KBS Real Estate Investment Trust III, Inc. (Form: 10-K, Received: 03/14/2019 07:02:43)

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Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________________________________________________________

FORM 10-K

______________________________________________________________________________________________________________________________

(Mark One)



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

For the fiscal year ended December 31, 2018



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

For the transition period from to

Commission file number 000-54687

__________________________________________________________________________________________

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)

__________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

__________________________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment of this Form 10-K. x

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ¨ No x

There is no established market for the Registrant’s shares of common stock. On December 6, 2017, the board of directors of the Registrant approved an estimated value per share of the Registrant’s common stock of $11.73 based on the estimated value of the Registrant’s assets less the estimated value of the Registrant’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2017, with the exception of a reduction to the Registrant’s net asset value for deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017. For a full description of the methodologies used to value the Registrant’s assets and liabilities in connection with the calculation of the estimated value per share as of December 6, 2017, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information” of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017. On December 3, 2018, the board of directors of the Registrant approved an estimated value per share of the Registrant’s common stock of $12.02 based on the estimated value of the Registrant’s assets less the estimated value of the Registrant’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2018, with the exception of an adjustment to the Registrant’s net asset value for the acquisition and assumed loan costs related to the Registrant’s buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to the Registrant’s net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018. For a full description of the methodologies used to value the Registrant’s assets and liabilities in connection with the calculation of the estimated value per share as of December 3, 2018, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information” in this Annual Report on Form 10-K.

There were approximately 175,254,174 shares of common stock held by non-affiliates as of June 30, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter.

As of March 8, 2019 , there were 174,231,080 outstanding shares of common stock of the Registrant.

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TABLE OF CONTENTS



PART I			4
	ITEM 1.	BUSINESS	4
	ITEM 1A.	RISK FACTORS	10
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	40
	ITEM 2.	PROPERTIES	41
	ITEM 3.	LEGAL PROCEEDINGS	42
	ITEM 4.	MINE SAFETY DISCLOSURES	42
PART II			43
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	43
	ITEM 6.	SELECTED FINANCIAL DATA	55
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	56
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	72
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	73
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	73
	ITEM 9A.	CONTROLS AND PROCEDURES	73
	ITEM 9B.	OTHER INFORMATION	73
PART III			74
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	74
	ITEM 11.	EXECUTIVE COMPENSATION	79
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	80
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	81
	ITEM14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	87
PART IV			88
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	88
	ITEM 16.	FORM 10-K SUMMARY	92

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

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FORWARD-LOOKING STATEMENTS

Certain statements included in this Annual Report on Form 10-K 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 are dependent on KBS Capital Advisors LLC (“KBS Capital Advisors”), our advisor, to identify investments, to manage our investments and for the disposition of 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.

•

Our advisor and its affiliates receive fees in connection with transactions involving the purchase or origination, management and disposition of our investments. Acquisition and asset management 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. 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. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders.

•

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. From time to time during our operational stage, we may 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 any real estate-related investments, to the extent we make any such additional investments. If we pay distributions from sources other than our cash flow from operations, the overall return to our stockholders may be reduced.

•

We may incur debt 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 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.

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•

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.

•

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.

•

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; 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. In addition, our real estate 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.

•

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 and from our estimated value per share.

•

Because of the limitations on the dollar amount of shares that may be redeemed under our share redemption program, unless our board of directors authorizes additional funds for redemption, we will not be able to redeem shares submitted as ordinary redemptions for the remainder of 2019. During any calendar year, we may redeem (i) 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 unless our board of directors authorizes additional funds for redemption and (ii) no more than 5% of the weighted average number of shares outstanding during the prior calendar year.

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this Annual Report on Form 10-K.

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PART I


ITEM 1.	BUSINESS

Overview

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 a manner. As used herein, the terms “we,” “our” and “us” refer to the Company and as required by context, KBS Limited Partnership III, a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner.

We have invested in a diverse portfolio of real estate investments. As of December 31, 2018 , we owned 28 office properties and one mixed-use office/retail property and had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction.

On February 4, 2010, we 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, of which up to 200,000,000 shares, or up to $2,000,000,000 of shares, were registered in our primary offering and up to 80,000,000 shares, or up to $760,000,000 of shares, were registered under our dividend reinvestment plan. We ceased offering shares of common stock in our primary offering on May 29, 2015 and terminated the primary offering on July 28, 2015.

We sold 169,006,162 shares of common stock in our now-terminated primary initial public offering for gross offering proceeds of $1.7 billion . As of December 31, 2018 , we had also sold 27,926,537 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $280.9 million . Also as of December 31, 2018 , we had redeemed 19,687,309 shares sold in our initial public offering for $210.5 million .

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(a)(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.

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, disposition, 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.

Objectives and Strategies

Our primary investment objectives are to preserve and return our stockholders’ capital contributions and to provide our stockholders with attractive and stable cash distributions. We will also seek to realize growth in the value of our investments by timing asset sales to maximize asset value.

2018 Investment Highlights

In 2017, we acquired a 75% equity interest in an existing company and created an unconsolidated joint venture with an unaffiliated developer to develop and subsequently operate a 12-story office building and an adjacent two-story office/retail building in the Denver submarket of Greenwood Village, Colorado (together, “Village Center Station II”). The total cost of the Village Center Station II development was $111.2 million and our initial capital contribution to the Village Center Station II joint venture was $32.3 million . In May 2018, the Village Center Station II development project was substantially completed and we purchased the developer’s 25% equity interest for $28.2 million in October 2018.

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Real Estate Portfolio

Other than our investments in a joint venture to develop and subsequently operate a two-building apartment complex located on the developable land at Gateway Tech Center (“Hardware Village”) and Village Center Station II, we have made investments in core real estate properties, which are generally lower risk, existing properties with at least 80% occupancy and minimal near-term lease rollover. Our primary investment focus has been core office properties located throughout the United States, though we may also invest in other types of properties. Our core property focus in the U.S. office sector has reflected a more value-creating core 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 may provide us with opportunities to lease space at higher rates, especially in markets with increasing absorption, or to re-lease space at higher rates, bringing below-market rates of in-place expiring leases up to market rates. Many of these properties have required or 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.

The core office properties in which we have invested include low-rise, mid-rise and high-rise office buildings and office parks in urban and suburban locations in or near central business districts with access to transportation.

We generally hold fee title to the real estate properties in our portfolio. We have also made investments through joint ventures and in the future we may enter into other joint ventures, partnerships and co-ownership arrangements (including preferred equity investments) or participations for the purpose of obtaining interests in real estate properties and other real estate investments.

We generally intend to hold our core properties for three to seven years, which we believe is a reasonable period to enable us to capitalize on the potential for increased income and capital appreciation of properties. However, economic and market conditions have influenced us to hold certain real estate properties for different periods of time.

We have invested all of the proceeds from our now-terminated initial public offering in a diverse portfolio of real estate investments. From time to time, and based upon asset sales, availability under our debt facilities or market conditions, we may seek to make additional real estate investments.

We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. We believe that we are most likely to meet our investment objectives through the careful selection and underwriting of assets. When making an acquisition, we will emphasize the performance and risk characteristics of that investment, how that investment will fit with our portfolio-level performance objectives, the other assets in our portfolio and how the returns and risks of that investment compare to the returns and risks of available investment alternatives. Thus, to the extent that our advisor presents us with what we believe to be good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), our portfolio composition may vary from what we currently expect. In fact, we may invest in whatever types of real estate or real estate-related assets we believe are in our best interests. However, we will attempt to construct a portfolio that produces stable and attractive returns by spreading risk across different real estate investments.

We acquired our first real estate property on September 29, 2011. As of December 31, 2018 , our real estate portfolio was composed of 28 office properties and one mixed-use office/retail property encompassing an aggregate of 11.2 million rentable square feet and was collectively 93% occupied. In addition, we have entered into a consolidated joint venture to develop and subsequently operate Hardware Village, which is currently under construction.

For more information on our real estate investments, including tenant information, see Item 1, Part 2, “Properties.”

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The following charts illustrate the geographic diversification of our real estate properties, excluding properties under development, based on total leased square feet and total annualized base rent as of December 31, 2018 :

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⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2018 , adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

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We have a stable tenant base and we have tried to diversify our tenant base in order to limit exposure to any one tenant or industry. Our top ten tenants leasing space in our real estate portfolio represented approximately 20% of our total annualized base rent as of December 31, 2018 . The chart below illustrates the diversity of tenant industries in our real estate portfolio, excluding properties under development, based on total annualized base rent as of December 31, 2018 :

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* “Other” includes any industry less than 4% of total.

Financing Objectives

We financed our real estate acquisitions to date with a combination of the proceeds received from our now-terminated initial public offering and debt. We may use proceeds from borrowings to finance acquisitions of new properties or assets or for originations of new loans; to pay for capital improvements, repairs or tenant build-outs to properties; to refinance existing indebtedness; to pay distributions; or to provide working capital. Our investment strategy is to utilize primarily secured and possibly unsecured debt to finance our investment portfolio.

We expect to continue to borrow funds at fixed and variable rates. As of December 31, 2018 , we had debt obligations in the aggregate principal amount of $2.2 billion , with a weighted-average remaining term of 2.0 years. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates. We had a total of $190.5 million of fixed rate notes payable and $2.0 billion of variable rate notes payable. As of December 31, 2018 , the interest rates on $1.2 billion of our variable rate notes payable were effectively fixed through interest rate swap agreements and the interest rate on $100.0 million of our variable rate debt was limited under an interest rate cap agreement that was terminated on January 1, 2019. The weighted-average interest rates of our fixed rate debt and variable rate debt as of December 31, 2018 were 4.1 % and 3.8 %, respectively. The weighted-average interest rate represents the actual interest rate in effect as of December 31, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps), using interest rate indices as of December 31, 2018 , where applicable. As of December 31, 2018 , we had $216.0 million of revolving debt available for immediate future disbursement under three portfolio loans, subject to certain conditions set forth in the loan agreements.

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We have tried to spread the maturity dates of our debt to minimize maturity and refinance risk in our portfolio. In addition, a majority of our debt allows us to extend the maturity dates, subject to certain conditions contained in the applicable loan documents. Although we believe we will satisfy the conditions to extend the maturity of our debt obligations, we can give no assurance in this regard. The following table shows the current maturities, including principal amortization payments, of our debt obligations as of December 31, 2018 (in thousands):



2019	$	348,679
2020	1,171,460
2021	294,894
2022	256,121
2023	—
Thereafter	125,000
	$	2,196,154

We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). There is no limitation on the amount we may borrow for the purchase of any single asset. We limit our total liabilities to 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves) meaning that our borrowings and other liabilities may exceed our maximum target leverage of 65% of the cost of our tangible assets without violating these borrowing restrictions. We may exceed the 75% limit only if a majority of the conflicts committee approves each borrowing in excess of this limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. To the extent financing in excess of this limit is available on attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our total liabilities could also be below 45% of the cost of our tangible assets due to the lack of availability of debt financing. As of December 31, 2018 , our borrowings and other liabilities were approximately 62% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively.

Economic Dependency

We are dependent on our advisor for certain services that are essential to us, including the identification, evaluation, negotiation, acquisition or origination and disposition of investments; management of the daily operations and leasing of our portfolio; and other general and administrative responsibilities. In the event that our advisor is unable to provide these services, we will be required to obtain such services from other sources.

Competitive Market Factors

The U.S. commercial real estate investment and leasing markets remain competitive. We face competition from various entities for investment and disposition opportunities, for prospective tenants and to retain our current tenants, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of their investments. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Further, as a result of their greater resources, those entities may have more flexibility than we do in their ability to offer rental concessions to attract and retain tenants. This could put pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. As a result, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay distributions to our stockholders may be adversely affected.

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We also face competition from many of the types of entities referenced above regarding the disposition of properties. These entities may possess properties in similar locations and/or of the same property types as ours and may be attempting to dispose of these properties at the same time we are attempting to dispose of some of our properties, providing potential purchasers with a larger number of properties from which to choose and potentially decreasing the sales price for such properties. Additionally, these entities may be willing to accept a lower return on their individual investments, which could further reduce the sales price of such properties. This competition could decrease the sales proceeds we receive for properties that we sell, assuming we are able to sell such properties, which could adversely affect our cash flows and the overall return for our stockholders.

Although we believe that we are well-positioned to compete effectively in each facet of our business, there is enormous competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.

Compliance with Federal, State and Local Environmental Law

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose liens on property or restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances and governments may seek recovery for natural resource damage. The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury, property damage or natural resource damage claims could reduce our cash available for distribution to our stockholders. All of our real estate properties are subject to Phase I environmental assessments prior to the time they are acquired.

Industry Segments

We invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. Our real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. As of December 31, 2018 , we aggregated our investments in real estate properties into one reportable business segment.

Employees

We have no paid employees. The employees of our advisor or its affiliates provide management, acquisition, disposition, advisory and certain administrative services for us.

Principal Executive Office

Our principal executive offices are located at 800 Newport Center Drive, Suite 700, Newport Beach, California 92660. Our telephone number, general facsimile number and website address are (949) 417-6500, (949) 417-6501 and www.kbsreitiii.com , respectively .

Available Information

Access to copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other filings with the SEC, including amendments to such filings, may be obtained free of charge from the following website, www.kbsreitiii.com, or through the SEC’s website, www.sec.gov . These filings are available promptly after we file them with, or furnish them to, the SEC.

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ITEM 1A.	RISK FACTORS

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to an Investment in Our Common Stock

Because no public trading market for our shares currently exists, it will be difficult for our stockholders to sell their shares and, if they are able to sell their shares, they will likely sell them at a substantial discount to the public offering price and the estimated value per share.

Our charter does not require our directors to seek stockholder approval to liquidate our assets and dissolve by a specified date, nor does our charter require our directors to list our shares for trading on a national securities exchange by a specified date. There is no public market for our shares 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. Our charter prohibits the ownership of more than 9.8% of our stock by any person, unless exempted by our board of directors, which may inhibit large investors from desiring to purchase our stockholders’ shares.

Moreover, our share redemption program includes numerous restrictions that limit our stockholders’ ability to sell their shares to us, including that during any calendar year (i) 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, unless our board of directors authorizes additional funds for redemption, provided that once we have received requests for redemptions, whether in connection with Special Redemptions (defined below) or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions (defined below) and (ii) we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year. Special Redemptions are redemptions sought in connection with a stockholder’s death, “Qualifying Disability” or “Determination of Incompetence” (each as defined in the share redemption program). Our board of directors may amend, suspend or terminate our share redemption program upon 10 business days’ notice to our stockholders, and we may increase or decrease funding available for the redemption of shares pursuant to our share redemption program upon ten business days’ notice to our stockholders. We describe the restrictions of our share redemption program in detail under Part II, Item 5, “Share Redemption Program.” As a result of such limitations, on November 30, 2017, we exhausted all funds available for redemptions for the year ended December 31, 2017. Effective January 1, 2018, this limitation was reset, and based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2017, we initially had $59.8 million available for redemptions of shares eligible for redemption in 2018. On May 8, 2018, our board of directors approved (i) additional funds for the May 2018 redemption date to be used solely for Special Redemptions and (ii) the Fourth Amended and Restated Share Redemption Program, which was effective for the June 2018 redemption date and provided for, among other changes, additional funds for the redemption of shares for calendar year 2018. As of June 30, 2018, we had exhausted all funds available for ordinary redemptions in 2018. Effective January 1, 2019 , the funding limitation was reset, and based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2018, we had an aggregate of $56.1 million available for redemptions in 2019 , including the reserve for Special Redemptions. As of March 1, 2019, we exhausted all funds available for ordinary redemptions and had $9.4 million available for Special Redemptions for the remainder of 2019. Because of the limitations on the dollar amount of shares that may be redeemed under our share redemption program, unless our board of directors authorizes additional funds for redemption, we will not be able to redeem shares submitted as ordinary redemptions for the remainder of 2019.

Therefore, it will be difficult for our stockholders to sell their shares promptly or at all. If our stockholders are able to sell their shares, they will likely have to sell them at a substantial discount to their public offering price or the estimated value per share. It is also likely that our stockholders’ shares will not be accepted as the primary collateral for a loan. Investors should purchase shares in our dividend reinvestment plan only as a long-term investment and be prepared to hold them for an indefinite period of time because of the illiquid nature of our shares.

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We face significant competition for tenants and in the acquisition and disposition of real estate investments, which may limit our ability to achieve our investment objectives or pay distributions.

We depend upon the performance of our property managers in the selection of tenants and negotiation of leasing arrangements. The U.S. commercial real estate industry has created increased pressure on real estate investors and their property managers to find new tenants and keep existing tenants. In order to do so, we have offered and may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. Further, as a result of their greater resources, the entities referenced above may have more flexibility than we do in their ability to offer rental concessions to attract and retain tenants, which could put additional pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. Our investors must rely entirely on the management abilities of our advisor, the property managers our advisor selects and the oversight of our board of directors. In the event we are unable to find new tenants and keep existing tenants, or if we are forced to offer significant inducements to such tenants, we may not be able to meet our investment objectives and our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay distributions to our stockholders may be adversely affected.

In addition, to the extent we acquire additional assets, we face competition from these same entities for real estate investment opportunities. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Disruptions and dislocations in the credit markets could impact the cost and availability of debt to finance real estate investments, which is a key component of our acquisition strategy. A downturn in the credit market and a potential lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. In addition, the number of entities and the amount of funds competing for suitable investments may increase. We can give no assurance that our advisor will be successful in obtaining additional suitable investments on financially attractive terms or that, if our advisor makes investments on our behalf, our objectives will be achieved. If we acquire investments at higher prices and/or by using less-than-ideal capital structures, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, our stockholders may experience a lower return on their investment.

Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates and commercial real estate values and our ability to refinance or secure debt financing, service future debt obligations, or pay distributions to our stockholders.

We have relied on debt financing to finance our real estate properties and 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. We also may be unable to obtain additional debt financing on attractive terms or at all. If we are not able to refinance our existing indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, which could negatively impact the value of our assets and may interfere with the implementation of our business strategy and/or force us to modify it.

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Disruptions in the financial markets and uncertain economic conditions could adversely affect the values of our investments. Any disruption to the debt and capital markets could result in fewer buyers seeking to acquire commercial properties and possible increases in capitalization rates and lower property values. Furthermore, any decline in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us:


•	the values of our real estate properties could decrease below the amounts paid for such properties; and/or


•	revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay distributions or meet our debt service obligations on debt financing.

All of these factors could reduce our stockholders’ return and decrease the value of an investment in us.

Because of the concentration of a significant portion of our assets in three geographic areas and in core office properties, any adverse economic, real estate or business conditions in these geographic areas or in the office market could affect our operating results and our ability to pay distributions to our stockholders.

As of March 8, 2019 , a significant portion of our real estate properties was located in California, Texas and Illinois. As such, the geographic concentration of our portfolio makes us particularly susceptible to adverse economic developments in the California, Texas and Illinois real estate markets. In addition, the majority of our real estate properties consists of core office properties. Any adverse economic or real estate developments in these geographic 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 could adversely affect our operating results and our ability to pay distributions to our stockholders.

A significant percentage of our assets is invested in 500 West Madison and the value of our stockholders’ investment in us will fluctuate with the performance of this investment.

As of December 31, 2018 , 500 West Madison represented approximately 11% of our total assets and represented approximately 11% of our total annualized base rent. Further, as a result of this acquisition, the geographic concentration of our portfolio makes us particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse economic or real estate developments in this market, 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 our operating results and our ability to pay distributions to our stockholders.

We may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our stockholders.

As of March 8, 2019 , we owned 29 real estate properties and had entered into the Hardware Village joint venture to develop and subsequently operate Hardware Village, which is currently under construction. We cannot assure our stockholders that we will be able to operate our business successfully or implement our operating policies and strategies. We can provide no assurance that our performance will replicate the past performance of other KBS-sponsored programs. Our investment returns could be substantially lower than the returns achieved by other KBS-sponsored programs. The results of our operations depend on several factors, including the availability of opportunities for the acquisition of additional assets, the level and volatility of interest rates, the availability of short and long-term financing, and conditions in the financial markets and economic conditions.

Because we depend upon our advisor and its affiliates to select, acquire, manage and dispose of our real estate investments and to conduct our operations, any adverse changes in the financial health of our advisor or its affiliates or our relationship with them could cause our operations to suffer.

We depend on our advisor to select, acquire, manage and dispose of our real estate investments and to conduct our operations. Our advisor depends upon the fees and other compensation that it receives from us, KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”), KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”), and any future KBS-sponsored programs that it advises in connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes to our relationship with, or the financial condition of, our advisor and its affiliates could hinder their ability to successfully manage our operations and our portfolio of investments.

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We have paid distributions in part from debt financings and 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, the overall return to our stockholders may be reduced.

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 debt financings, and from time to time during our operational stage, 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 any real estate-related investments we make. 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 any real estate-related investments, to the extent we make any such additional 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, the overall return to our stockholders may be reduced. 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.

For the year ended December 31, 2018 , we paid aggregate distributions of $115.6 million , including $59.5 million of distributions paid in cash and $56.1 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 $97.8 million (85%) of cash flow from operating activities and $17.8 million (15%) of cash flow from operating activities in excess of distributions paid during prior periods. For the year ended December 31, 2018 , our cash flow from operating activities to distributions paid coverage ratio was 87% and our funds from operations to distributions paid coverage ratio was 130%. For more information, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Funds from Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Distributions” in this Annual Report.

The loss of or the inability to retain or obtain key real estate and debt finance professionals at our advisor could delay or hinder implementation of our investment, management and disposition strategies, which could limit our ability to pay distributions and decrease the value of an investment in our shares.

Our success depends to a significant degree upon the contributions of Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr., each of whom would be difficult to replace. Neither we nor our advisor or its affiliates have employment agreements with these individuals and they may not remain associated with us, our advisor or its affiliates. If any of these persons were to cease their association with us, our advisor or its affiliates, we may be unable to find suitable replacements and our operating results could suffer as a result. We do not maintain key person life insurance on any person. We believe that our future success depends, in large part, upon our advisor’s and its affiliates’ ability to attract and retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and our advisor and its affiliates may be unsuccessful in attracting and retaining such skilled professionals. Further, we have established strategic relationships with firms that have special expertise in certain services or detailed knowledge regarding real properties in certain geographic regions. Maintaining such relationships will be important for us to effectively compete in such regions. We may be unsuccessful in maintaining such relationships. If we lose or are unable to obtain the services of highly skilled professionals or do not establish or maintain appropriate strategic relationships, our ability to implement our investment, management and disposition strategies could be delayed or hindered and the value of our stockholders’ investment in us could decline.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce our stockholders ’ and our recovery against our independent directors if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that none of our independent directors shall be liable to us or our stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, our stockholders and we may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce our stockholders’ and our recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (as well as by our other directors, officers, employees (if we ever have employees) and agents) in some cases, which would decrease the cash otherwise available for distribution to our stockholders.

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We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.

We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations. Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.

A security breach or other significant disruption involving our IT networks and related systems could:


•	disrupt the proper functioning of our networks and systems and therefore our operations;


•	result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines;


•	result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;


•	result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes;


•	require significant management attention and resources to remedy any damages that result;


•	subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or


•	damage our reputation among our stockholders.

Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

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Risks Related to Conflicts of Interest

Our advisor and its affiliates, including all of our executive officers and our affiliated directors and other key real estate and debt finance professionals, face conflicts of interest caused by their compensation arrangements with us and with other KBS-sponsored programs, which could result in actions that are not in the long-term best interests of our stockholders.

All of our executive officers and our affiliated directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and/or other KBS-affiliated entities. Our advisor and its affiliates receive substantial fees from us. These fees could influence our advisor’s advice to us as well as the judgment of its affiliates. Among other matters, these compensation arrangements could affect their judgment with respect to:


•	the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory agreement;


•	equity offerings by us, which could entitle our dealer manager to additional dealer manager fees and would likely entitle our advisor to additional acquisition and origination fees and asset management fees;


•	sales of real estate investments, which entitle our advisor to disposition fees and possible subordinated incentive fees;

•

acquisitions of real estate investments, which entitle our advisor to acquisition or origination fees based on the cost of the investment and asset management fees 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, which may influence our advisor to recommend riskier transactions to us and/or transactions that are not in our best interest and, in the case of acquisitions of investments from other KBS-sponsored programs, which might entitle our advisor or affiliates of our advisor to disposition fees and possible subordinated incentive fees in connection with its services for the seller;


•	borrowings to acquire real estate investments, which borrowings will increase the acquisition and origination fees and asset-management fees payable to our advisor;

•

whether and when we seek to list our shares of common stock on a national securities exchange, which listing (i) may make it more likely for us to become self-managed or internalize our management or (ii) could entitle our advisor to a subordinated incentive listing fee, and which could also adversely affect the sales efforts for other KBS-sponsored programs, depending on the price at which our shares trade; and


•	whether and when we seek to sell the company or its assets, which sale could entitle our advisor to a subordinated incentive fee and terminate the asset management fee.

Our advisor and its affiliates face conflicts of interest relating to the acquisition and origination of assets, the leasing of properties and the disposition of properties due to their relationship with other KBS-sponsored programs and/or KBS-advised investors, which could result in decisions that are not in our best interest or the best interests of our stockholders.

We rely on our sponsor, KBS Holdings LLC, and other key real estate and debt finance professionals at our advisor, including Messrs. Bren, Hall, McMillan and Schreiber, to identify suitable investment opportunities for us, to supervise property management and leasing of properties and to sell our properties. KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT are also advised by KBS Capital Advisors and rely on our sponsor and many of the same real estate and debt finance professionals as will future KBS-sponsored programs advised by our advisor. Messrs. Bren and Schreiber and several of the other key real estate professionals at KBS Capital Advisors are also the key real estate professionals at KBS Realty Advisors and its affiliates, the advisors to the private KBS-sponsored programs and the investment advisors to KBS-advised investors. As such, KBS-sponsored programs that have funds available for investment and KBS-advised investors that have funds available for investment rely on many of the same real estate and debt finance professionals, as will future KBS-sponsored programs and KBS-advised investors. Many investment opportunities that are suitable for us may also be suitable for other KBS-sponsored programs and KBS-advised investors. When these real estate and debt finance professionals direct an investment opportunity to any KBS-sponsored program or KBS-advised investor, they, in their sole discretion, will offer the opportunity to the program or investor for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program or investor. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the company for us to make any significant investment unless our advisor has recommended the investment to us. Thus, the real estate and debt finance professionals of our advisor could direct attractive investment opportunities to other KBS-sponsored programs or KBS-advised investors. Such events could result in us investing in properties that provide less attractive returns, which would reduce the level of distributions we may be able to pay our stockholders.

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We and other KBS-sponsored programs and KBS-advised investors also rely on these real estate professionals to supervise the property management and leasing of properties. If the KBS team of real estate professionals directs creditworthy prospective tenants to properties owned by another KBS-sponsored program or KBS-advised investor when it could direct such tenants to our properties, our tenant base may have more inherent risk and our properties’ occupancy may be lower than might otherwise be the case.

In addition, we and other KBS-sponsored programs and KBS-advised investors rely on our sponsor and other key real estate professionals at our advisor to sell our properties. These KBS-sponsored programs and KBS-advised investors may possess properties in similar locations and/or of the same property types as ours and may be attempting to sell these properties at the same time we are attempting to sell some of our properties. If our advisor directs potential purchasers to properties owned by another KBS-sponsored program or KBS-advised investor when it could direct such purchasers to our properties, we may be unable to sell some or all of our properties at the time or at the price we otherwise would, which could limit our ability to pay distributions and reduce our stockholders’ overall investment return.

Further, existing and future KBS-sponsored programs and KBS-advised investors and Messrs. Bren, Hall, McMillan and Schreiber generally are not and will not be prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, origination, development, ownership, leasing or sale of real estate-related investments.

Our sponsor, our officers, our advisor and the real estate, debt finance, management and accounting professionals assembled by our advisor face competing demands on their time and this may cause our operations and our stockholders ’ investment in us to suffer.

We rely on our sponsor, our officers, our advisor and the real estate, debt finance, management and accounting professionals that our advisor retains, including Messrs. Bren, Hall, McMillan and Schreiber and Jeffrey K. Waldvogel and Stacie K. Yamane, to provide services to us for the day-to-day operation of our business. KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT are also advised by KBS Capital Advisors and rely on our sponsor and many of the same real estate, debt finance, management and accounting professionals, as will future KBS-sponsored programs and KBS-advised investors. Further, our officers and affiliated directors are also officers and/or affiliated directors of some or all of the other public KBS-sponsored programs. Messrs. Bren, Schreiber and Waldvogel and Ms. Yamane are also executive officers of KBS REIT II and KBS Growth & Income REIT. Messrs. Hall, McMillan and Waldvogel and Ms. Yamane are executive officers of KBS Strategic Opportunity REIT and KBS Strategic Opportunity REIT II. Messrs. Bren, Schreiber and Waldvogel and Ms. Yamane are executive officers of KBS Realty Advisors and its affiliates, the advisors of the private KBS-sponsored programs and the KBS-advised investors.

As a result of their interests in other KBS-sponsored programs, their obligations to KBS-advised investors and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, Messrs. Bren, Hall, McMillan, Schreiber and Waldvogel and Ms. Yamane face conflicts of interest in allocating their time among us, KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and/or KBS Growth & Income REIT and KBS Capital Advisors, other KBS-sponsored programs and/or other KBS-advised investors, as well as other business activities in which they are involved. In addition, KBS Capital Advisors and KBS Realty Advisors and their affiliates share many of the same key real estate, management and accounting professionals. During times of intense activity in other programs and ventures, these individuals may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. Furthermore, some or all of 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. If these events occur, the returns on our investments, and the value of our stockholders’ investment in us, may decline.

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All of our executive officers, our affiliated directors and the key real estate and debt finance professionals assembled by our advisor face conflicts of interest related to their positions and/or interests in our advisor and its affiliates, which could hinder our ability to implement our business strategy and to generate returns to our stockholders.

All of our executive officers, our affiliated directors and the key real estate and debt finance professionals assembled by our advisor are also executive officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor and/or other KBS-affiliated entities. Through KBS-affiliated entities, some of these persons also serve as the investment advisors to KBS-advised investors and, through KBS Capital Advisors and KBS Realty Advisors, these persons serve as the advisor to KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II, KBS Growth & Income REIT and other KBS-sponsored programs. As a result, they owe fiduciary duties to each of these entities, their stockholders, members and limited partners and these investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. Further, Messrs. Bren, Hall, McMillan and Schreiber and existing and future KBS-sponsored programs and KBS-advised investors generally are not and will not be prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to pay distributions to our stockholders and to maintain or increase the value of our assets.

Our board of directors ’ loyalties to KBS REIT II, KBS Growth & Income REIT and possibly to future KBS-sponsored programs could influence its judgment, resulting in actions that may not be in our stockholders ’ best interest or that result in a disproportionate benefit to another KBS-sponsored program at our expense.

All of our directors are also directors of KBS REIT II and two of our affiliated directors are also affiliated directors of KBS Growth & Income REIT. The loyalties of our directors serving on the boards of directors of KBS REIT II and KBS Growth & Income REIT, or possibly on the boards of directors of future KBS-sponsored programs, may influence the judgment of our board of directors when considering issues for us that also may affect other KBS-sponsored programs, such as the following:

•

The conflicts committee of our board of directors must evaluate the performance of our advisor with respect to whether our advisor is presenting to us our fair share of investment opportunities. If our advisor is not presenting a sufficient number of investment opportunities to us because it is presenting many opportunities to other KBS-sponsored programs or if our advisor is giving preferential treatment to other KBS-sponsored programs in this regard, our conflicts committee may not be well-suited to enforce our rights under the terms of the advisory agreement or to seek a new advisor.

•

We could enter into transactions with other KBS-sponsored programs, such as property sales, acquisitions or financing arrangements. Such transactions might entitle our advisor or its affiliates to fees and other compensation from both parties to the transaction. For example, acquisitions from other KBS-sponsored programs might entitle our advisor or its affiliates to disposition fees and possible subordinated incentive fees in connection with its services for the seller in addition to acquisition or origination fees and other fees that we might pay to our advisor in connection with such transaction. Similarly, property sales to other KBS-sponsored programs might entitle our advisor or its affiliates to acquisition or origination fees in connection with its services to the purchaser in addition to disposition and other fees that we might pay to our advisor in connection with such transaction. Decisions of our board or the conflicts committee regarding the terms of those transactions may be influenced by our board’s or the conflicts committee’s loyalties to such other KBS-sponsored programs.


•	A decision of our board or the conflicts committee regarding the timing of a debt or equity offering could be influenced by concerns that the offering would compete with offerings of other KBS-sponsored programs.


•	A decision of our board or the conflicts committee regarding the timing of property sales could be influenced by concerns that the sales would compete with those of other KBS-sponsored programs.


•	A decision of our board or the conflicts committee regarding whether and when we seek to list our common stock on a national securities exchange could be influenced by concerns that such listing could adversely affect the sales efforts of other KBS-sponsored programs, depending on the price at which our shares trade.

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Like us, KBS REIT II compensates each independent director with an annual retainer of $135,000, as well as compensation for attending meetings as follows:


•	each member of the audit committee and conflicts committee is paid $10,000 annually for service on such committees (except that the chair of each of the audit committee and conflicts committee is paid $20,000 annually for service as the chair of such committees);


•	after the tenth board of directors meeting of each calendar year, each independent director is paid (i) $2,500 in cash for each in-person board of directors meeting attended for the remainder of the calendar year and (ii) $2,000 in cash for each teleconference board of directors meeting attended for the remainder of the calendar year;

•

after the tenth audit committee meeting of each calendar year, each member of the audit committee is paid (i) $2,500 in cash for each in-person audit committee meeting attended for the remainder of the calendar year and (ii) $2,000 in cash for each teleconference audit committee meeting attended for the remainder of the calendar year (except that the audit committee chair is paid $3,000 for each in-person and teleconference audit committee meeting attended after the tenth audit committee meeting of each calendar year, for the remainder of each calendar year); and

•

after the tenth conflicts committee meeting of each calendar year, each member of the conflicts committee is paid (i) $2,500 in cash for each in-person conflicts committee meeting attended for the remainder of the calendar year and (ii) $2,000 in cash for each teleconference conflicts committee meeting attended for the remainder of the calendar year (except that the conflicts committee chair is paid $3,000 for each in-person and teleconference conflicts committee meeting attended after the tenth conflicts committee meeting of each calendar year, for the remainder of each calendar year).

In addition, KBS REIT II pays independent directors for attending other committee meetings as follows: each independent director is paid $2,000 in cash for each in-person and teleconference committee meeting attended (except that the committee chair is paid $3,000 for each in-person and teleconference committee meeting attended).

All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at board of directors meetings and committee meetings.

Risks Related to Our Corporate Structure

Our charter limits the number of shares a person may own and permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the Internal Revenue Code, our charter prohibits a person from directly or constructively owning more than 9.8% of our outstanding shares, unless exempted by our board of directors. In addition, our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. These charter provisions may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

Our stockholders will have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face.

Our board of directors determines our major policies, including our policies regarding targeted investment allocation, financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face.

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Our stockholders may not be able to sell their shares under our share redemption program and, if our stockholders are able to sell their shares under the program, they may not be able to recover an amount equal to the estimated value per share of our common stock.

Our share redemption program includes numerous restrictions that severely limit our stockholders’ ability to sell their shares should they require liquidity and will limit our stockholders’ ability to recover an amount equal to the estimated value per share of our common stock. Our stockholders must hold their shares for at least one year in order to participate in our share redemption program, except in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program, and together with redemptions sought in connection with a stockholder’s death, “Special Redemptions”). We limit the number of shares redeemed pursuant to our share redemption program as follows: (i) during any calendar year, we may redeem no more than 5% of the weighted‑average number of shares outstanding during the prior calendar year and (ii) during each calendar year, redemptions will be limited to the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year; provided, that we may increase or decrease the funding available for the redemption of shares upon ten business days’ notice to our stockholders and; provided further, that once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions. Further, we have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all redemption requests made in any year.

As a result of such limitations, on November 30, 2017, we exhausted all funds available for redemptions for the year ended December 31, 2017. Effective January 1, 2018, this limitation was reset, and based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2017, we initially had $59.8 million available for redemptions of shares eligible for redemption in 2018. On May 8, 2018, our board of directors approved (i) additional funds for the May 2018 redemption date to be used solely for Special Redemptions and (ii) the Fourth Amended and Restated Share Redemption Program, which was effective for the June 2018 redemption date and provided for, among other changes, additional funds for the redemption of shares for calendar year 2018. As of June 30, 2018, we had exhausted all funds available for ordinary redemptions in 2018. Effective January 1, 2019 , the funding limitation was reset, and based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2018, we had an aggregate of $56.1 million available for redemptions in 2019 , including the reserve for Special Redemptions. As of March 1, 2019, we exhausted all funds available for ordinary redemptions and had $9.4 million available for Special Redemptions for the remainder of 2019. Because of the limitations on the dollar amount of shares that may be redeemed under our share redemption program, unless our board of directors authorizes additional funds for redemption, we will not be able to redeem shares submitted as ordinary redemptions for the remainder of 2019.

Pursuant to our share redemption program, unless our shares are being redeemed in connection with a Special Redemption, the redemption price for shares eligible for redemption is equal to 95% of the most recent estimated value per share. On December 3, 2018 , our board of directors approved an estimated value per share of our common stock of $12.02 based on 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, 2018 , with the exception of an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 . In accordance with our share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date.

We currently expect to announce an updated estimated value per share no later than December 2019 .

During their operating stages, other KBS-sponsored REITs have amended their share redemption programs to limit redemptions to Special Redemptions or place restrictive limitations on the amount of funds available for redemptions. As a result, these programs were or are not able (one program has now liquidated) to honor all redemption requests and stockholders in these programs were or are unable to have their shares redeemed when requested. In two instances, ordinary redemptions were or have been suspended for several years. When implementing these amendments, stockholders did not always have a final opportunity to submit redemptions prior to the effectiveness of the amendment to the program.

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Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders with respect to our company, our directors, our officers or our employees (we note we currently have no employees). This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or our directors, officers or employees, which may discourage meritorious claims from being asserted against us and our directors, officers and employees. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations. We adopted this provision because we believe it makes it less likely that we will be forced to incur the expense of defending duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements, and we believe the risk of a court declining to enforce this provision is remote, as the General Assembly of Maryland has specifically amended the Maryland General Corporation Law to authorize the adoption of such provisions.

The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment and does not take into account how developments subsequent to the valuation date related to individual assets, the financial or real estate markets or other events may have increased or decreased the value of our portfolio.

On December 3, 2018 , our board of directors approved an estimated value per share of our common stock of $12.02 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2018 , with the exception of an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 . We did not make any other adjustments to the estimated value per share subsequent to September 30, 2018, including any adjustments relating to the following, among others: (i) the issuance of common stock and the payment of related offering costs related to our dividend reinvestment plan offering; (ii) net operating income earned and distributions declared; and (iii) the redemption of shares. We provided this estimated value per share to assist broker-dealers that participated in our now-terminated initial public offering in meeting their customer account statement reporting obligations under National Association of Securities Dealers Conduct Rule 2340 as required by the Financial Industry Regulatory Authority (“FINRA”). This valuation was performed in accordance with the provisions of and also to comply with Practice Guideline 2013—01, Valuations of Publicly Registered, Non-Listed REITs, issued by the Institute for Portfolio Alternatives (formerly known as the Investment Program Association) (“IPA”) in April 2013 (the “IPA Valuation Guidelines”).

We engaged Duff & Phelps, LLC (“Duff & Phelps”), an independent third-party real estate valuation firm, to provide appraisals for 29 of our consolidated real estate properties owned as of September 30, 2018 (the “Consolidated Properties”) and an investment in an office property held through an unconsolidated joint venture as of September 30, 2018 (together with the Consolidated Properties, the “Appraised Properties”) and to provide a calculation of the range in estimated value per share of our common stock as of December 3, 2018 . Duff & Phelps based this range in estimated value per share upon (i) its appraisals of the Appraised Properties, (ii) valuations performed by KBS Capital Advisors of our cash, other assets, mortgage debt and other liabilities and (iii) an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 .

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As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties using different assumptions and estimates could derive a different estimated value per share of our common stock, and this difference could be significant. The estimated value per share is not audited and does not represent the fair value of our assets less the fair value of our liabilities according to U.S. generally accepted accounting principles (“GAAP”), nor does it represent a liquidation value of our assets and liabilities or the price at which our shares of common stock would trade on a national securities exchange. The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that were not under contract to sell as of December 3, 2018 , debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations, the impact of restrictions on the assumption of debt or swap breakage fees that may be incurred upon the termination of certain of our swaps prior to expiration. The estimated value per share does not take into consideration acquisition-related costs and financing costs related to future acquisitions subsequent to December 3, 2018. Accordingly, with respect to the estimated value per share, we can give no assurance that:


•	a stockholder would be able to resell his or her shares at our estimated value per share;


•	a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of our company;


•	our shares of common stock would trade at the estimated value per share on a national securities exchange;


•	another independent third-party appraiser or third-party valuation firm would agree with our estimated value per share; or


•	the methodology used to determine our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.

The value of our shares will fluctuate over time in response to developments related to future investments, the performance of individual assets in our portfolio and the management of those assets, the real estate and finance markets and due to other factors. As such, the estimated value per share does not take into account developments in our portfolio since December 3, 2018 . For a full description of the methodologies and assumptions used to value our assets and liabilities in connection with the calculation of the estimated value per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Market Information.”

We currently expect to utilize an independent valuation firm to update the estimated value per share no later than December 2019 .

The actual value of shares that we repurchase under our share redemption program may be less than what we pay.

Under our share redemption program, shares currently may be repurchased at varying prices depending on whether the redemptions are in connection with a Special Redemption. Pursuant to our share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date, which is currently $12.02 per share, and all redemptions other than Special Redemptions are made at a price per share equal to 95% of our most recent estimated value per share as of the applicable redemption date, which is currently $11.42. Although these redemption prices are based on our current estimated value per share, this reported value is likely to differ from the price at which a stockholder could resell his or her shares for the reasons discussed in the risk factor above. Thus, when we repurchase shares of our common stock at $12.02 per share, the actual value of the shares that we repurchase is likely to be less, and the repurchase is likely to be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of the shares may be less than what we pay and the repurchase may be dilutive to our remaining stockholders.

If funds are not available from our dividend reinvestment plan offering for general corporate purposes, then we may have to use a greater proportion of our cash flow from operations to meet our general cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.

We depend on the proceeds from our dividend reinvestment plan offering 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; 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. We cannot predict with any certainty how much, if any, dividend reinvestment plan proceeds will be available for general corporate purposes. 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 our general cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.

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See also the discussion above under “Our stockholders may not be able to sell their shares under our share redemption program and, if our stockholders are able to sell their shares under the program, they may not be able to recover an amount equal to the estimated value per share of our common stock.”

Our stockholders’ interest in us will be diluted if we issue additional shares, which could reduce the overall value of their investment.

Our common stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 1,010,000,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock. Our board of directors may increase the number of authorized shares of capital stock without stockholder approval. Our board may elect to (i) sell additional shares in our dividend reinvestment plan or in future primary offerings; (ii) issue equity interests in private offerings; (iii) issue shares to our advisor, or its successors or assigns, in payment of an outstanding fee obligation; (iv) issue shares of our common stock to sellers of properties or assets we acquire in connection with an exchange of limited partnership interests of the Operating Partnership; or (v) otherwise issue additional shares of our capital stock. To the extent we issue additional equity interests, whether in future primary offerings, pursuant to our dividend reinvestment plan or otherwise, our stockholders’ percentage ownership interest in us would be diluted. In addition, depending upon the terms and pricing of any additional issuance of shares, the use of the proceeds and the value of our real estate investments, our stockholders may also experience dilution in the book value and fair value of their shares and in the earnings and distributions per share.

Payment of fees to our advisor and its affiliates reduces cash available for investment and distribution to our stockholders and increases the risk that our stockholders will not be able to recover the amount of their investment in our shares or an amount equal to the estimated value per share of our common stock.

Our advisor and its affiliates perform services for us in connection with the selection and acquisition or origination of our real estate investments, the management and leasing of our real estate properties and the disposition of our investments. We pay them substantial fees for these services, which results in immediate dilution of the value of our stockholders’ investment in us and reduces the amount of cash available for investments or distribution to stockholders. Compensation to be paid to our advisor may be increased with the approval of our conflicts committee and subject to the limitations in our charter, which would further dilute our stockholders’ investment in us and reduce the amount of cash available for investment or distribution to stockholders.

We may also pay significant fees during our listing/liquidation stage. Although most of the fees expected to be paid during our listing/liquidation stage are contingent on our stockholders first receiving agreed-upon investment returns, the investment-return thresholds may be reduced with the approval of our conflicts committee and subject to the limitations in our charter.

Therefore, these fees increase the risk that the amount of cash available for distribution to our stockholders upon a liquidation of our portfolio would be less than the amount stockholders paid to acquire our shares or an amount equal to the estimated value per share of our common stock. These substantial fees and other payments also increase the risk that our stockholders will not be able to resell their shares at a profit.

If we are unable to obtain funding for future capital needs, cash distributions to our stockholders and the value of an investment in us could decline.

When tenants do not renew their leases or otherwise vacate their space, we will often need to expend substantial funds for improvements to the vacated space in order to attract replacement tenants. Even when tenants do renew their leases we may agree to make improvements to their space as part of our negotiations. If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain funding from sources other than our cash flow from operations or proceeds from our dividend reinvestment plan, such as borrowings or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to pay distributions to our stockholders and could reduce the value of our stockholders’ investment.

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Although we are not currently afforded the protection of the Maryland General Corporation Law relating to deterring or defending hostile takeovers, our board of directors could opt into these provisions of Maryland law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

Under Maryland law, “business combinations” between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to accord voting rights to the control shares. Should our board of directors opt into these provisions of Maryland law, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly, provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law could provide similar anti-takeover protection.

Our charter includes an anti-takeover provision that may discourage a stockholder from launching a tender offer for our shares.

Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with most provisions of Regulation 14D of the Securities Exchange Act of 1934, as amended. The offering stockholder must provide our company notice of such tender offer at least 10 business days before initiating the tender offer. If the offering stockholder does not comply with these requirements, our company will have the right to redeem that stockholder’s shares and any shares acquired in such tender offer. In addition, the noncomplying stockholder shall be responsible for all of our company’s expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a stockholder from initiating a tender offer for our shares and prevent our stockholders from receiving a premium price for their shares in such a transaction.

General Risks Related to Investments in Real Estate

Economic, market and regulatory changes that impact the real estate market generally may decrease the value of our investments and weaken our operating results.

Our operating results and the performance of our real estate properties are subject to the risks typically associated with real estate, any of which could decrease the value of our investments and could weaken our operating results, including:


•	downturns in national, regional and local economic conditions;


•	competition from other office and industrial buildings;


•	adverse local conditions, such as oversupply or reduction in demand for office and industrial buildings and changes in real estate zoning laws that may reduce the desirability of real estate in an area;


•	vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;


•	changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive;


•	changes in tax (including real and personal property tax), real estate, environmental and zoning laws;


•	natural disasters such as hurricanes, earthquakes and floods;


•	acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001;


•	the potential for uninsured or underinsured property losses; and


•	periods of high interest rates and tight money supply.

Any of the above factors, or a combination thereof, could result in a decrease in our cash flow from operations and a decrease in the value of our investments, which would have an adverse effect on our operations, on our ability to pay distributions to our stockholders and on the value of our stockholders’ investment.

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If our acquisitions fail to perform as expected, cash distributions to our stockholders may decline.

As of March 8, 2019 , we owned 28 office properties and one mixed-use office/retail property and had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction. We made these investments based on an underwriting analysis with respect to each asset and how the asset fits into our portfolio. If these assets do not perform as expected we may have less cash flow from operating activities available to fund distributions and stockholder returns may be reduced.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on these properties and adversely affect our cash flow and ability to pay distributions to our stockholders.

A property may incur vacancies either by the expiration and non-renewal of tenant leases or the continued default of tenants under their leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available for distribution to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction in the resale value of a property could also reduce the value of our stockholders’ investment.

Further, some of our assets may be outfitted to suit the particular needs of the tenants. We may have difficulty replacing the tenants of these properties if the outfitted space limits the types of businesses that could lease that space without major renovation. If a tenant does not renew a lease or, terminates or defaults on a lease, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. Because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with such property, we may incur a loss upon the sale of a property with significant vacant space. These events could cause us to reduce distributions to stockholders.

To the extent that we buy core real estate properties with occupancy of less than 95% or that have significant rollover during the expected hold period, we may incur significant costs for capital expenditures and tenant improvement costs to lease up the properties, which increases the risk of loss associated with these properties compared to other properties.

We have invested in, and may make additional investments in, core properties that have an occupancy rate of less than 95%, significant rollover during the expected hold period, or other characteristics that could provide an opportunity for us to achieve appreciation by increasing occupancy, negotiating new leases with higher rental rates and/or executing enhancement projects. We likely will need to fund reserves or maintain capacity under our credit facilities to fund capital expenditures, tenant improvements and other improvements in order to attract new tenants to these properties. To the extent we do not maintain adequate reserves to fund these costs, we may use our cash flow from operating activities, which will reduce the amount of cash flow available for distribution to our stockholders. If we are unable to execute our business plan for these investments, the overall return on these investments will decrease.

We may enter into long-term leases with tenants in certain properties, which may not result in fair market rental rates over time.

We may enter into long-term leases with tenants of certain of our properties, or include renewal options that specify a maximum rate increase. These leases would provide for rent to increase over time; however, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that, even after contractual rent increases, the rent under our long-term leases is less than then-current market rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our cash available for distribution could be lower than if we did not enter into long-term leases.

Certain property types, such as industrial properties, that we may acquire may not have efficient alternative uses and, if we acquire such properties, we may have difficulty leasing them to new tenants and/or have to make significant capital expenditures to them to do so.

Certain property types, particularly industrial properties, can be difficult to lease to new tenants, should the current tenant terminate or choose not to renew its lease. These properties generally will have received significant tenant-specific improvements and only very specific tenants may be able to use such improvements, making the properties very difficult to re-lease in their current condition. Additionally, an interested tenant may demand that, as a condition of executing a lease for the property, we finance and construct significant improvements so that the tenant could use the property. This expense may decrease cash available for distribution, as we likely would have to (i) pay for the improvements up front or (ii) finance the improvements at potentially unattractive terms.

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To the extent we acquire retail properties with anchor tenants, our revenue will be significantly impacted by the success and economic viability of our retail anchor tenants. Our reliance on a single tenant or significant tenants in certain properties may decrease our ability to lease vacated space and adversely affect the returns on our stockholders ’ investment in us.

In the retail sector, a tenant occupying all or a large portion of the gross leasable area of a retail center, commonly referred to as an anchor tenant, may become insolvent, may suffer a downturn in business and default on or terminate its lease, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us from that tenant and would adversely affect our financial condition. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases may permit cancellation or rent reduction if an anchor tenant’s lease is terminated. In such event, we may be unable to re-lease the vacated space. Similarly, the leases of some anchor tenants may permit those anchor tenants to transfer their leases to other retailers. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants, under the terms of their respective leases, to make reduced rental payments or to terminate their leases. In the event that we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to renovate and subdivide the space to be able to re-lease the space to more than one tenant.

Our retail tenants will face competition from numerous retail channels and may be disproportionately affected by economic conditions. These events could reduce the profitability of our retail properties and affect our ability to pay distributions.

Retailers will face continued competition from discount or value retailers, factory outlet centers, wholesale clubs, mail order catalogues and operators, television shopping networks and shopping via the Internet. Such conditions could adversely affect our retail tenants and, consequently, our funds available for distribution.

We depend on tenants for our revenue generated by our real estate investments and, accordingly, our revenue generated by our real estate investments and our ability to pay distributions to our stockholders are partially dependent upon the success and economic viability of our tenants and our ability to retain and attract tenants. Non-renewals, terminations or lease defaults could reduce our net income and limit our ability to pay distributions to our stockholders.

The success of our real estate investments materially depends upon the financial stability of the tenants leasing the properties we own. The inability of a single major tenant or a significant number of smaller tenants to meet their rental obligations would significantly lower our net income. A non-renewal after the expiration of a lease term, termination or default by a tenant on its lease payments to us would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord of a property and may incur substantial costs in protecting our investment and re-leasing the property. Tenants may have the right to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may only be able to renew their leases on terms that are less favorable to us than the terms of their initial leases.

The bankruptcy or insolvency of our tenants or delays by our tenants in making rental payments could seriously harm our operating results and financial condition.

Any bankruptcy filings by or relating to any of our tenants could bar us from collecting pre-bankruptcy debts from that tenant, unless we receive an order permitting us to do so from the bankruptcy court. A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover substantially less than the full value of any unsecured claims, which would harm our financial condition.

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Our inability to sell a property at the time and on the terms we want could limit our ability to pay distributions to our stockholders and could reduce the value of our stockholders’ investment in us.

Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow, limit our ability to pay distributions to our stockholders and reduce the value of our stockholders’ investment in us.

If we sell a property by providing financing to the purchaser, we will bear the risk of default by the purchaser, which could delay or reduce cash available for distribution to our stockholders.

If we decide to sell additional properties, we intend to use our best efforts to sell them for cash; however, in some instances, we may sell our properties by providing financing to purchasers. When we provide financing to a purchaser, we will bear the risk that the purchaser may default, which could reduce our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of the sale to our stockholders, or the reinvestment of the proceeds in other assets, will be delayed until the promissory note or other property we may accept upon a sale is actually paid, sold, refinanced or otherwise disposed.

Potential development and construction delays and resultant increased costs and risks may hinder our operating results and decrease our net income.

From time to time we may acquire unimproved real property or properties that are under development or construction. Investments in such properties, such as our investment in Hardware Village, will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly-constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

Actions of our joint venture partners could reduce the returns on joint venture investments and decrease our stockholders ’ overall return.

We have entered into the Hardware Village joint venture and may enter into additional joint ventures with third parties to acquire properties and other assets. We may also purchase and develop additional properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:


•	that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt;


•	that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;


•	that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or


•	that disputes between us and our co-venturer, co-tenant or partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment and the value of our stockholders’ investment in us.

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Costs imposed pursuant to laws and governmental regulations may reduce our net income and our cash available for distribution to our stockholders.

Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials and other health and safety-related concerns.

Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Our tenants’ operations, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties or damages we must pay will reduce our ability to pay distributions to our stockholders and may reduce the value of our stockholders’ investment in us.

The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property or of paying personal injury or other damage claims could reduce our cash available for distribution to our stockholders.

All of our real estate properties are subject to Phase I environmental assessments prior to the time they are acquired; however, such assessments may not provide complete environmental histories due, for example, to limited available information about prior operations at the properties or other gaps in information at the time we acquire the property. A Phase I environmental assessment is an initial environmental investigation to identify potential environmental liabilities associated with the current and past uses of a given property. If any of our properties were found to contain hazardous or toxic substances after our acquisition, the value of our investment could decrease below the amount paid for such investment. In addition, real estate-related investments in which we invest may be secured by properties with recognized environmental conditions. Where we are secured creditors, we will attempt to acquire contractual agreements, including environmental indemnities, that protect us from losses arising out of environmental problems in the event the property is transferred by foreclosure or bankruptcy; however, no assurances can be given that such indemnities would fully protect us from responsibility for costs associated with addressing any environmental problems related to such properties.

Costs associated with complying with the Americans with Disabilities Act may decrease our cash available for distribution.

Our properties may be subject to the Americans with Disabilities Act of 1990, as amended, or the Disabilities Act. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. Any funds used for Disabilities Act compliance will reduce our net income and the amount of cash available for distribution to our stockholders.

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Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flow from operations and the return on our stockholders ’ investment in us.

There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. We may not be able to obtain insurance against the risk of terrorism because it may not be available or may not be available on terms that are economically feasible. The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. The inability to obtain sufficient terrorism insurance or any terrorism insurance at all could limit our financing and refinancing options as some mortgage lenders have begun to insist that specific coverage against terrorism be purchased by commercial owners as a condition for providing loans. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which will reduce the value of our stockholders’ investment in us. In addition other than any working capital reserve or other reserves we may establish, we have limited sources of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to our stockholders.

Competition from other apartment communities for tenants could reduce our profitability and the return on our stockholders’ investment.

The apartment community industry is highly competitive. This competition could reduce occupancy levels and revenues at our apartment communities, which would adversely affect our operations. We are currently developing, through the Hardware Village joint venture, the Hardware Village apartment community, which we will subsequently operate through the joint venture. The Hardware Village west building was completed in 2018 and is currently being leased up, and the Hardware Village east building is expected to be completed by July 2019. We expect to face competition from many sources. We will face competition from other apartment communities both in the immediate vicinity and in the larger geographic market where our apartment communities are located. Overbuilding of apartment communities may occur. If so, this will increase the number of apartment units available and may decrease occupancy and apartment rental rates. In addition, increases in operating costs due to inflation may not be offset by increased apartment rental rates.

Risks Related to Real Estate-Related Investments

Any future real estate-related investments we make will be subject to the risks typically associated with real estate.

Any future investments we make in real estate loans generally will be directly or indirectly secured by a lien on real property (or the equity interests in an entity that owns real property) that, upon the occurrence of a default on the loan, could result in our taking ownership of the property. The values of these properties may change after the dates of acquisition or origination of the loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans. In this manner, real estate values could impact the values of our loan investments. Any investments we make in residential and commercial mortgage-backed securities and other real estate-related investments may be similarly affected by real estate property values. Therefore, any real estate-related investments we make will be subject to the risks typically associated with real estate, which are described above under the heading “- General Risks Related to Investments in Real Estate.”

Any future investments we make in real estate loans will be subject to interest rate fluctuations that will affect our returns as compared to market interest rates; accordingly, the value of our stockholders’ investment in us will be subject to fluctuations in interest rates.

With respect to fixed rate, long-term loans receivable, if interest rates rise, the loans could yield a return that is lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that loans are prepaid because we may not be able to reinvest the proceeds at as high of an interest rate. If we invest in variable-rate loans receivable and interest rates decrease, our revenues will also decrease. For these reasons, investments in real estate loans, returns on those loans and the value of our stockholders’ investment in us would be subject to fluctuations in interest rates.

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The mortgage loans we may invest in and the mortgage loans underlying any mortgage securities we may invest in are subject to delinquency, foreclosure and loss, which could result in losses to us.

Commercial real estate loans generally are secured by commercial real estate properties and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, occupancy rates, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, fiscal policies and regulations (including environmental legislation), natural disasters, terrorism, social unrest and civil disturbances.

In the event of any default under any mortgage loan we may acquire, we will bear a risk of loss of principal and accrued interest to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations. Foreclosure on a property securing a mortgage loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the investment. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Hedging against interest rate exposure may adversely affect our earnings, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.

We have entered into and in the future may enter into interest rate swap agreements or pursue other interest rate hedging strategies. Our hedging activity will vary in scope based on the level of interest rates, the type of investments we hold, and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:


•	interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;


•	available interest rate hedging products may not correspond directly with the interest rate risk for which protection is sought;


•	the duration of the hedge may not match the duration of the related liability or asset;


•	the amount of income that a REIT may earn from hedging transactions to offset losses due to fluctuations in interest rates is limited by federal tax provisions governing REITs;


•	the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;


•	the party owing money in the hedging transaction may default on its obligation to pay; and


•	we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money.

Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distribution to our stockholders. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the investments being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the interest rate risk sought to be hedged. Any such imperfect correlation may prevent us from achieving the intended accounting treatment and may expose us to risk of loss.

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We assume the credit risk of our counterparties with respect to derivative transactions.

We enter into derivative contracts for risk management purposes to hedge our exposure to cash flow variability caused by changing interest rates on our variable rate notes payable and we may enter into such contracts if we acquire any variable rate real estate loans receivable. These derivative contracts generally are entered into with bank counterparties and are not traded on an organized exchange or guaranteed by a central clearing organization. We would therefore assume the credit risk that our counterparties will fail to make periodic payments when due under these contracts or become insolvent. If a counterparty fails to make a required payment, becomes the subject of a bankruptcy case, or otherwise defaults under the applicable contract, we would have the right to terminate all outstanding derivative transactions with that counterparty and settle them based on their net market value or replacement cost. In such an event, we may be required to make a termination payment to the counterparty, or we may have the right to collect a termination payment from such counterparty. We assume the credit risk that the counterparty will not be able to make any termination payment owing to us. We may not receive any collateral from a counterparty, or we may receive collateral that is insufficient to satisfy the counterparty’s obligation to make a termination payment. If a counterparty is the subject of a bankruptcy case, we will be an unsecured creditor in such case unless the counterparty has pledged sufficient collateral to us to satisfy the counterparty’s obligations to us.

We assume the risk that our derivative counterparty may terminate transactions early.

If we fail to make a required payment or otherwise default under the terms of a derivative contract, the counterparty would have the right to terminate all outstanding derivative transactions between us and that counterparty and settle them based on their net market value or replacement cost. In certain circumstances, the counterparty may have the right to terminate derivative transactions early even if we are not defaulting. If our derivative transactions are terminated early, it may not be possible for us to replace those transactions with another counterparty, on as favorable terms or at all.

We may be required to collateralize our derivative transactions.

We may be required to secure our obligations to our counterparties under our derivative contracts by pledging collateral to our counterparties. That collateral may be in the form of cash, securities or other assets. If we default under a derivative contract with a counterparty, or if a counterparty otherwise terminates one or more derivative contracts early, that counterparty may apply such collateral toward our obligation to make a termination payment to the counterparty. If we have pledged securities or other assets, the counterparty may liquidate those assets in order to satisfy our obligations. If we are required to post cash or securities as collateral, such cash or securities will not be available for use in our business. Cash or securities pledged to counterparties may be repledged by counterparties and may not be held in segregated accounts. Therefore, in the event of a counterparty insolvency, we may not be entitled to recover some or all collateral pledged to that counterparty, which could result in losses and have an adverse effect on our operations.

There can be no assurance that the direct or indirect effects of the Dodd-Frank Act and other applicable non-U.S. regulations will not have an adverse effect on our interest rate hedging activities.

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) imposed additional regulations on derivatives markets and transactions. Such regulations and, to the extent we trade with counterparties organized in non-US jurisdictions, any applicable regulations in those jurisdictions, are still being implemented, and will affect our interest rate hedging activities. While the full impact of regulation on our interest rate hedging activities cannot be fully assessed until all final rules and regulations are implemented, such regulation may affect our ability to enter into hedging or other risk management transactions, may increase our costs in entering into such transactions, and/or may result in us entering into such transactions on less favorable terms than prior to implementation of such regulation. For example, but not by way of limitation, the Dodd-Frank Act and the rulemaking thereunder provides for significantly increased regulation of the derivative transactions used to affect our interest rate hedging activities, including: (i) regulatory reporting, (ii) subject to an exemption for end-users of swaps upon which we and our subsidiaries generally rely, mandated clearing of certain derivatives transactions through central counterparties and execution on regulated exchanges or execution facilities, and (iii) to the extent we are required to clear any such transactions, margin and collateral requirements. The imposition, or the failure to comply with, any of the foregoing requirements may have an adverse effect on our business and our stockholders’ return.

Our investments in derivatives are carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these instruments.

Our investments in derivatives are recorded at fair value but have limited liquidity and are not publicly traded. The fair value of our derivatives may not be readily determinable. We will estimate the fair value of any such investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal or maturity.

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Risks Associated with Debt Financing

We obtain lines of credit, mortgage indebtedness and other borrowings and have given guarantees, which increases our risk of loss due to potential foreclosure.

We obtain lines of credit and long-term financing secured by our properties and other assets. We have acquired our real estate properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties, to fund property improvements and other capital expenditures, to pay distributions and for other purposes. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends-paid deduction and excluding net capital gain). However, we can give our stockholders no assurance that we will be able to obtain such borrowings on satisfactory terms or at all.

If we mortgage a property and there is a shortfall between the cash flow generated by that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for distribution to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, reducing the value of our stockholders’ investment in us. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure even though we would not necessarily receive any cash proceeds. We have given and may give full or partial guarantees to lenders of mortgage or other debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of all or a part of the debt or other amounts related to the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a mortgage secured by a single property could affect mortgages secured by other properties.

We may also obtain recourse debt to finance our acquisitions and meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, our lenders could institute proceedings against us to foreclose upon our assets. If a lender successfully forecloses upon any of our assets, our ability to pay cash distributions to our stockholders will be limited and our stockholders could lose all or part of their investment in us.

High mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distribution to our stockholders.

If mortgage debt is unavailable at reasonable rate, we may not be able to finance the purchase of properties. If we place mortgage debt on a property, we run the risk of being unable to refinance part or all of the debt when it becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance properties subject to mortgage debt, our income could be reduced. We may be unable to refinance or may only be able to partly refinance properties if underwriting standards, including loan to value ratios and yield requirements, among other requirements, are more strict than when we originally financed the properties. If any of these events occurs, our cash flow could be reduced and/or we might have to pay down existing mortgages. This, in turn, would reduce cash available for distribution to our stockholders, could cause us to require additional capital and may hinder our ability to raise capital by issuing more stock or by borrowing more money.

We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our business plan.

We may finance our assets over the long-term through a variety of means, including credit facilities and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities may not accommodate long-term financing. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flow, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.

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Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to pay distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan agreements into which we enter may contain covenants that limit our ability to further mortgage a property or that prohibit us from discontinuing insurance coverage or replacing our advisor. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives and limit our ability to pay distributions to our stockholders.

