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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**[Mark One]**
| x          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                               |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                 |
|       |       | **For the quarterly period ended  June 30, 2008**                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                 |
|       |       | **OR**                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                 |
| o          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the transition period from                     to                 ** |

 

**Commission File Number: 333-140887**

 

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

(Exact Name of Registrant as Specified in ItsCharter)

 

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

 

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

(Address of principal executive offices) (Zip Code)

 

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

** **

**None**

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

 

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

 

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

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

 

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

 

Asof August 1, 2008, Behringer Harvard Opportunity REIT II, Inc. had3,222,141****shares of common stock,$.0001 par value, outstanding.

 

 

 

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**BEHRINGER HARVARD OPPORTUNITYREIT II, INC.**

**FORM 10-Q**

**Quarter Ended June 30, 2008**

 
|          |                                                                                                                                                                                                                                     | **Page**   |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|          | ** **                                                                                                                                                                                                                               | ** ** |
|          | **PART I**                                                                                                                                                                                                                          | ** ** |
|          | **FINANCIAL  INFORMATION**                                                                                                                                                                                                               | ** ** |
|          |                                                                                                                                                                                                                                     |       |
| **Item 1.**   | **Financial Statements (Unaudited)**                                                                                                                                                                                                     |       |
|          |                                                                                                                                                                                                                                     |       |
|          | Consolidated Balance Sheets as of  June 30, 2008 and December 31, 2007                                                                                                                                                         | 3          |
|          |                                                                                                                                                                                                                                     |       |
|          | Consolidated Statements of  Operations for the three and six months ended June 30, 2008 and for the  three months ended June 30, 2007 and the period from January 9,  2007 (date of inception) through June 30, 2007 | 4          |
|          |                                                                                                                                                                                                                                     |       |
|          | Consolidated Statements of  Stockholders’ Equity for the period from January 9, 2007 (date of  inception) through December 31, 2007 and for the six months ended  June 30, 2008                                      | 5          |
|          |                                                                                                                                                                                                                                     |       |
|          | Consolidated Statements of  Cash Flows for the six months ended June 30, 2008 and for the period  from January 9, 2007 (date of inception) through June 30, 2007                                                          | 6          |
|          |                                                                                                                                                                                                                                     |       |
|          | Notes to Consolidated Financial Statements                                                                                                                                                                                               | 7          |
|          |                                                                                                                                                                                                                                     |       |
| **Item 2.**   | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                                                                                                          | **15**     |
| ** **    | ** **                                                                                                                                                                                                                               | ** ** |
| **Item 3.**   | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                                                                                                                          | **19**     |
| ** **    | ** **                                                                                                                                                                                                                               | ** ** |
| **Item 4T.**  | **Controls and  Procedures**                                                                                                                                                                                                             | **19**     |
| ** **    | ** **                                                                                                                                                                                                                               | ** ** |
|          | **PART II**                                                                                                                                                                                                                         |       |
|          | **OTHER INFORMATION**                                                                                                                                                                                                                    |       |
|          |                                                                                                                                                                                                                                     |       |
| **Item 1.**   | **Legal Proceedings**                                                                                                                                                                                                                    | 20         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 1A.**  | **Risk Factors**                                                                                                                                                                                                                         | 20         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 2.**   | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                                                                                                                         | 20         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 3.**   | **Defaults Upon  Senior Securities**                                                                                                                                                                                                     | 21         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 4.**   | **Submission of  Matters to a Vote of Security Holders**                                                                                                                                                                                 | 21         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 5.**   | **Other Information**                                                                                                                                                                                                                    | 21         |
|          |                                                                                                                                                                                                                                     |       |
| **Item 6.**   | **Exhibits**                                                                                                                                                                                                                             | 21         |
|          |                                                                                                                                                                                                                                     |       |
| **Signature** |                                                                                                                                                                                                                                     | 22         |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1.                    FinancialStatements.**

 

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

**Consolidated Balance Sheets**

(Unaudited)

 
| ** **                                                                                                                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                               | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| **Assets**                                                                                                                               |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                |       | $                 | 19,433,907 |                  | $          | 203,040 |   |
| Restricted cash                                                                                                                          |       | 262,250           |       | —                |       |
| Receivable from related party                                                                                                            |       | 9,300             |       | —                |       |
| Prepaid expenses and other assets                                                                                                        |       | 264,615           |       | —                |       |
| **Total assets**                                                                                                                         |       | $                 | 19,970,072 |                  | $          | 203,040 |   |
|                                                                                                                                     |       |              |       |                  |       |
| **Liabilities and stockholders’ equity**                                                                                            |       |              |       |                  |       |
| **Liabilities**                                                                                                                          |       |              |       |                  |       |
| Payables to related parties                                                                                                              |       | $                 | 3,808,608  |                  | $          | 300 |   |
| Distributions payable                                                                                                                    |       | 41,922            |       | —                |       |
| Accrued liabilities                                                                                                                      |       | 363,616           |       | 53,375                |       |
| Subscriptions for common stock                                                                                                           |       | 262,250           |       | —                |       |
| **Total liabilities**                                                                                                                    |       | 4,476,396         |       | 53,675                |       |
|                                                                                                                                     |       |              |       |                  |       |
| **Commitments and contingencies**                                                                                                        |       |              |       |                  |       |
|                                                                                                                                     |       |              |       |                  |       |
| **Stockholders’ equity**                                                                                                            |       |              |       |                  |       |
| Preferred stock, $.0001 par value per  share;                                                                                            |       |              |       |                  |       |
| 50,000,000 shares authorized, none  outstanding                                                                                          |       | —            |       | —                |       |
| Convertible stock, $.0001 par value per  share;                                                                                          |       |              |       |                  |       |
| 1,000 shares authorized, 1,000 outstanding                                                                                               |       | —            |       | —                |       |
| Common stock, $.0001 par value per share;                                                                                                |       |              |       |                  |       |
| 350,000,000 shares authorized, 2,166,360  and 22,471 shares issued and outstanding at June 30, 2008 and December 31,  2007 respectively. |       | 216               |       | 2                     |       |
| Additional paid-in capital                                                                                                               |       | 15,858,801        |       | 200,998               |       |
| Cumulative distributions and net loss                                                                                                    |       | (365,341          | )          | (51,635               | )          |
| **Total stockholders’ equity**                                                                                                      |       | 15,493,676        |       | 149,365               |       |
| **Total liabilities and stockholders’ equity**                                                                                      |       | $                 | 19,970,072 |                  | $          | 203,040 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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

**Consolidated Statements ofOperations**

(Unaudited)

