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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

Commission File Number: 000-53650

Behringer Harvard Opportunity REIT II, Inc.(Exact Name of Registrant as Specified in Its Charter)

Maryland(State or other jurisdiction of
incorporation or organization)

20-8198863(I.R.S. Employer Identification No.)


15601 Dallas Parkway, Suite 600, Addison, Texas 75001(Address of principal executive offices) (Zip Code)

Registrant's
telephone number, including area code:(866) 655-3600

None(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


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

As of October 29, 2010, Behringer Harvard Opportunity REIT II, Inc. had 21,478,432 shares of common stock outstanding.



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BEHRINGER HARVARD OPPORTUNITY REIT II, INC.  FORM 10-Q  Quarter Ended September 30, 2010



PART I
FINANCIAL INFORMATIONPageItem 1.

Financial Statements (Unaudited).Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009

3Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Three and
Nine Months Ended September 30, 2010 and 2009

4Consolidated Statements of Equity for the Nine Months Ended September 30, 2010 and
2009

5Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and
2009

6Notes to Consolidated Financial Statements

7Item 2.

Management's Discussion and Analysis of Financial Condition
and Results of Operations

35Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

53Item 4.

Controls and Procedures

54PART II
OTHER INFORMATIONItem 1.

Legal Proceedings

55Item 1A.

Risk Factors

55Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

55Item 3.

Defaults Upon Senior Securities

57Item 4.

(Removed and Reserved)

57Item 5.

Other Information

57Item 6.

Exhibits

57Signature

58


2

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PART I
FINANCIAL INFORMATION



Item 1.    Financial Statements.



Behringer Harvard Opportunity REIT II, Inc.        Consolidated Balance Sheets        (in thousands, except shares)        (unaudited)

September 30,
2010

December 31,
2009AssetsReal estateLand and improvements, net

$
34,430

$
9,000Buildings, net


91,141


25,314Total real estate


125,571


34,314Real estate loans receivable, net


25,211


39,712Total real estate and real estate-related investments, net


150,782


74,026Cash and cash equivalents


92,173


67,509Restricted cash


1,657


Accounts receivable, net


708


344Interest receivablereal estate loans receivable


1,645


398Prepaid expenses and other assets


2,176


564Investment in unconsolidated joint venture


4,485


506Furniture, fixtures and equipment, net


1,770


Acquisition deposits


2,222


Lease intangibles, net


4,602


1,590Total assets

$
262,220

$
144,937Liabilities and EquityNotes payable

$
79,039

$
18,500Accounts payable


366


11Payables to related parties


1,178


582Acquired below-market leases, net


999


1,134Distributions payable


860


607Accrued and other liabilities


3,653


1,504Total liabilities


86,095


22,338Commitments and contingenciesEquityPreferred 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, 21,115,043 and 14,648,698 shares issued and outstanding at September 30, 2010
and December 31, 2009, respectively


2


1Additional paid-in capital


184,078


126,815Accumulated distributions and net loss


(12,685
)

(6,839
)Accumulated other comprehensive income


373


Total Behringer Harvard Opportunity REIT II, Inc. Equity


171,768


119,977Noncontrolling interest


4,357


2,622Total equity


176,125


122,599Total liabilities and equity

$
262,220

$
144,937


See Notes to Consolidated Financial Statements.

3

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Behringer Harvard Opportunity REIT II, Inc.        Consolidated Statements of Operations and Other Comprehensive Income        (in thousands, except per share
amounts)        (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,2010

2009

2010

2009RevenuesRental revenue

$
3,007

$
1,313

$
6,204

$
4,087Interest income from real estate loans receivable


1,169


302


3,753


302Total revenues


4,176


1,615


9,957


4,389Expenses:Property operating expenses


1,097


310


2,016


931Interest expense


702


329


1,399


980Real estate taxes


303


139


663


419Property management fees


86


42


196


132Asset management fees


292


103


683


275General and administrative


706


530


1,562


1,190Acquisition expense


3,135





4,581


Depreciation and amortization


1,577


596


3,235


1,860Total expenses


7,898


2,049


14,335


5,787Interest income, net


180


149


437


374Gain on sale of investment


152





152


Bargain purchase gain








5,492


Other income (expense)


5





(133
)

Income (loss) before equity in losses ofunconsolidated joint venture


(3,385
)

(285
)

1,570


(1,024
)Equity in losses of unconsolidated joint venture


(144
)




(151
)

Net income (loss)


(3,529
)

(285
)

1,419


(1,024
)Net (income) loss attributable to the noncontrolling interest


231





(388
)

Net income (loss) attributable to common shareholders

$
(3,298
)
$
(285
)
$
1,031

$
(1,024
)Weighted average shares outstanding:Basic and diluted


20,509


11,389


18,369


9,616Net income (loss) per share attributable to common shareholdersBasic and diluted

$
(0.16
)
$
(0.03
)
$
0.06

$
(0.11
)Comprehensive income (loss):Net income (loss)

$
(3,529
)
$
(285
)
$
1,419

$
(1,024
)Other comprehensive loss:Foreign currency translation gain


373





373


Total other comprehensive income


373





373


Comprehensive income (loss) attributable to common shareholders

$
(3,156
)
$
(285
)
$
1,792

$
(1,024
)


See Notes to Consolidated Financial Statements.

4

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Behringer Harvard Opportunity REIT II, Inc.        Consolidated Statements of Equity        (in thousands)        (unaudited)

Convertible Stock

Common StockAccumulated
Other
Comprehensive
Income (Loss)Number
of Shares

Par
Value

Number
of Shares

Par
Value

Additional
Paid-in
Capital

Accumulated
Distributions and
Net Income/(Loss)

Noncontrolling
Interest

Total
EquityBalance at January 1, 2009


1

$



7,323

$
1

$
59,987

$
(1,166
)
$


$


$
58,822Issuance of common stock, net








5,036





43,600











43,600Redemption of common stock








(42
)




(380
)










(380
)Distributions declared on common stock

















(2,904
)







(2,904
)Net loss

















(1,024
)







(1,024
)Balance at September 30, 2009


1

$



12,317

$
1

$
103,207

$
(5,094
)
$


$


$
98,114Balance at January 1, 2010


1

$



14,649

$
1

$
126,815

$
(6,839
)
$


$
2,622

$
122,599Issuance of common stock, net








6,596


1


58,452











58,453Redemption of common stock








(130
)




(1,189
)










(1,189
)Distributions declared on common stock

















(6,877
)







(6,877
)Contributions from noncontrolling interest























3,404


3,404Distributions to noncontrolling interest























(2,057
)

(2,057
)Other comprehensive income:Foreign currency translation gain




















373





373Net income

















1,031





388


1,419Balance at September 30, 2010


1

$



21,115

$
2

$
184,078

$
(12,685
)
$
373

$
4,357

$
176,125


See Notes to Consolidated Financial Statements.

5

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Behringer Harvard Opportunity REIT II, Inc.        Consolidated Statements of Cash Flows        (in thousands)        (unaudited)

Nine Months ended
September 30,2010

2009Cash flows from operating activities:Net income (loss)

$
1,419

$
(1,024
)Adjustments to reconcile net income (loss) to net cashflows used in operating activities:Depreciation and amortization


2,536


981Amortization of deferred financing fees


143


100Equity in losses of unconsolidated joint venture


151


Bargain purchase gain


(5,492
)

Gain on sale of interest in unconsolidated joint venture


(152
)

Change in accounts receivable


(285
)

(138
)Change in interest receivablereal estate loan receivable


(1,246
)

(300
)Change in prepaid expenses and other assets


(9
)

(118
)Change in accounts payable


338


21Change in accrued and other liabilities


789


283Change in net payables to related parties


182


(348
)Addition of lease intangibles


(267
)

(158
)Cash used in operating activities


(1,893
)

(701
)Cash flows from investing activities:Acquisition deposits


(2,222
)

(23,696
)Purchases of real estate


(64,186
)

Investment in unconsolidated joint venture


(4,630
)

Proceeds from sale of interest in unconsolidated joint venture


616


Investment in real estate loans receivable


(12,594
)

(12,629
)Additions of property and equipment


(893
)

(371
)Change in restricted cash


(583
)

Cash used in investing activities


(84,492
)

(36,696
)Cash flows from financing activities:Financing costs


(1,401
)

Proceeds from notes payable


59,479


Issuance of common stock


61,031


48,280Redemptions of common stock


(624
)

(224
)Offering costs


(6,785
)

(5,264
)Distributions


(2,002
)

(674
)Contributions from noncontrolling interest holders


3,404


Distributions to noncontrolling interest holders


(2,057
)

Cash provided by financing activities


111,045


42,118Effect of exchange rate changes on cash and cash equivalents


4


Net change in cash and cash equivalents


24,664


4,721Cash and cash equivalents at beginning of period


67,509


47,375Cash and cash equivalents at end of period

$
92,173

$
52,096


See
Notes to Consolidated Financial Statements.

6

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Behringer Harvard Opportunity REIT II, Inc.        Notes to Consolidated Financial Statements        (Unaudited)

1. Business and Organization



Behringer Harvard Opportunity REIT II, Inc. (which may be referred to as the "Company," "we," "us," or "our") was
organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust ("REIT") for federal income tax purposes.

We
acquire and operate commercial real estate and real estate-related assets. In particular, we focus generally on acquiring commercial properties with significant possibilities for
short-term capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those
available from sellers who are
distressed or face time-sensitive deadlines. In addition, given economic conditions as of September 30, 2010, our opportunistic investment strategy also includes investments in real
estate-related assets that present opportunities for higher current income. Such investments may have capital gain characteristics, whether as a result of a discount purchase or related equity
participations. We may acquire a wide variety of commercial properties, including office, industrial, retail, hospitality, recreation and leisure, single-tenant, multifamily, and other real
properties. These properties may be existing, income-producing properties, newly constructed properties, or properties under development or construction and may include multifamily properties
purchased for conversion into condominiums and single-tenant properties that may be converted for multi-tenant use. Further, we may invest in real estate-related securities, including securities
issued by other real estate companies, either for investment or in change of control transactions completed on a negotiated basis or otherwise. We also may originate 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 make investments similar to the foregoing. We expect to make our investments in or in respect of real estate assets located in the United States and other countries based on our view of
existing market conditions. We completed our first property acquisition, an office building located in Denver, Colorado, on October 28, 2008, and, as of September 30, 2010, we had
invested in eight real estate and real estate-related assets, including two investments in unconsolidated joint ventures, one of which, our 9.99% interest in Stone Creek, we sold on August 30,
2010 to an unrelated third party.

Substantially
all of our business is conducted through Behringer Harvard Opportunity OP II LP, a limited partnership organized in Delaware on January 12, 2007
("Behringer Harvard Opportunity OP II"). As of September 30, 2010, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, was the sole general partner of
Behringer Harvard Opportunity OP II and owned a 0.1% partnership interest in Behringer Harvard Opportunity OP II. As of September 30, 2010, our wholly-owned subsidiary, BHO
Business Trust II, a Maryland business trust, was the sole limited partner of Behringer Harvard Opportunity OP II and owned the remaining 99.9% interest in Behringer Harvard Opportunity
OP II.

We
are externally managed and advised by Behringer Harvard Opportunity Advisors II, LLC, a Texas limited liability company that was formed on March 16, 2010
("Behringer Opportunity Advisors II") when Behringer Harvard Opportunity Advisors II LP, a Texas limited partnership formed in January 2007, was converted to a limited liability
company. Behringer Opportunity Advisors II is responsible for managing our day-to-day affairs and for identifying and making acquisitions and investments on our behalf.

7

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

1. Business and Organization (Continued)

Our
office is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, and our toll-free telephone number is (866) 655-3600. The name
Behringer Harvard is the property of Behringer Harvard Holdings, LLC ("Behringer Harvard Holdings") and is used by permission.



On February 26, 2007, we filed a Registration Statement on Form S-11 with the Securities and Exchange
Commission ("SEC") to offer up to 125,000,000 shares of common stock for sale to the public (the "Offering"), of which 25,000,000 shares are being offered pursuant to our distribution reinvestment
plan (the "DRP"). We reserve the right to reallocate the shares we are offering between our primary offering and the DRP. The SEC declared our Registration Statement effective on January 4,
2008, and we commenced our ongoing initial public offering on January 21, 2008.

In
connection with our initial capitalization, on January 19, 2007, we issued 22,471 shares of our common stock and 1,000 shares of our convertible stock to Behringer Harvard
Holdings, an affiliate of our advisor. On April 2, 2010, Behringer Harvard Holdings transferred ownership of its convertible stock to Behringer Opportunity Advisors II. As of
September 30, 2010, we had 21,115,043 shares of common stock outstanding, which includes the 22,471 shares issued to Behringer Harvard Holdings. As of September 30, 2010, we had 1,000
shares of convertible stock issued and outstanding to Behringer Opportunity Advisors II.

We
commenced operations on April 1, 2008 upon satisfaction of the conditions of our escrow agreement and our acceptance of initial subscriptions of common stock. Upon admission of
new stockholders, subscription proceeds are used for payment of dealer manager fees and selling commissions and may be utilized as consideration for investments and the payment or reimbursement of
offering expenses and operating expenses. Until required for such purposes, net offering proceeds are held in short-term, liquid investments. Through September 30, 2010, we had sold
21,306,762 shares in the Offering, including the DRP, for gross proceeds of $212.3 million.