The loan agreements for our debt obligations contain customary representations and warranties, financial and other affirmative and negative covenants (including maintenance of ongoing debt service coverage ratios), events of default and remedies typical for these types of financings.

Increases in interest rates and changes to the LIBOR settling process could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

As of December 31, 2018 , we had total outstanding debt of approximately $2.2 billion , including approximately $696.7 million of debt subject to variable interest rates (excluding amounts that were hedged to fix rates), and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. Since we have incurred and may continue to incur variable rate debt, increases in interest rates raise our interest costs, which reduces our cash flows and our ability to make distributions to you. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to sell one or more of our properties at times which may not permit realization of the maximum return on such investments.

Additionally, we pay interest under certain of our debt obligations based on the London Interbank Offered Rate (“LIBOR”). In July 2017, the Financial Conduct Authority announced that by the end of 2021, LIBOR would be replaced with a more reliable alternative, due to LIBOR rate manipulation and the resulting fines assessed on several major financial institutions over the past several years. It is unclear whether new methods of calculating LIBOR will be established, such that LIBOR may continue to exist after 2021. At this time, we do not know what changes will be made by the Financial Conduct Authority, or how the changes to or replacement of LIBOR will affect the interest we pay on our debt instruments. Additionally, there is no guarantee that a transition from LIBOR to an alternative rate will not result in financial market disruptions, significant increases in benchmark interest rates or borrowing costs, any of which may have an adverse effect on us.

We have broad authority to incur debt and high debt levels could limit the amount of cash we have available to distribute to our stockholders and decrease the value of our stockholders’ investment in us.

We may incur debt until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation and other noncash reserves) and we may exceed this limit with the approval of the conflicts committee of our board of directors. As of December 31, 2018 , our borrowings and other liabilities were approximately 62% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute to our stockholders and could result in a decline in the value of our stockholders’ investment in us.

Federal Income Tax Risks

Failure to qualify as a REIT would reduce our net earnings available for investment or distribution.

Our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Internal Revenue Code. If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at corporate rates (a maximum rate of 35% applies through 2017 and 21% for subsequent years). In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to pay distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

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Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for distribution to our stockholders.

We believe that we have operated and will continue to operate in a manner that will allow us to continue to qualify as a REIT for federal income tax purposes, commencing with the taxable year ended December 31, 2011. However, the federal income tax laws governing REITs are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a REIT. While we intend to continue to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the tax treatment of certain investments we may make, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we would be required to pay federal income tax on our taxable income. We might need to borrow money or sell assets to pay that tax. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, if we fail to maintain our qualification as a REIT and we do not qualify for certain statutory relief provisions, we no longer would be required to distribute substantially all of our REIT taxable income to our stockholders. Unless our failure to qualify as a REIT were excused under federal tax laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

Our stockholders may have current tax liability on distributions they elect to reinvest in our common stock.

If our stockholders participate in our dividend reinvestment plan, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, our stockholders will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value, if any. As a result, unless our stockholders are tax-exempt entities, they may have to use funds from other sources to pay their tax liability on the value of the shares of common stock received.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to federal, state, local or other tax liabilities that reduce our cash flow and our ability to pay distributions to our stockholders.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property. For example:

•

In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income.


•	We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.


•	If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or certain leasehold terminations as “foreclosure property,” we may avoid the 100% tax on the gain from a resale of that property, but the income from the sale or operation of that property may be subject to corporate income tax at the highest applicable rate.


•	If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries or the sale met certain “safe harbor” requirements under the Internal Revenue Code.

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REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order for federal corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate tax on any undistributed taxable income. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code.

From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to pay distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirements and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forego otherwise attractive business or investment opportunities, which may delay or hinder our ability to meet our investment objectives and reduce our stockholders ’ overall return.

To qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to pay distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and reduce the value of our stockholders’ investment.

If our operating partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.

We intend to maintain the status of our operating partnership as a partnership for federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of our operating partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our operating partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on your investment. In addition, if any of the entities through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, the underlying entity would become subject to taxation as a corporation, thereby reducing distributions to our operating partnership and jeopardizing our ability to maintain REIT status.

Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.

If (i) all or a portion of our assets are subject to the rules relating to taxable mortgage pools, (ii) we are a “pension-held REIT,” (iii) a tax-exempt stockholder has incurred debt to purchase or hold our common stock, or (iv) the residual Real Estate Mortgage Investment Conduit interests, or REMICs, we buy (if any) generate “excess inclusion income,” then a portion of the distributions to and, in the case of a stockholder described in clause (iii), gains realized on the sale of common stock by such tax-exempt stockholder may be subject to federal income tax as unrelated business taxable income under the Internal Revenue Code.

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The tax on prohibited transactions will limit our ability to engage in transactions that would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of assets, other than foreclosure property, deemed held primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were to dispose of loans in a manner that was treated as a sale of the loans for federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us.

It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through taxable REIT subsidiaries. However, to the extent that we engage in such activities through taxable REIT subsidiaries, the income associated with such activities may be subject to full corporate income tax.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and residential and commercial mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% (25% for taxable years before 2018) of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries and no more than 25% of the value of our total assets can be represented by “non-qualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Liquidation of assets may jeopardize our REIT qualification.

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the purpose of the instrument is to (i) hedge interest rate risk on liabilities incurred to carry or acquire real estate, (ii) hedge risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, or (iii) manage risk with respect to the termination of certain prior hedging transactions described in (i) and/or (ii) above and, in each case, such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

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Our ownership of and relationship with our taxable REIT subsidiaries will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 20% (25% for taxable years before 2018) of the value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A domestic taxable REIT subsidiary will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the taxable REIT subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis. We cannot assure our stockholders that we will be able to comply with the 20% value limitation on ownership of taxable REIT subsidiary stock and securities on an ongoing basis so as to maintain REIT status or to avoid application of the 100% excise tax imposed on certain non-arm’s length transactions.

The ability of our board of directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to our stockholders.

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. While we intend to elect and qualify to be taxed as a REIT, we may not elect to be treated as a REIT or may terminate our REIT election if we determine that qualifying as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our common stock.

Changes recently made to the U.S. tax laws could have a negative impact on our business.

The President signed a tax reform bill into law on December 22, 2017 (the “Tax Cuts and Jobs Act”). Among other things, the Tax Cuts and Jobs Act:


•	Reduces the corporate income tax rate from 35% to 21% (including with respect to a taxable REIT subsidiary);


•	Reduces the rate of U.S. federal withholding tax on distributions made to non-U.S. stockholders by a REIT that are attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;


•	If elected, allows an immediate 100% deduction of the cost of certain capital asset investments (generally excluding real estate assets), subject to a phase-down of the deduction percentage over time;

•

Changes the recovery periods for certain real property and building improvements (for example, to 15 years for qualified improvement property under the modified accelerated cost recovery system if a technical correction is passed, and to 30 years (previously 40 years) for residential real property and 20 years (previously 40 years) for qualified improvement property under the alternative depreciation system);


•	Restricts the deductibility of interest expense by businesses (generally, to 30% of the business’ adjusted taxable income) except, among others, real property businesses electing out of such restriction; we have not yet determined whether we and/or our subsidiaries can and/or will make such an election;


•	Requires the use of the less favorable alternative depreciation system to depreciate real property in the event a real property business elects to avoid the interest deduction restriction above;


•	Restricts the benefits of like-kind exchanges that defer capital gains for tax purposes to exchanges of real property;


•	Permanently repeals the “technical termination” rule for partnerships, meaning sales or exchanges of the interests in a partnership will be less likely to, among other things, terminate the taxable year of, and restart the depreciable lives of assets held by, such partnership for tax purposes;


•	Requires accrual method taxpayers to take certain amounts in income no later than the taxable year in which such income is taken into account as revenue in an applicable financial statement prepared under GAAP, which, with respect to certain leases, could accelerate the inclusion of rental income;


•	Eliminates the federal corporate alternative minimum tax;


•	Reduces the highest marginal income tax rate for individuals to 37% from 39.6% (excluding, in each case, the 3.8% Medicare tax on net investment income);

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•

Generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income), generally resulting in a maximum effective federal income tax rate applicable to such dividends of 29.6% compared to 37% (excluding, in each case, the 3.8% Medicare tax on net investment income); and


•	Limits certain deductions for individuals, including deductions for state and local income taxes, and eliminates deductions for miscellaneous itemized deductions (including certain investment expenses).

Many of the provisions in the Tax Cuts and Jobs Act, in particular those affecting individual taxpayers, expire at the end of 2025.

As a result of the changes to U.S. federal tax laws implemented by the Tax Cuts and Jobs Act, our taxable income and the amount of distributions to our stockholders required in order to maintain our REIT status, and our relative tax advantage as a REIT, could change. As a REIT, we are required to distribute at least 90% of our taxable income to our stockholders annually.

The Tax Cuts and Jobs Act is a complex revision to the U.S. federal income tax laws with various impacts on different categories of taxpayers and industries, and will require subsequent rulemaking and interpretation in a number of areas. The long-term impact of the Tax Cuts and Jobs Act on the overall economy, government revenues, our tenants, us, and the real estate industry cannot be reliably predicted at this time. Furthermore, the Tax Cuts and Jobs Act may negatively impact certain of our tenants’ operating results, financial condition, and future business plans. The Tax Cuts and Jobs Act may also result in reduced government revenues, and therefore reduced government spending, which may negatively impact some of our tenants that rely on government funding. There can be no assurance that the Tax Cuts and Jobs Act will not negatively impact our operating results, financial condition, and future business operations.

Dividends payable by REITs do not qualify for the reduced tax rates.

In general, the maximum tax rate for dividends payable to domestic stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for this reduced rate; provided individuals may be able to deduct 20% of income received as ordinary REIT dividends, thus reducing the maximum effective federal income tax rate on such dividend. While this tax treatment does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts or estates to perceive investments in REITs to be relatively less attractive than investments in stock of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.

Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.

The taxation of distributions to our stockholders can be complex; however, distributions that we make to our stockholders generally will be taxable as ordinary income, which may reduce your anticipated return from an investment in us.

Distributions that we make to our taxable stockholders to the extent of our current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. However, a portion of our distributions may (i) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (ii) be designated by us as qualified dividend income generally to the extent they are attributable to dividends we receive from non-REIT corporations, such as our taxable REIT subsidiaries, or (iii) constitute a return of capital generally to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital distribution is not taxable, but has the effect of reducing the basis of a stockholder’s investment in our common stock.

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We may be required to pay some taxes due to actions of a taxable REIT subsidiary which would reduce our cash available for distribution to you.

Any net taxable income earned directly by a taxable REIT subsidiary, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct certain interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by a taxable REIT subsidiary if the economic arrangements between the REIT, the REIT's customers, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to you.

Investments in other REITs and real estate partnerships could subject us to the tax risks associated with the tax status of such entities.

We may invest in the securities of other REITs and real estate partnerships. Such investments are subject to the risk that any such REIT or partnership may fail to satisfy the requirements to qualify as a REIT or a partnership, as the case may be, in any given taxable year. In the case of a REIT, such failure would subject such entity to taxation as a corporation, may require such REIT to incur indebtedness to pay its tax liabilities, may reduce its ability to make distributions to us, and may render it ineligible to elect REIT status prior to the fifth taxable year following the year in which it fails to so qualify. In the case of a partnership, such failure could subject such partnership to an entity level tax and reduce the entity’s ability to make distributions to us. In addition, such failures could, depending on the circumstances, jeopardize our ability to qualify as a REIT.

Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.

Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, capital gain distributions attributable to sales or exchanges of “U.S. real property interests,” or USRPIs, generally (subject to certain exceptions for “qualified foreign pension funds” and certain “qualified shareholders”) will be taxed to a non-U.S. stockholder (other than a qualified foreign pension plan, entities wholly owned by a qualified foreign pension plan and certain publicly traded foreign entities) as if such gain were effectively connected with a U.S. trade or business unless FIRPTA provides an exemption. However, a capital gain dividend will not be treated as effectively connected income if (i) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (ii) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received. We do not anticipate that our shares will be “regularly traded” on an established securities market for the foreseeable future, and therefore, this exception is not expected to apply.

Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA (subject to specific FIRPTA exemptions for certain non-U.S. stockholders). Our common stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but cannot assure you, that we will be a domestically-controlled qualified investment entity.

Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our common stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 10% or less of our common stock at any time during the five-year period ending on the date of the sale. However, it is not anticipated that our common stock will be “regularly traded” on an established market. We encourage you to consult your tax advisor to determine the tax consequences applicable to you if you are a non-U.S. stockholder.

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We may be subject to adverse legislative or regulatory tax changes.

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

Retirement Plan Risks

If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of the Internal Revenue Code (such as an individual retirement account (“IRA”)) fails to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, the fiduciary could be subject to penalties and other sanctions.

There are special considerations that apply to employee benefit plans subject to the Employee Retirement Income Security Act (“ERISA”) (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing or have invested in our shares. Fiduciaries, IRA owners and other benefit plan investors investing or that have invested the assets of such a plan or account in our common stock should satisfy themselves that:


•	the investment is consistent with their fiduciary and other obligations under ERISA and the Internal Revenue Code;


•	the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;


•	the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;


•	the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA;


•	the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;


•	our stockholders will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA annually; and


•	the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

With respect to the annual valuation requirements described above, we will provide an estimated value per share for our common stock annually. We can make no claim whether such estimated value per share will or will not satisfy the applicable annual valuation requirements under ERISA and the Internal Revenue Code. The Department of Labor or the Internal Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common stock. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions. For information regarding our estimated value per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities - Market Information” of this Annual Report on Form 10-K.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with counsel before making an investment in our common stock.

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If our assets are deemed to be plan assets, our advisor and we may be exposed to liabilities under Title I of ERISA and the Internal Revenue Code.

In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Title I of ERISA or Section 4975 of the Internal Revenue Code, may be applicable, and there may be liability under these and other provisions of ERISA and the Internal Revenue Code. We believe that our assets should not be treated as plan assets because the shares should qualify as “publicly-offered securities” that are exempt from the look-through rules under applicable Treasury Regulations. We note, however, that because certain limitations are imposed upon the transferability of shares so that we may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if we or our advisor are exposed to liability under ERISA or the Internal Revenue Code, our performance and results of operations could be adversely affected. Stockholders should consult with their legal and other advisors concerning the impact of ERISA and the Internal Revenue Code on their investment and our performance.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

We have no unresolved staff comments.

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ITEM 2.	PROPERTIES

As of December 31, 2018 , our real estate portfolio was composed of 28 office properties and one mixed-use office/retail property encompassing 11.2 million rentable square feet in the aggregate that were collectively 93% occupied with a weighted-average remaining lease term of 4.5 years. In addition, we had entered into the Hardware Village joint venture to develop and subsequently operate a multi-family apartment complex, which is currently under construction. The following table provides summary information regarding the properties owned by us as of December 31, 2018 :



Property Location of Property	Date Acquired	Property Type	Rentable Square Feet	Total Real Estate at Cost ⁽¹⁾ (in thousands)		Annualized Base Rent ⁽²⁾ (in thousands)		Average Annualized Base Rent per Square Foot ⁽³⁾		Average Remaining Lease Term in Years	% of Total Assets		Occupancy
Domain Gateway Austin, TX	09/29/2011	Office	183,911	$	50,418	$	3,716	$	20.20	0.6	1.1	%	100.0	%
Town Center Plano, TX	03/27/2012	Office	522,043	116,261		11,430		23.86		2.5	2.6	%	91.7	%
McEwen Building Franklin, TN	04/30/2012	Office	175,262	37,198		4,837		29.03		2.3	0.9	%	95.1	%
Gateway Tech Center Salt Lake City, UT	05/09/2012	Office	210,256	26,918		4,334		23.58		2.2	0.6	%	87.4	%
Tower on Lake Carolyn Irving, TX	12/21/2012	Office	374,251	52,647		8,815		26.13		4.3	1.2	%	90.1	%
RBC Plaza Minneapolis, MN	01/31/2013	Office	710,332	153,330		12,148		17.71		4.9	3.5	%	96.5	%
One Washingtonian Center Gaithersburg, MD	06/19/2013	Office	314,175	92,350		9,644		31.41		5.2	2.2	%	97.7	%
Preston Commons Dallas, TX	06/19/2013	Office	427,799	118,135		10,567		26.99		2.1	2.9	%	91.5	%
Sterling Plaza Dallas, TX	06/19/2013	Office	313,609	79,288		7,482		24.72		4.0	2.0	%	96.5	%
201 Spear Street San Francisco, CA	12/03/2013	Office	252,591	141,683		17,480		74.06		6.2	3.8	%	93.4	%
500 West Madison Chicago, IL	12/16/2013	Office	1,457,724	436,482		34,071		29.08		5.2	11.1	%	80.4	%
222 Main Salt Lake City, UT	02/27/2014	Office	431,391	165,524		15,315		36.48		5.8	4.1	%	97.3	%
Anchor Centre Phoenix, AZ	05/22/2014	Office	333,014	95,496		8,567		27.65		3.8	2.4	%	93.0	%
171 17th Street Atlanta, GA	08/25/2014	Office	510,268	134,166		13,375		26.30		5.3	3.2	%	99.7	%
Reston Square Reston, VA	12/03/2014	Office	138,995	46,593		5,322		39.50		4.9	1.1	%	96.9	%
Ten Almaden San Jose, CA	12/05/2014	Office	309,255	124,563		12,571		42.46		3.6	3.2	%	95.7	%
Towers at Emeryville Emeryville, CA	12/23/2014	Office	815,018	276,822		32,399		45.30		4.0	7.4	%	87.7	%
101 South Hanley St. Louis, MO	12/24/2014	Office	360,505	72,269		9,351		26.08		4.3	1.8	%	99.4	%
3003 Washington Boulevard Arlington, VA	12/30/2014	Office	210,804	151,150		12,360		59.14		9.1	4.0	%	99.1	%
Village Center Station Greenwood Village, CO	05/20/2015	Office	234,915	76,332		5,559		24.27		2.8	2.0	%	97.5	%
Park Place Village Leawood, KS	06/18/2015	Office/Retail	483,054	127,856		13,541		29.83		5.2	3.3	%	94.0	%
201 17th Street Atlanta, GA	06/23/2015	Office	355,870	102,045		9,721		29.87		7.5	2.7	%	91.5	%
Promenade I & II at Eilan San Antonio, TX	07/14/2015	Office	205,773	62,646		5,078		24.79		3.8	1.6	%	99.5	%
CrossPoint at Valley Forge Wayne, PA	08/18/2015	Office	272,360	90,382		8,773		32.21		5.3	2.4	%	100.0	%
515 Congress Austin, TX	08/31/2015	Office	263,058	120,999		7,024		29.19		2.9	3.2	%	91.5	%
The Almaden San Jose, CA	09/23/2015	Office	416,126	169,945		14,162		37.81		4.2	4.6	%	90.0	%
3001 Washington Boulevard Arlington, VA	11/06/2015	Office	94,837	60,439		4,772		53.69		9.6	1.7	%	93.7	%
Carillon Charlotte, NC	01/15/2016	Office	486,994	153,783		12,325		26.29		3.4	4.1	%	96.3	%
Hardware Village ⁽⁴⁾ Salt Lake City, UT	08/26/2016	Development/Apartment	N/A	105,691		N/A		N/A		N/A	3.2	%	N/A
Village Center Station II ⁽⁵⁾ Greenwood Village, CO	10/11/2018	Office	325,576	132,100		8,317		25.54		9.5	4.0	%	100.0	%
			11,189,766	$	3,573,511	$	323,056	$	31.12	4.5			92.8	%

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⁽¹⁾ Total real estate at cost represents the total cost of real estate net of write-offs of fully depreciated/amortized assets.

⁽²⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2018 , adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

⁽³⁾ Average annualized base rent per square foot is calculated as the annualized base rent divided by the leased square feet.

⁽⁴⁾ On August 26, 2016, we entered into the Hardware Village joint venture to participate in the development and subsequent operation of Hardware Village. We own a 99.24% equity interest in the joint venture. In July 2018, one of the two apartment buildings consisting of 265 units was placed into service.

⁽⁵⁾ On March 3, 2017, we acquired a 75% equity interest in an existing company and created an unconsolidated joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, we purchased the unaffiliated developer’s 25% equity interest. For more information, see Note 5, “Investment in Unconsolidated Joint Venture.”

Portfolio Lease Expirations

The following table sets forth a schedule of expiring leases for our real estate portfolio, excluding properties under development, by square footage and by annualized base rent as of December 31, 2018 :



Year of Expiration	Number of Leases Expiring	Annualized Base Rent Expiring ⁽¹⁾ (in thousands)		% of Portfolio Annualized Base Rent Expiring		Leased Square Feet Expiring	% of Portfolio Leased Square Feet Expiring
Month to Month	30	$	2,115	0.7	%	203,456	2.0	%
2019	157	43,722		13.5	%	1,557,175	15.0	%
2020	127	30,437		9.4	%	1,020,167	10.0	%
2021	134	30,340		9.4	%	1,138,284	11.0	%
2022	128	37,345		11.6	%	1,143,125	11.0	%
2023	106	40,911		12.7	%	1,282,508	12.0	%
2024	62	26,051		8.1	%	812,163	8.0	%
2025	36	27,698		8.6	%	792,260	8.0	%
2026	36	15,247		4.7	%	505,634	5.0	%
2027	33	23,979		7.4	%	756,868	7.0	%
2028	23	19,032		5.9	%	652,733	6.0	%
Thereafter	12	26,179		8.0	%	516,776	5.0	%
Total	884	$	323,056	100.0	%	10,381,149	100.0	%

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As of December 31, 2018 , our portfolio’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	152	$	60,016	18.6	%

_____________________

As of December 31, 2018 , no other tenant industries accounted for more than 10% of annualized base rent and no tenant accounted for more than 10% of the annualized base rent.

For more information about our real estate portfolio, see Part I, Item 1, “Business.”


ITEM 3.	LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government authorities.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

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PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stockholder Information

As of March 8, 2019 , we had 174.2 million shares of common stock outstanding held by a total of approximately 37,400 stockholders. The number of stockholders is based on the records of DST Systems, Inc., which serves as our transfer agent.

Market Information

No public market currently exists for our shares of common stock, and we currently have no plans 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 requirements. 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 by a single person, unless exempted by our board of directors. Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them.

We provide an estimated value per share to assist broker-dealers that participated in our now-terminated initial public offering in meeting their customer account statement reporting obligations under NASD Conduct Rule 2340, as required by FINRA. This valuation was performed in accordance with the provisions of and also to comply with the IPA Valuation Guidelines. For this purpose, we estimated the value of the shares of our common stock as $12.02 per share as of December 31, 2018 . This estimated value per share is based on our board of directors’ approval on December 3, 2018 of an estimated value per share of our common stock of $12.02 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2018 , with the exception of an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 . There were no other material changes between September 30, 2018 and December 3, 2018 that impacted the overall estimated value per share.

The conflicts committee, composed solely of all of our independent directors, is responsible for the oversight of the valuation process used to determine the estimated value per share of our common stock, including the review and approval of the valuation and appraisal processes and methodologies used to determine our estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals. With the approval of the conflicts committee, we engaged Duff & Phelps, LLC (“Duff & Phelps”), an independent third party real estate valuation firm, to provide appraisals for 29 of our consolidated real estate properties owned as of September 30, 2018 (the “Consolidated Properties”) and an investment in an office property held through an unconsolidated joint venture as of September 30, 2018 (together with the Consolidated Properties, the “Appraised Properties”) and to provide a calculation of the range in estimated value per share of our common stock as of December 3, 2018 . Duff & Phelps based this range in estimated value per share upon (i) its appraisals of the Appraised Properties, (ii) valuations performed by our advisor of our cash, other assets, mortgage debt and other liabilities, and (iii) an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 . The appraisal reports Duff & Phelps prepared summarized the key inputs and assumptions involved in the appraisal of each of the Appraised Properties. The methodologies and assumptions used to determine the estimated value of our assets and the estimated value of our liabilities are described further below.

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The conflicts committee reviewed Duff & Phelps’ valuation report, which included an appraised value for each of the Appraised Properties and a summary of the estimated value of each of our other assets and our liabilities as determined by our advisor and reviewed by Duff & Phelps. In light of the valuation report and other factors considered by the conflicts committee and the conflicts committee’s own extensive knowledge of our assets and liabilities, the conflicts committee: (i) concluded that the range in estimated value per share of $11.11 to $12.94, with a mid-range value of $12.02 per share, as determined by Duff & Phelps and recommended by our advisor, which mid-range value was based on Duff & Phelps’ appraisals of the Appraised Properties; valuations performed by our advisor of our cash, other assets, mortgage debt and other liabilities; and an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 , was reasonable and (ii) recommended to our board of directors that it adopt $12.02 as the estimated value per share of our common stock, which estimated value per share is based on those factors discussed in (i) above. Our board of directors unanimously agreed to accept the recommendation of the conflicts committee and approved $12.02 as the estimated value per share of our common stock, which determination is ultimately and solely the responsibility of the board of directors.

The table below sets forth the calculation of our estimated value per share as of December 3, 2018 as well as the calculation of our prior estimated value per share as of December 6, 2017 . Duff & Phelps was not responsible for the determination of the estimated value per share as of December 3, 2018 or December 6, 2017 , respectively.



	December 3, 2018 Estimated Value per Share			December 6, 2017 Estimated Value per Share ⁽¹⁾			Change in Estimated Value per Share
Real estate properties ⁽²⁾	$	23.51		$	22.29		$	1.22
Cash	0.44			0.25			0.19
Investment in unconsolidated joint venture	0.20			0.18			0.02
Other assets	0.29			0.12			0.17
Mortgage debt ⁽³⁾	(11.81		)	(10.49		)	(1.32		)
Advisor participation fee potential liability	(0.10		)	(0.08		)	(0.02		)
Other liabilities	(0.46		)	(0.49		)	0.03
Acquisition and deferred financing costs subsequent to September 30, 2018 ⁽⁴⁾	(0.02		)	—			(0.02		)
Deferred financing costs subsequent to September 30, 2017 ⁽⁵⁾	—			(0.05		)	0.05
Non-controlling interest	(0.03		)	—			(0.03		)
Estimated value per share	$	12.02		$	11.73		$	0.29
Estimated enterprise value premium	None assumed			None assumed			None assumed
Total estimated value per share	$	12.02		$	11.73		$	0.29

_____________________

⁽¹⁾ The December 6, 2017 estimated value per share was based upon a calculation of the range in estimated value per share of our common stock as of December 6, 2017 by Duff & Phelps and the recommendation of our advisor. Duff & Phelps based this range in estimated value per share upon appraisals of our real estate properties performed by Duff & Phelps; valuations performed by our advisor with respect to our real estate under contract to sell, real estate construction-in-progress project, investment in an unconsolidated joint venture, cash, other assets, mortgage debt and other liabilities; and a reduction to our net asset value for deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017. For more information relating to the December 6, 2017 estimated value per share and the assumptions and methodologies used by Duff & Phelps and our advisor, see Part II, Item 5 of our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC.

⁽²⁾ Includes real estate construction-in-progress project as of December 6, 2017. As of September 30, 2018, the total appraised value of the Appraised Properties was $4.3 billion. The increase in the estimated value of real estate properties per share was primarily due to an increase in the appraised value of real estate properties, the increase in capital expenditures and development activity subsequent to September 30, 2017.

⁽³⁾ The increase in the estimated value of mortgage debt per share was primarily due to the increase in mortgage debt outstanding.

⁽⁴⁾ Amount includes the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture and deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018.

⁽⁵⁾ Amount includes deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017.

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The increase in our estimated value per share from the previous estimate was primarily due to the items noted in the table below, which reflect the significant contributors to the increase in the estimated value per share from $11.73 to $12.02. The changes are not equal to the change in values of each asset and liability group presented in the table above due to changes in the amount of shares outstanding, additional capital investments and related financings and other factors, which caused the value of certain asset or liability groups to change with no impact to our fair value of equity or the overall estimated value per share.



	Change in Estimated Value per Share
December 6, 2017 estimated value per share	$	11.73
Changes to estimated value per share
Investments
Real estate and investment in unconsolidated joint venture	0.81
Capital expenditures on real estate	(0.64		)
Total changes related to investments	0.17
Operating cash flows in excess of monthly distributions declared ⁽¹⁾	0.07
Acquisition and deferred financing costs ⁽²⁾	(0.02		)
Mortgage debt	(0.09		)
Interest rate swaps	0.22
Advisor participation fee potential liability	(0.02		)
Non-controlling interest	(0.03		)
Other	(0.01		)
Total change in estimated value per share	$	0.29
December 3, 2018 estimated value per share	$	12.02

_____________________

⁽¹⁾ Operating cash flow reflects modified funds from operations (“MFFO”) adjusted to deduct capitalized interest expense, real estate taxes and insurance and add back the amortization of deferred financing costs. We compute MFFO in accordance with the definition included in the practice guideline issued by the IPA in November 2010.

⁽²⁾ Amount includes the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture and deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018.

As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties using different assumptions and estimates could derive a different estimated value per share of our common stock, and this difference could be significant. The estimated value per share is not audited and does not represent the fair value of our assets less the fair value of our liabilities according to U.S. generally accepted accounting principles (“GAAP”), nor does it represent a liquidation value of our assets and liabilities or the price at which our shares of common stock would trade on a national securities exchange. The estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that were not under contract to sell as of December 3, 2018, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations, the impact of restrictions on the assumption of debt or swap breakage fees that may be incurred upon the termination of certain of our swaps prior to expiration. The estimated value per share does not take into consideration acquisition-related costs and financing costs related to any future acquisitions subsequent to December 3, 2018. As of December 3, 2018, we had no potentially dilutive securities outstanding that would impact the estimated value per share of our common stock.

Our estimated value per share takes into consideration any potential liability related to a subordinated participation in cash flows our advisor is entitled to upon meeting certain stockholder return thresholds in accordance with the advisory agreement. For purposes of determining the estimated value per share, our advisor calculated the potential liability related to this incentive fee based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties, and our advisor estimated the fair value of this liability to be $17.6 million or $0.10 per share as of the valuation date, and included the impact of this liability in its calculation of our estimated value per share.

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Methodology

Our goal for the valuation was to arrive at a reasonable and supportable estimated value per share, using a process that was designed to be in compliance with the IPA Valuation Guidelines and using what we and our advisor deemed to be appropriate valuation methodologies and assumptions. The following is a summary of the valuation and appraisal methodologies, assumptions and estimates used to value our assets and liabilities:

Real Estate

Independent Valuation Firm

Duff & Phelps ⁽¹⁾ was selected by our advisor and approved by our conflicts committee and board of directors to appraise each of the Appraised Properties and to provide a calculation of the range in estimated value per share of our common stock as of December 3, 2018. Duff & Phelps is engaged in the business of appraising commercial real estate properties and is not affiliated with us or our advisor. The compensation we paid to Duff & Phelps was based on the scope of work and not on the appraised values of the Appraised Properties. The appraisals were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation, as well as the requirements of the state where each real property is located. Each appraisal was reviewed, approved and signed by an individual with the professional designation of MAI (Member of the Appraisal Institute). The use of the reports is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

Duff & Phelps collected all reasonably available material information that it deemed relevant in appraising the Appraised Properties. Duff & Phelps obtained property-level information from our advisor, including (i) property historical and projected operating revenues and expenses; (ii) property lease agreements; and (iii) information regarding recent or planned capital expenditures. Duff & Phelps reviewed and relied in part on the property-level information provided by our advisor and considered this information in light of its knowledge of each property’s specific market conditions.

In conducting its investigation and analyses, Duff & Phelps took into account customary and accepted financial and commercial procedures and considerations as it deemed relevant. Although Duff & Phelps reviewed information supplied or otherwise made available by us or our advisor for reasonableness, it assumed and relied upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to it by any other party and did not independently verify any such information. With respect to operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Duff & Phelps, Duff & Phelps assumed that such forecasts and other information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management and/or our advisor. Duff & Phelps relied on us to advise it promptly if any information previously provided became inaccurate or was required to be updated during the period of its review.

In performing its analyses, Duff & Phelps made numerous other assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond its and our control, as well as certain factual matters. For example, unless specifically informed to the contrary, Duff & Phelps assumed that we or the joint venture through which the property was held had clear and marketable title to each of the Appraised Properties, that no title defects existed, that any improvements were made in accordance with law, that no hazardous materials were present or had been present previously, that no deed restrictions existed, and that no changes to zoning ordinances or regulations governing use, density or shape were pending or being considered. Furthermore, Duff & Phelps’ analyses, opinions and conclusions were necessarily based upon market, economic, financial and other circumstances and conditions existing as of or prior to the date of the appraisals, and any material change in such circumstances and conditions may affect Duff & Phelps’ analyses and conclusions. Duff & Phelps’ appraisal reports contain other assumptions, qualifications and limitations that qualify the analyses, opinions and conclusions set forth therein. Furthermore, the prices at which the Appraised Properties may actually be sold could differ from their appraised values.

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⁽¹⁾ Duff & Phelps is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection with public securities offerings, private placements, business combinations and similar transactions. We engaged Duff & Phelps to prepare appraisal reports for each of the Appraised Properties and to provide a calculation of the range in estimated value per share of our common stock and Duff & Phelps received fees upon the delivery of such reports and the calculation of the range in estimated value per share of our common stock. In addition, we have agreed to indemnify Duff & Phelps against certain liabilities arising out of this engagement. In the two years prior to the date of this filing, Duff & Phelps and its affiliates have provided a number of commercial real estate, appraisal, valuation and financial advisory services for our affiliates and have received fees in connection with such services. Duff & Phelps and its affiliates may from time to time in the future perform other commercial real estate, appraisal, valuation and financial advisory services for us and our affiliates in transactions related to the properties that are the subjects of the appraisals, so long as such other services do not adversely affect the independence of the applicable Duff & Phelps appraiser as certified in the applicable appraisal report.

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Although Duff & Phelps considered any comments to its appraisal reports received from us or our advisor, the appraised values of the Appraised Properties were determined by Duff & Phelps. The appraisal reports for the Appraised Properties are addressed solely to us to assist in the calculation of the range in estimated value per share of our common stock. The appraisal reports are not addressed to the public and may not be relied upon by any other person to establish an estimated value per share of our common stock and do not constitute a recommendation to any person to purchase or sell any shares of our common stock. In preparing its appraisal reports, Duff & Phelps did not solicit third-party indications of interest for the Appraised Properties. In preparing its appraisal reports and in calculating the range in estimated value per share of our common stock, Duff & Phelps did not, and was not requested to, solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of us.

The foregoing is a summary of the standard assumptions, qualifications and limitations that generally apply to Duff & Phelps’ appraisal reports. All of the Duff & Phelps appraisal reports, including the analyses, opinions and conclusions set forth in such reports, are qualified by the assumptions, qualifications and limitations set forth in the respective appraisal reports.

Real Estate Valuation - Consolidated Properties

Duff & Phelps appraised each of the Consolidated Properties using various methodologies including the direct capitalization approach, discounted cash flow analyses and sales comparison approach and relied primarily on 10-year discounted cash flow analyses for the final appraisal of each of the Consolidated Properties. Duff & Phelps calculated the discounted cash flow value of each of the Consolidated Properties using property-level cash flow estimates, terminal capitalization rates and discount rates that fall within ranges it believes would be used by similar investors to value the Consolidated Properties, based on recent comparable market transactions adjusted for unique properties and market-specific factors.

The Consolidated Properties consist of 27 office properties, one mixed use office/retail property and a multifamily development project held through a consolidated joint venture, which were acquired for a total purchase price of $3.2 billion, including $45.4 million of acquisition fees and acquisition expenses, and as of September 30, 2018, we had invested $443.4 million in capital expenses, development costs and tenant improvements in these properties. As of September 30, 2018, the total appraised value of the Consolidated Properties as provided by Duff & Phelps using the appraisal methods described above was $4.1 billion which, when compared to the total purchase price plus subsequent capital improvements through September 30, 2018 of $3.6 billion, results in an overall increase in the estimated value of these properties of approximately 13.7%.

The following table summarizes the key assumptions that Duff & Phelps used in the discounted cash flow analyses to arrive at the appraised value of the Consolidated Properties:



	Range in Values	Weighted-Average Basis
Terminal capitalization rate	5.50% to 8.00%	6.43%
Discount rate	6.75% to 9.50%	7.46%
Net operating income compounded annual growth rate ⁽¹⁾	0.43% to 10.40%	4.46%

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⁽¹⁾ The net operating income compounded annual growth rates (the “CAGRs”) reflect both the contractual and market rents and reimbursements (in cases where the contractual lease period is less than the valuation period of the property) net of expenses over the valuation period for each of the properties. The range of CAGRs shown is the constant annual rate at which the net operating income is projected to grow to reach the net operating income in the final year of the hold period for each of the properties.

While we believe that Duff & Phelps’ assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the appraised value of the Consolidated Properties and thus, our estimated value per share. The table below illustrates the impact on our estimated value per share if the terminal capitalization rates or discount rates Duff & Phelps used to appraise the Consolidated Properties were adjusted by 25 basis points, assuming all other factors remain unchanged. Additionally, the table below illustrates the impact on our estimated value per share if these terminal capitalization rates or discount rates were adjusted by 5% in accordance with the IPA Valuation Guidelines, assuming all other factors remain unchanged:



	Increase (Decrease) on the Estimated Value per Share due to
	Decrease of 25 basis points		Increase of 25 basis points			Decrease of 5%		Increase of 5%
Terminal capitalization rate	$	0.51	$	(0.48	)	$	0.65	$	(0.60	)
Discount Rate	0.39		(0.38		)	0.58		(0.57		)

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Finally, a 1% increase in the appraised value of the Consolidated Properties would result in an $0.21 increase in our estimated value per share and a 1% decrease in the appraised value of the Consolidated Properties would result in a decrease of $0.21 to our estimated value per share, assuming all other factors remain unchanged.

Investment in Unconsolidated Joint Venture

As of September 30, 2018, we held an investment in an unconsolidated joint venture, which represented a 75% equity interest in a 12-story office building and an adjacent two-story office/retail building, and we had a contractual right to buyout our partner in the unconsolidated joint venture based on an agreed-upon price. The total cost of the development was approximately $111.2 million and our initial capital contribution to the unconsolidated joint venture was $32.3 million. Subsequent to September 30, 2018, we purchased the joint venture partner’s 25% equity interest for $28.2 million. For the estimated value of our equity interest in the unconsolidated joint venture as of September 30, 2018, our advisor used 100% of the appraised value of the real estate as of September 30, 2018, and then deducted the principal balance of the note payable assumed and cash paid for our buyout of the joint venture partner’s equity interest. The appraised value of the real estate was provided by Duff & Phelps and was calculated using a discounted cash flow analysis. As of September 30, 2018, the fair value and the carrying value of our investment in this unconsolidated joint venture was $34.7 million and $34.7 million, respectively.

Duff & Phelps relied on a 10-year discounted cash flow analysis for the final valuation of the property. The terminal capitalization rate, discount rate and CAGR used in the discounted cash flow model to arrive at the appraised value were 6.50%, 7.75% and -4.1%, respectively.

The table below illustrates the impact on the estimated value per share if the terminal capitalization rate or discount rate were adjusted by 25 basis points, and assuming all other factors remain unchanged, with respect to the property. Additionally, the table below illustrates the impact on the estimated value per share if the terminal capitalization rate or discount rate for the property were adjusted by 5% in accordance with the IPA guidance:



	Increase (Decrease) on the Estimated Value per Share due to
	Decrease of 25 basis points		Increase of 25 basis points			Decrease of 5%		Increase of 5%
Terminal capitalization rates	$	0.04	$	(0.01	)	$	0.05	$	(0.02	)
Discount rates	0.04		(0.01		)	0.05		(0.02		)

Notes Payable

The estimated values of our notes payable are equal to the GAAP fair values disclosed in our Quarterly Report on Form 10-Q for the period ended September 30, 2018, but do not equal the book value of the loans in accordance with GAAP. Our advisor estimated the values of our notes payable using a discounted cash flow analysis. The discounted cash flow analysis was based on projected cash flow over the remaining loan terms, including extensions we expect to exercise, and 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.

As of September 30, 2018, the GAAP fair value and the carrying value of our notes payable were $2.1 billion and $2.1 billion, respectively. The weighted-average discount rate applied to the future estimated debt payments was approximately 4.3%. Our notes payable have a weighted-average remaining term of 1.8 years.

The table below illustrates the impact on our estimated value per share if the discount rates our advisor used to value our notes payable were adjusted by 25 basis points, assuming all other factors remain unchanged. Additionally, the table below illustrates the impact on our estimated value per share if these discount rates were adjusted by 5% in accordance with the IPA Valuation Guidelines, assuming all other factors remain unchanged:



	Increase (Decrease) on the Estimated Value per Share due to
	Decrease of 25 basis points			Increase of 25 basis points		Decrease of 5%			Increase of 5%
Discount rate	$	(0.04	)	$	0.04	$	(0.04	)	$	0.04

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Non-controlling Interest

We have an ownership interest in a consolidated joint venture as of September 30, 2018. As we consolidate this joint venture, the entire amount of the underlying assets and liabilities are reflected at their fair values in the corresponding line items of the estimated value per share calculation. As a result, we also must consider the fair value of any non-controlling interest liability as of September 30, 2018. In determining this fair value, we considered the various profit participation thresholds in the joint venture that must be measured in determining the fair value of our non-controlling interest liability. We used the real estate appraisal provided by Duff & Phelps and calculated the amount that the joint venture partner would receive in a hypothetical liquidation of the underlying real estate property (including all current assets and liabilities) at the current appraised value and the payoff of any related debt at its fair value, based on the profit participation thresholds contained in the joint venture agreement. The estimated payment to the joint venture partner was then reflected as the non-controlling interest liability in our calculation of our estimated value per share.

Other Assets and Liabilities

The carrying values of a majority of our other assets and liabilities are considered to equal their fair value due to their short maturities or liquid nature. Certain balances, such as straight-line rent receivables, lease intangible assets and liabilities, accrued capital expenditures, deferred financing costs, unamortized lease commissions and unamortized lease incentives, have been eliminated for the purpose of the valuation due to the fact that the value of those balances was already considered in the valuation of the related asset or liability. Our advisor has also excluded redeemable common stock, as temporary equity does not represent a true liability to us and the shares that this amount represents are included in our total outstanding shares of common stock for purposes of calculating the estimated value per share of our common stock.

Participation Fee Potential Liability Calculation

In accordance with the advisory agreement with our advisor, our advisor is entitled to receive a participation fee equal to 15.0% of our net cash flows, whether from continuing operations, net sale proceeds or otherwise, after 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) 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, and (ii) an 8.0% per year cumulative, noncompounded return on such net invested capital. Net sales proceeds means the net cash proceeds realized by us after deduction of all expenses incurred in connection with a sale, including disposition fees paid to our advisor. The 8.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 8.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 8.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 8.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to participate in our net cash flows. In fact, if our advisor is entitled to participate in our net cash flows, the returns of our stockholders will differ, and some may be less than a 8.0% per year cumulative, noncompounded return. This fee is payable only if we are not listed on an exchange. For purposes of determining the estimated value per share, our advisor calculated the potential liability related to this incentive fee based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. Our advisor estimated the fair value of this liability to be $17.6 million or $0.10 per share as of the valuation date, and included the impact of this liability in its calculation of our estimated value per share.

Limitations of the Estimated Value per Share

As mentioned above, we provided this estimated value per share to assist broker-dealers that participated in our now-terminated initial public offering in meeting their customer account statement reporting obligations. The estimated value per share set forth above first appeared on the December 31, 2018 customer account statements mailed in January 2019. This valuation was performed in accordance with the provisions of and also to comply with the IPA Valuation Guidelines. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share of our common stock, and this difference could be significant. The estimated value per share is not audited and does not represent the fair value of our assets less the fair value of our liabilities according to GAAP.

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Accordingly, with respect to the estimated value per share, we can give no assurance that:


•	a stockholder would be able to resell his or her shares at our estimated value per share;


•	a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of its liabilities or a sale of our company;


•	our shares of common stock would trade at the estimated value per share on a national securities exchange;


•	another independent third-party appraiser or third-party valuation firm would agree with our estimated value per share; or


•	the methodology used to determine our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.

Further, the estimated value per share is based on 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, 2018, with the exception of an adjustment to our net asset value for the acquisition and assumed loan costs related to our buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to our net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018. We did not make any other adjustments to the estimated value per share subsequent to September 30, 2018, including any adjustments relating to the following, among others: (i) the issuance of common stock and the payment of related offering costs related to our dividend reinvestment plan offering; (ii) net operating income earned and distributions declared; and (iii) the redemption of shares. The value of our shares will fluctuate over time in response to developments related to future investments, the performance of individual assets in our portfolio and the management of those assets, the real estate and finance markets and due to other factors. Our estimated value per share does not reflect a discount for the fact that we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. Our estimated value per share does not take into account estimated disposition costs and fees for real estate properties that are not under contract to sell, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations, the impact of restrictions on the assumption of debt or swap breakage fees that may be incurred upon the termination of certain of our swaps prior to expiration. The estimated value per share does not take into consideration acquisition-related costs and financing costs related to any future acquisitions subsequent to December 3, 2018. We currently expect to utilize an independent valuation firm to update our estimated value per share no later than December 2019.

Historical Estimated Values per Share

The historical reported estimated values per share of our common stock approved by the board of directors are set forth below:



Estimated Value per Share			Effective Date of Valuation	Filing with the Securities and Exchange Commission
	$11.73		December 6, 2017	Part II, Item 5 of our Annual Report on Form 10-K for the Year Ended December 31, 2017, filed March 8, 2018
	$10.63		December 9, 2016	Part II, Item 5 of our Annual Report on Form 10-K for the Year Ended December 31, 2016, filed March 13, 2017
	$10.04		December 8, 2015	Part II, Item 5 of our Annual Report on Form 10-K for the Year Ended December 31, 2015, filed March 14, 2016
	$9.42	⁽¹⁾	December 9, 2014	Part II, Item 5 of our Annual Report on Form 10-K for the Year Ended December 31, 2014, filed March 9, 2015
	$9.29	⁽¹⁾	May 5, 2014	Supplement no. 3 to our prospectus dated April 25, 2014 (Registration No. 333-164703), filed May 6, 2014

_____________________

⁽¹⁾ Determined solely to be used as a component in calculating the offering prices in our now-terminated primary initial public offering.

Distribution Information

We have paid, and expect to continue to pay, distributions on a monthly basis. The rate is determined by our board of directors based on our financial condition and other factors our board of directors deems relevant. Our board of directors has not pre-established a percentage range of return for distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we pay distributions to our stockholders.

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Generally, our policy is to pay distributions from current or prior period cash flow from operations (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under any real estate-related investments we make). From time to time during our operational stage, we may not pay distributions solely from our current or prior period cash flow from operations. Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that, from time to time, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we have funded our distributions with debt financings and we may utilize debt financing in the future, if necessary, to fund at least a portion of our distributions. As discussed above, we may also fund distributions with proceeds from the sale of assets or from the maturity, payoff or settlement of real estate-related investments, to the extent that we make any such additional investments. 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. Our distribution policy is not to use the proceeds from an offering to pay distributions. If we pay distributions from sources other than our cash flow from operations, the overall return to our stockholders may be reduced.

Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements”, Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those factors include: the future operating performance of our real estate investments in the existing real estate and financial environment; the success and economic viability of our tenants; 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.

We elected to be taxed as a REIT under the Internal Revenue Code and have operated as such beginning with our taxable year ended December 31, 2011. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.

During 2018 and 2017 , we declared distributions based on daily record dates for each day during the periods commencing January 1, 2017 through December 31, 2018 . We paid distributions for all record dates of a given month on or about the first business day of the following month. Distributions declared during 2018 and 2017 , aggregated by quarter, are as follows (dollars in thousands, except per share amounts):



	2018
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total
Total Distributions Declared	$	28,773	$	28,778	$	28,843	$	29,025	$	115,419
Total Per Share Distribution ⁽¹⁾	$	0.160	$	0.162	$	0.164	$	0.164	$	0.650
	2017
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total
Total Distributions Declared	$	29,080	$	29,421	$	29,650	$	29,587	$	117,738
Total Per Share Distribution ⁽¹⁾	$	0.160	$	0.162	$	0.164	$	0.164	$	0.650

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⁽¹⁾ During the years ended December 31, 2017 and 2018 , we declared distributions based on daily record dates for each day during the periods commencing January 1, 2017 through December 31, 2018 . Distributions for these periods were calculated based on stockholders of record each day during the 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 5.41% annualized rate based on the current estimated value per share of $12.02.

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The tax composition of our distributions declared for the years ended December 31, 2018 and 2017 was as follows:



	2018		2017
Ordinary Income	32	%	44	%
Capital Gain	7	%	—	%
Return of Capital	61	%	56	%
Total	100	%	100	%

For more information with respect to our distributions paid, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Distributions.”

On December 3, 2018, our board of directors authorized distributions in the amount of $0.05416667 per share on the outstanding shares of common stock to the stockholders of record at the close of business on January 18, 2019, which we paid on February 4, 2019. On January 22, 2019 , our board of directors authorized a February 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on February 18, 2019 , which we paid on March 1, 2019 . On March 12, 2019 , our board of directors authorized a March 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on March 18, 2019 , which we expect to pay in April 2019 , and an April 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on April 18, 2019 , which we expect to pay in May 2019 .

Stockholders may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Use of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity Securities

During the year ended December 31, 2018 , we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

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 an amount equal to our estimated value per share.

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 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 in 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 SEC or (b) in a separate mailing to our stockholders. For information with respect to additional funding for calendar year 2018, see note (3) to the table below. In addition, on May 8, 2018, our board of directors approved the Fourth Amended and Restated Share Redemption Program (the “Fourth SRP”), which was effective June 8, 2018. The Fourth SRP provides that during any calendar year subsequent to calendar year 2018, once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions.


•	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.

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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.

Upon a transfer of shares, any pending redemption requests with respect to such transferred shares will be canceled as of the date we accept the transfer. Stockholders wishing us to continue to consider a redemption request related to any transferred shares must resubmit their redemption request.

Pursuant to our share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date. From January 1, 2018 through June 8, 2018, the effective date of our Fourth SRP, the price at which we redeemed all other shares eligible for redemption was 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.

Effective June 8, 2018, all redemptions other than Special Redemptions will be made at a price per share equal to 95% of our most recent estimated value per share as of the applicable redemption date.

On December 6, 2017, our board of directors approved an estimated value per share of our common stock of $11.73 based on 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, 2017, with the exception of a reduction to our net asset value for deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017. This estimated value per share became effective for the December 2017 redemption date, which was December 29, 2017.

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.

We currently expect to utilize an independent valuation firm to update our estimated value per share no later than December 2019. 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, www.kbsreitiii.com (such information may be provided by means of a link to our public filings on the SEC’s website, www.sec.gov ).

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Our board may amend, suspend or terminate our share redemption program upon 10 business days’ notice to stockholders, and we may increase or decrease the funding available for the redemption of shares pursuant to our share redemption program upon 10 business days’ notice. 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 SEC or (b) in a separate mailing to our stockholders. The complete share redemption program document is filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2018 filed with the SEC on May 9, 2018 and is available at the SEC’s website, www.sec.gov .

During the year ended December 31, 2018, we funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan and from cash on hand. During the year ended December 31, 2018 , 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 2018	2,551,890	$	11.58	⁽³⁾
February 2018	1,297,844	$	11.62	⁽³⁾
March 2018	1,301,776	$	11.64	⁽³⁾
April 2018	—	$	—	⁽³⁾
May 2018	182,974	$	11.73	⁽³⁾
June 2018	2,688,263	$	11.16	⁽³⁾
July 2018	26,909	$	11.73	⁽³⁾
August 2018	68,744	$	11.71	⁽³⁾
September 2018	16,615	$	11.73	⁽³⁾
October 2018	39,192	$	11.73	⁽³⁾
November 2018	33,552	$	11.73	⁽³⁾
December 2018	53,752	$	11.95	⁽³⁾
Total	8,261,511

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⁽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), on March 7, 2014 (which amendment became effective on April 6, 2014) and on May 9, 2018 (which amendment became effective on June 8, 2018).

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

⁽³⁾ We l imit the dollar value of shares that may be redeemed under the program as described above. In 2017, our net proceeds from the dividend reinvestment plan were $59.8 million. On May 8, 2018, our board of directors approved an increase of the funding available for Special Redemptions under our share redemption program by up to an additional $10.0 million for the May 2018 redemption date. In addition, the Fourth SRP provides that, for calendar year 2018 only, in addition to 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 calendar year 2017, we may redeem up to an additional $42.0 million of shares, less the actual dollar amount of Special Redemptions processed on the May 2018 redemption date (such difference, the “2018 Additional Funding”); provided, however, that once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored would result in the amount of the remaining 2018 Additional Funding being $10.0 million or less, the remaining $10.0 million of the 2018 Additional Funding shall be reserved exclusively for Special Redemptions. As of June 30, 2018, we had exhausted all funds available for ordinary redemptions in 2018. As of December 31, 2018 , we had a total of $31.6 million of outstanding and unfulfilled redemption requests, representing 2,770,441 shares, which were subsequently redeemed. Based on the amount of net proceeds raised from the sale of shares under our dividend reinvestment plan during 2018, we had an aggregate of $56.1 million available for redemptions in 2019, including the reserve for Special Redemptions. As of March 1, 2019, we exhausted all funds available for ordinary redemptions and had $9.4 million available for Special Redemptions for the remainder of 2019. As of March 1, 2019 we had a total of $12.2 million of outstanding and unfulfilled ordinary redemption requests, representing 1,064,731 shares.

In addition to the redemptions under the share redemption program described above, during the year ended December 31, 2018 , we repurchased an additional 113,429 shares of our common stock at a weighted-average price of $11.57 per share for an aggregate price of $1.3 million.

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ITEM 6.	SELECTED FINANCIAL DATA

The following selected financial data as of and for the years ended December 31, 2018 , 2017 , 2016 , 2015 and 2014 should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (in thousands, except share and per share amounts):



	December 31,
	2018			2017			2016			2015			2014
Balance sheet data
Total real estate and real estate-related investments, net	$	3,036,521		$	2,962,134		$	2,988,855		$	2,933,721		$	2,217,090
Total assets	3,300,791			3,220,807			3,182,676			3,133,874			2,375,288
Notes payable, net	2,184,538			1,941,786			1,783,468			1,640,654			1,311,751
Total liabilities	2,345,409			2,100,484			1,927,429			1,791,675			1,412,863
Redeemable common stock	24,487			40,915			61,871			55,367			29,329
Total equity	930,895			1,079,408			1,193,376			1,286,832			933,096
	For the Years Ended December 31,
	2018			2017			2016			2015			2014
Operating data
Total revenues	$	426,257		$	414,049		$	400,407		$	315,709		$	188,896
Net income (loss) attributable to common stockholders	3,327			1,374			763			(29,015		)	(12,352		)
Net income (loss) per common share attributable to common stockholders - basic and diluted	0.02			0.01			—			(0.18		)	(0.14		)
Other data
Cash flows provided by operating activities	100,927			124,439			114,157			97,521			53,954
Cash flows used in investing activities	(104,255		)	(163,475		)	(198,884		)	(831,986		)	(1,035,952		)
Cash flows provided by financing activities	13,880			32,454			48,553			739,964			1,051,552
Distributions declared	115,419			117,738			117,025			106,189			59,481
Distributions declared per common share ⁽¹⁾	0.650			0.650			0.650			0.650			0.650
Weighted-average number of common shares outstanding, basic and diluted	177,594,478			181,138,045			180,043,027			163,358,289			91,374,493
Reconciliation of funds from operations ⁽²⁾
Net income (loss) attributable to common stockholders	$	3,327		$	1,374		$	763		$	(29,015	)	$	(12,352	)
Depreciation of real estate assets	96,978			86,573			77,676			56,957			30,088
Amortization of lease-related costs	61,869			77,716			83,688			79,978			49,475
Gain on sale of real estate, net	(11,942		)	—			—			—			(10,894		)
Adjustment for investment in unconsolidated joint venture ⁽³⁾	1,537			—			—			—			—
Gain as a result of unconsolidated joint venture purchase ⁽⁴⁾	(2,034		)	—			—			—			—
FFO	$	149,735		$	165,663		$	162,127		$	107,920		$	56,317

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⁽¹⁾ Distributions declared per common share assumes each share was issued and outstanding each day for the periods presented. Distributions for the periods from January 1, 2014 through February 28, 2016 and March 1, 2016 through December 31, 2018 were based on daily record dates and calculated at a rate of $0.00178082 per share per day.

⁽²⁾ 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), gains and losses from change in control, 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 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.

FFO is a non-GAAP financial measure and does 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 includes adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Investors should exercise caution when using non-GAAP performance measures, such as FFO, to make investment decisions. Accordingly, FFO should not be considered as an alternative to net income as an indicator of our operating performance.

⁽³⁾ Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net income attributable to common stockholders to FFO for our equity investment in an unconsolidated joint venture. On October 11, 2018, we purchased the unaffiliated developer’s 25% equity interest and consolidated this joint venture.

⁽⁴⁾ Reflects the remeasurement gain as a result of change in control upon our purchase of the developer's 25% equity interest and consolidation of Village Center Station II which was previously accounted for under the equity method of accounting.


ITEM 7.	MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidated financial statements and the notes thereto. Also see “Forward-Looking Statements” preceding Part I and Part I, Item 1A, “Risk Factors.”

Overview

We were formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a REIT beginning with the taxable year ended December 31, 2011 and we intend to continue to operate in such a manner. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is managed by our advisor pursuant to an advisory agreement and our advisor conducts our operations and manages our portfolio of real estate investments. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

We have invested in a diverse portfolio of real estate investments. As of December 31, 2018 , we owned 28 office properties and one mixed-use office/retail property. Additionally, as of December 31, 2018 , we had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction.

Market Outlook – Real Estate and Real Estate Finance Markets

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

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Liquidity and Capital Resources

Our principal demands for funds during the short and long-term are and will be for operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; capital commitments and development expenses under our joint venture agreement; and payments of distributions to stockholders. Our primary sources of capital for meeting our cash requirements are as follows:


•	Cash flow generated by our real estate investments;


•	Debt financings (including amounts currently available under existing loan facilities);


•	Proceeds from the sale of our real estate properties; and


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

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 collectability of rent and operating recoveries from our tenants and how well we manage our expenditures.

As of December 31, 2018 , we had mortgage debt obligations in the aggregate principal amount of $2.2 billion , with a weighted-average remaining term of 2.0 years. The maturity dates of certain loans may be extended beyond their current maturity date, subject to certain terms and conditions contained in the loan documents. Assuming our notes payable are fully extended under the terms of the respective loan agreements and other loan documents, we have $5.3 million of amortizing principal payments due during the 12 months ending December 31, 2019 . We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates. Our debt obligations consisted of $190.5 million of fixed rate notes payable and $2.0 billion of variable rate notes payable. As of December 31, 2018 , the interest rates on $1.2 billion of our variable rate notes payable were effectively fixed through interest rate swap agreements and the interest rate on $100.0 million of our variable rate debt was limited under an interest rate cap agreement that was terminated on January 1, 2019. As of December 31, 2018 , we had $216.0 million of revolving debt available for immediate future disbursement under three portfolio loans, subject to certain conditions set forth in the loan agreements.

We paid distributions to our stockholders during the year ended December 31, 2018 using cash flow from operations from current and prior periods. 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.

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 December 31, 2018 did not exceed the charter-imposed limitation.

Cash Flows from Operating Activities

During the year ended December 31, 2018 , net cash provided by operating activities was $100.9 million , compared to net cash provided by operating activities of $124.4 million during the year ended December 31, 2017 . Net cash provided by operating activities was higher in 2017 primarily as a result of lease termination fees, the timing of payments of operating expenses and cash receipts of rental income.

Cash Flows from Investing Activities

Net cash used in investing activities was $104.3 million for the year ended December 31, 2018 and primarily consisted of the following:


•	$88.7 million used for improvements to real estate;


•	$41.6 million of proceeds from the sale of real estate;


•	$34.2 million used for construction in progress related to Hardware Village;


•	$28.3 million used to purchase the unaffiliated developer’s equity interest in Village Center Station II;


•	$4.6 million of insurance proceeds received for property damage;


•	$1.1 million of escrow deposits received for tenant improvements; and


•	$0.4 million used for investments in an unconsolidated joint venture.

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Cash Flows from Financing Activities

Our cash flows from financing activities consist primarily of debt financings, redemptions and distributions paid to our stockholders. During the year ended December 31, 2018 , net cash provided by financing activities was $13.9 million and primarily consisted of the following:


•	$169.5 million of net cash provided by debt financing as a result of proceeds from notes payable of $507.9 million, partially offset by principal payments on notes payable of $335.2 million and payments of deferred financing costs of $3.2 million;


•	$96.1 million of cash used for redemptions of common stock; and


•	$59.5 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $56.1 million.

We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). There is no limitation on the amount we may borrow for the purchase of any single asset. We limit our total liabilities to 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), meaning that our borrowings and other liabilities may exceed our maximum target leverage of 65% of the cost of our tangible assets without violating these borrowing restrictions. We may exceed the 75% limit only if a majority of the conflicts committee approves each borrowing in excess of this limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. 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. From time to time, our total liabilities could also be below 45% of the cost of our tangible assets due to the lack of availability of debt financing. As of December 31, 2018 , our borrowings and other liabilities were approximately 62% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively.

We also expect to use our capital resources to make certain payments to our advisor. During our operational stage, we expect to make payments to our advisor in connection with the acquisition 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.

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 is 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.

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 MFFO for such month, as such term is defined in the practice guideline issued by the 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.

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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% per year cumulative, noncompounded return on 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.

As of December 31, 2018 , we had accrued and deferred payment of $2.6 million of asset management fees under the advisory agreement, which were subsequently paid in February 2019. 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 amount of and terms of the debt we use to acquire assets, the level of operating cash flow generated by our real estate investments and other factors. In addition, deferrals and repayments may occur in the same period, and it is possible that there could be additional deferrals in the future.

On September 27, 2018, we and our advisor renewed the advisory agreement. 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.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of December 31, 2018 (in thousands):



			Payments Due During the Years Ended December 31,
Contractual Obligations	Total		2019		2020-2021		2022-2023		Thereafter
Outstanding debt obligations ⁽¹⁾	$	2,196,154	$	348,679	$	1,466,354	$	256,121	$	125,000
Interest payments on outstanding debt obligations ⁽²⁾	167,937		77,498		77,945		12,427		67
Development obligations ⁽³⁾	16,566		16,566		—		—		—

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⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as of December 31, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable). We incurred interest expense of $79.7 million, excluding amortization of deferred financing costs totaling $6.5 million and unrealized gain on derivative instruments of $11.2 million and including interest capitalized of $2.8 million during the year ended December 31, 2018 .

⁽³⁾ We have entered into the Hardware Village joint venture to develop a two-building multifamily apartment complex consisting of 453 units and expect to incur approximately $16.6 million in additional development obligations through 2019. In July 2018, one of the two buildings consisting of 265 units was substantially completed. As of December 31, 2018 , $49.7 million had been disbursed under the Hardware Village Loan Facility and $24.3 million remained available for future disbursements, subject to certain conditions contained in the Hardware Village Loan Facility documents.

Results of Operations

Overview

As of December 31, 2017 , we owned 28 office properties and one mixed-use office/retail property, and we had made investments in the Village Center Station II joint venture and the Hardware Village joint venture. Subsequent to December 31, 2017 , we sold one office property. The construction of Village Center Station II was substantially completed in May 2018, and in October 2018, we purchased the unaffiliated developer's 25% equity interest and consolidated Village Center Station II. In addition, one of the two apartment buildings consisting of 265 units at Hardware Village was completed and placed in service in July 2018. As of December 31, 2018 , we owned 28 office properties and one mixed-use office/retail property and had entered into the Hardware Village joint venture. As a result, the results of operations presented for the years ended December 31, 2018 and 2017 are not directly comparable.

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Comparison of the year ended December 31, 2018 versus the year ended December 31, 2017

The following table provides summary information about our results of operations for the years ended December 31, 2018 and 2017 (dollar amounts in thousands):



	For the Years Ended December 31,						Increase (Decrease)			Percentage Change		$ Change Due to Properties Completed or Disposed ⁽¹⁾			$ Change Due to Properties Held Throughout Both Periods ⁽²⁾
	2018			2017			Increase (Decrease)			Percentage Change		$ Change Due to Properties Completed or Disposed ⁽¹⁾
Rental income	$	320,907		$	314,597		$	6,310		2	%	$	(617	)	$	6,927
Tenant reimbursements	80,745			76,438			4,307			6	%	(66		)	4,373
Other operating income	24,605			23,014			1,591			7	%	205			1,386
Operating, maintenance and management costs	101,759			97,477			4,282			4	%	213			4,069
Real estate taxes and insurance	69,405			65,325			4,080			6	%	(78		)	4,158
Asset management fees to affiliate	27,152			25,905			1,247			5	%	439			808
General and administrative expenses	9,597			4,723			4,874			103	%	n/a			n/a
Depreciation and amortization	158,847			164,289			(5,442		)	(3	)%	763			(6,205		)
Interest expense	72,209			55,008			17,201			31	%	1,388			15,813
Other income	1,905			649			1,256			194	%	—			1,256
Other interest income	312			170			142			84	%	n/a			n/a
Equity in income (loss) of unconsolidated joint venture	2,088			(1		)	2,089			100	%	—			2,089
Loss from extinguishment of debt	(225		)	(766		)	541			(71	)%	—			541
Gain on sale of real estate	11,942			—			11,942			100	%	11,942			—

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⁽¹⁾ Represents the dollar amount increase (decrease) for the year ended December 31, 2018 compared to the year ended December 31, 2017 related to real estate developments completed and real estate investments disposed of on or after January 1, 2017 .

