** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**[Mark One]**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

**SECURITIESEXCHANGE ACT OF 1934**

**Forthe quarterly period ended June 30, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

**SECURITIESEXCHANGE ACT OF 1934**

**Forthe transition period from                    to                    **

**CommissionFile Number: 000-51961**

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

(Exact Name of Registrantas Specified in Its Charter)

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

 

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

(Addressof Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code:**  (866) 655-1620**

**None**

(Former name, former address and former fiscal year, if changed sincelast report)

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

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

 

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

As of August 1, 2006,Behringer Harvard Opportunity REIT I, Inc. had 10,812,772****shares of common stock, $.0001 par value,outstanding.

 

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

**FORM 10-Q**

**Quarter Ended June30, 2006**

**PART I**

**FINANCIALINFORMATION**
|                                | ** **                                                                                                                         | **Page** |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------|----------|
| **Item 1.**                    | **Financial Statements  (Unaudited).**                                                                                             |     |   |
| ** **                     | ** **                                                                                                                         |     |   |
|                           | Consolidated  Balance Sheets as of June 30, 2006 and December 31, 2005                                                        |     | 3 |   |
|                           |                                                                                                                               |     |   |   |
|                           | Consolidated  Statements of Operations for the three and six months ended June  30, 2006 and 2005                             |     | 4 |   |
|                           |                                                                                                                               |     |   |   |
|                           | Consolidated Statements of  Stockholders’ Equity for the year ended December 31, 2005 and the six months  ended June 30, 2006 |     | 5 |   |
|                           |                                                                                                                               |     |   |   |
|                           | Consolidated  Statements of Cash Flows for the six months ended June 30, 2006 and 2005                                             |     | 6 |   |
|                           |                                                                                                                               |     |   |   |
|                           | Notes to Consolidated Financial Statements                                                                                         |     | 7 |   |
|                           |                                                                                                                               |     |   |   |
| **Item 2.**                    | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations.**                                   |     | 17 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 3.**                    | **Quantitative and Qualitative  Disclosures About Market Risk.**                                                                   |     | 22 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item  4.**                   | **Controls  and Procedures.**                                                                                                      |     | 22 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **PART II  OTHER INFORMATION** |                                                                                                                               |     |   |
| ** **                     |                                                                                                                               |     |   |
| **Item  1.**                   | **Legal  Proceedings.**                                                                                                            |     | 23 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 1A.**                   | **Risk  Factors.**                                                                                                                 |     | 23 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 2.**                    | **Unregistered Sales of Equity  Securities and Use of Proceeds.**                                                                  |     | 23 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 3.**                    | **Defaults Upon Senior  Securities.**                                                                                              |     | 24 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 4.**                    | **Submission of Matters to a  Vote of Security Holders.**                                                                          |     | 24 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item  5.**                   | **Other  Information.**                                                                                                            |     | 24 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Item 6.**                    | **Exhibits.**                                                                                                                      |     | 24 |   |
| ** **                     | ** **                                                                                                                         |     |   |   |
| **Signature**                  |                                                                                                                               | 25       |   |

 

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**PARTIFINANCIAL INFORMATION**

**Item 1.    Financial Statements.**

**BehringerHarvard Opportunity REIT I, Inc.Consolidated Balance Sheets****(Unaudited)**
| ** **                                                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **Assets**                                                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Real  estate**                                                                                                                                                                           | ** ** | ** **        | ** ** | ** **            | ** ** |
| Land                                                                                                                                                                                       |       | $                 | 975,975    |                  | $          | — |   |
| Building, net                                                                                                                                                                              |       | 7,081,654         |       | —                |       |
| **Total  real estate**                                                                                                                                                                     |       | 8,057,629         |       | —                |       |
|                                                                                                                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                                                                                 |       | 75,294,543        |       | 18,560,885            |       |
| Restricted cash                                                                                                                                                                            |       | 377,757           |       | 460,470               |       |
| Accounts  receivable                                                                                                                                                                       |       | 24,990            |       | —                |       |
| Prepaid expenses  and other assets                                                                                                                                                         |       | 34,041            |       | 85,977                |       |
| Escrow deposits                                                                                                                                                                            |       | 4,224,538         |       | —                |       |
| Lease  intangibles, net                                                                                                                                                                    |       | 1,146,230         |       | —                |       |
| **Total assets**                                                                                                                                                                           |       | $                 | 89,159,728 |                  | $          | 19,107,332 |   |
|                                                                                                                                                                                       |       |              |       |                  |       |
| **Liabilities and stockholders’  equity**                                                                                                                                             | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities**                                                                                                                                                                            | ** ** | ** **        | ** ** | ** **            | ** ** |
| Payables to  affiliates                                                                                                                                                                    |       | $                 | 1,612,153  |                  | $          | 2,158,017 |   |
| Acquired  below-market leases, net                                                                                                                                                         |       | 233,403           |       | —                |       |
| Accrued  liabilities                                                                                                                                                                       |       | 243,093           |       | 88,673                |       |
| Subscriptions  for common stock                                                                                                                                                            |       | 373,658           |       | 446,983               |       |
| **Total liabilities**                                                                                                                                                                      |       | 2,462,307         |       | 2,693,673             |       |
|                                                                                                                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Commitments and contingencies**                                                                                                                                                          | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| **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, 9,859,736 and   2,034,005 shares issued and outstanding at   June 30, 2006 and December 31, 2005, respectively |       | 986               |       | 203                   |       |
| Additional  paid-in capital                                                                                                                                                                |       | 86,228,106        |       | 16,516,376            |       |
| Retained  earnings (deficit)                                                                                                                                                               |       | 468,329           |       | (102,920              | )          |
| **Total stockholders’ equity**                                                                                                                                                        |       | 86,697,421        |       | 16,413,659            |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                        |       | $                 | 89,159,728 |                  | $          | 19,107,332 |   |

 

*See Notes to Consolidated Financial Statements.*

3

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**Behringer Harvard Opportunity REIT I,Inc.Consolidated Statements of Operations****(Unaudited)**
| ** **                                | ** ** | **Three months**       | ** ** | **Three months**       | ** ** | **Six months**         | ** ** | **Six months**         | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **ended**                   | ** ** | **ended**                   | ** ** | **ended**                   | ** ** | **ended**                   | ** ** |
| ** **                                | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Rental  revenue**                       |       | $                           | 355,201    |                        | $          | —                      |       | $                           | 474,244    |   | $ | — |   |
| ** **                                | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Expenses**                              | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Property operating expenses               |       | 113,918                     |       | —                      |       | 135,642                     |       | —                      |       |
| Real estate taxes                         |       | 60,532                      |       | —                      |       | 81,516                      |       | —                      |       |
| Property management fees                  |       | 14,742                      |       | —                      |       | 19,647                      |       | —                      |       |
| Asset management fees                     |       | 16,485                      |       | —                      |       | 21,980                      |       | —                      |       |
| General and administrative                |       | 211,610                     |       | 8,979                       |       | 371,768                     |       | 8,979                       |       |
| Depreciation and amortization             |       | 131,429                     |       | —                      |       | 174,253                     |       | —                      |       |
| **Total  expenses**                       |       | 548,716                     |       | 8,979                       |       | 804,806                     |       | 8,979                       |       |
| ** **                                | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Interest income                           |       | 633,493                     |       | 466                         |       | 901,811                     |       | 1,051                       |       |
|                                      |       |                        |       |                        |       |                        |       |                        |       |
| **Net  income (loss)**                    |       | $                           | 439,978    |                        | $          | (8,513                      | )          | $                           | 571,249    |   | $ | (7,928 | ) |
| ** **                                | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Weighted  average shares outstanding:** | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Basic                                     |       | 7,914,406                   |       | 21,739                      |       | 5,851,111                   |       | 21,739                      |       |
| Diluted                                   |       | 7,926,986                   |       | 21,739                      |       | 5,860,605                   |       | 21,739                      |       |
| ** **                                | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Earnings  (loss) per share:**           | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Basic                                     |       | $                           | 0.06       |                        | $          | (0.39                       | )          | $                           | 0.10       |   | $ | (0.36 | ) |
| Diluted                                   |       | $                           | 0.06       |                        | $          | (0.39                       | )          | $                           | 0.10       |   | $ | (0.36 | ) |

 