 

 
| ** **                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | ** **          | ** ** | **For the period from** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|------------|----------------------------------------|------------|
| ** **                                                    | ** ** | **Three months** | ** ** | **Three months** | ** ** | **Six Months** | ** ** | **January 9, 2007**          | ** ** |
| ** **                                                    | ** ** | **ended**             | ** ** | **ended**             | ** ** | **ended**           | ** ** | **(date of inception)**      | ** ** |
|                                                          | ** ** | **June 30,  2008**    | ** ** | **June 30,  2007**    | ** ** | **June 30,  2008**  | ** ** | **through  June 30, 2007**             | ** ** |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| **Revenue**                                                   |       | $                     | —     |                  | $          | —              |       | $                                      | —     |   | $ | — |   |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| **Expenses**                                                  |       |                  |       |                  |       |                |       |                                   |       |
| General and administrative                                    |       | 216,604               |       | —                |       | 286,366             |       | —                                 |       |
| **Total expenses**                                            |       | 216,604               |       | —                |       | 286,366             |       | —                                 |       |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| Interest income                                               |       | 41,562                |       | —                |       | 47,039              |       | —                                 |       |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| **Net loss**                                                  |       | $                     | (175,042   | )                     | $          | —              |       | $                                      | (239,327   | ) | $ | — |   |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| **Basic and diluted weighted****average  shares outstanding** |       | 968,712               |       | 22,471                |       | 495,592             |       | 22,471                                 |       |
|                                                          |       |                  |       |                  |       |                |       |                                   |       |
| **Basic and diluted loss per share**                          |       | $                     | (0.18      | )                     | $          | —              |       | $                                      | (0.48      | ) | $ | — |   |

 

*See Notes to Consolidated Financial Statements.*

 

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

**Consolidated Statements ofStockholders’ Equity**

(Unaudited)

 
| ** **                                                | ** ** | **Convertible Stock** | ** ** | **Common Stock** | ** ** | **Additional**     | ** ** | ** ** | ** ** | **Total**   | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|--------------------|------------|------------|------------|-------------|------------|
| ** **                                                | ** ** | **Number**                 | ** ** | **Par**               | ** ** | **Number**         | ** ** | **Par**    | ** ** | **Paid-in** | ** ** | **Cumulative** | ** ** | **Stockholders’** | ** ** |
| ** **                                                | ** ** | **of Shares**         | ** ** | **Value**             | ** ** | **of Shares** | ** ** | **Value**  | ** ** | **Capital** | ** ** | **Net Loss** | ** ** | **Equity** | ** ** |
|                                                      |       |                       |       |                  |       |               |       |       |       |        |       |   |   |   |   |
| Balance at January 9, 2007  (date of inception)           |       | —                     |       | $                     | —     |               | —     |       | $          | —      |       | $ | — |   | $ | — |   | $ | — |   |
| Issuance of convertible   stock, net                      |       | 1,000                      |       | —                |       |               |       |       |       | 1,000       |       |   |   | 1,000 |   |
| Issuance of common stock, net                             |       |                       |       |                  |       | 22,471             |       | 2          |       | 199,998     |       |   |   | 200,000 |   |
| Net loss                                                  |       |                       |       |                  |       |               |       |       |       |        |       | (51,635 | ) | (51,635 | ) |
| Balance at December 31, 2007                              |       | 1,000                      |       | —                |       | 22,471             |       | 2          |       | 200,998     |       | (51,635 | ) | 149,365 |   |
|                                                      |       |                       |       |                  |       |               |       |       |       |        |       |   |   |   |   |
| Issuance of common stock, net                             |       |                       |       |                  |       | 2,141,300          |       | 214        |       | 15,633,211  |       |   |   | 15,633,425 |   |
| Distributions declared on common stock                    |       |                       |       |                  |       |               |       |       |       |        |       | (74,379 | ) | (74,379 | ) |
| Shares issued pursuant to Distribution Reinvestment  Plan |       |                       |       |                  |       | 2,589              |       | —     |       | 24,592      |       |   |   | 24,592 |   |
| Net loss                                                  |       |                       |       |                  |       |               |       |       |       |        |       | (239,327 | ) | (239,327 | ) |
| Balance at June 30, 2008                                  |       | 1,000                      |       | $                     | —     |               | 2,166,360  |       | $          | 216         |       | $ | 15,858,801 |   | $ | (365,341 | ) | $ | 15,493,676 |   |

 

*See Notes to Consolidated Financial Statements.*

 

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

**ConsolidatedStatements of Cash Flows**

(Unaudited)

 
| ** **                                                                         | ** ** | ** **                  | ** ** | **For the period from**   | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------|------------|
| ** **                                                                         | ** ** | **Six months**         | ** ** | **January 9, 2007**            | ** ** |
| ** **                                                                         | ** ** | **ended**                   | ** ** | **(date of inception)**        | ** ** |
| ** **                                                                         | ** ** | **June 30, 2008** | ** ** | **through June 30, 2007** | ** ** |
| **Cash flows from operating activities**                                           |       |                        |       |                                     |       |
| Net loss                                                                           |       | $                           | (239,327   | )                                        | $          | — |   |
| Adjustments to reconcile net loss to net  cash flows used in operating activities: |       |                        |       |                                     |       |
| Change in accrued liabilities                                                      |       | 45,625                      |       | —                                   |       |
| Change in payables to related parties                                              |       | 57,762                      |       | —                                   |       |
| **Cash used in operating activities**                                              |       | (135,940                    | )          | —                                   |       |
|                                                                               |       |                        |       |                                     |       |
| **Cash flows from financing activities**                                           |       |                        |       |                                     |       |
| Issuance of common/convertible stock                                               |       | 21,343,577                  |       | 201,000                                  |       |
| Offering costs                                                                     |       | (1,968,905                  | )          | —                                   |       |
| Distributions                                                                      |       | (7,865                      | )          | —                                   |       |
| Change in subscriptions for common stock                                           |       | 262,250                     |       | —                                   |       |
| Change in subscription cash received                                               |       | (262,250                    | )          | —                                   |       |
| **Cash provided by financing activities**                                          |       | 19,366,807                  |       | 201,000                                  |       |
|                                                                               |       |                        |       |                                     |       |
| Net change in cash and cash equivalents                                            |       | 19,230,867                  |       | 201,000                                  |       |
| Cash and cash equivalents at beginning of  period                                  |       | 203,040                     |       | —                                   |       |
| Cash and cash equivalents at end of period                                         |       | $                           | 19,433,907 |                                     | $          | 201,000 |   |
| * *                                                                           | * *   | * *                    | * *   | * *                                 | * *   |
| **Non-cash investing activities:**                                                 |       |                        |       |                                     |       |
| Accrued other assets                                                               |       | $                           | 264,615    |                                     | $          | — |   |
|                                                                               |       |                        |       |                                     |       |
| **Non-cash financing activities:**                                                 | * *   | * *                    | * *   | * *                                 | * *   |
| Common stock issued in distribution  reinvestment plan                             |       | $                           | 24,592     |                                     | $          | — |   |
| Offering costs payable to related parties                                          |       | $                           | 3,750,546  |                                     | $          | — |   |

 

*See Notes to Consolidated Financial Statements.*

 

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

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

 

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

 

***Business***

 

BehringerHarvard Opportunity REIT II, Inc. (which may be referred to as the “Company,”“we,” “us,” or “our”) was organized in Maryland on January 9, 2007 andintends to qualify as a real estate investment trust (“REIT”) for federalincome tax purposes effective for our taxable year ending December 31,2008.  We intend to acquire and operatecommercial real estate and real estate-related assets.  In particular, we will focus generally onacquiring commercial properties with significant possibilities for short-termcapital appreciation, such as those requiring development, redevelopment orrepositioning, those located in markets and submarkets with high growthpotential and those available from sellers who are distressed or facetime-sensitive deadlines.  We may acquirea wide variety of commercial properties, including office, industrial, retail,hospitality, recreation and leisure, single-tenant, multifamily and other realproperties.  These properties may beexisting, income-producing properties, newly constructed properties or propertiesunder development or construction and may include multifamily propertiespurchased for conversion into condominiums and single-tenant properties thatmay be converted for multifamily use. Further, we may invest in real estate-related securities, includingsecurities issued by other real estate companies, either for investment or inchange of control transactions completed on a negotiated basis orotherwise.  We also may originate orinvest in collateralized mortgage-backed securities, mortgage, bridge ormezzanine loans and Section 1031 tenant-in-common interests (includingthose issued by affiliates of our advisor), or in entities that makeinvestments similar to the foregoing.

