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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31,2009**

 

**Commission File Number: 000-53650**

 

**BehringerHarvard Opportunity REIT II, Inc.**

(Exact Name of Registrant as Specified in ItsCharter)

 

| **Maryland**                                                    | ** ** | **20-8198863**                      |
|-----------------------------------------------------------------|------------|-------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. EmployerIdentification No.) |

 

**15601 Dallas Parkway, Suite 600, Addison, Texas75001**

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including areacode:** (866) 655-3600**

** **

**None**

(Former name, former address and former fiscalyear, if changed since last report)

 

Indicate by check mark whether the Registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.  Yes x No o

 

Indicate by check markwhether the Registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o No o

 

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                      |   | Accelerated filer o         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non-accelerated filer o                        |   | Smaller reporting company x |
| (Do not check if a smaller  reporting company) |   |                        |

 

Indicate by check mark whether the Registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

Asof April 30, 2009, Behringer Harvard Opportunity REIT II, Inc. had9,235,687****shares of common stock,$.0001 par value, outstanding.

 

 

 

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

**FORM 10-Q**

**Quarter Ended March 31, 2009**

 
| ** **                | ** **                                                                                          | **Page**   |
|---------------------------|-----------------------------------------------------------------------------------------------------|------------|
| **PART I**           |                                                                                                |
| **FINANCIAL INFORMATION** |                                                                                                |
|                      |                                                                                                |       |
| **Item 1.**               | **Financial Statements (Unaudited)**                                                                |       |
|                      |                                                                                                |       |
|                      | Consolidated Balance Sheets as of March 31, 2009  and December 31, 2008                   | 3          |
|                      |                                                                                                |       |
|                      | Consolidated Statements of Operations for the Three  Months Ended March 31, 2009 and 2008      | 4          |
|                      |                                                                                                |       |
|                      | Consolidated Statement of Stockholders’ Equity for the  Three Months Ended March 31, 2009 | 5          |
|                      |                                                                                                |       |
|                      | Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2009 and 2008      | 6          |
|                      |                                                                                                |       |
|                      | Notes to Consolidated Financial Statements                                                          | 7          |
|                      |                                                                                                |       |
| **Item 2.**               | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**     | **16**     |
| ** **                | ** **                                                                                          | ** ** |
| **Item 3.**               | **Quantitative  and Qualitative Disclosures About Market Risk**                                     | **25**     |
| ** **                | ** **                                                                                          | ** ** |
| **Item 4T.**              | **Controls and  Procedures**                                                                        | **26**     |
| ** **                | ** **                                                                                          | ** ** |
| **PART II**          |                                                                                                |
| **OTHER  INFORMATION**    |                                                                                                |
|                      |                                                                                                |       |
| **Item 1.**               | **Legal Proceedings**                                                                               | 27         |
|                      |                                                                                                |       |
| **Item 1A.**              | **Risk Factors**                                                                                    | 27         |
|                      |                                                                                                |       |
| **Item 2.**               | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                    | 28         |
|                      |                                                                                                |       |
| **Item 3.**               | **Defaults  Upon Senior Securities**                                                                | 29         |
|                      |                                                                                                |       |
| **Item 4.**               | **Submission  of Matters to a Vote of Security Holders**                                            | 29         |
|                      |                                                                                                |       |
| **Item 5.**               | **Other Information**                                                                               | 29         |
|                      |                                                                                                |       |
| **Item 6.**               | **Exhibits**                                                                                        | 29         |
|                      |                                                                                                |       |
| **Signature**             |                                                                                                | 30         |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.****                   ****Financial Statements.**

** **

**BehringerHarvard Opportunity REIT II, Inc.**

**ConsolidatedBalance Sheets**

**(inthousands, except share and per share amounts)**

(Unaudited)

 
| ** **                                                                                                                                                                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                       | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| **Assets**                                                                                                                                                                                       |       |               |       |                  |       |
| Real estate                                                                                                                                                                                      |       |               |       |                  |       |
| Land                                                                                                                                                                                             |       | $                  | 9,000      |                  | $          | 9,000 |   |
| Buildings, net                                                                                                                                                                                   |       | 25,916             |       | 25,964                |       |
| Total real estate                                                                                                                                                                                |       | 34,916             |       | 34,964                |       |
|                                                                                                                                                                                             |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                        |       | 57,521             |       | 47,375                |       |
| Accounts receivable, net                                                                                                                                                                         |       | 83                 |       | 44                    |       |
| Receivable from related party                                                                                                                                                                    |       | 395                |       | 501                   |       |
| Prepaid expenses and other assets                                                                                                                                                                |       | 84                 |       | 129                   |       |
| Deferred financing fees, net                                                                                                                                                                     |       | 500                |       | 533                   |       |
| Lease intangibles, net                                                                                                                                                                           |       | 2,508              |       | 2,797                 |       |
| Total assets                                                                                                                                                                                     |       | $                  | 96,007     |                  | $          | 86,343 |   |
|                                                                                                                                                                                             |       |               |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                    |       |               |       |                  |       |
| Note payable                                                                                                                                                                                     |       | $                  | 18,500     |                  | $          | 18,500 |   |
| Accounts payable                                                                                                                                                                                 |       | 39                 |       | —                |       |
| Payables to related parties                                                                                                                                                                      |       | 5,705              |       | 5,519                 |       |
| Acquired below-market leases, net                                                                                                                                                                |       | 1,992              |       | 2,262                 |       |
| Distributions payable                                                                                                                                                                            |       | 213                |       | 181                   |       |
| Accrued and other liabilities                                                                                                                                                                    |       | 1,060              |       | 1,059                 |       |
| Total liabilities                                                                                                                                                                                |       | 27,509             |       | 27,521                |       |
|                                                                                                                                                                                             |       |               |       |                  |       |
| **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 outstanding                                                                                                       |       | —             |       | —                |       |
| Common stock, $.0001 par value per share; 350,000,000  shares authorized, 8,559,920 and 7,323,180 shares issued and outstanding at  March 31, 2009 and December 31, 2008, respectively |       | 1                  |       | 1                     |       |
| Additional paid-in capital                                                                                                                                                                       |       | 70,790             |       | 59,987                |       |
| Cumulative distributions and net loss                                                                                                                                                            |       | (2,293             | )          | (1,166                | )          |
| Total stockholders’ equity                                                                                                                                                                  |       | 68,498             |       | 58,822                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                  |       | $                  | 96,007     |                  | $          | 86,343 |   |

 

*See Notesto Consolidated Financial Statements.*

 

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

**ConsolidatedStatements of Operations**

**(in thousands, except per share amounts)**

(Unaudited)

 
| ** **                                             | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Rental revenue**                                     |       | $                                     | 1,325      |   | $ | — |   |
|                                                   |       |                                  |       |   |   |
| **Expenses:**                                          |       |                                  |       |   |   |
| Property operating expenses                            |       | 344                                   |       | — |   |
| Interest expense                                       |       | 326                                   |       | — |   |
| Real estate taxes                                      |       | 140                                   |       | — |   |
| Property management fees                               |       | 46                                    |       | — |   |
| Asset management fees                                  |       | 86                                    |       | — |   |
| General and administrative                             |       | 421                                   |       | 70 |   |
| Depreciation and amortization                          |       | 603                                   |       | — |   |
| Total expenses                                         |       | 1,966                                 |       | 70 |   |
|                                                   |       |                                  |       |   |   |
| Interest income, net                                   |       | 100                                   |       | 6 |   |
|                                                   |       |                                  |       |   |   |
| Net loss                                               |       | $                                     | (541       | ) | $ | (64 | ) |
|                                                   |       |                                  |       |   |   |
| Basic and diluted weighted average shares  outstanding |       | 7,901                                 |       | 22 |   |
|                                                   |       |                                  |       |   |   |
| Basic and diluted loss per share                       |       | $                                     | (0.07      | ) | $ | (2.86 | ) |

 

*See Notes to Consolidated Financial Statements.*

 

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

**ConsolidatedStatement of Stockholders’ Equity**

**(in thousands)**

(Unaudited)

 
| ** **                             | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Cumulative** | ** ** | **Total**   | ** ** |
|----------------------------------------|------------|-----------------------|------------|------------------|------------|----------------|------------|----------------|------------|-------------|------------|
| ** **                             | ** ** | **Number**            | ** ** | **Par**          | ** ** | **Number**     | ** ** | **Par**        | ** ** | **Paid-in** | ** ** | **Distributions** | ** ** | **Stockholders’** | ** ** |
| ** **                             | ** ** | **of Shares**         | ** ** | **Value**        | ** ** | **of Shares**  | ** ** | **Value**      | ** ** | **Capital** | ** ** | **and Net Loss** | ** ** | **Equity** | ** ** |
| Balance at January 1, 2009        |       | 1                     |       | $                | —     |           | 7,323      |           | $          | 1           |       | $ | 59,987 |   | $ | (1,166 | ) | $ | 58,822 |   |
|                                   |       |                  |       |             |       |           |       |           |       |        |       |   |   |   |   |
| Issuance of common stock, net          |       |                  |       |             |       | 1,237          |       | —         |       | 10,803      |       |   |   | 10,803 |   |
| Distributions declared on common stock |       |                  |       |             |       |           |       |           |       |        |       | (586 | ) | (586 | ) |
| Net loss                               |       |                  |       |             |       |           |       |           |       |        |       | (541 | ) | (541 | ) |
| Balance at March 31, 2009         |       | 1                     |       | $                | —     |           | 8,560      |           | $          | 1           |       | $ | 70,790 |   | $ | (2,293 | ) | $ | 68,498 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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**BehringerHarvard Opportunity REIT II, Inc.**

**ConsolidatedStatements of Cash Flows**

**(inthousands)**

(Unaudited)

 
| ** **                                                                         | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                  |       |   |   |
| Net loss                                                                           |       | $                                     | (541       | ) | $ | (64 | ) |
| Adjustments to reconcile net loss to net  cash flows used in operating activities: |       |                                  |       |   |   |
| Depreciation and amortization                                                      |       | 334                                   |       | — |   |
| Amortization of deferred financing fees                                            |       | 33                                    |       | — |   |
| Change in accounts receivable                                                      |       | (39                                   | )          | — |   |
| Change in prepaid expenses and other assets                                        |       | 45                                    |       | — |   |
| Change in accounts payable                                                         |       | 39                                    |       | — |   |
| Change in accrued liabilities                                                      |       | 1                                     |       | 33 |   |
| Change in net payables to related parties                                          |       | 27                                    |       | 17 |   |
| Addition of lease intangibles                                                      |       | (50                                   | )          | — |   |
| Cash used in operating activities                                                  |       | (151                                  | )          | (14 | ) |
|                                                                               |       |                                  |       |   |   |
| **Cash flows from investing activities:**                                          |       |                                  |       |   |   |
| Additions of property and equipment                                                |       | (217                                  | )          | — |   |
| Cash used in investing activities                                                  |       | (217                                  | )          | — |   |
|                                                                               |       |                                  |       |   |   |
| **Cash flows from financing activities:**                                          |       |                                  |       |   |   |
| Issuance of common/convertible stock                                               |       | 11,922                                |       | — |   |
| Offering costs                                                                     |       | (1,270                                | )          | — |   |
| Distributions                                                                      |       | (138                                  | )          | — |   |
| Cash provided by financing activities                                              |       | 10,514                                |       | — |   |
|                                                                               |       |                                  |       |   |   |
| Net change in cash and cash equivalents                                            |       | 10,146                                |       | (14 | ) |
| Cash and cash equivalents at beginning of  period                                  |       | 47,375                                |       | 203 |   |
| Cash and cash equivalents at end of period                                         |       | $                                     | 57,521     |   | $ | 189 |   |

