, which is reported in the accompanying consolidatedstatement of stockholders’ equity, consists of gains and losses affectingequity that are excluded from net income (loss) under accounting principlesgenerally accepted in the United States of America. The components ofaccumulated other comprehensive loss consist of foreign currency translationgains and losses and unrealized gains and losses on interest rate capsdesignated as hedges under SFAS No. 133.

 

***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. Straight-line rentalrevenue of $1.1 million and $3 million was recognized in rental revenues forthe three and nine months ended September 30, 2007, respectively, andapproximately $34,000 and $49,000 was recognized in rental revenues for thethree and nine months ended September 30, 2006, respectively. Hotelrevenue is derived from the operations of The Lodge & Spa at Cordilleraconsisting of guest room, food and beverage, and other revenue, which arerecognized as the services are rendered.

 

***Advertising Costs***

 

Marketingcosts, including the costs of model units and their furnishings, incurred inconnection with the sale of condominiums are deferred and recorded as costs ofsales when revenue is recognized. Certain prepaid costs are capitalized andexpensed over the stated terms of the contract. All other advertising costs areexpensed as incurred.

 

***Organizational and Offering Costs***

 

BehringerOpportunity Advisors funds organization and offering costs on our behalf. Weare required to reimburse Behringer Opportunity Advisors for such organizationand offering costs up to 2% of the cumulative capital raised in the Offering. Organizationand offering costs include items such as legal and accounting fees, andmarketing, promotional and printing costs. All offering costs are recorded asan offset to additional paid-in capital, and all organization costs arerecorded as an expense at the time we become liable for the payment of theseamounts.

 

***Income Taxes***

 

Weelected to be taxed, and qualified, as a REIT under Sections 856 through 860 ofthe Internal Revenue Code of 1986, as amended (the “Code”), for the year endedDecember 31, 2006. To qualify as a REIT, we must meet a number oforganizational and operational requirements, including a requirement that wedistribute at least 90% of our REIT taxable income to our stockholders. As aREIT, we generally will not be subject to federal income tax at the corporatelevel except for the operations of our wholly owned taxable REIT subsidiary,Behringer Harvard Cordillera Residences, Inc., which provides management anddevelopment services to The Lodge & Spa at Cordillera. We are organized andoperate in such a manner as to qualify for taxation as a REIT under the Code,and we intend to continue to operate in such a manner, but no assurance can begiven that we will operate in a manner so as to qualify or remain qualified asa REIT.

 

OnMay 18, 2006, the State of Texas enacted a new law which replaced theexisting state franchise tax with a “margin tax,” effective January 1, 2007. Forthe three and nine months ended September 30, 2007, we recognized a provisionfor current tax expense of approximately $18,000 and $35,400, respectively, anda provision for deferred tax expense of approximately $2,600 and $10,300,respectively, related to the Texas margin tax.

 

***Stock-Based Compensation***

 

Wehave a stock-based incentive award plan for our directors and consultants andfor employees, directors, and consultants of our affiliates. We account for ourincentive award plan in accordance with SFAS No. 123R, “Share-Based 

 

12

----

 

**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

Payment.”  Awards are granted at the fair market valueon the date of grant with fair value estimated using the Black-Scholes-Mertonoption valuation model, which incorporates assumptions surrounding volatility,dividend yield, the risk-free interest rate, expected life, and the exerciseprice as compared to the underlying stock price on the grant date. SFAS No.123R also requires the tax benefits associated with these share-based paymentsto be classified as financing activities in the consolidated statement of cashflows, rather than as operating cash flows as required under previousregulations. For the three and nine months ended September 30, 2007 and 2006,we had no significant compensation cost related to our incentive award plan.

 

***Concentration of Credit Risk***

 

AtSeptember 30, 2007, we had cash and cash equivalents and restricted cash ondeposit in financial institutions in excess of federally insured levels. Weregularly monitor the financial stability of the financial institutions andbelieve that we are not exposed to any significant credit risk.

 

***Minority Interest***

 

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 thenon-controlling ownership interest’s proportionate share of the equity in realestate properties including the 5%, 15%, 10%, and 30% unaffiliated partners’share of the equity in Chase Park Plaza, The Lodge & Spa at Cordillera, RioSalado Business Center, and Frisco Square, respectively. Income and losses areallocated to minority interest holders based on their ownership percentage.

 

***Reportable Segments***

 

SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information,” establishes standards for reportingfinancial and descriptive information about an enterprise’s reportable segments.Our current businessconsists only of owning, managing, operating, leasing, acquiring, developing,investing in, and disposing of real estate assets. Management evaluatesoperating performance on an individual property level. Therefore, ourproperties are aggregated into one reportable segment.

 

***Earnings per Share***

 

Earnings(loss) per share is calculated based on the weighted average number of sharesoutstanding during each period. As of September 30, 2007, we had options topurchase 39,583 shares of common stock outstanding at a weighted averageexercise price of $9.10. These options are excluded from the calculation ofearnings per share for the three and nine months ended September 30, 2007because the effect would be anti-dilutive. The following table sets forth thereconciliation between weighted shares outstanding used for calculating basicand diluted earnings per share for the three and nine months ended September30, 2006.

 
| ** **                                              | ** ** | **Three Months  Ended  September 30, 2006** | ** ** | **Nine Months  Ended  September 30, 2006** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Weighted average shares for basic earnings  per share   |       | 11,340,747                                                 |       | 7,701,098                                                 |       |
| Effect of stock options                                 |       | 26,250                                                     |       | 14,478                                                    |       |
| Effect of convertible stock                             |       | 1,000                                                      |       | 1,000                                                     |       |
| Weighted average shares for diluted  earnings per share |       | 11,367,997                                                 |       | 7,716,576                                                 |       |

 

# **4.**                                      Recently Announced Accounting Pronouncements

# ** **

InJuly 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109,” which clarifies theaccounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certainaspects of the recognition and measurement related to accounting for incometaxes.  We adopted FIN 48 effective January 1, 2007.  Inaccordance with the requirements of FIN 48, we evaluated all tax years stillsubject to potential audit under state and federal income tax law in reachingour accounting conclusions.  For the year ended December 31, 2006, we madean election to qualify as a REIT under federal income tax law.  As aresult of our REIT status, we are able to claim a dividends paid deduction onour tax return to deduct the full amount of dividends paid to stockholders whencomputing our annual taxable income, which results in our taxable income beingpassed through to our stockholders.  Since the dividends paid deductionexceeded our taxable income for 2006, we distributed a significant return ofcapital to our stockholders.  In order for us to be required to record anyunrecognized tax benefits or additional tax liabilities in accordance with FIN48, any adjustment for potential uncertain tax positions would need to exceedthe return of capital.

 

13

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**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

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

 

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” whichestablishes a single authoritative definition of fair value, sets out aframework for measuring fair value, and requires additional disclosures aboutfair value measurements. SFAS No. 157 applies only to fair value measurementsthat are already required or permitted by other accounting standards. SFAS No.157 is effective for fiscal years beginning after November 15, 2007. We arecurrently evaluating the impact that adopting SFAS No. 157 will have on ourfinancial 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 businessentity will report unrealized gains and losses on items for which the fairvalue option has been elected in earnings (or another performance indicator ifthe business entity does not report earnings) at each subsequent reporting date.SFAS No. 159 is effective as of the beginning of fiscal years beginningafter November 15, 2007. We are currently evaluating the impact thatadopting SFAS No. 159 will have on our financial statements and have notdecided if we will choose to measure any eligible financial assets andliabilities at fair value under SFAS No. 159.

 

**5.****                                     ****Acquisitions**

 

***Real Estate Asset Acquisitions***

 

On May2, 2007, we acquired a portfolio of three office buildings containingapproximately 456,000 aggregate rentable square feet, located on approximately22.8 acres of land in Santa Clara, California (“Santa Clara Tech Center”). Thetotal contract purchase price of Santa Clara Tech Center, exclusive of closingcosts, was $70 million. We used proceeds from the Offering plus borrowingsunder a bridge promissory note totaling $52.1 million to pay the contractpurchase price.

 

On May3, 2007, we acquired a 31.3% interest through our operating partnership as alimited partner in Royal Island Partners, LP (the “Royal Island Partnership”)for an aggregate capital contribution of $20 million. Proceeds from theOffering were used to fund our capital contribution. The Royal IslandPartnership, or its subsidiaries, owns or leases approximately 433 acres ofundeveloped land on three islands in the Commonwealth of the Bahamas – RoyalIsland, Chicken Cay and Rat Cay. We account for our interest in the RoyalIsland Partnership using the equity method, which is shown on the balance sheetat September 30, 2007 in investments in unconsolidated joint ventures.

 

On May10, 2007, we acquired a data center facility in Arlington, Texas containingapproximately 87,000 rentable square feet (“5000 S. Bowen Road”). 5000 S. BowenRoad is situated on approximately 69.6 acres of land, of which approximately13.8 acres is developable land. The total contract purchase price for 5000 S.Bowen Road, exclusive of closing costs, was $18.5 million. We used proceedsfrom the Offering to pay the contract purchase price.

 

OnJune 29, 2007, we acquired a 90% ownership interest in an approximately 65-acreundeveloped industrial tract of land located near Sky Harbor InternationalAirport in Phoenix, Arizona (“Rio Salado Business Center”). The contractpurchase price for Rio Salado Business Center, exclusive of closing costs, was$7.4 million. We used proceeds from the Offering to pay the contract purchaseprice.

 

OnAugust 3, 2007, we acquired a 70% ownership interest in a master planned,mixed-use development in Frisco, Texas, (“Frisco Square”) consisting ofapproximately 49.5 acres of entitled and unimproved land plus existingimprovements comprised of 114 multi-family units, approximately 57,000 squarefeet of retail and restaurant space, and approximately 43,500 square feet ofoffice space. The total contract purchase price of Frisco Square, exclusive ofclosing costs, was $67.8 million. We used proceeds from the Offering plusassumed debt totaling $29.9 million to pay the contract purchase price.

 

OnSeptember 13, 2007, we acquired a portfolio of three office buildings,containing approximately 579,000 aggregate square feet of rentable officespace, located within suburban submarkets of Houston, Texas (the “HoustonPortfolio”).

 

TheHouston Portfolio consists of the following office buildings:

 

•                  a nine-story office building containingapproximately 180,000 rentable square feet, with a six-level attached parkinggarage, located on approximately 4.2 acres of land (“Northpoint Central”);

 

14

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**Behringer Harvard OpportunityREIT I, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

•                  a six-story office building containingapproximately 157,000 rentable square feet, with a three-level attached parkinggarage, located on approximately 4.4 acres of land (“Regency Center”); and

 

•                  a 16-story office building containingapproximately 242,000 rentable square feet, with a seven-level attached parkinggarage, located on approximately 1.5 acres of land (“2603 Augusta”).

 

Thetotal contract purchase price for the Houston Portfolio, exclusive of closingcosts, was approximately $73 million and was paid entirely through the use ofproceeds from our Offering.

 

OnSeptember 20, 2007, under separate contribution agreements, we acquired 50%interests in two student housing apartment projects, GrandMarc TCU located inFt. Worth, Texas and GrandMarc UVA located in Charlottesville, Virginia, for anaggregate capital contribution of $14.2 million. The $14.2 million capitalcontribution was paid entirely through the use of proceeds from repayment ofthe mezzanine loans originally made in February 2007 (“GrandMarc Loans”) toprovide financing for the student housing apartment projects.

