**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 
| **[Mark One]**                                          |
|---------------------------------------------------------|
| **x**                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                    |   |
| **For the quarterly period ended  March 31, 2008** |
|                                                    |   |
| **OR**                                                  |
|                                                    |   |
| **o**                                                   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                 to                 **

 

**Commission File Number: 333-140887**

 

**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. Employer  Identification 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 mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (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 May 1, 2008, Behringer Harvard Opportunity REIT II, Inc. had584,660****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, 2008**

 
| ** **                             | ** **                                                                                                                                                                                             | **Page**   |
|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                   |                                                                                                                                                                                                   |       |
| **PART I  FINANCIAL INFORMATION** |
| ** **                             | ** **                                                                                                                                                                                             |       |
| **Item 1.**                            | **Financial Statements (Unaudited).**                                                                                                                                                                  |       |
|                                   |                                                                                                                                                                                                   |       |
|                                   | Consolidated  Balance Sheets as of March 31, 2008 and December 31, 2007                                                                                                                      | 3          |
|                                   |                                                                                                                                                                                                   |       |
|                                   | Consolidated Statements of Operations  for the three months ended March 31, 2008 and for the period from  January 9, 2007 (date of inception) through March 31, 2007                    | 4          |
|                                   |                                                                                                                                                                                                   |       |
|                                   | Consolidated Statements of  Stockholder’s Equity for the period from January 9, 2007 (date of  inception) through December 31, 2007 and for the three months ended  March 31, 2008 | 5          |
|                                   |                                                                                                                                                                                                   |       |
|                                   | Consolidated Statements of  Cash Flows for the three months ended March 31, 2008 and for the period  from  January 9, 2007 (date of inception) through March 31, 2007                   | 6          |
|                                   |                                                                                                                                                                                                   |       |
|                                   | Notes to Consolidated Financial Statements                                                                                                                                                             | 7          |
|                                   |                                                                                                                                                                                                   |       |
| **Item 2.**                            | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations.**                                                                                                       | **15**     |
| ** **                             | ** **                                                                                                                                                                                             | ** ** |
| **Item 3.**                            | **Quantitative and Qualitative Disclosures About Market  Risk.**                                                                                                                                       | **19**     |
| ** **                             | ** **                                                                                                                                                                                             | ** ** |
| **Item 4T.**                           | **Controls and Procedures.**                                                                                                                                                                           | **19**     |
| ** **                             | ** **                                                                                                                                                                                             | ** ** |
|                                   |                                                                                                                                                                                                   |       |
| **PART II  OTHER INFORMATION**    |
|                                   |                                                                                                                                                                                                   |       |
|                                   |                                                                                                                                                                                                   |       |
| **Item 1.**                            | **Legal  Proceedings.**                                                                                                                                                                                | 19         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 1A.**                           | **Risk  Factors.**                                                                                                                                                                                     | 19         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 2.**                            | **Unregistered Sales of Equity Securities and Use of  Proceeds.**                                                                                                                                      | 19         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 3.**                            | **Defaults Upon Senior Securities.**                                                                                                                                                                   | 20         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 4.**                            | **Submission of Matters to a Vote of Security Holders.**                                                                                                                                               | 20         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 5.**                            | **Other  Information.**                                                                                                                                                                                | 20         |
|                                   |                                                                                                                                                                                                   |       |
| **Item 6.**                            | **Exhibits.**                                                                                                                                                                                          | 20         |
|                                   |                                                                                                                                                                                                   |       |
| **Signature**                          |                                                                                                                                                                                                   | 21         |

 

2

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**PART IFINANCIAL INFORMATION**

 

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

** **

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

**ConsolidatedBalance Sheets**

(Unaudited)

 
| ** **                                                                                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                     | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| **Assets**                                                                                                     |       |               |       |                  |       |
| Cash and cash equivalents                                                                                      |       | $                  | 188,783    |                  | $          | 203,040 |   |
| Restricted cash                                                                                                |       | 2,589,591          |       | —                |       |
| **Total assets**                                                                                               |       | $                  | 2,778,374  |                  | $          | 203,040 |   |
|                                                                                                           |       |               |       |                  |       |
| **Liabilities and stockholder’s equity**                                                                  |       |               |       |                  |       |
| **Liabilities**                                                                                                |       |               |       |                  |       |
| Payable to related party                                                                                       |       | $                  | 17,312     |                  | $          | 300 |   |
| Accrued liabilities                                                                                            |       | 86,391             |       | 53,375                |       |
| Subscriptions for common stock                                                                                 |       | 2,589,591          |       | —                |       |
| **Total liabilities**                                                                                          |       | 2,693,294          |       | 53,675                |       |
|                                                                                                           |       |               |       |                  |       |
| **Commitments and contingencies**                                                                              |       |               |       |                  |       |
|                                                                                                           |       |               |       |                  |       |
| **Stockholder’s 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, 22,471 shares issued and outstanding |       | 2                  |       | 2                     |       |
| Additional paid-in capital                                                                                     |       | 200,998            |       | 200,998               |       |
| Cumulative net loss                                                                                            |       | (115,920           | )          | (51,635               | )          |
| **Total stockholder’s equity**                                                                            |       | 85,080             |       | 149,365               |       |
| **Total liabilities and stockholder’s equity**                                                            |       | $                  | 2,778,374  |                  | $          | 203,040 |   |

 

*See Notes to Consolidated Financial Statements.*

 

3

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

**ConsolidatedStatements of Operations**

(Unaudited)

