KBS Real Estate Investment Trust III, Inc. (Form: 10-Q, Received: 08/13/2015 06:36:35)

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Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)



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

For the quarterly period ended June 30, 2015



¨	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 000-54687

______________________________________________________

KBS REAL ESTATE INVESTMENT TRUST III, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________



Maryland		27-1627696
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
800 Newport Center Drive, Suite 700 Newport Beach, California		92660
(Address of Principal Executive Offices)		(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

Yes ¨ No x

As of August 7, 2015 , there were 176,508,529 outstanding shares of common stock of KBS Real Estate Investment Trust III, Inc.

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

FORM 10-Q

June 30, 2015

INDEX



PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	2
		Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	3
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4
		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2014 and the Six Months Ended June 30, 2015 (unaudited)	5
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2015 and 2014	6
		Condensed Notes to Consolidated Financial Statements as of June 30, 2015 (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
	Item 4.	Controls and Procedures	46
PART II.	OTHER INFORMATION		47
	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
	Item 3.	Defaults upon Senior Securities	51
	Item 4.	Mine Safety Disclosures	51
	Item 5.	Other Information	52
	Item 6.	Exhibits	53
SIGNATURES			54

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



	June 30, 2015			December 31, 2014
	(unaudited)
Assets
Real estate:
Land	$	312,764		$	292,228
Buildings and improvements	2,074,865			1,794,464
Tenant origination and absorption costs	246,665			221,169
Total real estate, cost	2,634,294			2,307,861
Less accumulated depreciation and amortization	(162,647		)	(110,781		)
Total real estate, net	2,471,647			2,197,080
Real estate loan receivable, net	21,655			20,010
Cash and cash equivalents	168,761			99,135
Rents and other receivables, net	31,868			20,763
Due from affiliate	—			1,173
Above-market leases, net	12,110			13,744
Deferred financing costs, prepaid expenses and other assets	39,237			34,530
Total assets	$	2,745,278		$	2,386,435
Liabilities and stockholders’ equity
Notes payable	$	1,235,990		$	1,322,898
Accounts payable and accrued liabilities	43,281			35,167
Due to affiliates	9,675			3,554
Distributions payable	9,249			6,613
Below-market leases, net	34,688			32,745
Other liabilities	30,649			23,033
Total liabilities	1,363,532			1,424,010
Commitments and contingencies (Note 11)
Redeemable common stock	50,059			29,329
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, 174,318,617 and 123,426,546 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	1,743			1,234
Additional paid-in capital	1,541,449			1,080,673
Accumulated other comprehensive loss	(5,176		)	(2,190		)
Cumulative distributions and net losses	(206,329		)	(146,621		)
Total stockholders’ equity	1,331,687			933,096
Total liabilities and stockholders’ equity	$	2,745,278		$	2,386,435

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Rental income	$	55,945		$	33,591		$	109,445		$	64,585
Tenant reimbursements	12,485			9,936			24,020			19,419
Interest income from real estate loan receivable	402			327			783			648
Other operating income	3,335			1,329			6,169			2,267
Total revenues	72,167			45,183			140,417			86,919
Expenses:
Operating, maintenance and management	16,531			10,154			31,751			20,639
Real estate taxes and insurance	11,885			8,413			23,047			16,068
Asset management fees to affiliate	4,497			2,725			8,814			5,184
Real estate acquisition fees to affiliate	3,019			853			3,019			2,558
Real estate acquisition fees and expenses	1,048			167			1,164			470
General and administrative expenses	1,286			891			2,284			1,626
Depreciation and amortization	32,279			19,293			61,947			36,562
Interest expense	7,636			6,269			20,050			11,566
Total expenses	78,181			48,765			152,076			94,673
Other income:
Other interest income	71			21			141			24
Gain on sale of real estate, net	—			—			—			10,895
Total other income	71			21			141			10,919
Net (loss) income	$	(5,943	)	$	(3,561	)	$	(11,518	)	$	3,165
Net (loss) income per common share, basic and diluted	$	(0.04	)	$	(0.04	)	$	(0.08	)	$	0.04
Weighted-average number of common shares outstanding, basic and diluted	164,166,681			87,278,000			149,484,191			80,055,877

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net (loss) income	$	(5,943	)	$	(3,561	)	$	(11,518	)	$	3,165
Other comprehensive income (loss):
Unrealized losses on derivative instruments	(44		)	(5,139		)	(6,353		)	(7,332		)
Reclassification adjustment realized in net income (effective portion)	1,716			1,481			3,367			2,443
Total other comprehensive income (loss)	1,672			(3,658		)	(2,986		)	(4,889		)
Total comprehensive loss	$	(4,271	)	$	(7,219	)	$	(14,504	)	$	(1,724	)

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2014 and the Six Months Ended June 30, 2015 (unaudited)

(dollars in thousands)



						Additional Paid-in Capital			Cumulative Distributions and Net Losses			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2013	66,430,888		$	664		$	574,762		$	(74,788	)	$	2,179		$	502,817
Net loss	—		—			—			(12,352		)	—			(12,352		)
Other comprehensive loss	—		—			—			—			(4,369		)	(4,369		)
Issuance of common stock	57,372,731		574			583,284			—			—			583,858
Transfers to redeemable common stock	—		—			(16,915		)	—			—			(16,915		)
Redemptions of common stock	(377,073	)	(4		)	(3,633		)	—			—			(3,637		)
Distributions declared	—		—			—			(59,481		)	—			(59,481		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—			(50,808		)	—			—			(50,808		)
Other offering costs	—		—			(6,017		)	—			—			(6,017		)
Balance, December 31, 2014	123,426,546		$	1,234		$	1,080,673		$	(146,621	)	$	(2,190	)	$	933,096
Net loss	—		—			—			(11,518		)	—			(11,518		)
Other comprehensive loss	—		—			—			—			(2,986		)	(2,986		)
Issuance of common stock	51,259,476		513			535,725			—			—			536,238
Transfers to redeemable common stock	—		—			(20,730		)	—			—			(20,730		)
Redemptions of common stock	(367,405	)	(4		)	(3,584		)	—			—			(3,588		)
Distributions declared	—		—			—			(48,190		)	—			(48,190		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—			(47,772		)	—			—			(47,772		)
Other offering costs	—		—			(2,863		)	—			—			(2,863		)
Balance, June 30, 2015	174,318,617		$	1,743		$	1,541,449		$	(206,329	)	$	(5,176	)	$	1,331,687

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



	Six Months Ended June 30,
	2015			2014
Cash Flows from Operating Activities:
Net (loss) income	$	(11,518	)	$	3,165
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	61,947			36,562
Noncash interest income on real estate-related investment	13			12
Deferred rents	(8,998		)	(4,452		)
Allowance for doubtful accounts	338			446
Amortization of above- and below-market leases, net	(2,915		)	(2,237		)
Amortization of deferred financing costs	1,675			929
Unrealized losses on derivative instruments	1,996			—
Gain on sale of real estate	—			(10,895		)
Changes in operating assets and liabilities:
Rents and other receivables	(2,427		)	(1,823		)
Deferred financing costs, prepaid expenses and other assets	(5,371		)	(4,119		)
Accounts payable and accrued liabilities	824			(2,316		)
Other liabilities	1,563			4,033
Due to affiliates	5,956			2,410
Net cash provided by operating activities	43,083			21,715
Cash Flows from Investing Activities:
Acquisitions of real estate	(290,678		)	(253,835		)
Improvements to real estate	(29,347		)	(7,689		)
Proceeds from sale of real estate, net	—			42,740
Advances on real estate loan receivable	(1,738		)	(1,019		)
Purchase of interest rate cap	(175		)	—
Principal repayments on real estate loan receivable	80			77
Escrow deposits for future real estate purchase	(1,350		)	—
Net cash used in investing activities	(323,208		)	(219,726		)
Cash Flows from Financing Activities:
Proceeds from notes payable	19,052			152,700
Principal payments on notes payable	(105,960		)	(40,000		)
Payments of deferred financing costs	(981		)	(1,911		)
Proceeds from issuance of common stock	511,920			223,156
Payments to redeem common stock	(3,588		)	(1,603		)
Payments of commissions on stock sales and related dealer manager fees	(47,772		)	(20,476		)
Payments of other offering costs	(2,857		)	(2,712		)
Reimbursement of other offering costs from affiliate	1,173			—
Distributions paid to common stockholders	(21,236		)	(11,970		)
Net cash provided by financing activities	349,751			297,184
Net increase in cash and cash equivalents	69,626			99,173
Cash and cash equivalents, beginning of period	99,135			33,189
Cash and cash equivalents, end of period	$	168,761		$	132,362
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	16,109		$	10,590
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	24,318		$	12,639
Increase in other offering costs due to affiliates	$	189		$	198
Increase in other offering costs payable	$	—		$	45
Increase in distributions payable	$	2,636		$	1,194
Increase in capital expenses payable	$	8,030		$	498
Liabilities assumed in connection with real estate acquisitions	$	124		$	967

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(unaudited)


1.	ORGANIZATION

KBS Real Estate Investment Trust III, Inc. (the “Company”) was formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011 and it intends to continue to operate in such manner. Substantially all of the Company’s business is expected to be conducted through KBS Limited Partnership III (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS REIT Holdings III LLC (“REIT Holdings III”), the limited partner of the Operating Partnership, 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 III.

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 entered into with the Advisor (the “Advisory Agreement”). On January 26, 2010, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of June 30, 2015 , the Advisor owned 20,000 shares of the Company’s common stock.

The Company has invested in and intends to invest in a diverse portfolio of real estate investments. The Company’s primary investment focus is core office properties located throughout the United States, though the Company may also invest in industrial and retail properties. The Company’s core property focus in the U.S. office sector has reflected a more value-creating core strategy, and based on the current market outlook, it expects to continue this strategy. In many cases, these properties have slightly higher ( 10% to 15% ) vacancy rates and/or higher near-term lease rollover at acquisition than more conservative value-maintaining core properties. All such real estate assets may be acquired directly by the Company or the Operating Partnership, though the Company may invest in other entities that make similar investments. The Company also currently expects to allocate between 0 and 20% of its portfolio to real estate-related investments such as mortgage loans. As of June 30, 2015 , the Company owned 22 office properties, one mixed-use office/retail property and one first mortgage loan secured by a deed of trust.

On February 4, 2010, 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 up to 280,000,000 shares, or up to $2,760,000,000 of shares, of common stock for sale to the public (the “Offering”), of which up to 80,000,000 shares, or up to $760,000,000 of shares, are being offered pursuant to the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on October 26, 2010, and the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated (the “Dealer Manager Agreement”). As described above, the Company intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate investments.

On March 24, 2011, the Company broke escrow in the Offering and through June 30, 2015 , the Company had sold 175,151,056 shares of common stock for gross offering proceeds of $ 1.8 billion , including 7,379,846 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $ 72.0 million . The Company ceased offering shares of common stock in the primary Offering on May 29, 2015 and terminated the primary Offering on July 28, 2015.

Additionally, on October 3, 2014, the Company issued 258,462 shares of common stock for $2.4 million in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.

The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue the dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.

As of June 30, 2015 , the Company had redeemed 1,110,901 shares sold in the Offering for $ 10.7 million .

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2014 . 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, 2014 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements and condensed notes thereto 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.

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 prior periods.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and six months ended June 30, 2015 and 2014, respectively.

Distributions declared per common share were $0.162 and $ 0.322 for the three and six months ended June 30, 2015 , respectively. Distributions declared per common share were $0.162 and $0.322 for the three and six months ended June 30, 2014 , respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2015 and 2014, respectively. For each day that was a record date for distributions during the three and six months ended June 30, 2015 and 2014, distributions were calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2014 through June 30, 2014 and January 1, 2015 through June 30, 2015 was a record date for distributions.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Segments

The Company invests in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. As of June 30, 2015 , the Company aggregated its investments in real estate properties into one reportable business segment. The Company considered both quantitative and qualitative thresholds and determined that its investment in a real estate loan receivable does not constitute a reportable segment.

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements.

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

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items. Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The adoption of ASU No. 2015-03 would change the presentation of debt issuance costs, as the Company presents debt issuance costs as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


3.	RECENT ACQUISITIONS

During the six months ended June 30, 2015 , the Company acquired the following properties (in thousands):



								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination and Absorption Costs		Above-Market Lease Assets		Below- Market Lease Liabilities			Other Liabilities			Total Purchase Price
Village Center Station	Greenwood Village	CO	05/20/2015	$	4,250	$	68,061	$	5,570	$	370	$	(1,721	)	$	—		$	76,530
Park Place Village	Leawood	KS	06/18/2015	11,009		103,788		13,282		10		(31		)	(1,575		)	126,483
201 17th Street	Atlanta	GA	06/23/2015	5,277		75,362		11,497		98		(5,218		)	—			87,016
				$	20,536	$	247,211	$	30,349	$	478	$	(6,970	)	$	(1,575	)	$	290,029

The intangible assets and liabilities acquired in connection with these acquisitions have weighted-average amortization periods as of the date of acquisition as follows (in years):



	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Village Center Station	5.3	5.3	3.8
Park Place Village	8.5	1.8	4.1
201 17th Street	8.9	7.5	8.5

During the six months ended June 30, 2015 , the Company recorded each real estate acquisition as a business combination and expensed $4.1 million of acquisition costs. For the six months ended June 30, 2015 , the Company recognized an aggregate of $1.7 million of total revenues and an aggregate of $0.7 million of operating expenses from these properties.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


4.	REAL ESTATE

As of June 30, 2015 , the Company’s real estate portfolio was composed of 22 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 9.3 million rentable square feet. As of June 30, 2015 , the Company’s real estate portfolio was collectively 89% occupied. The following table summarizes the Company’s investments in real estate as of June 30, 2015 (in thousands):



Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net
Domain Gateway	09/29/2011	Austin	TX	Office	$	47,373	$	(8,158	)	$	39,215
Town Center	03/27/2012	Plano	TX	Office	117,657		(17,290		)	100,367
McEwen Building	04/30/2012	Franklin	TN	Office	40,275		(6,480		)	33,795
Gateway Tech Center	05/09/2012	Salt Lake City	UT	Office	29,050		(3,604		)	25,446
Tower on Lake Carolyn	12/21/2012	Irving	TX	Office	49,893		(7,658		)	42,235
RBC Plaza	01/31/2013	Minneapolis	MN	Office	146,700		(14,745		)	131,955
One Washingtonian Center	06/19/2013	Gaithersburg	MD	Office	90,974		(8,428		)	82,546
Preston Commons	06/19/2013	Dallas	TX	Office	116,323		(10,750		)	105,573
Sterling Plaza	06/19/2013	Dallas	TX	Office	79,403		(8,129		)	71,274
201 Spear Street	12/03/2013	San Francisco	CA	Office	133,938		(6,510		)	127,428
500 West Madison	12/16/2013	Chicago	IL	Office	434,735		(33,087		)	401,648
222 Main	02/27/2014	Salt Lake City	UT	Office	164,885		(8,598		)	156,287
Anchor Centre	05/22/2014	Phoenix	AZ	Office	91,378		(4,595		)	86,783
171 17th Street	08/25/2014	Atlanta	GA	Office	132,031		(6,830		)	125,201
Rocklin Corporate Center	11/06/2014	Rocklin	CA	Office	32,917		(1,709		)	31,208
Reston Square	12/03/2014	Reston	VA	Office	45,613		(1,252		)	44,361
Ten Almaden	12/05/2014	San Jose	CA	Office	116,952		(2,935		)	114,017
Towers at Emeryville	12/23/2014	Emeryville	CA	Office	250,380		(6,608		)	243,772
101 South Hanley	12/24/2014	St. Louis	MO	Office	63,828		(2,046		)	61,782
3003 Washington Boulevard	12/30/2014	Arlington	VA	Office	150,256		(2,355		)	147,901
Village Center Station	05/20/2015	Greenwood Village	CO	Office	78,014		(451		)	77,563
Park Place Village	06/18/2015	Leawood	KS	Office/Retail	128,084		(264		)	127,820
201 17th Street	06/23/2015	Atlanta	GA	Office	93,635		(165		)	93,470
					$	2,634,294	$	(162,647	)	$	2,471,647

As of June 30, 2015 , the following property represented more than 10% of the Company’s total assets:



Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands) ⁽¹⁾		Average Annualized Base Rent per sq. ft.		Occupancy
500 West Madison	Chicago, IL	1,457,724	$	401,648	14.6	%	$	34,525	$	25.05	94.6	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015 , 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Operating Leases

The Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2015 , the leases had remaining terms, excluding options to extend, of up to 13.9 years with a weighted-average remaining term of 5.3 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant 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 lease and the creditworthiness of the tenant, but generally is not a significant amount. 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 related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $8.9 million and $7.9 million as of June 30, 2015 and December 31, 2014 , respectively.

During the six months ended June 30, 2015 and 2014, the Company recognized deferred rent from tenants of $9.0 million and $4.5 million , respectively. As of June 30, 2015 and December 31, 2014 , the cumulative deferred rent balance was $27.8 million and $18.4 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $1.4 million and $1.1 million of unamortized lease incentives as of June 30, 2015 and December 31, 2014 , respectively.

As of June 30, 2015 , the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):



July 1, 2015 through December 31, 2015	$	109,833
2016	221,069
2017	207,046
2018	187,413
2019	162,044
Thereafter	545,773
	$	1,433,178

As of June 30, 2015 , the Company’s real estate properties were leased to approximately 700 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:



Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Finance	130	$	49,522	21.2	%

_____________________

As of June 30, 2015 , no other tenant industries accounted for more than 10% of annualized base rent and no tenant 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 REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Geographic Concentration Risk

As of June 30, 2015 , the Company’s net investments in real estate in California, Illinois, and Texas represented 19% , 15% and 13% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California, Illinois, and Texas real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.


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

As of June 30, 2015 and December 31, 2014, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014
Cost	$	246,665		$	221,169		$	15,780		$	16,113		$	(46,460	)	$	(41,175	)
Accumulated Amortization	(54,888		)	(38,645		)	(3,670		)	(2,369		)	11,772			8,430
Net Amount	$	191,777		$	182,524		$	12,110		$	13,744		$	(34,688	)	$	(32,745	)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2015 and 2014 were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2015			2014			2015			2014			2015		2014
Amortization	$	(10,985	)	$	(6,890	)	$	(1,049	)	$	(534	)	$	2,532	$	1,717



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014			2015		2014
Amortization	$	(21,095	)	$	(13,142	)	$	(2,112	)	$	(1,003	)	$	5,027	$	3,240

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


6.	REAL ESTATE LOAN RECEIVABLE

As of June 30, 2015 and December 31, 2014, the Company, through an indirect wholly owned subsidiary, had originated one real estate loan receivable as follows (dollars in thousands):

Loan Name

Location of Related Property or Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of June 30,

2015 ⁽¹⁾

Book Value

as of

June 30,

2015 ⁽²⁾

Book Value

as of

December 31,

2014 ⁽²⁾

Contractual Interest

Rate ⁽³⁾

Annualized Effective Interest

Rate ⁽³⁾

Maturity Date

Aberdeen First Mortgage Origination

Dallas, Texas

06/24/2011

Office

Mortgage

21,626

21,655

20,010

7.5%

07/01/2016

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

⁽²⁾ Book value represents outstanding principal balance, adjusted for unamortized origination fees and direct origination and acquisition costs.

⁽³⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, divided by the average amortized cost basis of the investment. The contractual interest rate and annualized effective interest rate presented are as of June 30, 2015 .

The following summarizes the activity related to the real estate loan receivable for the six months ended June 30, 2015 (in thousands):



Real estate loan receivable - December 31, 2014	$	20,010
Advances on real estate loan receivable	1,738
Principal repayments received on real estate loan receivable	(80		)
Amortization of closing costs and origination fees on originated real estate loan receivable	(13		)
Real estate loan receivable - June 30, 2015	$	21,655

For the three and six months ended June 30, 2015 and 2014, interest income from the real estate loan receivable consisted of the following (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Contractual interest income	$	408		$	333		$	796		$	660
Amortization of closing costs and origination fees	(6		)	(6		)	(13		)	(12		)
Interest income from real estate loan receivable	$	402		$	327		$	783		$	648

As of June 30, 2015 , the borrower under the Aberdeen First Mortgage Origination was current on its payments.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


7.	NOTES PAYABLE

As of June 30, 2015 and December 31, 2014 , the Company’s notes payable consisted of the following (dollars in thousands):



	Principal as of June 30, 2015		Principal as of December 31, 2014		Contractual Interest Rate as of June 30, 2015 ⁽¹⁾	Effective Interest Rate as of June 30, 2015 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Town Center Mortgage Loan	$	75,000	$	75,000	One-month LIBOR + 1.85%	2.87%	Interest Only	03/27/2018
Portfolio Loan ⁽⁴⁾	100,000		160,000		One-month LIBOR + 1.90%	2.08%	Interest Only	06/01/2019
RBC Plaza Mortgage Loan	74,465		74,465		One-month LIBOR + 1.80%	2.54%	Interest Only	02/01/2017
National Office Portfolio Mortgage Loan ⁽⁵⁾	166,893		166,893		One-month LIBOR + 1.50%	2.77%	Interest Only	07/01/2017
500 West Madison Mortgage Loan ⁽⁶⁾	215,000		255,000		One-month LIBOR + 1.65%	3.16%	Interest Only	12/16/2018
222 Main Mortgage Loan	102,700		102,700		3.97%	3.97%	Interest Only ⁽³⁾	03/01/2021
Anchor Centre Mortgage Loan	50,000		50,000		One-month LIBOR + 1.50%	3.18%	Interest Only	06/01/2017
171 17th Street Mortgage Loan ⁽⁷⁾	79,500		79,500		One-month LIBOR + 1.45%	2.69%	Interest Only ⁽³⁾	09/01/2018
Reston Square Mortgage Loan	23,840		29,800		One-month LIBOR + 1.50%	1.68%	Interest Only	02/01/2018
Ten Almaden Mortgage Loan ⁽⁸⁾	63,540		63,540		One-month LIBOR + 1.65%	1.83%	Interest Only	01/01/2018
Towers at Emeryville Mortgage Loan ⁽⁹⁾	142,500		142,500		One-month LIBOR + 1.75%	1.93%	Interest Only	01/15/2018
101 South Hanley Mortgage Loan ⁽¹⁰⁾	34,500		34,500		One-month LIBOR + 1.55%	1.73%	Interest Only ⁽³⁾	01/01/2020
3003 Washington Boulevard Mortgage Loan	89,000		89,000		One-month LIBOR + 1.55%	1.73%	Interest Only	02/01/2020
Rocklin Corporate Center Mortgage Loan	19,052		—		One-month LIBOR + 1.50%	1.68%	Interest Only	06/05/2018
Total Notes Payable	$	1,235,990	$	1,322,898

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2015 . Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of June 30, 2015 , where applicable. For further information regarding the Company's derivative instruments, see Note 8, “Derivative Instruments.”

⁽²⁾ Represents the maturity date as of June 30, 2015 ; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown.

⁽³⁾ Represents the payment type required under the loan as of June 30, 2015. Certain future monthly payments due under these loans also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes payable, see five-year maturity table below.

⁽⁴⁾ As of June 30, 2015 , the Portfolio Loan was secured by Domain Gateway, the McEwen Building, Gateway Tech Center, the Tower on Lake Carolyn and Park Place Village. The face amount of the Portfolio Loan is $ 200.0 million , of which $ 100.0 million is term debt and $ 100.0 million is revolving debt. As of June 30, 2015 , the outstanding balance under the loan was $ 100.0 million of term debt. As of June 30, 2015 , an additional $100.0 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. During the term of the Portfolio Loan, the Company has an option, which may be exercised up to three times, to increase the loan amount to a maximum of $350.0 million , of which 50% would be term debt and 50% would be revolving debt, with the addition of one or more properties to secure the Portfolio Loan, subject to certain conditions contained in the loan documents. For information regarding the June 22, 2015 Portfolio Loan modification, see “– Recent Financing Transactions – Portfolio Loan Modification.”

⁽⁵⁾ The National Office Portfolio Mortgage Loan is secured by One Washingtonian Center, Preston Commons and Sterling Plaza.

⁽⁶⁾ As of June 30, 2015 , $215.0 million of term debt was outstanding and $40.0 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

⁽⁷⁾ As of June 30, 2015 , $79.5 million had been disbursed to the Company and $6.0 million remained available to be used for future disbursements, subject to certain conditions set forth in the loan documents. Monthly payments are initially interest-only. Beginning October 1, 2017 and continuing on the first day of each month thereafter through the maturity date of the loan, the committed amount of $85.5 million (the “Committed Amount”) will be reduced by $69,300 per month. To the extent that, following any such reduction in the Committed Amount, the outstanding principal balance of the loan exceeds the then Committed Amount, the 171 17th Street owner will pay to the lender a principal payment in an amount sufficient to reduce the outstanding principal balance of the loan to an amount less than the then reduced Committed Amount. The remaining principal balance, all accrued and unpaid interest and any other amounts will be due at maturity.

⁽⁸⁾ As of June 30, 2015 , $63.5 million had been disbursed to the Company and $13.1 million remained available for future disbursements, subject to certain conditions set forth in the loan documents.

⁽⁹⁾ As of June 30, 2015 , $142.5 million had been disbursed to the Company and $32.5 million remained available for future disbursements, subject to certain conditions set forth in the loan documents.

⁽¹⁰⁾ As of June 30, 2015 , $34.5 million had been disbursed to the Company and $12.7 million remained available to be used for future disbursements, subject to certain conditions set forth in the loan documents.

As of June 30, 2015 and December 31, 2014 , the Company’s deferred financing costs were $10.6 million and $11.2 million , respectively, net of amortization, and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

During the three and six months ended June 30, 2015 , the Company incurred $7.6 million and $20.1 million of interest expense, respectively. During the three and six months ended June 30, 2014 , the Company incurred $6.3 million and $11.6 million of interest expense, respectively. As of June 30, 2015 and December 31, 2014, $2.7 million and $2.4 million of interest expense were payable, respectively. Included in interest expense for the three and six months ended June 30, 2015 was $0.8 million and $1.7 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2014 was $0.4 million and $0.9 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s derivative instruments for the three and six months ended June 30, 2015 was $0.2 million and $5.4 million , respectively. Interest expense incurred as a result of the Company’s derivative instruments for the three and six months ended June 30, 2014 was $1.5 million and $2.4 million , respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2015 (in thousands):



July 1, 2015 through December 31, 2015	$	—
2016	1,357
2017	293,231
2018	620,860
2019	102,581
Thereafter	217,961
	$	1,235,990

The Company’s notes payable contain financial debt covenants. As of June 30, 2015 , the Company was in compliance with these debt covenants.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Recent Financing Transactions

Rocklin Corporate Center Mortgage Loan

On May 6, 2015, the Company, through an indirect wholly owned subsidiary (the “Rocklin Corporate Center Borrower”), entered into a mortgage loan with an unaffiliated lender for borrowings of up to $22.9 million secured by Rocklin Corporate Center (the “Rocklin Corporate Center Mortgage Loan”). At closing, $19.1 million of the loan was funded and the remaining $3.8 million was available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. The Rocklin Corporate Center Mortgage Loan matures on June 5, 2018, with two one -year extension options, subject to certain terms and conditions contained in the loan documents. The Rocklin Corporate Center Mortgage Loan bears interest at a floating rate of 150 basis points over one-month LIBOR. Monthly payments are interest-only during the initial term. The Rocklin Corporate Center Borrower has the right to repay the loan in part and in whole at any time subject to certain conditions and fees as described in the loan documents.

KBS REIT Properties III, LLC (“REIT Properties III”) is providing a guaranty of an amount not greater than 25% of the outstanding balance of the Rocklin Corporate Center Mortgage Loan on the date the loan becomes due and payable in full. REIT Properties III is also providing, in certain circumstances as described in the guaranty, a guaranty with respect to any cost, loss or damage suffered by the lender under the Rocklin Corporate Center Mortgage Loan as a result of certain intentional actions committed by the Rocklin Corporate Center Borrower and/or REIT Properties III in violation of the loan documents. REIT Properties III is also providing a guaranty of the principal balance and any interest or other sums outstanding under the Rocklin Corporate Center Mortgage Loan in the event of certain transfer, encumbrance, bankruptcy or insolvency proceedings involving the Rocklin Corporate Center Borrower or REIT Properties III and/or any of their affiliates.

Portfolio Loan Modification

On June 22, 2015, the Company entered into a modified loan agreement to extend the initial maturity date of the Portfolio Loan to June 1, 2019, with a one -year extension option, subject to certain conditions contained in the loan agreement, and to modify the interest rate under the loan. The Portfolio Loan, as modified, bears interest at a floating rate of 190 basis points over one-month LIBOR and monthly payments are interest only with the entire balance due at maturity, assuming no prior prepayment. The Company has the right to prepay all or a portion of the Portfolio Loan, subject to certain fees and conditions contained in the loan agreement. The $200.0 million Portfolio Loan is composed of $100.0 million of term debt and $100.0 million of revolving debt. The availability of the revolving debt is subject to certain conditions contained in the loan documents.

As of June 30, 2015, the outstanding balance under the loan was $100.0 million of term debt. During the term of the Portfolio Loan, the Company has an option, which may be exercised up to three times, to increase the loan amount to a maximum of $350.0 million , of which 50% would be term debt and 50% would be revolving debt, with the addition of one or more properties to secure the Portfolio Loan, subject to certain conditions contained in the loan documents.

In connection with the modified loan agreement, the Company released 201 Spear Street as collateral under the Portfolio Loan and added Park Place Village as collateral to the Portfolio Loan. As such, as of June 30, 2015, the Portfolio Loan is secured by Domain Gateway, the McEwen Building, Gateway Tech Center, the Tower on Lake Carolyn and Park Place Village.

REIT Properties III is providing a guaranty of up to 25% of the outstanding principal balance under the Portfolio Loan, as such amount may be adjusted from time to time pursuant to the terms of the loan documents. Additionally, REIT Properties III is providing a guaranty of any deficiency, loss or damage suffered by the lender under the Portfolio Loan that may result from certain intentional acts committed by the borrowers under the loan, their affiliates, or REIT Properties III, or that may result from certain bankruptcy or insolvency proceedings involving the borrowers, pursuant to the terms of the repayment guaranty.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)


8.	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. 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 interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is 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 the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.

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.

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps and cap as of June 30, 2015 and December 31, 2014. 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 (dollars in thousands):



	June 30, 2015			December 31, 2014				Weighted-Average Fix Pay Rate	Weighted-Average Remaining Term in Years
Derivative Instruments	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount		Reference Rate as of June 30, 2015	Weighted-Average Fix Pay Rate	Weighted-Average Remaining Term in Years
Derivative instruments designated as hedging instruments
Interest Rate Swaps	7	$	625,130	7	$	625,130	One-month LIBOR/ Fixed at 0.79% - 1.68%	1.35%	3.0

Derivative instruments not designated as hedging instruments
Interest Rate Swaps ⁽¹⁾	6	$	353,380	4	$	264,680	One-month LIBOR/ Fixed at 1.81% - 2.37%	2.14%	2.9
Interest Rate Cap ⁽²⁾	1	$	353,380	—	$	—	One-month LIBOR at 2.46%	2.46%	1.5

_____________________

⁽¹⁾ Included in these amounts are six forward interest rate swaps with an aggregate notional amount of $353.4 million that were not yet in effect as of June 30, 2015. These six interest rate swaps will become effective at various times during 2016 and 2017.

