KBS Strategic Opportunity REIT, Inc. (Form: 10-Q, Received: 11/09/2018 14:45:42)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)



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

For the quarterly period ended September 30, 2018



¨	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 every Interactive Data File required to be submitted 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 such files). Yes x No ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 November 5, 2018 , there were 54,207,256 outstanding shares of common stock of KBS Strategic Opportunity REIT, Inc.

Table of Contents

KBS STRATEGIC OPPORTUNITY REIT, INC.

FORM 10-Q

September 30, 2018

INDEX



PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017	2
		Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	3
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	4
		Consolidated Statements of Equity for the Year Ended December 31, 2017 and the Nine Months Ended September 30, 2018 (unaudited)	5
		Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2018 and 2017	6
		Condensed Notes to Consolidated Financial Statements as of September 30, 2018 (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
	Item 4.	Controls and Procedures	55
PART II.	OTHER INFORMATION		56
	Item 1.	Legal Proceedings	56
	Item 1A.	Risk Factors	56
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
	Item 3.	Defaults upon Senior Securities	58
	Item 4.	Mine Safety Disclosures	58
	Item 5.	Other Information	58
	Item 6.	Exhibits	59
SIGNATURES			60

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)



	September 30, 2018			December 31, 2017
	(unaudited)
Assets
Real estate held for investment, net	$	804,079		$	502,222
Real estate held for sale, net	—			30,645
Real estate equity securities	98,735			90,063
Real estate debt securities, net	17,855			17,751
Total real estate and real estate-related investments, net	920,669			640,681
Cash and cash equivalents	93,357			366,512
Restricted cash	12,525			10,670
Investments in unconsolidated joint ventures	47,304			55,577
Rents and other receivables, net	14,103			8,755
Above-market leases, net	3,485			10
Assets related to real estate held for sale, net	—			1,965
Prepaid expenses and other assets	18,056			17,404
Total assets	$	1,109,499		$	1,101,574
Liabilities and equity
Notes and bonds payable, net
Notes and bonds payable related to real estate held for investment, net	$	741,129		$	575,528
Note payable related to real estate held for sale, net	—			27,515
Notes and bonds payable, net	741,129			603,043
Accounts payable and accrued liabilities	17,788			16,686
Due to affiliate	65			26
Distribution payable	—			187,914
Below-market leases, net	5,554			2,843
Other liabilities	16,538			16,966
Redeemable common stock payable	4,442			8,595
Total liabilities	785,516			836,073
Commitments and contingencies (Note 1 4 )
Redeemable common stock	—			4,518
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, 54,231,264 and 52,053,817 shares issued and outstanding as of September 30, 2018 and December 31, 2017 , respectively	542			521
Additional paid-in capital	428,622			388,800
Cumulative distributions and net income	(107,770		)	(155,454		)
Accumulated other comprehensive income	—			25,146
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity	321,394			259,013
Noncontrolling interests	2,589			1,970
Total equity	323,983			260,983
Total liabilities and equity	$	1,109,499		$	1,101,574

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Rental income	$	19,585		$	27,850		$	53,681		$	90,200
Tenant reimbursements	3,345			6,094			9,729			18,188
Other operating income	828			944			2,001			3,484
Interest income from real estate debt securities	513			511			1,525			1,271
Dividend income from real estate equity securities	2,885			1,015			5,146			1,505
Total revenues	27,156			36,414			72,082			114,648
Expenses:
Operating, maintenance, and management	8,336			11,431			21,395			33,638
Real estate taxes and insurance	3,208			4,780			8,982			14,932
Asset management fees to affiliate	2,299			2,800			6,342			8,404
General and administrative expenses	1,488			1,168			6,037			4,115
Foreign currency transaction loss (gain) , net	8			4,356			(9,106		)	11,454
Depreciation and amortization	9,826			13,228			26,133			43,136
Interest expense	8,404			9,618			22,814			29,327
Total expenses	33,569			47,381			82,597			145,006
Other income:
Income from unconsolidated joint venture	244			—			428			1,869
Equity in loss of unconsolidated joint ventures	(2,644		)	(2,152		)	(7,394		)	(3,928		)
Other interest income	253			340			1,602			536
Gain (loss) on real estate equity securities	741			—			(6,546		)	—
Gain on sale of real estate	44,692			2,239			45,340			36,267
Loss on extinguishment of debt	(26		)	—			(26		)	—
Total other income , net	43,260			427			33,404			34,744
Net income (loss) before income taxes	36,847			(10,540		)	22,889			4,386
Income tax provision	(426		)	(2		)	(178		)	(176		)
Net income (loss)	36,421			(10,542		)	22,711			4,210
Net loss attributable to noncontrolling interests	76			8			141			10
Net income ( loss) attributable to common stockholders	$	36,497		$	(10,534	)	$	22,852		$	4,220
Net income ( loss) per common share, basic and diluted	$	0.67		$	(0.19	)	$	0.38		$	0.07
Weighted-average number of common shares outstanding, basic and diluted	54,599,254			56,643,160			59,649,846			56,712,752

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 COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017
Net income (loss)	$	36,421	$	(10,542	)	$	22,711	$	4,210
Other comprehensive income :
Unrealized gain on real estate securities	—		2,865			—		3,714
Total other comprehensive income	—		2,865			—		3,714
Total comprehensive income (loss)	36,421		(7,677		)	22,711		7,924
Total comprehensive loss attributable to noncontrolling interests	76		8			141		10
Total comprehensive income (loss) attributable to common stockholders	$	36,497	$	(7,669	)	$	22,852	$	7,934

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, 2017 and the Nine Months Ended September 30, 2018

(unaudited)

(dollars in thousands)




	Common Stock					Additional Paid-in Capital			Cumulative Distributions and Net Income			Accumulated Other Comprehensive Income			Total Stockholders' Equity			Noncontrolling Interests			Total Equity
	Shares		Amounts			Additional Paid-in Capital			Cumulative Distributions and Net Income			Accumulated Other Comprehensive Income			Total Stockholders' Equity			Noncontrolling Interests			Total Equity

Balance, December 31, 2016	56,775,767		$	568		$	455,373		$	(162,289	)	$	—		$	293,652		$	1,898		$	295,550
Net income (loss)	—		—			—			210,644			—			210,644			(64		)	210,580
Other comprehensive income	—		—			—			—			25,146			25,146			—			25,146
Issuance of common stock	585,192		6			8,660			—			—			8,666			—			8,666
Transfers to redeemable common stock	—		—			(498		)	—			—			(498		)	—			(498		)
Redemptions of common stock	(5,307,142	)	(53		)	(74,727		)	—			—			(74,780		)	—			(74,780		)
Distributions declared	—		—			—			(203,809		)	—			(203,809		)	—			(203,809		)
Other offering costs	—		—			(8		)	—			—			(8		)	—			(8		)
Noncontrolling interests contributions	—		—			—			—			—			—			158			158
Distributions to noncontrolling interests	—		—			—			—			—			—			(22		)	(22		)
Balance, December 31, 2017	52,053,817		$	521		$	388,800		$	(155,454	)	$	25,146		$	259,013		$	1,970		$	260,983
Cumulative effect adjustments to retained earnings	—		—			—			27,618			(25,146		)	2,472			—			2,472
Net income (loss)	—		—			—			22,852			—			22,852			(141		)	22,711
Issuance of common stock	123,288		1			1,417			—			—			1,418			—			1,418
Stock distribution issued	13,069,487		130			150,169			—			—			150,299			—			150,299
Transfers from redeemable common stock	—		—			8,671			—			—			8,671			—			8,671
Redemptions of common stock	(11,015,328	)	(110		)	(120,434		)	—			—			(120,544		)	—			(120,544		)
Distributions declared	—		—			—			(2,786		)	—			(2,786		)	—			(2,786		)
Other offering costs	—		—			(1		)	—			—			(1		)	—			(1		)
Noncontrolling interests contributions	—		—			—			—			—			—			760			760
Balance , September 30, 2018	54,231,264		$	542		$	428,622		$	(107,770	)	$	—		$	321,394		$	2,589		$	323,983

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)



	Nine Months Ended September 30,
	2018			2017
Cash Flows from Operating Activities:
Net income	$	22,711		$	4,210
Adjustments to reconcile net income to net cash provided by operating activities:
Loss due to property damages	964			668
Equity in loss of unconsolidated joint ventures	7,394			3,928
Depreciation and amortization	26,133			43,136
Loss on real estate equity securities	6,546			—
Gain on sale of real estate	(45,340		)	(36,267		)
Loss on extinguishment of debt	26			—
Unrealized loss on interest rate caps	21			102
Deferred rent	(3,508		)	(1,678		)
Bad debt (rec overy) expense	(5		)	66
Amortization of above- and below-market leases, net	(853		)	(2,253		)
Amortization of deferred financing costs	2,675			3,578
Interest accretion on real estate debt securities	(104		)	(456		)
Net amortization of discount and (premium) on bond and notes payable	45			36
Foreign currency transaction (gain) loss , net	(9,106		)	11,454
Changes in assets and liabilities:
Rents and other receivables	(1,744		)	(2,245		)
Prepaid expenses and other assets	(5,901		)	(6,368		)
Accounts payable and accrued liabilities	37			1,575
Due to affiliates	39			(22		)
Other liabilities	409			261
Net cash provided by operating activities	439			19,725
Cash Flows from Investing Activities:
Acquisitions of real estate	(312,348		)	(165,465		)
Improvements to real estate	(21,147		)	(28,775		)
Proceeds from sales of real estate, net	85,615			130,580
Reimbursement of construction costs	1,636			—
Insurance proceeds received for property damages	—			744
Purchase of interest rate cap	(163		)	(107		)
Purchase of foreign currency option	—			(3,434		)
Proceeds from termination of foreign currency collars	—			6,557
Contributions to unconsolidated joint venture	(1,320		)	—
Distributions of capital from unconsolidated joint venture	2,199			59,157
Investment in real estate equity securities	(15,851		)	(43,308		)
Proceeds from the sale of real estate equity securities	633			—
Investment in real estate debt securities, net	—			(12,514		)
Proceeds for future development obligations	1,055			1,367
Funding of development obligations	(1,162		)	(926		)
Net cash used in investing activities	(260,853		)	(56,124		)
Cash Flows from Financing Activities:
Proceeds from notes and bonds payable	184,351			176,777
Principal payments on notes and bonds payable	(34,348		)	(73,907		)
Payments of deferred financing costs	(2,791		)	(2,339		)
Payments to redeem common stock	(120,544		)	(8,050		)
Payments of prepaid other offering costs	(458		)	(376		)
Distributions paid	(38,983		)	(7,229		)
Noncontrolling interests contributions	760			150
Distributions to noncontrolling interests	—			(18		)
Net cash (used in) provided by financing activities	(12,013		)	85,008
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,127			514
Net (decrease) increase in cash, cash equivalents and restricted cash	(271,300		)	49,123
Cash, cash equivalents and restricted cash, beginning of period	377,182			64,450
Cash, cash equivalents and restricted cash, end of period	$	105,882		$	113,573

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

September 30, 2018

(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, 2018 (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate, real estate-related debt securities and other real estate-related investments.

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 September 30, 2018 , the Company had sold 6,743,649 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $75.5 million . Also, as of September 30, 2018 , the Company had redeemed 22,463,092 shares for $272.3 million . As of September 30, 2018 , the Company had issued 13,069,487 shares of common stock in connection with the December 2017 special dividend. 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 $249.2 million as of March 8, 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)

September 30, 2018

(unaudited)

As of September 30, 2018 , the Company consolidated six office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties and three investments in undeveloped land with approximately 1,000 developable acres. The Company also owned three investments in unconsolidated joint ventures, an investment in real estate debt securities and three investments in real estate equity securities.


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, 2017 , except for the Company’s adoption of the revenue recognition and financial instruments standards issued by the Financial Accounting Standards Board (“FASB”) effective on January 1, 2018. 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, 2017 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 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 nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 .

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.

Redeemable Common Stock

The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances.

Pursuant to the share redemption program there are several limitations on the Company’s 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), the Company may not redeem shares until the stockholder has held the shares for one year.


•	During each calendar year, redemptions are limited to the amount of net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year.

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)

September 30, 2018

(unaudited)

•

The Company 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 the Company redeems 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 the Company’s capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during succeeding fiscal quarters. The last $1.0 million of net proceeds from the dividend reinvestment plan during the prior year is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence”. The share redemption plan also provides that, to the extent that in the last month of any calendar year the amount of redemption requests in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” is less than the $1.0 million reserved for such redemptions under the share redemption plan, any excess funds may be used to redeem shares not requested in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” during such month. The Company may increase or decrease this limit upon ten business days’ notice to stockholders. The Company’s board of directors may approve an increase in this limit to the extent that the Company has received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors. On August 9, 2018, the Company’s board of directors approved an additional $6.0 million of funds available for the redemption of shares in 2018. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2017 and the additional $6.0 million made available by the Company’s board of directors, the Company had $3.0 million available for all share redemption requests for the remainder of 2018 as of September 30, 2018 .


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


•	The Company has 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.

Effective December 30, 2016, pursuant to the tenth amended and restated share redemption program, except for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence”, the price at which the Company began to redeem shares is 95% of the Company’s most recent estimated value per share as of the applicable redemption date. Upon the death, “qualifying disability” or “determination of incompetence” of a stockholder, the redemption price continued to be equal to the Company’s most recent estimated value per share.

The Company’s board of directors may amend, suspend or terminate the share redemption program with ten business days’ notice to its stockholders. The Company may provide this notice by including such information in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to its stockholders.

In anticipation of a self-tender offer in order to make liquidity available to stockholders in excess of that permitted under the share redemption program, on March 14, 2018 , the Company’s board of directors approved a temporary suspension of the share redemption program starting with the March 2018 redemption period, including any unsatisfied requests from prior redemption periods. In connection with its approval of the Self-Tender (defined below), the Company’s board of directors approved the reopening of the share redemption program for the June 2018 redemption period, meaning no redemptions were made in March, April or May 2018 (including those requested following a stockholder’s death, qualifying disability or determination of incompetence).

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)

September 30, 2018

(unaudited)

On April 23, 2018 , the Company commenced a self-tender offer (the “Self-Tender”) for up to 8,234,217 shares of common stock at a price of $10.93 per share, or approximately $90.0 million of shares. The Company increased the number of shares accepted for payment in the Self-Tender by up to 1,294,910 shares at a price of $10.93 per share, or approximately $14.1 million of shares. On June 1, 2018 , the Company accepted for purchase 9,527,724 shares at a purchase price of $10.93 per share, or approximately $104.1 million of shares, excluding fees and expenses related to the Self-Tender.

The Company records amounts that are redeemable under the share redemption program as redeemable common stock in its consolidated balance sheets because the shares will be redeemable at the option of the holder and therefore their redemption will be outside the control of the Company. However, because the amounts that can be redeemed will be determinable and only contingent on an event that is likely to occur (e.g., the passage of time), the Company presents the net proceeds from the current year and prior year DRP, net of current year redemptions, as redeemable common stock in its consolidated balance sheets.

The Company classifies as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

The Company limits the dollar value of shares that may be redeemed under the program as described above. During the nine months ended September 30, 2018 , the Company had redeemed $16.1 million of common stock, of which $4.4 million relates to delayed December 2017 redemptions. The Company recorded $4.4 million and $8.6 million of other liabilities on the Company’s balance sheet as of September 30, 2018 and December 31, 2017 , respectively, related to unfulfilled redemption requests received in good order under the share redemption program. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2017 and the additional $6.0 million made available by the Company’s board of directors, the Company has $3.0 million available for redemptions in the remainder of 2018 as of September 30, 2018 , including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations described above.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company’s adoption. Under the modified retrospective approach, an entity may also elect to apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018. A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. The Company elected to apply this standard only to contracts that were not completed as of January 1, 2018.

Based on the Company’s evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the three and nine months ended September 30, 2018 , tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $0.5 million and $1.4 million , respectively, which were included in tenant reimbursements on the accompanying statements of operations.

Sale of Real Estate

Prior to January 1, 2018, gains on real estate sold were recognized using the full accrual method at closing when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient and other profit recognition criteria had been satisfied. Gain on sales of real estate may have been deferred in whole or in part until the requirements for gain recognition had been met.

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)

September 30, 2018

(unaudited)

Effective January 1, 2018, the Company adopted the guidance of ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20.

ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. As a result of the adoption of ASC 610-20 on January 1, 2018, the Company recorded a cumulative effect adjustment to increase retained earnings by $2.5 million to recognize the deferred gain from the sale of 102 developable acres at Park Highlands that closed on May 1, 2017, as control of the sold acres had transferred to the buyers at closing.

As of January 1, 2018 and September 30, 2018 , the Company had recorded contract liabilities of $1.7 million and $3.1 million , respectively, related to deferred proceeds received from the buyers of the Park Highlands land sales and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which was included in other liabilities on the accompanying consolidated balance sheets.

Real Estate Equity Securities

The Company’s real estate equity securities are carried at their estimated fair value based on quoted market prices for the security, net of any discounts for restrictions on the sale of the security. Any discount for lack of marketability is estimated using an option pricing model. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis.

Prior to the Company’s adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”) on January 1, 2018, the Company classified its investments in real estate equity securities as available-for-sale and unrealized gains and losses were reported in accumulated other comprehensive income (loss). Upon the sale of a security, the previously recognized unrealized gain (loss) would be reversed out of accumulated other comprehensive income (loss) and the actual realized gain (loss) recognized in earnings. Effective January 1, 2018, unrealized gains and losses on real estate equity securities are recognized in earnings. Upon adoption of ASU No. 2016-01 on January 1, 2018, the Company recorded a $25.1 million cumulative effect adjustment to retained earnings related to the unrealized gain on real estate equity securities previously reported in accumulated other comprehensive income prior to January 1, 2018.

Investment in Unconsolidated Joint Ventures

Equity Investment Without Readily Determinable Value

Prior to the adoption of ASU No. 2016-01 on January 1, 2018, the Company accounted for investments in unconsolidated joint venture entities in which the Company did not have the ability to exercise significant influence and had virtually no influence over partnership operating and financial policies using the cost method of accounting. Under the cost method, income distributions from the partnership were recognized in other income. Distributions that exceed the Company’s share of earnings were applied to reduce the carrying value of the Company’s investment and any capital contributions increased the carrying value of the Company’s investment. On a quarterly basis, the Company evaluated its cost method investment in an unconsolidated joint venture for other-than-temporary impairments. The fair value of a cost method investment was not estimated if there were no identified events or changes in circumstances that indicated a significant adverse effect on the fair value of the investment.

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)

September 30, 2018

(unaudited)

In accordance with ASU No. 2016-01, the Company may elect to measure an equity investment without a readily determinable value that does not qualify for the practical expedient to estimate fair value using the net asset value per share, at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company elected to measure its investment in the NIP Joint Venture (defined in Note 12 ) in accordance with the above guidance, applying it prospectively, and as of January 1, 2018 and September 30, 2018 , recorded its investment in the NIP Joint Venture at a cost basis of $3.7 million and $1.5 million , respectively. Distributions of income from the NIP Joint Venture are recognized in other income. Distributions that exceed the Company’s share of earnings are applied to reduce the carrying value of the Company’s investment and any capital contributions would increase the carrying value of the Company’s investment.

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. During the nine months ended September 30, 2018 , the Company disposed of one office building. As a result, certain assets and liabilities were reclassified as held for sale on the consolidated balance sheets for all periods presented.

Segments

The Company has invested in opportunistic real estate and other real estate-related assets. In general, the Company intends to hold its investments in opportunistic real estate and other real estate‑related assets for capital appreciation. Traditional performance metrics of 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 opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from 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 nine months ended September 30, 2018 and 2017 .

Distributions declared per share were $0.01597500 and $0.04792500 during the three and nine months ended September 30, 2018 , respectively, and $0.09452055 and $0.28047945 during the three and nine months ended September 30, 2017 , 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.

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)

September 30, 2018

(unaudited)

Recently Issued Accounting Standards Updates

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 as of its issuance is permitted. ASU No. 2016-02 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. Upon adoption of ASU No. 2016-02, the Company expects to adopt the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company will 1) not reassess whether any expired or existing contracts are or contain leases, 2) not reassess the lease classification for any expired or existing lease, and 3) not reassess initial direct costs for any existing leases. The Company does not expect to elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, the Company expects to adopt the practical expedient for land easements to not assess whether existing or expired land easements that were not previously accounted for as leases under the current lease accounting standards of Topic 840 are or contain a lease under Topic 842.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU No. 2018-11”), which provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met. Upon adoption of the lease accounting standard under Topic 842, the Company expects to adopt this practical expedient, specifically related to its tenant reimbursements which would otherwise be accounted for under the new revenue recognition standard. The Company believes the two conditions have been met for tenant reimbursements as 1) the timing and pattern of transfer of the nonlease components and associated lease components are the same and 2) the lease component would be classified as an operating lease. In addition, ASU No. 2018-11 provides an additional optional transition method to allow entities to apply the new lease accounting standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease accounting standard will continue to be reported under the current lease accounting standards of Topic 840. The Company expects to adopt this transition method upon adoption of the lease accounting standard of Topic 842 on January 1, 2019.

The Company is currently evaluating the impact of adopting the new lease accounting standards on its consolidated financial statements. The Company is in process of creating an inventory of its leases where the Company may be a lessee to assess the potential impact to the Company’s financial statements upon adoption of the new lease accounting standards.

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)

September 30, 2018

(unaudited)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“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 debt 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 debt 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.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impact of adopting ASU No. 2018-13 on its financial statements, but does not expect the adoption of ASU No. 2018-13 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)

September 30, 2018

(unaudited)


3.	REAL ESTATE HELD FOR INVESTMENT

As of September 30, 2018 , the Company owned six office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, one office/flex/industrial portfolio consisting of 21 buildings and one retail property, encompassing, in the aggregate, approximately 3.8 million rentable square feet. As of September 30, 2018 , these properties were 76% occupied. In addition, the Company owned two apartment properties, containing 383 units and encompassing approximately 0.3 million rentable square feet, which were 94% occupied. The Company also owned three investments in undeveloped land with approximately 1,000 developable acres. The following table summarizes the Company’s real estate held for investment as of September 30, 2018 and December 31, 2017 , respectively (in thousands):



	September 30, 2018			December 31, 2017
Land	$	192,765		$	155,046
Buildings and improvements	628,748			361,118
Tenant origination and absorption costs	39,315			23,212
Total real estate, cost	860,828			539,376
Accumulated depreciation and amortization	(56,749		)	(37,154		)
Total real estate, net	$	804,079		$	502,222

The following table provides summary information regarding the Company’s real estate held for investment as of September 30, 2018 (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 %
Richardson Portfolio:
Palisades Central I	11/23/2011	Richardson	TX	Office	$	1,037	$	10,714	$	—	$	11,751	$	(2,646	)	$	9,105	90.0	%
Palisades Central II	11/23/2011	Richardson	TX	Office	810		17,954		—		18,764		(4,115		)	14,649		90.0	%
Greenway I	11/23/2011	Richardson	TX	Office	561		2,084		—		2,645		(711		)	1,934		90.0	%
Greenway III	11/23/2011	Richardson	TX	Office	702		4,068		559		5,329		(1,953		)	3,376		90.0	%
Undeveloped Land	11/23/2011	Richardson	TX	Undeveloped Land	3,134		—		—		3,134		—			3,134		90.0	%
Total Richardson Portfolio					6,244		34,820		559		41,623		(9,425		)	32,198
Park Highlands ⁽¹⁾	12/30/2011	North Las Vegas	NV	Undeveloped Land	29,845		—		—		29,845		—			29,845		⁽¹⁾
Burbank Collection	12/12/2012	Burbank	CA	Retail	4,175		12,544		725		17,444		(2,960		)	14,484		90.0	%
Park Centre	03/28/2013	Austin	TX	Office	3,251		27,841		—		31,092		(4,361		)	26,731		100.0	%
1180 Raymond	08/20/2013	Newark	NJ	Apartment	8,292		38,372		—		46,664		(6,305		)	40,359		100.0	%
Park Highlands II	12/10/2013	North Las Vegas	NV	Undeveloped Land	25,532		—		—		25,532		—			25,532		100.0	%
424 Bedford	01/31/2014	Brooklyn	NY	Apartment	8,860		25,909		—		34,769		(3,405		)	31,364		90.0	%
Richardson Land II	09/04/2014	Richardson	TX	Undeveloped Land	3,418		—		—		3,418		—			3,418		90.0	%
Westpark Portfolio	05/10/2016	Redmond	WA	Office/Flex/Industrial	36,085		93,362		6,352		135,799		(11,681		)	124,118		100.0	%
Crown Pointe	02/14/2017	Dunwoody	GA	Office	22,590		63,662		5,528		91,780		(6,855		)	84,925		100.0	%
125 John Carpenter	09/15/2017	Irving	TX	Office	2,755		76,368		8,840		87,963		(4,636		)	83,327		100.0	%
Marquette Plaza	03/01/2018	Minneapolis	MN	Office	10,387		72,094		4,405		86,886		(2,265		)	84,621		100.0	%
City Tower	03/06/2018	Orange	CA	Office	13,930		129,713		8,120		151,763		(3,964		)	147,799		100.0	%
Eight & Nine Corporate Centre	06/08/2018	Franklin	TN	Office	17,401		54,063		4,786		76,250		(892		)	75,358		100.0	%
					$	192,765	$	628,748	$	39,315	$	860,828	$	(56,749	)	$	804,079

_____________________

⁽¹⁾ On September 7, 2016, a subsidiary of the Company that owns a portion of Park Highlands, sold 820 units of 10% Class A non-voting preferred membership units for $0.8 million to accredited investors. The amount of the Class A non-voting preferred membership units raised, net of offering costs, is included in other liabilities on the accompanying consolidated balance sheets.

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)

September 30, 2018

(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 September 30, 2018 , 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 13.7 years with a weighted-average remaining term of 4.6 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty 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 related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $5.1 million and $4.3 million as of September 30, 2018 and December 31, 2017 , respectively.

During the nine months ended September 30, 2018 and 2017 , the Company recognized deferred rent from tenants of $3.5 million and $1.7 million , respectively, net of lease incentive amortization. As of September 30, 2018 and December 31, 2017 , the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $10.9 million and $6.6 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $1.5 million and $0.8 million of unamortized lease incentives as of September 30, 2018 and December 31, 2017 , respectively.

As of September 30, 2018 , the future minimum rental income from the Company’s properties, excluding apartment leases, under non-cancelable operating leases was as follows (in thousands):



October 1, 2018 through December 31, 2018	$	15,168
2019	61,898
2020	56,312
2021	49,918
2022	42,432
Thereafter	138,775
	$	364,503

As of September 30, 2018 , the Company’s commercial real estate properties were leased to approximately 350 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
Health Care and Social Services	15	$	6,659	10.1	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of September 30, 2018 , 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)

September 30, 2018

(unaudited)

Geographic Concentration Risk

As of September 30, 2018 , the Company’s real estate investments in California , Texas and Washington represented 14.6% , 13.1% and 11.2% , respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California , Texas and Washington 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.

Recent Real Estate Acquisitions

Marquette Plaza

On March 1, 2018 , the Company, through an indirect wholly owned subsidiary, acquired an office property containing 522,656 rentable square feet located on 2.5 acres of land in Minneapolis, Minnesota (“Marquette Plaza”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of Marquette Plaza was $88.3 million plus $1.1 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $10.4 million to land, $71.4 million to building and improvements, $4.5 million to tenant origination and absorption costs, $3.7 million to above-market lease assets and $0.6 million to below-market lease liabilities. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods as of the date of acquisition of 6.6 years for tenant origination and absorption costs, 11.7 years for above-market lease assets and 2.4 years for below-market lease liabilities.

City Tower

On March 6, 2018 , the Company, through an indirect wholly owned subsidiary, acquired an office building containing 431,007 rentable square feet located on approximately 4.9 acres of land in Orange, California (“City Tower”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of City Tower was $147.1 million plus $1.6 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $13.9 million to land, $127.9 million to building and improvements, $8.1 million to tenant origination and absorption costs and $1.2 million to below-market lease liabilities. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods as of the date of acquisition of 5.2 years for tenant origination and absorption costs and 6.6 years for below-market lease liabilities.

Eight & Nine Corporate Centre

On June 8, 2018 , the Company, through an indirect wholly owned subsidiary, acquired an office building consisting of two buildings containing an aggregate of 311,864 rentable square feet located on approximately 27.6 acres of land in Franklin, Tennessee (“Eight & Nine Corporate Centre”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of Eight & Nine Corporate Centre was $73.0 million plus $1.2 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $17.4 million to land, $54.0 million to building and improvements, $4.8 million to tenant origination and absorption costs and $2.0 million to below-market lease liabilities. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods as of the date of acquisition of 6.4 years for tenant origination and absorption costs and 7.4 years for below-market lease liabilities.

Recent Real Estate Land Sales

Park Highlands

On February 28, 2018, the Company sold approximately 26 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits, of $2.5 million , excluding closing costs. The purchasers are not affiliated with the Company or the Advisor. The Company recognized a gain on sale of $0.7 million related to the land sale, which is net of deferred profit of $0.3 million related to proceeds received from the purchaser for the value of land that was contributed to a master association which is consolidated by the Company.

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)

September 30, 2018

(unaudited)

On July 2, 2018, the Company sold approximately 83 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits, of $18.7 million , excluding closing costs. The purchaser is not affiliated with the Company or the Advisor. The Company recognized a gain on sale of $12.6 million related to the land sale, which is net of deferred profit of $1.1 million related to proceeds received from the purchaser for the value of land that was contributed to a master association which is consolidated by the Company.

Potential Real Estate Disposition

Westpark Portfolio

On May 10, 2016, the Company, through an indirect wholly owned subsidiary (the “Owner”), purchased 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”). On September 23, 2018, the Owner entered into a Purchase and Sale Agreement and Escrow Instructions (the “Agreement”) for the sale of the Westpark Portfolio to Keppel-KBS Westpark, LLC, a wholly owned subsidiary of Keppel-KBS US REIT (the “SREIT”), subject to certain closing conditions. Pursuant to the Agreement, the contractual purchase price of the Westpark Portfolio is $169.4 million .

The sale of the Westpark Portfolio is scheduled to close on or before December 31, 2018. However, closing of the sale is contingent upon, among other things, the SREIT receiving sufficient funds necessary to fund the acquisition of the Westpark Portfolio through (i) a public offering on the Singapore Stock Exchange and (ii) any financing obtained in connection with the acquisition of the Westpark Portfolio. There can be no assurance that the Company will complete the sale of the Westpark Portfolio on or before December 31, 2018, or at all.

The SREIT is externally managed by a joint venture between (i) an entity in which Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter McMillan III, the Company’s President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with the Company. See note 11 , “Related Party Transactions” for a further discussion on this joint venture.

As of September 30, 2018 , the Company owned 43,999,500 common units of the SREIT, representing a 6.97% ownership interest. A portion of the purchase price shall be paid to the Company by the SREIT in the form of additional common units, in lieu of cash, in an amount sufficient to cause the Company to maintain a 6.97% ownership interest.


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

As of September 30, 2018 and December 31, 2017 , 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
	September 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Cost	$	39,315		$	23,212		$	3,731		$	17		$	(7,222	)	$	(3,636	)
Accumulated Amortization	(10,281		)	(5,733		)	(246		)	(7		)	1,668			793
Net Amount	$	29,034		$	17,479		$	3,485		$	10		$	(5,554	)	$	(2,843	)

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)

September 30, 2018

(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 nine months ended September 30, 2018 and 2017 were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Three Months Ended September 30,						For the Three Months Ended September 30,						For the Three Months Ended September 30,
	2018			2017			2018			2017			2018		2017
Amortization	$	(2,312	)	$	(2,190	)	$	(104	)	$	(62	)	$	457	$	278



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017			2018		2017
Amortization	$	(5,937	)	$	(8,268	)	$	(259	)	$	(229	)	$	1,112	$	2,482

Additionally, as of September 30, 2018 and December 31, 2017 , the Company had recorded tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $4.6 million and $5.3 million , respectively. During the three and nine months ended September 30, 2018 , the Company recorded amortization expense of $0.2 million and $0.7 million , respectively, related to tax abatement intangible assets. During the three and nine months ended September 30, 2017 , the Company recorded amortization expense of $0.2 million and $0.7 million , respectively, related to tax abatement intangible assets.


5.	REAL ESTATE EQUITY SECURITIES

As of September 30, 2018 , the Company owned three investments in real estate equity securities. The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of September 30, 2018 and December 31, 2017 (dollars in thousands):



	September 30, 2018			December 31, 2017
Real Estate Equity Security	Number of Shares Owned	Total Carrying Value		Number of Shares Owned	Total Carrying Value
Whitestone REIT	3,722,019	$	51,662	3,603,189	$	51,922
Keppel-KBS US REIT	43,999,500	34,474		43,999,500	38,141
Franklin Street Properties Corp.	1,576,809	12,599		—	—
	49,298,328	$	98,735	47,602,689	$	90,063

During the nine months ended September 30, 2018 , the Company purchased 1,576,809 shares of common stock of Franklin Street Properties Corp. (NYSE Ticker: FSP) for an aggregate purchase price of $14.0 million .

During the nine months ended September 30, 2018 , the Company purchased 165,000 shares of common stock of Whitestone REIT (NYSE Ticker: WSR) for an aggregate purchase price of $1.9 million . Also during the nine months ended September 30, 2018 , the Company sold 46,170 shares of common stock of Whitestone REIT for an aggregate sale price of $0.6 million .

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)

September 30, 2018

(unaudited)

On November 8, 2017, the Company acquired 43,999,500 shares of common units of Keppel-KBS US REIT (SGX Ticker: CMOU) in connection with the sale of 11 properties to Keppel-KBS US REIT. The Company agreed not to sell, transfer or assign 21,999,750 units of the Keppel-KBS US REIT issued to the Company at closing of the transaction until May 8, 2018 and the remaining 21,999,750 units until November 8, 2018 (the “Unit Lockout Periods”). As of September 30, 2018 and December 31, 2017 , the Company recorded a lack of marketability discount of $0.3 million and $1.7 million , respectively, as a result of the Unit Lockout Periods.