** **
| ** **                                                 | ** ** | ** **                   | ** ** | **For the period from**         | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|------------------------------------------------|------------|
| ** **                                                 | ** ** | **Three months**        | ** ** | **January 9, 2007**                  | ** ** |
| ** **                                                 | ** ** | **ended**                    | ** ** | **(date of inception) through** | ** ** |
| ** **                                                 | ** ** | **March 31, 2008** | ** ** | **March 31, 2007**                   | ** ** |
|                                                       |       |                         |       |                                           |       |
| **Revenue**                                                |       | $                            | —     |                                           | $          | — |   |
|                                                       |       |                         |       |                                           |       |
| **Expenses**                                               |       |                         |       |                                           |       |
| General and administrative                                 |       | 69,762                       |       | —                                         |       |
| **Total expenses**                                         |       | 69,762                       |       | —                                         |       |
|                                                       |       |                         |       |                                           |       |
| Interest income                                            |       | 5,477                        |       | —                                         |       |
| **Net loss**                                               |       | $                            | (64,285    | )                                              | $          | — |   |
|                                                       |       |                         |       |                                           |       |
| **Basic and diluted weighted average shares  outstanding** |       | 22,471                       |       | 22,471                                         |       |
|                                                       |       |                         |       |                                           |       |
| **Basic and diluted loss per share**                       |       | $                            | (2.86      | )                                              | $          | — |   |

 

*See Notes to Consolidated Financial Statements.*

 

4

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

**ConsolidatedStatements of Stockholder’s Equity**

(Unaudited)

 
| ** **                                           | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | ** ** | ** ** | **Total**   | ** ** |
|------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|------------|------------|-------------|------------|
| ** **                                           | ** ** | **Number**                 | ** ** | **Par**               | ** ** | **Number**         | ** ** | **Par**    | ** ** | **Paid-in** | ** ** | **Cumulative** | ** ** | **Stockholder’s** | ** ** |
| ** **                                           | ** ** | **of Shares**         | ** ** | **Value**             | ** ** | **of Shares** | ** ** | **Value**  | ** ** | **Capital** | ** ** | **Net Loss** | ** ** | **Equity** | ** ** |
|                                                 |       |                       |       |                  |       |               |       |       |       |        |       |   |   |   |   |
| Balance at January 9, 2007 (date of  inception) |       | —                     |       | $                     | —     |               | —     |       | $          | —      |       | $ | — |   | $ | — |   | $ | — |   |
| Issuance of convertible stock, net                   |       | 1,000                      |       | —                |       |               |       |       |       | 1,000       |       |   |   | 1,000 |   |
| Issuance of common stock, net                        |       |                       |       |                  |       | 22,471             |       | 2          |       | 199,998     |       | — |   | 200,000 |   |
| Net loss                                             |       |                       |       |                  |       |               |       |       |       |        |       | (51,635 | ) | (51,635 | ) |
| Balance at December 31, 2007                    |       | 1,000                      |       | —                |       | 22,471             |       | 2          |       | 200,998     |       | (51,635 | ) | 149,365 |   |
|                                                 |       |                       |       |                  |       |               |       |       |       |        |       |   |   |   |   |
| Net loss                                             |       |                       |       |                  |       |               |       |       |       |        |       | (64,285 | ) | (64,285 | ) |
| Balance at March 31, 2008                       |       | 1,000                      |       | $                     | —     |               | 22,471     |       | $          | 2           |       | $ | 200,998 |   | $ | (115,920 | ) | $ | 85,080 |   |

 

*See Notesto Consolidated Financial Statements.*

 

5

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

**ConsolidatedStatements of Cash Flows**

(Unaudited)

 
| ** **                                                                         | ** ** | ** **                   | ** ** | **For the period from**         | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                         | ** ** | **Three months**        | ** ** | **January 9, 2007**                  | ** ** |
| ** **                                                                         | ** ** | **ended**                    | ** ** | **(date of inception) through** | ** ** |
| ** **                                                                         | ** ** | **March 31, 2008** | ** ** | **March 31, 2007**                   | ** ** |
| **Cash flows from operating activities**                                           |       |                         |       |                                           |       |
| Net loss                                                                           |       | $                            | (64,285    | )                                              | $          | — |   |
| Adjustments to reconcile net loss to net  cash flows used in operating activities: |       |                         |       |                                           |       |
| Change in accrued liabilities                                                      |       | 33,016                       |       | —                                         |       |
| Change in payable to related party                                                 |       | 17,012                       |       | —                                         |       |
| **Cash used in operating activities**                                              |       | (14,257                      | )          | —                                         |       |
|                                                                               |       |                         |       |                                           |       |
| **Cash flows from financing activities**                                           |       |                         |       |                                           |       |
| Issuance of common/convertible stock                                               |       | —                       |       | 201,000                                        |       |
| Change in subscriptions for common stock                                           |       | 2,589,591                    |       | —                                         |       |
| Change in subscription cash received                                               |       | (2,589,591                   | )          | —                                         |       |
| **Cash provided by financing activities**                                          |       | —                       |       | 201,000                                        |       |
|                                                                               |       |                         |       |                                           |       |
| Net change in cash and cash equivalents                                            |       | (14,257                      | )          | 201,000                                        |       |
| Cash and cash equivalents at beginning of  period                                  |       | 203,040                      |       | —                                         |       |
| Cash and cash equivalents at end of period                                         |       | $                            | 188,783    |                                           | $          | 201,000 |   |

* *

*See Notes to Consolidated Financial Statements.*

 

6

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** **

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

**Notes to Consolidated FinancialStatements**

**(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 in Maryland on January 9, 2007 andintends to qualify as a real estate investment trust (“REIT”) for federalincome tax purposes effective for our taxable year ending December 31,2008.  We intend to acquire and operatecommercial real estate and real estate-related assets.  In particular, we will 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.  We may acquirea wide variety 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 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. The Company had not begun operations as of March 31, 2008.