*SeeNotes to Consolidated Financial Statements.*

4

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**Behringer Harvard Opportunity REIT I,Inc.Consolidated Statements of Stockholders’ Equity****(Unaudited)**
| ** **                     | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | **Retained** | ** ** | **Total**   | ** ** |
|--------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|--------------|------------|-------------|------------|
| ** **                     | ** ** | **Number of**         | ** ** | **Par**               | ** ** | **Number of** | ** ** | **Par**      | ** ** | **Paid-In** | ** ** | **Earnings** | ** ** | **Stockholders’** | ** ** |
| ** **                     | ** ** | **Shares**                 | ** ** | **Value**             | ** ** | **Shares**         | ** ** | **Value**    | ** ** | **Capital** | ** ** | **(Deficit)** | ** ** | **Equity** | ** ** |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Balance at  January 1, 2005    |       | 1,000                      |       | $                     | —     |               | 21,739     |         | $          | 2           |       | $ | 200,998 |   | $ | 313 |   | $ | 201,313 |   |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Issuance of  common stock, net |       | —                     |       | —                |       | 2,012,266          |       | 201          |       | 16,315,378  |       | — |   | 16,315,579 |   |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Net loss                       |       | —                     |       | —                |       | —             |       | —       |       | —      |       | (103,233 | ) | (103,233 | ) |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Balance at  December 31, 2005  |       | 1,000                      |       | —                |       | 2,034,005          |       | 203          |       | 16,516,376  |       | (102,920 | ) | 16,413,659 |   |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Issuance of  common stock, net |       | —                     |       | —                |       | 7,825,731          |       | 783          |       | 69,711,730  |       | — |   | 69,712,513 |   |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Net income                     |       | —                     |       | —                |       | —             |       | —       |       | —      |       | 571,249 |   | 571,249 |   |
|                           |       |                       |       |                  |       |               |       |         |       |        |       |   |   |   |   |
| Balance at June 30,  2006      |       | 1,000                      |       | $                     | —     |               | 9,859,736  |         | $          | 986         |       | $ | 86,228,106 |   | $ | 468,329 |   | $ | 86,697,421 |   |

 

*SeeNotes to Consolidated Financial Statements.*

5

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**BehringerHarvard Opportunity REIT I, Inc.**

**Consolidated Statements of Cash Flows**

**(Unaudited)**
| ** **                                                                                                  | ** ** | **Six months**         | ** ** | **Six months**         | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                  | ** ** | **ended**                   | ** ** | **ended**                   | ** ** |
| ** **                                                                                                  | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
|                                                                                                        |       |                        |       |                        |       |
| **Cash  flows from operating activities:**                                                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Net income (loss)                                                                                           |       | $                           | 571,249    |                        | $          | (7,928 | ) |
| Adjustments to reconcile net income (loss) to net  cash flows   provided by (used in) operating activities: |       |                        |       |                        |       |
| Depreciation and amortization                                                                               |       | 151,663                     |       | —                      |       |
| Change in accounts receivable                                                                               |       | (24,990                     | )          | —                      |       |
| Change in prepaid expenses and other assets                                                                 |       | 58,688                      |       | (3,302                      | )          |
| Change in accrued liabilities                                                                               |       | 95,176                      |       | —                      |       |
| **Cash  provided by (used in) operating activities**                                                        |       | 851,786                     |       | (11,230                     | )          |
|                                                                                                        |       |                        |       |                        |       |
| **Cash  flows from investing activities:**                                                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Purchase of real estate                                                                                     |       | (9,069,627                  | )          | —                      |       |
| Escrow deposits on real estate to be acquired                                                               |       | (4,224,538                  | )          | —                      |       |
| Change in restricted cash                                                                                   |       | (4,099                      | )          | —                      |       |
| **Cash  used in investing activities**                                                                      |       | (13,298,264                 | )          | —                      |       |
|                                                                                                        |       |                        |       |                        |       |
| **Cash  flows from financing activities:**                                                                  | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Issuance of common stock                                                                                    |       | 78,054,998                  |       | —                      |       |
| Offering costs                                                                                              |       | (8,342,485                  | )          | —                      |       |
| Change in subscriptions for common stock                                                                    |       | (73,325                     | )          | —                      |       |
| Change in subscription cash received                                                                        |       | 86,812                      |       | —                      |       |
| Change in payables to affiliates                                                                            |       | (545,864                    | )          | 12,500                      |       |
| **Cash provided  by financing activities**                                                                  |       | 69,180,136                  |       | 12,500                      |       |
|                                                                                                        |       |                        |       |                        |       |
| Net change in  cash and cash equivalents                                                                    |       | 56,733,658                  |       | 1,270                       |       |
| Cash and cash  equivalents at beginning of period                                                           |       | 18,560,885                  |       | 201,313                     |       |
| Cash and cash  equivalents at end of period                                                                 |       | $                           | 75,294,543 |                        | $          | 202,583 |   |

 

*SeeNotes to Consolidated Financial Statements.*

6

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

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**1.**                                      Organization

Behringer HarvardOpportunity REIT I, Inc. (which may be referred to as the “Company,” “we,” “us,”or “our”) was organized in Maryland on November 23, 2004 and intends to qualifyas a real estate investment trust (“REIT”). We were formed primarily to invest in and operate real estate or realestate related assets on an opportunistic basis.  We are currently offering our common stockpursuant to a public offering that commenced on September 20, 2005 (the “Offering”)and is described below.

We commenced ourOffering of shares of our common stock on September 20, 2005 and commencedoperations on November 9, 2005 upon our acceptance of initial subscriptions for441,204 shares of common stock, which satisfied the minimum offeringrequirement of $2,000,000 established for the Offering.  Our first real estate acquisition wascompleted on March 1, 2006 with the purchase of a two-story officebuilding in Minnetonka, Minnesota (the “Whitewater Property”).

Substantiallyall of our business is conducted through Behringer Harvard Opportunity OP I,LP, a Texas limited partnership organized in November 2004 (“Behringer HarvardOP”).  We own a 0.1% interest in BehringerHarvard OP as its sole general partner. The remaining 99.9% of Behringer Harvard OP is held as a limited partner’sinterest by BHO Partners, LLC, a Delaware limited liability company, which isour wholly-owned subsidiary.

Our advisor isBehringer Harvard Opportunity Advisors I LP (“Behringer Opportunity Advisors”),a Texas limited partnership organized in 2004. Behringer Opportunity Advisors is our affiliate and is responsible formanaging our affairs on a day-to-day basis and for identifying and makingacquisitions and investments on our behalf.

**2.****                          PublicOffering**

On September 20, 2005, wecommenced a public offering of up to 40,000,000 shares of common stock at aprice of $10 per share pursuant to a Registration Statement on Form S-11 filedunder the Securities Act of 1933, as amended (the “Securities Act”).  The Registration Statement also covers theOffering of up to 8,000,000 shares of common stock to be offered at a price of$9.50 per share pursuant to our distribution reinvestment plan (the “DRIP”).

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

As of June 30,2006, we had accepted subscriptions for 9,859,736 shares of our common stock,including 21,739 shares owned by Behringer Harvard Holdings, LLC (“BehringerHoldings”).  As of June 30, 2006, wehad 1,000 shares of non-participating, non-voting convertible stock (“ConvertibleStock”) issued and outstanding and no shares of preferred stock issued andoutstanding.

We admit newstockholders pursuant to the Offering at least monthly.  All subscription proceeds are held in aseparate account until the subscribing investors are admitted as stockholders.  Upon admission of new stockholders,subscription proceeds are transferred to operating cash and may be utilized asconsideration for investments and the payment or reimbursement of dealermanager fees, selling commissions, organization and offering expenses andoperating expenses.  Until required forsuch purposes, net offering proceeds are held in short-term, liquidinvestments.

We intend to use theproceeds 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.

Our common stock is notcurrently listed on a national exchange. Unless liquidated earlier, our management anticipates listing the commonstock on a national securities exchange or for quotation on the Nasdaq NationalMarket System or liquidating our real estate portfolio on or before the sixthanniversary of the termination of the Offering. Depending upon the then-prevailing market conditions, it is theintention of our management to

7

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

considerbeginning the process of listing or liquidating within three to six years afterthe termination of the Offering.  In theevent that we do not obtain such listing prior to the sixth anniversary of thetermination of the Offering, unless a majority of our board of directors and amajority of our independent directors extend such date, our charter requires usto begin the sale of our properties and liquidation of our assets.

**3.****                         ****Interim Unaudited FinancialInformation**

The accompanyingconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in our AnnualReport on Form 10-K for the year ended December 31, 2005, which was filedwith the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America (“GAAP”)have been condensed or omitted in this report on Form 10-Q pursuant to the rulesand regulations of the SEC.

The results for the interimperiods shown in this report are not necessarily indicative of future financialresults.  The accompanying consolidatedbalance sheet and consolidated statement of stockholders’ equity as of June 30,2006 and consolidated statements of operations and cash flows for the periodsended June 30, 2006 and 2005 have not been audited by our independentregistered public accounting firm.  Inthe opinion of management, the accompanying unaudited consolidated financialstatements include all adjustments necessary to present fairly our consolidatedfinancial position as of June 30, 2006 and December 31, 2005 and ourconsolidated results of operations and cash flows for the periods ended June30, 2006 and 2005.

**4.****                          Summaryof Significant Accounting Policies**

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

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

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

Our consolidatedfinancial statements include our accounts and the accounts of oursubsidiaries.  All inter-companytransactions, balances and profits have been eliminated in consolidation.  Interests in entities acquired are evaluatedbased on Financial Accounting Standards Board Interpretation (“FIN”) No. 46R “Consolidationof Variable Interest Entities,” which requires the consolidation of variableinterest entities in which we are deemed to be the primary beneficiary.  If the interest in the entity is determinedto not be a variable interest entity under FIN No. 46R, then the entities areevaluated for consolidation under the American Institute of Certified PublicAccountants (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting forInvestments in Real Estate Ventures,” as amended by Emerging Issues Task Force(“EITF”) 04-5, “Investor’s Accounting for an Investment in a LimitedPartnership When the Investor Is the Sole General Partner and the LimitedPartners Have Certain Rights.”