⁽²⁾ On January 7, 2015, the Company entered into an interest rate cap with an unaffiliated LIBOR cap provider, for a notional amount of $353.4 million , effective from January 7, 2015 to June 30, 2016. The notional amount on the interest rate cap is reduced to $147.3 million from July 1, 2016 to January 1, 2017.

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 June 30, 2015 and December 31, 2014 (dollars in thousands):



		June 30, 2015				December 31, 2014
Derivative Instruments	Balance Sheet Location	Number of Instruments	Fair Value			Number of Instruments	Fair Value
Derivative instruments designated as hedging instruments
Interest Rate Swaps	Deferred financing costs, prepaid expenses and other assets, at fair value	1	$	80		2	$	431
Interest Rate Swaps	Other liabilities, at fair value	6	$	(5,256	)	5	$	(2,621	)

Derivative instruments not designated as hedging instruments
Interest Rate Swaps	Other liabilities, at fair value	6	$	(3,337	)	4	$	(1,494	)
Interest Rate Cap	Deferred financing costs, prepaid expenses and other assets, at fair value	1	$	22		—	$	—

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income (loss) on the accompanying consolidated statements of comprehensive income (loss) and as other comprehensive income on the accompanying consolidated statements of stockholders’ equity. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. The change in fair value of the ineffective portion is recognized directly in earnings. With respect to swap agreements that were terminated for which it remains probable that the original hedged forecasted transactions (i.e., LIBOR-based debt service payments) will occur, the loss related to the termination of these swap agreements is included in accumulated other comprehensive income (loss) and is reclassified into earnings over the period of the original forecasted hedged transaction. The change in fair value of a derivative instrument that is not designated as a cash flow hedge is recorded as interest expense in the accompanying consolidated statements of operations. The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015			2014		2015		2014
Income statement related
Derivatives designated as hedging instruments
Amount of expense recognized on interest rate swaps (effective portion)	$	1,716		$	1,481	$	3,367	$	2,443
	1,716			1,481		3,367		2,443

Derivatives not designated as hedging instruments
Unrealized (gain) loss on interest rate swaps	(1,534		)	—		1,843		—
Unrealized loss on interest rate cap	29			—		153		—
	(1,505		)	—		1,996		—
Increase in interest expense as a result of derivatives	$	211		$	1,481	$	5,363	$	2,443

Other comprehensive income related
Unrealized losses on derivative instruments	$	44		$	5,139	$	6,353	$	7,332

During the three and six months ended June 30, 2015 and 2014, there was no ineffective portion related to the change in fair value of the derivative instruments designated as cash flow hedges. During the next 12 months, the Company expects to recognize additional interest expense related to derivative instruments designated as cash flow hedges. The present value of the additional interest expense expected to be recognized over the next 12 months related to derivative instruments designated as cash flow hedges totaled $6.0 million as of June 30, 2015 and was included in accumulated other comprehensive income (loss).


9.	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 financial instruments and balances 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 REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other 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 assets and liabilities for which it is practicable to estimate the fair value:

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

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

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 proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

Notes payable: The fair values of the Company’s notes 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 a liability 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 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 following were the face values, carrying amounts and fair values of the Company’s real estate loan receivable and notes payable as of June 30, 2015 and December 31, 2014 , which carrying amounts generally do not approximate the fair values (in thousands):



	June 30, 2015						December 31, 2014
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loan receivable	$	21,626	$	21,655	$	21,498	$	19,968	$	20,010	$	19,914
Financial liabilities:
Notes payable	$	1,235,990	$	1,235,990	$	1,237,041	$	1,322,898	$	1,322,898	$	1,324,139

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. 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 June 30, 2015 , the Company measured the following assets and liabilities 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:
Asset derivatives - interest rate swap	$	80		$	—	$	80		$	—
Asset derivatives - interest rate cap	22			—		22			—
Liability derivatives - interest rate swaps	(8,593		)	—		(8,593		)	—


10.	RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and/or entitled the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and entitle the Advisor to specified fees upon the provision of certain services with regard to the investment of funds in real estate investments, the management of those investments, among other services, and the disposition of investments, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, such as expenses related to the Offering and dividend reinvestment plan, and certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Company has also entered into a fee reimbursement agreement with 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 DTCC Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc., 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, Inc. was added to the insurance program at terms similar to those described above.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

During the three and six months ended June 30, 2015 and 2014 , no other business transactions occurred between the Company and KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2015 and 2014, respectively, and any related amounts payable as of June 30, 2015 and December 31, 2014 (in thousands):



	Incurred				Incurred				Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2015		2014		2015		2014		2015		2014
Expensed
Asset management fees ⁽¹⁾	$	4,497	$	2,725	$	8,814	$	5,184	$	8,394	$	3,465
Reimbursement of operating expenses ⁽²⁾	40		36		79		63		83		36
Real estate acquisition fees	3,019		853		3,019		2,558		980		—
Additional Paid-in Capital
Selling commissions	15,329		5,579		32,413		13,781		—		—
Dealer manager fees	7,284		2,740		15,359		6,695		—		—
Reimbursable other offering costs ⁽³⁾	934		565		1,837		1,687		218		53
	$	31,103	$	12,498	$	61,521	$	29,968	$	9,675	$	3,554

_____________________

⁽¹⁾ As of June 30, 2015 , the Company had accrued and deferred payment of $8.4 million of asset management fees. See “Deferral of Asset Management Fees” below.

⁽²⁾ 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 $35,000 and $69,000 for the three and six months ended June 30, 2015 , respectively, and $36,000 and $63,000 for the three and six months ended June 30, 2014 , respectively, and were the only employee costs reimbursed under the Advisory Agreement for the three and six months ended June 30, 2015 and 2014, respectively. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees 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.

⁽³⁾ Also see “Other Offering Costs” below.

In connection with the Offering, the Company’s sponsors agreed to provide additional indemnification to one of the participating broker dealers. The Company agreed to add supplemental coverage to its directors’ and officers’ insurance coverage to insure the sponsors’ obligations under this indemnification agreement in exchange for reimbursement by the sponsors to the Company for all costs, expenses and premiums related to this supplemental coverage. During the six months ended June 30, 2015 , the Advisor incurred $0.1 million of the costs of the supplemental coverage obtained by the Company.

Other Offering Costs

Pursuant to the Advisory Agreement, the Advisor would be obligated to reimburse the Company to the extent organization and offering costs incurred by the Company in each of the Offering and its proposed follow-on offering (the “Follow-on Offering”) exceed 15% of the gross offering proceeds of the respective offering. As of June 30, 2015 , organizational and offering costs in the Offering did not exceed 15% of the gross offering proceeds. From inception through June 30, 2015 , the Company had recorded $1.2 million of offering costs related to the Follow-on Offering.

As of June 30, 2015 , the Company had not commenced the Follow-on Offering and does not intend to commence the Follow-on Offering. As such, during the three months ended June 30, 2015 , the Advisor reimbursed the Company for the $ 1.2 million of offering costs related to the Follow-on Offering previously incurred by the Company. Such costs were included in deferred financing costs, prepaid expenses and other assets as of December 31, 2014. During the three months ended March 31, 2015, such costs were reclassified to due from affiliate for all periods presented due to management's expectations that significant proceeds would not be raised in the Follow-on Offering and that such costs would be reimbursed from the Advisor.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Deferral of Asset Management Fees

Pursuant to the Advisory Agreement, with respect to asset management fees accruing from March 1, 2014, the Advisor has agreed to defer, without interest, the Company’s obligation to pay asset management fees for any month in which the Company’s modified funds from operations (“MFFO”) for such month, as such term is defined in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 and interpreted by the Company, excluding asset management fees, does not exceed the amount of distributions declared by the Company for record dates of that month. The Company remains obligated to pay the Advisor an asset management fee in any month in which the Company's MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an “MFFO Surplus”); however, any amount of such asset management fee in excess of the MFFO Surplus will also be deferred under the Advisory Agreement. If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will be applied to pay any asset management fee amounts previously deferred in accordance with the Advisory Agreement.

However, notwithstanding the foregoing, any and all deferred asset management fees that are unpaid will become immediately due and payable at such time as the Company's 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) an 8.0% per year cumulative, noncompounded return on such net invested capital (the “Stockholders’ 8% Return”) and (ii) 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 Company's share redemption program. The Stockholders’ 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of the Company's stockholders to have received any minimum return in order for the Advisor to receive deferred asset management fees.

As of June 30, 2015 , the Company had accrued and deferred payment of $8.4 million of asset management fees under the Advisory Agreement, as the Company believes the payment of this amount to the Advisor is probable. These fees will be reimbursed in accordance with the terms noted above.

Lease to Affiliate

On May 29, 2015, the indirect wholly owned subsidiary of the Company that owns 3003 Washington Boulevard entered into a lease with an affiliate of the Advisor for 5,046 rentable square feet, or approximately 2.3% of the total rentable square feet, at 3003 Washington Boulevard. The lease commences on March 1, 2016 and terminates on August 31, 2019. Upon commencement, the annualized base rent (net of rental abatements) for this tenant will be approximately $0.3 million , and the average annual rental rate (net of rental abatements) over the lease term will be $51.90 per square foot. No rental income related to this lease was recognized during the three and six months ended June 30, 2015.

Prior to their approval of the lease, the Company’s conflicts committee and board of directors determined the lease to be fair and reasonable to the Company.


11.	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 the respective services, the Company will be required to obtain such services from other sources.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Legal Matters

From time to time, the Company may be 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 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.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of June 30, 2015 .


12.	SUBSEQUENT EVENTS

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

Status of the Offering

The Company commenced the Offering on October 26, 2010. The Company ceased offering shares of common stock in the primary Offering on May 29, 2015 and terminated the primary Offering on July 28, 2015. The Company sold 169,009,930 shares of common stock in the now-terminated primary Offering for gross offering proceeds of $ 1.7 billion , and as of August 7, 2015 , the Company had sold 8,407,637 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $ 82.3 million . Also as of August 7, 2015 , the Company had redeemed 1,187,500 of the shares sold in the Offering for $ 11.5 million .

Distributions Paid

On July 1, 2015, the Company paid distributions of $9.2 million , which related to distributions declared for daily record dates for each day in the period from June 1, 2015 through June 30, 2015. On August 3, 2015, the Company paid distributions of $9.7 million , which related to distributions declared for daily record dates for each day in the period from July 1, 2015 through July 31, 2015.

Distributions Declared

On July 7, 2015, the Company’s board of directors declared distributions based on daily record dates for the period from August 1, 2015 through August 31, 2015, which the Company expects to pay in September 2015. On August 11, 2015, the Company's board of directors declared distributions based on daily record dates for the period September, 1 2015 through September 30, 2015, which the Company expects to pay in October 2015, and distributions based on daily record dates for the period from October 1, 2015 through October 31, 2015, which the Company expects to pay in November 2015. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on the initial primary Offering purchase price of $10.00 per share or a 6.18% annualized rate based on the most recent primary Offering purchase price of $10.51 per share.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

Real Estate Acquisition and Probable Acquisition Subsequent to June 30, 2015

Acquisition of Promenade I & II at Eilan

On July 14, 2015, the Company, through an indirect wholly owned subsidiary, acquired 100% of the common stock (the “Common Stock”) of two single asset corporations that are treated as real estate investment trusts for federal income tax purposes (collectively, the “Promenade I & II at Eilan REITs”) from a seller that is not affiliated with the Company or the Advisor. Indirect wholly owned subsidiaries of the Promenade I & II at Eilan REITs are fee owners of two office buildings encompassing an aggregate of 200,072 rentable square feet located on approximately 6.3 acres of land in San Antonio, Texas (“Promenade I & II at Eilan”). The Promenade I & II at Eilan REITs each have 125 shares of Series A non-voting preferred stock outstanding that will be redeemable at a price per share of $1,000 plus accrued and unpaid dividends as of the redemption date. The Company intends to redeem all of the outstanding 125 shares of Series A non-voting preferred stock by December 2015.

The purchase price of the Common Stock was $61.6 million plus closing costs. The Company funded the purchase of the Common Stock with proceeds from its now-terminated primary Offering, but may later place mortgage debt on the property.

Promenade I & II at Eilan consists of two buildings that were built in 2011. At acquisition, Promenade I & II at Eilan collectively was 100% leased to 15 tenants with a weighted-average remaining lease term of 6.1 years.

Probable Acquisition of CrossPoint at Valley Forge

On July 15, 2015, the Company, through an indirect wholly owned subsidiary, entered into a purchase agreement to acquire an office property containing 272,360 rentable square feet located on approximately 25.3 acres of land in Wayne, Pennsylvania (“CrossPoint at Valley Forge”). The seller is not affiliated with the Company or the Advisor. The contractual purchase price of CrossPoint at Valley Forge is approximately $89.5 million plus closing costs. Pursuant to the purchase agreement, the Company would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that the Company will complete the acquisition. In some circumstances, if the Company fails to complete the acquisition, it may forfeit up to $3.0 million of earnest money.

CrossPoint at Valley Forge was constructed in 1974 and renovated in 2014. As of July 15, 2015, CrossPoint at Valley Forge was 95% leased to 11 tenants with a weighted-average remaining lease term of 8.7 years.

Financing Subsequent to June 30, 2015

Related Financing of 201 17th Street

On July 28, 2015, the Company, through an indirect wholly owned subsidiary (the “201 17th Street Borrower”), entered into a mortgage loan with an unaffiliated lender for borrowings of up to $64.8 million , of which $48.6 million is term debt and $16.2 million is revolving debt, secured by 201 17th Street (the “201 17th Street Mortgage Loan”). At closing, $48.6 million of term debt was funded and the remaining $16.2 million of revolving debt was available for future disbursements to be used for tenant improvements, lease commissions and other purposes related to the property, subject to certain terms and conditions contained in the loan documents. The 201 17th Street Mortgage Loan matures on August 1, 2018, with three one -year extension options, subject to certain terms and conditions contained in the loan documents. The 201 17th Street Mortgage Loan bears interest at a floating rate of 140 basis points over one-month LIBOR. Monthly payments are interest-only during the initial term. The 201 17th Street Borrower has the right to repay the loan in part and in whole subject to certain fees, expenses and conditions, all as described in the loan documents.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015

(unaudited)

REIT Properties III is providing a guaranty of 20% of the principal outstanding under the 201 17th Street Mortgage Loan on the date the loan becomes due and payable in full. REIT Properties III is also providing a guaranty with respect to any deficiency, loss or damage suffered by the lender under the 201 17th Street Mortgage Loan as a result of: certain intentional actions committed by the 201 17th Street Borrower in violation of the guaranty; certain intentional actions committed by the 201 17th Street Borrower and/or REIT Properties III in violation of the loan documents; or certain bankruptcy or insolvency proceedings involving the 201 17th Street Borrower.

Dividend Reinvestment Plan

On August 11, 2015, the Company’s board of directors approved a fourth amended and restated dividend reinvestment plan. For more information, see Part II, Item 5, “Other Information - Dividend Reinvestment Plan.”

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 Real Estate Investment Trust III, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Real Estate Investment Trust III, Inc., a Maryland corporation, and, as required by context, KBS Limited Partnership III, 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 Real Estate Investment Trust III, 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 commenced investment operations on June 24, 2011 in connection with our first investment and we have a limited operating history. We are dependent on KBS Capital Advisors LLC (“KBS Capital Advisors”), our advisor, to identify suitable investments and to manage our investments.

•

All of our executive officers, our affiliated directors and other key real estate and debt finance professionals are also officers, affiliated directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and/or other KBS-affiliated entities. As a result, our executive officers, our affiliated directors, some of our key real estate and debt finance professionals, our advisor and its affiliates face conflicts of interest, including significant conflicts created by our advisor’s and its affiliates’ compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. Furthermore, these individuals may become employees of another KBS-sponsored program in an internalization transaction or, if we internalize our advisor, may not become our employees as a result of their relationship with other KBS-sponsored programs. These conflicts could result in action or inaction that is not in the best interests of our stockholders.

•

Because investment opportunities that are suitable for us may also be suitable for other KBS-sponsored programs or KBS-advised investors, our advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.

•

Our advisor and its affiliates receive fees in connection with transactions involving the purchase or origination and management of our investments. These fees are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us and increases our stockholders’ risk of loss. In addition, we have paid substantial fees to and expenses of our advisor, its affiliates and participating broker-dealers in connection with our now-terminated initial public offering, which payments increase the risk that our stockholders will not earn a profit on their investment. We may also pay significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our stockholders first enjoying agreed-upon investment returns, the investment return thresholds may be reduced subject to approval by our conflicts committee and to other limitations in our charter.

•

Our charter permits us to pay distributions from any source, including offering proceeds or borrowings (which may constitute a return of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. As of June 30, 2015 , we had used a combination of cash flow from operations, proceeds from debt financing and proceeds from an advance from our advisor to fund distributions. During our offering stage and from time to time during our operational stage, we expect to use proceeds from third party financings to fund at least a portion of distributions in anticipation of cash flow to be received in later periods. We may also fund such distributions from the sale of assets or from the maturity, payoff or settlement of debt investments. If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

•

We may incur debt until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation or other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt such that our total liabilities would exceed this limit. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in us.

•

We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy (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, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders.

•

Our real estate investments and any future investments may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from our real estate properties and the properties and other assets directly securing our loan investments could decrease. Such events would make it more difficult for the borrowers under our loan investments to meet their payment obligations to us and could in turn make it more difficult for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders.


•	If we are unable to locate investments with attractive yields while we are investing the proceeds of our public offering, our distributions and the long-term returns of our investors may be lower than they otherwise would.

•

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 repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to our real estate properties; reserves required by any financings of our real estate investments; funding obligations under our real estate loan receivable; the acquisition or origination of real estate investments, which include payment of acquisition or origination fees to our advisor; and the repayment of debt. If such funds are not available from our 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.


•	Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to stockholders.

•

Our charter does not require us to liquidate our assets and dissolve by a specified date, nor does our charter require our directors to list our shares for trading by a specified date. No public market currently exists for our shares of common stock, and we have no plans at this time to list our shares on a national securities exchange. Until our shares are listed, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. Any sale must comply with applicable state and federal securities laws. In addition, our charter prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from purchasing our shares. Our shares cannot be readily sold and, if our stockholders are able to sell their shares, they would likely have to sell them at a substantial discount from the price our stockholders paid to acquire the shares.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

•

The most recent price paid to acquire a share in our now-terminated primary initial public offering of $10.51 per share may not be indicative of the price at which our shares would trade if they were listed on a national securities exchange or actively traded. This offering price of shares of common stock sold in our now-terminated primary initial public offering was determined by adding certain offering costs to the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding, all as of September 30, 2014, with the exception of an adjustment for actual or estimated acquisition fees and closing costs related to six properties that either were acquired subsequent to September 30, 2014 or were under contract to purchase and were reasonably probable to close, but had not yet closed as of December 9, 2014, which were included as a reduction to the net asset value. As of December 30, 2014, we had closed on each of these six properties. The offering price of our shares was not a statement of our estimated net asset value per share, as the offering price took into consideration the projected costs and expenses associated with raising capital in our initial public offering. These costs include selling commissions, dealer manager fees and certain other offering costs. The estimated net asset value per share was determined for the sole purpose of updating the offering prices in our now-terminated primary initial public offering and in our dividend reinvestment plan offering. Moreover, the valuation methodologies used to establish the net asset value component of our updated offering prices were based upon a number of estimates and assumptions that may not be accurate or complete. For information related to the determination of our updated offering prices, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information” in our Annual Report on Form 10-K for the year ended December 31, 2014.

All forward-looking statements should be read in light of the risks identified in Part II, Item 1A herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (the “SEC”).

Overview

We were formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011 and we intend to continue to operate in such a manner. On February 4, 2010, we filed a registration statement on Form S-11 with the SEC to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares, or up to $2,760,000,000 of shares, of common stock for sale to the public, of which 200,000,000 shares, or up to $2,000,000,000 of shares, were registered in our primary offering and 80,000,000 shares, or up to $760,000,000 of shares, were registered under our dividend reinvestment plan. The SEC declared our registration statement effective on October 26, 2010 and we retained KBS Capital Markets Group LLC (“KBS Capital Markets Group”), an affiliate of our advisor, to serve as the dealer manager of our initial public offering pursuant to a dealer manager agreement. The dealer manager was responsible for marketing our shares in our now-terminated primary initial public offering.

We have invested in and intend to invest in a diverse portfolio of real estate investments. Our primary investment focus is core office properties located throughout the United States, though we may also invest in industrial and retail properties. Our core property focus in the U.S. office sector has reflected a more value-creating core strategy, and based on the current market outlook, we expect to continue this strategy. In many cases, these properties have slightly higher (10% to 15%) vacancy rates and/or higher near-term lease rollover at acquisition than more conservative value-maintaining core properties. These characteristics provide us with opportunities to lease space at higher rates, especially in markets with increasing absorption, or to re-lease space in these properties at higher rates, bringing below-market rates of in-place expiring leases up to market rates. Many of these properties will require a moderate level of additional investment for capital expenditures and tenant improvement costs in order to improve or rebrand the properties and increase rental rates. Thus, we believe these properties provide an opportunity for us to achieve more significant capital appreciation by increasing occupancy, negotiating new leases with higher rental rates and/or executing enhancement projects. All such real estate assets may be acquired directly by us or the Operating Partnership, though we may invest in other entities that make similar investments. We also currently expect to allocate between 0 and 20% of our portfolio to real estate-related investments such as mortgage loans. As of June 30, 2015 , we owned 22 office properties, one mixed-use office/retail property and had originated one first mortgage loan.

On March 24, 2011, we broke escrow in our initial public offering. Through June 30, 2015 , we had sold 167,771,210 shares of common stock in our now-terminated primary initial public offering for gross offering proceeds of $1.7 billion . As of June 30, 2015 , we had sold 7,379,846 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $ 72.0 million . We ceased offering shares of common stock in our primary offering on May 29, 2015 and terminated the primary offering on July 28, 2015 upon the completion of review of subscriptions submitted in accordance with our processing procedures.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Additionally, on October 3, 2014, we issued 258,462 shares of common stock, for $2.4 million, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.

We continue to offer shares under our dividend reinvestment plan. In some states, we will need to renew the registration statement annually or file a new registration statement to continue the dividend reinvestment plan offering. We may terminate our dividend reinvestment plan offering at any time.

Also as of June 30, 2015 , we had redeemed 1,110,901 shares sold in our initial public offering for $ 10.7 million .

As our advisor, KBS Capital Advisors manages our day-to-day operations and our portfolio of real estate investments. KBS Capital Advisors makes recommendations on all investments to our board of directors. All proposed investments must be approved by at least a majority of our board of directors, including a majority of the conflicts committee. Unless otherwise provided by our charter, the conflicts committee may approve a proposed investment without action by the full board of directors if the approving members of the conflicts committee constitute at least a majority of the board of directors. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

Market Outlook – Real Estate and Real Estate Finance Markets

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

The global capital markets remain volatile as the world’s economic growth has been affected by geopolitical and economic events in Europe, the Middle East and Asia throughout the summer of 2015, such as the Greek sovereign debt crisis and the fall of the Chinese stock markets. The rise of the Islamic State and the struggle between the Ukrainian government and pro-Russian rebels have kept the U.S. and its allies engaged in international conflicts. The slowdown in global economic growth, and in particular the slowing of the Chinese economy, has had a ripple effect through the energy and commodity markets. Decreasing demand for commodities and in particular oil, has led to a steep price decline in most commodity market prices which has, in turn, threatened the economies of commodity dependent nations. In the United States, the Federal Reserve seeks to normalize interest rates with the anticipated increase in rates in 2015. In this type of economic environment the level of uncertainty and volatility has increased. While the U.S. economy has rebounded from the recent recession, the remainder of the world’s industrialized and emerging economies have struggled to maintain even low levels of economic growth.

Central bank interventions continue to bolster the global economy. In 2012, Japan embarked on a massive quantitative easing (“QE”) program designed to kickstart its economy. To date, the program has led to lower Japanese interest rates, a run up in the Japanese stock markets and a devaluation of the yen. In Europe, the European Central Bank (ECB) announced its own QE program in January 2015. The long awaited announcement has led to lower European interest rates and a weakening of the Euro against other currencies. In China, the central government has struggled to control its shadow banking system. Recent crackdowns on corruption and the intervention of the government into the country's falling stock market have increased the level of investor uncertainty.

The Federal Reserve has maintained an accommodative monetary policy since the beginning of the 2008 financial crisis. Through a variety of monetary tools and programs, the Federal Reserve injected trillions of U.S. dollars into the global financial markets. The U.S. QE program focused on the purchase of U.S. treasury bonds and mortgage backed securities. In October 2014, the Federal Reserve concluded the most recent phase of QE. The end of this program shifted investor focus to the timing of an eventual interest rate increase by the Federal Reserve. While it is unclear whether such an increase will happen in 2015 or 2016, it now appears likely that an increase is in the Federal Reserve's plans.

In the United States, recent economic data has shown moderate economic growth. The labor force participation rate continues to be low and personal income growth has remained stagnant. However, slow and steady growth in the labor markets has driven unemployment down to 5.3% as of June 2015. Consumer spending in the United States has increased, and is being driven by lower debt service burdens, record high stock market valuations, rebounding home prices and a dramatic decrease in the cost of gasoline. Consumer confidence levels are starting to reach levels last seen in the 1990s. U.S. gross domestic product (“U.S. GDP”) has continued to grow at a moderate annualized rate. On an annual basis, U.S. GDP growth in 2014 was 2.4%, which was an improvement over 2013’s growth rate of 1.5%. In the second half of 2014, the U.S. dollar began to appreciate against the currencies of other nations. However, the effects of a strong dollar and weak international economic growth began to materialize in the form of reduced corporate earnings in the fourth quarter of 2014. This trend continued in the first quarter of 2015, where U.S. GDP increased at an annual rate of 0.6%.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

The U.S. dollar has remained a safe haven currency and the U.S. commercial real estate market has benefited from an inflow of foreign capital. Initially, gateway markets such as New York City and San Francisco benefited from a high demand for commercial properties. In 2014, the commercial real estate market recovery spread to secondary and tertiary markets, and most asset classes. The U.S. commercial real estate market has gained favor as an alternative investment class and capital flows continue to improve. In 2015, commercial property values have continued to rise and the U.S. commercial real estate market is currently on pace to set a record in transaction volume. However, the recovery in commercial real estate is expected to remain uneven across geographies and among property types.

As the dollar strengthens, the flow of capital into the United States could be curtailed. International demand for U.S. assets has been driven, in part, by the perception that U.S. real assets and the U.S. dollar are safe havens from some market risks. A decrease in flow of capital into the United States could lead to a decrease in the demand for U.S. commercial real estate assets, and result in a decline in commercial real estate values.

After several years of improving market conditions, the recovery in the U.S. residential real estate market has slowed. The initial recovery was driven by low interest rates, pent-up demand from the consumer sector and institutional investors in the form of buy-to-rent portfolios. In 2015, investor demand for homes has slowed and the housing market appears to be heading into a consolidation phase as several institutional investors seek an exit to repay investors. All cash purchases of homes, an indicator of institutional investor activity, has dropped dramatically. New home construction numbers have been driven largely by the construction of multifamily projects.

Overall, despite indications of recovery in the United States, uncertainties abound. China’s export-based economy has slowed and the Japanese government continues to experiment with QE. The EU is faced with the economic collapse of Greece, another recession and military conflict in the Ukraine. In the United States, the Federal Reserve completed the latest phase of QE in 2014 and is now faced with the impact of a strong dollar and the anticipation of increasing interest rates. In the short-term, we anticipate that market conditions will continue to remain strong and volatile. When combined with a challenging global macro-economic environment, these conditions may interfere with the implementation of our business strategy and/or force us to modify it.

Impact on Our Real Estate Properties

The economic events that have occurred since the onset of the recession in 2008 have no precedent. While current forecasts for the U.S. economy are positive, there is a level of uncertainty inherent to this outlook. Currently, both the investing and leasing environments are highly competitive. While there has been an increase in the amount of capital flowing into U.S. real estate markets, which has resulted in an increase in real estate values in certain markets, the uncertainty regarding the economic environment has made businesses reluctant to make long-term commitments or changes in their business plans. 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. Historically low interest rates could help offset some of the impact of these potential decreases in operating cash flow for properties financed with variable rate mortgages; however, interest rates likely will not remain at these historically low levels for the remaining life of many of our investments. Interest rates have become more volatile as the global capital markets react to increasing economic and geopolitical risks.

Impact on Our Real Estate-Related Investment

Our real estate-related investment is directly secured by commercial real estate. As a result, our real estate-related investment, in general, has been and likely will continue to be impacted by the same factors impacting our real estate properties. The higher yields and the improving credit position of many U.S. tenants and borrowers have attracted global capital. However, the real estate and capital markets are fluid, and the positive trends can reverse quickly. Economic conditions remain relatively unstable and can have a negative impact on the performance of collateral securing our loan investment, and therefore may impact the ability of the borrower under our loan to make contractual interest payments to us.

As of June 30, 2015 , we owned one fixed rate real estate loan receivable with a principal balance of $21.6 million and a carrying value of $21.7 million that matures in 2016.

Impact on Our Financing Activities

In light of the risks associated with potentially volatile operating cash flows from some of our real estate properties, we may have difficulty refinancing some of our debt obligations prior to or at maturity or we may not be able to refinance these obligations at terms as favorable as the terms of our existing indebtedness. Recent financial market conditions have improved from the bottom of the economic cycle, but material risks are still present. Market conditions can change quickly, potentially negatively impacting the value of our investments.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

As of June 30, 2015 , we had debt obligations in the aggregate principal amount of $1.2 billion, with a weighted-average remaining term of 3.2 years. We had a total of $102.7 million of fixed rate notes payable and $1.1 billion of variable rate notes payable. The interest rates on $625.1 million of our variable rate notes payable are effectively fixed through interest rate swap agreements. In addition, we entered into six interest rate swaps with an aggregate notional amount of $353.4 million, which will be effective at various times from 2016 through 2020. We also have an interest rate cap for a notional amount of $353.4 million, effective from January 7, 2015 to June 30, 2016. The notional amount on the interest rate cap is reduced to $147.3 million from July 1, 2016 to January 1, 2017.

Liquidity and Capital Resources

On March 24, 2011, we broke escrow in our initial public offering. Through June 30, 2015 , we sold 167,771,210 shares of common stock in our now-terminated primary initial public offering for gross offering proceeds of $ 1.7 billion and 7,379,846 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $ 72.0 million . Also as of June 30, 2015 , we had redeemed 1,110,901 shares sold in our initial public offering for $ 10.7 million . We ceased offering shares of common stock in our primary offering on May 29, 2015 and terminated our primary offering on July 28, 2015.

To date, we have invested a significant amount of the net proceeds from our now-terminated primary initial public offering. We expect to use substantially all of the proceeds from our now-terminated primary initial public offering, net of selling commissions and dealer manager fees and other organization and offering costs, and proceeds from debt financing to acquire real estate investments. To date, proceeds from our dividend reinvestment plan have been used primarily to fund redemptions of shares under our share redemption program and for capital expenditures on our real estate investments.