 

Substantially all of our business will be conducted through BehringerHarvard Opportunity OP II LP, a limited partnership organized in Delaware on January 12,2007 (“Behringer Harvard Opportunity OP II”). As of June 30, 2008, our wholly owned subsidiary, BHO II, Inc.,a Delaware corporation, was the sole general partner of Behringer HarvardOpportunity OP II and owned a 0.1% partnership interest in Behringer HarvardOpportunity OP II.  As of June 30,2008, our wholly owned subsidiary, BHO Business Trust II, a Maryland businesstrust, was the sole limited partner of Behringer Harvard Opportunity OP II.

 

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

 

***Organization***

 

On February 26,2007, we filed a Registration Statement on Form S-11 with the Securitiesand Exchange Commission (the “SEC”) to offer up to 125,000,000 shares of commonstock for sale to the public (the “Offering”), of which 25,000,000 shares arebeing offered pursuant to our distribution reinvestment plan (the “DRIP”).  We reserve the right to reallocate the shareswe are offering between our primary offering and the DRIP.  The SEC declared our Registration Statementeffective on January 4, 2008, and we commenced our ongoing initial publicoffering on January 21, 2008.  Wecommenced operations on April 1, 2008 upon satisfaction of the conditionsof our escrow agreement in all states except Pennsylvania and our acceptance ofinitial subscriptions of common stock.

 

Inconnection with our initial capitalization, on January 19, 2007, we issued22,471 shares of our common stock and 1,000 shares of our convertible stock toBehringer Harvard Holdings, LLC (“Behringer Harvard Holdings”), an affiliate ofour advisor.  On April 1, 2008 we satisfied the minimum offering in all statesexcept Pennsylvania and the escrow agent released subscription proceeds to usfrom the Offering immediately thereafter. Subscription proceeds from the state of Pennsylvania will be placed inan account held by our escrow agent until we have received and acceptedsubscriptions aggregating $50 million.  Weadmit new stockholders purchasing shares in the primary portion of the Offeringat least monthly.  Upon admission of newstockholders, subscription proceeds will be used for payment of dealer managerfees and selling commissions and may be utilized as consideration forinvestments and the payment or reimbursement of offering expenses and operating expenses.  Until required for such purposes, netoffering proceeds are held in short-term, liquid investments.

 

As of June 30,2008, we had 2,166,360 shares of commons stock outstanding, which includes the22,471 shares issued to Behringer Harvard Holdings.  As of June 30, 2008, we had 1,000 sharesof convertible stock issued and outstanding to Behringer Harvard Holdings.

 

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

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

liquidation within that period, we may seek to haveour shares listed on a national securities exchange.  If we do not begin the process of liquidatingour assets or listing our shares within six years of the termination of ourprimary offering, our charter requires that we hold a stockholders meeting tovote on a proposal for our orderly liquidation unless a majority of our boardof directors and a majority of our independent directors vote to defer such ameeting beyond the sixth anniversary of the termination of our primaryoffering.  The proposal would includeinformation regarding appraisals of our portfolio.  If our stockholders did not approve theproposal, we would obtain new appraisals and resubmit the proposal by proxystatement to our stockholders up to once every two years upon the writtenrequest of stockholders owning 10% of our outstanding common stock.

 

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

 

Theaccompanying consolidated financial statements should be read in conjunctionwith the consolidated financial statements and notes thereto included in ourSpecial Financial Report on Form 10-K for the year ended December 31,2007, which was filed with the SEC on March 31, 2008.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America (“GAAP”)have been condensed or omitted from this report on Form 10-Q pursuant tothe rules and regulations of the SEC.

 

Theresults for the interim periods shown in this report are not necessarilyindicative of future financial results. The accompanying consolidated balance sheet and consolidated statementof stockholders’ equity as of June 30, 2008 and consolidated statements ofoperations for the three and six months ended June 30, 2008 and 2007 andcash flows for the six months ended June 30, 2008 and 2007 have not beenaudited by our independent registered public accounting firm.  In the opinion of management, theaccompanying unaudited consolidated financial statements include alladjustments necessary to fairly present our consolidated financial position asof June 30, 2008 and December 31, 2007 and our consolidated resultsof operations and cash flows for the periods ended June 30, 2008 and2007.  Such adjustments are of a normalrecurring nature.

 

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

 

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

 

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

 

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

 

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

 

***Real Estate***

 

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

 

Uponthe completion of a business combination, we will record the tangible assetsacquired, consisting of land and buildings, any assumed debt, identifiedintangible assets and asset retirement obligations based on their fair valuesin accordance with SFAS No. 141, “Business Combinations.”  Identified intangible assets will consist ofthe fair value of above-market and below-market leases, in-place leases,in-place tenant improvements, in-place leasing commissions and tenant relationships.  Any amount paid in excess of the fair valueof the assets and liabilities acquired will be recorded as goodwill.  

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

Ifthe value of the assets and liabilities exceed the total purchase price, thenthe resulting negative goodwill will be allocated to the tangible andintangible assets acquired.

 

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

 

Wewill determine the fair value of assumed debt by calculating the net presentvalue of the scheduled note payments using interest rates for debt with similarterms and remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt will be recorded as a discount or premium andamortized over the remaining life of the loan.

 

Thefair value of the tangible assets acquired, consisting of land and buildings,will be determined by valuing the property as if it were vacant, and the “as-if-vacant”value will be allocated to land and buildings. Land values will be derived from appraisals, and building values will becalculated as replacement cost less depreciation or management’s estimates ofthe relative fair value of these assets using discounted cash flow analyses orsimilar methods.  The value of commercialoffice buildings will be depreciated over the estimated useful life of 25 yearsusing the straight-line method and hotels/mixed-use properties will bedepreciated over the estimated useful life of 39 years using the straight-linemethod.

 

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

 

Thetotal value of identified real estate intangible assets acquired will befurther allocated to in-place lease values, in-place tenant improvements, in-placeleasing commissions and tenant relationships based on our evaluation of thespecific characteristics of each tenant’s lease and our overall relationshipwith that respective tenant.  Theaggregate value for tenant improvements and leasing commissions will be basedon estimates of these costs incurred at inception of the acquired leases,amortized through the date of acquisition. The aggregate value of in-place leases acquired and tenant relationshipswill be determined by applying a fair value model.  The estimates of fair value of in-placeleases includes an estimate of carrying costs during the expected lease-upperiods for the respective spaces considering current market conditions.  In estimating the carrying costs that wouldhave otherwise been incurred had the leases not been in place, we will includesuch items as real estate taxes, insurance and other operating expenses as wellas lost rental revenue during the expected lease-up period based on currentmarket conditions.  The estimates of thefair value of tenant relationships will also include costs to execute similarleases including leasing commissions, legal fees and tenant improvements aswell as an estimate of the likelihood of renewal as determined by management ona tenant-by-tenant basis.