⁽²⁾ Represents the dollar amount increase (decrease) for the year ended December 31, 2018 compared to the year ended December 31, 2017 related to real estate investments owned by us throughout both periods presented.

Rental income and tenant reimbursements from our real estate properties increased from $391.0 million for the year ended December 31, 2017 to $401.7 million for the year ended December 31, 2018 . The increase in rental income and tenant reimbursements was primarily due to an increase in rental rates, property tax recoveries as a result of property tax reassessments and operating expense recoveries in properties held throughout both periods, as well as the acquisition of the developer's 25% equity interest in and operation of Village Center Station II, partially offset by the sale of one office property during the year ended December 31, 2018 and a decrease in termination fees due to early lease terminations in 2017. We expect rental income and tenant reimbursements to vary in future periods based on occupancy rates and rental rates of our real estate investments, to increase based on the development and subsequent full operation of Hardware Village and to increase in future periods as a result of owning the real estate development completed in 2018 for an entire period. However, rental income and tenant reimbursements would decrease to the extent that we sell any of our real estate properties.

Other operating income increased from $23.0 million during the year ended December 31, 2017 to $24.6 million for the year ended December 31, 2018 . The increase in other operating income was primarily due to an increase in parking revenues for properties held throughout both periods. We expect other operating income to vary in future periods based on occupancy rates and parking rates at our real estate properties. However, other operating income would decrease to the extent that we sell any of our real estate properties.

Operating, maintenance and management costs increased from $97.5 million for the year ended December 31, 2017 to $101.8 million for the year ended December 31, 2018 . The increase in operating, maintenance and management costs was primarily due to an increase in repairs and maintenance costs and management fees for properties held throughout both periods. We expect operating, maintenance and management costs to increase in future periods as a result of the development and subsequent full operation of Hardware Village and general inflation. However, operating, maintenance and management costs would decrease to the extent that we sell any of our real estate properties.

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Real estate taxes and insurance increased from $65.3 million for the year ended December 31, 2017 to $69.4 million for the year ended December 31, 2018 . The increase in real estate taxes and insurance was primarily due to higher property taxes as a result of property tax reassessments for properties held throughout both periods. We expect real estate taxes and insurance to increase in future periods as a result of the development and subsequent full operation of Hardware Village, and general inflation and general increases due to future property tax reassessments. However, real estate taxes and insurance would decrease to the extent that we sell any of our real estate properties.

Asset management fees with respect to our real estate investments increased from $25.9 million for the year ended December 31, 2017 to $27.2 million for the year ended December 31, 2018 due to the properties completed during the year ended December 31, 2018 and the increase in capital improvements for properties held throughout both periods. We expect asset management fees to increase in future periods as a result of the development and subsequent full operation of Hardware Village, owning Village Center Station II for an entire period and as a result of any improvements we make to our properties, which increase would be offset to the extent we dispose of any of our assets. As of December 31, 2018 , there were $2.6 million of accrued and deferred asset management fees, which were subsequently paid in February 2019. For a discussion of accrued and deferred asset management fees, see “— Liquidity and Capital Resources” herein.

General and administrative expenses increased from $4.7 million for the year ended December 31, 2017 to $9.6 million for the year ended December 31, 2018 . The increase in general and administrative expenses was primarily due to professional fees incurred related to the assessment of strategic alternatives. We expect general and administrative expenses to vary in future periods.

Depreciation and amortization decreased from $164.3 million for the year ended December 31, 2017 to $158.8 million for the year ended December 31, 2018 , primarily as a result of a decrease in amortization of unamortized tenant improvements and tenant origination and absorption costs related to lease expirations and early lease terminations for properties held throughout both periods during the year ended December 31, 2017 and the sale of one of our properties during the year ended December 31, 2018 , offset by an increase in depreciation and amortization expense for the Hardware Village building completed in July 2018 and the consolidation of Village Center Station II in October 2018. We expect depreciation and amortization to vary in future periods as a result of a decrease in amortization related to fully amortized tenant origination and absorption costs, offset by an increase as a result of the development and subsequent full operation of Hardware Village and increase in future periods as a result of owning the real estate development completed in 2018 for an entire period. However, depreciation and amortization would decrease to the extent that we sell any of our real estate properties.

Interest expense increased from $55.0 million for the year ended December 31, 2017 to $72.2 million for the year ended December 31, 2018 . Included in interest expense was (i) the amortization of deferred financing costs of $5.3 million and $6.5 million for the years ended December 31, 2017 and 2018 , respectively and (ii) interest expense (including gains and losses) incurred as a result of our derivative instruments which reduced interest expense by $3.1 million for the year ended December 31, 2017 and reduced interest expense by $11.1 million for the year ended December 31, 2018 . Additionally, during the year ended December 31, 2017 and 2018 , we capitalized $2.4 million and $2.8 million of interest to construction-in-progress related to Hardware Village and Village Center Station II, respectively. The increase in interest expense was primarily due to higher 30-day LIBOR rate and an increased level of borrowings partially offset by unrealized gains on derivative instruments. We expect interest expense to increase in future periods as a result of additional borrowings for capital expenditures and development activity. In addition, our interest expense in future periods will vary based on fair value changes with respect to our interest rate swaps that are not accounted for as cash flow hedges and fluctuations in one-month LIBOR (for our variable rate debt). However, interest expense would decrease to the extent that we sell any of our real estate properties and repay the debt secured by such properties.

During the year ended December 31, 2017 , we received $0.6 million in proceeds from a one-time easement agreement, which is included in other income in the accompanying consolidated statements of operations. During the year ended December 31, 2018 , we incurred $1.9 million of other income primarily as a result of a reduction in contingent liability of $1.6 million during the second quarter of 2018.

During the year ended December 31, 2018 , we recognized $2.1 million of equity in income of unconsolidated joint venture primarily related to the purchase of the developer’s 25% equity interest in Village Center Station II. On March 3, 2017, we acquired a 75% equity interest in an existing company and created a joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, we purchased the developer’s 25% equity interest and accounted for Village Center Station II on a consolidated basis. Upon acquisition of the developer’s interest, we recorded the property at fair value and recorded a gain of $2.0 million which was included in equity in income from unconsolidated joint venture during the year ended December 31, 2018 .

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During the year ended December 31, 2017 , we recognized a loss from extinguishment of debt of $0.7 million related to the write-off of unamortized deferred financing costs as a result of the early pay-off of the Town Center Mortgage Loan, RBC Plaza Mortgage Loan, National Office Portfolio Mortgage Loan, 500 West Madison Mortgage Loan, Ten Almaden Mortgage Loan and Towers at Emeryville Mortgage Loan on November 3, 2017 in connection with a portfolio refinance. During the year ended December 31, 2018 , we recognized a loss from extinguishment of debt of $0.2 million related to the write-off of unamortized deferred financing costs as a result of the early pay-off of the 515 Congress Mortgage Loan on October 17, 2018.

During the year ended December 31, 2018 , we sold one office property that resulted in a gain on sale of $11.9 million. During the year ended December 31, 2017 , we did not dispose of any properties.

Comparison of the year ended December 31, 2017 versus the year ended December 31, 2016

The following table provides summary information about our results of operations for the years ended 2017 and 2016 (dollar amounts in thousands):



	For the Years Ended December 31,					Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions and Payoffs ⁽¹⁾			$ Change Due to Properties or Loans Held Throughout Both Periods ⁽²⁾
	2017			2016		Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions and Payoffs ⁽¹⁾
Rental income	$	314,597		$	307,568	$	7,029		2	%	$	568		$	6,461
Tenant reimbursements	76,438			70,856		5,582			8	%	(153		)	5,735
Other operating income	23,014			21,152		1,862			9	%	149			1,713
Interest income from real estate loan receivable	—			831		(831		)	(100	)%	(831		)	—
Operating, maintenance and management costs	97,477			93,580		3,897			4	%	(131		)	4,028
Real estate taxes and insurance	65,325			61,090		4,235			7	%	26			4,209
Asset management fees to affiliate	25,905			24,940		965			4	%	474			491
Real estate acquisition fees to affiliate	—			1,473		(1,473		)	(100	)%	(1,473		)	—
Real estate acquisition fees and expenses	—			306		(306		)	(100	)%	(306		)	—
General and administrative expenses	4,723			5,398		(675		)	(13	)%	n/a			n/a
Depreciation and amortization	164,289			161,364		2,925			2	%	136			2,789
Interest expense	55,008			51,554		3,454			7	%	n/a			n/a
Other income	649			—		649			100	%	—			649
Loss from extinguishment of debt	(766		)	—		(766		)	100	%	—			(766		)

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⁽¹⁾ Represents the dollar amount increase (decrease) for the year ended December 31, 2017 compared to the year ended December 31, 2016 related to real estate investments acquired or repaid on or after January 1, 2016 .

⁽²⁾ Represents the dollar amount increase (decrease) for the year ended December 31, 2017 compared to the year ended December 31, 2016 related to real estate investments owned by us throughout both periods presented.

Rental income and tenant reimbursements from our real estate properties increased from $378.4 million for the year ended December 31, 2016 to $391.0 million for the year ended December 31, 2017. The increase in rental income and tenant reimbursements for properties held throughout both periods was primarily due to an increase in lease termination fees, rental rates, operating expense recoveries and property tax recoveries.

Other operating income increased from $21.2 million during the year ended December 31, 2016 to $23.0 million for the year ended December 31, 2017. The increase in other operating income for properties held throughout both periods was primarily due to an increase in parking revenues.

Interest income from our real estate loan receivable, recognized using the interest method, decreased from $0.8 million for the year ended December 31, 2016 to $0 for the year ended December 31, 2017 as a result of the payoff of the real estate loan receivable on July 1, 2016.

Operating, maintenance and management costs increased from $93.6 million for the year ended December 31, 2016 to $97.5 million for the year ended December 31, 2017. The increase in operating, maintenance and management costs for properties held throughout both periods was primarily due to an increase in repairs and maintenance, janitorial services and security services.

Real estate taxes and insurance increased from $61.1 million for the year ended December 31, 2016 to $65.3 million for the year ended December 31, 2017. The increase in real estate taxes and insurance for properties held throughout both periods was primarily due to higher property taxes as a result of property tax reassessments.

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Asset management fees with respect to our real estate investments increased from $24.9 million for the year ended December 31, 2016 to $25.9 million for the year ended December 31, 2017. As of December 31, 2017, there were $2.3 million of accrued and deferred asset management fees.

Real estate acquisition fees and expenses to affiliate and non-affiliates decreased from $1.8 million for the year ended December 31, 2016 to $0 for the year ended December 31, 2017 due to a decrease in acquisition activity. During the year ended December 31, 2017, we did not acquire any investments accounted for as a business combination, but we did make an investment in the Village Center Station II joint venture. During the year ended December 31, 2017, we capitalized an aggregate of $1.1 million in acquisition fees and expenses related to the development of Hardware Village and the investment in the Village Center Station II joint venture. During the year ended December 31, 2016, we acquired one real estate property accounted for as a business combination for $146.1 million.

Depreciation and amortization increased from $161.4 million for the year ended December 31, 2016 to $164.3 million for the year ended December 31, 2017, primarily as a result of the acceleration of amortization of intangible assets related to a tenant relocation and a lease termination at a property held throughout both periods.

Interest expense increased from $51.6 million for the year ended December 31, 2016 to $55.0 million for the year ended December 31, 2017. Included in interest expense is the amortization of deferred financing costs of $5.1 million and $5.3 million for the years ended December 31, 2016 and 2017, respectively. Additionally, during the year ended December 31, 2016 and 2017, we capitalized $0.2 million and $2.4 million of interest to construction-in-progress related to Hardware Village and Village Center Station II, respectively. Interest expense (including gains and losses) incurred as a result of our derivative instruments for the years ended December 31, 2016 and 2017 increased interest expense by $6.4 million and decreased interest expense by $3.1 million, respectively, which includes $1.6 million and $10.5 million of unrealized gains on derivative instruments for the years ended December 31, 2016 and 2017, respectively. The increase in interest expense is due to the increased level of borrowings.

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), gains and losses from change in control, 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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Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses MFFO as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the 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 fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses) from MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time. 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.

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, acquisition fees and expenses, adjustments related to contingent purchase price obligations and the exclusion of loss from extinguishment of debt 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;

•

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;

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•

Acquisition fees and expenses. Prior to our early adoption of ASU No. 2017-01 on January 1, 2017, acquisition fees and expenses related to the acquisition of real estate were 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 fees and expenses have been funded from the proceeds from our now-terminated 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;

•

Adjustments relating to contingent purchase price obligations. These are adjustments relating to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income. We believe that the elimination of the contingent purchase price consideration adjustment, included in other income for GAAP purposes, is appropriate because the adjustment is a non-cash adjustment that is not reflective of our ongoing operating performance; and

•

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

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 years ended December 31, 2018 , 2017 and 2016 , respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.



	For the Years Ended December 31,
	2018			2017			2016
Net income attributable to common stockholders	$	3,327		$	1,374		$	763
Depreciation of real estate assets	96,978			86,573			77,676
Amortization of lease-related costs	61,869			77,716			83,688
Gain on sale of real estate, net	(11,942		)	—			—
Adjustment for investment in unconsolidated joint venture ⁽¹⁾	1,537			—			—
Gain as a result of purchase and consolidation of joint venture ⁽²⁾	(2,034		)	—			—
FFO attributable to common stockholders ⁽³⁾	$	149,735		$	165,663		$	162,127
Straight-line rent and amortization of above- and below-market leases, net	(13,900		)	(18,287		)	(26,136		)
Loss from extinguishment of debt	225			766			—
Amortization of discounts and closing costs	—			—			15
Unrealized gains on derivative instruments	(11,192		)	(10,509		)	(1,597		)
Real estate acquisition fees to affiliate	—			—			1,473
Real estate acquisition fees and expenses	—			—			306
Adjustment relating to contingent purchase price obligation	(1,575		)	—			—
Income tax expense relating to contingent purchase price obligation ⁽⁴⁾	418
Adjustment for investment in unconsolidated joint venture ⁽¹⁾	(148		)	—			—
MFFO attributable to common stockholders ⁽³⁾	$	123,563		$	137,633		$	136,188

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⁽¹⁾ Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net income attributable to common stockholders to FFO and MFFO for our equity investment in an unconsolidated joint venture.

⁽²⁾ Reflects the remeasurement gain as a result of change in control upon our purchase of the developer’s 25% equity interest and consolidation of Village Center Station II which was previously accounted for under the equity method of accounting.

⁽³⁾ FFO and MFFO includes $1.3 million, $7.0 million and $1.7 million of lease termination income for the years ended December 31, 2018 , 2017 and 2016 , respectively.

⁽⁴⁾ Relates to income tax expense on the income recorded as a result of a reduction in contingent liability of $1.6 million, which is included in general and administrative expenses on the accompanying consolidated statement of operations.

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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.

Distributions

Distributions declared, distributions paid and cash flow from operating activities were as follows during 2018 (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 2018	$	28,773	$	0.160	$	14,646	$	14,273	$	28,919	$	11,108
Second Quarter 2018	28,778		0.162		14,887		14,228		29,115		42,035
Third Quarter 2018	28,843		0.164		14,976		13,942		28,918		25,865
Fourth Quarter 2018	29,025		0.164		14,955		13,693		28,648		21,919
	$	115,419	$	0.650	$	59,464	$	56,136	$	115,600	$	100,927

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⁽¹⁾ Distributions for the period from January 1, 2018 through December 31, 2018 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.

For the year ended December 31, 2018 , we paid aggregate distributions of $115.6 million , including $59.5 million of distributions paid in cash and $56.1 million of distributions reinvested through our dividend reinvestment plan. Our net income attributable to common stockholders for the year ended December 31, 2018 was $3.3 million. FFO for the year ended December 31, 2018 was $149.7 million and cash flow from operating activities was $100.9 million . See the reconciliation of FFO to net income (loss) attributable to common stockholders above. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $97.8 million of cash flow from current operating activities and $17.8 million of cash flow from operating activities in excess of distributions paid during prior periods. 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.

Over the long-term, we generally expect our distributions will be paid from cash flow from operating activities from current periods or prior periods (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under any real estate-related investments we make). From time to time during our operational stage, 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. To the extent that we pay distributions from sources other than our cash flow from operating activities, the overall return to our stockholders may be reduced. 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,” Part I, Item 1A, “Risk Factors” and in this Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those factors include: the future operating performance of our real estate investments in the existing real estate and financial environment; the success and economic viability of our tenants; 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 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.

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Revenue Recognition

Real Estate

We recognize minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured and record amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:


•	whether the lease stipulates how a tenant improvement allowance may be spent;


•	whether the amount of a tenant improvement allowance is in excess of market rates;


•	whether the tenant or landlord retains legal title to the improvements at the end of the lease term;


•	whether the tenant improvements are unique to the tenant or general-purpose in nature; and


•	whether the tenant improvements are expected to have any residual value at the end of the lease.

We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

We make estimates of the collectability of our tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. We specifically analyze accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, we will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

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

Based on our evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at our properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the year ended December 31, 2018 , tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $7.4 million and were included in tenant reimbursements on the accompanying statements of operations.

Sales of Real Estate

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

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

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ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if we determine we do not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer.

Real Estate

Depreciation and Amortization

Real estate costs related to the acquisition and improvement of properties are capitalized and depreciated over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. We consider the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. We anticipate the estimated useful lives of our assets by class to be generally as follows:



Land	N/A
Buildings	25-40 years
Building improvements	10-25 years
Tenant improvements	Shorter of lease term or expected useful life
Tenant origination and absorption costs	Remaining term of related leases, including below-market renewal periods

Real Estate Acquisition Valuation

As a result of our adoption of ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , acquisitions of real estate beginning January 1, 2017 could qualify as asset acquisitions (as opposed to business combinations). We record the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination or an asset acquisition. If substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business. For purposes of this test, land and buildings can be combined along with the intangible assets for any in-place leases and accordingly, most acquisitions of investment properties would not meet the definition of a business and would be accounted for as an asset acquisition. To be considered a business, a set must include an input and a substantive process that together significantly contributes to the ability to create an output. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. For asset acquisitions, the cost of the acquisition is allocated to individual assets and liabilities on a relative fair value basis. Acquisition costs associated with business combinations are expensed as incurred. Acquisition costs associated with asset acquisitions are capitalized.

We assess the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.

We record above-market and below-market in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods.

We estimate the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease up periods, considering current market conditions. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease up periods.

We amortize the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases.

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Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of our net income.

Subsequent to the acquisition of a property, we may incur and capitalize costs necessary to get the property ready for its intended use. During that time, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized.

Impairment of Real Estate and Related Intangible Assets and Liabilities

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities.

Projecting future cash flows involves estimating expected future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends. Using inappropriate assumptions to estimate cash flows could result in incorrect fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of our real estate and related intangible assets and liabilities and an overstatement of our net income.

Insurance Proceeds for Property Damage

We maintain an insurance policy that provides coverage for losses due to property damage and business interruption. Losses due to physical damage are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable. Losses, which are reduced by the related probable insurance recoveries, are recorded as operating, maintenance and management expenses on the accompanying consolidated statements of operations. Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Anticipated recoveries for lost rental revenue due to property damage are also considered to be a gain contingency and recognized when the contingency related to the insurance claim has been resolved.

Real Estate Held for Sale and Discontinued Operations

We generally consider real estate to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate held for sale” and “assets related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Notes payable and other liabilities related to real estate held for sale are classified as “notes payable related to real estate held for sale” and “liabilities related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Operating results of properties and related gains on sale of properties that were disposed of or classified as held for sale in the ordinary course of business during the years ended December 31, 2018 , 2017 and 2016 are included in continuing operations on our consolidated statements of operations.

Construction in Progress

Direct investments in undeveloped land or properties without leases in place at the time of acquisition are accounted for as an asset acquisition and not as a business combination. Acquisition fees and expenses are capitalized into the cost basis of an asset acquisition. Additionally, during the time that we are incurring costs necessary to bring these investments to their intended use, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized. Once construction in progress is substantially completed, the amounts capitalized to construction in progress are transferred to land and buildings and improvements and are depreciated over their respective useful lives.

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Investments in Unconsolidated Joint Ventures

We follow the equity method of accounting for investments in joint ventures over which we may exercise significant influence, and for investments in joint ventures that qualify as variable interest entities of which we are not the primary beneficiary. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and our proportionate share of equity in the joint venture’s income (loss). We recognize our proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, we evaluate our investment in an unconsolidated joint venture for other-than-temporary impairments. During the year ended December 31, 2018 , we held a 75% equity interest in an unconsolidated joint venture. In October 2018, we acquired the joint venture partner’s 25% equity interest, resulting in the consolidation of the investment. As of December 31, 2018 , there were no unconsolidated real estate joint ventures accounted for under the equity method.

Derivative Instruments

We enter into derivative instruments for risk management purposes to hedge our exposure to cash flow variability caused by changing interest rates on our variable rate notes payable. We record these derivative instruments at fair value on the accompanying consolidated balance sheets. Derivative instruments designated and qualifying as a hedge of the exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash flow hedges. 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 consolidated statements of equity. The changes in fair value for derivative instruments that are not designated as a hedge or that do not meet the hedge accounting criteria are recorded as gain or loss on derivative instruments and included in interest expense as presented in the accompanying consolidated statements of operations.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objectives and strategy for undertaking various hedge transactions. This process includes designating all derivative instruments that are part of a hedging relationship to specific forecasted transactions or recognized obligations on the consolidated balance sheets. We also assess and document, both at the hedging instrument’s inception and on a quarterly basis thereafter, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the respective hedged items. When we determine that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, we discontinue hedge accounting prospectively and reclassify amounts recorded to accumulated other comprehensive income (loss) to earnings.

Fair Value Measurements

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


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


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


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

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When available, we utilize quoted market prices from independent third-party sources to determine fair value and classify such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require us to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When we determine the market for a financial instrument owned by us to be illiquid or when market transactions for similar instruments do not appear orderly, we use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establish a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, we measure 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.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

We consider the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with our estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market).

We consider the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code. To continue to qualify as a REIT, we must continue to meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially and adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT.

Subsequent Events

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

Distributions Paid

On January 2, 2019 , we paid distributions of $9.8 million , which related to distributions declared for daily record dates for each day in the period from December 1, 2018 through December 31, 2018 . Distributions for this period were calculated based on stockholders of record each day during this period at a rate of $0.00178082 per share per day. On February 4, 2019 , we paid distributions of $9.6 million , which related to distributions in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on January 18, 2019 . On March 1, 2019 , we paid distributions of $9.4 million , which related to distributions in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on February 18, 2019 .

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Distributions Authorized

On March 12, 2019 , our board of directors authorized a March 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on March 18, 2019 , which we expect to pay in April 2019 , and an April 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on April 18, 2019 , which we expect to pay in May 2019 .

Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.


ITEM 7A.	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 may also be 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 variable rate exposure is kept at an acceptable level or by utilizing 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.

The table below summarizes the outstanding principal balance, weighted-average interest rates and fair value for our notes payable for each category; and the notional amounts, average pay and receive rates or strike rate, as applicable, of our derivative instruments, based on maturity dates as of December 31, 2018 (dollars in thousands):



	Maturity Date																		Total Value or Notional Amount
	2019			2020			2021			2022			2023			Thereafter			Total Value or Notional Amount			Fair Value
Assets
Derivative Instruments
Interest rate swaps, notional amount	$	—		$	429,217		$	—		$	703,300		$	76,440		$	—		$	1,208,957		$	15,909
Average pay rate ⁽¹⁾	—			2.1		%	—			2.0		%	1.7		%	—			2.0		%
Average receive rate ⁽²⁾	—			2.5		%	—			2.5		%	2.5		%	—			2.5		%
Interest rate cap, notional amount ⁽³⁾	$	100,000		$	—		$	—		$	—		$	—		$	—		$	100,000		—
Strike rate ⁽⁴⁾	3.0		%	—			—			—			—			—			3.0		%

Liabilities
Notes payable, principal outstanding
Fixed Rate	$	—		$	—		$	97,522		$	93,000		$	—		$	—		$	190,522		$	190,604
Weighted-average interest rate ⁽⁵⁾	—			—			4.0		%	4.2		%	—			—			4.1		%
Variable Rate	$	345,160		$	1,168,828		$	200,000		$	166,644		$	—		$	125,000		$	2,005,632		$	2,011,983
Weighted-average interest rate ⁽⁵⁾	3.8		%	3.9		%	3.7		%	3.7		%	—			3.9		%	3.8		%

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⁽¹⁾ The average pay rate is based on the interest rate swap fixed rate.

⁽²⁾ The average receive rate is based on the 30‑day LIBOR rate as of December 31, 2018 .

⁽³⁾ The interest rate cap was terminated on January 1, 2019.

⁽⁴⁾ The strike rate caps one-month LIBOR on the applicable notional amount.

⁽⁵⁾ The weighted-average interest rate represents the actual interest rate in effect as of December 31, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps), if applicable, using interest rate indices as of December 31, 2018 , where applicable.

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We borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt, unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of December 31, 2018 , the fair value of our fixed rate debt was $190.6 million and the outstanding principal balance of our fixed rate debt was $190.5 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 December 31, 2018 . As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on our variable rate debt would change our 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 December 31, 2018 , we were exposed to market risks related to fluctuations in interest rates on $696.7 million of variable rate debt outstanding after giving consideration to the impact of interest rate swap agreements on approximately $1.2 billion of our variable rate debt and the impact of an interest rate cap agreement on $100.0 million of our variable rate debt that terminated on January 1, 2019. Based on interest rates as of December 31, 2018 , if interest rates were 100 basis points higher or lower during the 12 months ending December 31, 2019 , interest expense on our variable rate debt would increase by $7.4 million or decrease by $8.0 million .

For a discussion of the interest rate risks related to the current capital and credit markets, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Financial Statements at page F-1 of this report.


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.	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.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.

In connection with the preparation of our Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018 . In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on its assessment, our management believes that, as of December 31, 2018 , our internal control over financial reporting was effective based on those criteria. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.	OTHER INFORMATION

None.

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PART III


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

We have provided below certain information about our directors and executive officers.



Name and Address	Position(s)	Age ⁽¹⁾
Peter M. Bren	President and Director	85
Charles J. Schreiber, Jr.	Chairman of the Board, Chief Executive Officer and Director	67
Jeffrey K. Waldvogel	Chief Financial Officer, Treasurer and Secretary	41
Stacie K. Yamane	Chief Accounting Officer and Assistant Secretary	54
Barbara R. Cambon	Independent Director	65
Jeffrey A. Dritley	Independent Director	61
Stuart A. Gabriel, Ph.D.	Independent Director	65

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⁽¹⁾ As of March 1, 2019.

Peter M. Bren is our President, a position he has held since January 2010, and one of our directors, a position he has held since July 2018. He is also Chairman and President of our advisor and President of KBS REIT II, positions he has held for these entities since October 2004 and August 2007, respectively. In February 2019, Mr. Bren was elected as a director of KBS REIT II. Mr. Bren is President and a director of KBS Growth & Income REIT, positions he has held since January 2015 and July 2017, respectively. Mr. Bren was also President of KBS REIT I, a position he held from June 2005 until its liquidation in December 2018, and was President and a director of KBS Legacy Partners Apartment REIT, positions he held from August 2009 and July 2009, respectively, until its liquidation in December 2018. Other than de minimis amounts owned by family members or family trusts, Mr. Bren indirectly owns and controls a 33 1/3% interest in KBS Holdings LLC, which is the sole owner of our advisor and our dealer manager. KBS Holdings is a sponsor of our company and is or was a sponsor of KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT, which were formed in 2009, 2005, 2007, 2008, 2009, 2013 and 2015, respectively.

Mr. Bren is Chairman and President of KBS Realty Advisors LLC and is a principal of Koll Bren Schreiber Realty Advisors, Inc., each an active and nationally recognized real estate investment advisor. These entities are registered as investment advisers with the SEC. The first investment advisor affiliated with Messrs. Bren and Schreiber was formed in 1992. As of December 31, 2018, KBS Realty Advisors, together with KBS affiliates, including KBS Capital Advisors, had been involved in the investment in or management of approximately $25.9 billion of real estate investments on behalf of institutional investors, including public and private pension plans, endowments and foundations, institutional and sovereign wealth funds, and the investors in us, KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT.

Mr. Bren oversees all aspects of KBS Capital Advisors’ and KBS Realty Advisors’ operations, including the acquisition, management and disposition of individual investments and portfolios of investments for KBS-sponsored programs and KBS-advised investors. He also directs all facets of KBS Capital Advisors’ and KBS Realty Advisors’ business activities and is responsible for investor relationships.

Mr. Bren has been involved in real estate development, management, acquisition, disposition and financing for more than 40 years and with the acquisition, origination, management, disposition and financing of real estate-related debt investments for more than 30 years. Prior to taking his current positions as Chairman and President of KBS Capital Advisors and KBS Realty Advisors, he served as the President of The Bren Company, was a Senior Partner of Lincoln Property Company and was President of Lincoln Property Company, Europe. Mr. Bren is a member of the UCLA Anderson School of Management Board of Advisors and is a founding member of the Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management.

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The board of directors has concluded that Mr. Bren is qualified to serve as one of our directors for reasons including his extensive industry and leadership experience. With more than 40 years of experience in real estate development, management, acquisition, disposition and financing and more than 30 years of experience with the acquisition, origination, management, disposition and financing of real estate-related debt investments, Mr. Bren has the depth and breadth of experience to implement our business strategy. As our President and a principal of our advisor, Mr. Bren is well-positioned to provide the board of directors with insights and perspectives on the execution of our business strategy, our operations and other internal matters. Further, as a principal of KBS-affiliated investment advisors; as President and a director of KBS REIT II and KBS Growth & Income REIT; as a former President and director of KBS Legacy Partners Apartment REIT; and as a former President of KBS REIT I, Mr. Bren brings to the board demonstrated management and leadership ability.

Charles J. Schreiber, Jr. is our Chairman of the Board, our Chief Executive Officer and one of our directors, positions he has held since January 2010, January 2010 and December 2009, respectively. He is also the Chief Executive Officer of our advisor and Chairman of the Board, Chief Executive Officer and a director of KBS Growth & Income REIT, positions he has held for these entities since October 2004 and January 2015, respectively. Mr. Schreiber is Chairman of the Board, Chief Executive Officer and a director of KBS REIT II, positions he has held since August 2007, August 2007 and July 2007, respectively. Mr. Schreiber was Chief Executive Officer and a director of KBS REIT I from June 2005 until its liquidation in December 2018. Other than de minimis amounts owned by family members or family trusts, Mr. Schreiber indirectly owns and controls a 33 1/3% interest in KBS Holdings LLC, which is the sole owner of our advisor and our dealer manager. KBS Holdings is a sponsor of our company and is or was a sponsor of KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT, which were formed in 2009, 2005, 2007, 2008, 2009, 2013 and 2015, respectively.

Mr. Schreiber is the Chief Executive Officer of KBS Realty Advisors LLC and is a principal of Koll Bren Schreiber Realty Advisors, Inc., each an active and nationally recognized real estate investment advisor. These entities are registered as investment advisers with the SEC. The first investment advisor affiliated with Messrs. Bren and Schreiber was formed in 1992. As of December 31, 2018, KBS Realty Advisors, together with KBS affiliates, including KBS Capital Advisors, had been involved in the investment in or management of approximately $25.9 billion of real estate investments on behalf of institutional investors, including public and private pension plans, endowments and foundations, institutional and sovereign wealth funds, and the investors in us, KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT.

Mr. Schreiber oversees all aspects of KBS Capital Advisors’ and KBS Realty Advisors’ operations, including the acquisition, management and disposition of individual investments and portfolios of investments for KBS-sponsored programs and KBS-advised investors. He also directs all facets of KBS Capital Advisors’ and KBS Realty Advisors’ business activities and is responsible for investor relationships.

Mr. Schreiber has been involved in real estate development, management, acquisition, disposition and financing for more than 40 years and with the acquisition, origination, management, disposition and financing of real estate-related debt investments for more than 30 years. Prior to teaming with Mr. Bren in 1992, he served as the Executive Vice President of Koll Investment Management Services and Executive Vice President of Acquisitions/Dispositions for The Koll Company. During the mid-1970s through the 1980s, he was Founder and President of Pacific Development Company and was previously Senior Vice President/Southern California Regional Manager of Ashwill-Burke Commercial Brokerage.

Mr. Schreiber graduated from the University of Southern California with a Bachelor’s Degree in Finance with an emphasis in Real Estate. During his four years at USC, he did graduate work in the then newly formed Real Estate Department in the USC Graduate School of Business. He is currently an Executive Board Member for the USC Lusk Center for Real Estate at the University of Southern California Marshall School of Business/School of Policy, Planning and Development and serves as a member of the Executive Committee for the Public Non-Listed REIT Council for the National Association of Real Estate Investment Trusts. He is also a member of the National Council of Real Estate Investment Fiduciaries. Mr. Schreiber has served as a member of the board of directors and executive committee of The Irvine Company since August 2016, and since December 2016, Mr. Schreiber has served on the Board of Trustees of The Irvine Company.

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The board of directors has concluded that Mr. Schreiber is qualified to serve as a director, Chairman of the Board and as our Chief Executive Officer for reasons including his extensive industry and leadership experience. With more than 40 years of experience in real estate development, management, acquisition and disposition and more than 30 years of experience with the acquisition, origination, management, disposition and financing of real estate-related debt investments, he has the depth and breadth of experience to implement our business strategy. He gained his understanding of the real estate and real estate-finance markets through hands-on experience with acquisitions, asset and portfolio management, asset repositioning and dispositions. As our Chief Executive Officer and a principal of our advisor, Mr. Schreiber is best-positioned to provide the board of directors with insights and perspectives on the execution of our business strategy, our operations and other internal matters. Further, as a principal of KBS-affiliated investment advisors, as Chief Executive Officer, Chairman of the Board and a director of KBS REIT II and KBS Growth & Income REIT, as a director and trustee of The Irvine Company and as former Chief Executive Officer, Chairman of the Board and a director of KBS REIT I, Mr. Schreiber brings to the board of directors demonstrated management and leadership ability.

Jeffrey K. Waldvogel is our Chief Financial Officer, a position he has held since June 2015. In July 2018, he was also elected our Treasurer and Secretary. He is also the Chief Financial Officer of our advisor and KBS REIT II, positions he has held for each of these entities since June 2015. In August 2018, Mr. Waldvogel was elected the Treasurer and Secretary of KBS REIT II. He is also the Chief Financial Officer, Treasurer and Secretary of KBS Growth & Income REIT, positions he has held since June 2015, April 2017 and April 2017, respectively. He is also the Chief Financial Officer, Treasurer and Secretary of KBS Strategic Opportunity REIT and KBS Strategic Opportunity REIT II, positions he has held for these entities since June 2015. He was Chief Financial Officer of KBS REIT I and KBS Legacy Partners Apartment REIT from June 2015 until their respective liquidations in December 2018.

Mr. Waldvogel has been employed by an affiliate of our advisor since November 2010. With respect to the KBS-sponsored REITs advised by our advisor, he served as the Director of Finance and Reporting from July 2012 to June 2015 and as the VP Controller Technical Accounting from November 2010 to July 2012. In these roles Mr. Waldvogel was responsible for overseeing internal and external financial reporting, valuation analysis, financial analysis, REIT compliance, debt compliance and reporting, and technical accounting.

Prior to joining an affiliate of our advisor in 2010, Mr. Waldvogel was an audit senior manager at Ernst & Young LLP. During his eight years at Ernst & Young LLP, where he worked from October 2002 to October 2010, Mr. Waldvogel performed or supervised various auditing engagements, including the audit of financial statements presented in accordance with GAAP, as well as financial statements prepared on a tax basis. These auditing engagements were for clients in a variety of industries, with a significant focus on clients in the real estate industry.

In April 2002, Mr. Waldvogel received a Master of Accountancy Degree and Bachelor of Science from Brigham Young University in Provo, Utah. Mr. Waldvogel is a Certified Public Accountant (California).

Stacie K. Yamane is our Chief Accounting Officer, a position she has held since January 2010. In July 2018, she was also elected our Assistant Secretary. Ms. Yamane is also the Chief Accounting Officer, Portfolio Accounting of our advisor and Chief Accounting Officer of KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT, positions she has held for these entities since October 2008, October 2008, August 2009, February 2013 and January 2015, respectively. From August 2009 until its liquidation in December 2018, she served as Chief Accounting Office of KBS Legacy Partners Apartment REIT; from October 2008 until its liquidation in December 2018, she served as Chief Accounting Officer of KBS REIT I. From July 2007 to December 2008, Ms. Yamane served as the Chief Financial Officer of KBS REIT II and from July 2007 to October 2008 she served as Controller of KBS REIT II; from October 2004 to October 2008, Ms. Yamane served as Fund Controller of our advisor; from June 2005 to December 2008, she served as Chief Financial Officer of KBS REIT I and from June 2005 to October 2008 she served as Controller of KBS REIT I.

Ms. Yamane also serves as Senior Vice President/Controller, Portfolio Accounting for KBS Realty Advisors LLC, a position she has held since 2004. She served as a Vice President/Portfolio Accounting with KBS-affiliated investment advisors from 1995 to 2004. At KBS Realty Advisors, from 2004 through 2015, Ms. Yamane was responsible for client accounting/reporting for two real estate portfolios. These portfolios consisted of industrial, office and retail properties as well as land parcels. Ms. Yamane worked closely with portfolio managers, asset managers, property managers and clients to ensure the completion of timely and accurate accounting, budgeting and financial reporting. In addition, she assisted in the supervision and management of KBS Realty Advisors’ accounting department.

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Prior to joining an affiliate of KBS Realty Advisors in 1995, Ms. Yamane was an audit manager at Kenneth Leventhal & Company, a CPA firm specializing in real estate. During her eight years at Kenneth Leventhal & Company, Ms. Yamane performed or supervised a variety of auditing, accounting and consulting engagements including the audit of financial statements presented in accordance with GAAP, as well as financial statements presented on a cash and tax basis, the valuation of asset portfolios and the review and analysis of internal control systems. Her experiences with various KBS-affiliated entities and Kenneth Leventhal & Company give her almost 30 years of real estate experience.

Ms. Yamane received a Bachelor of Arts Degree in Business Administration with a dual concentration in Accounting and Management Information Systems from California State University, Fullerton. She is a Certified Public Accountant (inactive California).

Barbara R. Cambon is one of our independent directors and is the chair of the conflicts committee, positions she has held since September 2010. Ms. Cambon is also an independent director, chair of the conflicts committee and chair of the special committee of KBS REIT II, positions she has held since March 2008, March 2008 and January 2016, respectively. She was also an independent director, chair of the conflicts committee and chair of the special committee of KBS REIT I, positions she held from June 2005, June 2005, and January 2016, respectively, until KBS REIT I’s liquidation in December 2018. From April 2009 to December 2010, she served as Chief Operating Officer of Premium One Asset Management LLC, a company whose business focuses on providing investment management services to investors. From October 2003 to October 2009, she also served as a Managing Member of Snowcreek Management LLC, a real estate asset management company whose business activities focus on residential development projects for institutional investors. As Managing Member, Ms. Cambon provided asset management services to an institutional partnership investment in residential real estate development. She has been involved in the real estate investment business for over 30 years, principally working with institutional capital sources and investment programs. From November 1999 until October 2002, she served as a Principal of Los Angeles-based Colony Capital, LLC, a private real estate investment firm, and from April 2000 until October 2002, she also served as its Chief Operating Officer. Prior to joining Colony Capital in 1999, Ms. Cambon was President and founder of Institutional Property Consultants, Inc., a real estate consulting company. She is a past director and chairman of the board of the Pension Real Estate Association and past director of the National Council of Real Estate Investment Fiduciaries. Ms. Cambon serves on the Policy Advisory Board of the University of San Diego Burnham-Moores Center for Real Estate. Ms. Cambon previously served on the board of directors of Amstar Advisers, Neighborhood National Bancorp and BioMed Realty Trust, Inc. Ms. Cambon received a Master of Business Administration from Southern Methodist University and a Bachelor of Science Degree in Education from the University of Delaware.

The board of directors has concluded that Ms. Cambon is qualified to serve as an independent director and as the chair of the conflicts committee for reasons including her expertise in real estate investment and management. Ms. Cambon’s over 30 years of experience investing in, managing and disposing of real estate on behalf of investors give her a wealth of knowledge and experiences from which to draw in advising our company. As former Managing Member of her own real estate asset management company, Ms. Cambon is acutely aware of the operational challenges facing companies such as ours. Further, her service as a director and chair of the conflicts committee of KBS REIT II and as a former director of KBS REIT I, Amstar Advisers, Neighborhood National Bancorp and BioMed Realty Trust, Inc., gives her additional perspective and insight into large public companies such as ours.

Jeffrey A. Dritley is one of our independent directors, a position he has held since October 2017. He is also an independent director of KBS REIT II, a position he has held since October 2017. Mr. Dritley is Founder and Managing Partner of Kearny Real Estate Company. Kearny, headquartered in Los Angeles, is a partnership of experienced real estate professionals active in the acquisition, entitlement, repositioning, development, leasing, management and disposition of large, complex commercial projects in Southern California. Since 1993, Kearny has been involved in approximately $4.4 billion of projects including the acquisition and work-out of approximately $2.3 billion of distressed real estate debt.

From 1993 to 2001, Mr. Dritley served as a Managing Director of Morgan Stanley, where he was responsible for the Morgan Stanley Real Estate Fund’s (“MSREF”) West Coast operations and was a member of the global investment committee. During his tenure, MSREF was involved in over $3 billion of transactions, including significant acquisitions, refinancings and work-outs. From 1986 to 1993, Mr. Dritley was employed by The Koll Company, a major real estate development company in the western United States. From 1979 to 1984, Mr. Dritley was employed by Peat, Marwick, Mitchell in Kansas City and New York City.

Mr. Dritley has 30 years of experience in the real estate industry. His experience has ranged from the acquisition, entitlement, development and redevelopment of over 14 million square feet of properties in Southern California, to creating and managing an organization with over 100 employees in the United States, Europe and Asia focused on buying and restructuring non-performing loans.

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From 2009 to 2016 Mr. Dritley served as a director, chairman of the compensation committee and member of the investment committee of Bixby Land Company, a private REIT with assets exceeding $1 billion, and from 2008 to 2016, he served as a Senior Advisor to Trigate Property Partners, a real estate private equity firm that manages a partnership with CalSTRS. He also has been active in several professional organizations, including the Los Angeles County Economic Development Corporation, for which he served on the Executive Committee, the Urban Land Institute and the Los Angeles Chapter of NAIOP, of which he is a past president. His community involvement included serving on the board of the Neighborhood Youth Association in Venice, California and volunteering his time for youth sports and Boy Scouts. Mr. Dritley is a Certified Public Accountant and holds a Bachelor’s Degree in Business Administration from the University of Missouri and an MBA from Harvard Business School.

The board of directors has concluded that Mr. Dritley is qualified to serve as an independent director for reasons including his expertise in real estate acquisition, restructuring and disposition. His over 30 years of experience in the real estate industry gives him significant experience that will be of great benefit to our company and make him well-positioned to advise the board of directors with respect to potential investment, restructuring and disposition opportunities. As Founder and Managing Partner of Kearny Real Estate Company, Mr. Dritley has encountered the myriad of practical, operational and other challenges that face large real estate companies like ours. Further, in the course of serving on the board of directors of Bixby Land Company and as a Senior Advisor to Trigate Property Partners, Mr. Dritley has developed strong leadership and consensus building skills that are a valuable asset to the board of directors. In addition, as a Certified Public Accountant, he possesses valuable expertise in evaluating the financial and operational results of companies such as ours.

Stuart A. Gabriel, Ph.D. is one of our independent directors and is chair of the audit committee, positions he has held since September 2010 and August 2018, respectively. Professor Gabriel is also an independent director and is chair of the audit committee of KBS REIT II, positions he has held since March 2008 and August 2018, respectively. Professor Gabriel was an independent director of KBS REIT I from June 2005 until its liquidation in December 2018. Since June 2007, Professor Gabriel has served as Director of the Richard S. Ziman Center for Real Estate and Professor of Finance and Arden Realty Chair at the UCLA Anderson School of Management. Prior to joining UCLA he was Director and Lusk Chair in Real Estate at the USC Lusk Center for Real Estate, a position he held from 1999 to 2007. Professor Gabriel also served as Professor of Finance and Business Economics in the Marshall School of Business at the University of Southern California, a position he held from 1990 to 2007. He received a number of awards at UCLA and USC for outstanding graduate teaching. In 2004, he was elected President of the American Real Estate and Urban Economics Association. Professor Gabriel serves on the editorial boards of seven academic journals. He is also a Fellow of the Homer Hoyt Institute for Advanced Real Estate Studies. Since March 2016, Professor Gabriel has served on the board of directors of KB Home and is a member of its audit committee. Professor Gabriel has published extensively on the topics of real estate finance and urban and regional economics. His teaching and academic research experience include analysis of real estate and real estate capital markets performance as well as structured finance products, including credit default swaps, commercial mortgage-backed securities and collateralized debt obligations. Professor Gabriel serves as a consultant to numerous corporate and governmental entities. From 1986 through 1990, Professor Gabriel served on the economics staff of the Federal Reserve Board in Washington, D.C. He also has been a Visiting Scholar at the Federal Reserve Bank of San Francisco. Professor Gabriel holds a Ph.D. in Economics from the University of California, Berkeley.

The board of directors has concluded that Professor Gabriel is qualified to serve as an independent director for reasons including his extensive knowledge and understanding of the real estate and finance markets and real estate finance products. As a professor of real estate finance and economics, Professor Gabriel brings unique perspective to the board of directors. His years of research and analysis of the real estate and finance markets make Professor Gabriel well-positioned to advise us with respect to our investment and financing strategy. This expertise also makes him an invaluable resource for assessing and managing risks facing our company. Through his experience as a director of KBS REIT II and KB Home and as a former director of KBS REIT I, he also has an understanding of the requirements of serving on a public company board.

Corporate Governance

The Audit Committee

Our board of directors has established an audit committee. The audit committee’s function is to assist the board of directors in fulfilling its responsibilities by overseeing (i) our accounting and financial reporting processes, (ii) the integrity of our financial statements, (iii) our independent registered public accounting firm’s qualifications, performance and independence, and (iv) the performance of our internal audit function. The audit committee fulfills these responsibilities primarily by carrying out the activities enumerated in the audit committee charter. The audit committee updated and revised the audit committee charter in August 2016. The audit committee charter is available on our website at www.kbsreitiii.com .

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The members of the audit committee are Jeffrey A. Dritley and Stuart A. Gabriel, Ph.D. (chair). The board of directors has determined that all of the members of the audit committee are “independent” as defined by the New York Stock Exchange. All of the members of the audit committee have significant financial and/or accounting experience, and the board of directors has determined that all of the members of the audit committee satisfy the SEC’s requirements for an “audit committee financial expert.”

Code of Conduct and Ethics

We have adopted a Code of Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer, principal financial officer and principal accounting officer. Our Code of Conduct and Ethics can be found at www.kbsreitiii.com .


ITEM 11.	EXECUTIVE COMPENSATION

Compensation of Executive Officers

Our conflicts committee, which is composed of all of our independent directors, discharges our board of directors’ responsibilities relating to the compensation of our executives. However, we currently do not have any paid employees and our executive officers do not receive any compensation directly from us for services rendered to us. Our executive officers are officers and/or employees of, or hold an indirect ownership interest in, our advisor and/or its affiliates, and our executive officers are compensated by these entities, in part, for their services to us or our subsidiaries. See Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence — Report of the Conflicts Committee — Certain Transactions with Related Persons” for a discussion of the fees paid to our advisor and its affiliates.

Compensation of Directors

If a director is also one of our executive officers, we do not pay any compensation to that person for services rendered as a director. The amount and form of compensation payable to our independent directors for their service to us is determined by the conflicts committee, based upon recommendations from our advisor. Two of our executive officers, Messrs. Bren and Schreiber, manage and control our advisor, and through our advisor, they are involved in recommending the compensation to be paid to our independent directors.

In order to attract and retain qualified individuals to serve as independent directors and in conjunction with the search for an independent director candidate to fill a vacancy on our board of directors at the time, the conflicts committee engaged Pearl Meyer, an independent executive compensation consultant, to conduct a review and make recommendations to the conflicts committee relating to the committee’s review of the compensation to be paid to independent directors. The conflicts committee instructed Pearl Meyer to identify a peer group of companies to determine how our independent director compensation compared to this group, to provide an analysis of the compensation paid to the independent directors of the peer group and paid to each of our independent directors and then to advise the conflicts committee with respect to such analysis. Pearl Meyer did not provide any additional services to us or the conflicts committee. Pearl Meyer was also engaged by the conflicts committee of an entity affiliated with us to provide the same analysis and advice with respect to the compensation of its independent directors. Based on consultation with and the study presented by Pearl Meyer and the recommendations contained therein, the conflicts committee’s own review of the Pearl Meyer study and the recommendation of our advisor, the conflicts committee approved a revised compensation structure for our independent directors on October 31, 2017.

We have provided below certain information regarding compensation earned by or paid to our directors during fiscal year 2018.



Name	Fees Earned or Paid in Cash in 2018		All Other Compensation		Total
Jeffrey A. Dritley	$	181,000	$	—	$	181,000
Barbara R. Cambon	166,726		—		166,726
Stuart A. Gabriel, Ph.D.	191,000		—		191,000
Peter M. Bren ^{(1) (2)}	—		—		—
Peter McMillan III ⁽³⁾	—		—		—
Charles J. Schreiber, Jr. ⁽¹⁾	—		—		—

_____________________

⁽¹⁾ Directors who are also our executive officers do not receive compensation for services rendered as a director.

⁽²⁾ Mr. Bren was elected to the board of directors on July 27, 2018.

⁽³⁾ Mr. McMillan’s term as a director ended on July 27, 2018.

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Cash Compensation

We compensate each of our independent directors with an annual retainer of $135,000 as well as paying compensation to our independent directors for attending meetings as follows:


•	each member of the audit committee and conflicts committee is paid $10,000 annually for service on such committees (except that the chair of each of the audit committee and conflicts committee is paid $20,000 annually for service as the chair of such committees);


•	after the tenth board of directors meeting of each calendar year, each independent director is paid (i) $2,500 in cash for each in-person board of directors meeting attended for the remainder of the calendar year and (ii) $2,000 in cash for each teleconference board of directors meeting attended for the remainder of the calendar year;

•

All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at board of directors meetings and committee meetings.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership

The following table shows, as of March 1, 2019, the amount of our common stock beneficially owned (unless otherwise indicated) by (1) any person who is known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (2) our directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.



Name and Address of Beneficial Owner ⁽¹⁾	Amount and Nature of Beneficial Ownership ⁽²⁾	Percentage of all Outstanding Shares
KBS Capital Advisors LLC	20,000 ⁽³⁾	*
Barbara R. Cambon, Independent Director	—	—
Jeffrey A. Dritley, Independent Director	—	—
Stuart A. Gabriel, Ph.D., Independent Director	—	—
Peter M. Bren, President and Director	20,000 ⁽³⁾	*
Charles J. Schreiber, Jr., Chairman of the Board, Chief Executive Officer and Director	20,000 ⁽³⁾	*
Jeffrey K. Waldvogel, Chief Financial Officer, Treasurer and Secretary	—	—
Stacie K. Yamane, Chief Accounting Officer and Assistant Secretary	—	—
All executive officers and directors as a group	20,000 ⁽³⁾	*

_____________________

* Less than 1% of the outstanding common stock.

⁽¹⁾ The address of each named beneficial owner is 800 Newport Center Drive, Suite 700, Newport Beach, California 92660.

⁽²⁾ None of the shares is pledged as security.

⁽³⁾ Includes 20,000 shares owned by KBS Capital Advisors, which is indirectly owned and controlled by Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr.

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ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Director Independence

A majority of our board of directors, Messrs. Dritley and Gabriel and Ms. Cambon, meet the independence criteria as specified in our charter, as set forth on Appendix A attached hereto. In addition, and although our shares are not listed for trading on any national securities exchange, two of our directors, all of the members of the audit committee and a majority of the conflicts committee are “independent” as defined by the New York Stock Exchange. The board of directors has affirmatively determined that Jeffrey A. Dritley and Stuart A. Gabriel, Ph.D. each satisfies the New York Stock Exchange independence standards. On June 13, 2018, an affiliate of our advisor offered Ms. Cambon the positions of chief executive officer and chief investment officer of the external manager of a to-be-launched KBS-sponsored fund. On June 14, 2018, Ms. Cambon verbally accepted the offer, subject to mutual agreement of written documentation of all terms. Until Ms. Cambon’s official appointment as chief executive officer and chief investment officer of the external manager, Ms. Cambon will continue to meet the independent director criteria as specified in our charter. As a result of her acceptance of this offer, our board of directors determined that Ms. Cambon was no longer “independent” as defined under the rules of the New York Stock Exchange, and Ms. Cambon resigned from the audit committee in July 2018. In addition, Ms. Cambon has agreed to recuse herself from the review, deliberation and approval of all matters that could raise a potential conflict of interest.

In determining that Professor Gabriel is independent under the New York Stock Exchange independence standards, the board of directors considered that (i) Peter M. Bren, one of our executive officers and one of our directors, is a member of the UCLA Anderson School of Management Board of Advisors and is a founding member of the Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management, (ii) Professor Gabriel is a Director of the Richard S. Ziman Center for Real Estate and Professor of Finance and Arden Realty Chair at the UCLA Anderson School of Management and (iii) in March 2012, Mr. Bren pledged a gift of $1.25 million to the Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management. The contribution by Mr. Bren was made over five years in the amount of $250,000 per year. In addition, the board of directors considered that in 2017 Mr. Bren made an additional contribution to the Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management in the amount of $250,000. Because these contributions were made to a tax exempt entity and the contributions did not exceed $250,000 in any year, the board of directors determined that these contributions were not material and Professor Gabriel met the New York Stock Exchange independence standards.

Report of the Conflicts Committee

Review of Our Policies

The conflicts committee has reviewed our policies and determined that they are in the best interest of our stockholders. Set forth below is a discussion of the basis for that determination.

Offering Policy. 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 our dividend reinvestment plan offering. We may terminate our dividend reinvestment plan offering at any time. For the year ended December 31, 2018, the costs of raising capital in our dividend reinvestment plan offering represented less than 1% of the capital raised.

Acquisition and Investment Policies. We have invested all of the net proceeds of our now-terminated primary initial public offering in a diverse portfolio of real estate investments. From time to time, and based upon asset sales, availability under our debt facilities or market conditions, we may seek to make additional real estate investments.

Other than our investments in joint ventures for the development of Hardware Village and Village Center Station II, we have made investments in core real estate properties, which are generally lower risk, existing properties with at least 80% occupancy and minimal near-term lease rollover. Our primary investment focus has been core office properties located throughout the United States, though we may also invest in other types of properties. Our core property focus in the U.S. office sector has reflected a more value-creating core 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 may provide us with opportunities to lease space at higher rates, especially in markets with increasing absorption, or to re-lease space at higher rates, bringing below-market rates of in-place expiring leases up to market rates. Many of these properties required or 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.

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We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. We believe that we are most likely to meet our investment objectives through the careful selection and underwriting of assets. When making an acquisition, we will emphasize the performance and risk characteristics of that investment, how that investment will fit with our portfolio-level performance objectives, the other assets in our portfolio and how the returns and risks of that investment compare to the returns and risks of available investment alternatives. Thus, to the extent that our advisor presents us with what we believe to be good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code of 1986, as amended, our portfolio composition may vary from what we currently expect. In fact, we may invest in whatever types of real estate or real estate-related assets we believe are in our best interests. However, we will attempt to construct a portfolio that produces stable and attractive returns by spreading risk across different real estate investments.

As of March 8, 2019 , we owned 28 office properties and one mixed-use office/retail property and we had entered into a consolidated joint venture to develop and subsequently operate the Hardware Village apartment project, which is currently under construction.

Borrowing Policies. We have financed our real estate acquisitions to date with a combination of the proceeds received from our now-terminated initial public offering and debt. We may use proceeds from borrowings to: finance acquisitions of new properties or assets or for originations of new loans; pay for capital improvements, repairs or tenant build-outs to properties; refinance existing indebtedness; pay distributions; or provide working capital. Our investment strategy is to utilize primarily secured and possibly unsecured debt to finance our investment portfolio.

We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). There is no limitation on the amount we may borrow for the purchase of any single asset. We limit our total liabilities to 75% of the cost (before deducting depreciation and other non-cash reserves) of our tangible assets, meaning that our borrowings and other liabilities may exceed our maximum target leverage of 65% of the cost of our tangible assets without violating these borrowing restrictions. We may exceed the 75% limit only if a majority of the conflicts committee approves each borrowing in excess of this limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. To the extent financing in excess of this limit is available on attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our total liabilities could also be below 45% of the cost of our tangible assets due to the lack of availability of debt financing. As of January 31, 2019, our borrowings and other liabilities were approximately 63% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively.

Disposition Policies. We generally intend to hold our core properties for three to seven years, which we believe is a reasonable period to enable us to capitalize on the potential for increased income and capital appreciation of properties. However, economic and market conditions have influenced us to hold certain real estate properties for different periods of time. Our advisor develops a well-defined exit strategy for each investment we make and periodically performs a hold-sell analysis on each investment. These periodic analyses focus on the remaining available value enhancement opportunities for the investment, the demand for the investment in the marketplace, market conditions and our overall portfolio objectives to determine if the sale of the investment, whether via an individual sale or as part of a portfolio sale or merger, would generate a favorable return to our stockholders. We may sell an investment before the end of the expected holding period if we believe that market conditions and asset positioning have maximized its value to us or the sale of the investment would otherwise be in the best interest of our stockholders.

We sold one office property during the year ended December 31, 2018.

Policy Regarding Working Capital Reserves. We establish an annual budget for capital requirements and working capital reserves that we update periodically during the year. We may also use proceeds from our dividend reinvestment plan offering, cash on hand, proceeds from asset sales, debt proceeds and cash flow from operations to meet our needs for working capital and to build a moderate level of cash reserves.

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Policies Regarding Operating Expenses. 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 December 31, 2018 did not exceed the charter-imposed limitation. For the four consecutive quarters ended December 31, 2018, total operating expenses represented approximately 1.0% and 24% of our average invested assets and our net income, respectively.

Policy Regarding Transactions with Related Persons

Our charter requires the conflicts committee to review and approve all transactions between us and our advisor, any of our officers or directors or any of their affiliates. Prior to entering into a transaction with a related party, a majority of the conflicts committee must conclude that the transaction is fair and reasonable to us. In addition, our Code of Conduct and Ethics lists examples of types of transactions with related parties that would create prohibited conflicts of interest and requires our officers and directors to be conscientious of actual and potential conflicts of interest with respect to our interests and to seek to avoid such conflicts or handle such conflicts in an ethical manner at all times consistent with applicable law. Our executive officers and directors are required to report potential and actual conflicts to the Compliance Officer, currently our advisor’s Chief Audit Executive, via the Ethics Hotline or directly to the audit committee chair, as appropriate.

Certain Transactions with Related Persons

The conflicts committee has reviewed the material transactions between our affiliates and us since the beginning of 2018 as well as any such currently proposed material transactions. Set forth below is a description of such transactions and the conflicts committee’s report on their fairness.

We have entered into agreements with certain affiliates pursuant to which they provide services to us. Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr. control and indirectly own KBS Capital Advisors, our advisor, and KBS Capital Markets Group, our dealer manager. Messrs. Bren and Schreiber are also two of our executive officers and two of our directors. Our advisor has three managers: an entity owned and controlled by Mr. Bren; an entity owned and controlled by Messrs. Hall and McMillan; and an entity owned and controlled by Mr. Schreiber.

Our Relationship with KBS Capital Advisors. Since our inception, our advisor has provided day-to-day management of our business. Among the services that are provided or have been provided by our advisor under the terms of the advisory agreement are the following:


•	finding, presenting and recommending to us real estate and real estate-related investment opportunities consistent with our investment policies and objectives;


•	structuring the terms and conditions of our investments, sales and joint ventures;


•	acquiring properties and other investments on our behalf in compliance with our investment objectives and policies;


•	sourcing and structuring our loan originations and acquisitions;


•	arranging for financing and refinancing of our properties and our other investments;


•	entering into leases and service contracts for our properties;


•	supervising and evaluating each property manager’s performance;


•	reviewing and analyzing the properties’ operating and capital budgets;


•	assisting us in obtaining insurance;


•	generating an annual budget for us;


•	reviewing and analyzing financial information for each of our assets and our overall portfolio;


•	formulating and overseeing the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of our properties and other investments;


•	performing investor-relations services;


•	maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the IRS and other regulatory agencies;


•	engaging in and supervising the performance of our agents, including our registrar and transfer agent; and


•	performing any other services reasonably requested by us.

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Our advisor is subject to the supervision of the board of directors and only has such authority as we may delegate to it as our agent. The advisory agreement has a one-year term expiring September 27, 2019, subject to an unlimited number of successive one-year renewals upon the mutual consent of the parties. From January 1, 2018 through the most recent date practicable, which was January 31, 2019, we compensated our advisor as set forth below.

Our advisor or its affiliates have paid, and in the future may pay, some of the offering costs related to our dividend reinvestment plan, including, but not limited to, our legal, accounting, printing, mailing and filing fees. We are responsible for reimbursing our advisor for these costs. At the end of our dividend reinvestment plan offering, our advisor has agreed to reimburse us to the extent that organization and other offering expenses exceed 2% of gross offering proceeds. No reimbursements made by us to our advisor may cause total organization and offering expenses incurred by us to exceed 15% of the aggregate gross offering proceeds as of the date of reimbursement. From January 1, 2018 through January 31, 2019, with respect to our dividend reinvestment plan, our advisor did not incur any organization and offering expenses on our behalf.

We incur acquisition and origination fees payable to our advisor equal to 1.0% of the cost of investments acquired by us, or the amount to be funded by us to acquire or originate loans, including the sum of the amount actually paid or allocated to the purchase, development, construction or improvement of such investments, acquisition and origination expenses and any debt attributable to such investments. Acquisition and origination fees relate to services provided in connection with the selection and acquisition or origination of real estate investments. During the period from January 1, 2018 through January 31, 2019, we did not acquire any investments accounted for as a business combination, but we did acquire the unaffiliated developer's 25% equity interest in Village Center Station II and we now own 100% of the property. During the period from January 1, 2018 through January 31, 2019, we capitalized an aggregate of $1.0 million in acquisition fees related to the development of Hardware Village and our investment in Village Center Station II. We did not originate or purchase any loans from January 1, 2018 through January 31, 2019.

In addition to acquisition and origination fees, we reimburse our advisor for customary acquisition and origination expenses, whether or not we ultimately acquire the asset. From January 1, 2018 through January 31, 2019, our advisor and its affiliates did not incur any such costs on our behalf.

For asset management services, we pay our advisor a monthly 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 is determined based on our proportionate share of the underlying investment (but excluding acquisition fees paid or payable 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.

However, 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 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.

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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.

From January 1, 2018 through January 31, 2019, asset management fees totaled $29.5 million. From January 1, 2018 through January 31, 2019, we paid $26.9 million in asset management fees, $2.3 million of which related to asset management fees incurred in prior periods. As of January 31, 2019, we had $4.9 million of asset management fees payable related to asset management fees incurred for the months of October 2018, December 2018 and January 2019, all of which were subsequently paid as of February 28, 2019. The amount of asset management fees deferred, if any, 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 amount of and terms of any debt we use to acquire assets, the level of operating cash flow generated by our real estate investments, and 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 in the future.

Under the advisory agreement, our advisor has the right to seek reimbursement from us for all costs and expenses it incurs in connection with the provision of services to us, including our allocable share of our advisor’s overhead, such as rent, employee costs, utilities, accounting software and cybersecurity costs. With respect to employee costs, at this time our advisor only expects to seek reimbursement for our allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to us. In the future, if our advisor seeks reimbursement for additional employee costs, such costs may include our proportionate share of the salaries of persons involved in the preparation of documents to meet SEC reporting requirements. We do not reimburse our advisor for employee costs in connection with services for which our advisor earns acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries and benefits our advisor or its affiliates may pay to our executive officers. We have also agreed with our advisor to evenly divide certain costs and expenses related to our exploration and assessment of strategic alternatives. From January 1, 2018 through January 31, 2019, we reimbursed our advisor for $3.3 million of operating expenses, including $0.3 million of employee costs and $2.9 million related to our exploration and assessment of strategic alternatives. We also reimburse our advisor for certain of our direct costs incurred from third parties that were initially paid by our advisor on behalf of us.

In addition, from January 1, 2018 through January 31, 2019, our advisor reimbursed us $0.2 million for property insurance rebates.

For substantial assistance in connection with the sale of properties or other investments, we pay our advisor or one of its affiliates 1.0% of the contract sales price of each property or other investment sold; provided, however, that if, in connection with such disposition, commissions are paid to third parties unaffiliated with our advisor or one of its affiliates, the fee paid to our advisor or one of its affiliates may not exceed the commissions paid to such unaffiliated third parties, and provided further that the aggregate disposition fees paid to our advisor or one of its affiliates and unaffiliated third parties may not exceed 6.0% of the contract sales price. We will not pay a disposition fee upon the maturity, prepayment or workout of a loan or other debt-related investment, provided that if we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property. From January 1, 2018 through January 31, 2019, we sold one office property and incurred $0.4 million of disposition fees, all of which had been paid as of January 31, 2019.