 

***Business Combination***

 

OnJune 6, 2007, we acquired an 85% ownership interest in a 56 room resort, whichincludes a 20,000 square foot spa, in Edwards, Colorado (“The Lodge & Spaat Cordillera”). The Lodge & Spa at Cordillera is situated on 8.3 acres ofland, which includes 3.5 acres of land planned for development into 19additional units. In addition, The Lodge & Spa at Cordillera includes anadjacent 23.2 acres of vacant land, which is entitled for residentialdevelopment. The purchase price for The Lodge & Spa at Cordillera was $36.5million, including direct acquisition costs and the portion funded by our 15%unaffiliated partner. We used proceeds from the Offering to pay the purchaseprice.

 

Thefollowing summary presents the initial estimated allocation of the purchaseprice of The Lodge & Spa at Cordillera to the assets acquired andliabilities assumed.  We are in the process of finalizing the allocation,which is subject to change until our information is finalized, no later thantwelve months from the acquisition date.

 
| Land                               |   | $          | 27,401,962 |   |
|------------------------------------|--------|------------|------------|--------|
| Site improvements                  |   | 412,643    |       |
| Building                           |   | 6,341,510  |       |
| Furniture, fixtures, and equipment |   | 1,319,019  |       |
| Room and banquet backlog           |   | 15,910     |       |
| Trademark / trade name             |   | 1,487,361  |       |
| Other intangible assets            |   | 32,847     |       |
| Cash                               |   | 8,000      |       |
| Receivables                        |   | 229,690    |       |
| Prepaid assets                     |   | 132,119    |       |
| Inventory                          |   | 235,895    |       |
| Deposits                           |   | 140,000    |       |
| Liabilities assumed                |   | (1,232,061 | )          |
|                               |   |       |       |
| Net assets acquired                |   | $          | 36,524,895 |   |

 

15

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

Thefollowing summary presents the results of operations for the three months endedSeptember 30, 2006 and the nine months ended September 30, 2007 and 2006, on anunaudited pro forma basis, as if the acquisition of The Lodge & Spa atCordillera had occurred as of the beginning of the respective periods. The pro forma results are for illustrative purposes only and do not purport tobe indicative of the actual results that would have occurred had thetransaction occurred on January 1 of the respective years, nor are theyindicative of results of operations that may occur in the future.

 
| ** **                     | ** ** | **Three Months  Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                     | ** ** | **September 30,**       | ** ** | **September 30,**          | ** ** |
| ** **                     | ** ** | **2006**                     | ** ** | **2007**                        | ** ** | **2006** | ** ** |
| Total revenues                 |       | $                            | 3,097,452  |                            | $          | 25,346,298 |   | $ | 7,116,922 |   |
| Total expenses                 |       | (3,979,548                   | )          | (29,868,352                     | )          | (9,712,649 | ) |
| Interest income                |       | 885,109                      |       | 2,939,418                       |       | 1,786,950 |   |
| Minority interest              |       | 233,828                      |       | (18,660                         | )          | 440,091 |   |
|                           |       |                         |       |                            |       |   |   |
| Net income (loss)              |       | $                            | 236,841    |                            | $          | (1,601,296 | ) | $ | (368,686 | ) |
|                           |       |                         |       |                            |       |   |   |
| **Earnings (loss) per share:** |       |                         |       |                            |       |   |   |
| Basic                          |       | $                            | 0.02       |                            | $          | (0.05 | ) | $ | (0.05 | ) |
| Diluted                        |       | $                            | 0.02       |                            | $          | (0.05 | ) | $ | (0.05 | ) |

 

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

 

Asof September 30, 2007, we wholly owned nine properties and consolidated fourproperties through investments in limited liability companies. In addition, weare the mezzanine lender for two development properties which we consolidateunder FIN 46R. We have non-controlling, unconsolidated ownership interests inthree properties that are accounted for using the equity method:  Royal Island, GrandMarc TCU, and GrandMarcUVA. Capital contributions, distributions, and profits and losses of theseproperties are allocated in accordance with the terms of the applicablepartnership agreement. The following table presents certain information aboutour consolidated properties as of September 30, 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%          |       |
| Bent Tree Green                   |       | Dallas, Texas             |       | 138,000                 |       | 3-story office building                                                    |       | 100%          |       |
| Las Colinas Commons               |       | Irving, Texas             |       | 239,000                 |       | 3-building office complex                                                  |       | 100%          |       |
| 5000 S. Bowen Road                |       | Arlington, Texas          |       | 87,000                  |       | 1-story data center campus                                                 |       | 100%          |       |
| Santa Clara Tech Center           |       | Santa Clara, California   |       | 456,000                 |       | 3-building office complex                                                  |       | 100%          |       |
| Northpoint Central                |       | Houston, Texas            |       | 180,000                 |       | 9-story office building                                                    |       | 100%          |       |
| Regency Center                    |       | Houston, Texas            |       | 157,000                 |       | 6-story office building                                                    |       | 100%          |       |
| 2603 Augusta                      |       | Houston, Texas            |       | 242,000                 |       | 16-story office building                                                   |       | 100%          |       |
| Chase Park Plaza                  |       | St. Louis, Missouri       |       | —                  |       | hotel and redevelopment property                                           |       | 95%           |       |
| The Lodge & Spa at Cordillera |       | Edwards, Colorado         |       | —                  |       | hotel and redevelopment property                                           |       | 85%           |       |
| Rio Salado Business Center        |       | Phoenix, Arizona          |       | —                  |       | development property                                                       |       | 90%           |       |
| Frisco Square                     |       | Frisco, Texas             |       | 100,500                 |       | mixed-use development  (multifamily,  retail, office, and restaurant) |       | 70%           |       |
| Alexan Voss                       |       | Houston, Texas            |       | —                  |       | development property                                                       |       | Lender        |       |
| Alexan Black Mountain             |       | Henderson, Nevada         |       | —                  |       | development property                                                       |       | Lender        |       |
| Royal Island                      |       | Commonwealth of Bahamas   |       | —                  |       | development property                                                       |       | 31%           |       |
| GrandMarc TCU                     |       | Ft. Worth, Texas          |       | —                  |       | student housing                                                            |       | 50%           |       |
| GrandMarc UVA                     |       | Charlottesville, Virginia |       | —                  |       | student housing                                                            |       | 50%           |       |

 

16

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

**7.****                           ****Variable Interest Entities**

 

In2006, we agreed to provide secured mezzanine financing with an aggregateprincipal amount up to $22.7 million to unaffiliated third-party entities thatown real estate under development (the “Alexan Voss” and “Alexan Black Mountain”properties, respectively). These entities also have secured construction loanswith third-party lenders, with an aggregate principal amount of up to $68.6million. Our mezzanine loans are subordinate to the construction loans. Inaddition, we have entered into option agreements allowing us to purchase theownership interests in Alexan Voss and Alexan Black Mountain after each project’ssubstantial completion.

 

Theloans finance the acquisition and development of apartment communities inHouston, Texas and Henderson, Nevada. The Alexan Voss project in Houston, Texasconsists of two parcels of land for development, known as La Scala and Hart. Theowners of Alexan Voss acquired the La Scala parcel on September 22, 2006 andthe 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 financed primarily by the mezzanine andconstruction loans.

 

Basedon our evaluation, we have determined that these entities meet the criteria ofvariable interest entities under FIN 46R and that we are the primarybeneficiary of these variable interest entities. Therefore, we haveconsolidated the entities, including the related real estate assets andthird-party construction financing. As of September 30, 2007, there was $56.8million of real estate under development related to Alexan Voss and AlexanBlack Mountain, which collateralizes the outstanding principal balance of theconstruction and mezzanine loans of $50 million. The third-party constructionlenders have no recourse to the general credit of us as the primarybeneficiary, but their loans are guaranteed by the owners of the variableinterest entities. As of September 30, 2007, the outstanding principal balanceunder our mezzanine loans was $20.1 million, which is eliminated, along withaccrued interest and loan origination fees, upon consolidation.

 

**8.****                           ****Notes Receivable**

 

InFebruary 2007, we made two mezzanine loans to provide financing for studenthousing apartment projects in Fort Worth, Texas and Charlottesville, Virginia. Theaggregate principal amount of the mezzanine loans was $14.2 million. Themezzanine loans accrued interest at 10% per annum and the original maturity wasFebruary 25, 2008. On September 20, 2007, in accordance with thecontribution agreements associated with these loans, the loans were repaid andthe proceeds were contributed for our 50% equity interests in two newly formedjoint ventures with the mezzanine borrowers for a total contribution of $14.2million.

 

Welease the hotel portion of the Chase Park Plaza property to the hotel operator,an unaffiliated entity that owns the remaining 5% of Chase Park Plaza. Inconjunction with the lease agreement, we made a working capital and inventoryloan of up to $1.9 million to the hotel operator in December 2006. The interestrate under the note is fixed at 5% per annum. The term of the note is theearlier of December 31, 2016 or the termination of the related hotel leaseagreement. Annual payments of interest only are required each December with anyremaining balance payable at the maturity date. In accordance with the hotellease agreement, the tenant will receive a reduction in its base rental paymentdue in January in the amount of the interest paid on the promissory note in theprevious December. This reduction in the lease payment is reflected as astraight-line adjustment to base rental revenue.

 

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

 

Wecapitalize interest, property taxes, insurance, and construction costs on ourreal estate properties under development. For the three and nine months endedSeptember 30, 2007, we capitalized a total of $13.7 million and $30.1 million,respectively, in such costs associated with real estate under development.

 

Forthe three and nine months ended September 30, 2007, we capitalized $1.2 millionand $2.3 million in interest, respectively, and less than $0.1 million and $0.1million in amortization of deferred financing costs, respectively, for our realestate under development. We had no real estate properties under developmentduring the three and nine months ended September 30, 2006.

 

During the third quarter of 2007, we transferred $66.6 million ofcondominium construction-in-progress costs related to Chase Park Plaza and TheLodge & Spa at Cordillera to condominium inventory from real estate underdevelopment on our consolidated balance sheet. Certain redevelopment costs including interest, property taxes,insurance, and construction costs associated with Chase Park Plaza and TheLodge & Spa at Cordillera have been capitalized on our consolidated balancesheet at September 30, 2007. For the three and nine months ended September 30,2007, we capitalized a total of $6.9 million and $14.3 million, respectively, incosts associated with the condominium redevelopment at Chase Park Plaza and TheLodge & Spa at Cordillera, including $0.2 million and $0.3 million ofinterest, respectively. 

 

**10.****                     DerivativeInstruments and Hedging Activities**

 

Weaccount for our derivatives and hedging activities under SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” as amended and interpreted.  In June2007, we entered into two interest rate cap agreements associated with ourSanta Clara Tech Center property. During the nine months ended September 30,2007, we recorded unrealized losses of $93,620 to accumulated othercomprehensive loss in our statement of stockholders’ equity to adjust thecarrying amount of the interest rate caps to their fair values at September 30,2007.

 

17

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

Wemay be exposed to the risk associated with variability of interest rates thatmight impact our cash flows and the results of operations.  Thehedging strategy, therefore, is to eliminate or reduce, to the extent possible,the volatility of cash flows.  The following table summarizes thenotional values and fair values of our derivative financial instruments as ofSeptember 30, 2007. The notional values provide an indication of the extent ofour involvement in these instruments at September 30, 2007, but do notrepresent exposure to credit, interest rate, or market risks.

 

| **Hedge Type**           | ** ** | **Notional Value** | ** ** | **Interest Rate** | ** ** | **Maturity** | ** **    | **Fair Value** | ** ** |
|-------------------------------|------------|-------------------------|------------|------------------------|------------|--------------|---------------|---------------------|------------|
| Interest rate cap - cash flow |       | $                       | 35,115,000 |                   | 6%         |         | June 15, 2010 |                | $          | 40,988 |   |
| Interest rate cap - cash flow |       | $                       | 17,000,000 |                   | 6%         |         | June 15, 2010 |                | $          | 19,843 |   |

 

Thederivative instruments were reported at their combined fair values of $60,831in prepaid expenses and other assets at September 30, 2007, with acorresponding adjustment to other comprehensive income for the unrealized gainsand losses.  Over time, the unrealized gains and losses held inaccumulated other comprehensive income will be reclassified to earnings, ofwhich an insignificant amount is expected to be reclassified in 2007.  Thisreclassification will correlate with the recognition of the hedged interestpayments in earnings.  There was no hedge ineffectiveness during thenine months ended September 30, 2007.