Our principal demand for funds during the short and long-term is and will be for the acquisition of additional real estate investments; operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; and payments of distributions to stockholders. Our primary sources of capital for meeting our cash requirements are as follows:


•	Remaining proceeds from our now-terminated primary initial public offering;


•	Proceeds from common stock issued under our dividend reinvestment plan;


•	Debt financings; and


•	Cash flow generated by our real estate investments.

Our real estate properties generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our real estate properties is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of June 30, 2015 , we owned 22 office properties and one mixed-use office/retail property that were collectively 89% occupied.

Our real estate-related investment generates cash flow in the form of interest income, which is reduced by the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our real estate-related investment is primarily dependent on the operating performance of the underlying collateral and the borrower’s ability to make its debt service payments. As of June 30, 2015 , the borrower under our real estate loan receivable was current on all contractual debt service payments to us.

As of June 30, 2015 , we had mortgage debt obligations in the aggregate principal amount of $1.2 billion, with a weighted-average remaining term of 3.2 years. As of June 30, 2015 , we had $100.0 million of revolving debt available for immediate future disbursement under a portfolio loan, subject to certain conditions set forth in the loan agreement.

We made distributions to our stockholders during the six months ended June 30, 2015 using cash flow from operations from current and prior periods and debt financing. We believe that our cash flow from operations, cash on hand, proceeds from our dividend reinvestment plan, proceeds from the sale of real estate and current and anticipated financing activities are sufficient to meet our liquidity needs for the foreseeable future.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

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 has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended June 30, 2015 did not exceed the charter-imposed limitation.

Cash Flows from Operating Activities

We commenced operations in connection with our first investment on June 24, 2011. As of June 30, 2015 , we owned 22 office properties, one mixed-use office/retail property and one real estate loan receivable. During the six months ended June 30, 2015 , net cash provided by operating activities was $43.1 million , compared to net cash provided by operating activities of $21.7 million during the six months ended June 30, 2014 . Net cash provided by operating activities increased in 2015 primarily as a result of the growth in our real estate portfolio.

Cash Flows from Investing Activities

Net cash used in investing activities was $323.2 million for the six months ended June 30, 2015 and primarily consisted of the following:


•	$290.7 million for the acquisitions of three real estate properties;


•	$29.3 million of improvements to real estate;


•	$1.7 million of advances on our real estate loan receivable;


•	$1.4 million of escrow deposits for future real estate purchase; and


•	$0.2 million for the purchase of an interest rate cap.

Cash Flows from Financing Activities

Our cash flows from financing activities consist primarily of proceeds from our initial public offering, debt financings and distributions paid to our stockholders. During the six months ended June 30, 2015 , net cash provided by financing activities was $349.8 million and primarily consisted of the following:


•	$461.3 million of net cash provided by offering proceeds related to our initial public offering, net of payments of commissions, dealer manager fees and other organization and offering expenses of $50.6 million;


•	$87.9 million of net cash used for debt financing as a result of principal payments on notes payable of $106.0 million and payments of deferred financing costs of $1.0 million, partially offset by proceeds from notes payable of $19.1 million;


•	$21.2 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $24.3 million;


•	$3.6 million of cash used for redemptions of common stock; and


•	$1.2 million of cash reimbursed from affiliate related to other offering costs.

Once we have fully invested the proceeds of our public offering, we expect that our debt financing and other liabilities will be between 35% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). We expect our debt financing related to the acquisition of core real estate properties to be between 45% and 65% of the aggregate cost of all such assets. We expect our debt financing related to the acquisition or origination of real estate-related investments to be between 0% and 65% of the aggregate cost of all such assets, depending upon the availability of such financings in the marketplace. Though this is our target leverage, we do not limit our leverage until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt in excess of this limit. As of June 30, 2015 , our borrowings and other liabilities were approximately 47% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our advisor and we have made certain payments to our dealer manager. Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to pay fees to and reimburse our advisor, our dealer manager and/or their affiliates, as applicable, for organization and other offering costs related to our public offering. See the discussion under “— Organization and Offering Costs” below. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and acquisition or origination of investments, the management of our investments and costs incurred by our advisor in providing services to us. We also pay fees to our advisor in connection with the disposition of investments.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Among the fees payable to our advisor is an asset management fee. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition expenses related thereto (but excludes acquisition fees paid or payable to our advisor). 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 (but excluding acquisition fees paid to our advisor). 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 (which amount includes any portion of the investment that was debt financed and is inclusive of acquisition or origination expenses related thereto but is exclusive of acquisition or origination fees paid or payable to our advisor) and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination expenses related to the acquisition or funding of such investment (excluding acquisition or origination fees paid or payable to our advisor), as of the time of calculation.

On September 27, 2014, we and our advisor renewed the advisory agreement. Pursuant to the advisory agreement, with respect to asset management fees accruing from March 1, 2014, our advisor agreed to defer, without interest, our obligation to pay asset management fees for any month in which our modified funds from operations (“MFFO”) for such month, as such term is defined in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 and interpreted by us, excluding asset management fees, does not exceed the amount of distributions declared by us for record dates of that month. We remain obligated to pay our advisor an asset management fee in any month in which our MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an “MFFO Surplus”); however, any amount of such asset management fee in excess of the MFFO Surplus will also be deferred under the advisory agreement. If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will be applied to pay any asset management fee amounts previously deferred in accordance with the advisory agreement.

As of June 30, 2015 , we had accrued and deferred payment of $8.4 million of asset management fees under the advisory agreement, as we believe the payment of this amount to our advisor is probable. These fees will be reimbursed in accordance with the terms noted above. The amount of asset management fees deferred will vary on a month-to-month basis and the total amount of asset management fees deferred as well as the timing of the deferrals and repayments are difficult to predict as they will depend on the volume of capital raised in our public offering, the speed with which we are able to deploy capital raised, the amount of and terms of the debt we use to acquire assets, the level of operating cash flow generated by future acquisitions, the performance of all of the real estate investments in our portfolio and other factors. In addition, deferrals and repayments may occur in the same period, and it is possible that there could be additional deferrals even after the initial deferrals are fully repaid.

However, notwithstanding the foregoing, any and all deferred asset management fees that are unpaid will become immediately due and payable at such time as our 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) an 8.0% per year cumulative, noncompounded return on such net invested capital (the “Stockholders’ 8% Return”) and (ii) 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 our share redemption program. The Stockholders’ 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to receive deferred asset management fees.

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.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of June 30, 2015 (in thousands):



			Payments Due During the Years Ended December 31,
Contractual Obligations	Total		Remainder of 2015		2016-2017		2018-2019		Thereafter
Outstanding debt obligations ⁽¹⁾	$	1,235,990	$	—	$	294,588	$	723,441	$	217,961
Interest payments on outstanding debt obligations ⁽²⁾	103,415		16,056		59,147		23,705		4,507

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts and interest rates in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable). We incurred interest expense of $16.4 million, excluding amortization of deferred financing costs totaling $1.7 million and unrealized losses on derivatives of $2.0 million, during the six months ended June 30, 2015 .

Results of Operations

Overview

Our results of operations as of June 30, 2015 are not indicative of those expected in future periods, as we broke escrow in our initial public offering on March 24, 2011 and have since been raising money in and investing the proceeds from our initial public offering. As of June 30, 2014 , we owned 13 office properties and one real estate loan receivable. As of June 30, 2015 , we owned 22 office properties, one mixed-use office/retail property and one real estate loan receivable. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of owning the real estate investments acquired in 2015 for an entire period and anticipated future acquisitions of real estate investments. As a result, the results of operations presented for the three and six months ended June 30, 2015 and 2014 are not directly comparable.

Comparison of the three months ended June 30, 2015 versus the three months ended June 30, 2014

The following table provides summary information about our results of operations for the three months ended June 30, 2015 and 2014 (dollar amounts in thousands):



	Three Months Ended June 30,				Increase		Percentage Change		$ Change Due to Acquisitions ⁽¹⁾		$ Change Due to Properties or Loans Held Throughout Both Periods ⁽²⁾
	2015		2014		Increase		Percentage Change		$ Change Due to Acquisitions ⁽¹⁾
Rental income	$	55,945	$	33,591	$	22,354	67	%	$	21,634	$	720
Tenant reimbursements	12,485		9,936		2,549		26	%	2,476		73
Interest income from real estate loan receivable	402		327		75		23	%	—		75
Other operating income	3,335		1,329		2,006		151	%	1,839		167
Operating, maintenance and management costs	16,531		10,154		6,377		63	%	6,135		242
Real estate taxes and insurance	11,885		8,413		3,472		41	%	3,678		(206		)
Asset management fees to affiliate	4,497		2,725		1,772		65	%	1,669		103
Real estate acquisition fees to affiliate	3,019		853		2,166		254	%	2,166		n/a
Real estate acquisition fees and expenses	1,048		167		881		528	%	881		n/a
General and administrative expenses	1,286		891		395		44	%	n/a		n/a
Depreciation and amortization	32,279		19,293		12,986		67	%	13,265		(279		)
Interest expense	7,636		6,269		1,367		22	%	n/a		n/a

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⁽¹⁾ Represents the dollar amount increase for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 related to real estate investments acquired on or after April 1, 2014.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 with respect to real estate investments owned by us throughout both periods presented.

Rental income and tenant reimbursements from our real estate properties increased from $43.5 million for the three months ended June 30, 2014 to $68.4 million for the three months ended June 30, 2015 primarily as a result of the growth in our real estate portfolio. We expect that our rental income and tenant reimbursements will increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate 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 income from our real estate loan receivable, recognized using the interest method, increased from $0.3 million during the three months ended June 30, 2014 to $0.4 million during the three months ended June 30, 2015 . The increase in interest income is a result of an increase in the overall loan balance as a result of advances made under the real estate loan receivable. We expect interest income to vary in future periods as we make advances under the real estate loan receivable or receive principal repayments and to the extent we make any additional investments in real estate loans receivable.

Other operating income increased from $1.3 million during the three months ended June 30, 2014 to $3.3 million for the three months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. Other operating income primarily consisted of parking revenues. We expect other operating income to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Operating, maintenance and management costs increased from $10.2 million for the three months ended June 30, 2014 to $16.5 million for the three months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. We expect operating, maintenance and management costs to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Real estate taxes and insurance increased from $8.4 million for the three months ended June 30, 2014 to $11.9 million for the three months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. We expect real estate taxes and insurance to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Asset management fees with respect to our real estate investments increased from $2.7 million for the three months ended June 30, 2014 to $4.5 million for the three months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. We expect asset management fees to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate investments. As of June 30, 2015 , there were $8.4 million of accrued and deferred asset management fees. For a discussion of accrued and deferred asset management fees, see “- Liquidity and Capital Resources - Cash Flows from Financing Activities” herein.

Real estate acquisition fees and expenses to affiliate and non-affiliates increased from $1.0 million for the three months ended June 30, 2014 to $4.1 million for the three months ended June 30, 2015 due to an increase in acquisition activity. We acquired three real estate properties for $290.0 million during the three months ended June 30, 2015 . During the three months ended June 30, 2014 , we acquired one real estate property for $84.1 million. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.

Depreciation and amortization increased from $19.3 million for the three months ended June 30, 2014 to $32.3 million for the three months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Interest expense increased from $6.3 million for the three months ended June 30, 2014 to $7.6 million for the three months ended June 30, 2015 . Included in interest expense is the amortization of deferred financing costs of $0.4 million and $0.8 million for the three months ended June 30, 2014 and 2015 , respectively. Interest expense incurred as a result of our derivative instruments for the three months ended June 30, 2014 and 2015 was $1.5 million and $0.2 million, respectively, which includes $1.5 million of unrealized gains on derivative instruments for the three months ended June 30, 2015 . The increase in interest expense is primarily due to increased borrowings as a result of our use of additional debt in acquiring real estate properties in 2014 and 2015. We expect interest expense to increase in future periods as a result of borrowings in 2015 being outstanding for an entire period and additional borrowing for anticipated future acquisitions of real estate investments.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Comparison of the six months ended June 30, 2015 versus the six months ended June 30, 2014

The following table provides summary information about our results of operations for the six months ended June 30, 2015 and 2014 (dollar amounts in thousands):



	Six Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions and Dispositions ⁽¹⁾			$ Change Due to Properties or Loans Held Throughout Both Periods ⁽²⁾
	2015		2014		Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions and Dispositions ⁽¹⁾
Rental income	$	109,445	$	64,585	$	44,860		69	%	$	44,085		$	775
Tenant reimbursements	24,020		19,419		4,601			24	%	4,805			(204		)
Interest income from real estate loan receivable	783		648		135			21	%	—			135
Other operating income	6,169		2,267		3,902			172	%	3,768			134
Operating, maintenance and management costs	31,751		20,639		11,112			54	%	12,094			(982		)
Real estate taxes and insurance	23,047		16,068		6,979			43	%	7,428			(449		)
Asset management fees to affiliate	8,814		5,184		3,630			70	%	3,461			169
Real estate acquisition fees to affiliate	3,019		2,558		461			18	%	461			n/a
Real estate acquisition fees and expenses	1,164		470		694			148	%	694			n/a
General and administrative expenses	2,284		1,626		658			40	%	n/a			n/a
Depreciation and amortization	61,947		36,562		25,385			69	%	25,374			11
Interest expense	20,050		11,566		8,484			73	%	n/a			n/a
Gain on sale of real estate, net	—		10,895		(10,895		)	(100	)%	(10,895		)	n/a

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⁽¹⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 related to real estate investments acquired or disposed of on or after January 1, 2014.

⁽²⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 with respect to real estate investments owned by us throughout both periods presented.

Rental income and tenant reimbursements from our real estate properties increased from $84.0 million for the six months ended June 30, 2014 to $133.5 million for the six months ended June 30, 2015 primarily as a result of the growth in our real estate portfolio, partially offset by the sale of one of our properties on February 19, 2014. We expect that our rental income and tenant reimbursements will increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Interest income from our real estate loan receivable, recognized using the interest method, increased from $0.6 million during the six months ended June 30, 2014 to $0.8 million during the six months ended June 30, 2015 . The increase in interest income is a result of an increase in the overall loan balance as a result of advances made under the real estate loan receivable. We expect interest income to vary in future periods as we make advances under the real estate loan receivable or receive principal repayments and to the extent we make any additional investments in real estate loans receivable.

Other operating income increased from $2.3 million during the six months ended June 30, 2014 to $6.2 million for the six months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. Other operating income primarily consisted of parking revenues. We expect other operating income to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Operating, maintenance and management costs increased from $20.6 million for the six months ended June 30, 2014 to $31.8 million for the six months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio, partially offset by the sale of one of our properties on February 19, 2014 and a $1.0 million decrease from properties held throughout both periods primarily due to lower energy costs. We expect operating, maintenance and management costs to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Real estate taxes and insurance increased from $16.1 million for the six months ended June 30, 2014 to $23.0 million for the six months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio, partially offset by the sale of one of our properties on February 19, 2014. We expect real estate taxes and insurance to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Asset management fees with respect to our real estate investments increased from $5.2 million for the six months ended June 30, 2014 to $8.8 million for the six months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio, partially offset by the sale of one of our properties on February 19, 2014. We expect asset management fees to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate investments. As of June 30, 2015 , there were $8.4 million of accrued and deferred asset management fees. For a discussion of accrued and deferred asset management fees, see “- Liquidity and Capital Resources - Cash Flows from Financing Activities” herein.

Real estate acquisition fees and expenses to affiliate and non-affiliates increased from $3.0 million for the six months ended June 30, 2014 to $4.2 million for the six months ended June 30, 2015 due to an increase in acquisition activity. We acquired three real estate properties for $290.0 million during the six months ended June 30, 2015 . During the six months ended June 30, 2014 , we acquired two real estate properties for $253.8 million. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.

Depreciation and amortization increased from $36.6 million for the six months ended June 30, 2014 to $61.9 million for the six months ended June 30, 2015 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods as a result of owning the real estate properties acquired in 2015 for an entire period and anticipated future acquisitions of real estate properties.

Interest expense increased from $11.6 million for the six months ended June 30, 2014 to $20.1 million for the six months ended June 30, 2015 . Included in interest expense is the amortization of deferred financing costs of $0.9 million and $1.7 million for the six months ended June 30, 2014 and 2015 , respectively. Interest expense incurred as a result of our derivative instruments for the six months ended June 30, 2014 and 2015 was $2.4 million and $5.4 million, respectively, which includes $2.0 million of unrealized losses on derivative instruments for the six months ended June 30, 2015 . The increase in interest expense is primarily due to increased borrowings as a result of our use of additional debt in acquiring real estate properties in 2014 and 2015. We expect interest expense to increase in future periods as a result of borrowings in 2015 being outstanding for an entire period and additional borrowing for anticipated future acquisitions of real estate investments.

During the six months ended June 30, 2014, we sold one office property that resulted in a gain on sale of $10.9 million. During the six months ended June 30, 2015, we did not dispose of any properties.

Organization and Offering Costs

Organization and offering costs (other than selling commissions and dealer manager fees) related to our now-terminated primary initial public offering were sometimes paid and, with respect to our dividend reinvestment plan, may be paid by our advisor, our dealer manager or their affiliates on our behalf, or we may pay these costs directly. Offering costs include all costs incurred in connection with our now-terminated primary initial public offering or our proposed follow-on offering (the “Follow-on Offering”) or incurred or to be incurred with respect to our dividend reinvestment plan. Organization costs include all costs incurred by us in connection with our formation, including but not limited to legal fees and other costs to incorporate. Organization costs are expensed as incurred and offering costs in our initial public offering, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to reimburse our advisor, our dealer manager and their affiliates for organization and offering costs they incur on our behalf. However, at the termination of our now-terminated primary initial public offering and at the termination of the offering pursuant to our dividend reinvestment plan, our advisor has agreed to reimburse us to the extent that selling commissions, dealer manager fees and other organization and offering expenses incurred by us exceed 15% of the gross offering proceeds. In addition, at the end of our now-terminated primary initial public offering and again at the end of the offering pursuant to our dividend reinvestment plan, our advisor has agreed to reimburse us to the extent that organization and offering expenses, excluding underwriting compensation (which includes selling commissions, dealer manager fees and any other items viewed as underwriting compensation by the Financial Industry Regulatory Authority), exceed 2% of gross offering proceeds. We directly pay or reimburse our dealer manager for underwriting compensation as discussed in the prospectus for our initial public offering, provided that within 30 days after the end of the month in which our now-terminated primary initial public offering terminates, our dealer manager must reimburse us to the extent that our reimbursements cause total underwriting compensation for our now-terminated primary initial public offering to exceed 10% of the gross offering proceeds from such offering. We also directly pay or reimburse our dealer manager for bona fide invoiced due diligence expenses of broker-dealers. However, no reimbursements made by us to our advisor or our dealer manager may cause total organization and offering expenses incurred by us (including selling commissions, dealer manager fees and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from our now-terminated primary initial public offering and the offering pursuant to our dividend reinvestment plan as of the date of reimbursement. As of June 30, 2015 , selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through June 30, 2015 , including shares issued through our dividend reinvestment plan, we had sold 175,151,056 shares in our initial public offering for gross offering proceeds of $ 1.8 billion and incurred selling commissions and dealer manager fees of $157.6 million and organization and other offering costs of $22.9 million in our initial public offering.

In addition, from inception through June 30, 2015 , we had recorded $1.2 million of offering costs related to the proposed Follow-on Offering. Pursuant to the advisory agreement, our advisor is obligated to reimburse us to the extent offering costs incurred by us in the Follow-on Offering exceed 15% of the gross offering proceeds of the offering. We do not intend to commence the Follow-on Offering. As such, our advisor reimbursed us for $1.2 million of offering costs related to the Follow-on Offering.

Funds from Operations and 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.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

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

We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that excluding acquisition costs from MFFO 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 also excludes non-cash items such as straight-line rental revenue. Additionally, we believe that MFFO provides 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. However, MFFO has limitations as a performance measure during the offering stage for non-traded REITs where the price of a share of common stock is a stated value, which includes adding in certain offering costs. As a result, MFFO should not be used as a metric to determine or evaluate the net asset value.

FFO and 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 and 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 and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and 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 and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.

Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, unrealized (gains) losses on derivative instruments and acquisition fees and expenses 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;

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

•

Unrealized (gains) losses on derivative instruments. These adjustments include unrealized (gains) losses from mark-to-market adjustments on interest rate swaps. The change in fair value of interest rate swaps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements; and

•

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

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 calculation of MFFO, for the three and six months ended June 30, 2015 and 2014 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net (loss) income	$	(5,943	)	$	(3,561	)	$	(11,518	)	$	3,165
Depreciation of real estate assets	12,778			7,136			24,594			13,397
Amortization of lease-related costs	19,501			12,157			37,353			23,165
Gain on sale of real estate, net	—			—			—			(10,895		)
FFO	26,336			15,732			50,429			28,832
Straight-line rent and amortization of above- and below-market leases	(5,398		)	(3,458		)	(11,913		)	(6,689		)
Amortization of discounts and closing costs	6			6			13			12
Unrealized (gains) losses on derivative instruments	(1,505		)	—			1,996			—
Real estate acquisition fees to affiliate	3,019			853			3,019			2,558
Real estate acquisition fees and expenses	1,048			167			1,164			470
MFFO	$	23,506		$	13,300		$	44,708		$	25,183

FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs. We expect FFO and MFFO to improve as we acquire additional real estate investments.

Distributions

Until we have fully invested the proceeds of our public offering, and from time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities or FFO, in which case distributions may be paid in whole or in part from debt financing. Distributions declared, distributions paid and cash flow from (used in) operating activities were as follows for the first and second quarters of 2015 (in thousands, except per share amounts):



	Distributions Declared ⁽¹⁾		Distributions Declared Per Share ^{(1) (2)}		Distributions Paid ⁽³⁾						Cash Flow from Operating Activities
Period	Distributions Declared ⁽¹⁾		Distributions Declared Per Share ^{(1) (2)}		Cash		Reinvested		Total		Cash Flow from Operating Activities
First Quarter 2015	$	21,581	$	0.160	$	9,514	$	10,743	$	20,257	$	14,230
Second Quarter 2015	26,609		0.162		11,722		13,575		25,297		28,853
	$	48,190	$	0.322	$	21,236	$	24,318	$	45,554	$	43,083

_____________________


⁽¹⁾	Distributions for the period from January 1, 2015 through June 30, 2015 were based on daily record dates and were calculated at a rate of $0.00178082 per share per day.


⁽²⁾	Assumes share was issued and outstanding each day during the period presented.


⁽³⁾	Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid on or about the first business day of the following month.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

For the six months ended June 30, 2015 , we paid aggregate distributions of $45.6 million , including $21.2 million of distributions paid in cash and $24.3 million of distributions reinvested through our dividend reinvestment plan. Our net loss for the six months ended June 30, 2015 was $11.5 million. FFO for the six months ended June 30, 2015 was $50.4 million and cash flow from operating activities was $43.1 million . See the reconciliation of FFO to net (loss) income above. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $39.5 million of cash flow from operating activities, $5.1 million of cash flow from operating activities in excess of distributions paid during second, third and fourth quarters of 2014 and $1.0 million of debt financing. For purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments.

From inception through June 30, 2015 , we paid cumulative distributions of $141.5 million and our cumulative net loss during the same period was $55.6 million. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flow from operating activities and FFO (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under real estate-related investments). From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities. Further, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements” and “Market Outlook - Real Estate and Real Estate Finance Markets” herein, and the risks discussed in Part II, Item 1A, herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. Those factors include: the future operating performance of our current and future real estate investments in the existing real estate and financial environment; our advisor’s ability to identify additional real estate investments that are suitable to execute our investment objectives; the success and economic viability of our tenants; the ability of our borrowers and their sponsors to continue to make their debt service payments and/or to repay their loans upon maturity; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on any variable rate debt obligations we incur; and the level of participation in our dividend reinvestment plan. In the event our FFO and/or cash flow from operating activities decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operating activities.

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, 2014 filed with the SEC. There have been no significant changes to our policies during 2015.

Subsequent Events

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

Status of the Offering

We commenced our initial public offering of up to 280,000,000 shares, or up to $2,760,000,000 of shares, of common stock on October 26, 2010. We ceased offering shares of common stock in our now-terminated primary offering on May 29, 2015 and terminated our primary offering on July 28, 2015. We sold 169,009,930 shares of common stock in our primary offering for gross offering proceeds of $ 1.7 billion , and as of August 7, 2015 , we had sold 8,407,637 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $ 82.3 million . Also as of August 7, 2015 , we had redeemed 1,187,500 of the shares sold in our initial public offering for $ 11.5 million .

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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 Paid

On July 1, 2015, we paid distributions of $9.2 million , which related to distributions declared for daily record dates for each day in the period from June 1, 2015 through June 30, 2015. On August 3, 2015, we paid distributions of $9.7 million , which related to distributions declared for daily record dates for each day in the period from July 1, 2015 through July 31, 2015.

Distributions Declared

On July 7, 2015, our board of directors declared distributions based on daily record dates for the period from August 1, 2015 through August 31, 2015, which we expect to pay in September 2015. On August 11, 2015, our board of directors declared distributions based on daily record dates for the period September, 1 2015 through September 30, 2015, which we expect to pay in October 2015, and distributions based on daily record dates for the period from October 1, 2015 through October 31, 2015, which we expect to pay in November 2015. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on the initial primary public offering purchase price of $10.00 per share or a 6.18% annualized rate based on the most recent primary offering purchase price of $10.51 per share.

Real Estate Acquisition and Probable Acquisition Subsequent to June 30, 2015

Acquisition of Promenade I & II at Eilan

On July 14, 2015, we, through an indirect wholly owned subsidiary, acquired 100% of the common stock (the “Common Stock”) of two single asset corporations that are treated as real estate investment trusts for federal income tax purposes (collectively, the “Promenade I & II at Eilan REITs”) from a seller that is not affiliated with us or our advisor. Indirect wholly owned subsidiaries of the Promenade I & II at Eilan REITs are fee owners of two office buildings encompassing an aggregate of 200,072 rentable square feet located on approximately 6.3 acres of land in San Antonio, Texas (“Promenade I & II at Eilan”). The Promenade I & II at Eilan REITs each have 125 shares of Series A non-voting preferred stock outstanding that will be redeemable at a price per share of $1,000 plus accrued and unpaid dividends as of the redemption date. We intend to redeem all of the outstanding 125 shares of Series A non-voting preferred stock by December 2015.

The purchase price of the Common Stock was $61.6 million plus closing costs. We funded the purchase of the Common Stock with proceeds from our now-terminated primary initial public offering, but may later place mortgage debt on the property.

Probable Acquisition of CrossPoint at Valley Forge

On July 15, 2015, we, through an indirect wholly owned subsidiary, entered into a purchase agreement to acquire an office property containing 272,360 rentable square feet located on approximately 25.3 acres of land in Wayne, Pennsylvania (“CrossPoint at Valley Forge”). The seller is not affiliated with us or our advisor. The contractual purchase price of CrossPoint at Valley Forge is approximately $89.5 million plus closing costs. Pursuant to the purchase agreement, we would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that we will complete the acquisition. In some circumstances, if we fail to complete the acquisition, we may forfeit up to $3.0 million of earnest money.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Financing Subsequent to June 30, 2015

Related Financing of 201 17th Street

On July 28, 2015, we, through an indirect wholly owned subsidiary (the “201 17th Street Borrower”), entered into a mortgage loan with an unaffiliated lender for borrowings of up to $64.8 million, of which $48.6 million is term debt and $16.2 million is revolving debt, secured by 201 17th Street (the “201 17th Street Mortgage Loan”). At closing, $48.6 million of term debt was funded and the remaining $16.2 million of revolving debt was available for future disbursements to be used for tenant improvements, lease commissions and other purposes related to the property, subject to certain terms and conditions contained in the loan documents. The 201 17th Street Mortgage Loan matures on August 1, 2018, with three one-year extension options, subject to certain terms and conditions contained in the loan documents. The 201 17th Street Mortgage Loan bears interest at a floating rate of 140 basis points over one-month LIBOR. Monthly payments are interest-only during the initial term. The 201 17th Street Borrower has the right to repay the loan in part and in whole subject to certain fees, expenses and conditions, all as described in the loan documents.

KBS REIT Properties III, LLC (“REIT Properties III”) is providing a guaranty of 20% of the principal outstanding under the 201 17th Street Mortgage Loan on the date the loan becomes due and payable in full. REIT Properties III is also providing a guaranty with respect to any deficiency, loss or damage suffered by the lender under the 201 17th Street Mortgage Loan as a result of: certain intentional actions committed by the 201 17th Street Borrower in violation of the guaranty; certain intentional actions committed by the 201 17th Street Borrower and/or REIT Properties III in violation of the loan documents; or certain bankruptcy or insolvency proceedings involving the 201 17th Street Borrower.

Dividend Reinvestment Plan

On August 11, 2015, our board of directors approved a fourth amended and restated dividend reinvestment plan (the “Fourth Amended and Restated Dividend Reinvestment Plan”). For more information, see Part II, Item 5, “Other Information - Dividend Reinvestment Plan.”

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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 and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We are also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage and other loans. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate 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 or 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. 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 the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.

We expect to borrow funds and make investments 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 or fixed rate real estate loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of fixed rate instruments. As of June 30, 2015 , the fair value and carrying value of our fixed rate real estate loan receivable was $21.5 million and $21.7 million, respectively. The fair value estimate of our real estate loan receivable is calculated using an internal valuation model that considers the expected cash flows for the loan, underlying collateral value and the estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. As of June 30, 2015 , the fair value of our fixed rate debt was $103.5 million and the carrying value of our fixed rate debt was $102.7 million. The fair value estimate of our fixed rate debt is 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 loan was originated as of June 30, 2015 . 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 change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt and loans receivable would change future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of variable rate instruments. As of June 30, 2015 , we were exposed to market risks related to fluctuations in interest rates on $508.2 million of variable rate debt outstanding after giving consideration to the impact of interest rate swap agreements on approximately $625.1 million of our variable debt. This amount does not take into account the impact of $353.4 million of forward interest rate swap agreements that were not yet effective as of June 30, 2015. Based on interest rates as of June 30, 2015 , if interest rates were 100 basis points higher during the 12 months ending June 30, 2016, interest expense on our variable rate debt would increase by $5.1 million. As of June 30, 2015 , one-month LIBOR was 0.18650% and if this index was reduced to 0% during the 12 months ending June 30, 2016, interest expense on our variable rate debt would decrease by $0.9 million. As of June 30, 2015 , we did not own any variable rate loans receivable.

The annual effective interest rate of our fixed rate real estate loan receivable as of June 30, 2015 was 7.5%. The effective interest rate represents the effective interest rate as of June 30, 2015 , using the interest method, which we use to recognize interest income on our real estate loan receivable. The interest rate and weighted-average interest rate of our fixed rate debt and variable rate debt as of June 30, 2015 were 4.0% and 2.5%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of June 30, 2015 where applicable.

For a discussion of the interest rate risks related to the current capital and credit markets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Outlook - Real Estate and Real Estate Finance Markets” herein, the risks discussed in Part II, Item 1A herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

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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 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 the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In addition to the risks discussed below, please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC.