In connection with our initial public offering, Messrs. Bren, Hall, McMillan and Schreiber agreed to provide additional indemnification to one of the participating broker-dealers. We agreed to add supplemental coverage to our directors’ and officers’ insurance coverage to insure the obligations of Messrs. Bren, Hall, McMillan and Schreiber under this indemnification agreement in exchange for reimbursement to us by Messrs. Bren, Hall, McMillan and Schreiber for all costs, expenses and premiums related to this supplemental coverage, which does not dilute the directors and officers liability insurance coverage for the KBS entities. From January 1, 2018 through January 31, 2019, our advisor had incurred $0.1 million for the costs of the supplemental coverage obtained by us, all of which had been paid to the insurer or reimbursed to us as of January 31, 2019.

The conflicts committee considers our relationship with our advisor, our sponsor and Messrs. Bren, Hall, McMillan and Schreiber during 2018 to be fair. The conflicts committee believes that the amounts payable to our advisor under the advisory agreement are similar to those paid by other publicly offered, unlisted, externally advised REITs and that this compensation is necessary in order for our advisor to provide the desired level of services to us and our stockholders.

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Our Relationship with KBS Capital Markets Group. We continue to offer shares under our dividend reinvestment plan offering. From January 1, 2018 through January 31, 2019, with respect to our dividend reinvestment plan offering, we did not reimburse our dealer manager for any expenses related to our dividend reinvestment plan offering.

We entered into a fee reimbursement agreement (the “AIP Reimbursement Agreement”) with our dealer manager pursuant to which we agreed to reimburse our dealer manager for certain fees and expenses it incurs for administering our participation in the DTCC Alternative Investment Product Platform with respect to certain accounts of our stockholders serviced through the platform. From January 1, 2018 through January 31, 2019, we incurred $0.1 million of costs and expenses related to the AIP Reimbursement Agreement.

The conflicts committee believes that these arrangements with our dealer manager are fair. We believe that the compensation and reimbursements paid to our dealer manager have allowed us to achieve our goal of investing in a large, diversified portfolio of real estate investments.

Our Relationship with other KBS-Affiliated Entities. On May 29, 2015, our indirect wholly owned subsidiary 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 commenced on October 1, 2015 and terminates on August 31, 2019. The annualized base rent for the lease is approximately $0.2 million, and the average annual rental rate (net of rental abatements) over the lease term is $46.38 per square foot. From January 1, 2018 through January 31, 2019, we recognized $0.3 million of rental income related to the lease.

Prior to their approval of the lease, the conflicts committee and board of directors determined the lease to be fair and reasonable to us. We expect to renew the lease in March of 2019 and the conflicts committee and board of directors have determined the terms of the proposed renewal to be fair and reasonable to us.

On January 6, 2014, we, together with KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, our dealer manager, our 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 our advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to each entity. In June 2018, we renewed our participation in the program. The program is effective through June 30, 2019. At renewal, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtained separate insurance coverage. KBS REIT I elected to cease participation in the program at the June 2017 renewal and obtained separate insurance coverage.

The conflicts committee believes that these arrangements with other KBS-affiliated entities are fair.

From January 1, 2018 through January 31, 2019, no other transactions occurred between us and KBS REIT I (which liquidated in December 2018), KBS REIT II, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II, KBS Legacy Partners Apartment REIT (which liquidated in December 2018), KBS Growth & Income REIT, our dealer manager, our advisor or other KBS-affiliated entities.

Currently Proposed Transactions. There are no currently proposed material transactions with related persons other than those covered by the terms of the agreements described above.

The conflicts committee has determined that the policies set forth in this Report of the Conflicts Committee are in the best interest of our stockholders because they provide us with the highest likelihood of achieving our investment objectives.



March 12, 2019		The Conflicts Committee of the Board of Directors: Barbara R. Cambon (chair), Jeffrey A. Dritley and Stuart A. Gabriel, Ph.D.

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ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

Independent Registered Public Accounting Firm

During the year ended December 31, 2018, Ernst & Young LLP served as our independent registered public accounting firm and provided certain tax and other services. Ernst & Young has served as our independent registered public accounting firm since our formation.

Pre-Approval Policies

In order to ensure that the provision of such services does not impair the independent registered public accounting firm’s independence, the audit committee charter imposes a duty on the audit committee to pre-approve all auditing services performed for us by our independent registered public accounting firm, as well as all permitted non-audit services. In determining whether or not to pre-approve services, the audit committee considers whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit committee may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by our independent registered public accounting firm, provided any such approval is presented to and approved by the full audit committee at its next scheduled meeting.

For the years ended December 31, 2018 and 2017, all services rendered by Ernst & Young were pre-approved in accordance with the policies and procedures described above.

Principal Independent Registered Public Accounting Firm Fees

The audit committee reviewed the audit and non-audit services performed by Ernst & Young, as well as the fees charged by Ernst & Young for such services. In its review of the non-audit service fees, the audit committee considered whether the provision of such services is compatible with maintaining the independence of Ernst & Young. The aggregate fees billed to us for professional accounting services, including the audit of our annual financial statements by Ernst & Young for the years ended December 31, 2018 and 2017, are set forth in the table below.



	2018		2017
Audit fees	$	673,000	$	658,500
Audit-related fees	—		—
Tax fees	152,024		122,453
All other fees	1,412		285
Total	$	826,436	$	781,238

For purposes of the preceding table, Ernst & Young’s professional fees are classified as follows:

•

Audit fees - These are fees for professional services performed for the audit of our annual financial statements and the required review of quarterly financial statements and other procedures performed by Ernst & Young in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent registered public accounting firms in connection with statutory and regulatory filings or engagements.

•

Audit-related fees - These are fees for assurance and related services that traditionally are performed by independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.

•

Tax fees - These are fees for all professional services performed by professional staff in our independent registered public accounting firm’s tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before the U.S. Internal Revenue Service and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.


•	All other fees - These are fees for any services not included in the above-described categories.

Table of Contents

PART IV


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statement Schedules

See the Index to Financial Statements at page F-1 of this report.

The following financial statement schedule is included herein at pages F-41 through F-43 of this report:

Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization

(b) 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		Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 22, 2016

4.1		Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-164703, filed August 20, 2010

4.2		Fourth Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015, filed August 13, 2015

10.1		Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated as of September 27, 2018, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed September 28, 2018

10.2		Loan Agreement, by and among KBSIII 60 South Sixth Street, LLC, KBSIII Preston Commons, LLC, KBSIII Sterling Plaza, LLC, KBSIII One Washingtonian, LLC, KBSIII Towers at Emeryville, LLC, KBSIII Ten Almaden, LLC, KBSIII Legacy Town Center, LLC, and KBSIII 500 West Madison, LLC, collectively and Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.3		Deed of Trust (related to Legacy Town Center), by KBSIII Legacy Town Center, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.4		Deed of Trust (related to One Washingtonian), by KBSIII One Washingtonian, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.5		Deed of Trust (related to Preston Commons), by KBSIII Preston Commons, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.6		Deed of Trust (related to Sterling Plaza), by KBSIII Sterling Plaza, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.7		Deed of Trust (related to Ten Almaden), by KBSIII Ten Almaden, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.8		Deed of Trust (related to Towers at Emeryville), by KBSIII Towers at Emeryville, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.9		Guaranty Agreement (related to 60 South Sixth Street, Sterling Plaza, One Washingtonian, Towers at Emeryville, Ten Almaden, Legacy Town Center and 500 West Madison), by KBS REIT Properties III, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

Table of Contents



Ex.		Description

10.10		Mortgage, Assignment of Leases and Rents, Security Agreement (related to 500 West Madison), by KBSIII 500 West Madison, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.11		Mortgage, Assignment of Leases and Rents, Security Agreement (related to RBC Plaza), by KBSIII 60 South Sixth Street, LLC for the benefit of Bank of America, N.A., dated as of November 3, 2017, incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.12		Amended and Restated Promissory Note, by and among KBSIII 60 South Sixth Street, LLC, KBSIII Preston Commons, LLC, KBSIII Sterling Plaza, LLC, KBSIII One Washingtonian, LLC, KBSIII Towers at Emeryville, LLC, KBSIII Ten Almaden, LLC, KBSIII Legacy Town Center, LLC and KBSIII 500 West Madison, LLC for the benefit of Bank of America, N.A., dated as of November 17, 2017, incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.13		Amended and Restated Promissory Note, by and among KBSIII 60 South Sixth Street, LLC, KBSIII Preston Commons, LLC, KBSIII Sterling Plaza, LLC, KBSIII One Washingtonian, LLC, KBSIII Towers at Emeryville, LLC, KBSIII Ten Almaden, LLC, KBSIII Legacy Town Center, LLC and KBSIII 500 West Madison, LLC for the benefit of U.S. Bank, National Association, dated as of November 17, 2017, incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.14		Amended and Restated Promissory Note, by and among KBSIII 60 South Sixth Street, LLC, KBSIII Preston Commons, LLC, KBSIII Sterling Plaza, LLC, KBSIII One Washingtonian, LLC, KBSIII Towers at Emeryville, LLC, KBSIII Ten Almaden, LLC, KBSIII Legacy Town Center, LLC and KBSIII 500 West Madison, LLC for the benefit of Wells Fargo Bank, National Association, dated as of November 17, 2017, incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 8, 2018

10.15		Term Loan Agreement, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; and KBSIII 1550 West McEwen Drive, LLC and U.S. Bank National Association, dated October 17, 2018

10.16		Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (Domain Gateway Project), by KBSIII Domain Gateway, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.17		Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement (515 Congress Project), by KBSIII 515 Congress, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.18		Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing (Gateway Tech Project), by KBSIII 155 North 400 West, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.19		Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing (McEwen Project), by KBSIII 1550 West McEwen Drive, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.20		Recourse Carve-Out Guaranty Agreement, by KBS REIT Properties III, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.21		Payment Guaranty Agreement, by KBS REIT Properties III, LLC for the benefit of U.S. Bank National Association, dated October 17, 2018

10.22		Amended and Restated Promissory Note, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; KBSIII 1550 West McEwen Drive, LLC and U.S. Bank National Association, dated December 18, 2018

10.23		Promissory Note, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; KBSIII 1550 West McEwen Drive, LLC and Associated Bank National Association, dated December 18, 2018

Table of Contents



Ex.		Description

10.24		Promissory Note, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; KBSIII 1550 West McEwen Drive, LLC and City National Bank, dated December 18, 2018

10.25		Promissory Note, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; KBSIII 1550 West McEwen Drive, LLC and Fifth Third Bank, dated December 18, 2018

10.26		Promissory Note, by and among KBSIII Domain Gateway, LLC; KBSIII 515 Congress, LLC; KBSIII 155 North 400 West, LLC; KBSIII 1550 West McEwen Drive, LLC and Regions Bank, dated December 18, 2018

10.27		Assignment and Assumption Agreement, by and between U.S. Bank National Association and Associated Bank National Association, dated December 18, 2018

10.28		Assignment and Assumption Agreement, by and between U.S. Bank National Association and City National Bank, dated December 18, 2018

10.29		Assignment and Assumption Agreement, by and between U.S. Bank National Association and Fifth Third Bank, dated December 18, 2018

10.30		Assignment and Assumption Agreement, by and between U.S. Bank National Association and Regions Bank, dated December 18, 2018

21.1		Subsidiaries of the Company

23.1		Consent of Ernst & Young LLP

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 Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as Adopted pursuant to 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 for the year ended December 31, 2013, filed March 7, 2014

99.2		Fourth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2018, filed May 9, 2018

99.3		Consent of Duff & Phelps, LLC

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

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

Appendix A

Capitalized terms used herein shall have the meaning set forth in our charter.

Independent Directors. The directors of the Corporation who are not associated and have not been associated within the last two years, directly or indirectly, with the Sponsor or Advisor of the Corporation.


(a)	A director shall be deemed to be associated with the Sponsor or Advisor if he or she:


(i)	owns an interest in the Sponsor, Advisor or any of their Affiliates;


(ii)	is employed by the Sponsor, Advisor or any of their Affiliates;


(iii)	is an officer or director of the Sponsor, Advisor or any of their Affiliates;


(iv)	performs services, other than as a director, for the Corporation;


(v)	is a director for more than three REITs organized by the Sponsor or advised by the Advisor; or


(vi)	has any material business or professional relationship with the Sponsor, Advisor or any of their Affiliates.


(b)	For purposes of determining whether or not a business or professional relationship is material pursuant to (a)(vi) above, the annual gross revenue derived by the director from the Sponsor, Advisor and their Affiliates shall be deemed material per se if it exceeds 5% of the director’s:


(i)	annual gross revenue, derived from all sources, during either of the last two years; or


(ii)	net worth, on a fair market value basis.


(c)	An indirect relationship shall include circumstances in which a director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law or brother- or sister-in-law is or has been associated with the Sponsor, Advisor any of their Affiliates or the Corporation.

Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016	F-4
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Equity for the Years Ended December 31, 2018, 2017 and 2016	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016	F-7
Notes to Consolidated Financial Statements	F-8

Financial Statement Schedule
Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization	F-41

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

KBS Real Estate Investment Trust III, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of KBS Real Estate Investment Trust III, Inc. (the Company) as of December 31, 2018 and 2017 , the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2018 , and the related notes and financial statement schedule listed in the Index at Item 15(a), Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 , in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2010.

Irvine, California

March 13, 2019

F-2

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



	December 31,
	2018			2017
Assets
Real estate:
Land	$	402,008		$	390,685
Buildings and improvements	2,911,995			2,680,838
Construction in progress	35,785			67,826
Tenant origination and absorption costs	223,723			230,576
Total real estate held for investment, cost	3,573,511			3,369,925
Less accumulated depreciation and amortization	(536,990		)	(435,808		)
Total real estate held for investment, net	3,036,521			2,934,117
Real estate held for sale, net	—			28,017
Total real estate, net	3,036,521			2,962,134
Cash and cash equivalents	75,023			65,486
Restricted cash	1,015			—
Investment in unconsolidated joint venture	—			33,997
Rents and other receivables, net	98,411			79,317
Above-market leases, net	4,176			5,861
Assets related to real estate held for sale, net	—			1,786
Prepaid expenses and other assets	85,645			72,226
Total assets	$	3,300,791		$	3,220,807
Liabilities and equity
Notes payable, net
Notes payable, net	$	2,184,538		$	1,920,138
Note payable related to real estate held for sale, net	—			21,648
Total notes payable, net	2,184,538			1,941,786
Accounts payable and accrued liabilities	67,265			71,012
Due to affiliates	4,209			3,239
Distributions payable	9,801			9,982
Below-market leases, net	17,553			24,610
Liabilities related to real estate held for sale, net	—			50
Redeemable common stock payable	31,647			18,870
Other liabilities	30,396			30,935
Total liabilities	2,345,409			2,100,484
Commitments and contingencies (Note 11)
Redeemable common stock	24,487			40,915
Equity:
KBS Real Estate Investment Trust III, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 1,000,000,000 shares authorized, 177,523,853 and 180,864,707 shares issued and outstanding as of December 31, 2018 and 2017, respectively	1,775			1,809
Additional paid-in capital	1,555,380			1,591,640
Cumulative distributions in excess of net income (loss)	(626,543		)	(514,451		)
Accumulated other comprehensive income (loss)	—			110
Total KBS Real Estate Investment Trust III, Inc. stockholders’ equity	930,612			1,079,108
Noncontrolling interest	283			300
Total equity	930,895			1,079,408
Total liabilities and equity	$	3,300,791		$	3,220,807

See accompanying notes to consolidated financial statements.

F-3

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)



	Years Ended December 31,
	2018			2017			2016
Revenues:
Rental income	$	320,907		$	314,597		$	307,568
Tenant reimbursements	80,745			76,438			70,856
Other operating income	24,605			23,014			21,152
Interest income from real estate loan receivable	—			—			831
Total revenues	426,257			414,049			400,407
Expenses:
Operating, maintenance, and management	101,759			97,477			93,580
Real estate taxes and insurance	69,405			65,325			61,090
Asset management fees to affiliate	27,152			25,905			24,940
Real estate acquisition fees to affiliate	—			—			1,473
Real estate acquisition fees and expenses	—			—			306
General and administrative expenses	9,597			4,723			5,398
Depreciation and amortization	158,847			164,289			161,364
Interest expense	72,209			55,008			51,554
Total expenses	438,969			412,727			399,705
Other income (loss):
Other income	1,905			649			—
Other interest income	312			170			61
Equity in income (loss) from unconsolidated joint venture	2,088			(1		)	—
Loss from extinguishment of debt	(225		)	(766		)	—
Gain on sale of real estate, net	11,942			—			—
Total other income	16,022			52			61
Net income	3,310			1,374			763
Net loss attributable to noncontrolling interest	17			—			—
Net income attributable to common stockholders	$	3,327		$	1,374		$	763
Net income per common share attributable to common stockholders, basic and diluted	$	0.02		$	0.01		$	—
Weighted-average number of common shares outstanding, basic and diluted	177,594,478			181,138,045			180,043,027

See accompanying notes to consolidated financial statements.

F-4

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)



	Years Ended December 31,
	2018			2017		2016
Net income	$	3,327		$	1,374	$	763
Other comprehensive income (loss):
Unrealized income (losses) on derivative instruments designated as cash flow hedges	95			900		(3,582		)
Reclassification adjustment realized in net income (effective portion)	(205		)	1,508		5,513
Total other comprehensive (loss) income	(110		)	2,408		1,931
Total comprehensive income	3,217			3,782		2,694
Total comprehensive loss attributable to noncontrolling interest	17			—		—
Total comprehensive income attributable to common stockholders	$	3,234		$	3,782	$	2,694

See accompanying notes to consolidated financial statements.

F-5

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(dollars in thousands)



						Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income (Loss)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2015	177,943,238		$	1,779		$	1,571,107		$	(281,825	)	$	(4,229	)	$	1,286,832		$	—		$	1,286,832
Net income	—		—			—			763			—			763			—			763
Other comprehensive income	—		—			—			—			1,931			1,931			—			1,931
Issuance of common stock	6,485,383		65			61,806			—			—			61,871			—			61,871
Transfers to redeemable common stock	—		—			(6,504		)	—			—			(6,504		)	—			(6,504		)
Redemptions of common stock	(3,538,049	)	(35		)	(34,732		)	—			—			(34,767		)	—			(34,767		)
Distributions declared	—		—			—			(117,025		)	—			(117,025		)	—			(117,025		)
Other offering costs	—		—			(25		)	—			—			(25		)	—			(25		)
Noncontrolling interest contribution	—		—			—			—			—			—			300			300
Balance, December 31, 2016	180,890,572		$	1,809		$	1,591,652		$	(398,087	)	$	(2,298	)	$	1,193,076		$	300		$	1,193,376
Net income	—		—			—			1,374			—			1,374			—			1,374
Other comprehensive income	—		—			—			—			2,408			2,408			—			2,408
Issuance of common stock	5,919,223		59			59,726			—			—			59,785			—			59,785
Transfers from redeemable common stock	—		—			2,086			—			—			2,086			—			2,086
Redemptions of common stock	(5,945,088	)	(59		)	(61,812		)	—			—			(61,871		)	—			(61,871		)
Distributions declared	—		—			—			(117,738		)	—			(117,738		)	—			(117,738		)
Other offering costs	—		—			(12		)	—			—			(12		)	—			(12		)
Balance, December 31, 2017	180,864,707		$	1,809		$	1,591,640		$	(514,451	)	$	110		$	1,079,108		$	300		$	1,079,408
Net income	—		—			—			3,327			—			3,327			(17		)	3,310
Other comprehensive loss	—		—			—			—			(110		)	(110		)	—			(110		)
Issuance of common stock	5,034,086		50			56,086			—			—			56,136			—			56,136
Transfers from redeemable common stock	—		—			3,649			—			—			3,649			—			3,649
Redemptions of common stock	(8,374,940	)	(84		)	(95,980		)	—			—			(96,064		)	—			(96,064		)
Distributions declared	—		—			—			(115,419		)	—			(115,419		)	—			(115,419		)
Other offering costs	—		—			(15		)	—			—			(15		)	—			(15		)
Balance, December 31, 2018	177,523,853		$	1,775		$	1,555,380		$	(626,543	)	$	—		$	930,612		$	283		$	930,895

See accompanying notes to consolidated financial statements.

F-6

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Years Ended December 31,
	2018			2017			2016
Cash Flows from Operating Activities:
Net income	$	3,310		$	1,374		$	763
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	158,847			164,289			161,364
Equity in (income) loss of unconsolidated joint venture	(2,088		)	1			—
Noncash interest income on real estate-related investment	—			—			15
Deferred rents	(9,063		)	(12,402		)	(17,212		)
Loss due to property damage	—			8,401			—
Bad debt expense	1,230			1,863			1,279
Amortization of above- and below-market leases, net	(5,350		)	(6,710		)	(8,924		)
Amortization of deferred financing costs	6,356			4,952			5,064
Loss from extinguishment of debt	225			766			—
Unrealized gains on derivative instruments	(11,192		)	(10,509		)	(1,597		)
Gain on sale of real estate	(11,942		)	—			—
Changes in operating assets and liabilities:
Rents and other receivables	(11,230		)	(5,220		)	(5,019		)
Prepaid expenses and other assets	(21,476		)	(25,126		)	(17,034		)
Accounts payable and accrued liabilities	1,236			5,373			672
Other liabilities	1,154			(2,731		)	2,740
Due to affiliates	910			118			(7,954		)
Net cash provided by operating activities	100,927			124,439			114,157
Cash Flows from Investing Activities:
Acquisitions of real estate	—			—			(141,760		)
Improvements to real estate	(88,721		)	(81,949		)	(67,275		)
Proceeds from sale of real estate, net	41,649			—			—
Payments for construction in progress	(34,229		)	(45,734		)	(11,831		)
Investment in unconsolidated joint venture	(426		)	(33,708		)	—
Purchase of joint venture partner's equity interest	(28,268		)	—			—
Advances on real estate loan receivable	—			—			(544		)
Principal repayments on real estate loan receivable	—			—			22,526
Escrow deposits for tenant improvements	1,111			(2,084		)	—
Insurance proceeds received for property damage	4,629			—			—
Net cash used in investing activities	(104,255		)	(163,475		)	(198,884		)
Cash Flows from Financing Activities:
Proceeds from notes payable	507,909			942,184			248,470
Principal payments on notes payable	(335,243		)	(778,670		)	(108,457		)
Payments of deferred financing costs	(3,243		)	(11,206		)	(2,201		)
Payments to redeem common stock	(96,064		)	(61,871		)	(34,767		)
Payments of other offering costs	(15		)	(12		)	(34		)
Noncontrolling interest contribution	—			—			300
Return of contingent consideration related to acquisition of real estate	—			—			228
Distributions paid to common stockholders	(59,464		)	(57,971		)	(54,986		)
Net cash provided by financing activities	13,880			32,454			48,553
Net increase (decrease) in cash, cash equivalents and restricted cash	10,552			(6,582		)	(36,174		)
Cash, cash equivalents and restricted cash, beginning of period	65,486			72,068			108,242
Cash, cash equivalents and restricted cash, end of period	$	76,038		$	65,486		$	72,068
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $2,832, $2,433 and $163 for the years ended December 31, 2018, 2017 and 2016, respectively	$	76,107		$	58,472		$	47,238
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	56,136		$	59,785		$	61,871
Increase in redeemable common stock payable	$	12,777		$	18,870		$	—
Increase in accrued improvements to real estate	$	—		$	10,054		$	53
Application of escrow deposits to acquisition of real estate	$	—		$	—		$	4,350
Increase in construction in progress payable	$	698		$	—		$	4,717
Increase in acquisition fee related to construction in progress due to affiliate	$	350		$	445		$	132
Increase in acquisition fee on unconsolidated joint venture due to affiliate	$	—		$	290		$	—
Transfer of land to construction in progress	$	—		$	—		$	4,183
Real estate consolidated in connection with joint venture purchase	$	132,100		$	—		$	—
Note payable assumed in connection with joint venture purchase	$	66,570		$	—		$	—
Liabilities assumed in connection with joint venture purchase	$	3,173		$	—		$	—

See accompanying notes to consolidated financial statements.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018


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 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 December 31, 2018 , the Advisor owned 20,000 shares of the Company’s common stock.

The Company owns a diverse portfolio of real estate investments. As of December 31, 2018 , the Company owned 28 office properties and one mixed-use office/retail property and had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction.

The Company commenced its initial public offering (the “Offering”) on October 26, 2010. Upon commencing the Offering, 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”). 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 169,006,162 shares of common stock in the primary Offering for gross proceeds of $ 1.7 billion . As of December 31, 2018 , the Company had also sold 27,926,537 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $280.9 million . Also as of December 31, 2018 , the Company had redeemed 19,687,309 shares sold in the Offering for $210.5 million .

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(a)(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 its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”).

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

Use of Estimates

The preparation of the consolidated financial statements and accompanying 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.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of the prior period. During the year ended December 31, 2017 , the Company classified one office property as held for sale, which the Company subsequently sold in May 2018. As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented.

Revenue Recognition

Real Estate

The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:

• whether the lease stipulates how a tenant improvement allowance may be spent;

• whether the amount of a tenant improvement allowance is in excess of market rates;

• whether the tenant or landlord retains legal title to the improvements at the end of the lease term;

• whether the tenant improvements are unique to the tenant or general-purpose in nature; and

• whether the tenant improvements are expected to have any residual value at the end of the lease.

The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

The Company makes estimates of the collectability of its tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

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

Based on the Company’s evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the year ended December 31, 2018 , tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $7.4 million and were included in tenant reimbursements on the accompanying statements of operations.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Sales of Real Estate

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

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

ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer.

Real Estate Loan Receivable

Interest income on real estate loans receivable was recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, were amortized over the term of the loan as an adjustment to interest income.

Cash and Cash Equivalents

The Company recognizes interest income on its cash and cash equivalents as it is earned and classifies such amounts as other interest income.

Real Estate

Depreciation and Amortization

Real estate costs related to the acquisition and improvement of properties are capitalized and depreciated over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:



Land	N/A
Buildings	25-40 years
Building improvements	10-25 years
Tenant improvements	Shorter of lease term or expected useful life
Tenant origination and absorption costs	Remaining term of related leases, including below-market renewal periods

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Real Estate Acquisition Valuation

As a result of the Company’s adoption of ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , acquisitions of real estate beginning January 1, 2017 could qualify as asset acquisitions (as opposed to business combinations). The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination or an asset acquisition. If substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or group of similar identifiable assets, then the set is not a business. For purposes of this test, land and buildings can be combined along with the intangible assets for any in-place leases and accordingly, most acquisitions of investment properties would not meet the definition of a business and would be accounted for as an asset acquisition. To be considered a business, a set must include an input and a substantive process that together significantly contributes to the ability to create an output. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. For asset acquisitions, the cost of the acquisition is allocated to individual assets and liabilities on a relative fair value basis. Acquisition costs associated with business combinations are expensed as incurred. Acquisition costs associated with asset acquisitions are capitalized.

The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods.

The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods.

The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income.

Subsequent to the acquisition of a property, the Company may incur and capitalize costs necessary to get the property ready for its intended use. During that time, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized.

Impairment of Real Estate and Related Intangible Assets and Liabilities

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. The Company did not record any impairment loss on its real estate and related intangible assets during the years ended December 31, 2018 , 2017 and 2016 .

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Insurance Proceeds for Property Damage

The Company maintains an insurance policy that provides coverage for losses due to property damage and business interruption. Losses due to physical damage are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable. Losses, which are reduced by the related probable insurance recoveries, are recorded as operating, maintenance and management expenses on the accompanying consolidated statements of operations. Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Anticipated recoveries for lost rental revenue due to property damage are also considered to be a gain contingency and recognized when the contingency related to the insurance claim has been resolved.

Real Estate Held for Sale and Discontinued Operations

The Company generally considers real estate to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate held for sale” and “assets related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Notes payable and other liabilities related to real estate held for sale are classified as “notes payable related to real estate held for sale” and “liabilities related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Operating results of properties and related gains on sale of properties that were disposed of or classified as held for sale in the ordinary course of business during the years ended December 31, 2018 , 2017 and 2016 are included in continuing operations on the Company’s consolidated statements of operations.

Investments in Unconsolidated Joint Ventures

The Company follows the equity method of accounting for investments in joint ventures over which the Company may exercise significant influence, and for investments in joint ventures that qualify as variable interest entities of which the Company is not the primary beneficiary. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and the Company’s proportionate share of equity in the joint venture’s income (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for other-than-temporary impairments. During the year ended December 31, 2018 , the Company held a 75% equity interest in an unconsolidated joint venture. In October 2018, the Company acquired the joint venture partner’s 25% equity interest, resulting in the consolidation of the investment. As of December 31, 2018 , there were no unconsolidated real estate joint ventures accounted for under the equity method.

Construction in Progress

Direct investments in undeveloped land or properties without leases in place at the time of acquisition are accounted for as an asset acquisition and not as a business combination. Acquisition fees and expenses are capitalized into the cost basis of an asset acquisition. Additionally, during the time that the Company is incurring costs necessary to bring these investments to their intended use, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized. Once construction in progress is substantially completed, the amounts capitalized to construction in progress are transferred to land and buildings and improvements and are depreciated over their respective useful lives.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short term investments. Cash and cash equivalents are stated at cost, which approximates fair value. There are no restrictions on the use of the Company’s cash and cash equivalents as of December 31, 2018 .

The Company’s cash and cash equivalents balance exceeds federally insurable limits as of December 31, 2018 . The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

Restricted Cash

Restricted cash is composed of lender impound reserve accounts on the Company’s borrowings for capital improvements.

Rents and Other Receivables

The Company periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates.

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 on its variable rate notes payable. The Company records these derivative instruments at fair value on the accompanying consolidated balance sheets. Derivative instruments designated and qualifying as a hedge of the exposure to variability in expected future cash flows or other types of forecasted transactions are considered cash flow hedges. 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 consolidated statements of equity. The changes in fair value for derivative instruments that are not designated as a hedge or that do not meet the hedge accounting criteria are recorded as gain or loss on derivative instruments and included in interest expense as presented in the accompanying consolidated statements of operations.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategy for undertaking various hedge transactions. This process includes designating all derivative instruments that are part of a hedging relationship to specific forecasted transactions or recognized obligations on the consolidated balance sheets. The Company also assesses and documents, both at the hedging instrument’s inception and on a quarterly basis thereafter, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the respective hedged items. When the Company determines that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues hedge accounting prospectively and reclassifies amounts recorded to accumulated other comprehensive income (loss) to earnings.

Deferred Financing Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing and are presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Deferred financing costs incurred before an associated debt liability is recognized are included in prepaid and other assets on the balance sheet. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Fair Value Measurements

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


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


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


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

When available, the Company utilizes quoted market prices from independent third-party sources to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities 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 considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market).

The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Dividend Reinvestment Plan

The Company has adopted a dividend reinvestment plan pursuant to which common stockholders may elect to have all or a portion of their dividends and other distributions, exclusive of dividends and other distributions that the Company’s board of directors designates as ineligible for reinvestment through the dividend reinvestment plan, reinvested in additional shares of the Company’s common stock in lieu of receiving cash distributions. Participants in the dividend reinvestment plan acquire shares of the Company’s common stock at a price equal to 95% of the estimated value per share of the Company’s common stock, as determined by the Advisor or another firm chosen by the Company’s board of directors for that purpose.

On December 8, 2015, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.04 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2015, with the exception of a reduction to the Company’s net asset value for acquisition fees and closing costs related to a real estate acquisition that closed subsequent to September 30, 2015 and deferred financing costs related to a mortgage loan that closed subsequent to September 30, 2015. The change in the dividend reinvestment plan purchase price was effective for the January 4, 2016 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the January 4, 2016 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $9.54 .

On December 9, 2016, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.63 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2016. The change in the dividend reinvestment plan purchase price was effective for the January 3, 2017 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the January 3, 2017 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $10.10 .

On December 6, 2017, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $11.73 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2017, with the exception of a reduction to the Company’s net asset value for deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017. The change in the dividend reinvestment plan purchase price was effective for the January 2, 2018 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the January 2, 2018 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $11.15 .

On December 3, 2018, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $12.02 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2018, with the exception of an adjustment to the Company’s net asset value for the acquisition and assumed loan costs related to the Company’s buyout of a joint venture partner’s equity interest in a joint venture that closed subsequent to September 30, 2018 and a reduction to the Company’s net asset value for deferred financing costs related to a portfolio revolving loan facility that closed subsequent to September 30, 2018 . The change in the dividend reinvestment plan purchase price was effective for the January 2, 2019 dividend reinvestment plan purchase date and is effective until the estimated value per share is updated. Thus, commencing with the January 2, 2019 purchase date and until the estimated value per share is updated, the purchase price per share under the dividend reinvestment plan is $11.42 .

No selling commissions or dealer manager fees will be paid on shares sold under the dividend reinvestment plan. The board of directors of the Company may amend or terminate the dividend reinvestment plan for any reason upon 10 days’ notice to participants.

Redeemable Common Stock

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

There are several limitations on the Company’s ability to redeem shares under the 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, and together with redemptions sought in connection with a stockholder’s death, “Special Redemptions”), the Company may not redeem shares unless the stockholder has held the shares for one year.

•

During any calendar year, the share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the amount of net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year. Notwithstanding anything contained in the share redemption program to the contrary, the Company may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to its stockholders. 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 SEC or (b) in a separate mailing to its stockholders. On May 8, 2018, the Company’s board of directors approved an increase of the funding available for the redemption of shares under the share redemption program by up to an additional $10.0 million for the May 2018 redemption date, with such increased amount to be used solely for Special Redemptions. In addition, on May 8, 2018, the Company’s board of directors approved the Fourth Amended and Restated Share Redemption Program (the “Fourth SRP”), which was effective June 8, 2018. The Fourth SRP provided that, for calendar year 2018 only, in addition to the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the dividend reinvestment plan during calendar year 2017, the Company may redeem up to an additional $42.0 million of shares, less the actual dollar amount of Special Redemptions processed on the May 2018 redemption date (such difference, the “2018 Additional Funding”); provided, however, that once the Company received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored would result in the amount of the remaining 2018 Additional Funding being $10.0 million or less, the remaining $10.0 million of the 2018 Additional Funding would be reserved exclusively for Special Redemptions. The Fourth SRP also provides that during any calendar year subsequent to calendar year 2018, once the Company has received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions.


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


•	The Company has no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland 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.

Pursuant to the share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of the Company’s common stock as of the applicable redemption date. From January 1, 2016 through June 8, 2018, the effective date of the Fourth SRP, the price at which the Company redeemed all other shares eligible for redemption was as follows:


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

Effective June 8, 2018, all redemptions other than Special Redemptions are made at a price per share equal to 95% of the Company’s most recent estimated value per share as of the applicable redemption date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

On December 6, 2017, the Company’s board of directors approved an estimated value per share of its common stock of $11.73 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the December 2017 redemption date, which was December 29, 2017.

On December 3, 2018, the Company’s board of directors approved an estimated value per share of its common stock of $12.02 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the December 2018 redemption date, which was December 31, 2018. The Company currently expects to utilize an independent valuation firm to update its estimated value per share no later than December 2019.

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 the 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 the Company is not determinative.

The Fourth SRP provides that the Company’s board of directors may amend, suspend or terminate the share redemption program with 10 business days’ notice to the Company’s stockholders and that the Company may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice. The Company may provide this notice by including such information in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to its stockholders.

The Company records amounts that are redeemable under the share redemption program as redeemable common stock in the accompanying consolidated balance sheets because the shares are mandatorily redeemable at the option of the holder and therefore their redemption is outside the control of the Company. The maximum amount redeemable under the Company’s share redemption program is limited to the number of shares the Company could purchase with the amount of the net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year. However, because the amounts that can be redeemed in future periods are determinable and only contingent on an event that is likely to occur (e.g., the passage of time), the Company presents the net proceeds from the current year dividend reinvestment plan as redeemable common stock in the accompanying consolidated balance sheets.

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

The Company limits the dollar value of shares that may be redeemed under the program as described above. For the year ended December 31, 2018 , the Company redeemed $94.8 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the December 2018 redemption date, except for 2,770,441 shares totaling $31.6 million . The Company recorded $31.6 million of redeemable common stock payable on the Company’s balance sheet as of December 31, 2018 related to these unfulfilled redemption requests. Effective January 1, 2019, this limitation was reset, and based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2018, the Company has an aggregate of $56.1 million available for redemptions in 2019, including the reserve for Special Redemptions (described above).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

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 entitled the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company 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 entitle the Advisor and/or Dealer Manager to reimbursement of offering costs related to the dividend reinvestment plan incurred by the Advisor and the Dealer Manager on behalf of the Company 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 (the “AIP 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 or served as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), which liquidated in December 2018; KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”); KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), which liquidated in December 2018; KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”); KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”); and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”).

The Company records all related party fees as incurred, subject to any limitations described in the Advisory Agreement, the Dealer Manager Agreement or the AIP Reimbursement Agreement. See Note 9, “Related Party Transactions.”

Acquisition and Origination Fees

The Company pays the Advisor an acquisition fee equal to 1.0% of the cost of investments acquired, including the sum of the amount actually paid or allocated to the purchase, development, construction or improvement of such investments, acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, the Company pays an origination fee equal to 1.0% of the amount to be funded by the Company to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt the Company uses to fund the acquisition or origination of these loans. The Company does not pay an acquisition fee with respect to investments in loans.

Operating Expenses

Under the Advisory Agreement, the Advisor has the right to seek reimbursement from the Company for all costs and expenses it incurs in connection with the provision of services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities, accounting software and cybersecurity costs. Commencing January 1, 2011, 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. In the future, the Advisor may seek reimbursement for additional employee costs. The Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries and benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company. The Company and the Advisor have also agreed to evenly divide certain costs and expenses related to the Company’s exploration and assessment of strategic alternatives.

Asset Management Fee

With respect to investments in real estate, the Company pays the Advisor a monthly asset management 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 the Advisor). In the case of investments made through joint ventures, the asset management fee will be determined based on the Company’s proportionate share of the underlying investment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

With respect to investments in loans and any investments other than real estate, the Company paid the Advisor a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount paid or allocated to acquire or fund the loan or other investment (which amount included any portion of the investment that was debt financed and was inclusive of acquisition or origination expenses related thereto but is exclusive of acquisition or origination fees paid or payable to the 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 (but excluding acquisition or origination fees paid or payable to the Advisor), as of the time of calculation.

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 Institute of Portfolio Alternatives (formerly known as 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.

Disposition Fee

For substantial assistance in connection with the sale of properties or other investments, the Company pays the Advisor or one of its affiliates 1.0% of the contract sales price of each property or other investment sold; provided, however, that if, in connection with such disposition, commissions are paid to third parties unaffiliated with the Advisor or one of its affiliates, the fee paid to the Advisor or one of its affiliates may not exceed the commissions paid to such unaffiliated third parties, and provided further that the disposition fees paid to the Advisor or one of its affiliates and unaffiliated third parties may not exceed 6.0% of the contract sales price. The Company will not pay a disposition fee upon the maturity, prepayment or workout of a loan or other debt-related investment, provided that if the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To continue to qualify as a REIT, the Company must continue to meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries has been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluations were performed for all open tax years through December 31, 2018 . As of December 31, 2018 , the returns for calendar years 2014 through 2017 remain subject to examination by major tax jurisdictions.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the years ended December 31, 2018 , 2017 and 2016 , respectively.

Distributions declared per common share were $0.650 during the years ended December 31, 2018 , 2017 and 2016 , respectively. Distributions declared per common share assumes each share was issued and outstanding each day from January 1, 2016 through December 31, 2018 . For each day that was a record date for distributions during the period from January 1, 2016 through December 31, 2018 , distributions were calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2016 through February 28, 2016 and March 1, 2016 through December 31, 2018 was a record date for distributions.

Segments

The Company has invested 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 December 31, 2018 , the Company aggregated its investments in real estate properties into one reportable business segment.

Square Footage, Occupancy and Other Measures

Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, used to describe real estate investments included in these notes to the consolidated financial statements are presented on an unaudited basis.

Recently Issued Accounting Standards Update

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. ASU No. 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Upon its adoption of ASU No. 2016-02 on January 1, 2019, the Company adopted the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company 1) did not reassess whether any expired or existing contracts are or contain leases, 2) did not reassess the lease classification for any expired or existing lease, and 3) did not reassess initial direct costs for any existing leases. The Company did not elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, the Company adopted the practical expedient for land easements and did not assess whether existing or expired land easements that were not previously accounted for as leases under the current lease accounting standards of Topic 840 are or contain a lease under Topic 842.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

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

In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors (“ASU No. 2018-20”), which permits lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs and instead to account for these costs as if they were lessee costs. In addition, ASU No. 2018-20 requires lessors to 1) exclude lessor costs paid directly by lessees to third parties on the lessor’s behalf from variable payments and 2) include lessor costs that are reimbursed by the lessee in the measurement of variable lease revenue and the associated expense. The amendments also clarify that lessors are required to allocate the variable payments to the lease and non-lease components and follow the recognition guidance in Topic 842 for the lease component and other applicable guidance, such as ASC 606, for the non-lease component. The Company made the accounting policy election related to sales taxes upon adoption of the lease accounting standard of Topic 842 on January 1, 2019.

The Company created an inventory of its leases where the Company may be a lessee to assess the potential impact to the Company’s financial statements of adopting the new lease accounting standards. The adoption of the new lease accounting standard did not have a material impact to the Company’s financial statements on January 1, 2019. Beginning January 1, 2019, the Company, as a lessor, will record legal costs incurred to negotiate an operating lease as an expense, classified as operating, maintenance, and management on the Company’s consolidated statement of operations, as these costs are no longer capitalizable under the definition of initial direct costs under Topic 842. In addition, the Company will account for new leases, including modifications of existing leases, entered into on and after January 1, 2019 under the new lease accounting standard under Topic 842 and follow the related presentation and disclosure requirements for reporting periods subsequent to January 1, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

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

In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses , which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impact of adopting ASU No. 2018-13 on its financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018


3.	REAL ESTATE

Real Estate Held for Investment

As of December 31, 2018 , the Company’s real estate portfolio held for investment was composed of 28 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 11.2 million rentable square feet. In addition, the Company had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction. As of December 31, 2018 , the Company’s real estate portfolio was collectively 93% occupied. The following table summarizes the Company’s investments in real estate as of December 31, 2018 (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	$	50,418	$	(15,707	)	$	34,711
Town Center	03/27/2012	Plano	TX	Office	116,261		(28,838		)	87,423
McEwen Building	04/30/2012	Franklin	TN	Office	37,198		(8,520		)	28,678
Gateway Tech Center	05/09/2012	Salt Lake City	UT	Office	26,918		(6,598		)	20,320
Tower on Lake Carolyn	12/21/2012	Irving	TX	Office	52,647		(11,839		)	40,808
RBC Plaza	01/31/2013	Minneapolis	MN	Office	153,330		(38,103		)	115,227
One Washingtonian Center	06/19/2013	Gaithersburg	MD	Office	92,350		(18,900		)	73,450
Preston Commons	06/19/2013	Dallas	TX	Office	118,135		(23,497		)	94,638
Sterling Plaza	06/19/2013	Dallas	TX	Office	79,288		(13,388		)	65,900
201 Spear Street	12/03/2013	San Francisco	CA	Office	141,683		(15,122		)	126,561
500 West Madison	12/16/2013	Chicago	IL	Office	436,482		(70,635		)	365,847
222 Main	02/27/2014	Salt Lake City	UT	Office	165,524		(30,781		)	134,743
Anchor Centre	05/22/2014	Phoenix	AZ	Office	95,496		(15,127		)	80,369
171 17th Street	08/25/2014	Atlanta	GA	Office	134,166		(27,715		)	106,451
Reston Square	12/03/2014	Reston	VA	Office	46,593		(8,667		)	37,926
Ten Almaden	12/05/2014	San Jose	CA	Office	124,563		(17,688		)	106,875
Towers at Emeryville	12/23/2014	Emeryville	CA	Office	276,822		(32,950		)	243,872
101 South Hanley	12/24/2014	St. Louis	MO	Office	72,269		(11,661		)	60,608
3003 Washington Boulevard	12/30/2014	Arlington	VA	Office	151,150		(20,296		)	130,854
Village Center Station	05/20/2015	Greenwood Village	CO	Office	76,332		(10,609		)	65,723
Park Place Village	06/18/2015	Leawood	KS	Office/Retail	127,856		(18,096		)	109,760
201 17th Street	06/23/2015	Atlanta	GA	Office	102,045		(14,293		)	87,752
Promenade I & II at Eilan	07/14/2015	San Antonio	TX	Office	62,646		(9,629		)	53,017
CrossPoint at Valley Forge	08/18/2015	Wayne	PA	Office	90,382		(11,947		)	78,435
515 Congress	08/31/2015	Austin	TX	Office	120,999		(14,175		)	106,824
The Almaden	09/23/2015	San Jose	CA	Office	169,945		(16,625		)	153,320
3001 Washington Boulevard	11/06/2015	Arlington	VA	Office	60,439		(4,916		)	55,523
Carillon	01/15/2016	Charlotte	NC	Office	153,783		(18,025		)	135,758
Hardware Village ⁽¹⁾	08/26/2016	Salt Lake City	UT	Development/Apartment	105,691		(1,405		)	104,286
Village Center Station II ⁽²⁾	10/11/2018	Greenwood Village	CO	Office	132,100		(1,238		)	130,862
					$	3,573,511	$	(536,990	)	$	3,036,521

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

_____________________

⁽¹⁾ On August 26, 2016, the Company, through an indirect wholly-owned subsidiary, entered into a joint venture (the “Hardware Village Joint Venture”) to develop and subsequently operate a multifamily apartment complex, located on the developable land at Gateway Tech Center. The Company owns a 99.24% equity interest in the joint venture. In July 2018, one of the two buildings consisting of 265 units was placed into service. The total real estate, at cost, for the building that was placed into service was $68.3 million as of December 31, 2018 .

⁽²⁾ On March 3, 2017, the Company acquired a 75% equity interest in an existing company and created a joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, the Company purchased the developer’s 25% equity interest. For more information, see Note 5, “Investment in Unconsolidated Joint Venture.”

As of December 31, 2018 , 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	$	365,847	11.1	%	$	34,071	$	29.08	80.4	%

_____________________

Operating Leases

The Company’s office and office/retail properties are leased to tenants under operating leases for which the terms and expirations vary. As of December 31, 2018 , the leases had remaining terms, excluding options to extend, of up to 14.8 years with a weighted-average remaining term of 4.5 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, 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 $11.8 million and $11.5 million as of December 31, 2018 and 2017 , respectively. No material tenant credit issues have been identified at this time. During the years ended December 31, 2018 , 2017 and 2016 , the Company recorded bad debt expense of $1.2 million , $1.9 million and $1.3 million , respectively. As of December 31, 2018 , the Company had a bad debt expense reserve of approximately $0.5 million , which represented less than 1% of its annualized base rent.

During the years ended December 31, 2018 , 2017 and 2016 , the Company recognized deferred rent from tenants of $9.1 million , $12.4 million and $17.2 million , respectively. As of December 31, 2018 and 2017 , the cumulative deferred rent balance was $92.8 million and $74.4 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $17.2 million and $9.3 million of unamortized lease incentives as of December 31, 2018 and 2017 , respectively.

As of December 31, 2018 , the future minimum rental income from the Company’s properties, excluding apartment leases, under its non-cancelable operating leases was as follows (in thousands):



2019	$	306,808
2020	288,163
2021	263,186
2022	229,346
2023	189,991
Thereafter	557,175
	$	1,834,669

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

As of December 31, 2018 , the Company’s office and office/retail properties were leased to approximately 850 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	152	$	60,016	18.6	%

_____________________

As of December 31, 2018 , 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.

Geographic Concentration Risk

As of December 31, 2018 , the Company’s net investments in real estate in California, Texas and Illinois represented 19% , 15% and 11% 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, Texas and Illinois 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 pay distributions to stockholders.

Property Damage

In December 2017, 222 Main located in Salt Lake City, Utah suffered physical damages due to a broken sprinkler pipe. The Company’s insurance policy provides coverage for property damage and business interruption subject to a deductible of up to $5,000 per incident. Based on management’s estimates, the Company recognized an estimated aggregate loss due to damages of $7.9 million during the year ended December 31, 2017, which was reduced by $7.9 million of estimated insurance recoveries related to such damages, which the Company determined were probable of collection. The aggregate net loss of $5,000 due to damages during the year ended December 31, 2017 was classified as operating, maintenance and management expenses on the accompanying consolidated statements of operations and relates to the Company’s insurance deductible. During the year ended December 31, 2018 , the Company received $4.6 million in insurance recoveries relating to the property damage. In addition, the Company reduced the estimated aggregate loss due to damages and the estimated insurance recoveries related to such damages by $2.4 million .

During the year ended December 31, 2018 , the Company recorded $0.7 million of business interruption insurance recovery, which is included in rental income on the accompanying consolidated statements of operations. During the year ended December 31, 2018 , the Company received $1.3 million of business interruption insurance recovery, consisting of $0.7 million of revenue related to the year ended December 31, 2017 and $0.6 million of revenue related to the period from January through May 2018.

As of December 31, 2018 , the Company recorded $0.9 million of insurance recoveries receivable, which is included in prepaid expenses and other assets on the accompanying consolidated balance sheet.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Real Estate Sales

During the year ended December 31, 2018 , the Company disposed of one office property. During the years ended December 31, 2017 and 2016 , the Company did no t dispose of any real estate properties.

On November 6, 2014 , the Company, through an indirect wholly owned subsidiary, acquired an office property containing 220,020 rentable square feet located on approximately 13.9 acres of land in Rocklin, California (“Rocklin Corporate Center”). On May 25, 2018 , the Company sold Rocklin Corporate Center to a purchaser unaffiliated with the Company or the Advisor for $42.9 million before closing costs and credits. The carrying value of Rocklin Corporate Center as of the disposition date was $29.7 million , which was net of $6.0 million of accumulated depreciation and amortization. The Company recognized a gain on sale of $11.9 million related to the disposition of Rocklin Corporate Center.

The results of operations for the property during the year ended December 31, 2018 and gain on sale as of December 31, 2018 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to this property for the years ended December 31, 2018 , 2017 and 2016 (in thousands):



	Years Ended December 31,
	2018		2017		2016
Revenues
Rental income	$	1,802	$	4,513	$	4,458
Tenant reimbursements and other operating income	110		153		68
Total revenues	$	1,912	$	4,666	$	4,526
Expenses
Operating, maintenance, and management	$	430	$	1,363	$	1,272
Real estate taxes and insurance	213		456		436
Asset management fees to affiliate	127		264		340
Depreciation and amortization	—		1,880		2,200
Interest expense	320		662		503
Total expenses	$	1,090	$	4,625	$	4,751

The following summary presents the major components of assets and liabilities related to real estate held for sale as of December 31, 2017 (in thousands). The Company sold this property in May 2018. No real estate properties were held for sale as of December 31, 2018 .



	December 31, 2018		December 31, 2017
Assets related to real estate held for sale
Total real estate, at cost	$	—	$	33,575
Accumulated depreciation and amortization	—		(5,558		)
Real estate held for sale, net	—		28,017
Other assets	—		1,786
Total assets related to real estate held for sale	$	—	$	29,803
Liabilities related to real estate held for sale
Notes payable, net	—		21,648
Other liabilities	—		50
Total liabilities related to real estate held for sale	$	—	$	21,698

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018


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

As of December 31, 2018 and 2017 , the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):



	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017
Cost	$	223,723		$	230,576		$	11,118		$	12,301		$	(40,601	)	$	(47,459	)
Accumulated Amortization	(117,955		)	(108,078		)	(6,942		)	(6,440		)	23,048			22,849
Net Amount	$	105,768		$	122,498		$	4,176		$	5,861		$	(17,553	)	$	(24,610	)

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 years ended December 31, 2018 , 2017 and 2016 were as follows (in thousands):



	Tenant Origination and Absorption Costs									Above-Market Lease Assets									Below-Market Lease Liabilities
	For the Years Ended December 31,									For the Years Ended December 31,									For the Years Ended December 31,
	2018			2017			2016			2018			2017			2016			2018		2017		2016
Amortization	$	(31,201	)	$	(41,090	)	$	(46,647	)	$	(1,712	)	$	(2,285	)	$	(2,794	)	$	7,062	$	8,995	$	11,718

The remaining unamortized balance for these outstanding intangible assets and liabilities as of December 31, 2018 is estimated to be amortized for the years ending December 31 as follows (in thousands):



	Tenant Origination and Absorption Costs			Above-Market Lease Assets			Below-Market Lease Liabilities
2019	$	(24,929	)	$	(1,361	)	$	4,661
2020	(19,583		)	(834		)	3,813
2021	(16,658		)	(648		)	3,435
2022	(13,318		)	(492		)	2,582
2023	(10,624		)	(314		)	1,843
Thereafter	(20,656		)	(527		)	1,219
	$	(105,768	)	$	(4,176	)	$	17,553
Weighted-Average Remaining Amortization Period	6.0 years			4.6 years			4.7 years

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018


5.	INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

On March 3, 2017, the Company, through an indirect wholly owned subsidiary, acquired a 75% equity interest in an existing company and created a joint venture (the “Village Center Station II Joint Venture”) with an unaffiliated developer, Shea Village Center Station II, LLC (the “Developer”), to develop and subsequently operate a 12-story office building and an adjacent two-story office/retail building in the Denver submarket of Greenwood Village, Colorado (together, “Village Center Station II”). The total cost of the development was $111.2 million and the Company’s initial capital contribution to the Village Center Station II Joint Venture was $32.3 million . The Village Center Station II Joint Venture funded the construction of Village Center Station II with capital contributions from its members and proceeds from a construction loan of $78.5 million . The Company concluded that the Village Center Station II Joint Venture qualified as a variable interest entity (“VIE”) and determined that it was not the primary beneficiary of this VIE and to account for its investment in the project under the equity method of accounting. Village Center Station II was substantially completed in May 2018.

On October 11, 2018 , the Company purchased the Developer’s 25% equity interest for $28.2 million . Upon acquisition of the Developer’s interest, the Company accounted for Village Center Station II on a consolidated basis.

In accordance with the FASB ASC 810, Consolidation , upon the initial consolidation of a VIE that is not considered a business, the difference between (a) the sum of the total fair value of the consideration plus the reported amount of previously held interests and (b) the sum of the individual fair values of the net assets is recognized as a gain or loss. At acquisition, the fair value based on a third-party appraisal of Village Center Station II was $132.1 million , which was allocated to the assets and liabilities acquired. The Company allocated $8.6 million to land, $109.0 million to building and improvements and $14.5 million to tenant origination and absorption costs. The Company’s total cost basis was $130.1 million , which includes the Company’s investment in the unconsolidated joint venture, the consideration paid to purchase the Developer’s 25% equity interest, debt assumed from the joint venture, and acquisition fees and expenses. As a result, the Company recorded a remeasurement gain of $2.0 million as a result of change in control, which was included in equity income from unconsolidated joint venture during the year ended December 31, 2018 .

The intangible assets acquired in connection with this transaction have a weighted-average amortization period as of the date of the acquisition of 9.7 years for tenant origination and absorption costs. The Company capitalized $1.4 million of acquisition costs related to this property. During the year ended December 31, 2018 , the Company recognized $2.0 million of total revenues and $0.8 million of operating expenses from this property.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018


6.	NOTES PAYABLE

As of December 31, 2018 and 2017 , the Company’s notes payable consisted of the following (dollars in thousands):



	Book Value as of December 31, 2018			Book Value as of December 31, 2017			Contractual Interest Rate as of December 31, 2018 ⁽¹⁾	Effective Interest Rate as of December 31, 2018 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Portfolio Loan ⁽³⁾	$	84,484		$	188,460		One-month LIBOR + 1.90%	4.25%	Interest Only	06/01/2019
222 Main Mortgage Loan	97,522			99,471			3.97%	3.97%	Principal & Interest	03/01/2021
Anchor Centre Mortgage Loan	49,647			50,000			One-month LIBOR + 1.50%	3.85%	Principal & Interest	06/01/2019
171 17th Street Mortgage Loan	84,460			85,292			One-month LIBOR + 1.45%	3.80%	Principal & Interest	09/01/2019
Reston Square Mortgage Loan ⁽⁴⁾	29,479			29,800			One-month LIBOR + 1.50%	3.85%	Principal & Interest	02/01/2019
101 South Hanley Mortgage Loan	43,090			40,557			One-month LIBOR + 1.55%	3.92%	Principal & Interest	01/01/2020
3003 Washington Boulevard Mortgage Loan	90,378			90,378			One-month LIBOR + 1.55%	3.56%	Interest Only	02/01/2020
Rocklin Corporate Center Mortgage Loan ⁽⁵⁾	—			21,689			⁽⁵⁾	⁽⁵⁾	⁽⁵⁾	⁽⁵⁾
201 17th Street Mortgage Loan	64,428			64,428			One-month LIBOR + 1.40%	3.60%	Interest Only	08/01/2019
CrossPoint at Valley Forge Mortgage Loan	51,000			51,000			One-month LIBOR + 1.50%	3.33%	Interest Only ⁽⁶⁾	09/01/2022
The Almaden Mortgage Loan	93,000			93,000			4.20%	4.20%	Interest Only	01/01/2022
Promenade I & II at Eilan Mortgage Loan	37,300			37,300			One-month LIBOR + 1.75%	3.57%	Interest Only	10/01/2022
515 Congress Mortgage Loan ⁽⁷⁾	—			68,381			⁽⁷⁾	⁽⁷⁾	⁽⁷⁾	⁽⁷⁾
201 Spear Street Mortgage Loan ⁽⁸⁾	125,000			100,000			One-month LIBOR + 1.45%	3.91%	Interest Only	01/05/2024
Carillon Mortgage Loan	92,197			90,248			One-month LIBOR + 1.65%	3.43%	Interest Only	02/01/2020
3001 Washington Boulevard Mortgage Loan ⁽⁹⁾	32,662			28,404			One-month LIBOR + 1.60%	3.24%	Interest Only	02/01/2019
Hardware Village Loan Facility ⁽¹⁰⁾	49,664			21,011			One-month LIBOR + 3.25%	5.71%	Interest Only	02/23/2020
Portfolio Loan Facility ⁽¹¹⁾	893,500			797,500			One-month LIBOR + 1.80%	3.85%	Interest Only	11/03/2020
Village Center Station II Loan ⁽¹²⁾	78,343			—			One-month LIBOR + 1.70%	4.05%	Principal & Interest	03/01/2022
Portfolio Revolving Loan Facility ⁽⁷⁾	200,000			—			One-month LIBOR + 1.50%	3.71%	Interest Only	11/01/2021
Total notes payable principal outstanding	2,196,154			1,956,919
Deferred financing costs, net	(11,616		)	(15,133		)
Total notes payable, net	$	2,184,538		$	1,941,786

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of December 31, 2018 . Effective interest rate is calculated as the actual interest rate in effect as of December 31, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps and caps, if applicable), using interest rate indices as of December 31, 2018 , where applicable. For further information regarding the Company’s derivative instruments, see Note 7, “Derivative Instruments.”

⁽²⁾ Represents the maturity date as of December 31, 2018 ; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown.

⁽³⁾ See below, “Recent Financing Transactions - Portfolio Loan.”

⁽⁴⁾ Subsequent to December 31, 2018 , the Reston Square Mortgage Loan maturity date was extended to February 1, 2020 .

⁽⁵⁾ On May 25, 2018 , in connection with the disposition of Rocklin Corporate Center, the Company paid off the Rocklin Corporate Center Mortgage Loan.

⁽⁶⁾ Represents the payment type required under the loan as of December 31, 2018 . Certain future monthly payments due under the loan also include amortizing principal payments. For more information on the Company’s contractual obligations under its notes payable, see the five-year maturity table below.

⁽⁷⁾ See below, “Recent Financing Transactions - Portfolio Revolving Loan Facility.”

⁽⁸⁾ See below, “Recent Financing Transactions - 201 Spear Street Mortgage Loan Refinancing.”

⁽⁹⁾ On February 1, 2019, the 3001 Washington Boulevard Mortgage Loan was paid off.

⁽¹⁰⁾ As of December 31, 2018 , $49.7 million had been disbursed and $24.3 million remained available for future disbursements, subject to certain conditions contained in the loan documents.

⁽¹¹⁾ As of December 31, 2018 , the Portfolio Loan Facility was secured by RBC Plaza, Preston Commons, Sterling Plaza, One Washingtonian Center, Towers at Emeryville, Ten Almaden, Town Center and 500 West Madison. The face amount of the Portfolio Loan Facility is $1.01 billion , of which $757.5 million is term debt and $252.5 million is revolving debt. As of December 31, 2018 , the outstanding balance under the loan consisted of $757.5 million of term debt and $136.0 million of revolving debt. As of December 31, 2018 , an additional $116.5 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. During the remaining term of the Portfolio Loan Facility, the Company has an option to increase the loan amount by up to an additional $400.0 million in increments of $25.0 million , to a maximum of $1.41 billion , of which 75% would be term debt and 25% would be revolving debt, subject to certain conditions contained in the loan documents.

⁽¹²⁾ On March 3, 2017, the Company acquired a 75% equity interest in an existing company and created a joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, the Company purchased the unaffiliated developer’s 25% equity interest. As such, the Village Center Station II Loan was included in the Company's consolidated financial statements as of December 31, 2018 .

During the years ended December 31, 2018 , 2017 and 2016 , the Company incurred $72.2 million , $55.0 million and $51.6 million of interest expense, respectively. Included in interest expense was: (i) the amortization of deferred financing costs of $6.5 million , $5.3 million and $5.1 million for the years ended December 31, 2018 , 2017 and 2016 , respectively, and (ii) interest expense (including gains and losses) incurred as a result of the Company’s derivative instruments, which reduced interest expense by $11.1 million , reduced interest expense by $3.1 million and increased interest expense by $6.4 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Additionally, the Company capitalized $2.8 million , $2.4 million and $0.2 million of interest related to construction in progress for the years ended December 31, 2018 , 2017 and 2016 , respectively. As of December 31, 2018 and 2017 , $6.8 million and $6.1 million of interest expense were payable, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of December 31, 2018 (in thousands):



2019	$	348,679
2020	1,171,460
2021	294,894
2022	256,121
2023	—
Thereafter	125,000
	$	2,196,154

The Company’s notes payable contain financial debt covenants. As of December 31, 2018 , the Company was in compliance with these debt covenants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Recent Financing Transactions

Portfolio Revolving Loan Facility

On October 17, 2018, the Company, through indirect wholly owned subsidiaries (each a “Portfolio Revolving Loan Facility Borrower”), entered into a three -year loan facility with an unaffiliated lender (the “Portfolio Revolving Loan Facility Lender”), for a committed amount of up to $215.0 million (the “Portfolio Revolving Loan Facility”), of which $107.5 million is term debt and $107.5 million is revolving debt. At closing, $200.0 million was available for funding under the Portfolio Revolving Loan Facility with an additional $15.0 million available upon satisfaction of certain conditions set forth in the loan documents. At closing, $107.5 million of the term debt and $92.5 million of revolving debt was funded, of which approximately $69.8 million was used to pay off the 515 Congress Mortgage Loan and approximately $104.0 million was used to pay down one of the Company’s existing portfolio loan facilities. See “Portfolio Loan” below. The remaining amount was used to pay origination fees and accrued interest, with excess proceeds held by the Company for liquidity management. The Portfolio Revolving Loan Facility may be used for working capital, capital expenditures, real property acquisitions and other corporate purposes.

The Portfolio Revolving Loan Facility matures on November 1, 2021, with two 12 -month extension options, subject to certain terms, conditions and fees as described in the loan documents. The Company will have the right to prepay all or a portion of the Portfolio Revolving Loan Facility, subject to certain expenses potentially incurred by the Portfolio Revolving Loan Facility Lender as a result of the prepayment and subject to certain conditions contained in the loan documents. During the term of the Portfolio Revolving Loan Facility, the Company has an option to increase the committed amount of the Portfolio Revolving Loan Facility up to four times with each increase of the committed amount to be at least $15.0 million but no greater than, in the aggregate, an additional $170.0 million so that the committed amount will not exceed $385.0 million , of which 50% would be non-revolving debt and 50% would be revolving debt, with the addition of one or more properties to secure the loan, subject to certain terms and conditions contained in the loan documents. In addition, the Portfolio Revolving Loan Facility contains customary representations and warranties, financial and other covenants, events of default and remedies typical for this type of facility. The Portfolio Revolving Loan Facility is secured by 515 Congress, Domain Gateway, the McEwen Building, and Gateway Tech Center.

On December 18, 2018, the Portfolio Revolving Loan Facility was syndicated across five unaffiliated lenders, each becoming a Portfolio Revolving Loan Facility Lender.

KBS REIT Properties III, LLC (“REIT Properties III”), the Company’s wholly owned subsidiary, is providing a guaranty of (i) up to 25% of the committed amount under the Portfolio Revolving Loan Facility, as such amount may be adjusted from time to time pursuant to the terms of the loan documents, (ii) payment of, and agrees to protect, defend, indemnify and hold harmless each Portfolio Revolving Loan Facility Lender for, from and against, any liability, obligation, deficiency, loss, damage, costs and expenses (including reasonable attorney’s fees), and any litigation which may at any time be imposed upon, incurred or suffered by any Portfolio Revolving Loan Facility Lender because of (a) certain intentional acts committed by any Portfolio Revolving Loan Facility Borrower, (b) fraud or intentional misrepresentations by a Portfolio Revolving Loan Facility Borrower or REIT Properties III in connection with the loan documents as described in the guaranty agreement, and (c) certain bankruptcy or insolvency proceedings involving a Portfolio Revolving Loan Facility Borrower, as such acts are described in the guaranty, and (iii) upon and subject to the events and conditions described in the guaranty, payment of certain indemnity obligations of a Portfolio Revolving Loan Facility Borrower related to environmental matters.