 

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

 

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

 

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

 

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

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

***Cash and Cash Equivalents***

 

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

 

***Restricted Cash***

 

Restrictedcash includes subscription proceeds held in a separate account until the subscribinginvestors are admitted as stockholders. On April 1, 2008, we satisfied the conditions of our escrowagreement in all states except Pennsylvania and accepted subscriptionsaggregating approximately $3.1 million. We will admit new stockholders in all states except Pennsylvania atleast monthly.  Upon acceptance ofstockholders, shares of stock are issued, and we receive the subscriptionproceeds.

 

***Organization and Offering Expenses***

 

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

 

Alloffering costs will be recorded as an offset to additional paid-in capital, andall organization costs will be recorded as an expense at the time we becomeliable for the payment of these amounts. We received the minimum proceeds from the Offering and acceptedinvestors on April 1, 2008, and as a result, we are obligated to reimburseour advisor for amounts it has incurred related to our public offering.  As of June 30, 2008, BehringerOpportunity Advisors II had incurred approximately $67,000 in organizationcosts and $3.7 million in offering costs on our behalf.

 

***Income Taxes***

 

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

 

***Stock Based Compensation***

 

Wehave adopted a stock-based incentive award plan for our directors andconsultants and for employees, directors and consultants of ouraffiliates.  We account for this plan inaccordance with FASB SFAS No. 123R,“Share-Based Payment.”  In theprospective method, compensation cost is recognized for all share-basedpayments granted after the effective date. SFAS No. 123R also requires the tax benefits associated with theseshare-based payments to be classified as financing activities in theConsolidated Statements of Cash Flows, rather than as operating cashflows.  No stock-based awards were issuedunder the plan as of June 30, 2008.

 

***Concentration of Credit Risk***

 

AtJune 30, 2008 and December 31, 2007, we had cash on deposit infinancial institutions in excess of federally insured levels; however, we havenot experienced any losses in such accounts. We regularly monitor the financial stability of 

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

thesefinancial institutions and believe that we are not exposed to any significantcredit risk in cash and cash equivalents or restricted cash.

 

***Earnings per Share***

 

Earningsper share is calculated based on the weighted average number of common sharesoutstanding during each period.   As of June 30,2008, we had no stock based awards outstanding. The weighted average shares outstanding used to calculate both basic anddiluted loss per share were the same for the three and six months ended June 30,2008 and for the three months ended June 30, 2007 and from the period fromJanuary 9, 2007 (date of inception) through June 30, 2007 as therewere no stock-based awards outstanding and any such effect would have beenanti-dilutive.

 

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

 

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

 

**5.**             **Stockholders’ Equity**

 

***Capitalization***

 

As of June 30, 2008, our authorized capital was 350,000,000 sharesof common stock, 50,000,000 shares of preferred stock and 1,000 shares ofconvertible stock.  All shares of suchstock have a par value of $.0001 per share. As of June 30, 2008, we had 2,166,360 shares of our common stockissued and outstanding, 1,000 shares of convertible stock issued andoutstanding and no shares of preferred stock issued and outstanding.

 

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

 

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

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

***Share Redemption Program***

 

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

 

***Distribution Reinvestment Plan***

 

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

 

***Distributions***

 

We initiated the payment of monthly distributions in April 2008 inthe amount of a 3% annualized rate of return, based on an investment in ourcommon stock of $10.00 per share and calculated on a daily record basis of$0.0008219 per share.  A portion of eachdistribution is expected to constitute a return of capital for taxpurposes.  Pursuant to the DRIP,stockholders may elect to reinvest any cash distribution in additional sharesof common stock.    We record alldistributions when declared, except that the stock issued through the DRIP isrecorded when the shares are actually issued. Distributions declared and payable as of June 30, 2008 wereapproximately $42,000, which included approximately $10,000 of cashdistributions payable and approximately $32,000 of DRIP distributions payable.

 

Thefollowing are the distributions declared during the three months ended June 30,2008:

 

| **2008**       | ** ** | **Total** | ** ** | **Cash** | ** ** | **DRIP** | ** ** |
|----------------|------------|-----------|------------|----------|------------|----------|------------|
| Second Quarter |       | 74,379    |       | $        | 17,635     |     | 56,744     |   |
|                |            |           |            |          |            |          |            |  |

 

**6.**             **Incentive Award Plan**

 

TheBehringer Harvard Opportunity REIT II, Inc. 2007 Amended and RestatedIncentive Award Plan (“Incentive Award Plan”) was adopted by our board ofdirectors on December 19, 2007 and provides for the grant of equity awardsto our employees, directors and consultants and those of our advisor and itsaffiliates.  A total of 10,000,000 shareshave been authorized and reserved for issuance under our Incentive AwardPlan.  As of June 30, 2008, noawards had been granted under such plan.

 

**7.**             **Related Party Transactions**

 

Ouradvisor and certain of its affiliates will receive fees and compensation inconnection with the Offering, and in connection with the acquisition,management and sale of our assets.  On April 1, 2008 we satisfied theminimum offering in all states except Pennsylvania and commencedoperations.  We had not purchased anyproperties as of June 30, 2008.

 

BehringerSecurities LP (“Behringer Securities”), the dealer-manager and an affiliate ofour advisor, receives commissions of up to 7% of gross offering proceeds.  Behringer Securities reallows 100% of sellingcommissions earned to participating broker-dealers.  In addition, we pay Behringer Securities adealer manager fee of up to 2.5% of gross offering proceeds.  Pursuant to separately negotiated agreements,Behringer Securities may reallow a portion of its dealer manager fee in anaggregate amount up to 2% of gross offering proceeds to broker-dealersparticipating in the Offering; provided, however, that Behringer Securities mayreallow, in the aggregate, no more than 1.5% of gross offering proceeds formarketing fees and expenses, conference fees and non-itemized, non-invoiced duediligence efforts and no more than 0.5% of gross offering proceeds forout-of-pocket and bona fide, separately invoiced due diligence expenses incurredas fees, costs or other expenses from third parties.  Further, in special cases pursuant toseparately negotiated agreements and subject to applicable limitations imposedby the Financial Industry Regulatory Authority, Behringer Securities may use aportion of its dealer manager fee to reimburse certain broker-dealersparticipating in the Offering for technology costs and expenses

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

associatedwith the Offering and costs and expenses associated with the facilitation ofthe marketing and ownership of our shares by such broker-dealers’customers.  No selling commissions ordealer manager fee will be paid for sales under the DRIP.  For the six months ended June 30, 2008, BehringerSecurities earned selling commissions and dealer manager fees of $1.4 millionand $0.5 million, respectively, andwere recorded as a reduction to additional paid-in capital.