***Real Estate***

Upon theacquisition of real estate properties, we allocate the purchase price of thoseproperties to the tangible assets acquired, consisting of land and buildings,and identified intangible assets based on their relative fair values inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “BusinessCombinations” and No. 142, “Goodwill and Other Intangible Assets.”  Identified intangible assets consist of thefair value of above-market and below-market leases, in-place leases and tenantrelationships.  Initial valuations aresubject to change until our information is finalized, which is no later than 12months from the acquisition date.

8

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

The fair value ofthe tangible assets acquired, consisting of land and buildings, is determinedby valuing the property as if it were vacant, and the “as-if-vacant” value isthen allocated to land and buildings. Land values are derived from appraisals, and building values arecalculated as replacement cost less depreciation or management’s estimates ofthe relative fair value of these assets using discounted cash flow analyses orsimilar methods.  The value of thebuilding is depreciated over the estimated useful life of 25 years using thestraight-line method.  Accumulateddepreciation associated with the tangible assets of our wholly-owned propertywas approximately $96,000 at June 30, 2006.

We determine thevalue of above-market and below-market in-place leases for acquired propertiesbased on the present value (using an interest rate that reflects the risksassociated with the leases acquired) of the difference between (i) thecontractual amounts to be paid pursuant to the in-place leases and (ii)management’s estimate of current market lease rates for the correspondingin-place leases, measured over a period equal to the remaining non-cancelableterms of the respective leases.  Werecord the fair value of above-market and below-market in-place leases asintangible assets or intangible liabilities, respectively, and amortize them asan adjustment to rental income over the remaining non-cancelable terms of therespective leases.

The total value ofidentified real estate intangible assets acquired is further allocated to in-placelease values and tenant relationships based on management’s evaluation of thespecific characteristics of each tenant’s lease and our overall relationshipwith that respective tenant.  Theaggregate value for tenant improvements and leasing commissions is based onestimates of these costs incurred at inception of the acquired leases,amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationshipsis determined by applying a fair value model. The estimates of fair value of in-place leases include an estimate ofcarrying costs during the expected lease-up periods for the respective spacesconsidering current market conditions. In estimating the carrying costs that would have otherwise been incurredhad the leases not been in place, management includes such items as real estatetaxes, insurance and other operating expenses, as well as lost rental revenueduring the expected lease-up period based on current market conditions.  The estimates of the fair value of tenantrelationships also include costs to execute similar leases, including leasingcommissions, legal and tenant improvements, as well as an estimate of thelikelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize thevalue of in-place leases to expense over the initial term of the respectiveleases.  The value of tenant relationshipintangibles is amortized to expense over the initial term and any anticipatedrenewal periods, but in no event does the amortization period for intangibleassets exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, theunamortized portion of the in-place lease value and tenant relationshipintangibles would be charged to expense. The remaining estimated useful lives of our acquired lease intangiblesas of June 30, 2006 range from 3.2 years to 8.2 years.

Accumulatedamortization associated with the acquired lease intangibles of our consolidatedproperty was approximately $56,000 at June 30, 2006.  

Anticipatedamortization associated with acquired lease intangibles for the period fromJuly 1 through December 31, 2006 and for each of the following four yearsended December 31 is as follows:

|                                  | ** ** | **Lease  Intangibles** | ** ** |
|----------------------------------|------------|------------------------|------------|
| July 1, 2006 - December 31, 2006 |       | $                      | 77,114     |   |
| 2007                             |       | 154,229                |       |
| 2008                             |       | 154,229                |       |
| 2009                             |       | 131,705                |       |
| 2010                             |       | 86,657                 |       |
|                                  |            |                        |            |  |

 

9

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

As of June 30,2006, accumulated depreciation and amortization related to wholly-owned realestate assets and related lease intangibles were as follows:

|                                      | ** ** | ** **            | ** ** | ** **   | ** ** | **Acquired**     | ** ** |
|--------------------------------------|------------|-----------------------|------------|--------------|------------|------------------|------------|
| ** **                           | ** ** | **Building and** | ** ** | **In-Place** | ** ** | **Below-Market** | ** ** |
| ** **                           | ** ** | **Improvements**      | ** ** | **Leases**   | ** ** | **Leases**       | ** ** |
| Cost                                 |       | $                     | 7,177,344  |         | $          | 1,224,793        |       | $ | (255,992 | ) |
| Less:  depreciation and amortization |       | (95,690               | )          | (78,563      | )          | 22,589           |       |
| Net                                  |       | $                     | 7,081,654  |         | $          | 1,146,230        |       | $ | (233,403 | ) |

 

***Cash and Cash Equivalents***

We considerinvestments in highly-liquid money market funds with original maturities ofthree months or less to be cash equivalents. The carrying amount of cash and cash equivalents reported on the balancesheet approximates fair value.

***Restricted Cash***

Restricted cashincludes subscription proceeds that are held in a separate account until thesubscribing investors are admitted as stockholders.  We admit new stockholders at leastmonthly.  Upon acceptance ofstockholders, subscription proceeds are transferred to operating cash and maybe utilized as consideration for investments and the payment or reimbursementof dealer manager fees, selling commissions, organization and offering expensesand operating expenses.  Restricted cashas of June 30, 2006 also includes approximately $4,099 held in escrow forinsurance, taxes and other reserves for our consolidated property.

***Accounts Receivable***

Accountsreceivable primarily consist of receivables from tenants related to ourwholly-owned property.  There was noallowance for doubtful accounts as of June 30, 2006.

***PrepaidExpenses and Other Assets***

Prepaid expensesand other assets includes prepaid directors’ and officers’ insurance, as wellas prepaid insurance and real estate taxes of our consolidated property.

***EscrowDeposits***

Escrow depositsprimarily consist of deposits for the purchase of properties that we havecontracted to acquire.

***Investment Impairments***

For real estate wewholly own, our management monitors events and changes in circumstancesindicating that the carrying amounts of the real estate assets may not berecoverable.  When such events or changesin circumstances are present, we assess potential impairment by comparingestimated future undiscounted operating cash flows expected to be generatedover the life of the asset and from its eventual disposition to the carryingamount of the asset.  In the event thatthe carrying amount exceeds the estimated future undiscounted operating cashflows, we recognize an impairment loss to adjust the carrying amount of theasset to estimated fair value.

For real estate wewill own through an investment in a joint venture, tenant-in-common (“TIC”)interest or other similar investment structure, at each reporting datemanagement will compare the estimated fair value of our investment to thecarrying value.  An impairment chargewill be recorded to the extent the fair value of our investment is less thanthe carrying amount and the decline in value is determined to be other than atemporary decline.  There were noimpairment charges during the six months ended June 30, 2006.

10

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

***Deferred Financing Fees***

Deferred financingfees will be recorded at cost and will be amortized using a method thatapproximates the effective interest method over the life of the related debt.

***RevenueRecognition***

Werecognize rental income generated from leases on real estate assets on thestraight-line basis over the terms of the respective leases, including theeffect of rent holidays, if any.  Thetotal net increase to rental revenues due to straight-line rent adjustments forthe six months ended June 30, 2006 was $14,980. As discussed above, our rental revenue also includes amortization ofabove- and below-market in-place leases.

***Organizational and Offering Costs***

Our advisor fundsorganization and offering costs on our behalf. We are required to reimburse our advisor for such organization andoffering costs up to 2% of the cumulative capital raised in the Offering.  Organization and offering costs include itemssuch as legal and accounting fees, marketing, promotional and printingcosts.  All offering costs are recordedas an 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***

We currently account for income taxes in accordancewith SFAS No. 109, Accounting forIncome Taxes.  Under the liabilitymethod of SFAS No. 109, deferred taxes are determined based on the differencesbetween the financial statements and tax bases of assets and liabilities usingenacted tax rates in effect in the years the differences are expected toreverse.

Our management will evaluate plans to make an electionto be taxed as a REIT under Sections 856 through 860 of the Internal RevenueCode, effective for our taxable year ending December 31, 2006.  We believe that, commencing with the taxableyear for which such election is made, we will be organized and will operate insuch a manner as to qualify for taxation as a REIT under the Internal RevenueCode.

If we qualify for taxation as a REIT, we generallywill not be subject to federal corporate income taxes on income that wedistribute currently to our stockholders.

***Stock-BasedCompensation***

We have a stock-based incentive award plan for ourdirectors and consultants and employees, directors and consultants of ouraffiliates.  We account for this planunder the “modified prospective” method of SFAS No. 123R, “Share-Based Payment.”  In the “modified prospective” method,compensation cost is recognized for all share-based payments granted after theeffective date and for all unvested awards granted prior to the effectivedate.  In accordance with SFASNo. 123R, prior period amounts were not restated.  SFAS No. 123R also requires the taxbenefits associated with these share-based payments to be classified asfinancing activities in the Consolidated Statements of Cash Flows, rather thanas operating cash flows as required under previous regulations.  For the six months ended June 30, 2006,we had no significant compensation cost related to this incentive award plan.