On
September 13, 2010, we filed a registration statement on Form S-11 with the SEC to register a follow-on public offering. Pursuant to the
registration statement, we propose to register 50,000,000 shares of our common stock at a price of $10.00 per share in our primary offering, with discounts available to investors who purchase more
than 50,000 shares and to other categories of purchasers. We will also register 25,000,000 shares of common stock pursuant to our distribution reinvestment plan at $9.50 per share. The
follow-on public offering has not yet been declared effective.

Our
common stock is not currently listed on a national securities exchange. Depending upon then prevailing market conditions, it is our intention to consider beginning the process of
liquidating our assets and distributing the net proceeds to our stockholders within three to six years after the termination of our current primary offering. If we do not begin an orderly liquidation
within that period, we may seek to have our shares listed on a national securities exchange.

2. Interim Unaudited Financial Information

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 30, 2010. Certain

8

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

2. Interim Unaudited Financial Information (Continued)

information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been
condensed or omitted from this quarterly report pursuant to the rules and regulations of the SEC.

The
results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying consolidated balance sheet and consolidated
statement of equity as of September 30, 2010, the consolidated statements of operations and other comprehensive income for the three and nine months ended September 30, 2010 and 2009,
and the consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009 have not been audited by our independent registered public accounting firm. In the opinion of
management, the accompanying unaudited consolidated financial statements include all adjustments necessary to fairly present our consolidated financial position as of September 30, 2010 and
December 31, 2009 and our consolidated results of operations and cash flows for the periods ended September 30, 2010 and 2009. Such adjustments are of a normal recurring nature.

3. Summary of Significant Accounting Policies



The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include such items as purchase price allocation for real estate acquisitions, impairment of long-lived assets, depreciation and amortization, and
allowance for doubtful accounts. Actual results could differ from those estimates.



Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All
inter-company transactions, balances, and profits have been eliminated in consolidation. Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to
consolidate entities deemed to be variable interest entities ("VIE") in which we are the primary beneficiary. If the interest in the entity is determined not to be a VIE, then the entities will be
evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement. In the
Notes to Consolidated Financial Statements, all dollar and share amounts in tabulation are in thousands of dollars and shares, respectively, unless otherwise noted.

There
are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary. The entity is
evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves
assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of
those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an

9

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)

entity
that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.

We
have evaluated subsequent events for recognition or disclosure in our consolidated financial statements.



Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling
interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed
may consist of buildings, any assumed debt, identified intangible assets and asset retirement obligations. Identified intangible assets generally consist of the above-market and below-market leases,
in-place leases, in-place tenant improvements and tenant relationships. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the
consideration transferred and any noncontrolling interests in the acquiree over the fair value of identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings
when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related
costs are expensed in the period incurred.

Initial
valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition date.

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

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

We
determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks
associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management's estimate of current
market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or
(b) the remaining non-cancelable lease term plus any fixed rate renewal option for below-market leases. We record the fair value of above-market and below-market leases as
intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.

10

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)

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

We
amortize the value of in-place leases to expense over the term of the respective leases. The value of tenant relationship intangibles is amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate
its lease, the unamortized portion of the in-place lease value and tenant relationship intangibles is
charged to expense. As of September 30, 2010, the estimated remaining useful life for acquired lease intangibles was approximately 4.5 years.

Anticipated
amortization expense associated with the acquired lease intangibles as of September 30, 2010 is as follows:

Year

Lease
IntangiblesOctober 1, 2010 - December 31, 2010

$
1,4362011


1,3842012


2262013


1412014


81


Accumulated
depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows:

As of September 30, 2010

Buildings and
Improvements

Land and
Improvements

Lease
Intangibles

Acquired
Below-Market
LeasesCost

$
93,728

$
34,442

$
7,381

$
(2,621
)Less: depreciation and amortization


(2,587
)

(12
)

(2,779
)

1,622Net

$
91,141

$
34,430

$
4,602

$
(999
)


11

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)



As of December 31, 2009

Buildings and
Improvements

Land and
Improvements

Lease
Intangibles

Acquired
Below-Market
LeasesCost

$
26,548

$
9,000

$
2,787

$
(2,143
)Less: depreciation and amortization


(1,234
)




(1,197
)

1,009Net

$
25,314

$
9,000

$
1,590

$
(1,134
)




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



As required by our lenders, restricted cash is held in escrow accounts for real estate taxes and other reserves for our consolidated
properties.



For real estate we consolidate, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate
assets may not be recoverable. When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be
generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. In the event that the carrying amount exceeds the estimated future undiscounted operating
cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value. We consider projected future undiscounted cash flows, trends, strategic decisions
regarding future development plans, and other factors in our assessment of whether impairment conditions exist. While we believe our estimates of future cash flows are reasonable, different
assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

We
also evaluate our investments in real estate loans receivable each reporting date. If it is probable we will not collect all principal and interest in accordance with the terms of the
loan, we will record an impairment charge based on these evaluations. While we believe it is currently probable we will collect all scheduled principal and interest with respect to our real estate
loan receivable, current market conditions with respect to credit availability and with respect to real estate market fundamentals create a significant amount of uncertainty. Given this, any future
adverse development in market conditions may cause us to re-evaluate our conclusions, and could result in material impairment charges with respect to the real estate loan receivable.

In
evaluating our investments for impairment, management may use appraisals and makes estimates and assumptions, including, but not limited to, the projected date of disposition of the
properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could
result

12

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)

in
understating or overstating the book value of our investments, which could be material to our financial statements.

We
believe the carrying value of our operating real estate and loan investment is currently recoverable. Accordingly, there were no impairment charges for the three and nine months ended
September 30, 2010 or 2009. However, if market conditions worsen beyond our current expectations, or if changes in our strategy significantly affect any key assumptions used in our fair value
calculations, we may need to take charges in future periods for impairments related to our existing investments. Any such non-cash charges would have an adverse effect on our consolidated
financial position and results of operations.



We recognize rental income generated from leases on real estate assets on a straight-line basis over the terms of the
respective leases, including the effect of rent holidays, if any. Straight-line rental revenue of $0.1 million was recognized in rental revenues for both the three and nine months
ended September 30, 2010. Straight-line rental revenue of less than $0.1 million was recognized in rental revenues for both the three and nine months ended
September 30, 2009. Below market lease amortization of $0.2 million and $0.7 million was recognized in rental revenues for the three and nine months ended September 30,
2010, respectively. Below market lease amortization of $0.3 million and $0.9 million was recognized in rental revenues for the three and nine months ended September 30, 2009,
respectively.

We
recognize interest income from real estate loans receivable on an accrual basis over the life of the loan using the interest method. Direct loan origination fees and origination or
acquisition costs, as well as acquisition premiums or discounts, are amortized over the life of the loan as an adjustment to interest income. We will stop accruing interest on loans when there is
concern as to the ultimate collection of principal or interest of the loan. In the event that we stop accruing interest on a loan, we will generally not recognize subsequent interest income until cash
is received or we make the decision to restart interest accrual on the loan.



Accounts receivable primarily consist of straight-line rental revenue receivables of $0.3 million and receivables
from our tenants related to our consolidated properties of $0.4 million as of September 30, 2010. As of December 31, 2009, accounts receivable primarily consist of
straight-line rental revenue receivables of $0.2 million and receivables from our tenants of $0.1 million related to 1875 Lawrence.



Prepaid expenses and other assets include prepaid directors and officers' insurance, as well as prepaid insurance of our consolidated
properties, and cash deposits in escrow related to acquisitions pending their consummation.

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)



Furniture, fixtures, and equipment are recorded at cost and are depreciated using the straight-line method over their
estimated useful lives of five to seven years. Maintenance and repairs are charged to operations as incurred while renewals or improvements to such assets are capitalized. Accumulated depreciation
associated with our furniture, fixtures, and equipment was $0.1 million as of September 30, 2010. We did not have any furniture, fixtures, and equipment as of December 31, 2009.



Deferred financing fees are recorded at cost and are amortized to interest expense of our notes payable using a
straight-line method that approximates the effective interest method over the life of the related debt. Accumulated amortization of deferred financing fees was $0.3 million and
$0.1 million as of September 30, 2010 and December 31, 2009, respectively.



We reimburse our advisor or its affiliates for any organization and offering expenses incurred on our behalf in connection with the
primary offering (other than selling commissions and the dealer manager fee) up to 1.5% of the gross proceeds raised in the completed primary offering. Before October 2, 2009 we did not
reimburse expenses that caused our total organization and offering expenses (other than selling commissions and the dealer manager fee) related to our primary offering to exceed 1.5% of gross offering
proceeds from the primary offering as of the date of reimbursement. At each balance sheet date, we estimated the total gross public offering proceeds expected to be received under the Offering and
recognized the amount of organization and offering reimbursement. We recorded the amount of reimbursement at the lower of (a) 1.5% of the estimated gross public offering proceeds, or
(b) the actual organization and offering costs incurred by our advisor or its affiliates. Effective October 2, 2009, we changed the timing in determining the limit on the amount of the
reimbursement of organization and offering expenses (other than selling commissions and the dealer manager fee). We have reimbursed our advisor for organization and offering expenses that it incurred
on our behalf (other than selling commissions and the dealer manager fee) of $6.7 million. Included in payables to affiliates on our consolidated balance sheet as of September 30, 2010
is $0.8 million of organization and offering expense reimbursement payable. In October 2010, we reimbursed the $0.8 million to our advisor. Accordingly, we will not reimburse any
additional organization and offering expenses until the completion of the primary offering. Upon completion of the primary offering, we will determine whether we can reimburse our advisor for any
additional organization and offering expenses (other than selling commissions and the dealer manager fee) incurred up to 1.5% of the gross proceeds from the completed primary. Our advisor will be
required to reimburse us to the extent we have paid more organization and offering expenses than permitted under the cap. Until $7.5 million of organization and offering expenses were
reimbursed, we recorded the actual organization and offering costs incurred by our advisor or its affiliates and reimbursed by us. See Note 12.

Organization
and offering expenses are defined generally as any and all costs and expenses incurred by us in connection with our formation, preparing for the Offering, the qualification
and registration of the Offering, and the marketing and distribution of our shares. Organization and

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)

offering
expenses include, but are not limited to, accounting and legal fees, costs to amend the registration statement and supplement the prospectus, printing, mailing and distribution costs, filing
fees, amounts to reimburse our advisor or its affiliates for the salaries of employees, and other costs in connection with preparing supplemental sales literature, telecommunication costs, fees of the
transfer agent, registrars, trustees, escrow holders, depositories and experts, and fees and costs for employees of our advisor or its affiliates to attend industry conferences.

All
offering costs are recorded as an offset to additional paid-in capital, and all organization costs are recorded as an expense at the time we become liable for the payment
of these amounts.



We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), and have qualified as a REIT since the year ended December 31, 2008. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement
that we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax at the corporate level. We are organized and operate
in such a manner as to qualify for taxation as a REIT under the Code and intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify
or remain qualified as a REIT.

We
have reviewed our tax positions under GAAP guidance that clarifies the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance
prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be
recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that the tax positions taken
relative to our status as a REIT will be sustained in any tax examination.



For our international investment where the functional currency is other than the US dollar, assets and liabilities are translated using
period-end exchange rates, while the statement of operations amounts are translated using the average exchange rates for the respective period. Differences arising from the translation of
assets and liabilities in comparison with the translation of the previous periods or from initial recognition during the period are included as a separate component of accumulated other comprehensive
income (loss).

The
Euro is the functional currency for the operations of Holstenplatz. We also maintain a Euro-denominated bank account that is translated into U.S. dollars at the current
exchange rate at each reporting period. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in our consolidated statement of
equity. As of September 30, 2010, the cumulative foreign currency translation adjustment was a gain of $0.4 million. There was no cumulative foreign currency translation adjustment for
the three and nine months ended September 30, 2009 as we acquired Holstenplatz on June 30, 2010.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

3. Summary of Significant Accounting Policies (Continued)



Accumulated other comprehensive income (loss) ("AOCI"), which is reported in the accompanying consolidated statement of equity,
consists of gains and losses affecting equity that are excluded from net income (loss) under GAAP. The components of AOCI consist of cumulative foreign currency translation gains and losses.



We have adopted a stock-based incentive award plan for our directors and consultants and for employees, directors and consultants of
our affiliates. We have not issued any stock-based awards under the plan as of September 30, 2010.



At September 30, 2010 and December 31, 2009, we had cash and cash equivalents deposited in certain financial institutions
in excess of federally insured levels. We have diversified our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. We
regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.



Noncontrolling interest represents the noncontrolling ownership interest's proportionate share of the equity in our consolidated real
estate investments including the 10% unaffiliated partner's share of the equity in Palms of Monterrey, the 20% unaffiliated partner's share of the equity in Archibald Business Center, and the 10%
unaffiliated partner's share of the equity in Parrot's Landing. Income and losses are allocated to noncontrolling interest holders based on their ownership percentage.



Net income (loss) per share is calculated based on the weighted average number of common shares outstanding during each period. The
weighted average shares outstanding used to calculate both basic and diluted income (loss) per share were the same for the three and nine months ended September 30, 2010 and 2009 as there were
no stock-based awards outstanding.

4. New Accounting Pronouncements

In January 2010, the FASB updated the disclosure requirements for fair value measurements. The updated guidance requires companies to disclose separately the investments that transfer in
and out of Levels 1 and 2 and the reasons for those transfers. Additionally, in the reconciliation for fair value measurements using significant observable inputs (Level 3), companies
should present separately information about purchases, sales, issuances and settlements. We adopted the guidance on January 1, 2010, except for the disclosures about purchases, sales, issuances
and settlements in the Level 3 reconciliation, which are effective for fiscal years beginning after December 15, 2010. We will adopt the remaining guidance on January 1, 2011. The
adoption of the required guidance did not have a material

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

4. New Accounting Pronouncements (Continued)

impact
on our financial statements or disclosures. We do not expect that the adoption of the remaining guidance will have an impact on our financial statements or disclosures.

