KBS Strategic Opportunity REIT, Inc. (Form: 10-Q, Received: 08/12/2016 13:52:43)

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

x (Do not check if a smaller reporting company)

Smaller reporting company

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, 2016



¨	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 000-54382

______________________________________________________

KBS STRATEGIC OPPORTUNITY REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________



Maryland		26-3842535
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
800 Newport Center Drive, Suite 700 Newport Beach, California		92660
(Address of Principal Executive Offices)		(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of August 8, 2016 , there were 58,645,297 outstanding shares of common stock of KBS Strategic Opportunity REIT, Inc.

Table of Contents

KBS STRATEGIC OPPORTUNITY REIT, INC.

FORM 10-Q

June 30, 2016

INDEX



PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	2
		Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	3
		Consolidated Statements of Equity for the Year Ended December 31, 2015 and the Six Months Ended June 30, 2016 (unaudited)	4
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2016 and 2015	5
		Condensed Notes to Consolidated Financial Statements as of June 30, 2016 (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
	Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION		40
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 3.	Defaults upon Senior Securities	41
	Item 4.	Mine Safety Disclosures	41
	Item 5.	Other Information	41
	Item 6.	Exhibits	42
SIGNATURES			43

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



	June 30, 2016			December 31, 2015
	(unaudited)
Assets
Real estate held for investment, net	$	940,244		$	822,514
Real estate loan receivable, net	—			27,850
Total real estate and real estate-related investments, net	940,244			850,364
Cash and cash equivalents	117,310			23,058
Restricted cash	21,763			5,807
Investments in unconsolidated joint ventures	75,889			74,437
Rents and other receivables, net	26,624			24,487
Above-market leases, net	852			1,038
Prepaid expenses and other assets	41,589			25,023
Total assets	$	1,224,271		$	1,004,214
Liabilities and equity
Notes and bonds payable, net	$	821,772		$	547,323
Accounts payable and accrued liabilities	20,181			17,543
Due to affiliate	59			59
Below-market leases, net	2,602			2,735
Other liabilities	24,392			17,905
Total liabilities	869,006			585,565
Commitments and contingencies (Note 12)
Redeemable common stock	1,574			9,859
Equity
KBS Strategic Opportunity REIT, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 1,000,000,000 shares authorized, 58,644,697 and 58,696,115 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	586			587
Additional paid-in capital	480,362			504,303
Cumulative distributions and net losses	(129,321		)	(111,527		)
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity	351,627			393,363
Noncontrolling interests	2,064			15,427
Total equity	353,691			408,790
Total liabilities and equity	$	1,224,271		$	1,004,214

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues:
Rental income	$	24,585		$	22,118		$	47,417		$	43,979
Tenant reimbursements	4,828			4,740			9,582			9,050
Interest income from real estate loan receivable	3,655			993			3,655			1,968
Other operating income	798			816			1,578			1,613
Total revenues	33,866			28,667			62,232			56,610
Expenses:
Operating, maintenance, and management	9,303			8,980			18,823			17,924
Real estate taxes and insurance	4,029			3,839			7,903			7,498
Asset management fees to affiliate	2,205			2,077			4,293			4,130
Real estate acquisition fees to affiliate	1,274			—			1,274			—
Real estate acquisition fees and expenses	268			—			268			—
General and administrative expenses	1,699			869			2,835			1,732
Foreign currency transaction gain	(2,340		)	—			(2,037		)	—
Depreciation and amortization	12,091			11,159			23,099			22,387
Interest expense	7,185			3,857			12,362			7,769
Total expenses	35,714			30,781			68,820			61,440
Other income (loss):
Other interest income	11			6			15			14
Other income	—			4,889			—			4,889
Equity in loss of unconsolidated joint venture	(152		)	(118		)	(348		)	(336		)
(Loss) gain on sale of real estate, net	—			(24		)	—			8,287
Total other (loss) income	(141		)	4,753			(333		)	12,854
Net (loss) income	(1,989		)	2,639			(6,921		)	8,024
Net loss (income) attributable to noncontrolling interests	30			(1,113		)	68			(4,263		)
Net (loss) income attributable to common stockholders	$	(1,959	)	$	1,526		$	(6,853	)	$	3,761
Net (loss) income per common share, basic and diluted	$	(0.03	)	$	0.03		$	(0.12	)	$	0.06
Weighted-average number of common shares outstanding, basic and diluted	58,688,129			60,193,459			58,693,629			60,115,426

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Year Ended December 31, 2015 and the Six Months Ended June 30, 2016 (unaudited)

(dollars in thousands)



						Additional Paid-in Capital			Cumulative Distributions and Net Losses			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2014	60,044,329		$	600		$	524,489		$	(91,691	)	$	433,398		$	16,738		$	450,136
Net income	—		—			—			2,444			2,444			4,688			7,132
Issuance of common stock	1,114,532		11			13,562			—			13,573			—			13,573
Transfers to redeemable common stock	—		—			(3,663		)	—			(3,663		)	—			(3,663		)
Redemptions of common stock	(2,462,746	)	(24		)	(30,076		)	—			(30,100		)	—			(30,100		)
Distributions declared	—		—			—			(22,280		)	(22,280		)	—			(22,280		)
Other offering costs	—		—			(9		)	—			(9		)	—			(9		)
Noncontrolling interests contributions	—		—			—			—			—			1,343			1,343
Distributions to noncontrolling interests	—		—			—			—			—			(7,342		)	(7,342		)
Balance, December 31, 2015	58,696,115		$	587		$	504,303		$	(111,527	)	$	393,363		$	15,427		$	408,790
Net loss	—		—			—			(6,853		)	(6,853		)	(68		)	(6,921		)
Issuance of common stock	473,267		4			6,357			—			6,361			—			6,361
Transfers from redeemable common stock	—		—			638			—			638			—			638
Redemptions of common stock	(524,685	)	(5		)	(6,994		)	—			(6,999		)	—			(6,999		)
Distributions declared	—		—			—			(10,941		)	(10,941		)	—			(10,941		)
Acquisitions of noncontrolling interests	—		—			(23,942		)	—			(23,942		)	(14,044		)	(37,986		)
Noncontrolling interests contributions	—		—			—			—			—			766			766
Distributions to noncontrolling interest	—		—			—			—			—			(17		)	(17		)
Balance, June 30, 2016	58,644,697		$	586		$	480,362		$	(129,321	)	$	351,627		$	2,064		$	353,691

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



	Six Months Ended June 30,
	2016			2015
Cash Flows from Operating Activities:
Net (loss) income	$	(6,921	)	$	8,024
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss due to property damages	2,017			2,660
Equity in loss of unconsolidated joint venture	348			336
Depreciation and amortization	23,099			22,387
Non-cash interest income on real estate-related investments	—			(428		)
Gain on sale of real estate, net	—			(8,287		)
Other income	—			(4,889		)
Deferred rent	(975		)	(2,734		)
Bad debt expense	307			107
Amortization of above- and below-market leases, net	(449		)	(408		)
Amortization of deferred financing costs	1,772			1,532
Amortization of discount on bonds and notes payable, net	17			11
Foreign currency transaction gain	(2,037		)	—
Changes in assets and liabilities:
Restricted cash for operational expenditures	(895		)	1,194
Rents and other receivables	(1,567		)	(976		)
Prepaid expenses and other assets	(4,883		)	(4,963		)
Accounts payable and accrued liabilities	1,725			(1,697		)
Due to affiliates	—			33
Other liabilities	1,010			253
Net cash provided by operating activities	12,568			12,155
Cash Flows from Investing Activities:
Acquisition of real estate	(125,810		)	—
Improvements to real estate	(14,008		)	(17,641		)
Proceeds from sales of real estate, net	—			15,738
Proceeds from condemnation agreements	—			5,719
Escrow deposits for future real estate purchases	(16,000		)	—
Principal proceeds from assignment of real estate loan receivable	27,850			—
Insurance proceeds received for property damages	256			258
Investment in unconsolidated joint venture	(1,800		)	(1,680		)
Restricted cash for capital expenditures	(7,762		)	—
Funding of restricted cash for development obligations	(2,500		)	—
Net cash (used in) provided by investing activities	(139,774		)	2,394
Cash Flows from Financing Activities:
Proceeds from notes and bonds payable	338,637			39,706
Principal payments on notes and bonds payable	(58,196		)	(30,016		)
Payments of deferred financing costs	(9,154		)	(49		)
Restricted cash for debt service obligations	(5,136		)	—
Payments to redeem common stock	(6,999		)	(5,284		)
Distributions paid	(4,580		)	(4,232		)
Noncontrolling interests contributions	766			360
Distributions to noncontrolling interests	(17		)	(4,040		)
Acquisitions of noncontrolling interests	(37,986		)	—
Net cash provided by (used in) financing activities	217,335			(3,555		)
Effect of exchange rate changes on cash and cash equivalents	4,123			—
Net increase in cash and cash equivalents	94,252			10,994
Cash and cash equivalents, beginning of period	23,058			19,093
Cash and cash equivalents, end of period	$	117,310		$	30,087
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $952 and $992 for the six months ended June 30, 2016 and 2015, respectively	$	7,080		$	6,334
Supplemental Disclosure of Noncash Investing and Financing Activities:
Decrease in restricted cash in connection with development obligations	$	(1,867	)	$	—
Increase in accrued improvements to real estate	$	588		$	—
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	6,361		$	6,935
Increase in redeemable common stock payable	$	7,647		$	—
Increase in restricted cash related to insurance proceeds	$	1,483		$	—

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

(unaudited)


1.	ORGANIZATION

KBS Strategic Opportunity REIT, Inc. (the “Company”) was formed on October 8, 2008 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. The Company conducts its business primarily through KBS Strategic Opportunity (BVI) Holdings, Ltd. (“KBS Strategic Opportunity BVI”), a private company limited by shares according to the British Virgin Islands Business Companies Act, 2004, which was incorporated on December 18, 2015 and is authorized to issue a maximum of 50,000 common shares with no par value. Upon incorporation, KBS Strategic Opportunity BVI issued one certificate containing 10,000 common shares with no par value to KBS Strategic Opportunity Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on December 10, 2008. The Company is the sole general partner of, and owns a 0.1% partnership interest in the Operating Partnership. KBS Strategic Opportunity Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on December 9, 2008, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings.

Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company renewed with the Advisor on October 8, 2015 (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate. The Advisor owns 20,000 shares of the Company’s common stock.

On January 8, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public (the “Offering”), of which 100,000,000 shares were registered in a primary offering and 40,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on November 20, 2009. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and continues to offer shares under its dividend reinvestment plan.

The Company sold 56,584,976 shares of common stock in its primary offering for gross offering proceeds of $561.7 million . As of June 30, 2016 , the Company had sold 5,569,775 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $ 59.1 million . Also, as of June 30, 2016 , the Company had redeemed 3,806,297 shares sold in the Offering for $ 45.4 million . Additionally, on December 29, 2011 and October 23, 2012, the Company issued 220,994 shares and 55,249 shares of common stock, respectively, for $2.0 million and $0.5 million , respectively, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.

On March 2, 2016, KBS Strategic Opportunity BVI filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25% . On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, KBS Strategic Opportunity BVI accepted 970.2 million Israeli new Shekels (approximately $251.4 million as of June 30, 2016) in both the institutional and public tenders at an annual interest rate of 4.25% . KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.

In connection with the above-referenced offering, on March 8, 2016, the Operating Partnership assigned to KBS Strategic Opportunity BVI all of its interests in the subsidiaries through which the Company indirectly owns all of its real estate and real estate-related investments. The Operating Partnership owns all of the issued and outstanding equity of KBS Strategic Opportunity BVI. As a result of these transactions, the Company now holds all of its real estate and real estate-related investments indirectly through KBS Strategic Opportunity BVI.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015 , except for the addition of an accounting policy with respect to foreign currency transactions. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, KBS Strategic Opportunity BVI and their direct and indirect wholly owned subsidiaries, and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Foreign Currency Transactions

The U.S. dollar is the Company’s functional currency. Transactions denominated in currency other than the Company’s functional currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the foreign currency at the exchange rate on that date. Exchange rate differences, other than those accounted for as hedging transactions, are recognized as foreign currency transaction gain or loss included in the Company’s consolidated statements of operations.

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of the prior period.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Segments

The Company has invested in non-performing loans, opportunistic real estate and other real estate-related assets. In general, the Company intends to hold its investments in non-performing loans, opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of non-performing loans, opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views non-performing loans, opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from non-performing loans, opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and six months ended June 30, 2016 and 2015.

Distributions declared per share were $0.09323770 and $0.18647540 during the three and six months ended June 30, 2016 and $0.09246575 and $0.18595890 during the three and six months ended June 30, 2015, respectively.

Square Footage, Occupancy and Other Measures

Any references to square footage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Updates

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. On January 1, 2016, the Company adopted ASU No. 2015-02 and re-evaluated its consolidation analysis of its joint ventures, concluding that such adoption did not result in (a) the classification of any entities as VIEs, (b) a consolidation of entities not previously consolidated or (c) a deconsolidation of entities previously consolidated.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”). The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”). ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. ASU No. 2016-13 also amends the impairment model for available-for-sale securities. An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required. ASU No. 2016-13 also requires new disclosures. For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due. ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)


3.	REAL ESTATE HELD FOR INVESTMENT

As of June 30, 2016 , the Company owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings and one retail property encompassing, in the aggregate, approximately 5.2 million rentable square feet. As of June 30, 2016 , these properties were 85% occupied. In addition, the Company owned two apartment properties, containing 383 units and encompassing approximately 0.3 million rentable square feet, which were 92% occupied. The Company also owned two investments in undeveloped land encompassing an aggregate of 1,670 acres. The following table summarizes the Company’s real estate held for investment as of June 30, 2016 and December 31, 2015 , respectively (in thousands):



	June 30, 2016			December 31, 2015
Land	$	261,775		$	223,201
Buildings and improvements	734,695			646,979
Tenant origination and absorption costs	48,602			43,894
Total real estate, cost	1,045,072			914,074
Accumulated depreciation and amortization	(104,828		)	(91,560		)
Total real estate, net	$	940,244		$	822,514

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

The following table provides summary information regarding the Company’s real estate held for investment as of June 30, 2016 (in thousands):



Property	Date Acquired or Foreclosed on	City	State	Property Type	Land		Building and Improvements		Tenant Origination and Absorption		Total Real Estate at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net		Ownership %
Northridge Center I & II	03/25/2011	Atlanta	GA	Office	$	2,234	$	7,648	$	—	$	9,882	$	(2,361	)	$	7,521	100.0	%
Iron Point Business Park	06/21/2011	Folsom	CA	Office	2,671		19,630		—		22,301		(4,384		)	17,917		100.0	%
Richardson Portfolio:
Palisades Central I	11/23/2011	Richardson	TX	Office	1,037		10,390		684		12,111		(2,407		)	9,704		90.0	%
Palisades Central II	11/23/2011	Richardson	TX	Office	810		17,989		749		19,548		(4,460		)	15,088		90.0	%
Greenway I	11/23/2011	Richardson	TX	Office	561		2,377		—		2,938		(661		)	2,277		90.0	%
Greenway III	11/23/2011	Richardson	TX	Office	702		3,734		559		4,995		(1,353		)	3,642		90.0	%
Undeveloped Land	11/23/2011	Richardson	TX	Undeveloped Land	3,134		—		—		3,134		—			3,134		90.0	%
Total Richardson Portfolio					6,244		34,490		1,992		42,726		(8,881		)	33,845
Park Highlands ⁽¹⁾	12/30/2011	North Las Vegas	NV	Undeveloped Land	32,505		—		—		32,505		—			32,505		100.0	%
Bellevue Technology Center	07/31/2012	Bellevue	WA	Office	25,506		56,292		3,813		85,611		(9,682		)	75,929		100.0	%
Powers Ferry Landing East	09/24/2012	Atlanta	GA	Office	1,643		8,016		99		9,758		(1,982		)	7,776		100.0	%
1800 West Loop	12/04/2012	Houston	TX	Office	8,360		59,960		5,184		73,504		(11,931		)	61,573		100.0	%
West Loop I & II	12/07/2012	Houston	TX	Office	7,300		31,418		2,139		40,857		(5,450		)	35,407		100.0	%
Burbank Collection	12/12/2012	Burbank	CA	Retail	4,175		9,426		725		14,326		(1,462		)	12,864		90.0	%
Austin Suburban Portfolio	03/28/2013	Austin	TX	Office	8,288		68,497		2,835		79,620		(10,483		)	69,137		100.0	%
Westmoor Center	06/12/2013	Westminster	CO	Office	10,058		65,284		6,813		82,155		(12,852		)	69,303		100.0	%
Central Building	07/10/2013	Seattle	WA	Office	7,015		26,914		1,914		35,843		(3,757		)	32,086		100.0	%
50 Congress Street	07/11/2013	Boston	MA	Office	9,876		41,059		2,485		53,420		(5,800		)	47,620		100.0	%
1180 Raymond	08/20/2013	Newark	NJ	Apartment	8,292		37,379		136		45,807		(3,400		)	42,407		100.0	%
Park Highlands II ⁽²⁾	12/10/2013	North Las Vegas	NV	Undeveloped Land	22,759		—		—		22,759		—			22,759		100.0	%
Maitland Promenade II	12/18/2013	Orlando	FL	Office	3,434		24,300		3,757		31,491		(4,052		)	27,439		100.0	%
Plaza Buildings	01/14/2014	Bellevue	WA	Office	53,040		137,551		7,748		198,339		(15,689		)	182,650		100.0	%
424 Bedford	01/31/2014	Brooklyn	NY	Apartment	8,860		25,395		—		34,255		(1,679		)	32,576		90.0	%
Richardson Land II	09/04/2014	Richardson	TX	Undeveloped Land	3,430		—		—		3,430		—			3,430		90.0	%
Westpark Portfolio	05/10/2016	Redmond	WA	Office/Flex/Industrial	36,085		81,436		8,962		126,483		(983		)	125,500		100.0	%
					$	261,775	$	734,695	$	48,602	$	1,045,072	$	(104,828	)	$	940,244

_____________________

⁽¹⁾ On March 18, 2016, the Company increased its membership interest in the Park Highlands joint venture from 50.1% to 51.58% by acquiring an additional 1.48% membership interest from one of the joint venture partners. On June 6, 2016, the Company increased its membership interest in the Park Highlands joint venture from 51.58% to 97.62% by acquiring an additional 46.04% membership interest from one of the joint venture partners. On June 25, 2016, the Company increased its membership interest in the Park Highlands joint venture from 97.62% to 100% by acquiring the remaining 2.38% membership interest from the remaining joint venture partner.

⁽²⁾ On March 18, 2016, the Company increased its membership interest in the Park Highlands II joint venture from 99.5% to 100% by acquiring the remaining 0.5% membership interest from its joint venture partner.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Operating Leases

Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2016 , the leases, excluding options to extend and apartment leases, which have terms that are generally one year or less, had remaining terms of up to 11.8 years with a weighted-average remaining term of 3.6 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions or foreclosures related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $6.4 million and $5.3 million as of June 30, 2016 and December 31, 2015 , respectively.

During the six months ended June 30, 2016 and 2015, the Company recognized deferred rent from tenants of $1.0 million and $2.7 million , respectively, net of lease incentive amortization. As of June 30, 2016 and December 31, 2015 , the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $24.6 million and $22.8 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $ 3.4 million and $2.8 million of unamortized lease incentives as of June 30, 2016 and December 31, 2015 , respectively. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

As of June 30, 2016 , the future minimum rental income from the Company’s properties, excluding apartment leases, under non-cancelable operating leases was as follows (in thousands):



July 1, 2016 through December 31, 2016	$	44,308
2017	86,421
2018	74,228
2019	60,947
2020	47,155
Thereafter	109,071
	$	422,130

As of June 30, 2016 , the Company’s commercial real estate properties were leased to approximately 600 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:



Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Computer System Design & Programming	57	$	11,320	12.4	%
Finance	55	10,600		11.6	%
		$	21,920	24.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2016 , adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Geographic Concentration Risk

As of June 30, 2016 , the Company’s real estate investments in Washington and Texas represented 34.0% and 16.6% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Washington and Texas real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

Property Damage

During the six months ended June 30, 2016, 1800 West Loop suffered physical damages due to floods. The Company’s insurance policy provides coverage for property damage and business interruption subject to a deductible of up to $100,000 per incident. Based on management’s estimates, the Company recognized an estimated aggregate loss due to damages of $1.6 million during the six months ended June 30 2016, which was reduced by $1.5 million of estimated insurance recoveries related to such damages, which the Company determined were probable of collection. The aggregate net loss due to damages of $0.1 million during the six months ended June 30, 2016 was classified as operating, maintenance and management expenses on the accompanying consolidated statements of operations and relates to the Company’s insurance deductible.

Recent Acquisition

Westpark Portfolio

On May 10, 2016, the Company, through an indirect wholly owned subsidiary (the “Westpark Portfolio Buyer”), acquired a portfolio of 21 office/flex/industrial buildings containing a total of 778,472 rentable square feet located on approximately 41 acres of land in Redmond, Washington (the “Westpark Portfolio”). The purchase price (net of closing credits) of the Westpark Portfolio was $125.8 million plus closing costs. The seller is not affiliated with the Company or the Advisor. The Company recorded $36.1 million to land, $81.2 million to building and improvements, $9.0 million to tenant origination and absorption costs, $0.1 million to above-market lease assets and $0.6 million to below-market lease liabilities during the six months ended June 30, 2016. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods as of the date of acquisition of 4.4 years for tenant origination and absorption costs, 2.7 years for above-market lease assets and 3.5 years for below-market lease liabilities.

The Company recorded the acquisition as a business combination and expensed $1.5 million of acquisition costs related to this portfolio for the six months ended June 30, 2016. During the six months ended June 30, 2016, the Company recognized $1.7 million of total revenues and $0.4 million of operating expenses from this portfolio.


4.	TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES

As of June 30, 2016 and December 31, 2015 , the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Cost	$	48,602		$	43,894		$	2,315		$	2,399		$	(5,839	)	$	(5,826	)
Accumulated Amortization	(23,191		)	(22,749		)	(1,463		)	(1,361		)	3,237			3,091
Net Amount	$	25,411		$	21,145		$	852		$	1,038		$	(2,602	)	$	(2,735	)

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2016 and 2015 were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2016			2015			2016			2015			2016		2015
Amortization	$	(2,486	)	$	(2,716	)	$	(120	)	$	(258	)	$	381	$	445



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016		2015
Amortization	$	(4,697	)	$	(5,639	)	$	(240	)	$	(531	)	$	689	$	939

Additionally, as of June 30, 2016 and December 31, 2015 , the Company had recorded unamortized tax abatement intangible assets, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $6.8 million and $7.2 million , respectively. During the three and six months ended June 30, 2016 , the Company recorded amortization expense of $0.2 million and $0.5 million related to tax abatement intangible assets, respectively. During the three and six months ended June 30, 2015, the Company recorded amortization expense of $0.2 million and $0.5 million related to tax abatement intangible assets, respectively.


5.	REAL ESTATE LOAN RECEIVABLE

As of December 31, 2015, the Company owned one real estate loan receivable, which was repaid during the six months ended June 30, 2016. The information for that real estate loan receivable as of June 30, 2016 and December 31, 2015 is set forth below (in thousands):

Loan Name

Location of Related Property or

Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of June 30, 2016

Book Value as of June 30, 2016

Book Value as of December 31, 2015 ⁽¹⁾

Contractual Interest Rate

Annualized Effective Interest Rate

Maturity Date

University House First Mortgage

New York, New York

3/20/2013

Student Housing

Mortgage

—

27,850

⁽²⁾

_____________________

⁽¹⁾ Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs and additional interest accretion.

⁽²⁾ See below for a discussion of the assignment of the University House First Mortgage.

On June 30, 2015, the University House First Mortgage matured without repayment. As a result, on July 1, 2015, the Company provided notice to the borrower of default. As of July 1, 2015, the Company had determined the University House Mortgage to be impaired and began recognizing income on a cash basis. The Company did not record a provision for loan loss reserves during the six months ended June 30, 2016 or 2015 as the Company believed the entire principal balance of $27.9 million related to the University House First Mortgage to be fully recoverable.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

On April 21, 2016, the Company, through an indirect wholly owned subsidiary, entered into an assignment of mortgage to assign the University House First Mortgage to an assignee unaffiliated with the Company or the Advisor. On April 22, 2016, the Company received $31.6 million in connection with the assignment of the University House First Mortgage. The proceeds received from the assignment reflect the entire principal balance and interest due, including any default interest, as of April 21, 2016, plus any legal costs incurred by the Company in connection with the assignment.

For the three and six months ended June 30, 2016 and 2015, interest income from the real estate loan receivable consisted of the following (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Contractual interest income	$	3,655	$	774	$	3,655	$	1,540
Accretion of closing costs, origination fees and extension fees, net	—		219		—		428
Interest income from real estate loan receivable	$	3,655	$	993	$	3,655	$	1,968


6.	REAL ESTATE SALES

In accordance with ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations from properties that are classified as held for sale in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations. Results of operations from properties that were classified as held for sale in financial statements issued prior to January 1, 2014 will remain in discontinued operations on the Company’s consolidated statements of operations. Prior to the adoption of ASU 2014-08, the operations of properties held for sale or to be disposed of and the aggregate net gains recognized upon their disposition were presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented.

During the year ended December 31, 2015, the Company sold two office properties. The results of operations of these properties and gain on sale are included in continuing operations on the accompanying statements of operations. During the six months ended June 30, 2016 , the Company did not have any dispositions and no properties were classified as held for sale as of June 30, 2016 . The following table summarizes certain revenue and expenses related to these properties for the three and six months ended June 30, 2016, and 2015 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Total revenues	$	—	$	6	$	—	$	216

Total expenses	15		130		17		565

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)


7.	NOTES AND BONDS PAYABLE

As of June 30, 2016 and December 31, 2015 , the Company’s notes and bonds payable consisted of the following (dollars in thousands):



	Book Value as of June 30, 2016			Book Value as of December 31, 2015			Contractual Interest Rate as of June 30, 2016 ⁽¹⁾	Effective Interest Rate at June 30, 2016 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Richardson Portfolio Mortgage Loan	$	40,889		$	41,177		One-Month LIBOR + 2.10%	2.56%	Principal & Interest	05/01/2017
Bellevue Technology Center Mortgage Loan	59,720			52,960			One-Month LIBOR + 2.25%	2.71%	Principal & Interest	03/01/2017
Portfolio Revolving Loan Facility ⁽³⁾	58,954			47,087			One-Month LIBOR + 2.25%	2.71%	Principal & Interest	05/01/2017
Portfolio Mortgage Loan	103,932			100,032			One-Month LIBOR + 2.25%	2.71%	Interest Only ⁽⁴⁾	07/01/2017
Burbank Collection Mortgage Loan	9,098			9,098			One-Month LIBOR + 2.35%	2.85%	Interest Only	09/30/2016
50 Congress Mortgage Loan	28,766			28,075			One-Month LIBOR + 1.90%	2.36%	Interest Only ⁽⁴⁾	10/01/2017
1180 Raymond Bond Payable	6,715			6,795			6.50%	6.50%	Principal & Interest	09/01/2036
Central Building Mortgage Loan	25,969			24,896			One-Month LIBOR + 1.75%	2.21%	Interest Only	11/13/2018
Maitland Promenade II Mortgage Loan ⁽⁵⁾	20,019			20,182			One-Month LIBOR + 2.90%	3.36%	Principal & Interest	01/01/2017
Westmoor Center Mortgage Loan	61,373			56,036			One-Month LIBOR + 2.25%	2.71%	Interest Only ⁽⁴⁾	02/01/2018
Plaza Buildings Senior Loan	110,493			111,000			One-Month LIBOR + 1.90%	2.36%	Principal & Interest	01/14/2017
424 Bedford Mortgage Loan	25,098			25,358			3.91%	3.91%	Principal & Interest	10/01/2022
1180 Raymond Mortgage Loan	31,000			28,100			One-Month LIBOR + 2.25%	2.71%	Interest Only	12/01/2017
KBS SOR (BVI) Holdings, Ltd. Series A Debentures ⁽⁶⁾	251,380			—			4.25%	4.25%	⁽⁶⁾	03/01/2023
Total Notes and Bonds Payable principal outstanding	833,406			550,796
Net Premium/Discount on Notes and Bonds Payable ⁽⁷⁾	68			50
Deferred financing costs, net	(11,702		)	(3,523		)
Total Notes and Bonds Payable, net	$	821,772		$	547,323

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2016 . Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2016 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at June 30, 2016 , where applicable.

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of June 30, 2016 ; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾ The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. The Portfolio Revolving Loan Facility is comprised of $63.5 million of revolving debt and $13.0 million of non-revolving debt available to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. As of June 30, 2016 , $47.2 million of revolving debt and $11.8 million of non-revolving debt had been disbursed to the Company and the remaining $16.3 million of revolving debt and $ 1.2 million of non-revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents.

⁽⁴⁾ Represents the payment type required under the loan as of June 30, 2016 . Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bonds payable, see five-year maturity table below.

⁽⁵⁾ Interest on the Maitland Promenade II Mortgage Loan is calculated at a variable annual rate of 290 basis points over one-month LIBOR, but at no point shall the interest rate be less than 3.25% .

⁽⁶⁾ See “– Recent Financing Transaction – Israeli Bond Financing” below.

⁽⁷⁾ Represents the unamortized premium/discount on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bonds payable.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

During the three and six months ended June 30, 2016 , the Company incurred $7.2 million and $12.4 million of interest expense, respectively. Included in interest expense for the three and six months ended June 30, 2016 was $1.0 million and $ 1.8 million of amortization of deferred financing costs, respectively. Additionally, during the three and six months ended June 30, 2016 , the Company capitalized $0.5 million and $1.0 million of interest to its investments in undeveloped land, respectively. During the three and six months ended June 30, 2015, the Company incurred $3.9 million and $7.8 million of interest expense, respectively. Included in interest expense for the three and six months ended June 30, 2015 was $0.8 million and $1.5 million of amortization of deferred financing costs, respectively. Additionally, during the three and six months ended June 30, 2015, the Company capitalized $0.5 million and $1.0 million of interest to its investments in undeveloped land, respectively. As of June 30, 2016 , the Company’s deferred financing costs were $ 11.7 million , net of amortization, which are included in notes and bonds payable, net. As of December 31, 2015 , the Company’s deferred financing costs were $ 4.7 million , net of amortization, of which $3.5 million is included in notes and bonds payable, net and $1.2 million is included in prepaid expenses and other assets on the accompanying consolidated balance sheets, respectively. As of June 30, 2016 and December 31, 2015 , the Company’s interest payable was $ 4.7 million and $ 1.2 million , respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of June 30, 2016 (in thousands):



July 1, 2016 through December 31, 2016	$	12,073
2017	452,461
2018	87,542
2019	51,088
2020	51,122
Thereafter	179,120
	$	833,406

The Company’s notes payable contain financial debt covenants. As of June 30, 2016 , the Company was in compliance with all of these debt covenants, except that, as of June 30, 2016, the borrower under the Westmoor Center Mortgage Loan was out of debt service coverage compliance. Such non-compliance does not constitute an event of default under the applicable loan agreement. As a result of such non-compliance, under the loan, the borrower may be required to fund an interest reserve account equal to six months of interest.

Recent Financing Transactions

Israeli Bond Financing

On March 2, 2016, KBS Strategic Opportunity BVI, a wholly owned subsidiary of the Company, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25% . On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, KBS Strategic Opportunity BVI accepted 970.2 million Israeli new Shekels (approximately $251.4 million as of June 30, 2016) in both the institutional and public tenders at an annual interest rate of 4.25% . KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.

As of June 30, 2016, the Company incurred legal, rating and underwriting fees of approximately $9.8 million in connection with the offering. In addition, the Company funded interest reserves of 20.0 million Israeli new Shekels (approximately $5.2 million as of June 30, 2016) and 1.0 million Israeli new Shekels (approximately $0.3 million as of June 30, 2016) of expense reserve required by the Debenture documents.

The deed of trust that governs the terms of the Debentures contains various financial covenants. As of June 30, 2016 , the Company was in compliance with all of these financial debt covenants.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)


8.	FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:


•	Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;


•	Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and


•	Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

Cash and cash equivalents, rent and other receivables and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

Real estate loan receivable: The Company’s real estate loan receivable is presented in the accompanying consolidated balance sheets at its amortized cost net of recorded loan loss reserves and not at fair value. The fair value of real estate loan receivable was estimated using an internal valuation model that considers the expected cash flows for the loans, underlying collateral values (for collateral dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. The Company classifies these inputs as Level 3 inputs.

Notes and bonds payable: The fair values of the Company’s notes and bonds payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs. The Company’s bonds issued in Israel are publicly traded on the Tel-Aviv Stock Exchange. The Company used the quoted price as of June 30, 2016 for the fair value of its bonds issued in Israel. The Company classifies this input as a Level 1 input.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of June 30, 2016 and December 31, 2015 , which carrying amounts do not approximate the fair values (in thousands):



	June 30, 2016						December 31, 2015
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loan receivable	$	—	$	—	$	—	$	27,850	$	27,850	$	27,850
Financial liabilities:
Notes and bonds payable	$	582,026	$	579,655	$	584,342	$	550,796	$	547,323	$	554,007
KBS SOR (BVI) Holdings, Ltd. Series A Debentures	$	251,380	$	242,117	$	247,107	$	—	$	—	$	—

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.


9.	RELATED PARTY TRANSACTIONS

The Advisory Agreement entitles the Advisor to specified fees upon the provision of certain services with regard to the investment of funds in real estate and real estate-related investments and the disposition of real estate and real estate-related investments (including the discounted payoff of non-performing loans) among other services, as well as reimbursement of certain costs incurred by the Advisor in providing services to the Company. The Advisory Agreement may also entitle the Advisor to certain back-end cash flow participation fees. The Company also entered into a fee reimbursement agreement (the “AIP Reimbursement Agreement”) with KBS Capital Markets Group LLC, the dealer manager for the Company’s initial public offering (the “Dealer Manager”), pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”).

On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above.

During the three and six months ended June 30, 2016 and 2015, no other business transactions occurred between the Company and these other KBS-sponsored programs.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2016 and 2015, respectively, and any related amounts payable as of June 30, 2016 and December 31, 2015 (in thousands):



	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2016		2015		2016		2015		2016		2015
Expensed
Asset management fees	$	2,205	$	2,077	$	4,293	$	4,130	$	—	$	—
Real estate acquisition fees	1,274		—		1,274		—		—		—
Reimbursable operating expenses ⁽¹⁾	69		32		113		77		59		59
Disposition fees ⁽²⁾	279		—		279		102		—		—
	$	3,827	$	2,109	$	5,959	$	4,309	$	59	$	59

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $ 41,000 and $ 29,000 for the three months ended June 30, 2016 and 2015 , respectively and $85,000 and $62,000 for the six months ended June 30, 2016 and 2015, respectively, and were the only employee costs reimbursed under the Advisory Agreement during these periods. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company ’ s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

⁽²⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate in the accompanying consolidated statements of operations. Disposition fees with respect to the assignment of the Company's real estate loan receivable are included in general and administrative expenses in the accompanying consolidated statements of operations.

During the three and six months ended June 30, 2016, the Advisor reimbursed the Company $66,000 for property insurance rebate and $69,000 for legal and professional fees.


10.	INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of June 30, 2016 and December 31, 2015 , the Company’s investments in unconsolidated joint ventures were composed of the following (dollars in thousands):



				Investment Balance at
Joint Venture	Number of Properties	Location	Ownership %	June 30, 2016		December 31, 2015
NIP Joint Venture	21	Various	Less than 5.0%	$	5,305	$	5,305
110 William Joint Venture	1	New York, New York	60.0%	70,584		69,132
				$	75,889	$	74,437

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Investment in National Industrial Portfolio Joint Venture

On May 18, 2012, the Company, through an indirect wholly owned subsidiary, entered into a joint venture (the “NIP Joint Venture”) with OCM NIP JV Holdings, L.P. and HC KBS NIP JV, LLC (“HC-KBS”). The NIP Joint Venture owns 21 industrial properties and a master lease with respect to another industrial property encompassing 10.8 million square feet. The Company made an initial capital contribution of $8.0 million which represents less than a 5.0% ownership interest in the NIP Joint Venture as of June 30, 2016 . The Company has virtually no influence over the NIP Joint Venture’s operations, financial policies or decision making. Accordingly, the Company has accounted for its investment in the NIP Joint Venture under the cost method of accounting. Income, losses and distributions from the NIP Joint Venture are generally allocated among the members based on their respective equity interests.

KBS REIT I, an affiliate of the Advisor, is a member of HC-KBS and has a participation interest in certain future potential profits generated by the NIP Joint Venture. However, KBS REIT I does not have any equity interest in the NIP Joint Venture. None of the other joint venture partners are affiliated with the Company or the Advisor.

As of June 30, 2016 and December 31, 2015 , the book value of the Company’s investment in the NIP Joint Venture was $5.3 million . During the three and six months ended June 30, 2016 and 2015, the Company did not receive any distributions related to its investment in the NIP Joint Venture.

Investment in 110 William Joint Venture

On December 23, 2013, the Company, through an indirect wholly owned subsidiary, entered into an agreement with SREF III 110 William JV, LLC (the “110 William JV Partner”) to form a joint venture (the “110 William Joint Venture”). On May 2, 2014, the 110 William Joint Venture acquired an office property containing 928,157 rentable square feet located on approximately 0.8 acres of land in New York, New York (“110 William Street”). Each of the Company and the 110 William JV Partner hold a 60% and 40% ownership interest in the 110 William Joint Venture, respectively. The Company exercises significant influence over the operations, financial policies and decision making with respect to the 110 William Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accounted for its investment in the 110 William Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.

As of June 30, 2016 and December 31, 2015 , the book value of the Company’s investment in the 110 William Joint Venture was $70.6 million and $69.1 million , respectively, which includes $1.5 million of unamortized acquisition fees and expenses incurred directly by the Company.

Summarized financial information for the 110 William Joint Venture follows (in thousands):



	June 30, 2016		December 31, 2015
Assets:
Real estate assets, net of accumulated depreciation and amortization	$	267,708	$	269,664
Other assets	20,276		18,973
Total assets	$	287,984	$	288,637
Liabilities and Equity:
Notes payable, net ⁽¹⁾	$	160,035	$	162,395
Other liabilities	12,870		13,617
Partners’ capital	115,079		112,625
Total Liabilities and Equity	$	287,984	$	288,637

_____________________

⁽¹⁾ Includes (i) a first mortgage loan with an outstanding principal balance of $137.5 million and $138.6 million as of June 30, 2016 and December 31, 2015 , respectively, bearing interest at a fixed rate of 4.8% per annum and maturing on July 6, 2017 and (ii) a mezzanine loan with an outstanding principal balance of $20.0 million as of June 30, 2016 and December 31, 2015 bearing interest at a fixed rate of 9.5% per annum and maturing on July 6, 2017. The amount presented includes a premium on notes payable of $3.0 million and $4.5 million as of June 30, 2016 and December 31, 2015 , respectively and deferred financing costs, net of $0.5 million and $0.7 million as of June 30, 2016 and December 31, 2015, respectively.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues	$	8,388		$	8,413		$	16,639		$	16,698
Expenses:
Operating, maintenance, and management	2,453			2,784			4,958			5,487
Real estate taxes and insurance	1,533			1,352			2,967			2,687
Depreciation and amortization	3,147			3,222			6,268			6,282
Interest expense	1,508			1,542			3,024			3,075
Total expenses	8,641			8,900			17,217			17,531
Other income	16			307			32			308
Net loss	$	(237	)	$	(180	)	$	(546	)	$	(525	)
Company’s equity in loss of unconsolidated joint venture	$	(152	)	$	(118	)	$	(348	)	$	(336	)

11. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Company acquired one office portfolio during the six months ended June 30, 2016, which was accounted for as a business combination. The following unaudited pro forma information for the three and six months ended June 30, 2016 and 2015 has been prepared to give effect to the acquisition of the Westpark Portfolio as if this acquisition occurred on January 1, 2015. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisitions occurred on this date, nor does it purport to predict the results of operations for future periods (in thousands).



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016			2015		2016			2015
Revenues	$	35,037		$	31,137	$	66,068		$	61,549
Depreciation and amortization	$	12,694		$	12,224	$	25,074		$	24,516
Net (loss) income	$	(360	)	$	3,015	$	(5,093	)	$	8,776

The unaudited pro forma information for the three and six months ended June 30, 2016 was adjusted to exclude $1.5 million of acquisition costs related to the Westpark Portfolio incurred by the Company in 2016, respectively.


12.	COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor is unable to provide these services, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of June 30, 2016 . However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2016

(unaudited)

Legal Matters

From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.


13.	SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

Real Estate Acquisition and Probable Acquisition Subsequent to June 30, 2016

Acquisition of 353 Sacramento

On July 11, 2016, the Company, through an indirect wholly owned subsidiary, acquired an office building containing 284,751 rentable square feet located on approximately 0.35 acres of land in San Francisco, California (“353 Sacramento”). The seller is not affiliated with the Company or the Advisor. The purchase price of 353 Sacramento was $169.5 million plus closing costs. The Company is in process of assessing the fair value of the acquired tangible assets and any applicable intangible assets and liabilities for this business combination.