***Concentration of Credit Risk***

At June 30, 2006, we had cash and cash equivalents andrestricted cash in excess of federally insured levels on deposit in threefinancial institutions.  We regularlymonitor the financial stability of the financial institutions and believe thatwe are not exposed to any significant credit risk in cash and cash equivalentsor restricted cash.

***Earningsper Share***

Earnings per share (“EPS”) are calculated based on theweighted average number of shares outstanding during each period.  Diluted EPS includes the effects of dilutivestock options and Convertible Stock outstanding during each period using thetreasury stock method.

11

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

The following table setsforth the reconciliation between weighted average shares outstanding used forcalculating basic and diluted earnings per share for the three and six monthsended June 30, 2006.  The weighted averageshares outstanding used to calculate both basic and diluted loss per share werethe same for the three and six months ended June 30, 2005, as the potentialeffect of Convertible Stock would have been anti-dilutive.

|                                                         | ** ** | **Three months**       | ** ** | **Six months**         | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **ended**                   | ** ** | **ended**                   | ** ** |
| ** **                                              | ** ** | **June 30, 2006** | ** ** | **June 30, 2006** | ** ** |
|                                                    |       |                        |       |                        |       |
| Weighted average  shares for basic earnings per share   |       | 7,914,406                   |       | 5,851,111                   |       |
| Effect of stock  options                                |       | 11,580                      |       | 8,494                       |       |
| Effect of  convertible stock                            |       | 1,000                       |       | 1,000                       |       |
| Weighted average shares  for diluted earnings per share |       | 7,926,986                   |       | 5,860,605                   |       |

 

***ReportableSegments***

SFAS No. 131, “Disclosures about Segments of an Enterpriseand Related Information,” establishes standards for reporting financialand descriptive information about an enterprise’s reportable segments.  Our current business consists only of owning,managing, operating, leasing, acquiring, developing, investing in and disposingof real estate assets.  Managementevaluates operating performance on an individual property level.  However, as each of our properties will havesimilar economic characteristics, our properties will be aggregated into onereportable segment.

**5.****                                      Acquisitions**

On March 1, 2006,we acquired the Whitewater Property, a two-story office building containingapproximately 70,705 rentable square feet (unaudited), located on approximately6.14 acres (unaudited) of land in Minnetonka, Minnesota.  The purchase price of the Whitewater Propertywas approximately $9,000,000, excluding closing costs.  We used proceeds from the Offering to pay theentire purchase price and all closing costs of the acquisition.

**6.****                                     ****Stockholders’ Equity**

***Capitalization***

As ofJune 30, 2006, our authorized capital was 350,000,000 shares of commonstock, 50,000,000 shares of preferred stock and 1,000 shares of ConvertibleStock.  All shares of such stock have apar value of $.0001 per share.  As ofJune 30, 2006, we had issued 9,859,736 shares of our common stock,including 21,739 shares owned by Behringer Holdings.  As of June 30, 2006, we had 1,000 sharesof our Convertible Stock issued and outstanding and no shares of preferredstock issued and outstanding.

As of June 30,2006, we had options to purchase 26,250 shares of stock outstanding at aweighted average exercise price of $9.10. On November 23, 2004 (date of inception), we sold 1,000 shares ofConvertible Stock and 21,739 shares of common stock to Behringer Holdings for$201,000 in cash.  The shares ofConvertible Stock will be converted into shares of common stock if (1) theholders of the common stock have received distributions equal to the sum of theaggregate capital invested by such stockholders and a 10% cumulative,non-compounded, annual return on such capital contributions; or (2) the sharesof common stock are listed for trading on a national securities exchange or forquotation on the Nasdaq National Market System. Conversion of the Convertible Stock may be limited by our board ofdirectors if it determines that full conversion may jeopardize ourqualifications as a REIT.  The terms ofthe Convertible Stock provide that, generally, Behringer Holdings, as theholder of such shares, will receive shares of common stock with a value equalto 15% of the amount that the sum of the enterprise value, as defined, plusdistributions paid to stockholders exceeds the sum of the capital invested bythe stockholders and a 10% cumulative, non-compounded, annual return on suchcapital.  Our board of directors mayauthorize additional shares of capital stock and their characteristics withoutobtaining stockholder approval.

12

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

***ShareRedemption Program***

Our board of directors hasauthorized and adopted a share redemption program that enables our stockholdersto sell their shares to us in limited circumstances after they have held themfor at least one year.  The purchaseprice for the redeemed shares is set forth in the prospectus for our Offeringof common stock.  Our board of directorsreserves the right in its sole discretion at any time, and from time to time,to (1) waive the one-year holding period in the event of the death, disabilityor bankruptcy of a stockholder or other exigent circumstances, (2) reject anyrequest for redemption, (3) change the purchase price for redemptions, or (4)terminate, suspend or amend the share redemption program.  Under the terms of the program, during anycalendar year, we will not redeem in excess of 5% of the weighted averagenumber of shares outstanding during the prior calendar year.  In addition, our board of directors willdetermine whether we have sufficient cash from operations to repurchase shares,and such purchases will generally be limited to proceeds of our DRIP plus 1% ofoperating cash flow for the previous fiscal year.  As of June 30, 2006, no shares had beenredeemed.  The provisions of the share redemptionprogram in no way limit our ability to repurchase shares from stockholders byany other legally available means for any reason that our board of directors,in its discretion, deems to be in our best interest.

***Incentive Award Plan***

The Behringer Harvard Opportunity REIT I, Inc. Amendedand Restated 2004 Incentive Award Plan (“Incentive Award Plan”) was approved byour board of directors on July 19, 2005 and by our stockholders onJuly 25, 2005, and provides for equity awards to our directors andconsultants and 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.  An option to acquire 1,250 shares was awardedto an independent board member on February 17, 2006 when he was elected toour board of directors.  In addition, onthat date, an option to acquire 5,000 shares of our common stock was awarded toeach of the other two independent board members. On June 29, 2006, anoption to acquire 5,000 shares of our common stock was awarded to each of thethree independent board members.

**7.****                          RelatedParty Arrangements**

Certain of our affiliates receive fees andcompensation in connection with the Offering. The following is a summary of the related party fees and compensation weincurred during the six months ended June 30, 2006.  No such fees were incurred in the six monthsended June 30, 2005.
| ** **                                                                           | ** ** | **Total**    | ** ** | **Total reduction  of additional** | ** ** | **Total  capitalized**       | ** ** | **Total**    | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------|------------|----------------------------------------------|------------|------------------------------|------------|--------------|------------|
| **For the six months ended June 30, 2006**        | ** ** | **incurred** | ** ** | **paid-in capital**                     | ** ** | **to real estate** | ** ** | **expensed** | ** ** |
| Behringer  Securities, commissions and dealer manager fees                           |       | $            | 6,849,573  |                                         | $          | 6,849,573                    |       | $            | —     |   | $ | — |   |
|                                                                                 |       |         |       |                                         |       |                         |       |         |       |
| Behringer  Opportunity Advisors, reimbursement of organization and offering expenses |       | 1,579,962    |       | 1,579,962                                    |       | —                       |       | —       |       |
|                                                                                 |       |         |       |                                         |       |                         |       |         |       |
| Behringer  Opportunity Advisors, acquisition, advisory fees and expenses             |       | 270,000      |       | —                                       |       | 270,000                      |       | —       |       |
|                                                                                 |       |         |       |                                         |       |                         |       |         |       |
| HPT Management,  property management and leasing fees                                |       | 19,647       |       | —                                       |       | —                       |       | 19,647       |       |
|                                                                                 |       |         |       |                                         |       |                         |       |         |       |
| Behringer  Opportunity Advisors, asset management fees                               |       | 21,980       |       | —                                       |       | —                       |       | 21,980       |       |
| Total                                                                                |       | $            | 8,741,162  |                                         | $          | 8,429,535                    |       | $            | 270,000    |   | $ | 41,627 |   |

 

BehringerSecurities LP (“Behringer Securities”), our affiliated dealer-manager for theOffering, receives commissions of up to 7% of gross offering proceeds beforereallowances of commissions earned by participating broker-dealers; providedthat Behringer Securities will receive 1% of the gross proceeds of purchasespursuant to our DRIP.  BehringerSecurities reallows 100% of the commissions earned to participatingbroker-dealers.  In addition, up to 2% ofgross proceeds before reallowance to participating broker-dealers will be paidto Behringer Securities as a dealer manager fee; provided that BehringerSecurities will not receive dealer manager fees pursuant

13

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

to our DRIP.  Behringer Securities may reallow all or aportion of its dealer manager fees in an aggregate amount up to 2% of grossoffering proceeds to broker-dealers participating in the offering; provided,however, that Behringer Securities may reallow, in the aggregate, no more than1.5% of gross offering proceeds for marketing fees and expenses, conferencefees and non-itemized, non-invoiced due diligence efforts, and no more than0.5% of gross offering proceeds for actual out-of-pocket and bona fide,separately invoiced due diligence expenses incurred as fees, costs or otherexpenses from third parties.  In the sixmonths ended June 30, 2006, Behringer Securities’ commissions and dealermanager fees totaled $5,269,611 and $1,579,962, respectively and all werecapitalized as offering costs in additional paid-in capital on our balancesheet.  In the six months endedJune 30, 2005, there were no commissions and dealer manager fees paid toBehringer Securities, as the Offering did not commence until September 20,2005.