In
July 2010, the FASB updated accounting guidance related to receivables which requires additional disclosures about the credit quality of the company's financing receivables and
allowances for credit losses. These disclosures will provide financial statement users with additional information about the nature of credit risks inherent in our financing receivables, how we
analyze and assess credit risk in determining our allowance for credit losses, and the reasons for any changes we may make in our allowance for credit losses. This update is generally effective for
interim and annual reporting periods ending on or after December 15, 2010; however, certain aspects of the update pertaining to activity that occurs during a reporting period are effective for
interim and annual reporting periods beginning on or after December 15, 2010. We expect the adoption of this update will primarily result in increased notes receivable disclosures, but will not
have any other impact on our financial statements.

5. Fair Value Disclosure of Financial Instruments

We determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to
interpret market data and develop the related estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value
amounts.

As
of September 30, 2010 and December 31, 2009, management estimated that the carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepaid
expenses and other assets, accounts payable, accrued expenses, other liabilities, payables/receivables from related parties, and distributions payable were at amounts that reasonably approximated
their fair value based on their highly-liquid nature and/or short-term maturities and the carrying value of real estate loans receivable reasonably approximated fair value based on
expected interest rates for notes to similar borrowers with similar terms and remaining maturities.

The
notes payable totaling $79 million and $18.5 million as of September 30, 2010 and December 31, 2009, respectively, have a fair value of approximately
$77.4 million and $18.5 million as of September 30, 2010 and December 31, 2009, respectively, based upon interest rates for debt with similar terms and remaining maturities
that management believes we could obtain.

6. Real Estate and Real Estate Investments

As of September 30, 2010, we consolidated six real estate assets. In addition, we have a noncontrolling, unconsolidated ownership interest in one real estate asset that we account
for using the

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

equity
method. The following table presents certain information about our consolidated investments as of September 30, 2010:

Property Name

Location

Approximate
Rentable
Square Footage

Description

Ownership
Interest1875 Lawrence

Denver, CO


185,000

15-story Office Building

100%PAL Loan

(1)


n/a

Hospitality/Redevelopment

LenderPalms of Monterrey

Fort Myers, FL



(2)
Multifamily

90%Holstenplatz

Hamburg, Germany


80,000

8-story Office Building

100%Archibald Business Center

Ontario, CA


231,000

Office and Industrial Warehouse

80%Parrot's Landing

North Lauderdale, FL



(3)
Multifamily

90%


---

Real Estate Asset Acquisitions



On May 10, 2010, we obtained a 90% fee simple interest in the Palms of Monterrey, a 408-unit multifamily complex
located in Fort Myers, Florida. Prior to May 10, 2010, we were the holder of a 90% interest in a promissory note that we acquired at a discount in October 2009. The promissory note was secured
by a first lien mortgage in the Palms of Monterrey property. The aggregate purchase price for the promissory note was $25.4 million and proceeds from our Offering were used to acquire the 90%
interest in the note. On January 20, 2010, we reached an agreement with the borrower that the borrower would not contest the foreclosure proceedings in exchange for $0.3 million. A final
judgment of foreclosure was entered on March 22, 2010 and the foreclosure sale for Palms of Monterrey was held on April 27, 2010. We were the only bidder in the sale and acquired the fee
simple interest in the property on May 10, 2010.

As
a result of obtaining a fee simple interest in Palms of Monterrey, the identifiable assets and liabilities assumed were measured at fair value, resulting in a bargain purchase gain of
$5.5 million which was recognized in the line item 'bargain purchase gain' in the consolidated statement of operations for the three and nine months ended September 30, 2010. In
determining fair value, we obtained an appraisal and utilized assumptions including estimated cash flows, discount rates, and capitalization rates.

Palms
of Monterrey contributed rental revenue of $1.6 million and a net loss of $1.1 million to our consolidated statements of operations for the period from May 10,
2010 to September 30, 2010. The

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

following
unaudited pro forma summary presents consolidated information as if the business combination had occurred on January 1, 2009:

Pro Forma for the
Nine Months Ended
September 30,2010

2009Revenue

$
10,339

$
7,495Net income (loss)

$
(3,892
)
$
3,636Net income (loss) per share

$
(0.21
)
$
0.38


The
pro forma amounts for the nine months ended September 30, 2010 have been calculated after applying our accounting policies and adjusting the results of Palms of Monterrey to
reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2009.
Included in the pro forma net income (loss) for the nine months ended September 30, 2010 and 2009 is depreciation and amortization expense of $0.9 million and $1.9 million,
respectively.

During
the nine months ended September 30, 2010, we incurred $0.1 million in acquisition expenses related to acquiring the fee simple interest in the Palms of Monterrey.
The following table summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date:

Palms of
MonterreyLand

$
5,800Land improvements


562Building


23,604Lease intangibles, net


1,028Acquired below-market leases, net


(16
)Furniture, fixtures and equipment


1,123Working capital


482Total identifiable net assets

$
32,583


We
are in the process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.



On June 30, 2010, we acquired a 100% interest in a multi-tenant office building known as Holstenplatz, located in Hamburg,
Germany ("Holstenplatz"). Holstenplatz is an eight-story office building containing approximately 80,000 rentable square feet. Total consideration transferred for Holstenplatz was $12.5 million
and consisted of cash of $2.8 million from the proceeds of our Offering, and proceeds of $9.7 million from a loan with a financial institution (see Note 8).

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

Holstenplatz contributed rental revenue of $0.3 million and a net loss of $0.8 million to our consolidated statements of operations for the period from June 30, 2010
through September 30, 2010. The following unaudited pro forma summary presents consolidated information as if the business combination had occurred on January 1, 2009:

Pro Forma for the
Nine Months Ended
September 30,2010

2009Revenue

$
10,638

$
5,416Net loss

$
2,346

$
(2,966
)Net loss per share

$
0.13

$
(0.31
)


These
pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Holstenplatz to reflect additional depreciation and amortization that
would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2009. Included in the pro forma net loss for both the nine
months ended September 30, 2010 and 2009 is depreciation and amortization expense of $0.6 million and interest expense of $0.6 million, respectively.

During
the nine months ended September 30, 2010, we incurred $1.3 million of acquisition expenses related to the Holstenplatz acquisition. The following table summarizes
the amounts of identified assets acquired and liabilities assumed at the acquisition date. In determining fair value, we obtained an appraisal and utilized assumptions including estimated cash flows,
discount rates, and capitalization rates.

HolstenplatzLand

$
2,703Building


8,858Lease intangibles, net


1,079Acquired below-market leases, net


(127
)Total identifiable net assets

$
12,513


We
are in the process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.



On August 27, 2010, we acquired an 80% interest in a corporate headquarters and industrial warehouse facility known as Archibald
Business Center located in Ontario, California ("Archibald Business Center"). Archibald Business Center is a corporate headquarters and industrial warehouse facility containing approximately 231,000
square feet situated on an 11-acre site. The total consideration transferred for Archibald Business Center was $9.5 million. The consideration paid for our interest was cash of
$7.6 million, exclusive of closing costs, which we funded from proceeds from our Offering. On

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

October 25,
2010, we entered into a loan agreement with a financial institution to borrow up to $7.9 million with an initial advance of $6.1 million funded at closing. See
Note 14.

Archibald
Business Center contributed rental revenue of $0.1 million and a net loss of $0.2 million to our consolidated statements of operations for the period from
August 27, 2010 through September 30, 2010. The following unaudited pro forma summary presents consolidated information as if the business combination had occurred on January 1,
2009:

Pro Forma for the
Nine Months Ended
September 30,2010

2009Revenue

$
10,681

$
5,216Net income (loss)

$
1,769

$
(1,763
)Net income (loss) per share

$
0.10

$
(0.18
)


These
pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Archibald Business Center to reflect additional depreciation and
amortization that would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2009. Included in the pro forma net income
(loss) for the nine months ended September 30, 2010 and 2009 is depreciation and amortization expense of $0.3 and $0.4 million, respectively.

During
the nine months ended September 30, 2010, we incurred $0.5 million of acquisition expenses related to the Archibald Business Center acquisition. The following table
summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date. In determining fair value, we obtained an appraisal and utilized assumptions including estimated
cash flows, discount rates, and capitalization rates.

Archibald
Business CenterLand

$
3,892Building


5,193Lease intangibles, net


525Acquired below-market leases, net


(104
)Total identifiable net assets

$
9,506


We
are in the process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.



On September 17, 2010, we acquired a 90% interest in a 560-unit multifamily community located in North Lauderdale,
Florida ("Parrot's Landing"). The total consideration transferred for Parrot's Landing was $42 million and consisted of $12.4 million cash and a new mortgage loan of
$29.6 million.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

The
consideration paid for our 90% interest was cash of $11.2 million, exclusive of closing costs, which we funded from proceeds from our Offering.

Parrot's
Landing contributed rental revenue of $0.2 million and a net loss of $1.2 million to our consolidated statements of operations for the period from
September 17, 2010 through September 30, 2010. The following unaudited pro forma summary presents consolidated information as if the business combination had occurred on
January 1, 2009:

Pro Forma for the
Nine Months Ended
September 30,2010

2009Revenue

$
14,737

$
9,408Net loss

$
3,793

$
(4,030
)Net loss per share

$
0.21

$
(0.42
)


These
pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Parrot's Landing to reflect additional depreciation and amortization that
would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2009. Included in the pro forma net loss for both the nine
months ended September 30, 2010 and 2009 is depreciation and amortization expense of $1 million and $2.5 million, respectively.

During
the nine months ended September 30, 2010, we incurred $2 million of acquisition expenses related to the Parrot's Landing acquisition. The following table summarizes
the amounts of identified assets acquired and liabilities assumed at the acquisition date. In determining fair value, we obtained an appraisal and utilized assumptions including estimated cash flows,
discount rates, and capitalization rates.

Parrot's LandingLand

$
11,064Land Improvements


1,110Building


27,645Furniture, fixtures and equipment


708Lease intangibles, net


1,498Acquired below-market leases, net


(25
)Total identifiable net assets

$
42,000


We
are in the process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.

Investments in Unconsolidated Joint Ventures

On August 10, 2010, through a joint venture with unaffiliated third parties, we acquired a 16% interest in a
two-building industrial warehouse complex located in San Bernardino, California ("El Cajon Distribution Center"). The consideration paid for our interest was $3.7 million, exclusive
of

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

closing
costs, and was funded from the proceeds of our Offering. The aggregate purchase price of the El Cajon Distribution Center, exclusive of closing costs, was $50.3 million and consisted of
cash of $23.3 million and a note payable to a financial institution of $27 million.

On
August 30, 2010, we sold our 9.99% interest in Stone Creek, which we had acquired on November 30, 2009. We recognized a gain on sale of the investment of
$0.2 million, which is recorded in our consolidated statements of operations for the three and nine months ended September 30, 2010. As of September 30, 2010, we no longer have
any continuing involvement in Stone Creek.

The
following table presents certain information about our unconsolidated investments as of September 30, 2010 and December 31, 2009.

Carrying Value of InvestmentProperty Name

Ownership Interest

September 30, 2010

December 31, 2009Stone Creek


9.99
%
$


$
506El Cajon Distribution Center


16.00
%

4,485


$
4,485

$
506


Our
investments in unconsolidated joint ventures as of September 30, 2010 consisted of our proportionate share of the combined assets and liabilities of El Cajon Distribution
Center while our investments in unconsolidated joint ventures as of December 31, 2009 consisted of our proportionate share of the combined assets and liabilities of Stone Creek as follows:

September 30, 2010

December 31, 2009Real estate assets, net

$
50,229

$
13,886Cash and cash equivalents


2,254


641Other assets


27


46Total assets

$
52,510

$
14,573Notes payable

$
27,076

$
12,917Other liabilities


514


151Total liabilities


27,590


13,068Equity


24,920


1,505Total liabilities and equity

$
52,510

$
14,573


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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

6. Real Estate and Real Estate Investments (Continued)

Our
equity in losses from these investments is our proportionate share of the combined loss of our unconsolidated joint ventures for the three and nine months ended September 30,
2010. We had no unconsolidated joint ventures for the three and nine months ended September 30, 2009.

Three Months Ended
September 30, 2010

Nine Months Ended
September 30, 2010Revenue

$
448

$
1,862Operating expenses:Operating expenses


306


652Property taxes


221


385Total operating expenses


527


1,037Operating income


(79
)

825Non-operating expenses:Depreciation and amortization


277


760Interest and other, net


609


1,107Total non-operating expenses


886


1,867Net loss

$
(965
)
$
(1,042
)Company's share of net loss

$
(144
)
$
(151
)


7. Variable Interest Entities

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics:
(a) the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and (b) the obligation to absorb losses of the VIE that could potentially be
significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Our
variable interest in VIEs may be in the form of (1) equity ownership and/or (2) loans provided by us to a VIE, or other partner. We examine specific criteria and use
judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial
condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE's executive committee, existence of unilateral
kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s), and contracts to purchase assets from VIEs.