353 Sacramento was built in 1982 and at acquisition was 85% leased to 25 tenants.

Financing Subsequent to June 30, 2016

Westpark Portfolio Mortgage Loan

On July 8, 2016, the Westpark Portfolio Buyer, entered into a four -year mortgage loan with an unaffiliated lender, for borrowings of up to $85.2 million secured by the Westpark Portfolio (the “Westpark Portfolio Mortgage Loan”). At closing, $83.2 million of the loan was funded and the remaining $2.0 million was available for future disbursements to be used for tenant improvement costs, subject to certain terms and conditions contained in the loan documents.

The Westpark Portfolio Mortgage Loan matures on July 1, 2020, with a one -year extension option, subject to certain terms and conditions contained in the loan documents. The Westpark Portfolio Mortgage Loan bears interest at a floating rate of 250 basis points over one-month LIBOR. The Westpark Portfolio Buyer has the right to prepay the loan in whole at any time, or in part from time to time.

KBS SOR Properties LLC (“SOR Properties”), the Company’s indirect wholly owned subsidiary, is providing a limited guaranty of the Westpark Portfolio Mortgage Loan with respect to certain potential fees, costs, expenses, losses or damages incurred or suffered by the lender as a result of certain intentional actions committed by the Westpark Portfolio Buyer in violation of the loan documents. SOR Properties is also providing a guaranty of the principal balance and any interest or other sums outstanding under the Westpark Portfolio Mortgage Loan in the event of certain bankruptcy or insolvency proceedings involving the Westpark Portfolio Buyer, certain direct or indirect transfers or financings of Westpark Portfolio in violation of the loan documents and the violation of certain other terms of the loan documents by the Westpark Portfolio Buyer.

Foreign Currency Collar

On August 8, 2016, the Company, through an indirect wholly owned subsidiary, entered into a foreign currency collar to hedge against a change in the exchange rate of the Israeli new Shekel versus the U.S. Dollar. The foreign currency collar expires on August 8, 2017 and has a U.S. Dollar notional amount of $100.0 million . The foreign currency collar consists of a purchased call option to buy and a sold put option to sell the Israeli new Shekels at 3.7245 and 3.826 Israeli new Shekels, respectively. The foreign currency collar is intended to permit the Company to exchange, on the settlement date of the collar and net of the effect of the collar, $100.0 million U.S. Dollars for an amount of Israeli new Shekels ranging from 372.5 million to 382.6 million .

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Strategic Opportunity REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Strategic Opportunity REIT, Inc., a Maryland corporation, and, as required by context, KBS Strategic Opportunity Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Strategic Opportunity REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

•

We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.


•	Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in some other types of real estate and real estate-related investments.

•

We have paid distributions from financings and in the future we may not pay distributions solely from our cash flow from operations or gains from asset sales. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have less funds available for investment in loans, properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

•

All of our executive officers and some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other KBS-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us.


•	We pay substantial fees to and expenses of our advisor and its affiliates and, in connection with our initial public offering, we paid substantial fees to our dealer manager and participating broker-dealers. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase our stockholders’ risk of loss.

•

We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program, future funding obligations under any real estate loans receivable we acquire, the funding of capital expenditures on our real estate investments or the repayment of debt. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.


•	Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in performing real estate and real estate related assets.

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”).

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Overview

We were formed on October 8, 2008 as a Maryland corporation, elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010 and intend to operate in such manner. KBS Capital Advisors LLC (“KBS Capital Advisors”) is our advisor. As our advisor, KBS Capital Advisors manages our day-to-day operations and our portfolio of investments. KBS Capital Advisors also has the authority to make all of the decisions regarding our investments, subject to the limitations in our charter and the direction and oversight of our board of directors. KBS Capital Advisors will also provide asset-management, marketing, investor-relations and other administrative services on our behalf.

On January 8, 2009, we filed a registration statement on Form S-11 with the SEC to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public, of which 100,000,000 shares were registered in our primary offering and 40,000,000 shares were registered under our dividend reinvestment plan. We ceased offering shares of common stock in our primary offering on November 14, 2012. We sold 56,584,976 shares of common stock in the primary offering for gross offering proceeds of $561.7 million . We continue to offer shares of common stock under the dividend reinvestment plan. As of June 30, 2016 , we had sold 5,569,775 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $ 59.1 million . Also as of June 30, 2016 , we had redeemed 3,806,297 of the shares sold in our offering for $ 45.4 million . Additionally, on December 29, 2011 and October 23, 2012, we issued 220,994 shares and 55,249 shares of common stock, respectively, for $2.0 million and $0.5 million , respectively, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.

On March 2, 2016, KBS Strategic Opportunity (BVI) Holdings, Ltd. (“KBS Strategic Opportunity BVI”), our wholly owned subsidiary, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, KBS Strategic Opportunity BVI accepted 970.2 million Israeli new Shekels (approximately $251.4 million as of June 30, 2016) in both the institutional and public tenders at an annual interest rate of 4.25%. KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.

Market Outlook – Real Estate and Real Estate Finance Markets

The following discussion is based on management’s beliefs, observations and expectations with respect to the real estate and real estate finance markets.

Current conditions in the global capital markets remain volatile. Prior to the June 23, 2016 vote in the United Kingdom in favor of leaving the European Union, economic data and financial market developments suggested that the global economy was improving, although at a slow incremental rate. Growth in most advanced economies remained lackluster, with low potential growth and a gradual closing of output gaps. Prospects remained uneven across emerging markets and developing economies, with some improvement for a few large emerging markets, in particular Brazil and Russia, pointing to a modest upward revision to 2017 global growth relative to the International Monetary Fund’s April 2016 forecast.

The outcome of the U.K. vote, which surprised global financial markets, implies downside risk for the world economy. As a result, the International Monetary Fund recently downgraded the global outlook for 2016 and 2017, despite the better-than-expected performance in early 2016. This downgrade in outlook reflects the expected macroeconomic consequences of a sizable increase in uncertainty, including on the political front. This uncertainty is projected to take a toll on both business and consumer confidence and investment. The initial financial market reaction was severe but generally orderly. As of mid-July 2016, the Great Britain Pound was weakened by about 10 percent since the June 23, 2016 vote; despite some rebound, equity prices are lower in some sectors, especially for European banks; and yields on higher quality assets have declined. Historically low interest rates have been reached in many developed nations.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

In the United States, economic growth has been relatively steady and modest. In the United States, first-quarter growth was 0.8%, which was weaker than expected, triggering a downward revision of 0.2% to the 2016 growth forecast. The high-frequency indicators point to a pick up in growth in the U.S. economy in the second quarter and for the remainder of the year, consistent with fading headwinds from a strong U.S. dollar and lower energy sector investment. The impact of Brexit is projected to be muted for the United States, as lower long-term interest rates and a more gradual path of monetary policy normalization in the United States are expected to broadly offset larger corporate spreads, a stronger U.S. dollar, and some decline in confidence in the U.S. economy.

The low interest rate policy of the Federal Reserve Board remains in place. While the U.S. Federal Reserve appeared ready to raise interest rates in in the second half of 2016, increased global geopolitical and economic risks seem to have muted those expectations until late 2016 or early 2017.

Europe and Japan continue to engage in unconventional monetary policy. Asset purchases and stimulus programs in both regions have driven interest rates and investment yields to new lows. Both regions now have historically low interest rates, with some government and corporate bonds trading with negative yields. While the intent of these policies is to spur economic growth, the size of these programs is unprecedented, and the ultimate impact on those economies and the broader global financial system remains unknown.

With the backdrop of increasing levels of global political conflict, and weaker international economic conditions, the U.S. dollar has remained a safe haven currency. Slowing economic growth, poor corporate earnings and increased global geopolitical risks have caused the markets to discount the likelihood of substantial ongoing tightening of monetary policy. This, in turn, has kept the U.S. yield curve near all-time lows.

The U.S. commercial real estate market continues to benefit from inflows of foreign capital. In 2015, commercial real estate transaction volumes increased 23%, making 2015 the second highest level of investment volume, behind only 2007. However, in the first half of 2016, this trend appears to be slowing. Despite international equity capital continuing to flow into the U.S. markets, lenders have cooled to the market. For balance sheet lenders, such as banks and insurance companies, underwriting standards have been tightened. This has resulted in lower loan-to-value and coverage ratios. The lack of CMBS lending has added pressure to the situation as CMBS lenders are trying to adjust to the new securitization rules which require issuers to maintain an ongoing equity stake in pooled transactions. These trends have led to increased uncertainty in the level and cost of debt for commercial properties, and in turn has injected some volatility into commercial real estate markets.

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the acquisition of real estate and real estate-related investments; payment of operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; and payments of distributions to stockholders. To date, we have had six primary sources of capital for meeting our cash requirements:


•	Proceeds from the primary portion of our initial public offering;


•	Proceeds from our dividend reinvestment plan;


•	Debt financing;


•	Proceeds from our public bond offering to Israeli investors;


•	Proceeds from the sale of real estate and the repayment of real estate-related investments; and


•	Cash flow generated by our real estate and real estate-related investments.

We sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $561.7 million . We ceased offering shares in the primary portion of our initial public offering on November 14, 2012. We continue to offer shares of common stock under the dividend reinvestment plan. As of June 30, 2016 , we had sold 5,569,775 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $ 59.1 million . To date, we have invested all of the net proceeds from our initial public offering in real estate and real estate-related investments. We intend to use our cash on hand, proceeds from debt financing, proceeds from the issuance of our 4.25% bonds to Israeli investors, cash flow generated by our real estate operations and real estate-related investments, proceeds from our dividend reinvestment plan and principal repayments on our real estate loans receivable as our primary sources of immediate and long-term liquidity.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures and corporate general and administrative expenses. Cash flow from operations from our real estate investments is primarily dependent upon the occupancy levels of our properties, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of June 30, 2016 , our office, retail and industrial properties were collectively 85% occupied and our apartment properties were collectively 92% occupied.

Investments in real estate-related loans generate cash flow in the form of interest income, which are reduced by loan service fees, asset management fees and corporate general and administrative expenses. On June 30, 2015, the University House First Mortgage Loan matured without repayment. On April 21, 2016, the University House First Mortgage Loan lender entered into an assignment of mortgage to assign the University House First Mortgage Loan to an assignee unaffiliated with us or our advisor. On April 22, 2016, we received $31.6 million in connection with the assignment of the University House First Mortgage Loan. The proceeds received from the assignment reflects the entire principal balance and interest due, including any default interest, as of April 21, 2016, plus any legal costs incurred by us in connection with the assignment.

As of June 30, 2016 , we had outstanding debt obligations in the aggregate principal amount of $833.4 million , with a weighted average remaining term of 3.0 years. As of June 30, 2016 , we had $16.3 million of unrestricted secured revolving debt available for future disbursements under a portfolio loan facility, subject to certain conditions set forth in the loan agreement.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the Conflicts Committee of our board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursements for the four fiscal quarters ended June 30, 2016 did not exceed the charter imposed limitation.

For the six months ended June 30, 2016 , our cash needs for capital expenditures, redemptions of common stock and debt servicing were met with proceeds from debt financing, proceeds from our dividend reinvestment plan and cash on hand. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand.

Cash Flows from Operating Activities

As of June 30, 2016 , we owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres and two investments in unconsolidated joint ventures. During the six months ended June 30, 2016 , net cash provided by operating activities was $ 12.6 million . We expect that our cash flows from operating activities will increase in future periods as a result of leasing additional space that is currently unoccupied and anticipated future acquisitions of real estate and real estate-related investments. However, our cash flows from operating activities may decrease to the extent that we dispose of assets.

Cash Flows from Investing Activities

Net cash used in investing activities was $139.8 million for the six months ended June 30, 2016 and primarily consisted of the following:


•	Acquisition of an office/flex/industrial portfolio consisting of 21 buildings for $125.8 million ;


•	Principal proceeds received from the assignment of University House in the amount of $27.9 million;


•	Escrow deposits for future real estate purchase of $16.0 million ;


•	Improvements to real estate of $14.0 million ;


•	Restricted cash for capital expenditures of $7.8 million ;


•	Funding of restricted cash for development obligations of $2.5 million ;


•	Additional investment in an unconsolidated joint venture of $1.8 million ; and


•	Proceeds from insurance claims of $0.3 million.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Cash Flows from Financing Activities

Net cash provided by financing activities was $217.3 million for the six months ended June 30, 2016 and consisted primarily of the following:


•	$266.1 million of net cash provided by debt and other financings as a result of proceeds from notes and bond payable of $338.6 million, partially offset by principal payments on notes payable of $58.2 million, payments of deferred financing costs of $9.2 million and restricted cash for debt service obligations of $5.1 million;


•	$7.0 million of payments made to redeem shares of common stock;


•	$4.6 million of net cash distributions to stockholders, after giving effect to distributions reinvested by stockholders of $6.4 million;


•	$38.0 million of acquisitions of noncontrolling interests; and


•	$0.8 million of contributions from noncontrolling interests.

In order to execute our investment strategy, we utilize secured debt and we may, to the extent available, utilize unsecured debt to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinancing and interest risks, are properly balanced with the benefit of using leverage. There is no limitation on the amount we may borrow for any single investment. Our charter limits our total liabilities such that our total liabilities may not exceed 75% of the cost of our tangible assets; however, we may exceed that limit if a majority of the Conflicts Committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our common stockholders in our next quarterly report with an explanation from the Conflicts Committee of the justification for the excess borrowing. As of June 30, 2016 , our borrowings and other liabilities were approximately 67% of the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets.

In addition to making investments in accordance with our investment objectives, we use or have used our capital resources to make certain payments to our advisor and our dealer manager. During our offering stage, these payments included payments to our dealer manager for selling commissions and dealer manager fees related to sales in our primary offering and payments to our dealer manager and our advisor for reimbursement of certain organization and other offering expenses related both to the primary offering and the dividend reinvestment plan. During our acquisition and development stage, we expect to continue to make payments to our advisor in connection with the selection and origination or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us as well as for any dispositions of assets (including the discounted payoff of non-performing loans). In addition, an affiliate of our advisor, KBS Management Group, was recently formed to provide property management services with respect to certain properties owned by KBS-advised companies. In the future, we may engage KBS Management Group with respect to one or more of our properties to provide property management services. With respect to any such properties, we would expect to pay KBS Management Group a monthly fee equal to a percentage of the rent (to be determined on a property by property basis, consistent with current market rates).

The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and our Conflicts Committee.

Among the fees payable to our advisor is an asset management fee. With respect to investments in loans and any investments other than real property, the asset management fee is a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount actually paid or allocated to acquire or fund the loan or other investment, inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the sum of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property, and inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment, inclusive of our proportionate share of any fees and expenses related thereto.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of June 30, 2016 (in thousands):



			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2016		2017-2018		2019-2020		Thereafter
Outstanding debt obligations ⁽¹⁾	$	833,406	$	12,073	$	540,003	$	102,210	$	179,120
Interest payments on outstanding debt obligations ⁽²⁾	74,675		13,236		30,726		18,267		12,446

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts, maturity dates, foreign currency rate and interest rates in effect at June 30, 2016 . We incurred interest expense of $11.5 million, excluding amortization of deferred financing costs of $1.8 million and including interest capitalized of $1.0 million , for the six months ended June 30, 2016 .

Results of Operations

Overview

As of June 30, 2015, we owned 11 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 63 acres of undeveloped land, one office portfolio consisting of three office properties, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres, one first mortgage loan and two investments in unconsolidated joint ventures. As of June 30, 2016 , we owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres, one first mortgage loan and two investments in unconsolidated joint ventures. Our results of operations for the three and six months ended June 30, 2016 may not be indicative of those in future periods as the occupancy in our properties has not been stabilized. As of June 30, 2016 , our office, retail and industrial properties were collectively 85% occupied and our apartment properties were collectively 92% occupied. However, due to the short outstanding weighted-average lease term in the portfolio of less than four years, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that occupancies of our assets will increase, or that we will recognize a gain on the sale of our assets. We funded the acquisitions of these investments with proceeds from our initial public offering and debt financing. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of leasing additional space and acquiring additional assets but decrease due to disposition activity.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Comparison of the three months ended June 30, 2016 versus the three months ended June 30, 2015

The following table provides summary information about our results of operations for the three months ended June 30, 2016 and 2015 (dollar amounts in thousands):



	Three Months Ended June 30,					Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions ⁽¹⁾			$ Change Due to Investments Held Throughout Both Periods ⁽²⁾
	2016			2015		Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions ⁽¹⁾
Rental income	$	24,585		$	22,118	$	2,467		11	%	$	1,315		$	1,152
Tenant reimbursements	4,828			4,740		88			2	%	347			(259		)
Interest income from real estate loan receivable	3,655			993		2,662			268	%	2,662			—
Other operating income	798			816		(18		)	(2	)%	(3		)	(15		)
Operating, maintenance, and management costs	9,303			8,980		323			4	%	202			121
Real estate taxes and insurance	4,029			3,839		190			5	%	149			41
Asset management fees to affiliate	2,205			2,077		128			6	%	88			40
Real estate acquisition fees to affiliate	1,274			—		1,274			n/a		1,274			—
Real estate acquisition fees and expenses	268			—		268			n/a		268			—
General and administrative expenses	1,699			869		830			96	%	n/a			n/a
Foreign currency gain	(2,340		)	—		(2,340		)	n/a		n/a			n/a
Depreciation and amortization	12,091			11,159		932			8	%	960			(28		)
Interest expense	7,185			3,857		3,328			86	%	n/a			n/a
Other income	—			4,889		(4,889		)	n/a		n/a			n/a

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 related to real estate and real estate-related investments acquired, repaid or disposed on or after April 1, 2015.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

Rental income and tenant reimbursements increased from $22.1 million and $4.7 million , respectively, for the three months ended June 30, 2015 to $24.6 million and $4.8 million , respectively, for the three months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio and as a result of an increase in occupancy from 84% as of June 30, 2015 to 85% as of June 30, 2016 related to properties (excluding apartments) held throughout both periods. In addition, annualized base rent per square foot increased from $21.15 as of June 30, 2015 to $21.75 as of June 30, 2016 related to properties (excluding apartments) held throughout both periods. We expect rental income and tenant reimbursements to increase in future periods as a result of anticipated future acquisitions of real estate and leasing additional space but to decrease to the extent we dispose of properties.

Interest income from our real estate loan receivable, recognized using the interest method, increased from $1.0 million for the three months ended June 30, 2015 to $3.7 million for the three months ended June 30, 2016 , primarily as a result of the recognition and collection of default interest during the three months ended June 30, 2016. On June 30, 2015, the University House First Mortgage Loan matured without repayment. On July 1, 2015, we provided notice to the borrower of default. We determined the real estate loan receivable to be impaired and recognized interest income from our real estate loan receivable on a cash basis. On April 21, 2016, we entered into an assignment of mortgage to assign the University House First Mortgage Loan to an assignee unaffiliated with us or our advisor. On April 22, 2016, we received $31.6 million in connection with the assignment of the University House First Mortgage Loan. The proceeds received from the assignment reflect the entire principal balance and interest due, including any default interest, as of April 21, 2016, plus any legal costs incurred by us in connection with the assignment.

Property operating costs and real estate taxes and insurance increased from $9.0 million and $3.8 million , respectively, for the three months ended June 30, 2015 to $9.3 million and $4.0 million , respectively, for the three months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect property operating costs and real estate taxes and insurance to increase in future periods as a result of anticipated future acquisitions of real estate, increasing occupancy of our real estate assets and inflation but to decrease to the extent we dispose of properties.

Asset management fees increased from $2.1 million for the three months ended June 30, 2015 to $2.2 million for the three months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect asset management fees to increase in future periods as a result of anticipated future acquisitions of real estate investments and capital expenditures but to decrease to the extent we dispose of properties. All asset management fees incurred as of June 30, 2016 have been paid.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Real estate acquisition fees and expenses to affiliates and non-affiliates were $1.5 million for the three months ended June 30, 2016. We did not acquire any real estate for the three months ended June 30, 2015 and, therefore, did not incur any acquisition fees or expenses during the period. During the three months ended June 30, 2016 , we acquired one real estate property for $125.8 million . We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.

General and administrative expenses increased from $0.9 million for the three months ended June 30, 2015 to $1.7 million for the three months ended June 30, 2016 , primarily due to increased legal and auditor costs as a result of our bond offering. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.

We recognized $2.3 million of foreign currency transaction gain for the three months ended June 30, 2016 related to the issuance of Series A debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses to the extent that we do not enter into a foreign currency hedge. We did not recognize any foreign currency transaction gain or loss during the three months ended June 30, 2015.

Depreciation and amortization increased from $11.2 million for the three months ended June 30, 2015 to $12.1 million for the three months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods as a result of anticipated future acquisitions of real estate but to decrease as a result of amortization of tenant origination costs related to lease expirations and the disposition of properties.

Interest expense increased from $3.9 million for the three months ended June 30, 2015 to $7.2 million for the three months ended June 30, 2016 , primarily due to increased borrowings as a result of our bond offering. Excluded from interest expense was $0.5 million of interest capitalized to our investments in undeveloped land during the three months ended June 30, 2016 and 2015. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

We had no other income during the three months ended June 30, 2016. During the three months ended June 30, 2015, we received $5.7 million in proceeds from condemnation agreements. The carrying value of the condemned land was $0.8 million, resulting in a gain of $4.9 million, which is included in other income in the accompanying consolidated statements of operations.

Comparison of the six months ended June 30, 2016 versus the six months ended June 30, 2015

The following table provides summary information about our results of operations for the six months ended June 30, 2016 and 2015 (dollar amounts in thousands):



	Six Months Ended June 30,					Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions ⁽¹⁾			$ Change Due to Investments Held Throughout Both Periods ⁽²⁾
	2016			2015		Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions ⁽¹⁾
Rental income	$	47,417		$	43,979	$	3,438		8	%	$	1,138		$	2,300
Tenant reimbursements	9,582			9,050		532			6	%	345			187
Interest income from real estate loan receivable	3,655			1,968		1,687			86	%	1,687			—
Other operating income	1,578			1,613		(35		)	(2	)%	(35		)	—
Operating, maintenance, and management costs	18,823			17,924		899			5	%	77			822
Real estate taxes and insurance	7,903			7,498		405			5	%	112			293
Asset management fees to affiliate	4,293			4,130		163			4	%	71			92
Real estate acquisition fees to affiliate	1,274			—		1,274			n/a		1,274			—
Real estate acquisition fees and expenses	268			—		268			n/a		268			—
General and administrative expenses	2,835			1,732		1,103			64	%	n/a			n/a
Foreign currency gain	(2,037		)	—		(2,037		)	n/a		n/a			n/a
Depreciation and amortization	23,099			22,387		712			3	%	862			(150		)
Interest expense	12,362			7,769		4,593			59	%	n/a			n/a
Other income	—			4,889		(4,889		)	n/a		n/a			n/a
Gain on sale of real estate, net	—			8,287		(8,287		)	n/a		(8,287		)	n/a

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 related to real estate and real estate-related investments acquired, repaid or disposed on or after January 1, 2015.

⁽²⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Rental income and tenant reimbursements increased from $44.0 million and $9.1 million , respectively, for the six months ended June 30, 2015 to $47.4 million and $9.6 million , respectively, for the six months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio and as a result of an increase in occupancy from 84% as of June 30, 2015 to 85% as of June 30, 2016 related to properties (excluding apartments) held throughout both periods. In addition, annualized base rent per square foot increased from $21.15 as of June 30, 2015 to $21.75 as of June 30, 2016 related to properties (excluding apartments) held throughout both periods. We expect rental income and tenant reimbursements to increase in future periods as a result of anticipated future acquisitions of real estate and leasing additional space but to decrease to the extent we dispose of properties.

Interest income from our real estate loan receivable, recognized using the interest method, increased from $2.0 million for the six months ended June 30, 2015 to $3.7 million for the six months ended June 30, 2016 , primarily as a result of our recognition and collection of default interest during the six months ended June 30, 2016. On June 30, 2015, the University House First Mortgage Loan matured without repayment. On July 1, 2015, we provided notice to the borrower of default. We determined the real estate loan receivable to be impaired and recognized interest income from our real estate loan receivable on a cash basis. On April 21, 2016, we entered into an assignment of mortgage to assign the University House First Mortgage Loan to an assignee unaffiliated with the us or our advisor. On April 22, 2016, we received $31.6 million in connection with the assignment of the University House First Mortgage Loan. The proceeds received from the assignment reflects the entire principal balance and interest due, including any default interest, as of April 21, 2016, plus any legal costs incurred by us in connection with the assignment.

Property operating costs and real estate taxes and insurance increased from $17.9 million and $7.5 million , respectively, for the six months ended June 30, 2015 to $18.8 million and $7.9 million , respectively, for the six months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect property operating costs and real estate taxes and insurance to increase in future periods as a result of anticipated future acquisitions of real estate, increasing occupancy of our real estate assets and inflation but to decrease to the extent we dispose of properties.

Asset management fees increased from $4.1 million for the six months ended June 30, 2015 to $4.3 million for the six months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect asset management fees to increase in future periods as a result of anticipated future acquisitions of real estate investments and capital expenditures but to decrease to the extent we dispose of properties. All asset management fees incurred as of June 30, 2016 have been paid.

Real estate acquisition fees and expenses to affiliate and non-affiliates were $1.5 million for the six months ended June 30, 2016. We did not acquire any real estate for the six months ended June 30, 2015. During the six months ended June 30, 2016 , we acquired one real estate property for $125.8 million. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.

General and administrative expenses increased from $1.7 million for the six months ended June 30, 2015 to $2.8 million for the six months ended June 30, 2016 , primarily due to increased legal and auditor costs as a result of our bond offering. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.

We recognized $2.0 million of foreign currency transaction gain for the six months ended June 30, 2016. related to the issuance of Series A debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses to the extent that we do not enter into a foreign currency hedge. We did not recognize any foreign currency transaction gain or loss during the six months ended June 30, 2015.

Depreciation and amortization increased from $22.4 million for the six months ended June 30, 2015 to $23.1 million for the six months ended June 30, 2016 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods as a result of anticipated future acquisitions of real estate but to decrease as a result of amortization of tenant origination costs related to lease expirations and the disposition of properties.

Interest expense increased from $7.8 million for the six months ended June 30, 2015 to $12.4 million for the six months ended June 30, 2016 , primarily due to increased borrowings as a result of our bond offering. Excluded from interest expense was $1.0 million of interest capitalized to our investments in undeveloped land during the six months ended June 30, 2016 and 2015. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

We had no other income during the six months ended June 30, 2016. During the three months ended June 30, 2015, we received $5.7 million in proceeds from condemnation agreements. The carrying value of the condemned land was $0.8 million, resulting in a gain of $4.9 million, which is included in other income in the accompanying consolidated statements of operations.

During the six months ended June 30, 2016 , we had no dispositions. During the six months ended June 30, 2015, we sold one office property that resulted in a gain on sale of $8.3 million.

Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. Items such as acquisition fees and expenses, which had previously been capitalized prior to 2009, are currently expensed and accounted for as operating expenses. As a result, our management also uses modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses; adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above- and below-market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.

In addition, our management uses an adjusted MFFO (“Adjusted MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. Adjusted MFFO provides adjustments to reduce MFFO related to operating expenses that are capitalized with respect to certain of our investments in undeveloped land.

We believe that MFFO and Adjusted MFFO are helpful as measures of ongoing operating performance because they exclude costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that excluding acquisition costs from MFFO and Adjusted MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage. MFFO and Adjusted MFFO also exclude non-cash items such as straight-line rental revenue. Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

FFO, MFFO and Adjusted MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO, MFFO and Adjusted MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO, MFFO and Adjusted MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO, MFFO and Adjusted MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO, MFFO and Adjusted MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.

Although MFFO includes other adjustments, the exclusion of straight-line rent amortization of above- and below-market leases, acquisition fees and expenses and mark-to-market foreign currency transaction adjustments, are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations:

•

Adjustments for straight-line rent. These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;

•

Amortization of above- and below-market leases. Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;

•

Acquisition fees and expenses. Acquisition fees and expenses related to the acquisition of real estate are expensed. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis. Additionally, acquisition costs have been funded from the proceeds from our now terminated initial public offering and debt financings, including our Israeli bond offering, and not from our operations. We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance; and

•

Mark-to-market foreign currency transaction adjustments. The U.S. dollar is our functional currency. Transactions denominated in currency other than our functional currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the foreign currency at the exchange rate on that date. These amounts can increase or reduce net income. We exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis.

Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain of our investments in undeveloped land. We have included adjustments for the costs incurred necessary to bring these investments to their intended use, as these costs are recurring operating costs that are capitalized in accordance with GAAP and not reflected in our net income (loss), FFO and MFFO.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculations of MFFO and Adjusted MFFO, for the three and six months ended June 30, 2016 and 2015 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net (loss) income attributable to common stockholders	$	(1,959	)	$	1,526		$	(6,853	)	$	3,761
Depreciation of real estate assets	6,991			5,931			13,465			11,595
Amortization of lease-related costs	5,100			5,228			9,634			10,792
Loss (gain) on sale of real estate, net	—			24			—			(8,287		)
Adjustments for noncontrolling interests - consolidated entity ⁽¹⁾	(123		)	(146		)	(250		)	2,950
Adjustments for investment in unconsolidated entity ⁽²⁾	1,899			1,943			3,782			3,790
FFO attributable to common stockholders	11,908			14,506			19,778			24,601
Straight-line rent and amortization of above- and below-market leases	(680		)	(1,542		)	(1,424		)	(3,142		)
Amortization of discounts and closing costs	—			(219		)	—			(428		)
Real estate acquisition fees to affiliate	1,274			—			1,274			—
Real estate acquisition fees and expenses	268			—			268			—
Amortization of net premium/discount on bond and notes payable	8			6			17			11
Prepayment fees related to the extinguishment of debt	—			250			—			250
Mark-to-market foreign currency transaction gain	(2,340		)	—			(2,037		)	—
Adjustments for noncontrolling interests - consolidated entity ⁽¹⁾	(5		)	(11		)	(9		)	(24		)
Adjustments for investment in unconsolidated entity ⁽²⁾	(1,189		)	(1,121		)	(2,339		)	(2,224		)
MFFO attributable to common stockholders	9,244			11,869			15,528			19,044
Other capitalized operating expenses ⁽³⁾	(572		)	(709		)	(1,177		)	(1,471		)
Adjustments for noncontrolling interests - consolidated entity ⁽¹⁾	—			80			61			162
Adjusted MFFO attributable to common stockholders	$	8,672		$	11,240		$	14,412		$	17,735

_____________________

⁽¹⁾ Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net (loss) income attributable to common stockholders to FFO, MFFO and Adjusted MFFO.

⁽²⁾ Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net (loss) income attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investment in an unconsolidated joint venture.

⁽³⁾ Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain of our investments in undeveloped land. During the time in which we are incurring costs necessary to bring these investments to their intended use, certain normal recurring operating costs are capitalized in accordance with GAAP and not reflected in our net (loss) income, FFO and MFFO.

FFO, MFFO and Adjusted MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, MFFO and Adjusted MFFO, such as tenant improvements, building improvements and deferred leasing costs. We expect FFO, MFFO and Adjusted MFFO to improve in future periods to the extent that we continue to lease up vacant space and acquire additional assets. We expect FFO, MFFO and Adjusted MFFO to decrease as a result of dispositions.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Distributions

Distributions declared, distributions paid and cash flows used in operations were as follows for the first and second quarters of 2016 (in thousands, except per share amounts):



	Distribution Declared		Distributions Declared Per Share		Distributions Paid						Cash Flows Provided by Operations
Period	Distribution Declared		Distributions Declared Per Share		Cash		Reinvested		Total		Cash Flows Provided by Operations
First Quarter 2016	$	5,472	$	0.093	$	2,271	$	3,201	$	5,472	$	1,139
Second Quarter 2016	5,469		0.093		2,309		3,160		5,469		11,429
	$	10,941	$	0.186	$	4,580	$	6,361	$	10,941	$	12,568

On March 9, 2016, our board of directors authorized a distribution in the amount of $0.09323770 per share of common stock to stockholders of record as of the close of business on March 22, 2016. We paid this distribution on March 29, 2016 and this was the only distribution declared and paid during the first quarter of 2016.

On June 17, 2016, our board of directors authorized a distribution in the amount of $0.09323770 per share of common stock to stockholders of record as of the close of business on June 17, 2016. We paid this distribution on June 22, 2016 and this was the only distribution declared and paid during the second quarter of 2016.

Our net loss attributable to common stockholders for the six months ended June 30, 2016 was $6.9 million and our cash flows provided by operations were $12.6 million . Our cumulative distributions paid and net loss attributable to common stockholders from inception through June 30, 2016 were $93.9 million and $35.4 million, respectively. We funded the June 22, 2016 distribution with current cash provided by operations. We have funded our cumulative distributions, which includes net cash distributions and distributions reinvested by stockholders, with proceeds from debt financing of $18.7 million, proceeds from the dispositions of property of $13.7 million and cash provided by operations of $61.5 million. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have fewer funds available for investment in real estate-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

Critical Accounting Policies

Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. There have been no significant changes to our policies during 2015, except for the addition of an accounting policy with respect to foreign currency transactions.

Foreign currency transactions

The U.S. dollar is our functional currency. Transactions denominated in currency other than our functional currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the functional currency at the exchange rate at that date. Exchange rate differences, other than those accounted for as hedging transactions, are recognized as foreign currency transaction gain or loss included in general and administrative expenses in our consolidated statements of operations.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

Real Estate Acquisition Subsequent to June 30, 2016

Acquisition of 353 Sacramento

On July 11, 2016, we, through an indirect wholly owned subsidiary, acquired an office building containing 284,751 rentable square feet located on approximately 0.35 acres of land in San Francisco, California (“353 Sacramento”). The seller is not affiliated with us or our advisor. The purchase price of 353 Sacramento was $169.5 million plus closing costs.

353 Sacramento was built in 1982 and at acquisition was 85% leased to 25 tenants.

Financing Subsequent to June 30, 2016

Westpark Portfolio Mortgage Loan

On July 8, 2016, we, through an indirect wholly owned subsidiary (the “Westpark Portfolio Owner”), entered into a four-year mortgage loan with an unaffiliated lender, for borrowings of up to $85.2 million secured by the Westpark Portfolio (the “Westpark Portfolio Mortgage Loan”). At closing, $83.2 million of the loan was funded and the remaining $2.0 million was available for future disbursements to be used for tenant improvement costs, subject to certain terms and conditions contained in the loan documents.

The Westpark Portfolio Mortgage Loan matures on July 1, 2020, with a one-year extension option, subject to certain terms and conditions contained in the loan documents. The Westpark Portfolio Mortgage Loan bears interest at a floating rate of 250 basis points over one-month LIBOR. The Westpark Portfolio Owner has the right to prepay the loan in whole at any time, or in part from time to time.

KBS SOR Properties LLC (“SOR Properties”), our indirect wholly owned subsidiary, is providing a limited guaranty of the Westpark Portfolio Mortgage Loan with respect to certain potential fees, costs, expenses, losses or damages incurred or suffered by the lender as a result of certain intentional actions committed by the Westpark Portfolio Owner in violation of the loan documents. SOR Properties is also providing a guaranty of the principal balance and any interest or other sums outstanding under the Westpark Portfolio Mortgage Loan in the event of certain bankruptcy or insolvency proceedings involving the Westpark Portfolio Owner, certain direct or indirect transfers or financings of Westpark Portfolio in violation of the loan documents and the violation of certain other terms of the loan documents by the Westpark Portfolio Owner.

Foreign Currency Collar

On August 8, 2016, we, through an indirect wholly owned subsidiary, entered into a foreign currency collar to hedge against a change in the exchange rate of the Israeli new Shekel versus the U.S. Dollar. The foreign currency collar expires on August 8, 2017 and has a U.S. Dollar notional amount of $100.0 million . The foreign currency collar consists of a purchased call option to buy and a sold put option to sell the Israeli new Shekels at 3.7245 and 3.826 Israeli new Shekels, respectively. The foreign currency collar is intended to permit us to exchange, on the settlement date of the collar and net of the effect of the collar, $100.0 million U.S. Dollars for an amount of Israeli new Shekels ranging from 372.5 million to 382.6 million .

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. We are also exposed to the effects of foreign currency changes in Israel with respect to the 4.25% bonds issued to Israeli investors in March 2016. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes and foreign currency changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. In order to limit the effects of changes in foreign currency on our operations, we may utilize a variety of foreign currency hedging strategies such as cross currency swaps, forward contracts, puts or calls. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments. Additionally, certain of these strategies may cause us to fund a margin account periodically to offset changes in foreign currency rates which may also reduce the funds available for payments to holders of our common stock. On August 8, 2016, we, entered into a foreign currency collar to hedge against a change in the exchange rate of the Israeli new Shekel versus the U.S. Dollar. The foreign currency collar expires on August 8, 2017 and has a U.S. Dollar notional amount of $100.0 million . The foreign currency collar consists of a purchased call option to buy and a sold put option to sell the Israeli new Shekels at 3.7245 and 3.826 Israeli new Shekels, respectively. The foreign currency collar is intended to permit us to exchange, on the settlement date of the collar and net of the effect of the collar, $100.0 million U.S. Dollars for an amount of Israeli new Shekels ranging from 372.5 million to 382.6 million .

As of June 30, 2016, we held 367.1 million Israeli new Shekels and 21.0 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of June 30, 2016, we had bonds outstanding in the amount of 970.2 million Israeli new Shekels. Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on the remeasurement for the six months ended June 30, 2016, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately $13.7 million and $16.8 million for the same period, respectively.

We borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of June 30, 2016, the fair value of our KBS SOR (BVI) Holdings, Ltd. Series A Debentures was $247.1 million and the outstanding principal balance was $251.4 million . As of June 30, 2016 , excluding the KBS SOR (BVI) Holdings, Ltd. Series A Debentures, the fair value of our fixed rate debt was $34.5 million and the outstanding principal balance of our fixed rate debt was $31.8 million. The fair value estimate of our KBS SOR (BVI) Holdings, Ltd. Series A Debentures was calculated using the quoted bond price as of June 30, 2016 on the Tel Aviv Stock Exchange of 98.3 Israeli new Shekels. The fair value estimate of our fixed rate debt was calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of June 30, 2016 . As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting changes in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt and loans receivable would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of June 30, 2016 , we were exposed to market risks related to fluctuations in interest rates on $550.2 million of variable rate debt outstanding. Based on interest rates as of June 30, 2016 , if interest rates were 100 basis points higher during the 12 months ending June 30, 2017, interest expense on our variable rate debt would increase by $5.5 million. As of June 30, 2016 , one-month LIBOR was 0.46505% and if the LIBOR index was reduced to 0% during the 12 months ending June 30, 2017, interest expense on our variable rate debt would decrease by $2.5 million.

The weighted-average interest rates of our fixed rate debt and variable rate debt as of June 30, 2016 were 4.3% and 2.6%, respectively. The annual effective interest rate represents the effective interest rate as of June 30, 2016 , using the interest method that we use to recognize interest income on our real estate loan receivable.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

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


a)	During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.


b)	Not applicable.


c)	We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.

Pursuant to the share redemption program there are several limitations on our ability to redeem shares:


•	Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year.


•	During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.


•	We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

•

During 2016, we may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that we redeem less than $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) in a given fiscal quarter, any remaining excess capacity to redeem shares in such fiscal quarter will be added to our capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during the succeeding fiscal quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders. Our board of directors may approve an increase in this limit to the extent that we have received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors.

We may amend, suspend or terminate the program upon 30 days’ notice to our stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)

During the six months ended June 30, 2016 , we fulfilled redemption requests and redeemed shares pursuant to the share redemption program as follows:



Month	Total Number of Shares Redeemed	Average Price Paid Per Share ⁽¹⁾		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2016	2,722	$	13.44	⁽²⁾
February 2016	500	$	13.44	⁽²⁾
March 2016	252,839	$	13.32	⁽²⁾
April 2016	10,475	$	13.44	⁽²⁾
May 2016	10,012	$	13.44	⁽²⁾
June 2016	248,137	$	13.35	⁽²⁾
Total	524,685

_____________________

⁽¹⁾ On December 8, 2015, our board of directors adopted an eighth amended and restated share redemption program (the “Eighth Amended Share Redemption Program”). Pursuant to the Eighth Amended Share Redemption Program, except for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” the prices at which we will redeem shares are as follows: (i) 97.5% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least one year but less than four years; and (ii) 100% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least four years. The Eighth Amended Share Redemption Program limits redemptions to $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). The Eighth Amended Share Redemption Program was effective on January 9, 2016.

Upon the death, “qualifying disability” or “determination of incompetence” of a stockholder, the redemption price is our estimated value per share. On December 8, 2015, our board of directors approved an estimated value per share of our common stock of $13.44, based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2015. The change in the redemption price became effective for the December 2015 redemption date and is effective until the estimated value per share is updated. We expect to engage KBS Capital Advisors and/or an independent valuation firm to update our estimated value per share in December 2016.

⁽²⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the six months ended June 30, 2016, we redeemed $7.0 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the June 2016 redemption date, except for the $17.7 million of redemption requests not made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” which redemption requests may be fulfilled in subsequent quarters subject to the limitations described above. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2015, we have $6.6 million available for redemptions during the remainder of 2016, subject to the limitations described above.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits



Ex.		Description

3.1		Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 4, 2010

3.2		Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-156633

4.1		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 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-156633

4.2		Fifth Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2015

10.1		Agreement of Purchase and Sale by and between Calwest Industrial Properties, LLC and KBS Capital Advisors LLC, dated April 13, 2016

10.2		Assignment and Assumption of Purchase Agreement between KBS Capital Advisors LLC and KBS SOR Westpark Portfolio LLC, dated April 21, 2016

10.3		Purchase and Sale Agreement between Pacific EIH Sacramento LLC and KBS Capital Advisors LLC, dated April 28, 2016

10.4		Assignment and Assumption of Purchase Agreement between KBS Capital Advisors LLC and KBS SOR 353 Sacramento Street LLC, dated May 9, 2016

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Eighth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed December 10, 2015

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

SIGNATURES

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




		KBS STRATEGIC OPPORTUNITY REIT, INC.