 

*See Notes to ConsolidatedFinancial Statements.*

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to ConsolidatedFinancial Statements**

**(Unaudited)**

 

**1.****            ****Business and Organization**

 

***Business***

 

BehringerHarvard Opportunity REIT II, Inc. (which may be referred to as the “Company,”“we,” “us,” or “our”) was organized as a Maryland corporation on January 9,2007 and intends to qualify as a real estate investment trust (“REIT”) forfederal income tax purposes effective for our taxable year ended December 31,2008.  We acquire and operate commercialreal estate and real estate-related assets. In particular, we focus generally on acquiring commercial propertieswith significant possibilities for short-term capital appreciation, such asthose requiring development, redevelopment, or repositioning, those located inmarkets and submarkets with high growth potential, and those available fromsellers who are distressed or face time-sensitive deadlines.  In addition, given economic circumstances,our opportunistic investment strategy may also include investments in realestate-related assets that present opportunities for higher currentincome.  Such investments may also havecapital gain characteristics, whether as a result of a discount purchase orrelated equity participations.  We mayacquire a wide variety of commercial properties, including office, industrial,retail, hospitality, recreation and leisure, single-tenant, multifamily, and otherreal properties.  These properties may beexisting, income-producing properties, newly constructed properties, orproperties under development or construction and may include multifamilyproperties purchased for conversion into condominiums and single-tenantproperties that may be converted for multifamily use.  Further, we may invest in real estate-relatedsecurities, including securities issued by other real estate companies, eitherfor investment or in change of control transactions completed on a negotiatedbasis or otherwise.  We also mayoriginate or invest in collateralized mortgage-backed securities, mortgage,bridge or mezzanine loans, and Section 1031 tenant-in-common interests(including those issued by affiliates of our advisor), or in entities that makeinvestments similar to the foregoing.  Weexpect to make our investments in or in respect of real estate assets locatedin the United States and other countries based on our view of existing marketconditions.  We completed our firstproperty acquisition on October 28, 2008 and as of March 31, 2009, itis our only real estate acquisition.

 

Substantiallyall of our business is conducted through Behringer Harvard Opportunity OP IILP, a limited partnership organized in Delaware on January 12, 2007 (“BehringerHarvard Opportunity OP II”).  As of March 31,2009, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation,was the sole general partner of Behringer Harvard Opportunity OP II and owned a0.1% partnership interest in Behringer Harvard Opportunity OP II.  As of March 31, 2009, our wholly-ownedsubsidiary, BHO Business Trust II, a Maryland business trust, was the solelimited partner of Behringer Harvard Opportunity OP II.

 

Weare externally managed and advised by Behringer Harvard Opportunity Advisors IILP (“Behringer Opportunity Advisors II”), a Texas limited partnership formed inJanuary 2007.  Behringer OpportunityAdvisors II is our affiliate responsible for managing our affairs on aday-to-day basis and for identifying and making acquisitions and investments onour behalf.

 

Ouroffice is located at 15601 Dallas Parkway, Suite 600, Addison, Texas75001, and our toll-free telephone number is (866) 655-3600.  The name Behringer Harvard is the property ofBehringer Harvard Holdings, LLC (“Behringer Harvard Holdings”) and is used bypermission.

 

***Organization***

 

On February 26,2007, we filed a Registration Statement on Form S-11 with the Securitiesand Exchange Commission (“SEC”) to offer up to 125,000,000 shares of commonstock for sale to the public (the “Offering”), of which 25,000,000 shares arebeing offered pursuant to our distribution reinvestment plan (the “DRIP”).  We reserve the right to reallocate the shareswe are offering between our primary offering and the DRIP.  The SEC declared our Registration Statementeffective on January 4, 2008, and we commenced our ongoing initial publicoffering on January 21, 2008.

 

Inconnection with our initial capitalization, on January 19, 2007, we issued22,471 shares of our common stock and 1,000 shares of our convertible stock toBehringer Harvard Holdings, an affiliate of our advisor.  As of March 31,2009, we had 8,559,920 shares of common stock outstanding, which includes the22,471 shares issued to Behringer Harvard Holdings.  As of March 31, 2009, we had 1,000shares of convertible stock issued and outstanding to Behringer HarvardHoldings.

 

Wecommenced operations on April 1, 2008 upon satisfaction of the conditionsof our escrow agreement in all states except Pennsylvania and our acceptance ofinitial subscriptions of common stock. On September 19, 2008, we satisfied the escrow conditions forPennsylvania.  Upon admission of newstockholders, subscription proceeds are used for payment of dealer manager feesand selling commissions and may be utilized as consideration for investmentsand the payment or reimbursement of offering expenses and operatingexpenses.  Until required for suchpurposes, net offering proceeds are held

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

inshort-term, liquid investments.  Through March 31,2009, we had sold 8,539,480 shares in the Offering, including the DRIP forgross proceeds of $85.2 million.

 

Ourcommon stock is not currently listed on a national securities exchange.  Depending upon then prevailing marketconditions, it is our intention to consider beginning the process ofliquidating our assets and distributing the net proceeds to our stockholderswithin three to six years after the termination of our primary offering.  If we do not begin an orderly liquidationwithin that period, we may seek to have our shares listed on a nationalsecurities exchange.

 

**2.****            ****Interim Unaudited FinancialInformation**

 

Theaccompanying consolidated financial statements should be read in conjunctionwith the consolidated financial statements and notes thereto included in ourAnnual Report on Form 10-K for the year ended December 31, 2008,which was filed with the SEC on March 31, 2009.  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 from this quarterly report pursuant to the rules andregulations of the SEC.

 

Theresults for the interim periods shown in this report are not necessarilyindicative of future financial results. The accompanying consolidated balance sheet and consolidated statementof stockholders’ equity as of March 31, 2009 and consolidated statementsof operations and cash flows for the three months ended March 31, 2009 and2008 have not been audited by our independent registered public accountingfirm.  In the opinion of management, theaccompanying unaudited consolidated financial statements include alladjustments necessary to fairly present our consolidated financial position asof March 31, 2009 and December 31, 2008 and our consolidated resultsof operations and cash flows for the three months ended March 31, 2009 and2008.  Such adjustments are of a normalrecurring nature.

 

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

 

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

 

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

 

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

 

Ourconsolidated financial statements include our accounts and the accounts ofother subsidiaries over which we have control. All inter-company transactions, balances and profits have beeneliminated in consolidation.  Interestsin entities acquired will be evaluated based on Financial Accounting StandardsBoard (“FASB”) Interpretation (“FIN”) 46R “Consolidation of Variable InterestEntities,” which requires the consolidation of variable interest entities inwhich we are deemed to be the primary beneficiary.  If the interest in the entity is determinednot to be a variable interest entity under FIN 46R, then the entities will beevaluated for consolidation under the American Institute of Certified PublicAccountants’ Statement of Position 78-9, “Accounting for Investments in RealEstate Ventures,” and by Emerging Issues Task Force 04-5, “Determining Whethera General Partner, or the General Partners as a Group, Controls a LimitedPartnership or Similar Entity When the Limited Partners Have Certain Rights.”  In the Notes to Consolidated FinancialStatements, all dollar and share amounts in tabulation are in thousands ofdollars and shares, respectively, unless otherwise noted.

 

Thereare judgments and estimates involved in determining if an entity in which wehave made an investment is a variable interest entity and if so, if we are theprimary beneficiary.  The entity isevaluated to determine if it is a variable interest entity by, among otherthings, calculating the percentage of equity being risked compared to the totalequity of the entity.  FIN 46R providessome guidelines as to what the minimum equity at risk should be, but thepercentage can vary depending upon the industry and/or the type of operationsof the entity and it is up to management to determine that minimum percentageas it relates to our business and the facts surrounding each of ouracquisitions.  In addition, even if theentity’s equity at risk is a very low percentage, we are required by FIN 46R toevaluate the equity at risk compared to the entity’s expected future losses todetermine if there could still in fact be sufficient equity at the entity.  Determining expected future losses involvesassumptions of various possibilities of the results of future operations of theentity, assigning a probability to each possibility, and using a discount rateto determine the net present value of those future losses.  A change in the judgments, assumptions, andestimates outlined above could result in consolidating an entity that shouldnot be consolidated or accounting for an investment using the equity methodthat should in fact be consolidated, the effects of which could be material toour financial statements.

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

***Real Estate***

 

Upon the acquisition of realestate properties, we recognize the assets acquired, the liabilities assumed,and any noncontrolling interest as of the acquisition date, measured at theirfair values in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 141(R), “Business Combinations.” The acquisition date is the date on which we obtain control of the realestate property.  The assets acquired andliabilities assumed may consist of buildings, any assumed debt, identifiedintangible assets and asset retirement obligations.  Identified intangible assets generallyconsist of the above-market and below-market leases, in-place leases, in-placetenant improvements and tenant relationships. Goodwill is recognized as of the acquisition date and measured as theaggregate fair value of the consideration transferred and any noncontrollinginterests in the acquiree over the fair value of identifiable net assetsacquired.  Likewise, a bargain purchasegain is recognized in current earnings when the aggregate fair value of theconsideration transferred and any noncontrolling interests in the acquiree isless than the fair value of the identifiable net assets acquired.  Acquisition-related costs are expensed in theperiod incurred.

 

Priorto the adoption of SFAS No. 141(R) on January 1, 2009, weallocated the purchase price of the real estate property we acquired to thetangible assets acquired, consisting of land, inclusive of associated rights,and buildings, and identified intangible assets based on their relative fairvalues in accordance with SFAS No. 142, “Goodwill and Other IntangibleAssets.”

 

Initialvaluations are subject to change until our information is finalized, which isno later than twelve months from the acquisition date.

 

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

 

Thefair value of the tangible assets acquired, consisting of land and buildings,is determined by valuing the property as if it were vacant, and the “as-if-vacant”value is then 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 thecommercial office building is depreciated over the estimated useful life of 25years using the straight-line method.

 

Wedetermine the value of above-market and below-market in-place leases foracquired properties based on the present value (using an interest rate thatreflects the risks associated with the leases acquired) of the differencebetween (1) the contractual amounts to be paid pursuant to the in-placeleases and (2) management’s estimate of current market lease rates for thecorresponding in-place leases, measured over a period equal to (a) theremaining non-cancelable lease term for above-market leases, or (b) theremaining non-cancelable lease term plus any fixed rate renewal option forbelow-market leases.  We record the fairvalue of above-market and below-market leases as intangible assets orintangible liabilities, respectively, and amortize them as an adjustment torental income over the above determined lease term.