On August 14, 2009, we entered into a loan agreement with an unaffiliated third party (borrower) to provide up to
$25 million of second lien financing for the privatization of, and improvements to, approximately 3,200 hotel lodging units on ten U.S. Army installations, the PAL Loan. As of
September 30, 2010, the full balance of $25 million available under the loan agreement had been advanced and was outstanding and is included in real estate loans receivable on the
consolidated balance sheet at September 30, 2010. Based on our evaluation, we have determined that the

24

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

7. Variable Interest Entities (Continued)

unaffiliated
third party entity meets the criteria of a variable interest entity but that we are not the primary beneficiary because we do not have the power to direct the activities that most
significantly affect the entity's economic performance. The power to direct these activities resides with the general partner of the unaffiliated third party. Accordingly, we do not consolidate the
unaffiliated third party entity.



In November 2009, we acquired a 9.99% limited partnership interest in a multifamily property, Stone Creek, in Killeen, Texas for
$0.5 million. Based on our evaluation, we determined that the entity met the criteria of a variable interest entity under GAAP but that we were not the primary beneficiary because we did not
have a significant obligation to absorb losses or significant right to receive benefits. These obligations and rights were held by the owner of the 90% interest. Accordingly, we did not consolidate
the Stone Creek entity and instead accounted for it under the equity method of accounting. On August 30, 2010, we sold our 9.99% interest in Stone Creek to an unrelated third party.
Accordingly, we no longer have any continuing involvement in Stone Creek.

At
September 30, 2010 and December 31, 2009, our recorded investment in VIEs that are unconsolidated and our maximum exposure to loss were as follows:

As of September 30, 2010

Investments in
Unconsolidated VIEs

Our Maximum
Exposure to LossPAL Loan(1)

$


$
25,000




As of December 31, 2009

Investments in
Unconsolidated VIEs

Our Maximum
Exposure to LossPAL Loan(1)

$


$
25,000Stone Creek


506


506$
506

$
25,506


(1)We
have no equity interest in the PAL Loan VIE. Our maximum exposure to loss consists of the $25 million loan commitment of second lien
financing.


25

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

8. Real Estate Loans Receivable

As of September 30, 2010, we had an investment in one real estate loan receivable, the PAL Loan. As of December 31, 2009, we had invested in two real estate loans
receivable, the PAL Loan and the Palms of Monterrey loan.

Loan Name

Date
Acquired

Property Type

Book Value as
of 9/30/2010

Book Value as
of 12/31/2009

Annual
Effective
Interest Rate

Maturity
DatePAL Loan


8/14/2009

Hospitality/Redevelopment

$
25,211

$
12,634


18
%

9/1/2016Palms of Monterrey


10/2/2009

Multifamily





27,078



(1)


(1)$
25,211

$
39,712


(1)We
acquired the loan in default with the intent to foreclose on the borrower and secure a fee simple interest in the underlying collateral. We
obtained the fee simple interest on May 10, 2010.


During
the nine months ended September 30, 2010, we earned $3.8 million in interest income from our real estate loans receivable, including $2.7 million related to
the PAL Loan. Until the foreclosure process was complete on the Palms of Monterrey, we recognized interest income on the defaulted note when cash was received. During the nine months ended
September 30, 2010, we received $1.1 million related to the Palms of Monterrey real estate loan receivable, which was recognized as interest income in the period received. A final
judgment of foreclosure was entered on March 22, 2010 and the foreclosure sale for Palms of Monterrey was held on April 27, 2010. We were the only bidder in the sale and we acquired a
fee simple interest in the property on May 10, 2010. See Note 6.

9. Notes Payable

The following table sets forth information on our notes payable as of September 30, 2010 and December 31, 2009.

Description

September 30,
2010

December 31,
2009

Interest Rate

Maturity
Date1875 Lawrence

$
18,996

$
18,500

30-day LIBOR + 2.5%(1)(2)


12/31/12Palms of Monterrey


19,700




30-day LIBOR + 3.35%(1)(3)


07/01/17Holstenplatz


10,765




3.887%


04/30/15Parrot's Landing


29,578




4.230%


10/01/17$
79,039

$
18,500


(1)30-day
LIBOR was 0.256% at September 30, 2010.(2)The
loan has a minimum interest rate of 6.25%.(3)The
loan has a maximum interest rate of 7%.


On
September 17, 2010, in connection with the acquisition of the Parrot's Landing property, we entered into a loan agreement with a financial institution to borrow up to
$29.6 million. The loan is

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

9. Notes Payable (Continued)

secured
by a first mortgage lien on the assets of Parrot's Landing, including the land, fixtures, improvements, contracts, leases, rents, and reserves. The loan is non-recourse to us. The
loan bears interest at a fixed annual rate of 4.23% and requires monthly principal and interest payments, with any unpaid principal and interest due on the maturity date, October 1, 2017. The
Parrot's Landing Joint Venture has the right to prepay the entire outstanding amount of the loan provided that if prepayment is made prior to July 1, 2017, a prepayment premium is required.

We
have unconditionally guaranteed payment of the note payable related to 1875 Lawrence for an amount not to exceed the lesser of (i) $11.75 million and (ii) 50% of
the total amount advanced under the loan agreement if the aggregate amount advanced is less than $23.5 million. Under the loan
agreement related to 1875 Lawrence, we are able to draw up to the $23.5 million maximum available to fund capital improvements, tenant improvements, and leasing costs.

We
are subject to customary affirmative, negative, and financial covenants, representations, warranties and borrowing conditions, all as set forth in the loan agreements.

The
following table summarizes our contractual obligations for principal payments as of September 30, 2010:

Year

Amount DueOctober 1, 2010 - December 31, 2010

$
1352011


1,0122012


19,5692013


1,1172014


1,154Thereafter


56,052$
79,039


10. Leasing Activity

Future minimum base rental payments due to us under non-cancelable leases in effect as of September 30, 2010 for our consolidated properties are as follows:

Year

Minimum
Rental
PaymentsOctober 1, 2010 - December 31, 2010

$
1,1092011


3,5162012


2,5542013


1,6782014


1,028Thereafter


2,131Total

$
12,016


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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

10. Leasing Activity (Continued)

The
schedule above does not include rental payments due to us from our multifamily properties as leases associated with these properties typically include cancellation rights. As of
September 30, 2010, none of our tenants accounted for 10% or more of our aggregate annual rental revenues from our consolidated properties.

11. Distributions

We initiated the payment of monthly distributions in April 2008 in an amount equal to a 3% annualized rate of return, based on an investment in our common stock of $10.00 per share and
calculated on a daily record basis of $0.0008219 per share. The annualized rate of return was raised to 5% effective June 1, 2009, calculated on a daily record basis of $0.0013699 per share. A
portion of each distribution is expected to constitute a return of capital for tax purposes. Pursuant to the DRP, stockholders may elect to reinvest any cash distribution in additional shares of
common stock. We record all distributions when declared, except that the stock issued through the DRP is recorded when the shares are actually issued. Distributions declared and payable as of
September 30, 2010 were $0.9 million, which included $0.6 million of cash distributions payable. Distributions declared and payable as of December 31, 2009 were
$0.6 million, which included $0.2 million of cash distributions payable.

The
following are the distributions declared for the first, second, and third quarters of 2010 and 2009:

2010

Cash

DRP

Total

Per Share3rd Quarter

$
1,133

$
1,454

$
2,587

$
0.1262nd Quarter


716


1,607


2,323


0.1251st Quarter


571


1,396


1,967


0.123$
2,420

$
4,457

$
6,877

$
0.374




2009

Cash

DRP

Total

Per Share3rd Quarter

$
392

$
1,045

$
1,437

$
0.1262nd Quarter


227


654


881


0.0911st Quarter


147


439


586


0.074$
766

$
2,138

$
2,904

$
0.291


On
September 29, 2010, the Company's board of directors declared distributions payable to stockholders of record each day during the months of October, November, and December
2010. Distributions payable to each stockholder of record will be paid on or before the 16th day of the following month.

12. Related Party Transactions

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

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

12. Related Party Transactions (Continued)

Behringer
Securities LP ("Behringer Securities"), the dealer-manager and an affiliate of our advisor, receives commissions of up to 7% of gross offering proceeds. Behringer
Securities reallows 100% of selling commissions earned to participating broker-dealers. In addition, we pay Behringer Securities a 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 an aggregate amount up to 2% of gross offering proceeds to broker-dealers participating in
the Offering; provided, however, that Behringer Securities may reallow, in the aggregate, no more than 1.5% of gross offering proceeds for marketing fees and expenses, conference fees and
non-itemized, non-invoiced due diligence efforts and no more than 0.5% of gross offering proceeds for out-of-pocket and bona fide, separately invoiced
due diligence expenses incurred as fees, costs or other expenses from third parties. Further, in special cases pursuant to separately negotiated agreements and subject to applicable limitations
imposed by the Financial Industry Regulatory Authority, Behringer Securities may use a portion of its dealer manager fee to reimburse certain broker-dealers participating in the Offering for
technology costs and expenses associated with the Offering and costs and expenses associated with the facilitation of the marketing and ownership of our shares by such broker-dealers' customers. No
selling commissions or dealer manager fee will be paid for sales under the DRP. For the nine months ended September 30, 2010, Behringer Securities earned selling commissions and dealer manager
fees of $4.2 million and $1.5 million, respectively, which were recorded as a reduction to additional paid-in capital. For the nine months ended September 30, 2009,
Behringer Securities earned selling commissions and dealer manager fees of $3.3 million and $1.2 million, respectively, which were recorded as a reduction to additional
paid-in capital.

We
reimburse Behringer Opportunity Advisors II or its affiliates for any organization and offering expenses incurred on our behalf in connection with our primary offering (other than
selling commissions and the dealer manager fee). On October 2, 2009, we entered into an Amended and Restated Advisory Management Agreement with Behringer Opportunity Advisors II. The Amended
and Restated Advisory Management Agreement changes the timing in determining the reimbursement of organization and offering expenses by us during the offering and waives the reimbursement of
$3.5 million of organization and offering expenses (other than selling commissions and the dealer manager fee) the advisor incurred on our behalf through December 31, 2008. We wrote off
the $3.5 million of organization and offering expenses in the fourth quarter of 2009 which reduced the outstanding balance payable to affiliates, and increased our additional
paid-in capital. Pursuant to the Amended and Restated Advisory Management Agreement we reimbursed our advisor for organization and offering expenses (other than selling commissions and the
dealer manager fee) incurred on our behalf until an aggregate of $7.5 million of such organization and offering expenses have been reimbursed to our advisor. Thereafter, we will not reimburse
any additional organization and offering expenses until the completion of our primary offering. Upon completion of our primary offering, we will reimburse our advisor for any additional organization
and offering expenses (other than selling commissions and the dealer manager fee) incurred up to 1.5% of the gross proceeds from the completed primary offering; provided however, we will not be
required to reimburse our advisor any additional amounts and our advisor will be required to reimburse us to the extent that the total amount spent by us on organization and offering expenses (other
than selling commissions and the dealer manager fee) would exceed 1.5% of the gross proceeds from the completed primary offering. In connection with the Amended and Restated Advisory Management
Agreement, we reimbursed

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Table of Contents

Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

12. Related Party Transactions (Continued)

$3.4 million
of organization and offering expenses to Behringer Opportunity Advisors II on October 20, 2009.

Since
our inception through September 30, 2010, approximately $12.3 million of organization and offering expenses had been incurred by Behringer Opportunity Advisors II or
its affiliates on our behalf. Of this amount, $3.5 million had been written off per the Amended and Restated Advisory Management Agreement (discussed above), and $6.7 million had been
reimbursed by us. Included in payables to affiliates on our consolidated balance sheet at September 30, 2010 is $0.8 million of organization and offering expense reimbursement payable.
Of the $0.8 million of organizational and offering expense reimbursable by us through September 30, 2010, none was expensed as organizational costs. In October 2010, we reimbursed the
$0.8 million to our advisor. The total we are required to remit to our advisor for organization and offering expenses pursuant to the Amended and Restated Advisory Management Agreement is
limited to 1.5% of the gross proceeds raised in the completed primary offering as determined upon completion of the offering. Behringer Opportunity Advisors II or its affiliates determines the amount
of organization and offering expenses owed based on specific invoice identification as well as an allocation of costs to us and other Behringer Harvard programs, based on respective equity offering
results of those entities in offering.

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

Our
advisor or its affiliates also receive an acquisition expense reimbursement in the amount of 0.25% of the funds paid for purchasing an asset, including any debt attributable to the
asset, plus 0.25% of the funds budgeted for development, construction, or improvement in the case of assets that we acquire and intend to develop, construct, or improve. Our advisor or its affiliates
will also receive an acquisition expense reimbursement in the amount of 0.25% of the funds advanced in respect of a loan or other investment. In addition, to the extent our advisor or its affiliates
directly provide services formerly provided or usually provided by third parties, including without limitation accounting services related to the preparation of audits required by the SEC, property
condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments in connection with a completed investment the
direct employee costs and burden to our advisor of providing these services will be acquisition expenses for which we will reimburse our advisor. We also pay third parties, or reimburse the advisor or
its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication
expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder's fees, title insurance, premium expenses, and other closing costs. In addition, acquisition expenses for
which we will reimburse our advisor, include any payments made to (i) a prospective seller of an asset, (ii) an agent of a prospective seller of an asset, or (iii) a party that
has the right to control the sale of an asset intended for investment by us that are not refundable and that are not ultimately applied against the purchase price for such asset. Except as described
above with respect to services customarily or previously provided by third parties, our advisor is responsible for paying all of the expenses it incurs associated with persons employed by the advisor
to the extent

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

12. Related Party Transactions (Continued)

dedicated
to making investments for us, such as wages and benefits of the investment personnel. Our advisor or its affiliates are also responsible for paying all of the investment-related expenses
that we or our advisor or its affiliates incur that are due to third parties or related to the additional services provided by our advisor as described above with respect to investments we do not make
other than certain non-refundable payments made in connection with any acquisition. For the nine months ended September 30, 2010, we incurred $2 million and
$0.2 million of acquisition and advisory fees and acquisition expense reimbursements, respectively. For the nine months ended September 30, 2009, we incurred $0.3 million and
$0.1 million of acquisition and advisory fees and acquisition expense reimbursements, respectively.