Date:	August 12, 2016	By:	/S/ K EITH D. H ALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Date:	August 12, 2016	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer, Treasurer and Secretary
			(principal financial officer)

Exhibit 10.1

WESTPARK PORTFOLIO

REDMOND, WASHINGTON

AGREEMENT OF PURCHASE AND SALE

This Agreement, dated as of April 13, 2016, is between CALWEST INDUSTRIAL PROPERTIES, LLC, a California limited liability company (“ Seller ”), and KBS CAPITAL ADVISORS, LLC, a Delaware limited liability company (“ Buyer ”).

ARTICLE I

PURCHASE AND SALE OF PROPERTY

Section 1.1 Sale.

Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms, covenants and conditions set forth herein, all of Seller’s right, title and interest in and to the following property (collectively, the “ Property ”):

(a) Real Property . That certain real property commonly known as “the Westpark Portfolio” and located in the City of Redmond, State of Washington, as more particularly described in Exhibit A attached hereto and made a part hereof (the “ Land ”), together with (1) all improvements located thereon (the “ Improvements ”), (2) all rights, benefits, privileges, easements, tenements, hereditaments, rights-of-way and other appurtenances thereon or in any way appertaining thereto, including all mineral rights, development rights, air and water rights, and (3) all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such Land (collectively, the “ Real Property ”);

(b) Leases . All of the landlord’s interest in and to all of the Leases (as defined in Section 2.1(b) below) of the Real Property, including Leases entered into after the date of this Agreement as permitted by this Agreement except for the Excluded Rights;

(c) Tangible Personal Property . All of the equipment, machinery, furniture, furnishings, supplies and other tangible personal property, if any, owned by Seller and now or hereafter located on and used exclusively in the operation, ownership or maintenance of the Real Property (collectively, the “ Tangible Personal Property ”), but specifically excluding from the Tangible Personal Property (1) any items of personal property owned by tenants of the Property, (2) any items of personal property in Seller’s property management office owned by Seller’s property manager, if any, located on the Real Property, (3) any items of personal property owned by third parties and leased to Seller, and (4) proprietary computer software, systems and equipment and related licenses used in connection with the operation or management of the Property. The list of Tangible Personal Property is attached hereto as Exhibit J and made a part hereof; and

(d) Intangible Personal Property . To the extent assignable at no cost to Seller, all intangible personal property, if any, owned by Seller and related to the Real Property and the Improvements, including without limitation: any trade names and trademarks associated with the Real Property and the Improvements (but specifically excluding the names “Bentall Kennedy” and any derivatives thereof and “Calwest” and any derivatives thereof); any plans and specifications and other architectural and engineering drawings for the Improvements; any warranties; any Service Contracts (as defined in Section 2.1(b) below) and other contract rights related to the Property (but only to the extent Seller’s obligations thereunder are expressly assumed by Buyer pursuant to the Assignment of Leases as defined in Section 8.3(a)(3) below); and any governmental permits, approvals and licenses (including any pending applications). Notwithstanding anything to the contrary contained herein, there shall be excluded from the assignment of any rights of Seller under any leases or other intangible property (i) any rights of Seller against third parties including (other than tenants) with respect to the period prior to Closing, (ii) except to the extent Seller receives a credit therefor at Closing, the rights of Seller against tenants with respect to any payments from third parties, including tenant, pertaining to the period prior to the Closing Date in accordance with the provisions of Section 8.5 below governing the same, provided Seller shall not have the right to terminate any lease or evict any tenant, (iii) rights of Seller under that certain lawsuit Smith et al v. United States Case No. 14-387 filed May 6, 2014 (the “ Condemnation Case ”), and sums recovered or otherwise payable to Seller in connection with the Condemnation Case or any settlement thereof (the “ Condemnation Case Payments ”) (the “ Excluded Rights ”) (collectively, the “ Intangible Personal Property ”) and (iv) the rights of Seller to all insurance proceeds with respect to the casualty that occurred with respect to the building commonly known as Building B 8310-8340 154 ^th Avenue NE, Redmond, WA.

Section 1.2 Purchase Price.

(a) The purchase price of the Property is One Hundred Twenty-Eight Million and No/100 Dollars ($128,000,000.00) (the “ Purchase Price ”).

(b) The Purchase Price shall be paid as follows:

(1) On or before the Effective Date, Buyer shall deposit in escrow with Fidelity National Title, 600 University Street, #2424, Seattle, WA 98101; Attn: Megan Packwood, Telephone: 206-628-2832, Fax: 877-295-8019; Email: megan.packwood@fnf.com (the “ Title Company ”) cash or other immediately available funds in the amount of One Million and No/100 Dollars ($1,000,000.00) (the “ Initial Deposit ”).

(2) On or before the expiration of the Contingency Period, if this Agreement has not been terminated, then (i) Buyer shall deposit in escrow with the Title Company, in cash or other immediately available funds, the additional sum of Five Million and No/100 Dollars ($5,000,000.00) (the “ Additional Deposit ”), and (ii) the Initial Deposit and the Additional Deposit (hereinafter referred to as the “ Deposit ”) shall be considered fully earned by Seller as consideration for entering into the Agreement and shall be nonrefundable except as otherwise expressly provided herein.

(3) At the same time as the Initial Deposit is provided to Title Company, Buyer shall deliver to Seller in cash the sum of One Hundred Dollars ($100.00) (the “ Independent Contract Consideration ”) which amount has been bargained for and agreed to as consideration for Buyer’s exclusive right to purchase the Property and the Contingency Period provided hereunder, and for Seller’s execution and delivery of this Agreement. Notwithstanding anything to the contrary contained herein, the Independent Contract Consideration is in addition to and independent of all other consideration provided in this Agreement, and is nonrefundable in all events.

The Deposit shall be held in an interest bearing account and all interest thereon, less investment fees, if any, shall be deemed a part of the Deposit. If the sale of the Property as contemplated hereunder is consummated, then the Deposit shall be paid to Seller at the Closing (as defined in Section 1.2(b)(3) below) and credited against the Purchase Price. If the sale of the Property is not consummated due to Seller’s default hereunder, then Buyer may elect, as Buyer’s sole and exclusive remedy, EITHER TO: (1) terminate this Agreement and receive a refund of the Deposit and a REIMBURSEMENT of Buyer’s ACTUAL aND DEMONSTRATABLE out of pocket costs and expenses (including reasonable attorneys’ fees and costs) incurred in connection with Buyer’s due diligence investigations and the negotiation and execution of this agreement UP TO MAXIMUM AMOUNT OF ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) (collectively, “buyer’s out of pocket costs”), in which event neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3, 9.5 and 9.9 below, or (2) enforce specific performance of this Agreement. Buyer shall not have any other rights or remedies hereunder as a result of any default by Seller prior to Closing, and Buyer hereby waives any other such remedy as a result of a default hereunder by Seller. IF THE SALE IS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER, THEN SELLER SHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. THE PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER’S DEFAULT PRIOR TO CLOSING, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT INTENDED TO LIMIT BUYER’S OBLIGATIONS UNDER SECTIONS 6.1, 9.3, 9.5 AND 9.9.



INITIALS:	SELLER:	/s/ Authorized Signatory	BUYER:	/s/ Authorized Signatory

(4) The balance of the Purchase Price, which is One Hundred Twenty‑Two Million and No/100 Dollars ($122,000,000.00) (plus or minus the prorations pursuant to Section 8.5 hereof) shall be paid to Seller in cash or by wire transfer of other immediately available funds at the consummation of the purchase and sale contemplated hereunder (the “ Closing ”).

ARTICLE II

CONDITIONS

Section 2.1 Buyer’s Conditions Precedent .

Subject to the provisions of Section 9.3 hereof, Seller has provided and/or shall provide through Closing or the earlier termination of this Agreement, Buyer and its consultants and other agents and representatives with access to the Property to perform Buyer’s inspections and studies and review and determine the present condition of the Property. Buyer shall also have the right to interview Seller’s property manager and tenants leasing space in the Property. Seller has delivered or made available to Buyer at Seller’s offices or at the Real Property or on a website, or shall within the Delivery Period (as defined below) deliver or make available to Buyer at Seller’s offices or at the Real Property or on a website, copies of all Due Diligence Materials (as defined in Section 2.2 below) in Seller’s possession, except as otherwise specifically provided herein. Notwithstanding anything to the contrary contained herein, the Due Diligence Materials shall expressly exclude (i) those portions of the Due Diligence Materials that would disclose Seller’s cost of acquisition of the Real Property, or cost of construction of the Improvements and related soft costs, or any estimates of costs to repair, replace, remediate or maintain the Real Property, (ii) any reports, presentations, summaries and the like prepared for any of Seller’s boards, committees, partners or investors in connection with its consideration of the acquisition of the Real Property, construction of the Improvements or sale of the Property, (iii) any proposals, letters of intent, draft contracts or the like prepared by or for other prospective purchasers of the Property or any part thereof, (iv) Seller’s internal memoranda, attorney-client privileged materials, appraisals, structural or physical inspection reports, and (v) any information which is the subject of a confidentiality agreement between Seller and a third party (the items described in clauses (i), (ii) (iii), (iv) and (v) being collectively referred to as the “ Confidential Information ”). The “ Delivery Period ” shall mean the period which ends five (5) days after the Effective Date (as defined in Section 9.14 below). Buyer’s obligation to purchase the Property is conditioned upon Buyer’s review and approval of the following, within the applicable time periods described in Sections 2.2 and 4.1 hereof:

(a) Title to the Property and survey matters in accordance with Article IV below.

(b) The Due Diligence Materials, including, but not limited to, tenant leases, any guaranties thereof and any other occupancy agreements, and all amendments and modifications thereof (collectively, the “ Leases ”) affecting the Property, all contracts pertaining to the operation of the Property, including all management, leasing, brokerage, service and maintenance agreements, and equipment leases (collectively, the “ Service Contracts ”), and all pending leases, lease proposals and letters of intent.

(d) The zoning, land use, building, environmental and other statutes, rules, or regulations applicable to the Property.

(e) The tenant correspondence files, operating statements and books and records pertaining to the operation of the Property in each case for each of the three (3) most recent years during which the Property has been owned by Seller and for the current year (to the extent available), current real estate tax bills, any warranties, licenses, permits, certificates of occupancy, plans and specifications, any current rent roll and aged receivables, current accounts receivable schedule and list of Tangible Personal Property in such form as Seller shall have in its possession for the Property, all existing environmental and soils assessments and related correspondence and reports, copies of all documents regarding litigation, liens or threatened claims, all building reports, structural reports, engineering data and plans and specifications, and other agreements or documents pertaining to the Property which will be binding on Buyer after Closing.

(f) Any other matters Buyer deems relevant to the Property.

Section 2.2 Contingency Period .

Buyer shall have until 5:00 pm Pacific Daylight Savings Time on April 22, 2016 (such period being referred to herein as the “ Contingency Period ”) to review and approve the matters described in Sections 2.1(b)-(f) above and to determine, in Buyer’s sole and absolute discretion (title and survey review and approval shall be governed by the provisions of Section 4.1 below), that if the Property is acceptable to Buyer. If Buyer determines, in Buyer’s sole and absolute discretion, to proceed with the purchase of the Property, then Buyer shall, before the end of the Contingency Period, so notify Seller in writing (an “ Approval Notice ”), in which case Buyer shall be deemed to have approved all of the matters described in Sections 2.1(a)-(f) above (subject to the provisions of Section 4.1 below as to title and survey matters), including, without limitation, all documents, Service Contracts (subject to the provisions of Section 7.5 below) and other contracts, agreements, Leases, reports and other items and materials related to the Property prepared by or on behalf of Buyer or in Buyer’s possession (collectively, the “ Due Diligence Materials ”), and the Deposit shall become nonrefundable except as expressly provided herein (including, without limitation, pursuant to the provisions of Section 8.4 below). If before the end of the Contingency Period Buyer delivers a termination notice or fails to give Seller an Approval Notice, then Buyer shall be deemed to have elected to terminate this Agreement, the Deposit shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3, 9.5 and 9.9 below.

Section 2.3 3-14 Audit Documents .

Buyer has informed Seller that Buyer is required by law to complete with respect to certain matters relating to the Property an audit commonly known as a “3-14” Audit (“ Buyer’s 3-14 Audit ”). In connection with the performance of Buyer’s 3-14 Audit, Seller shall during the Contingency Period deliver to Buyer, concurrently with the delivery of the Due Diligence Materials, (i) the documents which are described on Schedule 2 attached hereto, to the extent in

existence and in Seller’s possession (collectively, the “ Buyer’s 3-14 Audit Documents ”), and (ii) Buyer shall complete Buyer’s 3-14 Audit on or before the end of the Contingency Period. If Buyer gives Seller an Approval Notice prior to the end of the Contingency Period, then such condition shall be deemed satisfied and waived by Buyer. For avoidance of doubt, the foregoing condition is only that Buyer has received the necessary documents and information about the Property necessary to enable Buyer to complete the Buyer’s 3-14 audit and not that the audit achieves a certain result.

ARTICLE III

BUYER’S EXAMINATION

Section 3.1 Representations and Warranties of Seller .

Subject to the disclosures contained in Schedule 1 attached hereto and made a part hereof (the “ Disclosure Items ”), matters contained in the Due Diligence Materials, and any matters of public record where the Property is located, Seller hereby makes the following representations and warranties with respect to the Property. Notwithstanding anything to the contrary contained herein or in any document delivered in connection herewith, Seller shall have no liability with respect to the Disclosure Items.

(a) Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller’s assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

(b) Seller is not a “foreign person” as defined in Section 1445 of the Internal Revenue Code of 1986, as amended (the “ Code ”) and any related regulations.

(c) Subject to the provisions of Section 9.18 below, (i) this Agreement has been, and all documents executed by Seller which are to be delivered to Buyer at Closing will be, duly authorized, executed and delivered by Seller, and (ii) this Agreement does not and such other documents will not violate any provision of any agreement or judicial order to which Seller is a party or to which Seller or, to the best of Seller’s knowledge, the Property is subject.

(d) Seller has been duly organized, is validly existing, and is in good standing in the state in which it was formed, and, if so required to, is qualified to do business in the state in which the Real Property is located.

(e) To the best of Seller’s knowledge, the only Leases in force for the Property are set forth in a list of Leases attached hereto as Exhibit B and made a part hereof (or, if not attached, which Seller shall deliver to Buyer within the Delivery Period and which at that time will be attached hereto as Exhibit B and made a part hereof), and to the best of Seller’s knowledge, Seller has received no written notice of any default by Seller with respect to such Leases which has not been cured.

(f) To the best of Seller’s knowledge, the only Service Contracts in effect for the Property are set forth in a list of Service Contracts attached hereto as Exhibit G and made a part hereof (or, if not attached, which Seller shall deliver to Buyer within the Delivery Period) and which at that time will be attached hereto as Exhibit G and made a part hereof.

(g) To the best of Seller’s knowledge, except as set forth on Schedule 1 , Seller has received no written notice of any pending or threatened litigation or claims, governmental or condemnation proceeding (including, but not limited to any condemnation proceeding other than the Condemnation Case) pending with respect to the Property, or with respect to Seller which impairs Seller’s ability to perform its obligations under this Agreement, except for any personal injury or property damage action for which there is adequate insurance coverage.

(h) To the best of Seller’s knowledge, Seller has received no written notice from any governmental authority of any violation of any law applicable to the Property (including, without limitation, any Environmental Law as defined in Section 3.6(a)(2) below) that has not been corrected.

(i) Seller is in compliance with, and, to Seller’s knowledge, all beneficial owners of Seller are, in compliance with the requirements of Executive Order No. 13224, 66 Fed Reg. 49079 (September 25, 2001) (the “ Order ”) and other similar requirements contained in the rules and regulations of the Office of Foreign Asset Control, Department of the Treasury (“ OFAC ”) and in any enabling legislation or other Executive Orders in respect thereof (the Order and such other rules, regulations, legislation, or orders are collectively called the “ OFAC Laws ”).

(j) Seller has no employees.

(k) The only unpaid leasing commissions and outstanding landlord tenant improvement allowances and landlord tenant improvement obligations for the current terms of the Leases affecting the Property are set forth on Exhibit I attached hereto and made a part hereof.

Each of the representations and warranties of Seller contained in this Section 3.1: (1) shall be true in all material respects as of the date of Closing, except that the representations and warranties of Seller in Section 3.1(e) are made only as of the date hereof, subject in each case to (A) any Exception Matters (as defined below), (B) the Disclosure Items, and (C) other matters expressly permitted in this Agreement or otherwise specifically approved in writing; and (2) shall survive the Closing as provided in Section 3.3 below.

Section 3.2 No Liability for Exception Matters .

As used herein, the term “ Exception Matter ” shall refer to a matter which would make a representation or warranty of Seller contained in this Agreement untrue or incorrect and which is disclosed to Buyer in the Due Diligence Materials, the Disclosure Items, or otherwise in writing, or is a matter of public record, including, without limitation, matters disclosed in any tenant estoppel certificate or otherwise disclosed by tenants, property managers or any other person in writing. If Buyer first obtains knowledge of any Material Exception Matter, as such term is

defined below, after the close of the Contingency Period and prior to Closing and such Exception Matter was not contained in the Due Diligence Materials or the Disclosure Items and is not a matter of public record, Buyer’s sole remedy shall be to terminate this Agreement on the basis thereof, upon written notice to Seller within the earlier of (a) five (5) days following Buyer’s discovery of such Exception Matter or (b) the Closing, which ever occurs first, in which event the Deposit shall be returned to Buyer, unless within five (5) days after receipt of such notice or by the Closing, as the case may be, Seller notifies Buyer in writing that it elects to attempt to cure or remedy such Exception Matter, in which event there shall be no return of the Deposit unless and until Seller is unable to so cure or remedy within the time period set forth below. Seller shall be entitled to extend the Closing Date (as defined in Section 8.2 below) for up to fifteen (15) business days in order to attempt to cure or remedy any Exception Matter. Buyer’s failure to give notice within five (5) business days after it has obtained actual knowledge of a Material Exception Matter shall be deemed a waiver by Buyer of such Exception Matter. Seller shall have no obligation to cure or remedy any Exception Matter, even if Seller has notified Buyer of Seller’s election to attempt to cure or remedy any Exception Matter (except as specifically provided in Section 4.1(c) hereof), and, subject to Buyer’s right to terminate this Agreement as set forth above, Seller shall have no liability whatsoever to Buyer with respect to any Exception Matters unless such Exception Matter was caused by a breach by Seller of the other terms and conditions of this Agreement. Upon any termination of this Agreement, neither party shall have any further rights nor obligations hereunder, except as provided in Sections 6.1, 9.3, 9.5 and 9.9 below. If Buyer obtains knowledge of any Exception Matter before the Closing, but nonetheless elects to proceed with the acquisition of the Property or is obligated to proceed with the acquisition of the Property, Seller shall have no liability with respect to such Exception Matter, notwithstanding any contrary provision, covenant, representation or warranty contained in this Agreement or in any Other Documents (as defined in Section 9.19 below). As used in this Section 3.2, the term “Material Exception Matter” shall mean an Exception Matter that would have a negative impact on the value of the Property in excess of Three Hundred Thousand Dollars ($300,000).

Section 3.3 Survival of Seller’s Representations and Warranties of Sale .

The representations and warranties of Seller contained herein or in any Seller estoppel delivered pursuant to Section 8.4 below or in any Other Documents shall survive for a period of nine (9) months after the Closing. Any claim which Buyer may have against Seller for a breach of any such representation or warranty, whether such breach is known or unknown, which is not specifically asserted by written notice to Seller within such nine (9) month period shall not be valid or effective, and Seller shall have no liability with respect thereto.

Section 3.4 Seller’s Knowledge .

For purposes of this Agreement and any document delivered at Closing, whenever the phrase “ to the best of Seller’s knowledge ” or the “ knowledge ” of Seller or words of similar import are used, they shall be deemed to mean and are limited to the current actual knowledge only of Brian Urback, at the times indicated only, and not any implied, imputed or constructive knowledge of such individual(s) or of Seller or any Seller Related Parties (as defined in Section 3.7 below), and without any independent investigation or inquiry having been made or any implied duty to investigate, make any inquiries or review the Due Diligence Materials.

Furthermore, it is understood and agreed that such individual(s) shall have no personal liability in any manner whatsoever hereunder or otherwise related to the transactions contemplated hereby.

Section 3.5 Representations and Warranties of Buyer .

Buyer represents and warrants to Seller as follows:

(a) This Agreement and all documents executed by Buyer which are to be delivered to Seller at Closing do not and at the time of Closing will not violate any provision of any agreement or judicial order to which Buyer is a party or to which Buyer is subject.

(b) Buyer has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Buyer’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Buyer’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer’s assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

(c) Buyer has been duly organized, is validly existing and is in good standing in the state in which it was formed, and, if required to do so, is qualified to do business in the state in which the Real Property is located. This Agreement has been, and all documents executed by Buyer which are to be delivered to Seller at Closing will be, duly authorized, executed and delivered by Buyer.

(d) Buyer is purchasing the Property as investment rental property, and not for Buyer’s own operations or use.

(e) Buyer is not a party in interest with respect to any employee benefit or other plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), or of Section 4975(e)(1) of the Code, which is subject to ERISA or Section 4975 of the Code and which is an investor in Seller.

(f) Other than Seller’s Broker (as defined in Section 6.1 below) Buyer has had no contact with any broker or finder with respect to the Property.

(g) Buyer is in compliance with the OFAC laws.

(h) No investor in KBS REIT, as defined below, owns a twenty percent (20%) or greater interest in KBS REIT.

Each of the representations and warranties of Buyer contained in this Section shall be deemed remade by Buyer as of the Closing and shall survive the Closing.

Section 3.6 Buyer’s Independent Investigation .

(a) By Buyer electing to proceed under Section 2.2, Buyer will be deemed to have acknowledged and agreed that it has been given a full opportunity to inspect and investigate

each and every aspect of the Property, either independently or through agents of Buyer’s choosing, including, without limitation:

(1) All matters relating to title and survey, together with all governmental and other legal requirements such as taxes, assessments, zoning, use permit requirements and building codes.

(2) The physical condition and aspects of the Property, including, without limitation, the interior, the exterior, the square footage within the improvements on the Real Property and within each tenant space therein, the structure, seismic aspects of the Property, the foundation, roof, paving, parking facilities, utilities, and all other physical and functional aspects of the Property. Such examination of the physical condition of the Property shall include an examination for the presence or absence of Hazardous Materials, as defined below, which shall be performed or arranged by Buyer (subject to the provisions of Section 9.3 hereof) at Buyer’s sole expense. For purposes of this Agreement, “ Hazardous Materials ” shall mean inflammable explosives, radioactive materials, asbestos, asbestos-containing materials, polychlorinated biphenyls, lead, lead-based paint, radon, under and/or above ground tanks, hazardous materials, hazardous wastes, hazardous substances, oil, or related materials, which are listed or regulated in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 6901, et seq .), the Resources Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq .), the Clean Water Act (33 U.S.C. Section 1251, et seq .), the Safe Drinking Water Act (14 U.S.C. Section 1401, et seq .), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq .), and the Toxic Substance Control Act (15 U.S.C. Section 2601, et seq. ), and any other applicable federal, state or local laws (collectively, “ Environmental Laws ”).

(3) Any easements and/or access rights affecting the Property.

(4) The Leases and all matters in connection therewith, including, without limitation, the ability of the tenants to pay the rent and the economic viability of the tenants.

(5) The Service Contracts and any other documents or agreements of significance affecting the Property.

(6) All other matters of material significance affecting the Property, including, but not limited to, the Due Diligence Materials and the Disclosure Items.

(b) Except as expressly stated herein or in the Deed, as defined below, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Seller to Buyer in connection with the transaction contemplated hereby. Except as expressly stated herein or in the Deed, Buyer acknowledges and agrees that all materials, data and information delivered by Seller to Buyer in connection with the transaction contemplated hereby are provided to Buyer as a convenience only and that any reliance on or use of such materials, data or information by Buyer shall be at the sole risk of Buyer, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Buyer acknowledges and agrees that except as expressly stated herein or in the Deed, (a) any

environmental or other report with respect to the Property which is delivered by Seller to Buyer shall be for general informational purposes only, (b) Buyer shall not have any right to rely on any such report delivered by Seller to Buyer, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Buyer with respect thereto, (c) neither Seller, any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Buyer shall have any liability to Buyer for any inaccuracy in or omission from any such report and (d) the failure to deliver any report as to the environmental or other condition of the Property, including any proposal for work at the Property which was not performed by Seller, shall not be actionable by Buyer under this Agreement or otherwise.

(c) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 3.1 ABOVE OR IN THE DEED, BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT SELLER IS SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN “AS IS WITH ALL FAULTS” BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ANY SELLER RELATED PARTIES, OR THEIR AGENTS OR BROKERS, OR ANY OTHER PERSON ACTING OR PURPORTING TO ACT ON BEHALF OF SELLER AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (i) the quality, nature, adequacy and physical condition and aspects of the Property, including, but not limited to, the structural elements, seismic aspects of the Property, foundation, roof, appurtenances, access, landscaping, parking facilities and the electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities and appliances, the square footage within the improvements on the Real Property and within each tenant space therein, (ii) the quality, nature, adequacy, and physical condition of soils, geology and any groundwater, (iii) the existence, quality, nature, adequacy and physical condition of utilities serving the Property, (iv) the development potential of the Property, and the Property’s use, habitability, merchantability, or fitness, suitability, value or adequacy of the Property for any particular purpose, (v) the zoning or other legal status of the Property or any other public or private restrictions on use of the Property, (vi) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, (vii) the presence of Hazardous Materials on, under or about the Property or the adjoining or neighboring property, (viii) the quality of any labor and materials used in any improvements on the Real Property, (ix) the condition of title to the Property, (x) the Leases, Service Contracts, or other documents or agreements affecting the Property, or any information contained in any rent roll furnished to Buyer for the Property, (xi) the value, economics of the operation or income potential of the Property, or (x) any other fact or condition which may affect the Property, including without limitation, the physical condition, value, economics of operation or income potential of the Property.

Section 3.7 Release .

(a) Without limiting the above, and subject to the representations and warranties of Seller contained in Section 3.1 hereof, Buyer on behalf of itself and its successors and assigns waives its right to recover from, and forever releases and discharges, Seller, Seller’s affiliates, Seller’s investment advisor, the partners, trustees, beneficiaries, shareholders, members, managers, directors, officers, employees and agents and representatives of each of

them, and their respective heirs, successors, personal representatives and assigns (collectively, the “ Seller Related Parties ”), from any and all demands, claims, legal or administrative proceedings, losses, liabilities, damages, penalties, fines, liens, judgments, costs or expenses whatsoever (including, without limitation, court costs and attorneys’ fees and disbursements), whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with or related to the Property, this Agreement and/or the transactions contemplated hereunder, including, without limitation (i) the physical condition of the Property including, without limitation, all structural and seismic elements, all mechanical, electrical, plumbing, sewage, heating, ventilating, air conditioning and other systems, the environmental condition of the Property and the presence of Hazardous Materials on, under or about the Property, (ii) any law or regulation applicable to the Property, including, without limitation, any Environmental Law and any other federal, state or local law, (iii) the Disclosure Items, (iv) any Exception Matter or (v) any other matter. Notwithstanding the foregoing or any provision of this Agreement to the contrary, the foregoing release and the provisions of this Section 3.7 shall not apply to, and shall not release any damages, claims, liabilities or obligations arising out with Seller’s breach of the representations, warranties and covenants contained in this Agreement to the extent such warranties, representations and covenants survive closing pursuant to the terms of this Agreement or by fraudulent actions of Seller.

(b) BUYER ACKNOWLEDGES AND AGREES THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF ITS CHOICE IN CONNECTION WITH THIS AGREEMENT, AND THAT SUCH COUNSEL HAS EXPLAINED TO BUYER THE PROVISIONS OF THIS SECTION 3.7. BY INITIALING BELOW, BUYER CONFIRMS IT HAS AGREED TO THE PROVISIONS OF THIS SECTION 3.7.

In this connection, Buyer hereby agrees, represents and warrants that Buyer realizes and acknowledges that factual matters now unknown to it may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses and other claims and liabilities which are presently unknown, unanticipated and unsuspected, and Buyer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that Buyer nevertheless hereby intends to release, discharge and acquit Seller and the Seller Related Parties from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses and other claims and liabilities.

Seller has given Buyer material concessions regarding this transaction in exchange for Buyer agreeing to the provisions of this Section 3.7. Buyer has initialed this Section 3.7 to further indicate its awareness and acceptance of each and every provision hereof; provided, however that failure of Buyer to initial this Section 3.7 below shall not invalidate this Section 3.7 nor any other provision of this Agreement.



SELLER		BUYER
/s/ Authorized Signatory		/s/ Authorized Signatory

Section 3.8 Survival .

The provisions of this Article III shall survive the Closing subject to the limitations and qualifications contained in such provisions and in Sections 9.11 and 9.18 hereof.

ARTICLE IV

TITLE

Section 4.1 Conditions of Title .

(a) Upon execution of this Agreement, Seller shall order an updated preliminary title report or commitment (the “ Title Report ”) from the Title Company, which shall be delivered to Buyer, together with copies of all underlying documents relating to title exceptions referred to therein, promptly upon Seller’s receipt thereof. Seller shall also furnish to Buyer within the Delivery Period any existing survey of the Property in Seller’s possession. Buyer shall immediately order any plat or survey of the Property or any update thereto from a duly licensed surveyor (the “ Survey ”) if desired by Buyer or if necessary to support the issuance of the Title Policy (as defined in Section 4.2 below). Buyer shall provide to Seller a copy of the Survey, which shall be certified to the Title Company, Buyer and Seller. Buyer shall pay the entire cost of the Survey. If Closing does not occur, Buyer shall, if Seller so requests, assign to Seller all contract rights Buyer has with the surveyor and in such event Seller shall reimburse Buyer for the cost of the Survey.

(b) By April 15, 2016 (the “ Title Review Date ”), Buyer shall furnish Seller with a written statement of objections, if any, to the title to the Property, including, without limitation, any objections to any matter shown on the Survey (collectively, “ Objections ”). In the event the Title Company amends or updates the Title Report after the Title Review Date (each, a “ Title Report Update ”), Buyer shall furnish Seller with a written statement of Objections to any matter first raised in a Title Report Update within three (3) business days after its receipt of such Title Report Update (each, a “ Title Update Review Period ”). Should Buyer fail to notify Seller in writing of any Objections in the Title Report prior to the Title Review Date, or to any matter first disclosed in a Title Report Update prior to the Title Update Review Period, as applicable, Buyer shall be deemed to have approved such matters which shall be considered to be “ Conditions of Title ” as defined in Section 4.1(e) below.

(c) If Seller receives a timely Objection in accordance with Section 4.1(b) (“ Buyer’s Notice ”), Seller shall have the right, but not the obligation, within two (2) business days after receipt of Buyer’s Notice (“ Seller’s Response Period ”), to elect to attempt to cure any such matter upon written notice to Buyer (“ Seller’s Response ”), and may extend the Closing Date for up to fifteen (15) business days to allow such cure. If Seller does not give any Seller’s Response, Seller shall be deemed to have elected not to attempt to cure any such matters. Notwithstanding the foregoing, Seller shall in any event be obligated to cure all matters or items (i) that are mortgage or deed of trust liens or security interests against the Property, in each case granted by Seller (and not tenants of the Property or other third parties), (ii) real estate tax liens, other than liens for taxes and assessments not yet delinquent, (iii) that have been voluntarily placed against the Property by Seller (and not tenants of the Property or other third parties) after

the date of this Agreement and that are not otherwise permitted pursuant to the provisions hereof, and (iv) that are monetary liens of an ascertainable amount and are capable of being cured by the payment of money that arise out of construction contracts entered into by Seller. Seller shall be entitled to apply the Purchase Price towards the payment or satisfaction of such liens, and may cure any Objection by causing the Title Company to insure against collection of the same out of the Property. Notwithstanding anything to the contrary contained herein, if (i) a mechanics’ lien or liens are filed against the Property by a subcontractor or contractor arising out of work contracted for by tenants, (ii) the amounts of such liens in aggregate exceeds Two Hundred Fifty Thousand Dollars ($250,000), and (iii) Seller elects not to cause the Title Company to insure over such liens for the benefit of Buyer, then Buyer shall have the right by written notice to Seller given within five (5) business days after Buyer’s receipt of Seller’s written notice that Seller is not electing to cause the Title Company to insure over such liens, then Buyer shall have the right to terminate this Agreement, the Deposit shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as expressly provided herein.

(d) If Seller elects (or is deemed to have elected) not to attempt to cure any Objections raised in any Buyer’s Notice timely delivered by Buyer to Seller pursuant to Section 4.1(b), or if Seller notifies Buyer that it elects to attempt to cure any such Objection but then does not for any reason effect such cure on or before the Closing Date as it may be extended hereunder, then Buyer, as its sole and exclusive remedy, shall have the option of terminating this Agreement by delivering written notice thereof to Seller within two (2) business days after (as applicable) (i) its receipt of Seller’s Response stating that Seller will not attempt to cure any such Objection or (ii) the expiration of Seller’s Response Period if Seller does not deliver a Seller’s Response or (iii) Seller’s failure to cure by the Closing Date (as it may be extended hereunder) any Objection which Seller has previously elected to attempt to cure pursuant to a Seller’s Response. In the event of such a termination, the Deposit shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3, 9.5 and 9.9 below. If no such termination notice is timely received by Seller hereunder, Buyer shall be deemed to have waived all such Objections in which event those Objections shall become “ Conditions of Title ” under Section 4.1(e). If the Closing is not consummated for any reason other than Seller’s default hereunder, Buyer shall be responsible for any title or escrow cancellation charges.

(e) At the Closing, Seller shall convey title to the Property to Buyer by deed in the form of Exhibit C attached hereto (the “ Deed ”) subject to no exceptions other than:

(1) Interests of tenants in possession under the Leases;

(2) Matters created by or with the written consent of Buyer;

(3) Non-delinquent liens for real estate taxes and assessments;

(4) Any exceptions disclosed by the Title Report, any Title Report Update, and any Survey, in each case to the extent approved or deemed approved by Buyer in accordance with this Article IV above and any other exceptions to title disclosed by the public records or which would be disclosed by an inspection and/or survey of the Property; and

(5) Mechanics’ liens for work contracted for by tenants or other third parties in aggregate amounts less than Two Hundred Fifty Thousand Dollars ($250,000) in total for all such liens.

All of the foregoing exceptions shall be referred to collectively as the “ Conditions of Title .” By acceptance of the Deed and the Closing of the purchase and sale of the Property, (x) Buyer agrees it is assuming for the benefit of Seller all of the obligations of Seller with respect to the Conditions of Title from and after the Closing, and (y) Buyer agrees that Seller shall have conclusively satisfied its obligations with respect to title to the Property. The provisions of this Section shall survive the Closing with respect to any covenants conditions and restrictions affecting the Property (“ CC&Rs ”) Buyer may prepare estoppel certificates with respect thereto (the “ CCR Estoppels ”). Seller shall deliver the CCR Estoppels to the addressee thereunder, provided that obtaining any CCR Estoppels shall not be a condition to Closing for Buyer, and Seller shall not be obligated to incur any costs or liabilities in connection therewith. Buyer shall determine the correct declarant and address for each such estoppel.

Section 4.2 Evidence of Title .

Delivery of title in accordance with the foregoing shall be evidenced by the written agreement of the Title Company’s to issue, at Closing, its Owner’s ALTA Policy of Title Insurance in the amount of the Purchase Price showing title to the Real Property vested in Buyer, subject to the Conditions of Title (the “ Title Policy ”). The agreement of the Title Company at Closing to issue the Title Policy to Buyer is a condition to Buyer’s obligations hereunder. The Title Policy may contain such endorsements as reasonably required by Buyer provided that the issuance of such endorsements shall not be a condition to Buyer’s obligations hereunder. Buyer shall pay the costs for all such endorsements. Seller shall have no obligation to provide any indemnity or agreement to the Title Company or Buyer to support the issuance of the Title Policy or any such endorsements other than an affidavit as to the existing tenants of the Property and any ongoing construction work at the Property.

ARTICLE V

RISK OF LOSS AND INSURANCE PROCEEDS

Section 5.1 Minor Loss .

prior to such damage or condemnation; and (e) upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the collection of such proceeds or awards and the restoration or repair of the Property (the nature of which restoration or repairs, but not the right of Seller to effect such restoration or repairs, shall be subject to the approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended to collect such proceeds or awards or to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards to such extent.

Section 5.2 Major Loss .

If (a) the cost to repair the damage, destruction or condemnation as specified above exceeds an amount equal to five percent (5%) of the Purchase Price in the estimate of an architect or contractor selected by Seller and reasonably acceptable to Buyer or the diminution in the value of the remaining Property as a result of a condemnation is material (as hereinafter defined), (b) no point of access to the Property would be lost as a result of such damage or condemnation; (c) no Lease or Leases representing more than five percent (5%) of the net operating income of the Property would be terminated as a result of such damage or condemnation, or (d) no building would be incapable of being rebuilt to its existing condition prior to such damage or condemnation, then Buyer may, at its option to be exercised within five (5) business days of Seller’s notice of the occurrence of the damage or destruction or the commencement of condemnation proceedings, either terminate this Agreement or consummate the purchase for the full Purchase Price as required by the terms hereof. If Buyer elects to terminate this Agreement by delivering written notice thereof to Seller or fails to give Seller notice within such five (5) business day period that Buyer will proceed with the purchase, then this Agreement shall terminate, the Deposit shall be returned to Buyer and neither party shall have any further rights or obligations hereunder except as provided in Sections 6.1, 9.3, 9.5 and 9.9 below. If Buyer elects to proceed with the purchase, then upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the collection of such proceeds or awards or to restoration or repair of the Property (the nature of which restoration or repairs, but not the right of Seller to effect such restoration or repairs, shall be subject to the approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer, except to the extent needed to reimburse Seller for sums expended to collect such proceeds or awards or to repair or restore the Property, and Seller shall retain the rights to such proceeds and awards to such extent. A condemnation shall be deemed “material” if any portion of any net rentable area of the Property or any parking is taken which would cause the Property to be in violation of any existing laws or regulations, including but not limited to, zoning regulations, or the existing access to the Property is materially and adversely affected, permanently.

ARTICLE VI

BROKERS AND EXPENSES

Section 6.1 Brokers .

The parties represent and warrant to each other that no broker or finder was instrumental in arranging or bringing about this transaction except for Jones Lang Lasalle (“ Seller’s Broker ”). At Closing, Seller shall pay the commission due, if any, to Seller’s Broker, which shall be paid pursuant to a separate agreement

between Seller and Seller’s Broker. If any other person brings a claim for a commission or finder’s fee based upon any contact, dealings or communication with Buyer or Seller, then the party through whom such person makes his claim shall defend the other party (the “ Indemnified Party ”) from such claim, and shall indemnify the Indemnified Party and hold the Indemnified Party harmless from any and all costs, damages, claims, liabilities or expenses (including without limitation, court costs and reasonable attorneys’ fees and disbursements) incurred by the Indemnified Party in defending against the claim. The provisions of this Section 6.1 shall survive the Closing or, if the purchase and sale is not consummated, any termination of this Agreement.

Section 6.2 Expenses .

Except as expressly provided in this Agreement, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby.

ARTICLE VII

LEASES AND OTHER AGREEMENTS

Section 7.1 Buyer’s Approval of New Leases and Agreements Affecting the Property .

Between the Effective Date and the Closing, Seller shall continue to lease the Property in the same manner as before the making of this Agreement, the same as though Seller were retaining the Property provided that (i) prior to the expiration of the Contingency Period, Seller shall provide Buyer a copy of any new Lease or any amendment or termination of any existing Lease and of any new contract or amendment or termination of any existing contract affecting the Property no less than three (3) business days after the execution thereof and in all events at least three (3) business days prior to the expiration of the Contingency Period, and (ii) after the expiration of the Contingency Period Seller shall not enter into any new Lease or other agreement affecting the Property, or modify or terminate any existing Lease or other agreement affecting the Property, which will be binding on the Property after Closing, except as permitted or required under any Lease and except for agreements which are terminable on no more than thirty (30) days’ notice without payment of any penalty or fee or other cost to Seller, without first obtaining Buyer’s approval of the proposed action, which approval will not be unreasonably withheld, conditioned or delayed. In such case, Buyer shall specify in detail the reasons for its disapproval of any such proposed action. If Buyer fails to give Seller notice of its approval or disapproval of any such proposed action requiring its approval under this Section 7.1 within

three (3) business days after Seller notifies Buyer of Seller’s desire to take such action, then Buyer shall be deemed to have disapproved such matter. Buyer agrees to cooperate with Seller in enabling Seller to complete any such proposed transaction requiring Buyer’s approval after Buyer’s approval thereof.

Section 7.2 Tenant Improvement Costs, Leasing Commissions and Concessions .