 

Thetotal value of identified real estate intangible assets acquired is furtherallocated to in-place lease values and tenant relationships based on ourevaluation of the specific characteristics of each tenant’s lease and ouroverall relationship with that respective tenant.  The aggregate value of in-place leasesacquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-placeleases include an estimate of carrying costs during the expected lease-upperiods for the respective spaces, considering current market conditions.  In estimating fair value of in-place leases,we consider items such as real estate taxes, insurance and other operating expenses,as well as lost rental revenue during the expected lease-up period and carryingcosts that would have otherwise been incurred had the leases not been in place,including tenant improvements and commissions. The estimates of the fair value of tenant relationships also includecosts to execute similar leases, including leasing commissions, legal costs andtenant improvements as well as an estimate of the likelihood of renewal asdetermined by management on a tenant-by-tenant basis.

 

Weamortize the value of in-place leases to expense over the term of therespective leases.  The value of tenantrelationship intangibles is amortized to expense over the initial term and anyanticipated renewal 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 is charged to expense.  As ofMarch 31, 2009, the estimated remaining useful life for acquired leaseintangibles was approximately two years.

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

Anticipatedamortization expense associated with the acquired lease intangibles as of March 31,2009 is as follows:

 

| ** **                             | ** ** | **Lease  Intangibles** | ** ** |
|----------------------------------------|------------|------------------------|------------|
| April 1, 2009 - December 31, | 2009       |                   | $          | 153 |   |
|                                   | 2010       |                   | 228        |   |
|                                   | 2011       |                   | 38         |   |
|                                   | 2012       |                   | —     |   |
|                                   | 2013       |                   | —     |   |
|                                        |            |                        |            |  |  |

 

Accumulated depreciation and amortization related toour consolidated investments in real estate assets and intangibles were asfollows:

 

| ** **                          | ** ** | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** |
|-------------------------------------|------------|-------------------|------------|-----------------|------------|------------------|------------|
| ** **                          | ** ** | **Buildings and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** |
| **As of March 31, 2009**       | ** ** | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** |
| Cost                                |       | $                 | 26,355     |            | $          | 3,070            |       | $ | (2,441 | ) |
| Less: depreciation and amortization |       | (439              | )          | (562            | )          | 449              |       |
|                                |       |              |       |            |       |             |       |
| Net                                 |       | $                 | 25,916     |            | $          | 2,508            |       | $ | (1,992 | ) |

 

| ** **                          | ** ** | ** **        | ** ** | ** **      | ** ** | **Acquired**     | ** ** |
|-------------------------------------|------------|-------------------|------------|-----------------|------------|------------------|------------|
| ** **                          | ** ** | **Buildings and** | ** ** | **Lease**       | ** ** | **Below-Market** | ** ** |
| **As of December 31, 2008**    | ** ** | **Improvements**  | ** ** | **Intangibles** | ** ** | **Leases**       | ** ** |
| Cost                                |       | $                 | 26,138     |            | $          | 3,021            |       | $ | (2,441 | ) |
| Less: depreciation and amortization |       | (174              | )          | (224            | )          | 179              |       |
|                                |       |              |       |            |       |             |       |
| Net                                 |       | $                 | 25,964     |            | $          | 2,797            |       | $ | (2,262 | ) |

 

***Cash and Cash Equivalents***

 

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

 

***Investment Impairment***

 

Forreal estate we wholly own, we monitor events and changes in circumstancesindicating that the carrying amounts of the real estate asset 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.  Weconsider projected future undiscounted cash flows, trends, strategic decisionsregarding future development plans, and other factors in our assessment ofwhether impairment conditions exist. While we believe our estimates of future cash flows are reasonable,different assumptions regarding such factors as market rents, economies, andoccupancies could significantly affect these estimates.

 

Inevaluating our investment for impairment, management may use appraisals andmakes estimates and assumptions, including, but not limited to, the projecteddate of disposition of the properties, the estimated future cash flows of theproperties during our ownership, and the projected sales price of each of theproperties.  A change in these estimatesand assumptions could result in understating or overstating the book value ofour investment, which could be material to our financial statements.  Due to the judgment and assumptions appliedin the estimation process with respect to impairments, including the fact thatlimited market information regarding the value of comparable land exists atthis time, it is possible actual results could differ substantially from thoseestimated.

 

Webelieve the carrying value of our operating real estate asset is currentlyrecoverable.  Accordingly, there were noimpairment charges for the three months ended March 31, 2009 or 2008.  However, if market conditions worsen beyondour

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

currentexpectations, or if changes in our development strategy significantly affectany key assumptions used in our fair value calculations, we may need to takecharges in future periods for impairments related to our existing asset.  Any such non-cash charges would have anadverse effect on our consolidated financial position and results ofoperations.

 

***Revenue Recognition***

 

We recognize rental income generated from leases onreal estate assets on a straight-line basis over the terms of the respectiveleases, including the effect of rent holidays, if any.  Straight-line rental revenue of approximately$13,000 was recognized in rental revenues for the three months ended March 31,2009.  There was no straight-line rentalrevenue recognized for the three months ended March 31, 2008.

 

***Organization and Offering Expenses***

 

Wereimburse our advisor or its affiliates for any organization and offeringexpenses incurred on our behalf in connection with the primary offering (otherthan selling commissions and the dealer manager fee) provided that at no pointwill we reimburse expenses that would cause our total organization and offeringexpenses (other than selling commissions and the dealer manager fee) related toour primary offering to exceed 1.5% of gross offering proceeds from the primaryoffering.  Organization and offeringexpenses are defined generally as any and all costs and expenses incurred by usin connection with our formation, preparing for the offering, the qualificationand registration of the offering, and the marketing and distribution of ourshares.  Organization and offeringexpenses include, but are not limited to, accounting and legal fees, costs toamend the registration statement and supplement the prospectus, printing,mailing and distribution costs, filing fees, amounts to reimburse our advisoror its affiliates for the salaries of employees, and other costs in connectionwith preparing supplemental sales literature, telecommunication costs, fees ofthe transfer agent, registrars, trustees, escrow holders, depositories andexperts, and fees and costs for employees of our advisor or its affiliates toattend industry conferences.  At eachbalance sheet date, we estimate the total gross public offering proceedsexpected to be received under the public offering and recognize the amount oforganization and offering reimbursement as determined under SFAS No. 5, “Accountingfor Contingencies.”  We record the amountof reimbursement at the lower of (a) 1.5% of the estimated gross publicoffering proceeds, or (b) the actual organization and offering costsincurred by our advisor or its affiliates.

 

Alloffering costs are recorded as an offset to additional paid-in capital, and allorganization costs are recorded as an expense at the time we become liable forthe payment of these amounts.

 

***Income Taxes***

 

Weintend to make an election to be taxed as a REIT under Sections 856 through 860of the Internal Revenue Code commencing with our taxable year ended December 31,2008.  If we qualify for taxation as aREIT, we generally will not be subject to federal corporate income tax to theextent we distribute our REIT taxable income to our stockholders, so long as wedistribute at least 90 percent of our REIT taxable income (which is computedwithout regard to the dividends paid deduction or net capital gain and whichdoes not necessarily equal net income as calculated in accordance withGAAP).  REITs are subject to a number ofother organizational and operations requirements.  Even if we qualify for taxation as a REIT, wemay be subject to certain state and local taxes on our income and property, andfederal income and excise taxes on our undistributed income.

 

***Stock-Based Compensation***

 

Wehave adopted a stock-based incentive award plan for our directors andconsultants and for employees, directors and consultants of ouraffiliates.  We account for this plan inaccordance with SFAS No. 123R,“Share-Based Payment.” In the modified prospective method, compensation cost isrecognized for all share-based payments granted after the effective date andfor all unvested awards granted prior to the effective date. SFAS No. 123Ralso requires the tax benefits associated with these share-based payments to beclassified as financing activities in the Consolidated Statements of CashFlows, rather than as operating cash flows. We have not issued any stock-basedawards under the plan as of March 31, 2009.

 

***Concentration of Credit Risk***

 

AtMarch 31, 2009, we had cash and cash equivalents deposited in certainfinancial institutions in excess of federally insured levels.  We have diversified our cash and cashequivalents among several banking institutions in an attempt to minimizeexposure to any one of these entities. We regularly monitor the financial stability of these financialinstitutions and believe that we are not exposed to any significant credit riskin cash and cash equivalents or restricted cash.  The Federal Deposit Insurance Corporation, or“FDIC,” generally only insures limited amounts per depositor per insuredbank.  Beginning October 3, 2008 through December 31, 2009, theFDIC will insure up to $250,000 per depositor per insured bank; on January 1,2010, the standard coverage limit will return to $100,000 for most depositcategories.  Unlimited deposit

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

insurancecoverage will be available to our non-interest bearing transaction accountsheld at those institutions participating in FDIC’s Temporary LiquidityGuarantee Program through December 31, 2009.

 

***Earnings per Share***

 

Earnings(loss) per share is calculated based on the weighted average number of commonshares outstanding during each period. The weighted average shares outstanding used to calculate both basic anddiluted income (loss) per share were the same for the three months ended March 31,2009 and 2008 as there were no stock-based awards outstanding.

 

**4.****            ****New Accounting Pronouncements**

 

In November 2008,the FASB reached a consensus on Emerging Issues Task Force (“EITF”) Issue No. 08-6,“Equity Method Investment Accounting Considerations” (“EITF 08-6”), which wasissued to clarify how the application of equity method accounting will beaffected by SFAS No. 141(R) and SFAS No. 160.  EITF 08-6 clarifies that an entity shallcontinue to use the cost accumulation model for its equity methodinvestments.  It also confirms pastaccounting practices related to the treatment of contingent consideration andthe use of the impairment model under Accounting Principles Board (“APB”)Opinion No. 18, “The Equity Method of Accounting for Investments in CommonStock” (“APB No. 18”). Additionally, it requires an equity method investor to account for ashare issuance by an investee as if the investor had sold a proportionate shareof the investment.  This issue waseffective January 1, 2009, and applies prospectively.

 

InApril 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 157-4, “DeterminingFair Value When the Volume and Level of Activity for the Asset or LiabilityHave Significantly Decreased and Identifying Transactions That Are Not Orderly,”which provides additional guidance for estimating fair value in accordance withSFAS No. 157 when the volume and level of activity for the asset orliability have significantly decreased.   We adopted the provisionsof FSP SFAS 157-4 effective April 1, 2009, and we do not expect it to havea material effect on our consolidated financial statements.

 

InApril 2009, the FASB issued FSP FAS 107-1 “Interim Disclosures about FairValue of Financial Instruments.”  The FSPamends SFAS No. 107 “Disclosures about Fair Value of Financial Instruments”to require an entity to provide disclosures about fair value of financialinstruments in interim financial information. This FSP is to be applied prospectively and is effective for interim andannual periods ending after June 15, 2009 with early adoption permittedfor periods ending after March 15, 2009. We will begin including therequired disclosures in our quarterly report on Form 10-Q for the quarterending June 30, 2009.