 

Substantially all of our business will be conducted through BehringerHarvard Opportunity OP II LP, a limited partnership organized in Delaware on January 12,2007 (“Behringer Harvard Opportunity OP II”). As of March 31, 2008, our wholly owned subsidiary, BHO II, Inc.,a Delaware corporation, was the sole general partner of Behringer HarvardOpportunity OP II and owned a 0.1% partnership interest in Behringer HarvardOpportunity OP II.  As of March 31,2008, our wholly owned subsidiary, BHO Business Trust II, a Maryland businesstrust, was the sole limited partner of Behringer Harvard Opportunity OP II.

 

Weare externally managed by and advised by Behringer Harvard Opportunity AdvisorsII LP (“Behringer Opportunity Advisors II”), a Texas limited partnership formedin January 2007.  BehringerOpportunity Advisors II is our affiliate responsible for managing our affairson a day-to-day basis and for identifying and making acquisitions andinvestments on our behalf.

 

***Organization***

 

On February 26,2007, we filed a Registration Statement on Form S-11 with the Securitiesand Exchange Commission (the “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, LLC (“Behringer Harvard Holdings”), an affiliate ofour advisor.  These were all of theshares that were issued and outstanding as of March 31, 2008.

 

As of March 31,2008, the escrow agent, Citibank, N.A., had not yet released subscriptionproceeds to us.  Subscription proceedswere placed in an account held by our escrow agent until such time assubscriptions to purchase at least $2.0 million of shares of common stock hadbeen received and accepted by us, except that we may not admit investorsresiding in New York and Pennsylvania as stockholders until we have receivedand accepted subscriptions aggregating $2.5 million and $50 million, respectively.

 

On April 1, 2008 we met the minimum of $2.0million of shares sold under the Offering and the escrow agent releasedsubscription proceeds to us from the Offering immediately thereafter.  We expect to admit new stockholders pursuant to the Offeringon at least a monthly basis.  Allsubscription proceeds are held in a separate account until the subscribinginvestors are admitted as stockholders. Upon admission of new stockholders, subscription proceeds are wired toour operating cash account and may be utilized as consideration for investmentsand the payment or reimbursement of dealer manager fees, selling commissions,organization and offering expenses and operating expenses.  Until required for such purposes, netoffering proceeds are be held in short-term, liquid investments.

 

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 

 

7

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

liquidation within that period, we may seek to haveour shares listed on a national securities exchange.  If we do not begin the process of liquidatingour assets or listing our shares within six years of the termination of ourprimary offering, our charter requires that we hold a stockholders meeting tovote on a proposal for our orderly liquidation unless a majority of our boardof directors and a majority of our independent directors vote to defer such a meetingbeyond the sixth anniversary of the termination of our primary offering.  The proposal would include informationregarding appraisals of our portfolio. If our stockholders did not approve the proposal, we would obtain newappraisals and resubmit the proposal by proxy statement to our stockholders upto once every two years upon the written request of stockholders owning 10% ofour outstanding common stock.

 

As of March 31,2008, neither the Company nor our advisor had purchased or contracted to purchaseany properties.

 

**2.****                                     ****Summary of Significant AccountingPolicies**

 

***Use of Estimates in the Preparation of FinancialStatements***

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America (“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 amortizationand 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,” as amended by Emerging Issues Task Force 04-5, “DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have CertainRights.”

 

***Real Estate***

 

Uponthe acquisition of real estate properties, we will allocate the purchase priceof those properties to the tangible assets acquired, consisting of land,inclusive of associated rights, and buildings, any assumed debt, identifiedintangible assets and asset retirement obligations based on their relative fairvalues in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,“Goodwill and Other Intangible Assets.” Identified intangible assets consist of the fair value of above-marketand below-market leases, in-place leases, in-place tenant improvements andtenant relationships.

 

Uponthe completion of a business combination, we will record the tangible assetsacquired, consisting of land and buildings, any assumed debt, identifiedintangible assets and asset retirement obligations based on their fair valuesin accordance with SFAS No. 141, “Business Combinations.”  Identified intangible assets consist of thefair value of above-market and below-market leases, in-place leases, in-placetenant improvements and tenant relationships. Any amount paid in excess of the fair value of the assets andliabilities acquired will be recorded as goodwill.  If the value of the assets and liabilitiesexceed the total purchase price, then the resulting negative goodwill will beallocated to the tangible and intangible assets acquired.

 

Initialvaluations will be subject to change until our information is finalized, whichis no later than twelve months from the acquisition date.

 

Wewill determine the fair value of assumed debt by calculating the net presentvalue of the scheduled note payments using interest rates for debt with similarterms and remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt will be 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,will be 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 will be derived from appraisals, and building values will becalculated 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 commercialoffice 

 

8

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

buildingswill be depreciated over the estimated useful life of 25 years using thestraight-line method and hotels/mixed-use properties will be depreciated overthe estimated useful life of 39 years using the straight-line method.

 

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

 

Weplan to amortize the value of in-place leases to expense over the term of therespective leases.  The value of tenantrelationship intangibles will be amortized to expense over the initial term andany anticipated renewal periods, but in no event will the amortization periodfor intangible assets exceed the remaining depreciable life of thebuilding.  Should a tenant terminate itslease, the unamortized portion of the in-place lease value and tenantrelationship intangibles will be charged to expense.

 

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

 

Forreal estate we will wholly own, management will monitor events and changes incircumstances indicating that the carrying amounts of the real estate assetsmay not be recoverable.  When such eventsor changes in circumstances occur, we will assess potential impairment bycomparing estimated future undiscounted operating cash flows expected to begenerated over the life of the asset, including its eventual disposition, tothe carrying amount of the asset.  In theevent that the carrying amount exceeds the estimated future undiscountedoperating cash flows, we will perform an analysis to determine if the carryingamount of the asset needs to be reduced to estimated fair value.