We
pay our advisor or its affiliates a debt financing fee of 1% of the amount available under any loan or line of credit made available to us. It is anticipated that our advisor will pay
some or all of these fees to third parties with whom it subcontracts to coordinate financing for us. We incurred debt financing fees of $0.6 million for the nine months ended
September 30, 2010. We did not incur any debt financing fees for the nine months ended September 30, 2009.

We
pay our advisor or its affiliates a development fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the
project if such affiliate provides the development services and if a majority of our independent directors determines that such development fee is fair and reasonable and on terms and conditions not
less favorable than those available from unaffiliated third parties. We incurred no such fees for the nine months ended September 30, 2010 or 2009.

We
pay our property manager and affiliate of our advisor, Behringer Harvard Opportunity II Management Services, LLC ("BHO II Management"), or its affiliates, fees for the
management, leasing, and construction supervision of our properties. Property management fees are 4.5% of the gross revenues of the properties managed by BHO II Management or its affiliates plus
leasing commissions based upon the customary leasing commission applicable to the same geographic location of the respective property. In the event that we contract directly with a third-party
property manager in respect of a property, BHO II Management or its affiliates receives an oversight fee equal to 0.5% of the gross revenues of the property managed. In no event will BHO II Management
or its affiliates receive both a property management fee and an oversight fee with respect to any particular property. In the event we own a property through a joint venture that does not pay BHO II
Management directly for its services, we will pay BHO II Management a management fee or oversight fee, as applicable, based only on an economic interest in the property. We incurred and expensed
property management fees or oversight fees to BHO II Management of approximately $0.2 million and less than $0.1 million for the nine months ended September 30, 2010 and 2009,
respectively.

We
pay our advisor or its affiliates a monthly asset management fee of one-twelfth of 1.0% of the sum of the higher of the cost or value of each asset. For the nine months
ended September 30, 2010 and 2009, we expensed $0.7 million and $0.3 million, respectively, of asset management fees.

We
reimburse our advisor or its affiliates for all expenses paid or incurred by the advisor in connection with the services provided to us, subject to the limitation that we will not
reimburse our advisor for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (A) 2% of our
average invested assets,

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

12. Related Party Transactions (Continued)

or
(B) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from
the sale of our assets for that period. Notwithstanding the above, we may reimburse the advisor for expenses in excess of this limitation if a majority of our independent directors determines that
such excess expenses are justified based on unusual and non-recurring factors. For the nine months ended September 30, 2010 and 2009, we incurred and expensed such costs for
administrative services totaling $0.7 million and $0.3 million, respectively.

We
are dependent on Behringer Securities, Behringer Opportunity Advisors II, and BHO II Management for certain services that are essential to us, including the sale of shares of our
common stock, asset acquisition and disposition decisions, property management and leasing services, and other general administrative responsibilities. In the event that these companies were unable to
provide us with their respective services, we would be required to obtain such services from other sources.

13. Supplemental Cash Flow Information

Supplemental cash flow information is summarized below:

Nine Months ended
September 30,2010

2009Interest paid

$
1,200

$
784Non-cash investing activities:Conversion of loan to equity investment

$
27,091

$
Capital expenditures for real estate under development in accounts payable and accrued liabilities

$
1

$
Non-cash financing activities:Common stock issued in distribution reinvestment plan

$
4,622

$
1,918Accrued dividends payable

$
860

$
494Offering costs payable to related parties

$
824

$
1,335Redemption of stock in accrued liabilities

$
565

$
156


14. Subsequent Events



On October 8, 2010, we, through a joint venture (the "Florida MOB Joint Venture") of which we were the only member, acquired
100% ownership of a portfolio of eight medical office buildings located in South Florida, and fee simple title to certain excess land related to the portfolio of buildings, and entered into ground
leases with an unaffiliated third party (the "MOB Seller"). Fee simple title to the land upon which the buildings are located was retained by the MOB Seller. The ground leases expire in October 2060
with an option to extend for an additional 25 years upon meeting certain conditions as set forth in the ground leases. Title to the medical office buildings reverts back to the MOB Seller upon
termination of the ground leases. The purchase price for the eight buildings, the

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

14. Subsequent Events (Continued)

excess
land, and the ground leases, excluding closing costs, was $47.1 million, which we funded with proceeds from our Offering.

On
October 20, 2010, as contemplated pursuant to the terms of the Florida MOB Joint Venture agreement, two wholly owned subsidiaries of Applefield Waxman Capital, Inc. (the
"AW Entities") contributed cash in the amount of approximately $0.3 million and an approximate 80% interest in an affiliated entity that owned a ninth medical office building known as the
Gardens Medical Pavilion located in Palm Beach Gardens, Florida (the "GMP Owner") to the Florida MOB Joint Venture. The aggregate estimated fair value of the Gardens Medical Pavilion at the time of
the contribution was approximately $23.5 million. Concurrently with the capital contributions by the AW Entities, we made an additional capital contribution to the Florida MOB Joint Venture,
the existing indebtedness related to the Gardens Medical Pavilion was paid off, and the interest of the Florida MOB Joint Venture in
the GMP Owner increased from 80% to 88.7% because the other members of the GMP Owner elected not to contribute additional capital and were diluted. We refer to the aggregate portfolio of nine medical
office buildings, the ground leases, and the excess land as the Florida MOB Portfolio. After the AW Entities' capital contribution and their admittance to the Florida MOB Joint Venture, the AW
Entities hold a 10% interest in the Florida MOB Joint Venture and we hold the remaining 90% interest in the Florida MOB Joint Venture.

The
Florida MOB Portfolio contains an aggregate of approximately 694,000 rentable square feet plus an additional 7.8 acres of land related to the excess land in which we acquired a fee
simple interest.

In
connection with the AW Entities' admission to the Florida MOB Joint Venture, on October 20, 2010, we made a $35 million bridge loan to the Florida MOB Joint Venture for
purposes of paying off the existing indebtedness related to the Gardens Medical Pavilion and funding working capital and renovation expenses. The Florida MOB Joint Venture pledged its interest in nine
special purpose entities that own the medical office buildings in the Florida MOB Portfolio, except for the Gardens Medical Pavilion, and the excess land. The bridge loan matures on January 7,
2011 with one three-month extension option. Monthly payments are interest-only with the entire principal and any accrued and unpaid interest due at maturity. The loan bears interest at 7%
per annum. It is anticipated that permanent third party financing will repay the $35 million bridge loan prior to its maturity. Proceeds from our Offering were used to fund the bridge loan.



On October 20, 2010, we acquired, through a joint venture (the "Kauai Joint Venture") in which we have an 80% interest, from an
unaffiliated third party, a fee simple interest in a hotel property located at Waipouli Beach on the island of Kauai in Hawaii (the "Kauai Courtyard Hotel"). We acquired the Kauai Courtyard Hotel for
the assumption and modification of $38 million of existing senior financing on the property.

The
Kauai Courtyard Hotel is comprised of an approximately 10.4 acre parcel of land and includes 311 guest rooms and a number of guest amenities including three restaurants, a day spa,
outdoor swimming pool, fitness facility and tennis courts. It was originally completed in 1978 and renovated in 2006.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

14. Subsequent Events (Continued)

In
connection with the acquisition of the Kauai Courtyard Hotel and assumption of the $38 million senior financing related to the property, on October 20, 2010, we entered,
through the Kauai Joint Venture, into an amended and restated loan agreement with the senior lender. The loan bears interest at 30-day LIBOR plus 95 basis points. Monthly payments on the
loan are interest-only with the entire principal and any accrued an unpaid interest due at maturity. The maturity date is November 9, 2015, which may be extended until May 9,
2017. The loan may be prepaid in whole but not in part without prepayment penalty or similar charge.

We
and our joint venture partner have provided a limited guaranty with respect to the Marriott franchise agreement to certain potential costs, expenses, losses, damages and other sums
which may result from certain actions or inactions by the Kauai Joint Venture and its affiliates.



On October 25, 2010, we, through our joint venture that owns the Archibald Business Center, entered into a loan agreement with a
financial institution to borrow up to $7.9 million. An initial $6.1 million was advanced under the loan agreement on October 26, 2010. The loan bears interest at 10% per annum and
requires monthly payments of interest only through the maturity date, upon which any accrued and unpaid interest plus the entire outstanding principal balance is due. Monthly payments may be made
based on an interest rate of 7% if available cash is insufficient to pay monthly interest due at a rate of 10% with the balance of the interest due deferred and accrued. Upon the earlier to occur of
repayment of the loan in full or the maturity date, we are required to pay the lender a participation equal to 15% of the amount by which the fair market value of Archibald Business Center exceeds the
sum of the outstanding debt, plus the joint venture equity interest in the property and an 8% return on the joint venture equity. The loan matures on November 1, 2013, and the loan agreement
allows for one extension of the maturity date to May 1, 2014 upon meeting certain conditions as set forth in the loan agreement. Subject to an exit fee and prior to October 1, 2012, a
yield maintenance premium, we may prepay all or any portion of the loan provided that we provide advance written notice and meet certain conditions as set forth in the loan agreement. The loan is
secured by the Archibald Business Center and is nonrecourse to us.

*****

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Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our accompanying financial statements and the notes thereto.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Opportunity REIT II, Inc. and our subsidiaries (which may
be referred to herein as the "Company," "we," "us" or "our"), including our ability to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, the value
of our assets, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated per share value of our common stock and other
matters. Words such as "may," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "could," "should" and variations of these words and similar expressions are
intended to identify forward-looking statements.

These
forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the
business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking
statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not
limited to the factors listed and described under Item 1A, "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 30, 2010 and the factors described below:



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Forward-looking
statements in this Quarterly Report on Form 10-Q reflect our management's view only as of the date of this Report, and may ultimately prove to be
incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. We
intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Cautionary Note

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

Executive Overview

We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic basis. In
particular, we focus generally on acquiring commercial properties with significant possibilities for short-term capital appreciation, such as those requiring development, redevelopment or
repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines. In addition, given
current economic conditions, our opportunistic investment strategy may also include investments in loans secured by or related to real estate at more attractive rates of current return than have been
available for some time. Such loan investments may have capital gain characteristics, whether as a result of a discount purchase or related equity participations. We may acquire a wide variety of
commercial properties, including office, industrial, retail, hospitality, recreation and leisure, single-tenant, multifamily, and other real properties. These properties may be existing,
income-producing properties, newly constructed properties or properties under development or construction, and may include multifamily properties purchased for conversion into condominiums and
single-tenant properties that may be converted for multi-tenant use. Further, we may invest in real estate-related securities, including securities issued by other real estate companies, either for
investment or in change of control transactions completed on a negotiated basis
or otherwise. We also may originate 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 make investments similar to the foregoing. We expect to make our investments in or in respect of real estate assets
located in the United States and other countries based on current market conditions.

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

On
September 13, 2010, we filed a registration statement on Form S-11 with the SEC to register a follow-on public offering. Pursuant to the
registration statement, we propose to register 50,000,000 shares of our common stock at a price of $10.00 per share in our primary offering, with discounts

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available
to investors who purchase more than 50,000 shares and to other categories of purchasers. We will also register 25,000,000 shares of common stock pursuant to our distribution reinvestment
plan at $9.50 per share. The follow-on public offering has not yet been declared effective.

Market Outlook

Beginning in 2008, the U.S. and global economies have experienced a significant downturn. This downturn included disruptions in the
broader financial and credit markets, declining consumer confidence, and an increase in unemployment rates. These conditions have contributed to weakened market conditions. Due to the struggling U.S.
and global economies, including losses in the financial and professional services industries, overall demand across most real estate sectors including office, multifamily, hospitality, and retail
remains low. We believe that corresponding rental rates will also remain weak through the remainder of 2010. The national vacancy percentage for office space increased from 14.5% in the fourth quarter
of 2008 to 19.6% in the second quarter of 2010. Office vacancies are expected to peak at around 19.6% in 2010. Further, we believe that tenant defaults and bankruptcies are likely to increase in the
short-term. To date, we have not experienced any significant tenant defaults resulting in the loss of material rental income.

In
the multifamily real estate sector, a limited new supply of multifamily assets is expected in the near future. Since high quality multifamily developments can take 18 months to
36 months to entitle, obtain necessary permits, and construct, we believe there will be an imbalance in supply and demand fundamentals for at least the next couple of years. As the economy
improves, we expect renter demand and effective rents to increase in multifamily communities. Particularly after 2010, we expect multifamily rental rates to begin to return to their
pre-recession levels.

In
the industrial market, the overall national vacancy is trending downward. The Inland Empire, where we have two investments, reported three straight quarters of vacancy declines.
Import activity at Southern California ports continue to show increases with industrial distribution centers in the Inland Empire playing a key role for much of the goods that flow into the ports.
Further, industry analysts expect construction activity for new supply of industrial distribution centers to remain weak helping to stabilize supply and improve lease rates. We expect leasing activity
for industrial warehouse/distribution centers to continue to increase to meet the demand for goods imported into the United States through the Southern California ports.