 

**5****.****            ****NotePayable**

 

Thefollowing table sets forth our note payable on 1875 Lawrence as of March 31,2009.  We did not have any notes payableas of March 31, 2008.

 
| ** **      | ** ** | ** **  | ** **                                                                                        | **Interest** | ** **              | **Maturity** | ** ** |
|-----------------|------------|-------------|---------------------------------------------------------------------------------------------------|--------------|-------------------------|--------------|------------|
| **Description** | ** ** | **Balance** | ** **                                                                                        | **Rate**     | ** **              | **Date**     | ** ** |
| 1875 Lawrence   |       | $           |                 18,500 |         | 30-day LIBOR + 2.5% (1) |         | 12/31/12   |   |
|                 |            |             |                                                                                                   |              |                         |              |            |  |

 

----

| (1) 30-day  LIBOR was 0.5006% at March 31, 2009.   The loan has a minimum interest rate of 6.25%. |
|------------------------------------------------------------------------------------------------------------------|

 

Wehave unconditionally guaranteed payment of the loan for an amount not to exceedthe lesser of (i) $11.75 million and (ii) 50% of the total amountadvanced under the loan agreement if the aggregate amount advanced is less than$23.5 million.

 

Weare subject to customary affirmative, negative, and financial covenants,representations, warranties and borrowing conditions, all as set forth in theloan agreement.  As of March 31,2009, we believe we were in compliance with the covenants under our loanagreement.

 

Thefollowing table summarizes our contractual obligations for principal paymentsas of March 31, 2009:

 

| **Year** | ** ** | **Amount Due** | ** ** |
|----------|------------|----------------|------------|
| 2011     |       | $              | 740        |   |
| 2012     |       | 17,760         |       |
|     |       | $              | 18,500     |   |

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

**6.****            ****Leasing Activity**

 

Future minimum base rentalpayments due to us under non-cancelable leases in effect as of March 31,2009 for 1875 Lawrence are as follows:

 

| ** **                                   | ** ** | **Minimum  Rental  Payments** | ** **  |
|----------------------------------------------|------------|-------------------------------|-------------|
| April 1,  2009 - December 31, 2009 |       | $                             |  2,775 |   |
| 2010                                         |       | 3,121                         |        |
| 2011                                         |       | 1,652                         |        |
| 2012                                         |       | 1,006                         |        |
| 2013                                         |       | 699                           |        |
| Thereafter                                   |       | 225                           |        |
|                                         |       |                          |        |
| Total                                        |       | $                             |  9,478 |   |

 

As of March 31,2009, one of our tenants accounted for 10% or more of our aggregate annualrental revenues from our consolidated property, 1875 Lawrence.  Policy Studies, Inc. accounted forrental revenue of approximately $198,000, or approximately 15%, of ouraggregate rental revenues for the three months ended March 31, 2009.

 

**7.****            ****Distributions**

 

We initiated the payment of monthly distributions in April 2008 inthe amount of a 3% annualized rate of return, based on an investment in ourcommon stock of $10.00 per share and calculated on a daily record basis of$0.0008219 per share.  A portion of eachdistribution is expected to constitute a return of capital for taxpurposes.  Pursuant to the DRIP,stockholders may elect to reinvest any cash distribution in additional sharesof common stock.  We record alldistributions when declared, except that the stock issued through the DRIP isrecorded when the shares are actually issued. Distributions declared and payable as of March 31, 2009 were$213,000, which included $54,000 of cash distributions payable.

 

Thefollowing are the distributions declared for the three months ended March 31,2009.  There were no distributionsdeclared for the three months ended March 31, 2008:

 

| **2009**    | ** ** | **DRIP** | ** ** | **Cash** | ** ** | **Total** | ** ** | **Per Share** | ** ** |
|-------------|------------|----------|------------|----------|------------|-----------|------------|---------------|------------|
| 1st Quarter |       | $        | 439        |     | $          | 147       |       | $             | 586        |   | $ | 0.07 |   |
|             |            |          |            |          |            |           |            |               |            |  |  |  |  |

 

**8.****            ****Related Party Transactions**

 

Ouradvisor and certain of its affiliates will receive fees and compensation inconnection with the Offering, and in connection with the acquisition,management, and sale of our assets.

 

BehringerSecurities LP (“Behringer Securities”), the dealer-manager and an affiliate ofour advisor, receives commissions of up to 7% of gross offering proceeds.  Behringer Securities reallows 100% of sellingcommissions earned to participating broker-dealers.  In addition, we pay Behringer Securities adealer manager fee of up to 2.5% of gross offering proceeds.  Pursuant to separately negotiated agreements,Behringer Securities may reallow a portion of its dealer manager fee in anaggregate amount up to 2% of gross offering proceeds to broker-dealersparticipating in the Offering; provided, however, that Behringer Securities mayreallow, in the aggregate, no more than 1.5% of gross offering proceeds formarketing fees and expenses, conference fees and non-itemized, non-invoiced duediligence efforts and no more than 0.5% of gross offering proceeds forout-of-pocket and bona fide, separately invoiced due diligence expensesincurred as fees, costs or other expenses from third parties.  Further, in special cases pursuant toseparately negotiated agreements and subject to applicable limitations imposedby the Financial Industry Regulatory Authority, Behringer Securities may use aportion of its dealer manager fee to reimburse certain broker-dealers participatingin the Offering for technology costs and expenses associated with the Offeringand costs and expenses associated with the facilitation of the marketing andownership of our shares by such broker-dealers’ customers.  No selling commissions or dealer manager feewill be paid for sales under the DRIP. For the three months ended March 31, 2009, BehringerSecurities earned selling commissions and dealer manager fees of $0.8 millionand $0.3 million, respectively, whichwere recorded as a reduction to additional paid-in capital.

 

Wereimburse Behringer Opportunity Advisors II or its affiliates for anyorganization and offering expenses incurred on our behalf in connection withour primary offering (other than selling commissions and the dealer manager fee)provided that at no point will we reimburse expenses that would cause our totalorganization and offering expenses related to the

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

primaryoffering (other than selling commissions and the dealer manager fee) to exceed1.5% of gross offering proceeds from the primary offering.  Since our inception through March 31, 2009,approximately $6.7 million of organization and offering expenses had beenincurred by Behringer Opportunity Advisors II or its affiliates on ourbehalf.  Of this amount, $1.2 million hadbeen reimbursed by us and $5.5 million of reimbursements payable is included inpayables to affiliates on our balance sheet. Of the $5.5 million of organization and offering expenses reimbursableby us through March 31, 2009, approximately $111,000 had been expensed asorganizational costs with the remainder recorded as a reduction of additionalpaid-in capital.  Behringer OpportunityAdvisors II or its affiliates determines the amount of organization andoffering expenses owed based on specific invoice identification as well as anallocation of costs to us and other Behringer Harvard programs, based onrespective equity offering results of those entities in offering.

 

Ouradvisor or its affiliates will also receive acquisition and advisory fees of2.5% of the amount paid and/or budgeted in respect of the purchase,development, construction, or improvement of each asset we acquire, includingany debt attributable to these assets. Our advisor and its affiliates will also receive acquisition andadvisory fees of 2.5% of the funds advanced in respect of a loan or otherinvestment.

 

Ouradvisor or its affiliates also receive an acquisition expense reimbursement inthe amount of 0.25% of the funds paid for purchasing an asset, including anydebt attributable to the asset, plus 0.25% of the funds budgeted fordevelopment, construction, or improvement in the case of assets that we acquireand intend to develop, construct, or improve.  Our advisor or itsaffiliates will also receive an acquisition expense reimbursement in the amountof 0.25% of the funds advanced in respect of a loan or other investment. We also pay third parties, or reimburse the advisor or its affiliates, for anyinvestment-related expenses due to third parties in the case of a completedinvestment, including, but not limited to, legal fees and expenses, travel andcommunication expenses, costs of appraisals, accounting fees and expenses,third-party brokerage or finder’s fees, title insurance, premium expenses, andother closing costs.  Our advisor or its affiliates are responsible forpaying all of the expenses it incurs associated with persons employed by theadvisor to the extent dedicated to making investments for us, such as wages andbenefits of the investment personnel.  Our advisor or its affiliates arealso responsible for paying all of the investment-related expenses that we orour advisor or its affiliates incur that are due to third parties with respectto investments we do not make.  For thethree months ended March 31, 2009 and 2008, we incurred no acquisition andadvisory fees or acquisition expense reimbursements.

 

Wepay our advisor or its affiliates a debt financing fee of 1% of the amountavailable under any loan or line of credit made available to us.  It is anticipated that our advisor will paysome or all of these fees to third parties with whom it subcontracts tocoordinate financing for us. We incurred no such fees for the three monthsended March 31, 2009 or 2008.

 

Wepay our advisor or its affiliates a development fee in an amount that is usualand customary for comparable services rendered to similar projects in thegeographic market of the project if such affiliate provides the developmentservices and if a majority of our independent directors determines that suchdevelopment fee is fair and reasonable and on terms and conditions not lessfavorable than those available from unaffiliated third parties.

 

Wepay our property manager and affiliate of our advisor, Behringer HarvardOpportunity II Management Services, LLC (“BHO II Management”), or itsaffiliates, fees for the management, leasing, and construction supervision ofour properties.  Property management feesare 4.5% of the gross revenues of the properties managed by BHO II Managementor its affiliates plus leasing commissions based upon the customary leasingcommission applicable to the same geographic location of the respectiveproperty.  In the event that we contractdirectly with a third-party property manager in respect of a property, BHO IIManagement or its affiliates receives an oversight fee equal to 0.5% of thegross revenues of the property managed. In no event will BHO II Management or its affiliates receive both aproperty management fee and an oversight fee with respect to any particularproperty.  In the event we own a propertythrough a joint venture that does not pay BHO II Management directly for itsservices, we will pay BHO II Management a management fee or oversight fee, asapplicable, based only on an economic interest in the property.  We incurred and expensed property managementfees or oversight fees to BHO II Management of $46,000 for the three monthsended March 31, 2009.  We incurredno such fees for the three months ended March 31, 2008.

 

Wepay our advisor or its affiliates a monthly asset management fee of one-twelfthof 1.0% of the sum of the higher of the cost or value of each asset.  For the three months ended March 31,2009, we expensed $86,000 of asset management fees.  We incurred no such fees for the three monthsended March 31, 2008.

 

Ouradvisor or its affiliates also will be paid a disposition fee if the advisor orits affiliates provide a substantial amount of services, as determined by ourindependent directors, in connection with the sale of one or more assets.  In such event, our advisor or its affiliateswill receive a disposition fee equal to (1) in the case of the sale ofreal property, the lesser of: (A) one-half of the aggregate brokeragecommission paid (including the disposition fee) or, if none is paid, the amount

 

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**Behringer Harvard OpportunityREIT II, Inc.**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

thatcustomarily would be paid, or (B) 3% of the sales price of each propertysold, and (2) in the case of the sale of any asset other than realproperty, 3% of the sales price of such asset.

 

Wereimburse our advisor or its affiliates for all expenses paid or incurred bythe advisor in connection with the services provided to us, subject to thelimitation that we will not reimburse our advisor for any amount by which itsoperating expenses (including the asset management fee) at the end of the fourpreceding fiscal quarters exceeds the greater of:  (A) 2% of our average invested assets,or (B) 25% of our net income determined without reduction for anyadditions to reserves for depreciation, bad debts or other similar non-cashreserves and excluding any gain from the sale of our assets for thatperiod.  Notwithstanding the above, wemay reimburse the advisor for expenses in excess of this limitation if amajority of our independent directors determines that such excess expenses arejustified based on unusual and non-recurring factors. For the three monthsended March 31, 2009 and 2008, we incurred and expensed such costs foradministrative services totaling $98,000 and $17,000, respectively.