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

Our organizational documents permit us to pay distributions from any source, including offering proceeds or borrowings (which may constitute a return of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. We have paid distributions in part from financings (including with an advance from KBS Capital Advisors, LLC, our advisor, that we have repaid with debt financing) and expect that in the future we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. We may also fund such distributions with proceeds from the sale of assets or from the maturity, payoff or settlement of debt investments. If we fund distributions from borrowings, our interest expense and other financing costs, as well as the repayment of such borrowings, will reduce our earnings and cash flow from operating activities available for distribution in future periods. If we fund distributions from the sale of assets or the maturity, payoff or settlement of debt investments, this will affect our ability to generate cash flow from operating activities in future periods. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have fewer funds available with which to make real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operating activities, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. There is no limit on the amount of distributions we may fund from sources other than from cash flow from operating activities. From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities.

For the six months ended June 30, 2015, we paid aggregate distributions of $45.6 million, including $21.2 million of distributions paid in cash and $24.3 million of distributions reinvested through our dividend reinvestment plan. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $39.5 million (87%) of cash flow from operating activities, $5.1 million (11%) of cash flow from operating activities in excess of distributions paid during second, third and fourth quarters of 2014 and $1.0 million (2%) of debt financing. For the six months ended June 30, 2015, our cash flow from operating activities to distributions paid coverage ratio was 95% and our funds from operations to distributions paid coverage ratio was 111%.

See Part I, Item II, “Management’s Discussion and Analysis of Financing Condition and Results of Operations - Funds from Operations and Modified Funds from Operations” and “Distributions” herein.

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PART II. OTHER INFORMATION (CONTINUED)

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.

On October 26, 2010, our Registration Statement on Form S-11 (File No. 333-164703), covering a public offering of 200,000,000 shares, or up to $2,000,000,000 of shares, of common stock in our primary offering and 80,000,000 shares, or up to $760,000,000 of shares, of common stock under our dividend reinvestment plan, was declared effective under the Securities Act of 1933. We commenced our initial public offering on October 26, 2010 upon retaining KBS Capital Markets Group LLC as the dealer manager of our offering. We initially offered shares of common stock in our now-terminated primary offering at a price equal to $10.00 per share with discounts available to certain categories of purchasers. We initially offered shares under our dividend reinvestment plan at a price equal to $9.50 per share. On May 5, 2014, our board of directors established an updated offering price for shares of common stock to be sold in our now-terminated primary offering of $10.39 per share (with discounts available to certain categories of purchasers) and an offering price for shares of common stock to be sold under our dividend reinvestment plan of $9.88 per share (which was 95% of the price to acquire a share in our now-terminated primary offering). The May 2014 updated offering prices for our now-terminated primary offering and our dividend reinvestment plan offering became effective May 7, 2014. The May 2014 updated offering price of shares of common stock sold in our now-terminated primary offering was determined by adding certain projected offering costs to the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding, all as of March 31, 2014. We did not make any adjustments to our estimated net asset value subsequent to March 31, 2014, including adjustments relating to the following, among others: (i) the issuance of common stock and the payment of related offering costs; (ii) net operating income earned and distributions declared; and (iii) the redemption of shares. On December 9, 2014, our board of directors established an updated offering price for shares of common stock to be sold in our now-terminated primary offering of $10.51 per share (with discounts available to certain categories of purchasers) and an updated offering price for shares of common stock to be sold under our dividend reinvestment plan of $9.99 per share (which is 95% of the most recent price to acquire a share in our now-terminated primary offering). These December 2014 updated offering prices for our now-terminated primary offering and our dividend reinvestment plan offering became effective December 12, 2014. The December 2014 updated offering price of shares of common stock sold in our now-terminated primary offering was determined by adding certain projected offering costs to the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2014, with the exception of an adjustment for actual or estimated acquisition fees and closing costs related to six properties that either were acquired subsequent to September 30, 2014 or were under contract to purchase and were reasonably probable to close, but had not yet closed as of December 9, 2014, which were included as a reduction to the net asset value. As of December 30, 2014, we had closed on each of these six properties. We did not make any other adjustments to our estimated net asset value per share subsequent to September 30, 2014, including adjustments relating to the following, among others: (i) the issuance of common stock and the payment of related offering costs; (ii) net operating income earned and distributions declared; and (iii) the redemption of shares. The December 2014 updated primary offering price of our shares was not a statement of our estimated net asset value per share, as our board of directors also took into consideration the projected costs and expenses associated with raising capital in our now-terminated initial public offering. These costs include selling commissions, dealer manager fees and certain other offering costs. The estimated net asset value per share was determined for the sole purpose of updating the offering prices in our now-terminated primary offering and in our dividend reinvestment plan offering. For information related to the determination of our December 2014 updated offering prices, see Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information” of our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. Our board of directors may adjust the offering price of our dividend reinvestment plan shares during the course of the offering.

We ceased offering shares of common stock in our primary offering on May 29, 2015 and terminated our primary offering on July 28, 2015 upon the completion of review of subscriptions submitted in accordance with our processing procedures.

We may terminate our dividend reinvestment plan offering at any time.

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PART II. OTHER INFORMATION (CONTINUED)

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

As of June 30, 2015 , we had sold 167,771,210 shares of common stock in our now-terminated primary initial public offering for gross offering proceeds of $ 1.7 billion and 7,379,846 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $ 72.0 million . As of June 30, 2015 , we had incurred selling commissions, dealer manager fees and organization and other offering costs in the amounts set forth below. We paid selling commissions and dealer manager fees to KBS Capital Markets Group, and KBS Capital Markets Group reallowed all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse KBS Capital Advisors and KBS Capital Markets Group for certain offering expenses as described in our most recent prospectus, as amended and supplemented.



Type of Expense Amount	Amount (in thousands)			Estimated/Actual
Selling commissions and dealer manager fees	$	157,649		Actual
Finders’ fees	—			Actual
Other underwriting compensation	10,431			Actual
Other organization and offering costs (excluding underwriting compensation)	12,510			Actual
Total expenses	$	180,590

Percentage of offering proceeds used to pay or reimburse affiliates for organization and offering costs and expenses	10.1		%	Actual

From the commencement of our initial public offering through June 30, 2015 , the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $1.6 billion, including net offering proceeds from our dividend reinvestment plan of $ 72.0 million .

We expect to use substantially all of the net proceeds from our now-terminated primary offering to invest in and manage a diverse portfolio of real estate investments. We expect to use substantially all of the net proceeds from the sale of shares under our dividend reinvestment plan for general corporate purposes, including, but not limited to: the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to our real estate properties; reserves required by any financings of our real estate investments; funding obligations under any of our real estate loans receivable; the acquisition or origination of real estate investments, which would include payment of acquisition or origination fees to our advisor; and the repayment of debt.

As of June 30, 2015, we had used the net proceeds from our now-terminated primary offering and dividend reinvestment plan and debt financing to invest $2.7 billion in 24 real estate properties and one real estate-related investment, including $36.9 million of acquisition fees and origination fees, acquisition and origination expenses and closing costs. On February 19, 2014, we sold Las Cimas IV for $43.2 million , which proceeds have been used to make additional investments.


c)	We have a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. The restrictions of our share redemption program will severely limit our stockholders’ ability to sell their shares should they require liquidity and will limit our stockholders’ ability to recover the value they invested in our common stock.

There are several limitations on our ability to redeem shares under our share redemption program:


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

•

During any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. Notwithstanding anything contained our share redemption program to the contrary, we may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders. We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the Securities and Exchange Commission or (b) in 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)


•	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 General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

For a stockholder’s shares to be eligible for redemption in a given month, the administrator must receive a written redemption request from the stockholder or from an authorized representative of the stockholder setting forth the number of shares requested to be redeemed at least five business days before the redemption date. If we cannot redeem all shares presented for redemption in any month because of the limitations on redemptions set forth in our share redemption program, then we will honor redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than the minimum purchase requirement described in our currently effective, or the most recently effective, registration statement, as such registration statement has been amended or supplemented, then we would redeem all of such stockholder’s shares.

If we do not completely satisfy a redemption request on a redemption date because the program administrator did not receive the request in time, because of the limitations on redemptions set forth in our share redemption program or because of a suspension of our share redemption program, then we will treat the unsatisfied portion of the redemption request as a request for redemption at the next redemption date funds are available for redemption, unless the redemption request is withdrawn. Any stockholder can withdraw a redemption request by sending written notice to the program administrator, provided such notice is received at least five business days before the redemption date.

Unless our shares are being redeemed in connection with a special redemption and until such time as we establish an estimated value per share for a purpose other than to set the offering price to acquire a share in our now-terminated primary public offering, the prices at which we will initially redeem shares under the program are as follows:


•	For those shares held by the redeeming stockholder for at least one year, 92.5% of the price paid to acquire the shares from us;


•	For those shares held by the redeeming stockholder for at least two years, 95.0% of the price paid to acquire the shares from us;


•	For those shares held by the redeeming stockholder for at least three years, 97.5% of the price paid to acquire the shares from us; and


•	For those shares held by the redeeming stockholder for at least four years, 100% of the price paid to acquire the shares from us.

Notwithstanding the above, and unless our shares are being redeemed in connection with a special redemption, once we establish an estimated value per share of our common stock for a purpose other than to set the price to acquire a share in our now-terminated primary public offering, the prices at which we will redeem shares under the program will be as follows:


•	For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated value per share as of the applicable redemption date;


•	For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated value per share as of the applicable redemption date;


•	For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated value per share as of the applicable redemption date; and


•	For those shares held by the redeeming stockholder for at least four years, 100% of our most recent estimated value per share as of the applicable redemption date.

For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to our dividend reinvestment plan will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares relate. The date of the share’s original issuance by us is not determinative. In addition, as described above, the shares owned by a stockholder may be redeemed at different prices depending on how long the stockholder has held each share submitted for redemption.

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PART II. OTHER INFORMATION (CONTINUED)

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

We currently expect to utilize an independent valuation firm to update our estimated value per share in December 2015 and in December of each year thereafter. We will report the estimated value per share of our common stock in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC. We will also provide information about our estimated value per share on our website (such information may be provided by means of a link to our public filings on the SEC’s website, www.sec.gov ).

In several respects we would treat special redemptions differently from other redemptions:


•	there is no one-year holding requirement;


•	until we establish an estimated value per share for a purpose other than to set the price to acquire a share in our now-terminated primary public offering, the redemption price is the amount paid to acquire the shares from us; and


•	once we have established an estimated value per share for a purpose other than to set the price to acquire a share in our now-terminated primary public offering, the redemption price would be the estimated value of the shares as of the redemption date, as determined by our advisor or another firm chosen for that purpose.

Our board may amend, suspend or terminate our share redemption program upon 30 days’ notice to stockholders, provided that we may increase or decrease the funding available for the redemption of shares pursuant to our share redemption program upon 10 business days’ notice.

The complete program document is filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013 and is available at the SEC’s website at http://www.sec.gov .

During the six months ended June 30, 2015 , we fulfilled all redemption requests eligible for redemption under our share redemption program and received in good order. We funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan, and we redeemed shares pursuant to our share redemption program as follows:



Month	Total Number of Shares Redeemed ⁽¹⁾	Average Price Paid Per Share ⁽²⁾		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2015	39,402	$	9.66	⁽³⁾
February 2015	61,827	$	9.96	⁽³⁾
March 2015	82,638	$	9.59	⁽³⁾
April 2015	43,052	$	9.53	⁽³⁾
May 2015	70,658	$	9.66	⁽³⁾
June 2015	69,828	$	10.12	⁽³⁾
Total	367,405

_____________________

⁽¹⁾ We announced the adoption and commencement of the program on October 14, 2010. We announced amendments to the program on March 8, 2013 (which amendment became effective on April 7, 2013) and on March 7, 2014 (which amendment became effective on April 6, 2014).

⁽²⁾ The prices at which we redeem shares under the program are as set forth above.

⁽³⁾ We limit the dollar value of shares that may be redeemed under the program as described above. One of these limitations is that during each calendar year, our share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the issuance of shares under our dividend reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the redemption of shares upon ten business days’ notice to our stockholders. In 2014, our net proceeds from the dividend reinvestment plan were $29.3 million. During the six months ended June 30, 2015 , we redeemed $3.6 million of shares of common stock and $25.7 million was available for redemptions of shares eligible for redemption for the remainder of 2015.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 5. Other Information

Lease to Affiliate

On May 29, 2015, the indirect wholly owned subsidiary of ours that owns 3003 Washington Boulevard entered into a lease with an affiliate of our advisor for 5,046 rentable square feet, or approximately 2.3% of the total rentable square feet, at 3003 Washington Boulevard. The lease commences on March 1, 2016 and terminates on August 31, 2019. Upon commencement, the annualized base rent (net of rental abatements) for this tenant will be approximately $0.3 million, and the average annual rental rate (net of rental abatements) over the lease term will be $51.90 per square foot. No rental income related to this lease was recognized during the three and six months ended June 30, 2015.

Prior to their approval of the lease, our conflicts committee and board of directors determined the lease to be fair and reasonable to us.

Dividend Reinvestment Plan

On August 11, 2015, our board of directors and conflicts committee approved the Fourth Amended Dividend Reinvestment Plan. The plan was amended and restated to reflect that we do not intend to pursue a follow-on primary offering and to clarify the pricing under the plan. Pursuant to the Fourth Amended Dividend Reinvestment Plan, common stockholders may elect to have all or a portion of their dividends and other distributions, exclusive of dividends and other distributions that our board of directors designates as ineligible for reinvestment through the plan, reinvested in additional shares of our common stock in lieu of receiving cash distributions. The number of shares of common stock authorized for issuance under the Fourth Amended Dividend Reinvestment Plan is the lesser of 80,000,000 shares and $760,000,000 of shares of our common stock.

Qualifying stockholders may elect to become participants in our dividend reinvestment plan or to increase participation in our dividend reinvestment plan by completing and executing a Subscription Agreement, an enrollment form or any other approved authorization form as may be available from us, the dealer manager or participating broker-dealers.

Until we establish an estimated value per share of our common stock for a purpose other than to set the price to acquire a share of our common stock in our primary public offering, participants in our dividend reinvestment plan will acquire common stock at a price per share equal to 95% of the price to acquire a share of our common stock in our then-effective or most recently effective primary public offering (ignoring any discounts that may be available to certain categories of investors). Once we establish an estimated value per share of our common stock for a purpose other than to set the price to acquire a share in our primary public offering, participants in our dividend reinvestment plan will acquire our common stock at a price equal to 95% of the estimated value of our common stock, as estimated by our advisor or other firm chosen by our board of directors for that purpose.

There were no other material changes made in the Fourth Amended Dividend Reinvestment Plan. The Fourth Amended Dividend Reinvestment Plan will become effective August 23, 2015. The complete plan document is filed as an exhibit to this Quarterly Report on Form 10-Q and is available at the SEC’s website at http://www.sec.gov. We may amend or terminate our dividend reinvestment plan for any reason at any time upon ten days’ notice to participants. We may provide notice by including such information (i) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (ii) in a separate mailing to the participants.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits



Ex.		Description

3.1		Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed January 25, 2011

3.2		Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11, Commission File No. 333-164703, filed September 30, 2010

4.1		Form of Subscription Agreement, incorporated by reference to Appendix A to the Company's prospectus included as part of Post-Effective Amendment No. 24 to the Company’s Registration Statement on Form S-11, Commission File No. 333-164703, filed April 15, 2015

4.2		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. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-164703, filed August 20, 2010

4.3		Fourth Amended and Restated Dividend Reinvestment Plan

10.1		Deed of Office Lease, by and between KBSIII 3003 Washington, LLC and KBS Realty Advisors, Inc., dated as of May 29, 2015

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		Third Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.3 to the Company’s Annual Report on Form 10-K, filed March 7, 2014

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

SIGNATURES

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




		KBS REAL ESTATE INVESTMENT TRUST III, INC.

Date:	August 12, 2015	By:	/S/ C HARLES J. S CHREIBER , J R.
			Charles J. Schreiber, Jr.
			Chairman of the Board, Chief Executive Officer and Director
			(principal executive officer)

Date:	August 12, 2015	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

Exhibit 4.2

FOURTH AMENDED AND RESTATED

DIVIDEND REINVESTMENT PLAN

Adopted August 11, 2015

KBS Real Estate Investment Trust III, Inc., a Maryland corporation (the “Company”), has adopted a Fourth Amended and Restated Dividend Reinvestment Plan (the “DRP”), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company’s charter unless otherwise defined herein.

1. Number of Shares Issuable . The number of shares of Common Stock authorized for issuance under the DRP is the lesser of 80,000,000 shares and $760,000,000 of shares of Common Stock.

2. Participants . “Participants” are holders of the Company’s shares of Common Stock who elect to participate in the DRP.

3. Dividend Reinvestment . Exclusive of dividends and other distributions that the Company’s board of directors designates as ineligible for reinvestment through this DRP, the Company will apply that portion (as designated by a Participant) of the dividends and other distributions (“Distributions”) declared and paid in respect of a Participant’s shares of Common Stock to the purchase of additional shares of Common Stock for such Participant. The Company will not pay selling commissions on shares of Common Stock purchased in the DRP.

4. Procedures for Participation . Qualifying stockholders may elect to become Participants or to increase participation in the DRP by completing and executing the Subscription Agreement, an enrollment form or any other Company-approved authorization form as may be available from the Company, the dealer manager or participating broker-dealers. Participation in the DRP will begin with the next Distribution payable after receipt of a Participant’s subscription agreement, enrollment form or other Company approved authorization form. Shares will be purchased under the DRP on the date that the Company makes a Distribution. Distributions will be paid upon the terms as authorized and declared by the Company’s board of directors.

5. Purchase of Shares . Until the Company establishes an estimated value per share of Common Stock for a purpose other than to set the price to acquire a share of Common Stock in the Company’s primary public offering, Participants will acquire Common Stock at a price per share equal to 95% of the price to acquire a share of Common Stock in the Company’s then-effective or most recently effective primary public offering (ignoring any discounts that may be available to certain categories of investors). Once the Company establishes an estimated value per share of Common Stock for a purpose other than to set the price to acquire a share in the Company’s primary public offering, Participants will acquire Common Stock at a price equal to 95% of the estimated value of the Company’s Common Stock, as estimated by the Company’s advisor or other firm chosen by the board of directors for that purpose. Participants in the DRP may purchase fractional shares so that 100% of the Distributions will be used to acquire shares. However, a Participant will not be able to acquire shares under the DRP to the extent such purchase would cause it to exceed limits set forth in the Company’s charter, as amended.

6. Taxation of Distributions . The reinvestment of Distributions in the DRP does not relieve Participants of any taxes that may be payable as a result of those Distributions and their reinvestment pursuant to the terms of this DRP.

7. Share Certificates . The shares issuable under the DRP shall be uncertificated until the board of directors determines otherwise.

8. Voting of DRP Shares . In connection with any matter requiring the vote of the Company’s stockholders, each Participant will be entitled to vote all shares acquired by the Participant through the DRP.

9. Reports . Within 90 days after the end of the calendar year, the Company shall provide each Participant with (i) an individualized report on the Participant’s investment, including the purchase date(s), purchase price and number of shares owned, as well as the amount of Distributions received during the prior year; and (ii) all material information regarding the DRP and the effect of reinvesting dividends, including the tax consequences thereof. The Company shall provide such information reasonably requested by the dealer manager or a participating broker-dealer, in order for the dealer manager or participating broker-dealer to meet its obligations to deliver written notification to Participants of the information required by Rule 10b-10(b) promulgated under the Securities Exchange Act of 1934.

10. Termination by Participant . A Participant may terminate participation in the DRP at any time by delivering to the Company a written notice. To be effective for any Distribution, such notice must be received by the Company at least four business days prior to the last business day of the month to which the Distribution relates. Notwithstanding the preceding sentence, if the Company publicly announces in a filing with the Securities and Exchange Commission a new offering price of its Common Stock under the DRP, then a Participant shall have no less than two business days after the date of such announcement to notify the Company in writing of Participant’s termination of participation in the DRP and Participant’s termination will be effective for the next date shares are purchased under the DRP. Any transfer of shares by a Participant will terminate participation in the DRP with respect to the transferred shares. Upon termination of DRP participation, Distributions will be distributed to the stockholder in cash.

11. Amendment or Termination of DRP by the Company . The Company may amend or terminate the DRP for any reason upon ten days’ notice to the Participants. The Company may provide notice by including such information (a) in a Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the Securities and Exchange Commission or (b) in a separate mailing to Participants.

12. Liability of the Company . The Company shall not be liable for any act done in good faith, or for any good faith omission to act.

13. Governing Law . The DRP shall be governed by the laws of the State of Maryland.

Exhibit 10.1

DEED OF OFFICE LEASE

By and Between

KBSIII 3003 WASHINGTON, LLC

a Delaware limited liability company

("Landlord")

and

KBS REALTY ADVISORS, LLC.,

a Delaware corporation

("Tenant")

* * * * * *

3003 Washington Boulevard,

Arlington, Virginia 22201

DEED OF OFFICE LEASE

THIS DEED OF OFFICE LEASE (this "Lease") is made as of the __29__ day of May, 2015 (the "Effective Date"), by and between KBSIII 3003 WASHINGTON, LLC, a Delaware limited liability company ("Landlord") and KBS REALTY ADVISORS, INC., a Delaware corporation ("Tenant"), who agree as follows:

1. BASIC LEASE TERMS.

The following terms shall have the following meanings in this Lease:



a.	Premises:	5,046 rentable square feet of space located on the ninth (9th) floor of the Building, determined in accordance with the Building Owners and Managers Association International Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996, as outlined on the floor plan attached hereto as Exhibit A.

b.	Building:	The building and related improvements having a street address of 3003 Washington Boulevard, Arlington, Virginia 22201, containing approximately 215,106 rentable square feet of space.

c.	Commencement Date:	March 1, 2016

d.	Term	The period commencing on the Commencement Date and ending on August 31, 2019 (the "Lease Expiration Date"), unless earlier terminated in accordance with the terms of this Lease.

e.	Initial Annual Base Rent*:	$54.00 per rentable square foot
		$270,000.00 per annum
		$22,500.00 per month

[*subject to adjustments provided for in this Lease]

f.	Base Year:	Calendar Year 2016

g.	Tenant's Pro Rata Share	2.324%*
	(Operating Expenses)

	Tenant's Pro Rata Share	2.324%*
	(Real Estate Taxes)

[*subject to adjustments provided for in this Lease]

h.	Address for Notices:
	To Landlord:	KBSIII 3003 WASHINGTON, LLC c/o KBS Realty Advisors, Inc. 1909 K Street, N.W. Suite 340



	To Landlord:	Washington, D.C. 20006 Attention: Asset Manager

	To Tenant:	KBS Realty Advisors, Inc. 1909 K Street, N.W. Suite 340 Washington, D.C. 2006 Attention: Regional President

		KBS Realty Advisors, Inc. 800 Newport Center Drive Suite 700 Newport Beach, CA 92660

		Attention: Jim Chiboucas

i.	Landlord's Address for Payment
	of Rent:	KBS III 3003 Washington, LLC CL800102 PO Box 55008 Boston, MA 02205-5008

j.	Effective Date:	The first date on which this Lease has been executed and delivered by each party hereto, which date shall be the date of this Lease and set forth in the preamble hereof.

k.	Security Deposit:	$22,707.00

2. PREMISES.

a. Premises. In consideration of Tenant's agreement to pay Annual Base Rent (hereinafter defined) and Additional Rent (hereinafter defined) and subject to the covenants and conditions hereinafter set forth, Landlord hereby leases the Premises to Tenant and Tenant hereby hires and leases the Premises from Landlord, upon the terms and conditions set forth herein. The lease of the Premises to Tenant includes the non-exclusive right, together with other tenants of the Building and members of the public to use the common public areas of the Building and the land on which the Building is situated (the "Land"), but includes no other rights not expressly set forth herein.

b. Improvements.

(i) Except as otherwise expressly provided in the work agreement attached hereto as Exhibit B (the "Work Agreement"), Landlord shall deliver the Premises to Tenant, and Tenant shall accept the Premises, in its "AS-IS" condition as of the Commencement Date without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements or, to provide any allowance for same. Tenant acknowledges that Landlord has not made any representation or warranty with respect to the condition of the Premises or the Building or with respect to the suitability or fitness of either for the conduct of Tenant's business therein or for any other purpose.

(ii) Tenant shall, at Tenant's sole cost and expense, subject to the application of the Improvement Allowance (as defined in the Work Agreement), construct in the Premises the Tenant Improvements (as defined in the Work Agreement) in accordance with the terms and conditions of the Work Agreement.

3. TERM AND COMMENCEMENT OF TERM.

a. Term. This Lease shall be in full force and effect as of the Effective Date. The term of this Lease (the "Term") shall commence on the Commencement Date and shall expire on August 31, 2019 (the "Lease Expiration Date"), unless earlier terminated in accordance with the terms of this Lease. Notwithstanding anything to the contrary contained herein, if, for any reason, Landlord is unable to deliver possession of the Premises on the Commencement Date set forth in Section 1 of this Lease, Landlord shall not be liable for any damage caused thereby, nor shall this Lease be void or voidable, but, rather, the Term shall commence upon, and the Commencement Date shall be, the date that possession of the Premises is so tendered to Tenant.

b. Declaration. Reference is made to the form of Declaration of Commencement Date (the "Declaration") attached hereto as Exhibit C . At anytime following the Commencement Date, Landlord may, at Landlord's option, complete the Declaration and deliver same to Tenant for execution to confirm, among other things, the Commencement Date, the Lease Expiration Date and the Term. Tenant shall execute and return the Declaration to Landlord within five (5) days following Tenant's receipt of same. Failure to execute the Declaration shall not affect the commencement or expiration of the Term.

4. RENT. Tenant covenants and agrees to pay as Rent (hereinafter defined) for the Premises the following amounts set forth in this Section 4 and as otherwise provided in this Lease. "Additional Rent" shall mean all costs, expenses, charges and other payments to be made by (or on behalf of) Tenant to Landlord (or to a third party if required under this Lease), other than Annual Base Rent (hereinafter defined), whether or not the same be designated as such. "Rent" or "rent" shall mean all Annual Base Rent and Additional Rent due hereunder.

a. Annual Base Rent.

(i) Commencing on the Commencement Date, and thereafter during the Term, Tenant shall pay annual base rent in the amounts set forth immediately below (the "Annual Base Rent"), which amounts shall be payable in equal monthly installments (the "Monthly Base Rent") as set forth immediately below:



Lease Year	Annual Base Rent Per Square Foot	Annual Base Rent	Monthly Base Rent
1	$54.00	$272,484.00	$22,707.00
2	$55.35	$279,296.00	$23,275.00
3	$56.73	$286,260.00	$23,855.00
4	$58.15	$293,425.00	$24,452.00

[*on an annualized basis]

All installments of Monthly Base Rent shall be payable in advance, on the Commencement Date and the first day of each calendar month thereafter during the Term, provided, however, that the first installment of Monthly Base Rent shall be due and payable upon Tenant's execution of this Lease. If the Commencement Date shall be a day other than the first day of a calendar month, (1) the Annual Base Rent for the first Lease Year shall be an amount equal to the sum of (x) the amount of Monthly Base Rent for the partial month in which the Commencement Date occurs, plus (y) the amount of the Annual Base Rent set forth in Section 1, above, and (2) Monthly Base Rent for such partial month shall be the prorated amount of the Monthly Base Rent payable hereunder during the first Lease Year, which proration shall be based upon the actual number of days of such partial month. The prorated Monthly Base Rent for such partial month shall be payable on the first day of the calendar month after the month in which the Commencement Date occurs. As used in this Lease, the term "Lease Year" means (A) each twelve (12)-month period commencing on the Commencement Date, except that if the Commencement Date does not occur on the first day of a calendar month, the first Lease Year shall commence on the Commencement Date and terminate on the last day of the twelfth (12 ^th ) full calendar month following the

Commencement Date, and (B) each successive period of twelve (12) calendar months thereafter during the Term.

(ii). Notwithstanding the terms of Section 4.a(i) above to the contrary, provided no Event of Default shall have occurred, Landlord hereby agrees to abate one hundred percent (100%) of each installment of Monthly Base Rent and Tenant's Pass-Through Costs (hereinafter defined) payable by Tenant for the period (the "Abatement Period") comprising the first three (3) full calendar months of the Term; it being understood that, if the Commencement Date is a day other than the first day of a calendar month, then the Abatement Period shall commence on the first day of the calendar month immediately following the calendar month in which the Commencement Date occurs and the Monthly Base Rent for the partial calendar month in which the Commencement Date occurs shall not be abated. On the day immediately following the last day of the Abatement Period, and thereafter throughout the Term, Tenant shall pay Landlord full Monthly Base Rent and Tenant's Pass-Through Costs in the amounts set forth in this Lease.

b. Tenant's Pass-Through Costs.

(i) As used in this Lease:

(1) "Operating Expenses" shall mean any and all expenses, costs and disbursements of every kind and nature incurred by Landlord in connection with the ownership, management, operation, maintenance, servicing and repair of the Building and appurtenances thereto, the common areas thereof, and the Land, including, but not limited to employees' wages, salaries, welfare and pension benefits and other fringe benefits; payroll taxes; telephone service; painting of common areas of the Building; exterminating service; detection and security services; concierge services; sewer rents and charges; premiums for fire and casualty, liability, rent, workmen's compensation, sprinkler, water damage and other insurance; repairs and maintenance; building supplies; uniforms and dry cleaning; snow removal; the cost of obtaining and providing electricity, water and other public utilities to all areas of the Building; trash removal; janitorial and cleaning supplies; and janitorial and cleaning services; window cleaning; service contracts for the maintenance of elevators, boilers, HVAC and other mechanical, plumbing and electrical equipment; fees for all licenses and permits required for the ownership and operation of the Building; business license fees and taxes, including any taxes based on Landlord's rental income from the Building; the rental value of the management office maintained in the Building and the costs and expenses of furniture, fixtures, equipment and supplies used in connection therewith; all costs of operating, maintaining and replacing equipment in any health and fitness facility located in the Building; sales, use and personal property taxes payable in connection with tangible personal property and services purchased for the management, operation, maintenance, repair, cleaning, safety and administration of the Building; legal fees; accounting fees relating to the determination of Operating Expenses and the tenants' share thereof and the preparation of statements required by tenant's leases; management fees, whether or not paid to any person having an interest in or under common ownership with Landlord; purchase and installation of indoor plants in the common areas; and landscaping maintenance and the purchase and replacement of landscaping services, plants and shrubbery; insurance policies or endorsements purchased to enable Landlord to repair, replace and re-commission the Building in a manner sufficient to obtain re-certification pursuant to any Green Agency Rating (hereinafter defined) (or, in the event the Building has not achieved any certification under any Green Agency Rating, such insurance that is purchased in order to facilitate rebuilding the Building upon a casualty so as to achieve such certification) or to support achieving energy and carbon reduction targets; all costs of maintaining, managing, reporting, commissioning and re-commissioning the Building (or any part thereof) to conform with the requirements of any Green Agency Rating, and all costs of applying, reporting and commissioning the Building (or any part thereof) to seek certification under any Green Agency Rating. If Landlord makes an expenditure for a capital improvement to the Building (or any portion thereof) by installing energy conservation or labor-saving devices to reduce Operating Expenses, or to comply with any Legal Requirement or Green Agency Rating pertaining to the Building, and if, under generally accepted accounting principles, such expenditure is not a current expense, then the cost thereof shall be amortized over a period equal to the useful life of such improvement, determined in accordance with generally accepted accounting principles, and the amortized costs allocated to each calendar year during the Term, together with an imputed interest amount calculated on the unamortized

portion thereof using an interest rate of twelve percent (12%) per annum, shall be treated as an Operating Expense. In the event that any costs with respect to the operation and management of more than one building are allocated by Landlord among the Building and any other building, the costs so allocated to the Building shall be included in the calculation of Operating Expenses.