 

# **11.**                     Mortgages Payable

# ** **

Thefollowing table sets forth our mortgages payable on our consolidatedproperties, including the mortgage obligations of properties consolidated underFIN 46R at September 30, 2007 and December 31, 2006:

 
| ** **                 | ** ** | **September 30,** | ** **  | **December 31,** | ** ** | **Interest**                                     | ** ** | **Maturity** | ** ** |
|----------------------------|------------|------------------------|-------------|-----------------------|------------|--------------------------------------------------|------------|--------------|------------|
| **Description**            | ** ** | **2007**               | ** **  | **2006**              | ** ** | **Rate**                                         | ** ** | **Date**     | ** ** |
| Ferncroft Corporate Center |       | $                      | 18,000,000  |                  | $          | 18,000,000                                       |       | 6.33%        |       | 9/1/2013 |   |
| Alexan Voss(1)             |       | 10,598,654             |        | 10,403,747            |       | 30-day LIBOR + 1.6% (2)                          |       | 3/22/2010    |       |
| Alexan Black Mountain(1)   |       | 19,256,711             |        | 5,799,792             |       | 30-day LIBOR + 1.6%(2)                           |       | 9/29/2009    |       |
| Chase Park Plaza           |       | 55,000,000             |        | 55,000,000            |       | 5.2%                                             |       | 8/1/2010     |       |
| Santa Clara Tech Center    |       | 52,115,000             |        | —                |       | 30-day LIBOR + 1.75%(2)                          |       | 6/9/2010     |       |
| Frisco Square - Comerica   |       | 21,115,280             |        | —                |       | Prime Rate + 0.25%, or Eurodollar Rate +   3%(3) |       | 12/3/2007    |       |
|                       |       |                   |        |                  |       |                                             |       |         |       |
| Frisco Square - F1-10      |       | 8,272,330              |        | —                |       | Prime Rate + 1%                                  |       | 11/6/2007    |       |
| Frisco Square - B1-7       |       | 531,088                |        | —                |       | Prime Rate + 3%                                  |       | On Demand    |       |
| Frisco Square - Compass    |       | 2,489,484              |        | —                |       | Prime Rate, or LIBOR                             |       | 3/8/2009     |       |
|                       |       | $                      | 187,378,547 |                  | $          | 89,203,539                                       |       |         |       |   |   |

 

----

(1)          The mortgages payable of our mezzanineborrowers consolidated under FIN 46R are obligations of our mezzanine borrowersand have no recourse to us.

 

(2)          30-day London Interbank Offer Rate (“LIBOR”)was 5.12% at September 30, 2007.

 

(3)          At September 30, 2007, the Prime Ratewas 7.75% and the one-month Eurodollar Rate was 5.15%.

 

Thepayment terms of our debt obligations vary. In general, interest only ispayable monthly (and is generally drawn on the underlying construction loan forproperties under development), with all unpaid principal and interest due atmaturity. Our loan agreements stipulate that we comply with certain reportingand financial covenants. These covenants include, among other things,maintaining minimum debt service coverage ratios.

 

On May2, 2007, we acquired the Santa Clara Tech Center using approximately $52.1million under a bridge promissory note dated May 2, 2007 (the “Santa ClaraBridge Note”) from a financial institution (the “Santa Clara Lender”) to pay aportion of the $70 million contract purchase price for the Santa ClaraTech Center. On June 8, 2007, we obtained permanent financing for theacquisition of the Santa Clara Tech Center and paid off the Santa Clara BridgeNote through a loan agreement (the “Santa Clara Loan Agreement”) and amezzanine loan agreement (the “Santa Clara Mezzanine Loan Agreement”) with theSanta Clara Lender. Borrowings under the Santa Clara Loan Agreement may totalup to $59.5 million, and the Santa Clara Tech Center is held as collateral forthe Santa Clara Loan Agreement. Borrowings under the Santa Clara

 

18

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

Mezzanine Loan may total up to $20 million. Theinterest rate under the Santa Clara Loan Agreement and the Santa ClaraMezzanine Loan Agreement is equal to the 30-day LIBOR rate plus 1.75%, withinterest being calculated on the unpaid principal. The LIBOR rate is capped at6% through interest rate cap agreements. Monthly payments of unpaid accruedinterest only are due beginning July 9, 2007. A final payment of the principaland unpaid accrued interest is due and payable on June 9, 2010, thematurity date.

 

OnAugust 3, 2007, we acquired a 70% interest in Frisco Square using an aggregateof $29.9 million of assumed debt under four separate notes:

 

•                  We assumed $21.1 million under the FriscoSquare — Comerica note, which bears interest at the election of the borrower ateither the Prime Rate plus 0.25% or the Eurodollar Rate plus 3%. Monthlypayments of interest only are required with any remaining balance payable atthe maturity date, December 3, 2007. Prepayment is permitted at any timesubject to the expiration of any applicable Eurodollar interest period. Inaddition, we have guaranteed payment of the debt under the Frisco Square —Comerica loan with our liability limited to 70% of the principal outstandingplus interest and costs.

 

•                  We assumed $8.3 million under the FriscoSquare — F1-10 note, which bears interest at the Prime Rate plus 1%. Monthlypayments of interest only are required and the Frisco Square — F1-10 notematures on November 6, 2007. We have guaranteed payment of the debt with ourliability limited to 70% of the principal outstanding plus interest and costs.

 

•                  We assumed $0.5 million under the FriscoSquare — B1-7 note, which bears interest at the Prime Rate plus 3%. Monthlypayments of interest only are required and the Frisco Square — B1-7 notematures on demand. We have guaranteed payment of the debt with our liabilitylimited to 70% of the principal outstanding plus interest and costs.

 

•                  We assumed $1,000 under the Frisco Square —Compass note, which bears interest at the election of the borrower, at eitherthe Prime Rate or an interest rate based on LIBOR. Monthly payments of interestonly are required with any remaining balance payable at the maturity date,March 8, 2009. As of September 30, 2007, the balance of the note was $2.5million with $6.4 million of the loan proceeds remaining available fordisbursement.

 

As ofSeptember 30, 2007, we were in compliance with the debt covenants underour loan agreements.

 

**12.****                     Stockholders’Equity**

 

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 isconvertible into shares of our common stock with a value equal to 15% of theamount by which (1) our enterprise value, including the total amount of distributionspaid to our stockholders, exceeds (2) the sum of the aggregate capital investedby our stockholders plus a 10% cumulative, non-compounded, annual return onsuch capital. Conversion of the convertible stock may be limited by our boardof directors if it determines that full conversion may jeopardize ourqualification as a REIT. Our board of directors may authorize additional sharesof capital stock and their characteristics without obtaining stockholderapproval.

 

***Share Redemption Program***

 

Ourboard of directors has authorized and adopted a share redemption program thatenables our stockholders to sell their shares to us in limited circumstancesafter they have held them for at least one year. The purchase price for theredeemed shares is set forth in the prospectus for the Offering of our commonstock. Our board of directors reserves the right in its sole discretion at anytime, and from time to time, to (1) waive the one-year holding period in theevent of the death, disability or bankruptcy of a stockholder or other exigentcircumstances, (2) reject any request for redemption, (3) change thepurchase price for redemptions, or (4) terminate, suspend or amend the shareredemption program. Under the terms of the plan, during any calendar year, wewill not redeem in excess of 5% of the weighted average number of sharesoutstanding during the twelve-month period immediately prior to the date ofredemption. In addition, our board of directors will determine whether we havesufficient cash from operations to repurchase shares, and such purchases willgenerally be limited to proceeds of our DRIP plus 1% of operating cash flow forthe previous fiscal year (to the extent positive). As of September 30, 2007, wehad redeemed 93,096 shares of common stock.

 

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

***Incentive Award Plan***

 

TheBehringer Harvard Opportunity REIT I, Inc. Amended and Restated 2004 IncentiveAward Plan (“Incentive Award Plan”) was approved by our board of directors onJuly 19, 2005 and by our stockholders on July 25, 2005, and providesfor equity awards to our directors and consultants and to employees, directors,and consultants of our affiliates. A total of 11,000,000 shares have beenauthorized and reserved for issuance under our Incentive Award Plan. As ofSeptember 30, 2007, options to purchase 39,583 shares of stock wereoutstanding, of which 26,250 are fully vested, at a weighted average exerciseprice of $9.10.

 

## ***Distributions***

## *** ***

Weinitiated the payment of monthly distributions in August 2006 in the amount ofa 2% annualized rate of return, based on an investment in our common stock of$10.00 per share and calculated on a daily record basis of $0.0005479 per share.In December 2006, our board of directors declared distributions to be paid inthe first quarter of 2007 in the amount of a 2.5% annualized rate of return,calculated on a daily record basis of $0.0006849 per share. In March 2007, ourboard of directors declared distributions to be paid in the second quarter of2007 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 mayelect to reinvest any cash distribution in additional shares of common stock. Werecord all distributions when declared, except that the stock issued throughthe DRIP is recorded when the shares are actually issued. Distributionsdeclared and payable as of September 30, 2007 were $1.1 million, including $0.3million of cash distributions payable and $0.8 million of distributions instock to be reinvested through our DRIP.

 

Thefollowing are the distributions declared by quarter for the nine months endedSeptember 30, 2007 and 2006.

 

 

| **2007**    | ** ** | **Total** | ** ** | **Cash** | ** ** | **DRIP**  | ** ** |
|-------------|------------|-----------|------------|----------|------------|-----------|------------|
| 1st Quarter |       | $         | 1,279,062  |     | $          | 271,994   |       | $ | 1,007,068 |   |
| 2nd Quarter |       | 2,254,007 |       | 523,210  |       | 1,730,797 |       |
| 3rd Quarter |       | 3,217,364 |       | 773,143  |       | 2,444,221 |       |
|        |       |      |       |     |       |      |       |
| Total       |       | $         | 6,750,433  |     | $          | 1,568,347 |       | $ | 5,182,086 |   |

 

| **2006**    | ** ** | **Total** | ** ** | **Cash** | ** ** | **DRIP** | ** ** |
|-------------|------------|-----------|------------|----------|------------|----------|------------|
| 1st Quarter |       | $         | —     |     | $          | —   |       | $ | — |   |
| 2nd Quarter |       | —    |       | —   |       | —   |       |
| 3rd Quarter |       | 572,952   |       | 131,669  |       | 441,283  |       |
|        |       |      |       |     |       |     |       |
| Total       |       | $         | 572,952    |     | $          | 131,669  |       | $ | 441,283 |   |

 

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

 

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

 

BehringerSecurities LP (“Behringer Securities”), an affiliate of our advisor and thedealer manager for the Offering, receives commissions of up to 7% of grossoffering proceeds before reallowance of commissions earned by participatingbroker-dealers; provided that Behringer Securities will receive 1% of the grossproceeds of purchases pursuant to our DRIP. Behringer Securities reallows 100%of the commissions earned to participating broker-dealers. In addition, up to2% of gross proceeds before reallowance to participating broker-dealers will bepaid to Behringer Securities as a dealer manager fee; provided that BehringerSecurities will not receive dealer manager fees for purchases pursuant to ourDRIP. Behringer Securities may reallow all or a portion of its dealer managerfees in an aggregate amount up to 2% of gross offering proceeds tobroker-dealers participating in the Offering; provided, however, that BehringerSecurities may reallow, in the aggregate, no more than 1.5% of gross offeringproceeds for marketing fees and expenses, conference fees and non-itemized,non-invoiced due diligence efforts, and no more than 0.5% of gross offeringproceeds for actual out-of-pocket and bona fide, separately invoiced duediligence expenses incurred as fees, costs or other expenses from third parties.For the nine months ended September 30, 2007, Behringer Securities’ commissionsand dealer manager fees totaled $19.6 million and $5.9 million, respectively,and were recorded as a reduction to additional paid-in capital. In the ninemonths ended September 30, 2006, Behringer Securities’ commissions and dealermanager fees totaled $7.4 million and $2.2 million, respectively, and wererecorded as a reduction to additional paid-in capital.