Behringer Opportunity Advisors, or its affiliates,receives up to 2% of gross offering proceeds for reimbursement of organizationand offering expenses incurred in connection with the Offering.  As of June 30, 2006, $3,325,659 of organizationand offering expenses had been incurred by Behringer Opportunity Advisors onour behalf.  As of June 30, 2006,organization and offering expenses reimbursable by us totaled $3,325,659,including $1,984,421 reimbursed and $1,341,238 of reimbursements payable. The$1,341,238 of offering costs payable as of June 30, 2006 is included in “Payablesto affiliates” on our balance sheet.  Allof the $1,984,421 of organization and offering expenses reimbursed by usthrough June 30, 2006 has been recorded as a reduction of additionalpaid-in capital.  For the six monthsended June 30, 2006, $1,579,962 of organization and offering expenses werereimbursed by us, of which all was recorded as a reduction of additionalpaid-in capital.  In the six months endedJune 30, 2005, there were no organization and offering expenses paid, asthe Offering did not commence until September 20, 2005.  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.

Our advisor or itsaffiliates will also receive acquisition and advisory fees of 2.5% of thecontract purchase price of each asset for the acquisition, development orconstruction of real property or, with respect to any mortgage loan, up to 2.5%of the funds advanced in respect of a loan. Our advisor or its affiliates also receives reimbursement of acquisitionexpenses up to 0.5% of the contract purchase price of each asset, or withrespect to a mortgage, up to 0.5% of the funds advanced.  In the six months ended June 30, 2006,our advisor earned $225,000 in acquisition and advisory fees and $45,000 inacquisition expense reimbursement for our first real estate acquisition.  We capitalized these fees as part of our realestate.

Our advisor or itsaffiliates will also receive debt financing fees of 1% of the amount of anydebt made available to us.  It isanticipated that our advisor will pay some or all of these fees to thirdparties with whom it subcontracts to coordinate financing with us.

We pay HPT Management Services LP (“HPT Management”),our property manager and an affiliate of ours, fees for the management andleasing of our properties, which may be subcontracted to unaffiliated thirdparties.  Such fees are equal to 4.5% ofgross revenues plus leasing commissions based upon the customary leasingcommission applicable to the same geographic location of the respective property.  In the event that we contract directly with anon-affiliated third party property manager in respect of a property, we willpay HPT Management an oversight fee equal to 1% of gross revenues of theproperty managed.  In no event will wepay both a property management fee and an oversight fee to HPT Management withrespect to any particular property.  Weincurred and expensed such fees of $19,647 in the six months endedJune 30, 2006.

We pay our advisor an annual asset management fee of0.75% of the aggregate asset value of acquired real estate.  The fee is payable monthly in an amount equalto one-twelfth of 0.75% of the aggregate asset value of the last day of theimmediately preceding month.  For the sixmonths ended June 30, 2006, we incurred and expensed $21,980 of assetmanagement fees.

BehringerOpportunity Advisors or its affiliates is paid a disposition fee if our advisorprovides a substantial amount of services, as determined by our independentdirectors, in connection with the sale of one or more properties.  In such event, we pay our advisor (1) in thecase of the sale of real property, the lesser of:  (A)

14

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

one-half of theaggregate brokerage commission paid (including the subordinate disposition fee)or if none is paid, the amount that customarily would be paid, or (B) 3% of thesales price of each property sold, and (2) in the case of the sale of any assetother than real property, 3% of the sales price of such assets.  This fee shall not be earned or paid unlessand until the investors have received total distributions in an amount equal toor in excess of the sum of the aggregate capital contributions by investorsplus a 10% cumulative, non-compounded, annual return on such capitalcontributions.  Subordinated dispositionfees that are not payable at the date of sale, because investors have not yetreceived their required minimum distributions, will be deferred and paid atsuch time as these subordination conditions have been satisfied.  In addition, after investors have receivedtotal distributions equal to or in excess of the sum of their aggregate capitalcontributions plus a 10% annual, cumulative, non-compounded return on suchcapital contributions, then our advisor is entitled to receive an additionalparticipation in net sale proceeds fee equal to 15% of remaining net saleproceeds less the amount that our debt for borrowed money exceeds the aggregatebook value of our remaining assets.  Thesubordinated participation in net sales proceeds will be reduced or eliminatedupon the determination of the number of shares of common stock issuable uponconversion of our Convertible Stock.

Upon listing ofour common stock for trading on a national securities exchange or for quotationon the Nasdaq National Market System, an incentive listing fee up to 15% of theamount by which the market value of our outstanding stock plus distributionspaid by us prior to listing exceeds the sum of the aggregate capitalcontributions by investors plus a 10% annual, cumulative, non-compounded returnon such capital contributions will be paid to our advisor.  The subordinated participation in net salesproceeds will be reduced or eliminated upon the determination of the number ofshares of common stock issuable upon conversion of our Convertible Stock.

In addition, upontermination of the advisory agreement with our advisor, we will pay our advisora performance fee of 15% of the amount by which (A) our appraised asset valueat the time of such termination less our indebtedness, plus cash and cashequivalents at the time of termination plus total distributions paid to ourstockholders through the termination date exceeds (B) the aggregate capitalcontributed by investors plus payment to the investors of a 10% annual,cumulative, non-compounded return on the capital contributed by investors.  No performance fee will be paid if we havealready paid or become obligated to pay our advisor an incentive listingfee.  The subordinated participation innet sales proceeds will be reduced or eliminated upon the determination of thenumber of shares of common stock issuable upon conversion of our Convertible Stock.

We will reimburseour advisor or its affiliates for all expenses paid or incurred by them inconnection with the services they provide to us, subject to the limitation thatwe will not reimburse for any amount by which our advisor’s operating expenses(including the asset management fee) at the end of the four preceding fiscalquarters exceeds the greater of:  (i) 2%of our average invested assets, or (ii) 25% of our net income.

We will pay a development fee in an amount that isusual and customary for comparable services rendered to similar projects in thegeographic market of the project; provided, however, we will not pay adevelopment fee to an affiliate of our advisor if our advisor or any of itsaffiliates elects to receive an acquisition and advisory fee based on thecost of such development.

We are dependent on Behringer Opportunity Advisors,Behringer Securities and HPT Management for certain services that are essentialto us, including the sale of shares of our common stock, asset acquisition anddisposition decisions, property management and leasing services and othergeneral administrative responsibilities. In the event that these companies were unable to provide us with therespective services, we would be required to obtain such services from othersources.

# **8.****                                     ****Subsequent Events**

On July 3, 2006, we entered into an Extended Rate LockAgreement with Barclays Capital Real Estate Inc. (“Barclays”) to lock a baseinterest rate of 6.33% for $19,000,000 in future borrowings (“Barclays RateLock”).  As of June 30, 2006,deposits under the Barclays Rate Lock totaled $190,000 and are included as “Escrowdeposits” on our balance sheet.

15

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

On July 6, 2006,our board of directors declared an initial distribution to current stockholdersat a 2.0% annualized rate.  Distributionswill begin in the third quarter and will be paid monthly.  Investors may choose to receive cashdistributions or purchase additional shares through the available distributionreinvestment program.

On July 13, 2006, we acquired an eight-story officebuilding containing approximately 226,338 rentable square feet (unaudited)located on approximately 12.6 acres (unaudited) of land in Middleton,Massachusetts (“Ferncroft Corporate Center”). The contract purchase price of Ferncroft Corporate Center, exclusive ofclosing costs and initial escrows, was approximately $27,000,000.  We used proceeds from the Offering to pay theentire purchase price and all closing costs of the acquisition.

We issued approximately 953,000shares of our common stock between July 1, 2006 and August 1, 2006,resulting in gross proceeds to us of approximately $9,500,000.

# **9.****                                     ****Recently Announced AccountingPronouncements**

We adopted SFAS No. 123R, “Share-Based Payment,” arevision to SFAS No. 123 “Accounting for Stock-Based Compensation” on January2, 2006.  The statement supersedesAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees” and its related implementation guidance.  This statement focuses primarily onaccounting for transactions in which an entity obtains employee services inshare-based payment transactions and requires the measurement and recognitionof the cost of the employee services received in exchange for an award ofequity instruments for goods or services. The adoption of this statement did not have a material effect on ourfinancial condition, results of operations, or liquidity.

We adopted SFAS No. 154, “Accounting Changes andError Corrections,” a replacement of APB Opinion No. 20 and SFASNo. 3, on January 1, 2006.  Thestatement provides guidance on the accounting for and reporting of accountingchanges and error corrections. It establishes, unless impracticable,retrospective application as the required method for reporting a change inaccounting principle in the absence of explicit transition requirementsspecific to the newly adopted accounting principle.  This statement is effective for accountingchanges and corrections of errors made in fiscal years beginning after December 15,2005.  The adoption of this statement didnot have a material effect on our financial condition, results of operations,or liquidity.