The
hospitality industry is beginning to see signs of a recovering economy. Smith Travel Research indicates that the national overall occupancy rate for hospitality properties in the
United States rose from 50.6% in the fourth quarter of 2009 to 58.9% in the third quarter of 2010. The national overall Average Daily Rate ("ADR") has also risen, from $95.79 in the fourth quarter of
2009 to $97.89 in the third quarter of 2010. This positive growth in the hospitality industry is expected to continue.

As
a result of the existing economic conditions, our primary objectives are to raise capital and to take advantage of favorable investment opportunities. We believe that the current
economic environment will result in investment opportunities for many high-quality real estate and real estate-related assets. To the extent that we have capital available to invest, we
plan to actively pursue investment opportunities.

Liquidity and Capital Resources

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

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We
expect to fund our short-term liquidity requirements by using the net proceeds realized from the Offering and cash flow from the operations of investments we acquire.
Operating cash flows are expected to increase as additional real estate assets are added to the portfolio. For both our short-term and long-term liquidity requirements, other
potential future sources of capital may include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of our investments, if and when any are sold, and
undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

Our
advisor may, but is not required to, establish capital reserves from net offering proceeds, out of cash flow generated by operating properties and other investments, or out of
non-liquidating net sale proceeds from the sale of our properties and other investments. Capital reserves are typically utilized for non-operating expenses such as tenant
improvements, leasing commissions and major capital expenditures. Alternatively, a lender may require its own formula for escrow of capital reserves.

We
intend to borrow money to acquire properties and make other investments. There is no limitation on the amount we may invest in any single property or other asset or on the amount we
can borrow for the purchase of any individual property or other investment. Under our charter, the maximum amount of our indebtedness shall not exceed 300% of our "net assets" (as defined by our
charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors has
adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our
best interests. Our policy limitation, however, does not apply to individual real estate assets and will only apply once we have ceased raising capital under the Offering or any subsequent offering
and invested substantially all of our capital. As a result, we expect to borrow more than 75% of the contract purchase price of each real estate asset we acquire during the early periods of our
operations to the extent our board of directors determines that borrowing at these levels is prudent.

The
commercial real estate debt markets are continuing to experience volatility as a result of certain factors, including the tightening of underwriting standards by lenders and credit
rating agencies. Credit spreads for major sources of capital have widened significantly as investors have demanded a higher risk premium. This is resulting in lenders increasing the cost for debt
financing. Consequently, there is greater uncertainty regarding our ability to access the credit markets in order to attract financing on reasonable terms. Our ability to borrow funds to finance
future acquisitions could be adversely affected by our inability to secure permanent financing on reasonable terms, if at all.

Should
the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our
acquisitions, developments and property contributions. This may result in our investment operations generating lower overall economic returns and a reduced level of cash flow, which could potentially
impact our ability to make distributions to our stockholders at current levels. In addition, the recent dislocations in the debt markets have reduced the amount of capital that is available to finance
real estate, which, in turn: (i) leads to a decline in real estate values generally; (ii) slows real estate transaction activity; (iii) reduces the loan to value upon which
lenders are willing to extend debt; and, (iv) results in difficulty in refinancing debt as it becomes due, all of which may reasonably be expected to have a material adverse impact on the value
of real estate investments and the revenues, income or cash flow from the acquisition and operations of real properties and mortgage loans. In addition, the current state of the debt markets has
negatively impacted the ability to raise equity capital.

If
the current debt market environment persists, we may modify our investment strategies in order to seek to optimize our portfolio performance. Our strategies may include, among other
options, limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals.

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Debt Financings

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

At
September 30, 2010, our notes payable balance was $79 million and consisted of the notes payable related to 1875 Lawrence, Palms of Monterrey, Holstenplatz, and
Parrot's Landing. We have unconditionally guaranteed payment of the note payable related to 1875 Lawrence for an amount not to exceed the lesser of (i) $11.75 million and
(ii) 50% of the total amount advanced under the loan agreement if the aggregate amount advanced is less than $23.5 million. We have guaranteed payment of the note payable related to
Palms of Monterrey and, as guarantor, are subject to certain recourse liabilities with respect to certain "bad boy" acts as set forth in the Guaranty in favor of the unaffiliated lender.

Our
loan agreements stipulate that we comply with certain reporting and financial covenants. These covenants include, among other things, maintaining minimum debt service coverage
ratios. As of September 30, 2010, we believe we were in compliance with the debt covenants under our loan agreements.

One
of our principal long-term liquidity requirements includes the repayment of maturing debt. The following table provides information with respect to the maturities and
scheduled principal repayments of our indebtedness as of September 30, 2010. The table does not represent any extension options. Amounts presented are in thousands.

Payments Due by PeriodOctober 1, 2010 -
December 31, 2010

2011

2012

After 2012

TotalPrincipal paymentsvariable rate debt

$


$
301

$
18,840

$
19,554

$
38,695Principal paymentsfixed rate debt


135


711


729


38,769


40,344Interest paymentsvariable rate debt (based on rates in effect as of September 30, 2010)


480


1,916


1,997


5,887


10,280Interest paymentsfixed rate debt


319


1,673


1,648


3,834


7,474Total

$
934

$
4,601

$
23,214

$
68,044

$
96,793




As of September 30, 2010, we have a noncontrolling, unconsolidated 16% ownership interest in a joint venture that owns El Cajon
Distribution Center. We exercise significant influence over, but do not control, this entity and therefore it is presently accounted for using the equity method of accounting. As of
September 30, 2010, the aggregate debt held by unrelated parties, including both ours and our partners' share, secured by El Cajon Distribution Center was approximately $27.1 million.

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The
table below summarizes the outstanding debt of El Cajon Distribution Center as of September 30, 2010. Dollar amounts presented are in thousands.

Properties

Venture
Ownership
%

Interest Rate
(as of
September 30,
2010)

Carrying
Amount

Maturity
DateEl Cajon Distribution Center


16
%

3.256
%
$
27,076


August 10, 2012
(1)


(1)The
note contains three one-year options to extend the maturity date upon meeting certain conditions.


Results of Operations

As of September 30, 2010, we had seven real estate and real estate-related assets on our consolidated balance sheet, six of
which were consolidated:



In
addition, we have a noncontrolling, unconsolidated interest in an investment that is accounted for using the equity method of accounting, a 16% interest in a two-building
industrial warehouse complex, El Cajon Distribution Center, in San Bernardino, California.

As
of September 30, 2009, we had made two investments, 1875 Lawrence, located in Denver, Colorado and the PAL Loan.

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Three months ended September 30, 2010 as compared to the three months ended September 30, 2009(amounts presented are in thousands).

Three Months
Ended
September 30,

Increase (Decrease)2010

2009

Amount

PercentRevenues:Rental revenue

$
3,007

$
1,313

$
1,694


129
%Interest income from real estate loans receivable


1,169


302


867


287
%Total revenue

$
4,176

$
1,615

$
2,561


159
%Expenses:Property operating expenses

$
1,097

$
310

$
787


254
%Interest expense


702


329


373


113
%Real estate taxes


303


139


164


118
%Property management fees


86


42


44


105
%Asset management fees


292


103


189


183
%General and administrative


706


530


176


33
%Acquisition expense


3,135





3,135


n/aDepreciation and amortization


1,577


596


981


165
%Total expenses

$
7,898

$
2,049

$
5,849


285
%


Revenues.Revenues for the three months ended September 30, 2010 were $4.2 million and include rental revenue of
$3 million
generated by 1875 Lawrence, Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot's Landing. Total revenue also includes interest income from our real estate loans receivable
of $1.2 million, all of which was related to the PAL real estate loan receivable. Revenues for the three months ended September 30, 2009 were $1.6 million and consisted of rental
revenue generated by 1875 Lawrence and interest income from the PAL real estate loan receivable, which had an outstanding balance of $12.6 million at September 30, 2009 as
compared to $25 million at September 30, 2010. We expect increases in revenue in the future as we complete the purchase of additional real estate and real estate-related investments.

Property Operating Expenses.Property operating expenses for the three months ended September 30, 2010 were $1.1 million and
were
comprised of $0.3 million of operating expenses for 1875 Lawrence, $0.6 million of operating expenses for Palms of Monterrey, $0.1 million of operating expenses for
Holstenplatz, and $0.1 million of operating expenses for Parrot's Landing. Property operating expenses for the three months ended September 30, 2009 were $0.3 million and were
comprised of operating expenses for 1875 Lawrence. We expect increases in property operating expenses in the future as we purchase additional real estate properties and as the operations of
Archibald Business Center and Parrot's Landing are included for a full reporting period.

Interest Expense.Interest expense for three months ended September 30, 2010 was $0.7 million and was comprised of interest
expense on
our notes payable balance of $79 million related to 1875 Lawrence, Palms of Monterrey, Holstenplatz, and Parrot's Landing. Interest expense for the three months ended
September 30, 2009 was $0.3 million and was comprised of interest expense related to our note payable balance on 1875 Lawrence of $18.5 million. We expect interest expense
to increase as we incur additional debt related to our acquisitions.

Real Estate Taxes.Real estate taxes for the three months ended September 30, 2010 were $0.3 million and were comprised
primarily of
real estate taxes related to 1875 Lawrence and Palms of Monterrey. Real estate taxes for the three months ended September 30, 2009 were $0.1 million and

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were
comprised entirely of real estate taxes related to 1875 Lawrence. We expect increases in real estate taxes in the future as we purchase additional real estate properties and as the
operations of Archibald Business Center and Parrot's Landing are included for a full reporting period.

Property Management Fees.Property management fees for the three months ended September 30, 2010 were $0.1 million and were
comprised
of fees related to 1875 Lawrence, Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot's Landing. Property management fees for the three months ended September 30,
2009 were less than $0.1 million and were comprised of fees related to 1875 Lawrence. We expect increases in property management fees in the future as we purchase additional real estate
properties and as the operations of Archibald Business Center and Parrot's Landing are included for a full reporting period.

Asset Management Fees.Asset management fees for the three months ended September 30, 2010 were $0.3 million and were
comprised of fees
related to 1875 Lawrence, PAL Loan, Palms of Monterrey, Stone Creek, Holstenplatz, Archibald Business Center, El Cajon Distribution Center, and Parrot's Landing. Asset management fees for the
three months ended September 30, 2009 were $0.1 million and were comprised of fees related to 1875 Lawrence and the PAL Loan. We expect increases in asset management fees in the
future as we purchase additional real estate and real estate-related investments.

General and Administrative Expenses.General and administrative expenses for the three months ended September 30, 2010 and 2009
were
$0.7 million and $0.5 million, respectively, and were comprised of auditing fees, legal fees, board of directors' fees, and other administrative expenses. We expect increases in general
and administrative expenses in the future as we purchase additional real estate and real estate-related investments.

Acquisition Expense.Acquisition expense for the three months ended September 30, 2010 was $3.1 million and was comprised of
acquisition-related costs associated with our acquisitions of El Cajon Distribution Center, Archibald Business Center, and Parrot's Landing as well as acquisition expenses related to our purchase of a
portfolio of nine medical office buildings located in South Florida ("Florida MOB Portfolio") and to our purchase of a 311-room hotel located in Kauai, Hawaii ("Kauai Courtyard Hotel"),
both consummated after September 30, 2010. We did not incur any acquisition expense for the three months ended September 30, 2009.

Depreciation and Amortization Expense.Depreciation and amortization expense for the three months ended September 30, 2010 was
$1.6 million and was comprised primarily of $0.5 million of depreciation and amortization related to 1875 Lawrence, $0.8 million of depreciation and amortization related to
Palms of Monterrey, $0.2 million of depreciation and amortization related to Holstenplatz, and $0.1 million of depreciation and amortization related to Archibald Business Center.
Depreciation and
amortization expense for the three months ended September 30, 2009 was $0.6 million and was comprised of depreciation and amortization related to 1875 Lawrence. We expect
increases in depreciation and amortization expense in the future as we purchase additional real estate properties.

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Nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009(amounts presented are in thousands)

Nine Months Ended September 30,

Increase
(Decrease)2010

2009

Amount

PercentRevenues:Rental revenue

$
6,204

$
4,087

$
2,117


52
%Interest income from real estate loans receivable


3,753


302


3,451


1143
%Total revenue

$
9,957

$
4,389

$
5,568


127
%Expenses:Property operating expenses

$
2,016

$
931

$
1,085


117
%Interest expense


1,399


980


419


43
%Real estate taxes


663


419


244


58
%Property management fees


196


132


64


48
%Asset management fees


683


275


408


148
%General and administrative


1,562


1,190


372


31
%Acquisition expense


4,581





4,581


n/aDepreciation and amortization


3,235


1,860


1,375


74
%Total expenses

$
14,335

$
5,787

$
8,548


148
%


Revenues.Revenues for the nine months ended September 30, 2010 were $10 million and include rental revenue of
$6.2 million
generated by 1875 Lawrence, Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot's Landing. Total revenue also includes interest income from our real estate loans receivable
of $3.8 million, of which $2.7 million was related to the PAL Loan. We also received $1.1 million related to the Palms of Monterrey real estate loan receivable, which was
recognized as interest income in the period received. Revenues for the nine months ended September 30, 2009 were $4.4 million and consisted of rental revenue generated by our
consolidated real estate investments, 1875 Lawrence and the PAL Loan. We expect increases in revenue in the future as we purchase additional real estate and real estate-related investments.