The following summarizes the activity related to real estate equity securities for the nine months ended September 30, 2018 (in thousands):



	Amortized Cost Basis			Unrealized Gain (Loss) ⁽¹⁾			Total
Real estate equity securities - December 31, 2017	$	64,917		$	25,146		$	90,063
Acquisition of real estate equity securities	15,676			—			15,676
Acquisition fee to affiliate and purchase commission	175			—			175
Disposition of real estate equity securities	(554		)	(79		)	(633		)
Loss on real estate equity securities	—			(6,546		)	(6,546		)
Real estate equity securities - September 30, 2018	$	80,214		$	18,521		$	98,735

_____________________

⁽¹⁾ As of December 31, 2017 , unrealized gain (loss) due to the change in market value of real estate equity securities was recorded to accumulated other comprehensive income. Effective January 1, 2018, upon the adoption of ASU No. 2016-01, unrealized gain (losses) on real estate equity securities are recorded in earnings on the accompanying consolidated statement of operations.

The following summarizes the portion of gain and loss for the period related to real estate equity securities held during the three and nine months ended September 30, 2018 (in thousands):



	For the Three Months Ended September 30, 2018		For the Nine Months Ended September 30, 2018
Net gain (loss) recognized during the period on real estate equity securities	$	741	$	(6,546	)
Less: Net gain (loss) recognized during the period on real estate equity securities sold during the period	57		(32		)
Unrealized gain (loss) recognized during the reporting period on real estate equity securities still held at September 30, 2018	$	684	$	(6,514	)

During the three and nine months ended September 30, 2018 , the Company recognized $2.9 million and $5.1 million , respectively, of dividend income from real estate equity securities. During the three and nine months ended September 30, 2017 , the Company recognized $1.0 million and $1.5 million of dividend income from real estate equity securities.

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)

September 30, 2018

(unaudited)


6.	REAL ESTATE DEBT SECURITIES

As of September 30, 2018 , the Company owned an investment in real estate debt securities. The Company’s investment in real estate debt securities is classified as held to maturity, as the Company has the intent and ability to hold its investment until maturity, and it is not more likely than not that the Company would be required to sell its investment before recovery of the Company’s amortized cost basis. The information for those real estate debt securities as of September 30, 2018 and December 31, 2017 is set forth below (in thousands):



Debt Securities Name	Dates Acquired	Debt Securities Type	Outstanding Principal Balance as of September 30, 2018 ⁽¹⁾		Book Value as of September 30, 2018 ⁽²⁾		Book Value as of December 31, 2017 ⁽²⁾		Contractual Interest Rate ⁽³⁾		Annualized Effective Interest Rate ⁽³⁾		Maturity Date
Battery Point Series B Preferred Units ⁽⁴⁾	10/28/2016 / 03/30/2017 / 05/12/2017	Series B Preferred Units	$	17,500	$	17,855	$	17,751	12.0	%	11.1	%	10/28/2019

_____________________

⁽¹⁾ Outstanding principal balance as of September 30, 2018 represents principal balance outstanding under the real estate debt securities.

⁽²⁾ Book value of the real estate debt securities represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs and additional interest accretion.

⁽³⁾ Contractual interest rate is the stated interest rate on the face of the real estate securities. Annualized effective interest rate is calculated as the actual interest income recognized in 2018 , using the interest method, annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of September 30, 2018 .

⁽⁴⁾ On October 31, 2018 , the Company received a partial principal prepayment of the real estate debt securities in the amount of $4.5 million .

The following summarizes the activity related to real estate debt securities for the nine months ended September 30, 2018 (in thousands):



Real estate debt securities - December 31, 2017	$	17,751
Deferred interest receivable and interest accretion	68
Accretion of commitment fee, net of closing costs	36
Real estate debt securities - September 30, 2018	$	17,855

For the three and nine months ended September 30, 2018 and 2017 , interest income from real estate debt securities consisted of the following (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Contractual interest income	$	537		$	403	$	1,421	$	815
Interest (amortization) accretion	(37		)	97		68		218
Accretion of commitment fee, net of closing costs and acquisition fee	13			11		36		238
Interest income from real estate debt securities	$	513		$	511	$	1,525	$	1,271

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)

September 30, 2018

(unaudited)


7 .	REAL ESTATE SALES

During the three and nine months ended September 30, 2018 , the Company disposed of one office building. During the year ended December 31, 2017, the Company disposed of 12 office properties.

On July 10, 2013, the Company, through an indirect wholly owned subsidiary, acquired an office building containing 191,784 rentable square feet located on approximately 0.6 acres of land in Seattle, Washington (the “Central Building”). On July 17, 2018, the Company sold the Central Building to a purchaser unaffiliated with the Company or the Advisor for $67.5 million before closing costs and credits. The carrying value of the Central Building as of the disposition date was $32.6 million , which was net of $5.6 million of accumulated depreciation and amortization. The Company recognized a gain on sale of $32.1 million related to the disposition of the Central Building.

The following summary presents the major components of assets and liabilities related to real estate held for sale as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018		December 31, 2017
Assets related to real estate held for sale
Real estate, cost	$	—	$	35,308
Accumulated depreciation and amortization	—		(4,663		)
Real estate, net	—		30,645
Other assets	—		1,965
Total assets related to real estate held for sale	$	—	$	32,610
Liabilities related to real estate held for sale
Notes payable, net	—		27,515
Total liabilities related to real estate held for sale	$	—	$	27,515

The operations of properties sold and related gain on sales are included in continuing operations on the accompanying statements of operations. The following table summarizes certain revenue and expenses related to these properties for the three and nine months ended September 30, 2018 and 2017 (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Revenues
Rental income	$	185		$	17,129	$	2,255	$	53,262
Tenant reimbursements and other operating income	16			5,028		267		15,511
Total revenues	$	201		$	22,157	$	2,522	$	68,773
Expenses
Operating, maintenance, and management	$	20		$	6,702	$	453	$	19,453
Real estate taxes and insurance	(137		)	3,170		150		9,649
Asset management fees to affiliate	79			1,371		351		4,197
Depreciation and amortization	—			8,064		483		24,296
Interest expense	83			3,843		623		10,843
Total expenses	$	45		$	23,150	$	2,060	$	68,438

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)

September 30, 2018

(unaudited)


8.	NOTES AND BONDS PAYABLE

As of September 30, 2018 and December 31, 2017 , the Company’s notes and bonds payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):



	Book Value as of September 30, 2018			Book Value as of December 31, 2017			Contractual Interest Rate as of September 30, 2018 ⁽¹⁾	Effective Interest Rate at September 30, 2018 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Richardson Portfolio Mortgage Loan	$	32,435		$	36,886		One-Month LIBOR + 2.10%	4.20%	Principal & Interest	11/01/2018 ⁽³⁾
Portfolio Mortgage Loan ⁽⁴⁾	8,772			9,877			One-Month LIBOR + 2.25%	4.36%	Principal & Interest	07/01/2019
Burbank Collection Mortgage Loan	10,777			10,958			One-Month LIBOR + 2.35%	4.48%	Principal & Interest	09/30/2019
1180 Raymond Bond Payable	6,325			6,460			6.50%	6.50%	Principal & Interest	09/01/2036
Central Building Mortgage Loan ⁽⁵⁾	—			27,600			⁽⁵⁾	⁽⁵⁾	⁽⁵⁾	⁽⁵⁾
424 Bedford Mortgage Loan	23,856			24,282			3.91%	3.91%	Principal & Interest	10/01/2022
1180 Raymond Mortgage Loan	30,730			31,000			One-Month LIBOR + 2.25%	4.36%	Principal & Interest	12/01/2018
KBS SOR (BVI) Holdings, Ltd. Series A Debentures ⁽⁶⁾	266,854			278,801			4.25%	4.25%	⁽⁶⁾	03/01/2023
Westpark Portfolio Mortgage Loan	85,020			85,200			One-Month LIBOR + 2.50%	4.60%	Interest Only ⁽⁷⁾	07/01/2020
Crown Pointe Mortgage Loan	51,171			50,500			One-Month LIBOR + 2.60%	4.70%	Interest Only	02/13/2020
125 John Carpenter Mortgage Loan	50,130			50,130			⁽⁸⁾	3.86%	Interest Only	10/01/2022
City Tower Mortgage Loan	89,000			—			One-Month LIBOR + 1.55%	3.65%	Interest Only	03/05/2021
Marquette Plaza Mortgage Loan	50,800			—			One-Month LIBOR + 1.55%	3.65%	Interest Only	06/06/2021
Eight & Nine Corporate Centre Mortgage Loan	43,880			—			One-Month LIBOR + 1.60%	3.70%	Interest Only	06/08/2021
Total Notes and Bonds Payable principal outstanding	749,750			611,694
Net Premium/(Discount) on Notes and Bonds Payable ⁽⁹⁾	182			137
Deferred financing costs, net	(8,803		)	(8,788		)
Total Notes and Bonds Payable, net	$	741,129		$	603,043

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2018 . Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2018 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2018 , where applicable.

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of September 30, 2018 ; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾ Subsequent to September 30, 2018 , the Richardson Portfolio Mortgage Loan was refinanced. The maturity date of the loan was extended to November 1, 2021, with two one -year extension options, subject to certain conditions contained in the loan documents and the payment of an extension fee. The refinanced loan bears interest at a floating rate of 2.5% over one-month LIBOR.

⁽⁴⁾ The Portfolio Mortgage Loan is secured by Park Centre.

⁽⁵⁾ On July 17, 2018, in connection with the disposition of the Central Building, the Company repaid the $27.6 million outstanding principal balance due under the Central Building Mortgage Loan.

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

⁽⁷⁾ Represents the payment type required under the loan as of September 30, 2018 . 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.

⁽⁸⁾ The 125 John Carpenter Mortgage Loan bears interest at a floating rate of the greater of (a) 2.0% or (b) 175 basis points over one-month LIBOR.

⁽⁹⁾ 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)

September 30, 2018

(unaudited)

During the three and nine months ended September 30, 2018 , the Company incurred $8.4 million and $22.8 million , respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2018 was $1.0 million and $2.7 million , respectively, of amortization of deferred financing costs. Additionally, during the three and nine months ended September 30, 2018 , the Company capitalized $0.6 million and $1.9 million , respectively, of interest related to its investments in undeveloped land. During the three and nine months ended September 30, 2017 , the Company incurred $9.6 million and $29.3 million , respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2017 was $1.0 million and $3.6 million , respectively, of amortization of deferred financing costs. Additionally, during the three and nine months ended September 30, 2017 , the Company capitalized $0.6 million and $1.7 million , respectively, of interest related to its investments in undeveloped land.

As of September 30, 2018 and December 31, 2017 , the Company’s interest payable was $2.6 million and $5.1 million , respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of September 30, 2018 (in thousands):



October 1, 2018 through December 31, 2018	$	64,024
2019	74,414
2020	189,056
2021	237,929
2022	125,546
Thereafter	58,781
	$	749,750

The Company’s notes payable contain financial debt covenants. As of September 30, 2018 , the Company was in compliance with all of these debt covenants.

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 $249.2 million as of March 8, 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 September 30, 2018 , the Company has one foreign currency collar for an aggregate notional amount of 776.2 million Israeli new Shekels to hedge its exposure to foreign currency exchange rate movements. See note 9 , “Derivative Instruments” for a further discussion on the Company’s foreign currency collar.

The deed of trust that governs the terms of the Debentures contains various financial covenants. As of September 30, 2018 , 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)

September 30, 2018

(unaudited)


9 .	DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates and foreign currency exchange rate movements. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivatives for speculative purposes.

The Company enters into foreign currency options and foreign currency collars to mitigate its exposure to foreign currency exchange rate movements on its bonds payable outstanding denominated in Israeli new Shekels. A foreign currency collar consists of a purchased call option to buy and a sold put option to sell Israeli new Shekels. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. A foreign currency option consists of a call option to buy Israeli new Shekels.

The following table summarizes the notional amount and other information related to the Company’s foreign currency collar and foreign currency option as of September 30, 2018 and December 31, 2017 . The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (currency in thousands):

September 30, 2018

December 31, 2017

Strike Price

Trade Date

Maturity Date

Derivative Instruments

Number of Instruments

Notional Amount

Number of Instruments

Notional Amount

Derivative instruments not designated as hedging instruments

Foreign currency collar

776,182

ILS

—

3.54 - 3.66 ILS - USD

08/20/2018

02/28/2019

Foreign currency option

—

$285,361

3.40

ILS-USD

08/03/2017

08/03/2018

The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero.

As of September 30, 2018 , the Company had entered into two interest rate caps, which were not designated as a hedging instruments. The following table summarizes the notional amounts and other information related to the Company’s derivative instruments as of September 30, 2018 . The notional amount is an indication of the extent of the Company’s involvement in the instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):



Derivative Instrument	Effective Date	Maturity Date	Notional Value		Reference Rate
Interest rate cap	02/21/2017	02/13/2020	$	46,875	One-month LIBOR at 3.00%
Interest rate cap	04/02/2018	03/05/2021	$	77,513	One-month LIBOR at 3.50%

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)

September 30, 2018

(unaudited)

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2018 and December 31, 2017 (dollars in thousands):



		September 30, 2018			December 31, 2017
Derivative Instruments	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value
Derivative instruments not designated as hedging instruments
Interest rate caps	Prepaid expenses and other assets	2	$	156	1	$	14
Foreign currency option	Prepaid expenses and other assets	—	—		1	4,243
Foreign currency collar	Prepaid expenses and other assets	1	171		—	—

The change in fair value of foreign currency options and collars that are not designated as cash flow hedges are recorded as foreign currency transaction gains or losses in the accompanying consolidated statements of operations. During the three months ended September 30, 2018 , the Company recognized a $0.2 million gain related to the foreign currency option and collar, which is shown net against $0.2 million of foreign currency transaction loss in the accompanying consolidated statements of operations as foreign currency transaction loss , net. During the nine months ended September 30, 2018 , the Company recognized a $4.1 million loss related to the foreign currency option and collar, which is shown net against $13.2 million of foreign currency transaction gain in the accompanying consolidated statements of operations as foreign currency transaction gain , net. During the three months ended September 30, 2017 , the Company recognized a $8.1 million loss related to the foreign currency option and collars, which is shown net against $3.7 million of foreign currency transaction gain in the accompanying consolidated statements of operations as foreign currency transaction loss, net. During the nine months ended September 30, 2017 , the Company recognized a $10.9 million gain related to the foreign currency option and collars, which is shown net against $22.4 million of foreign currency transaction loss in the accompanying consolidated statements of operations as foreign currency transaction loss, net.

During the three months ended September 30, 2018 , the Company recorded an unrealized gain of $10,000 on interest rate caps, which was included as an offset to interest expense on the accompanying consolidated statements of operations. During the nine months ended September 30, 2018 , the Company recorded an unrealized loss of $21,000 on interest rate caps, which was included in interest expense on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2017 , the Company recorded unrealized losses of $14,000 and $102,000 , respectively, on interest rate caps, which were included in interest expense on the accompanying consolidated statements of operations.


10.	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.

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)

September 30, 2018

(unaudited)

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, restricted cash, 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 equity securities : The Company’s Whitestone REIT and Franklin Street Properties Corp. real estate equity securities are presented at fair value on the accompanying consolidated balance sheet. The fair values of Whitestone REIT and Franklin Street Properties Corp. real estate equity securities were based on quoted prices in an active market on a major stock exchange. The Company classifies these inputs as Level 1 inputs. As of December 31, 2017, the Company owned 43,999,500 shares of common units of Keppel-KBS US REIT. The fair value measurement of these shares was based on a quoted price in an active market, adjusted for the lack of marketability during the Unit Lockout Periods. On May 8, 2018, 21,999,750 shares of common units of Keppel-KBS US REIT were transfered from Level 2 to Level 1 inputs as a result of the Unit Lockout Period expiring. As of September 30, 2018 , the Company owned 43,999,500 shares of common units of Keppel-KBS US REIT. The fair value measurement on 21,999,750 shares are based on a quoted price in an active market on a major stock exchange. The Company classifies these inputs as Level 1 inputs. The fair value measurement on the remaining 21,999,750 shares are based on a quoted price in an active market on a major stock exchange, adjusted for the lack of marketability during the remaining Unit Lockout Period. The Company utilized inputs, all of which were deemed to be significant, including the quoted stock price, risk-free rate and expected volatility, in determining the value of the shares and the Company notes that the most significant input in its valuation model is the quoted price in an active market. However, as the valuation of the stock is adjusted for the lack of marketability using market-corroborated inputs, the Company categorizes the measurement of such securities as Level 2 inputs.

Real estate debt securities : The Company’s real estate debt securities are presented in the accompanying consolidated balance sheets at their amortized cost net of recorded loss reserves (if any) and not at fair value. The fair value of real estate debt securities 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 real estate debt securities 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 September 30, 2018 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)

September 30, 2018

(unaudited)

Derivative instruments : The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities. The fair value of foreign currency option and collar is based on a Black-Scholes model tailored for currency derivatives.

The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of September 30, 2018 and December 31, 2017 , which carrying amounts do not approximate the fair values (in thousands):



	September 30, 2018						December 31, 2017
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial asset:
Real estate debt securities	$	17,500	$	17,855	$	17,459	$	17,500	$	17,751	$	17,386
Financial liabilities:
Notes and bond payable	$	482,896	$	479,296	$	487,215	$	332,893	$	330,727	$	335,212
KBS SOR (BVI) Holdings, Ltd. Series A Debentures	$	266,854	$	261,833	$	271,353	$	278,801	$	272,316	$	296,069

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.

As of September 30, 2018 , the Company measured the following assets at fair value (in thousands):



			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Real estate equity securities	$	98,735	$	81,641	$	17,094	$	—
Asset derivative - interest rate caps	$	156	$	—	$	156	$	—
Asset derivative - foreign currency collar	$	171	$	—	$	171	$	—

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)

September 30, 2018

(unaudited)


11 .	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, or previously served 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 such insurance 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 program, 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. KBS REIT I elected to cease participation in the program at the June 2017 renewal and obtained separate insurance coverage. At renewal in June 2018, the Company, KBS Strategic Opportunity REIT II and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtain separate insurance coverage. The Company, together with KBS Strategic Opportunity REIT II, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each REIT covered by the program, and is billed directly to each REIT. The program is effective through June 30, 2019.

During the three and nine months ended September 30, 2018 and 2017 , no other business transactions occurred between the Company and these other KBS-sponsored programs.

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PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2018

(unaudited)

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2018 and 2017 , respectively, and any related amounts payable as of September 30, 2018 and December 31, 2017 (in thousands):



	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30, 2018		December 31, 2017
	2018		2017		2018		2017		September 30, 2018		December 31, 2017
Expensed
Asset management fees	$	2,299	$	2,800	$	6,342	$	8,404	$	—	$	—
Reimbursable operating expenses ⁽¹⁾	90		51		288		184		65		26
Disposition fees ⁽²⁾	860		—		860		785		—		—
Capitalized
Acquisition fees on real estate	—		71		3,094		907		—		—
Acquisition fees on real estate equity securities	—		43		157		429		—		—
	$	3,249	$	2,965	$	10,741	$	10,709	$	65	$	26

_____________________

⁽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 $74,000 and $235,000 for the three and nine months ended September 30, 2018 , respectively, and $49,000 and $168,000 for the three and nine months ended September 30, 2017 , 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.

During the nine months ended September 30, 2018 , the Advisor reimbursed the Company $0.1 million for a property insurance rebate. During the nine months ended September 30, 2017 , the Advisor reimbursed the Company $0.4 million for expenses incurred to evaluate certain strategic transactions for which the Advisor has agreed to reimburse the Company and $0.1 million for a property insurance rebate.

On November 8, 2017, the Company sold 11 properties to Keppel-KBS US REIT. Keppel-KBS US REIT is externally managed by a joint venture (the “Manager”) between (i) an entity in which Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter McMillan III, the Company’s President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with the Company. Keppel-KBS US REIT is expected to pay certain purchase and sale commissions and asset management fees to the Manager in exchange for the provision of certain management services.

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)

September 30, 2018

(unaudited)


12 .	INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of September 30, 2018 and December 31, 2017 , 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 %	September 30, 2018		December 31, 2017
NIP Joint Venture	2	Various	Less than 5.0%	$	1,476	$	3,674
110 William Joint Venture	1	New York, New York	60.0%	2,414		7,160
353 Sacramento Joint Venture	1	San Francisco, California	55.0%	43,414		44,743
				$	47,304	$	55,577

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 has invested in a portfolio of industrial properties. 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 September 30, 2018 . Prior to the Company’s adoption of ASU No. 2016-01 on January 1, 2018, the Company accounted for its investment in the NIP Joint Venture using the cost method of accounting. Effective January 1, 2018, the Company elected to measure its investment in the NIP Joint Venture, which is an equity investment without a readily determinable value, at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Prior to January 17, 2018, KBS REIT I, an affiliate of the Advisor, was a member of HC-KBS and had a participation interest in certain future potential profits generated by the NIP Joint Venture. However, KBS REIT I did not have any equity interest in the NIP Joint Venture. On January 17, 2018, KBS REIT I assigned its participation interest in the NIP Joint Venture to one of the other joint venture partners in the NIP Joint Venture. None of the other joint venture partners are affiliated with the Company or the Advisor.

As of September 30, 2018 and December 31, 2017 , the book value of the Company’s investment in the NIP Joint Venture was $1.5 million and $3.7 million , respectively. During the three months ended September 30, 2018 , the Company received a distribution of $1.2 million related to its investment in the NIP Joint Venture. The Company recognized $0.2 million of income distributions and $1.0 million of return of capital from the NIP Joint Venture. During the nine months ended September 30, 2018 , the Company received aggregate distributions of $2.6 million related to its investment in the NIP Joint Venture. The Company recognized $0.4 million of income distributions and $2.2 million of return of capital from the NIP Joint Venture. During the three months ended September 30, 2017 , the Company did not receive any distributions related to its investment in the NIP Joint Venture. During the nine months ended September 30, 2017 , the Company received a distribution of $2.9 million related to its investment in the NIP Joint Venture. The Company recognized $1.9 million of income distributions and $1.0 million of return of capital from the NIP Joint Venture.

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)

September 30, 2018

(unaudited)

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 September 30, 2018 and December 31, 2017 , the book value of the Company’s investment in the 110 William Joint Venture was $2.4 million and $7.2 million , respectively, which includes $1.5 million of unamortized acquisition fees and expenses incurred directly by the Company. During the nine months ended September 30, 2017 , the 110 William Joint Venture made a $58.2 million return of capital distribution to the Company and a $38.8 million return of capital distribution to the 110 William JV Partner funded with proceeds from the 110 William refinancing.

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



	September 30, 2018		December 31, 2017
Assets:
Real estate assets, net of accumulated depreciation and amortization	$	237,302	$	248,269
Other assets	39,484		32,331
Total assets	$	276,786	$	280,600
Liabilities and equity:
Notes payable, net	$	266,326	$	260,108
Other liabilities	8,843		11,016
Partners’ capital	1,617		9,476
Total liabilities and equity	$	276,786	$	280,600



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues	$	10,137		$	9,614		$	29,897		$	27,328
Expenses:
Operating, maintenance, and management	2,550			2,577			7,313			7,343
Real estate taxes and insurance	1,715			1,637			5,005			4,725
Depreciation and amortization	4,075			4,664			12,420			12,277
Interest expense	4,557			3,951			13,092			9,150
Total expenses	12,897			12,829			37,830			33,495
Other income	37			14			75			42
Net loss	$	(2,723	)	$	(3,201	)	$	(7,858	)	$	(6,125	)
Company’s equity in loss of unconsolidated joint venture	$	(1,644	)	$	(1,930	)	$	(4,746	)	$	(3,706	)

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)

September 30, 2018

(unaudited)

Investment in 353 Sacramento Joint Venture

On July 6, 2017, the Company, through an indirect wholly owned subsidiary, entered into an agreement with the Migdal Members to form the 353 Sacramento Joint Venture. On July 6, 2017, the Company sold a 45% equity interest in an entity that owns 353 Sacramento to the Migdal Members. The sale resulted in 353 Sacramento being owned by the 353 Sacramento Joint Venture, in which the Company indirectly owns 55% of the equity interests and the Migdal Members indirectly own 45% in the aggregate of the equity interests.

The Company exercises significant influence over the operations, financial policies and decision making with respect to the 353 Sacramento Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accounted for its investment in the 353 Sacramento 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 September 30, 2018 and December 31, 2017 , the book value of the Company’s investment in the 353 Sacramento Joint Venture was $43.4 million and $44.7 million , respectively. During the nine months ended September 30, 2018 , the Company made a $1.3 million contribution to the 353 Sacramento Joint Venture.

Summarized financial information for the 353 Sacramento Joint Venture follows (in thousands):



	September 30, 2018		December 31, 2017
Assets:
Real estate assets, net of accumulated depreciation and amortization	$	179,420	$	171,066
Other assets	9,219		6,472
Total assets	$	188,639	$	177,538
Liabilities and equity:
Notes payable, net	$	96,562	$	89,423
Other liabilities	13,625		7,313
Partners’ capital	78,452		80,802
Total liabilities and equity	$	188,639	$	177,538



	For the Three Months Ended September 30, 2018			For the Nine Months Ended September 30, 2018			For the Period from July 6, 2017 to September 30, 2017
Revenues	$	2,475		$	7,771		$	3,507
Expenses:
Operating, maintenance, and management	906			2,675			936
Real estate taxes and insurance	611			1,828			603
Depreciation and amortization	1,408			4,245			1,724
Interest expense	1,426			4,013			1,138
Total expenses	4,351			12,761			4,401
Net loss	$	(1,876	)	$	(4,990	)	$	(894	)
Company’s equity in loss of unconsolidated joint venture	$	(1,000	)	$	(2,648	)	$	(222	)

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)

September 30, 2018

(unaudited)


13.	SUPPLEMENTAL CASH FLOW AND SIGNIFICANT NONCASH TRANSACTION DISCLOSURES

Supplemental cash flow and significant noncash transaction disclosures were as follows (in thousands):



	Nine Months Ended September 30,
	2018		2017
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,916 and $1,732 for the nine months ended September 30, 2018 and 2017 , respectively	$	22,485	$	27,732
Supplemental Disclosure of Significant Noncash Transactions:
Assets and liabilities deconsolidated in connection with the 353 Sacramento partial sale:
Real estate, net	—		170,586
Rents and other receivables, net	—		1,244
Prepaid expenses and other assets	—		555
Notes payable, net	—		87,132
Accounts payable and accrued liabilities	—		1,574
Below-market leases, net	—		2,960
Other liabilities	—		924
Application of escrow deposits to acquisition of real estate	—		2,000
Increase in accrued improvements to real estate	1,179		1,319
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	1,418		8,666
Distributions paid to common stockholders through common stock issuances pursuant to the December 2017 special dividend	150,299		—


14.	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 September 30, 2018 . 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.

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.

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)

September 30, 2018

(unaudited)

Participation Fee Liability

Pursuant to the Advisory Agreement currently in effect with the Advisor, the Advisor is due a subordinated participation in the Company’s net cash flows (the “Incentive Fee”) if, after the stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to the share redemption program, and (ii) a 7.0% per year cumulative, noncompounded return on such net invested capital, the Advisor is entitled to receive 15.0% of the Company’s net cash flows, whether from continuing operations, net sale proceeds or otherwise. Net sales proceeds means the net cash proceeds realized by the Company after deduction of all expenses incurred in connection with a sale, including disposition fees paid to the Advisor. The 7.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 7.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 7.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 7.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of the stockholders to have received any minimum return in order for the Advisor to participate in the Company’s net cash flows. In fact, if the Advisor is entitled to participate in the Company’s net cash flows, the returns of the stockholders will differ, and some may be less than a 7.0% per year cumulative, noncompounded return. This fee is payable only if we are not listed on an exchange.

On April 4, 2018, the Company’s stockholders approved the acceleration of the payment of such incentive compensation, subject to certain conditions. Such accelerated payment would require approval by a special committee of the Company’s board of directors in connection with the anticipated conversion of the Company into a net asset value REIT. The Advisor estimated the fair value of this liability to be as much as $43 million as of September 30, 2018 , based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. The fair value of the Incentive Fee liability as of September 30, 2018 is based on the estimated fair values of the Company’s assets and liabilities as of that date and changes to the fair values of assets and liabilities could have a material impact to the Incentive Fee calculation. The Incentive Fee is not currently payable to the Advisor, as it remains subject to further approval by the special committee and the Company’s conversion to a perpetual-life NAV REIT, and there is no guarantee that it will ever be payable.


15 .	SUBSEQUENT EVENTS

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

Partial Real Estate Land Sale Subsequent to September 30, 2018

Park Highlands

On October 16, 2018 , the Company sold approximately 15 developable acres of Park Highlands undeveloped land for an aggregate sales price of $3.5 million , excluding closing costs. The purchasers are not affiliated with the Company or the Advisor.

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. 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.


•	We have focused, and may continue to focus, our investments in non-performing real estate and real estate-related loans, real estate-related loans secured by non-stabilized assets and real estate-related securities, which involve more risk than investments 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, 2017 and in Part II, Item IA of our Quarterly Report on Form 10-Q for the period ended March 31, 2018 , both as 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 also provides asset-management, marketing, investor-relations and other administrative services on our behalf. We have sought to invest in and manage a diverse portfolio of real estate‑related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments. We conduct our business primarily through our operating partnership, of which we are the sole general partner.

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 September 30, 2018 , we had sold 6,743,649 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $75.5 million . Also as of September 30, 2018 , we had redeemed 22,463,092 of the shares sold in our offering for $272.3 million . As of September 30, 2018 , we had issued 13,069,487 shares of common stock in connection with the December 2017 special dividend. 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 $249.2 million as of March 8, 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

Volatility in global financial markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. Increases in the cost of financing due to higher interest rates may cause difficulty in refinancing debt obligations prior to or at maturity or at terms as favorable as the terms of existing indebtedness. Further, increases in interest rates would increase the amount of our debt payments on our variable rate debt to the extent the interest rates on such debt are not limited by interest rate caps. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

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 and purchases of our 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;


•	Proceeds from our public bond offering in Israel;


•	Debt financing;


•	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 September 30, 2018 , we had sold 6,743,649 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $75.5 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 asset sales, proceeds from debt financing, cash flow generated by our real estate operations and real estate-related investments and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity.

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 September 30, 2018 , our office and retail properties were collectively 76% occupied and our apartment properties were collectively 94% occupied.

Investments in real estate debt securities 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. Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of September 30, 2018 , we had an investment in real estate debt securities outstanding with a total book value of $17.9 million and three investments in real estate equity securities outstanding with a total carrying value of $98.7 million .

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 September 30, 2018 did not exceed the charter-imposed limitation.

For the nine months ended September 30, 2018 , our cash needs for capital expenditures, redemptions of common stock and debt servicing were met with proceeds from dispositions of real estate and undeveloped land, 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. As of September 30, 2018 , we had outstanding debt obligations in the aggregate principal amount of $749.8 million , with a weighted-average remaining term of 2.4 years. As of September 30, 2018 , we had a total of $138.0 million of debt obligations scheduled to mature within 12 months of that date. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates.

We have elected to be taxed as a REIT and intend to operate as a REIT. To maintain our qualification as a REIT, we are required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We have not established a minimum distribution level.

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 Operating Activities

As of September 30, 2018 , we consolidated six office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, three investments in undeveloped land with approximately 1,000 developable acres, and owned three investments in unconsolidated joint ventures, an investment in real estate debt securities and three investments in real estate equity securities. During the nine months ended September 30, 2018 , net cash provided by operating activities was $0.4 million . We expect that our cash flows from operating activities will increase in future periods as a result of owning assets acquired during 2018 for an entire period, 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 additional assets.

Cash Flows from Investing Activities

Net cash used in investing activities was $260.9 million for the nine months ended September 30, 2018 and primarily consisted of the following:


•	Acquisition of three office properties for $312.3 million ;


•	Proceeds from the sale of 109 acres of undeveloped land and one office building of $85.6 million ;


•	Improvements to real estate of $21.1 million ;


•	Investment in real estate equity securities of $15.9 million ;


•	Distribution of capital from an unconsolidated joint venture of $2.2 million ;


•	Reimbursement of construction costs of $1.6 million ;


•	Contribution to an unconsolidated joint venture of $1.3 million ;


•	Funding of development obligations of $1.2 million ;


•	Proceeds for future development obligations of $1.1 million ;


•	Proceeds from the sale of real estate equity securities of $0.6 million ; and


•	Purchase of an interest rate cap for $0.2 million .

Cash Flows from Financing Activities

Net cash used in financing activities was $12.0 million for the nine months ended September 30, 2018 and consisted primarily of the following:


•	$147.3 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $184.4 million , partially offset by principal payments on notes and bonds payable of $34.3 million and payments of deferred financing costs of $2.8 million ;


•	$120.5 million of cash used for redemptions of common stock;


•	$39.0 million of net cash distributions to stockholders, after giving effect to distributions reinvested by stockholders of $1.4 million ;


•	$0.8 million of contributions from noncontrolling interests; and


•	$0.5 million of payments made in connection with a potential offering.

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 September 30, 2018 , our borrowings and other liabilities were approximately 69% and 68% and of the cost (before depreciation and other noncash reserves) and book value (before depreciation) of our tangible assets, respectively.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

In March 2016, we, through a wholly-owned subsidiary, issued 970.2 million Israeli new Shekels (approximately $249.2 million as of March 8, 2016 ) in 4.25% bonds to investors in Israel pursuant to a public offering registered in Israel. The bonds have a seven year term, with principal payable in five equal annual installments from 2019 to 2023. We have used a majority of the proceeds from the issuance of these bonds to make additional investments.

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 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.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of September 30, 2018 (in thousands):



			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2018		2019-2020		2021-2022		Thereafter
Outstanding debt obligations ⁽¹⁾	$	749,750	$	64,024	$	263,470	$	363,475	$	58,781
Interest payments on outstanding debt obligations ⁽²⁾	71,243		7,523		45,466		15,113		3,141

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts, maturity dates, foreign currency rates and interest rates in effect at September 30, 2018 . We incurred interest expense of $22.0 million , excluding amortization of deferred financing costs of $2.7 million and including interest capitalized of $1.9 million , for the nine months ended September 30, 2018 .