In April 2006, the FASB issued FASB Staff Position (“FSP”)FIN 46R-6, “Determining the Variability to be Considered in Applying FASBInterpretation No. 46R,” that will become effective beginning the third quarterof 2006.  FIN 46R-6 clarifies that thevariability to be considered in applying FIN 46R shall be based on an analysisof the design of the variable interest entity. The adoption of this FSP is not expected to have a material effect onour financial condition, results of operations, or liquidity.

16

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**Item 2.    Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

The following discussion andanalysis should be read in conjunction with the accompanying financialstatements of the Company and the notes thereto:

### **Forward-LookingStatements**

This sectioncontains forward-looking statements, including discussion and analysis of thefinancial condition of us and our subsidiaries, our anticipated capitalexpenditures required to complete projects, amounts of anticipated cash distributionsto our stockholders in the future and other matters. These forward-lookingstatements are not historical facts but are the intent, belief or currentexpectations of our management based on their knowledge and understanding ofour business and industry. Words such as “may,” “anticipates,” “expects,” “intends,”“plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” andvariations of these words and similar expressions are intended to identifyforward-looking statements. These statements are not guarantees of futureperformance and are subject to risks, uncertainties and other factors, some ofwhich are beyond our control, are difficult to predict and could cause actualresults to differ materially from those expressed or forecasted in theforward-looking statements.

### Forward-lookingstatements that were true at the time made may ultimately prove to be incorrector false. We caution investors not to place undue reliance on forward-lookingstatements, which reflect our management’s view only as of the date of thisreport on Form 10-Q. We undertake no obligation to update or reviseforward-looking statements to reflect changed assumptions, the occurrence ofunanticipated events or changes to future operating results. Factors that couldcause actual results to differ materially from any forward-looking statementsmade in the Form 10-Q include changes in general economic conditions, changesin real estate conditions, construction costs that may exceed estimates,construction delays, increases in interest rates, lease-up risks, inability toobtain new tenants upon the expiration of existing leases, and the potentialneed to fund tenant improvements or other capital expenditures out of operatingcash flow. The forward-looking statements should be read in light of the riskfactors identified in the “Risk Factors” section of our Annual Report on Form10-K, as filed with the SEC.

### **CriticalAccounting Policies and Estimates**

Management’sdiscussion and analysis of financial condition and results of operations arebased upon our consolidated financial statements, which have been prepared inaccordance with GAAP. The preparation of these financial statements requiresour management to make estimates and assumptions that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. On a regular basis, we will evaluatethese estimates, including investment impairment. These estimates will be basedon management’s historical industry experience and on various other assumptionsthat are believed to be reasonable under the circumstances. Actual results maydiffer from these estimates. Our most sensitive estimates involve theallocation of the purchase price of acquired properties and evaluating our realestate related investments for impairment.

Below is a discussion of theaccounting policies that we consider will be critical in that they may requirecomplex judgment in their application or require estimates about matters thatare inherently uncertain.

***Investment Impairments***

For real estate wewholly own, we monitor events and changes in circumstances indicating that thecarrying amounts of the real estate assets may not be recoverable. When suchevents or changes in circumstances are present, we assess potential impairmentby comparing estimated future undiscounted operating cash flows expected to begenerated over the life of the asset and from its eventual disposition to thecarrying amount of the asset. In the event that the carrying amount exceeds theestimated future undiscounted operating cash flows, we recognize an impairmentloss to adjust the carrying amount of the asset to estimated fair value.

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For real estate weown through an investment in a joint venture, TIC interest or other similarinvestment structure, at each reporting date we compare the estimated fairvalue of our investment to the carrying value. An impairment charge is recordedto the extent the fair value of our investment is less than the carrying amountand the decline in value is determined to be other than a temporary decline. Therewere no impairment charges for the six months ended June 30, 2006.

***Real Estate***

Upon theacquisition of real estate properties, we allocate the purchase price of thoseproperties to the tangible assets acquired, consisting of land and buildings,and identified intangible assets based on their relative fair values inaccordance with SFAS No. 141, “Business Combinations” and No. 142, “Goodwilland Other Intangible Assets.” Identified intangible assets consist of the fairvalue of above-market and below-market leases, in-place leases, in-place tenantimprovements and tenant relationships. Initial valuations are subject to changeuntil our information is finalized, which is no later than 12 months from theacquisition date.

The fair value ofthe tangible assets to be acquired, consisting of land and buildings, isdetermined by valuing the property as if it were vacant, and the “as-if-vacant”value is allocated to land and buildings. Land values are derived fromappraisals, and building values are calculated as replacement cost lessdepreciation or management’s estimates of the relative fair value of theseassets using discounted cash flow analyses or similar methods. The value of thebuilding is depreciated over the estimated useful life of 25 years using thestraight-line method.

We determine thevalue of above-market and below-market in-place leases for acquired propertiesbased on the present value (using an interest rate that reflects the risks associatedwith the leases acquired) of the difference between (i) the contractual amountsto be paid pursuant to the in-place leases and (ii) management’s estimate ofcurrent market lease rates for the corresponding in-place leases, measured overa period equal to the remaining non-cancelable terms of the respective leases. Werecord the fair value of above-market and below-market leases as intangibleassets or intangible liabilities, respectively, and amortize them as anadjustment to rental income over the remaining non-cancelable terms of therespective leases.

The total value ofidentified real estate intangible assets acquired is further allocated toin-place lease values and tenant relationships based on our evaluation of thespecific characteristics of each tenant’s lease and our overall relationshipwith that respective tenant. The aggregate value of in-place leases acquiredand tenant relationships is determined by applying a fair value model. Theestimates of fair value of in-place leases include an estimate of carryingcosts during the expected lease-up periods for the respective spacesconsidering current market conditions. In estimating the fair value of in-placeleases, we consider items such as real estate taxes, insurance and otheroperating expenses, as well as lost rental revenue during the expected lease-upperiod and carrying costs that would have otherwise been incurred had theleases not been in place, including tenant improvements and commissions. Theestimates of the fair value of tenant relationships also include costs toexecute similar leases, including leasing commissions, legal and tenantimprovements as well as an estimate of the likelihood of renewal as determinedby management on a tenant-by-tenant basis.

We amortize thevalue of in-place leases to expense over the term of the respective leases. Thevalue of tenant relationship intangibles is amortized to expense over theinitial term and any anticipated renewal periods, but in no event does theamortization period for intangible assets exceed the remaining depreciable lifeof the building. Should a tenant terminate its lease, the unamortized portionof the in-place lease value and tenant relationship intangibles would becharged to expense.

**Overview**

We were formedprimarily to invest in and operate real estate or real estate related assets onan opportunistic basis.

As of June 30,2006, we owned one property located in Minnetonka, Minnesota.

On September 20, 2005, ourRegistration Statement on Form S-11 (File No. 333-120847), covering theOffering of up to 40,000,000 shares of common stock to be offered at a price of$10.00 per share was declared

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effectiveunder the Securities Act. The Offering also includes up to 8,000,000 shares ofcommon stock at a price of $9.50 per share pursuant to our DRIP.

On October 27,2005, the conditions of our escrow agreement with Citibank Texas, N.A. weresatisfied and as a result, operations commenced on November 9, 2005 upon ouracceptance of initial subscriptions. On November 9, 2005, we received andaccepted subscriptions for 441,204 shares of common stock for gross offeringproceeds of $4,408,510. As of June 30, 2006, we had accepted subscriptions for9,859,736 shares of our common stock, including 21,739 shares owned byBehringer Holdings, for gross offering proceeds of $98,137,966. As of June 30,2006, we had no shares of preferred stock issued or outstanding and 1,000shares of Convertible Stock issued and outstanding.

**Results of Operations**

We commenced activeoperations when we made our first real estate acquisition on March 1, 2006 withthe purchase of the Whitewater Property. Accordingly, our results of operationsfor the three and six months ended June 30, 2006, as compared to the three andsix months ended June 30, 2005, reflect significant increases.

*Threemonths ended June 30, 2006 as compared to three months ended June 30, 2005*

*RentalRevenue.* Rental revenue was $355,201 for the three monthsended June 30, 2006 and was comprised of revenue, including adjustments forstraight-line rent and amortization of above- and below-market leases, from theWhitewater Property. During the three months ended June 30, 2005, we did notown any real estate. Management expects future increases in rental revenue aswe continue to invest in additional real estate properties.

*PropertyOperating Expenses.* Property operating expenses for the threemonths ended June 30, 2006 was $113,918 and was comprised of operating expensesfrom the Whitewater Property. During the three months ended June 30, 2005, wedid not own any real estate.

*RealEstate Taxes.*Real estate taxes for the three months endedJune 30, 2006 were $60,532 and were comprised of real estate taxes from theWhitewater Property. During the three months ended June 30, 2005, we did notown any real estate.

*PropertyManagement Fees.*Property management fees for the threemonths ended June 30, 2006 were $14,742 and were comprised of propertymanagement fees from the Whitewater Property. During the three months endedJune 30, 2005, we did not own any real estate.