 

Wereimburse Behringer Opportunity Advisors II, or its affiliates, for anyorganization and offering expenses incurred on our behalf in connection withour primary offering (other than selling commissions and the dealer managerfee) provided that at no point will we reimburse expenses that would cause ourtotal organization and offering expenses related to the primary offering (otherthan selling commissions and the dealer manager fee) to exceed 1.5% of grossoffering proceeds from the primary offering. Since our inception through June 30, 2008, approximately $3.8million of organization and offering expenses had been incurred by BehringerOpportunity Advisors II on our behalf. Of this amount, $0.2 million had been reimbursed by us and $3.6 millionof reimbursements payable is included in payables to affiliates on our balancesheet.  Of the $3.8 million oforganization and offering expenses reimbursable by us through June 30,2008, approximately $67,000 had been expensed as organizational costs with theremainder recorded as a reduction of additional paid-in capital.  Behringer Opportunity Advisors II, or itsaffiliates, determines the amount of organization and offering expenses owedbased on specific invoice identification as well as an allocation of costs tous and other Behringer Harvard programs, based on respective equity offeringresults of those entities in offering.

 

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

 

Ouradvisor or its affiliates will also receive a non-accountable acquisitionexpense reimbursement in the amount of 0.25% of the funds paid for purchasingan asset, including any debt attributable to the asset, plus 0.25% of the fundsbudgeted for development, construction or improvement in the case of assetsthat we acquire and intend to develop, construct or improve.  Our advisoror its affiliates will also receive a non-accountable acquisition expensereimbursement in the amount of 0.25% of the funds advanced in respect of a loanor other investment.  We will also pay third parties, or reimburse theadvisor or its affiliates, for any investment-related expenses due to thirdparties in the case of a completed investment, including, but not limited to,legal fees and expenses, travel and communication expenses, costs ofappraisals, accounting fees and expenses, third-party brokerage or finder’sfees, title insurance, premium expenses and other closing costs.  Ouradvisor will be responsible for paying all of the expenses it incurs associatedwith persons employed by the advisor to the extent dedicated to makinginvestments for us, such as wages and benefits of the investmentpersonnel.  Our advisor will also be responsible for paying all of theinvestment-related expenses that we or our advisor incurs that are due to thirdparties with respect to investments we do not make.

 

Ouradvisor or its affiliates will also receive debt financing fees of 1% of theamount available under any loan or line of credit made available to us.  It is anticipated that our advisor will paysome or all of these fees to third parties with whom it subcontracts tocoordinate financing for us.

 

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

 

Weexpect to pay Behringer Harvard Opportunity II Management Services, LLC (“BHOManagement”), our property manager and affiliate of our advisor, fees for themanagement and leasing of the our properties. Property management fees will be 4.5% of the gross revenues of theproperties managed by BHO Management.  Inthe event that we contract directly with a third-party property manager inrespect of a property, BHO Management will receive an oversight fee equal to0.5% of the gross revenues of the property managed.  In no event will BHO Management receive botha property management fee and an oversight fee with respect to any particularproperty.  In addition to the propertymanagement fee or oversight fee, if BHO Management provides leasing serviceswith respect to a property, we will pay BHO Management leasing fees in anamount equal to the leasing fees charged by unaffiliated persons renderingcomparable services in the same geographic location of the applicable property.We will reimburse the costs and expenses incurred by BHO Management on itsbehalf, including the wages and salaries and other employee-related expenses ofall on-site employees of BHO Management or its subcontractors who are engaged inthe operation, management, maintenance or access control of the Company’sproperties, including taxes, insurance and benefits relating to such employees,and legal, travel and other 

 

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

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

out-of-pocketexpenses that are directly related to the management of specific properties.  Furthermore, other third-party charges,including fees and expenses of third-party accountants, will be reimbursed.

 

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

 

Ouradvisor or its affiliates also will be paid a disposition fee if the advisorprovides a substantial amount of services, as determined by our independentdirectors, in connection with the sale of one or more assets.  In such event, our advisor will receive adisposition fee equal to (1) in the case of the sale of real property, thelesser of: (A) one-half of the aggregate brokerage commission paid(including the disposition fee) or, if none is paid, the amount thatcustomarily would be paid, or (B) 3% of the sales price of each propertysold, and (2) in the case of the sale of any asset other than realproperty, 3% of the sales price of such asset.

 

We will reimburse our advisor for all expenses paid or incurred by theadvisor in connection with the services provided to us, subject to thelimitation that we will not reimburse our advisor for any amount by which itsoperating expenses (including the asset management fee) at the end of the fourpreceding fiscal quarters exceeds the greater of:  (A) 2% of our average invested assets,or (B) 25% of our net income determined without reduction for anyadditions to reserves for depreciation, bad debts or other similar non-cashreserves and excluding any gain from the sale of our assets for thatperiod.  Notwithstanding the above, wemay reimburse the advisor for expenses in excess of this limitation if amajority of our independent directors determines that such excess expenses arejustified based on unusual and non-recurring factors. For the six months ended June 30,2008, we incurred and expensed such costs for administrative services totalingapproximately $75,000.

 

AtJune 30, 2008, we had a payable to related parties of approximately $3.8million.  This balance consistedprimarily of offering costs payable to Behringer Opportunity Advisors II.

 

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

 

*****

 

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

 

The following discussion and analysis should be readin conjunction with our accompanying financial statements and the notesthereto.

 

**Forward-Looking Statements**

 

This section contains forward-looking statements, including discussionand analysis of us and our subsidiaries, our financial condition, anticipatedcapital expenditures required to complete projects, amounts of anticipated cashdistributions to our stockholders in the future and other matters.  These forward-looking statements are nothistorical facts but are the intent, belief or current expectations of our managementbased on their knowledge and understanding of the business and industry.  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 identifyforward-looking statements.  Thesestatements are not guarantees of future performance and are subject to risks,uncertainties and other factors, some of which are beyond our control, aredifficult to predict and could cause actual results to differ materially fromthose expressed or forecasted in the forward-looking statements.

 

Forward-looking statements that were true at the time made mayultimately prove to be incorrect or false. We caution investors not to place undue reliance on forward-lookingstatements, which reflect our management’s view only as of the date of this Form 10-Q.  We undertake no obligation to update orrevise forward-looking statements to reflect changed assumptions, theoccurrence of unanticipated events or changes to future operating results.  Factors that could cause actual results todiffer materially from any forward-looking statements made in this Form 10-Qinclude changes in general economic conditions, changes in real estateconditions, construction costs that may exceed estimates, construction delays,increases in interest rates, lease-up costs, inability to obtain new tenantsupon the expiration of existing leases, the potential need to fund tenantimprovements or other capital expenditures out of operating cash flows and ourinability to realize value for limited partners upon disposition of ourassets.  The forward-looking statementsshould be read in light of the risk factors identified in the “Risk Factors”section of our Registration Statement on Form S-11, as filed with the SEC, and the risks identified in Part II,Item 1A of this quarterly report.

 

### **Cautionary Note**

### ** **

The representations, warranties and covenants made by us in anyagreement filed as an exhibit to this Quarterly Report on Form 10-Q aremade solely for the benefit of the parties to the agreement, including, in somecases, for the purpose of allocating risk among the parties to the agreement,and should not be deemed to be representations, warranties or covenants to orwith any other parties.  Moreover, theserepresentations, warranties or covenants should not be relied upon asaccurately describing or reflecting the current state of our affairs.