Notwithstanding the foregoing to the contrary, the following costs and expenses shall not be included in Operating Expenses:

(1) Cost of repairs or other work occasioned by fire, windstorm or other casualty (exclusive of the amount of any commercially reasonable deductible or self-insured retention under insurance maintained by Landlord);

(2) Leasing commissions payable by Landlord;

(3) Costs incurred due to repairing, renovating, decorating, redecorating or otherwise improving space leased to any other tenant or tenants in the Building (provided, however, such costs shall be included in Operating Expenses to the extent incurred in connection with Landlord's general maintenance and repair obligations set forth in this Lease;

(4) Non-cash items, such as deductions for depreciation or amortization, bad debt losses, rent losses and reserves of any kind;

(5) Cost of capital improvements or other capital expenditures (that is, costs that would be capitalized, rather than expensed in one year, in accordance with generally accepted accounting principles) other than Permitted Capital Expenditures;

(6) Expenses in connection with services or other benefits of a type which are not available to Tenant without specific additional charge therefor;

(7) Any other cost or expense for which Landlord is reimbursed from any source, including, without limitation, insurance, or any other expense reimbursed by any other tenants (other than reimbursements made by tenants of the Building in payment of a tenant’s pro rata share of pass-throughs of Operating Expenses);

(8) Fines, interest or penalties, incurred due to the late payments of Real Estate Taxes, utility bills and other costs incurred as a result of Landlord's failure to make such payments when due;

(9) All amounts which would otherwise be included in Operating Expenses which are paid to any affiliate or subsidiary of Landlord, or any representative, employee or agent of same, to the extent the costs of such services exceed the competitive rates for similar services of comparable quality rendered by persons or entities of similar skill, competence and experience;

(10) Payments of principal, interest or any other financing or refinancing costs on any mortgages, deeds of trust encumbering Landlord's interest in the Building or other indebtedness incurred by Landlord, rentals or other amounts payable under any ground leases or underlying leases, vault space rentals (other than to the extent such vault space is used for purposes of base Building equipment or systems), or any penalties or late charges relating to any of the foregoing;

(11) Costs incurred in connection with the sale or change of ownership of the Building or any condemnation of any part of the Building;

(12) Amounts paid as charitable or political contributions;

(13) Salaries, wages, or other compensation or benefits paid to employees of Landlord who are not assigned full-time to the operation, management, maintenance, or repair of the Building; provided however, (i) Operating Expenses shall include Landlord's reasonable allocation of wages, salary, or other compensation or benefits paid to any employee to the extent such employee is assigned or devotes services on a part-time basis to the operation, management, maintenance, or repair of the Building, and (ii) any salaries, wages or other compensation paid to officers or executives of Landlord or any employees of Landlord above the level of property manager or engineer shall not be included in Operating Expenses;

(14) costs of marketing, advertising and public relations and promotional costs associated with the promotion or leasing of the Building; and

(15) costs or expenses of acquiring sculpture, paintings or other works of art, other than normal building decorations customary in buildings comparable to the Building.

(2) "Real Estate Taxes" shall mean all taxes, assessments and charges now or hereafter levied or assessed against Landlord, the Building or the Land (or any portion thereof and any improvements adjacent or appurtenant thereto) by the United States of America or the District of Columbia, or any political subdivision, public corporation, district or other political or public entity, including, without limitation: vault rents; franchise taxes; the Transportation Tax (Va. Code § 58.1-3221.3B); any tax, fee or excise on rents, on the square footage of the Premises, on the act of entering into this Lease, on the occupancy of Tenant, on account of the rent hereunder or the business of renting space; all assessments for schools, public betterments and general or local improvements (including without limitation, any payments to a business improvement district or similar entity). Real Estate Taxes shall also include (i) any other tax to the extent that such tax is imposed in lieu of or in addition to any of the foregoing described Real Estate Taxes; and (ii) reasonable legal fees, costs and disbursements incurred by Landlord in connection with any proceedings for appeal or reduction of any Real Estate Taxes.

(3) "Tenant's Pro Rata Share (Operating Expenses)," as of the Effective Date, shall be as provided in Section 1 of this Lease, representing the ratio that the rentable area of the Premises bears to the total rentable area of the Building. If either the rentable area of the Premises or the total rentable area of the Building shall be increased or decreased, as reasonably determined by Landlord, Tenant's Pro Rata Share ( Operating Expenses) shall be adjusted accordingly.

(4) "Tenant's Pro Rata Share (Real Estate Taxes)," as of the Effective Date, shall be as provided in Section 1 of this Lease, representing the ratio that the rentable area of the Premises bears to the total rentable area of the Building. If either the rentable area of the Premises or the total rentable area of the Building shall be increased or decreased, as reasonably determined by Landlord, Tenant's Pro Rata Share (Real Estate Taxes) shall be adjusted accordingly.

(5) “Base Year” means Calendar Year 2016.

(ii) If at any time during the Base Year, or during any subsequent calendar year ("Subsequent Year"), less than one hundred percent (100%) of the total rentable square feet of office space in the Building is occupied by tenants, the amount of Operating Expenses for the Base Year, or for any such Subsequent Year, as the case may be, shall be deemed to be the amount of Operating Expenses as reasonably estimated by Landlord that would have been incurred if the percentage of occupancy of the Building during the Base Year or any such Subsequent Year was one hundred percent (100%). If at any time during any calendar year, any part of the Building is leased to a tenant (hereinafter referred to as a "Special Tenant") who, in accordance with the terms of its lease, provides its own utilities, cleaning or janitorial services or other services or is not otherwise required to pay a share of Operating Expenses in accordance with the methodology set forth in this Section 4.b., and Landlord does not incur the cost of such services, Operating Expenses for such calendar year shall be increased by the additional costs for cleaning and janitorial services and such other applicable expenses as reasonably estimated by Landlord that would have been incurred by Landlord if Landlord had furnished and paid for cleaning and janitorial services and such other services for the space occupied by the Special Tenant, or if Landlord had included such costs in "operating expenses" as defined in the Special Tenant's lease.

(iii) If, in any calendar year during the Term, commencing with calendar year 2016, the total amount of Operating Expenses exceeds the amount of Operating Expenses in the Base Year, then Tenant shall pay to Landlord, as Additional Rent, commencing on the first anniversary of the Commencement Date, an amount which is the product of (1) the amount of such increase in Operating Expenses, multiplied by (2) Tenant's Pro Rata Share (Operating Expenses). Tenant's Pro Rata Share (Operating Expenses) of increases in Operating Expenses for any partial calendar year during the Term shall be determined by multiplying the amount of Tenant's Pro Rata Share (Operating Expenses) of increases in Operating Expenses for the full calendar year by a fraction, the numerator of which is the

number of days during such calendar year falling within the Term and the denominator of which is three hundred sixty-five (365). If in any calendar year during the Term, commencing with calendar year 2016, the amount of Real Estate Taxes exceeds the amount of Real Estate Taxes for the Base Year, then Tenant shall pay, as Additional Rent, commencing on the first anniversary of the Commencement Date, an amount which is the product of (x) the amount of such increase in Real Estate Taxes, multiplied by (y) Tenant's Pro Rata Share (Real Estate Taxes). Tenant's Pro Rata Share (Real Estate Taxes) of increases in Real Estate Taxes for any partial calendar year during the Term shall be determined by multiplying the amount of Tenant's Pro Rata Share (Real Estate Taxes) of increases in Real Estate Taxes for the full calendar year by a fraction, the numerator of which is the number of days during such calendar year falling within the Term and the denominator of which is three hundred sixty-five (365).

(iv) Prior to or during each calendar year commencing with calendar year 2016, Landlord shall furnish to Tenant a statement of Landlord's estimate of Tenant's Pass-Through Costs for such calendar year. "Tenant's Pass-Through Costs" shall be an amount equal to the sum of (1) Tenant's Pro Rata Share (Operating Expenses) multiplied by the difference between Operating Expenses incurred during any calendar year during the Term, and Operating Expenses incurred in the Base Year; plus (2) Tenant's Pro Rata Share (Real Estate Taxes) multiplied by the difference between Real Estate Taxes for any calendar year during the Term and Real Estate Taxes incurred during the Base Year. Such statement shall show the amount of Tenant's Pass-Through Costs, if any, payable by Tenant for such calendar year pursuant to this Section 4.b. on the basis of Landlord's estimate. Commencing on the first anniversary of the Commencement Date and continuing on each monthly rent payment date thereafter until further adjustment pursuant to this Section 4.b.(iv), Tenant shall pay to Landlord one-twelfth (1/12) of the amount of said estimated Tenant's Pass-Through Costs. Within one hundred and twenty (120) days after the expiration of each calendar year during the Term, or as soon thereafter as is reasonably practicable, Landlord shall furnish to Tenant a statement (the "Expense Statement") showing the actual Operating Expenses and Real Estate Taxes for such calendar year. Subject to the terms of Section 4.b.(v), below, the Expense Statement shall be conclusive and binding on Tenant. In case of an underpayment, Tenant shall, within thirty (30) days after the receipt of such statement, pay to Landlord an amount equal to such underpayment. In case of an overpayment, Landlord shall credit the next monthly rental payment(s) by Tenant with an amount equal to such overpayment. Additionally, if this Lease shall have expired, Landlord shall apply such excess against any sums due from Tenant to Landlord and shall refund any remainder to Tenant within sixty (60) days after the expiration of the Term, or as soon thereafter as possible.

(v) All monies received from Tenant as Tenant's Pass-Through Costs shall be received by Landlord to pay Operating Expenses and Real Estate Taxes of the Building and the Land. Notwithstanding the foregoing, Landlord shall have the right to commingle Tenant's Pass-Through Costs with other funds collected by Landlord. Tenant's obligation to pay Tenant's Pass-Through Costs pursuant to the provisions of this Section 4.c. shall survive the expiration or other termination of this Lease with respect to any period during the Term hereof and with respect to any holdover period of occupancy following the expiration of the Term. Notwithstanding anything contained in this Section 4.b. to the contrary, Landlord reserves the right, at any time in the future, to aggregate some or all of the Operating Expenses and/or Real Estate Taxes with the expenses and/or taxes, respectively, incurred in connection with the operation of all the Buildings in the Project, in which event Tenant’s Pro Rata Share (Operating Expenses) and/or Tenant's Pro Rata Share (Real Estate Taxes), as the case may be, will be adjusted appropriately, and equitably to reflect such aggregation.

c. Payment of Rent. All Rent shall be paid in lawful money of the United States of America without deduction, diminution, set-off, counterclaim or prior notice or demand, at Landlord's Address for Payment of Rent provided in Section 1 of this Lease or at such other place as Landlord may hereafter designate in writing. All such payments shall be made by good checks payable to Landlord or such other person, firm or corporation as Landlord may hereafter designate in writing. No payment by Tenant or receipt and acceptance by Landlord of a lesser amount than the Monthly Base Rent or Additional Rent shall be deemed to be other than partial payment of the full amount then due and payable; nor shall any endorsement or statement on any check or any letter accompanying any check, payment of Rent or other payment, be deemed an accord and satisfaction; and Landlord may accept, but is not obligated to accept, such partial payment without prejudice to Landlord's right to recover the balance due and payable or to

pursue any other remedy provided in this Lease or by law. If Landlord shall at any time or times accept Rent after it becomes due and payable, such acceptance shall not excuse a subsequent delay or constitute a waiver of Landlord's rights hereunder. Any Rent owed by Tenant to Landlord, including, without limitation, Annual Base Rent, Additional Rent, Tenant's Pass-Through Costs and Late Charges (hereinafter defined), which is not paid within five (5) days after the date such payment is due shall bear interest from the due date at a rate (the "Default Rate") equal to the lesser of (i) the prime rate on corporate loans quoted in the Wall Street Journal plus four percent (4%), or (ii) the highest interest rate permitted by law. In addition, if any amount of Rent required to be paid by Tenant to Landlord under the terms of this Lease is not paid within five (5) days after the date such payment is due, then in addition to paying the amount of Rent then due, Tenant shall pay to Landlord a late charge (the "Late Charge") equal to five percent (5%) of the amount of Rent then required to be paid. Payment of such Late Charge will not excuse the untimely payment of Rent. In the event Tenant makes any payment of Rent by check and said check is returned by the bank unpaid, Tenant shall pay to Landlord any and all charges assessed by the bank or payable by Landlord in connection therewith, plus the sum of One Hundred Dollars ($100.00), in addition to the Rent payment and any other charges provided for herein (including the Late Charge and interest at the Default Rate). Any interest, Late Charge and other amounts charged hereunder shall constitute Additional Rent.

d. Separate Metering and Rent Reduction. Landlord may elect to discontinue the distribution or furnishing of electricity and/or water to the Premises if such services may feasibly be furnished directly to Tenant by the utility company supplying same. In the event of any such election by Landlord: (i) Landlord agrees to give reasonable advance notice of such discontinuance to Tenant; (ii) Landlord agrees to permit Tenant to receive electricity and/or water directly from the utilities supplying such service to the Building and to permit the existing feeders, risers, wiring, pipes and other facilities serving the Premises to be used by Tenant for such purpose to the extent they are suitable and safely capable of carrying Tenant's requirements; (iii) Landlord agrees to pay such charges and costs, if any, as such public utility may impose in connection with the installation of Tenant's meters; and (iv) the amount of Additional Rent payable in respect to the Operating Expenses shall be decreased appropriately to reflect such discontinuance. This Lease shall remain in full force and effect and such discontinuance shall not constitute an actual or constructive eviction, in whole or in part, or relieve Tenant from any of its obligations under this Lease.

5. SECURITY DEPOSIT.

a. Upon Tenant's execution and delivery of this Lease to Landlord, Tenant shall deliver to Landlord a security deposit in the amount set forth in Section 1 hereof (the "Security Deposit") to be held by Landlord during the Term as collateral security (and not prepaid rent), for the payment of Annual Base Rent and Additional Rent and for the faithful performance by Tenant of all other covenants, conditions and agreements of this Lease. Landlord shall not be obligated to hold the Security Deposit in a separate account. Landlord shall not be required to pay any interest on the Security Deposit. If any sum payable by Tenant to Landlord shall be overdue and unpaid, or if Landlord makes any payment(s) on behalf of Tenant, or if Tenant fails to perform any of the terms of this Lease, then Landlord, at its option and without prejudice to any other remedy which Landlord may have, may apply all or part of the Security Deposit to compensate Landlord for the payment of Annual Base Rent or Additional Rent, or any loss or damage sustained by Landlord to the extent permitted by this Lease. Tenant shall restore the Security Deposit to the original sum deposited immediately upon Landlord's demand. Provided that Tenant shall have made all payments and performed all covenants and agreements of this Lease, Landlord shall return the Security Deposit to Tenant (except to the extent of any portion of the Security Deposit which has been applied by Landlord and not restored by Tenant) within one hundred twenty (120) days after the expiration of this Lease or the vacation of the Premises by Tenant, whichever is later or as soon thereafter as possible.

b. In the event of the sale or transfer of Landlord's interest in the Building, Landlord shall have the right to transfer the Security Deposit to the purchaser or assignee of Landlord's interest in the Building, and upon notification of Tenant of such transfer Tenant shall look only to the new landlord for the return of the Security Deposit, and Landlord shall thereupon be released from all liability to Tenant for the return of the Security Deposit. Tenant hereby agrees not to look to the mortgagee, as mortgagee,

mortgagee in possession, or successor in title to the property, for accountability for the Security Deposit, unless said sums have actually been received by said mortgagee as security for Tenant's performance of this Lease. In the event of any permitted assignment of Tenant's interest in this Lease, the Security Deposit may, at Landlord's sole option, be held by Landlord as a deposit made by the assignee, and Landlord shall have no further liability to Tenant with respect to the return of the Security Deposit.

6. USE.

a. Tenant covenants with Landlord not to use the Premises for any purpose other than general office use for the conduct of Tenant's business. Tenant shall not use the Premises or allow the Premises to be used for any other purpose without the prior written consent of Landlord. Tenant, at Tenant's expense, shall comply with all laws, codes, rules, orders, ordinances, directions, regulations, and requirements of federal, state, county, and municipal authorities, now in force or which may hereafter be in force, which shall impose any duty upon Landlord or Tenant with respect to the condition, maintenance, use, occupation, operation or alteration of the Premises, or the conduct of Tenant's business therein, including, without limitation, the Americans with Disabilities Act of 1990, as amended (the "ADA"), and all regulations promulgated thereunder, all Environmental Laws (hereinafter defined), and all applicable zoning and recycling laws and regulations (all of the foregoing collectively referred to herein as the "Legal Requirements"). Tenant hereby agrees to indemnify and hold harmless Landlord and its agents, officers, directors and employees from and against any cost, damage, claim, liability and expense (including attorneys' fees) arising out of claims or suits brought by third parties against Landlord, its agents, officers, directors and employees alleging or relating to the failure of the Premises to comply with Legal Requirements, including without limitation, the ADA. Tenant shall not use or permit the Premises or any part thereof to be used in any manner that constitutes waste, nuisance or unreasonable disturbances to other tenants of the Building or for any disorderly, unlawful or hazardous purpose. Tenant covenants not to change Tenant's use of the Premises without the prior written approval of Landlord.

Tenant shall not put the Premises to any use, the effect of which use is reasonably likely to cause cancellation of any insurance covering the Premises or the Building, or an increase in the premium rates for such insurance. In the event that Tenant performs or commits any act, the effect of which is to raise the premium rates for such insurance, Tenant shall pay Landlord the amount of the additional premium, as Additional Rent payable by Tenant upon demand therefor by Landlord. The Premises shall not be used for any illegal purpose or in violation of any Legal Requirements or the regulations or directives of Landlord's insurance carriers, or in any manner which interferes with the quiet enjoyment of any other tenant of the Building. Tenant will not install or operate in the Premises any electrical or other equipment, other than such equipment as is commonly used in modern offices (specifically excluding mainframe computers), without first obtaining the prior written consent of Landlord, who may condition such consent upon the payment by Tenant of Additional Rent in compensation for excess consumption of water, electricity and/or other utilities, excess wiring and other similar requirements, and any changes, replacements or additions to any base building system, as may be occasioned by the operation of said equipment or machinery.

b. Tenant agrees to maintain the Premises, and any Alterations (hereinafter defined) therein, in good order, repair and condition during the Term at Tenant's sole cost and expense, and Tenant will, at the expiration or other termination of the Term, surrender and deliver the same and all keys, locks and other fixtures connected therewith (excepting only Tenant's personal property) in good order, repair and condition, as the same shall be at the Commencement Date, except as repaired, rebuilt, restored, altered or added to pursuant to this Lease, and except for ordinary wear and tear. Landlord shall have no obligation to Tenant to make any repairs in or to the Premises. Any and all damage or injury to the Premises, the Building or the Land caused by Tenant, or by any employee, agent, contractor, assignee, subtenant, invitee or customer of Tenant shall be promptly reported to Landlord and repaired by Tenant at Tenant's sole cost; provided, however, that Landlord shall have the option of repairing any such damage, in which case Tenant shall reimburse Landlord for all costs incurred by Landlord in respect thereof as Additional Rent within fifteen (15) days after Tenant receives Landlord's notice of such costs.

c. Tenant shall not place a load upon the floor of the Premises exceeding the designated floor load capacity of the Building without Landlord's prior written consent. Business machines, mechanical equipment and materials belonging to Tenant which cause vibration, noise, cold, heat or fumes that may be transmitted to the Building or to any other leased space therein to such a degree as to be objectionable to Landlord or to any other tenant in the Building shall be placed, maintained, isolated, stored and/or vented by Tenant at its sole expense so as to absorb and prevent such vibration, noise, cold, heat or fumes.

7. ASSIGNMENT AND SUBLETTING.

a. Tenant shall not, without the prior written consent of Landlord (which consent may be granted or withheld by Landlord in its sole discretion except as expressly set forth below) in each instance: (i) assign or otherwise transfer this Lease or any of Tenant's rights hereunder, (ii) sublet the Premises or any part thereof, or permit the use of the Premises or any part thereof by any persons other than Tenant or its employees, agent and invitees, or (iii) permit the assignment or other transfer of this Lease or any of Tenant's rights hereunder by operation of law. Landlord's consent to a proposed assignment or sublease shall not be unreasonably withheld, conditioned or delayed, provided Landlord determines that the proposed assignee or subtenant (A) is of a type and quality consistent with the first-class nature of the Building which will use the Premises only for general office purposes, (B) has the financial capacity and creditworthiness to undertake and perform the obligations of this Lease or the sublease, (C) is not a governmental or quasi-governmental party or any party by whom any suit or action could be defended on the ground of sovereign immunity or diplomatic immunity and (D) will not impose any additional material burden upon Landlord in the operation of the Building (to an extent greater than the burden to which Landlord would have been had Tenant continued to use such part of the Premises). In addition, the following conditions must be satisfied at the time Tenant requests Landlord's consent to an assignment or sublease:

(1) no Event of Default (hereinafter defined) exists and no event has occurred which, with notice and/or the passage of time, would constitute an Event of Default if not cured within the time, including any applicable grace period, specified herein;

(2) Landlord receives at least thirty (30) days prior written notice of Tenant's intention to assign this Lease or sublet any portion of the Premises;

(3) the proposed use or occupant of the Premises will not violate any agreement affecting the Premises or the Building;

(4) Tenant submits to Landlord at least thirty (30) days prior to the proposed date of subletting or assignment whatever information Landlord reasonably requests in order to permit Landlord to make a judgment on the proposed subletting or assignment, including, without limitation, the name, business experience, financial history, net worth and business references of the proposed assignee or subtenant (and each of its principals), an in-depth description of the transaction, and the consideration delivered to Tenant for the assignment or sublease;

(5) the proposed assignee or subtenant is not a tenant of the Building or a prospective tenant who, within the six (6) months prior to Tenant's request, has talked to Landlord or its brokers or agents about the possibility of leasing space in the Building;

(6) Tenant has not requested approval of a sublease within the prior twelve (12) months and Tenant has not previously sublet any portion of the Premises; and

(7) Tenant has paid to Landlord an administrative fee in the amount of One Thousand Dollars ($1,000.00) which shall be retained by Landlord whether or not such consent is granted.

b. All proposed subleases and assignments shall be on Landlord's approved form of sublease or assignment, whichever is applicable; and shall contain, inter alia , the following provisions: (i)

any such assignment or sublease shall include an assumption by the assignee or subtenant, from and after the effective date of such assignment or sublease, of the performance and observance of the covenants and conditions to be performed and observed on the part of Tenant as contained in this Lease, and (ii) any such sublease or assignment shall specify that this Lease or sublease shall not be further assigned nor the Premises further sublet and shall specify that the term of such sublease shall not extend beyond one (1) day prior to the expiration of this Lease. The consent by Landlord to any assignment, transfer or subletting to any person or entity shall not be construed as a waiver or release of Tenant from any provision of this Lease, unless expressly agreed to in writing by Landlord (it being understood that Tenant shall remain primarily liable as a principal and not as a guarantor or surety), nor shall the collection or acceptance of rent from any such assignee, transferee, subtenant or occupant constitute a waiver or release of Tenant from any such provision. No consent by Landlord to any such assignment, transfer or subletting in any one instance shall constitute a waiver of the necessity for such consent in a subsequent instance. Upon Landlord’s request and as a condition to Landlord’s consent to any assignment or sublease, Tenant and each assignee or subtenant, as applicable, shall execute Landlord’s then-current consent form, which, among other things, shall reaffirm the foregoing provisions of this Section 7.b. In addition to the administrative fee set forth above, Tenant shall reimburse Landlord upon demand, as additional rent, an amount equal to any and all third-party legal and/or accounting fees and expenses or other costs and expenses incurred by Landlord in connection with any assignment of this Lease or subletting of all or any portion of the Premises, whether or not Landlord consents to such assignment or subletting.

c. In the event that Tenant assigns this Lease or sublets all or any portion of the Premises, Tenant shall pay to Landlord as Additional Rent, fifty percent (50%) of the difference between (i) all sums paid to Tenant or its agent by or on behalf of such assignee or subtenant under the assignment or sublease after deducting Tenant’s reasonable, actual expenses of obtaining such assignment or subleasing, including, but not limited to, brokerage commissions, tenant improvement or other allowances or concessions granted and actually paid out by Tenant, advertising and marketing costs incurred, and legal fees (with all such expenses amortized on a straight-line basis over the term of the proposed sublease or over the term of the assignment), and (ii) the Annual Base Rent and Additional Rent paid by Tenant under this Lease and attributable to the portion of the Premises assigned or sublet.

d. For purposes of this Section, a transfer, conveyance, grant or pledge, directly or indirectly, in one or more transactions, of an interest in Tenant (whether stock, partnership interest or other form of ownership or control, or the issuance of new interests) by which an aggregate of more than forty-nine percent (49%) of the beneficial interest in Tenant shall be vested in a party or parties who are not holders of such interest(s) as of the Effective Date) shall be deemed an assignment of this Lease; provided, however, that this limitation shall not apply to any corporation, all of the outstanding voting stock of which is listed on a national securities exchange as defined in the Securities Exchange Act of 1934. Furthermore, the merger or consolidation of Tenant into or with any other entity, the sale of all or substantially all of Tenant's assets, or the dissolution of Tenant shall each be deemed to be an assignment within the meaning of this Section.

e. Any assignment or subletting not in conformance with the terms of this Lease shall be void ab initio and shall, subject to the provisions of Section 16, constitute a default under the Lease.

f. Upon receipt of the notice referred to in Section 7.a.(2), above, Landlord may, at its option, in lieu of approving or rejecting the proposed assignment or subletting, exercise all or any of the following rights by written notice to Tenant of Landlord's intent to do so within fifteen (15) business days of Landlord's receipt of Tenant's notice:

(i) with respect to a proposed assignment of this Lease, the right to terminate this Lease on the effective date of proposed assignment as though it were the Lease Expiration Date;

(ii) with respect to a proposed sublease of the entire Premises, the right to terminate this Lease on the effective date of the sublease as though it were the Lease Expiration Date;

(iii) with respect to a proposed sublease of less than the entire Premises, but more than or equal to fifty percent (50%) of the Premises, as expanded from time to time, the right to terminate this Lease as to the portion of the Premises affected by such sublease on the effective date of the sublease, as though it were the Lease Expiration Date, in which case Tenant shall execute and deliver to Landlord an appropriate modification of this Lease, in form satisfactory to Landlord in all respects within ten (10) days of Landlord's notice of partial termination, which modification of this Lease shall provide that the number of rentable square feet of the Premises shall be decreased by, and the Monthly Base Rent and Additional Rent payable by Tenant hereunder shall be adjusted in proportion to, the number of rentable square feet of the Premises affected by such termination, as determined by Landlord; or

(iv) with respect to a proposed sublease for more than seventy-five percent (75%) of the remaining portion of the Term, the right to sublet the portion of the Premises from Tenant upon the same terms and conditions (including Annual Base Rent and Additional Rent) set forth in this Lease for the term of the proposed sublease.

g. If Landlord exercises any of its options under Section 7.f., above, Landlord may then lease (or sublease) the Premises or any portion thereof to Tenant's proposed assignee or subtenant, as the case may be, without any liability whatsoever to Tenant.

h. Upon any assignment of this Lease or sublease of any portion of the Premises, any and all option rights, rights of first refusal, rights of first negotiation, and expansion rights shall terminate, it being understood that any and all such rights are personal to Tenant named herein (and not to any assignee or subtenant) and are not appurtenant to the Premises or this Lease. Further, Tenant shall not have the right to exercise any such rights unless Tenant (and not any assignee or subtenant of Tenant) shall be in occupancy of all of the Premises at the time of the exercise of any such right.

i. Notwithstanding any consent by Landlord to an assignment or subletting, Tenant shall remain primarily liable for the performance of all covenants and obligations contained in this Lease. Each assignee approved by Landlord shall also automatically become liable for all of the obligations of Tenant under this Lease. Each subtenant approved by Landlord shall automatically become liable for the obligations of Tenant under this Lease relating to the sublet space (other than the payment of Rent). Landlord shall be permitted to enforce the provisions of this Lease directly against Tenant and/or against any assignee or sublessee without proceeding in any way against any other person. Collection or acceptance of Annual Base Rent or Additional Rent from any such assignee, subtenant or occupant shall not constitute a waiver or release of Tenant from the terms of any covenant or obligation contained in this Lease, nor shall such collection or acceptance in any way be construed to relieve Tenant from obtaining the prior written consent of Landlord to such assignment or subletting or any subsequent assignment or subletting.