*AssetManagement Fees.*Asset management fees for the three monthsended June 30, 2006 were $16,485 and were comprised of asset management feesfrom the Whitewater Property. During the three months ended June 30, 2005, wedid not own any real estate.

*Generaland Administrative Expenses.* General and administrativeexpenses for the three months ended June 30, 2006 were $211,610, as compared to$8,979 for the three months ended June 30, 2005, and were comprised ofcorporate general and administrative expenses, including directors’ andofficers’ insurance premiums, auditing fees, legal fees and otheradministrative expenses. The increased amount in 2006 was due to increasedcorporate activity in the current fiscal year.

*Depreciationand Amortization Expense.*Depreciation and amortizationexpense for the three months ended June 30, 2006 was $131,429 and was comprisedof depreciation and amortization of the Whitewater Property. During the threemonths ended June 30, 2005, we did not own any real estate.

*Interest Income*. Interest income for the three months endedJune 30, 2006 was $633,493 and was comprised of interest income on funds ondeposit, net of bank fees. As we admit new stockholders, subscription proceedsare released to us and may be utilized as consideration for investments in realproperties and the payment or reimbursement of dealer manager fees, sellingcommissions, organization and offering expenses and operating expenses. Untilrequired for such purposes, net offering proceeds are held in short-term,liquid investments and earn interest income. During the three months endedJune 30, 2005, we earned $466 in interest income. The increase in interestincome in 2006 is due to higher cash balances on deposit with banks as a resultof increased proceeds from investor subscriptions.

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*Sixmonths ended June 30, 2006 as compared to six months ended June 30, 2005*

*RentalRevenue.* Rental revenue was $474,244 for the six months endedJune 30, 2006 and was comprised of revenue, including adjustments forstraight-line rent and amortization of above- and below-market leases, from theWhitewater Property from date of acquisition, March 1, 2006, through June 30,2006. During the six months ended June 30, 2005, we did not own any realestate. Management expects future increases in rental revenue as we continue toinvest in additional real estate properties.

*PropertyOperating Expenses.* Property operating expenses for the sixmonths ended June 30, 2006 was $135,642 and was comprised of operating expensesfrom the Whitewater Property from date of acquisition, March 1, 2006, throughJune 30, 2006. During the six months ended June 30, 2005, we did not own anyreal estate.

*RealEstate Taxes.*Real estate taxes for the six months ended June30, 2006 were $81,516 and were comprised of real estate taxes from theWhitewater Property from date of acquisition, March 1, 2006, through June30, 2006. During the six months ended June 30, 2005, we did not own any realestate.

*PropertyManagement Fees.*Property management fees for the six monthsended June 30, 2006 were $19,647 and were comprised of property management feesfrom the Whitewater Property from date of acquisition, March 1, 2006, throughJune 30, 2006. During the six months ended June 30, 2005, we did not own anyreal estate.

*AssetManagement Fees.*Asset management fees for the six monthsended June 30, 2006 were $21,980 and were comprised of asset management feesfrom the Whitewater Property from date of acquisition, March 1, 2006, throughJune 30, 2006. During the six months ended June 30, 2005, we did not own anyreal estate.

*Generaland Administrative Expenses.*General and administrativeexpenses for the six months ended June 30, 2006 were $371,768, as compared to$8,979 for the six months ended June 30, 2005, and were comprised of corporategeneral and administrative expenses, including directors’ and officers’insurance premiums, auditing fees, legal fees and other administrativeexpenses. The increased amount in 2006 was due to increased corporate activityin the current fiscal year.

*Depreciationand Amortization Expense.*Depreciation and amortizationexpense for the six months ended June 30, 2006 was $174,253 and was comprisedof depreciation and amortization of the Whitewater Property from date ofacquisition, March 1, 2006, through June 30, 2006. During the six months endedJune 30, 2005, we did not own any real estate.

*Interest Income*. Interest income for the six months endedJune 30, 2006 was $901,811 and represented interest income on funds on deposit,net of bank fees. As we admit new stockholders, subscription proceeds arereleased to us and may be utilized as consideration for investments in realproperties and the payment or reimbursement of dealer manager fees, sellingcommissions, organization and offering expenses and operating expenses. Untilrequired for such purposes, net offering proceeds are held in short-term,liquid investments and earn interest income. During the six months endedJune 30, 2005, we earned $1,051 in interest income. The increase ininterest income in 2006 is due to higher cash balances on deposit with banks asa result of increased proceeds from investor subscriptions.

**Cash Flow Analysis**

We commencedactive operations when we made our first real estate acquisition on March 1,2006 with the purchase of the Whitewater Property. As a result, our cash flowsfor the six months ended June 30, 2006 are not comparable to the cash flows forthe six months ended June 30, 2005.

Cash flowsprovided by operating activities for the six months ended June 30, 2006 were$851,786 and were comprised of net income of $571,249, changes in workingcapital accounts of $128,874, and the adjustment for depreciation andamortization of $151,663. During the six months ended June 30, 2005, cash flowsused in operating activities were $11,230 and were primarily comprised of the netloss of $7,928, and were significantly lower than the six months ended June 30,2006 due to the lack of real estate investments and less corporate activity induring the six months ended June 30, 2005.

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Cash flows used ininvesting activities for the six months ended June 30, 2006 were $13,298,264and primarily represented the acquisition of the Whitewater Property for$9,069,627 and escrow deposits of $4,224,538 for Ferncroft Corporate Center whichwas acquired on July 13, 2006. During the six months ended June 30, 2005, therewere no cash flows from investing activities as we had not yet begun to invest.

Cash flowsprovided by financing activities for the six months ended June 30, 2006 were$69,180,136 and were comprised primarily of funds received from the issuance ofstock, net of offering costs of $69,712,513, offset by $545,864 in payables toaffiliates. During the six months ended June 30, 2005, cash flows provided byfinancing activities were $12,500 and were comprised of the change in payablesto affiliates.

**Liquidityand Capital Resources**

The amount of distributionspayable to our stockholders will be determined by our board of directors and isdependent on a number of factors, including funds available for distribution,financial condition, capital expenditure requirements and annual distributionrequirements needed to maintain our status as a REIT under the Internal RevenueCode. Operating cash flows are expected to increase as properties are acquiredin the development of our investment portfolio.

Our principal demands forfunds will be for property acquisitions, either directly or through investmentinterests, for mortgage loan investments, for the payment of operating expensesand distributions, and for the payment of interest on our outstandingindebtedness and other investments. Generally, cash needs for items other thanproperty acquisitions and mortgage loan investments will be met fromoperations, and cash needs for property acquisitions will be met from thepublic offering of our shares. However, there may be a delay between the saleof our shares and our purchase of properties and mortgage loan investments,which could result in a delay in the benefits to our stockholders, if any, ofreturns generated from our operations. Our advisor evaluates potentialacquisitions of real estate and real estate related assets and engages innegotiations with sellers and borrowers on our behalf. Investors should be awarethat after a purchase contract is executed that contains specific terms, theproperty will not be purchased until the successful completion of due diligenceand negotiation of final binding agreements. During this period, we may decideto temporarily invest any unused proceeds from the Offering in certaininvestments that could yield lower returns than the properties. These lowerreturns may affect our ability to make distributions.

We expect to meet our futureshort-term operating liquidity requirements through net cash provided by ourcurrent property operations and the operations of properties to be acquired inthe future. Management also expects that our properties will generatesufficient cash flow to cover operating expensesand the payment of a monthly distribution. Otherpotential future sources of capital include proceeds from secured or unsecuredfinancings from banks or other lenders, proceeds from the sale of propertiesand undistributed funds from operations. If necessary, we may use financings orother sources of capital in the event of unforeseen significant capitalexpenditures.