 

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

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 throughSeptember 30, 2007, $10.1 million of organization and offering expenseshad been incurred by Behringer Opportunity Advisors or its predecessor ininterest on our behalf. Of this amount, $9.5 million had been reimbursed by usand $0.6 million of reimbursements payable is included in payables toaffiliates on our balance sheet. Of the $9.5 million of organization andoffering expenses reimbursed by us through September 30, 2007, less than $0.1million had been expensed as organizational costs with the remainder recordedas a reduction of additional paid-in capital. For the nine months endedSeptember 30, 2007, $5.9 million of organization and offering expenses werereimbursed by us and were recorded as a reduction of additional paid-in capital.In the nine months ended September 30, 2006, $2.2 million of offering andorganization expenses had been reimbursed by us and was recorded as a reductionof additional paid-in capital. Behringer Opportunity Advisors, or itsaffiliates, determines the amount of organization and offering expenses owedbased on specific invoice identification as well as an allocation of costs tous and other Behringer Harvard programs, based on respective equity offeringresults of those entities in offering.

 

BehringerOpportunity Advisors, or its affiliates, receives acquisition and advisory feesof 2.5% of the contract purchase price of each asset for the acquisition,development or construction of real property or 2.5% of the funds advanced inrespect of a loan. Our advisor or its affiliates also receives reimbursement ofacquisition expenses up to 0.5% of the contract purchase price of each asset,or with respect to a loan, up to 0.5% of the funds advanced. BehringerOpportunity Advisors or its predecessor in interest earned $12 million inacquisition and advisory fees and $2.4 million in acquisition expensereimbursements for our investments made during the nine months ended September30, 2007. In the nine months ended September 30, 2006, our advisor earned $1.2million in acquisition and advisory fees and $0.2 million in acquisitionexpense reimbursements. For property acquisitions, we capitalize these fees aspart of our real estate and for loans, we defer these fees to be amortized overthe loan term.

 

Wepay Behringer Opportunity Advisors or its affiliates a debt financing fee equalto 1% of the amount of any debt made available to us. We incurred $0.8 millionof debt financing fees during the nine months ended September 30, 2007. Debtfinancing fees of $0.2 million were incurred by us for the nine months endedSeptember 30, 2006.

 

Wepay HPT Management Services LP (“HPT Management”), an affiliate of our advisorand our property manager, fees for management and leasing of our properties,which may be subcontracted to unaffiliated third parties. Such fees are equalto 4.5% of gross revenues plus leasing commissions based upon the customaryleasing commission applicable to the same geographic location of the respectiveproperty. In the event that we contract directly with a non-affiliatedthird-party property manager in respect of a property, we will pay HPTManagement an oversight fee equal to 1% of gross revenues of the propertymanaged. In no event will we pay both a property management fee and anoversight fee to HPT Management with respect to any particular property. Weincurred and expensed such fees totaling $0.4 million in the nine months endedSeptember 30, 2007 and less than $0.1 million in the nine months endedSeptember 30, 2006.

 

Wepay Behringer Opportunity Advisors an annual asset management fee of 0.75% ofthe aggregate asset value of acquired real estate. The fee is payable monthlyin an amount equal to one-twelfth of 0.75% of the aggregate asset value as ofthe last day of the preceding month. For the nine months ended September 30,2007, we expensed $1.5 million of asset management fees and capitalized $0.1million of asset management fees to real estate. For the nine months endedSeptember 30, 2006, we incurred and expensed $0.1 million of asset managementfees.

 

Wewill reimburse Behringer Opportunity Advisors or its affiliates for allexpenses paid or incurred by them in connection with the services they provideto us, subject to the limitation that we will not reimburse for any amount bywhich our advisor’s operating expenses (including the asset management fee) atthe end of the four preceding fiscal quarters immediately preceding the datereimbursement is sought exceeds the greater of: (1) 2% of our average invested assets or (2) 25% of our net income forthat four quarter period other than any additions to reserves for depreciation,bad debts or other similar non-cash reserves and any gain from the sale of ourassets for that period.

 

AtSeptember 30, 2007, we had a payable to our advisor and its affiliates of $0.7million. This balance consists primarily of reimbursable offering expensespayable to Behringer Opportunity Advisors (or its predecessor in interest),management fees payable to HPT Management, and commissions payable to BehringerSecurities.

 

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 that these companies were unable to provide uswith the respective services, we would be required to obtain such services fromother sources.

 

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** **

**BehringerHarvard Opportunity REIT I, Inc.**

**Notesto Consolidated Financial Statements**

**(Unaudited)**

 

# **14.**                     Commitments and Contingencies

# ** **

Uponacquisition of one of our properties, we assumed a “guaranteed maximum price”contract with a construction manager for real estate under development where wemay be obligated to pay up to $9.3 million in total construction costs. As ofSeptember 30, 2007, $5.9 million had been paid under this contract, includingamounts paid by us or by the previous owner prior to our acquisition.

 

Ourmezzanine borrowers, which are consolidated under FIN 46R, have contracts withconstruction managers to build apartment projects. One of these contracts is aguaranteed maximum price contract and the other contract is for total projectcost plus a fixed fee. The guaranteed maximum price contract is for up to $22.9million in total construction costs, of which $14.3 million had been paid as ofSeptember 30, 2007. As of September 30, 2007, $3.9 million had been paid underthe other contract. The consolidated members of the consolidated group,exclusive of our consolidated borrowers, are not obligated to pay theconstruction costs for such contracts.

 

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

 

Supplementalcash flow information is summarized below for the nine months ended September30, 2007 and 2006.

 

| ** **                                                                                                 | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2007**                                                | ** ** | **2006** | ** ** |
| **Supplemental  disclosure:**                                                                              |       |                                                    |       |   |   |
| Interest paid, net of amounts capitalized                                                                  |       | $                                                       | 3,344,199  |   | $ | 16,997 |   |
|                                                                                                       |       |                                                    |       |   |   |
| **Non–cash  investing activities:**                                                                   |       |                                                    |       |   |   |
| Property and equipment additions and  purchases of real estate in accrued liabilities                      |       | $                                                       | 465,867    |   | $ | — |   |
| Capital expenditures for real estate under development  in accounts payable and  accrued  liabilities |       | $                                                       | 5,606,778  |   | $ | — |   |
| Conversion of notes receivable to  investments in unconsolidated joint ventures                            |       | $                                                       | 14,165,000 |   | $ | — |   |
| Amortization of deferred financing fees in  properties under development                                   |       | $                                                       | 95,287     |   | $ | — |   |
|                                                                                                       |       |                                                    |       |   |   |
| **Non–cash  financing activities:**                                                                   |       |                                                    |       |   |   |
| Common stock issued in distribution reinvestment  plan                                                     |       | $                                                       | 5,644,670  |   | $ | 280,656 |   |
| Assumed debt on acquisition of real estate  investment                                                     |       | $                                                       | 29,949,666 |   | $ | — |   |

 

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

 

On October 26, 2007, we filed a RegistrationStatement on Form S-3 (SEC Registration No. 333-146965) under the SecuritiesAct, which automatically became effective upon its filing, with respect to a “bestefforts” offering of up to 6,315,790 shares under our Second Amended andRestated Distribution Reinvestment Plan pursuant to which our stockholders mayelect to have their distributions reinvested in additional shares of our commonstock at a price of up to $9.50 per share, for an aggregate offering price of$60 million. No selling commissions or dealer manager fees will be paid inconnection with the offer or sale of our shares pursuant to this RegistrationStatement. We intend to offer shares pursuant of this Registration Statementafter November 16, 2007.

 

The maturity date of the Frisco Square — F1-10 note related to ourinvestment in Frisco Square was November 6, 2007. We are currentlynegotiating with the lender to extend the term of this loan; however, noassurances can be given that an agreement to extend the term of this loan willbe reached.

 

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**Item 2.**                                                           Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

** **

Thefollowing discussion and analysis should be read in conjunction with theaccompanying financial statements of the Company and the notes thereto:

 

### **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 statementsare not historical facts but are the intent, belief or current expectations ofour management based on their knowledge and understanding of our business andindustry. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,”“seeks,” “estimates,” “would,” “could,” “should” and variations of these wordsand similar expressions are intended to identify forward-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 thetime made may ultimately prove to be incorrect or false. We caution investorsnot to place undue reliance on forward-looking statements, which reflect ourmanagement’s view only as of the date of this report on Form 10-Q. We undertakeno obligation to update or revise forward-looking statements to reflect changedassumptions, the occurrence of unanticipated events or changes to futureoperating results. Factors that could cause actual results to differ materiallyfrom any forward-looking statements made in the Form 10-Q include changes in generaleconomic conditions, changes in real estate conditions, construction costs thatmay exceed estimates, construction delays, increases in interest rates,lease-up risks, inability to obtain new tenants upon the expiration of existingleases, and the potential need to fund tenant improvements or other capitalexpenditures out of operating cash flow. The forward-looking statements shouldbe read in light of the risk factors identified in the “Risk Factors” sectionof our Annual Report on Form 10-K for the year ended December 31, 2006, asfiled with the SEC.**

### ** **

**CautionaryNote**

 

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

 

**Critical Accounting Policies and Estimates**

 

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

 

Belowis a discussion of the accounting policies that we consider to be critical inthat they may require complex judgment in their application or requireestimates about matters that are inherently uncertain.

 

***Principles of Consolidation and Basis ofPresentation***

 

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. All inter-company transactions, balances andprofits have been eliminated in consolidation. Interests in entities acquiredare evaluated for consolidation based on FIN 46R, which requires theconsolidation of VIEs in which we are deemed to be the primary beneficiary. Ifthe interest in the entity is determined to not be a VIE under FIN 46R, thenthe entity is evaluated for consolidation under the American Institute ofCertified Public Accountants’ Statement of Position 78-9, “Accounting for Investments in Real EstateVentures,” as amended by Emerging Issues Task Force 04-5, “Determining Whether a General Partner, orthe General Partners as a Group, Controls a Limited Partnership or SimilarEntity When the Limited Partners Have Certain Rights.”

 

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 primary beneficiary. Theentity is evaluated to determine if it is a VIE by, among other things,

 

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calculatingthe percentage of equity being risked compared to the total equity of theentity. FIN 46R provides some guidelines as to what the minimum equity at riskshould be, but the percentage can vary depending upon the industry and/or thetype of operations of the entity and it is up to management to determine thatminimum percentage as it relates to our business and the facts surrounding eachof our acquisitions. In addition, even if the entity’s equity at risk is a verylow percentage, we are required by FIN 46R to evaluate the equity at riskcompared to the entity’s expected future losses to determine if there couldstill in fact be sufficient equity at the entity. Determining expected futurelosses involves assumptions of various possibilities of the results of futureoperations of the entity, assigning a probability to each possibility and usinga discount rate to determine the net present value of those future losses. Achange in the judgments, assumptions and estimates outlined above could resultin consolidating an entity that should not be consolidated or accounting for aninvestment on the equity method that should in fact be consolidated, theeffects of which could be material to our financial statements.

 

***Real Estate and Other IntangibleAssets***

 

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 OtherIntangible Assets.” Identified intangible assets consist of the fairvalue of above-market and below-market leases, in-place leases, in-place tenantimprovements, 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.