Portfolio Loan

On October 17, 2018, in connection with entry into the Portfolio Revolving Loan Facility, the Company paid down the Portfolio Loan by approximately $104.0 million , of which $43.0 million was term debt and $61.0 million was revolving debt. Domain Gateway, the McEwen Building, and Gateway Tech Center were released as collateral under the Portfolio Loan. In accordance with the terms of the Portfolio Loan, the committed amount of the Portfolio Loan was reduced from $255.0 million to $169.0 million , of which $84.5 million is term debt and $84.5 million is revolving debt. As a result of the paydown, the Portfolio Loan's outstanding principal balance was reduced to $84.5 million , all of which was term debt. As of December 31, 2018 , the revolving debt of $84.5 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement. As of December 31, 2018 , the Portfolio Loan was secured by the Tower on Lake Carolyn, Park Place Village and Village Center Station.

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December 31, 2018

201 Spear Street Mortgage Loan Refinancing

On December 18, 2018, the Company, through an indirect wholly owned subsidiary (the “201 Spear Street Borrower”), entered into a five -year mortgage loan with two unaffiliated lenders (collectively, the “201 Spear Street Mortgage Loan Lender”) for $125.0 million (the “Refinancing”). At closing, $125.0 million of the Refinancing was funded, of which $100.0 million was used to pay off the existing 201 Spear Street Mortgage Loan principal balance. The remaining amount from the Refinancing was used to pay origination fees and accrued interest, with excess proceeds held by the Company for liquidity management. The Refinancing matures on January 5, 2024, with two 12 -month extension options, subject to certain terms, conditions and fees as described in the loan documents. The Company will have the right to prepay all or a portion of the Refinancing on or after January 2020, subject to certain conditions contained in the loan documents.

In connection with the Refinancing, REIT Properties III is providing a guaranty of the principal balance and any interest or other sums outstanding under Refinancing in the event of: the liquidation, dissolution, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, sale of all or substantially all assets, reorganization, arrangement, composition, or readjustment of, or other similar proceedings affecting the status, composition, identity, existence, assets or obligations of the 201 Spear Street Borrower.


7.	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 December 31, 2018 and 2017 . The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):



	December 31, 2018			December 31, 2017				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 December 31, 2018	Weighted-Average Fix Pay Rate	Weighted-Average Remaining Term in Years
Derivative instruments designated as hedging instruments
Interest rate swaps	—	$	—	2	$	118,400	⁽¹⁾	⁽¹⁾	⁽¹⁾
Derivative instruments not designated as hedging instruments
Interest rate swaps	14	$	1,208,957	16	$	1,209,643	One-month LIBOR/ Fixed at 1.39% - 2.37%	2.03%	2.9
Interest rate cap ⁽²⁾	1	$	100,000	—	$	—	One-month LIBOR at 3.00%	3.00%	—

_____________________

⁽¹⁾ Both interest rate swaps designated as hedging instruments matured during the year ended December 31, 2018 .

⁽²⁾ The interest rate cap terminated on January 1, 2019.

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December 31, 2018

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 December 31, 2018 and 2017 (dollars in thousands):



		December 31, 2018			December 31, 2017
Derivative Instruments	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value
Derivative instruments designated as hedging instruments
Interest rate swaps	Prepaid expenses and other assets, at fair value	—	$	—	1	$	128
Interest rate swaps	Other liabilities, at fair value	—	$	—	1	$	(18	)

Derivative instruments not designated as hedging instruments
Interest rate swaps	Prepaid expenses and other assets, at fair value	14	$	15,909	10	$	6,386
Interest rate swaps	Other liabilities, at fair value	—	$	—	6	$	(1,677	)
Interest rate cap	Prepaid expenses and other assets, at fair value	1	$	—	—	$	—

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 equity. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flows. The change in fair value of the ineffective portion is recognized directly in earnings. With respect to swap agreements that are 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 Years Ended December 31,
	2018			2017			2016
Income statement related
Derivatives designated as hedging instruments
Amount of (income) expense recognized on interest rate swaps (effective portion)	$	(205	)	$	1,508		$	5,513
	(205		)	1,508			5,513

Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	295			5,664			2,513
Unrealized gain on interest rate swaps	(11,200		)	(10,288		)	(1,600		)
Fair value loss on interest rate cap	8			—			3
	(10,897		)	(4,624		)	916
(Decrease) increase in interest expense as a result of derivatives	$	(11,102	)	$	(3,116	)	$	6,429

Other comprehensive income related
Unrealized income (losses) on derivative instruments	$	95		$	900		$	(3,582	)

During the years ended December 31, 2018 , 2017 and 2016 , there was no ineffective portion related to the change in fair value of the derivative instruments designated as cash flow hedges.

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December 31, 2018


8.	FAIR VALUE DISCLOSURES


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


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


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

The fair value for certain financial instruments is derived using 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, restricted cash, rent and other receivables, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

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. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the caps (floors) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

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



	December 31, 2018						December 31, 2017
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	2,196,154	$	2,184,538	$	2,202,587	$	1,956,919	$	1,941,786	$	1,950,965

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. Low levels of transaction volume for certain financial instruments have 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 December 31, 2018 , the Company measured the following assets at fair value (in thousands):



			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Asset derivatives - interest rate swap	$	15,909	$	—	$	15,909	$	—
Asset derivatives - interest rate cap	—		—		—		—

As of December 31, 2018 , the Company measured the following asset at fair value on a nonrecurring basis (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)
Nonrecurring Basis:
Real estate ⁽¹⁾	$	132,100	$	—	$	—	$	132,100

_____________________

⁽¹⁾ On March 3, 2017, the Company acquired a 75% equity interest in an existing company and created a joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, the Company purchased the developer’s 25% equity interest and accounted for Village Center Station II on a consolidated basis, recording the real estate at fair value. Amount represents the fair value of the real estate upon the acquisition of the developer’s interest calculated using a discounted cash flow analysis.

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December 31, 2018


9.	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 entitled the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company 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 entitle the Advisor and/or the Dealer Manager to reimbursement of offering costs related to the dividend reinvestment plan incurred by the Advisor and the Dealer Manager on behalf of the Company 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 the AIP 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 or served as the advisor and dealer manager, respectively, for KBS REIT I (which liquidated in December 2018), KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT (which liquidated in December 2018), KBS Strategic Opportunity REIT II and KBS Growth & Income REIT.

On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to each entity. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. In June 2018, the Company renewed its participation in the program. The program is effective through June 30, 2019. At renewal, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtained separate insurance coverage. KBS REIT I elected to cease participation in the program at the June 2017 renewal and obtained separate insurance coverage.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the years ended December 31, 2018 , 2017 and 2016 , respectively, and any related amounts payable as of December 31, 2018 and 2017 (in thousands):



	Incurred Years Ended December 31,						Payable as of December 31,
	2018		2017		2016		2018		2017
Expensed
Asset management fees ⁽¹⁾	$	27,152	$	25,905	$	24,940	$	2,559	$	2,262
Reimbursement of operating expenses ^{(2) (3)}	3,612		327		423		734		121
Real estate acquisition fees	—		—		1,473		—		—
Disposition fees ⁽⁴⁾	429		—		—		—		—
Capitalized
Acquisition fee on development project	350		445		121		916		566
Acquisition fee on unconsolidated joint venture	674		613		—		—		290
Asset management fees on development project	—		48		38		—		—
Asset management fee on unconsolidated joint venture	—		14		—		—		—
	$	32,217	$	27,352	$	26,995	$	4,209	$	3,239

_____________________

⁽¹⁾ See “Deferral of Asset Management Fees” below.

⁽²⁾ Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cybersecurity related expenses incurred by the Advisor 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 $325,000 , $242,000 and $217,000 for the years ended December 31, 2018 , 2017 and 2016 , respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the years ended December 31, 2018 , 2017 and 2016 . 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. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

⁽³⁾ Reimbursement of operating expenses includes $3.1 million in professional fees incurred related to the assessment of strategic alternatives for the year ended December 31, 2018 . The Company and the Advisor have agreed to evenly divide certain costs and expenses related to the Company’s exploration and assessment of strategic alternatives.

⁽⁴⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net, in the accompanying consolidated statements of operations .

In connection with the Offering, Messrs. Bren, Hall, McMillan and Schreiber 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 Messrs. Bren, Hall, McMillan and Schreiber’s obligations under this indemnification agreement in exchange for reimbursement by Messrs. Bren, Hall, McMillan and Schreiber to the Company for all costs, expenses and premiums related to this supplemental coverage. During each of the years ended December 31, 2018 , 2017 and 2016 , the Advisor incurred $0.1 million for the costs of the supplemental coverage obtained by the Company.

For each of the years ended December 31, 2018 , 2017 and 2016 , the Advisor reimbursed the Company $0.2 million for property insurance rebates. During the year ended December 31, 2016, the Advisor and/or the Dealer Manager reimbursed the Company $0.1 million for legal and professional fees and travel expenses.

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December 31, 2018

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 Institute for Portfolio Alternatives (formerly known as the Investment Program Association) 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.

As of December 31, 2018 , the Company had accrued and deferred payment of $2.6 million of asset management fees under the Advisory Agreement, which were subsequently paid in February 2019.

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 commenced on October 1, 2015 and terminates on August 31, 2019. The annualized base rent, which represents annualized contractual base rental income as of December 31, 2018 , adjusted to straight-line any contractual tenant concessions (including free rent) and rent increases from the lease’s inception through the balance of the lease term, for this lease is approximately $0.2 million , and the average annual rental rate (net of rental abatements) over the lease term is $46.38 per square foot. During each of the years ended December 31, 2018 , 2017 and 2016 , the Company recognized $0.2 million of revenue related to this lease.

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.

During the years ended December 31, 2018 , 2017 and 2016 , no other business transactions occurred between the Company and KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, KBS Growth & Income REIT, the Advisor, the Dealer Manager or other KBS-affiliated entities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2018


10.	SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2018 and 2017 (in thousands, except per share amounts):



	2018
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Revenues	$	104,179	$	107,576	$	106,145		$	108,357
Net income (loss) attributable to common stockholders	$	16,630	$	17,749	$	(4,070	)	$	(26,982	)
Net income (loss) per common share attributable to common stockholders, basic and diluted	$	0.09	$	0.10	$	(0.02	)	$	(0.15	)
Distributions declared per common share ⁽¹⁾	$	0.160	$	0.162	$	0.164		$	0.164



	2017
	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
Revenues	$	105,400	$	103,019		$	102,558		$	103,072
Net income (loss) attributable to common stockholders	$	4,986	$	(1,568	)	$	(3,151	)	$	1,107
Net income (loss) per common share attributable to common stockholders, basic and diluted	$	0.03	$	(0.01	)	$	(0.02	)	$	0.01
Distributions declared per common share ⁽¹⁾	$	0.160	$	0.162		$	0.164		$	0.164

__________________

⁽¹⁾ Distributions declared per common share assumes each share was issued and outstanding each day during the respective periods from January 1, 2017 through December 31, 2018 . Each day during the periods from January 1, 2017 through December 31, 2018 was a record date for distributions. Distributions were calculated at the rate of $0.00178082 per share per day.


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.

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 December 31, 2018 .

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December 31, 2018


12.	SUBSEQUENT EVENTS

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

Distributions Paid

On January 2, 2019 , the Company paid distributions of $9.8 million , which related to distributions declared for daily record dates for each day in the period from December 1, 2018 through December 31, 2018 . Distributions for this period were calculated based on stockholders of record each day during this period at a rate of $0.00178082 per share per day. On February 4, 2019 , the Company paid distributions of $9.6 million , which related to distributions in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on January 18, 2019 . On March 1, 2019 , the Company paid distributions of $9.4 million , which related to distributions in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on February 18, 2019 .

Distributions Authorized

On March 12, 2019 , the Company’s board of directors authorized a March 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on March 18, 2019 , which the Company expects to pay in April 2019 , and an April 2019 distribution in the amount of $0.05416667 per share of common stock to stockholders of record as of the close of business on April 18, 2019 , which the Company expects to pay in May 2019 .

Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan.

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KBS REAL ESTATE INVESTMENT TRUST III, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2018

(dollar amounts in thousands)



					Initial Cost to Company									Gross Amount at which Carried at Close of Period
Description	Location	Ownership Percent	Encumbrances		Land		Building and Improvements ⁽¹⁾		Total		Cost Capitalized Subsequent to Acquisition ⁽²⁾			Land		Building and Improvements ⁽¹⁾		Total ⁽³⁾		Accumulated Depreciation and Amortization			Original Date of Construction	Date Acquired
Domain Gateway	Austin, TX	100%	$	⁽⁴⁾	$	2,850	$	44,523	$	47,373	$	3,045		$	2,850	$	47,568	$	50,418	$	(15,707	)	2009	09/29/2011
Town Center	Plano, TX	100%		⁽⁵⁾	7,428		108,547		115,975		286			7,428		108,833		116,261		(28,838		)	2001/2002/2006	03/27/2012
McEwen Building	Franklin, TN	100%		⁽⁴⁾	5,600		34,704		40,304		(3,106		)	5,600		31,598		37,198		(8,520		)	2009	04/30/2012
Gateway Tech Center	Salt Lake City, UT	100%		⁽⁴⁾	5,617		20,051		25,668		1,250			5,617		21,301		26,918		(6,598		)	1909	05/09/2012
Tower on Lake Carolyn	Irving, TX	100%		⁽⁶⁾	2,056		44,579		46,635		6,012			2,056		50,591		52,647		(11,839		)	1988	12/21/2012
RBC Plaza	Minneapolis, MN	100%		⁽⁵⁾	16,951		109,191		126,142		27,188			16,951		136,379		153,330		(38,103		)	1991	01/31/2013
One Washingtonian Center	Gaithersburg, MD	100%		⁽⁵⁾	14,400		74,335		88,735		3,615			14,400		77,950		92,350		(18,900		)	1990	06/19/2013
Preston Commons	Dallas, TX	100%		⁽⁵⁾	17,188		96,330		113,518		4,617			17,188		100,947		118,135		(23,497		)	1958/1986	06/19/2013
Sterling Plaza	Dallas, TX	100%		⁽⁵⁾	6,800		68,292		75,092		4,196			6,800		72,488		79,288		(13,388		)	1984	06/19/2013
201 Spear Street	San Francisco, CA	100%		125,000	40,279		85,941		126,220		15,463			40,279		101,404		141,683		(15,122		)	1984	12/03/2013
500 West Madison	Chicago, IL	100%		⁽⁵⁾	49,306		370,662		419,968		16,514			49,306		387,176		436,482		(70,635		)	1987	12/16/2013
222 Main	Salt Lake City, UT	100%		97,522	5,700		156,842		162,542		2,982			5,700		159,824		165,524		(30,781		)	2009	02/27/2014
Anchor Centre	Phoenix, AZ	100%		49,647	13,900		73,480		87,380		8,116			13,900		81,596		95,496		(15,127		)	1984	05/22/2014
171 17th Street	Atlanta, GA	100%		84,460	7,639		122,593		130,232		3,934			7,639		126,527		134,166		(27,715		)	2004	08/25/2014
Reston Square	Reston, VA	100%		29,479	6,800		38,838		45,638		955			6,800		39,793		46,593		(8,667		)	2007	12/03/2014
Ten Almaden	San Jose, CA	100%		⁽⁵⁾	7,000		110,292		117,292		7,271			7,000		117,563		124,563		(17,688		)	1988	12/05/2014
Towers at Emeryville	Emeryville, CA	100%		⁽⁵⁾	49,183		200,823		250,006		26,815			49,183		227,638		276,821		(32,950		)	1972/1975/1985	12/23/2014
101 South Hanley	St. Louis, MO	100%		43,090	6,100		57,363		63,463		8,806			6,100		66,169		72,269		(11,661		)	1986	12/24/2014
3003 Washington Boulevard	Arlington, VA	100%		90,378	18,800		129,820		148,620		2,530			18,800		132,350		151,150		(20,296		)	2014	12/30/2014
Village Center Station	Greenwood Village, CO	100%		⁽⁶⁾	4,250		73,631		77,881		(1,549		)	4,250		72,082		76,332		(10,609		)	2009	05/20/2015
Park Place Village	Leawood, KS	100%		⁽⁶⁾	11,009		117,070		128,079		(222		)	11,009		116,848		127,857		(18,096		)	2007	06/18/2015
201 17th Street	Atlanta, GA	100%		64,428	5,277		86,859		92,136		9,909			5,277		96,768		102,045		(14,293		)	2007	06/23/2015
Promenade I & II at Eilan	San Antonio, TX	100%		37,300	3,250		59,314		62,564		82			3,250		59,396		62,646		(9,629		)	2011	07/14/2015
CrossPoint at Valley Forge	Wayne, PA	100%		51,000	17,302		72,280		89,582		800			17,302		73,080		90,382		(11,947		)	1974	08/18/2015
515 Congress	Austin, TX	100%		⁽⁶⁾	8,000		106,261		114,261		6,738			8,000		112,999		120,999		(14,175		)	1975	08/31/2015
The Almaden	San Jose, CA	100%		93,000	29,000		130,145		159,145		10,800			29,000		140,945		169,945		(16,625		)	1980/1981	09/23/2015
3001 Washington Boulevard	Arlington, VA	100%		32,662	9,900		41,551		51,451		8,988			9,900		50,539		60,439		(4,916		)	2015	11/06/2015
Carillon	Charlotte, NC	100%		92,197	19,100		126,979		146,079		7,704			19,100		134,683		153,783		(18,025		)	1991	01/15/2016
Hardware Village ⁽⁷⁾	Salt Lake City, UT	99.24%		49,664	2,749		1,434		4,183		101,508			2,749		102,942		105,691		(1,405		)	N/A	08/26/2016
Village Center Station II ⁽⁸⁾	Greenwood Village, CO	100%		78,343	8,574		123,526		132,100		—			8,574		123,526		132,100		(1,238		)	2018	10/11/2018
		Total			$	402,008	$	2,886,256	$	3,288,264	$	285,247		$	402,008	$	3,171,503	$	3,573,511	$	(536,990	)

F-41

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2018

(dollar amounts in thousands)

____________________

⁽¹⁾ Building and improvements includes tenant origination and absorption costs and construction in progress.

⁽²⁾ Costs capitalized subsequent to acquisition is net of write-offs of fully depreciated/amortized assets and property damage.

⁽³⁾ The aggregate cost of real estate for federal income tax purposes was $3.8 billion (unaudited) as of December 31, 2018 .

⁽⁴⁾ As of December 31, 2018 , these properties served as the security for the Portfolio Revolving Loan Facility, which had an outstanding principal balance of $200.0 million .

⁽⁵⁾ As of December 31, 2018 , these properties served as the security for the Portfolio Loan Facility, which had an outstanding principal balance of $893.5 million .

⁽⁶⁾ As of December 31, 2018 , these properties served as the security for the Portfolio Loan, which had an outstanding principal balance of $84.5 million .

⁽⁷⁾ On August 26, 2016, the Company, through an indirect wholly-owned subsidiary, entered into the Hardware Village Joint Venture to develop and subsequently operate a multifamily apartment complex, located on the developable land at Gateway Tech Center. The Company owns a 99.24% equity interest in the joint venture. In July 2018, one of the two buildings consisting of 265 units was placed into service.

⁽⁸⁾ O n March 3, 2017, the Company acquired a 75% equity interest in an existing company and created a joint venture with an unaffiliated developer to develop and subsequently operate Village Center Station II. On October 11, 2018, the Company purchased the developer’s 25% equity interest and accounted for Village Center Station II on a consolidated basis, recording the real estate at fair value. The initial cost to the Company of $132.1 million reflects the fair value of the real estate upon acquisition of the developer’s interest.

F-42

Table of Contents

KBS REAL ESTATE INVESTMENT TRUST III, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION (CONTINUED)

December 31, 2018

(dollar amounts in thousands)



	2018			2017			2016
Real Estate: ⁽¹⁾
Balance at the beginning of the year	$	3,403,500		$	3,333,649		$	3,134,155
Acquisitions	132,100			—			149,745
Improvements	84,362			92,003			67,328
Construction in progress	35,518			45,973			16,680
Write off of fully depreciated and fully amortized assets	(48,388		)	(59,724		)	(34,259		)
Loss due to property damage	—			(8,401		)	—
Sale	(33,581		)	—			—
Balance at the end of the year	$	3,573,511		$	3,403,500		$	3,333,649
Accumulated depreciation and amortization: ⁽¹⁾
Balance at the beginning of the year	(441,366		)	$	(344,794	)	$	(222,431	)
Depreciation and amortization expense	(149,569		)	(156,296		)	(156,622		)
Write off of fully depreciated and fully amortized assets	48,388			59,724			34,259
Sale	5,557			—			—
Balance at the end of the year	$	(536,990	)	$	(441,366	)	$	(344,794	)

_____________________

⁽¹⁾ Amounts include properties held for sale.

F-43

Table of Contents


ITEM 16.	FORM 10-K SUMMARY

None.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Newport Beach, State of California, on March 13, 2019.



	KBS REAL ESTATE INVESTMENT TRUST III, INC.

	By:	/s/ Charles J. Schreiber, Jr.
		Charles J. Schreiber, Jr.
		Chairman of the Board, Chief Executive Officer and Director
		(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



Name	Title	Date

/s/ CHARLES J. SCHREIBER, JR.	Chairman of the Board, Chief Executive Officer and Director (principal executive officer)	March 13, 2019
Charles J. Schreiber, Jr.
/s/ JEFFREY K. WALDVOGEL	Chief Financial Officer, Treasurer and Secretary (principal financial officer)	March 13, 2019
Jeffrey K. Waldvogel
/s/ PETER M. BREN	President and Director	March 13, 2019
Peter M. Bren
/s/ STACIE K. YAMANE	Chief Accounting Officer and Assistant Secretary (principal accounting officer)	March 13, 2019
Stacie K. Yamane
/s/ BARBARA R. CAMBON	Director	March 13, 2019
Barbara R. Cambon
/s/ JEFFREY A. DRITLEY	Director	March 13, 2019
Jeffrey A. Dritley
/s/ STUART A. GABRIEL, PH.D.	Director	March 13, 2019
Stuart A. Gabriel, Ph.D.

Exhibit 10.15

TERM LOAN AGREEMENT

by and among

KBSIII DOMAIN GATEWAY, LLC; KBSIII 515 CONGRESS, LLC; KBSIII 155 NORTH 400 WEST, LLC; and KBSIII 1550 WEST MCEWEN DRIVE, LLC,

as Borrowers

And

U.S. BANK NATIONAL ASSOCIATION,

a national banking association,
as Administrative Agent

And

THE LENDERS REFERENCED HEREIN



SMRH:487569780.11

TABLE OF CONTENTS



		Page

ARTICLE I DEFINITIONS AND INTERPRETATIONS		1
Section 1.1	Definitions	1
Section 1.2	Singular and Plural Terms	24
Section 1.3	Accounting Principles	24
Section 1.4	References and Other Terms	24
Section 1.5	Exhibits Incorporated	24
Section 1.6	Inconsistency	24

ARTICLE II LOAN		24
Section 2.1	Principal	24
Section 2.2	Interest	25
Section 2.3	Payments	26
Section 2.4	Prepayment	27
Section 2.5	Regulatory Change; Conversion of Interest Rate	27
Section 2.6	Changes in Capital Adequacy Regulation	29
Section 2.7	Fees	29
Section 2.8	First Extension of Maturity Date	29
Section 2.9	Second Extension of Maturity Date	30
Section 2.10	Taxes	31
Section 2.11	Selection of Lending Installation; Mitigation Obligations; Lender Statements; Survival of Indemnity	35
Section 2.12	Replacement of Lender	35
Section 2.13	Indemnification of Administrative Agent and the Lenders	1

ARTICLE III CONIDITONS TO CLOSING AND ADVANCES		37
Section 3.1	No Obligation to Close or Advance	37
Section 3.2	Conditions to Closing	37
Section 3.3	Conditions Precedent to Initial Advance	40
Section 3.4	Conditions Precedent to All Advances	40
		37
ARTICLE IV ADVANCES		42
Section 4.1	General	42
Section 4.2	No Waiver	43
Section 4.3	Advance of Sums Due to Lenders	43
Section 4.4	[Reserved.]	43
Section 4.5	Availability Amount	43
Section 4.6	Waiver of Disbursement Condition	43
Section 4.7	All Advances Secured by Security Instruments	43
ARTICLE V REPRESENTATIONS AND WARRANTIES		44

Section 5.1	Borrowers' and Guarantor's Formation and Powers	44
Section 5.2	Authority	44
Section 5.3	No Approvals	44
Section 5.4	Legal and Valid Obligations	45
Section 5.5	Litigation	45
Section 5.6	Title	45



SMRH:487569780.11	- i -



Section 5.7	Defects and Hazards	46
Section 5.8	Payment of Taxes	46
Section 5.9	Agreements	46
Section 5.10	No Defaults under Loan Documents or Other Agreements	46
Section 5.11	Boundary Lines; Conformance with Governmental Requirements and Restrictions; Utilities	47
Section 5.12	Personal Property	47
Section 5.13	Condemnation	47
Section 5.14	Separate Lots	47
Section 5.15	Federal Reserve Regulations	47
Section 5.16	Investment Company Act	48
Section 5.17	Unregistered Securities	48
Section 5.18	Accuracy of Information	48
Section 5.19	ERISA Compliance	48
Section 5.20	Consents	48
Section 5.21	Reserved	49
Section 5.22	Anti-Corruption Laws; Sanctions	49
Section 5.23	Subsidiaries	49
Section 5.24	Leases	49
Section 5.25	Property Management Agreements	49
Section 5.26	Alterations	49
Section 5.27	Solvency	50
Section 5.28	Ownership and Control of Borrowers	50
Section 5.29	Brokers	50
Section 5.30	Use of Loan Proceeds	50
Section 5.31	Purchase Options	50
Section 5.32	FIRPTA	50
Section 5.33	Eligible Contract Participant	50
Section 5.34	EEA Financial Institution	50

ARTICLE VI COVENANTS OF BORROWERS		51
Section 6.1	Responsibility for Improvements	51
Section 6.2	[Intentionally Deleted]	51
Section 6.3	Title to the Projects	51
Section 6.4	Using Loan Proceeds	52
Section 6.5	Keeping of Records	52
Section 6.6	Providing Updated Surveys	52
Section 6.7	Property Management Agreement	52
Section 6.8	Maintaining Insurance Coverage	52
Section 6.9	Transferring, Conveying or Encumbering the Land, Equipment, Improvements or Interests in Borrowers; Change of Control	52
Section 6.10	Required Minimum Non-Revolving Portion Funded Amount	53
Section 6.11	Updated Appraisals	53
Section 6.12	Inspections	54
Section 6.13	Guarantor Financial Covenants	54
Section 6.14	[Reserved.]	54
Section 6.15	Reporting Requirements	54



SMRH:487569780.11	- ii -



Section 6.16	Taxes and Claims	56
Section 6.17	Maintain Existence	56
Section 6.18	Compliance with Governmental Requirements	56
Section 6.19	Notice	56
Section 6.20	No Other Debt	56
Section 6.21	Merger and Consolidation	57
Section 6.22	Loss of Note or other Loan Documents	57
Section 6.23	Project Accounts	57
Section 6.24	Fees and Expenses	57
Section 6.25	Distributions	58
Section 6.26	Permits, Approvals and Licenses	58
Section 6.27	Compliance with Laws; Anti-Money Laundering Laws	58
Section 6.28	Related Party Transactions	59
Section 6.29	Lease Approval Rights	59
Section 6.30	Single Purpose Entity Provisions	59
Section 6.31	Swap Transaction	60
Section 6.32	Mandatory Principal Payments	60
Section 6.33	[Reserved.]	60
Section 6.34	Personal Property	60
Section 6.35	Further Assurances	61
Section 6.36	Estoppel Statements	61
Section 6.37	[Intentionally Deleted]	61
Section 6.38	Zoning; Assessment Districts	61
Section 6.39	ERISA Compliance	62

ARTICLE VII COVENANTS REGARDING OPERATING ACCOUNTS; SECURITY AGREEMENT		62
Section 7.1	[Intentionally Deleted]	62
Section 7.2	Operating Account	62
Section 7.3	Security Agreement for Operating Account	62

ARTICLE VIII DEFAULTS		63
Section 8.1	Events of Default	63
Section 8.2	Rights and Remedies	65
Section 8.3	Application of Funds	66
Section 8.4	Rights to Cure Defaults and Protection of Collateral	67
Section 8.5	[Intentionally Deleted.]	67
Section 8.6	Acceptance of Payments	67

ARTICLE IX ADMINISTRATIVE AGENT; INTERCREDITOR PROVISIONS		68
Section 9.1	Appointment; Nature of Relationship	68
Section 9.2	Powers	68
Section 9.3	General Immunity	68
Section 9.4	No Responsibility for Advances, Recitals, etc.	68
Section 9.5	Action on Instructions of Lenders	69
Section 9.6	Employment of Administrative Agent and Counsel	69
Section 9.7	Reliance of Documents; Counsel	69
Section 9.8	Protective Advances	69



SMRH:487569780.11	- iii -



Section 9.9	Foreclosure	70
Section 9.10	Administrative Agent's Reimbursement and Indemnification	71
Section 9.11	Notice of Event of Default	71
Section 9.12	Rights as a Lenders	71
Section 9.13	Lender Credit Decision, Legal Representation	72
Section 9.14	Successor Administrative Agent	72
Section 9.15	Delegation to Affiliates	73
Section 9.16	Borrower, Collateral and Guarantor Releases	73
Section 9.17	No Advisory or Fiduciary Responsibility	73
Section 9.18	Documentation Agent, Syndication Agent, etc.	74
Section 9.19	Pro Rata Treatment	74
Section 9.20	Security Interest in Deposits	74
Section 9.21	Ratable Payments	75
Section 9.22	Defaulting Lenders	75
Section 9.23	Special Advances	76
Section 9.24	Certain ERISA Matters	77

ARTICLE X MISCELLANEOUS		78
Section 10.1	General Indemnities	78
Section 10.2	Binding Effect; Waivers; Cumulative Rights and Remedies	79
Section 10.3	Reduction of Aggregate Commitment	80
Section 10.4	Survival	80
Section 10.5	Governing Law; Waiver of Jury Trial; Jurisdiction	80
Section 10.6	Counterparts	81
Section 10.7	Notices	81
Section 10.8	Administrative Agent's Sign	82
Section 10.9	No Third Party Reliance	82
Section 10.10	Assignments	82
Section 10.11	Participants	84
Section 10.12	Amendments	85
Section 10.13	Joint Borrower Provisions	86
Section 10.14	Time of Essence	90
Section 10.15	Entire Agreement; No Oral Modifications	37
Section 10.16	Captions	94
Section 10.17	Borrower-Lender Relationship	94
Section 10.18	Joint and Several Liability	94
Section 10.19	Severability	94
Section 10.20	[Reserved.]	94
Section 10.21	[Reserved.]	94
Section 10.22	Defenses	94
Section 10.23	Designated Representative(s)	94
Section 10.24	Document Imaging, Electronic Transactions and the UETA	94
Section 10.25	Swap Transactions	95
Section 10.26	USA PATRIOT ACT NOTIFICATION	95
Section 10.27	Confidentiality	95
Section 10.28	Acknowledgment and Consent to Bail-In of EEA Financial Institutions	96



SMRH:487569780.11	- iv -



Section 10.29	Possible Increase in the Aggregate Commitment	96
Section 10.30	Additional Project Collateral	98
Section 10.31	Releases of Projects	102
Section 10.32	Collateral Documents	104
Section 10.33	Limited Recourse Provision	104
Section 10.34	Release of a Borrower	104
Section 10.35	Civil Code Section 2822 Waiver	105



SMRH:487569780.11	- v -

SCHEDULES



SCHEDULE 1			Pricing Commitments

EXHIBITS



EXHIBIT A		Improvements
EXHIBIT B-1		Legal Description – Domain Gateway Project
EXHIBIT B-2		Legal Description – Congress Project
EXHIBIT B-3		Legal Description – 155 North 400 West Project
EXHIBIT B-4		Legal Description – 1550 West McEwen Drive Project
EXHIBIT C		Permitted Encumbrances
EXHIBIT D		[Reserved]
EXHIBIT E		Financial Covenant Compliance Certificate Form
EXHIBIT F		Reserved
EXHIBIT G-1		Legal Description – Domain Gateway Project
EXHIBIT G-2		Legal Description – Congress Project
EXHIBIT G-3		Legal Description – 155 North 400 West Project
EXHIBIT G-4		Legal Description – 1550 West McEwen Drive Project
EXHIBIT H		Commercial Real Estate Standard Insurance Requirements
EXHIBIT I		Form of Promissory Note
EXHIBIT J		Form of Assignment and Assumption Agreement
EXHIBIT K		Assumption and Joinder Agreement
EXHIBIT L		List of Leases



SMRH:487569780.11	- vi -

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT (this " Agreement ") is made and entered into this October 17, 2018, by and among KBSIII DOMAIN GATEWAY, LLC; KBSIII 515 CONGRESS, LLC; KBSIII 155 NORTH 400 WEST, LLC; and KBSIII 1550 WEST MCEWEN DRIVE, LLC (collectively, the " Initial Borrowers "), (ii) U.S. BANK NATIONAL ASSOCIATION, a national banking association (" U.S. Bank ") in its capacity as Administrative Agent (hereinafter defined), and (iii) the Lenders (as hereinafter defined).

Borrowers have requested that the Lenders provide the Loan (as hereinafter defined) to Borrowers in the initial principal sum of up to $215,000,000.00 for the purposes set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the Advances (as hereinafter defined) to be made by Administrative Agent and the Lenders pursuant to this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATIONS

Section 1.1 Definitions . For purposes of this Agreement, the following terms have the following respective meanings, unless the context hereof clearly requires otherwise:

" 155 North 400 West Project ": Means the Land, Equipment and Improvements, and all other property, relating to the real property described in Exhibit B-3 hereto.

" 1550 West McEwen Drive Project ": Means the` Land, Equipment and Improvements, and all other property, relating to the real property described in Exhibit B-4 hereto.

" Accessibility Laws ": Means any Laws, including under the ADA, relating to accessibility to facilities or properties for disabled, handicapped and/or physically challenged persons, or other persons covered by the ADA.

" Accordion Option ": Has the meaning set forth in Section 10.29 .

" ADA ": Means the United States Americans With Disabilities Act of 1990, as amended from time to time, and any successor statute, and any regulations promulgated thereunder from time to time.

" Additional Project(s) ": Has the meaning set forth in Section 10.30 , and shall be deemed to include all Land, Improvements, Equipment and all other collateral described in the Security Instrument encumbering such property.

" Administrative Agent ": Means U.S. Bank in its capacity as contractual representative of the Lenders pursuant to Article IX , and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article IX .

-1-

" Administrative Questionnaire ": Means the Administrative Questionnaire completed by each Lender and delivered to Administrative Agent in a form supplied by Administrative Agent to the Lenders from time to time.

" Advance(s) ": Means any portion of the Loan advanced by the Lenders on the same Borrowing Date to or for the benefit of Borrowers as required or permitted under this Agreement or any other Loan Document.

" Affected Lender ": Has the meaning given to such term in Section 2.12 .

" Affiliate ": Means, as to any Person, any other Person (a) directly or indirectly Controlling, Controlled by or under common Control with such Person, or (b) that is a director or officer of such Person or an Affiliate of such Person.

" Aggregate Commitment ": Means, as of any date of determination, the aggregate Commitments of all of the Lenders. Initially, the Aggregate Commitment will be $215,000,000, consisting of the Revolving Portion plus the Non-Revolving Portion (subject to possible increase in accordance with the exercise of the Accordion Option under Section 10.29 hereof) less the amount of any principal paydowns of the Non-Revolving Portion, and the undisbursed Loan proceeds, if any, that have been cancelled by the Borrower in writing in accordance with the terms and conditions of this Agreement including, without limitation, the provisions set forth in Section 10.3 .

" Agreement ": Has the meaning given to such term in the introductory paragraph hereof.

" Alteration Threshold ": Means, as to each Project, One Million Dollars ($1,000,000.00).

" Alternate Base Rate ": Means, for any day, a rate of interest per annum equal to the highest of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum. For the avoidance of doubt, if the Alternate Base Rate will be less than zero, the Alternate Base Rate will be deemed to be zero for purposes of this Agreement.

" Annualized Net Operating Income ": Means annualized Net Operating Income before payment of debt service from the Projects securing the Loan as of the date of calculation, calculated by annualizing the Net Operating Income for the immediately preceding prior two calendar quarters; provided that if the Debt Service Coverage Ratio is being calculated within 60 days after the end of a calendar quarter (and prior to the quarterly reporting for the most recent calendar quarter end being available and/or delivered to Administrative Agent), the Net Operating Income shall be calculated by looking at the Net Operating Income during the two calendar quarters preceding the immediately prior calendar quarter; e.g., if the most recent calendar quarter end reporting is not yet delivered to Administrative Agent and the Debt Service Coverage Ratio is being calculated on January 10, 2019, the six-month period (if that is the relevant calculation period under the following provisions of this definition) would be the period commencing on April 1, 2018 and ending on September 30, 2018, and if the Debt Service Coverage Ratio is being calculated on March 20, 2019, the six-month period would be the period commencing on July 1, 2018, and ending on December 31, 2018). Notwithstanding the

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foregoing, if any Project has been owned by a Borrower for less than the entire applicable foregoing six-month period, then Net Operating Income for such Project shall be calculated by annualizing the Net Operating Income for such Project for the portion of such period during which a Borrower owned such Project. In addition, until a Project has secured the Loan for one full calendar quarter, the Net Operating Income for that Project shall be calculated using the Administrative Agent's underwritten projected year one Rental Income and Operating Expenses for such Project based on the Appraisal obtained for such Project (e.g., if an Additional Project is added in accordance with Section 10.30 on June 15, 2019, this sentence would apply to such Additional Project until September 30, 2019).

" Anti-Corruption Laws ": Means any Laws of any jurisdiction applicable to any Borrower, Guarantor or their respective Affiliates or Subsidiaries from time to time concerning or relating to bribery or corruption.

" Applicable Margin ": Means one hundred fifty (150) basis points (1.50%.).

" Appraisal ": Means an appraisal meeting the Required Appraisal Standard.

" Approved Lease ": Has the meaning set forth in "Availability Amount".

" Assignment and Assumption ": Means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.10 ) and accepted by Administrative Agent, in the form of Exhibit J or any other form approved by Administrative Agent.

" Assignment and Subordination of Management Agreement ": Means, collectively, each Assignment and Subordination of Management Agreement and Management Fees by and among the respective Property Manager, each Borrower and Administrative Agent, for the benefit of itself and the Lenders, as the same may be amended, modified or supplemented from time to time.

" Availability Amount ": Means the lesser of (a) the Aggregate Commitment (as such amount may from time-to-time be increased or decreased in accordance with the terms of this Agreement), (b) the Borrowing Base Amount, and (c) until the One West Premises is re-tenanted to stabilized occupancy per the most recent Appraisal approved by Administrative Agent pursuant to one or more Leases (entered into in accordance with Section 6.29) ("Approved Lease"), $200,000,000.

" Availability Period ": Has the meaning given such term in Section 3.1 .

" Bail-In Action ": Means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

" Bail-In Legislation ": Means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

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" Bankruptcy Code ": Means Title 11 of the United States Code, as the same may be amended or replaced from time to time.

" Base Rate ": Means, for any day, a rate per annum equal to (i) the Alternate Base Rate plus (ii) the Applicable Margin, in each case, changing when and as the Alternate Base Rate Changes.

" Beneficial Ownership Certification ": Means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.

" Beneficial Ownership Regulation ": Means 31 C.F.R. § 1010.230.

" Borrower " or " Borrowers ": Shall mean, individually and collectively as the context may require, each Initial Borrower and each New Borrower that executes a Joinder Agreement and thereby becomes a Borrower hereunder pursuant to the provisions of Section 10.30 hereof. Unless otherwise specified, as used herein, the term "Borrower" and "Borrowers" shall mean each Borrower individually and all Borrowers collectively, and jointly and severally, using an interpretation most favorable to Administrative Agent and Lenders.

" Borrower's Organizational Documents ": Means, (i) with respect to each Initial Borrower, such Borrower's limited liability company agreement and related formation documents, and (ii) with respect to each Additional Borrower, the formation and organizational documents of such Additional Borrower delivered to Administrative Agent prior to such Additional Borrower's execution and delivery of the applicable Joinder Agreement, including any amendments thereof and supplements to any of the foregoing.

" Borrowing Base Amount ": Shall mean the lesser of (a) the product obtained by multiplying the Maximum Borrowing Base Leverage Ratio by the Borrowing Base Value (provided that at Administrative Agent’s election, such amount determined under this subparagraph (a) may be capped should the Borrowing Base Amount associated with the admittance of a single project exceed $75,000,000 (which cap shall be determined at the time of admittance of any such Project as collateral for the Loan), and such Borrowing Base Amount for such Project shall remain capped at such amount unless otherwise approved by Administrative Agent), and (b) the Loan balance resulting in a Debt Service Coverage Ratio equal to the Minimum Borrowing Base DSCR, calculated by dividing (i) Annualized Net Operating Income for the Projects then securing the Loan by (ii) the product obtained by multiplying (A) the Minimum Borrowing Base DSCR by (B) the Borrowing Base Loan Constant.

" Borrowing Base Loan Constant ": Shall mean the greater of (i) a loan constant of 0.0739 (which is based on an interest rate of six and one-quarter percent (6.25%) per annum and principal amortization based on a 30-year amortization schedule), and (ii) a loan constant, expressed as a decimal, based on an interest rate of one and three-quarters percent (1.75%) per annum in excess of the Treasury Rate as of the date of calculation, and principal amortization based on a 30-year amortization schedule, as reasonably determined by Administrative Agent.

" Borrowing Base Value ": Shall mean the aggregate value of the Projects securing the Loan as of the date of calculation, subject to the adjustments set forth below in this definition. The value of each Project shall be (a) as to the Projects owned by Borrowers for 12 months or

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more, the then-current "As-Is" appraised value of the Project, based on the most recent Appraisal for such Project, provided, however, if the One West Premises is re-tenanted to at least 85% occupancy at rents equal to at least $30 per rentable square foot on or before September 1, 2020, the value of the Domain Gateway Project shall be based on the as-stabilized appraised value per the CBRE Appraisal report dated September 12, 2018, with File Number 18-361HO-4768-1, provided if a new Appraisal is obtained after re-tenanting of the One West Premises, the Borrowing Base Value for the Domain Gateway Project will thereafter be the then-current "As-Is" appraised value of the Project and (b) as to the Projects owned less than 12 months, the lesser of (i) the undepreciated cost basis (which shall include any applicable closing costs and capital expenses, tenant improvements and leasing commissions paid), and (ii) the then current "as-is" appraised value of the Projects based on the most recent appraisals for such Projects. Borrower may request (in its sole discretion) that Administrative Agent reappraise any Project and in connection therewith order new Appraisals from time to time (but in no event more than once in any six-month period). Borrower shall pay the costs of any and all such Appraisals within ten days of written demand by Administrative Agent. In addition to any of the rights of Administrative Agent or Lenders hereunder to order Appraisals, Administrative Agent may at any time and from time to time order new Appraisals of the Projects during the existence of an Event of Default, and Borrower shall pay the costs of any and all such Appraisals within ten days of written demand by Administrative Agent. In addition, (unless otherwise approved by Administrative Agent) the Borrowing Base Value shall be subject to the following adjustments:

(a) If the aggregate value of Projects with Improvements consisting of a single tenant building exceeds thirty-five percent (35%) of the Borrowing Base Value, then the aggregate value attributed to such Projects for purposes of calculating the Borrowing Base Value shall be reduced to an amount so that the aggregate value of such single-tenant Projects used in determining the Borrowing Base Value does not exceed thirty-five percent (35%) of the Borrowing Base Value.

(b) If the Borrowing Base Value (prior to adjustment pursuant to this paragraph (b)) exceeds $200,000,000 and if the aggregate value of Projects located within the same Metropolitan Statistical Area ("MSA"), based on the then-current delineation of MSAs as designated by the United States Office of Management and Budget, exceeds fifty percent (50%) of the Borrowing Base Value (prior to adjustment under this subparagraph (b)), then, unless otherwise approved by Administrative Agent, the aggregate value attributed to such Projects for purposes of calculating the Borrowing Base Value shall be reduced so that the aggregate value of the Projects located in the same MSA used in determining the Borrowing Base Value does not exceed 50% of the total Borrowing Base Value. Notwithstanding the foregoing, the threshold applied to the Austin-Round Rock, TX Metropolitan Statistical Area shall be 70% of the Borrowing Base Value until after any future addition or removal of a Project as collateral securing the Loan causes the aggregate value of Projects located within the Austin-Round Rock, TX Metropolitan Statistical Area to be 50% or less of the Borrowing Base Value. For the avoidance of doubt, until the 50% threshold applies to the Austin-Round Rock, TX Metropolitan Statistical Area, Borrower will not be permitted to add a Project within the Austin-Round Rock, TX Metropolitan Statistical Area unless otherwise approved by Administrative Agent.

(c) If the Borrowing Base Value exceeds $200,000,000 and if the aggregate value of Leasehold Projects exceeds twenty percent (20%) of the Borrowing Base Value, then, unless

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otherwise approved by Administrative Agent, the aggregate value attributed to such Leasehold Projects for purposes of calculating the Borrowing Base Value shall be reduced by a sufficient amount such that the aggregate value of the Leasehold Projects used in determining the Borrowing Base Value does not exceed 20% of the Borrowing Base Value).

" Borrowing Date ": Means a date on which an Advance is made hereunder or under any other Loan Document.

" Business Day ": Means any day other than a Saturday or Sunday, or a legal holiday on which Administrative Agent is not open for business, provided (i) with respect to any borrowing, payment or rate selection of any Advances which bears interest at the LIBOR Based Rate, a day on which banks generally are open in New York City, New York and London, England for the conduct of substantially all of their commercial lending activities, interbank wire transfers can be made on the Fedwire system and dealings in Dollars are carried on in the London interbank market and (ii) for all other purposes, a day on which banks generally are open in New York City, New York for the conduct of substantially all of their commercial lending activities.

" Capitalized Lease Obligations ": Means any obligation of any Borrower to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligation is, or in accordance with GAAP (including Accounting Standards codification Topic 840, Leases of the Financial Accounting Standards Board) is required to be, classified and accounted for as a capital lease on a balance sheet of Borrower at the time incurred; and for purposes of this Agreement the amount of each Capitalized Lease Obligation is the capitalized amount thereof determined in accordance with GAAP.

" Change ": Means (a) any change after the Closing Date in the Risk-Based Capital Guidelines, or (b) any adoption of or change in any other Laws or in any governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) or in the interpretation, promulgation, implementation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof. Notwithstanding anything to the contrary in this Agreement, for purposes of this definition and Agreement, all requests, rules, guidelines or directives in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act will be deemed to be a Change regardless of the date enacted, adopted or issued and all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) or the United States financial regulatory authorities will be deemed to be a Change regardless of the date enacted, adopted, issued, promulgated or implemented.

" Change of Control ": Means (a) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934) of 10% or more of the outstanding membership interests or other ownership interests of any Borrower on a fully diluted basis; (b) any change in the ownership of a Controlling interest partners, shareholders or members in any Borrower or any Guarantor, any addition to, withdrawal of or other change in the partners, shareholders or members in any Borrower or any Guarantor, any addition to, or any sale or transfer of, or other change in the ownership of, any general partnership or interest in any Borrower or any Guarantor, or any

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change in the limited partners in, or sale or transfer of any limited partnership interest in, any Borrower, unless said interests are publicly traded, or change in the manager of any Borrower; or (c) within any twelve-month period, occupation of a majority of the seats (other than vacant seats) on the board of directors of any Borrower by Persons who were neither (x) nominated by the board of directors of any Borrower nor (y) appointed or approved by directors so nominated.

" Closing Date ": Means October 17, 2018.

" Code ": Means the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

" Collateral ": Means (a) all of the collateral covered by a Security Instrument, this Agreement or any other Loan Document, and (b) all accessions to, substitutions for and replacements, products and proceeds of any of the foregoing, including proceeds of any insurance policies, claims against third parties, and condemnation or requisition payments with respect to all or any of the foregoing.

" Commitment ": Means, for each Lender, the obligation of such Lender to make disbursements (on a Pro Rata Share basis) of a portion of the Loan to Borrowers, on a revolving basis as to the Revolving Portion, in an amount (at any one time outstanding) not exceeding the amount set forth in Schedule 1 , as such commitment may be (a) increased in accordance with Section 10.29 , (b) reduced in accordance with Section 10.3 and any principal reductions otherwise required under and pursuant to the Loan Documents, and (c) modified from time to time as a result of an assignment that has become effective pursuant to Section 10.10 or otherwise pursuant to the terms hereof.

" Commodity Exchange Act ": Means the Commodity Exchange Act (7 U.S.C. § 1 et seq .), as amended from time to time, and any successor statute, and any regulations promulgated thereunder from time to time.

" Congress Project ": Means the Land, Equipment and Improvements, and all other property, relating to the real property described in Exhibit B-2 hereto.

" Contingent Liabilities ": Means, with respect to any Borrower or Guarantor, as the case may be, all of any such Person's liabilities and obligations for moneys borrowed or payments of moneys owed on claims which have been liquidated in amount, which are contingent upon and will not mature unless and until the occurrence of some event or circumstance, including such Person's liability under or with regard to guaranties and indemnities, purchase agreements, letters of credit, and recourse indebtedness on projects sold to other Persons.

" Control ": Means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or activities of such Person, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise. For the purposes of this definition, a Person is deemed to "Control" another Person if such controlling Person owns 10% or more of any class of voting securities or

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other ownership interests of such controlled Person. " Controlled " and " Controlling " have correlative meanings.

" Debt Service Coverage Ratio ": Shall mean a fraction, the numerator of which is the Annualized Net Operating Income, and the denominator of which is the product obtained by multiplying (a) the outstanding principal balance of the Loan as of the date of calculation by (b) the Borrowing Base Loan Constant.

" Default ": Means any event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default.

" Defaulting Lender ": Means, subject to Section 9.22(b) , any Lender that (a) has failed to (i) fund all or any portion of its Pro Rata Share of any Advance within two (2) Business Days after the date such Advance was required to be funded hereunder unless such Lender notifies Administrative Agent and Borrowers in writing that such failure is the result of such Lender's determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, must be specifically identified in such writing) has not been satisfied or waived, (ii) reimburse Administrative Agent for its Pro Rata Share of any Protective Advance within two (2) Business Days after notice from Administrative Agent, or (iii) pay to Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days after the date when due, (b) has notified Borrowers or Administrative Agent in writing that it will not intend to comply with its funding obligations hereunder or has made a public statement to that effect (unless such writing or public statement relates to such Lender's obligation to fund an Advance hereunder and states that such position is based on such Lender's determination that a condition precedent to funding (which condition precedent, together with any applicable default, must be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by Administrative Agent or Borrowers, to confirm in writing to Administrative Agent and Borrowers that it will comply with its prospective funding obligations hereunder (provided that such Lender will cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by Administrative Agent and Borrowers), or (d) has, or has a direct or indirect parent company that has, (i) become subject of a proceeding under the Bankruptcy Code, or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect, (ii) has appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation or its business or assets (other than an Undisclosed Administration), including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such capacity, or (iii) become the subject of a Bail-In Action; provided that a Lender will not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest will not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above will

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be conclusive and binding absent manifest error, and such Lender will be deemed to be a Defaulting Lender (subject to Section 9.22(b) ) upon delivery of written notice of such determination to Borrowers and each Lender.

" Default Rate ": Means the lesser of 5% per annum in excess of the Loan Rate or the maximum lawful rate of interest which may be charged, if any.

" Designated Representative ": Has the meaning set forth in Section 10.23 .

" Domain Gateway Project ": Means the Land, Equipment and Improvements, and all other property, relating to the real property described in Exhibit B-1 hereto.

" EEA Financial Institution ": Means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

" EEA Member Country ": Means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

" EEA Resolution Authority ": Means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

" Eligible Assignee ": Means (i) a Person (or its direct or indirect parent) shall be either (A) a commercial lender organized under the laws of the United States, or any state thereof, and having total assets in excess of Two Billion Dollars ($2,000,000,000) or (B) a commercial bank organized under the laws of any other country which has total assets in excess of Ten Billion Dollars ($10,000,000,000) or (C) any other financial institution which has total assets in excess of Ten Billion Dollars ($10,000,000,000); and (ii) the senior unsecured debt of such assignee (or its direct or indirect parent) shall have a rating of Baa 2 (stable outlook) or higher from Moody's Investors Service, Inc. or a comparable rating agency.

" Environmental Insurance Policy ": Means, collectively, the environmental insurance policy or policies covering any or all of the Projects, in form and substance reasonably acceptable to Administrative Agent, naming Administrative Agent (on behalf of Lenders) as additional insured.

" Environmental Law ": Means all federal, state, regional, county and local statutes, regulations, ordinances, rules, regulations and policies, all court and administrative orders and decrees and arbitration awards, and the common law, which pertain to environmental matters or contamination of any type whatsoever, including those relating to the presence, manufacture, processing, use, distribution, treatment, storage, disposal, generation or transportation of Hazardous Substances; air, water (including surface water, groundwater, and stormwater) or soil (including subsoil) contamination or pollution; the presence or Release of Hazardous Substances, protection of wildlife, endangered species, wetlands or natural resources; health and

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safety of employees and other persons; and notification requirements relating to the foregoing, including the following statutes, and regulations adopted thereunder: the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq .; RCRA; the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. § 1251 et seq .; the Clean Air Act, as amended, 42 U.S.C. § 7401 et seq .; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq .; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq .; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq . ; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq .; the Occupational Safety and Health Act, 19 U.S.C. § 6251 et seq .; the applicable provisions of the California Health and Safety Code (including, without limitation, Sections 25220 et. seq.); and the California Water Code (or similar law); and any similar or like laws in any other jurisdiction where any Project is located, as each of the foregoing may be amended from time to time.

" Environmental Liability ": Means any claim, demand, obligation, cause of action, allegation, order, violation, damage, injury, judgment, penalty or fine, cost of enforcement, cost of remedial action, diminution in value or any other cost or expense whatsoever, including reasonable attorneys' fees and disbursements, resulting from the presence or use of Hazardous Substances, the violation or alleged violation of any Environmental Law, or the imposition of any Environmental Lien.

" Environmental Lien ": Means a Security Interest in favor of any Person for: (a) any liability under an Environmental Law; or (b) damages arising from or costs incurred by such Person in response to any actual or threatened Release.

" Environmental Report ": Means, (i) with respect to the Domain Gateway Project, the Phase I Environmental Site Assessment dated August 2011 (Domain Gateway), prepared by Environ International Corporation, Project No. 04-5242GI, (ii) with respect to the Congress Project, the Phase I Environmental Site Assessment prepared by RAMBOLL Environ US Corporation, Project No. 045242IL, dated August 18, 2015, (iii) with respect to the 155 North 400 West Project, the Phase I Environmental Site Assessment dated March 2012 (Salt Lake Hardware), prepared by Environ International Corporation, Project No. 04-5242GT, (iv) with respect to the 1550 West McEwen Drive Project, (1) the Phase I Environmental Site Assessment (McEwen) dated March 2012, prepared by Environ International Corporation (Project No. 04-5242GS) and (2) that certain Water Intrusion Evaluation (McEwen) dated March 2012, prepared by Environ International Corporation, Project No. 04-5242GS, and (vi) with respect to any Additional Project, the environmental report delivered to and approved by Administrative Agent in connection with the execution and delivery of a Joinder Agreement and acceptance of an Additional Project as additional collateral for the Loan, in the form disclosed to Administrative Agent as of the date of recordation of the Security Instrument relating to such Additional Project.

" Equipment ": Means all furniture, fixtures, equipment and personal property owned by any Borrower and located or to be located in or on, and used in connection with the management, maintenance or operation of, any Land or any Improvements.

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" ERISA ": Means the Employee Retirement Income Security Act of 1974, as the same may from time to time be amended, and the rules and regulations promulgated thereunder by any Governmental Authority, as from time to time in effect.

" ERISA Affiliate ": Means any trade or business (whether or not incorporated) which is a member of a group of which any Borrower is a member and which is under common control within the meaning of Section 414 of the Code, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

" EU Bail-In Legislation Schedule ": Means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

" Event of Default ": Has the meaning given to such term in Section 8.1 .

" Excluded Swap Obligation ": Means, with respect to any Guarantor, any Swap Obligation if, and only to the extent that, all or a portion of the Guaranty of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof), including by virtue of such Guarantor's failure for any reason to constitute an "eligible contract participant" as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guaranty of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion will apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guaranty or security interest is or becomes illegal.

" Excluded Taxes ": Means, in the case of each Lender or applicable Lending Installation and Administrative Agent, (i) Taxes imposed on its overall net income, franchise Taxes, and branch profits Taxes imposed on it, by the respective jurisdiction under the laws of which such Lender or Administrative Agent is incorporated or is organized or in which its principal executive office is located or, in the case of a Lender, in which such Lender's applicable Lending Installation is located, (ii) in the case of a Non-U.S. Lender, any U.S. federal withholding Tax that is imposed on amounts payable to such Non-U.S. Lender pursuant to the laws in effect at the time such Non-U.S. Lender becomes a party to this Agreement or designates a new Lending Installation, except in each case to the extent that, pursuant to Section 2.10(a) , amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Installation, or is attributable to the Non-U.S. Lender's failure to comply with Section 2.10(f) , and (iii) any U.S. federal withholding Taxes imposed by FATCA.

" Extension Fee ": Means a non-refundable fee as more fully set forth and described in the Fee Letter.

" FATCA ": Means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not

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materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities entered into in connection with the implementation of the foregoing.

" Federal Funds Effective Rate ": Means, for any day, the greater of (a) zero percent (0.0%) and (b) the rate per annum calculated by the Federal Reserve Bank of New York based on such day's federal funds transactions by depository institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the federal funds effective rate or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Central time) on such day on such transactions received by Administrative Agent from three (3) Federal funds brokers of recognized standing selected by Administrative Agent in its sole discretion.

" Fee Letter ": Means the confidential letter agreement dated as of October 17, 2018 among Borrowers and Administrative Agent, or as otherwise agreed from time to time.

" Fees ": Means the Loan Fee, each Extension Fee and any other fees now or hereafter due and payable by Borrowers in accordance with any or all of the Loan Documents.

" Financial Covenant Compliance Certificate ": Means a certificate, in the form attached hereto as Exhibit E , certifying the Financial Covenants set forth in the Guaranty.

" First Option Maturity Date ": Has the meaning set forth in Section 2.8 .

" Fiscal Year ": Means the period from January 1 of any year through the following December 31.

" Fund ": Means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

" GAAP ": Means generally accepted accounting principles in the United States of America as of the date of the applicable financial statement, consistently applied and maintained throughout the period indicated.

" Governmental Authority ": Means any court, board, agency, commission, office, department, bureau, instrumentality or authority of any nature whatsoever or any governmental unit (federal, state, commonwealth, county, district, municipality, city or otherwise) whether now or hereafter in existence.

" Governmental Requirements ": Means all Laws applicable to any Borrower, Guarantor, Administrative Agent, any Lender or any Project (including the construction or renovation of all or any part thereof), including Environmental Laws, Accessibility Laws, building and zoning codes and ordinances, energy and pollution control Laws, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or

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known to a Borrower, at any time in force affecting any Project or any part thereof, including any which may (a) require repairs, modifications or alterations in or to any Project or any part thereof, or (b) in any way limit the use and enjoyment thereof.

" Gross Operating Income ": Shall mean the sum of any and all Rental Income, and all other normal and recurring (but not extraordinary) cash income accrued during the applicable time period in question (the “Calculation Period”) and paid, whether paid in the applicable period of time in question or another, from the ownership, use and operation of the Projects that continue to then be encumbered by the Security Instruments and contribute to the Borrowing Base Amount. In calculating Gross Operating Income, Administrative Agent shall include in Rental Income the base rent payable under any lease which is in a free rent period during the Calculation Period, subject to the following conditions: (i) the tenant under such lease is not in default, (ii) Administrative Agent has approved the terms of the lease in its reasonable discretion, (iii) as of the end of the Calculation Period the number of months remaining prior to the date rent commences under such lease does not exceed six months, and (iv) Administrative Agent shall make such positive adjustment to Rental Income for the amount which equals the product of (a) the number of months of free rent during the Calculation Period provided such months are during the six-month period prior to the date rent commences under such lease multiplied by (b) the actual monthly rent collections anticipated on the date rent commences under such lease. The preceding sentence shall not be deemed to modify Section 6.29 hereof and shall provide Administrative Agent with approval rights only with respect to including base rent payable under leases in a "free rent" period in the calculation of Net Operating Income.

" Guarantor ": Means KBS REIT Properties III, LLC, a Delaware limited liability company.

" Guarantor's Organizational Documents ": Means the limited liability company agreement Guarantor dated as of May 24, 2011, delivered to Administrative Agent prior to the Closing Date, including any amendments thereof and supplements thereto.

" Guaranty " or, collectively, " Guaranties ": Means, collectively, (a) the Payment Guaranty Agreement, and (b) the Recourse Carve-Out Guaranty Agreement, each dated as of the Closing Date and given by Guarantor in favor of Administrative Agent, for the benefit of itself and the Lenders, as any of the same may be amended, supplemented or modified from time to time.

" Hazardous Substance(s) ": Means any substance, chemical, compound, product, solid, gas, liquid, waste, byproduct, pollutant, contaminant, or material which is defined or regulated under any Environmental Law, and includes, without limitation, (a) mold, asbestos, polychlorinated biphenyls, and petroleum (including petroleum products or derivatives, crude oil or any fraction thereof), and (b) any material classified or regulated as "hazardous waste" pursuant to RCRA.

" HVCRE ": Means a loan that is categorized as a high volatility commercial real estate loan exposure pursuant to Part 217 of Chapter II of title 12 of the Code of Federal Regulations.

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" Improvements ": Means all of the respective buildings and improvements that are now existing on the Land for each Project or are added in the future, or otherwise as expressly permitted hereunder or approved in writing by Administrative Agent, including those described on Exhibit A hereto. Improvements will also include all tenant improvements, whether constructed before or after the Closing Date.

" Indebtedness ": Means, in all cases without duplication, with respect to any Person, all items of indebtedness or liability such Person, at any time which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a consolidated balance sheet of such Person as of the date of determination, including: (a) indebtedness for borrowed money; (b) Capitalized Lease Obligations; (c) obligations under direct or indirect guaranties of indebtedness or obligations of others referred to in clause (a) or (b) above; (d) any indebtedness secured by any Security Interest on any property of such Person; (e) liabilities in respect of unfunded vested benefits under any Pension Plan for which the minimum funding standards of Section 302 of ERISA have not been met; (f) Contingent Liabilities; and (g) Swap Obligations.

" Indemnified Taxes ": Means Taxes imposed on or with respect to any payment made by or on account of any obligation of any Borrower or Guarantor under any Loan Document, other than Excluded Taxes and Other Taxes.

" Indemnity ": Means the Environmental Indemnification Agreement dated as of the Closing Date executed by Borrowers and Guarantor, as the same may be amended, supplemented or modified from time to time.

" Initial Borrowers ": Means KBSIII DOMAIN GATEWAY, LLC; KBSIII 515 CONGRESS, LLC; KBSIII 155 NORTH 400 WEST, LLC; and KBSIII 1550 WEST MCEWEN DRIVE, LLC.

" Initial Maturity Date ": Means November 1, 2021 .

" Initial Projects :" Shall mean, collectively, the Domain Gateway Project, the Congress Project, the 155 North 400 West Project, and the 1550 West McEwen Drive Project.

" Joinder Agreement ": Means an Assumption and Joinder Agreement substantially in the form of Exhibit K hereto, executed by a New Borrower in favor of Administrative Agent for itself and the Lenders, and any amendments, supplements and other modifications thereto.

" Land ": Means the land pertaining to each of the Projects.

" Laws ": Means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

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" Lease(s) ": Means any lease, sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect), pursuant to which any Person is granted a possessory interest in, or right to use or occupy, all or any portion of any space in the Land, and every modification, amendment or other agreement relating to such lease, sublease, sub-sublease or other agreement entered into in connection with such lease, sublease, sub-sublease or other agreement and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto.

" Leasehold Project ": Shall mean any Additional Project in which a Borrower holds a leasehold interest and which becomes a Project in accordance with Section 10.30 .

" Lender-Provided Swap Transaction ": Means a Swap Transaction which is provided by any Lender or an Affiliate of any Lender.

" Lenders ": Means, initially, the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns, and any New Lenders that become a party to this Agreement pursuant to Section 10.29 hereof.

" Lending Installation ": Means, with respect to a Lender or Administrative Agent, the office, branch, subsidiary or affiliate of such Lender or Administrative Agent listed on the signature pages hereof (in the case of Administrative Agent) or on its Administrative Questionnaire (in the case of a Lender) or otherwise selected by such Lender or Administrative Agent.

" LIBOR Based Rate ": Means a rate of interest per annum equal to the sum of (a) the LIBOR Rate in effect on such day plus (b) the Applicable Margin.