With respect to any new Lease or Lease modification entered into by Seller between the Effective Date and the Closing Date in accordance with this Agreement, and with respect to any renewal, extension or expansion of any Lease, whether through the exercise of an option or otherwise, occurring between such date and the Closing Date, all tenant improvement work, leasing commissions, legal fees or other expenses or grants of any free rent period or other concessions shall be paid by Buyer. Buyer shall reimburse Seller for all such costs, expenses, free rent period or other concessions incurred by Seller. Pursuant to the Assignment of Leases, Buyer shall assume any then-outstanding obligations with respect to such tenant improvements, leasing commissions and concessions. Buyer shall be credited at Closing for the amount of all unsatisfied costs and expenses, in connection with any and all Leases executed, modified or extended by Seller prior to March 23, 2016 for tenant improvement work and leasing commissions (either completed or to be completed) and brokerage commissions (collectively, “ Pre-Closing Leasing Costs ”). In connection with any and all Leases executed, modified or extended by Seller prior to the Effective Date, Buyer shall be entitled to receive a credit against the Purchase Price at Closing for the amount of any rental abatements or “free rent” periods attributable to periods from and after the Closing Date as more particularly described in Exhibit I attached hereto and made a part hereof. The provisions of this Section shall survive the Closing.

Section 7.3 Tenant Notices .

At the Closing, Seller shall furnish Buyer with a signed notice to be given to each tenant of the Property. The notice shall disclose that the Property has been sold to Buyer, that, after the Closing, all rents should be paid to Buyer and that Buyer shall be responsible for all of the tenant’s security deposit. The form of the notice shall be otherwise reasonably acceptable to the parties. Buyer covenants to deliver said notices to each tenant as soon as reasonably possible after Closing. This provision shall expressly survive Closing.

Section 7.4 Maintenance of Improvements and Operation of Property; Removal of Tangible Personal Property .

Seller agrees to keep its customary property insurance covering the Property in effect until the Closing (provided, however, that the terms of any such coverage maintained in blanket form may be modified as Seller deems necessary). Seller shall maintain all Improvements substantially in their present condition (ordinary wear and tear, casualty and condemnation excepted), and shall operate and manage the Property in a manner consistent with Seller’s practices in effect prior to the Effective Date and in accordance with all applicable laws, ordinances, rules and regulations affecting the Property, provided that Seller shall in no event be obligated to make any capital expenditures or repairs. Seller shall not remove any Tangible

Personal Property, except as may be required for necessary repair or replacement, and replacement shall be of approximately equal quality and quantity as the removed item of Tangible Personal Property. From and after the Effective Date, Seller shall not take any action to lien, encumber or otherwise transfer all or any interest in the Property (other than leases pursuant to the terms hereof) to the Buyer at the Closing. From and after the Effective Date, Seller shall not market, solicit, negotiate or enter into any agreement with any party other than Buyer for the sale or transfer of any interest in the Property.

Section 7.5 Service Contracts .

Within three (3) business days prior to the expiration of the Contingency Period, Buyer will advise Seller in writing which Service Contracts Buyer will assume and which Service Contracts Buyer requests be terminated at Closing, provided Seller shall have no obligation to terminate, and Buyer shall be obligated to assume, any Service Contracts which by their terms cannot be terminated without penalty or payment of a fee or other cost to Seller. Seller shall deliver at Closing notices of termination of all Service Contracts that are not so assumed and Buyer shall be responsible for any charges applicable to periods commencing with the Closing. Notwithstanding the foregoing, Seller shall terminate, as of the Closing Date, all existing management and leasing agreements with respect to the Property.

Section 7.6 Notices to Buyer of Subsequent Events .

Promptly after receipt, Seller shall provide Purchaser with copies of the following: (i) any written notices that Seller receives after the Effective Date from any governmental authority with respect to any violation or alleged violation of the Property under any law or any zoning, health, fire, safety or other law, regulation or code applicable to the Property, (ii) any written notices of default given or received by Seller after the Effective Date under any of the Leases or Service Contracts, and (ii) any pending or threatened litigation or claims first occurring after the Effective Date and which concerns or affects Property or Seller’s ability to perform its obligations under this Agreement, other than any such matters (such as slip and fall and similar claims) that are covered by Seller’s insurance, except for a standard deductible.

ARTICLE VIII

CLOSING AND ESCROW

Section 8.1 Escrow Instructions .

Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Title Company, and this instrument shall serve as the instructions to the Title Company as the escrow holder for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of this Agreement shall control.

Section 8.2 Closing .

The Closing hereunder shall be held and delivery of all items to be made at the Closing under the terms of this Agreement shall be made at the offices of the Title Company or as otherwise mutually agreed on May 10, 2016, and before 9:00 a.m. local time, or such other earlier date and time as Buyer and Seller may mutually agree upon in writing (the “ Closing Date ”). Except as expressly provided herein, such date and time may not be extended without the prior written approval of both Seller and Buyer.

Section 8.3 Deposit of Documents .

(a) At or before the Closing, Seller shall deposit into escrow the following items:

(1) the duly executed and acknowledged Deed in the form attached hereto as Exhibit C conveying the Real Property to Buyer subject to the Conditions of Title;

(2) four (4) duly executed counterparts of the Bill of Sale in the form attached hereto as Exhibit D (the “ Bill of Sale ”);

(3) four (4) duly executed counterparts of an Assignment and Assumption of Leases, Service Contracts, Warranties and Other Intangible Property in the form attached hereto as Exhibit E pursuant to the terms of which Buyer shall assume all of Seller’s obligations under the Leases, the Service Contracts that Buyer elects to assume pursuant to the provisions of Section 7.5 above, and other documents and agreements affecting the Property (the “ Assignment of Leases ”);

(4) an affidavit pursuant to Section 1445(b)(2) of the Code, and on which Buyer is entitled to rely, that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code;

(5) an excise tax affidavit;

(6) an Owner’s Affidavit and any other documents, undertakings or agreements customarily required by the Title Company to issue the Title Policy;

(7) if Seller is the declarant under any covenants, conditions and restrictions affecting the Property, an assignment of Seller’s rights as a declarant in a form reasonably acceptable to the parties; and

(8) any additional funds, documents or instruments (signed by Seller and acknowledged, if appropriate) as may be necessary to comply with this Agreement, including, without limitation, evidence of Seller’s authority to extent required by the Title Company.

(b) At or before Closing, Buyer shall deposit into escrow the following items:

(1) immediately available funds necessary to close this transaction, including, without limitation, the Purchase Price (less the Deposit and interest thereon net of investment fees, if any) and funds sufficient to pay Buyer’s closing costs and share of prorations hereunder;

(2) four (4) duly executed counterparts of the Bill of Sale;

(3) four (4) duly executed counterparts of the Assignment of Leases;

(4) an excise tax affidavit; and

(5) any additional funds, documents or instruments (signed by Buyer and acknowledged, if appropriate) as may be necessary to comply with this Agreement, including, without limitation, evidence of Buyer’s authority to extent required by the Title Company to the extent required by the Title Company.

(c) Seller and Buyer shall each execute and deposit a closing statement, such transfer tax declarations and such other instruments (including, without limitation organizational documents and evidence of authority) as are reasonably required by the Title Company or otherwise required to close the escrow and consummate the acquisition of the Property in accordance with the terms hereof. Seller and Buyer hereby designate Title Company as the “ Reporting Person ” for the transaction pursuant to Section 6045(e) of the Code and the regulations promulgated thereunder and agree to execute such documentation as is reasonably necessary to effectuate such designation.

(d) Within five (5) business days after the Closing Date, Seller shall deliver or make available at the Property to Buyer: originals of the Leases to the extent in Seller’s possession, or copies of any Leases not in Seller’s possession, copies of the tenant correspondence files (for the three (3) most recent years of Seller’s ownership of the Property only and the current year), all keys for the Property, all passwords and log-in information for computer and other systems used in the management and operation of the Property that are being conveyed to Buyer, originals of all tenant estoppel certificates to the extent not already delivered, and originals of any other items which Seller was required to furnish Buyer copies of or make available at the Property pursuant to Sections 2.1(b) or (e) above, to the extent in Seller’s possession, except for Seller’s general ledger and other internal books or records which shall be retained by Seller. Seller shall deliver possession of the Property to Buyer as required hereunder and shall deliver to Buyer or make available at the Property a set of keys to the Property on the Closing Date.

(e) Exhibit I attached hereto and made a part hereof describes certain free rent periods outstanding as of the date of this Agreement. To the extent the free rent shown on Exhibit I has not expired on the Closing Date, Seller shall credit to Buyer the amount of unexpired free rent for the period on and after the Closing Date.

Section 8.4 Estoppel Certificates.

(a) If in accordance with Article II of this Agreement Buyer elects to proceed with the purchase of the Property, then Seller shall use commercially reasonable efforts to obtain

estoppel certificates from each tenant of the Property substantially in the form attached hereto as Exhibit F or, if a tenant’s lease requires a different form, in the form required by the tenant’s lease, or as otherwise provided in this paragraph below. It shall be a condition to Buyer’s obligation to close the sale and purchase of the Property that on or before two (2) business days before the Closing Date, Buyer has received an estoppel certificate substantially in such form from the following tenants: Helion Energy, GeoEngineers, Constellation Home Builder Systems, Microsurgical Technology, and Micronics Engineered Filtration (each a “ Major Tenant ” and collectively, the “ Major Tenants ”) and enough additional estoppels so that such additional estoppels, along with estoppels from the Major Tenants, cover tenants who in aggregate occupy premises whose square footage is equal to seventy-five percent (75%) of the space actually rented to tenants (collectively, the “ Estoppel Threshold ”). All estoppel certificates shall be dated no more than forty-five (45) days prior to the Closing Date. An estoppel certificate, even though not in the required estoppel form, will be deemed reasonably acceptable to Buyer if it (i) contains substantially all of the information on Exhibit F including the following: confirming rent, security deposit, and termination date; that no rent has been paid more than one month in advance; that the Lease is in full force and effect and that the tenant has no knowledge of any landlord default, (ii) is on the form required by the Lease, or (iii) is on the standard form of a tenant which customarily issues its own form and includes substantially all information set forth in the form of tenant estoppel certificate attached hereto as Exhibit F , provided that the tenant deleting any representation by the tenant that the tenant is not in default under its lease or the tenant acknowledging that it is in default under its lease or is subject to bankruptcy or insolvency proceedings will not be the basis for Buyer disapproving an estoppel certificate. If Seller is unable to satisfy the Estoppel Threshold, Seller may (but is not required to) deliver estoppel certificates containing the information set forth in the form of tenant estoppel certificate attached hereto as Exhibit F executed by Seller covering such leases as are sufficient, when aggregated with the tenant estoppel certificates previously delivered, to satisfy the Estoppel Threshold, provided that Buyer shall not be obligated to accept Seller estoppel certificates that collectively cover in excess of ten percent (10%) of the area of the Property actually rented to tenants. Seller’s representations and warranties in any Seller estoppel certificates will survive the Closing, subject to the limitations contained in Sections 3.2, 3.3, 3.4, 9.11 and 9.19 hereof. In the event that Buyer receives an estoppel certificate from a tenant complying with the requirements of this Section 8.4 and for which Seller previously delivered a Seller estoppel certificate, Seller shall be automatically released from any liability or obligation under the applicable Seller estoppel certificate.

(b) If Seller is unable to obtain and deliver sufficient tenant estoppel certificates as required under Section 8.4(a), or if the certificates received or substituted Seller estoppels contain a statement that Seller is in default under a Lease or otherwise discloses information that is materially inconsistent with the rent roll or the applicable Lease and Buyer objects thereto by written notice to Seller within three (3) business days after receipt by Buyer of the objectionable estoppel, but in any event on or before the Closing Date, then Seller will not be in default by reason thereof, and either Seller or Buyer may elect to extend the Closing Date by up to thirty (30) days in order to satisfy the requirement. If Seller still cannot satisfy the requirement at the end of such extended period, then Buyer may, by written notice given to Seller before the Closing, elect to terminate this Agreement and receive a refund of the Deposit, or to waive said condition. If Buyer so elects to terminate this Agreement, the Deposit shall immediately be refunded to Buyer, and neither party shall have any further rights or obligations

hereunder except as provided in Section 6.1 above and Sections 9.3, 9.5 and 9.9 below. If no such notice is delivered by Buyer, Buyer shall be deemed to have waived such condition.

Section 8.5 Prorations .

(a) Rents, including, without limitation, percentage rents, if any, and any additional charges and expenses payable by tenants under Leases, all as and when actually collected; real property taxes and assessments; all other income from the Property; water, sewer and utility charges; amounts payable under any Service Contracts or other agreements or documents; annual permits and/or inspection fees (calculated on the basis of the period covered); and any other expenses of the operation and maintenance of the Property (including, without limitation, expenses prepaid by Seller and expenses already paid by Seller but which are being amortized over time by Seller and with respect to which Seller shall receive a credit at Closing in the amount of the prepaid or unamortized portion thereof), shall all be prorated as of 11:59 p.m. on the day immediately prior to Closing (i.e., Buyer is entitled to the income and responsible for the expenses of the day of Closing), on the basis of a 365-day year. Buyer shall reimburse Seller for the tenant improvement costs, leasing commissions, legal fees and other expenses, and free rent and other concessions, as provided in Section 7.2.

All rents collected after the Closing shall be applied and paid as provided in this Section 8.5(a). If a tenant shall specifically designate a payment as being attributable to, or if it is readily ascertainable that a payment received from a tenant is attributable to a specific period of time or for a specific purpose, including, without limitation, for operating expenses or real estate tax payments which were not paid or were underpaid by such tenant or for reimbursement for work performed by Seller on the tenant’s premises, such payment shall be so applied. If there is no such designation or if not so readily ascertainable, any payment received from a tenant after Closing shall be deemed a payment of rent due after the Closing until the tenant is current on rents and sums due under the applicable Lease on or after the Closing, and then such payments shall be paid to Seller to the extent of any rent or other sums owing to Seller for periods prior to Closing. For a period of six (6) months after Closing, Buyer shall use reasonable efforts to collect such rents and other sums owing to Seller (without any requirement to institute legal action) and shall promptly remit any such amounts to Seller promptly after Buyer’s receipt thereof, and Seller shall no longer have the right to collect any such rents and other sums from tenants after Closing.

Reconciliations of taxes, insurance charges and other expenses owed by tenants under Leases for the calendar year (or fiscal year if different from the calendar year) in which the Closing occurs shall be prepared by Buyer with the cooperation of Seller within ninety (90) days following the end of such year in accordance with the requirements set forth in the Leases and as provided in this Section 8.5(a). For those Leases in which tenants pay a proportionate share of taxes, insurance charges or other expenses over a base year amount or expense stop, the proration between the parties of the income received from tenants over such base year amount or expense stop shall be calculated based on the total amount of such expenses for the Property incurred by both Seller and Buyer for the entire calendar (or, if applicable, fiscal) year, rather than on the amount of such expenses actually incurred by each party for such year, in order to enable the parties to determine if the base year amount or expense stop for such year is exceeded. Such income as so calculated shall be prorated between the parties based on the number of days

each party owned the Property during such year and otherwise in accordance with this Section 8.5(a). For Leases which do not have a base year amount or expense stop, the proration between the parties of income received from tenants from reconciliations of expenses under the Leases shall be calculated based on the expenses actually incurred by each party for such year and each party’s period of ownership of the Property, and otherwise in accordance with this Section 8.5(a).

The amount of any cash security deposits held by Seller under Leases shall be credited against the Purchase Price (and Seller shall be entitled to retain such cash security deposits). Seller shall endeavor to have any utility or other deposits with respect to the Property to be transferred to the name of Buyer at the time of Closing, and shall receive credits at Closing for the amount of the same to the extent such deposits are actually transferred to Buyer. Buyer shall cause all utilities to be transferred into Buyer’s name and account at the time of Closing.

All prorations at Closing shall be based upon the actual numbers if such number are available. If such numbers are not available, the prorations shall be based upon the reasonable estimates of Seller. The parties shall reconcile such estimates as soon as reasonably practical after Closing, but in any event on or before March 31, 2017. Notwithstanding anything to the contrary contained herein, all prorations shall be final no later than March 31, 2017. Upon request of either party, the parties shall provide a detailed and accurate written statement signed by such party certifying as to the payments received by such party from tenants from and after Closing and to the manner in which such payments were applied, and shall make their books and records available for inspection by the other party during ordinary business hours upon reasonable advance notice.

Seller retains the right to pursue and control any tax appeals applicable to periods prior to the tax year of the Closing, and Buyer shall cooperate with Seller with respect to such appeals at no material cost or expense to Buyer. Any refund of real property taxes or special assessments relating to the period prior to Closing shall be for the account of Seller. To the extent Buyer receives any such refund, Buyer shall remit such refund to Seller within five (5) business days of receipt thereof. Notwithstanding the foregoing, Buyer and Seller shall reasonably and jointly pursue and control any tax appeals applicable to the current tax year, and the parties shall prorate all costs incurred and recovered in connection therewith based on the portion of the proceeds of any tax appeal recovery allocable to each party’s respective period of ownership of the Property.

(b) At closing, the Seller will pay: (a) the Real Estate Excise Taxes, (b) one-half (1/2) of the escrow fees (and taxes thereon); (c) an amount equal to the premium (and taxes thereon) charged by the Title Company for the standard coverage portion of the Title Policy with a face amount of insurance equal to the purchase price; (d) all excise and transfer taxes associated with the transfer of the Land and Improvements to Buyer and, (e) any brokerage fees associated with this transaction payable to Jones Lang Lasalle. At Closing, the Buyer will pay: (i) one-half (1/2) of the escrow fees (and taxes thereon), and (ii) an amount equal to the premium (and taxes thereon) charged by the Title Company for the extended coverage portion of the Title Policy and any endorsements. Each party shall pay the costs and expenses of the attorneys, accountants and other agents and consultants engaged by the particular party. Any other closing costs shall be allocated between Seller and Buyer per custom.

(c) Any percentage rent for the rental periods including Closing shall be prorated upon receipt, based upon the tenant’s sales for the portion of the lease year allocable to Seller’s and Buyer’s respective ownership of the Property.

(d) The provisions of this Section 8.5 shall survive the Closing.

ARTICLE IX

MISCELLANEOUS

Section 9.1 Notices .

Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by facsimile with confirmation of receipt, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be addressed as follows:

To Buyer: KBS Capital Advisors LLC

11150 Santa Monica Boulevard, Suite 400

Los Angeles, CA 90025

Attention: James Rodgers

E-mail: jrodgers@kbs.com

Telephone: (424) 208-8105

Fax No.: (310) 432-2119

KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attention: Brian Ragsdale

E-mail: bragsdale@kbs.com

Telephone: (949) 797-0305

Fax No.: (949) 417-6501

KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attention: James Chiboucas, Esq.

E-mail: jchiboucas@kbs.com

Telephone: (949) 417-6555

Fax No.: (949) 417-6501

with a copy to: Sheppard Mullin Richter & Hampton, LLP

650 Town Center Drive, 4 ^th Floor

Costa Mesa, CA 92626

Attention: Scott A. Morehouse, Esq.

E-mail: smorehouse@sheppardmullin.com

Telephone: (714) 424-2865

Fax No.: (714) 428-5995

To Seller: c/o Bentall Kennedy (U.S.) LP

1215 Fourth Ave, Suite 2400

Seattle, WA 98161

Attention: Steven Reents

E-mail: sreents@Bentallkennedy.com

Telephone: (206) 623-4739

Bentall Kennedy (U.S.) LP

600 California Street, Suite 560

San Francisco, CA 94108

Attention: Stephen W. Lekki

Telephone: (415) 375-4016

Email: slekki@bentallkennedy.com

c/o Bentall Kennedy (U.S.) LP

1215 Fourth Ave, Suite 2400

Seattle, WA 98161

Attention: Brian Urback

E-mail: burback@Bentallkennedy.com

Telephone: (206) 694-8840

with a copy to: Orrick, Herrington & Sutcliffe LLP

405 Howard Street

San Francisco, CA 94105

Attention: Michael H. Liever

E-mail: mliever@orrick.com

Telephone: (415) 773-5808

Fax No.: (415) 773-5759

or to such other address as either party may from time to time specify in writing to the other party. Any notice or other communication sent as hereinabove provided shall be deemed effectively given (a) on the date of delivery, if delivered in person; (b) on the date mailed if sent by certified mail, postage prepaid, return receipt requested or by a commercial overnight courier; or (c) on the date of transmission, if sent by facsimile with confirmation of receipt. Such notices shall be deemed received (a) on the date of delivery, if delivered by hand or overnight express delivery service; (b) on the date indicated on the return receipt if mailed; or (c) on the date of transmission, if sent by facsimile. If any notice mailed is properly addressed but returned for any reason, such notice shall be deemed to be effective notice and to be given on the date of mailing.

Any notice sent by the attorney representing a party, shall qualify as notice under this Agreement.

Section 9.2 Entire Agreement .

This Agreement, together with the Exhibits and schedules hereto, contains all representations, warranties and covenants made by Buyer and Seller and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Agreement together with the Exhibits and schedules hereto.

Section 9.3 Entry and Indemnity .

In connection with any entry by Buyer, or its agents, employees or contractors onto the Property, Buyer shall give Seller reasonable advance notice of such entry and shall conduct such entry and any inspections in connection therewith (a) during normal business hours, (b) so as to minimize, to the greatest extent possible, interference with Seller’s business and the business of Seller’s tenants, (c) in compliance with all applicable laws, and (d) otherwise in a manner reasonably acceptable to Seller. Without limiting the foregoing, prior to any entry to perform any on-site testing, including but not limited to any air sampling, borings, drillings or other samplings, Buyer shall give Seller written notice thereof (which notice may be provided by email to Steven Reents and Brian Urback at the following email addresses: sreents@bentallkennedy.com; burback@bentallkennedy.com), including the identity of the company or persons who will perform such testing and the proposed scope and methodology of the testing. Seller shall approve or disapprove, in Seller’s sole discretion, the proposed testing within twenty-four (24) hours after receipt of such notice. If Seller fails to respond within such twenty-four (24) hour period, Seller shall be deemed to have disapproved the proposed testing. If Buyer or its agents, employees or contractors take any sample from the Property in connection with any such approved testing, Buyer shall provide to Seller a portion of such sample being tested to allow Seller, if it so chooses, to perform its own testing. Buyer shall permit Seller or its representative to be present to observe any testing or other inspection or due diligence review performed on or at the Property. Upon the request of Seller, Buyer shall promptly deliver to Seller (without representation or warranty of any kind, and at no cost or expense to Buyer) copies of any reports relating to any testing or other inspection of the Property performed by Buyer or its agents, representatives, employees, contractors or consultants. Notwithstanding anything to the contrary contained herein, Buyer shall not contact any governmental authority or any tenant without first obtaining the prior written consent of Seller thereto in Seller’s sole discretion, and Seller, at Seller’s election, shall be entitled to have a representative participate in any telephone or other contact made by Buyer to a governmental authority or tenant and present at any meeting by Buyer with a governmental authority or tenant. Buyer shall maintain, and shall assure that its contractors maintain, public liability and property damage insurance in amounts (but in no event less than Two Million Dollars ($2,000,000) with respect to any liability insurance) and in form and substance adequate to insure against all liability of Buyer and its agents, employees or contractors, arising out of any entry or inspections of the Property pursuant to the provisions hereof, and Seller and Seller’s lender shall be named as additional insureds on such insurance. Buyer shall provide Seller with evidence of such insurance coverage prior to any entry on the Property. Buyer shall indemnify and hold Seller harmless from and against any

costs, damages, liabilities, losses, expenses, liens or claims (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) arising out of or relating to any entry on the Property by Buyer, its agents, employees or contractors in the course of performing the inspections, testings or inquiries provided for in this Agreement, including, without limitation, any release of Hazardous Materials or any damage to the Property; provided that Buyer shall not be liable to Seller solely as a result of the discovery by Buyer of a pre-existing condition on the Property to the extent the activities of Buyer, its agents, representatives, employees, contractors or consultants do not exacerbate the condition. The provisions of this Section 9.3 shall be in addition to any access or indemnity agreement previously executed by Buyer in connection with the Property; provided that in the event of any inconsistency between this Section 9.3 and such other agreement, the provisions of this Section 9.3 shall govern. The foregoing indemnity shall survive beyond the Closing, or, if the sale is not consummated, beyond the termination of this Agreement. Buyer’s right of entry, as provided in this Section 9.3, shall continue up through the date of Closing.

Section 9.4 Time .

Time is of the essence in the performance of each of the parties’ respective obligations contained herein. If the time period by which any right, option or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday or legal or bank holiday, then such time period shall be automatically extended through the close of business on the next regularly scheduled business day.

Section 9.5 Attorneys’ Fees .

If either party hereto fails to perform any of its obligations under this Agreement or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, whether prior to or after Closing, or if any party defaults in payment of its post-Closing financial obligations under this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys’ fees and disbursements.

Section 9.6 Assignment .

Buyer’s rights and obligations hereunder shall not be assignable without the prior written consent of Seller, which may be given or withheld in Seller’s sole discretion; provided, however, Buyer shall have the right to assign its rights and obligations under this Agreement to an entity that is at least one hundred percent (100%) owned directly or indirectly by KBS Strategic Opportunity REIT, Inc. (“ KBS REIT ”) without the prior written consent of Seller but with at least five (5) business days prior written notice to Seller; provided KBS REIT must have full authority to make all decisions on behalf of the assignee. Seller has confirmed that Seller will assign this Agreement to KBS REIT. Buyer shall in no event be released from any of its obligations or liabilities hereunder in connection with any assignment. Without limiting and notwithstanding the above, in no event shall Buyer have the right to assign its rights or

obligations hereunder to any party which could not make the representation and warranty contained in subsections 3.5(e) and (g) above, and in connection with any assignment pursuant to the terms hereof, the assignee shall reconfirm in a written instrument acceptable to Seller and delivered to Seller prior to the effective date of the assignment said representation and warranty as applied to the assignee and that all other terms and conditions of this Agreement shall apply to such assignee and are being assumed by assignee. Subject to the provisions of this Section, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, Buyer may elect by delivering written notice to Seller at least five (5) business days prior to Closing to take title to one or more parcels that comprise the Property in one or more directly or indirectly wholly-owned entities, provided that Buyer reimburse Seller for the additional legal costs associated with such multiple conveyances that Seller would not have incurred in a single conveyance to Buyer, and provided further that Buyer shall not be released from any obligations under this Agreement and shall not assign its rights or obligations hereunder to such entities.

Section 9.7 Counterparts .

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

Section 9.8 Governing Law .

This Agreement shall be governed by and construed in accordance with the laws of the State in which the Real Property is located.

Section 9.9 Confidentiality and Return of Documents .

Except as may be required by law, Buyer and Seller shall each maintain as confidential any and all material obtained about the other or, in the case of Buyer, about the Property, this Agreement or the transactions contemplated hereby, and shall not disclose such information to any third party. Except as may be required by law, Buyer will not divulge any such information to other persons or entities including, without limitation, appraisers, real estate brokers, or competitors of Seller. Notwithstanding the foregoing, Buyer shall have the right to disclose information with respect to the Property to its officers, directors, employees, attorneys, accountants, environmental auditors, engineers, potential lenders, and permitted assignees under this Agreement and other consultants to the extent necessary for Buyer to evaluate its acquisition of the Property provided that all such persons are told that such information is confidential and agree (in writing for any third party engineers, environmental auditors or other consultants) to keep such information confidential. If Buyer acquires the Property from Seller, Seller shall have the right, subsequent to the Closing of such acquisition, to publicize the transaction (other than the parties to or the specific economics of the transaction) in whatever manner it deems appropriate; provided that any press release or other public disclosure regarding this Agreement or the transactions contemplated herein, and the wording of same, must be reasonably approved in advance by both parties. The provisions of this paragraph shall survive the Closing or any termination of this Agreement. In the event the transaction contemplated by this Agreement does not close as provided herein (other than as a result of a default by Seller), upon the request of Seller, Buyer shall promptly return to Seller all Due Diligence Materials and other final third

party reports obtained by Buyer in connection with the purchase of the Property hereunder (but expressly excluding any market or feasibility studies or other internal memoranda prepared by Buyer and/or its counsel, employees, agents of consultants in connection with Buyer’s due diligence investigations), provided that Buyer shall be permitted to retain copies of Due Diligence Materials to the extent required to comply with applicable law or Buyer’s internal record retention policies.

Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Buyer’s (or its permitted assignee’s) right to disclose information relating to this Agreement or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers and/or broker dealers evaluating Buyer or its permitted assignees, (b) in connection with any filing (including any amendment or supplement to any S-11 filing) with governmental agencies (including the SEC) by any REIT holding an interest (direct or indirect) in any permitted assignee of Buyer, and (c) to any broker/dealers in the REIT’s broker/dealer network and any of the REIT’s investors.

Section 9.10 Interpretation of Agreement .

The article, section and other headings of this Agreement are for convenience of reference only and shall not be construed to affect the meaning of any provision contained herein. Where the context so requires, the use of the singular shall include the plural and vice versa and the use of the masculine shall include the feminine and the neuter. The term “ person ” shall include any individual, partnership, joint venture, corporation, trust, unincorporated association, any other entity and any government or any department or agency thereof, whether acting in an individual, fiduciary or other capacity.

Section 9.11 Limited Liability .

The obligations of Seller under this Agreement and under all of the Other Documents are intended to be binding only on the property of Seller and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties.

Section 9.12 Amendments .

This Agreement may be amended or modified only by a written instrument signed by Buyer and Seller.

Section 9.13 No Recording .

Neither this Agreement or any memorandum or short form thereof may be recorded by Buyer.

Section 9.14 Drafts Not an Offer to Enter Into a Legally Binding Contract .

The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property. The parties shall be legally bound with respect

to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties in their respective sole discretion, and both Seller and Buyer have fully executed and delivered to each other a counterpart of this Agreement (or a copy by facsimile transmission) (the “ Effective Date ”).

Section 9.15 No Partnership .

The relationship of the parties hereto is solely that of Seller and Buyer with respect to the Property and no joint venture or other partnership exists between the parties hereto. Neither party has any fiduciary relationship hereunder to the other.

Section 9.16 No Third Party Beneficiary .

The provisions of this Agreement are not intended to benefit any third parties, except the Seller Related Parties.

Section 9.17 Limitation on Liability .

Notwithstanding anything to the contrary contained herein, after the Closing: (a) the maximum aggregate liability of Seller, and the maximum aggregate amount which may be awarded to and collected by Buyer (including, without limitation, for any breach of any representation, warranty and/or covenant by Seller) in connection with the Property and/or the sale thereof to Buyer including, without limitation, under this Agreement or any documents executed pursuant hereto or in connection herewith, including, without limitation, the Deed, the Bill of Sale, the Assignment of Leases and any Seller estoppel certificate (collectively, the “ Other Documents ”, shall under no circumstances whatsoever exceed an amount equal to Two Million Dollars ($2,000,000)); and (b) no claim by Buyer alleging a breach by Seller of any representation, warranty and/or covenant of Seller contained herein or in any of the Other Documents may be made, and Seller shall not be liable for any judgment in any action based upon any such claim, unless and until such claim, either alone or together with any other claims by Buyer alleging a breach by Seller of any such representation, warranty and/or covenant is for an aggregate amount in excess of Two Hundred Fifty Thousand Dollars ($250,000) (the “ Floor Amount ”), in which event Seller’s liability respecting any final judgment concerning such claim or claims shall be for the entire amount thereof, subject to the limitation set forth in clause (a) above; provided, however, that if any such final judgment is for an amount that is less than or equal to the Floor Amount, then Seller shall have no liability with respect thereto.

Section 9.18 Survival .

Except as expressly set forth to the contrary herein, no representations, warranties, covenants or agreements of Seller contained herein shall survive the Closing.

Section 9.19 Know Your Counterparty.

Without limiting Buyer’s representation and warranty in Section 3.5 above, Buyer has furnished to Seller all information regarding Buyer, its affiliates and the shareholders, members, investors or partners of each of them and any permitted assignees of Buyer hereunder

(collectively, the “ Buyer Related Parties ”) as Seller requested in order to enable Seller to determine to Seller’s sole satisfaction that the transaction contemplated by this Agreement will be in compliance Buyer’s representation and warranty contained in Section 3.5 of this Agreement are true and correct. Buyer represents and warrants and covenants to Seller that there will not be any change in any such information regarding Buyer or the Buyer Related Parties prior to or on the Closing. In connection with the foregoing, Buyer will promptly notify Seller of any change in any such information regarding Buyer or the Buyer Related Parties prior to or on the Closing. In the event any such information or change results in a situation in which, in Seller’s sole discretion, the transaction contemplated by this Agreement would result in a breach of Buyer’s representation and warranty contained in Section 3.5 of this Agreement, then Seller may terminate this Agreement without liability on the part of Seller or Buyer (provided such change did not occur as a result of a default or act of bad faith by Buyer), other than Buyer’s indemnity contained in Section 9.3 hereof and the obligations of Buyer contained in Sections 6.1 and 9.9 hereof, and the Deposit will be returned to Buyer. Notwithstanding anything to the contrary contained herein, Buyer will not be entitled to either (i) terminate this Agreement or (ii) a return of the Deposit solely because the proposed assignee otherwise permitted under Section 9.6 does not meet the requirements of this Section 9.19.

Section 9.20 Property Disclosures.

Whether or not the Property is zoned for residential use, Buyer acknowledges and agrees it does not intend to use the Property for residential purposes. Buyer and Seller acknowledge that the Real Property constitutes “Commercial Real Estate” as defined in RCW 64.06.005. Buyer waives receipt of the seller disclosure statement required under RCW 64.06 for transactions involving the sale of commercial real estate, except for the section entitled “Environmental”. The Environmental section of the seller disclosure statement as completed by Seller is attached to this Agreement as Exhibit H (the “Disclosure Statement” ). Buyer acknowledges receipt of the Disclosure Statement and waives its right to rescind the Agreement under RCW 64.06.030. Buyer further acknowledges and agrees that the Disclosure Statement (i) is for the purposes of disclosure only, (ii) will not be considered part of this Agreement, and (iii) will not be construed as a representation or warranty of any kind by the Seller, and that Seller shall not have any liability or obligation arising out of the Disclosure Statement.

Section 9.21 Cooperation Regarding Condemnation Case.

Buyer shall cooperate with Seller with respect to the Condemnation Case, including, without limitation, executing such documents as reasonably requested by Seller, at no out of pocket cost to Buyer and without Buyer incurring any material additional liability hereunder.

Section 9.22 Net Worth Covenant.

For a period of nine (9) months after Closing, Seller shall maintain a net worth, as defined below, of at least Two Million Dollars ($2,000,000). “ Net worth ” shall mean assets minus liabilities.

Section 9.23 Survival of Article IX .

The provisions of this Article IX shall survive the Closing.

[signature page follows]

The parties hereto have executed this Agreement as of the date set forth in the first paragraph of this Agreement.



Seller:	CALWWEST INDUSTRIAL PROPERTIES, LLC,
	a California limited liability company

	By:	Bentall Kennedy (U.S.) Limited Partnership
		a Washington limited partnership,
		its Investment Manager

		By:	Bentall Kennedy (U.S.) G.P. LLC,
			its General Partner

		By:	/s/ Stephen Lekki
		Name:	Stephen Lekki
		Its:	Senior Vice President
		Date:	4/13/16

		By:	/s/ Brian Urback
		Name:	Brian Urback
		Its:	Vice President
		Date:	4/13/16

Buyer:	KBS CAPITAL ADVISORS LLC,
	a Delaware limited liability company

	By:	/s/ Stacie Yamane
	Name:	Stacie Yamane
	Its:	CAO

LIST OF EXHIBITS AND SCHEDULES

EXHIBITS

Exhibit A Real Property Description

Exhibit B List of Tenant Leases

Exhibit C Special Warranty Deed

Exhibit D Bill of Sale


Exhibit E	Assignment of Leases, Service Contracts, Warranties and Other Intangible Property

Exhibit F Estoppel Certificate

Exhibit G List of Service Contracts

Exhibit H Disclosure Statement

Exhibit I Unpaid Leasing Commissions

Exhibit J List of Tangible Personal Property

SCHEDULES

Schedule 1 Disclosure Items

Schedule 1-A Environmental Reports

Schedule 2 3-14 Audit Documents

EXHIBIT A

REAL PROPERTY DESCRIPTION

PARCEL A:

LOTS 1 THROUGH 4, INCLUSIVE, AND 9 AND 10, PACIFIC BUSINESS & TECHNICAL CENTER , ACCORDING TO THE SECOND AMENDED BINDING SITE PLAN THEREOF RECORDED IN VOLUME 140 OF PLATS, PAGES 25 THROUGH 30, INCLUSIVE, IN KING COUNTY, WASHINGTON.

PARCEL A-1:

PARCEL A OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NUMBER 20080204900013 , BEING A PORTION OF LOT 8, PACIFIC BUSINESS & TECHNICAL CENTER , ACCORDING TO THE SECOND AMENDED BINDING SITE PLAN THEREOF RECORDED IN VOLUME 140 OF PLATS, PAGES 25 THROUGH 30, INCLUSIVE, IN KING COUNTY, WASHINGTON.

PARCEL B:

LOTS B AND C, WESTPARK, AMENDED BINDING SITE PLAN, ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME 152 OF PLATS, PAGES 70 THROUGH 73, INCLUSIVE, AND RECORDED UNDER RECORDING NUMBER 9006070535 , IN KING COUNTY, WASHINGTON;

(BEING KNOWN AS A PORTION OF LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

PARCEL C:

LOTS D, E AND F, WESTPARK II , ACCORDING TO THE AMENDED BINDING SITE PLAN THEREOF RECORDED IN VOLUME 150 OF PLATS, PAGES 12 THROUGH 15, INCLUSIVE, IN KING COUNTY, WASHINGTON;

(ALSO KNOWN AS LOT 2, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

PARCEL D:

LOT 3, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 , SAID SHORT PLAT BEING A SUBDIVISION OF THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 2, TOWNSHIP 25 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON.

PARCEL E:

LOT A, WESTPARK, AMENDED BINDING SITE PLAN, ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME 152 OF PLATS, PAGES 70 THROUGH 73, INCLUSIVE, AND RECORDED UNDER RECORDING NUMBER 9006070535 , IN KING COUNTY, WASHINGTON;

(BEING KNOWN AS A PORTION OF LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

A- 1

PARCEL F:

PARCEL B OF BOUNDARY LINE ADJUSTMENT RECORDED UNDER RECORDING NUMBER 20080204900013 , BEING A PORTION OF LOT 8, PACIFIC BUSINESS & TECHNICAL CENTER , ACCORDING TO THE SECOND AMENDED BINDING SITE PLAN THEREOF RECORDED IN VOLUME 140 OF PLATS, PAGES 25 THROUGH 30, INCLUSIVE, IN KING COUNTY, WASHINGTON.

TOGETHER WITH LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-86-5, RECORDED UNDER RECORDING NUMBER 8811030191 , IN KING COUNTY, WASHINGTON.

PARCEL G:

LOT 4, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 , SAID SHORT PLAT BEING A REVISION OF SHORT PLAT RECORDED UNDER RECORDING NUMBER 8512260700, SAID SHORT PLAT BEING A SUBDIVISION OF THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 2, TOWNSHIP 25 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON.

PARCEL H:

LOT 2 OF CITY OF REDMOND SHORT PLAT NUMBER SS-86-5, RECORDED UNDER RECORDING NUMBER 8811030191 , SAID SHORT PLAT BEING A SUBDIVISION OF A PORTION OF THE SOUTH 320 FEET OF THE NORTH 1006 FEET OF THE NORTHEAST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 2, TOWNSHIP 25 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON;

TOGETHER WITH AN EASEMENT FOR INGRESS, EGRESS AND UTILITIES 30 FEET IN WIDTH, BEING A SOUTHERLY EXTENSION OF THE EAST 30 FEET OF SAID PREMISES, LYING SOUTHERLY OF THE SOUTH LINE OF SAID PREMISES AND NORTHERLY OF THE NORTHERLY MARGIN OF N.E. 85TH STREET.

PARCEL I:

THAT PORTION OF THE FOLLOWING DESCRIBED TRACT LYING NORTHERLY OF THE RIGHT OF WAY FOR N.E. 85TH STREET AND EASTERLY OF THE RIGHT OF WAY FOR 154TH AVENUE N.E. THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION 2, TOWNSHIP 25 NORTH, RANGE 5 EAST, W.M., IN KING COUNTY, WASHINGTON, LYING EASTERLY OF THE NORTHERN PACIFIC RAILROAD (NOW "BURLINGTON NORTHERN") RIGHT OF WAY, AND WESTERLY OF 100 FOOT STRIP OF LAND AS CONVEYED TO KING COUNTY BY DEED RECORDED UNDER RECORDING NUMBER 6611004 ;

EXCEPT THE NORTH 1006 FEET THEREOF;

EXCEPT THAT PORTION CONVEYED TO THE CITY OF REDMOND, A MUNICIPAL CORPORATION, BY DEED RECORDED UNDER RECORDING NUMBER 8407250771 FOR 154TH AVENUE N.E.

SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.