 

Thefair value of the tangible assets acquired, consisting of land, land improvements,buildings, building improvements, furniture, fixtures, and equipment, isdetermined 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 fromappraisals, and building and land improvement values are calculated asreplacement cost less depreciation or management’s estimates of the relativefair value of these assets using discounted cash flow analyses or similarmethods. Furniture, fixtures and equipment values are determined based oncurrent reproduction or replacement cost less depreciation and other estimatedallowances based on physical, functional or economic factors. The values of thebuildings are depreciated over the estimated useful lives ranging from 25 yearsfor office property to 39 years for hotel property using the straight-linemethod. Land improvements are depreciated over the estimated useful life of 15years, and furniture, fixtures, and equipment are depreciated over estimateduseful lives ranging from five to seven years using the straight-line method.

 

Wedetermine the value of above-market and below-market in-place leases foracquired properties based on the present value (using an interest rate thatreflects the risks associated with the leases acquired) of the differencebetween (i) the contractual amounts to be paid pursuant to the in-place leasesand (ii) management’s estimate of current market lease rates for thecorresponding in-place leases, measured over a period equal to the remainingnon-cancelable terms of the respective leases. We record the fair value ofabove-market and below-market leases as intangible assets or intangibleliabilities, respectively, and amortize them as an adjustment to rental incomeover the remaining non-cancelable terms of the respective 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 tenantimprovements and leasing commissions is based on estimates of these costsincurred at inception of the acquired leases, amortized through the date ofacquisition. The aggregate value of in-place leases acquired and tenantrelationships is determined by applying a fair value model. The estimates offair value of in-place leases include an estimate of carrying costs during theexpected lease-up periods for the respective spaces considering current marketconditions. In estimating the carrying costs that would have otherwise beenincurred had the leases not been in place, management includes such items asreal estate taxes, insurance and other operating expenses as well as lostrental revenue during the expected lease-up period based on current marketconditions. The estimates of the fair value of tenant relationships alsoinclude costs to execute similar leases including leasing commissions, legalcosts, and tenant improvements, as well as an estimate of the likelihood ofrenewal 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 non-cancelable term of the respective leases. Thevalue of tenant relationship intangibles is amortized to expense over theinitial non-cancelable term and any anticipated renewal periods, but in noevent will the amortization period for intangible assets exceed the remainingdepreciable 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.

 

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

 

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analysesor similar methods. The value of trade names are amortized over the estimateduseful life of 20 years using the straight-line method and the value of thein-place property tax abatement is amortized over its estimated term of 10years using the straight-line method.

 

Wedetermine the fair value of assumed debt by calculating the net present valueof the scheduled note payments using interest rates for debt with similar termsand remaining maturities that we believe we could obtain. Any differencebetween the fair value and stated value of the assumed debt is recorded as adiscount or premium and amortized over the remaining life of the loan.

 

Inallocating the purchase price of each of our properties, management makes assumptionsand uses various estimates, including, but not limited to, the estimated usefullives of the assets, the cost of replacing certain assets, discount rates usedto determine present values, market rental rates per square foot and the periodrequired to lease the property up to its occupancy at acquisition if it werevacant. Many of these estimates are obtained from independent third partyappraisals. However, management is responsible for the source and use of theseestimates. A change in these estimates and assumptions could result in thevarious categories of our real estate assets and/or related intangibles beingoverstated or understated, which could result in an overstatement orunderstatement of depreciation and/or amortization expense. These variancescould be material to our financial statements.

 

***Impairment of Long-Lived Assets***

 

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 events or changes in circumstances arepresent, we assess potential impairment by comparing estimated futureundiscounted operating cash flows expected to be generated over the life of theasset and from its eventual disposition to the carrying amount of the asset. Inthe event 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 recorded to the extent the fair value of ourinvestment is less than the carrying amount and the decline in value isdetermined to be other than a temporary decline.

 

Fornotes receivable, management reviews the terms and conditions underlying theoutstanding notes receivable. If management determines that it is probable thatall amounts due under the terms of the note will not be collected, animpairment charge is recorded to the extent that the investment in the noteexceeds management’s estimate of the fair value of the collateral securing suchnote. There were no impairment charges for the three and nine months endedSeptember 30, 2007 or 2006.

 

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

 

**Overview**

 

Wewere formed primarily to invest in and operate real estate or real estaterelated 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 with higher volatility, lower barriers to entry, and highgrowth potential. We may acquire office, industrial, retail, hospitality,multi-family and other real properties, including existing or newly constructedproperties or properties under development or construction. Further, we mayinvest in real estate related securities, including securities issued by otherreal estate companies, either for investment or in change of controltransactions completed on a negotiated basis or otherwise. We also may investin collateralized mortgage-backed securities, mortgage, bridge or mezzanineloans and Section 1031 tenant-in-common interests, or in entities that makeinvestments similar to the foregoing.

 

OnSeptember 20, 2005, our Registration Statement on Form S-11 (File No.333-120847) covering the Offering of up to 40,000,000 shares of common stock tobe offered at a price of $10.00 per share and up to 8,000,000 shares of commonstock at a price of $9.50 per share pursuant to our DRIP was declared effectiveunder the Securities Act. On November 17, 2006, we registered an additional6,587,065 shares of common stock pursuant to the Offering through the filing ofa Registration Statement on Form S-11 (File No. 333-138804) pursuant to Rule462(b) under the Securities Act. We subsequently reallocated the shares of commonstock in the Offering to provide $530 million, or 53,000,000 shares, for salein the primary offering and $11.9 million, or 1,249,542 shares, for salethrough our DRIP.

 

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OnOctober 27, 2005, the conditions of our escrow agreement with Citibank Texas,N.A. were satisfied and as a result, operations commenced on November 9, 2005upon acceptance of initial subscriptions. On November 9, 2005, we had receivedand accepted subscriptions for 441,204 shares of common stock for grossoffering proceeds of $4.4 million. As of September 30, 2007, we had sold48,206,420 shares of our common stock, including 742,118 shares through theDRIP, for gross offering proceeds of $480.2 million. In addition, 21,739 sharesowned by Behringer Harvard Holdings were outstanding as of September 30, 2007. Asof September 30, 2007, we had no shares of preferred stock issued oroutstanding and 1,000 shares of convertible stock issued and outstanding.

 

**Resultsof Operations**

 

Asof September 30, 2007, we had invested in 18 properties: nine wholly ownedproperties; four other consolidated properties we own an interest in throughinvestments in limited liability companies including two mixed-use hotel andresidential properties; one investment in an island development accounted forunder the equity method; two investments in student housing projects in Texasand Virginia, also accounted for under the equity method; and two apartmentdevelopment properties as a mezzanine lender consolidated under FIN 46R. Ourinvestment properties are located in the Commonwealth of the Bahamas, Arizona,California, Colorado, Massachusetts, Minnesota, Missouri, Nevada, and Texas. Asof September 30, 2006, we had invested in only four properties, two wholly ownedproperties and two development properties we consolidated under FIN 46R as amezzanine lender. Accordingly, our results of operations for the three and ninemonths ended September 30, 2007, as compared to the three and nine months endedSeptember 30, 2006, reflect significant increases in most categories.

 

*Three months ended September 30, 2007 as comparedto three months ended September 30, 2006*

 

*Revenues.*Our total revenues increased by $9.2 million to $10.5 million for the threemonths ended September 30, 2007 as compared to the three months ended September30, 2006, primarily due to increased rental revenue resulting from theacquisition of new properties from which we receive rent. In addition, rentalrevenue for the three months ended September 30, 2007 includes revenue from thelease of the hotel-related management and operations of Chase Park Plaza, amixed-use hotel and residential property acquired in December 2006. Hotelrevenues for the three months ended September 30, 2007 totaled $2.6 million andconsisted of revenues generated by the operations of The Lodge & Spa atCordillera, a resort and spa property acquired in June 2007. We expectincreases in rental revenue in the future as we purchase additional real estateproperties.

 

*PropertyOperating Expenses.* Property operating expenses for the threemonths ended September 30, 2007 were $4.1 million as compared to $0.6 millionfor the three months ended September 30, 2006 and were comprised of propertyoperating expenses from our consolidated properties. The increase in propertyoperating expenses is primarily due to the increased number of real estateproperties acquired. We expect increases in property operating expenses in thefuture as we purchase additional real estate properties.

 

*Interest Expense.*Interest expense, net of amounts capitalized, for the threemonths ended September 30, 2007 was $1.8 million as compared to $0.1 millionfor the three months ended September 30, 2006, and was primarily comprised ofinterest expense attributable to the debt on Chase Park Plaza and Santa ClaraTech Center. We had only one outstanding mortgage payable during the threemonths ended September 30, 2006. We expect continued increases in mortgagespayable and in the related interest expense in the future as we purchase andinvest in additional real estate properties.

 

*RealEstate Taxes.*Real estate taxes, net of amounts capitalized,for the three months ended September 30, 2007 were $1 million as compared to$0.1 million for the three months ended September 30, 2006 and were comprisedof real estate taxes from each of our consolidated properties. The increase inreal estate taxes is primarily due to our increased number of consolidated realestate properties. We expect increases in real estate taxes in the future as wepurchase additional real estate properties.

 

*Property/ Asset Management Fees.*Property and asset management feesfor the three months ended September 30, 2007 totaled $1 million compared to$0.1 million for the same period in 2006 and were comprised of fees incurred byour consolidated properties. Property and asset management fees increased dueto the additional properties acquired. We expect increases in property andasset management fees in the future as we invest in additional real estate properties.

 

*Generaland Administrative Expenses.* General and administrativeexpenses for the three months ended September 30, 2007 were $0.3 million ascompared to $0.2 million for the three months ended September 30, 2006 and werecomprised of corporate general and administrative expenses including directors’and officers’ insurance premiums, auditing fees, legal fees, and otheradministrative expenses. The increase is due to increased corporate activity. Weexpect increases in general and administrative expenses in the future as weinvest in additional real estate properties.

 

*Depreciation and Amortization Expense.*Depreciationand amortization expense for the three months ended September 30, 2007 was $3.7million as compared to $0.4 million for the three months ended September 30,2006 and was

 

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comprised of depreciationand amortization expense from each of our consolidated operational properties. Forthe three months ended September 30, 2006, depreciation and amortizationexpense resulted from only two consolidated properties, Whitewater andFerncroft Corporate Center. We expect increases in depreciation andamortization expense in the future as we purchase additional real estateproperties and as properties under development become operational.

 

*InterestIncome*. Interest income was $1.4 million and $0.9 million forthe three months ended September 30, 2007 and 2006, respectively, and wascomprised of interest income associated with our notes receivable and funds ondeposit with banks. The increase in interest income is due to interest earnedon our notes receivable in 2007 of $0.6 million.

 

*MinorityInterest*. Minority interest for the three months endedSeptember 30, 2007 represents the net income of the two VIEs that weconsolidate under FIN 46R as a mezzanine lender, the 5% unaffiliated partner’sshare of the net loss of Chase Park Plaza, the 15% unaffiliated partner’s shareof the net loss of The Lodge & Spa at Cordillera, the 10% unaffiliatedpartner’s share of the net loss of Rio Salado Business Center, and the 30%unaffiliated partner’s share of the net loss of Frisco Square. In 2006,minority interest consisted only of the net income of the two VIEs that weconsolidate under FIN No. 46R as a mezzanine lender.