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Participation Fee Liability

Pursuant to the advisory agreement currently in effect with our advisor, our advisor is due a subordinated participation in our net cash flows (the “Incentive Fee”) if, after the stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to the share redemption program, and (ii) a 7.0% per year cumulative, noncompounded return on such net invested capital, our advisor is entitled to receive 15.0% of our net cash flows, whether from continuing operations, net sale proceeds or otherwise. Net sales proceeds means the net cash proceeds we realized after deduction of all expenses incurred in connection with a sale, including disposition fees paid to our advisor. The 7.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 7.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 7.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 7.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of the stockholders to have received any minimum return in order for our advisor to participate in our net cash flows. In fact, if our advisor is entitled to participate in our net cash flows, the returns of the stockholders will differ, and some may be less than a 7.0% per year cumulative, noncompounded return. This fee is payable only if we are not listed on an exchange.

On April 4, 2018, our stockholders approved the acceleration of the payment of such incentive compensation, subject to certain conditions. Such accelerated payment would require approval by a special committee of our board of directors in connection with our anticipated conversion into a net asset value REIT. Our advisor estimated the fair value of this liability to be as much as $43 million as of September 30, 2018 , based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. The fair value of the Incentive Fee liability as of September 30, 2018 is based on the estimated fair values of our assets and liabilities as of that date and changes to the fair values of assets and liabilities could have a material impact to the Incentive Fee calculation. The Incentive Fee is not currently payable to our advisor, as it remains subject to further approval by the special committee and our conversion to a perpetual-life NAV REIT, and there is no guarantee that it will ever be payable.

Results of Operations

Overview

As of September 30, 2017 , we owned 11 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 14 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, three investments in undeveloped land with approximately 1,100 developable acres, three investments in unconsolidated joint ventures, an investment in real estate debt securities and an investment in real estate equity securities. As of September 30, 2018 , we owned six office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, three investments in undeveloped land with approximately 1,000 developable acres, three investments in unconsolidated joint ventures, an investment in real estate debt securities and three investments in real estate equity securities. Our results of operations for the three and nine months ended September 30, 2018 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our properties has not been stabilized. As of September 30, 2018 , our office and retail properties were collectively 76% occupied. However, due to the amount of near-term lease expirations, 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. 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 September 30, 2018 versus the three months ended September 30, 2017

The following table provides summary information about our results of operations for the three months ended September 30, 2018 and 2017 (dollar amounts in thousands):



	Three Months Ended September 30,						Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Originations/ Dispositions ⁽¹⁾			$ Change Due to Investments Held Throughout Both Periods ⁽²⁾
	2018			2017			Increase (Decrease)			Percentage Change
Rental income	$	19,585		$	27,850		$	(8,265	)	(30	)%	$	(8,428	)	$	163
Tenant reimbursements	3,345			6,094			(2,749		)	(45	)%	(2,566		)	(183		)
Other operating income	828			944			(116		)	(12	)%	(115		)	(1		)
Interest income from real estate debt securities	513			511			2			—	%	—			2
Dividend income from real estate equity securities	2,885			1,015			1,870			184	%	1,870			—
Operating, maintenance, and management costs	8,336			11,431			(3,095		)	(27	)%	(3,161		)	66
Real estate taxes and insurance	3,208			4,780			(1,572		)	(33	)%	(1,684		)	112
Asset management fees to affiliate	2,299			2,800			(501		)	(18	)%	(527		)	26
General and administrative expenses	1,488			1,168			320			27	%	n/a			n/a
Foreign currency transaction loss, net	8			4,356			(4,348		)	(100	)%	n/a			n/a
Depreciation and amortization	9,826			13,228			(3,402		)	(26	)%	(3,302		)	(100		)
Interest expense	8,404			9,618			(1,214		)	(13	)%	(1,435		)	221
Income from unconsolidated joint venture	244			—			244			n/a		—			244
Equity in loss of unconsolidated joint ventures	(2,644		)	(2,152		)	(492		)	23	%	(1,000		)	508
Other interest income	253			340			(87		)	(26	)%	n/a			n/a
Gain on real estate equity securities	741			—			741			n/a		741			—
Gain on sale of real estate	44,692			2,239			42,453			1,896	%	42,453			—
Loss on extinguishment of debt	(26		)	—			(26		)	n/a		(26		)	—
Income tax provision	(426		)	(2		)	(424		)	21,200	%	—			(424		)

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 related to real estate and real estate-related investments acquired, originated, repaid, disposed or deconsolidated on or after July 1, 2017 .

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income and tenant reimbursements decreased from $27.9 million and $6.1 million , respectively, for the three months ended September 30, 2017 to $19.6 million and $3.3 million , respectively, for the three months ended September 30, 2018 , primarily as a result of the sale of 11 properties to a newly formed real estate investment trust that was listed on the Singapore Stock Exchange (the “the Singapore Portfolio”) and the Central Building, partially offset by properties acquired in 2018 . The occupancy of our office and retail properties, collectively, held throughout both periods decreased from 76% as of September 30, 2017 to 75% as of September 30, 2018 and the occupancy of our apartment properties, collectively, held throughout both periods decreased from 97% as of September 30, 2017 to 94% as of September 30, 2018 . Annualized base rent per square foot increased from $18.90 as of September 30, 2017 to $19.74 as of September 30, 2018 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 owning the properties acquired during 2018 for an entire period, leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

Dividend income from real estate equity securities increased from $1.0 million for the three months ended September 30, 2017 to $2.9 million for the three months ended September 30, 2018 , as a result of additional real estate equity securities acquired, partially offset by the sale of real estate equity securities in 2018 . We expect dividend income from real estate equity securities to increase in future periods as a result of owning the real estate equity securities acquired in 2018 for an entire period but to decrease to the extent we sell additional securities.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Property operating costs and real estate taxes and insurance decreased from $11.4 million and $4.8 million , respectively, for the three months ended September 30, 2017 to $8.3 million and $3.2 million , respectively, for the three months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio and the Central Building, partially offset by real estate investments made in 2018 . We expect property operating costs and real estate taxes and insurance to increase in future periods as a result of owning real estate acquired in 2018 for an entire period, 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 decreased from $2.8 million for the three months ended September 30, 2017 to $2.3 million for the three months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio and the Central Building. We expect asset management fees to increase in future periods as a result of owning real estate investments acquired in 2018 for an entire period, future acquisitions of real estate and capital expenditures, but to decrease to the extent we dispose of properties. All asset management fees incurred as of September 30, 2018 have been paid.

General and administrative expenses increased from $1.2 million for the three months ended September 30, 2017 to $1.5 million for the three months ended September 30, 2018 , primarily due to increased legal expenses. We expect general and administrative expenses to fluctuate based on investment and disposition activity.

We recognized $4.4 million and $8,000 of foreign currency transaction loss, net, for the three months ended September 30, 2017 and 2018 , respectively, related to the Series A debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates, but expect our exposure to be limited to the extent that we have entered into foreign currency options and foreign currency collars. As of September 30, 2018 , we had entered into one 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 in February 2019 and has an aggregate Israeli new Shekels notional amount of 776.2 million . For the three months ended September 30, 2018 , the foreign currency transaction loss , net, consists of $0.2 million of foreign currency transaction loss , offset by a $0.2 million gain related to our foreign currency collar.

Depreciation and amortization decreased from $13.2 million for the three months ended September 30, 2017 to $9.8 million for the three months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio and and the Central Building, partially offset by real estate investments made in 2018 . We expect depreciation and amortization to increase in future periods as a result of owning real estate acquired in 2018 for an entire period and future acquisitions of real estate properties, but to decrease as a result of amortization of tenant origination costs related to lease expirations and disposition of properties.

Interest expense decreased from $9.6 million for the three months ended September 30, 2017 to $8.4 million for the three months ended September 30, 2018 , primarily as a result of the paydown of debt on disposed properties. Excluded from interest expense was $0.6 million of interest capitalized to our investments in undeveloped land during each of the three months ended September 30, 2018 and 2017 . 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 and will decrease to the extent we dispose of properties and paydown debt.

During the three months ended September 30, 2018 , we received a distribution of $1.2 million related to our investment in the NIP Joint Venture. We recognized $0.2 million of income distributions and $1.0 million of return of capital from the NIP Joint Venture. During the three months ended September 30, 2017 , we did not receive any distributions related to our investment in the NIP Joint Venture.

Equity in loss of unconsolidated joint ventures increased from $2.2 million for the three months ended September 30, 2017 to $2.6 million for the three months ended September 30, 2018 , primarily as a result of the equity in loss related to 353 Sacramento, which has been accounted for as an unconsolidated joint venture under the equity method of accounting beginning July 2017.

Gain on real estate equity securities was $0.7 million during the three months ended September 30, 2018 , primarily as a result of increases in share prices of our investments in real estate equity securities and the adoption of ASU No. 2016-01.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

During the three months ended September 30, 2017 , we sold a 45% interest in the 353 Sacramento property, which resulted in deconsolidation, and recognized deferred profit related to the sale of 102 acres of undeveloped land that resulted in a total gain on sale of $2.2 million . We recognized a gain on sale of $1.7 million related to the sale of a 45% interest in the 353 Sacramento property. We recognized $0.5 million of the deferred profit related to the land sale. During the three months ended September 30, 2018 , we sold one office building and 83 developable acres of undeveloped land that resulted in a gain on sale of $44.7 million . We recognized a gain on sale of $32.1 million related to the disposition of the office building. We recognized a gain on sale of $12.6 million related to the disposition of the 83 developable acres of undeveloped land, which is net of deferred profit of $1.1 million related to proceeds received from the purchaser for the value of land that was contributed to a master association that we consolidated.

Comparison of the nine months ended September 30, 2018 versus the nine months ended September 30, 2017

The following table provides summary information about our results of operations for the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):



	Nine Months Ended September 30,						Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Originations/ Dispositions ⁽¹⁾			$ Change Due to Investments Held Throughout Both Periods ⁽²⁾
	2018			2017			Increase (Decrease)			Percentage Change
Rental income	$	53,681		$	90,200		$	(36,519	)	(40	)%	$	(37,298	)	$	779
Tenant reimbursements	9,729			18,188			(8,459		)	(47	)%	(8,625		)	166
Other operating income	2,001			3,484			(1,483		)	(43	)%	(963		)	(520		)
Interest income from real estate debt securities	1,525			1,271			254			20	%	254			—
Dividend income from real estate equity securities	5,146			1,505			3,641			242	%	3,641			—
Operating, maintenance, and management costs	21,395			33,638			(12,243		)	(36	)%	(12,896		)	653
Real estate taxes and insurance	8,982			14,932			(5,950		)	(40	)%	(6,123		)	173
Asset management fees to affiliate	6,342			8,404			(2,062		)	(25	)%	(2,115		)	53
General and administrative expenses	6,037			4,115			1,922			47	%	n/a			n/a
Foreign currency transaction (gain) loss, net	(9,106		)	11,454			(20,560		)	(180	)%	n/a			n/a
Depreciation and amortization	26,133			43,136			(17,003		)	(39	)%	(16,321		)	(682		)
Interest expense	22,814			29,327			(6,513		)	(22	)%	(7,309		)	796
Income from unconsolidated joint venture	428			1,869			(1,441		)	(77	)%	—			(1,441		)
Equity in loss of unconsolidated joint ventures	(7,394		)	(3,928		)	(3,466		)	88	%	(2,648		)	(818		)
Other interest income	1,602			536			1,066			199	%	n/a			n/a
Loss on real estate equity securities	(6,546		)	—			(6,546		)	n/a		(6,546		)	—
Gain on sale of real estate	45,340			36,267			9,073			25	%	9,073			—
Loss on extinguishment of debt	(26		)	—			(26		)	n/a		(26		)	—
Income tax provision	(178		)	(176		)	(2		)	1	%	—			(2		)

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 related to real estate and real estate-related investments acquired, originated, repaid, disposed or deconsolidated on or after January 1, 2017 .

⁽²⁾ Represents the dollar amount increase (decrease) for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income and tenant reimbursements decreased from $90.2 million and $18.2 million , respectively, for the nine months ended September 30, 2017 to $53.7 million and $9.7 million , respectively, for the nine months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio, 50 Congress Street and the Central Building, partially offset by properties acquired in 2018 . The occupancy of our office and retail properties, collectively, held throughout both periods decreased from 78% as of September 30, 2017 to 76% as of September 30, 2018 and the occupancy of our apartment properties, collectively, held throughout both periods decreased from 97% as of September 30, 2017 to 94% as of September 30, 2018 . Annualized base rent per square foot increased from $17.30 as of September 30, 2017 to $18.04 as of September 30, 2018 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 owning the properties acquired during 2018 for an entire period, leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Other operating income decreased from $3.5 million for the nine months ended September 30, 2017 to $2.0 million for the nine months ended September 30, 2018 primarily as a result of the sale of the Singapore Portfolio, 50 Congress Street and the Central Building and an award of $0.5 million for legal fees incurred at the Burbank Collection during the nine months ended September 30, 2017 , partially offset by properties acquired in 2018 . We expect other operating income to increase in future periods as a result of owning the properties acquired during 2018 for an entire period, leasing additional space and increases in parking rates and to the extent we acquire additional properties.

Interest income from real estate debt securities increased from $1.3 million for the nine months ended September 30, 2017 to $1.5 million for the nine months ended September 30, 2018 , as a result of additional real estate debt securities acquired. We expect interest income from real estate debt securities to remain consistent, but to decrease upon principal repayment or maturity.

Dividend income from real estate equity securities increased from $1.5 million for the nine months ended September 30, 2017 to $5.1 million for the nine months ended September 30, 2018 , as a result of additional real estate equity securities acquired, partially offset by the sale of real estate equity securities in 2018 . We expect dividend income from real estate equity securities to increase in future periods as a result of owning the real estate equity securities acquired in 2018 for an entire period but to decrease to the extent we sell additional securities.

Property operating costs and real estate taxes and insurance decreased from $33.6 million and $14.9 million , respectively, for the nine months ended September 30, 2017 to $21.4 million and $9.0 million , respectively, for the nine months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio, 50 Congress Street and the Central Building, partially offset by real estate investments made in 2018 . We expect property operating costs and real estate taxes and insurance to increase in future periods as a result of owning real estate acquired in 2018 for an entire period, 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 decreased from $8.4 million for the nine months ended September 30, 2017 to $6.3 million for the nine months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio, 50 Congress Street and the Central Building. We expect asset management fees to increase in future periods as a result of owning real estate investments acquired in 2018 for an entire period, future acquisitions of real estate and capital expenditures, but to decrease to the extent we dispose of properties. All asset management fees incurred as of September 30, 2018 have been paid.

General and administrative expenses increased from $4.1 million for the nine months ended September 30, 2017 to $6.0 million for the nine months ended September 30, 2018 , primarily due to increased legal expenses and printing and marketing expenses incurred to complete certain proxy campaigns. We expect general and administrative expenses to fluctuate based on investment and disposition activity.

We recognized $11.5 million of foreign currency transaction loss, net, for the nine months ended September 30, 2017 and $9.1 million of foreign currency transaction gain, net, for the nine months ended September 30, 2018 related to the Series A debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates, but expect our exposure to be limited to the extent that we have entered into foreign currency options and foreign currency collars. As of September 30, 2018 , we had entered into one 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 in February 2019 and has an aggregate Israeli new Shekels notional amount of 776.2 million . For the nine months ended September 30, 2018 , the foreign currency transaction gain , net, consists of $13.2 million of foreign currency transaction gain , partially offset by a $4.1 million loss related to our foreign currency collar.

Depreciation and amortization decreased from $43.1 million for the nine months ended September 30, 2017 to $26.1 million for the nine months ended September 30, 2018 , primarily as a result of the sale of the Singapore Portfolio, 50 Congress Street and the Central Building and a decrease related to properties held throughout both periods as a result of amortization of tenant origination costs related to lease expirations, partially offset by real estate investments made in 2018 . We expect depreciation and amortization to increase in future periods as a result of owning real estate acquired in 2018 for an entire period and future acquisitions of real estate properties, but to decrease as a result of amortization of tenant origination costs related to lease expirations and disposition of properties.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Interest expense decreased from $29.3 million for the nine months ended September 30, 2017 to $22.8 million for the nine months ended September 30, 2018 , primarily as a result of the paydown of debt on disposed properties. Excluded from interest expense was $1.9 million and $1.7 million of interest capitalized to our investments in undeveloped land during each of the nine months ended September 30, 2018 and 2017 , respectively. 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 and will decrease to the extent we dispose of properties and paydown debt.

During the nine months ended September 30, 2018 , we received aggregate distributions of $2.6 million related to our investment in the NIP Joint Venture. We recognized $0.4 million of income distributions and $2.2 million of return of capital from the NIP Joint Venture. During the nine months ended September 30, 2017 , we received a distribution of $2.9 million related to our investment in the NIP Joint Venture. We recognized $1.9 million of income distributions and $1.0 million of return of capital from the NIP Joint Venture.

Equity in loss of unconsolidated joint ventures increased from $3.9 million for the nine months ended September 30, 2017 to $7.4 million for the nine months ended September 30, 2018 , primarily as a result of the equity in loss related to the 110 William Joint Venture, primarily due to increased interest expense, and the equity in loss related to 353 Sacramento, which has been accounted for as an unconsolidated joint venture under the equity method of accounting beginning July 2017.

Other interest income increased from $0.5 million for the nine months ended September 30, 2017 to $1.6 million for the nine months ended September 30, 2018 , primarily as a result of increased dividends from our investment in money market mutual funds using the net cash proceeds from the sale of properties in 2017 .

Loss on real estate equity securities was $6.5 million during the nine months ended September 30, 2018 , primarily as a result of decreases in share prices of our investments in real estate equity securities and the adoption of ASU No. 2016-01.

During the nine months ended September 30, 2017 , we sold one office property, a 45% interest in the 353 Sacramento property and 102 acres of undeveloped land that resulted in a gain on sale of $36.3 million . We recognized a gain on sale of $29.4 million related to the disposition of the office property. We recognized a gain on sale of $1.7 million related to the sale of a 45% interest in the 353 Sacramento property. We recognized a gain on sale related to the disposition of the undeveloped land based on the percentage of completion method due to our continuing development obligations to the purchasers. We recognized a gain on sale of $5.2 million related to the land sale, which is net of deferred profit of $2.6 million. In addition, we deferred $1.7 million related to proceeds received from the purchasers and another developer for the value of land that was contributed to a master association that we consolidated. During the nine months ended September 30, 2018 , we sold one office building and 109 developable acres of undeveloped land that resulted in a gain on sale of $45.3 million . We recognized a gain on sale of $32.1 million related to the disposition of the office building. We recognized a gain on sale of $0.7 million related to the disposition of 26 developable acres of undeveloped land, which is net of deferred profit of $0.3 million related to proceeds received from the purchaser for the value of land that was contributed to a master association that we consolidated. We recognized a gain on sale of $12.6 million related to the disposition of the 83 developable acres of undeveloped land, which is net of deferred profit of $1.1 million related to proceeds received from the purchaser for the value of land that was contributed to a master association that we consolidated.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

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. 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 (to the extent that such fees and expenses have been recorded as operating 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 Institute for Portfolio Alternatives (“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, prior to our early adoption of ASU No. 2017-01 on January 1, 2017, 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.

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.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Although MFFO includes other adjustments, the exclusion of straight-line rent, the amortization of above- and below-market leases, the amortization of discounts and closing costs, gains and losses on real estate equity securities and mark to market foreign currency transaction adjustment 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;

•

Amortization of discounts and closing costs. Discounts and closing costs related to debt investments are amortized over the term of the loan as an adjustment to interest income. This application results in income recognition that is different than the underlying contractual terms of the debt investments. We have excluded the amortization of discounts and closing costs related to our debt investments in our calculation of MFFO to more appropriately reflect the economic impact of our debt investments, as discounts will not be economically recognized until the loan is repaid and closing costs are essentially the same as acquisition fees and expenses on real estate (discussed below). We believe excluding these items provides investors with a useful supplemental metric that directly addresses core operating performance;


•	Gains and losses on real estate equity securities. Upon our adoption of ASU No. 2016-01 on January 1, 2018, unrealized gains and losses on real estate securities are recognized in earnings. This is a non-cash mark-to-market adjustment which is included in net income which we have excluded in our calculation of MFFO to more appropriately reflect our ongoing operating performance;

•

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. In addition, we have entered into foreign currency collars and foreign currency options that results in a foreign currency transaction adjustment. 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; and

•

Loss from extinguishment of debt . A loss from extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance.

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 nine months ended September 30, 2018 and 2017 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
Net income ( loss) attributable to common stockholders	$	36,497		$	(10,534	)	$	22,852		$	4,220
Depreciation of real estate assets	5,253			8,354			14,249			25,650
Amortization of lease-related costs	4,573			4,874			11,884			17,486
Gain on sale of real estate ⁽¹⁾	(44,692		)	(2,239		)	(45,340		)	(36,267		)
Adjustments for noncontrolling interests - consolidated entities ⁽²⁾	(123		)	(120		)	(366		)	(377		)
Adjustments for investments in unconsolidated entities ⁽³⁾	3,230			3,757			9,818			8,346
FFO attributable to common stockholders	4,738			4,092			13,097			19,058
Straight-line rent and amortization of above- and below-market leases	(2,113		)	(524		)	(4,213		)	(3,931		)
Amortization of discounts and closing costs	24			(108		)	(104		)	(456		)
(Gain) loss on real estate equity securities	(741		)	—			6,546			—
Amortization of net premium/discount on bond and notes payable	16			13			45			36
Loss on extinguishment of debt	26			—			26			—
Unrealized loss on interest rate caps	(10		)	14			21			102
Mark-to-market foreign currency transaction loss (gain) , net	8			4,356			(9,106		)	11,454
Adjustments for noncontrolling interests - consolidated entities ⁽²⁾	(15		)	(8		)	(13		)	(31		)
Adjustments for investments in unconsolidated entities ⁽³⁾	(335		)	(1,146		)	(1,431		)	(2,820		)
MFFO attributable to common stockholders	1,598			6,689			4,868			23,412
Other capitalized operating expenses ⁽⁴⁾	(710		)	(684		)	(2,149		)	(1,992		)
Adjusted MFFO attributable to common stockholders	$	888		$	6,005		$	2,719		$	21,420

_____________________

⁽¹⁾ Reflects an adjustment to eliminate gain on sale of undepreciated land.

⁽²⁾ Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO.

⁽³⁾ Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investments in unconsolidated joint ventures.

⁽⁴⁾ Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain of our investments in undeveloped land. During the periods 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 income (loss) , 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.

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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 provided by operations were as follows for the first , second and third quarters of 2018 (in thousands, except per share amounts):



	Distribution Declared		Distributions Declared Per Share		Distributions Paid ⁽¹⁾						Cash Flows (Used In) Provided By Operations
Period	Distribution Declared		Distributions Declared Per Share		Cash		Reinvested		Total		Cash Flows (Used In) Provided By Operations
First Quarter 2018	$	1,034	$	0.016	$	38,170	$	479	$	38,649	$	(5,013	)
Second Quarter 2018	882		0.016		397		485		882		5,581
Third Quarter 2018	870		0.016		416		454		870		(129		)
	$	2,786	$	0.048	$	38,983	$	1,418	$	40,401	$	439

_____________________

⁽¹⁾ On December 7, 2017, our board of directors authorized a Special Dividend of $3.61 per share of common stock payable in either shares of our common stock or cash to, and at the election of, the stockholders of record as of December 7, 2017 (the “Record Date”). The Special Dividend was paid on January 17, 2018 to stockholders of record as of the close of business on the Record Date. If stockholders elected all cash, their election was subject to adjustment such that the aggregate amount of cash to be distributed by us was a maximum of 20% of the total Special Dividend (the “Maximum Cash Distribution”), with the remainder paid in shares of common stock. The aggregate amount of cash paid by us pursuant to the Special Dividend and the actual number of shares of common stock issued pursuant to the Special Dividend depended upon the number of stockholders that elected cash or stock and whether the Maximum Cash Distribution was met. Accordingly, on January 17, 2018, we paid $37.6 million in cash. We issued $150.3 million in common stock pursuant to the Special Dividend on January 17, 2018, which has been excluded from the distributions paid in the table.

On March 8, 2018 , our board of directors authorized a distribution in the amount of $0.01597500 per share of common stock to stockholders of record as of the close of business on March 16, 2018 . We paid this distribution on March 21, 2018 and this was the only distribution declared during the first quarter of 2018 .

On June 12, 2018 , our board of directors authorized a distribution in the amount of $0.01597500 per share of common stock to stockholders of record as of the close of business on June 15, 2018 . We paid this distribution on June 20, 2018 and this was the only distribution declared during the second quarter of 2018 .

On September 8, 2018 , our board of directors authorized a distribution in the amount of $0.01597500 per share of common stock to stockholders of record as of the close of business on September 14, 2018 . We paid this distribution on September 19, 2018 and this was the only distribution declared during the third quarter of 2018 .

For the nine months ended September 30, 2018 , we paid aggregate distributions of $40.4 million , including $39.0 million of distributions paid in cash and $1.4 million of distributions reinvested through our dividend reinvestment plan. Our net income attributable to common stockholders for the nine months ended September 30, 2018 was $22.9 million and our cash flows provided by operations were $0.4 million . Our cumulative distributions paid and net income attributable to common stockholders from inception through September 30, 2018 were $161.1 million (which excludes the $150.3 million in common stock issued pursuant to the Special Dividend discussed above) and $176.4 million , respectively. 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 $51.4 million and cash provided by operations of $91.0 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.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


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

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, 2017 filed with the SEC. There have been no significant changes to our policies during 2018 , except for our adoption of the revenue recognition and financial instruments standards issued by the Financial Accounting Standards Board effective on January 1, 2018.

Revenue Recognition

Effective January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of our adoption. Under the modified retrospective approach, an entity may also elect to apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018. A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. We elected to apply this standard only to contracts that were not completed as of January 1, 2018.

Based on our evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at our properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the three and nine months ended September 30, 2018 , tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $0.5 million and $1.4 million , respectively, which were included in tenant reimbursements on the accompanying statements of operations.

Sale of Real Estate

Prior to January 1, 2018, gains on real estate sold were recognized using the full accrual method at closing when collectibility of the sales price was reasonably assured, we were not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient and other profit recognition criteria had been satisfied. Gain on sales of real estate may have been deferred in whole or in part until the requirements for gain recognition had been met.

Effective January 1, 2018, we adopted the guidance of ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, our sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20.

ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if we determine it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. As a result of the adoption of ASC 610-20 on January 1, 2018, we recorded a cumulative effect adjustment to increase retained earnings by $2.5 million to recognize the deferred gain from the sale of 102 developable acres at Park Highlands that closed on May 1, 2017, as control of the sold acres had transferred to the buyers at closing.

Real Estate Equity Securities

Our real estate equity securities are carried at their estimated fair value based on quoted market prices for the security, net of any discounts for restrictions on the sale of the security. Any discount for lack of marketability is estimated using an option pricing model. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis.

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PART I.	FINANCIAL INFORMATION (CONTINUED)


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

Prior to our adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”) on January 1, 2018, we classified our investments in real estate equity securities as available-for-sale and unrealized gains and losses were reported in accumulated other comprehensive income (loss). Upon the sale of a security, the previously recognized unrealized gain (loss) would be reversed out of accumulated other comprehensive income (loss) and the actual realized gain (loss) recognized in earnings. Effective January 1, 2018, unrealized gains and losses on real estate equity securities are recognized in earnings.

Investment in Unconsolidated Joint Ventures

Equity Investment Without Readily Determinable Value

Prior to the adoption of ASU No. 2016-01 on January 1, 2018, we accounted for investments in unconsolidated joint venture entities in which we did not have the ability to exercise significant influence and had virtually no influence over partnership operating and financial policies using the cost method of accounting. Under the cost method, income distributions from the partnership were recognized in other income. Distributions that exceed our share of earnings were applied to reduce the carrying value of our investment and any capital contributions increased the carrying value of our investment. On a quarterly basis, we evaluated our cost method investment in an unconsolidated joint venture for other-than-temporary impairments. The fair value of a cost method investment was not estimated if there were no identified events or changes in circumstances that indicated a significant adverse effect on the fair value of the investment.

In accordance with ASU No. 2016-01, we may elect to measure an equity investment without a readily determinable value that does not qualify for the practical expedient to estimate fair value using the net asset value per share, at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We elected to measure our investment in the NIP Joint Venture in accordance with the above guidance, applying it prospectively. Distributions of income from the NIP Joint Venture are recognized in other income. Distributions that exceed our share of earnings are applied to reduce the carrying value of our investment and any capital contributions would increase the carrying value of our investment.

Subsequent Events

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

Partial Real Estate Land Sale Subsequent to September 30, 2018

Park Highlands

On October 16, 2018 , we sold approximately 15 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits, of $3.5 million , excluding closing costs. The purchasers are not affiliated with us or our advisor.

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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 investors in Israel 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.

As of September 30, 2018 , we had entered into one 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 in February 2019 and has an aggregate Israeli new Shekels notional amount of 776.2 million . The foreign currency collar consists of a purchased call option to buy Israeli new Shekels at 3.5445 and a sold put option to sell the Israeli new Shekels at 3.6592. The foreign currency collar are intended to permit us to exchange, on the settlement date of the collar, 776.2 million Israeli new Shekels for an amount ranging from $212.1 million to $219.0 million .

As of September 30, 2018 , we held 214.7 million Israeli new Shekels and 21.8 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of September 30, 2018 , we had bonds outstanding and the related interest payable in the amounts of 970.2 million Israeli new Shekels and 3.4 million Israeli new Shekels, respectively. 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 nine months ended September 30, 2018 , if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately $18.4 million and $22.5 million for the same period, respectively. The foreign currency transaction income or loss as a result of the change in foreign currency exchange rates does not take into account any gains or losses on our foreign currency collar as a result of such change, which would reduce our foreign currency exposure.

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 September 30, 2018 , the fair value of our KBS SOR (BVI) Holdings, Ltd. Series A Debentures was $271.4 million and the outstanding principal balance was $266.9 million . As of September 30, 2018 , excluding the KBS SOR (BVI) Holdings, Ltd. Series A Debentures, the fair value of our fixed rate debt was $31.3 million and the outstanding principal balance of our fixed rate debt was $30.2 million . The fair value estimate of our KBS SOR (BVI) Holdings, Ltd. Series A Debentures was calculated using the quoted bond price as of September 30, 2018 on the Tel Aviv Stock Exchange of 102.04 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 September 30, 2018 . 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.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 3.	Quantitative and Qualitative Disclosures about Market Risk (continued)

Conversely, movements in interest rates on variable rate debt 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 September 30, 2018 , we were exposed to market risks related to fluctuations in interest rates on $452.7 million of variable rate debt outstanding. As of September 30, 2018 , we had entered into one interest rate cap with a notional amount of $46.9 million that effectively limits one-month LIBOR at 3.0% effective February 21, 2017 through February 13, 2020 and one interest rate cap with a notional amount of $77.5 million that effectively limits one-month LIBOR at 3.5% effective April 2, 2018 through March 5, 2021 . Based on interest rates as of September 30, 2018 , if interest rates were 100 basis points higher or lower during the 12 months ending September 30, 2019 , interest expense on our variable rate debt would increase by $4.4 million or decrease by $4.5 million , respectively.

The weighted-average interest rates of our fixed rate debt and variable rate debt as of September 30, 2018 were 4.3% and 4.1% , respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of September 30, 2018 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of September 30, 2018 where applicable.

We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of September 30, 2018 , we owned real estate equity securities with a book value of $98.7 million . Based solely on the prices of real estate equity securities for the three months ended September 30, 2018 , if prices were to increase or decrease by 10%, our net income would increase or decrease, respectively, by approximately $9.9 million .

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, 2017 and in Part II, Item IA of our Quarterly Report on Form 10-Q for the period ended March 31, 2018 , both as 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 each calendar year, redemptions are limited to the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year.

•

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 succeeding fiscal quarters. The last $1.0 million of net proceeds from the dividend reinvestment plan during the prior year is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” with any excess funds being available to redeem shares not requested in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” during the December redemption date in the current year. To the extent that, in the last month of any calendar year, the amount of special redemption requests is less than the amount of available funds reserved for special redemptions in accordance with the previous sentence, any excess funds may be used for all other redemptions during such month. 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. On August 9, 2018, our board of directors approved an additional $6.0 million of funds available for the redemption of shares in 2018. Based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2017 and the additional $6.0 million made available by our board of directors, as of September 30, 2018 , we had $3.0 million available for all share redemption requests for the remainder of 2018 .

We may amend, suspend or terminate the program upon 10 business days’ notice to our stockholders. We may provide notice to our stockholders 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.

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PART II.	OTHER INFORMATION (CONTINUED)


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

In anticipation of a self-tender offer in order to make liquidity available to stockholders in excess of that permitted under the share redemption program, on March 14, 2018 , our board of directors approved a temporary suspension of the share redemption program starting with the March 2018 redemption period, including any unsatisfied requests from prior redemption periods. In connection with its approval of the Self-Tender (defined below), our board of directors approved the reopening of the share redemption program for the June 2018 redemption period, meaning no redemptions were made in March, April or May 2018 (including those requested following a stockholder’s death, qualifying disability or determination of incompetence). We cancelled all outstanding redemption requests under the share redemption program and did not accept any redemption requests under the share redemption program during the term of the Self-Tender.

On April 23, 2018 , we commenced a self-tender offer (the “Self-Tender”) for up to 8,234,217 shares of common stock at a price of $10.93 per share, or approximately $90.0 million of shares. We increased the number of shares accepted for payment in the Self-Tender by up to 1,294,910 shares at a price of $10.93 per share, or approximately $14.1 million of shares. On June 1, 2018 , we accepted for purchase 9,527,724 shares at a purchase price of $10.93 per share, or approximately $104.1 million of shares, excluding fees and expenses related to the Self-Tender.