" Libor Breakage Costs ": Means any loss, cost or expense which Administrative Agent and/or any Lender sustains or incurs as a consequence of (a) any prepayment (whether voluntary, involuntary or required pursuant to the terms hereof) of the Loan on a day that is not a Reprice Date, or (b) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the interest rate from a LIBOR Based Rate to the Base Rate as more particularly set forth in Section 2.5(a) with respect to the outstanding principal balance of the Loan on a date other than a Reprice Date, all including such loss or expenses arising from interest or fees payable by any of the Lenders to lenders of funds obtained by it in order to maintain the Loan at the LIBOR Based Rate.

" LIBOR Rate ": Means the one-month LIBOR as displayed on Reuters Screen LIBOR01 Page (or any successor or substitute page on such screen, or on the appropriate page of such other information service that publishes such rate from time to time in place of Reuters) at approximately 11:00 a.m. (London time) two (2) Business Days prior to the Reprice Date, adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation, and such rate to be reset monthly on each Reprice Date, provided , however , except for portions of the Loan that are subject to a Lender-Provided Swap Transaction that the LIBOR Rate will never be less than 0%.

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" Liens ": Means any mortgage, deed of trust, deed to secure debt, lien (statutory or otherwise, but excluding liens for ad valorem taxes that are not delinquent), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest, or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any portion of any Project or any interest therein, or any direct or indirect interest in any Borrower, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialman's, construction and other similar liens and encumbrances.

" Loan ": Means, the aggregate principal amount that the Lenders agree to lend and Borrowers agree to borrow pursuant to the terms and conditions of this Agreement.

" Loan Documents ": Means all documents now or hereafter entered into which evidence, secure and/or govern the Loan and/or any of the Obligations, including this Agreement, the Notes, the Security Instruments, the Guaranties, the Indemnity, the Fee Letter, each Joinder Agreement, the Assignment and Subordination of Management Agreement, and any other documents, agreements or instruments entered into by any Borrower and/or Guarantor with respect to the Loan, and any amendments, supplements or modifications to any of the same from time to time.

" Loan Fee ": Means the loan fee agreed to by Borrowers and Administrative Agent pursuant to the Fee Letter.

" Loan Rate ": Means, as of any date, the LIBOR Based Rate, unless the Loan bears interest at a rate that is determined other than by LIBOR as set forth in Section 2.5(a) , in which event the Loan Rate will be based on an alternate index reasonably comparable to LIBOR as provided in Section 2.5(a) .

" Losses ": Has the meaning given such term in Section 10.1 .

" Material Adverse Change ": Means any occurrence of whatsoever nature (including any material and adverse determination in any litigation, arbitration or governmental investigation or proceeding) which Administrative Agent reasonably determines could materially and adversely affect the then present or prospective financial condition or operations of any Borrower or any Guarantor, the value, financial condition or operation of the any Project, or impair the ability of any Borrower or Guarantor to perform its obligations as and when required under any of the Loan Documents.

" Material Alteration ": Has the meaning set forth in Section 5.26(a) hereof.

" Maturity Date ": Means the Initial Maturity Date, subject to being extended as set forth in Section 2.8 and Section 2.9 .

" Maximum Borrowing Base Leverage Ratio ": Shall mean sixty-five percent (65%).

" Minimum Borrowing Base DSCR ": Shall mean 1.25 to 1.

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" Municipality ": Means each county, city, town, or other district possessing corporate existence and its own governing body, in which any Project or any portion thereof is located.

" Net Operating Income ": Shall mean the amount of (a) Gross Operating Income for the applicable period of time in question, less (b) the amount of Operating Expenses for such period of time, less (c) a replacement reserve equal to $0.25 per square foot for all of the Improvements consisting of office buildings and $0.10 per square foot for all Improvements consisting of industrial buildings.

" Net Proceeds ": Has the meaning given to such term in the Security Instrument.

" New Borrower ": Has the meaning set forth in Section 10.30(b) .

" Non-Revolving Portion ": Shall mean, at any time, and from time to time, fifty percent (50%) of the then Aggregate Commitment (as such Aggregate Commitment may increase or decrease pursuant to the terms of this Agreement).

" Non-U.S. Lender ": Means a Lender that is not a United States person as defined in Section 7701(a)(30) of the Code.

" Notes ": Means, collectively, the Promissory Notes executed and delivered by Borrowers to the order of each of the Lenders, substantially in the form of Exhibit I , as the same may be amended, restated, supplemented or replaced from time to time.

" Notice ": Has the meaning given to such term in Section 10.7 .

" Obligations ": Means, collectively: (a) Borrowers' obligations for the payment of the Loan, including interest and other charges, all Fees and all Lender-Provided Swap Transactions (to the extent entered into by Borrower or secured by the Property); and (b) the payment and performance of each and every obligation of Borrower contained herein and in any other Loan Document, provided that "Obligations" excludes all Excluded Swap Obligations, Swap Transactions not secured by the collateral properties, and all obligations under the Indemnity and the Guaranties.

" OFAC ": Means the U.S. Department of the Treasury's Office of Foreign Assets Control, and any successor thereto.

" One West Lease ": Means that certain Lease entered into at the Domain Gateway Project by Domain Gateway I, LP, a Texas limited partnership, as Landlord, as predecessor in interest to KBSIII Domain Gateway, LLC, and OneWest Bank, FSB, a Federally Chartered Savings Bank, as Tenant, dated April 9, 2009 (as amended).

" One West Premises ": Means that 173,962 square feet of office space specified in the One West Lease (as amended) located at the Domain Gateway Project.

" Operating Account ": Means each account maintained by a Borrower with Administrative Agent into which the gross revenues from each Project are deposited.

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" Operating Budget and Business Plan ": Means a detailed listing of all anticipated annual income and expenses from and for managing, maintaining and operating each Project, prepared by Borrower or its agent and in form and substance acceptable to Administrative Agent.

" Operating Expenses ": Shall mean any and all costs and expenses incurred in connection with the Projects then remaining encumbered by the Security Instruments during the applicable time period in question, including without limitation (a) taxes and assessments imposed upon the Projects payable by Borrower which are reasonably allocable to such time period, (b) bond assessments which are reasonably allocable to such time period, (c) insurance premiums for casualty insurance and liability insurance carried in connection with the Projects which are reasonably allocable to such time period, and (d) operating expenses incurred by Borrower for the management, operation, cleaning, leasing, maintenance and repair of the Projects which are reasonably allocable to such time period. Operating Expenses shall not include any interest, principal, loan fees, extension fees or other payments on the Loan or capital expenditures (such as building improvements, tenant improvements or leasing costs).

" Operating Statement ": Means, for each Project, a current, detailed statement of income and expenses from and for managing, maintaining and operating the Land and the Improvements (or any portion thereof) pertaining to such Project, in form and substance acceptable to Administrative Agent, certified as true, correct and complete by the Borrower's advisor's account controller or any other authorized agent, and expressly showing all variations from the Operating Budget and Business Plan for the period covered thereby.

" Other Taxes ": Means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.

" Participant ": Has the meaning given such term in Section 10.11(a) .

" Participant Register ": Has the meaning given such term in Section 10.11(c) .

" PATRIOT Act ": Means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001), as amended from time to time, and any successor statute and any regulations promulgated thereunder.

" Pension Plan ": Means each employee benefit plan covered by Title IV of ERISA whether now in existence or hereafter instituted, of Borrower or any ERISA Affiliate.

" Permitted Encumbrances ": Means the Liens, charges and encumbrances on title to the Land listed on Schedule B-I to the Title Policy on the Closing Date and more particularly described on Exhibit C , and such other matters of title thereafter approved by Administrative Agent in writing. In no event will any mechanics', labor, materialmen's and other similar lien claims constitute Permitted Encumbrances.

" Person ": Means an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof.

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" Post-Foreclosure Plan ": Has the meaning given to such term in Section 9.9 .

" Pricing Schedule ": Means the schedule attached hereto identified as such.

" Prime Rate ": Means a rate per annum equal to the prime rate of interest announced from time to time by U.S. Bank or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

" Project " or " Projects ": Means, individually and collectively as the context requires, the Initial Projects and the Additional Projects.

" Project Financing Statement ": Means, collectively, each of the UCC-1 financing statements required by Administrative Agent in connection with the establishment and maintenance of the Loan.

" Property Management Agreement ": Means, collectively, each Property Management Agreement entered into by and between a Borrower and Property Manager, as the same may be amended, restated, supplemented or modified from time to time.

" Property Manager ": Means, collectively, each person or firm employed by a Borrower to provide property management services for the applicable Project. In addition to the Property Managers employed by Borrowers for the Projects as of the date hereof, Administrative Agent hereby approves of any of the following as Borrowers' Property Manager: (i) CB Richard Ellis, Inc., a Delaware corporation; (ii) PM Realty Group, L.P.; (iii) Transwestern; (iv) Jones Lang LaSalle; (v) Cassidy Turley; (vi) Cushman and Wakefield; and (vii) Hines.

" Pro Rata Share ": Means, with respect to any Lender, a portion equal to a fraction the numerator of which is such Lender's Commitment and the denominator of which is the Aggregate Commitment; provided, however, that if at the time of determination the Commitments have terminated or been reduced to zero, the "Pro Rata Share" of each Lender means the percentage obtained by dividing (a) the aggregate amount of the outstanding Advances of such Lender at such time by (b) the aggregate amount of the outstanding Advances of all Lenders at such time; and provided, further, that any outstanding Special Advance made by a Lender will be included in the determining the aggregate amount of outstanding Advances of such Lender pursuant to clause (a).

" Protective Advance ": Means all sums expended by Administrative Agent in accordance with the provisions of Section 9.8 to (a) protect the priority, validity and enforceability of any lien on, and security interests in, any Collateral and the instruments evidencing and securing the Obligations, (b) prevent the value of any Collateral from being diminished, or (c) protect any of the Collateral from being materially damaged, impaired, mismanaged or taken.

" PTE ": Has the meaning given to such term in Section 9.24 .

" Purchasers ": Has the meaning set forth in Section 10.10(a) .

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" RCRA ": Means the Solid Waste Disposal Act, as amended by the Resource Conservation Recovery Act and the Hazardous and Solid Waste Amendments of 1984 (42 U.S.C. § 6901 et seq .), as amended from time to time, and any successor statute, and any regulations promulgated thereunder from time to time.

" Register ": Has the meaning given such term in Section 10.10(d) .

" Related Party ": Means any one or more of the following: (a) Guarantor, (b) an Affiliate of any Borrower or Guarantor, or (c) any of the shareholders, partners, members or other equity holders of any Borrower, Guarantor, and any Affiliate of any of the foregoing.

" Release ": Means, without limitation, (a) any intentional, unintentional, knowing or unknowing presence, spilling, leaking, pumping, pouring, emitting, emptying, discharging, migrating, injecting, escaping, leaching, dumping, or disposing of any Hazardous Substance at, on or into the indoor or outdoor environment or otherwise in, onto, from or about the air, water (including surface waters and groundwater), soils, subsoils or any other surface or media on-site or off-site, and (b) the abandonment or discarding of barrels, drums, containers, underground tanks, or any other receptacles ever containing any Hazardous Substances.

" Rental Income ": Shall mean the accrued rental income earned for the applicable period of time in question and paid (whether in the applicable period of time in question or another), excluding any adjustments for straight-line rents, above and below-market rent amortization, and lease incentive amortization by Borrower for the applicable period of time in question from the tenant leases of the Improvements which are then in effect (and as to which the tenants thereunder are paying rent); provided with respect to the Domain Gateway Project, starting as of the December 31, 2018 reporting period, income from the One West Lease shall not be included as rental income except to the extent one or more Lease (approved or deemed approved by Administrative Agent, to the extent such approval is required pursuant to the terms of Section 6.29 below) is executed that covers all or a portion of the One West Premises (and revenue will only be included for the portion of the One West Premises for which such new Lease(s) has/have been executed).

" Reprice Date ": Means the first calendar day of each month. If the initial Advance occurs other than on the Reprice Date, then the initial one-month LIBOR Rate will be that one-month LIBOR Rate displayed on Reuters Screen LIBOR 01 Page at approximately 11:00 a.m. (London time) two (2) Business Days prior to the date of the initial Advance, which rate plus the Applicable Margin will be in effect until the next Reprice Date.

" Required Appraisal Standard ": Means that, with respect to any appraisal, such appraisal must be: (a) ordered by and addressed to Administrative Agent, (b) prepared by a MAI licensed appraiser, engaged by Administrative Agent, (c) in conformance with the regulations promulgated by the appropriate federal regulatory agency pursuant to Section 1110 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (12 U.S.C. § 3339), as amended from time to time, and the regulations thereunder, and (d) in form and substance satisfactory to Administrative Agent.

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" Required Lenders ": Lenders holding, in the aggregate, not less than sixty-six and two-thirds of one percent (66 ⅔%) of the Committed Amount or, if no such principal amount is then outstanding, not less than sixty-six and two-thirds of one percent (66 ⅔%) of the Commitment Percentages; provided, notwithstanding the foregoing, if at any time there are two or more Lenders, at least two Lenders holding an aggregate of not less than 66 ⅔% of the Committed Amount shall be required to constitute the Required Lenders. The Commitments and Pro Rata Shares of the Loan of any Defaulting Lender(s) will be disregarded in determining Required Lenders at any time.

" Restricted Party ": Means each Borrower, Guarantor, and any shareholder, partner, member or non-member manager, or any direct or indirect legal or beneficial owner, of any Borrower or Guarantor, from time to time.

" Revolving Portion ": Shall mean, at any time, and from time to time, that portion of the then Aggregate Commitment that is not the Non-Revolving Portion.

" Risk-Based Capital Guidelines ": Means (a) the risk-based capital guidelines in effect in the United States on the Closing Date, including transition rules, and (b) the corresponding capital regulations promulgated by regulatory authorities outside the United States including transition rules, and any amendments to such regulations adopted prior to the Closing Date.

" Sanctions ": Means sanctions administered or enforced from time to time by the U.S. government, including those administered by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty's Treasury or other relevant sanctions authority.

Sanctioned Country : Means, at any time, any country or territory which is itself the subject or target of any comprehensive Sanctions.

Sanctioned Person : Means, at any time, (a) any Person or group listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, the United Nations Security Council, the European Union or any European Union member state, (b) any Person or group operating, organized or resident in a Sanctioned Country, (c) any agency, political subdivision or instrumentality of the government of a Sanctioned Country, or (d) any Person owned 50% or more, directly or indirectly, by any of the above.

" Second Option Maturity Date ": Has the meaning given to such term in Section 2.9 .

" Security Instrument ": Means, individually and collectively as the context may require, each first priority mortgage, deed of trust, deed to secure debt with assignment of leases or similar security agreement, executed and delivered by a Borrower as security for the Obligations which encumbers a Project, as the same may be amended, restated, supplemented or modified from time to time.

" Security Interest ": Means any lien, pledge, mortgage, encumbrance, charge or security interest of any kind whatsoever (including the lien or retained security title of a conditional vendor) whether arising under a security instrument or as a matter of law, judicial process or

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otherwise or the agreement by any Borrower, Guarantor, any of its or their Subsidiaries, or any other Person, to grant any lien, security interest or pledge, mortgage or encumber any asset.

" Special Advance ": Has the meaning given to such term in Section 9.23 .

" Subsidiary ": Means, with respect to any Person, (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which is at the time owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which is at the time so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" means the respective Subsidiaries of each Borrower.

" Survey ": Means each survey of the Land and the Improvements, as applicable, certified in a manner acceptable to Administrative Agent, and otherwise in form and substance satisfactory to Administrative Agent.

" Swap Counterparty ": Means a Lender or an Affiliate of a Lender, in its capacity as counterparty under any Lender-Provided Swap Transaction.

" Swap Obligations ": Means all obligations and liabilities of Borrower to any Swap Counterparty under any Lender-Provided Swap Transaction.

" Swap Transaction ": Means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, fixed-price physical delivery contracts, whether or not exchange traded, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, including any agreement, contract or transaction that constitutes a "swap" within the meaning of section 1a(47) of the Commodity Exchange Act, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement or any other master agreement, including any such obligations or liabilities under any such master agreement.

" Taxes ": Means any and all present or future taxes, duties, levies, imposts, deductions, fees, assessments, charges or withholdings, and any and all liabilities with respect to the foregoing, including interest, additions to tax and penalties applicable thereto.

" Title Company ": Means Commonwealth Land Title Insurance Company.

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" Title Policy ": Means each ALTA extended coverage mortgagee's title insurance policy (ALTA Loan Policy 2006 Loan Policy of Title Insurance (without further modification, revision or amendment to Covered Risk 11(a) thereunder (relating to mechanics lien coverage)), or equivalent, or other form satisfactory to Administrative Agent), with such endorsements as Administrative Agent may require, issued by the Title Company in the amount of the Loan insuring the lien of each Security Instrument to be a first and prior lien upon its respective Project as security for all Advances of the Loan pursuant to the terms of this Agreement subject only to the Permitted Encumbrances and insuring against any lien claims that could arise out of the construction of any Improvements, including, without limitation, all mechanics', labor, materialmen's and other similar lien claims.

" Treasury Rate ": Means the yields reported, as of 10:00 a.m. (New York time) on any Business Day (hereinafter defined), on the display designated as "Page 678" on the Telerate Data Service (or such other display as may replace Page 678 on the Telerate Data Service) for actively traded U.S. Treasury securities having a maturity equal to ten (10) years, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, the latest Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the applicable Business Day, in Federal Reserve statistical Release H. 15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to ten (10) years. Such implied yield shall be determined, if necessary, by (i) converting U.S. Treasury bill quotations from bond‑equivalent yields in accordance with accepted financial practice, and (ii) interpolating linearly between reported yields. The term " Business Day " as used in this paragraph means a day on which banks are open for business in New York, New York.

" UCC ": Means the Uniform Commercial Code enacted in the State of California or, as applicable, the Uniform Commercial Code enacted in the applicable jurisdiction, as amended from time to time, and any successor statute, and any regulations promulgated thereunder from time to time.

" UETA ": Means the Uniform Electronic Transactions Act as in effect in the State of California, as amended from time to time, and any successor statute, and any regulations promulgated thereunder from time to time.

" Undisclosed Administration ": Means in relation to a Lender the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official by a supervisory authority or regulator under or based on the law in the country where such Lender is subject to home jurisdiction supervision if applicable Law requires that such appointment is not to be publicly disclosed.

" U.S. Bank ": Has the meaning given to such a term in the introductory paragraph hereof.

" Write-Down and Conversion Powers ": Means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

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Section 1.2 Singular and Plural Terms . Any defined term used in the plural in any Loan Document refers to all members of the relevant class and any defined term used in the singular refers to any number of the members of the relevant class.

Section 1.3 Accounting Principles . Any accounting term used and not specifically defined in any Loan Document will be construed in conformity with, and all financial data required to be submitted under any Loan Document must be prepared in conformity with GAAP or in accordance with such other principles or methods as are consistently applied and are reasonably acceptable to Administrative Agent.

Section 1.4 References and Other Terms . Any reference to any Loan Document or other document includes such document both as originally executed and as it may from time to time be amended, restated, supplemented or modified. References herein to Articles, Sections and Exhibits will be construed as references to this Agreement unless a different document is named. References to subparagraphs will be construed as references to the same Section in which the reference appears. The term "document" is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. The terms "including" and "include" mean "including (include) without limitation". The terms "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement refers to this Agreement as a whole and not to any particular provision of this Agreement.

Section 1.5 Exhibits Incorporated . All exhibits to this Agreement, as now existing and as the same may from time to time be modified, are incorporated herein by this reference.

Section 1.6 Inconsistency . In the event of any inconsistency between the provisions of this Agreement and the provisions of any of the other Loan Documents, the provisions of this Agreement govern (provided that, notwithstanding anything that may be construed to the contrary herein, all obligations of Borrower and Guarantor under the Indemnity and all obligations of Guarantor under the Guaranties are not secured by the Security Instrument).

ARTICLE II

LOAN

Section 2.1 Principal .

(a) Subject to the terms and conditions hereof, the Lenders severally agree to lend to Borrowers (each in accordance with their Pro Rata Shares) and Borrowers jointly and severally agree to borrow from the Lenders, the proceeds of the Loan, from time to time in accordance with the terms hereof until the Maturity Date; provided, however, (i) no Lender will be required to fund more than such Lender's respective Commitment and (ii) the aggregate amount of all Advances may not exceed, at any time, the then applicable Availability Amount (taking into account changes in the Aggregate Commitment and the Borrowing Base Amount, as provided in this Agreement). In no event will the Lenders be obligated hereunder to lend to Borrowers more than Borrowers have qualified to receive under the terms of this Agreement. Should the outstanding principal balance of the Loan ever, at any time, exceed the then applicable Availability Amount, Borrowers shall pay down the outstanding principal amount of the Loan in

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accordance with Section 6.32 so that such outstanding principal balance is equal to or lesser than the Availability Amount. As of the date hereof, the Aggregate Commitment is $215,000,000 and the initial Revolving Portion is $107,500,000, and the Non-Revolving Portion is initially $107,500,000. Amounts borrowed under the Revolving Portion and repaid can be reborrowed, subject to the satisfaction of the terms and conditions set forth in this Agreement. The Non-Revolving Portion may not be repaid and reborrowed.

(b) All Advances made by the Lenders will be evidenced by the Notes. The entire principal balance of each of the Notes will mature and be payable on the Maturity Date.

(c) Administrative Agent will enter in its records the amount of each Advance, the rate of interest borne on each Advance, and the payments of the principal balance received by Administrative Agent, for the benefit of itself and the Lenders, and such records will be conclusive evidence of the subject matter thereof, absent manifest error.

(d) On the Maturity Date, the entire principal amount of the Loan, and all accrued and unpaid interest, and all other sums owing under the Loan Documents not otherwise paid when due, shall be immediately due and payable in full.

(e) Borrowers shall use the proceeds of the Loan solely for working capital, capital expenditures, real property acquisitions and other lawful corporate purposes (and in no event shall any proceeds of the Loan be used for personal, family or household purposes).

Section 2.2 Interest .

(a) Borrowers will pay interest on the outstanding principal balance of each Advance computed at the Loan Rate. Interest at the Loan Rate will accrue on each and every Advance from and including the date it is made by the Lenders and to but excluding the date such Advance is repaid in the manner specified herein. Interest on each Advance computed at the Loan Rate will be payable, as accrued, on the first day of each calendar month, commencing on the first day of the next calendar month following the calendar month in which such Advance is made hereunder, and all unpaid, accrued interest must be paid in full at the time all Advances are paid in full. Interest on all Advances and fees will be calculated for actual days elapsed on the basis of a 360-day year, except that interest computed by reference to the Alternate Base Rate will be calculated for actual days elapsed on the basis of a 365/366‑day year.

(b) [Intentionally Deleted.]

(c) If any Event of Default has occurred and is continuing, then the aggregate amount of all outstanding Advances and, to the extent permitted by law, all accrued and unpaid interest in respect thereof, and any other amounts due pursuant to the Loan Documents, will with respect to any Event of Default that occurs under Section 8.1(h) , and will, with respect to any other Event of Default, at the option of the Required Lenders and without notice to Borrowers, accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.

(d) In the event that the interest and/or charges in the nature of interest, if any, provided for by this Agreement or by any other Loan Document, contravenes a legal or statutory

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limitation applicable to the Loan, if any, Borrowers will pay only such amounts as would legally be permitted; provided , however , that if the defense of usury and all similar defenses are unavailable to Borrowers, Borrowers will pay all amounts provided for herein. If, for any reason, amounts in excess of the amounts permitted in the foregoing sentence have been paid, received, collected or applied hereunder, whether by reason of acceleration or otherwise, then, and in that event, any such excess amounts will be applied to principal, unless principal has been fully paid, in which event such excess amount will be refunded to Borrowers.

Section 2.3 Payments .

(a) All payments and prepayments of principal, interest, fees, expenses and other Obligations under the Loan Documents payable to Administrative Agent or the Lenders must be made, without deduction, setoff, or counterclaim, in immediately available funds on the dates due, to Administrative Agent at the office specified opposite its signature below, or at any other Lending Installation of Administrative Agent specified in writing by Administrative Agent to Borrowers. Each payment delivered to Administrative Agent for the account of any Lender must be delivered promptly by Administrative Agent to such Lender at its address opposite its signature below or any Lending Installation specified in a notice received by Administrative Agent from such Lender. Whenever any payment to be made hereunder or under any other Loan Document is stated to be due on a day which is not a Business Day, such payment must be made on the next succeeding Business Day and such extension of time will be included in the computation of any interest or fees. Borrowers authorize Administrative Agent to charge Borrowers' debt service account maintained at U.S. Bank for the amount of any payment under the Loan or other amount owing pursuant to any of the other Loan Documents.

(b) After an Event of Default has occurred, all amounts received by Administrative Agent will be applied by Administrative Agent in accordance with Section 8.3 hereof.

(c) Any Net Proceeds received by Administrative Agent which Administrative Agent is not required to make available to Borrowers in accordance with the Security Instrument will be applied by Administrative Agent in such amounts, order and priority as the Required Lenders determine in their discretion, subject to Section 9.19 hereof.

(d) Notwithstanding anything to the contrary set forth above in this Section 2.3 , Excluded Swap Obligations with respect to any Guarantor may not be paid with amounts received from such Guarantor or its assets.

(e) Unless Borrowers notify Administrative Agent prior to the date on which it is scheduled to make a payment to Administrative Agent of a payment of principal, interest or fees to Administrative Agent for the account of the Lenders, that Borrowers will not intend to make such payment, Administrative Agent may assume that such payment has been made. Administrative Agent may, but is not obligated to, make the amount of such payment available to Lenders in reliance upon such assumption. If Borrowers have not in fact made such payment to Administrative Agent, any Lender receiving such payment will, on demand by Administrative Agent, repay to Administrative Agent the amount so distributed to such Lender with interest thereon in respect of each day during the period commencing on the date such amount was distributed by Administrative Agent until the date Administrative Agent recovers such amount at

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a rate per annum equal to the greater of the Federal Funds Effective Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation.

Section 2.4 Prepayment . The unpaid principal balance of the Loan and accrued interest thereon may be prepaid in full or in part, without premium or penalty (other than as specified below), upon not less than two (2) Business Days' prior written notice to Administrative Agent given in accordance with the terms hereof. Each notice must specify the date of prepayment and the principal amount of the prepayment. Promptly following receipt of any such notice, Administrative Agent will advise the Lenders of the contents thereof. Subject to Section 9.19 , any partial prepayment will be made for the account of the Lenders pro rata in accordance with their respective Pro Rata Shares and reduce (in the case of a paydown of the Non-Revolving Portion) each Lender's Commitment by such Lender's Pro Rata Share of a like amount. Notwithstanding anything else in this Agreement to the contrary, in all events, Borrowers must pay Libor Breakage Costs, all sums payable under Section 2.13 hereof and all other costs relating to the Loan.

Section 2.5 Regulatory Change; Conversion of Interest Rate .

(a) If (i) Administrative Agent or the Required Lenders determine (which determination will be conclusive in the absence of manifest error) (x) that deposits of a type and maturity appropriate to match fund Advances at the LIBOR Based Rate are not available to the Lenders in the relevant market, or (y) that the interest rate applicable to Advances at the LIBOR Based Rate is not ascertainable or does not adequately and fairly reflect the cost of making or maintaining LIBOR Based Rate Advances, the Lenders will be under no obligation to, and will not, make any additional Advances at the LIBOR Based Rate or continue any Advances at the LIBOR Based Rate, and (ii) any Lender determines (which determination will be conclusive in the absence of manifest error) that it is unlawful to make or maintain Advances at the LIBOR Based Rate, such Lender will promptly notify Borrowers thereof (with a copy of such notice to Administrative Agent) and such Lender's obligation to make or continue any Advances at the LIBOR Based Rate will be suspended until such time as such Lender may again make Advances at the LIBOR Based Rate. If any obligation of any Lender to make or continue Advances at the LIBOR Based Rate has been suspended pursuant to clause (i) or (ii) above, then during the existence of such circumstances, the interest rate applicable to such Lender's Advances will be determined based upon the Base Rate.

(b) Notwithstanding the foregoing, in the event Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in Section 2.5(a)(i)(y) have arisen and such circumstances are unlikely to be temporary, (ii) ICE Benchmark Administration (or any Person that takes over the administration of such rate) discontinues its administration and publication of interest settlement rates for deposits in Dollars, or (iii) the supervisor for the administrator of the interest settlement rate described in Section 2.5(a)(i)(y) or a Governmental Authority having jurisdiction over Administrative Agent has made a public statement identifying a specific date after which such interest settlement rate shall no longer be used for determining interest rates for loans, then Administrative Agent and Borrowers shall seek to jointly agree upon an alternate rate of interest to the LIBOR Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and Administrative Agent and

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Borrowers shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable. Notwithstanding anything to the contrary in Section 10.12 , such amendment shall become effective without any further action or consent of any other party to this Agreement so long as Administrative Agent shall not have received, within five Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this Section 2.5(b) , all new Advances shall bear interest at the Base Rate. If the alternate rate of interest determined pursuant to this Section 2.5(b) shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

(i) subjects any Lender or any applicable Lending Installation or Administrative Agent to any Taxes (other than with respect to Indemnified Taxes, Excluded Taxes, and Other Taxes), or changes the basis of taxation of payments (other than with respect to Excluded Taxes) in respect of its loans hereunder, or participations therein, or

(ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to the Advances), or

(iii) imposes any other condition (other than Taxes) the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its loans hereunder, or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its loans hereunder, or participations therein, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of the loans hereunder, or participations therein held or interest received by it, by an amount deemed material by such Lender,

and the result of any of the foregoing is to increase the cost to any Lender or applicable Lending Installation, as the case may be, of making or maintaining its loans hereunder or Commitment or to reduce the return received by any Lender or applicable Lending Installation, as the case may be, in connection with such loans or Commitment, or participations therein, then, within 15 days of demand by Administrative Agent (for the benefit of such Lender), Borrowers must pay to Administrative Agent (for the benefit of such Lender), such additional amount or amounts (as determined by such Lender, which amounts will, in the absence of manifest error, be conclusive and binding upon Borrowers) as will compensate such Lender for such increased cost or reduction in amount received. Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.5(c) will not constitute a waiver of such Lender's right to demand such compensation; provided that Borrowers will not be required to compensate such Lender pursuant to this Section 2.5(c) for any increased costs or reductions suffered more than 270 days prior to the date that such Lender notifies Borrowers of the Change giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further , that if the Change giving rise to such increased costs or reductions is

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retroactive, then the 270-day period referred to above will be extended to include the period of retroactive effect thereof.

Section 2.6 Changes in Capital Adequacy Regulation . If a Lender determines that the amount of capital or liquidity required or expected to be maintained by such Lender, any Lending Installation of such Lender, or any corporation or holding company controlling such Lender, is increased as a result of (i) a Change or (ii) any change after the Closing Date in the Risk-Based Capital Guidelines, then, within 15 days of demand by the Administrative Agent for the benefit of such Lender, Borrowers must pay the Administrative Agent for the benefit of such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital or liquidity which such Lender determines is attributable to this Agreement, its outstanding credit exposure or its commitment to make loans, hereunder (after taking into account Lender's policies as to capital adequacy or liquidity). Failure or delay on the part of such Lender to demand compensation pursuant to this Section 2.6 will not constitute a waiver of such Lender's right to demand such compensation; provided that Borrowers will not be required to compensate any Lender pursuant to this Section 2.6 for any shortfall suffered more than 270 days prior to the date that such Lender notifies Borrowers of the Change or change in the Risk-Based Capital Guidelines giving rise to such shortfall and of such Lender's intention to claim compensation therefor; provided further, that if the Change or change in Risk-Based Capital Guidelines giving rise to such shortfall is retroactive, then the 270-day period referred to above will be extended to include the period of retroactive effect thereof.

Section 2.7 Fees . In addition to the interest and other consideration to Administrative Agent and the Lenders herein, Borrowers agree to pay to Administrative Agent the Fees, as and when due in accordance with the terms of the Loan Documents. No termination or reduction of the Commitments and no failure of Borrowers to satisfy the conditions set forth in Article III will entitle Borrowers to a refund of any portion of such Fees.

Section 2.8 First Extension of Maturity Date . At the option of Borrowers, the Initial Maturity Date may be extended for a period of twelve (12) months to November 1, 2022 (the " First Option Maturity Date ") if all of the following conditions are satisfied, in the discretion of Administrative Agent, as to such extension:

(a) Borrowers have given written notice of their request for an extension to Administrative Agent by no earlier than 120 days and by no later than 45 days prior to the Initial Maturity Date;

(b) On or prior to the Initial Maturity Date, Borrowers pay to Administrative Agent the Extension Fee, for the ratable benefit of the Lenders, and all other Fees due and payable to Administrative Agent hereunder and under the other Loan Documents, together with all costs and expenses incurred by or on behalf of Administrative Agent in connection with such extension, including appraisal fees, internal or external appraisal review fees, inspection fees, legal fees, survey costs, costs of environmental studies and reports, and such other professional services, any of which Administrative Agent requires or are deemed necessary by Administrative Agent pursuant to Administrative Agent's or any Lender's internal policies or pursuant to applicable Laws, rules or regulations; the payment by Borrowers of these costs and expenses will

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not be credited, in any way or to any extent, against any portion of the outstanding balance of the Loan;

(d) As of the Initial Maturity Date, the outstanding principal balance of the Loan shall not exceed the then current Availability Amount (based on evidence satisfactory to Administrative Agent, including updated Appraisals of the Projects commissioned by Administrative Agent and approved by Administrative Agent and Lenders); provided, however, if the outstanding principal balance of the Loan exceeds the then current Availability Amount, Borrower may pay down the outstanding principal balance of the Loan prior to the Initial Maturity Date to an amount equal to or less than the Availability Amount;

(e) Borrower shall be in compliance with the financial covenants contained in the Loan Documents; Guarantor shall be in compliance with all of the financial covenants set forth in the Guaranty, and Administrative Agent shall have received a certificate from Guarantor certifying such compliance and such other information reasonably required by Administrative Agent to confirm that Guarantor is in compliance with such financial covenants to the extent such information is required pursuant to Section 6.15 below;

(f) Intentionally deleted; and

(g) Borrowers cause to be delivered to Administrative Agent, for the benefit of itself and the Lenders, at Borrowers' expense, an endorsement to or reissuance of the Title Policy bringing current the effective date of such coverage and stating that the coverage afforded by the Title Policy is not affected because of such extension, subject only to the Permitted Encumbrances.

In the event that, for any reason, Borrowers fail to satisfy all of the foregoing conditions, the Loan will mature and be due and payable in full on the Initial Maturity Date.

Section 2.9 Second Extension of Maturity Date . At the option of Borrowers, the First Option Maturity Date may be extended for a period of twelve (12) months to November 1, 2023 (" Second Option Maturity Date ") if all of the following conditions are satisfied, in the discretion of Administrative Agent, as to such extension:

(a) Borrowers have given written notice of their request for an extension to Administrative Agent by no earlier than 120 days and by no later than 45 days prior to the First Option Maturity Date;

(b) On or prior to the First Option Maturity Date, Borrowers pay to Administrative Agent the Extension Fee, for the ratable benefit of the Lenders, and all other Fees due and payable to Administrative Agent hereunder and under the other Loan Documents, together with all costs and expenses incurred by or on behalf of Administrative Agent in connection with such extension, including appraisal fees, internal or external appraisal review fees, inspection fees, legal fees, survey costs, costs of environmental studies and reports, and such other professional services, any of which Administrative Agent requires or are deemed necessary by Administrative

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Agent pursuant to Administrative Agent's or any Lender's internal policies or pursuant to applicable Laws, rules or regulations; the payment by Borrowers of these costs and expenses will not be credited, in any way or to any extent, against any portion of the outstanding balance of the Loan;

(d) As of the First Option Maturity Date, the outstanding principal balance of the Loan shall not exceed the then current Availability Amount (based on evidence satisfactory to Administrative Agent, including updated Appraisals of the Projects commissioned by Administrative Agent and approved by Administrative Agent and Lenders); provided, however, if the outstanding principal balance of the Loan exceeds the then current Availability Amount, Borrower may pay down the outstanding principal balance of the Loan on or prior to the First Option Maturity Date to an amount equal to or less than the Availability Amount;

(f) Intentionally deleted; and

(g) Borrowers cause to be delivered to Administrative Agent, for the benefit of itself and the Lenders, at Borrowers' expense, any endorsements to or reissuance of the Title Policy bringing current the effective date of such coverage and stating that the coverage afforded by the Title Policy is not affected because of such extension, subject only to the Permitted Encumbrances.

In the event that, for any reason, Borrowers fail to satisfy all of the foregoing conditions, the Loan will mature and be due and payable in full on the First Option Maturity Date.

Section 2.10 Taxes .

(a) Any and all payments by or on account of any obligation of any Borrower under any Loan Document must be made without deduction or withholding for any Taxes, except as required by applicable Law. If any applicable Law (as determined in the good faith discretion of any applicable withholding agent) requires the deduction or withholding of any Tax from any such payment, then the applicable withholding agent will be entitled to make such deduction or withholding and will timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable Law and, if such Tax is an Indemnified Tax or Other Tax, then the sum payable by any Borrower will be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.10 ) the applicable Lender or Administrative Agent receives an amount equal to the sum it would have received had no such deduction or withholding been made.

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(b) Borrowers must timely pay to the relevant Governmental Authority in accordance with applicable Law or at the option of Administrative Agent timely reimburse it for the payment of, any Other Taxes.

(c) Borrowers will jointly and severally indemnify the Lender or Administrative Agent, within 15 days after demand therefor, for the full amount of any Indemnified Taxes and Other Taxes (including Indemnified Taxes and Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.10 ) payable or paid by such Lender or Administrative Agent or required to be withheld or deducted from a payment to such Lender or Administrative Agent and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes and Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Borrower by a Lender (with a copy to Administrative Agent), or by Administrative Agent on its own behalf or on behalf of a Lender, will be conclusive absent manifest error.

(d) Each Lender will severally indemnify Administrative Agent, within 15 days after demand therefor, for (i) any Indemnified Taxes and Other Taxes attributable to such Lender (but only to the extent that Borrowers have not already indemnified Administrative Agent for such Indemnified Taxes and Other Taxes and without limiting the obligation of Borrowers to do so), (ii) any Taxes attributable to such Lender's failure to comply with the provisions of Section 10.11(c) relating to the maintenance of a Participant Register, and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by Administrative Agent will be conclusive absent manifest error. Each Lender hereby authorizes Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by Administrative Agent to the Lender from any other source against any amount due to Administrative Agent under this paragraph (d).

(e) As soon as practicable after any payment of Taxes by any Borrower to a Governmental Authority pursuant to this Section 2.10 , Borrowers must deliver to Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Administrative Agent.

(f) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document will deliver to Borrowers and Administrative Agent, at the time or times reasonably requested by Borrowers or Administrative Agent, such properly completed and executed documentation reasonably requested by Borrowers or Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by Borrowers or Administrative Agent, will deliver such other documentation prescribed by applicable Law or reasonably requested by Borrowers or Administrative Agent as will enable Borrowers or Administrative Agent to determine whether or not such Lender is subject to backup withholding

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or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.10(f)(i)(A) , (i)(B) and (i)(D) below) will not be required if in the Lender's reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(i) Without limiting the generality of the foregoing,

(A) any Lender that is a United States Person for U.S. federal income Tax purposes will deliver to Borrowers and Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrowers or Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding Tax;

(B) any Non-U.S. Lender will, to the extent it is legally entitled to do so, deliver to Borrowers and Administrative Agent (in such number of copies as is requested by the recipient) on or prior to the date on which such Non-U.S. Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrowers or Administrative Agent), whichever of the following is applicable:

(1) in the case of a Non-U.S. Lender claiming the benefits of an income Tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the "interest" article of such Tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the "business profits" or "other income" article of such Tax treaty;

(2) executed copies of IRS Form W-8ECI;

(3) in the case of a Non-U.S. Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such Non-U.S. Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, a "10 percent shareholder" of any Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a "controlled foreign corporation" related to any Borrower as described in Section 881(c)(3)(C) of the Code and (y) executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E; or

(4) to the extent a Non-U.S. Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8IMY or IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable.

(C) any Non-U.S. Lender will, to the extent it is legally entitled to do so, deliver to Borrowers and Administrative Agent (in such number of copies as is requested by

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the recipient) on or prior to the date on which such Non-U.S. Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrowers or Administrative Agent), executed originals of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Law to permit Borrowers or Administrative Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender will deliver to Borrowers and Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by Borrowers or Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrowers or Administrative Agent as may be necessary for Borrowers and Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender's obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this clause (D), "FATCA" includes any amendments made to FATCA after the date of this Agreement.

(ii) Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it will update such form or certification or promptly notify Borrowers and Administrative Agent in writing of its legal inability to do so.

(g) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.10 (including by the payment of additional amounts pursuant to this Section 2.10 ), it will pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.10 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, will repay to such indemnified party the amount paid over pursuant to this Section 2.10(g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.10(g) , in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this Section 2.10(g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph may not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

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(h) Each party's obligations under this Section 2.10 survives the resignation or replacement of Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

Section 2.11 Selection of Lending Installation; Mitigation Obligations; Lender Statements; Survival of Indemnity .

(a) Each Lender may book its Advances at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement will apply to any such Lending Installation and the Loan and any Notes issued hereunder will be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to Administrative Agent and Borrowers in accordance with Section 10.7 , designate replacement or additional Lending Installations through which Advances will be made by it and for whose account Loan payments are to be made.

(b) To the extent reasonably possible, each Lender will designate an alternate Lending Installation with respect to its Advances to reduce any liability of Borrowers to such Lender under Sections 2.5(b) , 2.6 and 2.10 or to avoid the unavailability of Advances as LIBOR Rate Advances pursuant to Section 2.5(a) , so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender will deliver a written statement of such Lender to Borrowers (with a copy to Administrative Agent) as to the amount due, if any, under Section 2.5 , 2.6 or 2.10 . Such written statement must set forth in reasonable detail the calculations upon which such Lender determined such amount and will be final, conclusive and binding on Borrowers in the absence of manifest error. Determination of amounts payable under such Sections in connection with an Advance will be calculated as though each Lender funded its Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the LIBOR Based Rate applicable to such Advance, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender will be payable within ten (10) Business Days after receipt by Borrowers of such written statement. The obligations of Borrowers under Sections 2.5 , 2.6 and 2.10 will survive payment of the Obligations and termination of this Agreement.

Section 2.12 Replacement of Lender . If Borrowers are required pursuant to Sections 2.5(b) , 2.6 or 2.10 to make any additional payment to any Lender or if any Lender's obligation to make or continue any Advances at the LIBOR Based Rate will be suspended pursuant to Section 2.5(a) or if any Lender defaults in its obligation to make its portion of an Advance or declines to approve an amendment or waiver that is approved by the Required Lenders or otherwise becomes a Defaulting Lender (any Lender so affected an " Affected Lender "), Borrowers may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Lender as a Lender party to this Agreement with another bank or other entity which is reasonably satisfactory to Borrowers and Administrative Agent, provided that no Default or Event of Default exists at the time of such replacement, and provided further that, concurrently with such replacement, (i) such other bank or entity will not suffer from and is not impacted by the issue or event causing the replacement of the Affected Lender, will agree, as of such date, to purchase for cash at par the Advances and other Obligations due to the Affected Lender under this Agreement and the other Loan Documents pursuant to an Assignment and Assumption and

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to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 10.10 applicable to assignments, and (ii) Borrowers will pay to Administrative Agent (for the benefit of) such Affected Lender in same day funds on the day of such replacement all interest, fees and other amounts then accrued but unpaid to such Affected Lender by Borrowers hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 2.5(b) , 2.6 or 2.10 .

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Section 2.13 Indemnification of Administrative Agent and the Lenders . Except for a failure caused by Administrative Agent's default, Borrowers shall indemnify Administrative Agent and Lenders against any and all Libor Breakage Costs that Administrative Agent and/or Lenders may sustain or incur. Administrative Agent shall provide to Borrower a statement, signed by an officer of Administrative Agent, explaining any such Libor Breakage Costs, and setting forth, if applicable, the computations used to determine such Libor Breakage Costs, which shall be conclusive and binding on Borrowers, absent manifest error. All such Libor Breakage Costs shall be payable by Borrowers to Administrative Agent within ten (10) Business Days of demand by Administrative Agent. Borrowers hereby expressly waive any rights they may have under California Civil Code Section 2954.10, or otherwise, to prepay any portion of the Loan without penalty or Libor Breakage Costs. By initialing this provision in the space provided below, Borrowers hereby declare that the Administrative Agent and Lenders' agreement to make the subject Loan at the interest rate and for the term set forth in this Agreement constitutes adequate consideration, given individual weight by Borrowers, for this waiver and agreement.

BORROWERS' INITIALS: /s/CJS /s/CJS /s/CJS /s/CJS

Section 2.13

ARTICLE III

CONDITIONS TO CLOSING AND ADVANCES

Section 3.1 No Obligation to Close or Advance . No Lender is required to make any Advance until all of the requirements and conditions set forth in this Article III have been completed and fulfilled to the satisfaction of Administrative Agent in its discretion, at Borrowers' sole cost and expense. At any time from and after the Closing Date through and including the day immediately prior to the Maturity Date (the " Availability Period "), provided that all of the terms and conditions set forth in this Article III have been satisfied or waived in writing by Administrative Agent, Borrowers shall have the right to request and receive, from time to time, an additional Advance of the Loan in connection with any Revolving Portion of the Loan or any Additional Project Request in an amount, when added to the existing outstanding principal balance of the Loan, does not exceed the then existing Availability Amount.

Section 3.2 Conditions to Closing .

(a) On or before the Closing Date, Borrowers must provide to Administrative Agent each of the following relating to the Land and the existing Improvements, in form and substance acceptable to Administrative Agent:

(i) For each of the Initial Projects, a pro forma Title Policy, or a marked-up commitment to issue the Title Policy, signed by an officer of the Title Company, in form and substance satisfactory to Administrative Agent and including all endorsements as required by Administrative Agent, and satisfactory reinsurance agreements to the extent required by Administrative Agent. All title insurance premiums in connection with the issuance of the Title Policy must be paid at Closing by Borrowers. The Title Company must provide priority insurance over all possible mechanics' lien claims, including, for purposes of clarification, unmodified 'Covered Risk 11(a)' coverage as set forth in the ALTA extended coverage mortgagee's title insurance policy (ALTA Loan Policy 2006 Loan Policy of Title Insurance).

(ii) One copy of the Survey for each of the Initial Projects.

(iii) The Environmental Report for each of the Initial Projects, showing that no remedial environmental action is recommended or required and other information produced in connection with any soil tests, chemical tests, materials tests and other tests and analyses as are reasonably required to confirm, with relative certainty, the absence of toxic or hazardous substances. Each Environmental Report shall also specify whether or not any environmental assessment, study or statement with respect to the Initial Project covered thereby is required by any Governmental Authority. If such assessment, study or statement is so required for any Initial Project, Borrowers shall provide a copy thereof to Administrative Agent, and, if none is so required, Borrowers shall provide Administrative Agent with an appropriate declaration of environmental nonsignificance relating to such Initial Project, if available in the jurisdiction in which such Initial Project is located.

(iv) Evidence that all insurance required pursuant to Section 6.8 is in place.

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(v) Administrative Agent shall have received a report as to whether or not any portion of the Land and the Improvements is in a federally designated flood hazard area and, if any improvements thereon are in a federally designated flood hazard area, evidence of the maintenance of flood insurance as may be required by applicable Law.

(vi) Administrative Agent shall have completed its flood review process, and received evidence of compliance, satisfactory to Administrative Agent in Administrative Agent's sole discretion, with Administrative Agent's requirements, policies and procedures with respect to flood-related matters.

(vii) Written evidence regarding zoning and building code compliance for the Land and the Improvements in form and content acceptable to the Title Company to issue an unqualified ALTA 3-series Title Policy endorsement in form and substance satisfactory to Administrative Agent.

(viii) A copy of each noncancelable agreement relating to the management, operation or maintenance of each Project.

(ix) A proposed Operating Budget and Business Plan for each Project for the current year of operation.

(b) On or before the Closing Date, Borrowers must provide to Administrative Agent each of the following relating to each Borrower, Guarantor and such other Persons identified below, in form and substance acceptable to Administrative Agent:

(i) A copy of each Borrower's Organizational Documents, certified as true, correct and complete by an officer of such Borrower authorized to do so, together with (i) a current certificate of good standing (or equivalent) from the Secretary of State of the state in which such Borrower was organized (and from the Secretary of State of the state where the Land is located, if different from the jurisdiction in which such Borrower was organized), and (ii) resolutions and/or consents of those parties necessary to authorize the transaction contemplated hereby .

(ii) A copy of Guarantor's Organizational Documents, certified as true, correct and complete by an officer of Guarantor authorized to do so, together with (i) a current certificate of good standing (or equivalent) from the jurisdiction in which Guarantor was organized, and (ii) resolutions and/or consents of those parties necessary to authorize the transaction contemplated hereby .

(iii) A copy of the managing member's Organizational Documents for each Borrower, certified as true, correct and complete by an officer of such managing member authorized to do so, together with (i) a current certificate of good standing (or equivalent) from the Secretary of State of the state in which such managing member was organized (and from the Secretary of State of the state where the Land is located, if different from the jurisdiction in which such managing member was organized), and (ii) resolutions and/or consents of those parties necessary to authorize the transaction contemplated hereby .

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(iv) The most current available financial statements of each Borrower and Guarantor, signed and certified as true, correct and complete in all material respects by an authorized signatory.

(v) The payment of all applicable Fees, including without limitation, those referenced in the Fee Letter.

(c) On or before the Closing Date, Borrowers must execute and deliver (or cause to be executed and delivered) to Administrative Agent, the Loan Documents (as applicable) and such other documents as Administrative Agent may require, in form and substance acceptable to Administrative Agent and to its counsel, in their sole discretion, to evidence and secure the Loan. Administrative Agent may designate which of the Loan Documents are to be placed of record or filed, the order of recording or filing thereof, and the offices in which the same are to be recorded or filed. Borrowers must cooperate with Administrative Agent's recordation and filing requirements, and may in no event take any action in contravention thereof. Borrowers must pay all documentary, intangible, recording, filing and/or registration taxes and/or fees due upon the Notes, the Security Instrument, the financing statement and/or the other Loan Documents.

(d) On the Closing Date, Administrative Agent must receive from outside counsel for Borrowers and Guarantor, one or more current written opinions, in form and substance acceptable to Administrative Agent, addressed to Administrative Agent, in its capacity as Administrative Agent, covering matters such as due formation, authorization, execution and delivery of the Loan Documents and enforceability of the Loan Documents.

(e) KYC Information.

(i) Upon the reasonable request of any Lender made at least ten (10) Business Days prior to the Closing Date, Borrowers must have provided to such Lender the documentation and other information so requested in connection with applicable "know your customer" and anti-money-laundering rules and regulations, including the PATRIOT Act, in each case at least five days prior to the Closing Date.

(ii) At least five days prior to the Closing Date, if any Borrower qualifies as a "legal entity customer" under the Beneficial Ownership Regulation, each such Borrower must deliver a Beneficial Ownership Certification in relation to such Borrower.

(f) On or before the Closing Date, Administrative Agent must receive all other agreements, documents and/or exhibits which may be required, in Administrative Agent's judgment, to assure compliance with the requirements of this Agreement and the other Loan Documents.

(g) On or before the Closing Date, Administrative Agent and the Lenders shall have completed their due diligence of Borrowers, Guarantor and the Initial Projects and received full credit approval with respect to the transaction.

(h) Receipt and approval by Administrative Agent of the Environmental Insurance Policy covering the Initial Projects.

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Section 3.3 Conditions Precedent to Initial Advance . As a condition precedent to the initial Advance by the Lenders:

(a) Borrowers must have satisfied: (i) all of the conditions to closing set forth in Section 3.2 , unless expressly waived by Administrative Agent in writing; and (ii) all other conditions for an Advance set forth in Section 3.4 and in Article IV ; and

(b) Borrowers must have provided to Administrative Agent the following, or satisfied the following conditions, which must be in form and substance acceptable to Administrative Agent:

(i) Written evidence that the Title Company has recorded each of the Security Instruments pertaining to each of the Initial Projects in a first lien position against each of such Projects, and that the Title Company has issued or is irrevocably committed to issue the Title Policy pertaining to each such Security Instrument insuring the same;

(ii) Written evidence that the Project Financing Statements pertaining to each Borrower and Project have been filed with the Secretary of State, or other appropriate office, to perfect the lien on all personal property described in each Security Agreement as collateral for the Loan in a first lien position;

(iii) evidence that all insurance required pursuant to Section 6.8 has been obtained and is being maintained;

(iv) Borrowers have established the Operating Account;

(v) Any other documents and assurances as Administrative Agent may reasonably request.

Section 3.4 Conditions Precedent to All Advances . Each Advance by the Lenders (including the initial Advance) is subject to the satisfaction of the following conditions precedent as determined by Administrative Agent:

(a) Borrowers must deliver or cause to be delivered to Administrative Agent the following documents in connection with each Advance, in form and substance satisfactory to Administrative Agent:

(i) [Intentionally Deleted];

(ii) If requested by Administrative Agent in connection with any advance, Borrower shall provide to Administrative Agent one or more endorsements (to the full extent available) to and continuation of each Title Policy, showing that there have been no mechanic's or materialmen's liens or other liens filed since the date of the issuance of such Title Policy, ensuring that each additional Advance shall be secured by the Security Instruments in a first lien position, subject to no other liens or title exceptions, other than the Permitted Encumbrances, and/or updating the effective date of each Title Policy to the relevant date of such Advance, which endorsements shall be provided at Borrower's expense. If any liens or other matters, which in Administrative Agent's good faith reasonable judgment jeopardize or otherwise impair

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its security interest (and/or the first priority thereof) in any Project, are disclosed by said endorsement and continuation or are in any other manner discovered by the Title Company or Administrative Agent, no further advances shall be made until such liens or other matters have been waived by Agent or satisfied in a manner acceptable to Administrative Agent. Upon written demand of Administrative Agent, Borrower shall immediately cause any such liens or other matters to be satisfied or released, of record, or bonded around and removed from the Project encumbered thereby or affirmatively insured over by the Title Company to Administrative Agent's satisfaction, or shall make other arrangements with respect to the discharge thereof and the releases thereof from the Project encumbered thereby as are acceptable to Administrative Agent, in its reasonable discretion.

(b) No Default or Event of Default has occurred, and no Default or Event of Default will result from the making of the Advance.

(c) As of the date of each Advance, no suit or proceeding at law or in equity, and no investigation or proceeding of any governmental body, has been instituted or, to the knowledge of Borrower, has been threatened, which in either case would substantially, negatively affect the condition or business operations of Borrower or the Project.

(d) [Intentionally deleted].

(e) To Borrower's knowledge, no litigation, arbitration or governmental investigation or proceeding is pending, or to each Borrower's knowledge, threatened in writing, against any Borrower or affecting the operations of any Borrower which, if adversely determined to any Borrower, would constitute a Material Adverse Change.

(f) The Projects, the Improvements, to the extent then constructed, nor any part thereof has been materially damaged, destroyed, condemned or threatened with any material condemnation.

(g) No Lien or notice of intent to file a Lien for work or services performed in or on any Project or any materials or equipment delivered thereto, or any other Lien (including, without limitation, any mortgage, deed of trust, judgment lien or other lien), has been filed or recorded against any Project or delivered to any Borrower, the Title Company or Administrative Agent, unless all such Liens are discharged or bonded over and removed from title to each of such Projects to the reasonable satisfaction of Administrative Agent.

(h) No stop payment notice in connection with the Loan has been served on Administrative Agent or any Lender unless the stop payment notice is discharged or if the stop payment notice is bonded, an appropriate counter bond or equivalent reasonably acceptable to Administrative Agent and the applicable Lenders is filed and/or recorded in accordance with applicable law so as to remove and discharge any and all such stop payment notices.

Notwithstanding anything stated to the contrary in this Article III, Article IV below, or elsewhere in this Agreement, the initial funding of the Loan and/or recordation of the Security Instruments shall be deemed a confirmation by Administrative Agent and the Lenders that all conditions precedent to the funding of the initial Advance as set forth in this Article III have been satisfied or waived for all purposes, including for purposes of making of any additional

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Advances under Article IV (except as otherwise expressly reserved by Administrative Agent in a writing delivered to Borrower prior to the closing of the Loan).

ARTICLE IV

ADVANCES

Section 4.1 General .

(a) The Loan proceeds will be advanced by the Lenders for the benefit of Borrowers in accordance with the terms and conditions set forth in this Agreement. All monies advanced by a Lender with respect to a Project will constitute a loan made by such Lender to Borrowers under this Agreement, evidenced by a Note and secured by the Security Instruments and all other collateral for the Loan, and interest will be computed thereon, as prescribed by this Agreement, from the date Lender makes, or is deemed to have made, the Advance.

(b) Upon receipt of a request for an Advance, Administrative Agent will send a copy thereof by facsimile to each other Lender and will otherwise notify each Lender of the proposed disbursement and the proposed date of funding (the " Funding Date "). Each Lender will make available to Administrative Agent (or the funding bank designated by Administrative Agent) the amount of such Lender's Pro Rata Share of such disbursement by wire transfer in immediately available funds by 11:00 a.m. Pacific time on the Funding Date.

(c) Unless a Lender notifies Administrative Agent on the Business Day immediately preceding the Funding Date that it will not intend to make its Pro Rata Share of any Advance, Administrative Agent may assume that such amount available to Administrative Agent on such date, and Administrative Agent may, but will not be obligated to, make available to Borrowers a corresponding amount in reliance upon such assumption. If such Lender has not in fact made such payment to Administrative Agent, then the applicable Lender and Borrowers (jointly and severally as to themselves, and severally as to the applicable Lender) agree to repay to Administrative Agent, on demand, the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by Administrative Agent until the date Administrative Agent recovers such amount at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation, and (ii) with respect to Borrowers, a rate per annum equal to the interest rate applicable to the relevant Advance. If such Lender pays such amount to Administrative Agent, then such amount will constitute such Lender's Pro Rata Share of such Advance.

(d) Nothing in this Section 4.1 will be deemed to relieve any Lender of its obligation hereunder to make its Pro Rata Share of an Advance on any Funding Date, nor will Administrative Agent or any Lender be responsible for the failure of any other Lender to perform its obligations to make any Advances hereunder, and the Commitment of any Lender will not be increased or decreased as a result of the failure by any other Lender to perform its obligation to make a disbursement.

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(e) In no event shall Administrative Agent and the Lenders have any obligation to make any Advance if the requested Advance, plus the sum of all outstanding previous Advances, would exceed the then existing Availability Amount.

Section 4.2 No Waiver . No Advance will constitute a waiver of any condition precedent to the obligation of any Lender to make any further Advance, or preclude Administrative Agent or any Lender from thereafter declaring the failure of Borrowers to satisfy any such condition precedent to be an Event of Default. All conditions precedent to the obligations of the Lenders to make any Advance are imposed hereby solely for the benefit of Administrative Agent and the Lenders, and no other party may require satisfaction of any such condition precedent or will be entitled to assume that any Lender will make or refuse to make any Advance in the absence of strict compliance with such condition precedent. Administrative Agent may waive any requirement of this Agreement for any Advance.

Section 4.3 Advances of Sums Due to Lenders . Any advance of proceeds of the Loan made by Lenders under this Section 4.3 will not: (i) relieve any Borrower from its obligation to make any payments required hereunder or under the other Loan Documents; (ii) cure any Default or Event of Default; or (iii) serve as a waiver of any of any Borrower's obligations hereunder or under the other Loan Documents.

Section 4.4 [ Reserved . ]

Section 4.5 Availability Amount . Notwithstanding any provision of this Agreement to the contrary, Borrowers will at all times cause the outstanding principal balance of the Loan not to exceed the Availability Amount, and the Lenders will have no obligation to make any Advance of Loan proceeds if after giving effect to the requested Advance the outstanding principal amount of the Loan would exceed the Availability Amount. If, as of the end of any calendar quarter, as determined by the quarterly reporting provided by Borrower pursuant to the terms of Section 6.15 , the outstanding principal balance of the Loan exceeds the Availability Amount, Borrower shall pay down the Loan in compliance with Section 6.32 .

Section 4.6 Waiver of Disbursement Condition . The approval of any Advance prior to fulfillment of one or more conditions thereof will not be construed as a waiver of any condition, and Administrative Agent reserves the right to require fulfillment of any and all conditions prior to approving any subsequent Advance.

Section 4.7 All Advances Secured by Security Instruments . It is expressly agreed that any Advances made by the Lenders, from time to time, for whatever purposes, no matter to whom made, will, as and when made, be deemed authorized by Borrowers and made pursuant to this Agreement, and will become and remain secured by the Security Instruments and all other collateral for the Loan and considered part of the obligations secured thereby. These provisions will apply whether or not Administrative Agent or any Lender approves or denies any Advance, and whether or not Administrative Agent or any Lender has approved an Advance, or a Default or an Event of Default has occurred.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

Each Borrower represents, warrants and covenants to Administrative Agent and each Lender that:

Section 5.1 Borrowers' and Guarantor's Formation and Powers .

(a) Each Borrower is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the Delaware, and is qualified and authorized to do business in all jurisdictions in which the conduct of its business and affairs requires it to be so qualified. Borrowers have all power, authority, permits, consents, authorizations and licenses necessary to carry on their respective business, to construct, renovate, equip, own and operate the applicable Projects and to execute, deliver and perform their respective obligations under this Agreement and the other Loan Documents; all consents necessary to authorize the execution, delivery and performance of this Agreement and the other Loan Documents have been duly adopted and are in full force and effect; and this Agreement and the other Loan Documents have been duly executed and delivered by Borrowers . Borrowers use no trade names other than their actual names.

(b) Guarantor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified and authorized to do business in all jurisdictions in which the conduct of its business and affairs requires it to be so qualified. Guarantor has all power, authority, permits, consents, authorizations and licenses necessary to carry on its business, to own limited liability company interests in Borrowers (or their members), and to execute, deliver and perform its obligations under the Guaranties, the Indemnity and any other Loan Document to which it is a party; all consents necessary to authorize the execution, delivery and performance of the Guaranties, the Indemnity and the other Loan Documents to which it is a party have been duly adopted and are in full force and effect; and the Guaranties, the Indemnity and the other Loan Documents to which it is a party have been duly executed and delivered by Guarantor.

Section 5.2 Authority .

(a) The execution, delivery and performance by Borrowers of this Agreement and other Loan Documents to which each Borrower is a party have been duly authorized by all necessary action of the governors, managers, members, partners, shareholders, officers and directors, as applicable, of each Borrower, and do not and will not (i) require any additional consent or approval of the members of any Borrower, (ii) violate any provision of any Laws (including Regulation U of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to any Borrower or of any Borrower's Organizational Documents, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower is a party or by which it or its properties may be bound or affected, or (iv) result in or require the creation or imposition of any Security Interest in any of

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its properties pursuant to the provisions of any agreement or other document binding upon or applicable to any Borrower or any of its properties, except pursuant to the Loan Documents.

(b) The execution, delivery and performance by Guarantor of the Guaranties, the Indemnity and other Loan Documents to which Guarantor is a party have been duly authorized by all necessary action of the members of Guarantor, and do not and will not (i) require any additional consent or approval of the members of Guarantor, (ii) violate any provision of any Laws (including Regulation U of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Guarantor or of Guarantor's Organizational Documents, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Guarantor is a party or by which it or its properties may be bound or affected, or (iv) result in or require the creation or imposition of any Security Interest in any of its properties pursuant to the provisions of any agreement or other document binding upon or applicable to Guarantor or any of its properties, except pursuant to the Loan Documents.

Section 5.3 No Approvals . To Borrowers' knowledge, no authorization, consent, approval, license, exemption of or filing or registration with any Governmental Authority, domestic or foreign, is or will be necessary for the valid execution, delivery or performance by Borrowers or Guarantor of this Agreement, the Notes, or any other Loan Documents to which any Borrower or Guarantor is a party.

Section 5.4 Legal and Valid Obligations . This Agreement, the Notes, the Indemnity, the Guaranties and the other Loan Documents to which any Borrower or Guarantor is a party constitute the legal, valid and binding obligations of each Borrower and Guarantor, enforceable against each Borrower and Guarantor in accordance with their respective terms, subject to, and except as may be limited by, bankruptcy and insolvency laws and other laws generally affecting the enforceability of creditor's rights generally and subject to limitations on the availability of equitable remedies.

Section 5.5 Litigation . To the knowledge of each Borrower, there are no actions, suits or proceedings pending or threatened in writing against any Borrower, Guarantor or affecting any of the Projects, at law or in equity or before any Governmental Authority, domestic or foreign, which contests the validity or enforceability of this Agreement or any of the other Loan Documents or the transactions contemplated hereby. To the knowledge of each Borrower, no Borrower nor Guarantor is in default with respect to any final judgment, writ, injunction, decree, rule or regulations of any Governmental Authority, domestic or foreign.

Section 5.6 Title . To Borrower's knowledge, Borrowers have good, marketable and insurable fee simple title to the Land and to the rest of the Projects, subject to no lien, charge, mortgage, deed of trust, restriction or encumbrance, except Permitted Encumbrances. To Borrower's knowledge and except as disclosed in the title reports for the Properties delivered to Administrative Agent prior to the Closing Date there are no mechanics', materialman's or other similar Liens which have been filed for work, labor or materials affecting any Project which are or may be Liens prior to, or equal or subordinate to, the Liens created by the Loan Documents.

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Section 5.7 Defects and Hazards . To Borrowers' knowledge, no Borrower knows of any defects, facts or conditions affecting any Project that would make it unsuitable for the use contemplated hereunder or of any abnormal hazards (including soils and groundwater contamination, earth movement or slippage) affecting any Project.