EXHIBIT B

LIST OF TENANT LEASES

Westpark Leases:

3COT141 Lease

Abol Systems, Inc. Lease, 1st, 2nd, 3rd and 4th Amendment

Ally, Inc Lease, 1st Amendment, Commencement Date Memorandum

Amaxra, Inc. Lease and Commencement Date Memorandum

Advance Technical Marketing Inc. Lease, Commencement Date Memorandum, 1st Amendment, Landlord Consent to Sublease

Avitech International Corp. Lease, Commencement Date Memorandum, 1st Amendment

Axis Surveying and Mapping, Inc. Lease and Commencement Date Memorandum

BAE Systems Controls, Inc. Lease, Assignment, 1st and 2nd Amendment

Bellegrove Medical Supply, Inc. Lease, Commencement Date Memorandum, Assignment, Subordination of Landlord’s Lien, 1st and 2nd Amendment

Bigfin.com, LLC Lease, 1st Amendment

Biopure Healing Products, LLC Lease and 1st Amendment

Bluerigger, LLC lease and 1st Amendment

Boxspy, LLC Lease

Bromik, LLC Lease, Commencement Date Memorandum, Landlord Consent to Sublease

CAE Healthcare, Inc. Lease, 1st, 2nd and 3rd Amendment

Cascade Window Products, Inc. Lease

Cascadia Resources, Inc. Lease and 1st Amendment

Cat-Man-Doo, Inc. Lease and 1st Amendment

CBRE, Inc. Lease, 1st Amendment

Centerline Solutions, LLC Lease

Comcast License Agreement

B- 1

Constellation Homebuilder Systems, Inc. Lease, Landlord Consent to Change in Control, 1st Amendment

Crown Castle USA, Inc. Lease, 1st, 2nd, 3rd, 4th, 5th, and 6th Amendment, Substitution Effective Date Memorandum, Landlord Consent to Sublease (2).

Davis-Bacon Pension Plans, Inc. Lease

Deep Domain, Inc. Lease

Delphi Precision Imaging Corporation Lease

Dowl, LLC Lease, 1st, 2nd, 3rd, 4th, 5th Amendment and Commencement Date Memorandum

Duramark Technologies, Inc. Lease, Commencement Date Memorandum and Subordination of Landlord’s Lien

Dynamic Systems, Inc. Lease, 1st and 2nd Amendment

Echonous, Inc. Lease

Engineering-Remediation Resources Group, Inc. Lease

EVT Solutions, Inc. Lease

F1 Consultancy, LLC Lease and Commencement Date Memorandum

Foxconn EMS, Inc. Lease, 1st, 2nd, 3rd, 4th and 5th Amendment

Furniture Marketing Group, Inc. Lease

Geoengineers, Inc. Lease, 1st, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th Amendment

Greater Redmond Transportation Management Association, Lease, 1st Amendment

Halfpops, Inc. Lease

Helion Energy, Inc. Lease

Hiperion, Inc. Lease

Hobart, Inc. Lease

Homemeeting, Inc. Lease, 1st, 2nd Amendment

Horizon Professional Computer Services, Inc. Lease, 1st, 2nd, 3rd and 4th Amendment

Hydroflow Holdings USA, LLC Lease, Commencement Date Memorandum, 1st, 2nd and 3rd Amendment

Hygen Pharmaceuticals, Inc. Lease, Commencement Date Memorandum, Subordination of Landlord Lien

ICS Support, Inc. Lease, Commencement Date Memorandum, 1st and 2nd Amendment

Innovative Advantage, Inc. Lease, 1st and 2nd Amendment

iStreamplanet Co. Lease, 1st and 2nd Amendment

JC Serivces, Inc. Lease, Commencement Date Memorandum, 1st, 2nd 3rd Amendment

JDL Digital Systems, Inc. Lease, Commencement Date Memorandum, 1st, 2nd and 3rd Amendment, Right of First Opportunity Notice

Juni America, Inc. Lease and 1st Amendment

King & Prince Seafood Corporation, Lease, Commencement Date Memorandum, First Amendment to Lease, Guaranty of Lease.

KMEW CO, LTD. Lease, Commencement Date Memorandum, Assignment and 1st Amendment

KONE, Inc. Lease, Commencement Date Memorandum

Kurkel Enterprises, LLC Lease

Leancode, LLC Lease

Lucky Scooter Parts, LLC Lease, Commencement Date Memorandum

Lucky Scooter Parts - Consent to Sublease/sublease

Madrona, Inc. Lease

Master International Corporation Lease

Mellanox Technologies, Inc. Lease, Commencement Date Memorandum, 1st Amendment and Expansion Effective Date Memorandum

MGC Technical Consulting, Inc. Lease and 1st Amendment

Micronics, Inc. Lease, 1st, 2nd, 3rd, 4th, 5th Amendment

Micronics, Inc. - 6th amendment

Microsurgical Technology Inc. Lease, 1st, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th and 12th Amendment.

Minarik Corporation Lease, Commencement Date Memorandum, 1st, 2nd and 3rd Amendment

Mindray Medical USA Corp, Lease, 1st, 2nd and 3rd Amendment

MSNW, LLC Lease, 1st, 2nd and 3rd Amendment

Northwest Synergy, Inc. Lease, 1st Amendment, Expansion Effective Date memorandum

Northwest Synergy - 2nd amendment

Ocean Diamond, Inc. Lease

Omni212, LLC Lease and Guaranty

Overlake Heating, Air Conditioning & Sheet Metal, LLC Lease, 1st and 2nd Amendment

P97 Networks, Inc. Lease and Commencement Date Memorandum

Pacific Air Filtration, Inc. Lease, Guaranty of Lease, Assignment of Lease

Pattison, Inc. Lease, 1st Amendment

Personal Medical Corp, Lease, 1st, 2nd, 3rd, 4th, 5th Amendment

Planetary Power, Inc. Lease

Plantsmart, LLC, Lease, 1st Amendment, 2nd Amendment

Pogo Linux Corporation, Lease, 1st and 2nd Amendment, Commencement Date Memorandum

Popular Machinery and Tools, USA, Inc. Lease

Precision Electric Group, Inc. Lease, 1st, 2nd Amendment and Subordination of Landlord Lien

Professional Appliance Technicians, Inc. Lease and 1st Amendment

R2D3 Corporation, Lease, 1st and 2nd Amendment

Red Dingo, Inc. Lease

Redmond Cable Corporation, Lease, 1st, 2nd, 3rd Amendment

Rent-A-PC, Inc. Lease, Commencement Date Memorandum

Rimkus Consulting Group, Inc. Lease, Commencement Date Memorandum

Rock-Tenn Company, Lease, Guaranty

SBK Enterprises, LLC Lease, Guaranty of Lease (2)

Seattle Aero, LLC Lease and 1st Amendment

Seattle PJ Pizza, LLC Lease, 1st and 2nd Amendment

Seattle Pizza - 3rd amendment

Service Communications, Inc. Lease

Shields Bag and Printing Co. Lease and 1st Amendment

Showa Aircraft USA, Inc. Lease and Commencement Date Memorandum

SMS Systems Maintenance Services, Inc. Lease and Commencement Date Memorandum

Sonata Software North America, Inc. Lease and Commencement Date Memorandum

Stephen L. Nelson, CPA, PLLC Lease, 1st, 2nd and 3rd Amendment

TSS Redmond, LLC Lease, 1st, 2nd, 3rd and 4th Amendment, Landlord Consent to Sublease

Tri-Digital Software, Inc. Lease, 1st, 2nd, 3rd Amendment and Expansion Space Memorandum

Westtek, LLC Lease, 1st and 2nd Amendment

Wildlife Computers, Inc. Lease, Commencement Date Memorandum, 1st Amendment

Workspace Development, LLC Lease, Commencement Date Memorandum, 1st, 2nd, 3rd, 4th, 5th Amendment, Consent to Transfer of Interest

Workspace Development - Consent to Sublease/sublease

Xtreme Consulting Group, Inc. Lease, Commencement Date Memorandum, 1st Amendment

Zensa, LLC Lease

EXHIBIT C

FORM OF SPECIAL WARRANTY DEED

WHEN RECORDED RETURN TO:

Document Title: Special Warranty Deed

Grantor:

Grantee:

Legal Description:

Abbreviated Legal Description:

Full Legal Description: See Exhibit A attached

Assessor's Tax Parcel Nos.:

Reference Nos. of Documents Released or Assigned:

Special Warranty Deed

_________________________, a ________________________ ( "Grantor" ), grants, bargains, sells and conveys to ________________________ ____________________________ ( "Grantee" ), that certain real estate, situated in the County of ______________, State of Washington, legally described on Exhibit A .

Subject, however, to the exceptions identified on Exhibit B attached hereto.

The Grantor, for itself and for its successors in interest expressly limits the covenants of the deed to those herein expressed, and hereby covenants that against all persons whomsoever lawfully claiming or to claim by, through or under said Grantor and not otherwise, it will forever warrant and defend the described real estate.

[Grantor signature page follows]

C- 1

Dated______________, 2016.

_________________________

By_________________________

Its_________________________

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA

COUNTY OF SAN FRANCISCO

On _________________, 2016, before me, ________________, a Notary Public, personally appeared _________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

_________________________

Signature of the Notary Public

(Seal)

C- 2

EXHIBIT A

REAL PROPERTY DESCRIPTION

PARCEL A:

PARCEL A-1:

PARCEL B:

(BEING KNOWN AS A PORTION OF LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

PARCEL C:

LOTS D, E AND F, WESTPARK II , ACCORDING TO THE AMENDED BINDING SITE PLAN THEREOF RECORDED IN VOLUME 150 OF PLATS, PAGES 12 THROUGH 15, INCLUSIVE, IN KING COUNTY, WASHINGTON;

(ALSO KNOWN AS LOT 2, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

PARCEL D:

PARCEL E:

(BEING KNOWN AS A PORTION OF LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-85-11R, RECORDED UNDER RECORDING NUMBER 8912190943 ).

C- 1

PARCEL F:

TOGETHER WITH LOT 1, CITY OF REDMOND SHORT PLAT NUMBER SS-86-5, RECORDED UNDER RECORDING NUMBER 8811030191 , IN KING COUNTY, WASHINGTON.

PARCEL G:

PARCEL H:

PARCEL I:

EXCEPT THE NORTH 1006 FEET THEREOF;

EXCEPT THAT PORTION CONVEYED TO THE CITY OF REDMOND, A MUNICIPAL CORPORATION, BY DEED RECORDED UNDER RECORDING NUMBER 8407250771 FOR 154TH AVENUE N.E.

SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.

C- 2

EXHIBIT D

BILL OF SALE

This Bill of Sale (the “ Bill of Sale ”) is made and entered into ____________, 201_, by and between ____________________ (“ Assignor ”), and __________________ (“ Assignee ”).

In consideration of the sum of Ten Dollars ($10) and other good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby assign, transfer, convey and deliver to Assignee, its successors and assigns, all items of Tangible Personal Property (as defined in the Agreement referred to below), if any, owned by Assignor and situated upon and used exclusively in connection with the Real Property (as defined in the Agreement) and more particularly described on Exhibit A attached hereto and made a part hereof for all purposes, including, without limitation, the Tangible Personal Property identified in Exhibit B , if any, attached hereto and made a part hereof for all purposes (the “ Personal Property ”).

This Bill of Sale is made subject, subordinate and inferior to the easements, covenants and other matters and exceptions set forth on Exhibit C , if any, attached hereto and made a part hereof for all purposes.

ASSIGNEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN, AND SUBJECT TO THE LIMITATIONS CONTAINED IN, THAT CERTAIN AGREEMENT OF PURCHASE AND SALE DATED ___________, 201__, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE “AGREEMENT”), ASSIGNOR HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITIONS OF THE PERSONAL PROPERTY, (B) THE INCOME TO BE DERIVED FROM THE PERSONAL PROPERTY, (C) THE SUITABILITY OF THE PERSONAL PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH ASSIGNEE MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PERSONAL PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE QUALITY, HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY OF THE PERSONAL PROPERTY, OR (F) ANY OTHER MATTER WITH RESPECT TO THE PERSONAL PROPERTY. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT, HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PERSONAL PROPERTY, ASSIGNEE IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PERSONAL PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY ASSIGNOR, EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PERSONAL PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT ASSIGNOR HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PERSONAL PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN “AS IS, WHERE IS” CONDITION AND BASIS “WITH ALL FAULTS,” EXCEPT AS SPECIFICALLY PROVIDED IN, AND SUBJECT TO THE LIMITATIONS CONTAINED IN, THE AGREEMENT.

D- 1

The obligations of Assignor are intended to be binding only on the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of any Seller Related Parties (as defined in the Agreement).

[signature page follows]

D- 2

IN WITNESS WHEREOF, Assignor and Assignee have caused this Bill of Sale to be executed on the date and year first above written.



Assignor:	,
	a

	By:
	Its:	Investment Manager

		By:
		Its:


Assignee:	,
	a


	By:
	Its:

		By:
		Its:

D- 3

EXHIBIT E

ASSIGNMENT OF LEASES, SERVICE CONTRACTS,

WARRANTIES AND OTHER INTANGIBLE PROPERTY

This Assignment of Leases, Service Contracts, Warranties and Other Intangible Property (this “ Assignment ”) is made and entered into _______________, 201_, by and between _____________________________ (“ Assignor ”), ____________________________________ _____________________________________________ (“ Assignee ”).

For good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor does hereby assign, transfer, set over and deliver unto Assignee all of Assignor’s right, title, and interest in and to the following (collectively, the “ Assigned Items ”): (i) those certain leases (the “ Leases ”) listed on Exhibit A attached hereto and made a part hereof for all purposes except for Seller’s right to collect delinquent rent and other delinquent sums owing under such Leases for the period prior to the date hereof in accordance with the Agreement (as defined below), and Seller reserves the right to enforce any indemnity provisions in the Leases with respect to the period prior to Closing, provided that in each case Assignor shall not have the right to seek to terminate any Lease or the occupancy of any tenant, (ii) those certain service contracts, equipment leases, tenant improvement agreements and leasing agreements (the “ Service Contracts ”) listed on Exhibit B , if any, attached hereto and made a part hereof for all purposes, and (iii) to the extent assignable, those certain warranties held by Assignor (the “ Warranties ”) listed on Exhibit C , if any, attached hereto and made a part hereof for all purposes, and (iv) all zoning, use, occupancy and operating permits, and other permits, licenses, approvals and certificates, maps, plans, specifications, and all other Intangible Personal Property (as defined in the Agreement) owned by Assignor and used exclusively in the use or operation of the Real Property and Personal Property (each as defined in the Agreement), any other trade name owned by Assignor now used exclusively in connection with the Real Property and any utility contracts or other agreements or rights relating to the use and operation of the Real Property and Personal Property but excluding the names “Bentall Kennedy,” “Calwest” or “CalPERS,” or any derivatives thereof (collectively, the “ Other Intangible Property ”). Notwithstanding anything to the contrary contained herein, there shall be excluded from the assignment of any rights of Assignor under any Leases, Service Contracts, Warranties or Other Intangible Property (i) any rights of Assignor against tenants or other third parties including, without limitation, tenants, with respect to the period prior to the date hereof, (ii) except to the extent Assignor receives a credit therefor on the date hereof, the rights of Assignor to payments from third parties including, without limitation, tenants, pertaining to the period prior to the date hereof, (iii) all rights of Seller with respect to the Condemnation Case and Condemnation Case Payments, as such terms are defined in that certain Agreement of Purchase and Sale between Assignor and Assignee dated _____________, 2016, (the “ Agreement ”); and (iv) the rights of Seller to all insurance proceeds with respect to the casualty that occurred with respect to the building commonly known as Building B 8310-8340 154 ^th Avenue NE, Redmond, WA with the following address: ______________________ provided, however, that each of such reserved rights shall be subject to any limitations with respect thereto set forth in the Agreement.

E- 1

This Assignment is made subject, subordinate and inferior to the easements, covenants and other matters and exceptions set forth on Exhibit D , if any, attached hereto and made a part hereof for all purposes.

Assignee acknowledges and agrees, by its acceptance hereof, that, except as expressly provided in, and subject to the limitations contained in, the Agreement, the assigned items are conveyed “as is, where is” and in their present condition with all faults, and that assignor has not made, does not make and specifically disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to the nature, quality or condition of the assigned items, the income to be derived therefrom, or the enforceability, merchantability or fitness for any particular purpose of the assigned items.

By accepting this Assignment and by its execution hereof, Assignee assumes the payment and performance of, and agrees to pay, perform and discharge, all the debts, duties and obligations to be paid, performed or discharged from and after the Closing Date (as defined in the Agreement) by (a) the “landlord” or the “lessor” under the terms, covenants and conditions of the Leases, including, without limitation, brokerage commissions and compliance with the terms of the Leases relating to tenant improvements and security deposits, and (b) the owner under the Service Contracts, the Warranties and/or the Other Intangible Property. Assignor agrees to indemnify, hold harmless and defend Assignee from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) resulting by reason of the failure of Assignor to pay, perform or discharge any of the debts, duties or obligations assigned or agreed to be assigned by Assignor hereunder arising out of or relating to, directly or indirectly, in whole or in part, the Assigned Items, occurring prior to the Closing Date. Assignee agrees to indemnify, hold harmless and defend Assignor from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, court costs and reasonable attorneys’ fees and disbursements) resulting by reason of the failure of Assignee to pay, perform or discharge any of the debts, duties or obligations assumed or agreed to be assumed by Assignee hereunder arising out of or relating to, directly or indirectly, in whole or in part, the Assigned Items, from and after the Closing Date.

The obligations of Assignor are intended to be binding only on the property of Assignor and shall not be personally binding upon, nor shall any resort be had to, the private properties of Assignor.

All of the covenants, terms and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

This Assignment shall be governed by and construed in accordance with the laws of the State of Washington.

[signature page follows]

E- 2

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be executed on the day and year first above written.



Assignor:	,
	a

	By:
	Its:	Investment Manager

		By:
		Its:


Assignee:	,
	a


	By:
	Its:

		By:
		Its:

E- 3

EXHIBIT F

TENANT ESTOPPEL

The undersigned (“ Tenant ”) hereby certifies to _____________________ (“ Seller ”) and to ______________________ (“ Buyer ”) in connection with Buyer’s proposed purchase of that certain _____ building located at _______________________________, _________________ (the “ Building ”) that:

1. Tenant is the lessee of certain space (the “ Premises ”) in the Building under a lease dated __________, ______ (the “ Lease ”) entered into between Tenant and Seller as lessor.

2. The Lease is presently in full force and effect and Tenant is not in default thereunder. Tenant has accepted and is in possession of the Premises.

3. The Lease constitutes the entire agreement between the Lessor and Tenant and there has been no amendment to the Lease except for the following amendments: ____________ ___________________________________________________. There are no side agreements or understandings between Lessor and Tenant.

4. Tenant has accepted the Premises and is paying rent under the Lease.

5. The term of the Lease commenced on _______________, ____, and will end on ____________, with options to extend of successive periods of _______ years each. Neither the Lease nor any other agreement confers upon Tenant any right to acquire additional space in the Building, except as described herein: ____________________________________________.

6. The monthly rental for lease year _____ - _____ is _______________________ Dollars ($__________).

7. Tenant’s pro rata share of the entire property in which the Premises are located, for purposes of allocating operating expenses and real estate taxes is ____% of the building and _____ percent (___%) of the entire project of which building is a part.

8. Neither the Lease nor any other agreement between Landlord and Tenant confers upon Tenant any right of first refusal to purchase the real property or right to purchase the real property on which the Premises are situated.

9. Neither Landlord nor any successor or assign of Landlord owes any amount to Tenant except as follows: _________________________________.

10. As of the date of this certificate, to the actual knowledge of Tenant, there are not any uncured defaults in the performance of Landlord’s material obligations under the Lease, and to the actual knowledge of Tenant, Tenant has no existing claim against Landlord by reason of any default by Landlord in the performance of Landlord’s obligations under the Lease.

F- 1

11. All improvements, equipment, trade fixtures and other items to be constructed or furnished by or at the expense of Landlord have been completed or supplied to the satisfaction of Tenant, and all tenant improvement allowances to be paid by Landlord to Tenant on account thereof or otherwise have been received by Tenant.

12. The amount of the security deposit paid under the terms of the Lease is ___________________________ Dollars ($__________). No rent under the Lease has been paid more than one month in advance.

13. The undersigned has not entered into any sublease, assignment or any other agreement transferring any of its interest in the Lease or the Premises except as follows: _________________________________.

14. There has not been filed by or, to the actual knowledge of Tenant, against Tenant a petition in bankruptcy, voluntary or otherwise, any assignment for the benefit of creditors, any petition seeking reorganization or arrangement under the bankruptcy laws of the United States or any state thereof, or any other action brought under said bankruptcy laws with respect to Tenant.

15. To the best of Tenant’s knowledge, Tenant is not in default under its Lease except as follows: ___________________________________________________________________.

16. The undersigned makes this statement for the Buyer’s and Seller’s benefit and protection with the understanding that Buyer (and any assignee of Buyer’s right to purchase the Premises), and Buyer’s lender (or potential lender) and Buyer’s joint venture partners (or potential joint venture partners), if any, intend to rely, and shall be permitted to rely, upon this statement in connection with Buyer’s or its assignee’s intended purchase (and its lender’s potential financing of the purchase and/or its joint venture partners potential equity investment in the project) of the above described Premises from Seller.

EXECUTED: _______________ , 2016.



TENANT:


By:

Its:

F- 2

EXHIBIT G

LIST OF SERVICE CONTRACTS

Brandywine Nursery Inc. Exterior Landscaping

Schindler Elevator Corporation Elevator Maintenance

Western States Fire Protection Fire Monitoring

Co.

Cosco Fire Protection Inc. Annual Fire Testing

Walter E Nelson Company of Janitorial Supplies

Western Washington

Top Quality Building Janitorial Services

Maintenance Corp

W B Sprague Co Inc. Pest Control

Whirlwind Services Inc. Parking Lot Sweeping

Pacific Air Control HVAC Preventative Maintenance

G- 1

EXHIBIT H

D ISCLOSURE S TATEMENT

WESTPARK PORTFOLIO

REDMOND, WASHINGTON

ENVIRONMENTAL DISCLOSURE STATEMENT

INSTRUCTIONS TO THE SELLER

Please complete the following form. Do not leave any spaces blank. If the question clearly does not apply to the property write " NA. " If the answer is " yes " to any * items, please explain on attached sheets. Please refer to the line number(s) of the question(s) when you provide your explanation(s). For your protection you must date and sign each page of this disclosure statement and each attachment. Delivery of the disclosure statement must occur not later than five business days, unless otherwise agreed, after mutual acceptance of a written contract to purchase between a buyer and a seller.

NOTICE TO THE BUYER

THE FOLLOWING DISCLOSURES ARE MADE BY SELLER ABOUT THE CONDITION OF THE PROPERTY LOCATED IN REDMOND, WASHINGTON AND DESCRIBED IN THE AGREEMENT OF PURCHASE AND SALE TO WHICH THIS EXHIBIT IS ATTACHED (" THE PROPERTY ").

SELLER MAKES THE FOLLOWING DISCLOSURES OF EXISTING MATERIAL FACTS OR MATERIAL DEFECTS TO BUYER BASED ON SELLER'S ACTUAL KNOWLEDGE OF THE PROPERTY AT THE TIME SELLER COMPLETES THIS DISCLOSURE STATEMENT. UNLESS YOU AND SELLER OTHERWISE AGREE IN WRITING, YOU HAVE THREE BUSINESS DAYS FROM THE DAY SELLER OR SELLER'S AGENT DELIVERS THIS DISCLOSURE STATEMENT TO YOU TO RESCIND THE AGREEMENT BY DELIVERING A SEPARATELY SIGNED WRITTEN STATEMENT OF RESCISSION TO SELLER OR SELLER'S AGENT. IF THE SELLER DOES NOT GIVE YOU A COMPLETED DISCLOSURE STATEMENT, THEN YOU MAY WAIVE THE RIGHT TO RESCIND PRIOR TO OR AFTER THE TIME YOU ENTER INTO A SALE AGREEMENT.

THE FOLLOWING ARE DISCLOSURES MADE BY SELLER AND ARE NOT THE REPRESENTATIONS OF ANY REAL ESTATE LICENSEE OR OTHER PARTY. THIS INFORMATION IS FOR DISCLOSURE ONLY AND IS NOT INTENDED TO BE A PART OF ANY WRITTEN AGREEMENT BETWEEN BUYER AND SELLER.

FOR A MORE COMPREHENSIVE EXAMINATION OF THE SPECIFIC CONDITION OF THIS PROPERTY YOU ARE ADVISED TO OBTAIN AND PAY FOR THE SERVICES OF QUALIFIED EXPERTS TO INSPECT THE PROPERTY, WHICH MAY INCLUDE, WITHOUT LIMITATION, ARCHITECTS, ENGINEERS, LAND SURVEYORS,

H- 1

PLUMBERS, ELECTRICIANS, ROOFERS, BUILDING INSPECTORS, ON-SITE WASTEWATER TREATMENT INSPECTORS, OR STRUCTURAL PEST INSPECTORS. THE PROSPECTIVE BUYER AND SELLER MAY WISH TO OBTAIN PROFESSIONAL ADVICE OR INSPECTIONS OF THE PROPERTY OR TO PROVIDE APPROPRIATE PROVISIONS IN A CONTRACT BETWEEN THEM WITH RESPECT TO ANY ADVICE, INSPECTION, DEFECTS OR WARRANTIES.

Seller is / is not occupying the Property.

I. SELLER'S DISCLOSURES:

If you answer " Yes " to a question with an asterisk (*), please explain your answer and attach documents, if available and not otherwise publicly recorded. If necessary, use an attached sheet.

ENVIRONMENTAL


[ ] Yes	[ ] No [ X ] Don't know *A. Has there been any flooding, standing water, or drainage problems on the property that affect the Property or access to the Property?


[ X ] Yes	[ ] No [ ] Don't know *B. Is there any material damage to the property from fire, wind, floods, beach movements, earthquake, expansive soils, or landslides? Settling in miscellaneous portions of the Property.


[ ] Yes	[ ] No [ X ] Don't know *C. Are there any shorelines, wetlands, floodplains, or critical areas on the Property?


[ X ] Yes	[ ] No [ ] Don't know *D. Are there any substances, materials, or products in or on the Property that may be environmental concerns, such as asbestos, formaldehyde, radon gas, lead-based paint, fuel or chemical storage tanks, or contaminated soil or water? As disclosed in Environmental Reports made available to Buyer.


[ X ] Yes	[ ] No [ ] Don't know *E. Is there any soil or groundwater contamination? As disclosed in Environmental Reports made available to Buyer.


[ ] Yes	[ ] No [ X ] Don't know *F. Has the Property been used as a legal or illegal dumping site?

H- 2


[ ] Yes	[ ] No [ X ] Don't know *G. Has the Property been used as an illegal drug manufacturing site?

DATE ________________ SELLER ____________________________________

H- 3

NOTICE TO BUYER

INFORMATION REGARDING REGISTERED SEX OFFENDERS MAY BE OBTAINED FROM LOCAL LAW ENFORCEMENT AGENCIES. THIS NOTICE IS INTENDED ONLY TO INFORM YOU OF WHERE TO OBTAIN THIS INFORMATION AND IS NOT AN INDICATION OF THE PRESENCE OF REGISTERED SEX OFFENDERS.

II. BUYER'S ACKNOWLEDGMENT AND WAIVER


A.	Buyer hereby acknowledges that: Buyer has a duty to pay diligent attention to any material defects that are known to Buyer or can be known to Buyer by utilizing diligent attention and observation.


B.	The disclosures set forth in this statement and in any amendments to this Statement are made only by the Seller and not by any real estate licensee or other party.


C.	Buyer acknowledges that, pursuant to RCW 64.06.050(2), real estate licensees are not liable for inaccurate information provided by Seller, except to the extent that real estate licensees know of such inaccurate information.


D.	This information is for disclosure only and is not intended to be a part of the written agreement between the Buyer and Seller.


E.	Buyer (which term includes all persons signing the " Buyer's acceptance " portion of this disclosure statement below) has received a copy or this Disclosure Statement (including attachments, if any) bearing Seller's signature.


F.	By its signature below, Buyer waives its right to rescind its purchase and sale agreement with Seller based on Seller's delivery of this document to Buyer.


G.	Buyer waives its right to receive Sections 1-5 and 7 of the Real Property Transfer Disclosure Statement.

DISCLOSURES CONTAINED IN THIS DISCLOSURE STATEMENT ARE PROVIDED BY SELLER BASED ON SELLER'S ACTUAL KNOWLEDGE OF THE PROPERTY AT THE TIME SELLER COMPLETES THIS DISCLOSURE STATEMENT. UNLESS BUYER AND SELLER OTHERWISE AGREE IN WRITING, BUYER SHALL HAVE THREE BUSINESS DAYS FROM THE DAY SELLER OR SELLER'S AGENT DELIVERS THIS DISCLOSURE STATEMENT TO RESCIND THE AGREEMENT BY DELIVERING A SEPARATELY SIGNED WRITTEN STATEMENT OF RESCISSION TO SELLER OR SELLER'S AGENT. YOU MAY WAIVE THE RIGHT TO RESCIND PRIOR TO OR AFTER THE TIME YOU ENTER INTO A SALE AGREEMENT.

H- 4

BUYER HEREBY ACKNOWLEDGES RECEIPT OF A COPY OF THIS DISCLOSURE STATEMENT AND ACKNOWLEDGES THAT THE DISCLOSURES MADE HEREIN ARE THOSE OF THE SELLER ONLY, AND NOT OF ANY REAL ESTATE LICENSEE OR OTHER PARTY.

DATE ________________ BUYER ____________________________________

The seller disclosure statement shall be for disclosure only, and shall not be considered part of any written agreement between the buyer and seller of residential property. The seller disclosure statement shall be only a disclosure made by the seller, and not any real estate licensee involved in the transaction, and shall not be construed as a warranty of any kind by the seller or any real estate licensee involved in the transaction.

DATE ________________ BUYER ____________________________________

H- 5

EXHIBIT I

O UTSTANDING C URRENT T ERM T ENANT I MPROVEMENT O BLIGATIONS , L EASING

C OMMISSIONS AND R ENT A BATEMENT

Westpark Outstanding Current Term Rent Abatements as of 4/1/16



Tenant	Building	Suite	Abatement Start Date	Abatement End Date	# of Mos Abated	Monthly Abatement	Total Abatement
EchoNous Inc.	B	8310/200	4/1/2016	8/31/2016	5	$22,494.00	$112,470.00
EchoNous Inc.	B	8310/100	10/1/2016	1/31/2017	4	$20,438.38	$81,753.52
KONE Inc.	E	8311	4/1/2016	5/31/2016	2	$17,186.55	$34,373.10
ICS Support, Inc.	K	8541	4/1/2016	5/31/2016	2	$4,861.95	$9,723.90
BAE Systems Controls, Inc.	M	8510	4/1/2016	4/30/2016	1	$13,620.60	$13,620.60
Foxconn EMS, Inc.	N	8642	4/1/2016	5/31/2016	2	$3,665.09	$7,330.18
Pattison, Inc.	U	15235	6/1/2016	7/31/2016	2	$4,503.80	$9,007.60

Westpark Outstanding Commissions

Foxconn EMS $29.89 due to CBRE

ICS $1,560.38 due to CBRE

Westpark Outstanding TI’s and Capital



BAE Systems Controls, Inc.	$ 87,458.40	Tenant Improvement Allowance
Echonous, Inc.	$1,175,410.00	Tenant Improvement Allowance
Building B Lobby Build	$ 329,754.47	Job cost as of April 8, 2016
Building E Market Ready	$ 173,161.30	Retention and CM Fee
Building A Elevator Install	$ 144,068.84	Remaining costs on contract and CM Fee
ICS Support TI	$ 5,877.68	Retention and CM Fee
Foxconn TI	$ 4,048.00	Retention and CM Fee
Delphi TI	$ 49,170.98	Contract payments and CM Fee
Total:	$1,968,949.40

I- 1

EXHIBIT J

L IST OF T ANGIBLE P ERSONAL P ROPERTY

W ESTPARK W AREHOUSE I NVENTORY L IST

6 ft Yellow Louisville Ladder

6 ft Orange Louisville Ladder

28 ft Orange Werner Ladder

24 ft Orange Werner Ladder

8 ft Yellow Werner Ladder

12 ft Yellow Werner Ladder

10 ft Ladder

4 ft Ladder

3 drawer black lateral file cabinet

2 door - 6ft black cabinet

4 shelf metal shelving unit

5 shelf grey metal shelving unit

Four - 5 shelf grey metal shelving units

Two - 5 shelf grey metal shelving units

Wood Work Bench

Small pressure washer

Shop Vac

Asst. hoses.

Flushometer Cap removal tool

Shop light

Cordless Dewalt Angle Grinder

J- 1

Cordless Dewalt Drill

18 volt Dewalt Battery Charger

14 volt Dewalt Battery Charger

Dewalt Batteries

Dewalt Drill Bits

Ladder Spreader

Wood Furniture Dollie

Hand truck - Red

Fluke Volt Tester

Fluke Volt Meter

Temperature Sensor

Moisture Meter

Measuring Wheel

Roof Harness and Lanyard

Light Bulb Remover Tool

Hazmat Spill Response Kit

Torpedo Level

Misc. Drill bits

2 crescent wrenches

Channel Locks

Allen Wrenches (metric & SAE)

Nut driver set

Wire Cutters

Headlamp

Rubber Mallet

J- 2

Staple Gun

Misc. Screw drivers

LED Flashlight

Mop/Mop Bucket

Asst. Rakes/Brooms/Squeegee’s

Thermostats

Ceiling tiles

Asst Cover plates

Asst light fixtures

Asst light bulbs

J- 3

SCHEDULE 1

DISCLOSURE ITEMS

All matters disclosed or referred to in those certain environmental reports delivered or

made available to Buyer, including, without limitation, those listed on Schedule 1-A attached

hereto (the “ Environmental Reports ”). Seller hereby discloses that the Property may contain or

may contain Hazardous Materials, as such term is defined in the Purchase and Sale Agreement to

which this Schedule 1 is attached, including, without limitation, asbestos, as described or

referred to in the Environmental Reports. Buyer acknowledges and agrees that, in providing or

making available such Environmental Reports, Seller has satisfied its obligations of disclosure,

to the extent required by the State of Washington and federal law, and that no representation is

being made or given by Seller regarding the presence or absence of any environmental matters or

conditions on or affecting the Property.

[OTHER DISCLOSURES TO COME]

S1- 1

SCHEDULE 1-A

LIST OF ENVIRONMENTAL REPORTS

Final Westpark Redmond WA Phase I ESA dated December 16, 2015.

Westpark Hydrogeologic Assessment dated November 1, 2011.

S1-A- 1

SCHEDULE 2

3-14 AUDIT

DOCUMENTS REQUIRED FOR 3-14 AUDIT

General


•	Property operating statements for the most recent full calendar year (2015) and for the current year to date with break out in quarterly intervals.


•	Trial balances at the end of the most recent full calendar year (12/31/15) and as of the current date.


•	General ledger for the most recent full calendar year and for the current year to date (should include activity for entire year).


•	Property bank statements and reconciliations as of 12/31/15, 1/31/16 and 2/29/16

Revenues

Access to the following for all revenues for the most recent full calendar year and for the current year to date:


•	Lease agreements including any leases which have expired or were terminated in 2015


•	Rent rolls as of 12/31/14 and 12/31/15


•	Detailed tenant ledger for the latest full calendar year and current year


•	Access to billing invoices and tenant cash receipts for specific tenants (selections to be provided)

Supporting documents and schedules for other revenues (ie. parking income), if applicable, for the most recent full calendar year and for the current year to date.

Expenses

Access to the following for all expenses for the most recent full calendar year and for the current year to date:


•	Invoices and check copies (selections to be provided)


•	Check registers


•	Agreements with Contractors (specific agreements to be requested)

Reimbursable Expenses

Access to the following for the most recent full calendar year and for the current year to date:


•	CAM calculation to support monthly billings.


•	Year-end CAM reconciliation.

Post-closing

Final operating statement, trial balance and general ledger for the current year from January 1 through the date of sale.

Please note that additional documentation may be required based on the findings of the 3-14 audit.

S2- 1

Exhibit 10.2

ASSIGNMENT AND ASSUMPTION OF PURCHASE AGREEMENT

This Assignment and Assumption of Purchase Agreement (“Assignment”) is entered into between KBS Capital Advisors LLC, a Delaware limited liability company (“Assignor”), and KBS SOR Westpark Portfolio, LLC, a Delaware limited liability company (“Assignee”), as of April 21, 2016 (“Effective Date”).

RECITALS

A. Pursuant to the terms of that certain Agreement of Purchase and Sale effective as of April 13, 2016, by and between Calwest Industrial Properties, LLC, a California limited liability company, as seller, and Assignor, as buyer (the “Purchase Agreement”), Assignor agreed to acquire the Property (as such term is defined in the Purchase Agreement) commonly referred to as “the Westpark Portfolio” and located in Redmond, Washington.

B. Assignor desires to assign, without recourse, representation or warranty, all of its rights, benefits, liabilities and obligations arising under the Purchase Agreement (and related documents) to Assignee, and Assignee desires to assume all of said rights, benefits, liabilities and obligations.

NOW, THEREFORE, in consideration of the foregoing promises, the mutual undertakings of the parties set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties agree as follows:

1. Recitals . The above recitals are incorporated herein by reference.

2. Assignment and Assumption . Assignor hereby transfers, assigns and conveys, without recourse, representation or warranty, express or implied, all of Assignor’s rights, interests, liabilities and obligations in and to the Property, and all of Assignor’s rights, interests, liabilities and obligations under the Purchase Agreement (and related documents) to acquire same to Assignee. Assignee hereby assumes all such rights, interests, liabilities and obligations, and joins in all representations, warranties, releases, and indemnities, of Assignor under the Purchase Agreement (and related documents) relating to such Property and the Purchase Agreement (and related documents) assigned to it above.

3. Representations and Warranties . Assignee acknowledges and agrees that the representations and warranties of Assignor set forth in the Purchase Agreement shall apply to and are being remade with respect to Assignee as of the date hereof.

4. Successors and Assigns . This Assignment shall be binding upon and inure to the benefit of the parties’ successors and assigns.

5. Attorneys ’ Fees . In the event any party institutes any action or proceeding against the other party with regard to this Assignment, the prevailing party of such action shall be entitled to recover from the nonprevailing party (in addition to all other remedies provided by law) its attorneys’ fees and costs incurred in such action or proceeding.

- 1 -

6. Counterparts . This Assignment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Each counterpart may be delivered by facsimile transmission. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto.

[Signatures to Follow]

- 2 -

Executed as of the date set forth above.

ASSIGNOR:

KBS CAPITAL ADVISORS LLC,

a Delaware limited liability company



By:	/s/ Jeffrey K. Waldvogel
	Jeffrey K. Waldvogel
	Chief Financial Officer

- 3 -

ASSIGNEE:

KBS SOR WESTPARK PORTFOLIO, LLC,

a Delaware limited liability company

By: KBS SOR Acquisition XXVIII, LLC,

a Delaware limited liability company,

its sole member

By: KBS SOR Properties , LLC,

a Delaware limited liability company,

its sole member

By: KBS SOR (BVI) Holdings, Ltd.,

a British Virgin Islands company limited by shares,

its sole member

By: KBS Strategic Opportunity Limited Partnership,

a Delaware limited partnership,

its sole shareholder

By: KBS Strategic Opportunity REIT, Inc.,

a Maryland corporation,

its sole general partner



By:	/s/ Jeffrey K. Waldvogel
	Jeffrey K. Waldvogel, Chief Financial Officer

- 4 -

Exhibit 10.3

PURCHASE AND SALE AGREEMENT

BETWEEN

PACIFIC EIH SACRAMENTO LLC ,
a Delaware limited liability company

AS SELLER,

and

KBS CAPITAL ADVISORS LLC ,
a Delaware limited liability company

AS BUYER

TABLE OF CONTENTS



1.	Purchase and Sale		1
2.	Purchase Price; Deposit; Escrow		2
3.	Buyer's Investigation		3
	3.1	Scope of Investigation	3
	3.2	Entry; Insurance; Indemnity	5
	3.3	Title Matter; Buyer's Objections; Seller's Right to Cure	6
	3.4	Buyer's Right to Terminate	8
	3.5	Certain Miscellaneous Agreements	8
4.	As-Is Sale; Release and Indemnity		9
	4.1	As-Is Sale	9
	4.2	Release and Indemnity	10
	4.3	Representations and Warranties of Seller	11
	4.4	Seller's Knowledge	13
	4.5	Survival of Limitations on Seller's Representations and Warranties	13
	4.6	Representations and Warranties of Buyer	14
	4.7	Survival of Buyer's Representations and Warranties	14
5.	Interim Operation of the Property		15
	5.1	Before Expiration of the Investigation Period	15
	5.2	After Expiration of the Investigation Period	16
	5.3	Certain Leasing Transactions	16
	5.4	No Other Agreements or Encumbrances	17
	5.5	SNDAs	17
	5.6	Operation and Maintenance of the Property	17
6.	Conditions to Closing		17
	6.1	Conditions to Buyer's Obligations to Close	17
	6.2	Conditions to Seller's Obligations to Close	19
7.	Closing and Transfer of Title		20
	7.1	Closing Date	20



	7.2	Seller's Deliveries	20
	7.3	Buyer's Deliveries	22
	7.4	Possession of the Property	22
8.	Proations and Adjustments		22
	8.1	General	22
	8.2	Post Closing Reconciliation	25
	8.3	Survival	26
9.	Risk of Loss and Insurance Proceeds		27
	9.1	Minor Loss	27
	9.2	Major Loss	27
10.	Default		28
11.	Expenses		29
12.	Brokers		30
13.	Assignment		30
14.	Notices		31
15.	Miscellaneous		32
	15.1	Attorneys' Fees	32
	15.2	Gender	33
	15.3	Captions	33
	15.4	Construction	33
	15.5	Business Days; Deadlines	33
	15.6	Entire Agreement	33
	15.7	Recording	34
	15.8	No Continuance	34
	15.9	Time of Essence	34
	15.10	Original Document	34
	15.11	Governing Law	34
	15.12	Acceptance of Offer	34
	15.13	Confidentiality	34
	15.14	Amendment	36



15.15	Waiver	36

iii

LIST OF SCHEDULES

1.1 Description of the Land

3.1(i) 3-14 Audit Documents

3.5 Certain Miscellaneous Agreements

4.3(g) List of Leases and Amendments

5.3 Certain Leases Under Which Seller Will Pay Leasing Costs

LIST OF EXHIBITS


Exhibit A	— Estoppel Certificate


Exhibit B	— Grant Deed


Exhibit C	— Bill of Sale


Exhibit D	— Assignment and Assumption of Leases


Exhibit E	— Assignment and Assumption of Miscellaneous Agreements


Exhibit F	— Assignment and Assumption of Permits, Intangible Property and Warranties


Exhibit G	— Seller’s Closing Certification


Exhibit H	— FIRPTA Affidavit


Exhibit I	— Owner’s Statement


Exhibit J	— Letter to Tenants


Exhibit K	— Notice to Vendors


Exhibit L	— Buyer’s Closing Certification

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “ Agreement ”), dated for reference purposes as of April _28_ , 2016, is made by and between PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Seller ”), and KBS CAPITAL ADVISORS LLC, a Delaware limited liability company (“ Buyer ”). This Agreement shall not be effective until executed by both Buyer and Seller, and the date on which this Agreement is executed by Buyer or Seller, whichever is later, as indicated on the signature page hereto, shall be referred to herein as the “ Effective Date .”