Property Operating Expenses.Property operating expenses for the nine months ended September 30, 2010 were $2 million and
were
comprised of $0.9 million of operating expenses for 1875 Lawrence, $0.9 million of operating expenses for Palms of Monterrey, $0.1 million of operating expenses for
Holstenplatz, and $0.1 million of operating expenses for Parrot's Landing. Property operating expenses for the nine months ended September 30, 2009 were $0.9 million related to
1875 Lawrence. We expect increases in property operating expenses in the future as we purchase additional real estate properties and as the operations of Archibald Business Center and Parrot's
Landing are included for a full reporting period.

Interest Expense.Interest expense for the nine months ended September 30, 2010 was $1.4 million and was comprised of
interest expense
on our notes payable balance of $79 million related to 1875 Lawrence, Palms of Monterrey, Parrot's Landing, and Holstenplatz. We entered into the loan related to Palms of Monterrey in
June 2010, the loan related to Holstenplatz in June 2010, and into the loan related to Parrot's Landing in September 2010. Interest expense for the nine months ended September 30, 2009 was
$1 million and was comprised of interest expense related to our note payable balance on 1875 Lawrence of $18.5 million. We expect interest expense to increase as we incur
additional debt related to our acquisitions.

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Real Estate Taxes.Real estate taxes for the nine months ended September 30, 2010 were $0.7 million and were primarily
comprised of
real estate taxes related to 1875 Lawrence, Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot's Landing. Real estate taxes for the nine months ended September 30, 2009
were $0.4 million and were comprised of real estate taxes related to 1875 Lawrence. We expect increases in real estate taxes in the future as we purchase additional real estate properties and
as the operations of Archibald Business Center and Parrot's Landing are included for a full reporting period.

Property Management Fees.Property management fees for each of the nine months ended September 30, 2010 were $0.2 million and
were
comprised of fees related to 1875 Lawrence, Palms of Monterrey, Holstenplatz, Archibald Business Center, and Parrot's Landing. Property management fees for each of the nine months ended
September 30, 2009 were $0.1 million and were primarily comprised of fees related to 1875 Lawrence. We expect increases in property management fees in the future as we purchase
additional real estate properties and as the operations of Archibald Business Center and Parrot's Landing are included for a full reporting period.

Asset Management Fees.Asset management fees for the nine months ended September 30, 2010 were $0.7 million and were
comprised of fees
related to 1875 Lawrence, PAL Loan, Palms of Monterrey, Stone Creek, Holstenplatz, El Cajon Distribution Center, Archibald Business Center, and Parrot's Landing. Asset management fees for the nine
months ended September 30, 2009 were $0.3 million and were comprised of fees related to 1875 Lawrence and the PAL Loan. We expect increases in asset management fees in the future as we
purchase additional real estate and real estate-related investments.

General and Administrative Expenses.General and administrative expenses for the nine months ended September 30, 2010 were
$1.6 million
compared to $1.2 million for the nine months ended September 30, 2009 and were comprised of auditing fees, legal fees, board of directors' fees, and other administrative expenses. We
expect increases in general and administrative expenses in the future as we purchase additional real estate and real estate-related investments.

Acquisition Expense.Acquisition expense for the nine months ended September 30, 2010 was $4.6 million and was comprised
primarily of
acquisition expenses related to our acquisitions of Holstenplatz, El Cajon Distribution Center, Archibald Business Center, and Parrot's Landing. We also incurred acquisition expenses during the period
related to our acquisition of the Florida MOB Portfolio and the Kauai Courtyard Hotel, both consummated subsequent to September 30, 2010. We had no acquisition expense for the nine months ended
September 30, 2009.

Depreciation and Amortization Expense.Depreciation and amortization expense for the nine months ended September 30, 2010 was
$3.2 million and was comprised primarily of depreciation and amortization related to 1875 Lawrence of $1.6 million, depreciation and amortization related to Palms of Monterrey of
$1.4 million, and depreciation and amortization related to Holstenplatz of $0.2 million. Depreciation and amortization expense for the nine months ended September 30, 2009 was
$1.9 million related to 1875 Lawrence. We expect increases in depreciation and amortization expense in the future as we purchase additional real estate properties.

Bargain Purchase Gain.During the nine months ended September 30, 2010, we recognized a bargain purchase gain of $5.5 million
related
to our purchase of the fee simple interest in the Palms of Monterrey property. We were previously a holder of a 90% interest in a promissory note secured by a first lien mortgage in the property that
we acquired at a discount from a bank in receivership in October 2009. We foreclosed on the borrower in March 2010 and a foreclosure sale was held in April 2010. We were the only bidder in the
foreclosure sale and acquired the 90% fee simple interest in the property on May 10, 2010.

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Cash Flow Analysis

Cash used in operating activities for the nine months ended September 30, 2010 was $1.9 million, and was comprised
primarily of the non-cash adjustment for the bargain purchase gain of $5.5 million related to the purchase of Palms of Monterrey and an increase in interest
receivable-real estate loans receivable of $1.2 million offset by net income of $1.4 million, depreciation and amortization of $2.5 million, and an increase in accrued
and other liabilities of $0.8 million. Cash used in operating activities for the nine months ended September 30, 2009 was $0.7 million and was comprised primarily of a net loss of
$1 million, changes in prepaid expenses and other assets of $0.1 million, an increase in interest receivable of $0.3 million principally related to the PAL Loan, and changes in
net payables to related parties of $0.3 million, offset by depreciation and amortization of $1 million and changes in accrued liabilities of $0.3 million.

Cash
used in investing activities for the nine months ended September 30, 2010 was $84.5 million, and was comprised primarily of investment in real estate loans receivable
of $12.6 million, purchases of real estate related to our Holstenplatz, Archibald Business Center, and Parrot's Landing acquisitions of $64.2 million, and $4.6 million related to
our investment in El Cajon Distribution Center, an unconsolidated joint venture. Cash used in investing activities for the nine months ended September 30, 2009 was $36.7 million, and was
comprised primarily of acquisition deposits for the purchase of a 90% interest in a discounted promissory note related to the Palms of Monterrey of $23.7 million, and the net investment in real
estate loan receivable of $12.6 million.

Cash
provided by financing activities for the nine months ended September 30, 2010 was $111 million, and was comprised primarily of the issuance of common stock, net of
offering costs, of approximately $54.2 million, proceeds from notes payable of $59.5 million, and contributions from noncontrolling interest holders of $3.4 million, offset by
distributions to noncontrolling interest holders of $2.1 million and distributions to shareholders of $2 million. Cash provided by financing activities for the nine months ended
September 30, 2009 was $42.1 million, and was comprised of the issuance of common stock, net of offering costs, of approximately $43 million offset by distributions of
$0.7 million and redemptions of common stock of $0.2 million.

Total Operating Expenses

In accordance with the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities
Administrators Association, also known as the NASAA REIT Guidelines, our charter requires that we monitor our expenses on a trailing twelve month basis. Our charter defines the following terms and
requires that our Total Operating Expenses ("TOE") are deemed to be excessive if at the end of any quarter they exceed for the prior trailing twelve month period the greater of 2% of our Average
Invested Assets ("AIA") or 25% of our Net Income ("NI"). For the trailing twelve months ended September 30, 2010, TOE of $2.8 million exceeded the greater of 2% of our AIA or 25% of our
NI by $0.6 million. Our Board of Directors, including all of our independent directors, have reviewed this analysis and unanimously determined the excess to be justified because the Company was
in its development stage through April 1, 2008 when the Company accepted its first investors under its initial public offering and did not acquire its first real estate or real estate-related
asset until October 28, 2008 and due to the instability in the real estate market did not acquire any additional assets until the third quarter of 2009, which caused the expenses it incurred in
connection with its organization and as a result of being a public company for audit and legal services, director and officer liability insurance, and fees and expenses for board members in connection
with service on the board and its committees to be disproportionate to the Company's AIA and its NI.

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Funds from Operations and Modified Funds from Operations

Funds from operations ("FFO") is a non-GAAP financial measure that is widely recognized as a measure of REIT operating
performance. We use FFO, defined by the National Association of Real Estate Investment Trusts as net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP,
and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, subsidiaries, and
noncontrolling interests as one measure to evaluate our operating performance. In addition to FFO, we use modified funds from operations ("Modified Funds from Operations" or "MFFO"), which excludes
from FFO acquisition-related costs, impairment charges including provisions for loan losses, losses on troubled debt restructurings, gains and losses from the early extinguishment of debt, gains and
losses from deconsolidation to the equity method of accounting, and adjustments to fair value for derivatives not qualifying for hedge accounting, to further evaluate our operating performance.

Historical
cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost
accounting alone to be insufficient. As a result, our management believes that the use of FFO and MFFO, together with the required GAAP presentations, provides a more complete understanding of our
performance.

We
believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property
dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development
activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. We believe MFFO is helpful to our investors and our management as a measure of
operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. By providing MFFO, we
present information that assists investors in aligning their analysis with management's analysis of long term, core operating activities. We believe fluctuations in MFFO are more indicative of changes
in operating activities and provide comparability in evaluating our performance over time and as compared to other real estate companies that may not have acquisition activities, derivatives, or
affected by impairments.

As
explained below, management's evaluation of our operating performance excludes the items considered in the calculation of MFFO based on the following economic
considerations:



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FFO
or MFFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor as an indication of funds available to fund our cash needs, including
our ability to make distributions and should be reviewed in connection with other GAAP measurements.

For
the nine months ended September 30, 2010, MFFO per share has been impacted by the increase in net proceeds realized from the Offering. During the nine months ended
September 30, 2010, we sold 6.1 million shares of our common stock, increasing our outstanding shares by 43%. The proceeds from the issuance are temporarily invested in
short-term cash equivalents until they can be invested in real estate and real estate-related assets. Due to lower interest rates on cash equivalent investments, interest earnings were
minimal. We expect to invest these proceeds in higher earning real estate and real estate-related assets consistent with our investment policy. We believe this will add value to our stockholders over
our longer term investment horizon, even if this results in less current period earnings.

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Our
calculation of FFO and MFFO for the three and nine months ended September 30, 2010 and 2009 is presented below (amounts in thousands except per share amounts):

Three Months Ended
September 30,

Nine Months Ended
September 30,2010

2009

2010

2009Net income (loss)

$
(3,529
)
$
(285
)
$
1,419

$
(1,024
)Net income (loss) attributable to noncontrolling interest


231





(388
)

Adjustments for:Real estate depreciation and amortization


1,577


596


3,235


1,860Pro rata share of unconsolidated JV depreciation and amortization(1)


35





84


Noncontrolling interest depreciation and amortization(2)


(92
)




(146
)(Gain) / loss on sale of depreciable assets


(152
)




(152
)

Funds from operations (FFO)

$
(1,930
)
$
311

$
4,052

$
836Other Adjustments:Acquisition expenses


3,135





4,581Pro rata share of unconsolidated JV acquisition expenses(3)


43





43Acquisition expenses noncontrolling interests(4)


(141
)




(146
)

MFFO

$
1,107

$
311

$
8,530

$
836GAAP weighted average shares:Basic and diluted


20,509


11,389


18,369


9,616MFFO per share

$
0.05

$
0.03

$
0.46

$
0.09


(1)This
represents our share of depreciation and amortization expense of Stone Creek and El Cajon Distribution Center which are accounted for
under the equity method of accounting. We disposed of our interest in Stone Creek on August 30, 2010.(2)This
reflects the noncontrolling interest adjustment for the third-party partners' proportionate share of the real estate depreciation and
amortization.(3)This
reflects our share of acquisition expense related to El Cajon Distribution Center which are accounted for under the equity method of
accounting.


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



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In
addition, cash from MFFO may be used to fund all or a portion of certain capitalizable items that are excluded from MFFO, such as capital expenditures and payments of principal on
debt, each of which may impact the amount of cash available for distribution to our stockholders.

Distributions

Distributions are authorized at the discretion of our board of directors based on its analysis of our performance over the previous
period, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital
expenditure needs, general financial condition, and other factors that our board deems relevant. The board's decision will be influenced, in substantial part, by its obligation to ensure that we
maintain our status as a REIT. In light of the pervasive and fundamental disruptions in the global financial and real estate markets, we cannot provide assurance that we will be able to achieve
expected cash flows necessary to continue to pay distributions at any particular level, or at all. If the current economic conditions continue, our board could determine to reduce our current
distribution rate or cease paying distributions in order to conserve cash.

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

Cash
amounts distributed to stockholders during the nine months ended September 30, 2010 were $2 million. Distributions funded through the issuance of shares under the DRP
during the nine months ended September 30, 2010 were $4.6 million. For the nine months ended September 30, 2010, cash flows used in operating activities were $1.9 million.
Accordingly, for the nine months ended September 30, 2010, all of the cash amounts distributed to stockholders were funded from proceeds from the Offering. Cash amounts distributed to
stockholders during the nine months ended September 30, 2009 were $0.7 million. Distributions funded through the issuance of shares under the DRP during the nine months ended
September 30, 2009 were $1.9 million. For the nine months ended September 30, 2009, cash flows used in operating activities were $0.7 million. Accordingly, for the nine
months ended September 30, 2009, all of the cash amounts distributed to stockholders were funded from proceeds from the Offering.

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The
following are the distributions paid and declared as of September 30, 2010 and 2009 (amounts in thousands except per share amounts).