Section 5.8 Payment of Taxes .

(a) There have been filed all federal, state and local tax returns with respect to each Borrower and Guarantor and their respective direct and indirect business operations which are required to be filed. If applicable, Borrowers and Guarantor have paid or caused to be paid to the respective taxing authorities all taxes as shown on such returns or on any assessments received by it to the extent that such taxes have become due.

(b) To Borrowers' knowledge, all transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid under applicable Laws in connection with the transfer of each Project to a Borrower have been paid or are being paid simultaneously herewith. To Borrowers' knowledge, all mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid under applicable Laws in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including the Security Instrument, have been paid or are being paid simultaneously herewith. To Borrowers' knowledge, all taxes and governmental assessments due and owing in respect of each Project have been paid (or will be paid) prior to delinquency, or an escrow of funds in an amount sufficient to cover such payments has been established hereunder or are insured against by the Title Policy. To Borrowers' knowledge, (i) there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Project, (ii) nor are there any contemplated improvements to any Project that may result in such special or other assessments.

Section 5.9 Agreements .

(a) To each Borrower's knowledge, no Borrower is in default with respect to any order or decree of any court or any order, regulation or demand of any Governmental Authority. Each Borrower's Organizational Documents are in full force and effect. To each Borrower's knowledge, no Borrower is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which such Borrower is a party, the effect of which default would constitute a Material Adverse Change as to such Borrower.

(b) To Guarantor's knowledge, Guarantor is not in default with respect to any order or decree of any court or any order, regulation or demand of any Governmental Authority. Guarantor's Organizational Documents are in full force and effect. Guarantor is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which Guarantor is a party, the effect of which default would constitute a Material Adverse Change as to Guarantor.

Section 5.10 No Defaults under Loan Documents or Other Agreements . No Default or Event of Default has occurred, and no default or event of default exists under any other

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document to which any Borrower is a party which relates to the ownership, occupancy, use, development, construction, renovation or management of the Project. No Borrower is in default in the payment of the principal or interest on any of its Indebtedness for borrowed money beyond any notice or cure periods. No Borrower is obligated for the payment of any commission or other fee with respect to the purchase of the Land and Improvements, or if any Borrower is so obligated, such commission or other fee has been paid in full.

Section 5.11 Boundary Lines; Conformance with Governmental Requirements and Restrictions; Utilities .

(a) Except as specifically disclosed on the survey(s) delivered to Administrative Agent, the exterior lines of the Improvements for each Project are, and at all times will be, within the boundary lines of the Land for each Project and in compliance with all applicable setback requirements. Borrowers and each Project, including the Improvements for each Project are, and at all times will be, in compliance (in all material respects) with all Governmental Requirements, all covenants encumbering the Land for each Project and all Leases. To Borrowers' knowledge and except as disclosed in any zoning reports obtained by Administrative Agent (if any), Borrowers have obtained all permits which are necessary for operating the Improvements for each Project in accordance with all applicable Laws, including building, environmental, subdivision, land use and zoning laws.

(b) Telephone services, gas, electric power, storm sewers, sanitary sewer and water facilities are available to the boundaries of each Project, adequate to serve such Project and not subject to any conditions (other than normal charges to the utility supplier) which would limit the use of such utilities. All streets and easements necessary for operation of each Project are available to the boundaries of such Project.

Section 5.12 Personal Property . Each Borrower, as applicable, is now and will continue to be the sole owner of the Equipment and the Equipment is and will be free from any lien, security interest or other adverse claim of any kind whatsoever, except for liens or security interests in favor of Administrative Agent, for the benefit of itself and the Lenders, the interest of a lessor pursuant to a lease of personal property approved by Administrative Agent, in Administrative Agent's sole discretion, or liens or security interests otherwise approved by Administrative Agent in Administrative Agent's sole discretion.

Section 5.13 Condemnation . To Borrowers' knowledge, no condemnation proceeding or moratorium is pending or threatened against any Project.

Section 5.14 Separate Lots . The Land for each Project is comprised of 1 or more parcels which constitute legal lots and separate tax lots and do not constitute a portion of any other tax lot not a part of such Land.

Section 5.15 Federal Reserve Regulations . No portion of the Loan hereunder will be used to purchase or carry any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System of the United States or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might constitute this transaction a "purpose credit" within the

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meaning of said Regulation U. To Borrowers' knowledge, no portion of the Loan hereunder will be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of said Board of Governors.

Section 5.16 Investment Company Act . No Borrower is subject to regulation under the Investment Company Act of 1940, the Federal Power Act, the Public Utility Holding Company Act of 1935, the Interstate Commerce Act , or any federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed.

Section 5.17 Unregistered Securities . No Borrower has: (a) issued any unregistered securities in violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other law; or (b) violated any rule, regulation or requirement under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in either case where the effect of such violation would constitute a Material Adverse Change as to Borrower.

Section 5.18 Accuracy of Information .

(a) To Borrowers' knowledge (provided such "knowledge" qualifier shall not apply to any financial statements or other financial information), all factual information heretofore or herewith delivered by or on behalf of any Borrower and Guarantor to Administrative Agent or any Lender, including financial statements and other financial information, for purposes of or in connection with this Agreement or any transaction contemplated hereby is true and accurate in every material respect on the date as of which such information is dated or certified and no such information contains any material misstatement of fact or (as to the financial statements or other financial information only) omits to state a material fact or any fact necessary to make the statements contained therein not misleading (in any material respect) as of such date. To the best of each Borrower's knowledge, there has been no change in any condition, fact, circumstance or event that would make the financial statements, rent rolls, reports, certificates or other documents submitted in connection with the Loan inaccurate, incomplete or otherwise misleading in any material respect or that otherwise result in a Material Adverse Change.

(b) As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all material respects.

Section 5.19 ERISA Compliance . No Borrower has adopted a Pension Plan. No Borrower is an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA. None of the assets of any Borrower constitutes, by virtue of the application of 29 C.F.R. Section 2510.3-101(f) as modified by Section 3(42) of ERISA, "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101. No Borrower nor any Related Party is a "governmental plan" within the meaning of Section 3(32) of ERISA. Transactions by or with any Borrower are not subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans.

Section 5.20 Consents . To the extent that any franchises, licenses, permits, certificates, authorizations, approvals or consents from any Governmental Authority, domestic or foreign, are

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material to the present conduct of the business and operations of any Borrower or are required for the acquisition, ownership, operation or maintenance by any Borrower of its Project, operates or maintains or the present conduct of its businesses and operations, such franchises, licenses, permits, certificates, authorizations, approvals and consents have been validly granted, are in full force and effect and constitute valid and sufficient authorization therefor.

Section 5.21 Reserved .

Section 5.22 Anti-Corruption Laws; Sanctions . Borrowers, Guarantor and their respective Affiliates and, to the knowledge of Borrowers and Guarantor, their respective officers, employees and directors are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. KBS Capital Advisors (which is the investment advisor to Borrowers) has implemented and maintains in effect for itself and its respective Subsidiaries policies and procedures to ensure compliance with Anti-Corruption Laws and applicable Sanctions. None of Borrowers, Guarantor, or, to the knowledge of Borrowers and Guarantor, any of their respective Affiliates, directors, officers, or employees is a Sanctioned Person.

Section 5.23 Subsidiaries . No Borrower has any Subsidiaries.

Section 5.24 Leases . Except as set forth in Exhibit L , there is no Lease in effect relating to any Project. To Borrowers' knowledge, Borrowers have delivered to Administrative Agent true, correct and complete (in all material respects) copies of all Leases, if any, currently affecting any Project, and there are no oral agreements. Each Lease constitutes the legal, valid and binding obligation of a Borrower and the lessee thereunder, except as disclosed to Administrative Agent in writing, to Borrower's knowledge, is in full force and effect and is enforceable in accordance with its terms except as may be limited by bankruptcy and insolvency laws and other laws generally affecting the enforceability of creditors’ rights generally and subject to limitations on the availability of equitable remedies. To Borrowers' knowledge, there are no defaults with respect to any such Leases.

Section 5.25 Property Management Agreements . Borrowers have delivered to Administrative Agent a true, correct and complete (in all material respects) copy of each Property Management Agreement for the Initial Projects. To Borrowers' knowledge, (i) such Property Management Agreements are unmodified and in full force and effect, and (ii) Borrowers are not in default of, nor to each Borrower's knowledge is any other party to its respective Property Management Agreement in default, of such Agreement .

Section 5.26 Alterations .

(a) Borrowers will provide notice in connection with any alterations to any Improvements for any Project which are structural in nature and the cost of which (including any related alteration, improvement or replacement) is reasonably anticipated to exceed the Alteration Threshold (a " Material Alteration ").

(b) Upon substantial completion of any Material Alteration, Borrowers will be required, upon Administrative Agent's request, to provide evidence reasonably satisfactory to Administrative Agent that (i) such Material Alteration was constructed in accordance with applicable Governmental Requirements, (ii) all contractors, subcontractors, materialmen and

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professionals who provided work, materials, equipment or services in connection with such Material Alteration have been paid in full and have delivered unconditional releases of Liens, and (iii) all licenses and permits reasonably necessary for the use, operation and occupancy of such Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued.

Section 5.27 Solvency . All Borrowers and Guarantor are and will remain solvent after giving effect to all borrowings and guaranties contemplated in the Loan Documents.

Section 5.28 Ownership and Control of Borrowers . As of the Closing Date, the direct and indirect owners of each Borrower are set forth on Exhibits G-1 and G-5 attached hereto, respectively.

Section 5.29 Brokers . No Borrower nor any Affiliate of any Borrower has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement.

Section 5.30 Use of Loan Proceeds . The proceeds of the Loan shall be used only for the purposes specified in this Agreement.

Section 5.31 Purchase Options . To Borrower’s knowledge, as of the Closing Date, no part of any Project is subject to any purchase options, rights of first refusal or other similar rights in favor of any Person except as expressly disclosed in writing, to Administrative Agent (including the Title Policy and any approved or deemed approved Leases).

Section 5.32 FIRPTA . No Borrower, Guarantor nor any Related Party nor any holder of any legal or beneficial interest therein is held, directly or indirectly, by a "foreign corporation", "foreign partnership", "foreign trust", "foreign estate", "affiliate" of a "foreign person" or a "United States intermediary" of a "foreign person" within the meaning of the Code Sections 897, 1445, or 7701, the Foreign Investments in Real Property Act of 1980, the International Investment and Trade Services Survey Act, the Agricultural Foreign Investment Disclosure Act of 1978, or the regulations promulgated pursuant to such Acts or any amendments to such Acts.

Section 5.33 Eligible Contract Participant . Guarantor is, as of the date of the execution of the Guaranty, and will be on each date that any Borrower enters into a Lender-Provided Swap Transaction, an "eligible contract participant" as defined in the Commodity Exchange Act.

Section 5.34 EEA Financial Institution . No Borrower nor Guarantor is an EEA Financial Institution.

THE WARRANTIES AND REPRESENTATIONS IN THIS ARTICLE V , AND ANY ADDITIONAL WARRANTIES AND REPRESENTATIONS CONTAINED HEREIN AND IN THE OTHER LOAN DOCUMENTS, SHALL BE DEEMED TO HAVE BEEN RENEWED AND RESTATED BY BORROWERS EACH TIME BORROWERS SUBMIT A REQUEST FOR AN ADDITIONAL ADVANCE TO AGENT OR DELIVERS A QUARTERLY CERTIFICATE TO AGENT PURSUANT TO SECTION 6.15 , SUBJECT TO THE

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QUALIFICATIONS AS TO SUCH REPRESENTATIONS AND WARRANTIES CONTAINED THEREIN (PROVIDED, FOR PURPOSES OF CLARIFICATION, THIS SHALL IN NO EVENT PREVENT ADMINISTRATIVE AGENT AND LENDERS FROM EXERCISING THEIR RIGHTS AND REMEDIES UNDER THIS AGREEMENT IN ACCORDANCE WITH SECTION 8.2 OF THIS AGREEMENT IF AT ANY TIME ADMINISTRATIVE AGENT OR LENDERS DETERMINE THAT A REPRESENTATION OR WARRANTY IS NOT TRUE, CORRECT AND COMPLETE IN ALL MATERIAL RESPECTS).

ARTICLE VI

COVENANTS OF BORROWERS

While this Agreement is in effect, and until the Lenders have been paid in full the principal of and interest on all Advances, and all other sums, made by Administrative Agent and/or the Lenders hereunder and under the other Loan Documents, Borrowers agree to comply with, observe and keep the following covenants and agreements:

Section 6.1 Responsibility for Improvements . As of the Closing Date, no construction/renovation work or other work which could give rise to mechanics' liens rights with respect to the Improvements has not been paid prior to delinquency.

Section 6.2 [ Intentionally Deleted] .

Section 6.3 Title to the Projects . Borrowers will warrant and defend the validity and priority of the Lien of the Security Instrument on each Project against the claims of all Persons whomsoever, subject only to Permitted Encumbrances.

Section 6.4 Using Loan Proceeds .

(a) Subject to the terms and conditions of Article IV , Borrowers must use the Loan proceeds for the acquisition of each Project in accordance with the terms and conditions of this Agreement, and for the other purposes specified in Section 2.1(e) .

(b) Borrowers will not request any Advance, and will not use, and Borrowers will use their commercially reasonable efforts that their respective Affiliates and each of their respective directors, officers, and employees shall not use, the proceeds of any Advance in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws. Borrowers will not, directly or indirectly, knowingly use the proceeds of the Advances, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, (i) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is, or whose government is, the subject of Sanctions, or (ii) in any other manner that would result in a violation of Sanctions by any Person (including any Person participating in the Advances, whether as underwriter, advisor, investor, or otherwise).

Section 6.5 Keeping of Records . Borrowers must set up and maintain accurate and complete books, accounts and records pertaining to the Project in a manner reasonably

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acceptable to Administrative Agent. Borrowers will permit representatives of Administrative Agent to have free access to and to inspect and copy such books, records and contracts of Borrowers and to inspect the Project and to discuss Borrowers' affairs, finances and accounts with any of its principal officers, all at such times and as often as may reasonably be requested (and upon reasonable notice to Borrowers). Any such inspection by Administrative Agent is for the sole benefit and protection of Administrative Agent and the Lenders, and Administrative Agent has no obligation to disclose the results thereof to Borrowers or to any third party (other than the Lenders pursuant to this Agreement).

Section 6.6 Providing Updated Surveys . If required by Administrative Agent, upon request of Administrative Agent, upon an Event of Default, Borrowers must deliver to Administrative Agent, at Borrowers' cost and expense, 1 copy of a Survey for each Project, certifying that the Improvements are constructed within the property lines of the Land, do not encroach upon any easement affecting the Land and do comply with all applicable Governmental Requirements relating to the location of Improvements, along with an endorsement to the Title Policy bringing forth the effective date thereof to the date of said Survey without exception therefor, if applicable.

Section 6.7 Property Management Agreement . Borrowers will at all times employ a Property Manager for the Land and the Improvements and will not amend or modify (in any material respect) or terminate the Property Management Agreement without the prior written consent of Administrative Agent (which consent shall not be withheld, conditioned or delayed unreasonably). Administrative Agent will have the right to require Borrowers to replace the Property Manager with a Person approved by the Required Lenders: (a) upon the occurrence of an Event of Default, or (b) upon the occurrence of a default by the Property Manager under the Property Management Agreement beyond all applicable notice, grace or cure periods. Borrowers shall have the right to enter into a new Property Management Agreement with a "pre-approved" Property Manager without the Administrative Agent's consent, provided that such Borrower will provide a copy of such new Property Management Agreement to the Administrative Agent promptly following execution.

Section 6.8 Maintaining Insurance Coverage . Borrowers must maintain, or cause to be maintained, in full force and effect (and must deliver to Administrative Agent copies of), insurance coverages complying with the provisions of Exhibit H attached hereto, in form and substance satisfactory to Administrative Agent.

Section 6.9 Transferring, Conveying or Encumbering the Land, Equipment, Improvements or Interests in Borrowers; Change of Control .

(a) Except as expressly permitted in this Agreement or any other Loan Documents (including, without limitation, this Section 6.9(a)), Borrowers may not voluntarily, involuntarily or by operation of law agree to, cause, suffer or permit: (i) any Change of Control; (ii) any sale, transfer, lease, encumbrance, pledge or conveyance of any legal or beneficial interest of any Borrower in the Land, the Improvements or the Equipment; or (iii) any mortgage, pledge, encumbrance or Liens to be outstanding against the Land, the Improvements or the Equipment or any portion thereof, or any security interest to exist therein, except (A) as created by the Security Instrument and the other Loan Documents which secure the Notes, (B) Permitted Encumbrances,

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and (C) Leases approved or deemed approved by Administrative Agent (to the extent such approval is required) and Leases not requiring Administrative Agent's approval. Consent by Administrative Agent to one transfer will not be deemed to be a waiver of the right to require consent to future or successive transfers. Notwithstanding anything stated to the contrary in this Agreement or in any of the other Loan Documents, any transfers (or the pledge or encumbrance ) of equity interests or other interests in KBSIII REIT ACQUISITION I, LLC, KBSIII REIT ACQUISITION IV, LLC, KBSIII REIT ACQUISITION V, LLC, and KBSIII REIT ACQUISITION XXVII, LLC, or in any of the direct or indirect owners of KBSIII REIT ACQUISITION I, LLC, KBSIII REIT ACQUISITION IV, LLC, KBSIII REIT ACQUISITION V, LLC, and KBSIII REIT (including, without limitation, KBS REIT PROPERTIES III, LLC, KBS LIMITED PARTNERSHIP III or KBS REAL ESTATE INVESTMENT TRUST III, INC.) shall not be prohibited (and shall be expressly permitted) provided that KBS REAL ESTATE INVESTMENT TRUST III, INC. continues to own, either directly or indirectly, 100% of the ownership interests in each Borrower.

(b) No transfer, conveyance, lease, sale or other disposition will relieve any Borrower from personal liability for its obligations hereunder or under the Notes, whether or not the transferee assumes the Security Instrument. Administrative Agent may, without notice to Borrowers, deal with any successor owner of all or any portion of the Land, the Improvements or the Equipment in the same manner as with Borrowers, without in any way discharging the liability of any Borrower hereunder or under the Notes.

Section 6.10 Required Minimum Non-Revolving Portion Funded Amount . The outstanding principal balance of the Non-Revolving Portion shall at all times be at least equal to fifty percent (50%) of the then Aggregate Commitment. However, should at any time the principal balance of the Non-Revolving Portion be less than fifty percent (50%) of the then applicable Aggregate Commitment, Borrowers may, at Borrower's option, within thirty (30) days of written demand by Agent, permanently cancel any unfunded portions of the Aggregate Commitment in order to satisfy this requirement; provided further, however , the Borrowers shall be required, within ten (10) days of written demand by Administrative Agent, to pay down the total outstanding principal balance of the Loan to the extent that it exceeds the reduced Aggregate Commitment so that the principal balance never exceeds the then applicable Aggregate Commitment.

Section 6.11 Updated Appraisals . Borrowers agree that Administrative Agent has the right to obtain updated Appraisals of the Projects prepared by an appraiser in accordance with the Required Appraisal Standard. Borrowers will pay for each such updated Appraisal if: (a) an Event of Default has occurred, and is continuing, (b) to the extent expressly requested by Borrowers (in their sole discretion) pursuant to the terms of the Loan Documents and (c) Administrative Agent determines in its reasonable discretion that such an updated appraisal is required in connection with any casualty or condemnation affecting the Project or required under any laws or regulations applicable to Administrative Agent (but not more frequently than once in any six month period). Borrowers will reasonably cooperate with Administrative Agent and the appraiser in obtaining the reasonably necessary information (to the extent available to Borrowers) to prepare each such updated Appraisal, and, if Borrowers are required to pay for each such updated Appraisal, Borrowers must reimburse Administrative Agent for each such

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updated Appraisal within 15 Business Days of any Borrower's receipt of an invoice from Administrative Agent.

Section 6.12 Inspections . Borrowers agree that Administrative Agent, the Title Company , consultants as Administrative Agent may require and their representatives will have access to the Projects at all reasonable times and upon not less than twenty four (24) hours prior notice, and shall have the right to enter any Project and to conduct such inspections thereof at their sole cost and expense, and subject to the rights of tenants under their leases, provided if an Event of Default exists, such inspection shall be at Borrower's expense, as they shall deem necessary or desirable for the protection of the interests of Administrative Agent and the Lenders.

Section 6.13 Guarantor Financial Covenants . Borrowers will cause Guarantor to at all times maintain and comply with the financial covenants and other covenants set forth in the Guaranties.

Section 6.14 [ Reserved .]

Section 6.15 Reporting Requirements .

(a) Commencing with the calendar quarter ending on December 31, 2018, Borrowers must deliver and, as appropriate, cause Guarantor to deliver to Administrative Agent the following:



REPORTING PARTY	REQUIRED STATEMENT	TO BE RECEIVED BY
1. Borrowers	Quarterly (i) rent roll, (ii) Operating Statement for the Projects (to be prepared and certified by Borrowers) and (iii) quarterly unaudited financials for Borrower.	Within sixty (60) days of the end of each 1st, 2nd and 3rd calendar quarter, except 120 days after each calendar quarter ending on December 31st during the term of the Loan; or upon request by Lender (not more than once per month)
2. Borrowers	Quarterly calculation of the Availability Amount and the Borrowing Base Amount.	Within sixty (60) days of the end of each calendar quarter during the term of the Loan
3. Borrowers	An annual Operating Budget and Business Plan for the Project	Within one hundred twenty (120) days of the end of each Fiscal Year
4. Guarantor	Unaudited financial statements for Guarantor including balance sheets, income statements, a statement of cash flow and supporting schedules reasonably requested by	Within one hundred twenty (120) days of the end of each calendar year during the term of the Loan

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REPORTING PARTY	REQUIRED STATEMENT	TO BE RECEIVED BY
	Administrative Agent. Such financial statements will be accompanied by a real estate-owned schedule (with bank statements and any other documentation reasonably satisfactory to Administrative Agent to support the financial covenant calculations set forth in the Guaranties). Notwithstanding the foregoing, if the KBS Real Estate Investment Trust III, Inc. (" Parent REIT ") no longer files a 10-K Form (the " 10-K Form ") or a 10-Q Form (the " 10-Q Form ") with the U.S. Securities and Exchange Commission, the Guarantor or Parent REIT shall during any such time thereafter be required to provide annual audited (by a third-party certified public accountant satisfactory to Agent) financial statements and quarterly unaudited financial statements.
5. Guarantor	Quarterly Financial Covenant Compliance Certificate (with bank statements and any other documentation reasonably satisfactory to Administrative Agent to support the financial covenant calculations set forth in the Guaranties).	Within sixty (60) days of the end of each fiscal quarter during the term of the Loan, provided, however, for the last quarter of the Fiscal Year, such Certificate may be delivered with the annual financial statement

(b) From time to time, with reasonable promptness, Borrowers and Guarantor must deliver (i) to Administrative Agent such further information regarding the business, affairs and financial condition of each Borrower or any Guarantor as Administrative Agent or any Lender may reasonably request or (ii) information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable "know your customer" requirements under the PATRIOT Act or other applicable anti-money laundering laws From time to time, with reasonable promptness, each Borrower and Guarantor must deliver to Administrative Agent such further information regarding the business, affairs and financial condition of such Borrower or any Guarantor as Administrative Agent or any Lender may reasonably request.

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Section 6.16 Taxes and Claims . Borrowers must pay and discharge all taxes, prior to delinquency, assessments and other governmental charges upon the Improvements, as well as all claims for labor and materials which, if unpaid, might become a lien or charge upon the Improvements; provided , however , that Borrowers may contest the amount, validity and/or applicability of any of the foregoing which is being contested in good faith and by proper proceedings, and in strict accordance with the terms of the Security Instrument.

Section 6.17 Maintain Existence . Borrowers will (i) preserve and maintain, and cause each Guarantor to preserve and maintain, such parties' existence (i.e., shall not dissolve such entities or such party otherwise shall not cease to exist) and (ii) preserve and maintain, and cause each Guarantor to preserve and maintain, such parties’ rights and privileges in the jurisdiction of their respective organization and qualify and remain qualified in each jurisdiction in which such qualification is necessary in view of such parties' business and operations.

Section 6.18 Compliance with Governmental Requirements . Borrowers must promptly and faithfully comply with, conform to and obey all present and future Governmental Requirements; provided , however , that Borrowers will have the ability to contest any alleged failure to conform to or comply with such Governmental Requirements so long as such obligations are diligently contested by appropriate proceedings pursued in good faith and any penalties or other adverse effect of its nonperformance are stayed or otherwise not in effect, or a cash escrow deposit equal to all such contested payments and potential penalties or other charges is established with Administrative Agent, as determined by Administrative Agent in its discretion.

Section 6.19 Notice . Borrowers must give prompt written notice (and in any event within 10 Business Days of obtaining knowledge of same) to Administrative Agent of (to the extent known by Borrower): (a) any action or proceeding instituted by or against any Borrower or any Guarantor in any federal or state court or before any commission or other regulatory body, Federal, state or local, foreign or domestic which, if adversely determined, could have a material adverse effect on Borrower or Guarantor; or (b) any such proceedings that are threatened in writing against any Borrower, or any Guarantor which, if adversely determined, could have a material and adverse effect upon any Borrower's or any Guarantor's businesses, operations, properties, assets, managements, natures of ownership or conditions (financial or otherwise) or which would constitute an event of default or a default under any other contract, instrument or agreement to which any of them is a party or by or to which any of them or any of their properties or assets may be bound or subject; or (c) any actions, proceedings or notices materially adversely affecting any Project (or any portion thereof) or Administrative Agent's interest therein or any zoning, building or other municipal officers, offices or departments having jurisdiction with respect to any Project or the leasing of it.

Section 6.20 No Other Debt . No Borrower will incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Loan, any Swap Transaction, trade debt and other expenditures contemplated under this Agreement (including payment of taxes, insurance, tenant improvements and capital expenditures) reasonably incurred in the ordinary course of operating such Borrower's Project (all of which are debts which are expressly permitted under the Loan Documents); provided that the foregoing shall not be deemed to prohibit up to $1,000,000 in the aggregate at each Project owing under equipment leases for

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equipment to be used by Borrowers in connection with the Projects; and provided further, however, that in no case may such leased equipment be incorporated into any Improvements as part of the structure thereof or otherwise installed as part of any Improvements in such a way that the removal thereof would result in material damage to such Improvements.

Section 6.21 Merger and Consolidation . No Borrower may merge or consolidate into any Person or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other Person.

Section 6.22 Loss of Note or other Loan Documents . Upon notice from a Lender of the loss, theft, or destruction of a Note and if requested by Borrowers, upon receipt of an affidavit of lost note and an indemnity from such Lender in the form customarily given by institutional lenders, or in the case of mutilation of a Note, upon surrender of such mutilated Note, Borrowers must make and deliver a new note of like tenor in lieu of the then to be superseded Note. If any of the other Loan Documents were lost or mutilated, Borrowers agree to execute and deliver replacement Loan Documents in the same form of such Loan Document(s) that were lost or mutilated.

Section 6.23 Project Accounts . Borrowers must maintain all Operating Accounts with Administrative Agent.

Section 6.24 Fees and Expenses . Borrowers must pay all reasonable costs and expenses of Administrative Agent and any Borrower in connection with the Projects, the preparation, review and negotiation of the Loan Documents and the making, underwriting, due diligence, closing, administration, review, amendment, modification, extension, repayment and/or transfer, syndication and/or distribution (including, without limitation, via DebtX and any other internet service selected by Administrative Agent) of the Loan and the Loan Documents, including the fees and expenses of Administrative Agent's attorneys, the fees for Administrative Agent's internal review of the initial Appraisal and any subsequent updates or additional appraisals, the fees for Administrative Agent's internal review of the Environmental Report and/or any subsequent environmental report or up-date thereto, the fees of Administrative Agent's other consultants, the fees associated with the review of the insurance policies and coverages both in connection with the closing and throughout the term of the Loan, appraisal fees, costs of environmental studies and reports, title insurance costs, travel costs and expenses, the cost of any loan brokerage fees, disbursement and advance costs and expenses, the cost of any credit and/or audit investigations (including any Troy reports), recording costs and fees, and all other costs and expenses payable to third parties incurred by Administrative Agent, or any Borrower in connection with the Loan. Such costs and expenses must be so paid by Borrowers whether or not the Loan is fully advanced or disbursed. Borrowers agree to pay and reimburse Administrative Agent and the Lenders within ten (10) Business Days following written demand for all expenses paid or incurred by Administrative Agent and/or any Lender (including reasonable fees and expenses of legal counsel; provided, however, that Borrowers shall be obligated to pay any Lender's legal fees only if such legal fees are incurred by such Lender as a result of Borrowers' Event of Default) in connection with the collection and enforcement of the Loan Documents, or any of them, or incurred in connection with assessing and responding to any subpoena, garnishment or similar process served on Administrative Agent and/or any Lender

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relating to any Borrower, any Collateral, Guarantor, any Loan Document or the extensions of credit evidenced thereby. Borrowers agree to pay, and save Administrative Agent and the Lenders harmless from all liability for, any mortgage registration, mortgage recording, transfer, recording, stamp, like tax or other charge due to any governmental entity, which may be payable with respect to the execution or delivery of the Loan Documents. Borrowers agree to indemnify Administrative Agent and each Lender harmless from any loss or expense which may arise or be created by the acceptance of telephonic or other instructions for making the Loan or disbursing the proceeds thereof except for losses or expenses caused by the gross negligence or willful misconduct of the party seeking indemnification. The obligations of Borrowers under this Section will survive termination of this Agreement.

Section 6.25 Distributions .

(a) If an Event of Default has occurred and is continuing, no Borrower will, without the prior written consent of Required Lenders, make any distribution of assets to any member in any Borrower, whether or not such a distribution is permitted under the terms of such Borrower's limited liability company agreement, including repayment of any loans made by a member in any Borrower to such Borrower, return of capital contributions, distributions upon termination, liquidation or dissolution of such Borrower or any development, property management, accounting or other fees payable to a member in such Borrower (unless any such fee has been approved by Required Lenders in writing).

(b) No Borrower may at any time make a distribution of assets that would cause the Loan to constitute an HVCRE loan. Notwithstanding the foregoing or anything else to the contrary in this Agreement, Borrowers shall be entitled to make distributions of assets so long as no Event of Default shall have occurred and be continuing.

Section 6.26 Permits, Approvals and Licenses . Borrowers must promptly obtain and comply with all necessary licenses, permits and approvals from and, must satisfy within any applicable time periods required by or specified in any Governmental Requirements, the requirements of, all governmental entities necessary to operate the Improvements and must promptly deliver the same to Administrative Agent upon its written request.

Section 6.27 Compliance with Laws; Anti-Money Laundering Laws .

(a) Borrowers and Guarantor will, and will cause their respective Subsidiaries and Affiliates to, comply in all material respects with all Laws to which it may be subject including, without limitation, Anti-Corruption Laws and applicable Sanctions. KBS Capital Advisors LLC will maintain in effect and enforce policies and procedures designed to ensure compliance by Borrowers, Guarantor, their respective Subsidiaries with Anti-Corruption Laws and applicable Sanctions.

(b) Borrowers and Guarantor will, and will cause their respective Subsidiaries and Affiliates to, within 30 days of demand of same (or a longer time period if reasonably necessary), provide such information and take such actions as are reasonably requested by Administrative Agent or any Lender in order to assist Administrative Agent and the Lenders in maintaining compliance with anti-money laundering Laws.

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Section 6.28 Related Party Transactions . Except for the Property Management Agreement, no Borrower may enter into, or be a party to, any contract or other transaction with a Related Party without the prior written consent of Administrative Agent and such contract or other transaction is an arm's-length transaction.

Section 6.29 Lease Approval Rights . Except as specified below, Borrower shall not enter into, amend or modify any lease covering any portion of any Project without Administrative Agent's prior written consent, in Administrative Agent's reasonable discretion, and shall furnish to Administrative Agent, upon execution, a fully executed copy of each such lease entered into by Borrower, together with all exhibits and attachments thereto and all amendments and modifications thereof. For leases that require Administrative Agent approval, Borrower shall provide Administrative Agent with a copy of the Letter of Intent ("LOI") for each proposed lease and, to the extent available, with financial information on the proposed tenant to aid Administrative Agent in determining whether it will consent thereto. Administrative Agent may declare any future leases with key tenants at any Project to be prior or subordinate to the Security Instrument encumbering such Project, at Administrative Agent's sole option, and Borrower shall use commercially reasonable efforts to obtain SNDAs to achieve such subordination. A proposed LOI shall be deemed approved by Administrative Agent unless Administrative Agent disapproves such LOI in writing within five (5) Business Days after such LOI is submitted to Administrative Agent for approval. Upon approval (or deemed approval) of the LOI, no further approval will be required by Administrative Agent and Administrative Agent will have granted its consent to the lease that results from the LOI so long as such lease is on a lease form reasonably approved by Administrative Agent (with no material changes which have not been approved by Administrative Agent in writing, provided that such lease form may be modified to address customary lease modifications in the marketplace), and the business terms in the lease are not materially different from the terms outlined in the approved (or deemed approved) LOI and such lease otherwise qualifies as an Approved Lease.

Notwithstanding the first sentence of this Section 6.29, with respect to Qualifying Leases (as defined below), Borrower shall not be obligated to obtain Administrative Agent's prior written consent so long as such lease (i) is on a lease form approved by Administrative Agent (which lease form may be modified to address customary lease modifications in the marketplace) and such lease otherwise qualifies as an Approved Lease; (ii) the net effective rent payable under such lease is equal to or in excess of 85% of market rents at the time the lease is executed; and (iii) the term for such lease is equal to or greater than 1-year.

Borrower shall use commercially reasonable efforts to obtain SNDAs and estoppel statements, in form and substance reasonably satisfactory to Administrative Agent, as to those leases and tenants requested by Administrative Agent, within thirty (30) days of Administrative Agent's request.

For purposes of this Section 6.29, " Qualifying Lease " shall mean a Lease for less than 50,000 square feet.

Section 6.30 Single Purpose Entity Provisions . Each Borrower's sole business purpose must be to own and operate a Project. Each Borrower (a) must conduct business only in its own name, (b) must not engage in any business or own any assets unrelated to the Land and

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the Improvements, (c) must not have any Indebtedness other than as permitted by this Agreement, (d) must have its own separate books, records, and accounts (with no commingling of assets), (e) must hold itself out as being an entity separate and apart from any other Person, (f) must observe organizational formalities independent of any other entity, and (g) must not change its name, identity, or organizational structure, unless such Borrower has obtained the prior written consent of Administrative Agent to such change, and has taken all actions necessary or requested by Administrative Agent to file or amend any financing statement or continuation statement to assure perfection and continuation of perfection of security interests under the Loan Documents.

Section 6.31 Swap Transaction .

(a) Borrowers may enter (or cause Guarantor to enter) into one or more Swap Transactions for the purpose of hedging and protecting against interest rate fluctuation risks with respect to the Loan.

(b) Borrowers must send to Administrative Agent written notice of the execution of any Swap Transaction as soon as is reasonably possible after execution, including a copy of the confirmation of the Swap Transaction. Borrowers must send to Administrative Agent any written notice of default or breach of or under the Swap Transaction that any Borrower sends to (such notice to Administrative Agent to be sent simultaneously therewith) or receives from (such notice to Administrative Agent to be sent immediately upon receipt by such Borrower thereof) any Person that is a party to any Swap Transaction.

Section 6.32 Mandatory Principal Payments . If, as of the end of any calendar quarter, as determined by the quarterly reporting provided by Borrower pursuant to the terms of Section 6.15 above, the outstanding principal balance of the Loan exceeds the Availability Amount, Borrower shall, within thirty (30) days of written demand by Administrative Agent, pay down the outstanding principal of the loan by an amount (as reasonably determined by Administrative Agent, but without paying any prepayment or exit fees other than Libor Breakage Costs and amounts and sums owing under Section 2.13 , and Swap Transaction fees or breakage amounts) sufficient to cause the outstanding principal balance of the Loan to not exceed the Availability Amount. The calculation of the Borrowing Base Amount shall, as to the component of such calculation pertaining to operating income, be based upon Net Operating Income based on the financial information received from Borrower in accordance with Section 6.15 or, if Borrower has failed to deliver such information as and when required by Section 6.15 (or if Administrative Agent reasonably and in good faith believes such information to be inaccurate), such other information as Administrative Agent reasonably and in good faith deems appropriate.

Section 6.33 [ Reserved . ]

Section 6.34 Personal Property . Each Borrower is, and after the date hereof, will be the sole owner of all Equipment pertaining to such Borrower's Property, free from any adverse lien, security interest or adverse claim of any kind whatsoever, except for security interests and liens in favor of Agent and other liens approved by Agent, in Agent's sole discretion. Borrowers may not, without the prior written consent of Administrative Agent, not to be unreasonably withheld, sell, assign, transfer, or encumber any of the Equipment owned by any Borrower. So

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long as no Event of Default has occurred, Borrowers may sell or otherwise dispose of the Equipment when obsolete, worn out, inadequate, unserviceable or unnecessary for use in the operation of the Land and the Improvements, but, if material to the operation of the Land and the Improvements, only upon replacing the same with other Equipment comparable in value and utility to the Equipment that is disposed if needed for the operation of the Land and the Improvements. Borrowers will deliver to Administrative Agent from time to time, within 10 days of Administrative Agent's request therefore, a list of all Equipment then in existence.

Section 6.35 Further Assurances . Borrowers must, at Borrowers' sole cost and expense: (a) execute and deliver to Administrative Agent such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the obligations of Borrowers under the Loan Documents, as Administrative Agent may reasonably require; and (b) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Administrative Agent reasonably requires from time to time.

Section 6.36 Estoppel Statements .

(a) After written request by Administrative Agent, Borrowers must within 20 Business Days furnish Administrative Agent with a statement, stating (i) to Borrowers' knowledge, the unpaid principal amount of the Notes, (ii) to Borrowers' knowledge, the then current Loan Rate, (iii) the date installments of interest and/or principal were last paid, (iv) to Borrowers' knowledge, any offsets or defenses to the payment of the Loan, if any, and (v) that this Agreement and the other Loan Documents have not been modified or if modified, giving particulars of such modification.

(b) After written request by Borrowers, Administrative Agent much within 20 Business Days furnish borrowers with a statement, stating (i) the unpaid principal amount of the Notes, (ii) the then current Loan Rate, (iii) the date installments of interest and/or principal were last paid and (iv) whether or not Administrative Agent has sent any notice of default under the Loan Documents which remains uncured in the opinion of Administrative Agent.

Section 6.37 [Intentionally Deleted].

Section 6.38 Zoning; Assessment Districts .

(a) No Borrower may initiate or consent in writing to any zoning reclassification of all or any portion of the Land or seek any variance under any existing zoning ordinance or use or knowingly permit the use of all or any portion of said Land in any manner that could result in such use becoming a nonconforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior written consent of Administrative Agent (which consent shall not be withheld unreasonably).

(b) Unless otherwise required by applicable Law, no Borrower will, without Administrative Agent's prior written consent (which consent shall not be withheld, conditioned or delayed unreasonably, cause or consent in writing to the formation of any assessment district,

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or any other comparable or similar district, area or territory which includes the Land or any part of the Land which would require the Land to pay taxes higher than would otherwise be payable or require minimum tax payments or cause or otherwise consent to the levying of special taxes, assessments or payments in lieu against the Land and the Improvements or any part thereof, the levying of assessments by any assessment district against the Land and the Improvements or any part thereof, or the levying of assessments, taxes and/or other Taxes by any district, area or territory.

Section 6.39 ERISA Compliance . No Borrower will adopt a Pension Plan. At all times while the Obligations are outstanding, (i) no Borrower will be an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, (ii) none of the assets of any Borrower will constitute, by virtue of the application of 29 C.F.R. Section 2510.3-101(f) as modified by Section 3(42) of ERISA, "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101, (iii) no Borrower will be a "governmental plan" within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with any Borrower will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans.

ARTICLE VII

COVENANTS REGARDING OPERATING ACCOUNTS; SECURITY AGREEMENT

During the term of the Loan, Borrowers will maintain the following accounts:

Section 7.1 [Intentionally Deleted] .

Section 7.2 Operating Account . Each Borrower agrees to open and maintain an Operating Account for each Project at Administrative Agent. Borrowers must at all times deposit, or cause to be deposited, all gross revenues and other income from the Projects into the Operating Account.

Section 7.3 Security Agreement for Operating Accounts . Borrowers will open and maintain at Administrative Agent the Operating Accounts under the terms and conditions set forth above. Each Borrower hereby grants to Administrative Agent, for the benefit of itself and the Lenders, a first lien security interest in each of the Operating Accounts, whether now existing or hereafter established, and all funds from time to time on deposit therein. Each Borrower will maintain each Operating Account free and clear of any claim, lien or other encumbrance other than the security interest granted to Administrative Agent hereunder. Upon the occurrence (and during the continuance, of an Event of Default, Administrative Agent may, to the maximum extent permissible by law, apply any or all of the funds in the Operating Accounts, including accrued interest on such funds, if any, toward the unpaid balance of the Loan and/or to any other amounts which may be due and owing under the Loan Documents. The parties acknowledge and agree that each of the Operating Accounts is a "deposit account" within the meaning of Section 9104 of the UCC. The parties further acknowledge and agree that California constitutes the "Administrative Agent's jurisdiction" with respect to the perfection, the effect of perfection or non-perfection, and the priority of a security interest in a deposit account maintained at a bank under Section 9304(b)(1) of the UCC. Administrative Agent will at all times have "control" of

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the Operating Accounts and all assets now or hereafter credited thereto within the meaning of Section 9106 of the UCC or Section 9104(a) of the UCC for purposes of maintaining its first and prior perfected security interest therein.

ARTICLE VIII

DEFAULTS

Section 8.1 Events of Default . Any of the following events constitutes an Event of Default under this Agreement (each an " Event of Default "):

(a) Borrowers default in any payment of principal within three (3) Business Days after the same becomes due according to the terms of this Agreement or of any Note;

(b) Any Borrower defaults in the payment of interest due according to the terms of this Agreement or of any Note, or of fees or other amounts payable to Administrative Agent or any Lender hereunder or under any other document other than as set forth in Section 8.1(a) , and such default continues unremedied for a period of three (3) Business Days after notice from Administrative Agent to Borrowers thereof;

(c) A default occurs in the performance of any Borrower's obligations in Section 6.4(b) (Use of Proceeds), 6.15 (Reporting Requirements) (provided Borrower fails to provide the required statements within ten (10) Business Days of Administrative Agent's notice to Borrower requesting same), 6.17 (i) (Maintain Existence), 6.19(b) (regarding notices of default), 6.25 (Distributions), 6.27 (Compliance with Anti-Corruption Laws; Anti-Money Laundering Laws), 6.30 (Single Purpose Entity Provisions, provided Borrower fails to remedy the situation within 30 days of having knowledge of any such failure), and 6.39 (ERISA Compliance);

(d) Any Borrower or Guarantor defaults in the performance or observance of any agreement, covenant or condition required to be performed or observed by such Borrower or Guarantor (as applicable) under the terms of this Agreement, any other Loan Document, other than a default described elsewhere in this Section 8.1 , and such default continues unremedied for a period of 30 days after notice from Administrative Agent to Borrowers or Guarantor (as applicable) thereof; provided that , if a cure cannot reasonably be effected within such 30-day period and so long as Borrowers or Guarantor (as applicable) commence(s) a cure within 10 days after receipt of such notice and thereafter diligently and expeditiously proceed(s) to cure such Default to completion, then such 30-day period will be extended for such time as is reasonably necessary for Borrowers in the exercise of due diligence to cure such default, such extension not to exceed 60 days; and provided further , however , that notwithstanding the 30-day cure period or 60-day extended cure period described above in this subparagraph (d), if a different notice or cure period is specified under any Loan Document or under any provision of the Loan Documents as to any such failure or breach, the specific Loan Document or provision controls, and Borrowers will have no more time to cure the failure or breach than is allowed under the specific Loan Document or provision as to such failure or breach; Any representation or warranty made by any Borrower in this Agreement or any other Loan Document, or a Guarantor, if made in connection with the Loan, in any of the other Loan Documents, or in any certificate or document furnished under the terms of this Agreement or in connection with the Loan, shall be

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untrue or incomplete in any material respect provided, to the extent curable and to the extent Agent determines a breach was not intentional, Borrower or Guarantor (as applicable) shall have thirty (30) days to remedy the untrue or incomplete representation, warranty, document or other material (so that it is true and complete in all material respects), before such event constitutes an Event of Default hereunder;

(e) Any Borrower, Guarantor and/or any other obligor under any Loan Document is in default under any term, covenant or condition hereunder or under any of the other Loan Documents to which any Borrower, Guarantor and/or such obligor, as applicable, is a party, other than a default described elsewhere in this Section 8.1 , after the expiration of any notice or grace period, if any, provided therein;

(f) Any Borrower, any Guarantor or any Affiliate of any of them, commits an act of bankruptcy; or applies for, consents to in writing or permits the appointment of a receiver, custodian, trustee or liquidator for it or any of its property or assets; or generally fails to, or admits in writing its inability to, pay its debts as they mature; or makes a general assignment for the benefit of creditors or is adjudicated bankrupt or insolvent; or takes other similar action for the benefit or protection of its creditors; or gives notice to any governmental body of insolvency of pending insolvency or suspension of operations; or files a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors, or takes advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, rearrangement, dissolution, liquidation or other similar debtor relief law or statute; or files an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute; or is dissolved, liquidated, terminated or merged; or effects a plan or other arrangement with creditors; or a trustee, receiver, liquidator or custodian is appointed for it or for any of its property or assets and is not discharged within 90 days after the date of his appointment; or a petition in involuntary bankruptcy or similar proceedings is filed against it and is not dismissed within 90 days after the date of its filing;

(g) Any Borrower, any Guarantor or any Affiliate of any of them, dissolves, terminates or winds-up or consolidates or merges with any other Person;

(h) Borrowers fail to perform their obligations under Section 6.32 within the time period set forth therein;

(i) A transfer, encumbrance, lien, change of ownership or other action or occurrence prohibited by this Agreement or any Security Instrument shall occur (and all notice and cure periods, if any, have elapsed);

(j) Any Guarantor for any reason contests, repudiates or purports to revoke any Guaranty or the Indemnity, or any Guaranty or the Indemnity at any time and for any reason ceases to be in full force and effect;

(k) Guarantor is not in compliance with its financial covenants under any Guaranty;

(l) The occurrence or existence of any event of default by Borrower with respect to any Lender-Provided Swap Transaction (executed by Borrower or secured by any collateral for

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the Loan) at the discretion of Administrative Agent beyond any applicable notice and cure periods.

(m) Any Borrower shall fail to maintain insurance as required by this Agreement (which, for purposes of clarification, shall not include the Environmental Insurance Policy, it being understood by the parties that termination of such Environmental Insurance Policy shall not be an Event of Default, or constitute a breached obligation under this Agreement, but instead shall only trigger liability of the Guarantor under the Guaranty for any amounts owing by Borrower under the Environmental Indemnity, as more fully set forth in the Guaranty) or shall fail to furnish to Administrative Agent proof of payment of all premiums for such insurance within five (5) business days following Administrative Agent's written request for same (provided that Borrower has received proof of such payment at the time Administrative Agent requests such proof).

Section 8.2 Rights and Remedies . Upon the occurrence, and during the continuance, of an Event of Default, unless such Event of Default is subsequently waived in writing by the Required Lenders, Administrative Agent and/or the Lenders, may exercise any or all of the following rights and remedies, consecutively or simultaneously, and in any order:

(a) The Lenders may make one or more Advances without obligation or liability to make any subsequent Advance;

(b) Administrative Agent may, and at the request of the Required Lenders will, suspend or terminate the obligation of the Lenders to make Advances without notice to Borrowers, provided, however, that if an Event of Default occurs under Section 8.1(h) , the Lenders' obligation to make Advances to Borrowers will immediately and automatically terminate without any action of Administrative Agent or the Lenders and without notice to or demand on Borrowers, provided further , however, that these remedies do not limit or restrict the Required Lenders' right to suspend making Advances if a Default occurs;

(c) Administrative Agent may, and at the request of the Required Lenders will, declare that the Commitments are terminated whereupon the Commitments will be terminated;

(d) Administrative Agent may, and at the request of the Required Lenders will, declare the entire unpaid principal balance of the Notes to be immediately due and payable, together with accrued and unpaid interest on such Advances, without notice to or demand on Borrowers, provided, however, that if an Event of Default occurs under Section 8.1(h) , such amounts will become immediately and automatically due and payable without any action of the Required Lenders or Administrative Agent and without notice to or demand on Borrowers;

(e) Administrative Agent may, and at the request of the Required Lenders will, exercise any or all remedies specified herein and in the other Loan Documents against any Borrower, Guarantor and/or any other party to the Loan Documents, including (without limiting the generality of the foregoing) the right to foreclose the Security Instrument, and/or any other remedies which it may have therefor at law, in equity or under statute;

(f) Administrative Agent will have the right to cure the Event of Default on behalf of any Borrower, and, in doing so, enter upon the Project, and expend such sums as it may deem

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desirable, including attorneys' fees. All funds so expended will be added to the Obligations and constitute a portion of the Loan, will bear interest at the Default Rate provided herein and will be payable by Borrowers on demand; and/or

(g) Administrative Agent will have the right, in person or by agent, in addition to all other rights and remedies available to Administrative Agent under this Agreement and the other Loan Documents, to the fullest extent permitted by law, to take possession of the Projects and perform any and all work and labor necessary to complete the Improvements pertaining thereto (with such modifications thereto as deemed appropriate by Administrative Agent), and employ watchmen to protect the Lenders' interest in the Projects. All reasonable sums so expended by Administrative Agent will be deemed to have been paid to Borrowers and constitute Obligations. Effective upon the occurrence and during the continuance of an Event of Default, each Borrower hereby constitutes and appoints Administrative Agent its true and lawful attorney‑in‑fact, with full power of substitution, to so complete the Improvements in the name of such Borrower. Borrowers hereby empower said attorney to: (a) use any funds of any Borrower, including any funds which may remain undisbursed hereunder for the purpose of so completing the Improvements; (b) make such additions, changes and corrections thereto as Administrative Agent deems appropriate; (c) employ such contractors, subcontractors, agents, architects and inspectors as are required for said purposes; (d) pay, settle or compromise all existing bills and claims which may be liens against the Project, or as may be necessary or desirable for such completion of the Improvements or for clearance of title; (e) execute all applications and certificates in the name of any Borrower which may be required by any of the contract documents; (f) prosecute and defend all actions or proceedings in connection with the Project or the construction of the Improvements and take such action and require such performance as it deems necessary under any bond or guaranty of completion; and (g) do any and every act which any Borrower might do on its own behalf. It is further understood and agreed that this power of attorney, which will be deemed to be a power coupled with an interest, cannot be revoked.

Section 8.3 Application of Funds . After the exercise of remedies provided for in Section 8.2 (or after the entire unpaid principal balance of the Notes, together with accrued and unpaid interest on such Advances, have automatically become immediately due and payable as set forth in Section 8.2(d) ), any amounts received by Administrative Agent on account of the Obligations shall be applied by Administrative Agent, subject to Sections 9.19 , 9.21 and 9.22 , in the following order:

(a) First, to payment of fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to Administrative Agent and amounts payable under Sections 2.4 , 2.5 , 2.6 and 2.10 ) payable to Administrative Agent in its capacity as such;

(b) second, to payment of fees, indemnities and other reimbursable expenses (other than principal and interest payable to the Lenders) (including fees, charges and disbursements of counsel to the respective Lenders as required by Section 10.1 and amounts payable under Sections 2.4 , 2.5 , 2.6 and 2.10 );

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(d) fourth, to payment of all Obligations ratably among the Lenders and any Affiliate of a Lender, including with respect to Lender-Provided Swap Transactions; and

(e) last, the balance, if any, to Borrowers or as otherwise required by law;

provided , however , that, notwithstanding anything to the contrary set forth above, Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other parties to preserve the allocation to Obligations otherwise set forth above in this Section 8.3 .

Section 8.4 Rights to Cure Defaults and Protection of Collateral . After the occurrence, and during the continuance, of any Default or Event of Default, Administrative Agent may, but without any obligation to do so and without notice to or demand on Borrowers and without releasing any Borrower from any Obligations, make any payment or do any act required of any Borrower hereunder or in the other Loan Documents with respect to any Obligations, which payment or action on the part of Administrative Agent will be in such manner and to such extent as Administrative Agent, in its discretion, deems necessary to protect the Collateral. Administrative Agent is authorized to enter upon the Project for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Project or to foreclose the Security Instrument or to collect the Obligations, and the cost and expense thereof (including attorneys' fees and expenses to the extent permitted by law), with interest as provided in this Section 8.4 , will be due and payable to Administrative Agent upon demand. All such costs and expenses incurred by Administrative Agent in remedying any Default or Event of Default or in appearing in, defending, or bringing any such action or proceeding will bear interest at the Default Rate, for the period beginning on the first day that such cost or expense was incurred and continuing until the date of payment to Administrative Agent. All such costs and expenses incurred by Administrative Agent, together with interest thereon calculated at the Default Rate, will constitute a portion of the Loan and to be secured by the Security Instrument and the other Loan Documents and are immediately due and payable upon demand by Administrative Agent therefor.

Section 8.5 [ Intentionally Deleted .]

Section 8.6 Acceptance of Payments . Borrowers agree that if any Borrower makes a tender of a payment but does not simultaneously tender payment of any late charge, Default Rate interest, Libor Breakage Costs or any other amount then due and owing by Borrowers under this Agreement or the other Loan Documents, and such payment is accepted by Administrative Agent or any Lender, with or without protest, such acceptance will not constitute any waiver of Administrative Agent's or such Lender's rights to receive such amounts. Furthermore, if Administrative Agent or any Lender accepts any payment from any Borrower or Guarantor after a Default or Event of Default, such acceptance will not constitute a waiver or satisfaction of any such Default or Event of Default (except to the extent such payment cures such Default or Event of Default). Any waiver or satisfaction of a Default or Event of Default must be evidenced by an express writing of Administrative Agent.

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ARTICLE IX

ADMINISTRATIVE AGENT; INTERCREDITOR PROVISIONS

Section 9.1 Appointment; Nature of Relationship . U.S. Bank is hereby appointed by each of the Lenders as its contractual representative (herein referred to as " Administrative Agent ") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article IX . Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that Administrative Agent will not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that Administrative Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, Administrative Agent (i) will not hereby assume any fiduciary duties to any of the Lenders, and (ii) is a "representative" of the Lenders within the meaning of the term "secured party" as defined in the California Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.

Section 9.2 Powers . Administrative Agent has and may exercise such powers under the Loan Documents as are specifically delegated to Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. Administrative Agent has no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by Administrative Agent.

Section 9.3 General Immunity . Neither Administrative Agent nor any of its directors, officers, agents or employees will be liable to any Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person.

Section 9.4 No Responsibility for Advances, Recitals, etc . Neither Administrative Agent nor any of its directors, officers, agents or employees will be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article III , except receipt of items required to be delivered solely to Administrative Agent; (d) the existence or possible existence of any Default or Event of Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection

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therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of any Borrower or any Guarantor of any of the Obligations.

Section 9.5 Action on Instructions of Lenders . Administrative Agent will in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto will be binding on all of the Lenders. The Lenders hereby acknowledge that Administrative Agent will be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it is requested in writing to do so by the Required Lenders. Administrative Agent will be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it is first indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. Administrative Agent may, at any time, request instructions from the Required Lenders with respect to any actions or approvals which, by the terms of this Agreement or any of the Loan Documents, Administrative Agent is permitted or required to take or to grant without consent or approval from the Required Lenders, and if such instructions are promptly requested, Administrative Agent will be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents and will not have any liability for refraining from taking any action or withholding any approval under any of the Loan Documents until it has received such instructions from the Required Lenders.

Section 9.6 Employment of Administrative Agent and Counsel . Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact. Administrative Agent will not be responsible for the negligence or misconduct of any agents or attorneys-in-fact except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that Administrative Agent acted with gross negligence or willful misconduct in the selection of agents or attorneys-in-fact.

Section 9.7 Reliance of Documents; Counsel . Administrative Agent is entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex, electronic mail message, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and, in respect to legal matters, upon the opinion of counsel selected by Administrative Agent, which counsel may be employees of Administrative Agent.

Section 9.8 Protective Advances . Each Lender hereby authorizes Administrative Agent, without the necessity of any notice or further consent from any Lender, from time to time prior to a Default, to make any Protective Advance with respect to any Collateral or the Loan Documents which may be necessary to protect the priority, validity or enforceability of any lien on, and security interest in, any Collateral and the instruments evidencing or securing the obligations of any Borrower under the Loan Documents. In addition, Administrative Agent may, after notice to Borrowers, make Protective Advances during any twelve (12) month period with respect to any Collateral up to the sum of (i) amounts expended to pay real estate taxes,

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assessments and governmental charges or levies imposed upon such Collateral; and (ii) amounts expended to pay insurance premiums for policies of insurance related to the Project. Any additional Protective Advances requires the consent of the Required Lenders. Borrowers agree to pay on demand all Protective Advances. The Lenders must reimburse Administrative Agent for any Protective Advances (in accordance with their Pro Rata Shares) to the extent not reimbursed by Borrowers.

Section 9.9 Foreclosure . In the event that all or any portion of any Project is acquired by Administrative Agent as the result of a foreclosure or acceptance of a deed or assignment in lieu of foreclosure, or is retained in satisfaction of all or any part of the Obligations, title to the Project or any portion thereof will be held in the name of Administrative Agent or a nominee or subsidiary of Administrative Agent, as agent, for the benefit of itself and the Lenders, or in an entity co-owned by the Lenders as determined by Administrative Agent. Administrative Agent will prepare a recommended course of action for the Project (the " Post-Foreclosure Plan ") and submit it to the Lenders for approval by the Required Lenders. In the absence of an approved Post Foreclosure Plan, Administrative Agent may make such decisions and incur such expenses relating to the ownership, operation, maintenance and marketing of the Project, and the Lenders must reimburse and indemnify Administrative Agent for any such decisions in accordance with Section 9.10 . In the event that Administrative Agent will not obtain the approval of the Required Lenders to such Post-Foreclosure Plan, any Lender will be permitted to submit an alternative Post-Foreclosure Plan to Administrative Agent, and Administrative Agent will submit any and all such additional Post-Foreclosure Plan(s) to the Lenders for evaluation and the approval by the Required Lenders. In accordance with the approved Post-Foreclosure Plan, Administrative Agent will manage, operate, repair, administer, complete, construct, restore or otherwise deal with the Project acquired and administer all transactions relating thereto, including, without limitation, employing a management agent, leasing agent and other agents, contractors and employees, including agents for the sale of the Project, and the collecting of rents and other sums from the Project and paying the expenses of the Project. Upon demand therefor from time to time, each Lender will contribute its Pro Rata Share of all reasonable costs and expenses incurred by Administrative Agent pursuant to the Post-Foreclosure Plan in connection with the construction, operation, management, maintenance, leasing and sale of the Project. In addition, Administrative Agent will render or cause to be rendered by the managing agent, to each of the Lenders, monthly, an income and expense statement for the Project, and each of the Lenders must promptly contribute its Pro Rata Share of any operating loss for the Project, and such other expenses and operating reserves as Administrative Agent deems reasonably necessary pursuant to and in accordance with the Post-Foreclosure Plan. To the extent there is net operating income from the Project, Administrative Agent will, in accordance with the Post-Foreclosure Plan, determine the amount and timing of distributions to the Lenders. All such distributions will be made to the Lenders in proportion to their Pro Rata Share. The Lenders acknowledge that if title to the Project is obtained by Administrative Agent or its nominee, or an entity co-owned by the Lenders, the Project will not be held as a permanent investment but will be disposed of as soon as practicable and within a time period consistent with the regulations applicable to national banks for owning real estate. Administrative Agent will undertake to sell the Project at such price and upon such terms and conditions as the Required Lenders reasonably determine to be most advantageous. Any purchase money mortgage or deed of trust taken in connection with the disposition of the Project in accordance with the immediately preceding sentence will name Administrative Agent, as agent for the Lenders, as the beneficiary or

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mortgagee. In such case, Administrative Agent and the Lenders will enter into an agreement with respect to such purchase money mortgage defining the rights of the Lenders in the same, which agreement will be in all material respects similar to the rights of the Lenders with respect to the Project. The Lenders agree not to unreasonably withhold or delay their approval of a Post-Foreclosure Plan or any third party offer to purchase the Project. An offer to purchase the Project at a gross purchase price of 95% of the fair market value of the Project as set forth in a current appraisal, will be deemed to be a reasonable offer.

Section 9.10 Administrative Agent's Reimbursement and Indemnification . The Lenders agree to reimburse and indemnify Administrative Agent ratably in proportion to their respective Pro Rata Shares (i) for any amounts not reimbursed by Borrowers for which Administrative Agent is entitled to reimbursement by Borrowers under the Loan Documents, (ii) for any other expenses incurred by Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by Administrative Agent in connection with any dispute between Administrative Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against Administrative Agent in connection with any dispute between Administrative Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender will be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of Administrative Agent and (ii) any indemnification required pursuant to Section 2.10(d) will, notwithstanding the provisions of this Section 9.10 , be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 9.10 will survive payment of the Obligations and termination of this Agreement.

Section 9.11 Notice of Event of Default . Administrative Agent will not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless Administrative Agent has received written notice from a Lender or Borrowers referring to this Agreement describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives such a notice, Administrative Agent will give prompt notice thereof to the Lenders; provided that, except as expressly set forth in the Loan Documents, Administrative Agent will not have any duty to disclose, and will not be liable for the failure to disclose, any information relating to any Borrower that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity.

Section 9.12 Rights as a Lender . In the event Administrative Agent is a Lender, Administrative Agent will have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its loans as any Lender and may exercise the same as though it were not Administrative Agent, and the term "Lender" or "Lenders" will, at any time when Administrative Agent is a Lender, unless the context otherwise indicates, include

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Administrative Agent in its individual capacity. Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with any Borrower or any of its affiliates in which any such Borrower or such affiliate is not restricted hereby from engaging with any other Person.

Section 9.13 Lender Credit Decision, Legal Representation .

(a) Each Lender acknowledges that it has, independently and without reliance upon Administrative Agent or any other Lender and based on the financial statements prepared by each Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Lender and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. Except for any notice, report, document or other information expressly required to be furnished to the Lenders by Administrative Agent hereunder, Administrative Agent will have no duty or responsibility (either initially or on a continuing basis) to provide any Lender with any notice, report, document, credit information or other information concerning the affairs, financial condition or business of any Borrower or any of their respective Affiliates that may come into the possession of Administrative Agent (whether or not in its capacity as Administrative Agent) or any of their Affiliates.

(b) Each Lender further acknowledges that it has had the opportunity to be represented by legal counsel in connection with its execution of this Agreement and the other Loan Documents, that it has made its own evaluation of all applicable Laws and regulations relating to the transactions contemplated hereby, and that the counsel to Administrative Agent represents only Administrative Agent and not the Lenders in connection with this Agreement and the transactions contemplated hereby.

Section 9.14 Successor Administrative Agent . Administrative Agent may resign at any time by giving written notice thereof to the Lenders and Borrowers, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, 30 days after the retiring Administrative Agent gives notice of its intention to resign. Upon any such resignation, if no successor Administrative Agent has been appointed pursuant to the immediately following sentence in this Section 9.14, the Required Lenders shall appoint (upon consultation with Borrowers so long as no Event of Default exists), on behalf of Borrowers and the Lenders, a successor Administrative Agent. If an Event of Default occurs and is continuing, if no successor Administrative Agent has been appointed by the Required Lenders within 15 days after the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Administrative Agent shall appoint (upon consultation with Borrowers so long as no Event of Default exists), on behalf of Borrowers and the Lenders, a successor Administrative Agent. Notwithstanding the previous sentence, Administrative Agent may at any time without the consent of Borrowers or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Administrative Agent hereunder. Upon the appointment as Administrative Agent hereunder by a successor

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Administrative Agent, such successor Administrative Agent will thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent. Upon the effectiveness of the resignation of Administrative Agent, the resigning Administrative Agent will be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation of an Administrative Agent, the provisions of this Article IX will continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent hereunder and under the other Loan Documents. In the event that there is a successor to Administrative Agent by merger, or Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 9.14 , then the term "Prime Rate" as used in this Agreement will mean the prime rate, base rate or other analogous rate of the new Administrative Agent.

Section 9.15 Delegation to Affiliates . Borrowers and the Lenders agree that Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement will be entitled to the same benefits of the indemnification, waiver and other protective provisions to which Administrative Agent is entitled under this Article IX and Section 10.1 .

Section 9.16 Borrower, Collateral and Guarantor Releases . The Lenders hereby empower and authorize Administrative Agent to execute and deliver to Borrowers on their behalf any agreements, documents or instruments as are necessary or appropriate to effect any releases of a Borrower and the Collateral or any portion thereof which is permitted by the terms hereof or of any other Loan Document (including, without limitation, in connection with any asset sale permitted hereunder or in connection with any release of a borrower or guarantor made in accordance with the Loan Documents) or which otherwise has been approved by the Required Lenders (or, if required by the terms of Section 10.12 , all of the Lenders) in writing. In addition, the Lenders authorize Administrative Agent to release any Borrower or Guarantor from its obligations under the Loan Documents if such Person is no longer required to be a borrower or guarantor under the Loan Documents, as applicable. Upon the request of Administrative Agent at any time, the Required Lenders will confirm in writing Administrative Agent's authority to release its interest in the Collateral or any portion thereof, or to release any Borrower or Guarantor from its respective obligations under the Loan Documents pursuant to the foregoing. In each case as specified hereto, Administrative Agent (and each Lender hereby authorizes Administrative Agent to), at Borrowers' expense, execute and deliver to Borrowers such documents as Borrowers may reasonably request to evidence the release of the Collateral or portion thereof from the security interest granted under the Loan Documents, or to release a borrower or guarantor from its obligations under any Loan Documents, in each case in accordance with the terms of the Loan Documents.