8. IMPROVEMENTS AND FIXTURES.

a. Tenant shall neither make nor allow any alterations, decorations, replacements, changes, additions or improvements (collectively referred to as "Alterations") to the Premises or any part thereof that will or may affect the mechanical, electrical, plumbing, HVAC or other systems or the exterior or structure of the Building, without the prior written consent of Landlord, which may be withheld by Landlord in its sole discretion. Tenant shall not make or allow any other kind of Alterations to the Premises or any part thereof without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. All of such Alterations, structural or otherwise, must conform to such construction rules and regulations as are established from time to time by Landlord. All Alterations must be performed in a good and workmanlike manner, must comply with all Legal Requirements, shall not require any changes to or modifications of any of the mechanical, electrical, plumbing, HVAC or other systems or the exterior or structure of the Building, and shall otherwise be constructed in strict accordance with the terms and conditions of this Section 8. If any Alterations made by or on behalf of Tenant requires Landlord to make any alterations or improvements to any part of the Building in order to comply with Legal Requirements, Tenant shall pay all costs and expenses incurred by Landlord in connection with such alterations or improvements. Prior to undertaking any Alterations in the Premises,

Tenant shall furnish to Landlord duplicate policies or certificates evidencing compliance by Tenant's contractors and subcontractors with the insurance requirements of Section 12 of this Lease.

b. It is understood and agreed by Landlord and Tenant that any Alterations undertaken in the Premises shall be constructed at Tenant's sole expense. The costs of Alterations shall include, without limitation, the cost of all architectural work, engineering studies, materials, supplies, plans, permits and insurance. If requested by Landlord, Tenant shall provide to Landlord satisfactory evidence of Tenant's ability to pay for such Alterations (including, but not limited to, a payment or performance bond). No consent by Landlord to any Alterations shall be deemed to be an agreement or consent by Landlord to subject Landlord's interest in the Premises, the Building or the Land to any mechanic's or materialman's liens which may be filed in respect to such Alterations made by or on behalf of Tenant. If Landlord gives its consent as specified in Section 8.a. above, Landlord may impose as a condition to such consent such requirements as Landlord may deem necessary or desirable, in its sole discretion exercised in good faith, including, without limitation, the right to approve the plans and specifications for any work, the supervision of the work by Landlord or its agents or by Landlord's architect or contractor, the payment to Landlord or its agents, architect or contractor of a construction supervision fee in connection therewith, and the right to require security for the full payment of any work and the right to impose requirements as to the manner in which or the time or times at which work may be performed. Landlord shall also have the right to approve the contractor or contractors who shall perform any Alterations, repairs in, to or about the Premises and to post notices of non-responsibility and similar notices, as appropriate. In addition, immediately after completion of any Alterations, Tenant shall assign to Landlord any and all warranties applicable to such Alterations and shall provide Landlord with as-built plans of the Premises depicting such Alterations.

c. Tenant shall keep the Premises free from any liens arising out of any work performed on, or materials furnished to, the Premises, or arising from any other obligation incurred by Tenant. If any mechanic's or materialmen's lien is filed against the Premises, the Building and/or the Land for work claimed to have been done for or materials claimed to have been furnished to Tenant, such lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and expense, by the payment thereof or by filing any bond required by law. If Tenant shall fail to timely discharge any such mechanic's or materialman's lien, Landlord may, at its option, discharge the same and treat the cost thereof as Additional Rent payable with the installment of rent next becoming due; it being expressly covenanted and agreed that such discharge by Landlord shall not be deemed to waive or release the default of Tenant in not discharging the same. Tenant shall indemnify and hold harmless Landlord, the Premises and the Building from and against any and all expenses, liens, claims, actions or damages to person or property in connection with any such lien or the performance of such work or the furnishing of such materials. Tenant shall be obligated to, and Landlord reserves the right to, post and maintain on the Premises at any time such notices as shall in the reasonable judgment of Landlord be necessary to protect Landlord against liability for all such liens or actions.

d. Any Alterations of any kind to the Premises or any part thereof, except Tenant Lines and Tenant's furniture and moveable trade fixtures, shall at once become part of the realty and belong to Landlord and shall be surrendered with the Premises, as a part thereof, at the end of the Term hereof; provided, however, that Landlord may, by written notice to Tenant at least thirty (30) days prior to the end of the Term, require Tenant to remove any Alterations (including, without limitation, all Tenant Lines) and to repair any damage to the Premises caused by such removal, all at Tenant's sole expense. Any article of personal property, including business and trade fixtures, not attached to or built into the Premises, which were installed or placed in the Premises by Tenant at its sole expense, shall be and remain the property of Tenant and may be removed by Tenant at any time during the Term as long as Tenant is not in default hereunder and provided that Tenant repairs any damage to the Premises or the Building caused by such removal.

e. All voice, data, video, audio, and other low-voltage control transport system cabling and/or cable bundles installed in the Building by Tenant (or by Landlord in connection with this Lease and for the benefit of Tenant) (collectively, "Tenant Lines") shall be (a) plenum rated and/or have a composition makeup suited for its environmental use in accordance with NFPA 70/National Electrical Code; (b) labeled every 3 meters with Tenant’s name and origination and destination points; (c) installed

in accordance with all EIA/TIA standards and the National Electric Code; (d) installed and routed in accordance with a routing plan showing "as built" or "as installed" configurations of cable pathways, outlet identification numbers, locations of all wall, ceiling and floor penetrations, riser cable routing and conduit routing if applicable, and such other information as Landlord may request. The routing plan shall be available to Landlord and its agents at the Building upon request. Upon Landlord's written request and at Tenant's sole cost and expense, Tenant shall cause all Tenant Lines (or such Tenant Lines as Landlord shall request) to be removed at the expiration or earlier termination of this Lease; provided, however, Landlord, at Landlord's option, shall have the right to cause such Tenant Lines to be removed at the expiration of the Term, or earlier termination of this Lease, and in such event, Tenant shall reimburse Landlord (within ten (10) days following Landlord's demand) for all costs and expenses incurred by Landlord in connection therewith.

9. UTILITIES AND SERVICES.

a. Landlord shall furnish the following utilities and services to the Premises: electric current (for lighting and operation of normal desk-type office machines); hot and cold water; lavatory supplies; heat and air-conditioning service (“HVAC Services”) during the appropriate seasons of the year as reasonably required; elevator service; and trash removal, cleaning and janitorial service. HVAC Services shall be provided to the Premises only during Normal Business Hours (hereinafter defined). As used herein, the term "Normal Business Hours" means Monday through Friday 8:00 a.m. to 6:00 p.m., and Saturday 9:00 a.m. to 1:00 p.m., excluding Holidays. As used herein, the term "Holidays" shall mean New Year's Day, Martin Luther King's Birthday, President's Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day and any other federal holidays which Landlord may elect to recognize from time to time. At times other than the Normal Business Hours and days aforesaid, HVAC Services shall be provided to Tenant upon at least twenty-four (24) hours prior notice from Tenant, and upon payment by Tenant of the hourly charge established by Landlord from time to time for each hour (or a portion thereof) of after-hours usage. All Building standard light bulbs and tubes in the Premises shall be replaced by Landlord and the cost thereof shall be included in Operating Expenses. In addition, Landlord may impose a reasonable additional charge for any additional or unusual services required to be provided by Landlord to Tenant because of the carelessness of Tenant, the nature of Tenant's business or the removal of any refuse and rubbish from the Premises except for discarded material placed in wastepaper baskets and left for emptying as an incident to Tenant's normal cleaning of the Premises. In the event that Landlord must temporarily suspend or curtail services because of accident and repair, Landlord shall have no liability to Tenant for such suspension or curtailment or due to any restrictions on use arising therefrom or relating thereto, and Landlord shall proceed diligently to restore such service. No interruption or malfunction of any such services shall constitute an actual or constructive eviction or disturbance of Tenant's use and possession of the Premises, the Building or the parking garage or parking areas in or around the Building or constitute a breach by Landlord of any of its obligations hereunder or render Landlord liable for damages or entitle Tenant to be relieved from any of Tenant's obligations hereunder (including the obligation to pay rent) or grant Tenant any right of setoff or claim against Landlord or constitute a constructive or other eviction of Tenant. In the event of any such interruption, Landlord shall use reasonable diligence to restore such services.

b. Tenant will not, without the prior written consent of Landlord, use any apparatus or device in the Premises, including, without limitation, electric data processing machines, punch card machines and machines using current in excess of 5 watts per square foot of useable area in the Premises per month, as determined by Landlord or which will in any way increase the amount of the electricity or water which would otherwise be furnished or supplied by Landlord for the permitted use of the Premises under this Section 9; and Tenant will not connect to electric current any apparatus or device for the purpose of using electric current or water, except through existing electrical outlets in the Premises or water pipes. If Tenant shall require water or electricity in excess of that which is otherwise furnished or supplied by Landlord for the permitted use of the Premises, Tenant shall first secure the written consent of Landlord for the use thereof, which consent Landlord may refuse in its absolute discretion. Landlord may condition its consent upon the requirement that a water meter or electric current meter be installed in the Premises, so as to measure the amount of water and electric current consumed for any such excess use. The cost of such meters and installation, maintenance and repair thereof, the cost of any such excess utility use as

shown by said meter, the cost of any new or additional utility installations, including, without limitation, wiring and plumbing, resulting from such excess utility use, and the cost of any additional expenses incurred in keeping count of such excess utility use shall be paid by Tenant promptly upon demand by Landlord or, if Tenant is billed separately therefor, promptly upon receipt of a bill for same. Whenever heat generating machines or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord.

c. Tenant shall have the right to install and operate in the Premises personal computers and other electrically-operated office equipment normally used in modern offices. Tenant shall not install equipment of any kind or nature whatsoever nor engage in any practice or use which will or may necessitate any changes, replacements or additions to, or in the use of, the water system, heating system, plumbing system, air conditioning system, electrical system, floor load capacities, or other mechanical or structural system of the Premises or the Building without first obtaining the prior written consent of Landlord, which consent may be conditioned upon, but not limited to, Tenant first securing at its expense additional capacity for any said service in the Building; provided, however, Tenant shall be responsible for paying for any excess utility consumption arising from any such change, replacement, use or addition, such payments to be based on Landlord's reasonable estimate or, at Landlord's option, a submeter or similar device to measure such usage (said device to be installed at Tenant's expense). Additionally, in the event that Landlord reasonably determines that Tenant's electrical consumption exceeds standard office use, Tenant shall pay the amount of such excess electrical consumption, as reasonably determined by Landlord, within thirty (30) days after demand therefor. Machines, equipment and materials belonging to Tenant which cause vibration, noise, cold, heat, fumes or odors that may be transmitted outside of the Premises to such a degree as to be objectionable to Landlord in Landlord's sole opinion or to any other tenant in the Building shall be treated by Tenant at its sole expense so as to eliminate such objectionable condition, and shall not be allowed to operate until such time as the objectionable condition is remedied to Landlord's satisfaction.

d. In addition to Tenant's compliance with Legal Requirements, Tenant shall comply, at its sole cost and expense, with any program established by Landlord for tenants of the Building regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash (hereinafter collectively called "waste products") including, but not limited to, the separation of such waste products into receptacles reasonably approved by Landlord and the removal of such receptacles in accordance with any collection schedules prescribed by Landlord. Landlord reserves the right (i) to refuse to accept from Tenant any waste products that are not prepared for collection in accordance with Legal Requirements or the rules and regulations established by Landlord, (ii) to require Tenant to arrange for waste product collection at Tenant's sole cost and expense, utilizing a contractor reasonably satisfactory to Landlord, and (iii) to require Tenant to pay all costs, expenses, fines, penalties, or damages that may be imposed on Landlord or Tenant by reason of Tenant's failure to comply with any Legal Requirements.

e. Tenant shall be provided with access to the Building and the Premises twenty-four (24) hours a day, 365 days a year, subject to Legal Requirements and events of Force Majeure. The Building's main entrance doors shall be equipped with a card reader security system or other similar security access system. On the Commencement Date, Landlord shall make available to Tenant a reasonable number of access cards for such access system within the Premises at no cost to Tenant. Tenant shall be responsible for the cost of any additional or replacement access cards requested by Tenant. Landlord shall not be responsible for the quality, action or inaction of the Building’s or Premises’ access system or for any damage or injury to Tenant, its employees, agents, invitees or their respective property resulting from any failure, action or inaction of the Building’s and/or Premises’ access systems.

f. Landlord initially shall install Building-standard suite entry signage bearing Tenant's name in the Building-standard location adjacent to the main entrance to the Premises. All attributes of the suite entry signage shall be subject to (a) the Building-standard guidelines for such signage; and (b) Landlord's prior approval of same. In addition, Landlord, at Landlord's sole cost, initially shall provide Tenant with Tenant's proportionate share of directory strips bearing Tenant's name in the directory board located in the main lobby of the Building.

10. RIGHTS OF LANDLORD.

a. Landlord reserves the following rights: (i) to change the name or street address of the Building with thirty (30) days prior notice to Tenant; (ii) to approve the design, location, number, size and color of all signs or lettering on the Premises or visible from the exterior of the Premises; (iii) to have pass keys and/or access cards to the Premises and key codes or cards for the telephone access system installed by Tenant; (iv) to grant to anyone the exclusive right to conduct any particular business or undertaking in the Building; (v) to enter the Premises at any reasonable time for inspection upon reasonable prior notice to Tenant (which notice may be oral), or at any time, without prior notice, in the event of any emergency; to supply any service to be provided by Landlord hereunder; to submit the Premises to prospective purchasers or tenants; to post notices of non-responsibility; to affix and display "For Rent" signs; and to make repairs, alterations, additions or improvements to the Premises or the Building; and (vi) to approve the design, location, number, size and color of all signs located on the exterior of the Building.

b. Without limiting the generality of the provisions of Section 10.a., above, at any time during the Term of this Lease, Landlord shall have the right to remove, alter, improve, renovate or rebuild the common areas of the Building (including, but not limited to, the lobby, hallways and corridors thereof), and to install, repair, replace, alter, improve or rebuild in the Premises, other tenants' premises and/or the common areas of the Building (including the lobby, hallways and corridors thereof), any mechanical, electrical, water, sprinkler, plumbing, heating, air conditioning and ventilating systems, at any time during the Term of this Lease. In connection with making any such installations, repairs, replacements, alterations, additions and improvements under the terms of this Section 10, Landlord shall have the right to access through the Premises as well as the right to take into and upon and through the Premises or any other part of the Building, all materials that may be required to make any such repairs, replacements, alterations, additions or improvements, as well as the right in the course of such work to close entrances, doors, corridors, elevators or other facilities located in the Building or temporarily to cease the operations of any services or facilities therein or to take portion(s) of the Premises reasonably necessary in connection with such work, without being deemed or held guilty of an eviction of Tenant. Landlord shall have the right to install, use and maintain pipes and conduits in and through the Premises, including, without limitation, telephone and computer installations.

c. Landlord shall not be liable to Tenant for any expense, injury, loss or damage resulting from Landlord's exercise of any rights under this Section 10, all claims against Landlord for any and all such liability being hereby expressly released by Tenant. Landlord shall not be liable to Tenant for damages by reason of interference with the business of Tenant or inconvenience or annoyance to Tenant or the customers or clients of Tenant. The Rent reserved herein shall not abate while Landlord's rights under this Section 10 are exercised, and Tenant shall not be entitled to any set-off or counterclaims for damages of any kind against Landlord by reason thereof, all such claims being hereby expressly released by Tenant.

d. Landlord shall have the right to use any and all means which Landlord may deem proper to open all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes, in any emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means shall not be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof.

11. LIABILITY.

a. Landlord and its trustees, officers, directors, members, agents and employees, Landlord's mortgagees and Landlord's representatives (collectively, the "Landlord Parties") assume no liability or responsibility whatsoever with respect to the conduct or operation of the business to be conducted in the Premises and shall have no liability for (i) any claim of loss of business or interruption of operations (or any claim related thereto), or (ii) any accident to or injury to any person or persons or property in or about the Premises which are caused by the conduct and operation of said business or by virtue of equipment or property of Tenant in said Premises. Landlord and Landlord Parties shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, family members

or guests (collectively, the “Tenant Parties”) for any damage, compensation or claim arising out of or related to managing the Premises or the Building, repairing any portion of the Premises or the Building, the interruption in the use of the Premises, accident or damage resulting from the use or operation (by Landlord or any Landlord Parties) or failure of elevators, or heating, cooling, electrical or plumbing equipment or apparatus, or the termination of this Lease by reason of the destruction of the Premises, or from any fire, robbery, theft, mysterious disappearance and/or any other casualty, or from any leakage in any part of portion of the Premises or the Building, or from water, rain or snow that may leak into or flow from any part of the Premises or the Building, or from any other cause whatsoever. In no event shall Landlord or Landlord Parties be liable for punitive or consequential damages, nor shall Landlord or Landlord Parties be liable with respect to utilities furnished to the Premises, or the lack of any utilities. Any goods, property or personal effects, stored or placed by Tenant or Tenant Parties in or about the Premises or in the Building, shall be at the sole risk of Tenant, and Landlord and Landlord Parties shall not in any manner be held responsible therefor. The agents and employees of Landlord are prohibited from receiving any packages or other articles delivered to the Building for Tenant, and if any such agent or employee receives any such package or articles, such agent or employee shall be the agent of Tenant for such purposes and not of Landlord.

b. Tenant hereby agrees to indemnify and hold Landlord and Landlord Parties harmless from and against any cost, damage, claim, liability or expense (including attorneys' fees) incurred by or claimed against Landlord and Landlord Parties, directly or indirectly, as a result of or in any way arising from (i) the use and occupancy of the Premises by Tenant or Tenant Parties or in any other manner which relates to the business of Tenant, including, but not limited to, any cost, damage, claim, liability or expense arising from any violation of any zoning, health, environmental or other law, ordinance, order, rule or regulation of any governmental body or agency; (ii) the negligence or willful misconduct of Tenant or Tenant Parties; (iii) any default, breach or violation of this Lease by Tenant; or (iv) injury or death to individuals or damage to property sustained in or about the Premises.

c. Notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant agree that in the event that the Building, the Premises or the contents thereof are damaged or destroyed by fire or other casualty, each party hereto waives its rights, if any, against the other party with respect to such damage or destruction to the extent such damage or destruction is covered under the property insurance policy(ies) of the party waiving such rights (or would have been covered had the party waiving such rights carried the property insurance required hereunder to be carried by such party); provided however, if any fire or other casualty caused by Tenant shall have damaged or destroyed any part of the Building or the contents thereof, Tenant shall be responsible for any deductible amount under Landlord's property insurance policy(ies). All policies of fire and/or extended coverage or other insurance covering the Premises or the contents thereof obtained by Landlord or Tenant shall contain a clause or endorsement providing in substance that (i) such insurance shall not be prejudiced if the insureds thereunder have waived in whole or in part the right of recovery from any person or persons prior to the date and time of loss or damage, if any, and (ii) the insurer waives any rights of subrogation against Landlord (in the case of Tenant's insurance policy) or Tenant (in the case of Landlord's insurance policy), as the case may be.

12. INSURANCE.

a. Tenant's Insurance. Tenant, at Tenant's sole cost and expense, agrees to keep in full force and effect at all times during the Term of this Lease:

(i) Commercial general liability insurance which insures against claims for bodily injury, personal injury, advertising injury, and property damage based upon, involving, or arising out of the use, occupancy, or maintenance of the Premises and the Building. Such insurance shall afford, at a minimum, the following limits:



Each Occurrence	$	1,000,000
General Aggregate		2,000,000
Products/Completed Operations Aggregate		1,000,000
Personal and Advertising Injury Liability		1,000,000



Fire Damage Legal Liability		100,000
Medical Payments		5,000

Any general aggregate limit shall apply on a per location basis. Tenant's commercial general liability insurance shall name Landlord and any Landlord Parties designated by Landlord as additional insureds. This coverage shall be written on the most current ISO CGL form, shall include blanket contractual, premises-operations and products-completed operations and shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from a hostile fire. Such insurance shall be written on an occurrence basis and contain a standard separation of insureds provision.

(ii) Business automobile liability insurance covering owned, hired and non-owned vehicles with limits of $1,000,000 combined single limit per occurrence.

(iii) Workers' compensation insurance in accordance with the laws of the state in which the Premises are located with employer's liability insurance in an amount not less than $1,000,000.

(iv) Umbrella/excess liability insurance, on an occurrence basis, that applies excess of the required commercial general liability, business automobile liability, and employer's liability policies with the following minimum limits:



Each Occurrence		$5,000,000
Annual Aggregate		$5,000,000

These limits shall be in addition to and not including those stated for the underlying commercial general liability, business automobile liability, and employers liability insurance required herein. Such excess liability policies shall name Landlord and any Landlord Parties designated by Landlord as additional insureds.

(v) All risk property insurance including theft, sprinkler leakage and boiler and machinery coverage on all of Tenant's trade fixtures, furniture, inventory and other personal property owned by Tenant and located in or about the Premises or the Building, and on any Alterations, all for the full replacement cost thereof. Tenant shall use the proceeds from such insurance for the replacement of trade fixtures, furniture, inventory and other personal property and for the restoration of any Alterations. Landlord shall be named as loss payee with respect to any Alterations.

(vi) Business income and extra expense insurance with limits not less than one hundred percent (100%) of all charges payable by Tenant under this Lease for a period of twelve (12) months.

b. Tenant's Insurer Rating; Certification of Insurance . All policies required to be carried by Tenant hereunder shall be issued by and binding upon an insurance company licensed to do business in the state in which the Building is located with a rating of at least "A - X" or better as set forth in the most current issue of Best's Insurance Reports, unless otherwise approved by Landlord. Tenant shall not do or permit anything to be done that would invalidate the insurance policies required herein. Liability insurance maintained by Tenant shall be primary coverage without right of contribution by any similar insurance that may be maintained by Landlord. Certificates of insurance, acceptable to Landlord, evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord prior to delivery or possession of the Premises and ten (10) days following each renewal date. Certificates of insurance shall name Landlord and any Landlord Parties designated by Landlord as additional insureds on liability policies and Landlord is named as loss payee on the property insurance as stated in Section 12.a.(v) above. Further, the certificates of insurance must include an endorsement for each policy whereby the insurer agrees not to cancel, non-renew, or materially alter the policy without

at least thirty (30) days' prior written notice to Landlord.

(i) In the event that Tenant fails to provide evidence of insurance required to be provided by Tenant in this Lease, prior to the Commencement Date and thereafter during the Term, within ten (10) days following Landlord's request thereof, and thirty (30) days prior to the expiration of any such coverage, Landlord shall be authorized (but not required) to procure such coverage in the amount stated with all costs thereof to be chargeable to Tenant and payable upon written invoice thereof.

(ii) The limits of insurance required by this Lease, or as carried by Tenant, shall not limit the liability of Tenant or relieve Tenant of any obligation thereunder, except to the extent provided for under Section 11.c, above. Any deductibles selected by Tenant shall be the sole responsibility of Tenant.

(iii) Tenant insurance requirements stipulated in Section 12.a., above, are based upon current industry standards. Landlord reserves the right to require additional coverage or to increase limits as industry standards change.

c. Contractors' Insurance. Should Tenant engage the services of any contractor to perform work in the Premises, Tenant shall ensure that such contractor carries commercial general liability, business automobile liability, umbrella/excess liability, worker's compensation and employers liability coverages in substantially the same amounts as are required of Tenant under this Lease. Contractor shall name Landlord and any Landlord Parties designated by Landlord as additional insureds on the liability policies required hereunder. All policies required to be carried by any contractor shall be issued by and binding upon an insurance company licensed to do business in the state in which the Property is located with a rating of at least "A - X" or better as set forth in the most current issue of Best's Insurance Reports, unless otherwise approved by Landlord. Certificates of insurance, acceptable to Landlord, evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord prior to the commencement of any work in the Premises. Further, the certificates must include an endorsement for each policy whereby the insurer agrees not to cancel, non-renew, or materially alter the policy without at least thirty (30) days' prior written notice to Landlord. The above requirements shall apply equally to any subcontractor engaged by contractor.

13. FIRE OR CASUALTY.

a. If the Premises or any part thereof shall be damaged by fire or any other cause, Tenant shall give prompt notice thereof to Landlord. If, in the reasonable judgment of Landlord's architect, restoration of the Premises is feasible within a period of twelve (12) months from the date of the damage, and provided such damage was not caused by Tenant, its agents, servants or invitees, Landlord shall restore the Premises to the condition existing as of the Commencement Date, provided that adequate insurance proceeds are made available to Landlord. Tenant agrees to make all proceeds of Tenant's insurance policies available to Landlord in accordance with Tenant's insurance obligations set forth in Section 12, above. In addition, Tenant shall repair and restore, at Tenant's sole expense, all Alterations, furniture, fixtures and other property of Tenant located in the Premises prior to such casualty. If, as a result of such casualty, the Premises are rendered untenantable, in whole or in part, and Tenant ceases to occupy the whole or such part of the Premises during the restoration of such portion of the Premises, the Monthly Base Rent and Additional Rent hereunder shall be abated to the extent and for the period that the Premises (or portion thereof) are rendered untenantable; provided, however, that if such damage or destruction shall result from the act or omission of Tenant, its employees, agents or invitees, Tenant shall not be entitled to any abatement of Monthly Base Rent or Additional Rent.

b. If restoration is not feasible in the reasonable judgment of Landlord's architect within the aforesaid twelve (12) month period, Landlord shall so notify Tenant, and Landlord and Tenant shall each have the right to terminate this Lease by giving written notice thereof to the other party within sixty (60) days after notice of such determination is given by Landlord to Tenant, in which event this Lease and the tenancy hereunder shall terminate as of the date of such damage or destruction and the Monthly Base Rent and Additional Rent will be apportioned as of the date of such damage or destruction. If neither party exercises its right of termination, the Premises shall be restored as provided above.

c. In case the Building is so severely damaged by fire or other casualty (although the Premises may not be affected) that Landlord shall decide in its sole discretion not to rebuild or reconstruct such Building, then this Lease and the tenancy hereunder shall terminate on the date specified by Landlord in a notice given no later than sixty (60) days after the date of such casualty.

14. EMINENT DOMAIN.

a. If all or a substantial part of the Premises should be taken for any public or quasi‑public use under governmental law, ordinance, or regulation, or by right of eminent domain (a "Taking"), then Landlord or Tenant shall have the right to terminate this Lease upon written notice to the other within thirty (30) days after notice of such Taking, in which event this Lease shall terminate, and the Annual Base Rent shall be apportioned, as of the date of such Taking. If a Taking of any part of the Building (exclusive of the Premises) shall occur and, in Landlord's reasonable judgment, such Taking would materially interfere with or impair Landlord's operation of the Building, then Landlord shall have the right to terminate this Lease upon written notice to Tenant within thirty (30) days after the date of such Taking, in which event this Lease shall terminate and Annual Base Rent shall be apportioned as of the date of termination. If a Taking of less than all of the Premises shall occur, and this Lease is not terminated as provided above, the Annual Base Rent payable hereunder during the unexpired Term shall be reduced based on the portion of the Premises taken. If a Taking of any part of the Building (exclusive of the Premises) shall occur, and this Lease is not terminated by Landlord as provided above, the Annual Base Rent payable hereunder during the unexpired Term shall be not reduced.

b. In the event of any Taking, all sums awarded or agreed upon between Landlord and the condemning authority for the Taking, whether as damages or as compensation, will be the property of Landlord. Tenant shall have no right to participate in any Taking proceedings and shall make no claim for damages or other compensation in such proceedings; provided, however, Tenant may pursue a claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant's expense and for relocation expenses, provided that such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation.

15. SUBORDINATION AND ESTOPPEL CERTIFICATES.

a. This Lease shall be subject and subordinate at all times to all ground or underlying leases which now exist or may hereafter be executed affecting the Building or any part thereof or the Land, and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the Building or any part thereof or the Land, or on or against Landlord's interest or estate therein or on or against any ground or underlying lease without the necessity of having further instruments on the part of Tenant to effect such subordination. Upon request of Landlord, Tenant will execute any written instrument necessary to further confirm the subordination of Tenant's rights hereunder to any such underlying leases or liens. If, at any time, or from time to time during the Term, any mortgagee shall request that this Lease have priority over the lien of such mortgage, and if Landlord consents thereto, this Lease shall have priority over the lien of such mortgage and all renewals, modifications, replacements, consolidations and extensions thereof and all advances made thereunder and interest thereon, and Tenant shall, within ten (10) days after receipt of a request therefor from Landlord, execute, acknowledge and deliver any and all documents and instruments confirming the priority of this Lease. In any event, however, if this Lease shall have priority over the lien of a first mortgage, this Lease shall not become subject or subordinate to the lien of any subordinate mortgage, and Tenant shall not execute any subordination documents or instruments for any subordinate mortgagee, without the written consent of the first mortgagee.

b. In the event of: (i) a transfer of Landlord's interest in the Building, (ii) the termination of any ground or underlying lease of the Building, or the Land, or both, or (iii) the purchase or other acquisition of the Building, or Landlord's interest therein in a foreclosure sale or by deed in lieu of foreclosure under any mortgage or deed of trust, or pursuant to a power of sale contained in any mortgage or deed of trust, then in any of such events Tenant shall, at the request of Landlord or

Landlord's successor in interest, attorn to and recognize the transferee or purchaser of Landlord's interest or the interest of the lessor under the terminated ground or underlying lease, as the case may be, as "Landlord" under this Lease for the balance then remaining of the Term, and thereafter this Lease shall continue as a direct lease between such person or entity, as "Landlord," and Tenant, as "Tenant," except that such lessor, transferee or purchaser shall not be liable for any act or omission of Landlord before such lease termination or before such person's succession to title, nor be subject to any offset, defense or counterclaim accruing before such lease termination or before such person's succession to title, nor be bound by any payment of Monthly Base Rent or Additional Rent before such lease termination or before such person's succession to title for more than one month in advance.

c. Tenant agrees, at any time, and from time to time, upon not fewer than five (5) days prior notice by Landlord, to execute, acknowledge and deliver to Landlord, a statement in writing certifying that (i) this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (ii) the Term of this Lease has commenced and the full rental is now accruing hereunder; (iii) Tenant has accepted possession of the Premises and is presently occupying the same; (iv) all improvements required by the terms of this Lease to be made by Landlord have been completed and all tenant improvement allowances have been paid in full; (v) there are no offsets, counterclaims, abatements or defenses against or with respect to the payment of any rent or other charges due under this Lease; (vi) no rent under this Lease has been paid more than thirty (30) days in advance of its due date; (vii) to the best of the knowledge of Tenant, Landlord is not in default in the performance of any covenant, agreement, provision or condition contained in this Lease or, if so, specifying each such default of which Tenant may have knowledge; (viii) the address for notices to be sent to Tenant; (ix) the only security deposit, if any, tendered by Tenant is as set forth in this Lease, and such security deposit, if any, has been paid to Landlord; and (x) any other information reasonably requested by Landlord or any mortgagee or ground lessor of the Building and/or the Land it being intended that any such statement delivered pursuant hereto may be relied upon by any prospective purchaser or lessee of the Building or any part thereof, any mortgagee or prospective mortgagee thereof, any prospective assignee of any mortgage thereof, any ground lessor or prospective ground lessor of the Land and/or the Building, or any prospective assignee of any such ground lease. Tenant also agrees to execute and deliver from time to time such estoppel certificates as an institutional lender may reasonably require with respect to this Lease.

16. DEFAULT AND REMEDIES.

a. An "Event of Default" shall be deemed to have been committed by Tenant upon the occurrence of any of the following events: (i) the failure to pay when due any installment of Monthly Base Rent or Tenant's Pass-Through Costs; (ii) the failure to pay when due any Additional Rent (other than Tenant's Pass-Through Costs) or any other payment required by the terms and provisions hereof, which failure continues for five (5) days after notice from Landlord; or (iii) the conveyance, assignment, mortgage or sublet of this Lease, the Premises or any part thereof, or Tenant's interest therein, or attempt any of the foregoing, without the prior written consent of Landlord (except to the extent otherwise expressly permitted pursuant to this Lease); or (iv) the abandonment of the Premises for a period of thirty (30) consecutive calendar days; or (v) an Event of Bankruptcy (hereinafter defined), or (vi) the failure to maintain the insurance coverage required by Section 12, above, or (vii) the violation or failure to perform any of the other terms, conditions, covenants, or agreements herein made by Tenant and which violation or failure continues for thirty (30) calendar days after notice. Notwithstanding the foregoing cure periods, in the event that Tenant breaches any covenant set forth in this Lease on more than two (2) occasions in any twelve (12) consecutive month period, or on more than three (3) occasions in any twenty-four (24) consecutive month period, then any subsequent breach of such covenant during the Term of this Lease shall be deemed to be an immediate Event of Default. Upon an Event of Default, at Landlord’s option, this Lease shall terminate, without prejudice, however, to the right of Landlord to recover from Tenant all rent and any other sums accrued up to the later of: (1) the date of termination of this Lease or (2) the date Landlord recovers possession of the Premises, and without release of Tenant from any indemnification obligations to Landlord under this Lease, which indemnification obligations arose or accrued prior to the later of: (a) the date of termination of this Lease or (b) the date Landlord recovers possession of the Premises. The foregoing is not intended to, and shall not, limit Landlord in the exercise of any other remedy for such immediate Event of Default.

b. In the event of any Event of Default by Tenant as defined in Section 16.a., Landlord may at any time thereafter, without notice and demand and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such default or breach do any of the following:

(i) Landlord may terminate this Lease, by giving written notice of such termination to Tenant, whereupon this Lease shall automatically cease and terminate and Tenant shall be immediately obligated to quit the Premises. Any other notice to quit or notice of Landlord's intention to re-enter the Premises is hereby expressly waived. If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, subject, however, to the right of Landlord to recover from Tenant all rent and any other sums accrued up to the time of termination or recovery of possession by Landlord, whichever is later.