 

*Nine months ended September 30, 2007 as compared tonine months ended September 30, 2006*

 

*Revenues.*Our total revenues increased by $20.6 million to $22.4 million for the ninemonths ended September 30, 2007 as compared to the nine months ended September30, 2006, primarily due to increased rental revenue resulting from theacquisition of new properties from which we receive rent. In addition, rentalrevenue for the nine months ended September 30, 2007 includes revenue from thelease of the hotel-related management and operations of Chase Park Plaza, amixed-use hotel and residential property acquired in December 2006. Hotelrevenues for the nine months ended September 30, 2007 totaled $3.2 million andconsist of revenues generated by the operations of The Lodge & Spa atCordillera, a resort and spa property acquired in June 2007. We expectincreases in rental revenue in the future as we purchase additional real estateproperties.

 

*PropertyOperating Expenses.* Property operating expenses for the ninemonths ended September 30, 2007 were $7.5 million as compared to $0.7 millionfor the nine months ended September 30, 2006 and were comprised of propertyoperating expenses from our consolidated properties. The increase in propertyoperating expenses is primarily due to the increased number of real estateproperties acquired. We expect increases in property operating expenses in thefuture as we purchase additional real estate properties.

 

*InterestExpense.*Interest expense, net of amounts capitalized, forthe nine months ended September 30, 2007 was $4.1 million as compared to $0.1million for the nine months ended September 30, 2206 and was primarilycomprised of interest expense attributable to the debt on Chase Park Plaza andSanta Clara Tech Center. We had only one outstanding mortgage payable duringthe nine months ended September 30, 2006. We expect continued increases inmortgages payable and in the related interest expense in the future as wepurchase and invest in additional real estate properties.

 

*RealEstate Taxes.*Real estate taxes, net of amounts capitalized,for the nine months ended September 30, 2007 were $2.3 million as compared to$0.2 million for the nine months ended September 30, 2006 and were comprised ofreal estate taxes from each of our consolidated properties. The increase inreal estate taxes is primarily due to our increased number of consolidated realestate properties. We expect increases in real estate taxes in the future as wepurchase additional real estate properties.

 

*Property/ Asset Management Fees.*Property and asset management feesfor the nine months ended September 30, 2007 totaled $2.1 million as comparedto $0.1 million for the same period in 2006 and were comprised of fees incurredby our consolidated properties. Property and asset management fees increaseddue to the additional properties acquired. We expect increases in property andasset management fees in the future as we invest in additional real estateproperties.

 

*Generaland Administrative Expenses.* General and administrativeexpenses for the nine months ended September 30, 2007 were $1 million ascompared to $0.6 million for the nine months ended September 30, 2006 and werecomprised of corporate general and administrative expenses including directors’and officers’ insurance premiums, auditing fees, legal fees, and otheradministrative expenses. The increase is due to increased corporate activity. Weexpect increases in general and administrative expenses in the future as weinvest in additional real estate properties.

 

*Advertising Costs.*Advertising costs forthe nine months ended September 30, 2007 were $0.8 million, consisting ofmarketing and advertising costs related to the Chase Park Plaza hotel andresidential property, which was acquired in December 2006. For the nine monthsended September 30, 2006, we did not incur any significant advertising costs.

 

*Depreciationand Amortization Expense.*Depreciation and amortizationexpense for the nine months ended September 30, 2007 was $8 million as comparedto $0.6 million for the nine months ended September 30, 2006 and was comprisedof depreciation and amortization expense from each of our consolidatedoperational properties. For the nine months ended September 30, 2006,depreciation and amortization expense resulted from only two consolidatedproperties,

 

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Whitewater and Ferncroft Corporate Center. We expectincreases in depreciation and amortization expense in the future as we purchaseadditional real estate properties and as properties under development becomeoperational.

 

*InterestIncome*. Interest income was $2.9 million and $1.8 million forthe nine months ended September 30, 2007 and 2006, respectively, and wascomprised of interest income associated with our notes receivable and funds ondeposit with banks. The increase in interest income is due to interest earnedon our notes receivable in 2007 of $0.9 million.

 

*MinorityInterest*. Minority interest for the nine months endedSeptember 30, 2007 represents primarily the net income of the two VIEs that weconsolidate under FIN 46R as a mezzanine lender, the 5% unaffiliated partner’sshare of the net loss of Chase Park Plaza, the 15% unaffiliated partner’s shareof the net loss of The Lodge & Spa at Cordillera, the 10% unaffiliatedpartner’s share of the net loss of Rio Salado Business Center, and the 30%unaffiliated partner’s share of the net loss of Frisco Square. In 2006,minority interest consisted only of the net income of the two VIEs that weconsolidate under FIN 46R as a mezzanine lender.

 

**CashFlow Analysis**

 

Cashflows used in operating activities for the nine months ended September 30, 2007were $5.4 million and were comprised primarily of the net loss of $0.9 million,adjusted for depreciation and amortization expense of $6.4 million,amortization of deferred financing fees of $1 million, an increase incondominium inventory of $12.7 million, and net changes in working capital of $0.6million. During the nine months ended September 30, 2006, cash flowsprovided by operating activities were $2.7 million and were comprised of thenet income of $1.4 million, adjusted for depreciation and amortization expenseof $0.4 million and net changes in working capital of $1 million. Operatingcash flows were significantly lower than the nine months endedSeptember 30, 2006 due to increased condominium development.

 

Cashflows used in investing activities for the nine months ended September 30, 2007were $329.4 million and primarily represented acquisitions of real estatetotaling $243.2 million, acquisition of an interest in unconsolidated jointventure of $22.6 million, capital expenditures for real estate underdevelopment, including capital expenditures of consolidated borrowers totaling$32.6 million, investment in notes receivable of $14.2 million, and additionsto property and equipment, including costs for assets placed into service, of $9.5million. During the nine months ended September 30, 2006, cash flows frominvesting activities were $56.2 million and primarily represented real estatepurchases totaling $36.9 million and capital expenditures of properties underdevelopment of our consolidated borrowers of $17.4 million.

 

Cashflows provided by financing activities for the nine months ended September 30,2007 were $327.9 million and were comprised primarily of funds received fromthe issuance of stock, net of offering costs, of $263.8 million, proceeds froma bridge note of $52.1 million related to our acquisition of Santa Clara TechCenter, proceeds from mortgages payable of $2.5 million, and proceeds frommortgages of consolidated borrowers related to our VIEs consolidated under FIN46R totaling $13.7 million. During the nine months ended September 30, 2006,cash flows provided by financing activities were $121.1 million and werecomprised primarily of funds received from the issuance of stock, net ofoffering costs, of $97.8 million, proceeds from mortgages payable of $18million, and proceeds from mortgages of consolidated borrowers of $5.8 million.

 

**Liquidity and Capital Resources**

 

Theamount of distributions payable to our stockholders is determined by our boardof directors and is dependent on a number of factors, including funds availablefor distribution, financial condition, capital expenditure requirements andannual distribution requirements needed to qualify and maintain our status as aREIT under the Code. Operating cash flows are expected to increase asadditional properties are acquired in the development of our investmentportfolio.

 

Ourprincipal demands for funds will continue to be for property acquisitions,either directly or through investment interests, for mortgage loan investments,for the payment of operating expenses and distributions, and for the payment ofinterest on our outstanding indebtedness and other investments. Generally, cashneeds for items other than property acquisitions and mortgage loan investmentsare expected to be met from operations, and cash needs for propertyacquisitions are expected to be met from the public offering of our shares. However,there may be a delay between the sale of our shares and our purchase ofproperties and mortgage loan investments, which could result in a delay in thebenefits to our stockholders, if any, of returns generated from our operations.Our advisor evaluates potential acquisitions of real estate and real estaterelated assets and engages in negotiations with sellers and borrowers on ourbehalf. Investors should be aware that after a purchase contract is executedthat contains specific terms, the property will not be purchased until thesuccessful completion of due diligence and negotiation of final bindingagreements. During this period, we may decide to temporarily invest any unusedproceeds from the Offering in certain investments that could yield lowerreturns than the properties. These lower returns may affect our ability to makedistributions.

 

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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 ourproperties will generate sufficient cash flow to cover operating expenses andthe payment of a monthly distribution. Other potential future sources ofcapital include proceeds from secured or unsecured financings from banks orother lenders, proceeds from the sale of properties and undistributed fundsfrom operations. If necessary, we may use financings or other sources ofcapital in the event of unforeseen significant capital expenditures.

 

Thepayment terms of our loan obligations vary. In general, interest only ispayable monthly (and is generally drawn on the underlying construction loan forproperties under development), with all unpaid principal and interest due atmaturity. Our loan agreements stipulate that we comply with certain reportingand financial covenants. These covenants include, among other things,maintaining minimum debt service coverage ratios. As of September30, 2007, we were in compliance with the debt covenants under our loanagreements.

 

**Fundsfrom Operations**

 

Fundsfrom operations (“FFO”) is a non-GAAP financial measure that is widelyrecognized as a measure of REIT operating performance. FFO is defined by theNational Association of Real Estate Investment Trusts as net income (loss),computed in accordance with GAAP, excluding extraordinary items, as defined byGAAP, and gains (or losses) from sales of property, plus depreciation andamortization on real estate assets, and after adjustments for unconsolidatedpartnerships, joint ventures, and subsidiaries. We believe that FFO is helpfulto investors and our management as a measure of operating performance of ouroperating assets because it excludes depreciation and amortization, gains andlosses from property dispositions, and extraordinary items, and as a result,when compared year to year, reflects the impact on operations from trends inoccupancy rates, rental rates, operating costs, development activities, generaland administrative expenses, and interest costs, which is not immediatelyapparent from net income. Historical cost accounting for real estate assets inaccordance with GAAP implicitly assumes that the value of real estatediminishes predictably over time. Since real estate values have historicallyrisen or fallen with market conditions, many industry investors and analystshave considered the presentation of operating results for real estate companiesthat use historical cost accounting alone to be insufficient. As a result, ourmanagement believes that the use of FFO, together with the required GAAPpresentations, provides a supplemental understanding of our performance and amore informed and appropriate basis on which to make decisions involvingoperating, financing and investing activities. Factors that impact FFO includestart-up costs, fixed costs, delay in buying assets, lower yields on cash heldin accounts pending investment, income from portfolio properties and otherportfolio assets, interest rates on acquisition financing and operatingexpenses. FFO should not be considered as an alternative to net income (loss)or as an indication of our liquidity, nor is it indicative of funds availableto fund our cash needs, including our ability to make distributions. Ourcalculation of FFO for the three and nine months ended September 30, 2007 and2006 is presented below:

 
| ** **                                  | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                  | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Net income (loss)                           |       | $                                | (287,958   | )                               | $          | 817,274 |   | $ | (895,611 | ) | $ | 1,388,523 |   |
| Preferred stock dividends                   |       | —                           |       | —                          |       | — |   | — |   |
| Net income (loss) allocable to common stock |       | (287,958                         | )          | 817,274                         |       | (895,611 | ) | 1,388,523 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Real estate depreciation (1)                |       | 2,071,662                        |       | 231,583                         |       | 4,630,470 |   | 327,273 |   |
| Real estate amortization (1)                |       | 1,446,515                        |       | 66,630                          |       | 3,163,259 |   | 122,602 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Funds from operations (FFO)                 |       | $                                | 3,230,219  |                            | $          | 1,115,487 |   | $ | 6,898,118 |   | $ | 1,838,398 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| GAAP Weighted Average Shares:               |       |                             |       |                            |       |   |   |   |   |
| Basic                                       |       | 42,499,702                       |       | 11,340,747                      |       | 31,154,323 |   | 7,701,098 |   |
| Diluted                                     |       | 42,499,702                       |       | 11,367,997                      |       | 31,154,323 |   | 7,716,576 |   |

 

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(1)          Thisrepresents the depreciation and amortization expense of the properties wewholly own and our 95%, 85%, and 70% ownership share of depreciation andamortization expense for Chase Park Plaza, The Lodge & Spa at Cordillera,and Frisco Square, respectively.

 

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Providedbelow is additional information related to selected non-cash items included innet income (loss) above, which may be helpful in assessing our operatingresults.