During the nine months ended September 30, 2018 , we fulfilled redemption requests eligible for redemption under our share redemption program and received in good order and funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan and cash on hand. We redeemed shares pursuant to our 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 2018	407,046	$	10.97	⁽²⁾
February 2018	12,526	$	11.50	⁽²⁾
March 2018	—	$	—	⁽²⁾
April 2018	—	$	—	⁽²⁾
May 2018	—	$	—	⁽²⁾
June 2018	577,203	$	10.95	⁽²⁾
July 2018	12,617	$	11.50	⁽²⁾
August 2018	150,137	$	11.53	⁽²⁾
September 2018	299,025	$	10.97	⁽²⁾
Total	1,458,554

_____________________

⁽¹⁾ On December 8, 2016, our board of directors adopted a tenth amended and restated share redemption program (the “Tenth Amended Share Redemption Program”). Pursuant to the Tenth Amended Share Redemption Program, except for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” the price at which we will redeem shares is 95% of our most recent estimated value per share as of the applicable redemption date. The Tenth Amended Share Redemption Program was effective on December 30, 2016. The Tenth Amended Share Redemption Program was suspended from March 2018 through May 2018 , meaning no redemptions were made in March, April or May 2018 (including those requested following a stockholder’s death, qualifying disability or determination of incompetence). We cancelled all outstanding redemption requests under the share redemption program and did not accept any redemption requests under the share redemption program during the term of the Self-Tender.

On December 7, 2017, our board of directors approved an estimated value per share of our common stock of $11.50. The change in the redemption price became effective for the January 2018 redemption date and is effective until the estimated value per share is updated. We expect to update our estimated value per share no later than December 2018. As a result of the Special Dividend paid in January 2018, our board of directors delayed the processing of redemptions that would otherwise occur on the last business day of December 2017 under the share redemption program until the last business day of January 2018. Any submission or withdrawal deadlines associated with such delayed redemptions were moved to their corresponding dates in January 2018. For purposes of all the volume and funding limitations under the share redemption program, such delayed redemptions and any other redemption requests received and processed in January are deemed to have occurred in December 2017 rather than January 2018.

⁽²⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the nine months ended September 30, 2018 , we redeemed $16.1 million of common stock, of which $4.4 million relates to delayed December 2017 redemptions, which represented all redemption requests received in good order and eligible for redemption through the September 2018 redemption date, except for the $14.0 million of shares in connection with redemption requests not made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” which redemption requests will be fulfilled 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 2017 and the additional $6.0 million made available by our board of directors, we have $3.0 million available for all redemptions in the remainder of 2018 , including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence” subject to the limitations described above.

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PART II.	OTHER INFORMATION (CONTINUED)


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

In addition to the redemptions under the share redemption program described above, during the nine months ended September 30, 2018 , we repurchased an additional 29,050 shares of our common stock at $10.93 per share for an aggregate price of $0.3 million .


Item 3.	Defaults upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

None.


Item 5.	Other Information

None.

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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		Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 17, 2016

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 filed February 25, 2009

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		Purchase and Sale Agreement, by and between the Company and Keppel-KBS Westpark, LLC, dated September 23, 2018

10.2		Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated October 8, 2018

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		Tenth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K filed December 15, 2016

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

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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:	November 9, 2018	By:	/S/ K EITH D. H ALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Date:	November 9, 2018	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer, Treasurer and Secretary
			(principal financial officer)

Exhibit 10.1

_____________________________________________________________________________

PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS

BY AND BETWEEN

KBS SOR WESTPARK PORTFOLIO, LLC ,

a Delaware limited liability company

(“Seller”)

AND

KEPPEL-KBS WESTPARK, LLC ,

a Delaware limited liability company

(“Buyer”)

_____________________________________________________________________________

[Westpark Portfolio

Redmond, WA]

PURCHASE AND SALE AGREEMENT
AND ESCROW INSTRUCTIONS

THIS PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS (this “ Agreement ”) is made and entered into as of September 23, 2018 between KBS SOR WESTPARK PORTFOLIO, LLC, a Delaware limited liability company (“ Seller ”), and KEPPEL-KBS WESTPARK, LLC, a Delaware limited liability company (“ Buyer ”; Buyer and Seller are hereinafter collectively referred to as the “ Parties ” and each as a “ Party ”), with reference to the following:

A. Seller is the owner of the improved real property (the “ Real Property ”) described on Exhibit A attached hereto together with certain personal property located upon or used in connection with such improved real property and certain other assets relating thereto, all as more particularly described in Section 2 hereof.

B. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Real Property, together with certain personal property and related assets on the terms and subject to the conditions contained in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


1.	BASIC TERMS AND DEFINITIONS; REFERENCES Basic Terms and Definitions

(a) Effective Date . The effective date of this Agreement shall be the date set forth above (“ Effective Date ”).

(b) Closing Date . The Close of Escrow (as defined in Section 8.1 hereof) shall occur on the date (the “ Closing Date ”) of the earlier to occur of (i) December 31, 2018, at 1:00 p.m. (Pacific Daylight Time), or (ii) at such other time and date as may be agreed between Buyer and Seller.

(c) Escrow Holder . The escrow holder shall be First American Title Insurance Company (“ Escrow Holder ”), whose address is 18500 Von Karman Avenue, Suite 600, Irvine, California 92612, Escrow Officer: Patty Beverly; Telephone: (949) 885-2465; Telecopier: (877) 372-0260.

(d) Title Company . The title company shall be First American Title Insurance Company (“ Title Company ”), whose address is 18500 Von Karman Avenue, Suite 600, Irvine, California 92612, Title Coordinator: Kristen Hueter; Telephone: (949) 885-2450; Telecopier (877) 372-0256.

1.2 References . All references to Exhibits and Schedules refer to Exhibits and Schedules attached to this Agreement and all such Exhibits and Schedules are incorporated herein by reference. The words “herein,” “hereof,” “hereinafter” and words of similar import refer to this Agreement as a whole and not to any particular Section hereof.


2.	PURCHASE AND SALE

Subject to the terms and conditions of this Agreement, Seller agrees to sell, assign and transfer to Buyer and Buyer agrees to purchase from Seller, for the purchase price set forth in Section 3 hereof, all of Seller’s right, title and interest in and to the following (collectively, the “ Property ”):

2.1 The Real Property, together with the buildings located thereon, and all associated parking areas, and all other improvements located thereon (the buildings and such other improvements are referred to herein collectively as the (“ Improvements ”)); all references hereinafter made to the Real Property shall be deemed to include all rights, privileges, easements and appurtenances benefiting the Real Property and/or the Improvements situated thereon, including, without limitation, all mineral and water rights and all easements, rights-of-way and other appurtenances used or connected with the beneficial use or enjoyment of the Real Property;

2.2 All personal property, equipment, supplies and fixtures (collectively, the “ Personal Property ”) left on the Real Property at the Close of Escrow to the extent owned by Seller;

2.3 All of Seller’s interest in any intangible property used exclusively in connection with the Real Property and the Improvements, including, without limitation, all contract rights, warranties, guaranties, licenses, permits, entitlements, governmental approvals and certificates of occupancy;

2.4 All of Seller’s interest in all leases, tenancy agreements and other similar occupancy agreements affecting the Real Property as of the Close of Escrow (the “ Leases ”); and

2.5 All of Seller’s interest in the service agreements listed on Exhibit C attached hereto and all service agreements hereafter entered into by Seller to the extent permitted by the provisions of this Agreement and affecting the Real Property as of the Close of Escrow (the “ Contracts ”).

Notwithstanding anything to the contrary contained herein, the term “Property” shall expressly exclude any Rents (as such term is defined in Section 10.1 hereof) or any other amounts payable by tenants under the Leases for periods prior to the Close of Escrow, any Rent or other amounts payable by any former tenants of the Property, and any judgments, stipulations, orders, or settlements with any tenants under the Leases or former tenants of the Property (hereinafter collectively referred to as the “ Excluded Property ”).


3.	PURCHASE PRICE

3.1 Purchase Price . The purchase price for the Property shall be One Hundred Sixty-Nine Million Three Hundred Fifty-Eight Thousand Nine Hundred Eighty-Eight and No/100 Dollars ($169,358,988.00) (the “ Purchase Price ”).

3.2 Payment of Purchase Price . The Purchase Price shall be payable as follows:

3.2.1 Payment of Purchase Price . Provided all the conditions in Section 7.1 hereof have been satisfied or waived by Buyer, subject to the provisions of Section 3.2.2 below, Buyer shall deposit in cash or current funds with Escrow Holder no later than 1:00 p.m. (Pacific

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Daylight Time) on the Closing Date (as defined in Section 1.1(b) hereof) an amount equal to the Purchase Price plus or minus applicable prorations pursuant to Section 10 hereof.

3.2.2 Buyer Parent REIT Units . KBS Strategic Opportunity REIT, Inc., a Maryland corporation and indirect one hundred percent (100%) owner of Seller (“ KBS SOR ”), is currently the holder of six and ninety-seven one-hundredths percent (6.97%) of the issued and outstanding units (the “ Units ”) in Keppel-KBS US REIT (“ Buyer Parent REIT ”), the indirect one hundred percent (100%) owner of Buyer.

3.3 Independent Contract Consideration . Within three (3) business days after the Effective Date, Buyer shall deliver to Seller in cash the sum of One Hundred and No/100 Dollars ($100.00) (the “ Independent Contract Consideration ”) which amount has been bargained for and agreed to as consideration for Buyer’s exclusive option to purchase the Real Property and the right to inspect the Real Property as provided herein, and for Seller’s execution and delivery of this Agreement. The Independent Contract Consideration is in addition to and independent of all other consideration provided in this Agreement, and is nonrefundable in all events.


4.	PROPERTY INFORMATION; TITLE POLICY; INSPECTIONS; TENANT ESTOPPEL CERTIFICATES; CONFIDENTIALITY

4.1 Property Information . Prior to the Effective Date, Seller has made available to Buyer, and will continue to make available to Buyer during the term of this Agreement, to the extent in Seller’s possession, the following, in an electronic data room, at the Real Property, or at the local property manager’s office (collectively, the “ Property Information ”):

(a) the Leases;

(b) a current rent roll for the Real Property, indicating rents collected, scheduled rents and concessions, delinquencies, and security deposits held (collectively, the “ Rent Rolls ”);

(c) the most current operating statements for the Real Property, if available (collectively, the “ Operating Statements ”);

(d) copies of the Contracts;

(e) existing land title surveys, if any, for the Real Property (collectively, the “ Existing Surveys ”); and

(f) any environmental, soils and/or engineering reports prepared for Seller or Seller’s predecessors.

4.2 Title Reports; Title Policy .

4.2.1 Delivery of Title Report . Prior to the Effective Date, Seller has made available to Buyer a preliminary title report or title commitment covering the Real Property (the “ Title Report ”), together with copies of all documents (collectively, the “ Title Documents ”) referenced in the Title Report. Prior to the Effective Date, Buyer has requested, at Buyer’s sole cost and expense, that the Existing Survey be updated and recertified (the “ Updated Survey ”).

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During the term of this Agreement, Seller shall assist Buyer, without cost or expense to Seller, with any further review of the Title Reports and Updated Survey by Buyer and answer all follow-up questions and provide additional requested information to the extent in Seller’s possession or control. Seller covenants and agrees to remove (or cause to be removed) from the Real Property concurrently with the Close of Escrow each of the following (collectively, the “ Monetary Encumbrances ”): (i) all deeds of trust, mortgages and/or other debt instruments to the extent executed by Seller or expressly assumed by Seller in writing (which obligation shall be deemed satisfied if Seller or Escrow Holder has received a payoff letter from the applicable lender and Seller has authorized Escrow Holder to use a portion of the Purchase Price to satisfy the applicable obligation in full in accordance with such payoff letter as part of the Close of Escrow), and (ii) any other monetary liens which are of an ascertainable amount and are capable of being removed upon the payment of money (which obligation shall be deemed satisfied if the same is bonded over in a manner acceptable to the Title Company); provided, however, that work affecting the Real Property performed or to be performed by or on behalf of a tenant or subtenant under a Lease will not be Seller’s responsibility, and accordingly Seller shall not be obligated to remove from the Real Property either (x) notices of commencement of work to be performed by contractors or subcontractors engaged by such tenants or subtenants, or (y) any liens filed with respect to such work performed by or on behalf of any such tenant, unless (and only to the extent that) an item referenced in either clauses (x) or (y) above would impair Seller’s ability to transfer the Real Property to Buyer.

4.2.2 Delivery of Title Policy at Closing . As a condition precedent to the Close of Escrow, the Title Company shall have issued and delivered to Buyer, or shall have committed to issue and deliver to Buyer, with respect to the Real Property, a Standard Coverage Owner’s Policy of Title Insurance (2006 Form) (the “ Title Policy ”) in the form of the Title Report, issued by the Title Company as of the date and time of the recording of the Deed (as such term is defined in Section 6.1 hereof) for the Real Property, in the amount of the Purchase Price insuring Buyer as owner of good, marketable and indefeasible fee simple legal title to the Real Property, subject only to the Permitted Exceptions (as hereinafter defined). For purposes of this Agreement, “ Permitted Exceptions ” shall mean and include (a) any lien to secure payment of real estate taxes, including special assessments, not delinquent, (b) all matters which could be revealed or disclosed by a physical inspection or a survey of the Real Property and matters affecting the Real Property which are created by or with the written consent of Buyer or which do adversely affect Buyer’s contemplated use of the Real Property, (c) the rights of the tenants under the Leases affecting the Real Property, (d) all exceptions disclosed in writing by the Title Report relating to the Real Property, (e) any exception for liens for services, labor or materials heretofore or hereafter furnished to the Property for which Buyer is entitled to a credit at the Close of Escrow pursuant to this Agreement, for which Buyer is expressly responsible for payment under the terms of this Agreement, and/or which arises from any services, labor or materials contracted for by any tenant at the Property and with respect to which any such tenant is responsible for payment under the terms of its Lease, and (f) all applicable laws, ordinances, rules and governmental regulations (including, without limitation, those relating to building, zoning and land use) affecting the development, use, occupancy or enjoyment of the Real Property.

4.3 Inspections .

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4.3.1 Inspections in General . During the term of this Agreement, Buyer, its agents, and employees shall have a limited license (the “ License ”) to enter upon the Real Property for the purpose of making non-invasive inspections at Buyer’s sole risk, cost and expense. Before any such entry, Buyer shall provide Seller with a certificate of insurance naming Seller as an additional insured and with an insurer and insurance limits and coverage reasonably satisfactory to Seller. All of such entries upon the Real Property shall be at reasonable times during normal business hours and after at least forty-eight (48) hours prior notice to Seller or Seller’s agent, and Seller or Seller’s agent shall have the right to accompany Buyer during any activities performed by Buyer on the Real Property. Notwithstanding anything stated to the contrary herein, Buyer shall have no right to inspect any of the occupied space in the Real Property, Buyer shall not contact or speak to any of the tenants under the Leases, unless Buyer provides Seller with no less than forty-eight (48) hours prior written notice of such intention and Seller or Seller’s representative is present during such inspections and/or discussions with tenants; any discussions with tenants shall immediately cease at the tenant’s request and any discussions with tenants must be limited to their existing tenancy and premises and may not involve any lease renegotiations. Seller agrees to make itself or its representatives reasonably available to be present during Buyer’s inspections and/or discussions with tenants. Inspections by Buyer shall not interfere with the rights of tenants. To the extent a consultant is engaged by Buyer to perform any tests or inspections, at Seller’s request, Buyer shall provide Seller (at reasonable cost to Seller) with a copy of the results of any such tests and inspections, excluding only market and economic feasibility studies. If any inspection or test disturbs the Real Property, Buyer will restore the Real Property to the same condition as existed before the inspection or test. Buyer shall defend, indemnify Seller and hold Seller, Seller’s trustees, officers, tenants, agents, contractors and employees and the Real Property harmless from and against any and all losses, costs, damages, claims, or liabilities, including but not limited to, mechanics’ and materialmens’ liens and Seller’s attorneys’ fees, arising out of or in connection with Buyer’s, or its agents’, contractors’, employees’, or invitees’ entry upon or inspection of the Real Property but expressly excluding any such losses, costs, damages, claims or liabilities arising from Buyer’s discovery of an existing condition on the Real Property so long as Buyer’s actions do not exacerbate such condition (and then only to the extent, if any, Buyer’s tests or inspections actually exacerbate such condition) or arising from Seller’s negligence or willful misconduct. The License may be revoked by Seller at any time and shall in any event be deemed revoked upon termination of this Agreement. The provisions of this Section 4.3.1 shall survive the Close of Escrow or the earlier termination of this Agreement.

4.3.2 Environmental Inspections . The inspections under Section 4.3.1 may include non-invasive Phase I environmental inspections of the Real Property, but no Phase II environmental inspections or other invasive inspections or sampling of soil or materials, including without limitation construction materials, either as part of the Phase I inspections or any other inspections, shall be performed without the prior written consent of Seller, which may be withheld in its sole and absolute discretion (provided, however, that if a Phase I inspection of the Real Property recommends in writing that a Phase II inspection be conducted, Seller shall not unreasonably withhold its consent to such Phase II), and if consented to by Seller, the proposed scope of work and the party who will perform the work shall be subject to Seller’s review and approval. To the extent a consultant is engaged by Buyer to perform any other tests or inspections, at Seller’s request, Buyer shall deliver to Seller (at reasonable cost to Seller) copies

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of any Phase II or other environmental reports performed by such consultant to which Seller consents as provided above.

4.4 Tenant Estoppel Certificates . Seller shall endeavor to secure and deliver to Buyer by the Closing Date estoppel certificates for all Leases consistent with the information in the Rent Rolls and substantially in the form attached hereto as Exhibit D or such form as may be required under the applicable Leases. Buyer may terminate this Agreement upon two (2) business days written notice to Seller if, no less than three (3) business days prior to the Closing Date, Seller fails to deliver to Buyer estoppel certificates substantially in the form attached hereto as Exhibit D or such form as may be required under any particular Lease (“ Tenant Estoppel Certificates ”), executed by tenants under Leases covering at least seventy percent (70%) of the leased rental floor area of the Real Property and meeting the foregoing requirements.

4.5 Contracts . Buyer shall assume the obligations arising from and after the Closing Date under the Contracts; provided, however, that: (1) notwithstanding anything stated to the contrary herein, with respect to any property management agreement or leasing agreements listed in Exhibit C attached hereto and made a part hereof, Buyer shall have the right to elect in writing to either (A) assume each such property management agreement or leasing agreement as of the Close of Escrow or (B) have Seller terminate such property management agreement or leasing agreement as of the Close of Escrow (in which case Buyer would enter into new replacement agreements with the applicable property managers and leasing agents), and (2) if Buyer elects to have any property management or leasing agreement terminated pursuant to clause (1)(A), then notwithstanding Seller’s termination of any such property management agreement or leasing agreement listed in Exhibit C attached hereto, and in consideration of Seller’s terminating the same and Seller’s continued leasing of the Property after the Effective Date, Buyer shall be responsible for, and Buyer shall assume pursuant to the terms and provisions of the Assignment of Leases and Contracts and Bill of Sale, as hereinafter defined, all leasing commissions payable (notwithstanding the termination of any such agreement) under such property management agreements and leasing agreements after the Close of Escrow arising out of the lease of space in the Property after the Close of Escrow.

4.6 Confidentiality .

4.6.1 Each Party agrees not to disclose or permit the disclosure of any of the terms of this Agreement or any other confidential, non-public or proprietary information relating to the Property, Seller, or the business of Seller (collectively, “ Confidential Information ”); provided that such disclosure may be made (a) to any person who is a member, partner, manager, officer, investor, director or employee, directly or indirectly, of such Party or counsel to, or accountants of, such Party solely for their use and on a need-to-know basis; provided that such person or entity is notified of the Party’s confidentiality obligations hereunder, (b) with the prior consent of the other Party, (c) subject to Section 4.6.2 below, pursuant to a subpoena, order issued or examination by a court, arbitrator or governmental body, agency or official, (d) to any lender providing financing to Seller and/or Buyer, (e) to any governmental or regulatory authority, body or agency or stock exchange pursuant to applicable laws, rules, guidelines or regulations as reasonably determined by such Party, or (f) pursuant to any regulatory requirement. Notwithstanding the foregoing and anything to the contrary in this Agreement (i)

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any Party may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided relating to such tax treatment and tax structure, and (ii) nothing contained herein shall impair any Party’s (or any Party’s affiliate’s) right to disclose information relating to this Agreement or to the Property (x) 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 such Party or its affiliates, (y) in connection with any filings (including any amendment or supplement to any S‑11 filing) with governmental or regulatory agencies or stock exchanges (including the United States Securities and Exchange Commission or any regulatory agency or body in Singapore such as the Singapore Exchange Securities Trading Limited (“ SGX ”)) by any Party or other person or entity holding an interest (direct or indirect) in any Party, and (z) to any broker/dealers in such Party’s or its affiliates’ broker/dealer network and any of the Party’s or its affiliates’ investors.

4.6.2 In the event that a Party receives a request to disclose any Confidential Information under a subpoena or order or examination by a court, arbitrator or governmental body, agency or official, such Party shall to the extent legally practicable (i) promptly notify the other Party, (ii) consult with the other Party on the advisability of taking steps to resist or narrow such request, and (iii) if disclosure is required or deemed advisable, reasonably cooperate with the other Party in any attempt such other Party may make to obtain an order or other assurance that confidential treatment will be accorded the Confidential Information that is disclosed.

4.6.3 Without limiting the rights of the Parties in Section 4.6.1 above, no Party shall issue or publish any press release, tombstone or any other similar public communication advertising the sale of the Property to Buyer that would disclose the financial aspects of this Agreement or the financial aspects of the business of the Property without the written prior approval of all of the Parties.


5.	OPERATIONS AND RISK OF LOSS

5.1 Ongoing Operations . During the term of this Agreement, but subject to the limitations set forth below, Seller shall carry on its businesses and activities relating to the Real Property, including maintaining the Property in good condition and repair, subject to normal wear and tear and Section 5.4 below, substantially in the same manner as it did before the date of this Agreement.

5.2 New Contracts . During the term of this Agreement, Seller may enter into new service agreements and may amend, renew, modify and terminate existing Contracts relating to the maintenance and operation of the Property substantially in accordance with Seller’s past practices and in the ordinary course of business, provided that Seller delivers to Buyer copies of any Contracts executed after the Effective Date within five (5) business days after Seller’s execution of the same (which may be delivered to David Snyder or Andy Gwee by electronic mail) and these Contracts are cancelable on not more than thirty (30) days’ written notice, without the payment of any termination or other similar fee. All of the service agreements shall require prior written approval of the Buyer, which approval shall not be unreasonably withheld, conditioned or delayed and may be delivered by David Snyder or Andy Gwee by electronic mail (and shall be deemed given if not rejected in writing within five (5) business days after Buyer

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receives Seller’s request for such approval); provided, however, that Buyer’s consent shall not be required for any contracts required to enable Seller to comply with the terms of the Leases or required to address any health or safety conditions at the Property.

5.3 Leasing Arrangements .

5.3.1 Leasing Prior to Closing . During the term of this Agreement, Seller may not, without prior written approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed and may be delivered by David Snyder or Andy Gwee by electronic mail (and shall be deemed given if not rejected in writing within five (5) business days after Buyer receives Seller’s request for such approval): (a) execute any new Lease affecting the Real Property (or any part thereof); (b) materially amend any existing Lease; or (c) terminate or accept the surrender of any Lease; provided however that Seller is authorized to accept the termination of Leases at their existing terms and to expand, extend or renew any Lease pursuant to expansion, extension or renewal options contained therein. At the Close of Escrow, Buyer shall reimburse Seller for commissions, legal fees, the cost of tenant improvements, and all other leasing costs and expenses paid by Seller with respect to all new leases and all other Lease amendments, expansions or renewals or new leases that were entered into after the Effective Date and, at Close of Escrow, shall assume in writing (pursuant to the Assignment of Leases and Contracts and Bill of Sale) Seller’s obligations (whether arising before or after the Closing Date) under such new leases and Lease amendments, expansions or renewals.

5.3.2 Free Rent After Closing . Schedule 2 attached hereto lists the free rent that certain tenants will receive under their new leases after the Close of Escrow (the “ New Leases with Free Rent ”). Each of the New Leases with Free Rent have been fully executed but the applicable tenant has not yet commenced paying rent per the terms of each of the New Leases with Free Rent. For each New Lease with Free Rent, the free rent for the period between the Close of Escrow and each lease commencement date (identified as “Start Date” in Schedule 2 ) is identified in Schedule 2 as “Rent Shortfall Payment”. Seller hereby agrees that, commencing on the Close of Escrow and continuing until the Start Date for each New Lease with Free Rent, Seller shall pay to Buyer the total amount of “Rent Shortfall Payment” listed on Schedule 2 for each New Lease with Free Rent. Seller shall pay the Rent Shortfall Payment in installments on a monthly basis, with the first payment being a “stub” payment payable to Buyer at the Close of Escrow for the period between the Close of Escrow and the first day of the month following the Close of Escrow. Thereafter, Seller shall pay to Buyer the applicable monthly amount of Rent Shortfall Payment for each New Lease with Free Rent so that the full amount of Rent Shortfall Payment for each New Lease with Free Rent has been paid to Buyer on or before each Start Date listed in Schedule 2 . In addition, Schedule 2 lists the amount of free rent to be received under each New Lease with Free Rent from and after Start Date (identified as “Free Rent Buyout” in Schedule 2 ). Buyer hereby requests that Seller enter into an agreement with each tenant under a New Lease with Free Rent pursuant to which Seller will buyout each such tenant’s free rent after the applicable Start Date (the Free Rent Buyout) so that each such tenant shall commence paying monthly base rent as of the Start Dates listed in Schedule 2 . If, for any reason, Seller is unable to enter into any such buyout agreement prior to the Close of Escrow for any New Lease with Free Rent, Seller hereby agrees that commencing on the Start Date for each such lease Seller shall pay to Buyer the “Free Rent Buyout” set forth on Schedule 2 for each such lease in monthly installments to compensate Buyer for the period of free rent granted to the respective tenant

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under each such lease. The provisions of this Section 5.3.2 shall survive the Close of Escrow, but if requested by Buyer, Seller agrees to enter into a mutually acceptable agreement at the Close of Escrow to memorialize Seller’s obligations in this Section 5.3.2 . If Seller enters into a free rent buyout agreement after the Close of Escrow, but prior to the Start Date for any New Lease with Free Rent such that the applicable tenant has agreed to pay monthly base rent as of its Start Date, Seller shall no longer be obligated to pay Buyer the Free Rent Buyout to Buyer for such lease. Buyer and Seller agree that the amount of “Rent Shortfall Payment” and “Free Rent Buyout” as identified on Schedule 2 were calculated based on the Close of Escrow occurring on November 15, 2018, and that the Purchase Price of $169,358,988.00 was calculated based on the amount of “Rent Shortfall Payment” and “Free Rent Buyout” as identified on such Schedule 2 . Notwithstanding anything to the contrary set forth in this Section 5.3.2 , in the event that the Close of Escrow occurs prior to or after November 15, 2018 in accordance with the terms of this Agreement, Buyer and Seller agree that (i) the amount of "Rent Shortfall Payment" and “Free Rent Buyout” as identified on Schedule 2 shall be recalculated to reflect such earlier or later date on which the Close of Escrow actually occurs, and (ii) the Purchase Price shall be adjusted dollar-for-dollar by an amount equal to any decrease or increase to the amount of “Rent Shortfall Payment” and “Free Rent Buyout” resulting from any such recalculation.

5.4 Damage or Condemnation . Risk of loss shall remain with Seller. If prior to the Close of Escrow, the Real Property shall be Materially Damaged (defined below), or if any Material Portion (defined below) of the Real Property shall be subjected to a bona fide written threat of condemnation or shall become the subject of any proceedings, judicial, administrative or otherwise, with respect to the taking by eminent domain or condemnation by a governmental authority (a “ Material Taking ”), then Seller shall promptly notify Buyer in writing that such Material Damage or Material Taking has occurred after Seller obtains actual knowledge of such occurrence, and Buyer may elect not to acquire the Real Property by delivering written notice of such election to Seller within five (5) days after Buyer learns of the Material Damage or Material Taking, in which event Buyer shall no longer be obligated to purchase, and Seller shall no longer be obligated to sell, the Real Property and this Agreement shall terminate. If the Closing Date is within the aforesaid 5 ‑ day period, then Buyer shall have the right to elect in writing to extend the Close of Escrow to no later than the next business day following the end of said 5 ‑ day period so that Buyer may receive the benefit of such 5-day period (or so much so as Buyer may elect). If no such election is made, and in any event if the damage does not constitute Material Damage, or an eminent domain or condemnation proceeding or bona fide written threat does not affect a Material Portion of the Real Property, then this Agreement shall remain in full force and effect, and the purchase contemplated herein (less any interest taken by eminent domain or condemnation) shall be consummated pursuant to the terms of this Agreement (after deducting all reasonable costs incurred by Seller in defending such eminent domain or condemnation proceeding prior to the Close of Escrow); provided, however, that Buyer shall be entitled to receive any condemnation award or payment, and upon the Close of Escrow, Seller shall assign, transfer and set over to Buyer all of the right, title and interest of Seller in and to any awards that have been or that may thereafter be made for such taking, and Seller shall assign, transfer and set over to Buyer any insurance proceeds that may thereafter be made for such damage or destruction giving Buyer a credit at the Close of Escrow for any deductible under such policies. For purposes of this Section 5.4 , the phrase(s) (i) “ Material Damage ” or “ Materially Damaged ” means damage reasonably exceeding ten percent (10%) of the Purchase Price as

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reasonably determined by Seller after engaging a third-party consultant to determine the scope and cost to repair such damage, and (ii) “ Material Portion ” means any portion of the Real Property that has a “fair market value” exceeding ten percent (10%) of the Purchase Price of the Real Property as reasonably determined by Seller after engaging a third-party broker to provide an opinion of value with respect to the affected portion of the Real Property.

5.5 Additional Covenants of Seller . During the term of this Agreement, Seller covenants and agrees as follows:

(a) No Monetary Encumbrances . Not to create any new Monetary Encumbrances or to modify or increase any existing Monetary Encumbrances unless Seller will satisfy and discharge same at or prior to the Close of Escrow in accordance with Section 4.2 above;

(b) No Sales or Options to Purchase . Not to sell or transfer, or agree to sell or transfer, the Real Property or grant any option to sell or transfer the Real Property inconsistent with this Agreement;

(c) Compliance with Laws and Agreements . To use commercially reasonable efforts to conduct its business and affairs at the Real Property in a manner that will comply with (1) applicable laws, regulations, orders and directives of any governmental agency having jurisdiction over the Real Property and (2) Seller’s obligations under the Leases, the Contracts or other written agreements to which Seller is a party, in each case where such non-compliance would result in the imposition of a lien or other encumbrance against the Real Property that would prevent the transfer of title of the Real Property or the imposition of a restriction that would prevent the continued use or operation of the Real Property in the manner that the Property was operated prior to the date of this Agreement;

(d) Maintain Insurance . To continue to maintain its current insurance policies with respect to the Property through the Close of Escrow and not to knowingly take any action or knowingly permit any action to be taken at the Property that would render any such existing insurance policies to be, or become invalid, void or voidable;

(e) Disclosure of Litigation . To promptly disclose to Buyer in writing any service of process received or litigation filed against Seller or, if within the Seller’s Actual Knowledge (defined below), brought by or against Seller, under or in connection with the Leases and/or the Real Property where such service of process or litigation filed would impose a continuing obligation or liability on Buyer or the Real Property after the Close of Escrow or Seller’s ability to perform hereunder.

5.6 Additional Covenants of Buyer . Buyer shall use its commercially reasonable efforts to complete the Offering (as defined in Section 7.1(h) below) and to ensure that the Units (as defined in Section 7.1(h) below) will be listed, and the trading of such Units will commence and continue on the SGX.


6.	SELLER’S AND BUYER’S DELIVERIES

6.1 Seller’s Deliveries into Escrow . No less than one (1) business day prior to the Closing Date, Seller shall deliver into Escrow (as such term is defined in Section 9 hereof) to the Escrow Holder the following:

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(a) Deed . A deed (the “ Deed ”) in the form attached hereto as Exhibit E , executed and acknowledged by Seller, conveying to Buyer Seller’s title to the Real Property.

(b) Assignment of Leases and Contracts and Bill of Sale . An Assignment of Leases and Contracts and Bill of Sale (“ Assignment of Leases and Contracts and Bill of Sale ”) in the form of Exhibit F attached hereto, executed by Seller.

(c) State Law Disclosures . Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of the Real Property.

(d) FIRPTA . A Foreign Investment in Real Property Tax Act affidavit executed by Seller substantially in the form of Exhibit G attached hereto.

(e) Owner’s Affidavit . An owner’s affidavit with respect to the Real Property (the “ Owner’s Affidavit ”) in the form of Exhibit I attached hereto, executed by Seller, except that Buyer shall have no right to receive a copy of such Owner’s Affidavit.

(f) Seller’s Reaffirmation . A certificate of Seller confirming whether the representations and warranties made by Seller in Section 11.1 hereof continue to be true and correct in all material respects.

(g) State-Specific Deliveries . If applicable, the state-specific deliveries (each, a “ State-Specific Delivery ” and collectively, the “ State-Specific Deliveries ”) listed on Exhibit J attached hereto.

(h) Additional Documents . Any additional documents that Escrow Holder or the Title Company may reasonably require for the proper consummation of the transaction contemplated by this Agreement.

6.2 Buyer’s Deliveries into Escrow . No less than one (1) business day prior to the Closing Date, Buyer shall deliver into Escrow to the Escrow Holder the following:

(a) Purchase Price . The Purchase Price, composed as provided in Section 3.2.2. above, plus or minus applicable prorations, deposited by Buyer with the Escrow Holder no later than 1:00 p.m. (Pacific Daylight time) one (1) business day prior to the Closing Date.

(b) Assignment of Leases and Contracts and Bill of Sale . An Assignment of Leases and Contracts and Bill of Sale executed by Buyer.

(d) State Law Disclosures . Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of the Real Property.

(e) Additional Documents . Any additional documents that Escrow Holder or the Title Company may reasonably require for the proper consummation of the transaction contemplated by this Agreement.