 

Weare dependent on Behringer Securities, Behringer Opportunity Advisors II, andBHO II Management for certain services that are essential to us, including thesale of shares of our common stock, asset acquisition and dispositiondecisions, property management and leasing services, and other generaladministrative responsibilities.  In theevent that these companies were unable to provide us with their respectiveservices, we would be required to obtain such services from other sources.

 

**9.****            ****Supplemental Cash FlowInformation**

 

Supplemental cash flowinformation is summarized below:

 

| ** **                                             | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Interest paid                                          |       | $                                | 193        |   | $ | — |   |
|                                                   |       |                             |       |   |   |   |   |
| **Non-cash financing activities:**                     |       |                             |       |   |   |
| Common stock issued in distribution  reinvestment plan |       | $                                | 416        |   | $ | — |   |
| Accrued dividends payable                              |       | $                                | 213        |   | $ | — |   |
| Offering costs payable to related parties              |       | $                                | 265        |   | $ | — |   |

 

*****

 

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

 

The followingdiscussion and analysis should be read in conjunction with our accompanyingfinancial statements and the notes thereto.

 

**Forward-LookingStatements**

 

Thissection contains forward-looking statements, including discussion and analysisof us and our subsidiaries, our financial condition, anticipated capitalexpenditures required to complete projects, amounts of anticipated cashdistributions to our stockholders in the future and other matters.  These forward-looking statements are nothistorical facts but are the intent, belief or current expectations of ourmanagement based on their knowledge and understanding of the business andindustry.  Words such as “may,” “anticipates,”“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,”“should,” and variations of these words and similar expressions are intended toidentify forward-looking statements. These statements are not guarantees of future performance and aresubject to risks, uncertainties and other factors, some of which are beyond ourcontrol, are difficult to predict and could cause actual results to differmaterially from those expressed or forecasted in the forward-lookingstatements.

 

### **Forward-looking statements that were true at the time made may ultimatelyprove to be incorrect or false.  Wecaution investors not to place undue reliance on forward-looking statements,which reflect our management’s view only as of the date of this report on Form 10-Q.  We undertake no obligation to update orrevise forward-looking statements to reflect changed assumptions, theoccurrence of unanticipated events or changes to future operating results.  Factors that could cause actual results todiffer materially from any forward-looking statements made in the Form 10-Qinclude changes in general economic conditions, changes in real estateconditions, construction costs that may exceed estimates, construction delays,increases in interest rates, lease-up risks, inability to obtain new tenantsupon the expiration of existing leases, and the potential need to fund tenantimprovements or other capital expenditures out of operating cash flow.  The forward-looking statements should be readin light of the risk factors identified in the “Risk Factors” section of ourAnnual Report on Form 10-K for the year ended December 31, 2008, asfiled with the SEC and the risks identified in Part II, Item 1A of thisquarterly report.**

### ** **

### **CautionaryNote**

### ** **

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

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of financial condition and resultsof operations are based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America.  Thepreparation of these financial statements requires our management to makeestimates and assumptions that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities.  On a regular basis, weevaluate these estimates, including investment impairment.  These estimates are based on management’shistorical industry experience and on various other assumptions that arebelieved to be reasonable under the circumstances.  Actual results may differ from these estimates.

 

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

 

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

 

Ourconsolidated financial statements include our accounts and the accounts ofother subsidiaries over which we have control. All inter-company transactions, balances, and profits have beeneliminated in consolidation.  Interestsin entities acquired will be evaluated for consolidation based on FinancialAccounting Standards Board (“FASB”) Interpretation (“FIN”) 46R, “Consolidationof Variable Interest Entities,” which requires the consolidation of  variable interest entities (“VIE”) in whichwe are deemed to be the primary beneficiary. If the interest in the entity is determined not to be a VIE under FIN46R, then the entity will be evaluated for consolidation under the AmericanInstitute of Certified Public Accountants’ Statement of Position 78-9,“Accounting for Investments in Real Estate Ventures,” and by Emerging IssuesTask Force 04-5, “Determining Whether a General Partner, or the GeneralPartners as a Group, Controls a Limited Partnership or Similar Entity When theLimited Partners Have Certain Rights.”

 

Thereare judgments and estimates involved in determining if an entity in which wehave made an investment is a VIE and if so, if we are the primarybeneficiary.  The entity is evaluated todetermine if it is a VIE by, among other things, calculating the percentage ofequity being risked compared to the total equity of the entity.  FIN 46R provides some guidelines as to whatthe minimum equity at risk should be, but the percentage can vary dependingupon the industry and/or the type of operations of the entity and it is up tomanagement to determine that minimum percentage as it relates to our businessand the facts surrounding each of our acquisitions.  In addition, even if the entity’s equity atrisk is a very low percentage, we are required by FIN 46R to evaluate theequity at risk compared to the entity’s expected future losses to determine ifthere could still in fact be sufficient equity at the entity.  Determining expected future losses involvesassumptions of various possibilities of the results of future operations of theentity, assigning a probability to each possibility, and using a discount rateto determine the net present value of those future losses.  A change in the judgments, assumptions, andestimates outlined above could result in consolidating an entity that shouldnot be consolidated or accounting for an investment on the equity method thatshould in fact be consolidated, the effects of which could be material to ourfinancial statements.

 

***Real Estate***

 

Uponthe acquisition of real estate properties, we recognize the assets acquired,the liabilities assumed, and any noncontrolling interest as of the acquisitiondate, measured at their fair values in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 141(R), “Business Combinations.”  The acquisition date is the date on which weobtain control of the real estate property. The assets acquired and liabilities assumed may consist of buildings,any assumed debt, identified intangible assets and asset retirementobligations.  Identified intangibleassets generally consist of the above-market and below-market leases, in-placeleases, in-place tenant improvements and tenant relationships.  Goodwill is recognized as of the acquisitiondate and measured as the aggregate fair value of the consideration transferredand any noncontrolling interests in the acquiree over the fair value ofidentifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings whenthe aggregate fair value of the consideration transferred and anynoncontrolling interests in the acquiree is less than the fair value of theidentifiable net assets acquired. Acquisition-related costs are expensed in the period incurred.

 

Priorto the adoption of SFAS No. 141(R) on January 1, 2009, weallocated the purchase price of the real estate property we acquired to thetangible assets acquired, consisting of land, inclusive of

 

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associatedrights, and buildings, and identified intangible assets based on their relativefair values in accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets.”

 

Initialvaluations are subject to change until our information is finalized, which isno later than twelve months from the acquisition date.

 

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

 

Thefair value of the tangible assets acquired, consisting of land and buildings,is determined by valuing the property as if it were vacant, and the“as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, andbuilding values are calculated as replacement cost less depreciation ormanagement’s estimates of the relative fair value of these assets usingdiscounted cash flow analyses or similar methods.  The value of the commercial office buildingis depreciated over the estimated useful life of 25 years using thestraight-line method.

 

Wedetermine the value of above-market and below-market in-place leases foracquired properties based on the present value (using an interest rate thatreflects the risks associated with the leases acquired) of the differencebetween (1) the contractual amounts to be paid pursuant to the in-placeleases and (2) management’s estimate of current market lease rates for thecorresponding in-place leases, measured over a period equal to (a) theremaining non-cancelable lease term for above-market leases, or (b) theremaining non-cancelable lease term plus any fixed rate renewal option forbelow-market leases.  We record the fairvalue of above-market and below-market leases as intangible assets orintangible liabilities, respectively, and amortize them as an adjustment torental income over the above determined lease term.

 

Thetotal value of identified real estate intangible assets acquired is furtherallocated to in-place lease values and tenant relationships based on ourevaluation of the specific characteristics of each tenant’s lease and ouroverall relationship with that respective tenant.  The aggregate value of in-place leasesacquired and tenant relationships is determined by applying a fair valuemodel.  The estimates of fair value ofin-place leases include an estimate of carrying costs during the expectedlease-up periods for the respective spaces, considering current marketconditions.  In estimating fair value ofin-place leases, we consider items such as real estate taxes, insurance andother operating expenses, as well as lost rental revenue during the expectedlease-up period and carrying costs that would have otherwise been incurred hadthe leases not been in place, including tenant improvements andcommissions.  The estimates of the fairvalue of tenant relationships also include costs to execute similar leases,including leasing commissions, legal costs and tenant improvements as well asan estimate of the likelihood of renewal as determined by management on atenant-by-tenant basis.

 

Weamortize the value of in-place leases to expense over the term of therespective leases.  The value of tenantrelationship intangibles is amortized to expense over the initial term and anyanticipated renewal periods, but in no event does the amortization period forintangible assets 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 is charged to expense.

 

***Investment Impairments***

 

Forreal estate we wholly own, we monitor 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 comparing estimatedfuture undiscounted operating cash flows expected to be generated over the lifeof the asset and from its eventual disposition to the carrying value of theasset.  In the event that the carryingamount exceeds the estimated future undiscounted operating cash flows, werecognize an impairment loss to adjust the carrying amount of the asset toestimated fair value.  We considerprojected future undiscounted cash flows, trends, strategic decisions regardingfuture development plans, and other factors in our assessment of whetherimpairment conditions exist.  While webelieve our estimates of future cash flows are reasonable, differentassumptions regarding such factors as market rents, economies, and occupanciescould significantly affect these estimates.

 

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Inevaluating our investment for impairment, management may use appraisals andmakes estimates and assumptions, including, but not limited to, the projecteddate of disposition of the property, the estimated future cash flows of theproperty during our ownership, and the projected sale price of theproperty.  A change in these estimatesand assumptions could result in understating or overstating the book value ofour investment, which could be material to our financial statements.  Due to the judgment and assumptions appliedin the estimation process with respect to impairments, it is possible actualresults could differ substantially from those estimated.

 

Webelieve the carrying value of our operating real estate asset is currentlyrecoverable.  However, if marketconditions worsen beyond our current expectations, or if changes in ourdevelopment strategy significantly affect any key assumptions used in our fairvalue calculations, we may need to take charges in future periods forimpairments related to existing assets. Any such non-cash charges would have an adverse effect on ourconsolidated financial position and results of operations.

 

**Overview**

 

Wewere formed primarily to acquire and operate commercial real estate and realestate-related assets on an opportunistic basis.  In particular, we focus generally onacquiring commercial properties with significant possibilities for short-termcapital appreciation, such as those requiring development, redevelopment orrepositioning, those located in markets and submarkets with high growthpotential, and those available from sellers who are distressed or facetime-sensitive deadlines.  ****In addition, given currenteconomic circumstances, our opportunistic investment strategy may also includeinvestments in loans secured by or related to real estate at more attractiverates of current return than have been available for some time.  Such loan investments may also have capitalgain characteristics, whether as a result of a discount purchase or relatedequity participations.****  We may acquire a widevariety of commercial properties, including office, industrial, retail,hospitality, recreation and leisure, single-tenant, multifamily, and other realproperties.  These properties may beexisting, income-producing properties, newly constructed properties orproperties under development or construction, and may include multifamily propertiespurchased for conversion into condominiums and single-tenant properties thatmay be converted for multifamily use. Further, we may invest in real estate-related securities, includingsecurities issued by other real estate companies, either for investment or inchange of control transactions completed on a negotiated basis orotherwise.  We also may originate orinvest in collateralized mortgage-backed securities, mortgage, bridge ormezzanine loans, and Section 1031 tenant-in-common interests (includingthose issued by affiliates of our advisor), or in entities that makeinvestments similar to the foregoing.  Weexpect to make our investments in or in respect of real estate assets locatedin the United States and other countries based on our new and existing marketconditions.  As of March 31, 2009,we had acquired one property, 1875 Lawrence.