1.	PURCHASE AND SALE

Seller hereby agrees to sell to Buyer, and Buyer hereby agrees to purchase from Seller, subject to the terms, covenants and conditions set forth herein, all of the following property:

(a) That certain real property located in the City and County of San Francisco, State of California, commonly known as 353 Sacramento Street, and more particularly described in Schedule 1.1 hereto (the “ Land ”);

(b) The buildings, structures and improvements erected or located on the Land (collectively, the “ Improvements ,” and together with the Land, collectively, the “ Premises ”);

(c) All of Seller’s right, title and interest, if any, in and to any rights and appurtenances pertaining to the Land, including minerals, oil and gas rights, air, water and development rights, roads, alleys, easements, streets and ways adjacent to the Land, rights of ingress and egress thereto, any strips and gores within or bounding the Land and in profits or rights or appurtenances pertaining to the Land (the “ Appurtenant Rights ”);

(d) All of Seller’s right, title, and interest, if any, in all tangible personal property located on the Premises, including furniture, and equipment, but excluding any of the same owned by Tenants (as defined below) (the “ Personal Property ”);

(e) All of Seller’s right, title, and interest in all leases in effect at the closing of the purchase and sale contemplated hereunder (the “ Closing ”) for portions of the Premises, any guaranties thereof (collectively, the “ Leases ”), and any security deposits deposited by tenants of the Property (the “ Tenants ”) in respect of such Leases;

(f) All of Seller’s right, title, and interest in those agreements affecting the Property that Buyer is required to assume pursuant to Section 3.5 below, or that are the source of obligations Buyer is required to assume pursuant to Section 5.1, 5.2 or 5.3 below (collectively, the “ Miscellaneous Agreements ”);

(g) All of Seller’s right, title and interest, if any, in and to all assignable permits and licenses to the extent the same pertain to the Premises (collectively, the “ Permits ”);

(h) All of Seller’s right, title and interest, if any, in and to all assignable intangible property, if any, used exclusively in connection with the occupancy and operation of the Premises (the “ Intangible Property ”); and

(i) All of Seller’s right, title and interest, if any, in and to all assignable warranties of any contractor, manufacturer or materialman which relate to the Improvements or the Personal Property (collectively, the “ Warranties ”).

The Premises, Appurtenant Rights, Personal Property, Leases, Miscellaneous Agreements, Permits, Intangible Property and Warranties are herein collectively referred to as the “ Property .”


2.	PURCHASE PRICE; DEPOSIT; ESCROW

(a) The purchase price (“ Purchase Price ”) for the Property shall be One Hundred Sixty-Nine Million Five Hundred Thousand and No/100 Dollars ($169,500,000.00), subject to adjustment as provided in Section 8 below, and shall be paid as set forth in subparagraphs (b), (c) and (d) below.

(b) Within one (1) business day following the Effective Date, Buyer shall deposit in escrow with Chicago Title Insurance Company, 455 Market Street, Suite 2100, San Francisco, CA 94105 Attention: Terina Kung (the “ Escrow Holder ”), as an initial deposit hereunder, the sum of One Million and No/100 Dollars ($1,000,000.00) (the “ Initial Deposit ”), together with an additional sum of One Hundred Dollars ($100.00) (the “ Earnest Money ”). The Earnest Money (but not the Initial Deposit) shall be non-refundable under all circumstances and shall be fully earned by Seller upon execution of this Agreement by Buyer and Seller as consideration for Seller entering into this Agreement and affording Buyer the opportunity to conduct its due diligence investigations hereunder. The Earnest Money shall be released by Escrow Holder to Seller immediately upon delivery of the Earnest Money to Escrow Holder, and Escrow Holder shall hold the Initial Deposit pursuant to the terms of this Agreement. If Buyer timely delivers an Approval Notice (as defined below) prior to the expiration of the Investigation Period (as defined below) pursuant to Section 3.4 below, within one (1) business day following the expiration of the Investigation Period, Buyer shall deposit with Escrow Holder, as an additional deposit hereunder, an additional sum of Seven Million and No/100 Dollars ($7,000,000.00) (the “ Additional Deposit ”). The Initial Deposit the Additional Deposit, and, if applicable, the Extension Deposit (as defined in Section 7.1 below), together with all interest accrued thereon, are referred to herein as the “ Deposit .” The Deposit shall at all times before the Closing be invested in an interest-bearing account approved by Buyer in writing. Buyer shall provide Escrow Holder with its taxpayer identification number, and all interest earned on the Deposit shall be reported to the appropriate tax authorities using Buyer’s taxpayer identification number. At the Closing, the Earnest Money and the Deposit shall be applied to the Purchase Price. If Buyer timely delivers an Approval Notice pursuant to Section 3.4 below prior to the expiration of the Investigation Period, upon the expiration of the Investigation Period, the Deposit shall become non-refundable (except as otherwise expressly set forth herein).

(c) The balance of the Purchase Price, subject to adjustment for any prorations and credits provided hereunder, shall be deposited with Escrow Holder by Buyer on the day of the Closing by wire transfer of immediately available funds, in sufficient time for the Closing to occur and the disbursement of funds to Seller pursuant to the terms hereof to be completed no later than 10:00 a.m. Pacific Time on the day of the Closing.

(d) Within two (2) business days following the Effective Date, Seller shall deliver a copy of this Agreement to Escrow Holder. This Agreement shall serve as the initial escrow instructions. Counsel for Buyer and Seller are hereby authorized to execute any further escrow instructions necessary or desirable, and consistent with the terms hereof, in connection with the escrow established for this transaction by Escrow Holder (the “ Escrow ”). Escrow Holder shall be the “ Reporting Person ” pursuant to Internal Revenue Code Section 6045(e) with respect to the transaction contemplated by this Agreement.


3.	BUYER’S INVESTIGATION


3.1	Scope of Investigation

Buyer shall have the period which commenced on April 11, 2016, and which will end on May 10, 2016 (the “ Investigation Period ”) to review and approve all matters relating to the Property, including the following matters:

(a) All matters relating to title to the Property, including (i) matters disclosed by that certain preliminary title report dated March 18, 2016, or by any underlying exception document referred to therein (the “ Title Company ”) under Title Order No. FWPN-TO16000355-JM, and a copy of which has been provided to Buyer, or disclosed by any updates thereof or supplements thereto, and (ii) matters disclosed by any survey of the Property. Seller shall provide Buyer with a copy of that certain survey dated April 15, 2011, and prepared by Isakson & Associates Inc. under Job No. 201111, without representation or warranty of any kind with respect thereto. At Buyer’s option and Buyer’s sole expense, Buyer may coordinate all title matters directly with John Premac of Chicago Title Insurance Company, 4041 MacArthur Blvd. #400, Newport Beach, CA 92660; Telephone: (949) 724-3111 ( “ Buyer’s Title Representative ” ) in which case Seller’s representative at the Title Company and Buyer’s Title Representative shall enter into a sharing arrangement pursuant to which they shall share all title insurance premiums payable in connection with the issuance of the Title Policy (as defined below). Buyer may obtain, at Buyer’s sole cost and expense, an updated ALTA survey of the Property, in form sufficient to satisfy the requirements of the Title Company for the issuance of an ALTA owner’s policy of title insurance, and a copy of which, as well as copies of any updates thereof or supplements thereto, shall be provided by Buyer to Seller promptly upon Buyer’s receipt thereof.

(b) All matters relating to any governmental and other legal requirements relating to the Property, such as taxes, assessments, zoning, use permit requirements and building codes, including any certificates of occupancy, other governmental permits and plans and specifications for the Property. Notwithstanding any provisions of this Agreement to the contrary, Buyer shall not file or cause to be filed any application or make any request (other than inquiries of the public records) with any governmental or quasi-governmental agency which would or could lead to a hearing before any governmental or quasi-governmental agency or which would or could lead to a notice of violation of law or municipal ordinance, order or requirement imposed by such an agency, at the Property or any change in zoning, parcelization, licenses, permits or other entitlements or any investigation or restriction on the use of the Property, or any part thereof.

(c) The physical condition of the Property, including the interiors, exteriors, structures, pavements, utilities, and all other physical and functional aspects of the Property, and including

an investigation as to the presence of Hazardous Materials (as defined in Section 4.1(b) below) at, on or under the Property and the compliance of the Property with all Hazardous Materials Laws (as defined in Section 4.1(b) below).

(d) Any easements and/or access rights affecting the Property.

(e) To the extent in Seller’s possession or reasonable control, copies of the following written materials relating to the Property shall be delivered to Buyer within two (2) business days after the Effective Date, to the extent not previously delivered to Buyer prior to the Effective Date:

(i) Bills for property taxes and assessments for the 2014‑2015 and 2015‑2016 tax years;

(ii) Any property condition reports or assessments prepared by third party consultants with respect to the Property;

(iii) Reports, studies, assessments and investigations related to the presence of Hazardous Materials (as defined in Section 4.1(b) below) at, on or under the Property and the compliance of the Property with all Hazardous Materials Laws (as defined in Section 4.1(b) below);

(iv) The Leases, any other leases and occupancy agreements affecting the Property and all amendments thereto;

(v) Profit and loss operating statements for the Property for the 2014, 2015 and 2016 year to date) calendar years; and

(vi) Any maintenance and repair contracts and service or supply contracts affecting the Property (excluding the property management contract).

(f) To the extent in the possession of Seller or its property manager, the following written materials relating to the Property, originals or true copies of which shall be made available at the Property or in an electronic data room, within two (2) business days after the Effective Date:

(i) Plans and specifications for the Property;

(ii) Certificates of occupancy;

(iii) The correspondence files for all Tenants;

(iv) All written agreements entered into by Seller with third parties affecting the Property which are not provided to Buyer pursuant to Section 3.1(a) above or encompassed within any of the other subparagraphs of Section 3.1(e) or this Section 3.1(f) (excluding the property management contract and any proprietary matters, such as tax returns, financial projections, loan documents, appraisals, documents related to the transaction pursuant to which Seller purchased the Property, and documents related to negotiations with Buyer or any other potential purchasers of the Property).

(g) All matters relating to the feasibility of Buyer’s proposed ownership of the Property.

(h) Natural hazards disclosure statements for the Property, as required under California law, to be delivered to Buyer within fifteen (15) days after the Effective Date. The natural hazards disclosure statements shall be based on a report or reports of a licensed engineer, land surveyor, geologist, or expert in natural hazard discovery, which report or reports shall be attached to such natural hazards disclosure statement. Buyer acknowledges that the natural hazards disclosure statements shall be based solely on the information contained in the report or reports attached thereto, and Seller shall have no liability for any inaccuracy in such reports, except to the extent that Seller has actual knowledge of the inaccuracy at the time the corresponding natural hazards disclosure statement is signed by Seller.

(i) Buyer has informed Seller that Buyer is required by law to complete with respect to certain matters relating to the Property an audit commonly known as a “3-14” Audit (“ Buyer’s 3-14 Audit ”). In connection with the performance of Buyer’s 3-14 Audit, Seller shall during the Investigation Period deliver to Buyer, concurrently with the delivery of the other due diligence materials contemplated by this Section 3.1, (i) the documents which are described on Schedule 3.1(i) attached hereto, to the extent in existence and in Seller’s possession (collectively, the “ Buyer’s 3-14 Audit Documents ”), and (ii) provide to Buyer in written form, answers to such questions relating to the Property and/or the Buyer’s 3‑14 Audit Documents as Buyer or its auditors may reasonably request, to the extent such information is in existence and in Seller’s possession. Seller’s answers to the questions pursuant to sub-clause (ii) above shall not constitute representations and warranties of Seller and Seller shall have no liability to Buyer or its auditors with respect thereto. Buyer’s completion of Buyer’s 3-14 Audit shall not be a condition precedent to Buyer’s obligation to consummate the transaction contemplated by this Agreement and Buyer shall satisfy itself with regard to Buyer’s 3-14 Audit prior to the expiration of the Investigation Period.


3.2	Entry; Insurance; Indemnity

(a) Pursuant to that certain Access Agreement (the “ Access Agreement ”) dated April 12, 2016, by Seller and Buyer, Buyer shall have the right, in compliance with the requirements of the Access Agreement and this Section 3.2, to enter on any portion of the Premises for the limited purpose of conducting “Inspections” (as defined in the Access Agreement). Buyer shall conduct such entries and any Inspections in connection therewith so as to minimize disruption at the Property or interference with Seller’s business or with Tenants and otherwise in a manner reasonably acceptable to Seller.

(b) Buyer’s indemnification of Seller pursuant to Section 12 of the Access Agreement shall extend to the partners, members, trustees, shareholders, directors and officers of Seller, any party owning a direct or indirect interest in Seller, the affiliates of Seller, and the partners, members, trustees, shareholders, directors, officers, employees and agents of each of the foregoing parties (such parties are referred to collectively with Seller as the “ Seller-Related Parties ”).


3.3	Title Matters; Buyer’s Objections; Seller’s Right to Cure

(a) Disapproved Matters .

(i) For the period commencing on the Effective Date and ending on May 2, 2016 (the “ Title Review Period ”) Buyer shall have the right, by written notice to Seller (a “ Disapproval Notice ”), to disapprove any matter relating to title of the Property.

(ii) If any material matter relating to title of the Property first arises after the expiration of the Title Review Period, and is not created or caused by Buyer (a “ Subsequent Title Matter ”) , then Buyer shall have the right to disapprove such matter by delivering a Disapproval Notice to Seller within five (5) days after Buyer first becomes aware of such matter.

(iii) All matters relating to title to the Property to which Buyer objects pursuant to Section 3.3(a)(i) or 3.3(a)(ii) above shall be referred to as “ Disapproved Matters .” All matters relating to title to the Property which are not either Disapproved Matters or matters which Seller is obligated to cure pursuant to Section 3.3(b) below shall be deemed approved by Buyer.

(b) Seller’s Right to Undertake Curative Action . Within four (4) business days after Seller’s receipt of a Disapproval Notice (including any Disapproval Notice given pursuant to 3.3(a)(ii) above with respect to a Subsequent Title Matter), Seller may give written notice to Buyer (a “ Cure Notice ”) of (i) any Disapproved Matters set forth in such Disapproval Notice with respect to which Seller is willing to undertake any curative action before the Closing, and (ii) the nature of each such curative action that Seller is willing to undertake (individually and collectively, “ Curative Action ”). Except as expressly set forth in any Cure Notice, Seller shall be deemed to have elected not to undertake any Curative Action with respect to any Disapproved Matters. If (1) the Curative Action set forth by Seller in any Cure Notice consists of anything less than the complete and unconditional cure of all Disapproved Matters set forth in the Disapproval Notice to which such Cure Notice relates, or (2) Seller does not reply to a Disapproval Notice within four (4) business days after Seller’s receipt thereof, then Buyer may terminate this Agreement by giving written notice to Seller no later than 5:00 p.m. California time on the second (2nd) business day after receipt of such Cure Notice or the expiration of such four (4) business day period without reply from Seller, as the case may be. If Buyer so elects to terminate this Agreement, then the Deposit shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as expressly provided herein. If Buyer does not so elect to terminate this Agreement, then Buyer shall be deemed to have waived its disapproval of all Disapproved Matters set forth in such Disapproval Notice except to the extent of Seller’s agreement pursuant to the Cure Notice to undertake Curative Action with respect thereto. Unless Buyer terminates this Agreement pursuant to the foregoing, if Seller gives Buyer one or more Cure Notices, then (A) Seller shall use commercially reasonable efforts to complete the Curative Action set forth therein on or before the Closing Date, and (B) it shall be a condition to Buyer’s obligation to purchase the Property hereunder, but not a covenant of Seller, that all Curative Action shall actually be performed on or before the Closing Date. Notwithstanding the foregoing or anything else contained herein, and whether or not included in Buyer’s Disapproval Notice or Seller’s Cure Notice, Seller shall remove at or before the Closing (x) the liens of any deeds of trust, mortgages or security interests voluntarily created by Seller against the Property, and (y) any other monetary liens or obligations voluntarily created by Seller (other than current

taxes and other assessments not yet delinquent and current and future installments payable on assessment bonds); it being understood and agreed that Seller shall in no event be deemed to have voluntarily created (nor shall Seller be required to remove) any monetary lien caused or created by Buyer or any Tenant. Notwithstanding the foregoing, if (i) a mechanics’ lien or liens are filed against the Property by a subcontractor or contractor arising out of work contracted for by any Tenant(s), (ii) the amounts of such liens in aggregate exceeds Two Hundred Fifty Thousand Dollars ($250,000), and (iii) Seller elects not to cause the Title Company to insure over such liens for the benefit of Buyer, then Buyer shall have the right to terminate this Agreement by written notice to Seller given within two (2) business days after the first to occur of: (x) Buyer’s receipt of Seller’s written notice that Seller is not electing to cause the Title Company to insure over such liens (and Seller shall have no obligation to do so), or (y) the expiration of the four (4) business day period for Seller to give a Cure Notice with respect thereto without Seller giving such a Cure Notice. If Buyer timely exercises its right to terminate this Agreement pursuant to the preceding sentence, the Deposit shall be returned to Buyer, and neither party shall have any further rights or obligations hereunder except as expressly provided herein.

(c) Extension of Closing Date . If any situation described in Section 3.3(a)(ii) above occurs, and the respective time periods afforded Buyer and Seller to make any elections and give notices with respect thereto as permitted under Sections 3.3(a) and (b) will extend beyond the fifth (5th) day before the Closing Date, then the Closing Date shall be postponed until five (5) days after the disposition of such matter is determined in accordance with the provisions of this Section 3.3.

(d) Agreement of Title Company to Insure Over Disapproved Matters . Notwithstanding Seller’s unwillingness to agree to completely and unconditionally cure any Disapproved Matter, Buyer may obtain the agreement of the Title Company to omit such Disapproved Matter from the schedule of exceptions to the Title Policy (as defined in Section 6.1 below) or to affirmatively insure over such Disapproved Matter by endorsement to the Title Policy. Any agreement of the Title Company to so omit or insure shall be a matter solely between Buyer and the Title Company, and the same shall not be condition to Closing, except to the extent the Title Company’s agreement to so omit or insure is based upon Seller’s agreement pursuant to the Cure Notice to undertake Curative Action with respect to such Disapproved Matter and Seller fails to undertake such Curative Action prior to the Closing. Further, with regard to Seller’s obligation to convey title to the Property, any Disapproved Matter which Seller has not agreed to completely and unconditionally cure shall be a Permitted Exception (as defined in subparagraph (e) below) to the Deed (as defined in Section 7.2(a) below) notwithstanding the Title Company’s agreement to omit such Disapproved Matter from the Title Policy or to affirmatively insure against such Disapproved Matter by endorsement to the Title Policy, and Buyer shall only seek recourse against the Title Company, and not Seller, with respect to any such Disapproved Matter.

(e) Permitted Exceptions . The Deed shall be subject to the following matters (the “ Permitted Exceptions ”):

(i) general real estate taxes not yet due and payable as of the date of Closing;

(ii) the Leases;

(iii) the Miscellaneous Agreements (provided that the same shall not be reflected as exceptions to the recorded Deed);

(iv) all title matters relating to the Property, other than Disapproved Matters, that are (1) discoverable by means of an accurate survey or inspection of the Property or by making inquiry of persons in possession, or (2) disclosed to Buyer in writing before the Closing;

(v) all Disapproved Matters Seller has not completely and unconditionally agreed to cure, except to the extent, if any, Seller has agreed to undertake Curative Action pursuant to a Cure Notice; and

(vi) all other exceptions created or agreed to by Buyer.


3.4	Buyer’s Right to Terminate

Buyer shall have the right to terminate this Agreement by delivering to Seller, not later than 5:00 p.m. California time on the last day of the Investigation Period, written notice that Buyer elects to terminate this Agreement. Buyer may elect to terminate this Agreement pursuant to this Section 3.4 for any reason based on Buyer’s sole judgment, or for no reason at all. In the event Buyer terminates (or is deemed to have terminated) this Agreement pursuant to this Section 3.4 or pursuant to any provision of Section 3.3, the Initial Deposit, together with all interest earned thereon, shall be returned promptly to Buyer and, except for any provisions of this Agreement which expressly state that they shall survive the termination of this Agreement, this Agreement shall be terminated and canceled in all respects and neither Buyer nor Seller will have any further rights or obligations hereunder. If Buyer does not duly terminate this Agreement in accordance with this Section 3.4 and determines to proceed with the purchase of the Property, then Buyer shall, before the end of the Investigation Period, so notify Seller in writing (an “ Approval Notice ”) in which event this Agreement shall remain in full force and effect and Buyer shall have no further right to terminate this Agreement under this Section. If Buyer does not deliver a termination notice or an Approval Notice to Seller prior to the expiration of the Investigation Period as provided above, Buyer shall be deemed to have elected to terminate this Agreement pursuant to this Section 3.4.


3.5	Certain Miscellaneous Agreements

At the Closing, Seller’s rights and obligations under those agreements set forth on Schedule 3.5 attached hereto shall be assigned to and assumed by Buyer, except for any specific agreements which Buyer notifies Seller prior to the expiration of the Investigation Period that Buyer elects not to assume (“ Rejected Agreements ”). Seller shall terminate all property management and leasing agreements affecting the Property and all Rejected Agreements, if any, by the Closing Date. Notwithstanding anything contained herein to the contrary, Buyer hereby agrees to accept and assume all agreements set forth on Schedule 3.5 (other than property management or leasing agreements) which cannot be terminated by Seller (i) without cause, (ii) upon thirty (30) days’ (or less) notice, or (iii) without payment of a premium or penalty.


4.	AS-IS SALE; RELEASE AND INDEMNITY


4.1	As-Is Sale

(c) Buyer acknowledges and agrees that it will have been given, before the expiration of the Investigation Period, a full opportunity to inspect and investigate each and every aspect of the Property, either independently or through agents of Buyer’s choosing. The closing of escrow for the purchase of the Property by Buyer shall conclusively constitute Buyer’s approval of each and every aspect of the Property, except as otherwise specifically provided herein.

(d) Except with respect to any representations expressly made by Seller in this Agreement, Seller: (i) makes no representations or warranties concerning the Property, income derived therefrom or any matters pertaining thereto; and (ii) makes no representations or warranties with respect to the physical condition or any other aspect of the Property, including, without limitation: (A) the structural integrity of, or the quality of any labor and materials used in the construction of, any improvements on the Land; (B) the conformity of the Improvements to any plans or specifications for the Property (including any plans and specifications that may have been or which may be provided to Buyer by Seller); (C) the compliance of the Property or its operation with any applicable codes, laws, regulations, statutes, ordinances, covenants, conditions and restrictions of any governmental or quasi-governmental entity or of any other person or entity, including zoning or building code requirements; (D) the existence of soil instability, past soil repairs, soil additions or conditions of soil fill or susceptibility to landslides; (E) the sufficiency of any undershoring; (F) the sufficiency of any drainage; (G) whether the Land is located wholly or partially in any flood plain or flood hazard boundary or similar area; (H) the existence or non-existence of underground storage tanks; (I) any other matter affecting the stability or integrity of the Land or any buildings or improvements situated on or as part of the Improvements; (J) the availability, quality, nature, adequacy and physical condition of public utilities and services for the Property; (K) the habitability, merchantability, fitness, suitability, functionality, value or adequacy of the Property or any component or system thereof for any intended use; (L) the potential for further development of the Property; (M) the existence of vested land use, zoning or building entitlements affecting the Premises; (N) the quality, nature, adequacy and physical condition of the Property, including the structural elements, foundations, roofs, appurtenances, access, landscaping, parking facilities and the electrical, mechanical, HVAC, plumbing, sewage, and utility systems, facilities and appliances; (O) the quality and nature of any groundwater; (P) the zoning or other legal status of the Property or any other public or private restrictions on use of the Property; (Q) the presence of any Hazardous Materials (as defined below) or mold or any mold-like substance on, in, under or about the Property or any nearby property; (R) the condition of title to the Property; (S) the Leases, Miscellaneous Agreements, or other agreements affecting the Property; and (T) the economics of the operation of the Property. Except with respect to any representations expressly made by Seller in this Agreement, Buyer expressly acknowledges that the Property is being sold and accepted “AS IS, WHERE IS” and is being accepted without any representation or warranty, including any representation or warranty by Seller or any agent, officer, employee or representative of Seller. Buyer agrees to make such investigations of the condition of the Property as Buyer deems adequate and shall rely solely upon its own investigation of such condition and not upon any statement of Seller except as may be expressly stated in this Agreement. As used herein, “ Hazardous Materials ” means any material, substance or waste designated as hazardous, toxic,

radioactive, injurious or potentially injurious to human health or the environment, or as a pollutant or contaminant, or words of similar import, under any Hazardous Materials Law (as defined below), including, but not limited to, petroleum and petroleum products, asbestos, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter, medical waste, mold, and chemicals which may cause cancer or reproductive toxicity. As used herein, “ Hazardous Materials Law ” means any federal, state or local law, statute, regulation or ordinance now or hereafter in force, as amended from time to time, pertaining to materials, substances or wastes which are injurious or potentially injurious to human health or the environment or the release, disposal or transportation of which is otherwise regulated by any agency of the federal, state or any local government with jurisdiction over the Property or any such material, substance or waste removed therefrom, or in any way pertaining to pollution or contamination of the air, soil, surface water or groundwater, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq. ), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq. ), the Clean Water Act (33 U.S.C. Section 1251 et seq. ), the Safe Drinking Water Act (42 U.S.C. Section 300f et seq. ), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq. ), the Toxic Substance Control Act (15 U.S.C. Section 2601 et seq. ), the Hazardous Substance Account Act (California Health and Safety Code Section 25300 et seq. ), the Hazardous Waste Control Law (California Health and Safety Code Section 25100 et seq. ), the Medical Waste Management Act (California Health and Safety Code Section 25015 et seq. ), and the Porter‑Cologne Water Quality Control Act (California Water Code Section 13000 et seq. ).


4.2	Release and Indemnity

(a) Without limiting the provisions of Section 4.1, effective as of the Closing Buyer on behalf of itself, any assignee of Buyer pursuant to Section 13 hereof, the owners of any direct or indirect interest in Buyer or such assignee, and any officers, directors, trustees or managers of any of the foregoing (collectively, the “ Releasing Parties ”), waives any right of the Releasing Parties to recover from the Seller-Related Parties, and forever releases, covenants not to sue and discharges the Seller-Related Parties from, any and all damages, demands, claims, losses, liabilities, penalties, fines, liens, judgments, costs or expenses whatsoever, including reasonable attorneys’ fees and costs, whether direct or indirect, known or unknown, foreseen or unforeseen, that may arise on account of or in any way be connected with the physical condition of the Property, including, but not limited to, the presence of any Hazardous Materials on, in, under or about the Property, (i) except for any liability of Seller for any breach of any representation or warranty set forth in Section 4.3 below, which liability shall survive the Closing only for the Survival Period (as defined in Section 4.5 below) and shall be subject to the limitation on liability set forth in Section 4.5 below, and (ii) except with respect to Seller’s fraud, which liability shall survive the Closing for the applicable statute of limitations and shall not be subject to the limitation on liability set forth in Section 4.5 below.

(b) The release set forth in Section 4.2(a) above includes claims, liabilities and other matters of which Buyer is presently unaware or which Buyer does not presently suspect to exist which, if known by Buyer, would materially affect Buyer’s willingness to enter into the release of the Seller-Related Parties set forth in Section 4.2(a). In this connection and to the fullest extent permitted by law, Buyer hereby agrees, represents and warrants that Buyer realizes and

acknowledges that factual matters now unknown to it may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and Buyer further agrees, represents and warrants that the release set forth in Section 4.2(a) has been negotiated and agreed upon in light of that realization and that Buyer nevertheless hereby intends to release, discharge and acquit the Seller-Related Parties from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses, (i) except for any liability of Seller for any breach of any representation or warranty set forth in Section 4.3 below, which liability shall survive the Closing only for the Survival Period and shall be subject to the limitation on liability set forth in Section 4.5 below, and (ii) except with respect to Seller’s fraud, which liability shall survive the Closing for the applicable statute of limitations and shall be not subject to the limitation on liability set forth in Section 4.5 below. Buyer further represents and warrants that it has the authority to bind the Releasing Parties to the terms of this Section 4.2. In connection with the release set forth in Section 4.2(a) above, Buyer expressly waives the benefits of Section 1542 of the California Civil Code which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.


4.3	Representations and Warranties of Seller

Seller represents and warrants to Buyer as follows:

(a) Seller is a limited liability company, duly organized, validly existing and in good standing under the laws of Delaware, and qualified to transact business and in good standing in the State of California.

(b) Seller has the power and authority to enter into this Agreement and convey the Property to Buyer and to execute and deliver the other documents referred to herein and to perform hereunder and thereunder on behalf of Seller. This Agreement has been duly authorized, executed and delivered by Seller.

(c) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement, nor the compliance with the terms and conditions hereof will violate, in any material respect, any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restrictions of any government, governmental agency or court to which Seller is subject.

(d) Seller is not required to obtain the consent or approval of any government agency, department or other government body to enter into this Agreement or if required, any such required consents or approvals have been obtained.

(e) There are no general assignments for the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy, existing, pending or, to Seller’s knowledge, threatened against Seller.

(f) Seller is not a Prohibited Person. As used herein, “ Prohibited Person ” means an individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity (collectively, a “ Person ”) with whom a United States citizen, entity organized under the laws of the United States or its territories or entity having its principal place of business within the United States or any of its territories (collectively, a “ U.S. Person ”), is prohibited from transacting business of the type contemplated by this Agreement, whether such prohibition arises under United States law, regulation, executive orders and lists published by the Office of Foreign Assets Control, Department of the Treasury (“ OFAC ”) (including those executive orders and lists published by OFAC with respect to Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC ( i.e., so-called “Specially Designated Nationals” and “Blocked Persons”) or otherwise.

(g) To Seller’s knowledge, the only Leases affecting the Property as of the Effective Date are set forth in the list of leases and amendments attached hereto as Schedule 4.3(g) . To Seller’s knowledge, the copies of Leases to be made available to Buyer for its review pursuant to Section 3.1(e)(iv) above, shall be true, correct and complete.

(h) To Seller’s knowledge, the reports, studies, assessments, investigations and other materials to be made available to Buyer for its review pursuant to Section 3.1(e)(iii) above, shall constitute all written reports prepared by third-party consultants in the possession, custody or control of Seller or its property manager related to the presence of Hazardous Materials at, on or under the Property and the compliance of the Property with Hazardous Materials Laws; provided that Seller makes no representation or warranty as to whether Buyer is entitled to rely on any such reports, studies, assessments, investigations or other materials, and if Buyer desires to rely on the same, Buyer shall be responsible for obtaining, at its sole cost and expense, written permission from the preparer of any such items.

(i) To Seller's knowledge, there is no litigation or governmental proceeding (including, but not limited to, any condemnation proceeding) pending or threatened in writing with respect to the Property, or with respect to Seller which impairs Seller’s ability to perform its obligations under this Agreement, except for personal injury actions for which there is adequate insurance coverage.

(j) Except as set forth in Schedule 5.3 attached hereto and made a part hereof, there are no unpaid leasing commissions or tenant improvement costs for which Seller is responsible as landlord under the primary term of any Leases as of the Effective Date (excluding any renewals, extensions or expansions under Leases exercised after the Effective Date).

(k) To Seller’s knowledge, Seller has received no written notice from any government agency, department or other government body of any violation of any Federal, State or local law,

statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restrictions applicable to the Property (including, without limitation, any Hazardous Materials Law) that has not been corrected or otherwise remedied.

(l) Seller has no employees.


4.4	Seller’s Knowledge

As used in this Agreement or in any documents delivered pursuant hereto, the phrases “to Seller’s knowledge,” “known to Seller,” “Seller has not received any notice,” or “Seller has not received any written notice” (or similar words), shall mean that the representations and warranties (or other provisions) qualified by any of such phrases are made without investigation of the matters stated therein and are based solely on the current actual knowledge of Mike Simons.


4.5	Survival of and Limitations on Seller’s Representations and Warranties

All representations and warranties contained in Section 4.3 are qualified by any information contained in any documents or other material made available to Buyer in connection with its review of matters pertaining to the Property pursuant to Section 3 above, including any title report or survey made available to Buyer. All representations and warranties of Seller set forth in Section 4.3 are made as of the Effective Date. Seller, promptly upon learning thereof, shall notify Buyer in writing of any event, occurring prior to Closing, which would cause any of Seller’s representations or warranties set forth in this Agreement to be untrue or incorrect as of Closing in any material respect. In addition, as of the Closing Date, Seller shall provide Buyer with a certification regarding the accuracy of such representations and warranties as of such date, including any exceptions or qualifications thereto as of such date (“ Seller’s Closing Certification ”). If any exceptions or qualifications to such representations and warranties set forth in Seller’s Closing Certification are material, were not known to Buyer as of the expiration of the Investigation Period, and are not acceptable to Buyer in its sole discretion, Buyer may terminate this Agreement and receive a refund of the Deposit, but Seller shall have no liability to Buyer as a result of such qualification and exceptions, except to the extent Seller knew the applicable representation or warranty was false when made on the Effective Date, in which event, Buyer shall be permitted to recover Buyer’s Out of Pocket Costs pursuant to, and subject to the limitations set forth in, Section 10(b)(ii) below. Notwithstanding the foregoing, Buyer shall have no right to terminate this Agreement pursuant to the foregoing sentence for any exception or qualification to Section 4.3(i) pertaining to any condemnation or eminent domain proceedings, unless such representation and warranty was not accurate as of the Effective Date and Seller had knowledge of such inaccuracy as of the Effective Date, it being agreed that in all other cases, Buyer’s right to terminate this Agreement in the event of any condemnation or eminent domain proceeding or threatened condemnation or eminent domain proceeding shall be solely as provided in Section 9 hereof. In addition, in the event Buyer is actually aware prior to the Closing that any of the representations or warranties set forth in Section 4.3 are not true, correct or complete, and Buyer nonetheless proceeds with the purchase of the Property, such representations and warranties shall be deemed to be qualified by all matters of which Buyer is actually aware, and Buyer shall have no claim for breach of any such representation or warranty to the extent it is actually aware prior to the Closing of any inaccuracies therein. The

representations and warranties of Seller set forth in Section 4.3, as qualified by all matters of which Buyer is actually aware as of the Closing and by any exceptions and qualifications set forth on Seller’s Closing Certification, as qualified by all matters of which Buyer is actually aware as of the Closing, shall survive the Closing of the transaction contemplated in this Agreement and the delivery of the Deed from Seller to Buyer for a period of nine (9) months from and after the Closing Date (the “ Survival Period ”); provided, however, that Buyer must give Seller written notice of any claim Buyer may have against Seller for breach of any such representations and warranties set forth in Section 4.3 (as modified by any exceptions and qualifications set forth on Seller’s Closing Certification), prior to the expiration of the Survival Period. Any such claim which Buyer may have which is not so asserted prior to the expiration of the Survival Period shall not be valid or effective, and Seller shall have no liability with respect thereto. Notwithstanding any provision of this Agreement to the contrary, in no event shall Seller’s liability for any breach of any representation or warranty under this Agreement or pursuant to Seller’s Closing Certification exceed Two Million Three Hundred Forty-Seven Thousand Five Hundred Dollars ($2,347,500), in the aggregate.


4.6	Representations and Warranties of Buyer

Buyer represents and warrants to Seller as follows:

(a) Buyer is a limited liability company, duly organized, validly existing and in good standing under the laws of Delaware, and as of the Closing will be qualified to transact business and in good standing in the State of California.

(b) Buyer has the power and authority to enter into this Agreement and to execute and deliver the other documents referred to herein and to perform hereunder and thereunder on behalf of Buyer. This Agreement has been duly authorized, executed and delivered by Buyer.

(d) Buyer is not required to obtain the consent or approval of any government agency, department or other government body to enter into this Agreement or if required, any such required consents or approvals have been obtained.

(e) There are no general assignments for the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy, existing, pending or, to Buyer’s knowledge, threatened against Buyer.

(f) Buyer is not a Prohibited Person.


4.7	Survival of Buyer’s Representations and Warranties

All representations and warranties of Buyer set forth in Section 4.6 are made as of the Effective Date. In addition, as of the Closing Date, Buyer shall provide Seller with a

certification regarding the accuracy of such representations and warranties as of such date, including any exceptions or qualifications thereto as of such date (“ Buyer’s Closing Certification ”). If the exceptions or qualifications to such representations and warranties as of the Closing Date are material and are not acceptable to Seller in its sole discretion, Seller may refuse to consummate this transaction and exercise the remedy set forth in Section 10(a) below. The representations and warranties of Buyer set forth in Section 4.6, as qualified by any exceptions and qualifications set forth on Buyer’s Closing Certification, shall survive the Closing of the transaction contemplated in this Agreement and the delivery of the Deed from Seller to Buyer for the Survival Period; provided, however, that Seller must give Buyer written notice of any claim Seller may have against Buyer for breach of any such representations and warranties set forth in Section 4.6 (as modified by any exceptions and qualifications set forth on Buyer’s Closing Certification), prior to the expiration of the Survival Period. Any such claim which Seller may have which is not so asserted prior to the expiration of the Survival Period shall not be valid or effective, and Buyer shall have no liability with respect thereto.


5.	INTERIM OPERATION OF THE PROPERTY


5.1	Before Expiration of the Investigation Period

(a) From and after the Effective Date, and until the expiration of the Investigation Period, Seller may execute any new leases of the Property or modify any existing leases or execute any other agreements affecting the Property, provided that Seller shall provide Buyer with copies of the same within two (2) business days after execution of the same, and, if requested by Buyer from time to time, Seller will advise Buyer of the status of any pending negotiations with respect to the same. If Seller delivers any such copies to Buyer later than two (2) business days before the expiration of the Investigation Period, the Investigation Period shall be extended until two (2) business days after such delivery. If Seller enters into any leases of the Property or modifies, renews or extends any existing leases after the Effective Date and before the expiration of the Investigation Period, then any tenant improvement costs, including, without limitation, architectural and soft costs (the “ Tenant Improvement Costs ”), and any leasing commissions incurred in connection with such new leases or lease modifications shall be the sole responsibility of Buyer. Seller shall be given a credit at Closing for all amounts paid by Seller for Tenant Improvement Costs or leasing commissions in connection with such new leases or lease modifications. In addition, if any leasing commissions or Tenant Improvement Costs are payable after the Closing Date with respect to such new leases or lease modifications, Buyer shall assume the obligation to pay the same, and any contracts pursuant to which any such obligations are incurred shall be assigned to, and assumed by, Buyer at the Closing.

(b) From and after the Effective Date, and until the expiration of the Investigation Period, Seller may grant consent or approval to any request made by any Tenant, provided that Seller shall promptly provide written notice to Buyer of all such consents or approvals that are material in nature. If Seller delivers such notice to Buyer later than two (2) business days before the expiration of the Investigation Period, the Investigation Period shall be extended until two (2) business days after delivery of such notice.


5.2	After Expiration of the Investigation Period

(a) From and after the expiration of the Investigation Period, provided that Buyer is not in default under this Agreement, Seller shall not execute any new leases of the Property or modify, renew or extend any existing leases without first obtaining Buyer’s written consent (or deemed consent pursuant to this Section 5.2(a)) thereto, which consent shall not be unreasonably withheld or delayed. If Buyer fails to respond within three (3) business days after receipt of a written request from Seller for Buyer’s consent to any of the foregoing (which request shall be accompanied by a copy of the proposed lease, lease modification or other agreement), Buyer shall be deemed to have consented to the same. Subject to the provisions of Section 5.3 below, if Seller, with Buyer’s consent (or deemed consent) as described above, enters into any leases of the Property or modifies any existing leases after the expiration of the Investigation Period and before the Closing Date, then, provided the Closing occurs, any Tenant Improvement Costs and any leasing commissions incurred in connection with such new leases or lease modifications shall be the sole responsibility of Buyer and Seller shall be given a credit at Closing for all amounts paid by Seller for Tenant Improvement Costs or leasing commissions in connection with such new leases or lease modifications. In addition, if any leasing commissions or Tenant Improvement Costs are payable after the Closing Date with respect to such new leases or lease modifications, Buyer shall assume the obligation to pay the same, and any contracts pursuant to which any such obligations are incurred shall be assigned to, and assumed by, Buyer at the Closing.