 

**Critical Accounting Policies and Estimates**

 

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

 

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

 

***Principles of Consolidation and Basis of Presentation***

 

Our consolidated financial statements include our accounts, theaccounts of variable interest entities (“VIEs”) in which we are the primarybeneficiary and the accounts of other subsidiaries over which we havecontrol.  All inter-company transactions,balances and profits have been eliminated in consolidation.  Interests in entities acquired will beevaluated for consolidation based on FIN 46R, which requires the consolidationof VIEs in which we are deemed to be the primary beneficiary.  If the interest in the entity is determinednot to be a VIE under FIN 46R, then the entity will be evaluated forconsolidation under the American Institute of Certified Public Accountants’Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,”and by Emerging Issues Task Force 04-5, “Determining Whether a General Partner,or the General Partners as a Group, Controls a Limited Partnership or SimilarEntity When the Limited Partners Have Certain Rights.”

 

There are judgments and estimates involved in determining if an entityin which we have made an investment is a VIE and if so, if we are the primarybeneficiary.  The entity is evaluated todetermine if it is a VIE by, among other things, 

 

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

 

***Real Estate***

 

Upon the acquisition of real estate properties, we will allocate thepurchase price of those properties to the tangible assets acquired, consistingof land, inclusive of associated rights, and buildings, any assumed debt,identified intangible assets and asset retirement obligations based on theirrelative fair values in accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets.”  Identifiedintangible assets will consist of the fair value of above-market andbelow-market leases, in-place leases, in-place tenant improvements, in-placeleasing commissions and tenant relationships.

 

Upon the completion of a business combination, we will record thetangible assets acquired, consisting of land and buildings, any assumed debt,identified intangible assets and asset retirement obligations based on theirfair values in accordance with SFAS No. 141, “Business Combinations.”  Identified intangible assets will consist ofthe fair value of above-market and below-market leases, in-place leases,in-place tenant improvements, in-place leasing commissions and tenantrelationships.  Any amount paid in excessof the fair value of the assets and liabilities acquired will be recorded asgoodwill.  If the value of the assets andliabilities exceed the total purchase price, then the resulting negativegoodwill will be allocated to the tangible and intangible assets acquired.

 

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

 

We will determine the fair value of assumed debt by calculating the netpresent value of the scheduled note payments using interest rates for debt withsimilar terms and remaining maturities that we believe we could obtain.  Any difference between the fair value andstated value of the assumed debt will be recorded as a discount or premium andamortized over the remaining life of the loan.

 

The fair value of the tangible assets acquired, consisting of land andbuildings, will be determined by valuing the property as if it were vacant, andthe “as-if-vacant” value will be allocated to land and buildings.  Land values will be derived from appraisals,and building values will be calculated as replacement cost less depreciation ormanagement’s estimates of the relative fair value of these assets usingdiscounted cash flow analyses or similar methods.  The value of commercial office buildings willbe depreciated over the estimated useful life of 25 years using thestraight-line method and hotels/mixed-use properties will be depreciated overthe estimated useful life of 39 years using the straight-line method.

 

We will determine the value of above-market and below-market in-placeleases for acquired properties based on the present value (using an interestrate that reflects the risks associated with the leases acquired) of thedifference between (1) the contractual amounts to be paid pursuant to thein-place leases and (2) management’s estimate of current market leaserates for the corresponding in-place leases, measured over a period equal to (a) theremaining non-cancelable lease term for above-market leases, or (b) theremaining non-cancelable lease term plus any fixed rate renewal option forbelow-market leases.  We will record thefair value of above-market and below-market leases as intangible assets orintangible liabilities, respectively, and amortize them as an adjustment torental income over the above determined lease term.

 

The total value of identified real estate intangible assets acquiredwill be further allocated to in-place lease values, in-place tenantimprovements, in-place leasing commissions and tenant relationships based onour evaluation of the specific characteristics of each tenant’s lease and ouroverall relationship with that respective tenant.  The aggregate value for tenant improvementsand leasing commissions will be based on estimates of these costs incurred atinception of the acquired leases, amortized through the date ofacquisition.  The aggregate value ofin-place leases acquired and tenant relationships will be determined byapplying a fair value model.  Theestimates of fair value of in-place leases includes an estimate of carryingcosts during the expected lease-up periods for the respective spacesconsidering current market conditions. In estimating the carrying costs that would have otherwise been incurredhad the leases not been in place, we will include such items as real estatetaxes, insurance and other operating expenses as well as lost rental revenueduring the expected lease-up period based on current market conditions.  The estimates of the fair value of tenantrelationships will also include costs to execute similar 

 

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leases including leasingcommissions, legal fees and tenant improvements as well as an estimate of thelikelihood of renewal as determined by management on a tenant-by-tenant basis.

 

We plan to amortize the value of in-place leases to expense over theterm of the respective leases.  The valueof tenant relationship intangibles will be amortized to expense over theinitial term and any anticipated renewal periods, but in no event will theamortization period for intangible assets exceed the remaining depreciable lifeof the building.  Should a tenantterminate its lease, the unamortized portion of the in-place lease value andtenant relationship intangibles will be charged to expense.

 

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

 

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

 

For real estate we will wholly own, management will monitor events andchanges in circumstances indicating that the carrying amounts of the realestate assets may not be recoverable. When such events or changes in circumstances occur, we will assess potentialimpairment by comparing estimated future undiscounted operating cash flowsexpected to be generated over the life of the asset, including its eventualdisposition, to the carrying amount of the asset.  In the event that the carrying amount exceedsthe estimated future undiscounted operating cash flows, we will recognize animpairment loss to adjust the carrying value of the asset to estimated fairvalue.

 

For real estate owned by us through an investment in a limitedpartnership, joint venture, tenant-in-common interest or other similar investmentstructure, at each reporting date management will compare the estimated fairvalue of its investment to the carrying value. An impairment charge will be recorded to the extent that the fair valueof the investment is less than the carrying amount and the decline in value isdetermined to be other than a temporary decline.

 

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

 

**Overview**

 

We were formed primarily to acquire and operatecommercial real estate and real estate-related assets.  In particular, we will focus generally onacquiring commercial properties with significant possibilities for short-termcapital appreciation, such as those requiring development, redevelopment orrepositioning, those located in markets and submarkets with high growthpotential and those available from sellers who are distressed or face time-sensitivedeadlines.  We may acquire a wide varietyof commercial properties, including office, industrial, retail, hospitality,recreation and leisure, single-tenant, multifamily and other real properties.  These properties may be existing, income-producingproperties, newly constructed properties or properties under development orconstruction and may include multifamily properties purchased for conversioninto condominiums and single-tenant properties that may be converted formultifamily use.  Further, we may investin real estate-related securities, including securities issued by other realestate companies, either for investment or in change of control transactionscompleted on a negotiated basis or otherwise. We also may originate or invest in collateralized mortgage-backedsecurities, mortgage, bridge or mezzanine loans and Section 1031tenant-in-common interests (including those issued by affiliates of ouradvisor), or in entities that make investments similar to the foregoing.  We had not acquired any assets as of June 30,2008.

 

On February 26, 2007, we filed a Registration Statement on Form S-11with the SEC to offer up to 125,000,000 shares of common stock for sale to thepublic, of which 25,000,000 shares are being offered pursuant to the DRIP.  We reserve the right to reallocate the shareswe are offering between our primary offering and the DRIP.  The SEC declared our Registration Statementeffective on January 4, 2008, and we commenced our ongoing initial publicoffering on January 21, 2008.  Wecommenced operations on April 1, 2008 upon satisfaction of the conditionsof our escrow agreement in all states except Pennsylvania and acceptance ofinitial subscriptions of common stock.