 

OnFebruary 26, 2007, we filed a Registration Statement on Form S-11with the SEC to offer up to 125,000,000 shares of common stock for sale to thepublic, of which 25,000,000 shares are being offered pursuant to the DRIP.  We reserve the right to reallocate the shareswe are offering between our primary offering and the DRIP.  The SEC declared our Registration Statement effectiveon January 4, 2008, and we commenced our ongoing initial public offeringon January 21, 2008.  We commencedoperations on April 1, 2008 upon satisfaction of the conditions of ourescrow agreement and acceptance of initial subscriptions of common stock.

 

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**Results of Operations**

 

Asof March 31, 2009, we had invested in one property, 1875 Lawrence, locatedin Denver, Colorado.  As of March 31,2008, we had no real estate or real estate-related assets.  Accordingly, our results of operations forthe respective periods presented reflect increases in most categories due tothe growth of our portfolio.  Managementexpects increases in most categories in the future as we purchase additionalreal estate and real estate-related assets and as we begin to realize the fullyear impact of our 2008 acquisition.

 

*Three months ended March 31, 2009 as comparedto the three months ended March 31, 2008*

 

*Revenues.*  Revenues for the three months ended March 31,2009 were $1.3 million and were generated by our consolidated property, 1875Lawrence, which was acquired on October 28, 2008.  No revenue was generated for the three monthsended March 31, 2008.  We expectincreases in revenue in the future as we purchase additional real estateproperties.

 

*PropertyOperating Expenses.* Property operating expenses for the three months ended March 31,2009 were $344,000 and were comprised of operating expenses of 1875Lawrence.  We incurred no propertyoperating expenses for the three months ended March 31, 2008. We expectincreases in property operating expenses in the future as we purchaseadditional real estate properties.

 

*Interest Expense. *Interest expense for the three months ended March 31,2009 was $326,000 and was comprised of interest expense related to our notepayable balance of $18.5 million.  Weincurred no interest expense for the three months ended March 31,2008.  We expect increases in interestexpense in the future as we may incur additional debt related to our purchaseof additional real estate properties.

 

*Real Estate Taxes. *Real estate taxes for the three months ended March 31,2009 were $140,000 and were comprised of real estate taxes related to 1875Lawrence. We incurred no real estate taxes for the three months ended March 31,2008.   We expect increases in realestate taxes in the future as we purchase additional real estate properties.

 

*Property/AssetManagement Fees. *Propertyand asset management fees for the three months ended March 31, 2009 were$132,000 and were comprised of fees related to 1875 Lawrence.  There were no property and asset managementfees for the three months ended March 31, 2008.  We expect increases in property and assetmanagement fees in the future as we purchase additional real estate properties.

 

*General and Administrative Expenses.* General and administrative expenses for thethree months ended March 31, 2009 were $421,000, as compared to$70,000 for the three months ended March 31, 2008, and were comprised ofauditing fees, legal fees, board of directors’ fees, and other administrativeexpenses.  We expect increases in generaland administrative expenses in the future as we purchase additional real estateproperties.

 

*Depreciation and Amortization Expense. *Depreciationand amortization expense for the three months ended    March 31, 2009 was $603,000 andwas comprised of depreciation and amortization related to 1875 Lawrence.  There was no depreciation and amortizationexpense for the three months ended March 31, 2008.  We expect increases in depreciation andamortization expense in the future as we purchase additional real estateproperties.

 

*Interest Income*.Interest income of $100,000 for the three months ended March 31, 2009represents interest income on funds on deposit, net of bank fees.  Upon admission of new stockholders,subscription proceeds are used for payment of dealer manager fees and sellingcommissions and may be utilized as consideration for investments and thepayment or reimbursement of offering expenses and operating expenses.  Until required for such purposes, netoffering proceeds are held in short-term, liquid investments and earn interestincome.  Interest income for the threemonths ended March 31, 2008 was $6,000. We expect interest income to increase as we continue to accept newinvestors.

 

**Cash Flow Analysis**

 

Cashused in operating activities for the three months ended March 31, 2009 was$151,000, and was comprised primarily of the net loss of $541,000, offset bydepreciation and amortization of $334,000 and changes in payables to relatedparties of $27,000.  Cash used inoperating activities for the three months ended March 31, 2008 was $14,000and was comprised of the net loss of $64,000 offset by changes in accruedliabilities of $33,000 and changes in payables to related parties of $17,000.

 

Cashused in investing activities for the three months ended March 31, 2009 was$217,000, and was comprised of additions of property and equipment at 1875Lawrence.  There was no cash flow frominvesting activities for the three months ended March 31, 2008.

 

Cashprovided by financing activities for the three months ended March 31, 2009was $10.5 million, and was comprised of the issuance of common stock, net ofoffering costs, of approximately $10.7 million offset by distributions of$138,000.  There was no cash flow fromfinancing activities for the three months ended March 31, 2008.

 

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**Total Operating Expenses**

 

 In accordance with the Statement of PolicyRegarding Real Estate Investment Trusts published by the North AmericanSecurities Administrators Association, also known as the NASAA REIT Guidelines,our charter requires that we monitor our expenses on a trailing twelve monthbasis.  Our charter defines the following terms and requires that ourTotal Operating Expenses (“TOE”) are deemed to be excessive if at the end ofany quarter they exceed for the prior trailing twelve month period the greaterof 2% of our Average Invested Assets (“AIA”) or 25% of our Net Income (“NI”). For the trailing twelve months ended March 31, 2009, TOE of $1.2 millionexceeded the greater of 2% of our AIA or 25% of our NI by $0.8 million. Our Board of Directors, including all of our independent directors, havereviewed this analysis and unanimously determined the excess to be justifiedbecause the Company was in its development stage through April 1, 2008when the Company accepted its first investors under its initial public offeringand did not acquire its first real estate or real estate-related asset until October 28,2008, which caused the expenses it incurred in connection with its organizationand as a result of being a public company for audit and legal services,director and officer liability insurance, and fees and expenses for boardmembers in connection with service on the board and its committees to bedisproportionate to the Company’s AIA and its NI.

 

**Liquidity and Capital Resources**

 

Ourprincipal demands for funds will be for the acquisition of real estate and realestate-related assets, for the payment of operating expenses and distributions,and for the payment of interest on any outstanding indebtedness we mayincur.  Generally, we expect to meet cashneeds for items other than acquisitions from our cash flow from operations, andwe expect to meet cash needs for acquisitions from the net proceeds of theOffering and from financings.

 

Weexpect to fund our short-term liquidity requirements by using the net proceedsrealized from the Offering and cash flow from the operations of investments weacquire.  Operating cash flows are expected to increase as additional realestate assets are added to the portfolio.  For both our short-term andlong-term liquidity requirements, other potential future sources of capital mayinclude proceeds from secured or  unsecured financings from banks or otherlenders, proceeds from the sale of our investments, if and when any are sold,and undistributed funds from operations.  If necessary, we may usefinancings or other sources of capital in the event of unforeseen significantcapital expenditures.

 

Ouradvisor may, but is not required to, establish capital reserves from grossoffering proceeds, out of cash flow generated by operating properties and otherinvestments or out of non-liquidating net sale proceeds from the sale of ourproperties and other investments. Capital reserves are typically utilized for non-operating expenses suchas tenant improvements, leasing commissions and major capitalexpenditures.  Alternatively, a lendermay require its own formula for escrow of capital reserves.

 

Weintend to borrow money to acquire properties and make other investments.  There is no limitation on the amount we mayinvest in any single property or other asset or on the amount we can borrow forthe purchase of any individual property or other investment.  Under our charter, the maximum amount of ourindebtedness shall not exceed 300% of our “net assets” (as defined by the NASAAREIT Guidelines) as of the date of any borrowing; however, we may exceed thatlimit if approved by a majority of our independent directors.  In addition to our charter limitation, ourboard of directors has adopted a policy to generally limit our aggregateborrowings to approximately 75% of the aggregate value of our assets unlesssubstantial justification exists that borrowing a greater amount is in our bestinterests.  Our policy limitation, however, does not apply to individualreal estate assets and will only apply once we have ceased raising capitalunder the Offering or any subsequent offering and invested substantially all ofour capital.  As a result, we expect to borrow more than 75% of the contractpurchase price of each real estate asset we acquire during the early periods ofour operations to the extent our board of directors determines that borrowingat these levels is prudent.

 

Recently,the U.S. credit markets and the sub-prime residential mortgage market haveexperienced severe dislocations and liquidity disruptions. Sub-prime mortgageloans have experienced increasing rates of delinquency, foreclosure and loss.These and other related events continue to have a significant impact on thecapital markets associated not only with sub-prime mortgage-backed securities,asset-backed securities and collateralized debt obligations, but also with theU.S. housing, credit and financial markets as a whole.

 

Thecommercial real estate debt markets are currently experiencing volatility as aresult of certain factors, including the tightening of underwriting standardsby lenders and credit rating agencies and the significant inventory of unsoldcollateralized mortgage backed securities in the market.  Credit spreads for major sources of capitalhave widened significantly as investors have demanded a higher riskpremium.  This is resulting in lendersincreasing the cost for debt financing. Consequently, there is greater uncertainty regarding our ability toaccess the credit markets in order to attract financing on reasonable terms.Our ability to borrow funds to finance future acquisitions could be adverselyaffected by our inability to secure permanent financing on reasonable terms, ifat all.

 

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Shouldthe overall cost of borrowings increase, either by increases in the index ratesor by increases in lender spreads, we will need to factor such increases intothe economics of our acquisitions, developments and propertycontributions.  This may result in ourinvestment operations generating lower overall economic returns and a reduced levelof cash flow, which could potentially impact our ability to make distributionsto our stockholders at current levels. In addition, the recent dislocations in the debt markets have reducedthe amount of capital that is available to finance real estate, which, in turn:(1) leads to a decline in real estate values generally; (2) slowsreal estate transaction activity; (3) reduces the loan to value upon whichlenders are willing to extend debt and (4) results in difficulty inrefinancing debt as it becomes due, all of which may reasonably be expected tohave a material adverse impact on the value of real estate investments and therevenues, income or cash flow from the acquisition and operations of realproperties and mortgage loans.  Inaddition, the current state of the debt markets has negatively impacted theability to raise equity capital.

 

Ifthe current debt market environment persists, we may modify our investmentstrategies in order to seek to optimize our portfolio performance.  Our strategies may include, among otheroptions, limiting or eliminating the use of debt and focusing on thoseinvestments that do not require the use of leverage to meet our portfoliogoals.

 

*Debt Financings*

 

Wemay, from time to time, make mortgage, bridge, or mezzanine loans and otherloans for acquisitions and investments as well as property development.  We may obtain financing at the time an assetis acquired or an investment is made or at such later time as determined to benecessary, depending on multiple factors.