 

Forreal estate owned by us through an investment in a limited partnership, jointventure, tenant-in-common interest or other similar investment structure, ateach reporting date, management will compare the estimated fair value of itsinvestment to the carrying value.  Animpairment charge will be recorded to the extent that the fair value of theinvestment is less than the carrying amount and the decline in value isdetermined to be other than a temporary decline.

 

***Cash and Cash Equivalents***

 

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

 

***Restricted Cash***

 

Restrictedcash includes subscription proceeds that are held in a separate account untilthe subscribing investors are admitted as stockholders.  Subsequent to April 1, 2008, the date wereceived and accepted subscriptions aggregating approximately $3.0 millionsatisfying the conditions of our escrow agreement in all states exceptPennsylvania, we expect to admit new stockholders in those other states atleast monthly.  Upon acceptance ofstockholders, shares of stock are issued, and we receive the subscriptionproceeds.

 

***Organization and Offering Expenses***

 

Wewill reimburse our advisor for any organization and offering expenses incurredon our behalf in connection with the primary offering (other than sellingcommissions and the dealer manager fee) provided that at no point will wereimburse 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.

 

9

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

Organizationand offering expenses (excluding selling commissions and the dealer managerfee) are defined generally as any and all costs and expenses incurred by us inconnection 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 will estimate the total gross public offering proceedsexpected to be received under the public offering and recognize the amount oforganization & offering reimbursement as determined under SFAS No. 5,“Accounting for Contingencies.”  We willrecord the amount of reimbursement at the lower of (a) 1.5% of the estimatedgross public offering proceeds, or (b) the actual public organization andoffering costs incurred by our advisor.

 

Alloffering costs will be recorded as an offset to additional paid-in capital, andall organization costs will be recorded as an expense at the time we becomeliable for the payment of these amounts. As of March 31, 2008, we had not yet received the minimum proceedsfrom the Offering and accepted investors and as a result, we have no obligationto reimburse our advisor for amounts it has incurred related to our publicoffering costs, and accordingly no amounts have been recognized in ourconsolidated financial statements.  As ofMarch 31, 2008, Behringer Opportunity Advisors II had incurredapproximately $67,000 in organization costs and $2.5 million in offering costson our behalf.

 

***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 ending 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 FASB 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. No stock-based awards were issuedunder the plan as of March 31, 2008.

 

***Concentration of Credit Risk***

 

AtMarch 31, 2008, we had cash on deposit in financial institutions in excessof federally insured levels; however, we have not experienced any losses insuch accounts.  We limit cash investmentsto financial institutions with high credit standing; therefore, we believe thatwe are not exposed to any significant credit risk in cash and cash equivalents.

 

***Earnings per Share***

 

Earningsper share is calculated based on the weighted average number of common shares outstandingduring each period.  The weighted averageshares outstanding used to calculate both basic and diluted loss per share werethe same for the three months ended March 31, 2008 and for the period fromJanuary 9, 2007 (date of inception) through March 31, 2007 as therewere no stock-based awards outstanding.

 

**3.****                                     ****New Accounting Pronouncements**

 

InSeptember 2006, the FASB issued Statement No. 157, “Fair ValueMeasurements” (“FAS 157”). FAS 157 defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles, andexpands disclosures about fair value measurements.  The provisions of FAS 157 were adopted January 1,2008.  In February 2008, the FASBstaff issued Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”(“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of FAS 157 fornonfinancial assets and nonfinancial liabilities, except for items that are

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

recognizedor disclosed at fair value in the financial statements on a recurring basis (atleast annually).  The adoption of thisstandard did not have a material effect on our financial position, results ofoperations or cash flows.

 

InDecember 2007, the FASB issued SFAS No. 141(R), “BusinessCombinations.”  This Statement replaces SFAS No. 141 “BusinessCombinations” but retains the fundamental requirement that the acquisitionmethod of accounting, or purchase method, be used for all business combinationsand for an acquirer to be identified for each business combination.  ThisStatement is broader in scope than that of SFAS No. 141, which appliedonly to business combinations in which control was obtained by transferringconsideration. SFAS No. 141(R) applies the same method of accounting(the acquisition method) to all transactions and other events in which oneentity obtains control over one or more other businesses.  This Statementalso makes certain other modifications to SFAS No. 141, including abroader definition of a business and the requirement that acquisition relatedcosts are expensed as incurred.  This statement applies to businesscombinations occurring on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  Early adoption is not allowed.  We expect FAS 141(R) to have a materialeffect on our accounting for future acquisitions of properties if they fallunder the definition of a business combination.

 

**4.****                                     ****Stockholders’ Equity**

 

***Capitalization***

 

As of March 31, 2008, our authorized capital was 350,000,000shares of common stock, 50,000,000 shares of preferred stock and 1,000 sharesof convertible stock.  All shares of suchstock have a par value of $.0001 per share. As of March 31, 2008, we had 22,471 shares of our common stockoutstanding, all of which were owned by Behringer Harvard Holdings.  As of March 31, 2008, we had 1,000shares of our convertible stock issued and outstanding and no shares ofpreferred stock issued and outstanding.

 

The shares of convertible stock will be converted into shares of commonstock automatically if (1) we have made total distributions on thenoutstanding shares of our common stock equal to the issue price of those sharesplus a 10% cumulative, non-compounded, annual return on the issue price ofthose outstanding shares, (2) we list our common stock for trading on anational securities exchange if the sum of the prior distributions on thenoutstanding shares of the common stock plus the aggregate market value of thecommon stock (based on the 30-day average closing price) meets the same 10%performance threshold, or (3) the advisory management agreement with ouradvisor expires without renewal or is terminated (other than because of amaterial breach by our advisor), and at the time of such expiration ortermination we are deemed to have met the foregoing 10% performance thresholdbased on our enterprise value and prior distributions and, at or subsequent tothe expiration or termination the stockholders actually realize such level ofperformance upon listing or through total distributions. In general, theconvertible stock will convert into shares of common stock with a value equalto the lesser of (A) 20% of the excess of our enterprise value plus theaggregate value of distributions paid to date on then outstanding shares of ourcommon stock over the aggregate issue price of those outstanding shares plus a10% cumulative, non-compounded, annual return on the issue price of thoseoutstanding shares or (B) 15% of the excess of our enterprise value plusthe aggregate value of distributions paid to date on then outstanding shares ofthe common stock over the aggregate issue price of those outstanding sharesplus a 6% cumulative, non-compounded, annual return on the issue price of thoseoutstanding shares.