(ii) With or without the termination of this Lease, Landlord may proceed to recover possession of the Premises under and by virtue of the provisions of the laws of the jurisdiction in which the Building is located, or by such other proceedings, including re-entry and possession, as may be applicable. If this Lease is terminated or Landlord recovers possession of the Premises before the expiration of the Term by reason of Tenant's default as hereinabove provided, or if Tenant shall abandon or vacate the Premises before the Lease Expiration Date without having paid the full rental for the remainder of such Term, Landlord shall have the option to take reasonable steps to relet the Premises for such rent and upon such terms as are not unreasonable under the circumstances and, if the full rental reserved under this Lease (and any of the costs, expenses or damages indicated below) shall not be realized by Landlord, Tenant shall be liable for all damages sustained by Landlord, including, without limitation, deficiency in rent during any period of vacancy or otherwise; the costs of removing and storing the property of Tenant or of any other occupant; all reasonable expenses incurred by Landlord in enforcing Landlord's remedies, including, without limitation, reasonable attorneys' fees and Late Charges as provided herein, and advertising, brokerage fees and expenses of placing the Premises in first class rentable condition. Landlord, in putting the Premises in good order or preparing the same for rerental may, at Landlord's option, make such alterations, repairs, or replacements in the Premises as Landlord, in its sole judgment, considers advisable and necessary for the purpose of reletting the Premises, and the making of such alterations, repairs, or replacements shall not operate or be construed to release Tenant from liability hereunder as aforesaid.

(iii) Any damage or loss of rent sustained by Landlord may be recovered by Landlord, at Landlord's option, at the time of termination of this Lease, the time of the reletting, or in separate actions, from time to time, as said damage shall have been made more easily ascertainable by successive relettings, or at Landlord's option in a single proceeding deferred until the expiration of the Term (in which event Tenant hereby agrees that the cause of action shall not be deemed to have accrued until the date of expiration of said Term) or in a single proceeding prior to either the time of reletting or the expiration of the Term. If Landlord elects to repossess the Premises without terminating this Lease, then Tenant shall be liable for and shall pay to Landlord all Rent and other indebtedness accrued to the date of such repossession, plus Rent required to be paid by Tenant to Landlord during the remainder of this Lease until the date of expiration of the Term, diminished by any net sums thereafter received by Landlord through reletting the Premises during such period (after deducting expenses incurred by Landlord as provided in Section 16.b.(ii), above). In no event shall Tenant be entitled to any excess of any Rent obtained by reletting over and above the Rent herein reserved. Actions to collect amounts due from Tenant as provided in this Section 16.b.(iii) may be brought from time to time, on one or more occasions, without the necessity of Landlord's waiting until expiration of this Lease term. Upon termination of this Lease or repossession of the Premises following a default hereunder, Landlord shall have no obligation to relet or attempt to relet the Premises or any portion thereof or to collect rental after reletting; and in the event of reletting Landlord may relet the whole or any portion of the Premises for any period, to any tenant, and for any use and purpose on such terms and at such rentals as Landlord in its exclusive judgment may determine.

c. Notwithstanding the foregoing, if Landlord terminates this Lease pursuant to Section 16.b.(i), above, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damages for Tenant's default, an amount equal to the

difference between (i) all Monthly Base Rent, Additional Rent and other sums which would be payable under this Lease from the date of such demand (or, if it is earlier, the date to which Tenant shall have satisfied in full its obligations under Section 16.b.(ii), above) for what would be the then unexpired Term in the absence of such termination, and (ii) the fair market rental value of the Premises over the same period (net of all expenses and all vacancy periods reasonably projected by Landlord to be incurred in connection with the reletting of the Premises), with such differential discounted at the rate of five percent (5%) per annum. Nothing herein shall be construed to affect or prejudice Landlord's right to prove, and claim in full, unpaid Rent or any other amounts accrued prior to termination of this Lease.

d. Notwithstanding anything herein to the contrary, upon the occurrence of an Event of Default hereunder, Landlord, with or without terminating this Lease, may immediately reenter and take possession of the Premises and evict Tenant therefrom, without legal process of any kind, using such force as may be necessary, without being liable for or guilty of trespass, forcible entry or any other tort. Landlord's right to exercise such "self-help" remedy shall be in addition to, and not in limitation of, Landlord's other rights and remedies hereunder for a breach by Tenant of its obligations under this Lease.

e. Tenant hereby expressly waives any and all rights of redemption granted by or under any present of future laws in the event Tenant is evicted or dispossessed for any cause, or in the event Landlord obtains possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise. In addition, Tenant hereby expressly waives any and all rights to bring any action whatsoever against any tenant taking possession after Tenant has been dispossessed or evicted hereunder, or to make any such tenant or party to any action brought by Tenant against Landlord.

f. Landlord and Tenant shall and each does hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease or its termination, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises or any claim of injury or damage and any emergency statutory or any other statutory remedy. In the event Landlord commences any summary proceeding for nonpayment of Rent or Additional Rent, or commences any other action or proceeding against Tenant in connection with this Lease, Tenant will interpose no counterclaim of whatever nature or description in any such proceeding.

g. Nothing contained herein shall prevent the enforcement of any claim Landlord may have against Tenant for anticipatory breach of the unexpired Term. In the event of a breach or anticipatory breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if reentry, summary proceedings and other remedies were not provided for herein.

h. In the event of any default by Landlord, Tenant's exclusive remedy shall be an action for damages (Tenant hereby waiving the benefit of any laws granting Tenant a lien upon the property of Landlord or upon Rent due Landlord), but prior to any such action Tenant will give Landlord notice specifying such default with particularity, and Landlord shall have thirty (30) days after receipt of such notice in which to cure any such default; provided, however, that if such default cannot, by its nature, be cured within such period, Landlord shall not be deemed in default if Landlord shall within such period commence to cure such default and shall diligently prosecute the same to completion. Unless and until Landlord fails so to cure any default after notice, Tenant shall have no remedy or cause of action by reason thereof. All obligations of Landlord hereunder will be construed as covenants, not conditions; all such obligations will be binding upon Landlord only during the period of its ownership of the Building and not thereafter; and no default or alleged default by Landlord shall relieve or delay performance by Tenant of its obligations to continue to pay Annual Base Rent and Additional Rent hereunder as and when the same shall be due.

17. BANKRUPTCY.

a. For purposes of this Lease, the following shall be deemed "Events of Bankruptcy": (i) if a receiver or custodian is appointed for any or all of Tenant's property or assets, or if there is instituted a

foreclosure action on any of Tenant's property; or (ii) if Tenant files a voluntary petition under 11 U.S.C. Article 101, et seq ., as amended (the "Bankruptcy Code"), or under the insolvency laws of any jurisdiction (the "Insolvency Laws"); or (iii) if there is filed an involuntary petition against Tenant as the subject debtor under the Bankruptcy Code or Insolvency Laws, which is not dismissed within thirty (30) days of filing; or (iv) if Tenant makes or consents to an assignment of its assets, in whole or in part, for the benefit of creditors, or a common law composition of creditors; or (v) if Tenant generally is not paying its debts as its debts become due.

b. Upon the occurrence of an Event of Bankruptcy, Landlord, at its option and sole discretion, may terminate this Lease by written notice to Tenant (subject, however, to applicable provisions of the Bankruptcy Code or Insolvency Laws during the pendency of any action thereunder). If this Lease is terminated under this Section 17, Tenant shall immediately surrender and vacate the Premises, waives all statutory or other notice to quit, and agrees that Landlord shall have all rights and remedies against Tenant provided in Section 16 in case of an Event of Default by Tenant.

c. If Tenant becomes the subject debtor in a case pending under the Bankruptcy Code (the "Bankruptcy Case"), Landlord's right to terminate this Lease under this Section 17 shall be subject to the applicable rights (if any) of the debtor-in-possession or the debtor's trustee in bankruptcy (collectively, the "Trustee") to assume or assign this Lease as then provided for in the Bankruptcy Code, however, the Trustee must give to Landlord, and Landlord must receive, proper written notice of the Trustee's assumption or rejection of this Lease, within sixty (60) days (or such other applicable period as is provided pursuant to the Bankruptcy Code, it being agreed that sixty (60) days is a reasonable period of time for election of an assumption or rejection of this Lease) after the commencement of the Bankruptcy Case; it being agreed that failure of the Trustee to give notice of such assumption hereof within said period shall conclusively and irrevocably constitute the Trustee's rejection of this Lease and waiver of any right of the Trustee to assume or assign this Lease. The Trustee shall not have the right to assume or assign this Lease unless said Trustee (i) promptly and fully cures all defaults under this Lease, (ii) promptly and fully compensates Landlord and any third party (including other tenants) for all monetary damages incurred as a result of such default, and (iii) provides to Landlord "adequate assurance of future performance." Landlord and Tenant (which term may include the debtor or any permitted assignee of debtor) hereby agree in advance that "adequate assurance of performance" as used in this paragraph, shall mean that all of the following minimum criteria must be met: (1) the source of Monthly Base Rent, Additional Rent, and other consideration due under this Lease, and the financial condition and operating performance of Tenant, and its guarantor, if any, shall be similar to the financial condition and operating performance of Tenant as of the Commencement Date; (2) Trustee or Tenant must pay to Landlord all Monthly Base Rent and Additional Rent payable by Tenant hereunder in advance, (3) Trustee or Tenant must agree (by writing delivered to Landlord) that the use of the Premises shall be used only for the permitted use as stated in this Lease, and that any assumption or assignment of this Lease is subject to all of the provisions thereof and will not violate or affect the rights or agreements of any other tenants or occupants in the Building or of Landlord (including any mortgage or other financing agreement for the Building, (4) Trustee or Tenant must pay to Landlord at the time the next Monthly Base Rent is due under this Lease, in addition to such installment of Monthly Base Rent, an amount equal to the installments of Monthly Base Rent and Additional Rent due under this Lease for the next six (6) months of this Lease, said amount to be held by Landlord in escrow until either Trustee or Tenant defaults in its payment of Monthly Base Rent and Additional Rent or other obligations under this Lease (whereupon Landlord shall have the right to draw on such escrowed funds) or until the expiration of this Lease (whereupon the funds shall be returned to Trustee or Tenant except to the extent the funds have been drawn and not replaced); and (5) Trustee or Tenant must agree to pay to Landlord at any time Landlord is authorized to and does draw on the escrow account the amount necessary to restore such escrow account to the original level required by clause (4), above. The criteria stated above are not intended to be exhaustive or all-inclusive and Landlord may determine that the circumstances of Tenant or of this Lease require other or further assurances of future performance. In the event Tenant is unable to: (a) cure its defaults, (b) reimburse Landlord for its monetary damages, (c) pay the Monthly Base Rent and Additional Rent due under this Lease on time, or (d) meet that criteria and obligations imposed by (1) through (5), above, then Tenant hereby agrees in advance that it has not met its burden to provide adequate assurance of future performance, and this Lease may be terminated by Landlord in accordance with Section 17.b., above.

18. PAYMENT OF TENANT'S OBLIGATIONS BY LANDLORD AND UNPAID RENT.

All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense. If Tenant shall fail to pay any sum of money, other than Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue beyond any applicable grace period set forth in this Lease, Landlord may, without waiving or releasing Tenant from any of its obligations hereunder, make any such payment or perform any such other required act on Tenant's part. All sums so paid by Landlord, and all necessary incidental costs, together with interest thereon at the Default Rate from the date of such payment by Landlord, shall be payable by Tenant to Landlord as Additional Rent hereunder, on demand, and Tenant covenants and agrees to pay any such sums. Landlord shall have (in addition to any other right or remedy of Landlord hereunder or at law) the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of Additional Rent.

19. VOLUNTARY SURRENDER .

The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the sole option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the sole option of Landlord, operate as an assignment to Landlord of any or all such subleases or subtenancies; provided however, that if Landlord elects to treat such termination as an assignment of any such sublease, Landlord shall have no obligation or liability to the subtenant thereunder for any claim, damage or injury which accrued prior to the date of surrender or mutual cancellation hereunder.

20. ABANDONMENT OF PERSONAL PROPERTY .

Upon the expiration of the Term or earlier termination of this Lease, Tenant shall immediately remove Tenant's goods and effects and those of any other persons claiming through or under Tenant, or subtenancies assigned to it, and quit and deliver the Premises to Landlord peaceably and quietly. Goods and effects not removed by Tenant prior to the expiration of the term of this Lease (or within forty-eight (48) hours after any earlier termination of this Lease) shall be considered abandoned. Landlord may dispose of any such abandoned property as Landlord deems expedient (including without limitation public or private sale and/or storage in a public warehouse or elsewhere at the sole cost and expense of Tenant), and Landlord shall not be liable for trespass, conversion, negligence or in an other way liable in connection with the disposal of such property. Tenant shall promptly upon demand reimburse Landlord for any costs and expenses incurred by Landlord in connection with the disposal of abandoned property, including reasonable attorneys' fees.

21. HOLD-OVER .

In the event that Tenant shall hold over after the expiration of the Term, Tenant shall be deemed a month-to-month tenant on all the terms and conditions of this Lease. Notwithstanding the foregoing, Tenant's right to hold over in the Premises on a month-to-month basis shall be subordinate to any Pre-Existing Rights of other tenants of the Building. As used herein, the term "Pre-Existing Rights" means rights under leases granted to tenants of the Building prior to the Effective Date and evidenced in a lease executed by such tenant prior to the Effective Date. In the event that a tenant of the Building exercises in writing a Pre-Existing Right to lease the Premises for a term commencing on a date (a "Takeover Date") following the Lease Expiration Date, then Landlord shall provide written notice of same to Tenant and Tenant shall surrender the Premises no later than the Takeover Date.

22. PARKING.

a. Tenant shall have the right to obtain, and pay for, contracts for parking spaces in the parking facility (the "Parking Facility") located in the Building at a rate of one and one-half (1.5) parking space for each 1,000 square feet of rentable area contained in the Premises. The parking contracts shall be for unassigned spaces for the benefit of Tenant’s employees and the monthly rate to be paid by

Tenant and its employees shall be the prevailing monthly parking rate charged from time to time by the Building's parking operator.

b. Tenant agrees that it and its employees shall observe reasonable safety precautions in the use of the Parking Facility, and shall at all times abide by all rules and regulations promulgated by Landlord or the parking operator governing the use of the Parking Facility. It is understood and agreed that Landlord does not assume any responsibility for any damage or loss to any automobiles parked in the Parking Facility or to any personal property located therein, or for any injury sustained by any person in or about the Parking Facility.

23. NOTICES .

All notices or other communications hereunder shall be in writing and shall be deemed duly given if delivered by hand, or by a nationally recognized delivery service providing a receipt evidencing such delivery, or by certified or registered mail return receipt requested, first-class, postage prepaid, to the notice addresses for Landlord and Tenant set forth in Section 1 of this Lease, unless notice of a change of address is given in writing pursuant to this Section 23. Notice shall be deemed to have been given upon receipt or at the time delivery is refused.

24. BROKERS .

Landlord and Tenant recognize Jones Lang LaSalle, as Landlord’s agent (the "Broker"), as the sole broker with respect to this Lease. Landlord agrees to be responsible for the payment of any leasing commission owed to the Broker in accordance with the terms of a separate commission agreement entered into between Landlord and the Broker. Tenant represents and warrants to Landlord that, except for Broker, no broker has been employed or engaged in carrying on any negotiations relating to this Lease, and Tenant shall indemnify and hold harmless Landlord from any claim for a brokerage commission and any other claims, fees and expenses arising from or out of any breach of the foregoing representation and warranty. Landlord represents and warrants to Tenant that, except for Broker, no broker has been employed or engaged in carrying on any negotiations relating to this Lease, and Landlord shall indemnify and hold harmless Tenant from any claim for a brokerage commission and any other claims, fees and expenses arising from or out of any breach of the foregoing representation and warranty.

25. ENVIRONMENTAL CONCERNS.

a. Tenant, its agents, employees, contractors or invitees shall not (i) cause or permit any Hazardous Materials (hereinafter defined) to be brought upon, stored, used or disposed on, in or about the Premises and/or the Building, or (ii) knowingly permit the release, discharge, spill or emission of any Hazardous Material in or from the Premises.

b. Tenant hereby agrees that it is and shall be fully responsible for all costs, expenses, damages or liabilities (including, but not limited to those incurred by Landlord and/or its mortgagee) which may occur from the use, storage, disposal, release, spill, discharge or emissions of Hazardous Materials by Tenant whether or not the same may be permitted by this Lease. Tenant shall defend, indemnify and hold harmless Landlord, its mortgagee and its agents from and against any claims, demands, administrative orders, judicial orders, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, reasonable attorney and consultant fees, court costs and litigation expenses) of whatever kind or nature, known or unknown, contingent or otherwise, arising out of or in any way related to the use, storage, disposal, release, discharge, spill or emission of any Hazardous Material, or the violation of any Environmental Laws (hereinafter defined), by Tenant, its agents, employees, contractors or invitees. The provisions of this Section 25 shall be in addition to any other obligations and liabilities Tenant may have to Landlord at law or in equity and shall survive the transactions contemplated herein or any termination of this Lease.

c. As used in this Lease, the term "Hazardous Materials" shall include, without limitation:

(i) those substances included within the definitions of "hazardous substances", "hazardous materials," toxic substances," or "solid waste" in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. §9601 et seq .) ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Resource Conservation and Recovery Act of 1976 ("RCRA"), and the Hazardous Materials Transportation Act, and in the regulations promulgated pursuant to said laws, all as amended;

(ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); and

(iii) any material, waste or substance which is (A) petroleum, (B) asbestos, (C) polychlorinated biphenyl, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. §1251 et seq . (33 U.S.C. §1321) or pursuant to 33 U.S.C. §1317; (E) flammables or explosives; or (F) radioactive materials.

d. All federal, state or local laws, statutes, regulations, rules, ordinances, codes, standards, orders, licenses and permits of any governmental authority or issued or promulgated thereunder shall be referred to as the "Environmental Laws".

26. RESERVED.

27. RULES AND REGULATIONS.

Tenant shall at all times comply with the rules and regulations set forth in Exhibit D attached hereto and with any reasonable additions thereto and modifications thereof adopted from time to time by Landlord and of which Landlord has provided notice to Tenant. Each such rule or regulation shall be deemed to be a covenant of this Lease to be performed and observed by Tenant; provided, however to the extent any additional rules and regulations or modifications thereof conflict with the terms of this Lease, the terms of this Lease shall control.

28. QUIET ENJOYMENT.

Landlord covenants that, if Tenant is not in default hereunder, Tenant shall at all times during the Term peaceably and quietly have, hold and enjoy the Premises without disturbance from Landlord, subject to the terms of this Lease and to the rights of the parties presently or hereinafter secured by any deed of trust or mortgage against the Building.

29. USA PATRIOT ACT AND ANTI-TERRORISM LAWS.

a. Tenant represents and warrants to, and covenants with, Landlord that neither Tenant nor any of its respective constituent owners or affiliates currently are, or shall be at any time during the Term hereof, in violation of any laws relating to terrorism or money laundering (collectively, the "Anti-Terrorism Laws"), including without limitation Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (the "Executive Order") and/or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (the "USA Patriot Act").

b. Tenant covenants with Landlord that neither Tenant nor any of its respective constituent owners or affiliates is or shall be during the Term hereof a “Prohibited Person,” which is defined as follows: (i) a person or entity that is listed in the Annex to, or is otherwise subject to, the provisions of the Executive Order; (ii) a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order; (iii) a person or entity with whom Landlord is prohibited from dealing with or otherwise engaging in any transaction by any Anti-Terrorism Law, including without limitation the Executive Order and the USA Patriot Act; (iv) a person or entity who commits, threatens or conspires to commit or support "terrorism" as

defined in Section 3(d) of the Executive Order; (v) a person or entity that is named as a "specially designated national and blocked person" on the then-most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf, or at any replacement website or other replacement official publication of such list; and (vi) a person or entity who is affiliated with a person or entity listed in items (i) through (v), above.

30. MISCELLANEOUS PROVISIONS.

a. Time is of the essence with respect to all of Landlord's and Tenant's obligations under this Lease.

b. The waiver by Landlord or Tenant of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition of any prior or subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any prior breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such prior breach at the time of acceptance of such rent.

c. In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover from the other party the fees of its attorneys in such action or proceeding in such amount as the court may judge to be reasonable for such attorneys' fees.

d. Except as expressly otherwise provided in this Lease, all of the provisions of this Lease shall bind and inure to the benefit of the parties hereto and to their heirs, successors, representatives, executors, administrators, transferees and assigns. The term "Landlord," as used herein, shall mean only the owner of the Building and the Land or of a lease of the Building and the Land, at the time in question, so that in the event of any transfer or transfers of title to the Building and the Land, or of Landlord's interest in a lease of the Building and the Land, the transferor shall be and hereby is relieved and freed of all obligations of Landlord under this Lease accruing before such transfer, and it shall be deemed, without further agreement, that such transferee has assumed and agreed to perform and observe all obligations of Landlord herein during the period it is the holder of Landlord's interest under this Lease.

e. Notwithstanding any provision to the contrary herein, Tenant shall look solely to the estate and property of Landlord in and to the Land and the Building in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Premises, and Tenant agrees that the liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant, or Tenant's use of the Premises shall be limited to such estate and property of Landlord in and to the Land and the Building. No other properties or assets of Landlord (i.e., other than the estate and property of Landlord in and to the Building) and no property or assets of any member, partner, shareholder, officer or director of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) or for the satisfaction of any other remedy of Tenant arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant's use of the Premises.

f. Landlord and Landlord's agents have made no representations or promises with respect to the Building, the Land or the Premises except as herein expressly set forth.

g. Landlord and Tenant shall each be excused from performing an obligation or undertaking provided for in this Lease so long as such performance is prevented or delayed, retarded or hindered by an Act of God, fire, earthquake, flood, explosion, action of the elements, war, invasion, insurrection, riot, mob violence, sabotage, inability to procure or a general shortage of labor, equipment, facilities, materials or supplies in the open market, failure of transportation, strike, lockout, action of labor unions, a taking by eminent domain, requisition, laws, orders of government, or of civil, military or naval authorities, inability to obtain, or delays in obtaining, permits or other governmental approvals, or any

other cause whether similar or dissimilar to the foregoing, not within the reasonable control of said party (collectively, “Force Majeure”).

h. If any governmental entity or authority hereafter imposes a tax or assessment upon or against any of the rent or other charges payable by Tenant to Landlord hereunder (whether such tax takes the form of a lease tax, sales tax or other tax), Tenant shall be responsible for the timely payment thereof. Unless Landlord and Tenant otherwise agree in writing with respect to the payment thereof, Tenant shall pay the applicable tax to Landlord in monthly installments on the date upon which Tenant pays to Landlord the installments of Monthly Base Rent due under this Lease.

i. This Lease and the Exhibits hereto constitute the entire agreement between the parties, and supersedes any prior agreements or understandings between them. The provisions of this Lease may not be modified in any way except by written agreement signed by both parties.

j. This Lease shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia.

k. The submission of this Lease to Tenant, does not constitute an offer to lease the Premises. This Lease shall have no force and effect until it is executed and delivered by Tenant to Landlord and executed by Landlord.

l. This Lease may be executed in two (2) or more counterpart copies, all of which counterparts shall have the same force and effect as if all parties hereto had executed a single copy of this Lease.

[The rest of this page intentionally left blank. Signatures appear on the following page.]

IN WITNESS WHEREOF, duly authorized representatives of Landlord and Tenant have executed this Deed of Office Lease under seal on the day and year first above written.

LANDLORD:

KBSIII 3003 WASHINGTON, LLC

a Delaware limited liability company



By:	/s/ Stephen J. Close
	Name: Stephen J. Close
	Title: SVP

TENANT:

KBS REALTY ADVISORS, LLC.,

a Delaware corporation



By:	/s/ Marc Deluca
	Name: Marc Deluca
	Title: Regional President



	LIST OF EXHIBITS

	EXHIBIT A:	Floor Plan of Premises
	EXHIBIT B:	Work Agreement
	EXHIBIT C:	Declaration of Commencement Date
	EXHIBIT D:	Rules and Regulations

EXHIBIT A

FLOOR PLAN OF PREMISES

[Attach]

EXHIBIT B

WORK Agreement

Capitalized terms not otherwise defined in this Work Agreement shall have the meanings set forth in the Lease. In the event of any conflict between the terms hereof and the terms of the Lease, the terms hereof shall prevail for the purposes of design and construction of the Tenant Improvements.

A. TENANT IMPROVEMENTS.

1. Landlord Demising Work. On or before the Commencement Date, Landlord shall cause the Premises to be demised with a building standard glass suite entry and rear door.

2. Tenant Improvements. Tenant, at its sole cost and expense but subject to the Improvement Allowance (hereinafter defined), shall furnish and install the improvements in the Premises set forth in the Tenant’s Plans (hereinafter defined) (the “ Tenant Improvements ”).

B. PLANS AND SPECIFICATIONS.

1. Space Planner. Tenant shall retain the services of an architectural firm approved by Landlord (the “ Space Planner ”), which approval shall not be unreasonably withheld, conditioned or delayed, to design the Tenant Improvements in the Premises and to prepare the Final Space Plan and the Contract Documents (each hereinafter defined). The Space Planner shall meet with Landlord and/or Landlord’s building manager from time to time to obtain information about the Building and to ensure that the Tenant Improvements will not interfere with or affect: (i) the exterior of the Building (including, without limitation, the roof and windows), (ii) the demising walls, columns, concrete slabs, foundations, and other structural elements of the Building, (iii) the restrooms and elevators of the Building; (iv) the common area corridors and elevator lobbies on any floor of the Building, and (v) the Building-standard mechanical, electrical, HVAC, plumbing and life-safety systems (collectively, the “ Base Building Elements ”). The Space Planner shall prepare all space plans, working drawings, and plans and specifications described in Paragraph B.3, below, in conformity with the plans for the Base Building Elements, and the Space Planner shall coordinate its plans and specifications with the Engineers (hereinafter defined) and Landlord. All fees of the Space Planner shall be borne solely by Tenant, subject to application of the Improvement Allowance as hereinafter provided.

2. Engineers. Tenant shall retain the services of mechanical, electrical, plumbing and structural engineers approved by Landlord (the “ Engineers ”), which approval shall not be unreasonably withheld, conditioned or delayed: (i) to design the type, number and location of all mechanical systems in the Premises, including, without limitation, the heating, ventilating and air conditioning system and the fire alarm system located therein, and to prepare all of the mechanical plans; (ii) to assist Tenant and the Space Planner in connection with the electrical design of the Premises, including the location and capacity of light fixtures, electrical receptacles and other electrical elements, and to prepare all of the electrical plans; (iii) to assist Tenant and the Space Planner in connection with plumbing-related systems in the Premises, and to prepare all of the plumbing plans; and (iv) to assist Tenant and the Space Planner in connection with the structural elements of the Space Planner’s design of the Premises, and to prepare all of the structural plans. All fees of the Engineers shall be borne solely by Tenant, subject to application of the Improvement Allowance as hereinafter provided.

3. Time Schedule.

(i) Tenant shall furnish to Landlord for its review and approval a proposed detailed space plan for the Tenant Improvements (the “ Final Space Plan ”) prepared by the Space Planner, in consultation with Landlord and the Engineers. The Final Space Plan shall contain the information and otherwise comply with the requirements therefor described in Schedule B-1 attached hereto (the “ Space Plan Requirements ”). Landlord’s approval of the Final Space Plan shall be granted or withheld in

accordance with the Approval Standard (hereinafter defined). Landlord shall advise Tenant of Landlord’s approval or disapproval of the Final Space Plan within seven (7) business days after Tenant submits the Final Space Plan to Landlord. Tenant shall promptly revise the proposed Final Space Plan to meet Landlord’s objections, if any, and shall resubmit the Final Space Plan to Landlord for its review and approval, to be granted or withheld in accordance with the same timeframes and procedures applicable to Landlord’s original review of the Final Space Plan.

(ii) After Landlord approves the Final Space Plan, Tenant shall furnish to Landlord for its review and approval, all architectural plans, working drawings and specifications (the “ Contract Documents ”) necessary and sufficient (a) for the construction of the Tenant Improvements; and (b) to enable Tenant or its Contractor (hereinafter defined) to obtain a building permit for the construction of the Tenant Improvements. The Contract Documents shall contain the information and otherwise comply with the requirements therefor described in Schedule B-2 attached hereto (the “ Contract Documents Requirements ”). Landlord’s approval of the Contract Documents shall be granted or withheld in accordance with the Approval Standard (hereinafter defined). Landlord shall advise Tenant of Landlord’s approval or disapproval of the Contract Documents, or any of them, within seven (7) business days after Tenant submits the Contract Documents to Landlord. Tenant shall promptly revise the Contract Documents to meet Landlord’s objections, and resubmit the Contract Documents to Landlord for its review and approval, to be granted or withheld in accordance with the same timeframes and procedures applicable to Landlord’s original review of the Contract Documents.

(iii) The Final Space Plan and the Contract Documents are referred to collectively herein as the “ Tenant’s Plans .” Landlord’s approval of the Tenant’s Plans, or any Change Orders thereto, shall not be unreasonably withheld, conditioned or delayed; provided, however, that Landlord shall have the right to withhold or condition its consent in its sole and absolute discretion, if: (a) the Tenant Improvements will not comply with all Legal Requirements or the Tenant’s Plans will not be sufficient to obtain a building permit; (b) the Tenant Improvements will require changes or upgrades to be made to portions of the Building other than the Premises; (c) the Final Space Plan does not satisfy the Space Plan Requirements, or the Contract Documents do not satisfy the Contract Documents Requirements; (d) the Tenant Improvements will or may affect the Base Building Elements, the exterior appearance of the Building, or the appearance of the Building’s common areas or elevator lobby areas; (e) the Tenant Improvements will increase maintenance, insurance or utility charges for operating the Building in excess of the standard requirements for Comparable Buildings; or (f) the Contract Documents are not sufficiently detailed to allow construction of the improvements in a good and workmanlike manner (the “ Approval Standard ”). Notwithstanding anything herein to the contrary, approval by Landlord of the Tenant’s Plans or any Change Orders thereto shall not constitute an assurance or representation by Landlord that: (I) the Tenant Improvements satisfy Legal Requirements or the Tenant’s Plans are sufficient to obtain a building permit for the undertaking of the Tenant Improvements in the Premises; or (II) will not affect the Base Building Elements. Tenant, not Landlord, shall bear full responsibility for ensuring that the Tenant Improvements and Tenant’s Plans comply with all Legal Requirements and the provisions of this Work Agreement.

4. Change Orders. No Change Order shall be made without the prior written approval of Landlord, which approval shall be granted or withheld in accordance with the Approval Standard. As used herein, the term “ Change Order ” shall mean any change in the Tenant’s Plans or the work included within the Tenant Improvements, including, without limitation, changes which are requested by Tenant, changes which are necessitated by Legal Requirements, and changes which are required as a condition to the issuance of any necessary building permit. If Tenant determines that a Change Order is necessary or desirable, Tenant shall request Landlord’s approval of the Change Order in writing. If Landlord approves the Change Order, Tenant shall be solely responsible for all costs and expenses resulting therefrom (subject to the application of the Improvement Allowance), including, without limitation, costs or expenses relating to (i) any additional architectural or engineering services and related design expenses, (ii) any changes to materials in process of fabrication, (iii) cancellation or modification of supply or fabricating contracts, or (iv) removal or alteration of work or plans completed or in process. Tenant shall be solely responsible for any delays resulting by reason of any Change Order, and shall not be entitled to any delay of the Commencement Date by reason thereof.