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6.3 Closing Statements/Escrow Fees; Tenant Notices . Prior to 10:00 a.m. (Pacific Daylight Time) on the Closing Date, Seller and Buyer shall deposit with the Escrow Holder executed closing statements consistent with this Agreement in the form required by the Escrow Holder and, Seller and Buyer shall execute at the Close of Escrow, and deliver to each tenant immediately after the Close of Escrow, tenant notices regarding the sale of the Real Property in substantially the form of Exhibit H attached hereto, or such other form as may be required by applicable state law.

6.4 Post-Closing Deliveries . Immediately after the Close of Escrow, to the extent in Seller’s possession, Seller shall deliver to the offices of Buyer’s property manager : the original Leases; copies or originals of all contracts, receipts for deposits, and unpaid bills; all keys, if any, used in the operation of the Real Property; and, if in Seller’s possession or control, any “as ‑ built” plans and specifications of the Improvements.


7.	CONDITIONS TO BUYER’S AND SELLER’S OBLIGATIONS

7.1 Conditions to Buyer’s Obligations . The Close of Escrow and Buyer’s obligation to consummate the transaction contemplated by this Agreement are subject to the satisfaction of the following conditions for Buyer’s benefit (or Buyer’s waiver thereof, it being agreed that Buyer may waive any or all of such conditions) on or prior to the Closing Date or on the dates designated below for the satisfaction of such conditions:

(a) All of Seller’s representations and warranties contained herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date, subject to any qualifications hereafter made to any of Seller’s representations as provided for in Section 11.1 hereof;

(b) As of the Closing Date, Seller shall have performed its respective obligations hereunder and all deliveries to be made at Close of Escrow by Seller shall have been tendered;

(c) There shall exist no actions, suits, arbitrations, claims, attachments, proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings, pending or threatened against Seller that would materially and adversely affect Seller’s ability to perform its respective obligations under this Agreement;

(d) There shall exist no pending or threatened action, suit or proceeding with respect to Seller before or by any court or administrative agency which seeks to restrain or prohibit, or to obtain damages or a discovery order with respect to, this Agreement or the consummation of the transaction contemplated hereby;

(e) Subject to Section 4.4 above, no less than three (3) business days prior to the Closing Date, Seller shall have delivered or caused to be delivered to Buyer, Tenant Estoppel Certificates complying with the provisions of Section 4.4 above, which Tenant Estoppel Certificates shall be consistent with the information set forth in the Rent Rolls;

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(f) Seller shall have received all consents and assignments and approvals from all parties from whom such consents to assignments or approvals are needed under all contracts, covenants and other agreements relating to the Property;

(g) The Title Company shall be irrevocably committed to issue the Title Policy in accordance with the provisions of Section 4.2.2 above;

(h) Funds received by Buyer from a public offering (the “ Offering ”) of Units of Buyer Parent REIT, together with funds received by Buyer in connection with any financing in connection with the acquisition of the Property, are sufficient to pay the Purchase Price and all closing costs that are the responsibility of Buyer pursuant to Section 9.2 below (“ Buyer Financing Contingency ”);

(i) Buyer shall have obtained all internal approvals, including without limitation, board approval of Buyer Parent REIT authorizing it to consummate the transactions contemplated hereby (“ Buyer Board Approval ”); and

(j) Buyer Parent REIT shall have obtained shareholder approval at a “Extraordinary General Meeting” authorizing it to consummate the transactions contemplated hereby (“ Buyer Shareholder Approval ”).

If Buyer determines that it will be unable to timely satisfy the Buyer Financing Contingency or unable to timely obtain Buyer Board Approval and/or Buyer Shareholder Approval, Buyer shall provide written notice of the same to Seller (a “ Specific Contingency Failure Notice ”) within two (2) business days of such determination, whereupon this Agreement shall terminate, Buyer shall reimburse Seller for all of Seller’s Out-of-Pocket Costs and Expenses (as defined in Section 9.3.2(d) below) in accordance with the provisions of Section 9.3.2(d) below, and except for those provisions of this Agreement which expressly survive the termination of this Agreement, the parties hereto shall have no further obligations hereunder.

If, notwithstanding the nonsatisfaction of any such condition, Buyer elects to waive such condition pursuant to Section 9.3 below and the Close of Escrow occurs, there shall be no liability on the part of Seller for breaches of representations and warranties of which Buyer had actual knowledge as of the Close of Escrow.

7.2 Conditions to Seller’s Obligations . The Close of Escrow and Seller’s obligations to consummate the transaction contemplated by this Agreement are subject to the satisfaction of the following conditions for Seller’s benefit (or Seller’s waiver thereof, it being agreed that Seller may waive any or all of such conditions) on or prior to the Closing Date or the dates designated below for the satisfaction of such conditions:

(a) All of Buyer’s representations and warranties contained herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date;

(b) As of the Closing Date, Buyer has performed its obligations hereunder and all deliveries to be made at Close of Escrow by Buyer shall have been tendered including,

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without limitation, the deposit with Escrow Holder of the amounts set forth in Section 6.2(a) hereof;

(c) There shall exist no actions, suits, arbitrations, claims, attachments, proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings, pending or threatened against Buyer that would materially and adversely affect Buyer’s ability to perform its obligations under this Agreement;

(d) There shall exist no pending or threatened action, suit or proceeding with respect to Buyer before or by any court or administrative agency which seeks to restrain or prohibit, or to obtain damages or a discovery order with respect to, this Agreement or the consummation of the transaction contemplated hereby;

(e) Seller shall have received all consents and assignments and approvals from all parties from whom such consents to assignments or approvals are needed under all contracts, covenants and other agreements relating to the Property;

(f) Seller shall not have received a Specific Contingency Failure Notice from Buyer; and

(g) KBS SOR shall have received board approval authorizing it to consummate the transactions contemplated hereby.


8.	CLOSE OF ESCROW; POSSESSION

8.1 “ Close of Escrow ” shall mean and refer to the point in time where the Escrow Holder is irrevocably authorized by Seller and Buyer to release to Seller the Purchase Price and other amounts due to Seller, to direct the Title Company to record the Deed, and to release the other closing documents to the Parties. The Escrow and Buyer’s right to purchase the Real Property will terminate automatically if the Close of Escrow does not occur on or before 1:00 p.m. (Pacific Daylight Time) on the Closing Date.

8.2 Sole exclusive possession of the Real Property, subject only to the Permitted Exceptions, shall be delivered to Buyer as of the Close of Escrow on the Closing Date.


9.	ESCROW

9.1 Closing . The escrow (the “ Escrow ”) for the consummation of this transaction shall be established with Escrow Holder at the address indicated in Section 15.1 hereof by the deposit of an original signed copy of this Agreement with Escrow Holder contemporaneously with the execution hereof. This Agreement shall constitute both an agreement among Buyer and Seller and escrow instructions for Escrow Holder. If Escrow Holder requires separate or additional escrow instructions which it deems necessary for its protection, Seller and Buyer hereby agree promptly upon request by Escrow Holder to execute and deliver to Escrow Holder such separate or additional escrow instructions (the “ Additional Instructions ”). In the event of any conflict or inconsistency between this Agreement and the Additional Instructions, this Agreement shall prevail and govern, and the Additional Instructions shall so provide. The

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Additional Instructions shall not modify or amend the provisions of this Agreement unless otherwise agreed to in writing by Seller and Buyer.

On the Closing Date, provided that the conditions set forth in Sections 7.1 and 7.2 hereof have been satisfied or waived, Escrow Holder shall take the following actions in the order indicated below:

(a) With respect to all closing documents delivered to Escrow Holder hereunder, and to the extent necessary, Escrow Holder is authorized to insert into all blanks requiring the insertion of dates the date of the recordation of the Deed or such other date as Escrow Holder may be instructed in writing by Seller and Buyer;

(b) Deliver to Seller, in cash or current funds, the Purchase Price, plus or minus, as the case may be, the amounts determined in accordance with the provisions of Section 10 hereof, Buyer’s signed counterparts of the Assignment of Leases and Contracts and Bill of Sale and conformed copies of the recorded Deed;

(d) Deliver to Buyer those items referred to in Section 6.1 hereof and a conformed copy of the recorded Deed;

(e) Cause the Title Company to issue the Title Policy for the Real Property in accordance with the provisions of Section 4.2.2 hereof; and

(f) Deliver to Seller and Buyer a final closing statement which has been certified by Escrow Holder to be true and correct.

9.2 Escrow and Title Charges .

(a) Upon the Close of Escrow, escrow, title charges and other closing costs shall be allocated between Seller and Buyer as follows:

(i) Seller shall pay: (1) all sales, gross receipts, compensating, stamp, excise, documentary, transfer, deed or similar taxes or fees (City, County and State) payable in connection with the consummation of the transactions contemplated by this Agreement, (2) the premiums (and taxes thereon, if applicable) for the Title Policy, (3) the cost of recording the Deed, and (4) one-half (½) of any escrow fees or similar charges of Escrow Holder.

(ii) Buyer shall pay: (1) one ‑ half (½) of any escrow fees or similar charges of Escrow Holder, and (2) if Buyer desires ALTA extended coverage for any Title Policy, Buyer shall pay the premiums and any additional costs (including taxes thereon, if applicable, and any survey costs) for such coverage (additional to the premiums for standard coverage) and the cost of any endorsements to the Title Policy, if required by Buyer.

(iii) In addition, Buyer shall pay all costs incurred in connection with Buyer’s updating or recertifying the Existing Surveys or obtaining any surveys for the Real Property.

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(iv) Except to the extent otherwise specifically provided herein, all other expenses incurred by Seller and Buyer with respect to the negotiation, documentation and closing of this transaction shall be borne and paid by the party incurring same.

(b) If the Close of Escrow does not occur by reason of Buyer’s or Seller’s default under this Agreement, then all escrow and title charges (including cancellation fees) shall be borne by the party in default.

9.3 Procedures Upon Failure of Condition .

9.3.1 General Procedure for Failure of a Condition . Except as otherwise expressly provided herein, if any condition set forth in Sections 7.1 or 7.2 hereof is not timely satisfied or waived for a reason other than the default of Buyer or Seller in the performance of its respective obligations under this Agreement:

(a) This Agreement, the Escrow and the respective rights and obligations of Seller and Buyer hereunder shall terminate (other than the indemnity and insurance obligations of Buyer set forth in Sections 4.3.1 and 14 hereof and the confidentiality provisions of Section 4.6 hereof which shall survive such termination) at the written election of the party for whose benefit such condition was imposed, which written election must be made (i) within two (2) business days after (but, as to the condition in Section 7.1(e) above, within one (1) business day after) the date such condition was to be satisfied, or (ii) on the date the Close of Escrow occurs, whichever occurs first;

(b) Escrow Holder shall promptly return to Buyer all funds of Buyer in its possession, if any, and to Seller and Buyer all documents deposited by them respectively, which are then held by Escrow Holder;

(c) Buyer shall destroy or return to Seller the Property Information and Buyer shall deliver to Seller all Work Product (as such term is defined in Section 15.3 hereof); and

(d) Any escrow cancellation and title charges shall be borne equally by Seller and Buyer.

9.3.2 Specific Procedure for Failure of Specific Conditions . Notwithstanding the foregoing, in the event that any condition set forth in Sections 7.1(h) , (i) or (j) or Section 7.2(f) hereof is not timely satisfied or waived for a reason other than the default of Buyer or Seller in the performance of its respective obligations under this Agreement:

(a) This Agreement, the Escrow and the respective rights and obligations of Seller and Buyer hereunder shall terminate (other than the provisions of this Section 9.3.2 , the indemnity and insurance obligations of Buyer set forth in Sections 4.3.1 and 14 hereof and the confidentiality provisions of Section 4.6 hereof which shall survive such termination) at the written election of the party for whose benefit such condition was imposed, which written election must be made (i) within two (2) business days after the date such condition was to be satisfied, or (ii) on the date of the Close of Escrow occurs, whichever is first;

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(d) Buyer shall promptly reimburse Seller for all of Seller’s actual out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses), as supported by reasonable documentation satisfactory to Buyer, incurred by Seller in connection with the negotiation and execution of this Agreement and in connection with Seller’s efforts to consummate the transaction contemplated hereby incurred by Seller during the period commencing on June 29, 2018 through and including the date of such termination of this Agreement (collectively, “ Seller’s Out-of-Pocket Costs and Expenses ”); and

(e) Any escrow cancelation and title charges shall be borne entirely by Buyer as its sole cost and expense.


10.	PRORATIONS

If the Purchase Price is received by Seller’s depository bank in time to credit to Seller’s account on the Closing Date, the day the Close of Escrow occurs shall belong to Buyer and all prorations hereinafter provided to be made as of the Close of Escrow shall each be made as of the end of the day before the Closing Date. If the cash portion of the Purchase Price is not so received by Seller’s depository bank on the Closing Date, then the day the Close of Escrow occurs shall belong to Seller and such proration shall be made as of the end of the day that is the Closing Date. In each such proration set forth below, the portion thereof applicable to periods beginning as of Close of Escrow shall be credited to Buyer or charged to Buyer as applicable and the portion thereof applicable to periods ending as of Close of Escrow shall be credited to Seller or charged to Seller as applicable.

10.1 Collected Rent . All rent (including, without limitation, all base rents, additional rents and retroactive rents, and expressly excluding tenant reimbursements for Operating Costs, as hereinafter defined) and all other income (and any applicable state or local tax on rent) (hereinafter collectively referred to as “ Rents ”) collected under Leases in effect on the Closing Date shall be prorated as of the Close of Escrow. Uncollected Rent shall not be prorated and, to the extent payable for the period prior to the Close of Escrow, shall remain the property of Seller. Buyer shall apply Rent from tenants that are collected after the Close of Escrow first to Rents which were applicable to the month of the Close of Escrow, second to Rents which are due to Buyer after the Close of Escrow, and third to Rents which were due to Seller on or before the Close of Escrow. Any prepaid Rents for the period following the Closing Date shall be paid over by Seller to Buyer. Buyer will make reasonable efforts, without suit, to collect any Rents applicable to the period before the Close of Escrow including, without limitation, sending to tenants bills for the payment of past due Rents during the first twelve (12) month period following the Closing Date. Seller may pursue collection of any Rents that were past due as of the Closing Date, provided that Seller shall have no right to terminate any Lease or any tenant’s occupancy under any Lease in connection therewith.

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10.2 Operating Costs and Additional Rent Reconciliation . Seller, as landlord under the Leases, is currently collecting from tenants under the Leases additional rent to cover taxes, insurance, utilities (to the extent not paid directly by tenants), common area maintenance and other operating costs and expenses (collectively, “ Operating Costs ”) in connection with the ownership, operation, maintenance and management of the Real Property. To the extent that any additional rent (including, without limitation, estimated payments for Operating Costs) is paid by tenants to the landlord under the Leases based on an estimated payment basis (monthly, quarterly, or otherwise) for which a future reconciliation of actual Operating Costs to estimated payments is required to be performed at the end of a reconciliation period, Buyer and Seller shall make an adjustment at the Close of Escrow for the applicable reconciliation period (or periods, if the Leases do not have a common reconciliation period) based on a comparison of the actual Operating Costs to the estimated payments at the Close of Escrow. If, as of the Close of Escrow, Seller has received additional rent payments in excess of the amount that tenants will be required to pay, based on the actual Operating Costs as of the Close of Escrow, Buyer shall receive a credit in the amount of such excess. If, as of the Close of Escrow, Seller has received additional rent payments that are less than the amount that tenants would be required to pay based on the actual Operating Costs as of the Close of Escrow, Seller shall receive a credit in the amount of such deficiency; provided, however, Seller shall not be entitled to the portion, if any, of such deficiency for which Seller received a credit at the Close of Escrow under clause (b) of Section 10.3 hereof. Operating Costs that are not payable by tenants either directly or reimbursable under the Leases shall be prorated between Seller and Buyer and shall be reasonably estimated by the parties if final bills are not available.

10.3 Taxes and Assessments . Real estate taxes and assessments imposed by any governmental authority (“ Taxes ”) with respect to the Real Property for the relevant tax year in which the Real Property is being sold and that are not yet due and payable or that have not yet been paid and that are not (and will not be) reimbursable by tenants under the Leases (or under leases entered into after the Close of Escrow for vacant space existing at the Close of Escrow) as Operating Costs shall be prorated as of the Close of Escrow based upon the most recent ascertainable assessed values and tax rates and based upon the number of days Buyer and Seller will have owned the Real Property during such relevant tax year. Seller shall receive a credit for any Taxes paid by Seller and applicable to (a) any period after the Close of Escrow, and (b) any period before the Close of Escrow to the extent reimbursable as Operating Costs by (i) existing tenants under the Leases and not yet received from such tenants, or (ii) future tenants that may execute leases covering space in the Real Property that is vacant as of the Close of Escrow. If, as of the Closing Date, Seller is protesting or has notified Buyer, in writing, that it has elected to protest any Taxes for the Real Property, then Buyer agrees that Seller shall have the right (but not the obligation), after the Closing Date, to continue such protest. In such case, any Taxes paid by Buyer after the Closing Date with respect to the Real Property shall be paid under protest and Buyer shall promptly notify Seller of any payments of Taxes made by Buyer with respect to the Real Property. Buyer further agrees to cooperate with Seller and execute any documents requested by Seller in connection with such protest. As to the Real Property, any tax savings received (“ Tax Refunds ”) for the relevant tax year under any protest, whether filed by Seller or Buyer, shall be prorated between the parties based upon the number of days, if any, Seller and Buyer respectively owned the Real Property during such relevant tax year; if such protest was filed by a Seller, any payment of Tax Refunds to Buyer shall be net of any fees and expenses

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payable to any third party for processing such protest, including attorneys’ fees. Seller shall have the obligation to refund to any tenants in good standing as of the date of such Tax Refund, any portion of such Tax Refund paid to Seller which may be owing to such tenants, which payment shall be paid to Buyer within fifteen (15) business days of delivery to Seller by Buyer of written confirmation of such tenants’ entitlement to such Tax Refunds. Buyer shall have the obligation to refund to tenants in good standing as of the date of such Tax Refund, any portion of such Tax Refund paid to it which may be owing to such tenants. Seller and Buyer agree to notify the other in writing of any receipt of a Tax Refund within fifteen (15) business days of receipt of such Tax Refund. To the extent either party obtains a Tax Refund, a portion of which is owed to the other party, the receiving party shall deliver the Tax Refund to the other party within fifteen (15) business days of its receipt. If Buyer or Seller fail to pay such amount(s) to the other as and when due, such amount(s) shall bear interest from the date any such amount is due to Seller or Buyer, as applicable, until paid at the lesser of (a) twelve percent (12%) per annum and (b) the maximum amount permitted by law. The obligations set forth herein shall survive the Close of Escrow and Buyer agrees that, as a condition to the transfer of the Property by Buyer, Buyer will cause any transferee to assume the obligations set forth herein.

10.4 Leasing Commissions, Tenant Improvements and Contracts . At Close of Escrow, Buyer shall assume (pursuant to the Assignment of Leases and Contracts and Bill of Sale) the obligation to pay all (a) leasing costs that are due or become due prior to the Closing Date to the extent that the same arise from a new lease or any Lease amendment, extension or expansion hereafter entered into by Seller in accordance with the terms and conditions of this Agreement, and (b) leasing costs that are due after the Closing Date. Buyer will assume the obligations arising from and after the Closing Date under the Contracts.

10.5 Tenant Deposits . All tenant security deposits actually received by Seller (and interest thereon if required by law or contract to be earned thereon) and not theretofore applied to tenant obligations under the Leases shall be transferred or credited to Buyer at the Close of Escrow or placed in escrow if required by law. As of the Close of Escrow, Buyer shall assume Seller’s obligations related to tenant security deposits that are actually transferred or credited to Buyer at the Close of Escrow. Solely with respect to tenant security deposits that are actually transferred or credited to Buyer at the Close of Escrow, Buyer will indemnify, defend, and hold Seller harmless from and against all demands and claims made by tenants arising out of the transfer or disposition of any security deposits and will reimburse Seller for all attorneys’ fees incurred or that may be incurred as a result of any such claims or demands as well as for all loss, expenses, verdicts, judgments, settlements, interest, costs and other expenses incurred or that may be incurred by Seller as a result of any such claims or demands by tenants. If any security deposits are in the form of a letter of credit, Seller’s obligation to deliver or credit such deposit shall be satisfied by the delivery by Seller of the original letter of credit to Buyer. Seller shall cooperate with Buyer to transfer any such letters of credit, including signing any assignment document requested by the issuer and presented to Seller prior to or after the Close of Escrow, but expressly excluding any obligation to draw on any letter of credit for the benefit of Buyer. All costs of the assignment of any letter of credit shall be paid by Buyer without prejudice to Buyer’s right to seek reimbursement from a tenant for such costs post-closing if permitted under the respective lease. Seller agrees that it shall not hereafter apply any tenant security deposits to tenant obligations unless (i) the respective tenant is in default under its Lease and (ii) the respective tenant is no longer in possession of their premises.

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10.6 Utilities and Utility Deposits . Utilities for the Real Property (excluding utilities for which payment is made directly by tenants), including water, sewer, electric, and gas, based upon the last reading of meters prior to the Close of Escrow, shall be prorated. Seller shall be entitled to a credit for all security deposits held by any of the utility companies providing service to the Real Property. Seller shall endeavor to obtain meter readings on the day before the Closing Date, and if such readings are obtained, there shall be no proration of such items and Seller shall pay at Close of Escrow the bills therefor for the period to the day preceding the Close of Escrow, and Buyer shall pay the bills therefor for the period subsequent thereto. If the utility company will not issue separate bills, Buyer will receive a credit against the Purchase Price for Seller’s portion and will pay the entire bill prior to delinquency after Close of Escrow. If Seller has paid utilities in advance in the ordinary course of business, then Buyer shall be charged its portion of such payment at Close of Escrow. Buyer shall be responsible for making any security deposits required by utility companies providing service to the Real Property.

10.7 Owner Deposits . Seller shall receive a credit at the Close of Escrow for all bonds, deposits, letters of credit, set aside letters or other similar items, if any, that are outstanding with respect to the Real Property that have been provided by Seller or any of its affiliates to any governmental agency, public utility, or similar entity (collectively, “ Owner Deposits ”) to the extent assignable to Buyer. To the extent any Owner Deposits are not assignable to Buyer, Buyer shall replace such Owner Deposits and obtain the release of Seller (or its affiliates) from any obligations under such Owner Deposits. To the extent that any funds are released as a result of the termination of any Owner Deposits for which Seller did not get a credit, such funds shall be delivered to Seller immediately upon their receipt.

10.8 Intentionally Omitted .

10.9 Final Adjustment After Closing . If final prorations cannot be made at the Close of Escrow for any item being prorated under this Section 10 , then, provided Buyer and Seller identify any such proration (“ Post Closing Proration ”) in writing before the Close of Escrow, Buyer and Seller agree to allocate such items on a fair and equitable basis as soon as invoices or bills are available and applicable reconciliation with tenants have been completed, with final adjustment to be made as soon as reasonably possible after the Close of Escrow (but in no event later than ninety (90) days after the Close of Escrow, except that adjustments arising from any tax protest under Section 10.3 shall not be subject to such 90 ‑ day limitation, but shall be made as soon as reasonably possible), to the effect that income and expenses are received and paid by the parties on an accrual basis with respect to their period of ownership. Payments in connection with the final adjustment shall be due no later than ninety (90) days after the Close of Escrow, except that adjustments arising from any tax protest under Section 10.3 shall not be subject to such 90 ‑ day limitation, but shall be made as soon as reasonably possible. Seller shall have reasonable access to, and the right to inspect and audit, Buyer’s books to confirm the final prorations for a period of one (1) year after the Close of Escrow. Notwithstanding anything to the contrary stated in this Section 10 , except for any reconciliation arising out of a tax protest under Section 10.3 hereof, and except for any Post Closing Prorations (which must be determined and paid within ninety (90) days after the Close of Escrow), all prorations made under this Section 10 shall be final as of the Close of Escrow and shall not be subject to further adjustment (whether due to an error or for any other reason) after the Close of Escrow.


11.	SELLER’S REPRESENTATIONS AND WARRANTIES; AS‑IS

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11.1 Seller’s Representations and Warranties . In consideration of Buyer’s entering into this Agreement and as an inducement to Buyer to purchase the Real Property from Seller, Seller makes the following representations and warranties to Buyer:

(a) Seller is a limited liability company organized and in good standing under the laws of the State of Delaware. Subject to KBS SOR’s obtaining board approval pursuant to Section 7.2(g) above, Seller has the legal right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, and subject to KBS SOR’s obtaining board approval pursuant to Section 7.2(g) above, the execution, delivery and performance of this Agreement have been duly authorized and no other action by Seller is requisite to the valid and binding execution, delivery and performance of this Agreement, except as otherwise expressly set forth herein.

(b) The obligations of Seller under this Agreement constitute its legal, valid and binding obligations enforceable against it in accordance with its terms.

(c) To Seller’s Actual Knowledge, except as disclosed in any rent roll delivered or made available to Buyer or as disclosed in Schedule 1 attached hereto: (i) Seller is not in material breach of the terms of any of the Leases, (ii) Seller has not received any written notice from any tenant under any Lease that Seller is currently in breach of a material obligation under any Lease that remains uncured as of the Effective Date, (iii) Seller is not aware of any existing material breach by a tenant of the terms of any Lease, (iv) Seller has not delivered any written notice to any tenant under any Lease claiming that such tenant is currently in breach of a material obligation under any Lease that remains uncured as of the Effective Date, and (v) Seller has not received written notice from any tenant under any Lease or any governmental authority or any third party claiming that any of the Leases are not enforceable.

(d) There is no agreement, including any partnership agreement, operating agreement, mortgage, Lease, Contract, or articles of incorporation, bylaws, partnership certificate, articles of organization, indenture, deed to secure debt, deed of trust or other document, to which Seller is a party or to Seller’s Actual Knowledge binding on Seller which would prevent Seller from consummating the transaction contemplated by this Agreement.

(e) To Seller’s Actual Knowledge, except as disclosed on Schedule 1 attached hereto, Seller has not received written notice from any governmental agency in the last twelve (12) months that the Property or the current use and operation thereof violate any applicable federal, state or municipal law, statute, code, ordinance, rule or regulation (including those relating to environmental matters), except with respect to such violations as have been fully cured and as to which there are no unpaid fines or penalties owing prior to the date hereof.

(f) To Seller's Actual Knowledge, except as disclosed on Schedule 1 attached hereto, there is no currently pending proceedings for, or bona fide written threat of, condemnation or the exercise of the right of eminent domain as to the Property.

(g) To Seller's Actual Knowledge, except as disclosed on Schedule 1 attached hereto, there is no litigation currently pending, or bona fide written threat of, litigation against the Property or Seller that would adversely affect the Property after the Close of Escrow (other

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than claims for personal injury and property damage that are covered by insurance) or use thereof, or Seller’s ability to perform hereunder.

(h) To Seller’s Actual Knowledge, Seller has not received written notice of the existence of any attachments, executions, assignments for the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy or under other debtor relief laws contemplated by, pending, or threatened against any tenant or any tenant guarantor.

(i) To Seller’s Actual Knowledge: (i) the list of Leases scheduled in Exhibit B attached hereto sets forth all of the Leases (including amendments and guaranties relating thereto, if any) affecting the Real Property as of the Effective Date, (ii) the copies of the Leases made available to Buyer are true and correct copies of such Leases in Seller’s possession, and (iii) each such Lease is in full force and effect.

(j) To Seller’s Actual Knowledge: (i) the list of Contracts scheduled in Exhibit C attached hereto sets forth all of the Contracts (including amendments and guaranties relating thereto, if any) affecting the Real Property as of the Effective Date, (ii) except as disclosed in Schedule 1 attached hereto, Seller has not received written notice that Seller is currently in breach of a material obligation under any Contract that remains uncured as of the Effective Date, and (iii) the copies of the Contracts made available to Buyer are true and correct copies of such Contracts in Seller’s possession.

(k) To Seller’s Actual Knowledge, neither Seller nor any of its respective affiliates or constituents (but expressly excluding the shareholders of KBS SOR), nor any of their respective brokers or other agents acting in any capacity in connection with the transactions contemplated by this Agreement is or will be (a) conducting any business or engaging in any transaction or dealing with any person appearing on the U.S. Treasury Department’s Office of Foreign Assets Control (“ OFAC ”) list of restrictions and prohibited persons (“ Prohibited Person ”) (which lists can be accessed at the following web address: http://www.ustreas.gov/offices/enforcement/ofac/), including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person; or (b) dealing in, or otherwise engaging in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224 dated September 24, 2001, relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”; or (c) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempting to violate, any of the prohibitions set forth in any U.S. anti-money laundering law.

(l) Except for this Agreement and the security interests granted to the existing lenders (which will be released at the Close of Escrow pursuant to Section 4.2 above), Seller has not entered into any other contract to sell the Real Property (or any part thereof), and Seller has not entered into any option to purchase, right of first refusal to purchase or first opportunity to purchase the Property or any portion thereof.

For purposes of this Section 11.1 , the phrase “ To Seller’s Actual Knowledge ” shall mean the actual (and not implied, imputed, or constructive) knowledge of Jeff Rader (whom the Seller represents is the asset manager for the Real Property), without any inquiry or investigation of any

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other parties, including, without limitation, the tenants and the property manager of the Real Property.

The representations and warranties made by Seller in this Agreement shall survive the recordation of the Deed for a period of twelve (12) months and any action for a breach of Seller’s representations or warranties must be made and filed within said twelve (12) month period. If, after the Effective Date, but before the Close of Escrow, Seller becomes aware of any facts or changes in circumstances that would cause any of its representations and warranties in this Agreement to be untrue at Close of Escrow, Seller shall notify Buyer in writing of such fact. In such case, or in the event Buyer obtains information which would cause any of Seller’s representations and warranties to be untrue at Close of Escrow, Buyer, as its sole and exclusive remedy, shall have the right to either (i) terminate this Agreement, in which case neither party shall have any rights or obligations under this Agreement (except for Sections 4.3.1 , 15.3 and 15.5 which survive termination of this Agreement); or (ii) accept a qualification to Seller’s representations and warranties as of the Close of Escrow and complete the purchase and sale of the Property without any rights to recovery for breach of the unqualified representation and warranty. Other than as set forth in the immediately preceding sentence, if Buyer proceeds with the Close of Escrow, Buyer shall be deemed to have expressly waived any and all remedies for the breach of any representation or warranty discovered by Buyer prior to the Close of Escrow.

11.2 As-Is . As of the Closing Date, Buyer will have:

(a) examined and inspected the Property and will know and be satisfied with the physical condition, quality, quantity and state of repair of the Property in all respects (including, without limitation, the compliance of the Real Property with the Americans With Disabilities Act of 1990 Pub.L. 101-336, 104 Stat. 327 (1990), and any comparable local or state laws (collectively, the “ ADA ”)) and by consummating this transaction at the Close of Escrow, shall be deemed to have determined that the same is satisfactory to Buyer;

(b) reviewed the Property Information and all instruments, records and documents which Buyer deems appropriate or advisable to review in connection with this transaction, including, but not by way of limitation, any and all architectural drawings, plans, specifications, surveys, building and occupancy permits, and any licenses, leases, contracts, warranties and guarantees relating to the Real Property or the business conducted thereon, and Buyer, by consummating this transaction at the Close of Escrow, shall be deemed to have determined that the same and the information and data contained therein and evidenced thereby are satisfactory to Buyer;

(c) reviewed all applicable laws, ordinances, rules and governmental regulations (including, but not limited to, those relating to building, zoning and land use) affecting the development, use, occupancy or enjoyment of the Real Property, and Buyer, by consummating this transaction at the Close of Escrow, shall be deemed to have determined that the same are satisfactory to Buyer; and

(d) at its own cost and expense, made its own independent investigation respecting the Property and all other aspects of this transaction, and shall have relied thereon and on the advice of its consultants in entering into this Agreement, and Buyer, by consummating this

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transaction at the Close of Escrow, shall be deemed to have determined that the same are satisfactory to Buyer.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT FOR SELLER’S REPRESENTATIONS AND WARRANTIES IN SECTION 11.1 OF THIS AGREEMENT AND ANY WARRANTIES OF TITLE CONTAINED IN THE DEED DELIVERED AT THE CLOSE OF ESCROW (“ SELLER’S WARRANTIES ”), THIS SALE IS MADE AND WILL BE MADE WITHOUT REPRESENTATION, COVENANT, OR WARRANTY OF ANY KIND (WHETHER EXPRESS, IMPLIED, OR, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, STATUTORY) BY SELLER. AS A MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT, BUYER AGREES TO ACCEPT THE PROPERTY ON AN “AS IS” AND “WHERE IS” BASIS, WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATION OR WARRANTY, ALL OF WHICH SELLER HEREBY DISCLAIMS, EXCEPT FOR SELLER’S WARRANTIES. EXCEPT FOR SELLER’S WARRANTIES, NO WARRANTY OR REPRESENTATION IS MADE BY SELLER AS TO FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY, DESIGN, QUALITY, CONDITION, OPERATION OR INCOME, COMPLIANCE WITH DRAWINGS OR SPECIFICATIONS, ABSENCE OF DEFECTS, ABSENCE OF HAZARDOUS OR TOXIC SUBSTANCES, ABSENCE OF FAULTS, FLOODING, OR COMPLIANCE WITH LAWS AND REGULATIONS INCLUDING, WITHOUT LIMITATION, THOSE RELATING TO HEALTH, SAFETY, AND THE ENVIRONMENT (INCLUDING, WITHOUT LIMITATION, THE ADA (AS DEFINED ABOVE)). BUYER ACKNOWLEDGES THAT BUYER HAS ENTERED INTO THIS AGREEMENT WITH THE INTENTION OF MAKING AND RELYING UPON ITS OWN INVESTIGATION OF THE PHYSICAL, ENVIRONMENTAL, ECONOMIC USE, COMPLIANCE, AND LEGAL CONDITION OF THE PROPERTY AND THAT BUYER IS NOT NOW RELYING, AND WILL NOT LATER RELY, UPON ANY REPRESENTATIONS AND WARRANTIES MADE BY SELLER OR ANYONE ACTING OR CLAIMING TO ACT, BY, THROUGH OR UNDER OR ON SELLER’S BEHALF CONCERNING THE PROPERTY. ADDITIONALLY, BUYER AND SELLER HEREBY AGREE THAT (A) EXCEPT FOR SELLER’S WARRANTIES, BUYER IS TAKING THE PROPERTY “AS IS” WITH ALL LATENT AND PATENT DEFECTS AND THAT EXCEPT FOR SELLER’S WARRANTIES, THERE IS NO WARRANTY BY SELLER THAT THE PROPERTY IS FIT FOR A PARTICULAR PURPOSE, (B) EXCEPT FOR SELLER’S WARRANTIES, BUYER IS SOLELY RELYING UPON ITS EXAMINATION OF THE PROPERTY, AND (C) BUYER TAKES THE PROPERTY UNDER THIS AGREEMENT UNDER THE EXPRESS UNDERSTANDING THAT THERE ARE NO EXPRESS OR IMPLIED WARRANTIES (EXCEPT FOR THE LIMITED WARRANTIES OF TITLE SET FORTH IN THE DEED AND SELLER’S WARRANTIES).