 

The timing of the conversion of any or all ofthe convertible stock may be deferred by our board of directors if itdetermines that full conversion may jeopardize our qualification as aREIT.  Any such deferral will in no eventotherwise alter the terms of the convertible stock, and such stock shall beconverted at the earliest date after our board of directors determines thatsuch conversion will not jeopardize our qualification as a REIT.  Our board of directors is authorized to amendour charter, without the approval of the stockholders, to increase theaggregate number of authorized shares of capital stock or the number of sharesof any class or series that we have authority to issue.

 

***Share Redemption Program***

 

Ourboard of directors has adopted a share redemption program that permits ourstockholders to sell their shares to us in limited circumstances after theyhave held them for at least one year, subject to certain conditions andlimitations.  The purchase price for theredeemed shares is set forth in the prospectus for the Offering of our commonstock.  Our board of directors reservesthe right in its sole discretion at any time, and from time to time, to (1) waivethe one-year holding period in the event of other exigent circumstancesaffecting a stockholder such as bankruptcy or a mandatory distributionrequirement under the stockholder’s IRA, (2) reject any request forredemption, (3) change the purchase price for redemptions, or (4) otherwiseamend the terms for the share redemption program.  Under the terms of the program, we will notredeem in excess of 5% of the weighted-average number of shares outstandingduring the twelve-month period immediately prior to the date ofredemption.  In addition, our board ofdirectors will determine at least quarterly whether we

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

have sufficient cash to repurchase shares, and suchpurchases will generally be limited to proceeds from the DRIP plus 1% ofoperating cash flow for the previous fiscal year (to the extent positive).

 

***Distribution Reinvestment Plan***

 

We haveadopted our DRIP through which common stockholders may elect to havedistributions otherwise distributable to them invested in additional shares ofour common stock.  We are offering up to25,000,000 shares for sale pursuant to the DRIP at an initial purchase price of$9.50 per share.  The Company mayreallocate the shares of common stock being offered between the primaryoffering and the DRIP.  We may terminatethe DRIP in our discretion at any time upon ten days’ notice to planparticipants.

 

***Distributions***

 

On March 27, 2008, our board of directors declared distributionspayable to the stockholders of record each day during for the months of April, May andJune 2008.  For each of thesemonths, the declared distributions equal a daily amount of $.0008219 per shareof common stock, which is equivalent to an annual distribution rate of 3.0%assuming the share was purchased for $10.00. A portion of each distribution is expected to constitute a return ofcapital for tax purposes.  Pursuant toour DRIP, stockholders may elect to reinvest any cash distribution inadditional shares of common stock.  Wewill record all distributions when declared, except that the stock issuedthrough the DRIP will be recorded when the shares are actually issued.

 

**5.****                                     ****Incentive Award Plan**

 

TheBehringer Harvard Opportunity REIT II, Inc. 2007 Amended and RestatedIncentive Award Plan (“Incentive Award Plan”) was adopted by our board ofdirectors on December 19, 2007 and provides for the grant of equity awardsto our employees, directors and consultants and those of our advisor and itsaffiliates.  A total of 10,000,000 shareshave been authorized and reserved for issuance under our Incentive AwardPlan.  As of March 31, 2008, noawards had been granted under such plan.

 

**6.****                                     ****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.  As ofMarch 31, 2008, we had not received the minimum proceeds from the Offeringand accepted investors, nor had we purchased any properties, and as a result,we had no obligation to reimburse our advisor for fees and compensation inconnection with the Offering, acquisition, management or sale of assets.

 

BehringerSecurities LP (“Behringer Securities”), the dealer-manager and an affiliate ofour advisor, will receive a commission of up to 7% of gross offeringproceeds.  Behringer Securities willreallow 100% of selling commissions earned to participating broker-dealers.  In addition, we will pay Behringer Securitiesa dealer 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.

 

Wewill reimburse our advisor for any organization and offering expenses incurredon our behalf in connection with our primary offering (other than sellingcommissions and the dealer manager fee) provided that at no point will wereimburse expenses that would cause our total organization and offeringexpenses related to the primary offering (other than selling commissions andthe dealer manager fee) to exceed 1.5% of gross offering proceeds from theprimary offering.

 

Ouradvisor or its affiliates will also receive acquisition and advisory fees of2.5% of the amount (1) actually paid and/or budgeted in respect of thepurchase, development, construction or improvement of a property by us, (2) offunds advanced with respect to a mortgage or other loan by us or (3) actuallypaid and/or budgeted in respect to the purchase of

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

otherassets by us, in each case exclusive of acquisition fees and acquisitionexpenses, but including any debt attributable to such acquired assets.

 

Ouradvisor or its affiliates will also receive reimbursement for all third-partyexpenses related to the selection and acquisition of assets, whether or notacquired by us.

 

Ouradvisor or its affiliates will also receive debt financing fees of 1% of theamount available 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.

 

Wewill pay our advisor or its affiliates a development fee in an amount that isusual and 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.