(b) From and after the expiration of the Investigation Period, provided that Buyer is not in default under this Agreement, Seller shall not, without Buyer’s prior written consent, grant consent or approval to any request made by a Tenant unless Seller is obligated under the applicable lease to grant such consent or approval. Buyer agrees to advise Seller, within three (3) business days after Buyer’s receipt of Seller’s notice of a Tenant’s request for such consent or approval (or, if earlier, three (3) days before the date when such response is required under the applicable lease, so long as Seller’s notice identifies such earlier deadline), whether Buyer elects that such Tenant’s request be granted or denied (and provide, in reasonable detail, the reasons for any denial), which election shall be made pursuant to the reasonableness requirements, if any, set forth in the applicable lease or implied under California law, or in Buyer’s judgment if no such requirements are set forth in such lease or implied under California law. If Buyer fails to timely respond to Seller’s notice, Seller may grant or deny consent to the Tenant’s request in Seller’s sole discretion, and Seller shall have no liability to Buyer therefor.


5.3	Certain Leasing Transactions

(a) Buyer shall be credited at Closing for the amount of all Tenant Improvement Costs and leasing commissions which were incurred, or are to be incurred, in connection with any and all Leases executed, modified or extended by Seller prior to the Effective Date (collectively, “ Existing Leasing Costs ”), and which remain unpaid as of the Closing Date. At the Closing, Buyer shall assume the obligation to pay Existing Leasing Costs to the extent it receives a credit from Seller therefor, and any contracts pursuant to which any such obligations are incurred shall be assigned to, and assumed by, Buyer at the Closing. For the avoidance of doubt, Existing Leasing Costs do not include any amounts payable in connection with any expansion or extension options granted to any Tenant which have not been exercised as of the Effective Date. Seller shall

remain responsible for satisfying any Existing Leasing Costs which were not credited to Buyer at the Closing, which obligation shall survive Closing for the Survival Period.

(b) Seller is solely responsible for Tenant Improvement Costs and leasing commissions payable in connection with the new leases, amendments and letters of intent listed on Schedule 5.3 attached hereto and made a part hereof. If as of the Closing any leasing commissions or Tenant Improvement Costs are payable after the Closing Date in connection with any of the leases, lease amendments or letters of intent listed on Schedule 5.3 attached hereto, Buyer shall receive a credit from Seller at Closing for the amount of the same, and Buyer shall assume the obligation to pay the same, and any contracts pursuant to which any such obligations are incurred shall be assigned to, and assumed by, Buyer at the Closing.


5.4	No Other Agreements or Encumbrances

From and after the Effective Date, Seller shall not enter into any agreement with any party other than Buyer for the sale or transfer of any interest in the Property, except as expressly permitted pursuant to the terms and conditions of this Agreement. From and after the expiration of the Investigation Period, Seller shall not voluntarily grant any lien or encumbrance against the Property or otherwise transfer all or any interest in the Property (other than to Buyer at Closing) except as expressly permitted pursuant to the terms and conditions of this Agreement.


5.5	SNDAs

Seller agrees that upon the request of Buyer, Seller shall deliver to Tenants of the Property the form of subordination, non-disturbance and attornment agreement required by Buyer’s lender (if any), and fully completed by Buyer (“ SNDAs ”) and shall request that such tenants execute and return the SNDAs prior to Closing; provided, however, that it shall not be a condition to Closing that Seller deliver to Buyer the executed SNDAs and Seller’s failure to deliver the executed SNDAs to Buyer shall not constitute a default by Seller under this Agreement.


5.6	Operation and Maintenance of the Property

Between the Effective Date and the Closing Date Seller shall operate, maintain and keep the Property in a manner consistent with Seller’s past practices with respect to the Property, excepting normal wear and tear and casualty.


6.	CONDITIONS TO CLOSING


6.1	Conditions to Buyer’s Obligations to Close

The obligation of Buyer to consummate the purchase of the Property as contemplated by this Agreement is subject to the fulfillment of each of the following conditions (in addition to such other items as are set forth elsewhere in this Agreement as conditions to Buyer’s obligations to close), any or all of which may be waived in whole or in part by Buyer to the extent permitted by applicable law:

(a) Delivery of Documents . Seller shall have deposited into Escrow all instruments and documents to be delivered by Seller to Buyer at the Closing under the provisions of this Agreement.

(b) Title Policy . The Title Company shall be committed to issue at Closing an owner’s title insurance policy, or an irrevocable binder to issue the same, dated as of the Closing Date, in the full amount of the Purchase Price, showing title to the Premises in the name of Buyer, the form of which shall be CLTA standard coverage; provided that if Buyer obtains an updated ALTA survey of the Property, in form sufficient to satisfy the requirements of the Title Company for the issuance of an ALTA owner’s policy of title insurance, then the form shall be ALTA (2006) Standard Owner’s Form, with extended coverage, (the “ Title Policy ”), which Title Policy shall be subject only to the standard exclusions from coverage contained in such policy and the Permitted Exceptions. Notwithstanding the foregoing or anything else stated to the contrary herein, if Buyer delivers to Seller a title commitment issued by the Title Company acceptable to Buyer prior to the expiration of the Investigation Period, and provided that Buyer satisfies at or before the Closing all requirements or conditions to the issuance of the title policy contemplated under such commitment other than any requirements which are to be fulfilled by Seller pursuant to the express the terms of this Agreement ( e.g. , delivery of the documents required to be delivered by Seller pursuant to Section 7.2 below), then the form of Title Policy that shall be delivered to Buyer as provided in this Section 6.1(b) shall be the form of title policy provided for in such title commitment delivered to Seller, together with all endorsements attached thereto.

(c) Estoppel Certificates . No less than three (3) business days before the Closing Date, Seller shall have delivered to Buyer an estoppel certificate substantially in the form of Exhibit A (except where a lease of such Tenant specifies a different form, in which case such different form shall be used) from the following Tenants: Berry Appleman & Leiden; Landmark Worldwide LLC; Carlson, Calladine & Peterson; Liberty Mutual Insurance Company; and Pentaho Corporation (each, a “ Major Tenant ” and collectively, the “ Major Tenants ”) and enough additional estoppels so that such additional estoppels, along with the estoppels from the Major Tenants, cover Tenants who in the aggregate occupy not less than eighty percent (80%) of the square footage of the Improvements currently leased to Tenants. The estoppel certificates to be delivered to Buyer shall be consistent in all material respects with the terms of the applicable Lease as previously delivered to Buyer, and shall disclose no material defaults or alleged material defaults by either Seller or the Tenant under such Lease or any Tenant bankruptcy or any dispute between Seller and a Tenant except for any defaults, bankruptcies or disputes disclosed to Buyer prior to the expiration of the Investigation Period. Buyer’s failure to notify Seller of any objections to any estoppel certificate within three (3) business days of Buyer’s receipt of the same shall constitute Buyer’s acknowledgement that such estoppel certificate satisfies the requirements of this Section 6.1(c).

(d) Seller’s Compliance . Seller shall have performed and satisfied all material covenants and material obligations of Seller under this Agreement to the extent such covenants and obligations are to be performed or satisfied as of the Closing Date. Buyer shall not have exercised its right to terminate this Agreement pursuant to Section 4.5.

The conditions set forth in this Section 6.1 are solely for the benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have the right to waive any condition. Any such waiver

or waivers shall be in writing and shall be delivered to Seller and Escrow Holder. If any of the conditions in this Section 6.1 is not satisfied or has not been so waived by Buyer prior to the Closing Date, Buyer shall deliver written notice to Seller describing the condition that has not been satisfied or waived, and if such condition remains unsatisfied as of the Closing Date, then Buyer shall have the right to terminate this Agreement and the Escrow by written notice to Seller and Escrow Holder. If Buyer terminates this Agreement in accordance with the foregoing, the Deposit shall be refunded to Buyer, all documents deposited into Escrow shall be returned to the party depositing such documents, and neither party shall have any further rights or obligations under this Agreement, except for those rights or obligations which expressly survive the termination of this Agreement. Further, if the failure of such condition also constitutes a default of Seller under this Agreement, then in lieu of terminating this Agreement, Buyer may elect to proceed under either of the options provided under clauses (i) or (iii) of Section 10(b).


6.2	Conditions to Seller’s Obligations to Close

The obligation of Seller to consummate the sale of the Property as contemplated by this Agreement is subject to the fulfillment of each of the following conditions (in addition to such other items as are set forth elsewhere in this Agreement as conditions to Seller’s obligations to close), any or all of which may be waived in whole or in part by Seller to the extent permitted by applicable law:

(a) Deposit of Funds . Buyer shall have deposited into Escrow the Purchase Price, subject to adjustment for any prorations and credits provided hereunder, and all other monies required to be deposited by Buyer hereunder.

(b) Delivery of Closing Documents . Buyer shall have deposited into Escrow all instruments and documents to be delivered by Buyer to Seller at the Closing under the provisions of this Agreement.

(c) Buyer’s Compliance . Buyer shall have performed and satisfied all material covenants and material obligations of Buyer under this Agreement to the extent such covenants and obligations are to be performed or satisfied as of the Closing Date.

The conditions set forth in this Section 6.2 are solely for the benefit of Seller and may be waived only by Seller. Seller shall at all times have the right to waive any condition. Any such waiver or waivers shall be in writing and shall be delivered to Buyer and Escrow Holder. If any of the conditions in this Section 6.2 is not satisfied or has not been so waived by Seller prior to the Closing Date, Seller shall deliver written notice to Buyer describing the condition that has not been satisfied or waived, and if such condition remains unsatisfied as of the Closing Date, then Seller shall have the right to terminate this Agreement and the Escrow by written notice to Buyer and Escrow Holder. If Seller terminates this Agreement in accordance with the foregoing, the Deposit shall be returned to Buyer or paid over to Seller, as required by the terms of this Agreement, all documents deposited into Escrow shall be returned to the party depositing such documents, and neither party shall have any further rights or obligations under this Agreement, except for those rights or obligations which expressly survive the termination of this Agreement; provided, however, if the failure of such condition also constitutes a default of Buyer under this Agreement, then the provisions of Section 10(a) shall apply, and the Deposit shall be paid to

Seller as liquidated damages, rather than being returned to Buyer. Without limiting the foregoing, in the event of Buyer’s default, Seller’s termination of this Agreement pursuant to this Section 6.2 shall not constitute a waiver of Seller’s right to recover liquidated damages from Buyer pursuant to Section 10(a).


7.	CLOSING AND TRANSFER OF TITLE


7.1	Closing Date

Provided that all of the conditions precedent to the Closing have been satisfied or waived, the Closing shall be held, and delivery of all items to be made at the Closing under the terms of this Agreement shall be made, at the offices of Escrow Holder at 10:00 a.m. California time on June 9, 2016, or such earlier date and time as Buyer and Seller may mutually agree upon in writing (the “ Closing Date ”). Notwithstanding the foregoing, Seller shall have the right, by written notice to Buyer, (a) to extend the Closing Date to no later than the fifth (5th) day of the month following the date when the Closing Date would otherwise occur (or if such day is not a business day, to the next business day), and (b) to extend the Closing Date one or more times, but not for a period of longer than thirty (30) days in the aggregate, (i) if additional time is necessary for Seller to complete any Curative Action, or (ii) if the condition set forth in Section 6.1(c) has not been satisfied by the originally scheduled Closing Date. Buyer shall have the right to extend the Closing Date for a period of up to thirty (30) days in the aggregate provided that Buyer delivers written notice to Seller and Escrow Holder of the same no later than four (4) business days prior to the then-scheduled Closing Date and concurrently therewith Buyer deposits with Escrow Holder an additional deposit, in cash or by wire transfer of immediately available funds, in the amount of Eight Million and No/100 Dollars ($8,000,000.00) (the “ Extension Deposit ”), which shall be applied at the Closing to the payment of the Purchase Price. The Extension Deposit, once made, will be treated as part of the Deposit. No extension of the Closing Date by Buyer will be valid unless Buyer deposits the Extension Deposit with Escrow Holder on the same day that Buyer gives notice of its exercise of its right to extend the Closing Date.


7.2	Seller’s Deliveries

At the Closing, or at such later date as may be indicated below for any specific item, Seller shall deliver or cause to be delivered to Buyer through the Escrow or otherwise, each of the following instruments and documents, duly executed and acknowledged by Seller, as appropriate:

(a) One (1) original of a Grant Deed in the form attached hereto as Exhibit B (the “ Deed ”), subject only to the Permitted Exceptions.

(b) Four (4) originals of a Bill of Sale in the form attached hereto as Exhibit C .

(c) Fully executed originals (or copies thereof in the event the originals are not available) of all Leases (which may delivered within two (2) business days after the Closing) and, if not already delivered, originals of all tenant estoppel certificates (to the extent Seller has received originals), and four (4) originals of an Assignment and Assumption of Leases in the form attached hereto as Exhibit D .

(d) Fully executed originals (or copies thereof in the event the originals are not available) of all Miscellaneous Agreements (not including the Rejected Agreements) (which may be delivered within two (2) business days after the Closing), and four (4) originals of an Assignment and Assumption of Miscellaneous Agreements with respect thereto and with respect to any contracts that are being assigned to and assumed by Buyer in accordance with Section 5.1(a), 5.2(a) or 5.3 above, in the form attached hereto as Exhibit E .

(e) Originals (or, if originals are unavailable, copies), of all assignable Permits and Warranties (which may be delivered within two (2) business days after the Closing), unless the same are posted at the Property, and four (4) originals of an Assignment and Assumption of Permits, Intangible Property and Warranties with respect thereto in the form attached hereto as Exhibit F.

(f) Four (4) originals of a Seller’s Closing Certification, in the form attached hereto as Exhibit G .

(g) Any required real estate transfer tax declarations or any other similar documentation required to evidence the payment of any tax imposed by the state, county and city on the transaction contemplated hereby.

(h) Four (4) originals of an affidavit pursuant to Section 1445(b)(2) of the United States Internal Revenue Code (the “ Federal Code ”), and on which Buyer is entitled to rely, from Seller’s sole member that it is not a “foreign person” within the meaning of Section 1445(f)(3) of the Federal Code, in the form attached hereto as Exhibit H attached hereto (the “ FIRPTA Affidavit ”).

(i) Four (4) originals of a properly executed certificate (herein, a “ Qualifying Certificate ”) under Section 18662 of the California Revenue and Taxation Code (“ CALFIRPTA ”) certifying that Seller’s sole member is not an “individual” seller under CALFIRPTA and either (i) has a permanent place of business in California, or (ii) is qualified to do business in California or (iii) is exempt from the CALFIRPTA withholding requirements (if so, such certificate shall specify the applicable exemption).

(j) A Letter to Tenants in the form attached hereto as Exhibit J , advising of the sale of the Premises and the address to which future rent should be delivered (which will be delivered to the tenants by Seller or its property manager unless otherwise mutually agreed to by Seller and Buyer).

(k) A Notice to Vendors in the form attached hereto as Exhibit K (which may be delivered to the vendors by Seller or its property manager unless otherwise mutually agreed to by Seller and Buyer).

(l) To the extent in Seller’s possession or reasonable control, all keys and combinations to all locks on the Improvements.

(m) An owner’s statement in favor of the Title Company in the form attached hereto as Exhibit I .

(n) Such other customary documents and instruments as may be required by any other provision of this Agreement or as may reasonably be required to carry out the terms and intent of this Agreement; provided that Seller shall not be obligated to cause the delivery of any such instrument or document that would increase or expand Seller’s obligations or liability under this Agreement.

(o) Copies of all books, records, and files of Seller in Seller’s possession relating to the Premises and operations thereof, including Tenant files (excluding financial projections, appraisals, tax returns, loan documents, communications with investors in Seller, any books, records, documents or files related to the transaction contemplated hereby or any prior proposed sale of the Property, or any other proprietary items), and, to the extent in Seller’s possession or available to Seller at no material cost, architects’ drawings, blueprints and as‑built plans for the Improvements (all of which may be delivered within two (2) business days after the Closing).


7.3	Buyer’s Deliveries

At the Closing, Buyer shall deliver or cause to be delivered to Seller each of the following instruments and documents, duly executed and acknowledged by Buyer, as appropriate:

(a) Counterparts of the closing documents referenced in Sections 7.2(c), (d), (e), (g), (j) and (k) above.

(b) Four (4) originals of a Buyer’s Closing Certification, in the form attached hereto as Exhibit L .

(c) Such other documents and instruments as may be required by any other provision of this Agreement or as may reasonably be required to carry out the terms and intent of this Agreement; provided that Buyer shall not be obligated to cause the delivery of any such instrument or document that would increase or expand Buyer’s obligations or liability under this Agreement.


7.4	Possession of the Property

At the Closing, possession of the Property shall be delivered to Buyer, subject to the Permitted Exceptions.


8.	PRORATIONS AND ADJUSTMENTS


8.1	General

The following adjustments shall be made with respect to the Property, and the following procedures shall be followed:

(a) Preparation of Prorations . Before the Closing Date, Seller shall prepare and deliver, or cause Escrow Holder to prepare and deliver, to Buyer an unaudited statement for the Property (the “ Preliminary Proration Statement ”) showing prorations for the items set forth below, calculated as of 12:01 a.m. on the Closing Date, on the basis of a 365‑day year. Buyer and its representatives shall be afforded reasonable access to Seller’s books and records with respect to

the Property and Seller’s work papers pertaining to the Preliminary Proration Statement to confirm the accuracy of the Preliminary Proration Statement. Buyer and Seller shall agree upon any adjustments to be made to the Preliminary Proration Statement before the Closing, and at the Closing, Buyer or Seller, as applicable, shall receive a credit equal to the net amount due Buyer or Seller, as applicable, pursuant to the Preliminary Proration Statement as finally agreed upon by Buyer and Seller. The items to be covered by the Preliminary Proration Statement are as follows:

(i) collected rents, including reimbursements from Tenants for the cost of, or for increases (above a base amount) in the cost of, real estate taxes, parking, a marketing fund, operating expenses, maintenance, or other charges of a similar nature (“ Additional Rents ”), if any, percentage rents, and any additional charges and expenses payable under the Leases (but only to the extent collected before the Closing Date); provided that if any of the foregoing are not finally adjusted between the landlord and Tenant under any Lease until after the preparation of the Preliminary Proration Statement then proration of such items shall be subject to adjustment pursuant to Section 8.2 below;

(ii) any credit due Seller or Buyer for leasing commissions and Tenant Improvement Costs pursuant to Section 5.1(a), 5.2(a) or 5.3 above;

(iii) non-delinquent real property taxes and assessments; provided that if the real property tax assessment for the fiscal year in which the Closing occurs has not been issued as of the Closing Date, real property taxes shall be prorated based on the most recent assessed value of the Property, multiplied by the current tax rate, and such tax proration shall be subject to adjustment pursuant to subparagraph (e) of this Section 8.1;

(iv) the current installment (only) on any improvement bonds which are a lien on the Property; Buyer shall take the Property subject to all future installments of any improvement bonds;

(v) water, sewer and utility charges;

(vi) amounts payable under the Miscellaneous Agreements (not including the Rejected Agreements) (but without duplication of the amounts to be credited to Seller pursuant to subparagraph (ii) of this Section 8.1(a));

(vii) permits, licenses and/or inspection fees (calculated on the basis of the period covered), but only to the extent transferred to Buyer; and

(viii) any other expenses normal to the operation and maintenance of the Property.

(b) Collections and Payments . Subject to the prorations to be made pursuant to this Section 8, after the Closing Buyer shall collect all revenues and pay all expenses with respect to the Property, even if such revenues and expenses relate to periods before the Closing. If any Tenant sends payments to Seller after the Closing, Seller shall promptly forward such checks to Buyer. For a period of six (6) months after the Closing Date, Buyer shall use reasonable efforts consistent with prudent business practices (but without the obligation to institute legal action) to collect rents or other amounts payable under the Leases that were delinquent as of the Closing

Date or that relate to a period before the Closing. To the extent such delinquent rents and other amounts are collected by Buyer, Buyer may deduct from the amount owed to Seller an amount equal to the out-of-pocket third-party collection costs (including attorneys’ fees and costs) actually incurred by Buyer in collecting such rents and other amounts due to Seller. Subject to the foregoing sentence, any rent or other payment collected after the Closing from any Tenant which owed rent that was delinquent as of the Closing Date or that relates to any period prior to the Closing Date shall be applied first, to such Tenant’s unpaid monetary obligations under the applicable Lease with respect to any periods from and after the Closing Date through the end of the month in which such payment is made, in such order as Buyer may elect, until such monetary obligations have been paid in full; any remaining amount of such payment shall be paid over to Seller, for application against such Tenant’s unpaid monetary obligations under the applicable Lease with respect to any periods before the Closing Date, in such order as Seller may elect, until such unpaid monetary obligations have been paid in full; and any remaining amount of such payment shall be retained by Buyer for application against such Tenant’s future obligations under the applicable Lease. Prior to the Closing, Seller shall send to the Tenants final reconciliation of Additional Rents for the 2015 calendar year. If, as of the Closing, any Tenant owes payments to Seller pursuant to the reconciliation of Additional Rents for the 2015 calendar year, the same shall be handled in the manner provided for collection of delinquent rents as provided above in this Section 8.1(b). If, as of the Closing, Seller owes payments to any Tenant(s) pursuant to the reconciliation of Additional Rents for the 2015 calendar year, Seller shall provide a credit to Buyer for the total amount so owed, and Buyer shall assume the obligation to refund the amounts owing to the applicable Tenant(s) or to credit the same against the future rent obligations of such Tenant(s). From and after the Closing Date, Seller shall have no further right to collect any such rents and other sums from Tenants.

(c) Utility and Municipality Deposits . At Closing, Seller shall receive a credit in the amount of any utility, municipality or other deposits relating to the Property made by Seller and which are assigned to Buyer at the Closing. Seller shall be entitled to a refund of any deposits not assigned to Buyer.

(d) Security Deposits . At the Closing, Seller shall deliver to Buyer all prepaid rent, security deposits, letters of credit and other collateral actually received by Seller pursuant to any of the Leases, less any portions thereof applied in accordance with the respective Lease (together with a statement regarding such applications). With respect to any security deposit which is evidenced by a letter of credit, Seller shall (i) deliver to Buyer at Closing such original letter of credit, and (ii) execute and deliver at Closing such other instruments as the issuer of such letter of credit shall reasonably require in order to cause the named beneficiary under such letter of credit to be changed to Buyer.

(e) Post-Closing Adjustments . Notwithstanding anything to the contrary contained in this Section 8, (i) if the amount of the real property taxes and assessments payable with respect to the Property for any period before Closing is determined to be more than the amount of such real property taxes and assessments that is prorated herein (in the case of the current year) or that was paid by Seller (in the case of any prior year), due to a reassessment of the value of the Property or otherwise, Seller and Buyer shall promptly adjust the proration of such real property taxes and assessments after the determination of such amounts, and Seller shall pay to Buyer any increase in the amount of such real property taxes and assessments applicable to any period before

Closing and Buyer shall be responsible for payment of the same, even if the same are so-called “escaped assessments” which are not liens against the Property; provided, however, that Seller shall not be required to pay to Buyer any portion of such increase that is payable by Tenants under their respective Leases; and (ii) if the amount of the real property taxes and assessments payable with respect to the Property for any period before Closing is determined to be less than the amount of such real property taxes and assessments that is prorated herein (in the case of the current year) or that was paid by Seller (in the case of any prior year), due to an appeal of the taxes by Seller, a reassessment of the value of the Property or otherwise, Seller and Buyer shall promptly adjust the proration of such real property taxes and assessments after the determination of such amounts (net of any costs incurred by Seller in connection with pursuing any appeal thereof), and (A) Buyer shall pay to Seller any refund received by Buyer representing such a decrease in the amount of such real property taxes and assessments applicable to any period before Closing; provided, however, that Buyer shall not be required to pay to Seller any portion of such refund (other than a portion of such refund equal to the amount of all costs incurred by Seller in connection with pursuing any appeal thereof) which is payable to Tenants under their respective Leases; and (B) Seller shall be entitled to retain any refund received by Seller representing such a decrease in the amount of such real property taxes and assessments applicable to any period before Closing; provided, however, that Seller shall pay to Buyer that portion of any such refund, after first deducting any and all costs incurred by Seller in connection with pursuing such refund, that is payable to Tenants under their respective Leases. Each party shall give notice to the other party of any adjustment of the amount of the real property taxes and assessments payable with respect to the Property for any period before Closing within thirty (30) days after receiving notice of any such adjustment. Buyer acknowledges that Seller shall have the right to appeal real property tax assessments with respect to any tax year that includes any period prior to the Closing Date.


8.2	Post Closing Reconciliation

(a) Certain Delayed Prorations . If any Tenants are required to pay Additional Rents or percentage rents, then, with respect to those Additional Rents for the 2016 calendar year which are not finally adjusted between the landlord and Tenant under any Lease until after the preparation of the Preliminary Proration Statement pursuant to Section 8.1(a) above, and for those percentage rents which have not been finally determined for the 2016 calendar year (or other applicable fiscal year under any Lease for the measurement of percentage rents during which the Closing occurs), Buyer shall submit to Seller, no later than March 31, 2017, an unaudited statement for the Property (a “ Supplemental Proration Statement ”) covering any such Additional Rents or any other items which have been finally adjusted between Buyer and such Tenants for the 2016 calendar year (provided that if percentage rents are measured over a different fiscal year a separate Supplemental Proration Statement shall be delivered ninety (90) days after the end of such fiscal year), containing a calculation of the prorations of such Additional Rents and such other items, prepared based on the principles set forth in Section 8.1(a) above, provided that in making such adjustment, (i) with respect to Additional Rents, the proration shall be made in proportion to the relative amounts of Additional Rents due Buyer and Seller based on the amounts of the charges incurred by each of them during their respective periods of ownership that are payable by the Tenants as Additional Rents under their respective Leases, and (ii) with respect to percentage rents, the aggregate amount of percentage rents payable for the entire 2016 calendar year (or other applicable fiscal year under any Lease

for the measurement of percentage rents during which the Closing occurs), shall be prorated based on the number of days the Property is owned by Seller and the number of days the Property is owned by Buyer during such year. In order to enable Buyer to make any year-end reconciliations of Additional Rents with Tenants for the 2016 calendar year, following the Closing, Seller shall deliver to Buyer a final statement of (i) all operating expenses for the Property which are actually paid by Seller and permitted to be passed through to Tenants as Additional Rents pursuant to the terms of each Tenant’s respective Lease, with respect to the portion of the 2016 calendar year occurring prior to the Closing (“ Seller’s 2016 Actual Operating Expenses ”), together with copies of all documentation evidencing Seller’s 2016 Actual Operating Expenses, including copies of third-party invoices and copies of Seller’s books and records applicable thereto, and (ii) all estimated payments of Additional Rents received by Seller from Tenants with respect to the portion of the 2016 calendar year occurring prior to the Closing.

(b) Audit Rights for Supplemental Proration Statements . Seller and its representatives shall be afforded the opportunity to review all underlying financial records and work papers pertaining to the preparation of all Supplemental Proration Statements, and Buyer shall permit Seller and its representatives to have full access to the books and records in the possession of Buyer or any party to whom Buyer has given custody of the same relating to the Property to permit Seller to review the Supplemental Proration Statements. Any Supplemental Proration Statement prepared by Buyer shall be final and binding for purposes of this Agreement unless Seller shall give written notice to Buyer of disagreement with the prorations contained therein within sixty (60) days following Seller’s receipt of such Supplemental Proration Statement, specifying in reasonable detail the nature and extent of such disagreement. If Buyer and Seller are unable to resolve any disagreement with respect to any Supplemental Proration Statement within ten (10) business days following receipt by Buyer of the notice referred to above, either party may pursue any remedy available for the resolution of such dispute

(c) Payments for Adjustments . Any net credit due Seller or Buyer, as the case may be, shall be paid to Seller or Buyer, as the case may be, within seventy-five (75) days after the delivery of a Supplemental Proration Statement to Seller, unless Seller approves any such statement before the expiration of the applicable sixty (60) day period provided in Section 8.2(b) above, in which case such payment shall be made within fifteen (15) days after Seller notifies Buyer of such approval, or unless Seller notifies Buyer of a disagreement with respect to any such statement as provided in Section 8.2(b) above, in which case such payment (less a hold back sufficient to cover the amount of the disagreement) shall be made within fifteen (15) days after Seller notifies Buyer of such disagreement, and any further payment due after such disagreement is resolved shall be paid within fifteen (15) days after the resolution of such disagreement.


8.3	Survival

The obligations of Seller and Buyer under this Section 8 shall survive the Closing.


9.	RISK OF LOSS AND INSURANCE PROCEEDS


9.1	Minor Loss

Buyer shall be bound to purchase the Property for the full Purchase Price as required by the terms hereof, without regard to the occurrence or effect of any damage to the Property or destruction of any Improvements or condemnation of any portion of the Property, provided that: (a) the cost to repair any such damage or destruction does not exceed five percent (5%) of the Purchase Price or, in the case of a partial condemnation, the value of the portion taken does not exceed five percent (5%) of the Purchase Price of the Property, (b) no Lease with a Major Tenant would be terminated as a result of such damage or condemnation, (c) in the case of damage to the Property or destruction of the Improvements, applicable laws would permit the Improvements to be rebuilt with substantially the same square footage as exists prior to such damage or destruction, and (d) upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Property as a result of such casualty or condemnation; provided, however, with respect to the deductible under any policy of earthquake insurance, Seller shall have no obligation to give Buyer a credit in excess of Two Hundred Fifty Thousand Dollars ($250,000.00). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer at Closing, and Buyer shall receive a credit from Seller at Closing equal to the amount of the deductible under any policy of insurance pursuant to which such assigned proceeds will be paid; provided that if Seller shall have expended any sums before the Closing to repair or restore the Property, the amount expended by Seller shall first be deducted from any credit due Buyer for the deductible under any insurance policy, and if the amount expended by Seller exceeds the total amount of such deductible(s), Seller shall reserve from the assignment of insurance proceeds to Buyer, the amount of such excess. If damage due to an earthquake occurs and the cost to repair the damage exceeds Two Hundred Fifty Thousand Dollars ($250,000.00), then unless Seller notifies Buyer within twenty (20) days after the occurrence thereof that it will waive the Two Hundred Fifty Thousand Dollar ($250,000.00) limitation on the credit to Buyer, then such loss or damage shall be governed by Section 9.2.


9.2	Major Loss

If (a) the cost to repair such damage or destruction to Property exceeds five percent (5%) of the Purchase Price or, in the case of condemnation, if the value of the portion of the Property taken exceeds five percent (5%) of the Purchase Price of the Property, or in the case of damage due to an earthquake which, under the terms of Section 9.1 above, is to be governed by this Section 9.2, (b) any Lease with a Major Tenant would be terminated as a result of such damage or condemnation, or (c) in the case of damage to the Property or destruction of the Improvements, applicable laws would prohibit the Improvements to be rebuilt with substantially the same square footage as exists prior to such damage or destruction, then Buyer may, at its option to be exercised by written notice to Seller within twenty (20) days after Seller’s notice to Buyer of the occurrence of the damage or destruction or the commencement of condemnation proceedings, either (a) elect to terminate this Agreement, in which case the Deposit shall be refunded to Buyer, and neither party shall have any further obligations under this Agreement,

except for obligations which expressly state that they shall survive termination of this Agreement, or (b) consummate the purchase of the Property for the full Purchase Price as required by the terms hereof, subject to the credits against the Purchase Price provided below. If Buyer elects to proceed with the purchase of the Property, then, upon the Closing, Buyer shall be given a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Property as a result of such casualty or condemnation; provided, however, with respect to the deductible under any policy of earthquake insurance, Seller shall have no obligation to give Buyer a credit in excess of Twenty-Five Thousand Dollars ($25,000.00). If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Buyer at Closing, and Buyer shall receive a credit from Seller at Closing equal to the amount of the deductible under any policy of insurance pursuant to which such assigned proceeds will be paid; provided that if Seller shall have expended any sums before the Closing to repair or restore the Property, the amount expended by Seller shall first be deducted from any credit due Buyer for the deductible under any insurance policy, and if the amount expended by Seller exceeds the total amount of such deductible(s), Seller shall reserve from the assignment of insurance proceeds to Buyer, the amount of such excess. If Buyer fails to give Seller notice within such 20‑day period, then Buyer will be deemed to have elected to proceed in accordance with clause (b) above.


10.	DEFAULT

(a) Buyer’s Default . AFTER THE EXPIRATION OF THE INVESTIGATION PERIOD, IF THE CLOSING DOES NOT OCCUR AS A RESULT OF BUYER’S DEFAULT HEREUNDER, INCLUDING BUYER’S FAILURE TO TIMELY DELIVER THE ADDITIONAL DEPOSIT, PROVIDED SELLER IS NOT IN DEFAULT HEREUNDER, SELLER’S SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT BY GIVING WRITTEN NOTICE THEREOF TO BUYER, WHEREUPON THE DEPOSIT SHALL BE PAID TO SELLER AS LIQUIDATED DAMAGES, AS SELLER’S SOLE AND EXCLUSIVE REMEDY ON ACCOUNT OF SUCH DEFAULT HEREUNDER BY BUYER, AND NEITHER PARTY SHALL HAVE ANY FURTHER LIABILITY OR OBLIGATION TO THE OTHER HEREUNDER, EXCEPT FOR PROVISIONS OF THIS AGREEMENT WHICH EXPRESSLY STATE THAT THEY SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT THIS PROVISION WILL NOT LIMIT SELLER’S RIGHT TO RECEIVE REIMBURSEMENT FOR ATTORNEYS’ FEES PURSUANT TO SECTION 15.1 BELOW, NOR WAIVE OR AFFECT ANY PROVISIONS OF THIS AGREEMENT WHICH EXPRESSLY STATE THAT THEY SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT, NOR LIMIT BUYER’S LIABILITY TO SELLER FOR ANY BREACH BY BUYER OF THE ACCESS AGREEMENT. THE PARTIES ACKNOWLEDGE AND AGREE THAT SELLER’S ACTUAL DAMAGES IN THE EVENT OF BUYER’S DEFAULT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD INCUR IN SUCH EVENT. THE PAYMENT OF THE DEPOSIT TO SELLER AS LIQUIDATED DAMAGES UNDER THE CIRCUMSTANCES PROVIDED FOR HEREIN IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF SECTIONS 3275 OR 3369 OF THE CALIFORNIA CIVIL CODE, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO SECTIONS 1671, 1676 AND 1677 OF THE CALIFORNIA CIVIL CODE. BY PLACING THEIR

INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE, THE REASONABLENESS OF THE AMOUNT OF LIQUIDATED DAMAGES AGREED UPON, AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION.



INITIALS:	/s/ Authorized Signatory	/s/ Authorized Signatory
	Seller	Buyer

(b) Seller’s Default . If the Closing does not occur as a result of Seller’s default hereunder, then, provided Buyer is not in default hereunder, Buyer may, at its sole election, proceed with one of the following mutually exclusive alternatives:

(i) waive such default and proceed with the Closing with no reduction in the Purchase Price; provided, however, that this provision will not waive or affect any of Seller’s other obligations under this Agreement to be performed after the Closing with respect to any matter other than such default;

(ii) terminate this Agreement, whereupon the Deposit shall be returned and paid to Buyer, Seller shall reimburse Buyer for Buyer’s actual and demonstrable out of pocket costs and expenses incurred in connection with this Agreement and Buyer’s due diligence, including reasonable attorney’s fees (“ Buyer’s Out of Pocket Costs ”), up to a maximum amount of One Hundred Fifty Thousand Dollars ($150,000), and neither party shall have any further liability or obligation to the other hereunder, except for provisions of this Agreement which expressly state that they shall survive the termination of this Agreement; or

(iii) file in any court of competent jurisdiction an action for specific performance to cause Seller to convey the Property to Buyer pursuant to the terms and conditions of this Agreement; but Buyer shall not be entitled to recover monetary damages from Seller in connection with such default; provided, however, that this provision will not (x) limit Buyer’s right to recover monetary damages from Seller in the event the remedy of specific performance is not available due to the intentional act of Seller, (y) limit Buyer’s right to receive reimbursement for attorneys’ fees pursuant to Section 15.1 below, nor (z) waive or affect any of Seller’s other obligations under this Agreement to be performed after the Closing with respect to any matter other than such default.


11.	EXPENSES

(a) All documentary stamp taxes and transfer taxes shall be borne and paid by Seller, and all recording fees shall be borne and paid by Buyer.

(b) All Escrow and Closing costs charged by Escrow Holder, and any investment charges or escrow fees incurred with respect to the Escrow shall be borne and paid by Buyer.

(c) The cost of the Title Policy (including the cost of ALTA extended coverage and the cost of any endorsements) shall be paid by Buyer.

(d) Buyer shall pay its due diligence expenses (including, but not limited to, the cost of any updated survey obtained by Buyer pursuant to Section 3.1(a) above), and each party shall pay its own attorneys’ fees in connection with the negotiation, documentation and consummation of the transactions contemplated hereunder. Each party shall pay its own costs of preparing and/or reviewing the Preliminary Proration Statement and any Supplemental Proration Statement in connection with this Agreement. The provisions of this Section 11(d) shall survive any termination of this Agreement.

(e) Other costs, charges, and expenses shall be borne and paid as provided in this Agreement, or in the absence of such provision, in accordance with the custom in the county where the Premises are located.


12.	BROKERS

(a) Seller represents to Buyer, and Buyer represents to Seller that (except for Eastdil Secured Broker Services, Inc. (“ Broker ”), whose commission will be paid by Seller pursuant to the terms of a separate agreement between Broker and Seller), there is no broker, finder, or intermediary of any kind with whom such party has dealt in connection with this transaction.

(b) Seller agrees to indemnify and hold harmless Buyer, the partners, members, trustees, shareholders, directors and officers of Buyer, any party owning a direct or indirect interest in Buyer, the affiliates of Buyer, and the partners, members, trustees, shareholders, directors, officers, employees and agents of each of the foregoing parties (the “ Buyer-Related Parties ”), from and against all claims, demands, causes of action, judgments, and liabilities which may be asserted or recovered for brokerage or finders fees, commissions, or other compensation in connection with the transaction contemplated under this Agreement claimed by any party other than Broker to be owing to such party due to any dealings between Seller and the party claiming such fee, commission or compensation, including costs and reasonable attorneys’ fees incident thereto. Buyer agrees to indemnify and hold harmless the Seller-Related Parties, from and against all claims, demands, causes of action, judgments, and liabilities which may be asserted or recovered for brokerage or finders fees, commissions, or other compensation in connection with the transaction contemplated under this Agreement claimed by any party other than Broker to be owing to such party due to any dealings between Buyer and the party claiming such fee, commission or compensation, including costs and reasonable attorneys’ fees incident thereto. The parties hereto agree that the foregoing obligations of indemnification shall survive the Closing hereunder or the expiration or termination of this Agreement, however caused.


13.	ASSIGNMENT

The party originally identified as Buyer herein (“ Original Buyer ”) may, not later than ten (10) days before the Closing and upon written notice to Seller, assign its right to purchase the Property hereunder to any other entity that is (and as of the Closing shall continue to be) (i) a real estate investment trust (“ REIT ”) (or that is wholly owned directly or indirectly by a REIT) for which Original Buyer or an affiliate of Original Buyer acts as the investment advisor, or any other entity with which Original Buyer or an affiliate of Original Buyer has an investment or advisory relationship, and (ii) not a Prohibited Person, provided that such entity shall assume all obligations of Buyer hereunder in a written agreement reasonably acceptable to Seller, including,

specifically, reaffirmation of the release set forth in Section 4.2 above. Except in compliance with the preceding sentence, Buyer may not assign this Agreement to any other party without Seller’s prior written consent, which consent may be granted, conditioned or denied in Seller’s sole and absolute discretion. Notwithstanding anything herein to the contrary, Buyer shall not in any event be released from any of its obligations or liabilities hereunder in the event of any assignment by Buyer, including, but not limited to, any obligations which survive the Closing, whether contained in this Agreement or any document to be delivered by Buyer at the Closing, even if such document is signed by the assignee of Buyer only. Subject to the limitations described herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns.


14.	NOTICES

Any and all notices or other communications required or permitted to be given under this Agreement shall be in writing and either (i) personally delivered, in which case notice shall be deemed delivered upon receipt, (ii) sent by facsimile, in which case notice shall be deemed delivered upon the sender’s receipt of confirmation of transmission of such facsimile notice produced by the sender’s facsimile machine, (iii) sent by any nationally recognized overnight courier service with provisions for proof of delivery, in which case notice shall be deemed delivered on the next business day after the sender deposits the same with such delivery service, or (iv) sent by United States Mail, postage prepaid, certified mail, return receipt requested, in which case notice shall be deemed delivered on the date of delivery as shown on the return receipt or the date of the addressee’s refusal to accept delivery as indicated by the United States Postal Service, and in any case such notices or other communication shall be addressed to the following addresses:

Buyer: KBS Capital Advisors LLC

11150 Santa Monica Boulevard, Suite 400

Los Angeles, CA 90025

Attention: Michael Potter

Telephone: (424) 208-8104

Telecopy: (310) 432-2119

and KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attention: Brian Ragsdale

Telephone: (949) 797-0305

Facsimile: (949) 417-6501

and KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attention: James Chiboucas, Esq.