WITH RESPECT TO THE FOLLOWING, BUYER FURTHER ACKNOWLEDGES AND AGREES THAT SELLER SHALL NOT HAVE ANY LIABILITY, OBLIGATION OR RESPONSIBILITY OF ANY KIND AND THAT SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND:


1.	THE CONTENT OR ACCURACY OF ANY REPORT, STUDY, OPINION OR CONCLUSION OF ANY SOILS, TOXIC, ENVIRONMENTAL OR OTHER

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ENGINEER OR OTHER PERSON OR ENTITY WHO HAS EXAMINED THE PROPERTY OR ANY ASPECT THEREOF;


2.	THE CONTENT OR ACCURACY OF ANY OF THE ITEMS (INCLUDING, WITHOUT LIMITATION, THE PROPERTY INFORMATION) DELIVERED TO BUYER PURSUANT TO BUYER’S REVIEW OF THE CONDITION OF THE PROPERTY; OR


3.	THE CONTENT OR ACCURACY OF ANY PROJECTION, FINANCIAL OR MARKETING ANALYSIS OR OTHER INFORMATION GIVEN TO BUYER BY SELLER OR REVIEWED BY BUYER WITH RESPECT TO THE PROPERTY.

BUYER ALSO ACKNOWLEDGES THAT THE REAL PROPERTY MAY OR MAY NOT CONTAIN ASBESTOS AND, IF THE REAL PROPERTY CONTAINS ASBESTOS, THAT BUYER MAY OR MAY NOT BE REQUIRED TO REMEDIATE ANY ASBESTOS CONDITION IN ACCORDANCE WITH APPLICABLE LAW.

BUYER IS A SOPHISTICATED REAL ESTATE INVESTOR AND IS, OR WILL BE AS OF THE CLOSE OF ESCROW, FAMILIAR WITH THE REAL PROPERTY AND ITS SUITABILITY FOR BUYER’S INTENDED USE. THE PROVISIONS OF THIS SECTION 11.2 SHALL SURVIVE INDEFINITELY ANY CLOSING OR TERMINATION OF THIS AGREEMENT AND SHALL NOT BE MERGED INTO THE DOCUMENTS EXECUTED AT CLOSE OF ESCROW.

/s/ D. S.
BUYER’S INITIALS


12.	BUYER’S COVENANTS, REPRESENTATIONS AND WARRANTIES; RELEASE; ERISA; INDEMNIFICATION

In consideration of Seller entering into this Agreement and as an inducement to Seller to sell the Real Property to Buyer, Buyer makes the following covenants, representations and warranties:

12.1 Buyer’s Representations and Warranties .

(a) Authority . Buyer is a limited liability company formed, validly existing and in good standing under the laws of the State of Delaware. Subject to Buyer obtaining Buyer Board Approval pursuant to Section 7.1(h) above and Buyer Shareholder Approval pursuant to Section 7.1(i) above, Buyer has the legal right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, and, subject to Buyer obtaining Buyer Board Approval pursuant to Section 7.1(h) above and Buyer Shareholder Approval pursuant to Section 7.1(i) above, the execution, delivery and performance of this Agreement have been duly authorized and no other action by Buyer is requisite to the valid and binding execution, delivery and performance of this Agreement, except as otherwise expressly set forth herein. There is no agreement to which Buyer is a party or to Buyer’s knowledge binding on Buyer which is in conflict with this Agreement.

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(b) Executive Order 13224 . To the best of Buyer’s knowledge, neither Buyer nor any of its respective affiliates or indirect owners of Buyer, nor any of their respective brokers or other agents acting in any capacity in connection with the transactions contemplated by this Agreement is or will be (a) conducting any business or engaging in any transaction or dealing with any person appearing on the OFAC list of restrictions and Prohibited Persons (which lists can be accessed at the following web address: http://www.ustreas.gov/offices/enforcement/ofac/), including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Prohibited Person; (b) dealing in, or otherwise engaging in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224 dated September 24, 2001, relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”; or (c) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempting to violate, any of the prohibitions set forth in any U.S. anti-money laundering law.

12.2 Release . By consummating the transaction contemplated by this Agreement at the Close of Escrow, Buyer shall be deemed to have made its own independent investigation of the Property, the Property Information and the presence of Hazardous Materials on the Real Property as Buyer deems appropriate. Accordingly, subject to the representations and warranties of Seller expressly set forth in Section 11.1 hereof, Buyer, on behalf of itself and all of its officers, directors, shareholders, employees, representatives and affiliated entities (collectively, the “ Releasors ”) hereby expressly waives and relinquishes any and all rights and remedies Releasors may now or hereafter have against Seller, its successors and assigns, partners, shareholders, officers and/or directors (the “ Seller Parties ”), whether known or unknown, which may arise from or be related to (a) the physical condition, quality, quantity and state of repair of the Real Property and the prior management and operation of the Real Property, (b) the Property Information, (c) the Real Property’s compliance or lack of compliance with any federal, state or local laws or regulations, and (d) any past, present or future presence or existence of Hazardous Materials on, under or about the Real Property or with respect to any past, present or future violation of any rules, regulations or laws, now or hereafter enacted, regulating or governing the use, handling, storage or disposal of Hazardous Materials, including, without limitation, (i) any and all rights and remedies Releasors may now or hereafter have under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (“ CERCLA ”), the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, and the Toxic Substance Control Act, all as amended, and any similar state, local or federal environmental law, rule or regulation, and (ii) any and all claims, whether known or unknown, now or hereafter existing, with respect to the Real Property under Section 107 of CERCLA (42 U.S.C.A. §9607). As used herein, the term “ Hazardous Material(s) ” includes, without limitation, any hazardous or toxic materials, substances or wastes, such as (1) any materials, substances or wastes which are toxic, ignitable, corrosive or reactive and which are regulated by any local governmental authority, or any agency of the United States government, (2) any other material, substance, or waste which is defined or regulated as a hazardous material, extremely hazardous material, hazardous waste or toxic substance pursuant to any laws, rules, regulations or orders of the United States government, or any local governmental body, (3) asbestos, (4) petroleum and petroleum based products, (5) formaldehyde, (6) polychlorinated biphenyls (PCBs), and (7) freon and other chlorofluorocarbons.

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Buyer’s Initials:
/s/ D. S.

WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER, ON BEHALF OF ITSELF AND THE OTHER RELEASORS, HEREBY ASSUMES ALL RISK AND LIABILITY RESULTING OR ARISING FROM, OR RELATING TO THE OWNERSHIP, USE, CONDITION, LOCATION, MAINTENANCE, REPAIR, OR OPERATION OF, THE PROPERTY.

THE FOREGOING WAIVERS, RELEASES AND AGREEMENTS BY BUYER, ON BEHALF OF ITSELF AND THE RELEASORS, SHALL SURVIVE THE CLOSE OF ESCROW AND THE RECORDATION OF THE DEED AND SHALL NOT BE DEEMED MERGED INTO THE DEED UPON ITS RECORDATION.

12.3 ERISA . Buyer is not purchasing any of the Property with “plan assets” of an Employee Benefit Plan subject to Title I of the Employee Retirement Income Security Act of 1974 (as amended from time to time, the “ Act ,” and together with any regulation, rule or judicial or administrative case, order, or pronouncement arising under or connected with the Act, “ ERISA ”) or of a plan subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “ Code ”). Buyer shall take all actions reasonably requested by Seller for the purpose of ensuring, to Seller’s satisfaction, that the transactions contemplated herein will comply with ERISA and not result in an imposition of an excise tax under Section 4975 of the Code; such actions shall include, without limitation, the making of such further representations and warranties as Seller’s counsel reasonably deems necessary to ensure that neither this Agreement nor any of the transactions contemplated herein will violate ERISA or result in an imposition of an excise tax under Section 4975 of the Code. In the event that this Agreement, or any transaction or other action by Seller in connection herewith, shall be deemed to violate ERISA or result in an imposition of an excise tax under Section 4975 of the Code, Seller may immediately terminate this Agreement (without any liability to Seller) in accordance with, and subject to the terms and conditions of, Section 9.3 hereof as if such termination arose from a failed condition under Section 9.3 hereof.


13.	DEFAULT AND DAMAGES

13.1 DEFAULT BY BUYER . IN THE EVENT THE CLOSE OF ESCROW FAILS TO OCCUR DUE TO A BUYER DEFAULT (ALL OF THE CONDITIONS TO BUYER’S OBLIGATIONS TO CLOSE HAVING BEEN SATISFIED OR WAIVED), SELLER MAY TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO BUYER AND ESCROW HOLDER AND CANCEL THE ESCROW (IF THEN OPENED), IN WHICH EVENT BUYER SHALL REIMBURSE SELLER FOR SELLER’S OUT-OF-POCKET COSTS AND EXPENSES.

NOTHING IN THIS SECTION 13.1 SHALL (A) PREVENT OR PRECLUDE ANY RECOVERY OF ATTORNEYS’ FEES OR OTHER COSTS INCURRED BY SELLER PURSUANT TO SECTION 15.5 OR (B) IMPAIR OR LIMIT THE EFFECTIVENESS OR ENFORCEABILITY OF THE INDEMNIFICATION OBLIGATIONS OF BUYER CONTAINED IN SECTION 4.3.1 AND SECTION 14 HEREOF. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF

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THIS SECTION 13.1 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.

Seller’s Initials: /s/ J. W. ____
Buyer’s Initials: /s/ D. S. ____

13.2 Default by Seller . If Seller defaults in its obligations to sell and convey the Property to Buyer pursuant to this Agreement, Buyer’s sole and exclusive remedy shall be to elect one of the following: (a) to terminate this Agreement, in which event Seller shall reimburse Buyer for Buyer’s actual, out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses), as supported by reasonable documentation satisfactory to Seller, incurred in connection with Buyer’s due diligence investigations and negotiation and execution of this Agreement, not to exceed Five Hundred Thousand and No/100 Dollars ($500,00.00) in the aggregate, or (b) to bring a suit for specific performance provided that any suit for specific performance must be brought as to the Property within 30 days of Seller’s default, Buyer’s waiving the right to bring suit at any later date to the extent permitted by law. This Agreement confers no present right, title or interest in the Property to Buyer and Buyer agrees not to file a lis pendens or other similar notice against the Real Property except in connection with, and after, the proper filing of a suit for specific performance.


14.	NO BROKER

Neither Party hereto has had any contact, dealings, negotiations or consultations regarding the Real Property, or any communication in connection with the subject matter of this transaction, through any licensed real estate broker, representative, employee, agent or other intermediary or other person who can claim a right to a commission or finder’s fee as a procuring cause of the sale contemplated herein. In the event that any other broker or finder perfects a claim for a commission or finder’s fee, the party responsible for the contact or communication on which the broker or finder perfected such claim shall indemnify, save harmless and defend the other party from said claim and all costs and expenses (including reasonable attorneys’ fees) incurred by the other party in defending against the same. This section shall survive the termination of this Agreement and the Close of Escrow without limitation.

15. MISCELLANEOUS PROVISIONSNotices . All written notices or demands of any kind which either party hereto may be required or may desire to serve on the other in connection with this Agreement shall be served by personal service, by registered or certified mail, recognized overnight courier service or facsimile transmission. Any such notice or demand so to be served by registered or certified mail, recognized overnight courier service or facsimile transmission shall be delivered with all applicable delivery charges thereon fully prepaid and, if the party so to be served be Buyer, addressed to Buyer as follows:

c/o Keppel-KBS US REIT Management Pte. Ltd.
(as manager of Keppel-KBS US REIT)
230 Victoria Street

#05-08, Burgis Junction Towers

Singapore, 188024
Attention: Andy Gwee

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Telephone No: (65) 6803-1662
Email: andy.gwee@kepcapital.com

and, if the party so to be served be Seller, addressed to Seller as follows:

c/o KBS Capital Advisors LLC
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
Attention: Brian Ragsdale
Telephone No: (949) 797-0305
Fax No.: (949) 417-6501

Email: bragsdale@kbs.com

with copies thereof to:
c/o KBS Capital Advisors LLC
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
Attention: Jeff Rader
Telephone No: (949) 797-0309
Fax No.: (949) 417-6501

Email: jrader@kbs.com

and

James Chiboucas, Esq.
800 Newport Center Drive, Suite 700
Newport Beach, CA 92660
Telephone No.: (949) 417-6555
Fax No.: (949) 417-6501

Email: jchiboucas@kbs.com

and, if the party to be served be Escrow Holder, addressed to Escrow Holder as follows:

First American Title Insurance Company
18500 Von Karman Ave, Suite 600
Irvine, California 92612
Attention: Patty Beverly
Telephone No.: (949) 885-2465
Fax No.: (888) 372-0256

Service of any such notice or demand so made by personal delivery, registered or certified mail, recognized overnight courier or facsimile transmission shall be deemed complete on the date of actual delivery as shown by the addressee’s registry or certification receipt or, as to facsimile transmissions, by “answer back confirmation” (provided that a copy of such notice or demand is delivered by any of the other methods provided above within one (1) business day following receipt of such facsimile transmission), as applicable, or at the expiration of the third (3rd) business day after the date of dispatch, whichever is earlier in time. Either party hereto may from time to time, by notice in writing served upon the other as aforesaid, designate a different

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mailing address to which or a different person to whose attention all such notices or demands are thereafter to be addressed. Counsel for a party may give notice or demand on behalf of such party, and such notice or demand shall be treated as being sent by such party.

15.2 Assignment; Binding on Successors and Assigns . Buyer shall not assign, transfer or convey its rights or obligations under this Agreement or with respect to the Property without the prior written consent of Seller, which consent Seller may withhold in its sole, absolute and subjective discretion. Any attempted assignment without the prior written consent of Seller shall be void and Buyer shall be deemed in default hereunder. Any permitted assignments shall not relieve the assigning party from its liability under this Agreement. Subject to the foregoing, and except as provided to the contrary herein, the terms, covenants, conditions and warranties contained herein and the powers granted hereby shall inure to the benefit of and bind all parties hereto and their respective heirs, executors, administrators, successors and assigns, and all subsequent owners of the Property.

15.3 Work Product . Effective upon and in the event of a termination of this Agreement for any reason, if requested by Seller in writing, Buyer shall deliver to Seller (at reasonable cost to Seller except in the event of a default by Buyer) copies of all reports, plans, studies, documents, written information and the like that were independently ordered or prepared by Buyer and not otherwise obtained or provided by Seller, whether prior to the effective date of this Agreement or during the period of Escrow in connection with Buyer’s proposed acquisition, development, use or sale of the Real Property (collectively, the “ Work Product ”). Buyer shall also return all materials and information (including, without limitation, the Property Information) given to it by Seller or its consultants during Escrow, in the same condition as delivered to Buyer.

15.4 Further Assurances . In addition to the acts and deeds recited herein and contemplated to be performed, executed or delivered by Seller or Buyer, Seller and Buyer hereby agree to perform, execute and deliver, or cause to be performed, executed and delivered, on the Closing Date or thereafter any and all such further acts, deeds and assurances as Buyer or Seller, as the case may be, may reasonably require in order to consummate fully the transactions contemplated hereunder.

15.5 Attorneys’ Fees . If any legal action or any arbitration or other proceeding is brought or if an attorney is retained for the enforcement of this Agreement or any portion thereof, or because of any alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the prevailing party shall be entitled to recover from the other reimbursement for the reasonable fees of attorneys and other costs (including court costs and witness fees) incurred by it, in addition to any other relief to which it may be entitled. The term “prevailing party” means the party obtaining substantially the relief sought, whether by compromise, settlement or judgment.

15.6 Survival of Representations, Warranties, Covenants, Obligations and Agreements . Except as otherwise expressly provided below in this Section 15.6 , none of the representations, warranties, covenants, obligations or agreements contained in this Agreement shall survive the Close of Escrow or the earlier termination of this Agreement.

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(a) Notwithstanding the provisions of Section 15.6(a) , the indemnification provisions of Buyer under Sections 4.3.1 and 14 hereof and the provisions of Sections 4.6 , 11.2 , 13.2 , 15.3 , 15.5 , 15.17 , 15.19 and 15.20 hereof (collectively, the “ Surviving Termination Obligations ”) shall survive the termination of this Agreement without limitation, and any claim based upon any breach of a representation or warranty, or a breach of a covenant, obligation or agreement included in any of the Surviving Termination Obligations shall be actionable and enforceable at any time after the date of the termination of this Agreement.

(b) Notwithstanding the provisions of Section 15.6(a) , the indemnification provisions of Buyer under Sections 4.3.1 , 14 and 10.5 hereof, the provisions of Sections 4.6 , 10.1 , 10.3 , 10.4 , 11.2 , 12.1 , 12.2 , and 12.3 that relate to Buyer and the provisions of Sections 15.5 , 15.17 , 15.19 and 15.20 hereof (collectively, the “ Surviving Closing Obligations ”) shall survive the Close of Escrow without limitation, and shall not be merged with the recording of the Deed, and any claim based upon any breach of a representation or warranty, or a breach of a covenant, obligation or agreement included in any of the Surviving Closing Obligations shall be actionable and enforceable at any time after the Close of Escrow.

(c) Notwithstanding the provisions of Section 15.6(a) , the indemnification provisions of Seller under Section 14 hereof and the provisions of Section 11.1 hereof (collectively, the “ Limited Surviving Closing Obligations ”) shall survive the Close of Escrow and the execution and delivery of the Deed only for a period of twelve (12) months immediately following the Close of Escrow, and any claim based upon any breach of a representation or warranty, or a breach of a covenant, obligation or agreement included in any of the Limited Surviving Closing Obligations shall be actionable and enforceable if and only if notice of such claim is given to the party which allegedly breached such representation or warranty, or breached such covenant, obligation or agreement, within twelve (12) months after the Close of Escrow; provided, however, in no event shall Seller’s liability, if any, with respect to any Limited Surviving Closing Obligations exceed Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) in the aggregate (“ Seller’s Liability Cap ”) and no claim by Buyer may be made and Seller shall not be liable for any judgment in any action based upon any such claim unless and until Buyer’s claims are for an aggregate amount in excess of One Hundred Thousand and No/100 Dollars ($100,000.00), in which event Seller’s liability respecting any final judgment governing such claim(s) shall be for the entire amount thereof, subject to Seller’s Liability Cap.

15.7 Entire Agreement . This Agreement contains the entire agreement and understanding of the parties in respect to the subject matter hereof, and the parties intend for the literal words of this Agreement to govern and for all prior negotiations, drafts, and other extrinsic communications, whether oral or written, to have no significance or evidentiary effect. The parties further intend that neither this Agreement nor any of its provisions may be changed, amended, discharged, waived or otherwise modified orally except only by an instrument in writing duly executed by the party to be bound thereby. The parties hereto fully understand and acknowledge the importance of the foregoing sentence and are aware that the law may permit subsequent oral modification of a contract notwithstanding contract language which requires that any such modification be in writing, but Buyer and Seller fully and expressly intend that the foregoing requirements as to a writing be strictly adhered to and strictly interpreted and enforced by any court which may be asked to decide the question. Each party hereto acknowledges that this Agreement accurately reflects the agreements and understandings of the parties hereto with

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respect to the subject matter hereof and hereby waive any claim against the other party which such party may now have or may hereafter acquire to the effect that the actual agreements and understandings of the parties hereto with respect to the subject matter hereof may not be accurately set forth in this Agreement.

15.8 Governing Law . This Agreement shall be governed by the laws of the State of Washington.

15.9 Counterparts . This Agreement may be executed simultaneously in one or more counterparts and delivered via facsimile and/or by electronic mail in “PDF” format, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

15.10 Headings; Construction . The various headings of this Agreement are included for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. When the context and construction so require, all words used in the singular herein shall be deemed to have been used in the plural and the masculine shall include the feminine and the neuter and vice versa. The use in this Agreement of the term “including” and related terms such as “include” shall in all cases mean “without limitation.” All references to “days” in this Agreement shall be construed to mean calendar days unless otherwise expressly provided and all references to “business days” shall be construed to mean days on which national banks are open for business.

15.11 Time of Essence . Seller and Buyer hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and failure to perform timely any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of, and non-curable (but waivable) default under this Agreement by the parties so failing to perform.

15.12 Partial Validity; Severability . If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be held invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.

15.13 No Third Party Beneficiaries . This Agreement is for the sole and exclusive benefit of the parties hereto and their respective permitted successors and assigns, and no third party is intended to, or shall have, any rights hereunder.

15.14 Intentionally Omitted .

15.15 Joint Product of Parties . This Agreement is the result of arms-length negotiations between Seller and Buyer and their respective attorneys. Accordingly, neither party shall be deemed to be the author of this Agreement and this Agreement shall not be construed against either party.

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15.16 Calculation of Time Periods . Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included at, unless such last day is a Saturday, Sunday or legal holiday for national banks in California, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, or legal holiday. Unless otherwise expressly provided herein, the last day of any period of time described herein shall be deemed to end at 5:00 p.m. (Pacific Daylight Time).

15.17 Procedure for Indemnity . The following provisions govern actions for indemnity under this Agreement. Promptly after receipt by an indemnitee of notice of any claim, such indemnitee will, if a claim in respect thereof is to be made against the indemnitor, deliver to the indemnitor written notice thereof and the indemnitor shall have the right to participate in and, if the indemnitor agrees in writing that it will be responsible for any costs, expenses, judgments, damages, and losses incurred by the indemnitee with respect to such claim, to assume the defense thereof, with counsel mutually satisfactory to the parties; provided, however, that an indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnitor, if the indemnitee reasonably believes that representation of such indemnitee by the counsel retained by the indemnitor would be inappropriate due to actual or potential differing interests between such indemnitee and any other party represented by such counsel in such proceeding. The failure of indemnitee to deliver written notice to the indemnitor within a reasonable time after indemnitee receives notice of any such claim shall relieve such indemnitor of any liability to the indemnitee under this indemnity only if and to the extent that such failure is prejudicial to its ability to defend such action, and the omission so to deliver written notice to the indemnitor will not relieve it of any liability that it may have to any indemnitee other than under this indemnity. If an indemnitee settles a claim without the prior written consent of the indemnitor, then the indemnitor shall be released from liability with respect to such claim unless the indemnitor has unreasonably withheld such consent.

15.18 Waiver of Jury Trial . To the extent permitted by applicable law, the parties hereby waive any right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

15.19 No Personal Liability . Notwithstanding anything stated to the contrary herein, Seller’s liability under this Agreement shall be limited to Seller’s interest in the Property and neither Seller, Seller’s constituent partners and/or members, Seller’s asset manager, nor Seller’s directors, employees or agents shall have any personal liability hereunder.

15.20 Joint and Several Liability . If Buyer is composed of more than one individual or entity, all obligations and liabilities of Buyer under this Agreement shall be joint and several as to each of the individuals or entities who compose Buyer.

15.21 Exhibits . If, as of the Effective Date, any Exhibits or Schedules said to be attached hereto are missing, Buyer and Seller agree that each party will work in good faith with the other to attach such missing Exhibits or Schedules to a fully executed version of this Agreement within ten (10) days after the Effective Date, and such attached Exhibits and Schedules shall be deemed to have been attached hereto as of the Effective Date. If, after the Effective Date, any Exhibits or Schedules attached hereto are discovered to contain any errors, Buyer and Seller agree that each party shall work in good faith with the other to replace such

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Exhibits or Schedules to correct any such errors, and such replacement Exhibits or Schedules shall be deemed to have been attached hereto as of the Effective Date.

15.22 State-Specific Provisions .

(a) Washington Provisions .

(i) Property Disclosure . Buyer and Seller acknowledge that any Property located in Washington 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 K (the “ WA Disclosure Statement ”). Buyer acknowledges receipt of the WA Disclosure Statement and waives its right to rescind the Agreement under RCW 64.06.030. Buyer further acknowledges and agrees that the WA 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 Seller.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.

[Signatures on following pages]

-34-



“BUYER” KEPPEL-KBS WESTPARK, LLC, a Delaware limited liability company By: /s/ David E. Snyder Name: David E. Snyder Title: Chief Executive Officer

S-1

“SELLER” :

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

S-2



AGREED TO THIS 18th DAY OF SEPTEMBER, 2018, AS TO PROVISIONS RELATING TO ESCROW HOLDER: FIRST AMERICAN TITLE INSURANCE COMPANY By /s/ Patty Browing Its VP

S-3

LIST OF EXHIBITS AND SCHEDULES



EXHIBIT A	—	Description of Real Property
EXHIBIT B	—	List of Leases
EXHIBIT C	—	List of Contracts
EXHIBIT D	—	Form of Tenant Estoppel Certificate
EXHIBIT E	—	Form of Deed
EXHIBIT F	—	Form of Assignment of Leases, Contracts and Bill of Sale
EXHIBIT G	—	Form of FIRPTA Affidavit
EXHIBIT H	—	Form of Tenant Notice
EXHIBIT I	—	Form of Owner’s Affidavit
EXHIBIT J	—	List of State-Specific Deliverables
EXHIBIT K	—	WA Disclosure Statement
SCHEDULE 1	—	Disclosures
SCHEDULE 2	—	Free Rent

EXHIBIT A

Description of Real Property

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).

EXHIBIT A

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 A

EXHIBIT B

List of Leases



Tenant	Name of Document	Date of Document
3DOT	Lease	12/1/2015
	First Amendment	2/14/2018
	Tenant Commencement Letter	4/1/2018
Abol Systems	Lease	4/29/2013
	First Amendment	7/15/2013
	First Amendment	11/21/2013
	Third Amendment	12/19/2014
	Fourth Amendment	9/25/2015
	Fifth Amendment	6/30/2017
	Sixth Amendment	6/30/2018
Amaxra, Inc.	Lease	1/12/2015
	Commencement Date Memorandum	2/24/2015
	First Amendment	8/5/2016
Avara Construction, Inc.	Lease	4/18/2017
Avitech International Corp	Lease	9/29/2009
	Commencement Date Memorandum	1/1/2010
	First Amendment	10/15/2013
Axis Survey and Mapping	Lease	12/2/2014
	Commencement Date Memorandum	1/14/2015
BAE Systems Controls, Inc.	Lease	9/1/2005
	Assignment of Lease	12/31/2006
	First Amendment	9/21/2010
	Second Amendment	11/2/2015
Bellegrove Medical Supply, Inc.	Lease	6/7/2010
	First Amendment	2/19/2015
	Commencement Date Memorandum	12/1/2010
Ben Wahbi dba Dubliner Irish Pub	Lease	3/23/2017
	Tenant Commencement Letter	10/30/2017
	First Amendment	7/21/2017
Bigfin.com, LLC	Lease	10/4/2011
	First Amendment	6/28/2013
	Second Amendment	7/29/2016
Bluerigger, LLC	Lease	4/30/2013
	First Amendment	6/1/2015
	Second Amendment	7/29/2016
	Third Amendment	7/24/2018
CAE Healthcare	Lease	8/31/2007

EXHIBIT B



	First Amendment	6/30/2010
	Commencement Date Memorandum	12/1/2010
	Second Amendment	12/10/2010
	Third Amendment	12/29/2014
	Fourth Amendment	4/30/2018
Caldera Development Group	Lease	5/17/2016
Cascade Window Products	Lease	5/12/2014
Cascadia Resources	Lease	9/14/2012
	First Amendment	9/15/2014
	Second Amendment	10/11/2017
Cat Man Doo, Inc.	Lease	4/10/2014
	First Amendment	6/13/2014
	Second Amendment	3/6/2017
	Tenant Commencement Letter	12/1/2017
Centerline Solutions, LLC	Lease	9/4/2015
	LL Consent to Change in Ownership	3/11/2016
	Estoppel	4/18/2016
Coding with Kids	Lease	5/3/2018
	Tenant Commencement Letter	8/1/2018
Cpillars, LLC	Lease	8/22/2017
	Tenant Commencement Letter	1/1/2018
Curvature	Lease	4/11/2012
	Commencement Date Memorandum	8/20/2012
	First Amendment	10/11/2017
Davis-Bacon Pension Plans, Inc.	Lease	8/7/2013
Deacon Construction, LLC Building E	Lease	3/23/2017
	Tenant Commencement Letter	10/12/2017
Deacon Construction, LLC Building U	Lease	3/23/2017
	Tenant Commencement Letter	10/12/2017
Delphi Precision Imaging Corp	Lease	2/9/2016
	First Amendment	3/22/2018
Douglas Blome Engineering	Lease	7/11/2016
	First Amendment	1/23/2018
	Tenant Commencement Letter	4/30/2018
Dowl Engineering	Lease	7/7/2006
	Commencement Date Memorandum	1/10/2007
	First Amendment	12/14/2009
	Second Amendment	6/14/2011
	Third Amendment	12/9/2011
	Fourth Amendment	1/16/2015
	Fifth Amendment	11/30/2015

EXHIBIT B



	Sixth Amendment	2/24/2018
DTC Hunan	Lease	4/6/2018
	Tenant Commencement Letter	4/23/2018
Echonous, Inc.	Lease	2/17/2016
	First Amendment	5/5/2016
	Second Amendment	9/20/2017
EERG Engineering Remediation	Lease	1/16/2015
	Commencement Date Memorandum	4/11/2016
	First Amendment	3/2/2018
EVT Solutions dba bLoyal	Lease	10/17/2014
F1 Consultancy	Lease	9/4/2015
	Commencement Date Memorandum	11/10/2015
	First Amendment	4/20/2016
Foxconn EMS	Lease	8/11/2006
	First Amendment	9/28/2009
	Second Amendment	10/24/2011
	Third Amendment	3/2/2012
	Fourth Amendment	2/6/2014
	Fifth Amendment	1/7/2016
Furniture Marketing Group	Lease	6/24/2014
	First Amendment	7/6/2017
Hawk Ridge Systems	Lease	6/8/2017
	Tenant Commencement Letter	10/9/2017
	First Amendment	8/29/2017
Helion Energy, Inc.	Lease	3/17/2015
Hobart-ITW Food Equipment Group	Lease	6/30/2009
	First Amendment	8/1/2016
Homemeeting, Inc.	Lease	4/25/2007
	First Amendment	12/9/2010
	Second Amendment	10/14/2013
	Third Amendment	12/16/2016
Horizon Professional dba Healthwind	Lease	2/6/2003
	Second Amendment	7/6/2009
	Third Amendment	5/22/2013
	Fourth Amendment	4/7/2015
	Fifth Amendment	6/15/2016
	Sixth Amendment	3/21/2017
	Seventh Amendment	3/2/2018
	Tenant Commencement Letter	4/1/2018
Hydroflow Holdings USA LLC	Lease	9/8/2011
	First Amendment	8/8/2012
	Second Amendment	10/7/2014
	Third Amendment	9/4/2015

EXHIBIT B



Hygen Pharmaceuticals, Inc.	Lease	8/22/2012
	Commencement Date Memorandum	1/17/2013
	Subordination LL Lien	10/27/2015
	First Amendment	4/6/2018
ICS Support, Inc.	Lease	4/25/2016
	Commencement Date Memorandum	9/18/2006
	First Amendment	2/15/2011
	Second Amendment	1/8/2016
Inner Spark Robotics	Lease	8/18/2016
Innovative Advantage	Lease	1/2/2008
	First Amendment	8/25/2010
	Second Amendment	3/27/2015
Inventprise Advantage, Inc.	Lease	1/27/2017
Jassmarketing, LLC dba Signarama Redmond	Lease	1/19/2017
	Tenant Commencement Letter	2/1/2017
	Landlord's Consent and Subordination Agreement	5/24/2017
	Landlord's Consent and Waiver of Lien	5/10/2017
JC Services, Inc.	Lease	3/27/2009
	Commencement Date Memorandum	5/14/2009
	First Amendment	4/22/2009
	Second Amendment	1/11/2011
	Third Amendment	7/24/2014
JDL Digital Systems, Inc.	Lease	6/30/2013
	Commencement Date Memorandum	10/31/2013
	First Amendment	7/19/2013
	Second Amendment	11/19/2013
	Third Amendment	10/2/2014
King and Prince Seafood Corp	Lease	12/23/2013
	Commencement Date Memorandum	7/22/2014
	First Amendment	2/25/2014
KMEW Co Ltd	Lease	4/22/2010
	Assignment Agreement	4/1/2012
	First Amendment to Lease	4/24/2014
	Second Amendment to and Assignment of the Lease	5/31/2017
Kone, Inc.	Lease	10/12/2015
	Commencement Date Memorandum	1/25/2016
Kurkel Enterprises, LLC dba Fairhaven Health	Lease	10/2/2014
Landmark Holdings, Inc.	Lease	1/25/2017
Leancode LLC	Lease	7/8/2015
Lundberg, LLC	Lease	12/7/2017