 

Weexpect to pay Behringer Harvard Opportunity II Management Services, LLC (“BHOManagement”), our property manager and affiliate of our advisor, fees for themanagement and leasing of the our properties. Property management fees will be 4.5% of the gross revenues of theproperties managed by BHO Management.  Inthe event that we contract directly with a third-party property manager inrespect of a property, BHO Management will receive an oversight fee equal to 1%of the gross revenues of the property managed. In no event will BHO Management receive both a property management feeand an oversight fee with respect to any particular property.  In addition to the property management fee oroversight fee, if BHO Management provides leasing services with respect to aproperty, we will pay BHO Management leasing fees in an amount equal to theleasing fees charged by unaffiliated persons rendering comparable services inthe same geographic location of the applicable property. We will reimburse thecosts and expenses incurred by BHO Management on its behalf, including thewages and salaries and other employee-related expenses of all on-site employeesof BHO Management or its subcontractors who are engaged in the operation,management, maintenance or access control of the Company’s properties,including taxes, insurance and benefits relating to such employees, and legal,travel and other out-of-pocket expenses that are directly related to themanagement of specific properties. Furthermore, other third-party charges, including fees and expenses ofthird-party accountants, will be reimbursed.

 

Wewill pay our advisor a monthly asset management fee of one-twelfth of 1.0% ofthe sum of, for each and every asset, the higher of the cost of investment orthe value of investment.

 

Ouradvisor or its affiliates also will be paid a disposition fee if the advisorprovides a substantial amount of services, as determined by our independentdirectors, in connection with the sale of one or more assets.  In such event, our advisor will receive adisposition fee equal to (1) in the case of the sale of real property, thelesser of: (A) one-half of the aggregate brokerage commission paid(including the disposition fee) or, if none is paid, the amount 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.

 

We will reimburse our advisor for all expenses paid or incurred by theadvisor 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 are justifiedbased on unusual and non-recurring factors. For the three months ended March 31,2008, we incurred and expensed such costs for administrative services totalingapproximately $17,000.

 

AtMarch 31, 2008, we had a payable to a related party of $17,300.  This balance consisted of operating expensespayable to Behringer Opportunity Advisors II.

 

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

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**7.****                                     ****Subsequent Events**

 

Wecommenced operations on April 1, 2008 upon our initial acceptance ofsubscriptions for approximately 300,000 shares of common stock and grossoffering proceeds of approximately $3.1 million, which satisfied the minimumoffering requirements of at least $2.5 million established for the Offering inall states except Pennsylvania.

 

*****

 

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

 

Thefollowing discussion and analysis should be read in conjunction with ouraccompanying financial 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-lookingstatements that were true at the time made may ultimately prove to be incorrector false.  We caution investors not toplace undue reliance on forward-looking statements, which reflect ourmanagement’s view only as of the date of this 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 to differmaterially from any forward-looking statements made in this 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 costs, inability to obtain new tenantsupon the expiration of existing leases, the potential need to fund tenantimprovements or other capital expenditures out of operating cash flows and ourinability to realize value for limited partners upon disposition of ourassets.  The forward-looking statementsshould be read in light of the risk factors identified in the “Risk Factors”section of our Registration Statement on Form S-11, as filed with the SEC.

 

### **CautionaryNote**

### ** **

Therepresentations, warranties and covenants made by us in any agreement filed asan exhibit to this Quarterly Report on Form 10-Q are made solely for thebenefit of the parties to the agreement, including, in some cases, for thepurpose of allocating risk among the parties to the agreement, and should notbe deemed to be representations, warranties or covenants to or with any otherparties.  Moreover, theserepresentations, warranties or covenants should not be relied upon asaccurately describing or reflecting the current state of our affairs.

 

**CriticalAccounting Policies and Estimates**

 

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

 

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

 

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

 

Ourconsolidated financial statements include our accounts, the accounts ofvariable interest entities (“VIEs”) in which we are the primary beneficiary andthe accounts of other subsidiaries over which we have control.  All inter-company transactions, balances andprofits have been eliminated in consolidation. Interests in entities acquired are evaluated for consolidation based onFinancial Accounting Standards Board Interpretation (“FIN”) 46R, which requiresthe consolidation of VIEs in which we are deemed to be the primarybeneficiary.  If the interest in theentity is determined not to be a VIE under FIN 46R, then the entity isevaluated for consolidation under the American Institute of Certified PublicAccountants’ (“AICPA”) Statement of Position (“SOP”) 78-9, “Accounting forInvestments in Real Estate Ventures,” as amended by Emerging Issues Task Force(“EITF”) 04-5, “Determining Whether a General Partner, or the General Partnersas a Group, Controls a Limited Partnership or Similar Entity When the LimitedPartners 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 

 

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

 

***Real Estate***

 

Uponthe acquisition of real estate properties, we will allocate the purchase priceof those properties to the tangible assets acquired, consisting of land,inclusive of associated rights, and buildings, any assumed debt, identifiedintangible assets and asset retirement obligations based on their relative fairvalues in accordance with SFAS No. 142, “Goodwill and Other IntangibleAssets.”  Identified intangible assetsconsist of the fair value of above-market and below-market leases, in-placeleases, in-place tenant improvements and tenant relationships.

 

Uponthe completion of a business combination, we will record the tangible assetsacquired, consisting of land and buildings, any assumed debt, identifiedintangible assets and asset retirement obligations based on their fair valuesin accordance with SFAS No. 141, “Business Combinations.”  Identified intangible assets consist of thefair value of above-market and below-market leases, in-place leases, in-placetenant improvements and tenant relationships. Any amount paid in excess of the fair value of the assets andliabilities acquired will be recorded as goodwill.  If the value of the assets and liabilitiesexceed the total purchase price, then the resulting negative goodwill will beallocated to the tangible and intangible assets acquired.

 

Initialvaluations will be subject to change until our information is finalized, whichis no later than twelve months from the acquisition date.