 

•                  Straight-line rental revenue of $1.1million and $3 million was recognized for the three and nine months endedSeptember 30, 2007, respectively, and $34,000 and $49,000 was recognized forthe three and nine months ended September 30, 2006, respectively;

 

•                  Amortization of intangible leaseassets and liabilities was recognized as a net increase to rental revenues of$0.8 million and $1.8 million for the three and nine months ended September 30,2007, respectively, and $104,000 and $127,000 for the three and nine monthsended September 30, 2006, respectively;

 

•                  Amortization of intangible propertytax abatement assets was recognized as an increase to real estate tax expenseof less than $0.1 million and $0.2 million for the three and nine months endedSeptember 30, 2007, respectively. There were no property tax abatementintangibles or related amortization recognized during the three and nine monthsended September 30, 2006;

 

•                  Bad debt expense of $24,500 and$34,000 was recognized for the three and nine months ended September 30, 2007,respectively. There was no bad debt expense recognized during the three andnine months ended September 30, 2006; and

 

•                  Amortization of deferred financingcosts of $0.2 million and $0.4 million was recognized as interest expense formortgages and notes payable for the three and nine months ended September 30,2007, respectively, and $0.1 million and $0.5 million was recognized as areduction of interest income for notes receivable for the three and nine monthsended September 30, 2007. Amortization of deferred financing costs for thethree and nine months ended September 30, 2006 related to the FerncroftCorporate Center and totaled $3,800.

 

Inaddition, cash flows generated from FFO may be used to fund all or a portion ofcertain capitalizable items that are excluded from FFO, such as capitalexpenditures and payments of principal on debt, each of which may impactthe amount of cash available for distribution to our stockholders.

 

Duringthe three and nine months ended September 30, 2007, we declared and paiddistributions almost entirely from FFO and expect to continue to do so, exceptto the extent of distributions from the sale of our assets. However, given theuncertainty arising from numerous factors, including both the raising andplacing of capital in the current real estate environment, ultimate FFOperformance cannot be predicted with certainty. For example, if we are not ableto timely invest net proceeds of the Offering at favorable yields, futuredistributions declared and paid may exceed FFO.

 

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**NetOperating Income**

 

Netoperating income (“NOI”) is a non-GAAP financial measure that is defined as netincome (loss), computed in accordance with GAAP, generated from propertiesbefore interest expense, asset management fees, interest income, general andadministrative expenses, depreciation, amortization, equity in unconsolidatedjoint ventures, minority interest, income taxes, and the gain or loss on thesale of assets. We believe that NOI provides an accurate measure of theoperating performance of our operating assets because NOI excludes certainitems that are not associated with management of the properties. To facilitateunderstanding of this financial measure, a reconciliation of NOI to net incomein accordance with GAAP for the three and nine months ended September 30, 2007and 2006 is provided below.

 
| ** **                         | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                         | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue                            |       | $                                | 10,500,985 |                            | $          | 1,316,884 |   | $ | 22,439,911 |   | $ | 1,791,128 |   |
|                               |       |                             |       |                            |       |   |   |   |   |
| Operating expenses:                |       |                             |       |                            |       |   |   |   |   |
| Property operating expenses        |       | 4,106,693                        |       | 564,863                         |       | 7,490,410 |   | 700,505 |   |
| Real estate taxes                  |       | 1,022,683                        |       | 109,362                         |       | 2,255,907 |   | 190,878 |   |
| Property management fees           |       | 267,849                          |       | 38,194                          |       | 546,478 |   | 57,841 |   |
| Total operating expenses           |       | 5,397,225                        |       | 712,419                         |       | 10,292,795 |   | 949,224 |   |
| Net operating income               |       | $                                | 5,103,760  |                            | $          | 604,465 |   | $ | 12,147,116 |   | $ | 841,904 |   |
| Reconciliation to Net Income       |       |                             |       |                            |       |   |   |   |   |
| Net operating income               |       | $                                | 5,103,760  |                            | $          | 604,465 |   | $ | 12,147,116 |   | $ | 841,904 |   |
| Adjustments for:                   |       |                             |       |                            |       |   |   |   |   |
| Depreciation and amortization      |       | (3,691,557                       | )          | (403,056                        | )          | (8,040,099 | ) | (577,309 | ) |
| General and administrative expense |       | (307,182                         | )          | (206,845                        | )          | (1,015,514 | ) | (578,613 | ) |
| Interest expense                   |       | (1,758,591                       | )          | (127,665                        | )          | (4,060,947 | ) | (127,665 | ) |
| Asset management fees              |       | (714,585                         | )          | (65,416                         | )          | (1,508,665 | ) | (87,396 | ) |
| Advertising costs                  |       | (158,067                         | )          | —                          |       | (781,312 | ) | — |   |
| Provision for income tax           |       | (45,758                          | )          | —                          |       | (70,845 | ) | — |   |
| Equity loss on unconsolidated JVs  |       | (227,353                         | )          | —                          |       | (295,039 | ) | — |   |
| Interest income                    |       | 1,365,703                        |       | 885,094                         |       | 2,939,326 |   | 1,786,905 |   |
| Minority Interest                  |       | 145,672                          |       | 130,697                         |       | (209,632 | ) | 130,697 |   |
| Net income (loss)                  |       | $                                | (287,958   | )                               | $          | 817,274 |   | $ | (895,611 | ) | $ | 1,388,523 |   |

 

**Off-BalanceSheet Arrangements**

 

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

 

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

 

Wemay be exposed to interest rate changes primarily as a result of long-term debtused to acquire properties and make loans and other permitted investments. Ourmanagement’s objectives, with regard to interest rate risks, are to limit theimpact of interest rate changes on earnings and cash flows and to lower overallborrowing costs. To achieve these objectives, we will borrow primarily at fixedrates or variable rates with the lowest margins available and in some cases,with the ability to convert variable rates to fixed rates. With regard to variablerate financing, we will assess interest rate cash flow risk by continuallyidentifying and monitoring changes in interest rate exposures that mayadversely impact expected future cash flows and by evaluating hedgingopportunities. We may enter into derivative financial instruments such asoptions, forwards, interest rate swaps, caps, or floors to mitigate ourinterest rate risk on a related financial instrument or to effectively lock theinterest rate portion of our variable rate debt. Of our $187.4 million inmortgages and notes payable at September 30, 2007, $114.4 million representeddebt subject to variable interest rates, which included the mortgages payableof borrowers we consolidate under FIN 46R. If our variable interest ratesincreased 1%, we estimate 

 

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thattotal annual interest costs, including interest expensed, interest capitalized,and the effects of the interest rate cap on the Santa Clara Tech Center note,would increase by $0.2 million.

 

InJune 2007, we entered into two interest rate cap agreements (the “Caps”) for atotal notional amount of $52.1 million to hedge changes in LIBOR above 6% (the “StrikeRate”) on our LIBOR-based $52.1 million note payable related to our Santa ClaraTech Center property. The note matures on June 9, 2010. The Caps are treated ascash flow hedges for accounting purposes in accordance with SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” as amended and interpreted.The Caps are with highly rated counterparties and limit the base LIBOR rate toincreases not higher than the Strike Rate. At September 30, 2007, the Caps werereported at their combined fair value of $60,831 within prepaid expenses andother assets. A 1% increase in interest rates would not result in anysignificant change in fair value.

 

Wemaintain less than $0.1 million in a Euro-denominated account at a Europeanfinancial institution. We are not materially exposed to any significant foreigncurrency fluctuations.

 

**Item 4T.                 Controlsand Procedures.**

 

Asrequired by Rule 13a-15(b) and Rule 15d-15(b) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), our management,including our Chief Executive Officer and Chief Financial Officer, evaluated,as of September 30, 2007, the effectiveness of our disclosure controls andprocedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Basedon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures, as of September 30,2007, were effective for the purpose of ensuring that information required tobe disclosed by us in this report is recorded, processed, summarized andreported within the time periods specified by the rules and forms of theExchange Act and is accumulated and communicated to management, including theChief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosures.

 

Webelieve, however, that a controls system, no matter how well designed andoperated, can only provide reasonable assurance, not absolute assurance, thatthe objectives of the controls system are met, and no evaluation of controlscan provide absolute assurance, only reasonable assurance, that all controlissues and instances of fraud or error, if any, within a company have beendetected.

 

Therehave been no changes in internal controls over financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) thatoccurred during the quarter ended September 30, 2007 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II**

**OTHERINFORMATION**

** **

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

### ** **

We arenot party to, and our properties are not subject to, any material pending legalproceedings.

 

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

### ** **

Therehave been no material changes from the risk factors set forth in our AnnualReport on Form 10-K for the year ended December 31, 2006.

 

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

### ** **

**Use ofProceeds 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, as amended, and a Registration Statement on Form S-11 (SECRegistration No. 333-138804) filed pursuant to Rule 462(b) under the SecuritiesAct on November 17, 2006, as of September 30, 2007, we were offering for saleto the public on a “best efforts” basis (1) a maximum of 53,000,000 shares ofour common stock at a price of $10.00 per share and (2) up to 1,249,542additional shares pursuant to the DRIP pursuant to which our stockholders couldelect to have their distributions reinvested in additional shares of our commonstock at a price of up to $9.50 per share, for a total aggregate offering priceof $541.9 million. As of September 30, 2007, we had sold 48,206,420 shares ofour common stock on a best efforts basis pursuant to the Offering for aggregategross offering proceeds of approximately $480.2 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.

 

Fromthe commencement of the Offering through September 30, 2007, we incurred thefollowing expenses in connection with the issuance and distribution of theregistered securities pursuant to the Offering:

 

| **Type of Expense**    | ** ** | **Amount** | ** ** |
|----------------------------------|------------|------------|------------|
|                             |       |       |       |
| Other expenses to affiliates *   |       | $          | 50,222,052 |   |
| Other expenses to non-affiliates |       | 820,547    |       |
| Total expenses                   |       | $          | 51,042,599 |   |

 

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*“Otherexpenses to affiliates” includes commissions and dealer manager fees paid toBehringer Securities, which reallowed all or a portion of the commissions andfees to soliciting dealers.

 

Fromthe commencement of the Offering through September 30, 2007, the net offeringproceeds to us from the Offering, after deducting the total expenses incurreddescribed above, were approximately $429.1 million. From the commencement ofthe Offering through September 30, 2007, we had used approximately $312.5million of such net proceeds to purchase interests in real estate and funddevelopment for real estate, net of mortgages payable, and approximately $20.6million was invested through mezzanine loans. Of the amount used for thepurchase of these investments, approximately $19.3 million was paid toBehringer Opportunity Advisors (or its predecessor in interest) as acquisitionand advisory fees and acquisition expense reimbursement.

 

**ShareRedemption Program**

 

InFebruary 2006, our board of directors adopted a share redemption program forour investors. The purchase price for the redeemed shares is set forth in theprospectus for our Offering of common stock, as supplemented. Our board ofdirectors reserves the right in its sole discretion at any time, and from timeto time, to (1) waive the one-year holding period in the event of the death,disability or bankruptcy of a stockholder or other exigent circumstances, (2)reject any request for redemption, (3) change the purchase price forredemptions, or (4) terminate, suspend or amend the share redemption program. Underthe terms of the program, during any calendar year, we will not redeem inexcess of 5% of the weighted average number of shares outstanding during thetwelve-month period immediately prior to the date of redemption. In addition,our board of directors will determine whether we have sufficient cash fromoperations to

 

33

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repurchaseshares, and such purchases will generally be limited to proceeds from our DRIPplus 1% of operating cash flow for the previous fiscal year (to the extentpositive). During the quarter ended September 30, 2007, we redeemed sharesas follows:  

 

| **Month**       | ** ** | **Total Number  of Shares  Redeemed** | ** ** | **Average Price  Paid Per Share** | ** ** | **Total Number of  Shares Purchased   as Part of  Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number of Shares  that May Yet Be  Purchased Under  the Plans or  Programs** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| July 2007       |       | —                                          |       | $                                                | —     |                                                                                                                               | —     |                                                                                                                            | (1)        |   |
| August 2007     |       | 47,297                                          |       | $                                                | 9.24       |                                                                                                                               | 47,297     |                                                                                                                            | (1)        |   |
| September  2007 |       | —                                          |       | $                                                | —     |                                                                                                                               | —     |                                                                                                                            | (1)        |   |
| Total           |       | 47,297                                          |       | $                                                | 9.24       |                                                                                                                               | 47,297     |                                                                                                                            | (1)        |   |

 

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 (1)       A description of the maximum number of shares that may be purchasedunder our redemption program is included in the narrative preceding this table.