C. COST OF TENANT IMPROVEMENTS/ALLOWANCES

1. Construction Costs. All costs of design and construction of the Tenant Improvements, including, without limitation, the costs of all space planning, architectural and engineering work related thereto, all governmental and quasi-governmental approvals and permits required therefor, any costs incurred by Landlord because of changes to the Base Building Elements, all construction costs, contractors’ overhead and profit, insurance and other requirements, the Construction Supervision Fee (hereinafter defined), the Construction Management Fee (hereinafter defined), costs associated with any Change Orders, and all other costs and expenses incurred in connection with the Tenant Improvements (collectively, “ Construction Costs ”), shall be paid by Tenant, subject, however, to the application of the portions of the Improvement Allowance then-remaining from time to time (the “ Available Allowance ”) as set forth in Section C.2., below.

2. Improvement Allowance.

(i) Provided Tenant is not in default of the Lease, Landlord agrees to provide to Tenant an allowance (the “ Improvement Allowance ”) in an amount up to EIGHTY AND 00/100 DOLLARS ($80.00) per rentable square foot of the Premises to be applied solely to the Construction Costs, and, to the limited extent provided herein, to FF&E Costs (hereinafter defined).

(ii) Construction Costs shall be disbursed by Landlord from the Available Allowance, as and when such costs are actually incurred by Tenant. Tenant shall submit to Landlord, from time to time, but not more often than once per calendar month, requests for direct payments to third parties, or for reimbursement to Tenant, for Construction Costs incurred by Tenant out of the Available Allowance, which requests shall be accompanied by (a) paid receipts or unpaid invoices substantiating the costs for which payment is requested; (b) a signed statement from Tenant and the Space Planner certifying that the costs were actually incurred for the stated amount; (c) lien waivers from all parties supplying services or materials for which payment is sought, which lien waivers may be conditioned only upon payment of the requested amounts; and (d) such other information as Landlord reasonably requires. Provided Tenant delivers to Landlord an approved draw request, prepared as set forth above, Landlord shall pay the costs covered by such payment request within thirty (30) days following receipt thereof. In no event shall Landlord be obligated to make more than one (1) such payment in any calendar month.

(iii) Following the substantial completion of the Tenant Improvements and the payment in full of all Construction Costs, Tenant shall also be entitled to draw upon the Available Allowance, to reimburse Tenant for the actual, documented, third-party costs of Tenant’s furniture, fixtures, equipment and telecommunications cabling and wiring to be installed in the Premises and Tenant’s moving expenses (excluding legal fees) (collectively, “ FF&E Costs ”). Tenant shall submit to Landlord a single request for reimbursement of FF&E Costs incurred by Tenant out of the Available Allowance, together with (a) documentation reasonably satisfactory to Landlord evidencing that the Tenant Improvements are substantially complete and that all Construction Costs have been paid, (b) appropriate paid receipts for the total amount of the FF&E Costs requested by Tenant, and (c) final unconditional lien waivers, in a form satisfactory to Landlord, from each supplier providing the new furniture and equipment (but only if and to the extent that such lien waivers are necessary, in the reasonable judgment of Landlord, to protect Landlord from and against liens imposed by such suppliers). Notwithstanding anything to the contrary contained herein, in no event shall the amount of the Improvement Allowance applied to FF&E Costs exceed the sum of TEN AND 00/100 DOLLARS ($10.00) per rentable square foot of the Premises.

3. Costs Exceeding Available Allowance. All Construction Costs in excess of the Improvement Allowance shall be paid solely by Tenant on or before the date such costs are due and payable, and Tenant agrees to indemnify Landlord from and against any such Construction Costs. All amounts payable by Tenant pursuant to this Work Agreement shall be deemed to be Additional Rent for purposes of the Lease. Tenant shall pay to Landlord, within five (5) days after Landlord’s invoice therefor, a sum equal to the amount by which all then-unpaid Construction Costs (whether or not yet accrued by Tenant) are reasonably estimated by Landlord to exceed the then-Available Allowance, which amount

shall be held by Landlord to pay for such excess Construction Costs and shall be disbursed by Landlord in accordance with the same terms, conditions and procedures applicable to the Available Allowance. Tenant’s failure to timely pay such amounts shall constitute Tenant Delays and shall entitle Landlord to order Tenant and the Contractor to immediately cease work on the Tenant Improvements without liability to Tenant or the Contractor.

4. Test Fit Allowance. In addition to the Improvement Allowance, Landlord shall provide Tenant with an allowance (the “ Test Fit Allowance ”) in the amount of Six Hundred and 00/100 Dollars ($600.00) ($0.12 per rentable square foot of the Premises) to be applied towards any architectural expenses incurred by Tenant in connection with the preparation of the preliminary test fit plan of the Premises. Any costs and expenses relating to the preparation of the preliminary test fit plan which exceed the Test Fit Allowance shall be payable by Tenant, subject to application of the Improvement Allowance. Landlord shall reimburse Tenant for the cost of the preliminary test fit plan, up to the amount of the Test Fit Allowance, within thirty (30) days after Landlord’s receipt of a receipt or paid invoice evidencing Tenant’s payment of such cost. Landlord shall retain any portion of the Test Fit Allowance not expended by Tenant prior to the Commencement Date.

5. Construction Supervision Fee. Tenant shall pay an administrative fee (the “ Construction Supervision Fee ”) to compensate Landlord for the review of plans and supervision of the Tenant Improvements in an amount equal to one percent (1%) of the Hard Construction Costs (hereinafter defined). Such administrative fee shall be deducted by Landlord from any Available Allowance. As used herein, the term “ Hard Construction Costs ” means all Construction Costs excluding insurance, architectural, engineering and design services.

D. CONSTRUCTION

1. General Contractor . Tenant shall retain a general contractor licensed in the Commonwealth of Virginia and approved by Landlord to undertake construction of the Tenant Improvements (the “ Contractor ”). Landlord shall not unreasonably withhold, condition, or delay its approval of the Contractor. The Contractor shall be responsible for obtaining, at Tenant’s cost but subject to the Improvement Allowance, all permits and approvals required for the construction of the Tenant Improvements.

2. Construction By The Contractor. In undertaking the Tenant Improvements, Tenant and the Contractor shall strictly comply with the following conditions:

(i) No work involving or affecting the Base Building Elements shall be performed without the prior written approval of Landlord in its sole discretion, whether pursuant to its approval of Tenant’s Plans or otherwise, and the supervision of Landlord’s building engineer.

(ii) All Tenant Improvement work shall be performed in strict conformity with (a) the final approved Tenant’s Plans; (b) all Legal Requirements; (c) valid building permits and other authorizations from appropriate governmental agencies; and (d) Landlord’s construction policies, rules and regulations attached hereto as Schedule B-3 , as the same may be reasonably modified by Landlord from time to time (“ Construction Rules ”). Prior to the commencement of work on the Tenant Improvements, Tenant shall cause the Contractor to sign a copy of the Construction Rules and deliver same to Landlord to acknowledge Contractor’s receipt of the Construction Rules and Contractor’s agreement to comply, and to cause its subcontractors to comply, with the Construction Rules. Any work not acceptable to the appropriate governmental agencies or not reasonably satisfactory to Landlord shall be promptly replaced at Tenant’s sole expense. Notwithstanding any failure by Landlord to object to any such work, Landlord shall have no responsibility therefor.

(iii) Tenant shall ensure that Contractor and each subcontractor obtains and maintains commercial general liability, business automobile liability, umbrella/excess liability, worker’s compensation and employers liability coverages in accordance with Section 11 of the Lease.

(iv) All Tenant Improvements shall be performed and completed in a good and workmanlike manner and in accordance with good industry practice. All materials used in the performance of the Tenant Improvements and in the fixturing of the Premises shall be new and of good quality.

3. Permits and Licenses; Delays. Tenant shall be solely responsible for procuring all permits and licenses necessary to undertake the Tenant Improvements and, upon completion of the Tenant Improvements, to occupy the Premises.

4. Inspection . Landlord shall have the right, but not the obligation, to enter the Premises at all times during Tenant’s prosecution of construction of the Tenant Improvements to inspect the Tenant Improvements.

5. Substantial Completion. The Tenant Improvements will be deemed to be “ substantially complete ” upon the later of: (i) the date on which the Tenant Improvements are substantially completed in accordance with the Tenant’s Plans, except for punch list items and minor details of construction which do not materially impair the use of the Premises for general office use, or (ii) the date on which the appropriate governmental authority having jurisdiction over the Building and Premises issues a Certificate of Occupancy or similar certificate or permit with respect to the Premises.

E. REMOVAL OF TENANT IMPROVEMENTS. All items of the Tenant Improvements, whether or not the cost is covered by the Improvement Allowance, shall become the property of Landlord upon the expiration of the Term (or any earlier termination of the Lease) and shall remain in the Premises at all times during the Term. Notwithstanding the foregoing to the contrary, Landlord shall have the right to require Tenant to remove at the expiration of the Term (or any earlier termination of the Lease) any items of Tenant Improvements designated by Landlord to be removed by Tenant at the time Landlord approves the Tenant’s Plans. Tenant shall repair and restore any damage to the Premises and/or Building caused by the removal of any items of the Tenant Improvements.

F. EARLY ACCESS. Landlord shall, subject to compliance with Legal Requirements and the terms and conditions set forth in this Paragraph F, grant to Tenant and certain other Tenant Parties a license for Tenant and certain other Tenant Parties to have access to the Premises prior to the Commencement Date. Such access shall be for the purpose of constructing the Tenant Improvements and allowing Tenant to install in the Premises Tenant's furniture, fixtures and voice and data equipment and cabling as may be necessary to make the Premises ready for Tenant's use and occupancy (the "tenant's Pre-Occupancy Work"). Tenant shall deliver to Landlord Tenant's written request for early access not less than five (5) business days prior to the date on which such access shall commence and such notice shall be accompanied by each of the following items: (i) the names and addresses of all Tenant Parties who will be entering the Premises on behalf of Tenant to perform Tenant's Pre-Occupancy Work; and (ii) certificates of insurance evidencing the coverages required to be maintained by Tenant Parties pursuant to Section 12 of the Lease. Any and all access to the Premises and the performance of the Tenant's Pre-Occupancy Work shall be subject to scheduling by Landlord, in Landlord's sole but reasonable discretion. Any entry into and/or occupancy of the Premises by any tenant Party prior to the Commencement Date shall be subject to all of the terms, covenants, conditions and provisions of the Lease, including, without limitation, the provisions of Sections 11 of the Lease, and excluding only the covenant to pay Base Rent (which shall not commence until the Commencement Date).



	Schedule B-1	Space Plan Requirements

	Schedule B-2	Contract Documents Requirements

	Schedule B-3	Construction Rules

SCHEDULE B-1

SPACE PLAN REQUIREMENTS

Floor plans, together with related information for mechanical, electrical and plumbing design work, showing partition arrangement and reflected ceiling plans (three [3] reproducible sets), including, without limitation, the following information:

(a) identify the location of conference rooms and density of occupancy;

(b) identify the density of occupancy for all rooms;

(d) identify areas, if any, requiring twenty-four (24) hour air conditioning;


(e)	indicate those partitions that are to extend from floor to underside of structural slab above or require special acoustical treatment;


(f)	identify the location of rooms for, and layout of, telephone equipment other than building core telephone closet;


(g)	identify the locations and types of plumbing required for toilets (other than core facilities), sinks, drinking fountains, etc.;


(h)	indicate light switches in offices, conference rooms and all other rooms in the Premises;


(i)	indicate the layouts for specially installed equipment, including computer and duplicating equipment, the size and capacity of mechanical and electrical services required and heat rejection of the equipment;

(j)

indicate the dimensioned location of: (i) electrical receptacles (one hundred twenty (120) volts), including receptacles for wall clocks, and telephone outlets and their respective locations (wall or floor), (ii) electrical receptacles for use in the operation of Tenant’s business equipment which requires two hundred eight (208) volts or separate electrical circuits, (iii) electronic calculating and CRT systems, etc., and (iv) special audio-visual requirements;


(k)	indicate proposed layout of sprinkler and other life safety and fire protection equipment, including any special equipment and raised flooring;


(l)	indicate the swing of each door;


(m)	indicate a schedule for doors and frames, complete with hardware, if applicable; and


(n)	indicate any special file systems to be installed.

SCHEDULE B-2

CONTRACT DOCUMENTS REQUIREMENTS

Final architectural detail and working drawings, finish schedules and related plans (three [3] reproducible sets) including, without limitation, the following information and/or meeting the following conditions:


(a)	materials, colors and designs of wall coverings, floor coverings and window coverings and finishes;


(b)	paintings and decorative treatment required to complete all construction;


(c)	complete, finished, detailed mechanical, electrical, plumbing and structural plans and specifications for the Tenant Improvements, including, but not limited to, the fire and life safety systems and all work necessary to connect any special or non-standard facilities to the Building’s base mechanical systems;


(d)	all final drawings and blueprints must be drawn to a scale of one-eighth inch (1/8”) to one foot (1’).

SCHEDULE B-3

CONSTRUCTION RULES AND REGULATIONS

BUILDING STANDARD CONFORMANCE - The Contractor must be certain that all ceiling tiles, venetian blinds, and door hardware conform to the building standards. Door locks should be keyed to the building master and to the floor master. The Building Manager should be consulted before ordering these items.

PROTECTION OF NON-CONSTRUCTION AREAS - The Contractor shall protect all walls, floors, carpet, furniture and fixtures and shall repair or replace damaged property without cost to the Owner. Masonite (or plywood) must be placed as a walkway on the public corridors from freight elevator to the construction site and to the common area restrooms to protect the carpet from drywall dust, etc. Common area carpet protection is to be removed daily and the carpet vacuumed daily.

DUSTY WORK – Contractor shall notify the Building Engineer prior to commencement of very dusty work such as sheet rock cutting, sanding, extensive broom cleaning, etc. so that additional filtering capacity can be arranged for the affected HVAC equipment. Failure to notify the Building Engineer will result in the Contractor absorbing the costs to return the equipment to its proper condition. In buildings with a ceiling plenum return air system, all lights shall be covered during high dust construction.

RESTROOMS – Only restrooms designated by the Building Manager or engineer may be used. Restroom sinks may not by used to clean tools, paintbrushes, etc. Access to slop sinks should be coordinated with the Building Manager. All paints, varnishes, thinners, etc., should be disposed of properly.

LOADING DOCK – Contractor must use the loading dock for the delivery of all construction materials to and removal of debris from the building. Use of the loading dock must be scheduled with the Building Manager in advance and materials must be transported to and from the service corridor (if applicable). All materials unloaded at the dock will be moved to area of use immediately and shall not impact use of this facility in any way.

TRASH & DEBRIS - Contractors will remove their trash and debris daily or as often as necessary to maintain cleanliness in the building. Contractors will coordinate dumpster size, placements and timing with the Building Manager. The building trash containers are not to be used for construction debris. Contractors shall be responsible for daily removal of waste foods, milk and soft drink containers, etc., to trash room. Failure to properly clean up debris will necessitate a cleaning charge of $250.00/day to Contractor.

WORK SCHEDULES - The Building Manager will be notified of all work schedules for all workmen on the job and will be given 48 hours notice, in writing, of names of those who may be working in the building before or after standard building operating hours as set forth in the Lease Agreement. Building Manager shall be provided with names and phone numbers of subcontractors.

ELEVATORS – Elevators shall not be used for moving materials during the hours of 8:00 a.m. to 9:30 a.m., 11:30 a.m. to 1:00 p.m., and 4:30 p.m. to 6:00 p.m. The designated freight elevator is the only elevator to be used for moving materials and construction personnel and shall be properly protected with temporary plywood, wall protection or elevator pads. Use of the elevator is to be scheduled with the Building Manager. The freight elevator is to be locked on independent service for the hauling of materials. Do not hold doors open by propping or wedging materials in their tracks. This can cause serious damage. The elevator must be cleaned after each use, including vacuuming the carpet, cleaning of any debris in the door track, and wiping down of the door and interior panels.

MECHANICAL, ELECTRICAL, PLUMBING – Prior to and upon completion of work to be performed on mechanical, electrical or plumbing systems, the Building Manager or Building Engineer must be notified. If any mechanical, electrical or plumbing devices are already turned off when you go to turn them off, find out why – it may be turned on while you are working . Permission to enter other tenant spaces must be arranged through the Building Manager.

CUTTING, CORE DRILLING, X-RAYS - Before any cutting, drilling, core boring or other structural work is performed, the Contractor shall obtain the Building Manager’s written permission and verify the locations of the building’s utility lines so as not to damage them. Prior to any core boring, x-ray of floor area to identify location of post tension cables shall be required.

UTILITIES - No utilities (electric, water, gas or oil) or services to tenants are to be cut off or interrupted without first having requested and secured, in writing, the permission of the Building Manager. All electrical or plumbing tie-ins or shutdowns will be scheduled in advance, with a minimum of one day’s notice, with the building management.

BASE BUILDING TIE-INS – The Building Manager must receive 48 hours notice for all tie-ins to the buildings plumbing, electrical or sprinkler systems. In the event Contractor’s work requires a shutdown of these systems or fire alarm tie-in, the Building Manager reserves the right to set specific after-hours times when such work may be performed, require that the Building Engineer be present, and charge the Contractor for overtime cost for engineer time. Prior to connection to the Base Building condenser water or chilled water system, Contractor must perform a hydrostatic pressure test and a thorough cleaning and flushing of the Tenant’s water lines and mechanical unit. A member of the Building Manager’s engineering staff will review the results of such testing and cleaning.

OPERATING HOURS - No work is to be performed during standard building operating hours that will disturb or inconvenience other occupants of the building without the written permission of the Owner’s agent (including work creating noise or odor). All work involving drilling or boring of concrete will only be allowed prior to 7:00 a.m. and after 7:00 p.m. Monday through Friday, and prior to 7:00 a.m. and after 1:00 p.m. on Saturday unless otherwise approved in advance. X‑ray work will require special scheduling.

TEMPORARY KEYS - Whenever it is deemed necessary by the Building Manager to temporarily issue any key to the Contractor, the Contractor will be responsible for controlling possession and use of it until returned daily to the issuing party.

SECURITY - Contractor will be responsible for re-locking any areas made available for necessary access whenever that area(s) is unattended, and also when work or work hours are completed. Contractors are responsible for the security of their own job site at all times. Should the Contractor need to work on an overtime basis in an area that is open to the building and unsecured, the Contractor shall provide security through the landlord’s security agent and shall reimburse the landlord for such time that is utilized during the overtime period. If double shifts are performed and such shifts go beyond the normal working hours of the security personnel, then the Contractor shall also make arrangements with the Building Manager to provide security during these hours and shall reimburse the managing agent for this time. All costs of the provision of security personnel will be borne by the Contractor. It is recommended that electronic security in the suite under construction be deactivated during construction. Activation of the electronic security system for the suite should be scheduled well in advance to ensure completion by the time of tenant occupancy.

SAFETY - Contractor shall be aware of all life safety issues and shall provide a list of emergency contacts in the event that a representative of the Contractor’s organization must be contacted after hours. In addition to this contact list, Contractors shall provide fire extinguishers at a ratio of one (1) for each 1,000 square feet of construction area and such fire extinguishers shall be mounted in a visible area marked properly. Contractors shall comply with all OSHA regulations as well as all federal, state and city or county codes relating to workers’ safety. The Contractor shall review the job site and the job organization for total compliance to these rules and regulations on a weekly basis and provide a report to the Owner that such review has been performed and any infractions that were observed during this review. The Contractor shall provide MSDS sheets to the Building Manager for all Volatile Organic Compounds prior to use on the premises. The use of such compounds is restricted to non-business hours.

LIFE SAFETY DEVICES - Contractor, under no circumstances, will be allowed to disconnect, tamper with, delete, obstruct, relocate or add any life safety, fire detection, notification, suppression unit or devices except as indicated on the drawings approved by the Fire Department Authority having jurisdiction. In the event contractor’s work requires electrical, plumbing or sprinkler system shutdown

or fire alarm tie-in, building management reserves the right to prohibit such during building hours. Arrangements must be made with the Building Manager as to the hours when such work can be performed, to have an engineer present, and to pay the cost, if any, for such engineering time. In taking over an area, the Contractor shall maintain, repair, or improve as necessary all safety requirements for that area. Contractor will be charged $1,000 plus associated building management costs for each incident in which a life safety device on the job site is left in a disabled condition.

ACCIDENTAL ALARM - Contractor shall take all necessary precautions to prevent accidental alarm of automatic fire system devices (smoke and/or heat detectors), etc. Smoke detectors in areas under construction must be “bagged” during construction hours and unbagged at the end of the day. Before any unit or device is temporarily incapacitated, the Building Engineer shall be advised to allow notification of the Fire Department and then the device shall be red-tagged “Out of Service.” Every effort must be made to reactivate “Out of Service” devices as soon as possible. Therefore any contractor who sets off a building fire or security alarm will be assessed at $1,000 plus associated building management costs per incident.

POSTING OF RULES AND REGULATIONS - A copy of these rules and regulations, acknowledged and accepted by the Contractor, must be posted on the job site in a manner allowing easy access by all workers. It is the Contractor’s responsibility to instruct all workers, including subcontractors, to familiarize themselves with these rules.

SIGNAGE - Contractor or subcontractor signage may not be displayed in the building common areas or any of the window glass.

HOUSEKEEPING - Daily cleaning is to be performed in the work area before leaving the premises including but not limited to the clean up of (vacuuming of) floor covering, exposed surfaces, janitors’ closet and any other affected areas. Workmen are to use only restroom facilities designated by building management and will maintain the single restroom in an acceptable fashion. Materials and/or supplies, which must remain on the premises overnight, are to be consolidated daily and stored in a location out of Tenant view if possible. If building staff designates a better location for storage than originally chosen, the contractor is to have materials relocated. In preparation for substantial completion inspection or occupancy, the Contractor shall perform a final cleaning of Contractor’s Work, including any adjacent areas that have been soiled by such work.

PARKING – On-site parking is available.

FREIGHT ELEVATORS - All construction materials/tools are to be transported on the freight elevator only. The freight elevator may not be used from 8:00 a.m. - 9:30 a.m., 11:30 a.m. to 1:00 p.m., and 4:30 p.m. to 6:00 p.m. Any deliveries requiring more than one trip will have to be scheduled in advance through building management. Under no circumstances are the passenger elevators to be used. Use of freight elevators must be coordinated with the Building Manager throughout the duration of the project.

SUPERVISION - There will be a person of authority (supervisor) on the job at all times who will always be accessible to building management.

RADIOS - No radios shall be played in common areas (including hallways, restrooms, and stairwells). Radios may only be played in enclosed office space at a low volume. Any complaints by tenants will result in revocation of the privilege.

CONDUCT - While workmen are in the building, they will conduct themselves in a quiet and efficient manner and demonstrate courtesy to Tenants and staff. Proper attire must be worn at all times including shoes and shirts; no cutoff shirts or ragged clothes will be permitted at any time. Workmen are not to congregate in any public area for lunch or for reasons other than work. Noon break is to be taken away from access and egress areas of the building. All lunch trash is to be properly disposed of by the workmen. The Contractor shall be responsible for the actions of his employees on site as well as those of his subcontractors, agents and visitors.

SMOKING - Smoking is not permitted inside any area of the building. The workmen will take care to properly extinguish and place used smoking materials in the ashtrays outside of the building.

ACCESS - Wherever possible, no vendors or materials are to block loading dock or elevator access on any floor or to block restrooms, stairwells or suite access. Work materials may not obstruct access way for Tenants. Building materials may not be brought into the building through the lobbies or stored in the lobbies or corridors at any time.

CABLING - Abandoned telephone or data cabling shall be removed from the ceiling and any new communication cabling separately supported from the slab above (not hanging from ceiling supports).

OUTLETS - Electrical outlets being abandoned shall have the BX removed to junction box or the panel.

Any significant breach of guidelines by a Contractor that adversely affects a tenant, or embarrasses the Owner’s Agents, will not be tolerated and will be cause for dismissal from the Project. The Contractor may also be expelled from the building for repeated disregard for the aforementioned instructions.

CONTRACTOR ACKNOWLEDGEMENT:

Contractor has received a copy of the above-described Construction Rules and acknowledges its agreement to abide by the same. Contractor shall be responsible for ensuring that all of Contractor’s sub-contractors also abide by such Construction Rules.

SIGNED:

DATE:

EXHIBIT C

DECLARATION OF COMMENCEMENT DATE

This Declaration of Commencement Date is made as of ___________________, 2015, by KBSIII 3003 WASHINGTON, LLC, a Delaware limited liability company ("Landlord"), and KBS REALTY ADVISORS, INC., a Delaware corporation ("Tenant"), who agree as follows:

1. Landlord and Tenant entered into a Deed of Office Lease dated _______________, 2015, in which Landlord leased to Tenant and Tenant leased from Landlord certain Premises described therein in the office building located at 3003 Washington Boulevard, Arlington, VA 22201 (the "Building"). All capitalized terms herein are as defined in the Lease.

2. Pursuant to the Lease, Landlord and Tenant agreed to and do hereby confirm the following matters:


a.	the Commencement Date is ________________________;


b.	the Lease Expiration Date is ________________________;


c.	the number of rentable square feet of the Premises is ______________; and


d.	Tenant's Pro Rata Share is ____________%.

3. Tenant confirms that:


a.	it has accepted possession of the Premises as provided in the Lease;


b.	Landlord is not required to perform any work or furnish any improvements to the Premises under the Lease;


c.	Landlord has fulfilled all of its obligations under the Lease as of the date hereof;


d.	the Lease is in full force and effect and has not been modified, altered, or amended, except as follows: __________________________________; and


e.	there are no set-offs or credits against Rent, and no security deposit or prepaid Rent has been paid except as provided by the Lease.

4. The provisions of this Declaration of Commencement Date shall inure to the benefit of, or bind, as the case may require, the parties and their respective successors and assigns, and to all mortgagees of the Building, subject to the restrictions on assignment and subleasing contained in the Lease, and are hereby attached to and made a part of this Lease.

[The rest of this page intentionally left blank. Signatures appear on the following page.]

LANDLORD:

KBSIII 3003 WASHINGTON, LLC,

a Delaware limited liability company



By:
	Name:
	Title:

TENANT:

KBS REALTY ADVISORS, INC.,

a Delaware corporation



By:
	Name:
	Title:

EXHIBIT D

RULES & REGULATIONS

The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags or other substances (including, without limitation, coffee grounds) shall be thrown therein. All damages resulting from misuse of the fixtures shall be borne by Tenant if Tenant or its servants, employees, agents, visitors or licensees shall have caused the same.


2.	No cooking (except for hot-plate and microwave cooking by Tenants' employees for their own consumption, the location and equipment of which is first approved by Landlord), sleeping or lodging shall be permitted by any tenant on the Premises. No tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the Premises.


3.	No inflammable, combustible, or explosive fluid, material, chemical or substance shall be brought or kept upon, in or about the Premises. Fire protection devices, in and about the Building, shall not be obstructed or encumbered in any way.


4.	Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same.

There shall not be used in any space, or in the public halls of the Building, either by any tenant or by its agents, contractors, jobbers or others, in the delivery or receipt of merchandise, freight, or other matters, any hand trucks or other means of conveyance except those equipped with rubber tires, rubber side guards, and such other safeguards as Landlord may require, and Tenant shall be responsible to Landlord for any loss or damage resulting from any deliveries to Tenant in the Building. Deliveries of mail, freight or bulky packages shall be made through the freight entrance or through doors specified by Landlord for such purpose.


6.	Mats, trash or other objects shall not be placed in the public corridors. The sidewalks, entries, passages, elevators, public corridors and staircases and other parts of the Building which are not occupied by Tenant shall not be obstructed or used for any other purpose than ingress or egress.


7.	Tenant shall not install or permit the installation of any awnings, shades, draperies and/or other similar window coverings, treatments or like items visible from the exterior of the Premises other than those approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned or delayed.


8.	Tenant shall not construct, maintain, use or operate within said Premises or elsewhere in the Building or on the outside of the Building, any equipment or machinery which produces music, sound or noise which is audible beyond the Premises.


9.	Bicycles, motor scooters or any other type of vehicle shall not be brought into the lobby or elevators of the Building or into the Premises except for those vehicles which are used by a physically disabled person in the Premises.


10.	All blinds for exterior windows shall be building standard and shall be maintained by Tenant.


11.	No locks shall be placed upon doors to or within the Premises other than those locks approved by Landlord. Tenant shall provide Landlord a key to all locks. The doors leading to the corridors or main hall shall be kept closed during business hours, except as the same may be used for ingress or egress.


12.	Landlord reserves the right to shut down the air conditioning, electrical systems, heating, plumbing and/or elevators when necessary by reason of accident or emergency, or for repair, alterations, replacements or improvement.

13.

No carpet, rug or other article shall be hung or shaken out of any window of the Building; and Tenant shall not sweep or throw or permit to be swept or thrown from the Premises any dirt or other substances into any of the corridors or halls, elevator, or out of the doors or windows or stairways of the Building. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be kept in or about the Building. Smoking or carrying lighted cigars or cigarettes in the elevators of the Building is prohibited.

14.

Landlord reserves the right to exclude from the Building on weekdays between the hours of 6:00 p.m. and 8:00 a.m. and at all hours on weekends and legal holidays, all persons who do not present a pass to the Building signed by Landlord; provided, however, that reasonable access for Tenant's employees and customers shall be accorded. Landlord will furnish passes to persons for whom Tenant requires same in writing. Tenant shall be responsible for all persons for whom it requests such passes and shall be liable to Landlord for all acts of such persons.


15.	Tenant agrees to keep all windows closed at all times and to abide by all rules and regulations issued by Landlord with respect to the Building's air conditioning and ventilation systems.


16.	Tenant will replace all broken or cracked plate glass windows and doors at its own expense, with glass of like kind and quality, provided that such windows and doors are not broken or cracked by Landlord, its employees, agents or contractors.

17.

In the event it becomes necessary for Landlord to gain access to the underfloor electric and telephone distribution system for purposes of adding or removing wiring, then upon request by Landlord, Tenant agrees to temporarily remove the carpet over the access covers to the underfloor ducts for such period of time until work to be performed has been completed. The cost of such work shall be borne by Landlord except to the extent such work was requested by or is intended to benefit Tenant or the Premises, in which case the cost shall be borne by Tenant.


18.	Violation of these rules, or any amendments thereof or additions thereto, may be considered a default of Tenant's lease and shall be sufficient cause for termination of this Lease at the option of Landlord.

Exhibit 31.1

Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Charles J. Schreiber, Jr., certify that:


1.	I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust III, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 12, 2015	By:	/ S / C HARLES J. S CHREIBER , J R .
			Charles J. Schreiber, Jr.
			Chairman of the Board, 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 Real Estate Investment Trust III, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 12, 2015	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 Real Estate Investment Trust III, Inc. (the “Registrant”) for the quarter ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Charles J. Schreiber, Jr., Chief Executive Officer and Director of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	August 12, 2015	By:	/ S / C HARLES J. S CHREIBER , J R .
			Charles J. Schreiber, Jr.
			Chairman of the Board, 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 Real Estate Investment Trust III, Inc. (the “Registrant”) for the quarter ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey K. Waldvogel, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	August 12, 2015	By:	/S/ J EFFREY K. W ALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)