 

Wewill determine the fair value of assumed debt by calculating the net presentvalue of the scheduled note payments using interest rates for debt with similarterms and remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt will be 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,will be 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 will be derived from appraisals, and building values will becalculated 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 commercialoffice buildings will be depreciated over the estimated useful life of 25 yearsusing the straight-line method and hotels/mixed-use properties will bedepreciated over the estimated useful life of 39 years using the straight-linemethod.

 

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

 

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Weplan to amortize the value of in-place leases to expense over the term of therespective leases.  The value of tenantrelationship intangibles will be amortized to expense over the initial term andany anticipated renewal periods, but in no event will the amortization periodfor intangible assets exceed the remaining depreciable life of thebuilding.  Should a tenant terminate itslease, the unamortized portion of the in-place lease value and tenantrelationship intangibles will be charged to expense.

 

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

 

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

 

Forreal estate we will wholly own, management will monitor events and changes incircumstances indicating that the carrying amounts of the real estate assetsmay not be recoverable.  When such eventsor changes in circumstances occur, we will assess potential impairment bycomparing estimated future undiscounted operating cash flows expected to begenerated over the life of the asset, including its eventual disposition, tothe carrying amount of the asset.  In theevent that the carrying amount exceeds the estimated future undiscountedoperating cash flows, we will perform an analysis to determine if the carryingamount of the asset needs to be reduced to estimated fair value.

 

Forreal estate owned by us through an investment in a limited partnership, jointventure, tenant-in-common interest or other similar investment structure, ateach reporting date management will compare the estimated fair value of itsinvestment to the carrying value.  Animpairment charge will be recorded to the extent that the fair value of theinvestment is less than the carrying amount and the decline in value isdetermined to be other than a temporary decline.

 

Inevaluating our investments for impairment, management will make severalestimates and assumptions, including, but not limited to, the projected date ofdisposition 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 investments which could be material to our financial statements.

 

**Overview**

 

Wewere formed primarily to acquire and operate commercial real estate and realestate-related assets.  In particular, wewill focus generally on acquiring commercial properties with significantpossibilities for short-term capital appreciation, such as those requiringdevelopment, redevelopment or repositioning, those located in markets andsubmarkets with high growth potential and those available from sellers who aredistressed or face time-sensitive deadlines. We may acquire a wide variety of commercial properties, includingoffice, industrial, retail, hospitality, recreation and leisure, single-tenant,multifamily and other real properties. These properties may be existing, income-producing properties, newlyconstructed properties or properties under development or construction and mayinclude multifamily properties purchased for conversion into condominiums andsingle-tenant properties 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.  Wehad not acquired any assets as of March 31, 2008.

 

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 our 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.  Uponacceptance of initial subscriptions, which occurred on April 1, 2008, wecommenced operations.

 

**Resultsof Operations**

 

*Three months ended March 31, 2008 as comparedto the period from January 9, 2007 (date of inception) through March 31,2007*

 

Forthe three months ended March 31, 2008 and from the period beginning January 9,2007 (date of inception) through March 31, 2007, we had nooperations.  We commenced activeoperations when we received and accepted subscriptions for a minimum of $2.0million pursuant to the Offering on April 1, 2008.

 

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Resultsof operations for the three months ended March 31, 2008 consistedprimarily of the following:

 

*General &Administrative Expenses.* General and administrative expensesof $69,762 were comprised of corporate general and administrative expensesincluding auditing fees, board of directors’ fees and other administrativeexpenses.

 

*InterestIncome.* Interest income of $5,477 represents interest incomeon funds on deposit, net of bank fees. As we admit new stockholders,subscription proceeds will be released to us and may be utilized asconsideration for investments in real properties and the payment orreimbursement of dealer manager fees, selling commissions, organization andoffering expenses and operating expenses. Until required for such purposes, net offering proceeds are held inshort-term, liquid investments and earn interest income.

 

Therewere no operating results for the period from January 9, 2007 (date ofinception) through March 31, 2007.

 

**Cash Flow Analysis**

 

Cashused in operating activities for the three months ended March 31, 2008 was$14,257 and was comprised of the net loss of $64,285, adjusted by changes inworking capital accounts of $50,028. There was no cash flow from operations for the three months ended March 31,2007.

 

Therewas no cash used in or provided by financing activities for the three monthsended March 31, 2008.  Cash providedby financing activities for the three months ended March 31, 2007 was$201,000 and consisted of proceeds from the issuance of common and convertiblestock.

 

**Liquidityand Capital Resources**

 

Ourprincipal demands for funds will be for real estate and real estate-relatedacquisitions, for the payment of operating expenses and distributions, and forthe payment of interest on our outstanding indebtedness. Generally, we expectto meet cash needs for items other than acquisitions from our cash flow fromoperations, and we expect to meet cash needs for acquisitions from the netproceeds of the Offering and from financings.

 

Theremay be a delay between the sale of our shares and the purchase of properties orother investments, which could result in a delay in our ability to makedistributions to our stockholders.  Someor all of our distributions will be paid from other sources, such as from theproceeds of the Offering, cash advances to us by our advisor, cash resultingfrom a waiver of asset management fees and borrowings secured by our assets inanticipation of future operating cash flow until such time as we havesufficient cash flow from operations to fully fund the payment ofdistributions.  We expect to have little,if any, cash flow from operations available for distribution until we makesubstantial investments.  In addition, tothe extent our investments are in development or redevelopment projects, or inproperties that have significant capital requirements, our ability to makedistributions may be negatively impacted, especially during our early periodsof operation.

 

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 only will 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 thecontract purchase price of each real estate asset we acquire during the earlyperiods of our operations to the extent our board of directors determines thatborrowing at these levels is prudent.

 

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.

 

Potentialfuture sources of capital include proceeds from secured or unsecured financingsfrom banks or other lenders, proceeds from the sale of properties andundistributed funds from operations.  Ifnecessary, we may use financings or other sources of capital in the event ofunforeseen significant capital expenditures.