 

**Item 3.****                                                           DefaultsUpon Senior Securities.**

 

None.

 

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

### ** **

None.

 

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

### ** **

None.

 

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

### ** **

Theexhibits filed in response to Item 601 of Regulation S-K are listed on theExhibit Index attached hereto.

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                            | **Behringer Harvard Opportunity REIT I, Inc.** |
|---------------------------------|------------------------------------------------|
|                            | ** **                                     |
|                            |                                           |
| Dated:   November 14, 2007 | By:                                            |   /s/  Gary S. Bresky |   |
|                            | Gary  S. Bresky                                |
|                            | Chief Financial Officer                        |
|                            | (Principal Financial Officer)                  |

 

35

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**Index to Exhibits**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                     |       | Articles  of Amendment and Restatement of the Registrant (previously filed in and  incorporated by reference to Pre-Effective Amendment No. 4 to Registration  Statement on Form S-11, Commission File No. 333-120847, filed on September  12, 2005)                                                                                                                                                                                                                                                  |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1(a)                  |       | Articles  of Amendment to Articles of Amendment and Restatement of the Registrant  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 3 to Registration Statement on Form S-11, Commission File No.  333-120847, filed on July 6, 2006)                                                                                                                                                                                                                              |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2                     |       | Bylaws  of the Registrant (previously filed in and incorporated by reference to  Registration Statement on Form S-11, Commission File No. 333-120847, filed on  November 30, 2004)                                                                                                                                                                                                                                                                                                                    |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2(a)                  |       | Amendment  to Bylaws of the Registrant (previously filed in and incorporated by reference  to Form 8-K filed on February 24, 2006)                                                                                                                                                                                                                                                                                                                                                                    |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1                     |       | Form  of Subscription Agreement and Subscription Agreement Signature Page (included  as Exhibit B to prospectus dated June 1, 2006)                                                                                                                                                                                                                                                                                                                                                                   |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2                     |       | Amended  and Restated Distribution Reinvestment Plan, effective as of April 5, 2006  (included as Exhibit C to prospectus dated June 1, 2006)                                                                                                                                                                                                                                                                                                                                                         |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2(a)                  |       | Second  Amended and Restated Distribution Reinvestment Plan (previously filed in and  incorporated by reference to Exhibit A to prospectus contained in  Registration Statement on Form S-3, Commission File No. 333-146965,  filed on October 26, 2007)                                                                                                                                                                                                                          |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.3                     |       | Automatic  Purchase Plan of the Registrant, effective as of September 20, 2005 (included  as Appendix D to prospectus dated June 1, 2006)                                                                                                                                                                                                                                                                                                                                                             |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1                    |       | Agreement  of Limited Partnership between Behringer Harvard Frisco Square GP, LLC,  Behringer Harvard Frisco Square Investor, LLC, Frisco Square Land, Ltd.,  Frisco Square Properties, Ltd., Frisco Square B1-6, F1-11, Ltd., and Frisco  Square B1-7, F1-10, Ltd. regarding the Frisco Square property (previously  filed in and incorporated by reference to Post-Effective Amendment No. 10 to  Registration Statement on Form S-11, Commission File   No. 333-120847, filed on October 24, 2007) |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.2                    |       | Contribution  Agreement between Frisco Square Land, Ltd., Frisco Square Properties, Ltd.,  Frisco Square B1-6,  F1-11, Ltd., Frisco Square B1-7, F1-10, Ltd., and Behringer Harvard Frisco  Square LP regarding the Frisco Square property (previously filed in and  incorporated by reference to Post-Effective Amendment No. 10 to Registration  Statement on Form S-11, Commission File No. 333-120847, filed on October 24,  2007)                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3                    |       | Supplement to Contribution  Agreement between Frisco Square B1-6, F1-11, Ltd. and Behringer Harvard  Frisco Square LP regarding the Frisco Square property (previously filed in  and incorporated by reference to Post-Effective Amendment No. 10 to  Registration Statement on Form S-11, Commission File No. 333-120847, filed on  October 24, 2007)                                                                                                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.4                    |       | Assumption and  Modification Agreement among Frisco Square Land, Ltd., BHFS I, LLC, and  Comerica Bank regarding the Frisco Square property (previously filed in and  incorporated by reference to Post-Effective Amendment No. 10 to Registration  Statement on Form S-11, Commission File No. 333-120847, filed on October 24,  2007)                                                                                                                                                               |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.5                    |       | Guaranty Agreement made by  the Registrant as guarantor to and for the benefit of Comerica Bank regarding  the Frisco Square property (previously filed in and incorporated by reference  to Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                                                                                      |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.6                    |       | Amended and Restated Loan  Agreement between Frisco Square Land, Ltd. and Comerica Bank regarding the  Frisco Square property (previously filed in and incorporated by reference to  Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                                                                                              |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.7                    |       | Amended and Restated  Eurodollar Rate-Single Payment Note (Term Note) made by Frisco Square Land,  Ltd. payable to Comerica Bank regarding the Frisco Square property  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 10 to Registration Statement on Form S-11, Commission File No.  333-120847, filed on October 24, 2007)                                                                                                                                     |

 

36

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| 10.8   |   | Amended and Restated Deed  of Trust, Security Agreement and Assignment of Rents by Frisco Square Land,  Ltd. for the benefit of Comerica Bank regarding the Frisco Square property  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 10 to Registration Statement on Form S-11, Commission File No.  333-120847, filed on October 24, 2007)                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.9   |   | Modification and Extension  Agreement between Frisco Square Land, Ltd. and Comerica Bank regarding the  Frisco Square property (previously filed in and incorporated by reference to  Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10  |   | Assumption Agreement among  Frisco Square F1-1, Ltd., BHFS III, LLC, and Compass Bank regarding the  Frisco Square property (previously filed in and incorporated by reference to  Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.11  |   | Construction Loan  Agreement between Frisco Square F1-1, Ltd. and Compass Bank regarding the  Frisco Square property (previously filed in and incorporated by reference to  Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.12  |   | Deed of Trust Note made by  and between Frisco Square F1-1, Ltd. payable to Compass Bank regarding the  Frisco Square property (previously filed in and incorporated by reference to  Post-Effective Amendment No. 10 to Registration Statement on Form S-11,  Commission File No. 333-120847, filed on October 24, 2007)                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.13  |   | Deed of Trust, Security  Agreement, Fixture Filing, and Assignment of Leases and Rents by Frisco  Square F1-1, Ltd. for the benefit of Compass Bank regarding the Frisco Square  property (previously filed in and incorporated by reference to Post-Effective  Amendment No. 10 to Registration Statement on Form S-11, Commission File  No. 333-120847, filed on October 24, 2007)                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.14  |   | Collateral Assignment of  Contracts and Plans and other Agreements Affecting the Real Estate from  Frisco Square F1-1, Ltd. to Compass Bank regarding the Frisco Square property  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 10 to Registration Statement on Form S-11, Commission File No.  333-120847, filed on October 24, 2007)                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15  |   | Third Loan Modification  and Assumption Agreement between Frisco Square B1-7, F1-10, Ltd., BHFS II,  LLC, and First National Bank of Omaha regarding the Frisco Square property  (previously filed in and incorporated by reference to Post-Effective  Amendment No. 10 to Registration Statement on Form S-11, Commission File No.  333-120847, filed on October 24, 2007)                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.16  |   | Guaranty Agreement made by  the Registrant as guarantor in favor of First National Bank of Omaha  regarding the Frisco Square property (previously filed in and incorporated by  reference to Post-Effective Amendment No. 10 to Registration Statement on  Form S-11, Commission File No. 333-120847, filed on October 24, 2007)                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17  |   | Modification Agreement of  Building Loan Agreements, Promissory Notes, and Deeds of Trust and Security  Agreements between Frisco Square B1-7, F1-10, Ltd. and First National Bank of  Omaha regarding the Frisco Square property (previously filed in and  incorporated by reference to Post-Effective Amendment No. 10 to Registration  Statement on Form S-11, Commission File No. 333-120847, filed on October 24,  2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.18  |   | Promissory Note made by  BHFS IV, LLC, as borrower, payable to Behringer Harvard Opportunity OP I, LP,  as lender, regarding the Frisco Square property (previously filed in and  incorporated by reference to Post-Effective Amendment No. 10 to Registration  Statement on Form S-11, Commission File No. 333-120847, filed on October 24,  2007)                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.19  |   | Master Development  Agreement by and between Behringer Harvard Frisco Square LP and Frisco Square  Development, Ltd. regarding the Frisco Square property (previously filed in  and incorporated by reference to Post-Effective Amendment No. 10 to  Registration Statement on Form S-11, Commission File No. 333-120847, filed on  October 24, 2007)                                                                         |

 

37

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| 10.20  |   | Development Agreement by  and between Behringer Harvard Frisco Square, LLC and Frisco Square  Development, Ltd. regarding the Frisco Square property (previously filed in  and incorporated by reference to Post-Effective Amendment No. 10 to  Registration Statement on Form S-11, Commission File No. 333-120847, filed on  October 24, 2007)  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 10.21  |   | Property Management  Subcontract by and between HPT Management Services, LP and Frisco Square  Development, Ltd. regarding the Frisco Square property (previously filed in  and incorporated by reference to Post-Effective Amendment No. 10 to  Registration Statement on Form S-11, Commission File No. 333-120847, filed on  October 24, 2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 10.22  |   | Real Estate Sale Agreement  for Northpoint Central, Regency Center, and 2603 Augusta between CMD Realty  Investment Fund IV, LP and Harvard Property Trust, LLC regarding the Houston  Portfolio (previously filed in an incorporated by reference to Form 8-K filed  on September 19, 2007)                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 10.23  |   | First Amendment to Real  Estate Sale Agreement for Northpoint Central, Regency Center, and 2603  Augusta between CMD Realty Investment Fund IV, LP and Harvard Property Trust,  LLC regarding the Houston Portfolio (previously filed in an incorporated by  reference to Form 8-K filed on September 19, 2007)                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 10.24  |   | Second Amendment to Real  Estate Sale Agreement for Northpoint Central, Regency Center, and 2603  Augusta between CMD Realty Investment Fund IV, LP and Harvard Property Trust,  LLC regarding the Houston Portfolio (previously filed in an incorporated by  reference to Form 8-K filed on September 19, 2007)                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 31.1   |   | Rule  13a-14(a)/15d-14(a) Certification (filed herewith)                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 31.2   |   | Rule  13a-14(a)/15d-14(a) Certification (filed herewith)                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                              |
| 32.1*  |   | Section  1350 Certifications (furnished herewith)                                                                                                                                                                                                                                                                                                 |

 

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*In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is notdeemed “filed” for purposes of Section 18 of the Exchange Act or otherwisesubject to the liabilities of that section. Such certifications will not bedeemed incorporated by reference into any filing under the Securities Act orthe Exchange Act, except to the extent that the registrant specificallyincorporates it by reference.

 

38

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