Telephone: (949) 797-0305

Facsimile: (949) 417-6501

with a copy to: Sheppard Mullin Richter & Hampton LLP

650 Town Center Drive, 4th Floor

Costa Mesa, CA 92626

Attention: Scott A. Morehouse, Esq.

Telephone: (714) 424-2865

Telecopy: (714) 424-5995

Seller: Pacific EIH Sacramento LLC

c/o Pacific Eagle Holdings Corporation

353 Sacramento Street, Suite 1788

San Francisco, California 94111

Attention: Mike Simons

Telephone: (415) 780‑7300

Telecopy: (415) 780‑7301

and a copy to: Shartsis Friese LLP

One Maritime Plaza, 18th Floor

San Francisco, California 94111

Attention: Craig B. Etlin

Telephone: (415) 773-7304

Telecopy: (415) 421-2922

Escrow Holder: Chicago Title Insurance Company

455 Market Street, Suite 2100

San Francisco, California 94105

Attention: Terina Kung

Telephone: (415) 291-5128

Telecopy: (415) 896-9423

Either party may change its address for notice from time to time by notice to the other party in writing to the other in the manner aforesaid; provided that any such notice of change of address shall only be effective upon actual receipt by the other party.


15.	MISCELLANEOUS


15.1	Attorneys’ Fees

In the event of any litigation between the parties with respect to the Property, this Agreement, the Escrow, the performance of their obligations hereunder or the effect of a termination under this Agreement, the losing party shall pay all costs and expenses incurred by the prevailing party in connection with such litigation including, without limitation, reasonable attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment. Notwithstanding any provisions of

this Agreement to the contrary, the obligations of the parties under this Section 15.1 shall survive any termination of this Agreement and the Closing.


15.2	Gender

Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.


15.3	Captions

The captions in this Agreement are inserted only for the purpose of convenient reference and in no way define, limit or prescribe the scope or intent of this Agreement or any part hereof.


15.4	Construction

(a) No provision of this Agreement shall be construed by any Court or other judicial authority against any party hereto by reason of such party’s being deemed to have drafted or structured such provisions.

(b) As used herein, the terms “include,” “including” and similar terms shall be construed as if followed by the phrase “but not limited to.” The terms “hereof,” “herein” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement as a whole, and not to any particular article or provision, except as expressly so stated.

(c) It is the intent of the parties that all indemnification obligations of the either party set forth in this Agreement shall apply without regard to whether or not (i) the indemnifying party is negligent or otherwise at fault in any respect with regard to the existence or occurrence of any of the matters covered by any such indemnification obligation, or (ii) the indemnifying party otherwise caused or created, or is claimed to have caused or created, the existence or occurrence of any of the matters covered by any such indemnification obligation, whether through its own acts or omissions or otherwise.


15.5	Business Days; Deadlines

As used in this Agreement and any document executed by any party hereto to another party hereto at the Closing, the term “business days” means all days of the year except Saturdays, Sundays, and holidays recognized by the Federal Reserve Bank of San Francisco. If a deadline provided in this Agreement or any document executed by any party hereto to another party hereto at the Closing falls on a day other than a business day, such deadline shall be extended until the first business day thereafter.


15.6	Entire Agreement

This written Agreement, including all Schedules and Exhibits attached hereto, the Access Agreement and the documents to be delivered pursuant hereto, shall constitute the entire agreement and understanding of the parties, and there are no other prior or contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not contained or

merged herein. The Schedules and Exhibits attached hereto are hereby incorporated in and made part of this Agreement.


15.7	Recording

The parties agree that this Agreement shall not be recorded except for recordation of a lis pendens as may be required to maintain an action for specific performance. Subject to the foregoing, if Buyer causes this Agreement or any notice or memorandum thereof to be recorded, this Agreement shall be null and void at the option of Seller.


15.8	No Continuance

Buyer acknowledges that there shall be no assignment, transfer or continuance of Seller’s insurance coverage after the Closing.


15.9	Time of Essence

Time is of the essence of this Agreement. In the computation of any period of time provided for in this Agreement or by law, the day of the act or event from which said period of time runs shall be excluded, and the last day of such period shall be included, unless it is not a business day, in which case the period shall be deemed to run until the next day which is a business day.


15.10	Original Document

This Agreement may be executed by all parties in counterparts in which event each shall be deemed an original, and all of which shall constitute one and the same agreement.


15.11	Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of California.


15.12	Acceptance of Offer

In the event this Agreement is executed only by Buyer or Seller, this Agreement shall be regarded only as an offer to purchase or sell, as applicable, and shall not obligate either Buyer or Seller until this offer is accepted by execution hereof by the other party (the “ Second Party ”) and delivered to the party that first executed this Agreement (the “ First Party ”). If the Second Party has not accepted this offer and delivered a fully executed copy of this Agreement to the First Party within five (5) business days after its submission by the First Party, this offer shall be of no force or effect.


15.13	Confidentiality

Buyer and Seller shall each maintain as confidential the terms of this Agreement (including the Purchase Price) and any and all material or information about the other, and, in the case of Buyer and its agents, employees, consultants and contractors, about the Property, and shall not

disclose such terms or information to any third party, except, in the case of information about the Property, to Buyer’s lender or prospective lenders, equity investors or prospective equity investors, insurance and reinsurance firms, attorneys, and environmental assessment firms, as may be reasonably required for the consummation of the transaction contemplated hereunder and/or as required by law; provided that Buyer shall inform such parties as to the confidentiality of such materials and information and use all reasonable efforts to cause such parties to abide by the confidentiality provisions of this Agreement. To the extent permitted by applicable law, Buyer shall notify Seller, by facsimile, with a copy by regular mail, at least three (3) business days before Buyer or Buyer’s agents, employees or contractors make any disclosure that such party believes is required by law; provided that, if a court order of a court of law with appropriate jurisdiction requires disclosure within a period of less than three (3) business days, Buyer shall notify Seller by facsimile immediately upon receipt of such order, and no such advance notice shall be required for any disclosure pursuant to subparagraph (b) below. Further, Buyer agrees not to use or to allow to be used any such information for any purpose other than to determine whether to proceed with the contemplated purchase or to obtain a loan in connection therewith or to obtain insurance. This provision shall survive the Closing or any termination of this Agreement, provided that Buyer shall not be obligated to maintain as confidential any material about the Property after the Closing. However, after Closing, Buyer may make a public disclosures mentioning Seller or regarding the provisions of this Agreement (other than the financial terms thereof) or the transaction accomplished at Closing without the prior written consent of Seller. If the purchase and sale of the Property pursuant hereto does not close for any reason other than Seller’s default, upon Seller’s written request Buyer shall return to Seller (without representation or warranty of any kind) all third party agreements, documents, studies, reports and other materials pertaining to the Property (excluding only market and feasibility studies) and either delivered by Seller or Seller’s agents to Buyer pursuant hereto, or obtained by or on behalf of Buyer during Buyer’s investigation of the Property, provided that Buyer shall be permitted to retain copies of such materials to the extent required to comply with applicable law or Buyer’s internal record retention policies. Notwithstanding anything herein to the contrary:

(a) Each party shall have the right to disclose information relating to the Property to its partners and their direct and indirect owners, and their respective officers, employees, directors and representatives, and the provisions of this Section 15.13 shall in no event apply to information which is or becomes generally available to the public other than as a result of disclosure by such party.

(b) Nothing contained herein shall impair Buyer’s (or its permitted assignee’s) right to disclose information relating to this Agreement or the Property to the extent required in connection with any filing (including any amendment or supplement to any S-11 filing) with governmental agencies (including the SEC) by any REIT holding an interest (direct or indirect) in any permitted assignee of Buyer.

(c) Once Buyer has delivered the Approval Notice to Seller and has paid the Additional Deposit to Escrow Holder, Buyer shall be permitted to disclose information relating to this Agreement or the Property to (i) any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers and/or broker dealers evaluating Buyer or its permitted assignee, or (ii) any broker/dealers in the REIT’s broker/dealer network and any of the REIT’s investors.

(d) Nothing herein shall impair the right of Seller or any party that owns a direct or indirect interest in Seller to disclose information relating to this Agreement as required by any regulatory or supervisory agency or authority with competent jurisdiction over Seller or such Party, including, but not limited to, the listing rules of The Stock Exchange of Hong Kong Limited.


15.14	Amendment

This Agreement may be amended or modified only by a written agreement subsequently executed by Buyer and Seller.


15.15	Waiver

No waiver of any provision or condition of this Agreement by any party shall be valid unless in writing signed by such party. No such waiver shall be taken as a waiver of any other or similar provision or of any future event, act, or default.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.



BUYER:	KBS CAPITAL ADVISORS LLC,
	a Delaware limited liability company

	By:	/s/ Brian Ragsdale
	Name:	Brian Ragsdale
	Title:	EVP

	Date signed:		April 27, 2016

SELLER:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:	/s/ Lam Kin Kwok
	Name:	Lam Kin Kwok
	Title:	Authorized Person

	Date signed:		April 28, 2016

SCHEDULE 1.1

DESCRIPTION OF THE LAND

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF SAN FRANCISCO, COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:

PARCEL 1:

BEGINNING AT THE POINT OF INTERSECTION OF THE EASTERLY LINE OF BATTERY STREET WITH THE NORTHERLY LINE OF HALLECK STREET; RUNNING THENCE NORTHERLY ALONG SAID LINE OF BATTERY STREET 81 FEET AND 8 INCHES; THENCE AT ARIGHT ANGLE EASTERLY 102 FEET AND 6 INCHES; THENCE AT A RIGHT ANGLE NORTHERLY 45 FEET AND 10 INCHES TO THE SOUTHERLY LINE OF SACRAMENTO STREET; THENCE EASTERLY ALONG SAID LINE OF SACRAMENTO STREET 35 FEET; THENCE AT A RIGHT ANGLE SOUTHERLY 127 FEET AND 6 INCHES TO THE NORTHERLY LINE OF HALLECK STREET; AND THENCE AT A RIGHT ANGLE WESTERLY ALONG SAID LINE OF HALLECK STREET 137 FEET AND 6 INCHES TO THE POINT OF BEGINNING.

BEING PART OF 50 VARA BLOCK NO. 23.

APN: LOT 014, BLOCK 0237

PARCEL 2:

BEGINNING AT THE POINT OF INTERSECTION OF THE SOUTHERLY LINE OF SACRAMENTO STREET AND THE EASTERLY LINE OF BATTERY STREET; RUNNING THENCE SOUTHERLY ALONG SAID LINE OF BATTERY STREET 45 FEET AND 10 INCHES; THENCE AT A RIGHT ANGLE EASTERLY 45 FEET AND 10 INCHES; THENCE AT A RIGHT ANGLE NORTHERLY 45 FEET AND 10 INCHES TO THE SOUTHERLY LINE OF SACRAMENTO STREET; THENCE AT A RIGHT ANGLE WESTERLY ALONG SAID LINE OF SACRAMENTO STREET 45 FEET AND 10 INCHES TO THE POINT OF BEGINNING.

BEING A PORTION OF 50 VARA BLOCK NO. 23.

APN: LOT 015, BLOCK 0237

PARCEL 3:

BEGINNING AT A POINT ON THE SOUTHERLY LINE OF SACRAMENTO STREET, DISTANT THEREON 45 FEET AND 10 INCHES EASTERLY FROM THE EASTERLY LINE OF BATTERY STREET; RUNNING THENCE EASTERLY AND ALONG SAID LINE OF SACRAMENTO STREET 56 FEET AND 8 INCHES; THENCE AT A RIGHT ANGLE SOUTHERLY 45 FEET AND 10 INCHES; THENCE AT A RIGHT ANGLE WESTERLY 56

Schedule 1.1, Page 1

FEET AND 8 INCHES; THENCE AT A RIGHT ANGLE NORTHERLY 45 FEET AND 10 INCHES TO THE POINT OF BEGINNING.

BEING A PART OF 50 VARA BLOCK NO. 23.

APN: LOT 016, BLOCK 0237

Schedule 1.1, Page 2

SCHEDULE 3.1(i)

3-14 AUDIT DOCUMENTS

General


•	Property operating statements for the most recent full calendar year (2015) and for the current year to date with break out in quarterly intervals.


•	Trial balances at the end of the most recent full calendar year (12/31/15) and as of the current date.


•	General ledger for the most recent full calendar year and for the current year to date (should include activity for entire year).


•	Property bank statements and reconciliations as of 12/31/15, 1/31/16 and 2/29/16

Revenues

Access to the following for all revenues for the most recent full calendar year and for the current year to date:


•	Lease agreements including any leases which have expired or were terminated in 2015


•	Rent rolls as of 12/31/14 and 12/31/15


•	Detailed tenant ledger for the latest full calendar year and current year


•	Access to billing invoices and tenant cash receipts for specific tenants (selections to be provided)

Supporting documents and schedules for other revenues ( i.e. , parking income), if applicable, for the most recent full calendar year and for the current year to date.

Expenses

Access to the following for all expenses for the most recent full calendar year and for the current year to date:


•	Invoices and check copies (selections to be provided)


•	Check registers


•	Agreements with Contractors (specific agreements to be requested)

Reimbursable Expenses

Access to the following for the most recent full calendar year and for the current year to date:


•	CAM calculation to support monthly billings.


•	Year-end CAM reconciliation.

Post-closing

Final operating statement, trial balance and general ledger for the current year from January 1 through the date of sale.

Schedule 3.1(i)

SCHEDULE 3.5

SCERTAIN MISCELLANEOUS AGREEMENTS



Vendor	Document Type	Dated	Comments
ABM Janitorial Services, Inc.	Service Contractor Agreement	February 24, 2009	Janitorial and Day Porter Services
Able Engineering Services	Service Contractor Agreement	October 3, 2005	Engineering Services
DFS Commercial, Inc.	Service Contractor Agreement	August 1, 2006	Interior Carpet Cleaning
Ricoh USA, Inc.	Image Management Plus Agreement	July 14, 2014	Copier Agreement
Otis Elevator Company	Service Contractor Agreement	February 26, 2009	Elevator Maintenance
Capitol Communications	Service Contractor Agreement	May 23, 2003	Riser Management
Professional Technical Security Services, Inc.	Service Contractor Agreement	February 27, 2006	Building Security Services
Stuart Dean Co., Inc.	Service Contractor Agreement	March 15, 2006	Lobby Marble Maintenance
Ambius	Service Contractor Agreement	April 27, 2012	Interior Plant Care
TriSignal Integration, Inc.	Service Contractor Agreement	May 1, 2015	Testing and Inspecting Services
Terminix/Rose Exterminator Company	Service Contractor Agreement	July 1, 1998	Pest Control Services
Megapath	Service Agreement	July 22, 2013	Conference Room WiFi
Huntsman	Architectural Services Agreement	November 10, 2006	Architectural Services

Schedule 3.5, Page 1



Vendor	Document Type	Dated	Comments
Garratt Callahan	Service Contractor Agreement	July 1, 2015	Water treatment analysis/program
Valley Power Systems	Service Contractor Agreement	January 14, 2016	Annual Testing of Diesel Generator and Fire Pump
ACCO Engineering Systems	Service Contractor Agreement	January 14, 2016	Annual Preventative Maintenance on HVAC System

Schedule 3.5, Page 2

SCHEDULE 4.3(g)

LIST OF LEASES



Suite No.	Tenant	Date of Lease	Amendments
280B	Sterling M. Enterprises dba Lee's Deli	May 6, 2011
290B	Patrick & Company	June 12, 1997	1st - Jan. 27, 1998 2nd - April 30, 2002 3rd - May 8, 2003 4th - June 11, 2004 5th - June 25, 2007
292B	Wells Fargo Bank, N.A.	January 17, 1984	1st - April 15, 1984 2nd - Oct. 12, 1993 3rd - June 25, 1999 4th - April 14, 2004 5th - June 17, 2008
383S	Drs. Hall & Szeto	April 6, 2000	1st - January 29, 2010
200	Landmark Education	May 28, 1993	1st - Jan. 20, 1998 2nd - March 12, 2003 3rd - Feb. 22, 2005 4th - July 28, 2005 5th - Sept. 19, 2007 6th - Sept. 7, 2012 7th - July 10, 2013
300	Medicines360, Inc. to be relocated here (See Suite 900)
360	Xerox Corp.	September 22, 2014
400	Telerep, Incorporated	May 12, 2000	1st - June 7, 2007 2nd - Nov. 3, 2011
420	Berry, Appleman & Leiden LLP	July 15, 1997	1st - Sept. 23, 1998 2nd - Dec. 6, 1999 3rd - Jan. 24, 2001 4th - May 1, 2003 5th - Dec. 19, 2003 6th - April 27, 2007 7th - April 3, 2009 8th - Sept. 20, 2010 9th - June 14, 2012 10th - Dec. 12, 2014
500	Harper Collins	November 29, 2000	1st - June 11, 2007 2nd - Dec. 14, 2012

Schedule 4.3(g), Page 1



Suite No.	Tenant	Date of Lease	Amendments
560	Software Management Consultants, Inc. (SMCI)	November 4, 2009	1st - July 12, 2013
600	Liberty Mutual	June 26, 2008	1st - June 13, 2013
700	Available Space
740	Imprint Capital	May 8, 2009	1st - March 28, 2011
800	Buck Consultants	October 24, 2012	1st - Sept. 2014
900	Medicines360, Inc.	August 29, 2011	1st - March 22, 2016
1000	Bay Area Council	January 21, 2013
1060	Building Conference Center
1120	Available Space
1140	Valinoti And Dito, LLP	December 22, 2011
1160	Pacific Eagle Holdings - Building Office
1200	Berry Appleman & Leiden LLP	See Suite 420
1300	Berry Appleman & Leiden LLP	See Suite 420
1360	Berry Appleman & Leiden LLP	See Suite 420
1400	Berry Appleman & Leiden LLP	See Suite 420
1500	Pentaho Corporation	March 5, 2013	1st - Aug. 21, 2015
1600	Carlson, Calladine & Peterson, LLP	March 5, 2004	1st - April 13, 2005 2nd - April 1, 2010 3rd - June 28, 2010
1700	Beecher Carlson Insurance	October 9, 2007	1st - May 9, 2012 2nd - Nov. 25, 2013
1740	Carlson, Calladine & Peterson, LLP	See Suite 1600
1788	Pacific Eagle Holdings Corporation	June 1, 2014
1800	Premier Staffing, Inc.	November 14, 2014
1900	Black & Veatch	April 1, 2013
2000	Levin Simes, LLP	September 6, 2011
2100	Hoffman Lewis (dba H/L Partners)	September 30, 2013

Schedule 4.3(g), Page 2



Suite No.	Tenant	Date of Lease	Amendments
2200	Available Space
2300	Ameriprise Holdings, Inc.	July 17, 2013
Roof	New Cingular Wireless PCS, LLC (AT&T)	June 2, 1986	1st - July 17, 1987 2nd - March 25, 1991 3rd - Feb. 11, 2002 4th - March 6, 2007 5th - April 15, 2008

Schedule 4.3(g), Page 3

SCHEDULE 5.3

CERTAIN LEASES UNDER WHICH SELLER WILL PAY LEASING COSTS


1.	Tenant Improvement Costs and leasing commissions payable pursuant to Lease amendment for the relocation of the premises leased by Medicines360, Inc. to Suite 300 of the Improvements, and extension of the term for five (5) additional years, commencing on October 1, 2016.


2.	Tenant Improvement Costs and leasing commissions payable pursuant to Carlson, Calladine & Peterson letter of intent for extension for Suites 1600, 1700, 1740, 1780B, 1780C.

Schedule 5.3, Page 1

EXHIBIT A

ESTOPPEL CERTIFICATE

The undersigned, ____________________, a _______________, is the Tenant of a portion of the real property commonly known as 353 Sacramento Street, San Francisco, California (the “ Property ”), and hereby certifies to PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Landlord ”), to ____________________, a _______________, or its assignee or nominee (“ Buyer ”), and to any lender (“ Lender ”) making a loan to Buyer to be secured, in whole or in part, by the Property, the following:

1. That there is presently in full force and effect a lease (as modified, assigned, supplemented and/or amended as set forth in Paragraph 2 below, the “ Lease ”) dated as of __________, 20___ between the undersigned and ____________________, covering approximately _____ square feet of the Property (the “ Leased Premises ”).

2. That the Lease has not been modified, assigned, supplemented or amended except as set forth on Schedule 1 attached hereto. [ Note: Schedule 1 to be attached with a listing of all Leases amendments or to state “None”]

3. That the Lease represents the entire agreement between Landlord and the undersigned with respect to the Leased Premises.

4. That the commencement date under the Lease was __________, _____, the termination date of said Lease is __________, 20___.

5. That the present minimum monthly rent which the undersigned is paying under the Lease is $__________. Tenant has not made any payment of any rent more than thirty (30) days before the date the same is due.

6. The undersigned’s pro rata share of the entire property in which the Premises are located, for purposes of allocating operating expenses and real estate taxes is ____%. The undersigned is obligated to pay its pro rata share of (choose one/strike others):

Increases over base year 20___.

Increases over a stipulated amount per square foot: $____/sf.

All operating expenses and real estate taxes (net lease).

7. That the security deposit held by Landlord under the terms of the Lease is $__________ and Landlord holds no other deposit from Tenant for security or otherwise.

8. That the undersigned has accepted possession of the Premises and that, to the best of the undersigned’s knowledge, any improvements required to be made by Landlord to the Premises by the terms of the Lease have been completed to the satisfaction of the undersigned.

9. That, to the best of the undersigned’s knowledge, the undersigned, as of the date set forth below, has no right or claim of deduction, charge, lien or offset against Landlord under the

A- 1

Lease or otherwise against the rents or other charges due or to become due pursuant to the terms of said Lease.

10. That, to the best of the undersigned’s knowledge, Landlord is not in default or breach of the Lease, nor has Landlord committed an act or failed to act in such a manner, which, with the passage of time or notice or both, would result in a default or breach of the Lease by Landlord.

11. That, to the best of the undersigned’s knowledge, the undersigned is not in default or in breach of the Lease, nor has the undersigned committed an act or failed to act in such a manner which, with the passage of time or notice or both, would result in a default or breach of the Lease by the undersigned.

12. The undersigned does not have any rights or options to purchase any portion of the real property upon which the Leased Premises are situated.

13. The undersigned hereby acknowledges that Buyer, or its nominee, intends to purchase the Property, that Landlord will assign its interest in the Lease to Buyer, or its nominee, in connection with such purchase, and that Buyer, or its nominee, and its lender is relying upon the representations contained herein in making such purchase.

14. That the undersigned is not the subject of any pending bankruptcy, insolvency, debtor’s relief, reorganization, receivership, or similar proceedings, nor the subject of a ruling with respect to any of the foregoing.

This Certificate shall be binding upon and inure to the benefit of the undersigned, Landlord, Buyer and Lender and their respective successors and assigns.

Dated: ____________, 2016



,
a

By:
Name:
Title:

A- 2

EXHIBIT B



RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: Attention: MAIL TAX STATEMENTS TO:

(Space above this line for Recorder’s use)

The undersigned Grantor declares:

Documentary transfer tax is $_________________________

ý Computed on full value of the interest or property conveyed, or

¨ Computed on full value less value of liens or encumbrances remaining at time of sale

¨ Unincorporated Area ý City of San Francisco

Parcel No.: ________________________________

GRANT DEED

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company, hereby grants to ____________________, a _______________, the real property located in the City and County of San Francisco, State of California, described on Exhibit A attached hereto and made a part hereof.

This Deed is made and accepted subject to the matters listed on Exhibit B attached hereto and made a part hereof.

Executed as of this _____ day of __________, 2016.



GRANTOR:		PACIFIC EIH SACRAMENTO LLC,
		a Delaware limited liability company


	By:
	Name:
	Title:

[ Attach acknowledgment ]

B- 1

B- 2

EXHIBIT C

BILL OF SALE

PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Grantor ”), for good and valuable consideration to Grantor in hand paid by ____________________, a _______________ (“ Grantee ”), the receipt and sufficiency of which is hereby acknowledged, does hereby sell and deliver to Grantee all of Grantor’s right, title and interest, if any, in and to the following:

All tangible personal property located on or used exclusively in connection with those certain premises known as 353 Sacramento Street, San Francisco, California and described on Exhibit A attached hereto (the “ Premises ”), including, but not limited to, furniture, fixtures, and equipment (the “ Personal Property ”).

The Personal Property is in a used condition, and Grantor is neither a manufacturer, nor distributor of, nor dealer nor merchant in, said Personal Property. Grantor makes no representations, express or implied, as to the condition or state of repair of the Personal Property, including warranties of fitness or merchantability, it being expressly understood that the Personal Property is being sold to Grantee in its present “AS IS, WHERE IS” condition and with all faults. By acceptance of delivery of the Personal Property, Grantee affirms that it has not relied on Grantor’s skill or judgment to select or furnish said Personal Property for any particular purpose, and that Grantor makes no warranty that said Personal Property is fit for any particular purpose and that there are no representations or warranties, express, implied or statutory, except that Grantor represents and warrants that Grantor has not previously sold or conveyed said Personal Property.

IN WITNESS WHEREOF, Grantor has executed this Bill of Sale as of the _____ day of __________, 2016.



GRANTOR:		PACIFIC EIH SACRAMENTO LLC,
		a Delaware limited liability company


	By:
	Name:
	Title:

C- 1

EXHIBIT D

ASSIGNMENT AND ASSUMPTION OF LEASES

THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this “ Assignment ”) is made as of this _____ day of __________, 2016, by PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Assignor ”), and ____________________, a _______________ (“ Assignee ”).

RECITALS:

A. Assignor and Assignee entered into that certain Purchase and Sale Agreement dated __________, 20___ (the “ Agreement ”), pursuant to which Assignor has agreed to sell to Assignee that certain office building commonly known as 353 Sacramento Street, San Francisco, California, and situated on the land legally described in Exhibit A attached hereto (the “ Premises ”).

B. Assignor or its predecessor-in-interest has previously entered into those certain leases with the tenants listed on Schedule 1 attached hereto and made a part hereof (the “ Leases ”).

C. Assignor presently holds security deposits from the tenants under the Leases in the amounts set forth in Schedule 2 attached hereto and made a part hereof (the “ Security Deposits ”).

D. Assignor and Assignee are delivering this Assignment pursuant to the terms of the Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:

1. Effective on the date of the conveyance of the Premises by Assignor to Assignee (the “ Conveyance Date ”), Assignor hereby transfers, assigns and sets over unto Assignee (i) the Leases, and (ii) the Security Deposits.

2. Assignee does hereby accept the foregoing assignment of Leases, and does hereby assume as of the Conveyance Date and become responsible for and agree to perform, discharge, fulfill and observe all of the obligations, covenants and conditions of the landlord with respect to the Leases which are to be performed on and after the Conveyance Date with the same force and effect as if Assignee were the original landlord thereunder.

3. The provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

D- 1

either party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.

5. This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which, taken together, shall be deemed one document. Assignor and Assignee agree that the delivery of an executed copy of this Assignment by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Assignment had been delivered.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be duly executed as of the day and year first above written.



GRANTOR:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

ASSIGNEE:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

D- 2

EXHIBIT E

ASSIGNMENT AND ASSUMPTION OF MISCELLANEOUS AGREEMENTS

THIS ASSIGNMENT AND ASSUMPTION OF MISCELLANEOUS AGREEMENTS (this “ Assignment ”) is made this _____ day of __________, 2016, by PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Assignor ”), and ____________________, a _______________ (“ Assignee ”).

R E C I T A L S :

A. Assignor and Assignee entered into that certain Purchase and Sale Agreement dated __________, 2016 (the “ Agreement ”), pursuant to which Assignor has agreed to sell to Assignee that certain office building commonly known as 353 Sacramento Street, San Francisco, California, and legally described on Exhibit A attached hereto (the “ Premises ”).

B. Assignor or its predecessor-in-interest has previously entered into those certain contracts with respect to the Premises, as more particularly described in Schedule 1 attached hereto and made a part hereof (the “ Miscellaneous Agreements ”).

C. Assignor and Assignee are delivering this Assignment pursuant to the terms of the Agreement.

1. Effective on the date of the conveyance of the Premises by Assignor to Assignee (the “ Conveyance Date ”), Assignor hereby transfers, assigns and sets over unto Assignee all of its right, title and interest, if any, in and to the Miscellaneous Agreements.

2. Assignee does hereby accept the foregoing assignment of Miscellaneous Agreements and does hereby assume as of the Conveyance Date and become responsible for and agree to perform, discharge, fulfill and observe all of the obligations, covenants and conditions of Assignor with respect to the Miscellaneous Agreements which are to be performed on and after the Conveyance Date (and before the Conveyance Date to the extent so provided in Section 5.1 or, 5.2 or 5.3 of the Agreement) with the same force and effect as if Assignee were party to the original Miscellaneous Agreements.

3. The provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

E- 1

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be duly executed as of the day and year first above written.



GRANTOR:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

ASSIGNEE:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

E- 2

EXHIBIT F

ASSIGNMENT AND ASSUMPTION OF
PERMITS, INTANGIBLE PROPERTY AND WARRANTIES

THIS ASSIGNMENT AND ASSUMPTION OF PERMITS, INTANGIBLE PROPERTY AND WARRANTIES (this “ Assignment ”) is made as of this _____ day of __________, 2016, by and between PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Assignor ”), and ____________________, a _______________ (“ Assignee ”).

R E C I T A L S :

A. Assignor and Assignee entered into that certain Purchase and Sale Agreement dated __________, 2016 (the “ Agreement ”), pursuant to which Assignor has agreed to sell to Assignee that certain office building commonly known as 353 Sacramento Street, San Francisco, California, and situated on the land legally described in Exhibit A attached hereto (the “ Premises ”).

B. Assignor and Assignee are delivering this Assignment pursuant to the terms of the Agreement.

1. Effective on the date of the conveyance of the Premises by Assignor to Assignee (the “ Conveyance Date ”), Assignor hereby transfers, assigns and sets over unto Assignee, without warranty as to transferability or as to Assignee’s rights to use the same, all of Assignor’s right, title and interest, if any, in and to:

(a) all assignable permits and licenses to extent the same pertain to the Premises (collectively, the “ Permits ”);

(b) all assignable trademarks and trade names, if any, and other intangible property used exclusively in connection with the occupancy and operation of the Premises (the “ Intangible Property ”); and

(c) all assignable warranties of any contractor, manufacturer or materialman which relate to the Improvements or the Personal Property (as such terms are defined in the Agreement) (the “ Warranties ”).

2. Assignee hereby accepts the foregoing assignment of the Permits, Intangible Property, and Warranties. Assignee does hereby assume and become responsible for and agree to perform, discharge, fulfill and observe all of the obligations, covenants and conditions of Assignor with respect to the Permits, whether performance is required on, after or before the Conveyance Date, and Assignor shall have no obligation or liability to Assignee for the performance, discharge, fulfillment or observation of the same, whether required on, after or before the Conveyance Date.

F- 1

3. The provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

4. In the event of any litigation between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the losing party shall pay all costs and expenses incurred by the prevailing party in connection with such litigation including, without limitation, reasonable attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be duly executed as of the day and year first above written.



GRANTOR:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

ASSIGNEE:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

F- 2

EXHIBIT G

SELLER’S CLOSING CERTIFICATION

Pursuant to Section 4.5 of that certain Purchase and Sale Agreement (the “ Agreement ”) dated as of __________, 2016, between PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Seller ”), and ____________________, a _______________ (“ Buyer ”), Seller hereby certifies to Buyer that all representations and warranties of Seller contained in Section 4.3 of the Agreement are true, correct and complete as of the date hereof.

Dated as of __________, 2016.



SELLER:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

G- 1

EXHIBIT H

FIRPTA AFFIDAVIT

CERTIFICATE OF TRANSFEROR OTHER
THAN AN INDIVIDUAL

Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform ____________________, a _______________ (“ Transferee ”), the transferee of certain real property located in the City and County of San Francisco, State of California, commonly known as 353 Sacramento Street, that withholding of tax is not required upon the disposition of such U.S. real property interest by PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company, of which PACIFIC EAGLE (US) REAL ESTATE FUND, L.P., a Delaware limited partnership (“ Transferor ”), is the sole member, the undersigned hereby certifies the following on behalf of Transferor:

1. Transferor is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

2. Transferor is not a disregarded entity as defined in Income Tax Regulations §1.1445‑2(b)(2)(iii);

3. Transferor’s U.S. employer identification number is __________; and

4. Transferor’s office address is c/o Pacific Eagle Holdings Corporation, 353 Sacramento Street, Suite 1788, San Francisco, California 94111.

Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

H- 1

Under penalty of perjury, I declare that I have examined this certificate and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

Dated as of __________, 2016.



TRANSFEROR:	PACIFIC EAGLE (US) REAL ESTATE FUND, L.P.,
	a Delaware limited liability company

	By:	Pacific Eagle China Orient (US) Real Estate GP, LLC,
		a Delaware limited liability company,
		its General Partner


		By:
		Name:
		Title:

NOTICE TO TRANSFEREE (BUYER): You are required by law to retain this Certificate until the end of the fifth tax year following the tax year in which the transfer takes place and make the Certificate available to the Internal Revenue Service if requested to do so during that period.

H- 2

EXHIBIT I

OWNER’S STATEMENT

ALTA EXTENDED COVERAGE OWNER'S STATEMENT

Escrow No. 160360276

Title Order No. FWPN- TO16000355-JM

The undersigned, PACIFIC EIH SACRAMENTO LLC, intending to be legally bound, does hereby certify as follows:


1.	The undersigned has reviewed Report No. FWPN-TO16000355-JM dated March 18, 2016 at 07:30 AM [ to be updated, if applicable ].


2.	That there are no leases or agreements (recorded or unrecorded) affecting the Property, or other parties in possession, except as shown on the attached Exhibit A. As to those items set forth on Exhibit A, there are no options to purchase or rights of first refusal to purchase contained in the respective leases and/or agreements other than specifically indicated on Exhibit A.

(Exhibit A attached __ X__ Yes _____No)


3.	That the undersigned knows of no unrecorded claims against the property, nor any set of facts by reason of which title to the property might be disputed or questioned, and has been in peaceable and undisputed possession of the premises since title was acquired.

That there has not been any construction, repairs, alterations or improvements made, ordered or contracted to be made on or to the premises, nor materials ordered therefor within the last six months which has not been paid for; nor are there any fixtures attached to the premises which have not been paid for in full; that there are no outstanding or disputed claims for any such work or item; and that there have not been any improvements erected upon the property during the current year subject to any taxes for the current year which may hereafter be assessed or levied by virtue of new construction completed or partially completed during the current year except as shown on attached Exhibit B.

(Exhibit B attached __ _ __ Yes _____ No)


5.	That to the best of the knowledge of the undersigned there has been no violation of any covenants, conditions or restrictions of record affecting the premises and that there are no disputes with any adjoining property owners as to the location of property lines, or the encroachment of any improvements, except as may be shown on the survey previously delivered to Chicago Title Insurance Company.

I- 1

This statement is made for the purpose of aiding Chicago Title Insurance Company in determining the insurability of title to the property, and to induce said Company to issue its policies of title insurance and the undersigned avers the foregoing statements are true and correct to the best of its knowledge and belief.

I understand that the Title Insurance Company is relying on the representations contained herein in insuring same, and would not insure same, unless said representations were made.

EXECUTED this ______ day of __________, 2016.



PACIFIC EIH SACRAMENTO LLC,
a Delaware limited liability company

By:
Name:
Title:

Address: Pacific EIH Sacramento LLC
c/o Pacific Eagle Holdings Corporation

353 Sacramento Street, Suite 1788

San Francisco, California 94111

Phone: (415) 780-7300

I- 2

EXHIBIT J

LETTER TO TENANTS

__________, 2016


Re:	Sale of 353 Sacramento Street, San Francisco, California

Dear Tenant:

Please be advised that as of [ Closing Date ], PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Seller ”), the owner of the office building commonly known as 353 Sacramento Street, San Francisco, California, has sold its interest therein to ____________________, a _______________ (“ Buyer ”).

Buyer has assumed all of the obligations of the landlord under your lease from this day forward, including any obligation to return your security deposit in accordance with the provisions of your lease.

Unless and until you are otherwise notified in writing by Buyer, the address of Buyer for all purposes under your Lease (including the payment of rent and the giving of any notices provided for in your Lease) is attached hereto as Schedule 1 .

Your security deposit, if any, under the Lease has been transferred to Buyer.



SELLER:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

BUYER:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

J- 1

SCHEDULE 1

BUYER’S NOTICE



For All Notices:


	Attention:
	Telephone:
	Telecopy:

With a copy to:
	c/o [Property Manager]


	Attention:	Property Manger
	Telephone:
	Telecopy:

Payment Address:


	Attention:
	Telephone:
	Telecopy:

J- 2

EXHIBIT K

NOTICE TO VENDORS

__________, 2016


Re:	Sale of 353 Sacramento Street, San Francisco, California (the “ Premises ”)

Dear Vendor:

Please be advised that the Premises have this day been conveyed and your service contract has been assigned from PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Prior Owner ”), to ____________________, a _______________ (“ New Owner ”).

Until further notice, all correspondence, notices and invoices shall be directed to the New Owner at the following address:



PRIOR OWNER:	PACIFIC EIH SACRAMENTO LLC,
	a Delaware limited liability company

	By:
	Name:
	Title:

NEW OWNER:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

K- 1

EXHIBIT L

BUYER’S CLOSING CERTIFICATION

Pursuant to Section 4.7 of that certain Purchase and Sale Agreement (the “ Agreement ”) dated as of __________, 2016, between PACIFIC EIH SACRAMENTO LLC, a Delaware limited liability company (“ Seller ”), and ____________________, a _______________ (“ Buyer ”), Buyer hereby certifies to Seller that all representations and warranties of Buyer contained in Section 4.6 of the Agreement are true, correct and complete as of the date hereof.

Dated: __________, 2016.



BUYER:
	a	,

	By:
		a
		its

		By:
		Name:
		Title:

L- 1

ASSIGNMENT AND ASSUMPTION OF PURCHASE AGREEMENT

This Assignment and Assumption of Purchase Agreement (“Assignment”) is entered into between KBS CAPITAL ADVISORS LLC, a Delaware limited liability company (“Assignor”), and KBS SOR 353 SACRAMENTO STREET, LLC, a Delaware limited liability company (“Assignee”), as of May 9, 2016 (“Effective Date”).

RECITALS

A. Pursuant to the terms of that certain Purchase and Sale Agreement effective as of April 28, 2016, by and between Pacific EIH Sacramento LLC, a Delaware limited liability company, as seller, and Assignor, as buyer (the “Purchase Agreement”), Assignor agreed to acquire the Property (as such term is defined in the Purchase Agreement) commonly referred to as 353 Sacramento Street, San Francisco, CA.

1. Recitals . The above recitals are incorporated herein by reference.

3. Successors and Assigns . This Assignment shall be binding upon and inure to the benefit of the parties’ successors and assigns.

4. Attorneys’ Fees . In the event any party institutes any action or proceeding against the other party with regard to this Assignment, the prevailing party of such action shall be entitled to recover from the nonprevailing party (in addition to all other remedies provided by law) its attorneys’ fees and costs incurred in such action or proceeding.

5. Reaffirmation of Release . Assignee hereby reaffirms the release of the Seller-Related Parties set forth in Section 4.2 of the Purchase Agreement to be effective as of the Closing.

- 1 -

[Signatures to Follow]

- 2 -

Executed as of the date set forth above.

ASSIGNOR:

KBS CAPITAL ADVISORS LLC,

a Delaware limited liability company



By:	/s/ Jeffrey K. Waldvogel
	Jeffrey K. Waldvogel
	Chief Financial Officer

- 3 -

ASSIGNEE:

KBS SOR 353 SACRAMENTO STREET, LLC,

a Delaware limited liability company

By: KBS SOR ACQUISITION XXIX, LLC,

a Delaware limited liability company,

its sole member

By: KBS SOR PROPERTIES, LLC,

a Delaware limited liability company ,

its sole member

By: KBS SOR (BVI) HOLDINGS, LTD.,

a Delaware limited liability company,

its sole member

By: KBS STRATEGIC OPPORTUNITY LIMITED PARTNERSHIP,

a Delaware limited partnership,

its sole member

By: KBS STRATEGIC OPPORTUNITY REIT, INC.,

a Maryland corporation,

its sole general partner



By:	/s/ Jeffrey K. Waldvogel
	Jeffrey K. Waldvogel
	Chief Financial Officer

- 4 -

Exhibit 31.1

Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith D. Hall, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of KBS Strategic Opportunity REIT, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 12, 2016	By:	/S / K EITH D. H ALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Exhibit 31.2

Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey K. Waldvogel, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of KBS Strategic Opportunity REIT, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 12, 2016	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KBS Strategic Opportunity REIT, Inc. (the “Registrant”) for the quarter ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Keith D. Hall, Chief Executive Officer and Director of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	August 12, 2016	By:	/ S / K EITH D. H ALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KBS Strategic Opportunity REIT, Inc. (the “Registrant”) for the quarter ended June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey K. Waldvogel, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	August 12, 2016	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)