 

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**Results of Operations**

 

*Three months ended June 30, 2008 as comparedto the three months ended June 30, 2007*

 

We commenced operations on April 1, 2008 upon receipt and acceptanceof subscriptions for a minimum of $2.0 million of shares of common stockpursuant to the Offering.  We had nooperations for the three months ended June 30, 2007.

 

Results of operations for the three months ended June 30, 2008consisted of the following:

 

*General & Administrative Expenses.*General and administrative expenses of $216,604 were comprised of corporategeneral and administrative expenses including auditing fees, board of directors’fees, approximately $67,000 of organization costs paid to Behringer OpportunityAdvisors II and other administrative expenses. We expect general and administrative expenses to increase as we beginacquiring properties.

 

*Interest Income.*Interest income of $41,562 represents interest income on funds on deposit, netof bank fees. We began accepting investors on April 1, 2008.  We admit new stockholders purchasing sharesin the primary portion of the Offering at least monthly.  Upon admission of new stockholders,subscription proceeds will be used for payment of dealer manager fees andselling commissions and may be utilized as consideration for investments andthe payment or reimbursement of  offeringexpenses and operating expenses.  Untilrequired for such purposes, net offering proceeds are held in short-term, liquidinvestments and earn interest income.  Weexpect interest income to increase as we continue to accept new investors.

 

*Six months ended June 30, 2008 as compared tothe period from January 9, 2007 (date of inception) through June 30,2007*

 

We commenced operations on April 1, 2008 upon receipt andacceptance of subscriptions for a minimum of $2.0 million of shares of commonstock pursuant to the Offering.  We hadno operations for the period beginning January 9, 2007 (date of inception)through June 30, 2007.

 

Results of operations for the six months ended June 30, 2008consisted of the following:

 

*General & Administrative Expenses.*General and administrative expenses of $286,366 were comprised of corporategeneral and administrative expenses including auditing fees, board of directors’fees, approximately $67,000 of organization costs paid to Behringer OpportunityAdvisors II and other administrative expenses. We expect general and administrative expenses to continue to increase aswe begin acquiring properties.

 

*Interest Income.*Interest income of $47,039 represents interest income on funds on deposit, netof bank fees. We admit new stockholders purchasing shares in the primaryportion of the Offering at least monthly. Upon admission of new stockholders, subscription proceeds will be usedfor payment of dealer manager fees and selling commissions and may be utilizedas consideration for investments and the payment or reimbursement of  offering expenses and operatingexpenses.  Until required for such purposes,net offering proceeds are held in short-term, liquid investments and earninterest income.  We expect interestincome to increase as we continue to accept new investors.

 

**Cash Flow Analysis**

 

Cash used in operating activities for the six months ended June 30,2008 was $135,940 and was comprised of the net loss of $239,327 adjusted bychanges in working capital accounts of $103,387.  There was no cash flow from operations forthe six months ended June 30, 2007.

 

Cash provided by financing activities for the six months ended June 30,2008 was $19,366,807 and was comprised primarily of the issuance of commonstock net of offering costs of $19,374,672. Cash provided by financing activities for the six months ended June 30,2007 was $201,000 and consisted of proceeds from the issuance of common andconvertible stock.

 

**Liquidity and Capital Resources**

 

Our principal demands for funds will be for the acquisition of realestate-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 foritems other than acquisitions from our cash flow from operations, and we expectto meet cash needs for acquisitions from the net proceeds of the Offering andfrom financings.

 

There may be a delay between the sale of our shares and the purchase ofproperties or other investments, which could result in a delay in our abilityto make distributions to our stockholders. Until such time as we have sufficient cash flow from operations to fullyfund the payment of distributions, some or all of our distributions have beenand will be paid from other sources, such as from the proceeds of the Offering,cash advances to us by our advisor, cash resulting from a waiver of fees, andborrowings secured by our assets in anticipation of future operating cashflow.  We expect to have little, if any,cash flow from operations available for distribution until we make substantialinvestments.  In addition, to the extentour 

 

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investments are indevelopment or redevelopment projects, or in properties that have significantcapital requirements, our ability to make distributions may be negativelyimpacted, especially during our early periods of operation.

 

We intend to borrow money to acquire properties and make otherinvestments.  There is no limitation onthe amount we may invest in any single property or other asset or on the amountwe can borrow for the purchase of any individual property or otherinvestment.  Under our charter, themaximum amount of our indebtedness shall not exceed 300% of our “net assets”(as defined by the NASAA REIT Guidelines) as of the date of any borrowing;however, we may exceed that limit if approved by a majority of our independentdirectors.  In addition to our charterlimitation, our board of directors has adopted a policy to generally limit ouraggregate borrowings to approximately 75% of the aggregate value of our assetsunless substantial justification exists that borrowing a greater amount is inour best interests.  Our policy limitation, however, does not apply toindividual real estate assets and only will apply once we have ceased raisingcapital under the Offering or any subsequent offering and investedsubstantially all of our capital.  As a result, we expect to borrow morethan 75% of the contract purchase price of each real estate asset we acquireduring the early periods of our operations to the extent our board of directorsdetermines that borrowing at these levels is prudent.

 

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

 

Potential future sources of capital include proceeds from secured orunsecured financings from banks or other lenders, proceeds from the sale ofproperties and undistributed funds from operations.  If necessary, we may use financings or othersources of capital in the event of unforeseen significant capital expenditures.

 

**Off-Balance Sheet Arrangements**

 

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

 

**Item 3.            Quantitative and Qualitative Disclosures About MarketRisk.**

 

We will be exposed to interest rate changes primarily as a result oflong-term debt used to acquire properties and make loans and other permittedinvestments. Our interest rate risk management objectives will be to limit theimpact of interest rate changes on earnings and cash flows and to lower overallborrowing costs. To achieve these objectives, we expect to borrow primarily atfixed rates or variable rates with the lowest margins available and, in somecases, with the ability to convert variable rates to fixed rates. With regardto variable rate financing, we will assess interest rate cash flow risk bycontinually identifying and monitoring changes in interest rate exposures thatmay adversely impact expected future cash flows and by evaluating hedgingopportunities. Since we have not yet acquired any properties or incurred anydebt as of June 30, 2008, we currently have limited exposure to interestrate risk.  As of June 30, 2008, a1% increase or decrease in interest rates would have no effect on our interestexpense as we had no outstanding debt as of that date.

 

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

 

*Evaluation of Disclosure Controls and Procedures*

 

As required by Rule 13a-15(b) and Rule 15d-15(b) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated as of June 30, 2008, the effectiveness of our disclosurecontrols and procedures as defined in Exchange Act Rule 13a-15(e) andRule 15d-15(e). Based on that evaluation, our Chief Executive Officer andChief Financial Officer, concluded that our disclosure controls and procedures,as of June 30, 2008, were effective for the purpose of ensuring thatinformation required to be disclosed by us in this report is recorded,processed, summarized and reported within the time periods specified by the rules andforms of the Exchange Act and is accumulated and communicated to management,including the Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosures.

 

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

 

There have been no changes in internal control over financial reportingthat occurred during the quarter ended June 30, 2008 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 1.            Legal Proceedings.**

 

We are not a party to any material pending legal proceedings.