EXHIBIT B



	Tenant Commencement Letter	4/1/2018
Majiq, Inc.	Lease	6/28/2006
	First Amendment	12/7/2010
	Second Amendment	10/5/2016
	Commencement Date Memorandum	6/2/2017
Micronics	Lease	1/25/2006
	First Amendment	11/3/2008
	Second Amendment	9/30/2009
	Third Amendment	3/4/2011
	Fourth Amendment	8/4/2011
	Fifth Amendment	4/1/2014
	Sixth Amendment	3/10/2015
	Seventh Amendment	12/27/2016
Microstar Laboratories	Lease	7/1/2018
	Tenant Commencement Letter	7/20/2018
Microsurgical Technology, Inc.	Lease	3/18/1994
	First Amendment	2/1/1996
	Second Amendment	3/25/1999
	Third Amendment	6/27/2002
	Fourth Amendment	8/2/2004
	Fifth Amendment	8/1/2005
	Sixth Amendment	2/13/2009
	Seventh Amendment	4/13/2009
	Eighth Amendment	5/19/2009
	Ninth Amendment	4/27/2011
	Tenth Amendment	2/2/2012
	Eleventh Amendment	3/28/2012
	Twelve Amendment	1/7/2014
	Temporary Use Agreement	8/27/2018
Minarik Corp.	Lease	7/9/2006
	Landlord's Consent to Assignment of Lease	1/31/2008
	Assignment of Lease	2/1/2008
	First Amendment	1/16/2009
	Secnd Amendment	6/6/2012
	Commencement Date Memorandum	8/20/2012
	Third Amendment	11/4/2015
Mindray Medical USA	Lease	11/2/2006
	First Amendment	1/18/2008
	Second Amendment	2/20/2009
	Third Amendment	9/22/2011
	Fourth Amendment	2/14/2018
	Fifth Amendment	9/11/2018

EXHIBIT B



	Tenant Commencement Letter	Pending Execution
MSNW, LLC	Lease	6/14/2006
	First Amendment	6/22/2009
	Second Amendment	11/29/2010
	Third Amendment	9/17/2014
	Fourth Amendment	9/5/2017
N3rdfusion, Inc.	Lease	11/29/2017
	Tenant Commencement Letter	2/1/2018
Northwest Synergy, Inc.	Lease	4/17/2007
	Side Letter to Lease	7/13/2007
	First Amendment	5/31/2009
	Second Amendment	7/23/2012
	Expansion Effective Date Memorandum	3/18/2013
	Third Amendment	7/24/2017
Novolex Shields aka Shields Bag Printing	Lease	6/4/2012
	Early Possession Agreement	6/11/2012
	First Amendment	9/2/2015
	Consent by Landlord to Assignment of Tenant's Interst in Lease	1/8/2018
Ocean Diamond, Inc.	Lease	4/24/2013
	First Amendment	7/9/2018
Oculus - Building C	Lease	8/10/2018
Oculus - Building N	Lease	8/10/2018
Oculus - Building M	Lease	8/10/2018
Overlake Heating, AC	Lease	1/12/2009
	First Amendment	12/21/2011
	Second Amendment	3/10/2015
	Third Amendment	6/7/2018
Pacific NW Golf Centers	Lease	12/18/2017
	Tenant Commencement Letter	3/1/2018
Pattison, Inc.	Lease	12/27/2012
	First Amendment	11/6/2015
Personal Medical Corp	Lease	5/19/2006
	Early Possession Agreement	9/15/2006
	First Amendment	7/2/2009
	Second Amendment to Lease and Landlord's Consent to Assignment and Assumption	4/30/2012
	Third Amendment	9/14/2012
	Fourth Amendment	8/20/2013
	Fifth Amendment	5/27/2014
	Sixth Amendment	11/1/2016
Plantsmart, LLC	Lease	5/8/2009

EXHIBIT B



	First Amendment	10/29/2012
	Second Amendment	8/1/2014
	Third Amendment	10/16/2017
Pogo Linux Corp	Lease	3/27/2009
	Commencement Date Memorandum	7/6/2009
	First Amendment	8/1/2012
	Second Amendment	9/9/2017
	Third Amendment	10/11/2017
	Tenant Commencement Letter	11/1/2017
Precision Electric Group	Lease	9/23/2010
	Early Possession Agreement	9/27/2010
	Temporary Use License Agreement	7/11/2011
	Subordination of Landlord's Lien	8/1/2011
	First Amendment	12/10/2013
	Second Amendment	2/6/2015
R2D3 Corporation	Lease	3/8/2007
	First Amendment	2/20/2008
	Second Amendment	2/7/2012
	Third Amendment	10/3/2016
Rabanco	Lease	4/12/2018
	Tenant Commencement Letter	8/27/2018
Red Dingo	Lease	9/1/2015
	Commencement Date Memorandum	4/8/2016
Rent-A-PC	Lease	2/27/2014
	First Amendment	10/16/2017
	Tenant Commencement Letter	4/3/2018
Redmond Cable Corporation	Lease	5/20/2010
	First Amendment	5/19/2011
	Second Amendment	4/26/2012
	Third Amendment	3/12/2013
	Fourth Amendment	7/15/2016
	Fifth Amendment	1/16/2018
Rimkus Consulting Group, Inc.	Lease	3/18/2013
	Commencement Date Memorandum	7/24/2013
Rock-Tenn Converting dba Westrock Converting	Lease	12/11/2013
	First Amendment	3/6/2017
	Early Access License	10/18/2013
	First Amendment to Early Access License	10/22/2013
	Guaranty	2/15/2017
Seattle Aero, LLC	Lease	2/28/2014
	First Amendment	6/11/2014
	Consent to Sublease	11/15/2017

EXHIBIT B



Service Communications	Lease	3/4/2015
Showa Aircraft USA, Inc.	Lease	1/16/2015
	Commencement Date Memorandum	6/16/2015
Skidata, Inc.	Lease	9/14/2017
	Tenant Commencement Letter	1/26/2018
Sonata	Lease	8/26/2013
	First Amendment	6/4/2018
	Commencement Date Memorandum	1/24/2014
Stark Aerospace	Lease	12/14/2016
Stratagen Systems, Inc.	Lease	8/21/2017
	Tenant Commencement Letter	2/1/2018
Sweetwater Investments, Inc.	Lease	12/6/2017
	Tenant Commencement Letter	4/5/2018
Sysgain, Inc.	Lease	3/23/2017
	First Amendment	5/7/2018
Ten-D-Energies	Lease	6/15/2016
Tri-Digital Sofware, Inc. (Evia)	Lease	9/1/2005
	Lease	7/15/2009
	First Amendment	10/12/2009
	Second Amendment	6/16/2011
	Third Amendment	8/21/2013
	Expansion Effective Date Memorandum	1/21/2014
Ugen, Inc.	Lease	4/24/2017
V1 Interactive	Lease	8/9/2016
	Tenant Commencement Letter	1/19/2017
West Coast Parts dba Professional Appliance	Lease	7/9/2018
	Tenant Commencement Letter	8/1/2018
Wildlife Computers, Inc.	Lease	4/16/2010
	First Amendment	12/18/2015
	Second Amendment	2/2/2016
	Tenant Commencement Letter	5/14/2018
Wordrake	Lease	6/1/2016
Xtreme Consulting	Lease	10/2/2014
	First Amendment	3/25/2015
	Commencement Date Memorandum	2/24/2015

EXHIBIT B

EXHIBIT C

List of Contracts



Purpose	Vendor
Glass Repairs	A&C Glass Service Co.
Engineering Services	Able Engineering Services
Parking Lot Sweeping	A.C. Moate Industries, Inc.
Pressure Washing	A.C. Moate Industries, Inc.
Coffee Services	Agora NW, LLC
Micro-Market	Via Airlift, Inc.
HVAC Scenting	Rentokil North America, Inc. dba Ambius
Uniform Services	Aramark Uniform Services
Exterior Landscape	Brookstone Landscape & Design, LLC
Work Order System	Building Engines, Inc.
Flooring	CF Sales, Inc. dba CF Re:Source
Annual Fire Testing	Cosco Fire Protection, Inc.
Security Services	CPI Security Solutions, Inc.
Pop-up Restaurants	Fooda, Inc.
Security Systems	Guardian Security Systems, Inc.
Plumbing Services	Holaday Parks Fabricators, Inc.
Storm Drain Cleaning	McDonough & Sons, Inc.
Music Services	Muzak LLC dba Mood Media
Day Porter Services	Nexus Building Services, Inc.
HVAC Preventative Maintenance	Pacific Air Control. Inc.
General Contractor	Pattison Construction, Inc.
Exterior Signage/Electrical	Pride Electric Inc.
Exterior Window Cleaning	Puget Sound Window Maintenance, Inc.
Snow Removal	Saber Construction, Inc.
Construction Services	Saber Construction, Inc.
Elevator Maintenance	Schindler Elevator Corporation (national agreement)

EXHIBIT C



Purpose	Vendor
Restoration Services	JC Services, Inc. dba ServiceMaster Cleaning & Restoration
Signage	JASSMarketing, LLC Signarama
Waterproofing	Simma Restoration Group LLC
Painting	Ski's Painting Inc.
Janitorial Services	Top Quality Building Maintenance Corp.
Roofing Services	V&R Sheet Metal, LLC dba V&R Roofing
Painting	VP Painting, Inc.
Pest Control	W.B. Sprague Co. Inc.
Fire Alarm Monitoring	Western States Fire Protection Co.
Floor Cleaning	Whiteman & Associates, Inc.
Elevator Maintenance	Thyssenkrupp Elevator (national agreement)
Storm Jetting; Building A,B,C	MacDonald Miller Facility Solutions, Inc.

EXHIBIT C

EXHIBIT D

Form of Tenant Estoppel Certificate

(Attached)

EXHIBIT D

Page 1

TENANT ESTOPPEL CERTIFICATE

The undersigned (“ Tenant ”) hereby certifies to KBS SOR Westpark Portfolio, LLC, a Delaware limitd liability company (“ Landlord ”), and Keppel-KBS Westpark, LLC, a Delaware limited liability company, and its successors and assigns (collectively, “ Buyer ”), as of the date of this estoppel certificate (“ Estoppel Certificate ”):

A. Tenant is the Lessee under that certain Lease dated ________________ relating to __________________ (the “ Premises ”), together with any amendments thereto (collectively, the “ Lease ”).

B. The dates of all amendments to the Lease are as follows:

C. There are no other agreements, oral or in writing, between Landlord and Tenant with respect to the Premises excepted as identified above.

D. The Lease is in full force and effect.

E. To Tenant’s actual knowledge, no default exists under the Lease by Landlord.

F. To Tenant’s actual knowledge, Tenant has no claim or demand against the Landlord.

G. Monthly base rent is equal to $______ and has been paid through _________________, 20__.

H. Tenant’s security deposit held by Landlord is $______________________.

I. Tenant has no right or option to purchase any portion of the real property upon which the Premises are situated.

Tenant acknowledges that this Estoppel Certificate is being given in order to induce Buyer to purchase the property of which the Premises are a part, and to take on the obligations of Landlord. Buyer is entitled to rely upon this Estoppel Certificate.

Dated:__________________, 20__



“TENANT” By: __________________________________ ___________________________________ (Print Name) (Title)

EXHIBIT D

Page 2

EXHIBIT E

Form of Deed

(Attached)

C-1

WHEN RECORDED RETURN TO:

__________________________



Document Title:		Special Warranty Deed
Grantor:	KBS SOR WESTPARK PORTFOLIO, LLC

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

KBS SOR WESTPARK PORTFOLIO, LLC, a Delaware limited liability company ( "Grantor" ), grants, bargains, sells and conveys to KEPPEL-KBS WESTPARK, LLC, a Delaware limited liability company ( "Grantee" ), that certain real estate, situated in the County of Kings, 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-2

Dated _______________, 2018.

“GRANTOR” :

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: _________________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

C-3

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

State of California

County of _______________

On _____________ before me, ____________________________ (here insert name and title of officer), 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 ______________________ (Seal)

C-4

Exhibit A

Real Property Legal 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).

EXHIBIT E

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.

EXHIBIT E

EXHIBIT F

Form of Assignment of Leases and
Contracts and
Bill of Sale

(Attached)

EXHIBIT F

ASSIGNMENT OF LEASES AND CONTRACTS AND BILL OF SALE

This Assignment of Leases and Contracts and Bill of Sale (this “ Assignment ”) is executed and delivered as of the ____ day of _________, 2018 (the “ Closing Date ”) pursuant to that certain Purchase and Sale Agreement and Escrow Instructions (“ Agreement ”) dated ________, 2018, by and between KBS SOR WESTPARK PORTFOLIO, LLC a Delaware limited liability company (“ Seller ”), and KEPPEL-KBS WESTPARK, LLC, a Delaware limited liability company (“ Buyer ”), covering the real property described in Exhibit A attached hereto (“ Property ”).

1. Sale of Personalty . For good and valuable consideration, Seller hereby sells, transfers, sets over and conveys to Buyer the following (the “ Personal Property ”):

(a) Tangible Personalty . All of Seller’s right, title and interest, if any, in and to all the furniture, fixtures, equipment, and other tangible personal property listed on Exhibit B attached hereto or otherwise located in or on the Property to the extent owned by Seller; and

(b) Intangible Personalty . All the right, title and interest of Seller, if any, in and to assignable licenses and permits relating to the operation of the Property, assignable guaranties and warranties from any contractor, manufacturer or other person in connection with the construction or operation of the Property, and the right to use the name of the Property (if any), but specifically excluding any right, title or interest of Seller in any trademarks, service marks and trade names of Seller (including, without limitation, the name “KBS” or any derivative thereof, or any name that includes the word “KBS” or any derivative thereof) and with reservation by Seller to use such name in connection with other property owned by Seller in the vicinity of the Property.

2. Assignment of Leases and Contracts . For good and valuable consideration, Seller hereby assigns, transfers, sets over and conveys to Buyer, and Buyer hereby accepts the following:

(a) Leases . All of the Seller’s right, title and interest in and to all tenant leases relating to the Property, including, without limitation, the tenant leases listed in Exhibit C‑1 and Exhibit C‑2 attached hereto (“ Leases ”);

(b) Contracts and Agreements . Seller’s right, title and interest in and to the contracts and agreements described in Exhibit D‑1 and Exhibit D‑2 attached hereto (the “ Contracts ”).

3. Assumption . Buyer hereby assumes the obligations of Seller under (a) the Leases listed on Exhibit C‑1 attached hereto arising from and after the Closing Date, (b) the Leases listed on Exhibit C‑2 attached hereto whether arising before or after the Closing Date, (c) the Contracts listed on Exhibit D‑1 attached hereto arising from and after the Closing Date, (d) the Contracts listed on Exhibit D‑2 attached hereto arising before or after the Closing Date, and (e) that certain leasing agreement dated May 10, 2016, entered into by and between Seller and Jones Lang LaSalle, Inc., a Washington corporation, but only to the extent of any leasing commissions hereafter payable thereunder arising out of the lease of space in the Property by

EXHIBIT F

Buyer after the date of this Assignment, and shall defend, indemnify and hold harmless Seller from and against any liability, damages, causes of action, expenses, and attorneys’ fees incurred by Seller by reason of the failure of Buyer to fulfill, perform, discharge, and observe its obligations with respect to the Leases or the Contracts.

4. Agreement Applies . Except as may otherwise be provided in the Agreement, the Contracts and Leases are being assigned and transferred, and the Personal Property is being transferred, to Buyer on an “as is,” and “where is” basis, with all faults, and without any representation or warranty, all of which Seller hereby disclaims, all as more particularly set forth in Section 11.1 of the Agreement, which Section shall be, and hereby is, incorporated herein by reference.

5. Counterparts . This Assignment may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, with the same effect as if all parties had signed the same signature page.

6. Attorneys’ Fees . In any action between the parties to enforce any of the terms or provisions of this Assignment, the prevailing party in the action shall be entitled to recover from the non-prevailing party, in addition to damages, injunctive relief or other relief, and its reasonable costs and expenses, including, without limitation, costs and reasonable attorneys’ fees (including on appeal).

7. Merger . This Assignment and the Agreement contain the entire understanding between the parties relating to their subject matter. All prior and contemporaneous agreements and understandings, whether oral or written, are superseded by this Assignment and the Agreement. This Assignment may only be modified in writing executed by both Buyer and Seller. Nothing contained in this Assignment is intended to terminate or affect the validity of any of the representations or warranties contained in the Agreement.

8. Joint and Several Liability . All obligations and liabilities of Buyer under this Assignment shall be joint and several as to each of the individuals or entities who compose Buyer.

9. Miscellaneous . This Assignment shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, executors, administrators, successor-in-interest and assigns. If any term or provision of this Assignment shall be held invalid or unenforceable, the remainder of this Assignment shall not be affected. This Assignment shall be construed in accordance with and governed by the laws of the State of Washington. Nothing in this Assignment shall impair, limit or lessen any of the rights of the parties with respect to the provisions of the Agreement which were intended to survive the Closing Date. Nothing in this Assignment, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their respective successors and assigns, any rights or remedies.

EXHIBIT F

IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the date written above.

[Signature Pages to Follow]

EXHIBIT F

“SELLER” :

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: _________________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

EXHIBIT F

“BUYER” :

KEPPEL-KBS WESTPARK, LLC,

a Delaware limited liability company

By: _______________________

Name: _______________________

Title: _______________________

EXHIBIT F

EXHIBIT A

DESCRIPTION OF PROPERTY

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).

EXHIBIT A

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.

EXHIBIT A

EXHIBIT B

DESCRIPTION OF TANGIBLE PROPERTY

[ATTACHED]

EXHIBIT B

EXHIBIT C-1

LIST OF LEASES UNDER WHICH BUYER ASSUMES
OBLIGATIONS AFTER THE CLOSING DATE

[ATTACHED]

EXHIBIT C-1

EXHIBIT C-2

LIST OF LEASES UNDER WHICH BUYER ASSUMES
OBLIGATIONS BEFORE AND AFTER THE CLOSING DATE

[ATTACHED]

EXHIBIT C-2

EXHIBIT D-1

LIST OF CONTRACTS UNDER WHICH BUYER ASSUMES
OBLIGATIONS AFTER THE CLOSING DATE

[ATTACHED]

EXHIBIT D-1

EXHIBIT D-2

LIST OF CONTRACTS UNDER WHICH BUYER ASSUMES
OBLIGATIONS BEFORE AND AFTER THE CLOSING DATE

[ATTACHED]

EXHIBIT D-2

EXHIBIT G

Form of FIRPTA Affidavit

(Attached)

EXHIBIT G

FIRPTA CERTIFICATE

KBS STRATEGIC OPPORTUNITY REIT, INC., a Maryland corporation (“ Member ”) is the sole general partner of KBS Strategic Opportunity Limited Partnership, a Delaware limited partnership, which is the sole shareholder of KBS SOR (BVI) Holdings, Ltd., a British Virgin Islands company limited by shares, which is the sole member of KBS SOR Properties, LLC, a Delaware limited liability company, which is the sole member of KBS SOR Acquisition XXVIII, LLC, a Delaware limited liability company, which is the sole member of KBS SOR Westpark Portfolio, LLC, a Delaware limited liability company (“ Seller ”). Seller, a disregarded entity for U.S. tax purposes, is the transferor of certain real property more particularly described on Exhibit A attached hereto (the “ Property ”).

Section 1445 of the Internal Revenue Code of 1986, as amended (the “ Code ”) provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Section 1445 of the Code), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee that withholding of tax will not be required in connection with the disposition of the Property pursuant to that certain Purchase and Sale Agreement and Escrow Instructions dated as of September 23, 2018, by and between Keppel-KBS Westpark, LLC, a Delaware limited liability company (“ Buyer ”) and Seller, the undersigned certifies the following on behalf of Member:

1. Member is not a foreign corporation, foreign Company, foreign trust or foreign estate, as those terms are defined in the Code and the regulations promulgated thereunder;

2. Member is not a disregarded entity as defined in Treasury Regulations §1.1445-2(b)(2)(iii),

3. Member’s U.S. employer identification number is 26-3842535, and

4. Member’s address is: 800 Newport Center Drive, Suite 700, Newport Beach, California 92660.

It is understood that this certificate may be disclosed to the Internal Revenue Service and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury I declare that I have examined the foregoing certification 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 Member.

EXHIBIT G

Date: ________________, 2018

KBS STRATEGIC OPPORTUNITY REIT, INC.,

a Maryland corporation

By: ______________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

EXHIBIT G

Exhibit A

Legal 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).

EXHIBIT A

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.

EXHIBIT A

EXHIBIT H

Form of Tenant Notice

(Attached)

EXHIBIT H

NOTICE TO TENANTS

[Date]

[Project Name]
[Address]
[City/State/ZIP]

Dear Tenant:

Notice is hereby given to the tenants of ______________________ (the “ Property ”) that KBS SOR Westpark Portfolio, LLC, a Delaware limited liability company (“ Seller ”), the current owner of the Property, has sold the Property to _______________________, a _____________________________ (“ Buyer ”) effective [date of takeover] . Buyer has assumed all of the obligations of landlord under your lease, including any obligations with respect to your security deposit, if any, which has been transferred to Buyer.

Sincerely,



	“SELLER” a
	“BUYER” a

EXHIBIT H

EXHIBIT I

Form of Owner’s Affidavit

TITLE ORDER:
ESCROW ORDER:
PROPERTY:
COUNTY:
STATE:

KBS SOR WESTPARK PORTFOLIO, LLC, a Delaware limited liability company ("Seller"), as seller, and KEPPEL-KBS WESTPARK, LLC, a Delaware limited liability company ("Buyer"), as buyer, are parties to that certain Purchase and Sale Agreement and Escrow Instructions (the "Purchase Agreement") dated ________ __, 2018, as the same has been amended and modified, relating to the improved real property (the "Real Property") referred to in Exhibit "A" attached hereto and made a part hereof.


1.	In connection with the consummation of the transactions contemplated by the Purchase Agreement, Seller hereby represents and warrants to First American Title Insurance Company the following:


2.	Seller is a limited liability company organized and existing under the laws of the State of Delaware.


3.	To Seller's actual knowledge, (i) Seller's operating agreement is in full force and effect, and (ii) no proceedings are pending for the dissolution of the Seller.


4.	To Seller's actual knowledge, the leases described on Exhibit "B" attached hereto constitute all of the written leases affecting the Real Property with the current tenants of the Real Property.

To Seller's actual knowledge, except as disclosed in Exhibit "C" attached hereto and made a part hereof, (a) there is no capital improvement work currently being constructed (or that was constructed during the last 3 months) on the Real Property that is the subject of a written contract with Seller which could give rise to a mechanic's or materialman's lien on the Real Property, and (b) Seller has not entered into any contracts for the furnishing of labor, materials, or services for construction purposes with respect to the Real Property to be furnished subsequent to the date of this affidavit.


6.	Seller shall not hereafter cause any encumbrances or other instruments to be recorded against the Property (other than the recording of a deed (the "Deed") transferring fee title to the Real Property to Buyer) through the date the Deed is recorded in King County, Washington.

For purposes hereof, the "actual knowledge" of Seller shall be limited to the actual knowledge (and not implied, imputed, or constructive) of Jeff Rader (whom the Seller represents is the asset

EXHIBIT I

manager for the Real Property), with no duty of inquiry. Notwithstanding anything contained herein to the contrary, the representations and warranties set forth in this Owner's Affidavit shall only survive the closing of the transactions contemplated by the Purchase Agreement until ____________, 2019, after which date this Owner's Affidavit shall be of no further force or effect and First American Title Insurance Company shall have no further rights hereunder (notwithstanding that one or more of the representations and/or warranties set forth herein may prove to be incorrect). This Owner's Affidavit is being executed for the sole and exclusive benefit of First American Title Insurance Company and no other party or person shall have any rights hereunder.

Executed as of __________, 2018

[SIGNATURES ON NEXT PAGE]

EXHIBIT I

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: _________________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

EXHIBIT I

EXHIBIT A

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).

EXHIBIT I

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.

EXHIBIT I

EXHIBIT B

List of Leases

(Attached)

EXHIBIT I

EXHIBIT C

Work Completed in Last 3 Months

(Attached)

EXHIBIT I

EXHIBIT J

State-Specific Deliverables

WASHINGTON – None.

EXHIBIT J

EXHIBIT K

WA Disclosure Statement

(Attached)

EXHIBIT K

NOTICE TO THE BUYER

WASHINGTON DISCLOSURE STATEMENT

THE FOLLOWING DISCLOSURES ARE MADE BY SELLER ABOUT THE CONDITION OF THE PROPERTY LOCATED AT 8210-8681 NE 154TH AVENUE AND 15221-15387 NE 90TH STREET IN REDMOND, WASHINGTON (THE “PROPERTY”) OR AS LEGALLY DESCRIBED ON THE ATTACHED EXHIBIT A. SELLER MAKES THE FOLLOWING ENVIRONMENTAL 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 (3) 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 PURCHASE AND 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, 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.

EXHIBIT K



6.ENVIRONMENTAL
[ ] Yes	[x] No	[ ] Don't know	*A. Have there been any flooding, standing water, or drainage problems on the property that affect the property or access to the property?
[ ] Yes	[x] No	[ ] Don't know	*B. Is there any material damage to the property from fire, wind, floods, beach movements, earthquake, expansive soils, or landslides?
[ ] Yes	[x] No	[ ] Don't know	*C. Are there any shorelines, wetlands, floodplains, or critical areas on the property?
[ ] Yes	[x] 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?
[ ] Yes	[x] No	[ ] Don't know	*E. Is there any soil or groundwater contamination?
[ ] Yes	[x] No	[ ] Don't know	*F. Has the property been used as a legal or illegal dumping site?
[ ] Yes	[x] No	[ ] Don't know	*G. Has the property been used as an illegal drug manufacturing site?

EXHIBIT K

IN WITNESS WHEREOF, Seller has executed this Notice to Buyer as of this 18th day of September, 2018.

“ SELLER ”

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: _________________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

EXHIBIT K

BUYER'S ACKNOWLEDGMENT

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 of this disclosure statement (including attachments, if any) bearing Seller's signature.

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.

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.

“BUYER” :

KEPPEL-KBS WESTPARK, LLC,

a Delaware limited liability company

By: /s/ David E. Snyder

Name: David E. Snyder

Title: Chief Executive Officer

EXHIBIT K

SCHEDULE 1

Disclosures

None.

SCHEDULE 1

SCHEDULE 2

Free Rent



Tenant Name	Suite	Lease Type	Area	Start Date	Base Rent	Free Rent per Lease	Number of months from transaction date (15 Nov 2018)	Free Rent Buyout	Rent Shortfall Payment
Tech Tenant	C-100 & 200	Industrial	27,238	12/1/2018	40,076	3	3.5	120,229	20,038
Tech Tenant	C- 220	Industrial	6,292	1/1/2019	9,753	3	4.5	29,258	14,629
Tech Tenant	C-140	Industrial	5,876	5/1/2019	9,108	3	8.5	27,323	50,093
Tech Tenant	M-100 & 200	Industrial	30,133	12/1/2018	46,192	3	3.5	138,576	23,096
Tech Tenant	M-140	Industrial	1,737	5/1/2019	2,692	3	8.5	8,077	14,808
Tech Tenant	N-110, 160, 200, 230, 240, 250, & 260	Industrial	27,238	12/1/2018	46,532	3	3.5	139,595	23,266
Total			98,514					463,058	145,930

SCHEDULE 2

TABLE OF CONTENTS



		Page
1.	BASIC TERMS AND DEFINITIONS	1
2.	PURCHASE AND SALE	1
3.	PURCHASE PRICE	2
4.	PROPERTY INFORMATION; TITLE POLICY; INSPECTIONS AND DUE DILIGENCE; TENANT ESTOPPEL CERTIFICATES; CONFIDENTIALITY	3
5.	OPERATIONS AND RISK OF LOSS	7
6.	SELLER'S AND BUYER'S DELIVERIES	10
7.	CONDITIONS TO BUYER'S AND SELLER'S OBLIGATION	12
8.	CLOSE OF ESCROW; POSSESSION	14
9.	ESCROW	14
10.	PRORATIONS	17
11.	SELLER'S REPRESENTATIONS AND WARRANTIES; AS-IS	20
12.	BUYER'S COVENANTS, REPRESENTATIONS AND WARRANTIES; RELEASE; ERISA; INDEMNIFICATION	25
13.	DEFAULT AND DAMAGES	27
14.	NO BROKER	28
15	MISCELLANEOUS PROVISIONS	28

Exhibit 10.2

ADVISORY AGREEMENT

between

KBS STRATEGIC OPPORTUNITY REIT, INC.

and

KBS CAPITAL ADVISORS LLC

October 8, 2018

TABLE OF CONTENTS



			Page
ARTICLE 1 - DEFINITIONS			1
ARTICLE 2 - APPOINTMENT			9
ARTICLE 3 - DUTIES OF THE ADVISOR			9
	3.01	Organizational and Offering Services	9
	3.02	Acquisition Services	10
	3.03	Asset Management Services	10
	3.04	Stockholder Services	13
	3.05	Other Services	13
ARTICLE 4 - AUTHORITY OF ADVISOR			14
	4.01	General	14
	4.02	Powers of the Advisor	14
	4.03	Approval by the Board	14
	4.04	Modification or Revocation of Authority of Advisor	14
ARTICLE 5 - BANK ACCOUNTS			14
ARTICLE 6 - RECORDS AND FINANCIAL STATEMENTS			15
ARTICLE 7 - LIMITATION ON ACTIVITIES			15
ARTICLE 8 - FEES			16
	8.01	Acquisition Fees	16
	8.02	Asset Management Fees	16
	8.03	Disposition Fees	17
	8.04	Subscription Processing Fee	18
	8.05	Subordinated Share of Cash Flows	18
	8.06	Subordinated Incentive Fee	19
	8.07	Changes to Fee Structure	19
ARTICLE 9 - EXPENSES			19
	9.01	General	19
	9.02	Timing of and Limitations on Reimbursements	21
ARTICLE 10 - VOTING AGREEMENT			22
ARTICLE 11 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR			22
	11.01	Relationship	22
	11.02	Time Commitment	22
	11.03	Investment Opportunities and Allocation	23
ARTICLE 12 - THE KBS NAME			23
ARTICLE 13 - TERM AND TERMINATION OF THE AGREEMENT			23
	13.01	Term	23
	13.02	Termination by Either Party	24
	13.03	Payments on Termination and Survival of Certain Rights and Obligations	24
ARTICLE 14 - ASSIGNMENT			24
ARTICLE 15 - INDEMNIFICATION AND LIMITATION OF LIABILITY			25



	15.01	Indemnification	25
	15.02	Limitation on Indemnification	25
	15.03	Limitation on Payment of Expenses	26
ARTICLE 16 - MISCELLANEOUS			26
	16.01	Notices	26
	16.02	Modifications	26
	16.03	Severability	26
	16.04	Construction	27
	16.05	Entire Agreement	27
	16.06	Waiver	27
	16.07	Gender	27
	16.08	Titles Not to Affect Interpretation	27
	16.09	Counterparts	27

ADVISORY AGREEMENT

This Advisory Agreement, dated as of October 8, 2018 (the “Agreement”), is between KBS Strategic Opportunity REIT, Inc., a Maryland corporation (the “Company”), and KBS Capital Advisors LLC, a Delaware limited liability company (the “Advisor”).

W I T N E S S E T H

WHEREAS, the Company desires to avail itself of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the board of directors of the Company (the “Board”), all as provided herein; and

WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

The following defined terms used in this Agreement shall have the meanings specified below:

“Acquisition Expenses” means any and all expenses, excluding the fee payable to the Advisor pursuant to Section 8.01, incurred by the Company, the Advisor or any Affiliate of either in connection with the selection, acquisition or development of any property, loan or other potential investment, whether or not acquired or originated, as applicable, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on properties or other investments not acquired, accounting fees and expenses, title insurance premiums and miscellaneous expenses related to the selection, acquisition or development of any property, loan or other potential investment.

“Acquisition Fees” means the fee payable to the Advisor pursuant to Section 8.01 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Property, Loan or other Permitted Investment or the purchase, development or construction of any Property by the Company. Included in the computation of such fees or commissions shall be any real estate commission, selection fee, Development Fee, Construction Fee, nonrecurring management fee, loan fees or points or any fee of a similar nature, however designated. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.

“Advisor” means (i) KBS Capital Advisors LLC, a Delaware limited liability company, or (ii) any successor advisor to the Company.

“Affiliate” or “Affiliated” An Affiliate of another Person includes any of the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board of directors (or equivalent governing body) of such program is composed of Affiliates of the entity.

“Appraised Value” means the value according to an appraisal made by an Independent Appraiser.

“Asset Management Fee” shall have the meaning set forth in Section 8.02.

“Average Invested Assets” means, for a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties, Loans and other Permitted Investments secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.

“Board” means the board of directors of the Company, as of any particular time.

“Bylaws” means the bylaws of the Company, as amended from time to time.

“Cash from Financings” means the net cash proceeds realized by the Company from the financing of Properties, Loans or other Permitted Investments or from the refinancing of any Company indebtedness (after deduction of all expenses incurred in connection therewith).

“Cash from Sales and Settlements” means the net cash proceeds realized by the Company (i) from the sale, exchange or other disposition of any of its assets or any portion thereof after deduction of all expenses incurred in connection therewith and (ii) from the prepayment, maturity, workout or other settlement of any Loan or Permitted Investment or portion thereof after deduction of all expenses incurred in connection therewith. In the case of a transaction described in clause (i) (C) of the definition of “Sale” and (i)(B) of the definition of “Settlement,” Cash from Sales and Settlements means the proceeds of any such transaction actually distributed to the Company from the Joint Venture or partnership. Cash from Sales and Settlements shall not include Cash from Financings.

“Cash from Sales, Settlements and Financings” means the total sum of Cash from Sales and Settlements and Cash from Financings.

“Charter” means the articles of incorporation of the Company, as amended from time to time.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.

“Company” means KBS Strategic Opportunity REIT, Inc., a corporation organized under the laws of the State of Maryland.

“Competitive Real Estate Commission” means a real estate or brokerage commission for the purchase or sale of property that is reasonable, customary, and competitive in light of the size, type, and location of the property.

“Conflicts Committee” shall have the meaning set forth in the Company’s Charter.

“Construction Fee” means a fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.

“Contract Sales Price” means the total consideration received by the Company for the sale of a Property, Loan or other Permitted Investment.

“Cost of Loans and other Permitted Investments” means the sum of the cost of all Loans and Permitted Investments held, directly or indirectly, by the Company, calculated each month on an ongoing basis, and calculated as follows for each investment: the lesser of (i) the amount actually paid or allocated to acquire or fund the Loan or Permitted 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 Permitted Investment (plus the fees and expenses related to the acquisition or funding of such investment), as of the time of calculation. With respect to any Loan or Permitted Investment held by the Company through a Joint Venture or partnership of which it is, directly or indirectly, a partner, such amount shall be the Company’s proportionate share thereof.