Distributions PaidCash Flow
Provided by (Used
In) Operations

Total
Distributions
Declared

Declared
Distribution
Per Share2010

Cash

Reinvested

Total3rd Quarter

$
794

$
1,736

$
2,530

$
(1,130
)
$
2,587

$
0.1262nd Quarter


677


1,553


2,230


(1,933
)

2,323


0.1251st Quarter


531


1,333


1,864


1,170


1,967


0.123Total

$
2,002

$
4,622

$
6,624

$
(1,893
)
$
6,877

$
0.374




Distributions PaidCash Flow
Provided by (Used
In) Operations

Total
Distributions
Declared

Declared
Distribution
Per Share2009

Cash

Reinvested

Total3rd Quarter

$
364

$
997

$
1,361

$
(724
)
$
1,437

$
0.1302nd Quarter


172


505


677


174


881


0.0911st Quarter


138


416


554


(151
)

586


0.074Total

$
674

$
1,918

$
2,592

$
(701
)
$
2,904

$
0.295


Distributions
declared per share assumes the share was issued and outstanding each day during the period and was based on a declared daily distribution rate of $0.0008219 per share per
day for the period through May 31, 2009. Since June 1, 2009, the effective daily distribution rate has been $0.0013699. Each day during the first, second, and third quarters of 2010 was
a record date for distributions. On September 29, 2010, the Company's board of directors declared distributions payable to the stockholders of record each day during the months of October,
November, and December 2010. Distributions payable to each stockholder of record will be paid in cash on or before the 16th day of the following month.

Operating
performance cannot be accurately predicted due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our
investments in the current real estate environment, the types and mix of investments in our portfolio and the accounting treatment of our investments in accordance with our accounting policies.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management
to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including
investment impairment. These estimates are based on management's historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates.

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



Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All
inter-company transactions, balances, and profits have been eliminated in consolidation. Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to
consolidate entities deemed to be variable interest entities ("VIE") in which we are the primary beneficiary. If the interest in the entity is determined not to be a VIE, then the entities will be
evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement.

There
are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary. The entity is
evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves
assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of
those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using
the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.



Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling
interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed
may consist of buildings, any assumed debt, identified intangible assets and asset retirement obligations. Identified intangible assets generally consist of the above-market and below-market leases,
in-place leases, in-place tenant improvements and tenant relationships. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the
consideration transferred and any noncontrolling interests in the acquiree over the fair value of identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings
when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related
costs are expensed in the period incurred.

Initial
valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition date.

We
determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks
associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of
current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or
(b) the remaining non-cancelable lease term plus any fixed rate renewal option for below-market leases. We record the fair value of above-market and below-market leases as
intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.

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

We
amortize the value of in-place leases to expense over the term of the respective leases. The value of tenant relationship intangibles is amortized to expense over the
initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate
its lease, the unamortized portion of the in-place lease value and tenant relationship intangibles is charged to expense.



We recognize rental income generated from leases on real estate assets on a straight-line basis over the terms of the
respective leases, including the effect of rent holidays, if any. Straight-line rental revenue of $0.1 million was recognized in rental revenues for both the three and nine months
ended September 30, 2010. Straight-line rental revenue of less than $0.1 million was recognized in rental revenues for both the three and nine months ended
September 30, 2009.

We
recognize interest income from real estate loans receivable on an accrual basis over the life of the loan using the interest method. Direct loan origination fees and origination or
acquisition costs, as well as acquisition premiums or discounts, are amortized over the life of the loan as an adjustment to interest income. We will stop accruing interest on loans when there is
concern as to the ultimate collection of principal or interest of the loan. In the event that we stop accruing interest on a loan, we will generally not recognize subsequent interest income until cash
is received or we make the decision to restart interest accrual on the loan.



For real estate we consolidate, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate
assets may not be recoverable. When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be
generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. In the event that the
carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value. We consider
projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. While we believe
our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

In
addition, we evaluate our investments in real estate loans receivable each reporting date. If it is probable we will not collect all principal and interest in accordance with the
terms of the loan, we will record an impairment charge based on these evaluations. While we believe it is currently probable we will collect all scheduled principal and interest with respect to our
real estate loans receivable, current

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market
conditions with respect to credit availability and with respect to real estate market fundamentals create a significant amount of uncertainty. Given this, any future adverse development in
market conditions may cause us to re-evaluate our conclusions, and could result in material impairment charges with respect to our real estate loans receivable.

In
evaluating our investments for impairment, management may use appraisals and makes estimates and assumptions, including, but not limited to, the projected date of disposition of the
properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could
result in understating or overstating the book value of our investments, which could be material to our financial statements.

We
believe the carrying value of our operating real estate and loan investments is currently recoverable. However, if market conditions worsen beyond our current expectations, or if
changes in our strategy significantly affect any key assumptions used in our fair value calculations, we may need to take charges in future periods for impairments related to our existing investments.
Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.



We maintain less than $0.1 million in Euro-denominated accounts at European financial institutions. Accordingly, we
are not materially exposed to any significant foreign currency fluctuations related to these accounts.



We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make
loans and other permitted investments. Our management's objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates
to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities. We may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps, or floors to
mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt. Of our $79 million in notes payable at
September 30, 2010, $38.7 million represented debt subject to variable interest rates. If our variable interest rates increased 100 basis points, we estimate that total annual interest
cost, including interest expensed and interest capitalized, would increase by $0.2 million.

Interest
rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate real estate loan receivable, the PAL Loan, unless such instruments mature or are
otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instrument. As we expect to hold the PAL Loan to maturity and the amounts due under the loan would be
limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates would have a significant impact on the cash flows of our fixed
rate real estate loan receivable.

The
PAL Loan, a fixed rate real estate loan receivable, with all $25 million of the available balance outstanding under the loan as of September 30, 2010, has a maturity
date of September 1, 2016 and

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accrues
interest at 18% per annum. The PAL Loan is subject to market risk to the extent that the stated interest rate varies from current market rates for loans made under similar terms.

Item 4.    Controls and Procedures.



As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated, as of September 30, 2010, the effectiveness of our disclosure controls and procedures as defined in Exchange Act
Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective, as of September 30, 2010, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and
reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosures.

We
believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.



There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2010
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION

Item 1.    Legal Proceedings.

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

Item 1A.    Risk Factors.

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year
ended December 31, 2009.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds from Registered Securities

On January 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, was declared effective under the Securities Act of 1933. The Offering commenced on January 21, 2008 and is ongoing. We
expect to offer the shares registered in our public offering until the earlier to occur of July 3, 2011 or the date the registration statement relating to our proposed follow-on
offering is declared effective by the SEC. Our board of directors has the discretion to extend the offering period for the shares offered under the DRP up to the sixth anniversary of the termination
of the primary offering.

We
are offering a maximum of 100,000,000 shares in our primary offering at an aggregate offering price of up to $1 billion, or $10.00 per share with discounts available to certain
categories of purchasers. The 25,000,000 shares offered under the DRP are being offered at an aggregate offering price of $237.5 million, or $9.50 per share. We may reallocate the shares of
common stock being offered between the primary offering and the DRP. Behringer Securities LP, an affiliate of our advisor, is the dealer manager of our offering. As of September 30,
2010, we had sold 21,306,762 shares of our common stock including shares issued under the DRP, net of the 22,471 shares issued to Behringer Harvard Holdings, on a best efforts basis pursuant to the
Offering for gross offering proceeds of approximately $212.3 million.

From
the commencement of the Offering through September 30, 2010, we incurred the following expenses in connection with the issuance and distribution of the registered securities
pursuant to the Offering ($ in thousands):

Type of Expense

AmountOther expenses to affiliates(1)

$
26,589Other expenses to non-affiliates


Total expenses

$
26,589


(1)"Other
expenses to affiliates" includes commissions and dealer manager fees paid to Behringer Securities, which reallowed all or a portion of
the commissions and fees to soliciting dealers.


From
the commencement of the Offering through September 30, 2010, the net offering proceeds to us from the Offering, including the DRP, after deducting the total expenses incurred
described above, were $185.7 million. From the commencement of the Offering through September 30, 2010, we had used $79 million of such net proceeds to purchase interests in real
estate (net of notes payable) and real estate-related investments. Of the amount used for the purchase of these investments,

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$4.2 million
was paid to Behringer Opportunity Advisors II, as acquisition and advisory fees and acquisition expense reimbursement.

Recent Sales of Unregistered Securities

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

Share Redemption Program

Our board of directors has adopted a share redemption program that permits stockholders to sell their shares back to us after they have
held them for at least one year, subject to the significant conditions and limitations of the program. Our board of directors can amend the provisions of our share redemption program without the
approval of our stockholders. The terms on which we redeem shares may differ between redemptions upon a stockholder's death, "qualifying disability" (as defined in the share redemption program) or
confinement to a long-term care facility (collectively referred to herein as "Exceptional Redemptions") and all other redemptions (referred to herein as "Ordinary Redemptions"). The
purchase price for shares redeemed under the redemption program is set forth below.

In
the case of Ordinary Redemptions, the purchase price per share will equal 90% of (i) the most recently disclosed estimated value per share as determined in accordance with our
valuation policy, less (ii) the aggregate distributions per share of any net sale proceeds from the sale of one or more of our assets, or other special distributions so designated by our board
of directors, distributed to stockholders after the valuation was determined (the "Valuation Adjustment"); provided, however, that the purchase price per share shall not exceed: (1) prior to
the first valuation conducted by the board of directors, or a committee thereof (the "Initial Board Valuation"), under the valuation policy, 90% of (i) average price per share the original
purchaser or purchasers of shares paid to us for all of his or her shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock)
(the "Original Share Price") less (ii) the aggregate distributions per share of any net
sale proceeds from the sale of one or more of our assets, or other special distributions so designated by the board of directors, distributed to stockholders prior to the redemption date (the "Special
Distributions"); or (2) on or after the Initial Board Valuation, the Original Share Price less any Special Distributions.

In
the case of Exceptional Redemptions, the purchase price per share will be equal to: (1) prior to the Initial Board Valuation, the Original Share Price less any Special
Distributions; or (2) on or after the Initial Board Valuation, the most recently disclosed valuation less any Valuation Adjustment, provided, however, that the purchase price per share may not
exceed the Original Share Price less any Special Distributions.

Notwithstanding
the redemption prices set forth above, our board of directors may determine, whether pursuant to formulae or processes approved or set by our board of directors, the
redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days' notice to stockholders
before applying this new price determined by our board of directors.

Any
shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually. We will not
redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. Generally, the
cash available for redemption on any particular date will be limited to the proceeds from our distribution reinvestment plan during the period consisting of the preceding four fiscal quarters for
which financial statements are available, less any cash already used for redemptions during the same period, plus, if we

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had
positive operating cash flow during such preceding four fiscal quarters, 1% of all operating cash flow during such preceding four fiscal quarters. The redemption limitations apply to all
redemptions, whether Ordinary or Exceptional Redemptions.

During
the third quarter ended September 30, 2010, we redeemed shares as follows:

2010

Total Number of
Shares Redeemed

Average Price
Paid Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum
Number of Shares
That May Be
Purchased Under
the Plans or
ProgramsJuly




$



August


61,775

$
8.97


61,775


(1)September




$



61,775

$
8.97


61,775


(1)


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


Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    (Removed and Reserved.)

Item 5.    Other Information.

None.

Item 6.    Exhibits.

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

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

BEHRINGER HARVARD OPPORTUNITY REIT II, INC.Dated: November 15, 2010

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

Description3.1

Second Articles of Amendment and Restatement as amended by the First Articles of Amendment and the Second Articles of Amendment (incorporated by reference to Exhibit 3.1 to Form 10-Q filed on November 14,
2008)3.2

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-K filed on March 30, 2010)3.2(a
)
Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2(a) to Form 10-K filed on March 30, 2010)4.1

Form of Subscription Agreement (incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 10 to the Company's Registration Statement on Form S-11, Commission File No. 333-140887)4.2

Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 10 to the Company's Registration Statement on Form S-11, Commission File
No. 333-140887)4.3

Amended and Restated Automatic Purchase Plan (incorporated by reference to Exhibit 4.3 to Post-Effective Amendment No. 10 to the Company's Registration Statement on Form S-11, Commission File
No. 333-140887)4.4

Amended and Restated Share Redemption Program (incorporated by reference to Exhibit 99.2 to Form 10-Q filed on November 12, 2009)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*

Multifamily Note made by 7900 Hampton Blvd, LLC to Amerisphere Multifamily Finance, L.L.C. dated as of September 17, 2010, incorporated by reference to Exhibit 10.29 to Post-Effective
Amendment No. 12 to the Company's Registration Statement on Form S-11, Commission File No. 333-14088710.2*

Multifamily Mortgage, Assignment of Rents and Security Agreement between 7900 Hampton Blvd, LLC and Amerisphere Multifamily Finance, L.L.C. dated as of September 17, 2010, incorporated by reference to
Exhibit 10.30 to Post-Effective Amendment No. 12 to the Company's Registration Statement on Form S-11, Commission File No. 333-14088710.3*

Limited Liability Company Agreement of 7900 Hampton Blvd, LLC dated September 17, 2010 by, between and among Behringer Harvard Parrot's Landing, LLC and Hampton Peak, LLC, incorporated by
reference to Exhibit 10.31 to Post-Effective Amendment No. 12 to the Company's Registration Statement on Form S-11, Commission File No. 333-14088731.1*

Rule 13a-14(a)/15d-14(a) Certification31.2*

Rule 13a-14(a)/15d-14(a) Certification32.1*

Section 1350 Certifications**


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