 

**Item 1A.         Risk Factors.**

 

Thefollowing risk factors update the risk factors contained in the “Risk Factors —Risks Related to Our Business in General” section set forth in our RegistrationStatement on Form S-11.

 

**Risks Related to Our Business in General**

 

*Our board of directors may change our investment policies andobjectives generally and at the individual investment level without stockholderapproval, which could alter the nature of your investment.*

 

Our charter requires that our independent directors review ourinvestment policies at least annually to determine that the policies we arefollowing are in the best interest of the stockholders.  In addition to our investment policies andobjectives, we may also change our stated strategy for any investment in anindividual property.  These policies maychange over time.  The methods ofimplementing our investment policies may also vary, as new investmenttechniques are developed.  Our investmentpolicies, the methods for their implementation, and our other objectives,policies and procedures may be altered by our board of directors without theapproval of our stockholders.  As aresult, the nature of your investment could change without your consent.

 

*Our revenue and net income may vary significantly from one period toanother due to investments in opportunity-oriented properties and portfolioacquisitions, which could increase the variability of our cash available fordistributions.*

 

Our opportunistic property-acquisition strategy will includeinvestments in properties in various phases of development, redevelopment or repositioningand portfolio acquisitions, which may cause our revenues and net income tofluctuate significantly from one period to another.  Projects do not produce revenue while indevelopment or redevelopment.  During anyperiod when our projects in development or redevelopment or those withsignificant capital requirements increase without a corresponding increase instable revenue-producing properties, our revenues and net income will likelydecrease.  Many factors may have anegative impact on the level of revenues or net income produced by ourportfolio of properties and projects, including higher than expectedconstruction costs, failure to complete projects on a timely basis, failure ofthe properties to perform at expected levels upon completion of development orredevelopment, and increased borrowings necessary to fund higher than expectedconstruction or other costs related to the project.  Further, our net income and shareholdersequity could be negatively affected during periods with large portfolioacquisitions, which generally require large cash outlays and may require theincurrence of additional financing.  Anysuch reduction in our revenues and net income during such periods could cause aresulting decrease in our cash available for distributions during the sameperiods.

 

**Item 2.            Unregistered Sales of Equity Securities and Use ofProceeds.**

 

**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 125,000,000shares of common stock, was declared effective under the Securities Act of1933. The Offering commenced on January 21, 2008 and is ongoing.  We expect to sell the shares offered in ourpublic offering over a two-year period. Under rules promulgated by the SEC, in some circumstances we maycontinue the offering beyond this date. Our board of directors has the discretion to extend the offering periodfor the shares offered under the DRIP up to the sixth anniversary of thetermination of the primary offering.  Wemay reallocate the shares of common stock being offered between the primaryoffering and the DRIP.

 

We are offering a maximum of 100,000,000 shares in our primary offeringat an aggregate offering price of up to $1.0 billion, or $10.00 per sharewith discounts available to certain categories of purchasers.  The 25,000,000 shares offered under the DRIPare initially being offered at an aggregate offering price of $237.5 million,or $9.50 per share.  Behringer SecuritiesLP, an affiliate of our advisor, is the dealer manager of our offering.  As of June 30, 2008, we had sold2,143,889 shares of our common stock on a best efforts basis pursuant to theOffering for gross offering proceeds of approximately $21.4 million.

 

From the commencement of the Offering through June 30, 2008, weincurred the following expenses in conjunction with the issuance anddistribution of the registered securities pursuant to the Offering:

 

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** **
| **Type of Expense**    | ** ** | **Amount** | ** ** |
|----------------------------------|------------|------------|------------|
| Other expenses to affiliates (1) |       | $          | 5,786,854  |   |
|                                  |            |            |            |  |

 

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(1) “Otherexpenses to affiliates” includes commissions and dealer manager fees paid toBehringer Securities, our affiliate, which reallowed all or a portion of thecommissions and fees to soliciting dealers.

 

From the commencement of the Offering through June 30, 2008, thenet proceeds to us from the Offering after deducting the total expensesincurred and described above, were $15.6 million.  We had not used any such net offeringproceeds as of June 30, 2008 to purchase real estate-related assets.

 

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

 

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

 

None.

 

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

 

None.

 

**Item 5.            Other Information.**

 

None.

 

**Item 6.            Exhibits.**

 

The exhibits filed in response to Item 601 of Regulation S-K are listedon 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 theundersigned thereunto duly authorized.

 

 
|                         | **BEHRINGER HARVARD OPPORTUNITY REIT II, INC.** |
|------------------------------|-------------------------------------------------|
|                         |                                            |   |
|                         |                                            |   |
| Dated:  August 14, 2008 | By:                                             | /s/  Gary S. Bresky |
|                         |                                            | Gary  S. Bresky |
|                         |                                            | Executive  Vice President and Chief Financial Officer |
|                         |                                            | (Principal  Financial Officer) |

 

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**Index to Exhibits**

** **
| **Exhibit   Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                               |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1.1                     |       | Second  Articles of Amendment and Restatement as amended by the First Articles of  Amendment, incorporated by reference to Exhibit 3.1.1 to Post-Effective  Amendment No. 1 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887, filed on April 4,  2008                                                                                      |
| 3.1.2                     |       | Second  Articles of Amendment to the Company’s Second Articles of Amendment and  Restatement (not yet filed with the Maryland State Department of Assessments  and Taxation), incorporated by reference to the Company’s Form 8-K filed  on April 1, 2008                                                                                                                                 |
| 3.2                       |       | Amended  and Restated Bylaws, incorporated by reference to Exhibit 3.2 to  Pre-Effective Amendment No. 3 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887                                                                                                                                                                                       |
| 4.1                       |       | Form of  Subscription Agreement (included as Exhibit B to prospectus)                                                                                                                                                                                                                                                                                                                               |
| 4.2                       |       | Distribution  Reinvestment Plan (included as Exhibit C to prospectus)                                                                                                                                                                                                                                                                                                                                    |
| 4.3                       |       | Share  Redemption Program (incorporated by reference from the description under  “Description of Shares – Share Redemption Program” in the prospectus)                                                                                                                                                                                                                                         |
| 4.4                       |       | Form of  Escrow Agreement, incorporated by reference to Exhibit 4.4 to  Pre-Effective Amendment No. 2 to the Company’s Registration Statement on  Form S-11, Commission File No. 333-140887                                                                                                                                                                                     |
| 4.5                       |       | Statement  regarding restrictions on transferability of shares of common stock (to  appear on stock certificate or to be sent upon request and without charge to  stockholders issued shares without certificates), incorporated by reference  to Exhibit 4.5 to Pre-Effective Amendment No. 3 to the Company’s  Registration Statement on Form S-11, Commission File No. 333-140887 |
| 10.1                      |       | Selected  Dealer Agreement, dated May 1, 2008, by and among Behringer Harvard Opportunity  REIT II, Inc., Behringer Securities LP, Behringer Harvard Opportunity  Advisors II LP, Behringer Harvard Holdings, LLC and Ameriprise Financial  Services, Inc., incorporated by reference to the Company’s Form 8-K  filed on May 2, 2008                                           |
| 31.1*                     |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                              |
| 31.2*                     |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                              |
| 32.1*                     |       | Section 1350  Certifications**                                                                                                                                                                                                                                                                                                                                                                           |

 

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*Filed herewith

 

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

 

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