“Cost of Real Estate Investments” means the sum of (i) with respect to Properties wholly owned, directly or indirectly, by the Company, the amount actually paid or allocated to the purchase, development, construction or improvement of Properties, inclusive of fees and expenses related thereto, plus the amount of any outstanding debt attributable to such Properties and (ii) in the case of Properties owned by any Joint Venture or partnership in which the Company or the Partnership is, directly or indirectly, a partner, the portion of the amount actually paid or allocated to the purchase, development, construction or improvement of Properties, inclusive of fees and expenses related thereto, plus the amount of any outstanding debt associated with such Properties that is attributable to the Company’s investment in the Joint Venture or partnership.

“Dealer Manager” means (i) KBS Capital Markets Group LLC, a Delaware limited liability company, or (ii) any successor dealer manager to the Company.

“Development Fee” means a fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.

“Director” means a member of the board of directors of the Company.

“Disposition Fee” shall have the meaning set forth in Section 8.03.

“Distributions” means any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.

“GAAP” means accounting principals generally accepted in the United States.

“Gross Proceeds” means the aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.

“Independent Appraiser” means a person or entity with no material current or prior business or personal relationship with the Advisor or the Directors, who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company, and who is a qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (M.A.I.) or the Society of Real Estate Appraisers (S.R.E.A.) shall be conclusive evidence of such qualification.

“Initial Public Offering” means the initial public offering of Shares registered on Registration Statement No. 333-156633 on Form S-11.

“Invested Capital” means the amount calculated by multiplying the total number of Shares purchased by Stockholders by the issue price, reduced by any amounts paid by the Company to repurchase Shares pursuant to the Company’s plan for redemption of Shares.

“Joint Venture” means any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part, on behalf of the Company any Properties, Loans or other Permitted Investments.

“Listed” or “Listing” shall have the meaning set forth in the Company’s Charter.

“Loans” means mortgage loans and other types of debt financing investments made by the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, including, without limitation, mezzanine loans, B-notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.

“Market Value” shall have the meaning set forth in Section 8.06.

“NASAA Guidelines” means the NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.

“Net Income” means, for any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company’s assets.

“Offering” means any offering of Shares that is registered with the SEC, excluding Shares offered under any employee benefit plan.

“Operating Cash Flow” means Operating Revenue Cash Flows minus the sum of (i) Operating Expenses, (ii) all principal and interest payments on indebtedness and other sums paid to lenders, (iii) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (iv) taxes, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

“Operating Expenses” means all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company or to Company business, including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

“Operating Revenue Cash Flows” means the Company’s cash flow from ownership and/or operation of (i) Properties, (ii) Loans, (iii) Permitted Investments, (iv) short-term investments, and (v) interests in Properties, Loans and Permitted Investments owned by any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner.

“Organization and Offering Expenses” means all expenses incurred by or on behalf of the Company in connection with or preparing the Company for registration of and subsequently offering and distributing its Shares to the public, whether incurred before or after the date of this Agreement, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); any expense allowance granted by the Company to the underwriter or any reimbursement of expenses of the underwriter by the Company;

expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants’ and attorneys’ fees.

“Partnership” means KBS Strategic Opportunity Limited Partnership, a Delaware limited partnership formed to own and operate Properties, Loans and other Permitted Investments on behalf of the Company.

“Permitted Investments” means all investments (other than Properties and Loans) in which the Company may acquire an interest, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, pursuant to its Charter, Bylaws and the investment objectives and policies adopted by the Board from time to time, other than short-term investments acquired for purposes of cash management.

“Person” means an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

“Property” means any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership.

“Property Manager” means an entity that has been retained to perform and carry out at one or more of the Properties property-management services, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.

“Registration Statement” means the registration statement filed by the Company with the SEC on Form S-11 (Reg. No. 333-156633), as amended from time to time, in connection with the Initial Public Offering.

“REIT” means a “real estate investment trust” under Sections 856 through 860 of the Code.

“Sale” means any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including the transfer of any Property that is the subject of a ground lease, including any event with respect to any Property, Loan or other Permitted Investment that gives rise to a significant amount of insurance proceeds or condemnation awards, and including the issuance by one of the Company’s subsidiaries of any asset-backed securities or collateralized debt obligations as part of a securitization transaction; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any Joint Venture or any partnership in which

it is a partner; or (C) any Joint Venture or any partnership in which the Company or the Partnership is a partner, sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including any event with respect to any Property, Loan or other Permitted Investment that gives rise to insurance claims or condemnation awards, and including the issuance by such Joint Venture or any partnership or one of its subsidiaries of any asset-backed securities or collateralized debt obligations as part of a securitization transaction.

“SEC” means the United States Securities and Exchange Commission.

“Settlement” means the prepayment, maturity, workout or other settlement of any Loan or other Permitted Investment or portion thereof owned, directly or indirectly, by (A) the Company or the Partnership or (B) any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner.

“Shares” means shares of common stock of the Company, par value $.01 per share.

“Stockholders” means the registered holders of the Shares.

“Stockholders’ 7% Return” means, as of any date, an aggregate amount equal to a 7% cumulative, non-compounded, annual return on Invested Capital (calculated like simple interest on a daily basis based on a three hundred sixty-five day year). For purposes of calculating the Stockholders’ 7% Return, Invested Capital shall be determined for each day during the period for which the Stockholders’ 7% Return is being calculated and shall be calculated net of (1) Distributions of Operating Cash Flow to the extent such Distributions of Operating Cash Flow provide a cumulative, non-compounded, annual return in excess of 7%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year and (2) Distributions of Cash from Sales, Settlements and Financings, except to the extent such Distributions would be required to supplement Distributions of Operating Cash Flow in order to achieve a cumulative, non-compounded, annual return of 7%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year.

“Subordinated Incentive Fee” means the fee payable to the Advisor under certain circumstances if the Shares are Listed, as calculated in Section 8.06.

“Subordinated Incentive Fee Threshold” has the meaning set forth in Section 8.06.

“Subordinated Performance Fee Due Upon Termination” means a fee payable in the form of an interest bearing promissory note (the “Performance Fee Note”) in a principal amount equal to (1) 15% of the amount, if any, by which (a) the Appraised Value of the Company’s Properties at the Termination Date, less amounts of all indebtedness secured by the Company’s Properties, plus the fair market value of all other Loans and Permitted Investments of the Company at the Termination Date, less amounts of indebtedness related to such Loans and Permitted Investments, plus total Distributions (excluding any stock dividend) through the Termination Date exceeds (b) the sum of Invested Capital plus total Distributions required to be made to the stockholders in order to pay the Stockholders’ 7% Return from inception through the Termination Date less (2) any prior payment to the Advisor of a Subordinated Share of Cash Flows (the amount calculated under (b) is the “Termination Fee Threshold”). Interest on the Performance Fee Note will accrue beginning on the

Termination Date at a rate deemed fair and reasonable by the Conflicts Committee. The Company shall repay the Performance Fee Note at such time as the Company completes the first Sale or Settlement after the Termination Date using Cash from Sales and Settlements. If the Cash from Sales and Settlements from the first Sale or Settlement after the Termination Date is insufficient to pay the Performance Fee Note in full, including accrued interest, then the Performance Fee Note shall be paid in part from the Cash from Sales and Settlements from the first Sale or Settlement, and in part from the Cash from Sales and Settlements from each successive Sale or Settlement until the Performance Fee Note is repaid in full, with interest. If the Performance Fee Note has not been paid in full within five years from the Termination Date, then the Advisor, its successors or assigns, may elect to convert the balance of the fee, including accrued but unpaid interest, into Shares at a price per Share equal to the average closing price of the Shares over the ten trading days immediately preceding the date of such election if the Shares are Listed at such time. If the Shares are not Listed at such time, the Advisor, its successors or assigns, may elect to convert the balance of the fee, including accrued but unpaid interest, into Shares at a price per Share equal to the fair market value for the Shares as determined by the Board based upon the Appraised Value of Company’s Properties on the date of election plus the fair market value of all other Loans and Permitted Investments of the Company on the date of election.

“Subordinated Share of Cash Flows” has the meaning set forth in Section 8.05.

“Subordinated Share of Cash Flows Threshold” has the meaning set forth in Section 8.05.

“Subscription Processing Fee” has the meaning set forth in Section 8.04.

“Termination Date” means the date of termination of the Agreement determined in accordance with Article 13 hereof.

“Termination Fee Threshold” has the meaning set forth in the definition of Subordinated Performance Fee Due Upon Termination.

“2%/25% Guidelines” means the requirement pursuant to the NASAA Guidelines that, in any period of four consecutive fiscal quarters, total Operating Expenses not exceed the greater of 2% of the Company’s Average Invested Assets during such 12-month period or 25% of the Company’s Net Income over the same 12-month period.

ARTICLE 2

APPOINTMENT

The Company hereby appoints the Advisor to serve as its advisor and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.

ARTICLE 3

DUTIES OF THE ADVISOR

The Advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its assets. The Advisor undertakes to use its best efforts to present to the Company potential investment opportunities, to make investment decisions on behalf

of the Company subject to the limitations in the Company’s Charter, the direction and oversight of the Board and Section 4.03 hereof, and to provide the Company with a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. Subject to the limitations set forth in this Agreement, including Article 4 hereof, and the continuing and exclusive authority of the Board over the management of the Company, the Advisor shall, either directly or by engaging an Affiliate or third party, perform the following duties:

3.01 Organizational and Offering Services. The Advisor shall perform all services related to the organization of the Company or any Offering or private sale of the Company’s securities, other than services that (i) are to be performed by the Dealer Manager, (ii) the Company elects to perform directly or (iii) would require the Advisor to register as a broker-dealer with the SEC or any state.

3.02 Acquisition Services.

(i) Serve as the Company’s investment and financial advisor and provide relevant market research and economic and statistical data in connection with the Company’s assets and investment objectives and policies;

(ii) Subject to Section 4 hereof and the investment objectives and policies of the Company: (a) locate, analyze and select potential investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which investments in Properties, Loans and other Permitted Investments will be made; (c) acquire, originate and dispose of Properties, Loans and other Permitted Investments on behalf of the Company; (d) arrange for financing and refinancing and make other changes in the asset or capital structure of investments in Properties, Loans and other Permitted Investments; and (e) enter into leases, service contracts and other agreements for Properties, Loans and other Permitted Investments;

(iii) Perform due diligence on prospective investments and create due diligence reports summarizing the results of such work;

(iv) With respect to prospective investments presented to the Board, prepare reports regarding such prospective investments that include recommendations and supporting documentation necessary for the Directors to evaluate the proposed investments;

(v) Obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of contemplated investments of the Company;

(vi) Deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the Company’s investments; and

(vii) Negotiate and execute approved investments and other transactions, including prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments.

3.03 Asset Management Services.

(i) Real Estate and Related Services:

(a) Investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) such Persons as the Advisor deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, developers, construction companies, Property Managers and any and all Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services;

(b) Negotiate and service the Company’s debt facilities and other financings;

(c) Monitor applicable markets and obtain reports (which may be prepared by the Advisor or its Affiliates) where appropriate, concerning the value of investments of the Company;

(d) Monitor and evaluate the performance of each asset of the Company and the Company’s overall portfolio of assets, provide daily management services to the Company and perform and supervise the various management and operational functions related to the Company’s investments;

(e) Formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of Properties, Loans and other Permitted Investments on an overall portfolio basis;

(f) Consult with the Company’s officers and the Board and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary with respect to investment and borrowing opportunities presented to the Board, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;

(g) Oversee the performance by the Property Managers of their duties, including collection and proper deposits of rental payments and payment of Property expenses and maintenance;

(h) Conduct periodic on-site property visits to some or all (as the Advisor deems reasonably necessary) of the Properties to inspect the physical condition of the Properties and to evaluate the performance of the Property Managers;

(i) Review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company’s overall budget;

(j) Coordinate and manage relationships between the Company and any Joint Venture partners; and

(k) Consult with the Company’s officers and the Board and provide assistance with the evaluation and approval of potential asset disposition, sale and refinancing opportunities that are presented to the Board.

(ii) Accounting and Other Administrative Services:

(a) Provide the day-to-day management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;

(b) From time to time, or at any time reasonably requested by the Board, make reports to the Board on the Advisor’s performance of services to the Company under this Agreement;

(c) Make reports to the Conflicts Committee each quarter of the investments that have been made by other programs sponsored by the Advisor or any of its Affiliates, including KBS Realty Advisors LLC, as well as any investments that have been made by the Advisor or any of its Affiliates directly;

(d) Provide or arrange for any administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to the Company’s business and operations;

(e) Provide financial and operational planning services;

(f) Maintain accounting and other record-keeping functions at the Company and investment levels, including information concerning the activities of the Company as shall be required to prepare and to file all periodic financial reports, tax returns and any other information required to be filed with the SEC, the Internal Revenue Service and any other regulatory agency;

(g) Maintain and preserve all appropriate books and records of the Company;

(h) Provide tax and compliance services and coordinate with appropriate third parties, including the Company’s independent auditors and other consultants, on related tax matters;

(i) Provide the Company with all necessary cash management services;

(j) Manage and coordinate with the transfer agent the dividend process and payments to Stockholders;

(k) Consult with the Company’s officers and the Board and assist the Board in evaluating and obtaining adequate insurance coverage based upon risk management determinations;

(l) Provide the Company’s officers and the Board with timely updates related to the overall regulatory environment affecting the Company, as well as managing compliance with such matters, including but not limited to compliance with the Sarbanes-Oxley Act of 2002;

(m) Consult with the Company’s officers and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;

(n) Perform all reporting, record keeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law, including federal and state securities laws and the Sarbanes-Oxley Act of 2002;

(o) Notify the Board of all proposed material transactions before they are completed; and

(p) Do all things necessary to assure its ability to render the services described in this Agreement.

3.04 Stockholder Services.

(i) Manage services for and communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications;

(ii) Oversee the performance of the transfer agent and registrar;

(iii) Establish technology infrastructure to assist in providing Stockholder support and service; and

(iv) Consistent with Section 3.01, the Advisor shall perform the various subscription processing services reasonably necessary for the admission of new Stockholders.

3.05 Other Services. Except as provided in Article 7, the Advisor shall perform any other services reasonably requested by the Company (acting through the Conflicts Committee).

ARTICLE 4

AUTHORITY OF ADVISOR

4.01 General. All rights and powers to manage and control the day-to-day business and affairs of the Company shall be vested in the Advisor. The Advisor shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company to such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as it may deem appropriate. Any authority delegated by the Advisor to any other Person shall be

subject to the limitations on the rights and powers of the Advisor specifically set forth in this Agreement or the Charter.

4.02 Powers of the Advisor. Subject to the express limitations set forth in this Agreement and the continuing and exclusive authority of the Board over the management of the Company, the power to direct the management, operation and policies of the Company, including making, financing and disposing of investments, shall be vested in the Advisor, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Company to carry out any and all of the objectives and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.

4.03 Approval by the Board. Notwithstanding the foregoing, the Advisor may not take any action on behalf of the Company without the prior approval of the Board or duly authorized committees thereof if the Charter or Maryland General Corporation Law require the prior approval of the Board. If the Board or a committee of the Board must approve a proposed investment, financing or disposition or chooses to do so, the Advisor will deliver to the Board or committee, as applicable, all documents required by it to evaluate such investment, financing or disposition.

4.04 Modification or Revocation of Authority of Advisor. The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Article 3 and this Article 4 hereof; provided, however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.

ARTICLE 5

BANK ACCOUNTS

The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor. The Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and the independent auditors of the Company.

ARTICLE 6

RECORDS AND FINANCIAL STATEMENTS

The Advisor, in the conduct of its responsibilities to the Company, shall maintain adequate and separate books and records for the Company’s operations in accordance with GAAP, which shall be supported by sufficient documentation to ascertain that such books and records are properly and accurately recorded. Such books and records shall be the property of the Company and shall be available for inspection by the Board and by counsel, auditors and other authorized agents of the Company, at any time or from time to time during normal business hours. Such books and records shall include all information necessary to calculate and audit the fees or reimbursements

paid under this Agreement. The Advisor shall utilize procedures to attempt to ensure such control over accounting and financial transactions as is reasonably required to protect the Company’s assets from theft, error or fraudulent activity. All financial statements that the Advisor delivers to the Company shall be prepared on an accrual basis in accordance with GAAP, except for special financial reports that by their nature require a deviation from GAAP. The Advisor shall liaise with the Company’s officers and independent auditors and shall provide such officers and auditors with the reports and other information that the Company so requests.

ARTICLE 7

LIMITATION ON ACTIVITIES

Notwithstanding any provision in this Agreement to the contrary, the Advisor shall not take any action that, in its sole judgment made in good faith, would (i) adversely affect the ability of the Company to qualify or continue to qualify as a REIT under the Code, (ii) subject the Company to regulation under the Investment Company Act of 1940, as amended, (iii) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, (iv) require the Advisor to register as a broker-dealer with the SEC or any state, or (v) violate the Charter or Bylaws. In the event an action that would violate (i) through (v) of the preceding sentence but such action has been ordered by the Board, the Advisor shall notify the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.

ARTICLE 8

FEES

8.01 Acquisition Fees. As compensation for the investigation, selection, sourcing and acquisition or origination (by purchase, investment or exchange) of Properties, Loans and other Permitted Investments, the Company shall pay an Acquisition Fee to the Advisor for each such investment (whether an acquisition or origination). With respect to the acquisition or origination of a Property, Loan or other Permitted Investment to be wholly owned, directly or indirectly, by the Company, the Acquisition Fee payable to the Advisor shall equal 1.0% of the sum of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other Permitted Investment, inclusive of the Acquisition Expenses associated with such Property, Loan or other Permitted Investment and the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment. With respect to the acquisition or origination of a Property, Loan or other Permitted Investment through any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner, the Acquisition Fee payable to the Advisor shall equal 1.0% of the portion of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other Permitted Investment, inclusive of the Acquisition Expenses associated with such Property, Loan or other Permitted Investment, plus the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment that is attributable to the Company’s investment in such Joint Venture or partnership. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by

the Company shall be subject to the limitations on Acquisition Fees contained in (and defined in) the Company’s Charter. The Advisor shall submit an invoice to the Company following the closing or closings of each acquisition or origination, accompanied by a computation of the Acquisition Fee. Generally, the Acquisition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Acquisition Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Acquisition Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.02 Asset Management Fees.

(i) Except as provided in Section 8.02(ii) hereof, the Company shall pay the Advisor as compensation for the services described in Section 3.03 hereof a monthly fee (the “Asset Management Fee”) in an amount equal to one-twelfth of 0.75% of the sum of the Cost of Real Estate Investments and the Cost of Loans and other Permitted Investments. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the Asset Management Fee for the applicable period. Generally, the Asset Management Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. However, the Asset Management Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Asset Management Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

(ii) Notwithstanding anything contained in Section 8.02(i) to the contrary, a Property, Loan or other Permitted Investment that has suffered an impairment in value, reduction in cash flow or other negative circumstances may either be excluded from the calculation of the Cost of Real Estate Investments or the Cost of Loans and other Permitted Investments or included in such calculation at a reduced value that is recommended by the Advisor and the Company’s management and then approved by a majority of the Company’s independent directors, and the resulting change in the Asset Management Fee with respect to such an investment will be applicable upon the earlier to occur of the date on which (i) such investment is sold, (ii) such investment is surrendered to a Person other than the Company, its direct or indirect wholly owned subsidiary or a Joint Venture or partnership in which the Company has an interest, (iii) the Advisor determines that it will no longer pursue collection or other remedies related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment.

8.03 Disposition Fees. If the Advisor or any of its Affiliates provide a substantial amount of services (as determined by the Conflicts Committee) in connection with a Sale, the Advisor or such Affiliate shall receive a fee at the closing (the “Disposition Fee”) equal to 1% of the Contract Sales Price; provided, however, that if in connection with such Sale commissions are paid to third parties other than the Advisor or its Affiliates, the fee paid to the Advisor or any of its Affiliates may not exceed the commissions paid to such unaffiliated third parties; and provided further that no Disposition Fee shall be payable to the Advisor for any Sale if such Sale involves the Company selling all or substantially all of its assets in one or more transactions designed to effectuate a business combination transaction (as opposed to a Company liquidation, in which case the

Disposition Fee would be payable if the Advisor or an Affiliate provides a substantial amount of services as provided above). The payment of any Disposition Fees by the Company shall be subject to the limitations contained in the Company’s Charter. Any Disposition Fee payable under this Section 8.03 may be paid in addition to commissions paid to non-Affiliates, provided that the total commissions (including such Disposition Fee) paid to all Persons by the Company for each Sale shall not exceed an amount equal to the lesser of (i) 6% of the aggregate Contract Sales Price of each Property, Loan or other Permitted Investment or (ii) the Competitive Real Estate Commission for each Property, Loan or other Permitted Investment. The Advisor shall submit an invoice to the Company following the closing or closings of each disposition, accompanied by a computation of the Disposition Fee. Generally, the Disposition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Disposition Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Disposition Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.04 Subscription Processing Fee. The Company shall pay the Advisor as compensation for the services described in Section 3.04(iv) hereof a monthly fee (the “Subscription Processing Fee”) in an amount equal to $35 per subscription agreement for Shares received and processed by the Advisor. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subscription Processing Fee for the applicable period. Generally, the Subscription Processing Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. However, the Subscription Processing Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Subscription Processing Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine. The Subscription Processing Fee is an Organization and Offering Expense of the Company and is subject to the limitations on Organization and Offering Expenses in Article 9 hereof.

8.05 Subordinated Share of Cash Flows. The Subordinated Share of Cash Flows shall be payable to the Advisor in an amount equal to 15% of Operating Cash Flow and Cash from Sales, Settlements and Financings remaining after the Stockholders have received Distributions of Operating Cash Flow and of Cash from Sales, Settlements and Financings such that the owners of all outstanding Shares have received Distributions in an aggregate amount equal to the sum of:

a. the Stockholders’ 7% Return and

b. Invested Capital.

When determining whether the above threshold (the “Subordinated Share of Cash Flows Threshold”) has been met:


(A)	Any stock dividend shall not be included as a Distribution; and


(B)	Distributions paid on Shares redeemed by the Company (and thus no longer included in the determination of Invested Capital), shall not be included as a Distribution.

Following Listing, no Subordinated Share of Cash Flows will be paid to the Advisor.

If the Subordinated Share of Cash Flows is payable to the Advisor, the Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subordinated Share of Cash Flows for the applicable period. Generally, the Subordinated Share of Cash Flows payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. However, the Subordinated Share of Cash Flows may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Subordinated Share of Cash Flows not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.06 Subordinated Incentive Fee. Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15% of the amount by which (i) the market value of the outstanding Shares of the Company, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Distributions paid to Stockholders (excluding any stock dividends) from the Company’s inception until the date that Market Value is determined, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 7% Return from inception through the date Market Value is determined (the sum of (A) and (B) is the “Subordinated Incentive Fee Threshold”). The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note or any combination of the foregoing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to the Advisor of a Subordinated Share of Cash Flows. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee will be paid to the Advisor. In addition, the Subordinated Incentive Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Subordinated Incentive Fee not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.07 Changes to Fee Structure. The Advisor and the Company shall not agree to reduce the Subordinated Share of Cash Flows Threshold, the Subordinated Incentive Fee Threshold or the Termination Fee Threshold without the approval of Stockholders holding a majority of the Shares. In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.

ARTICLE 9

EXPENSES

9.01 General. In addition to the compensation paid to the Advisor pursuant to Article 8 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its Affiliates on behalf of the Company or in connection with the services provided to the Company pursuant to this Agreement, including, but not limited to:

(i) All Organization and Offering Expenses; provided, however, that the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total

amount spent by the Company on Organization and Offering Expenses to exceed 15% of the Gross Proceeds raised as of the date of the reimbursement and provided further that within 60 days after the end of the month in which an Offering terminates, the Advisor shall reimburse the Company to the extent the Company incurred Organization and Offering Expenses exceeding 15% of the Gross Proceeds raised in the completed Offering; the Company shall not reimburse the Advisor for any Organization and Offering Expenses that are not fair and commercially reasonable to the Company, and the Advisor shall reimburse the Company for any Organization and Offering Expenses that are not fair and commercially reasonable to the Company;

(ii) Acquisition Fees and Acquisition Expenses incurred in connection with the selection and acquisition of Properties, Loans and other Permitted Investments, including such expenses incurred related to assets pursued or considered but not ultimately acquired by the Company, provided that, notwithstanding anything herein to the contrary, the payment of Acquisition Fees and Acquisition Expenses by the Company shall be subject to the limitations contained in the Company’s Charter;

(iii) The actual out-of-pocket cost of goods and services used by the Company and obtained from entities not Affiliated with the Advisor;

(iv) Interest and other costs for borrowed money, including discounts, points and other similar fees;

(v) Taxes and assessments on income or Properties, taxes as an expense of doing business and any other taxes otherwise imposed on the Company and its business, assets or income;

(vi) Out-of-pocket costs associated with insurance required in connection with the business of the Company or by its officers and Directors;

(vii) Expenses of managing, improving, developing, operating and selling Properties, Loans and other Permitted Investments owned, directly or indirectly, by the Company, as well as expenses of other transactions relating to such Properties, Loans and other Permitted Investments, including but not limited to prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments;

(viii) All out-of-pocket expenses in connection with payments to the Board and meetings of the Board and Stockholders;

(ix) Personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in Article 3 hereof, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services, provided that, other than reimbursement of travel and communications expenses, no reimbursement shall be made for compensation of such employees of the Advisor or its Affiliates to the extent that such employees perform services for which the Advisor receives Acquisition Fees or Disposition Fees;

(x) Out-of-pocket expenses of providing services for and maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;

(xi) Audit, accounting and legal fees, and other fees for professional services relating to the operations of the Company and all such fees incurred at the request, or on behalf of, the Board, the Conflicts Committee or any other committee of the Board;

(xii) Out-of-pocket costs for the Company to comply with all applicable laws, regulations and ordinances;

(xiii) Expenses connected with payments of Distributions made or caused to be made by the Company to the Stockholders;

(xiv) Expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Charter or the Bylaws; and

(xv) All other out-of-pocket costs incurred by the Advisor in performing its duties hereunder.

9.02 Timing of and Additional Limitations on Reimbursements.

(i) Expenses incurred by the Advisor on behalf of the Company and reimbursable pursuant to this Article 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter and shall deliver such statement to the Company within 45 days after the end of each quarter.

(ii) Notwithstanding anything else in this Article 9 to the contrary, the expenses enumerated in this Article 9 shall not become reimbursable to the Advisor unless and until the Company has raised $2.5 million in the Initial Public Offering.

(iii) Commencing upon the earlier to occur of four fiscal quarters after (i) the Company’s making of its first investment or (ii) six months after commencement of the Initial Public Offering, the following limitation on Operating Expenses shall apply: The Company shall not reimburse the Advisor at the end of any fiscal quarter for Operating Expenses that in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year unless the Conflicts Committee determines that such excess was justified, based on unusual and nonrecurring factors that the Conflicts Committee deems sufficient. If the Conflicts Committee does not approve such excess as being so justified, any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If the Conflicts Committee determines such excess was justified, then, within 60 days after the end of any fiscal quarter of the Company for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the Conflicts Committee, shall cause such fact to be disclosed

to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in the next quarterly report of the Company or by filing a Current Report on Form 8-K with the SEC within 60 days of such quarter end), together with an explanation of the factors the Conflicts Committee considered in determining that such excess expenses were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board. All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a consistent basis.

ARTICLE 10

VOTING AGREEMENT

The Advisor agrees that, with respect to any Shares now or hereinafter owned by it, the Advisor will not vote or consent on matters submitted to the stockholders of the Company regarding (i) the removal of the Advisor or any Affiliate of the Advisor, (ii) any transaction between the Company and the Advisor or any of its Affiliates, (iii) the election of directors of the Company or (iv) the approval or termination of any contract with the Advisor or any Affiliate of the Advisor. This voting restriction shall survive until such time that the Advisor is both no longer serving as such and is no longer an Affiliate of the Company.

ARTICLE 11

RELATIONSHIP OF ADVISOR AND COMPANY;

OTHER ACTIVITIES OF THE ADVISOR

11.01 Relationship. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates. Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or equityholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall promptly disclose to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, that creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other Person.

11.02 Time Commitment. The Advisor shall, and shall cause its Affiliates and their respective employees, officers and agents to, devote to the Company such time as shall be reasonably necessary to conduct the business and affairs of the Company in an appropriate manner consistent with the terms of this Agreement. The Company acknowledges that the Advisor and its Affiliates and their respective employees, officers and agents may also engage in activities unrelated to the Company and may provide services to Persons other than the Company or any of its Affiliates.

11.03 Investment Opportunities and Allocation. The Advisor shall be required to use commercially reasonable efforts to present a continuing and suitable investment program to the Company that is consistent with the investment policies and objectives of the Company, but neither

the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character that, if presented to the Company, could be taken by the Company. In the event an investment opportunity is located, the allocation procedure set forth under the caption “Conflicts of Interest – Certain Conflict Resolution Measures – Allocation of Investment Opportunities” in the Registration Statement shall govern the allocation of the opportunity among the Company and Affiliates of the Advisor.

ARTICLE 12

THE KBS NAME

The Advisor and its Affiliates have a proprietary interest in the name “KBS.” The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive royalty-free right and license to use the name “KBS” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of written request from the Advisor, cease to conduct business under or use the name “KBS” or any derivative thereof and the Company shall change its name and the names of any of its subsidiaries to a name that does not contain the name “KBS” or any other word or words that might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any its Affiliates. At such time, the Company will also make any changes to any trademarks, servicemarks or other marks necessary to remove any references to the word “KBS.” Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “KBS” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company.

ARTICLE 13

TERM AND TERMINATION OF THE AGREEMENT

13.01 Term. This Agreement shall have an initial term of one year from the date hereof and may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties. The Company (acting through the Conflicts Committee) will evaluate the performance of the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of no more than one year. Any such renewal must be approved by the Conflicts Committee.

13.02 Termination by Either Party. This Agreement may be terminated upon 30 days written notice without cause or penalty by the Company (acting through the Conflicts Committee) or upon 90 days written notice without cause or penalty by the Advisor. The provisions of Articles 1, 10, 12, 13, 15 and 16 shall survive termination of this Agreement.

13.03 Payments on Termination and Survival of Certain Rights and Obligations. Payments to the Advisor pursuant to this Section 13.03 shall be subject to the 2%/25% Guidelines to the extent applicable.

(i) After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination (A) all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement and (B) the Subordinated Performance Fee Due Upon Termination, provided that no Subordinated Performance Fee Due Upon Termination will be paid if the Company has paid or is obligated to pay the Subordinated Incentive Fee.

(ii) The Advisor shall promptly upon termination:

(a) pay over to the Company all money collected pursuant to this Agreement, if any, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;

(b) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;

(d) cooperate with the Company to provide an orderly transition of advisory functions.

ARTICLE 14

ASSIGNMENT

This Agreement may be assigned by the Advisor to an Affiliate with the consent of the Conflicts Committee. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization that is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.

ARTICLE 15

INDEMNIFICATION AND LIMITATION OF LIABILITY

15.01 Indemnification. Except as prohibited by the restrictions provided in this Section 15.01, Section 15.02 and Section 15.03, the Company shall indemnify, defend and hold harmless the Advisor and its Affiliates, including their respective officers, directors, equity holders, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance. Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.

Notwithstanding the foregoing, the Company shall not indemnify the Advisor or its Affiliates for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

15.02 Limitation on Indemnification. Notwithstanding the foregoing, the Company shall not provide for indemnification of the Advisor or its Affiliates for any liability or loss suffered by any of them, nor shall any of them be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:

(i) The Advisor or its Affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Company.

(ii) The Advisor or its Affiliates were acting on behalf of or performing services for the Company.

(iii) Such liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates.

15.03 Limitation on Payment of Expenses. The Company shall pay or reimburse reasonable legal expenses and other costs incurred by the Advisor or its Affiliates in advance of the final disposition of a proceeding only if (in addition to the procedures required by the Maryland General Corporation Law, as amended from time to time) all of the following are satisfied: (a) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company, (b) the legal proceeding was initiated by a third party who is not a stockholder or, if by a stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement and (c) the Advisor or its Affiliates undertake to repay the amount paid or reimbursed by the Company, together with the applicable legal rate of interest thereon, if it is ultimately determined that the particular indemnitee is not entitled to indemnification.

ARTICLE 16

MISCELLANEOUS

16.01 Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Charter, the Bylaws or is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:

To the Company or the Board:

KBS Strategic Opportunity REIT, Inc.

620 Newport Center Drive, Suite 1300

Newport Beach, California 92660

To the Advisor:

KBS Capital Advisors LLC

620 Newport Center Drive, Suite 1300

Newport Beach, California 92660

Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 16.01.

16.02 Modification. This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or permitted assigns, and any change or modification to this Agreement must be in accordance with Section 8.07 hereof, to the extent applicable.

16.03 Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

16.04 Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware.

16.05 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

16.06 Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

16.07 Gender. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.

16.08 Titles Not to Affect Interpretation. The titles of Articles and Sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

16.09 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

[The remainder of this page is intentionally left blank.

Signature page follows.]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of

the date and year first above written.




		KBS STRATEGIC OPPORTUNITY REIT, INC. By: /s/ Keith D. Hall Keith D. Hall, Chief Executive Officer KBS CAPITAL ADVISORS LLC By: PBren Investments, L.P., a Manager By: PBren Investments, LLC, as general partner By: /s/ Peter M. Bren Peter M. Bren, Manager By: Schreiber Real Estate Investments, L.P., a Manager By: Schreiber Investments, LLC, as general partner By: /s/ Charles J. Schreiber Charles J. Schreiber, Jr., Manager By: GKP Holding LLC, a Manager By: /s/ Peter McMillan III Peter McMillan III, Manager By: /s/ Keith D. Hall Keith D. Hall, Manager

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:	November 9, 2018	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:	November 9, 2018	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 September 30, 2018, 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:	November 9, 2018	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 September 30, 2018, 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:	November 9, 2018	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)