 

AtMarch 31, 2009, our note payable balance was $18.5 million and consistedof the note payable related to 1875 Lawrence. We have unconditionally guaranteed payment of the loan for an amount notto exceed the lesser of (i) $11.75 million and (ii) 50% of the totalamount advanced under the loan agreement if the aggregate amount advanced isless than $23.5 million.  At March 31,2009, the interest rate on this note was 6.25% and the loan matures on December 31,2012.  Our loan agreement stipulates thatwe comply with certain reporting and financial covenants.  These covenants include, among other things,maintaining minimum debt service coverage ratios.  As of March 31, 2009, we believe we werein compliance with the debt covenants under our loan agreement.

 

**Fundsfrom Operations**

 

Fundsfrom operations (“FFO”) is a non-GAAP financial measure that is widelyrecognized as a measure of REIT operating performance.  FFO is defined by the National Association ofReal Estate Investment Trusts as net income (loss), computed in accordance withGAAP, excluding extraordinary items, as defined by GAAP, and gains (or losses)from sales of property, plus depreciation and amortization on real estateassets, and after adjustments for unconsolidated partnerships, joint ventures,and subsidiaries.  We believe that FFO ishelpful to investors and our management as a measure of operating performanceof our operating assets because it excludes depreciation and amortization,gains and losses from property dispositions, and extraordinary items, and as aresult, when compared year to year, reflects the impact on operations fromtrends in occupancy rates, rental rates, operating costs, developmentactivities, general and administrative expenses, and interest costs, which isnot immediately apparent from net income. Historical cost accounting for real estate assets in accordance withGAAP implicitly assumes that the value of real estate diminishes predictablyover time.  Since real estate values havehistorically risen or fallen with market conditions, many industry investors andanalysts have considered the presentation of operating results for real estatecompanies that use historical cost accounting alone to be insufficient.  As a result, our management believes that theuse of FFO, together with the required GAAP presentations, provides asupplemental understanding of our performance and a more informed andappropriate basis on which to make decisions involving operating, financing andinvesting activities.  Factors thatimpact FFO include start-up costs, fixed costs, delay in buying assets, loweryields on cash held in accounts, income from portfolio properties and otherportfolio assets, interest rates on acquisition financing and operatingexpenses.  FFO should not be consideredas an alternative to net income (loss) or as an indication of our liquidity,nor is it indicative of funds available to fund our cash needs, including ourability to make distributions.

 

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Ourcalculation of FFO for the three months ended March 31, 2009 and 2008 ispresented below (amounts in thousands except per share amounts):

 
| ** **                    | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|
| ** **                    | ** ** | **2009**                              | ** ** | **2008** | ** ** |
|                          |       |                                  |       |   |   |
| Net loss, as reported         |       | $                                     | (541       | ) | $ | (64 | ) |
| Adjustments for:              |       |                                  |       |   |   |
| Real estate depreciation (1)  |       | 265                                   |       | — |   |
| Real estate amortization (1)  |       | 338                                   |       | — |   |
|                          |       |                                  |       |   |   |
| Funds from operations (FFO)   |       | $                                     | 62         |   | $ | (64 | ) |
|                          |       |                                  |       |   |   |
| GAAP weighted average shares: |       |                                  |       |   |   |
| Basic and diluted             |       | 7,901                                 |       | 22 |   |
| FFO per share                 |       | $                                     | 0.01       |   | $ | (2.86 | ) |

 

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(1) Thisrepresents the depreciation and amortization expense of the property weconsolidate. 

 

Provided below is additional information related to selected non-cashitems included in net loss above, which may be helpful in assessing ouroperating results.

 

·                  Straight-linerental revenue of $13,000 was recognized for the three months ended March 31,2009.  There was no straight-line rentalrevenue recognized for the three months ended March 31, 2008.

 

·                  Amortizationof intangible lease assets and liabilities was recognized as a net increase torental revenues of $270,000 for the three months ended March 31,2009.  There was no amortization ofintangible lease assets for the three months ended March 31, 2008.

 

·                  Amortizationof deferred financing costs of $33,000 was recognized as interest expense forour note payable for the three months ended March 31, 2009.  No such charges were incurred for the threemonths ended March 31, 2008.

 

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

 

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**NetOperating Income**

 

Netoperating income (“NOI”) is a non-GAAP financial measure that is defined as netincome (loss), computed in accordance with GAAP, generated from propertiesbefore interest expense, asset management fees, interest income, general andadministrative expenses, depreciation, amortization, and the sale ofassets.  We believe that NOI provides anaccurate measure of the operating performance of our operating assets becauseNOI reflects the operating performance of our properties and excludes certainitems that are not associated with management of the properties.  To facilitate understanding of this financialmeasure, a reconciliation of net operating income to net income (loss) has beenprovided in accordance with GAAP.  Ourcalculation of NOI for the three months ended March 31, 2009 and 2008 ispresented below:

 
| ** **                         | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|
| ** **                         | ** ** | **2009**                              | ** ** | **2008** | ** ** |
|                               |       |                                  |       |   |   |
| Revenues                           |       | $                                     | 1,325      |   | $ | — |   |
|                               |       |                                  |       |   |   |
| Operating expenses:                |       |                                  |       |   |   |
| Property operating expenses        |       | 344                                   |       | — |   |
| Real estate taxes                  |       | 140                                   |       | — |   |
| Property management fees           |       | 46                                    |       | — |   |
| Total operating expenses           |       | 530                                   |       | — |   |
|                               |       |                                  |       |   |   |
| Net operating income               |       | $                                     | 795        |   | $ | — |   |
|                               |       |                                  |       |   |   |
| Reconciliation to Net Loss         |       |                                  |       |   |   |
| Net operating income               |       | $                                     | 795        |   | $ | — |   |
|                               |       |                                  |       |   |   |
| Less:                              |       |                                  |       |   |   |
| Depreciation and amortization      |       | (603                                  | )          | — |   |
| General and administrative expense |       | (421                                  | )          | (70 | ) |
| Interest expense                   |       | (326                                  | )          | — |   |
| Asset management fees              |       | (86                                   | )          | — |   |
| Add:                               |       |                                  |       |   |   |
| Interest income                    |       | 100                                   |       | 6 |   |
|                               |       |                                  |       |   |   |
| Net loss                           |       | $                                     | (541       | ) | $ | (64 | ) |

 

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**Distributions**

 

Distributionsare authorized at the discretion of our board of directors based on itsanalysis of our performance over the previous period, expectations ofperformance for future periods, including actual and anticipated operating cashflow, changes in market capitalization rates for investments suitable for ourportfolio, capital expenditure needs, general financial condition, and otherfactors that our board deems relevant. The board’s decision will be influenced, in substantial part, by itsobligation to ensure that we maintain our status as a REIT.  In light of the pervasive and fundamentaldisruptions in the global financial and real estate markets, we cannot provideassurance that we will be able to achieve expected cash flows necessary tocontinue to pay distributions at any particular level, or at all.  If the current economic conditions continue,our board could determine to reduce our current distribution rate or ceasepaying distributions in order to conserve cash.

 

Untilproceeds from our offerings are fully invested and generating sufficientoperating cash flow to fully fund the payment of distributions to stockholders,we have and will continue to pay some or all of our distributions from sourcesother than operating cash flow.  We may,for example, generate cash to pay distributions from financing activities, componentsof which may include proceeds from our offerings and borrowings (includingborrowings secured by our assets) in anticipation of future operating cashflow.  In addition, from time to time,our advisor and its affiliates may agree to waive or defer all, or a portion,of the acquisition, asset management or other fees or incentives due to them,pay general administrative expenses or otherwise supplement investor returns inorder to increase the amount of cash that we have available to pay distributionsto our stockholders.

 

Thedistributions paid during the three months ended March 31, 2009 were $554,000.  For the three months ended March 31,2009, cash flow used in operating activities was $151,000.  Accordingly, for the three months ended March 31,2009, distributions were funded from proceeds from our offering.

 

Thefollowing are the distributions paid and declared for the three months ended March 31,2009.

 
| ** **     | ** ** | ** **             | ** ** | ** **        | ** ** | ** **       | ** ** | **Total**    | ** ** | **Declared**  | ** ** |
|----------------|------------|------------------------|------------|-------------------|------------|------------------|------------|--------------|------------|---------------|------------|
| ** **     | ** ** | **Distributions Paid** | ** ** | **Distributions** | ** ** | **Distribution** | ** ** |
| **2009**       | ** ** | **Cash**               | ** ** | **DRIP**          | ** ** | **Total**        | ** ** | **Declared** | ** ** | **Per Share** | ** ** |
| First  Quarter |       | $                      | 138        |              | $          | 416              |       | $            | 554        |          | $          | 586 |   | $ | 0.07 |   |
|                |            |                        |            |                   |            |                  |            |              |            |               |            |  |  |  |  |  |

 

Therewere no distributions declared or paid for the three months ended March 31,2008.  Distributions declared per shareassumes the share was issued and outstanding each day during the period and isbased on a declared daily distribution for the period of $0.0008219 per shareper day.  Each day during the firstquarter was a record date for distributions.

 

Over the long term, we expect that more of ourdistributions will be paid from cash flow from operating activities (except with respect todistributions related to sales of our assets). However, operating performance cannot be accurately predicted due tonumerous factors, including our ability to raise and invest capital atfavorable yields, the financial performance of our investments in the currentreal estate environment, the types and mix of investments in our portfolio andthe accounting treatment of our investments in accordance with our accountingpolicies.  In addition, effective on June 2009,our board of directors increased our distribution rate from an annual effectiverate of 3.0% to 5.0%.  As a result,future distributions declared and paid may continue to exceed cash flow fromoperating activities.

 

**Off-BalanceSheet Arrangements**

 

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

 

**Item 3.****                                                          ****Quantitative and QualitativeDisclosures About Market Risk.**

 

*Interest Rate Risk*

 

Wemay be exposed to interest rate changes primarily as a result of long-term debtused to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard tointerest rate risks, are to limit the impact of interest rate changes onearnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrowprimarily at fixed rates or variable rates with the lowest margins availableand in some cases, with the ability to convert variable rates to fixedrates.  With regard to variable ratefinancing, we will assess interest rate cash flow risk by continuallyidentifying and monitoring changes in interest rate exposures that mayadversely impact expected future cash flows and by evaluating hedgingopportunities.  We may enter intoderivative financial instruments such as options, forwards, interest rate swaps,caps, or floors to mitigate our interest rate risk on a related financialinstrument or to effectively lock the

 

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interestrate portion of our variable rate debt. At March 31, 2009, we had one note payable outstanding which wassubject to a variable interest rate based on LIBOR plus a margin of 2.5%.  However, the note payable has a minimuminterest rate of 6.25%, which if the LIBOR rate increased 100 basis points,would not result in an increase to a rate above the minimum.

 

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

 

*Evaluation of Disclosure Controls and Procedures*

 

Asrequired by Rule 13a-15(b) and Rule 15d-15(b) under theExchange Act, our management, including our Chief Executive Officer and ChiefFinancial Officer, evaluated, as of March 31, 2009, the effectiveness ofour disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) andRule 15d-15(e). Based on that evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedureswere effective, as of March 31, 2009, to provide reasonable assurance thatinformation required to be disclosed by us in this report is recorded,processed, summarized and reported within the time periods specified by the rules andforms of the Exchange Act and is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosures.