 

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**Off-BalanceSheet Arrangements**

 

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

 

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

 

Wewill be exposed to interest rate changes primarily as a result of long-termdebt used to acquire properties and make loans and other permitted investments.Our interest rate risk management objectives will be to limit the impact ofinterest rate changes on earnings and cash flows and to lower overall borrowingcosts. To achieve these objectives, we expect to borrow primarily at fixedrates or variable rates with the lowest margins available and, in some cases,with the ability to convert variable rates to fixed rates. With regard tovariable rate financing, we will assess interest rate cash flow risk bycontinually identifying and monitoring changes in interest rate exposures thatmay adversely impact expected future cash flows and by evaluating hedgingopportunities. Since we have not yet commenced active operations as of March 31,2008, we currently have limited exposure to interest rate risk.  As of March 31, 2008, a 1% increase ordecrease in interest rates would have no effect on our interest expense as wehad no outstanding debt as of that date.

 

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

 

*Evaluation of Disclosure Controls and Procedures*

 

Asrequired by Rule 13a-15(b) and Rule 15d-15(b) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated as of March 31, 2008, the effectiveness of our disclosurecontrols 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 procedures,as of March 31, 2008, were effective for the purpose of ensuring 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 management,including the Chief Executive Officer and Chief Financial Officer, asappropriate 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 over Financial Reporting*

 

Duringthe three months ended March 31, 2008, we named a new transfer agent andcompleted the transition of shareholder recordkeeping, account statementprocessing and other reporting to DST Systems, Inc., a provider ofinformation processing and computer software services.  While we believethis change will not materially affect our overall system of internal control,there are inherent risks associated with implementing a change of serviceproviders.  We have modified our system of internal control over financialreporting in order to address the impact of this change, and believe that ourcontrols, as modified, continue to be designed appropriately and operateeffectively.

 

Therehave been no other changes in internal control over financial reporting thatoccurred during the quarter ended March 31, 2008 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

**PART IIOTHER INFORMATION**

 

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

 

Weare not a party to any material pending legal proceedings.

 

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

 

Therehave been no material changes from the risk factors set forth in ourRegistration Statement on Form S-11.

 

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

 

OnJanuary 4, 2008, our Registration Statement on Form S-11 (File No. 333-140887),covering a public offering of up to 125,000,000 shares of common stock, wasdeclared effective under the Securities Act of 1933.  The offering commenced on January 21,2008 and is ongoing.  As of the date ofthis quarterly report, we have not commenced any 

 

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significantoperations, as subscriptions for our stock pursuant to the Offering were placedin escrow until we had received and accepted subscriptions aggregating at least$2.0 million.  The conditions of ourescrow agreement with Citibank, N.A. were satisfied on April 1, 2008, andas a result, operations can commence in the second quarter of 2008.

 

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

 

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

 

None.

 

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

 

On February 1, 2008, we held our annual meeting of stockholders inAddison, Texas.  Our sole stockholder,Behringer Harvard Holdings, elected the following individuals to the board ofdirectors, each to hold office until the 2009 annual meeting of stockholdersand until his or her successor is elected and qualifies:  Robert M. Behringer, Robert S. Aisner,Andreas K. Bremer, Cynthia Pharr Lee and Jeffrey P. Mayer.

 

On March 27, 2008, our sole stockholder approved the First andSecond Articles of Amendment to our Second Amended and Restated Articles ofIncorporation.

 

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

 

None.

 

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

 

Theexhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Indexattached hereto.

 

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**SIGNATURE**

 

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

 

 
|                                       | **BEHRINGER HARVARD OPPORTUNITY REIT II, INC.** |
|--------------------------------------------|-------------------------------------------------|
|                                       |                                            |   |
|                                       |                                            |   |
| Dated:   May 15,  2008 | 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**                                                                                                                                                                                                                                                                                                                                                                                               |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1.1                     |       | Second  Articles of Amendment and Restatement as amended by the First Articles of  Amendment, incorporated by reference to Exhibit 3.1.1 to Post-Effective  Amendment No. 1 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887                                                                                                                    |
| 3.1.2                     |       | Second  Articles of Amendment to the Company’s Second Articles of Amendment and  Restatement (not yet filed with the Maryland State Department of Assessments  and Taxation), incorporated by reference to the Company’s Form 8-K filed  on April 1, 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 B to prospectus)                                                                                                                                                                                                                                                                                                                               |
| 4.2                       |       | Distribution  Reinvestment Plan (included as Exhibit C to prospectus)                                                                                                                                                                                                                                                                                                                                    |
| 4.3                       |       | Share  Redemption Program (incorporated by reference from the description under  “Description of Shares – Share Redemption Program” in the prospectus)                                                                                                                                                                                                                                         |
| 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 |
| 10.1                      |       | Form of  Dealer Manager Agreement, incorporated by reference to Exhibit 1.1 to  Pre-Effective Amendment No. 2 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887                                                                                                                                                                             |
| 10.2                      |       | Form of  Advisory Management Agreement, incorporated by reference to Exhibit 10.1  to Pre-Effective Amendment No. 3 to the Company’s Registration Statement  on Form S-11, Commission File No. 333-140887                                                                                                                                                                       |
| 10.3                      |       | Form of  Property Management and Leasing Agreement, incorporated by reference to  Exhibit 10.2 to Pre-Effective Amendment No. 3 to the Company’s  Registration Statement on Form S-11, Commission File No. 333-140887                                                                                                                                                           |
| 10.4                      |       | 2007  Amended and Restated Incentive Award Plan, incorporated by reference to  Exhibit 10.3 to Pre-Effective Amendment No. 4 to the Company’s  Registration Statement on Form S-11, Commission File No. 333-140887                                                                                                                                                                   |
| 10.5                      |       | Form of  License Agreement, incorporated by reference to Exhibit 10.4 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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