**Funds from Operations**

Funds fromoperations (“FFO”) is a non-GAAP financial measure that is widely recognized asa measure of REIT operating performance. FFO is defined by the NationalAssociation of Real Estate Investment Trusts as net income (loss), computed inaccordance with GAAP excluding extraordinary items, as defined by GAAP, andgains (or losses) from sales of property, plus depreciation and amortization onreal estate assets, and after adjustments for unconsolidated partnerships,joint ventures and subsidiaries. We believe that FFO is helpful to investorsand our management as a measure of operating performance because it excludesdepreciation and amortization, gains and losses from property dispositions, andextraordinary items, and as a result, when compared year to year, reflects theimpact on operations from trends in occupancy rates, rental rates, operatingcosts, development activities, general and administrative expenses, andinterest costs, which is not immediately apparent from net income. Historicalcost accounting for real estate assets in accordance with GAAP implicitlyassumes that the value of real estate diminishes predictably over time. Sincereal estate values have historically risen or fallen with market conditions,many industry investors and analysts have considered the presentation ofoperating results for real estate companies that use historical cost accountingalone to be insufficient. As a result, our management believes that the use ofFFO, together with the required GAAP

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presentations, provides amore complete understanding of our performance and a more informed andappropriate basis on which to make decisions involving operating, financing andinvesting activities. Factors that impact FFO include start-up costs, fixedcosts, delay in buying assets, lower yields on cash held in accounts pendinginvestment, income from portfolio properties and other portfolio assets,interest rates on acquisition financing and operating expenses. FFO should notbe considered as an alternative to net income (loss) as an indication of ourliquidity, nor is it indicative of funds available to fund our cash needs,including our ability to make distributions. Our calculation of FFO for thethree and six months ended June 30, 2006 is presented below:

|                                       | ** ** | **Three months**       | ** ** | **Six months**         | ** ** |
|---------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **ended**                   | ** ** | **ended**                   | ** ** |
| ** **                            | ** ** | **June 30, 2006** | ** ** | **June 30, 2006** | ** ** |
|                                  |       |                        |       |                        |       |
| Net income                            |       | $                           | 439,978    |                        | $          | 571,249 |   |
| Preferred stock dividends             |       | —                      |       | —                      |       |
| Net income  allocable to common stock |       | $                           | 439,978    |                        | $          | 571,249 |   |
|                                  |       |                        |       |                        |       |
| Real estate  depreciation             |       | 71,863                      |       | 95,690                      |       |
| Real estate  amortization             |       | 43,120                      |       | 55,973                      |       |
| Funds from  operations (FFO)          |       | $                           | 554,961    |                        | $          | 722,912 |   |
|                                  |       |                        |       |                        |       |
| GAAP weighted average  shares         |       | 7,914,406                   |       | 5,851,111                   |       |

 

**Contractual Obligations**

We had no contractualobligations as of June 30, 2006.

**Off-Balance Sheet Arrangements**

We have nooff-balance sheet arrangements that are reasonably likely to have a current orfuture material effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

**Inflation**

The real estate market hasnot been affected significantly by inflation in the past several years due tothe relatively low inflation rate. However, we intend to include provisions inthe majority of our tenant leases that would protect us from the impact ofinflation. These provisions include reimbursement billings for common areamaintenance charges, real estate tax and insurance reimbursements on a persquare foot basis, or in some cases, annual reimbursement of operating expensesabove a certain per square foot allowance.

**Item 3.    Quantitative andQualitative Disclosures About Market Risk.**

We will be exposedto interest rate changes primarily as a result of long-term debt used toacquire properties. Our management’s objectives with regard to interest raterisk are to limit the impact of interest rate changes on earnings and cashflows and to lower overall borrowing costs. To achieve these objectives, wewill borrow primarily at fixed rates or variable rates with the lowest marginsavailable and in some cases, the ability to convert variable rates to fixedrates. With regard to variable rate financing, we will assess interest ratecash flow risk by continually identifying and monitoring changes in interestrate exposures that may adversely impact expected future cash flows and byevaluating hedging opportunities.

We do not have anyforeign operations and thus we are not exposed to foreign currencyfluctuations.

**Item 4.    Controls andProcedures.**

As required by Rule15d-15(b) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), our management, including our Chief Executive Officer and ChiefFinancial Officer, evaluated, as of June 30, 2006, the effectiveness of ourdisclosure controls and procedures as defined in Exchange Act Rule 15d-

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15(e). Based on that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures, as of June 30, 2006, were effective for the purpose of ensuringthat information required to be disclosed by us in this report is recorded,processed, summarized and reported within the time periods specified by therules and forms of the Exchange Act and is accumulated and communicated tomanagement, including the Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that acontrols system, no matter how well designed and operated, can only providereasonable assurance, not absolute assurance, that the objectives of thecontrols system are met, and no evaluation of controls can provide absoluteassurance, only reasonable assurance, that all control issues and instances offraud or error, if any, within a company have been detected.

There has been no change ininternal controls over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) promulgated under the Securities Exchange Act of 1934) that occurredduring the quarter ended June 30, 2006 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

**PART IIOTHER INFORMATION**

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

We are not party to, and ourproperty is not subject to, any material pending legal proceedings.

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

There have been no materialchanges from the risk factors set forth in our Annual Report on Form 10-K forthe year ended December 31, 2005.

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

On September 20,2005, we commenced our Offering of up to 40,000,000 shares of common stockoffered at a price of $10 per share pursuant to a Registration Statement onForm S-11 filed under the Securities Act. The Registration Statement alsocovers the offering of up to 8,000,000 shares of common stock at a price of$9.50 per share pursuant to our DRIP. As of June 30, 2006, we had sold9,837,997 shares of our common stock on a best efforts basis pursuant to theOffering (declared effective September 20, 2005, SEC Registration No.333-120847) for aggregate gross offering proceeds of $98,137,966.

The above-statednumber of shares sold and the gross offering proceeds received from such salesdoes not include 21,739 shares of common stock purchased by Behringer Holdingsin a private placement in 2004, prior to the commencement of the Offering.

From thecommencement of the Offering through June 30, 2006, we incurred the followingexpenses in connection with the issuance and distribution of the registeredsecurities pursuant to the Offering:

| Type of Expense         | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |
| Other expenses  to affiliates *   |       | $          | 11,952,599 |   |
| Other expenses  to non-affiliates |       | 157,275    |       |
|                              |       |       |       |
| Total expenses                    |       | $          | 12,109,874 |   |

 

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* “Other expenses toaffiliates” includes commissions and dealer manager fees paid to BehringerSecurities, our affiliate, which reallowed all or a portion of the commissionsand fees to soliciting dealers.

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The net offeringproceeds to us, after deducting the total expenses incurred and describedabove, were $86,028,092.

From thecommencement of the Offering through June 30, 2006, we had used $9,069,627 ofsuch net offering proceeds to purchase real estate. Of the amount used for thepurchase of real estate, $270,000 was paid to Behringer Opportunity Advisors,our affiliate, as acquisition and advisory fees and acquisition expensereimbursement.

**Item 3.        Defaults Upon Senior Securities.**

None.

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

The Annual Meeting of ourstockholders (the “Annual Meeting”) was held on June 29, 2006. All nomineesstanding for election as directors were serving as members of the board ofdirectors prior to the Annual Meeting. All of such nominees were re-elected. Asa result, the following directors were elected to hold office for a termexpiring at the 2007 Annual Meeting or until their successors are elected andqualified, with the vote for each director being reflected below:

| Nominee              | ** ** | **For**   | ** ** | **Withheld  Authority** | ** ** |
|----------------------|------------|-----------|------------|-------------------------|------------|
|                 |       |      |       |                    |       |
| Robert M.  Behringer |       | 3,235,183 |       | 2,500                   |       |
| Robert S. Aisner     |       | 3,237,683 |       | —                  |       |
| Barbara C.  Bufkin   |       | 3,237,683 |       | —                  |       |
| Robert J.  Chapman   |       | 3,237,683 |       | —                  |       |
| Steven J. Kaplan     |       | 3,237,683 |       | —                  |       |

 

The affirmative vote of theholders of a majority of the outstanding shares of common stock represented atthe Annual Meeting was required to elect each director.

At the Annual Meeting, thestockholders also approved and adopted amendments to Article XIII of ourcharter. As a result of the amendments to our charter, our board of directorsno longer has the power to approve, without stockholder approval, mergers ofthe Company with or into a subsidiary, even when 90% or more of such subsidiary’sstock is owned by us, mergers in which we are the successor entity, ortransfers of all or substantially all of our assets to a wholly ownedsubsidiary. The vote for the charter amendments is reflected below:

| Votes For | ** ** | **Votes Against** | ** ** | **Votes Withheld** | ** ** |
|----------------|------------|------------------------|------------|-------------------------|------------|
|           |       |                   |       |                    |       |
| 3,082,612      |       | 40,513                 |       | 114,558                 |       |

 

The affirmative vote of amajority of all votes entitled to be cast at the Annual Meeting was required toapprove the amendments to our charter.

No other matters weresubmitted to a vote of security holders at the Annual Meeting or during thethree months ended June 30, 2006.

### **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**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|                        | **Behringer Harvard Opportunity REIT  I, Inc.** |
|------------------------|-------------------------------------------------|
|                   |                                            |   |
|                   |                                            |   |
|                   |                                            |   |
|                   |                                            |   |
| Dated: August 14, 2006 | By:                                             |  /s/ Gary S. Bresky |   |
|                   |                                            | Gary S. Bresky |
|                   |                                            | Chief Financial Officer |
|                   |                                            | (Principal Financial Officer) |

 

 

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**Index toExhibits**
| Exhibit Number | ** ** | **Description**                                                        |
|----------------|------------|------------------------------------------------------------------------|
|           |       |                                                                   |
| 31.1           |       | Rule 13a-14(a)/15d-14(a) Certification of Principal  Executive Officer |
|           |       |                                                                   |
| 31.2           |       | Rule 13a-14(a)/15d-14(a) Certification of Principal  Financial Officer |
|           |       |                                                                   |
| 32.1*          |       | Section 1350 Certifications of Chief Executive and  Financial Officers |

 

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* In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit isnot deemed “filed” for purposes of Section 18 of the Securities Exchange Act orotherwise subject to the liabilities of that section. Such certifications willnot be deemed incorporated by reference into any filing under the SecuritiesAct or the Exchange Act, except to the extent that the registrant specificallyincorporates it by reference.

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