 

Webelieve, however, that a controls system, no matter how well designed andoperated, cannot provide absolute assurance that the objectives of the controlssystems are met, and no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud or error, if any, within acompany have been detected.

 

*Changes in Internal Control overFinancial Reporting*

 

Therehas been no change in internal control over financial reporting that occurredduring the quarter ended March 31, 2009 that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II**

 

**OTHER INFORMATION**

 

**Item 1.****                                                          ****Legal Proceedings.**

 

We are not a party to, and none of our propertiesare subject to, any material pending legal proceedings.

 

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

 

The following risk factors update and should be readin conjunction with the risk factors contained in the “Risk Factors” sectionset forth in our Annual Report on Form 10-K for the year ended December 31,2008.

 

*The prior performance information as of December 31, 2008 withrespect to the nonpublic real estate investment programs sponsored byaffiliates of our advisor is unaudited and may change when the respectiveaudits are complete.*

 

The prior performance information as of December 31,2008 with respect to the nonpublic programs sponsored by affiliates of ouradvisor is unaudited.  This informationappears in the Prior Performance Tables contained in our Form 8-K filedwith the SEC on April 16, 2009 and has been incorporated by reference intothe prospectus, related to the Offering. The auditors for these programs are currently auditing that financialinformation.  We have no reason tobelieve the final audited financial information will differ materially fromthat appearing in the Form 8-K. However, the tight credit market and depressed real estate markets theU.S. economy is currently experiencing have led many other real estatecompanies to record significant losses and recognize impairment in value ofassets.  We therefore can provide noassurance that the auditors will not propose material adjustments to the priorperformance information as part of their auditing procedures.  Because of the increased chances of materialadjustments to the prior performance figures, prospective investors should bemore cautious than usual when considering the unaudited 2008 prior performanceinformation for these nonpublic programs. Such prior performance information should not be relied upon as an indicatorof our performance.

 

### ***Because we rely on affiliates ofBehringer Harvard Holdings for the provision of advisory, property managementand dealer manager services, if Behringer Harvard Holdings is unable to meetits obligations we may be required to find alternative providers of these services,which could result in a significant and costly disruption of our business.***

### ** **

Behringer HarvardHoldings, through one or more of its subsidiaries, owns and controls ouradvisor, our property manager and our dealer manager. The operations of ouradvisor, our property manager and our dealer manager rely substantially onBehringer Harvard Holdings. In light of the common ownership of these entitiesand their reliance on Behringer Harvard Holdings, we consider the financialcondition of Behringer Harvard Holdings when assessing the financial conditionof our advisor, our property manager and our dealer manager.  Behringer Harvard Holdings is largelydependent on fee income from its sponsored real estate programs.  The current real estate market disruptionscould adversely affect the amount of such fee income.  In the event that Behringer Harvard Holdingsbecomes unable to meet its obligations as they become due, we might be requiredto find alternative service providers, which could result in a significant disruptionof our business and would likely adversely affect the value of your investmentin us.

 

### ***From time to time, we may rely onfinancial institutions for debt financing and, as a result, may be adverselyaffected by the failure of a financial institution to honor its lendingobligations.***

 

From time to time, we mayrely on financial institutions for financing acquisitions, for financingdevelopment projects in which we invest, for funding credit facilities used forgeneral corporate purposes or for other funding needs.  As a result of the recent and continuingeconomic slowdown and financial market disruptions, certain financialinstitutions have become insolvent or been served with cease and desist ordersor other administration actions by federal bank regulators due to a lack ofrequired capital.  While not presently anissue for us, some of these financial institutions may become insolvent, enterinto receivership or otherwise become unable to fulfill or be prevented fromfulfilling their respective financial obligations to their borrowers.  Should a financial institution on which werely fail to meet its funding obligations to us or to an entity in which wehave invested, our liquidity or the liquidity of the entity in which we haveinvested could be materially adversely affected, we could become unable to takeadvantage of acquisition opportunities and we could suffer losses ondevelopment projects or other investments that require additional capital.  Furthermore, if the loan is made to an entityin which we have invested, such as a development project, and we and ouraffiliates are not parties to the loan, we will be unable to take direct actionagainst the financial institution to compel it to honor its financialobligations.  In addition, if a financialinstitution on which we rely becomes insolvent or enters into receivership, orif other regulatory action is taken against it, we may not be able to enforceany contractual rights we would otherwise have against it.

 

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**Item 2.****                                                          ****Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

**Use ofProceeds from Registered Securities**

 

On January 4, 2008, our Registration Statementon Form S-11 (File No. 333-140887), covering a public offering of upto 125,000,000 shares of common stock, was declared effective under theSecurities Act of 1933. The Offering commenced on January 21, 2008 and isongoing.  We expect to sell the sharesoffered in our public offering over a two-year period.  Under rules promulgated by the SEC, insome circumstances we may continue the Offering beyond this date.  Our board of directors has the discretion toextend the offering period for the shares offered under the DRIP up to thesixth anniversary of the termination of the primary offering.  We may reallocate the shares of common stockbeing offered between the primary offering and the DRIP.

 

We are offering a maximum of 100,000,000 shares inour primary offering at an aggregate offering price of up to $1 billion,or $10.00 per share with discounts available to certain categories ofpurchasers.  The 25,000,000 sharesoffered under the DRIP are initially being offered at an aggregate offeringprice of $237.5 million, or $9.50 per share. Behringer Securities LP, an affiliate of our advisor, is the dealermanager of the Offering.  As of March 31,2009, we had sold 8,539,480 shares of our common stock, net of the 22,471shares issued to Behringer Harvard Holdings, on a best efforts basis pursuantto the Offering for gross offering proceeds of approximately $85.2 million.

 

From the commencement of the Offering through March 31,2009, we incurred the following expenses in connection with the issuance anddistribution of the registered securities pursuant to the Offering:

 
| **Type of Expense**              | ** ** | **Amount** | ** ** |
|----------------------------------|------------|------------|------------|
| Other expenses to affiliates (1) |       | $          | 14,561     |   |
| Other expenses to non-affiliates |       | —     |       |
|                             |       |       |       |
| Total expenses                   |       | $          | 14,561     |   |

 

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(1) “Other expenses to affiliates” includes commissions and dealermanager fees paid to Behringer Securities, which reallowed all or a portion ofthe commissions and fees to soliciting dealers.

 

Fromthe commencement of the Offering through March 31, 2009, the net offeringproceeds to us from the Offering, including the DRIP, after deducting the totalexpenses incurred described above, were $70.6 million.  From the commencement of the Offering throughMarch 31, 2009, we had used $17.3 million of such net proceeds to purchaseinterests in real estate, net of notes payable. Of the amount used for the purchase of these investments, $0.9 millionwas paid to Behringer Opportunity Advisors II, as acquisition and advisory feesand acquisition expense reimbursement.

 

**RecentShares of Unregistered Securities**

 

Duringthe period covered by this quarterly report, we did not sell any equitysecurities that were not registered under the Securities Act of 1933.

 

**ShareRedemption Program**

 

Ourboard of directors has adopted a share redemption program that permits ourstockholders to sell their shares to us after they have held them for at leastone year, subject to significant conditions and limitations.  The purchase price for the redeemed shares isset forth in the prospectus for the offering of our common stock.  Subject to certain limitations, we will waivethe one-year holding requirement for redemptions sought upon a stockholder’sdeath or qualifying disability or redemptions sought upon a stockholder’sconfinement to a long-term care facility. Our board of directors reserves the right in its sole discretion at anytime, and from time to time, to (1) waive the one-year holding period inthe event of other exigent circumstances affecting a stockholder such asbankruptcy or a mandatory distribution requirement under the stockholder’s IRA,(2) reject any request for redemption, (3) change the purchase pricefor redemptions, or (4) otherwise amend the terms for the share redemptionprogram.  Under the terms of the program,we will not redeem in excess of 5% of the weighted-average number of sharesoutstanding during the twelve-month period immediately prior to the date ofredemption.  In addition, our board ofdirectors will determine at least quarterly whether we have sufficient cash torepurchase shares, and such purchases will generally be limited to proceedsfrom the DRIP plus 1% of operating cash flow from the previous fiscal year (tothe extent positive).  For the threemonths ended March 31, 2009, no shares had been redeemed or presented forredemption.

 

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

 

None.

 

**Item 4.****                                                          ****Submission of Matters to a Voteof Security Holders.**

 

None.

 

**Item 5.****                                                          ****Other Information.**

 

None.

 

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

 

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

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                      | **BEHRINGER HARVARD OPPORTUNITY REIT II, INC.** |
|---------------------------|-------------------------------------------------|
|                      | ** **                                      |
|                      |                                            |
| Dated:  May 15, 2009 | By:                                             | /s/  Gary S. Bresky |
|                      |                                            | Gary  S. Bresky |
|                      |                                            | Executive  Vice President and Chief Financial Officer |
|                      |                                            | (Principal  Financial Officer) |

 

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**Index to Exhibits**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.1                     |       | Second Articles of Amendment and  Restatement as amended by the First Articles of Amendment and the Second Articles  of Amendment (incorporated by reference to Exhibit 3.1 to Form 10-Q  filed on November 14, 2008)                                                                                                                                                                           |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.2                     |       | Amended and Restated Bylaws (incorporated  by reference to Exhibit 3.2 to Pre-Effective Amendment No. 3 to the  Company’s Registration Statement on Form S-11, Commission File  No. 333-140887)                                                                                                                                                                                       |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1                     |       | Form of Subscription Agreement  (included as Exhibit A to prospectus, incorporated by reference to  Exhibit 4.1 to Post-Effective Amendment No. 7 to the Company’s  Registration Statement on Form S-11, Commission File  No. 333-140887)                                                                                                                                   |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2                     |       | Distribution Reinvestment Plan (included as  Exhibit B to prospectus), incorporated by reference to Exhibit 4.2  to Post-Effective Amendment No. 7 to the Company’s Registration  Statement on Form S-11, Commission File No. 333-140887.                                                                                                                                        |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.3                     |       | Share Redemption Program (incorporated by  reference from the description under “Description of Shares — Share  Redemption Program” in the prospectus), incorporated by reference to Exhibit 4.3  to Post-Effective Amendment No. 7 to the Company’s Registration  Statement on Form S-11, Commission File No. 333-140887.                                             |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.4                     |       | Form of Escrow Agreement (incorporated  by reference to Exhibit 4.4 to Pre-Effective Amendment No. 2 to the  Company’s Registration Statement on Form S-11, Commission File  No. 333-140887)                                                                                                                                                                                     |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.5                     |       | Statement regarding restrictions on  transferability of shares of common stock (to appear on stock certificate or  to be sent upon request and without charge to stockholders issued shares  without certificates) (incorporated by reference to Exhibit 4.5 to  Pre-Effective Amendment No. 3 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887) |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.1*                   |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                               |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 31.2*                   |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                               |
|                    |       |                                                                                                                                                                                                                                                                                                                                                                                                           |
| 32.1*                   |       | Section 1350 Certifications**                                                                                                                                                                                                                                                                                                                                                                             |

 

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*Filed herewith

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

 

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