Section 9.17 No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), Borrowers acknowledge and agree that: (i) (A) the arranging and other services regarding this Agreement provided by Administrative Agent and any book runner and the Lenders are arm's-length commercial transactions between Borrowers and their respective Affiliates, on the one hand, and the Lenders, Administrative Agent and any book runner on the other hand, (B) Borrowers have consulted

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their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (C) Borrowers are capable of evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) Administrative Agent, any book runner and each of the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for any Borrower or any of their respective Affiliates, or any other Person and (B) neither Administrative Agent, any book runner nor any Lender has any obligation to any Borrower or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) Administrative Agent, any book runner, each of the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrowers and their respective Affiliates, and neither Administrative Agent, any book runner nor any Lender has any obligation to disclose any of such interests to any Borrower or any Borrower's Affiliates. To the fullest extent permitted by law, Borrowers hereby waive and release any claims that any of them may have against Administrative Agent, any book runner and each of the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

Section 9.18 Documentation Agent, Syndication Agent, etc . Neither any of the Lenders identified in this Agreement as a "co-agent" or a "book runner" will have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders will have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to Administrative Agent in Section 9.13 .

Section 9.19 Pro Rata Treatment . Except to the extent otherwise provided herein: (a) each Advance from the Lenders will be made from the Lenders, each payment of the fees will be made for the account of the Lenders, and each termination or reduction of the amount of the Aggregate Commitment pursuant to this Agreement will be applied to the respective Commitments of the Lenders, pro rata in accordance with their respective Commitments; (b) each payment or prepayment of principal of the Loan by Borrower will be made for the account of the Lenders pro rata in accordance with their respective Pro Rata Shares, provided that if immediately prior to giving effect to any such payment in respect of the Loan the outstanding principal amount of the Loan will not be held by the Lenders pro rata in accordance with their respective Pro Rata Shares, then such payment will be applied to the Loan in such manner as will result, as nearly as is practicable, in the outstanding principal amount of the Loan being held by the Lenders pro rata in accordance with their respective Pro Rata Shares; and (c) each payment of interest on the Loan by Borrowers will be made for the account of the Lenders pro rata in accordance with their respective Pro Rata Shares.

Section 9.20 Security Interest in Deposits . Borrowers hereby grant each Lender a security interest in all deposits, credits and deposit accounts (including all account balances, whether provisional or final and whether or not collected or available) of Borrowers with such Lender or any Affiliate of such Lender to secure the Obligations. In addition to, and without limitation of, any rights of the Lenders under applicable Law, if any Event of Default has

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occurred and is continuing, Borrowers authorize each Lender to, with the prior written consent of Administrative Agent, apply all such deposits, credits and deposit accounts toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part thereof, will then be due and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to such Lender or the Lenders; provided , that in the event that any Defaulting Lender exercises such right of setoff, (x) all amounts so set off must be paid over immediately to Administrative Agent for further application in accordance with the provisions of Section 9.22 and, pending such payment, must be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of Administrative Agent and the Lenders, and (y) the Defaulting Lender must provide promptly to Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.

Section 9.21 Ratable Payments . If any Lender, whether by setoff or otherwise, has payment made to its portion of the Loan (other than payments received pursuant to Section 2.5(b) , 2.6 or 2.10 ) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loan held by the other Lenders so that after such purchase each Lender will hold its Pro Rata Share of the Loan. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral or other protection ratably in proportion to their respective Pro Rata Shares of the Loan. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments will be made.

Section 9.22 Defaulting Lenders .

(a) Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:

(i) Such Defaulting Lender's right to approve or disapprove any amendment, waiver or consent with respect to this Agreement will be restricted as set forth in the definition of Required Lenders.

(ii) Any payment of principal, interest, fees or other amounts received by Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity or otherwise) or received by Administrative Agent from a Defaulting Lender pursuant to Section 9.20 will be applied at such time or times as may be determined by Administrative Agent as follows: first , to the payment of any amounts owing by such Defaulting Lender to Administrative Agent hereunder; second , as Borrowers may request (so long as no Default or Event of Default exists), to the funding of any Advance in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by Administrative Agent (excluding any Advance (or portion thereof) which has been funded by a Special Advance); third , if so determined by Administrative Agent and Borrowers, to be held in a deposit account and released pro rata in order to satisfy such Defaulting Lender's potential future funding obligations with respect to Advances under this

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Agreement; fourth , to the payment of any Special Advances paid by any Lenders as a result of such Defaulting Lender's failure to fund its portion of any Advance; fifth , to the payment of any other amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; sixth , so long as no Default or Event of Default exists, to the payment of any amounts owing to Borrowers as a result of any judgment of a court of competent jurisdiction obtained by Borrowers against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; and seventh , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Advances in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Advances were made at a time when the conditions set forth in Sections 3.3 and 3.4 were satisfied or waived, such payment will be applied solely to pay the Advances of all Lenders that are not Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Advances of such Defaulting Lender until such time as all Advances are held by the Lenders pro rata in accordance with the Commitments. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender will be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(iii) No Defaulting Lender will be entitled to receive any unused fee for any period during which that Lender is a Defaulting Lender (and Borrower will not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).

(b) If Borrowers and Administrative Agent agree in writing that a Lender is no longer a Defaulting Lender, Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of outstanding Advances of the other Lenders or take such other actions as Administrative Agent may determine to be necessary to cause the Advances to be held pro rata by the Lenders in accordance with the Commitments, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender's having been a Defaulting Lender.

Section 9.23 Special Advances . If a Lender fails to fund its portion of any Advance, in whole or part, within three Business Days after the date required hereunder and Administrative Agent has not funded the Defaulting Lender's portion of the Advance under Section 4.1(c) , Administrative Agent will so notify the Lenders, and within three (3) Business Days after delivery of such notice, the Lenders (other than any Defaulting Lender) will have the right, but not the obligation, in their respective, sole and absolute discretion, to fund all or a portion of such deficiency (the amount so funded by any such Lenders being referred to herein as a " Special Advance ") to Borrowers. In such event, the Defaulting Lender and Borrowers severally agree to pay to Administrative Agent for payment to the Lenders making the Special Advance, forthwith

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on demand such amount with interest thereon, for each day from and including the date such amount is made available to Borrowers to but excluding the date of payment to Administrative Agent, at (i) in the case of the Defaulting Lender, the greater of the Federal Funds Effective Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of Borrowers, a rate per annum equal to the interest rate applicable to the relevant Advance.

Section 9.24 Certain ERISA Matters .

(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, Administrative Agent and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of Borrowers or Guarantor, that at least one of the following is and will be true: (i) such Lender is not an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA, or an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code) which is subject to Section 4975 of the Code in connection with the Loan or the Commitments, (ii) the transaction exemption set forth in one or more prohibited transaction exemptions issued by the Department of Labor (each, a " PTE "), such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender's entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement, (iii) (A) such Lender is an investment fund managed by a "Qualified Professional Asset Manager" (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loan, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender's entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement, or (iv) such other representation, warranty and covenant as may be agreed in writing between Administrative Agent, in its sole discretion, and such Lender.

(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, Administrative Agent and its Affiliates, and not, for the avoidance of doubt, to or for the benefit of Borrowers or Guarantor, that: (i) none of Administrative Agent or any of its Affiliates is a fiduciary with respect to the

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assets of such Lender (including in connection with the reservation or exercise of any rights by Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto), (ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement is independent (within the meaning of 29 C.F.R. § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 C.F.R. § 2510.3-21(c)(1)(i)(A)-(E),(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations), (iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loan, the Commitments and this Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loan, the Commitments and this Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and (v) no fee or other compensation is being paid directly to Administrative Agent or any of its Affiliates for investment advice (as opposed to other services) in connection with the Loan, the Commitments or this Agreement.

(c) Administrative Agent hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loan, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loan or the Commitments for an amount less than the amount being paid for an interest in the Loan or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker's acceptance fees, breakage or other early termination fees or fees similar to the foregoing.

ARTICLE X

MISCELLANEOUS

Section 10.1 General Indemnities . Except as to the claims, costs, losses and damages described in the Indemnity which shall be governed by the Indemnity, Borrowers hereby agree to indemnify, defend and hold harmless Administrative Agent and each Lender and their respective Affiliates, directors, officers and employees, agents and advisors against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all expenses of litigation or preparation therefor whether or not Administrative Agent, any Lender or any Affiliate of Administrative Agent or any Lender is a party thereto, settlement costs, in-house and outside attorney's fees and expenses) (collectively, " Losses ") which any of them may pay or incur

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arising out of or relating to this Agreement, the other Loan Documents (other than the Indemnity and the Guaranties), the transactions contemplated hereby, or any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by Borrowers or any of their Subsidiaries, or the direct or indirect application or proposed application of the Loan proceeds, except to the extent that such Losses are caused by, or have resulted from, the gross negligence or willful misconduct of the party seeking indemnification. Borrowers also hereby agree to indemnify, defend and hold Administrative Agent and each Lender and their respective Affiliates, directors, officers and employees, agents and advisors harmless against any Losses which any of them may pay or incur arising out of or relating to any claim or claims made by any Person, including any broker or agent, that they are or may be entitled to a commission or other form of compensation in connection with the securing of or making of the Loan. The obligations of Borrowers under this Section 10.1 will survive the termination of this Agreement. Neither Administrative Agent nor any Lender will have any liability with respect to, and Borrowers hereby waive, release and agree not to sue for, any lost profits or special, indirect, consequential or punitive damages suffered by Borrowers in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby (provided, however, that such waiver shall not apply to any actual damages suffered by any Borrower). Notwithstanding the foregoing indemnity or anything else contained in this Agreement or any of the other Loan Documents which may be construed to the contrary, all of Borrowers' indemnity obligations and other obligations of Borrowers pertaining to Environmental Liabilities and/or Hazardous Substances will be deemed to be contained in and arise under only the Indemnity, and not under this Agreement or any other Loan Document, and any of Borrowers' indemnity obligations or other obligations pertaining to Environmental Liabilities and/or Hazardous Substances that might be construed to exist under any other Loan Document (other than the Indemnity) will be deemed to be removed from such other Loan Document and transferred to the Indemnity, so that the Indemnity is the only Loan Document that contains and sets forth the Borrowers' indemnity obligations and other obligations of Borrowers pertaining to Environmental Liabilities and/or Hazardous Substances.

Section 10.2 Binding Effect; Waivers; Cumulative Rights and Remedies . The provisions of this Agreement inure to the benefit of and are binding upon the parties hereto and their respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns; provided , however , (a) Borrowers will not have the right to assign their respective rights or obligations under the Loan Documents without the prior written consent of each Lender, (b) any assignment by any Lender must be made in compliance with Section 10.10 , and (c) any transfer by participation must be made in compliance with Section 10.11 . Any attempted assignment or transfer by any party not made in compliance with this Section 10.2 will be null and void, unless such attempted assignment or transfer is treated as a participation in accordance with the terms of this Agreement. The parties to this Agreement acknowledge that clause (b) of this Section 10.2 relates only to absolute assignments and this Section 10.2 will not prohibit assignments creating security interests, including, without limitation, (x) any pledge or assignment by any Lender of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank or (y) in the case of a Lender which is a Fund, any pledge or assignment of all or any portion of its rights under this Agreement and any Note to its trustee in support of its obligations to its trustee; provided , however , that no such pledge or assignment creating a security interest will release the transferor Lender from its obligations hereunder

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unless and until the parties thereto have complied with the provisions of Section 10.10 . Administrative Agent may treat the Person which made any Advance or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 10.10 ; provided, however , that Administrative Agent may in its discretion (but will not be required to) follow instructions from the Person which made any Advance or which holds any Note to direct payments relating to such Advance or Note to another Person. Any assignee of the rights to any Advance or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Advance will be conclusive and binding on any subsequent holder or assignee of the rights to such Loan. No delay on the part of Administrative Agent in exercising any right, remedy, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise of any right, remedy, power or privilege hereunder constitute such a waiver or exhaust the same, all of which will be continuing. The rights and remedies of Administrative Agent specified in this Agreement are in addition to, and not exclusive of, any other rights and remedies which Administrative Agent or any Lender would otherwise have at law, in equity or by statute, and all such rights and remedies, together with Administrative Agent's rights and remedies under the other Loan Documents, are cumulative and may be exercised individually, concurrently, successively and in any order.

Section 10.3 Reduction of Aggregate Commitment . Provided (a) no draw request is pending that would result in the outstanding principal balance of the Loan exceeding the Aggregate Commitment, and (b) that immediately after such reduction the outstanding principal balance of the Loan is less than or equal to the Aggregate Commitment, (which for the purposes of this Section shall include any amounts requested under a pending draw request), Borrower may (in its sole and absolute discretion) permanently reduce the available Aggregate Commitment of the Loan (without the payment of any prepayment fee, other than break funding, including any sums owing under Section 2.13 hereof, and any charges relating to early termination of any Swap Contracts), by giving Administrative Agent irrevocable notice of such reduction at least two (2) Business Days prior to the indicated effective date of the reduction. Each such reduction shall (a) be in a minimum amount of $1,000,000 (and in increments of $500,000 thereafter), (b) in no event reduce the Aggregate Commitment below the amount of the outstanding principal balance of the Loan, and (c) permanently reduce the maximum Aggregate Commitment of the Loan available to Borrower.

Section 10.4 Survival . All agreements, representations and warranties made in this Agreement survive the execution of this Agreement, the making of the Advances by the Lenders, and the execution of the other Loan Documents, and will continue until payment in full of all Obligations of Borrowers incurred under this Agreement and under the other Loan Documents.

Section 10.5 Governing Law; Waiver of Jury Trial; Jurisdiction . IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY

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APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWERS HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTES, AND THIS AGREEMENT AND THE NOTES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND ANY LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO NATIONAL BANKS.

TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWERS, ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION RELATING TO THE LOAN AND/OR THE LOAN DOCUMENTS. BORROWER, TO THE FULLEST EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF CALIFORNIA OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA, (C) SUBMITS TO THE JURISDICTION AND VENUE OF SUCH COURTS AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT, AND (D) AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN WILL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY OF THE LENDERS TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). BORROWERS FURTHER CONSENT AND AGREE TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO BORROWER AT THE ADDRESSES FOR NOTICES DESCRIBED IN THIS AGREEMENT, AND CONSENT AND AGREE THAT SUCH SERVICE WILL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN WILL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).

Section 10.6 Counterparts . This Agreement may be executed in any number of counterparts, all of which constitutes a single Agreement.

Section 10.7 Notices .

(a) All notices, demands, requests, consents, approvals or other communications (any of the foregoing, a " Notice ") required, permitted or desired to be given hereunder must be in writing and must be sent by: (i) registered or certified mail, postage prepaid, return receipt requested, (ii) reputable overnight courier, or (iii) delivered by hand by commercial courier service, addressed to the party to be so notified at its address set forth opposite its signature, below, or to such other address as such party may hereafter specify in accordance with the provisions of this Section 10.7 . Any Notice will be deemed to have been received: (A) 3 days after the date such Notice is mailed, (B) on the date of delivery by hand (or refusal to accept such

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delivery) if delivered during business hours on a Business Day (otherwise on the next Business Day), and/or (C) on the next Business Day if sent by an overnight commercial courier.

(b) Any party may change the address to which any such Notice is to be delivered by furnishing 10 days prior written notice of such change to the other parties in accordance with the provisions of this Section 10.7 . Notices will be deemed to have been given on the date as set forth above, even if there is an inability to actually deliver any such Notice because of a changed address of which no Notice was given, or there is a rejection or refusal to accept any Notice offered for delivery.

Section 10.8 Administrative Agent's Sign . Agent may, if it so desires, publicize its involvement with the Properties, including, but not limited to, issuing press releases (subject to Borrower's review and approval thereof, not to be withheld unreasonably), but it may not place any signage on any Property without Borrower's prior written consent (which consent may be withheld, conditioned or delayed in Borrower's sole and absolute discretion).

Section 10.9 No Third Party Reliance . No third party is entitled to rely upon this Agreement or to have any of the benefits of Administrative Agent's or any Lender's interest hereunder, unless such third party is an express assignee of all or a portion of a Lender's interest hereunder in accordance with Section 10.10 and Section 10.11 hereof.

Section 10.10 Assignments .

(a) Any Lender may at any time and subject to the terms of this Agreement (including, without limitation, this Section 10.10 ) assign to any Affiliate of such Lender or to one or more Eligible Assignees (collectively, " Purchasers ") all or any part of its rights and obligations under the Loan Documents. Such assignment must be substantially in the form of Exhibit J or in such other form reasonably acceptable to Administrative Agent (but only to the extent as may be agreed to by the parties thereto). Each such assignment with respect to a Purchaser which is not a Lender or an Affiliate of a Lender must either be in an amount equal to the entire applicable Commitment or aggregate amount of the outstanding Advances of the assigning Lender or (unless Borrowers and Administrative Agent otherwise consent) be in an aggregate amount not less than $5,000,000. The amount of the assignment must be based on the Commitment or aggregate amount of the outstanding Advances of the assigning Lender (if the Commitment has been terminated) subject to the assignment, determined as of the date of such assignment or as of the "Trade Date," if the "Trade Date" is specified in the assignment.

(b) The consent of Borrowers will be required prior to an assignment becoming effective, provided that the consent of Borrower will not be required if an Event of Default has occurred and is continuing. The consent of Administrative Agent is required prior to an assignment becoming effective. Any consent required under this Section 10.10(b) will not be unreasonably withheld or delayed.

(c) Upon (i) delivery to Administrative Agent of an Assignment and Assumption, together with any consents required by Sections 10.10(a) and 10.10(b) , and (ii) payment of a $3,500 fee by the assignee or the assignor to Administrative Agent for processing such assignment (unless such fee is waived by Administrative Agent), such assignment will become

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effective on the effective date specified in such assignment. The assignment must contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and the portion of the Loan assigned to Purchaser under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser will for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and will have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party thereto, and the transferor Lender will be released with respect to the Commitment and the portion of the Loan assigned to such Purchaser without any further consent or action by Borrowers, the Lenders or Administrative Agent. In the case of an assignment covering all of the assigning Lender's rights and obligations under this Agreement, such Lender will cease to be a Lender hereunder but will continue to be entitled to the benefits of, and subject to, those provisions of this Agreement and the other Loan Documents which survive payment of the Obligations and termination of the applicable agreement. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.10 will be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.11 . Upon the consummation of any assignment to a Purchaser pursuant to this Section 10.10(c) , the transferor Lender, Administrative Agent and Borrower will make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. Upon request, Borrower will execute and deliver to Administrative Agent, at Borrower's cost to the extent such costs do not exceed $10,000, an appropriate replacement promissory note or replacement promissory notes in favor of each assignee (and assignor, if such assignor is retaining a portion of its Commitment percentage and advances) reflecting such assignee's (and assignor's) percentage of the Commitment. Upon execution and delivery of such replacement promissory note(s), the original promissory note or notes evidencing all or a portion of the Lenders' percentages of the Committed Amount and advances being assigned shall be canceled and returned to Borrower. For purposes of clarification, if Borrower's costs relating to an Assignment and Assumption exceed $10,000, such costs exceeding $10,000 shall be borne by the Lenders receiving replacement notes pro rata in accordance with such Lenders' percentage of the Committed Amount. Under no circumstances shall Borrower be required to execute any certifications or similar documents or to provide any representations or warranties confirming the accuracy of any information or otherwise in connection with any assignment or participation. Promptly following receipt by Administrative Agent of an executed Assignment and Assumption, Administrative Agent shall give notice to the Borrower and to the Lenders of: (i) the effectiveness of the assignment by the assigning Lender to the assignee Lender (or the affiliate of the Lender); and (ii) the revised percentages and maximum amounts of the Commitment percentage of the Committed Amount in effect as a result of such assignment.

(d) Administrative Agent, acting solely for this purpose as an agent of Borrowers, will maintain at one of its offices in the United States of America, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the

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Advances owing to, each Lender, pursuant to the terms hereof from time to time (the " Register "). The entries in the Register will be conclusive, absent manifest error, and Borrowers, Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register will be available for inspection by Borrowers and each Lender at any reasonable time and from time to time upon reasonable prior notice.

(e) Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a " Transferee ") and any prospective Transferee any and all information in such Lender's possession, provided, however, that any such Transferee executes a confidentiality agreement in form and substance reasonably satisfactory to Borrower.

(f) So long as no Event of Default exists, unless Borrower otherwise consents, U.S. Bank shall at all times retain at least twenty-five percent (25%) of the Committed Amount.

(g) The Borrower and Administrative Agent may continue to deal solely and directly with the assigning Lender in connection with the interest so assigned to a Transferee until such time as (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Purchaser shall have been given to the Borrower and Administrative Agent by the assigning Lender and the Transferee; (ii) the assigning Lender and the Transferee shall have delivered to the Borrower and Administrative Agent an Assignment and Assumption.

Section 10.11 Participations .

(a) Any Lender may, upon prior written notice to Borrower, at any time sell to one or more entities (" Participants ") participating interests in its Commitment or the Obligations owing to such Lender . ; provided, however, the voting rights of any participants shall be limited to actions with respect to increases in the maximum Committed Amount, extensions of the maturity date beyond the extension option terms and changes in the interest rates applicable to the Loan. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents will remain unchanged, such Lender will remain solely responsible to the other parties hereto for the performance of such obligations, such Lender will remain the owner of its Commitment and the Obligations owing to such Lender, all amounts payable by Borrowers under this Agreement will be determined as if such Lender had not sold such participating interests, and Borrowers and Administrative Agent will continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents.

(b) Each Lender will retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents provided that each such Lender may agree in its participation agreement with its Participant that such Lender will not vote to approve any amendment, modification or waiver with respect to any Commitment or Loan in which such Participant has an interest which would require consent of all of the Lenders pursuant to the terms of Section 10.12 or of any other Loan Document.

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(c) Each Lender that sells a participation will, acting solely for this purpose as an agent of Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant's interest in any Commitment or any other Obligations under the Loan Documents (the " Participant Register "); provided that no Lender will have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any Commitment or any other Obligations under the Loan Documents) to any Person except to the extent that such disclosure is necessary to establish that any Commitment or any other Obligations under the Loan Documents is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register will be conclusive absent manifest error, and such Lender will treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, Administrative Agent (in its capacity as Administrative Agent) will have no responsibility for maintaining a Participant Register.

Section 10.12 Amendments . Subject to the provisions of this Section 10.12 , the Required Lenders (or Administrative Agent with the consent in writing of the Required Lenders) and Borrowers may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to this Agreement, the Guaranty or any other Loan Document or changing in any manner the rights of the Lenders or Borrowers hereunder or thereunder or waiving any Default or Event of Default hereunder; provided , however , that no such supplemental agreement will:

(a) without the consent of each Lender directly affected thereby, extend the final maturity of the Loan, or postpone any regularly scheduled payment of principal of the Loan, or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon or increase the amount of the Commitment of such Lender hereunder;

(b) without the consent of all of the Lenders, reduce the percentage specified in the definition of Required Lenders;

(c) without the consent of all of the Lenders, amend Section 9.21 or this Section 10.12 ; provided , that the foregoing limitation in respect of Section 9.21 will not prohibit each Lender directly affected thereby from consenting to the extension of the final maturity date of the Loan as contemplated by Section 10.12(a) above; and

(d) except as otherwise provided in Section 9.16 , without the consent of all of the Lenders, release all or substantially all of the Collateral.

No amendment of any provision of this Agreement relating to Administrative Agent will be effective without the written consent of Administrative Agent. Administrative Agent may waive payment of the fee required under Section 10.10(c) without obtaining the consent of any other party to this Agreement. Notwithstanding anything to the contrary herein, Administrative Agent may, with the consent of Borrowers only, amend, modify or supplement this Agreement or any

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of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency of a technical or immaterial nature, as determined in good faith by Administrative Agent.

Section 10.13 Joint Borrower Provisions . Each Borrower acknowledges and agrees that it shall be jointly and severally liable for the Loan and all other Obligations arising under this Agreement and/or any of the other Loan Documents. In furtherance thereof, each Borrower acknowledges and agrees as follows:

(a) For the purpose of implementing the joint borrower provisions of the Loan Documents, each Borrower hereby irrevocably appoints each other Borrower as its agent and attorney-in-fact for all purposes of the Loan Documents, including the giving and receiving of notices and other communications.

(b) To induce the Lenders to make the Loan, and in consideration thereof, each Borrower hereby agrees to indemnify Administrative Agent and Lenders against, and hold the Administrative Agent and Lenders harmless from, any and all liabilities, expenses, losses, damages and/or claims of damage or injury asserted against Administrative Agent and/or Lenders by any Borrower or by any other Person arising from or incurred by reason of (i) reliance by the Administrative Agent and/or Lenders on any requests or instructions from any Borrower, or (ii) any other action taken by Administrative Agent and/or Lenders in good faith with respect to this Agreement or the other Loan Documents.

(c) Each Borrower acknowledges that the liens and security interests created or granted herein and by the other Loan Documents (as applicable, and expressly excluding the Indemnity and the Guaranties) will secure Obligations of all Borrowers under the Loan Documents (other than the Indemnity) and, in full recognition of that fact, each Borrower consents and agrees that the Administrative Agent and/or Lenders may, at any time and from time to time, without notice or demand, and without affecting the enforceability or security hereof or of any other Loan Document:

(i) agree with any Borrower to supplement, modify, amend, extend, renew, accelerate, or otherwise change the time for payment or the terms of the Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon;

(ii) agree with any Borrower to supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof or any of the Loan Documents or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder;

(iii) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof;

(iv) accept partial payments on the Obligations;

(v) receive and hold additional security or guaranties for the Obligations or any part thereof;

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(vi) release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer and enforce any security for or guaranties of the Obligations, and apply any security and direct the order or manner of sale thereof as Administrative Agent, in its sole and absolute discretion may determine;

(vii) release any Person or any guarantor from any personal liability with respect to the Obligations or any part thereof;

(viii) settle, release on terms satisfactory to Administrative Agent or by operation of applicable Laws or otherwise liquidate or enforce any Obligations and any security therefor or guaranty thereof in any manner, consent to the transfer of any such security and bid and purchase at any sale; and consent to the merger, change or any other restructuring or termination of the corporate existence of any Borrower or any other Person, and correspondingly restructure the obligations of such Borrower or other Person, and any such merger, change, restructuring or termination shall not affect the liability of any Borrower or the continuing existence of any lien or security interest hereunder, under any other Loan Document to which any Borrower is a party or the enforceability hereof or thereof with respect to all or any part of the Obligations.

(d) Upon the occurrence of and during the continuance of any Event of Default, Administrative Agent may enforce this Agreement and the other Loan Documents independently as to each Borrower and independently of any other remedy or security Administrative Agent and/or Lenders at any time may have or hold in connection with the Obligations, and in collecting on the Loan it shall not be necessary for Administrative Agent to marshal assets in favor of any Borrower or any other Person or to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce this Agreement and the other Loan Documents. Each Borrower expressly waives any right to require Administrative Agent and/or Lenders, in connection with Administrative Agent's and/or Lender's efforts to obtain repayment of the Loan and other Obligations, to marshal assets in favor of any Borrower or any other Person or to proceed against any other Person or any collateral provided by any other Person, and agrees that Administrative Agent and/or Lenders may proceed against any Persons and/or collateral in such order as it shall determine in its sole and absolute discretion in connection with Administrative Agent's efforts to obtain repayment of the Loan and other Obligations. Administrative Agent may file a separate action or actions against each Borrower to enforce the Obligations, whether action is brought or prosecuted with respect to any other security or against any other Person, or whether any other Person is joined in any such action or actions. Each Borrower agrees that Administrative Agent, Lenders, each Borrower and/or any other Person may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the security of this Agreement or the other Loan Documents. The rights of Administrative Agent and/or Lenders hereunder and under the other Loan Documents shall be reinstated and revived, and the enforceability of this Agreement and the other Loan Documents shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Administrative Agent and/or Lenders as a result of the bankruptcy, insolvency or reorganization of any Borrower or any other Person, or otherwise, all as though such amount had not been paid. The enforceability of this Agreement and the other Loan Documents at all times shall remain

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effective even though the any or all Obligations, or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any Borrower or any other Person and whether or not any Borrower or any other Person shall have any personal liability with respect thereto. Each Borrower expressly waives any and all defenses to the enforcement of its obligations under the Loan Documents now or hereafter arising or asserted by reason of (i) any disability or other defense of any Borrower or any other Person with respect to the Obligations, (ii) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations, (iii) the cessation for any cause whatsoever of the liability of any Borrower or any other Person (other than by reason of the full and final payment and performance of all Obligations), (iv) any failure of Administrative Agent and/or Lenders to marshal assets in favor of any of the Borrowers or any other Person, (v) any failure of Administrative Agent and/or Lenders to give notice of sale or other disposition of any Collateral for the Obligations to any Borrower or to any other Person or any defect in any notice that may be given in connection with any such sale or disposition, (vi) any failure of Administrative Agent and/or Lenders to comply in any non-material respect with applicable Laws in connection with the sale or other disposition of any Collateral or other security for any Obligation, (vii) any act or omission of Administrative Agent and/or Lenders or others that directly or indirectly results in or aids the discharge or release of any Borrower or of any other Person or of any of the Obligations or any other security or guaranty therefor by operation of law or otherwise, (viii) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (ix) any failure of Administrative Agent and/or Lenders to file or enforce a claim in any bankruptcy or other proceeding with respect to any Person, (x) the election by Administrative Agent, in any bankruptcy proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the Bankruptcy Code, (xi) any extension of credit or the grant of any lien under Section 364 of the Bankruptcy Code except to extent otherwise provided in this Agreement, (xii) any use of cash collateral under Section 363 of the Bankruptcy Code, (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person, (xiv) the avoidance of any lien or security interest in favor of Administrative Agent securing the Obligations for any reason, or (xv) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any Person, including any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such proceeding. Without in any way limiting the foregoing, with respect to the Loan Documents and the Obligations, each Borrower: (A) waives all rights and defenses arising out of an election of remedies by Administrative Agent, even though that election of remedies, such as non-judicial foreclosure with respect to security for Borrowers' obligations, has destroyed each of their rights of subrogation and reimbursement against the other by the operation of Section 580d of the California Code of Civil Procedure or otherwise; and (B) waives any right to a fair value hearing or similar proceeding following a nonjudicial foreclosure of the Obligations, whether arising under California Code of Civil Procedure Section 580a or otherwise.

(e) The Borrowers represent and warrant to Administrative Agent and Lenders that they have established adequate means of obtaining from each other, on a continuing basis, financial and other information pertaining to their respective businesses, operations and

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condition (financial and otherwise) and their respective properties, and each now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of the other and their respective properties. Each Borrower hereby expressly waives and relinquishes any duty on the part of Administrative Agent and/or Lenders to disclose to such Borrower any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of the other Borrowers or the other Borrowers' properties, whether now known or hereafter known by Administrative Agent and/or Lenders during the life of this Agreement. With respect to any of the Obligations, the Administrative Agent and/or Lenders need not inquire into the powers of any Borrower or the officers, employees or other Persons acting or purporting to act on such Borrower's behalf.

(f) Without limiting the foregoing, or anything else contained in this Agreement, each Borrower waives all rights and defenses that it may have because the Borrowers' debt is secured by real property. This means, among other things:

(i) Administrative Agent and/or Lenders may collect on the debt from any Borrower without first foreclosing on any real or personal property collateral pledged by the other Borrowers; and

(ii) If Administrative Agent forecloses on any real property collateral pledged by any Borrower: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (B) Administrative Agent may collect from any Borrower even if Administrative Agent, by foreclosing on the real property collateral, has destroyed any right any Borrower may have to collect from the other Borrowers.

The foregoing is an unconditional and irrevocable waiver of any rights and defenses each Borrower may have because the debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Sections 580a, 580b, 580d or 726 of the California Code of Civil Procedure. Each Borrower expressly waives any right to receive notice of any judicial or nonjudicial foreclosure or sale of any real property collateral provided by any other Borrower to secure the debt and failure to receive any such notice shall not impair or affect such Borrower's obligations hereunder or the enforceability of this Agreement or the other Loan Documents or any liens created or granted hereby or thereby.

(g) Notwithstanding anything to the contrary elsewhere contained herein or in any other Loan Document to which any Borrower is a party, with respect to the Loan and all other Obligations, each Borrower hereby waives with respect to the other Borrowers and their successors and assigns (including any surety) and any other Person any and all rights at law or in equity, to subrogation, to reimbursement, to exoneration, to contribution, to setoff, to any other rights and defenses available to it by reason of California Civil Code Sections 2787 and 2855, inclusive, or to any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, or to a holder or transferee against a maker and which each of them may have or hereafter acquire against the other or any other Person in connection with or as a result of such Borrower's execution, delivery and/or performance of this Agreement or any other Loan Document to which it is a party until the Obligations are paid and performed in full. Each Borrower agrees that it

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shall not have or assert any such rights against any other Borrower or any other Borrower's successors and assigns or any other Person (including any surety), either directly or as an attempted setoff to any action commenced against such Borrower by any other Borrower (as borrower or in any other capacity) or any other Person until the all Obligations are paid and performed in full. Each Borrower hereby acknowledges and agrees that this waiver is intended to benefit Administrative Agent and Lenders and shall not limit or otherwise affect any Borrower's liability under this Agreement or any other Loan Document to which it is a party, or the enforceability hereof or thereof.

(h) Each Borrower warrants and agrees that each of the waivers and consents set forth herein is made with full knowledge of its significance and consequences, with the understanding that events giving rise to any defense waived may diminish, destroy or otherwise adversely affect rights which each otherwise may have against the other, against Administrative Agent and Lenders or others, or against any collateral. If any of the waivers or consents herein are determined to be contrary to any applicable Law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law.

Section 10.14 Time of the Essence

. Time is of the essence hereof with respect to the dates, terms and conditions of this Agreement.

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Section 10.15 Entire Agreement; No Oral Modifications . The Loan Documents set forth the entire agreement of the parties with respect to the Loan and supersede all prior written or oral understandings and agreements with respect thereto and no modification or waiver of any provision of this Agreement will be effective unless set forth in writing and signed by the parties hereto. By executing this Agreement and initialing below Borrowers expressly represents and warrants that it did not rely on any representation, assurance or agreement, oral or written, not expressly set forth in this Agreement or any of the other Loan Documents in reaching its decision to enter into this Agreement or any of the other Loan Documents and that no promises or other representations have been made to Borrowers which conflict with the written terms of the Loan Documents. Borrowers represent to Administrative Agent and the Lenders that (i) it has read and understands the terms and conditions contained in this Agreement and the other Loan Documents executed in connection with this Agreement, (ii) its legal counsel has carefully reviewed all of the Loan Documents and it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement and all other Loan Documents, (iii) it is satisfied with its legal counsel and the advice received from it, and (iv) it has relied only on its review of the Loan Documents and its own legal counsel's advice and representations (and it has not relied on any advice or representations from Administrative Agent, any Lender, or any of their respective officers, employees, agents or attorneys). The Loan Documents may not be modified, amended or terminated except by a written agreement signed by each of the parties hereto.



SMRH:487569780.11	Section 10.15

Section 10.16 Captions . The headings or captions of the Articles and Sections set forth herein are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement.

Section 10.17 Borrower-Lender Relationship . The relationship of Borrowers, Administrative Agent and the Lenders created hereby and by the other Loan Documents is that of a borrower and a lender only, and in no event will Administrative Agent or any Lender be deemed to be a partner of, or a joint venturer with, Borrowers.

Section 10.18 Joint and Several Liability . If there is more than one (1) party to this Agreement who is a borrower under this Agreement, then each of said individuals and/or entities are jointly and severally liable for each covenant, agreement, representation and warranty of Borrowers hereunder.

Section 10.19 Severability . Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is prohibited by or invalid under applicable Law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

Section 10.20 [ Reserved . ]

Section 10.21 [ Reserved . ]

Section 10.22 Defenses . No failure by Administrative Agent or any Lender to perform any of its respective obligations hereunder will be a valid defense to, or result in any offset against, any payments which Borrower is obligated to make under any of the Loan Documents.

Section 10.23 Designated Representative(s) . Each Borrower hereby represents that any person signing this Agreement on behalf of such Borrower is hereby authorized to act as such Borrower's authorized representative for purposes of dealing with Administrative Agent on behalf of such Borrower in respect of any and all matters in connection with this Agreement, the other Loan Documents and the Loan. In addition, each Borrower may designate by appropriate action in form acceptable to Administrative Agent, additional individuals who are authorized to act on behalf of such Borrower (together with the person(s) signing this Agreement, the " Designated Representatives "). The Designated Representative has the power to give and receive all notices, monies, approvals and other documents and instruments, and to take any other action on behalf of such Borrower. All actions by the Designated Representative will be conclusive and binding on such Borrower. Administrative Agent may rely on the authority given to the Designated Representative until actual receipt by Administrative Agent of a duly authorized resolution substituting a different person as the Designated Representative.

Section 10.24 Document Imaging, Electronic Transactions and the UETA . Without notice to or consent of Borrowers or Guarantor, Administrative Agent may create electronic images of this Agreement and the other Loan Documents and destroy paper originals of any such imaged documents. Provided that such images are maintained by or on behalf of Administrative Agent as part of Administrative Agent's normal business processes, Borrowers and Guarantor

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agree that such images have the same legal force and effect as the paper originals, and are enforceable against Borrowers and Guarantor, as the case may be. Furthermore, Borrowers and Guarantor agree that Administrative Agent may convert any Loan Document into a "transferrable record" as such term is defined under, and to the extent permitted by, the UETA, with the image of such instrument in Administrative Agent's possession constituting an "authoritative copy" under the UETA.

Section 10.25 Swap Transactions . Borrowers may enter into one or more Swap Transactions with the Swap Counterparty on terms that are acceptable to Swap Counterparty in its sole discretion for the purpose of hedging and protecting against interest rate fluctuation risks with respect to the Loan. All Swap Transactions, if any, are independent agreements governed by the written agreements evidencing said Swap Transactions, which will remain in full force and effect, unaffected by any repayment, prepayment, acceleration, reduction, increase or change in the terms of the Loan Documents, except as otherwise expressly provided in said Swap Transactions, and any payoff statement from Administrative Agent relating to the Loan will not apply to said Swap Transactions.

Section 10.26 USA PATRIOT ACT NOTIFICATION . The following notification is provided to Borrower pursuant to Section 326 of the PATRIOT Act:

Each Lender hereby notifies Borrowers that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies Borrowers, which information includes the name and address of Borrowers and other information that will allow the Lenders to identify Borrowers in accordance with the PATRIOT Act.

Section 10.27 Confidentiality .

(a) Administrative Agent and each Lender agrees to hold any confidential information which it may receive from Borrowers in connection with this Agreement in confidence; provided, however, that the foregoing shall not apply to (i) disclosures required of any Lender pursuant to any applicable law, rule, regulation or order of any Governmental Authority, (ii) any information contained in any report prepared or delivered pursuant to the reporting requirements of federal or state securities laws and regulations, including, but not limited to, any prospectus, registration statement, proxy materials or periodic reports, (iii) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (iv) disclosures of information that is publicly available other than as a result of a disclosure by any Lender, (v) to legal counsel, accountants, and other professional advisors to Administrative Agent or such Lender, and (vi) to rating agencies if requested or required by such agencies in connection with a rating relating to the Advances hereunder. In addition, and notwithstanding the foregoing, Administrative Agent agrees not to share any confidential information of Borrower or Guarantor with any potential or actual Transferee or Participant without first obtaining Borrower's or Guarantor's consent (which consent shall require an execution of a confidentiality agreement or confidentiality agreements, in form and substance reasonably satisfactory to Borrower).

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(b) Notwithstanding anything to the contrary set forth herein or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound, the parties hereto acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of the transactions contemplated by the Loan Documents (and any related transactions or arrangements), and (ii) each party (and each of its employees, representatives, or other agents) may disclose to any and all parties as required by applicable laws, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by the Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure, all within the meaning of Treasury Regulations Section 1.6011‑4; provided, however, that each party acknowledges that any privilege that may exist for the benefit of a party, in such party's sole discretion, to maintain the confidentiality of a communication relating to the transactions contemplated by the Loan Documents, including a confidential communication with its attorney or a confidential communication with a federally authorized tax practitioner under Section 7525 of the Internal Revenue Code, is not intended to be affected by the foregoing.

Section 10.28 Acknowledgment and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b) the effects of any Bail-in Action on any such liability, including, if applicable:


1.	a reduction in full or in part or cancellation of any such liability;

a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or


3.	the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority

Section 10.29 Possible Increase in the Aggregate Commitment . As of the Closing Date, the maximum Aggregate Commitment shall be $215,000,000. However, subsequent to the

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Closing Date Borrowers shall have the option to increase the Aggregate Commitment based, in part, on the addition of one or more Additional Projects in accordance with Section 10.30 to secure the Loan (such option shall be referred to herein as the " Accordion Option "), subject to the following: (a) one or more new lenders shall have been added to this Agreement (each, a " New Lender ") and/or one or more existing Lenders (each, an " Additionally Committed Lender "), in their sole and absolute discretion, shall have elected to increase their individual Commitments, so that the Aggregate Commitment may be increased, provided that each New Lender and/or Additionally Committed Lender shall be approved by Administrative Agent and Borrower (but not the other Lenders), (b) the Aggregate Commitment may be increased up to a maximum of $385,000,000, (c) unless Administrative Agent otherwise consents in writing, the allocation of the increased Aggregate Commitment between the Revolving Portion and the Non-Revolving Portion shall be fifty percent (50%) to the Revolving Portion and fifty percent (50%) to the Non-Revolving Portion, (d) each exercise of the Accordion Option shall be in an amount not less than $15,000,000, and (e) the Accordion Option may be exercised a maximum of four (4) times (and all conditions to exercising such option must have been satisfied as of such date). Each Lender acknowledges and agrees that its consent to any such increase in the Aggregate Commitment shall not be required and additional Lenders may be added to this Agreement, and any Additionally Committed Lenders under this Agreement may increase their individual Commitments, without the consent or agreement of the other Lenders (provided, however, that no Lender's individual Commitment may be increased without such Lender's consent), so long as Administrative Agent and Borrowers have consented in writing to any New Lenders or the increase in the Commitment of any Additionally Committed Lender, as applicable.

The addition of any New Lender to this Agreement, and/or the increase in the Commitment of any Additionally Committed Lender, shall be effective upon the satisfaction of the following:

(a) Administrative Agent and Borrowers shall have approved such New Lender and/or such increase in the Commitment of any Additionally Committed Lender, as applicable; and Administrative Agent shall have sent written notice to all Lenders of such New Lender and its Commitment amount and/or the amount of the increase in the Commitment of any Additionally Committed Lender (each, an " Accordion Notice ").

(b) Administrative Agent shall have calculated each Lender's new Pro Rata Share, based on each Lender's individual Commitment and the new Aggregate Commitment of all Lenders, and Administrative Agent shall have determined the portion of the Non-Revolving Portion (and outstanding Non-Revolving Portion) and the Revolving Portion (and outstanding Revolving Portion) allocable to each Lender based on such Lender's new Pro Rata Share.

(c) Borrower shall have executed and delivered to Administrative Agent a new Note with respect to any New Lender in the amount of such New Lender's Commitment; or with respect to an increase in the Commitment of an Additionally Committed Lender, Borrower shall have executed a replacement Note for such Additionally Committed Lender in an amount equal to such Additionally Committed Lender's increased Commitment amount.

(d) The Lenders shall execute such Assignment and Assumption Agreements as Administrative Agent shall require to evidence each New Lender's acquisition of its

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Commitment of the Loan and Loan Documents, and to evidence each Additionally Committed Lender's increased Commitment. Alternatively (or in addition), at Administrative Agent's option each New Lender shall acknowledge in writing (in a form reasonably satisfactory to Administrative Agent) that it is assuming the rights and obligations of a "Lender" under this Agreement, and if required by Administrative Agent shall execute a copy of this Agreement. Each New Lender and/or each Additionally Committed Lender shall pay to the other existing Lenders a portion of the then outstanding Revolving Portion and the Non-Revolving Portion so that upon the closing of the exercise of the Accordion Option and increase in the Aggregate Commitment, each Lender shall have owing to it its Pro Rata Share of the then outstanding principal amount of the Revolving Portion and the Non-Revolving Portion (as set forth in the revised Schedule I to be delivered in accordance with subparagraph (e) below). For the avoidance of doubt, each New Lender must acquire the same percentage of the Revolving Portion and the Non-Revolving Portion, and each Additionally Committed Lender must increase its Commitment with respect to the Revolving Portion and the Non-Revolving Portion by the same percentage.

(e) Administrative Agent shall have prepared an updated Schedule I , revised to reflect each Lender's Pro Rata Share of the Aggregate Commitment, which updated Schedule I shall be delivered to the Lenders with the Accordion Notice.

(f) Guarantor shall have executed and delivered to Administrative Agent such reaffirmations of its Guaranties and acknowledgment of its increased liability thereunder as Administrative Agent shall reasonably require; provided, however, that with the exception of the Guarantor's increased liability due to the increase in the Aggregate Commitment, Guarantor's liability shall remain unmodified as set forth in the Guaranties.

(g) Borrower shall have paid the applicable fees set forth in the Fee Letter.

(h) Borrower, each New Lender and each Additionally Committed Lender shall execute and deliver to Administrative Agent such additional documents as Administrative Agent and its legal counsel shall reasonably require to carry out the intent of this Section 10.29 .

Section 10.30 Additional Project Collateral . During the term of the Loan, Borrower shall have the option of adding new projects to secure the Loan and/or to increase the Borrowing Base Amount, subject to satisfaction of all of the following conditions precedent with respect to each such additional project (each, an " Additional Project ") (and each item delivered below shall be subject to Administrative Agent's (and, where indicated, Lenders') receipt, review, approval and/or confirmation, at Borrower's cost and expense (whether or not the addition of the Additional Project is ultimately approved), each in form and substance reasonably satisfactory to Administrative Agent (and, where indicated, Lenders)):

(a) The Additional Project must be (i) a fully developed and operating "Class A" or "Class B" property utilized principally as an office or industrial property, (ii) located in the contiguous United States (including the District of Columbia) or Hawaii, and (iii) at least 85% occupied by tenants who are not the subject of any bankruptcy, reorganization, insolvency, liquidation, dissolution, receivership or similar proceeding.

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(b) The owner of the Additional Project (the " New Borrower ") shall be a single purpose entity wholly-owned, directly or indirectly, by Guarantor and otherwise satisfactory to Administrative Agent and Lenders in their sole discretion which (i) has no indebtedness or claims against it other than non-delinquent trade debt incurred in the ordinary course of business, (ii) shall assume, on a joint and several basis, the Loan and the other obligations of Borrowers hereunder and under the other Loan Documents pursuant to a Joinder Agreement and such other documents reasonably satisfactory to Administrative Agent and Lenders in their sole discretion, and (iii) does not have any Guarantor as a general partner, and does not otherwise have a structure where any Guarantor would be liable for such New Borrower's obligations under the Joinder Agreement absent the Guaranty.

(c) Administrative Agent shall have received a Security Instrument covering the Additional Project and all personal property directly related thereto (and such Security Instrument shall have been properly recorded in the official records of the county or counties in which the Additional Project is located) and such other Loan Documents, and amendments, modifications or supplements to any existing Loan Documents, as reasonably required by Administrative Agent, executed by New Borrower, Borrower and Guarantor; provided that Borrower's and Guarantor's obligations or rights under the Loan Documents shall not be modified or affected beyond what is contemplated pursuant to the transaction.

(d) The New Borrower owns fee title to, or holds a leasehold interest as a lessee in, the Additional Project. In connection with any Additional Project in which a New Borrower holds a leasehold interest, Administrative Agent and Lenders shall have received and approved (i) a copy of the ground lease creating such leasehold interest, and (ii) a ground lessor's estoppel and consent executed by the ground lessor under any such ground lease.

(e) New Borrower shall deliver to Administrative Agent a certificate executed by an officer of New Borrower certifying that New Borrower is qualified to transact business in the state in which the Additional Project is located.

(f) Administrative Agent shall have received a Title Policy, containing no exceptions or exclusions other than Permitted Encumbrances or as may be reasonably approved by Administrative Agent, insuring that the insured Security Instrument for the Additional Project is a valid, first priority lien on the Additional Project and related collateral, in an insured amount as reasonably required by Administrative Agent. Borrower also shall obtain, at its sole cost and expense, any endorsements, continuations or modifications to the existing Title Policies as Administrative Agent may reasonably request and to the extent available, including endorsements to increase the insured amounts under such Title Policies.

(g) If the Additional Project is being acquired by New Borrower, if required by Administrative Agent, Administrative Agent shall have received complete copies of any purchase agreement for the Additional Project (to the extent not prohibited by the confidentiality provisions contained therein).

(h) Administrative Agent shall have received a recent Appraisal for the Additional Project.

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(i) New Borrower shall have provided Administrative Agent with current title, tax, UCC chattel lien and bankruptcy searches (and any other searches which Administrative Agent may require) for the Additional Project, New Borrower, New Borrower's constituent members and such other parties as Administrative Agent shall require in its reasonable discretion.

(j) A copy of New Borrower's limited liability company agreement (certified by a manager as being true, correct, complete, unamended (except as disclosed to Administrative Agent in writing) and in full force and effect) and a copy of New Borrower's Articles of Organization (or other appropriate articles) (certified by the appropriate governmental officials in whose offices the same must be filed under applicable law, as applicable), together with evidence reasonably satisfactory to Administrative Agent, that New Borrower has complied with all other filing requirements and fictitious name requirements, if any, necessary to permit New Borrower to do business in the state in which the Additional Project is located, and evidence reasonably satisfactory to Administrative Agent, that New Borrower has complied with the above‑mentioned documents in executing the Security Instrument and other documents which it is required to execute pursuant to this Section 10.30 .

(k) Administrative Agent shall have received insurance policies or insurance certificates for the Additional Project (conforming to the requirements of Exhibit H ) written by insurers reasonably satisfactory to Administrative Agent and in amounts reasonably satisfactory to Administrative Agent, prepared in accordance with Administrative Agent's standard requirements therefor.

(l) Administrative Agent shall have received a flood zone and landslide hazard certification for the Additional Project indicating that the improvements on such Additional Project are not located in a flood plain or any other flood prone area, or within an area subject to landslide hazards, as designated by the Federal Emergency Management Agency or any other Governmental Authority.

(m) Administrative Agent shall have received a current "as built" ALTA/ACSM Land Title Survey of the Additional Project, dated or updated to a date not earlier than thirty (30) days prior to the recordation of the Security Instrument for the Additional Project, certified to Administrative Agent and the Title Company, prepared by a licensed surveyor reasonably acceptable to Administrative Agent and such title insurer, and conforming to Administrative Agent's current standard survey requirements.

(n) Administrative Agent shall have received a current, reasonably acceptable engineering report with respect to the Additional Project, covering, among other matters, inspection of heating and cooling systems, roof and structural details and showing no failure of compliance with building plans and specifications, applicable legal requirements (including requirements of the Americans with Disabilities Act) and fire, safety and health standards. As requested by Administrative Agent, such report shall also include an assessment of the Additional Project's tolerance for earthquake and seismic activity.

(o) An environmental report for the Additional Project reasonably acceptable to Administrative Agent and Required Lenders, showing that no remedial environmental action is recommended or required and other information produced in connection with the Tests.

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(p) Administrative Agent shall have received either (i) reasonably satisfactory evidence that the Additional Project is covered by the Environmental Insurance Policy or (ii) confirmation from Guarantor of its liability under the Guaranty for any amounts owing by Borrower under the Environmental Indemnity with respect to such Additional Project, as more fully set forth in the Guaranty.

(q) Administrative Agent shall have received the following financial information for the Additional Project: (i) annual operating statements for the preceding two fiscal years, if applicable, and for the current fiscal year through the fiscal quarter most recently ending, provided that if New Borrower or any Affiliate of New Borrower has not owned the Additional Project for such entire period, then Borrower shall provide operating statements for the period of New Borrower's (and any such Affiliate's) ownership and, only to the extent available, operating statements for the balance of such period, (ii) a pro forma operating statement and proposed Operating Budget for the current and next succeeding fiscal years.

(r) Administrative Agent shall have received a current rent roll for the Additional Project, together with all leases for the Additional Project not previously delivered to Administrative Agent.

(s) If requested, Administrative Agent shall have received copies of all material agreements with respect to the Additional Project, including without limitation all noncancelable agreements relating to the management, operation or maintenance of the Additional Project and of each such agreement which cannot be cancelled by thirty (30) days' or less notice.

(t) Administrative Agent shall have received all title, zoning and entitlement information and documentation regarding the Additional Project reasonably requested by Administrative Agent and reasonably available to New Borrower.

(u) Administrative Agent shall have received reasonable evidence that the Additional Project and the operation thereof comply with all governmental requirements, including that all requisite certificates of occupancy, building permits, and other licenses, certificates, approvals or consents required of any governmental authority have been issued without variance or condition and that there is no litigation, action, citation, injunctive proceedings, or like matter pending or threatened with respect to the validity of such matters except as may be consented to by Administrative Agent in writing. New Borrower shall provide Administrative Agent with copies of all certificates of occupancy, and shall deliver letters (to the extent reasonably available to Borrower) from applicable zoning, building and municipal agencies evidencing the foregoing.

(v) New Borrower shall have established all accounts and escrows for the Additional Project as required by the express terms of this Agreement and delivered to Administrative Agent reasonably satisfactory evidence thereof.

(w) No condemnation or adverse zoning or usage change proceeding shall have occurred or shall have been threatened against the Additional Project in writing; the Additional Project shall have not suffered any significant damage by fire or other casualty which has not been repaired; no law, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened in writing by any

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governmental authority, which would have, in Administrative Agent's judgment, a material adverse effect.

(x) All fees and commissions payable to real estate brokers, mortgage brokers, or any other brokers or agents in connection with the acquisition of the Additional Project shall have been paid or will be paid concurrently with adding the Additional Project to the Loan.

(y) At Administrative Agent's discretion and written request, New Borrower shall have used commercially reasonable efforts to obtain estoppel certificates and, where required by Administrative Agent, subordination, nondisturbance and attornment agreements from key tenants as reasonably requested by Administrative Agent.

(z) Administrative Agent shall have received such other authorizations, documents, certificates, opinions of counsel, updates, reports, searches or items as Administrative Agent reasonably may require with respect to New Borrower or the Additional Project.

(aa) Administrative Agent shall have prepared revised Exhibits B and G , in each case revised to include the applicable information for the Additional Project (the " Replacement Exhibits ").

(bb) Administrative Agent and Required Lenders shall have approved the inclusion of the Additional Project as security for the Loan. A Lender shall be deemed to have granted its approval of the Additional Project if it has not notified Administrative Agent in writing of its disapproval of the inclusion of such Additional Project, within ten (10) days after receiving all of the items to be delivered to Administrative Agent and Lenders pursuant to this Section 10.30 . Unless otherwise agreed to by Administrative Agent in writing, Administrative Agent shall be deemed to have approved the inclusion of the Additional Project if it has not notified Borrower in writing of its disapproval of the inclusion of such Additional Project, within fifteen (15) days after receiving all of the items to be delivered to Administrative Agent and Lenders pursuant to this Section 10.30 .

From and after the date a Security Instrument is recorded against the Additional Project in accordance with Administrative Agent's written instructions to the Title Company, (i) such Additional Project shall be included in the definition of "Project" set forth in this Agreement and in the other Loan Documents, (ii) the Security Instrument recorded against such Additional Project shall be included in the definition of " Security Instrument " as set forth is this Agreement and in the other Loan Documents, (iii) New Borrower shall be included in the definition of "Borrower" set forth in this Agreement and the other Loan Documents, (iv) the Replacement Exhibits shall be attached to this Agreement in substitution of the then existing corresponding exhibits and shall thereafter be deemed to replace such exhibits, and (v) all of the foregoing requirements set forth in Sections 10.30(a) through (bb) , shall be deemed satisfied by New Borrower, Borrower and Guarantor, as to such Additional Project, except as reasonably reserved or specified by Administrative Agent in writing.

Section 10.31 Releases of Projects . Except as expressly set forth below in this Section 10.31 , Administrative Agent shall have no obligation to release any of the Projects (or portions thereof) until the Loan and all other Obligations have been paid in full and all

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obligations of Administrative Agent and Lenders under this Agreement and the other Loan Documents have terminated. Borrower shall be entitled to obtain the release of a Project (or portions thereof) (each, a " Release Project ") from the lien of the Loan Documents, provided that all of the following conditions are satisfied:

(a) Borrower shall have submitted to Administrative Agent a written request for such release at least twenty (20) days prior to the proposed release date, together with copies of any documents which Borrower requests Administrative Agent to execute in connection with such proposed release.

(b) No Event of Default shall have occurred and be continuing, and no event shall have occurred and be continuing that with the giving of notice and/or the lapse of time would constitute an Event of Default.

(c) After giving effect to the proposed release, at least three (3) Projects remain as security for the Loan, unless otherwise agreed to by Administrative Agent and Lenders.

(d) Borrower shall have paid to Administrative Agent, for application to the principal balance of the Loan, an amount equal to the amount, if any, by which the outstanding principal balance of the Loan exceeds the then current Availability Amount. In calculating the Availability Amount, the Borrowing Base Amount shall be determined based only on the Projects remaining after the proposed release (i.e., without regard to the Release Project).

(e) Borrower shall have delivered to Administrative Agent (1) a pro forma covenant compliance certificate demonstrating the continuing compliance with all Borrowing Base Amount and financial covenants on a pro forma basis based on the most recently available financial statements adjusted to reflect the proposed release of a Project and (2) such certifications from the Guarantor that, after giving effect to the proposed release, Guarantor shall be in compliance with its financial covenants under the Guaranty.

(f) If the release relates only to a portion of a Project encumbered by a Security Instrument, (i) if Administrative Agent so requests in writing, Borrower shall provide (at Borrower's sole cost and expense) an updated Appraisal with respect to the remaining portion of such Project which shall remain encumbered by a Security Instrument following such release of the applicable portion of such Project, (ii) Administrative Agent shall have received such evidence as is reasonably satisfactory to Administrative Agent that both the portion of the Project to be released and the remainder of the Project that will remain encumbered by the Security Instrument following such release shall be a legally subdivided parcel(s) of real Project for all purposes, including without limitation a legally subdivided Project under the Subdivision Map Act (or a successor statute), and shall also constitute a separate tax parcel, (iii) Administrative Agent and the Required Lenders shall be reasonably satisfied that the portion of the Project remaining encumbered following a release of the Release Project shall be in compliance with all applicable zoning and other legal requirements, and (iv) Administrative Agent and the Required Lenders are reasonably satisfied that, if the released Project and remaining Project are inter-dependent, appropriate and fair covenants, conditions, restrictions and/or easements of record are in place to govern the relationship between the released Project and the remaining Project to the extent reasonably necessary for the use and operation thereof.

(g) Borrower shall provide to Administrative Agent at Borrower's sole cost and expense such title insurance endorsements to the Title Policies for the remaining Security Instruments as Administrative Agent shall reasonably request (including, without limitation, CLTA Form 111 Endorsements (or its equivalent), to the extent available and in form and substance reasonably satisfactory to Administrative Agent, which shall insure that after such release, each remaining Security Instrument shall continue as a

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valid first position lien against the Project encumbered thereby, subject only to such new title exceptions as Administrative Agent shall approve in writing.

(h) Borrower shall pay, or caused to be paid, to Administrative Agent all reasonable costs and expenses incurred in connection with such release, including without limitation all breakage fees, recording fees, transfer and other taxes, trustee's fees, reasonable attorneys' fees, appraisal fees, escrow fees, and fees for title insurance and similar charges.

Following the release of any Project (or portion thereof), such Release Project (or portion thereof) shall no longer be included in the definition of "Project" except with respect to any indemnities and other provisions of the Loan Documents that expressly survive repayment of the Loan.

Section 10.32 Collateral Documents . If any Security Instrument shall for any reason (other than pursuant to the terms thereof) cease to create a valid lien and security interest in the collateral purported to be covered thereby or such lien or security interest shall for any reason cease to be a perfected and first priority lien and security interest subject only to Permitted Encumbrances, and any such defect or infirmity is not cured to Administrative Agent's reasonable satisfaction within ninety (90) days of demand by Administrative Agent, the Project encumbered by such Security Instrument shall immediately (following the expiration of such ninety (90) day cure period) cease to be included in the calculation of Borrowing Base Value and Borrowing Base Amount, and Borrower shall repay to Administrative Agent for the ratable benefit of Lenders, within ten (10) days of demand by Administrative Agent, any amounts by which the total outstanding Obligations exceed the Availability Amount.

Section 10.33 Limited Recourse Provision . Except as to Guarantor as set forth in the Guaranty, Administrative Agent and Lenders shall have no recourse against, nor shall there be any personal liability to, the members of any existing Borrower (or the members of any Borrower hereafter becoming a Borrower under the Loan), or to any shareholders, members, partners, beneficial interest holders or any other entity or person in the ownership (directly or indirectly) of any such existing or future Borrower (except for the Guarantor as provided in the Guaranty, but including the sole member of each Borrower (other than Guarantor), including the sole member of any new Borrower (other than Guarantor), KBS Limited Partnership III or KBS Real Estate Investment Trust III, Inc.) with respect to the obligations of Borrower and Guarantor under the Loan. For purposes of clarification, in no event shall the above language limit, reduce or otherwise affect any Borrower's liability or obligations under the Loan Documents, Guarantor's liability or obligations under the Guaranty or Administrative Agent's right to exercise any rights or remedies against any collateral securing the Loan.

Section 10.34 Release of a Borrower . As to any Release Project released from the lien of a Security Instrument pursuant to the terms of Section 10.31 hereinabove, the Borrower

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owning such Release Project (a " Release Borrower ") shall be automatically released from any and all obligations and liabilities under this Agreement and the other Loan Documents (excepting, however, any obligations that may arise under the Indemnity) upon the consummation of the release of such Release Project, as evidenced by a written release from Administrative Agent to be delivered concurrently with the consummation of such release (and Administrative Agent hereby agrees to deliver such written release to such Release Borrower upon satisfaction of all release conditions set forth in Section 10.34 ) provided that such Release Borrower shall also be automatically released from any and all of its obligations under the Indemnity if, at the time of such release, (i) such Release Borrower shall have delivered to Administrative Agent a current environmental site assessment for such Release Project and such report does not disclose the existence of any "new" (i.e., not previously disclosed to Administrative Agent in the Environmental Reports) violation of any Environmental Law or any Environmental Liability applicable to such Release Project, which reports shall be dated, or last updated, to a date which is no more than thirty days earlier than the date on which the Security Instrument securing such Release Project is discharged or released of record, (ii) no Environmental Liability shall be pending or threatened in writing with respect to such Release Project, and (iii) Borrower maintains for such Release Project an environmental insurance policy substantially in the form of the Environmental Insurance Policy approved by Administrative Agent when such Release Project was added as collateral for the Loan, which policy shall have a term of no less than one year after the date of the release of such Release Project and which policy (or endorsement thereto) shall name Administrative Agent as an additional insured. Additionally, notwithstanding the foregoing, upon the bankruptcy, insolvency or reorganization of a Release Borrower, to the extent that any payment made by such Release Borrower is rescinded or otherwise must be returned by Administrative Agent, any Lender or any other Person, such Release Borrower's liability shall be reinstated (solely to the extent rescinded or returned plus any amounts payable pursuant to Section 10.1 of this Loan Agreement), all as though such payment had not occurred. For purposes of clarification, in no event shall the release of a Release Borrower under this Section 10.34 release any other Borrower or Guarantor from any obligations owing under the Loan Documents (including, without limitation, such parties continuing indemnity obligations under the Indemnity relating to a Release Project following the release of a Release Borrower).

Section 10.35 Civil Code Section 2822 Waiver . If, at any time, any surety exists that is liable for only a portion of Borrowers obligations under the Loan Documents and Borrower provides partial satisfaction of Borrowers obligations, Borrowers waive any right they would otherwise have under California Civil Code Section 2822, or under any similar law or otherwise, to designate the portion of Borrowers obligations to be satisfied. The designation of the portion of Borrowers obligations to be satisfied will, to the extent not expressly made by the terms of the Loan Documents, be made by Bank rather than by Borrowers.

[ Signature page follows]

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

BORROWERS :

KBSIII DOMAIN GATEWAY, LLC,

a Delaware limited liability company


By:	KBSIII REIT ACQUISITION I, LLC,

a Delaware limited liability company,

its sole member


By:	KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member


By:	KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By: /s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.,

Chief Executive Officer

Address:

KBSIII Domain Gateway, LLC

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attention: Giovanni Cordoves

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KBSIII 515 CONGRESS, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION XXVII, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By: /s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.,

Chief Executive Officer

Address:

KBSIII 515 Congress, LLC

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attention: Giovanni Cordoves

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KBSIII 155 NORTH 400 WEST, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION V, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By: /s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.,

Chief Executive Officer

Address:

KBSIII 155 North 400 West, LLC

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attention: Tim Helgeson

S-3

KBSIII 1550 WEST MCEWEN DRIVE, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION IV, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By: /s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.,

Chief Executive Officer

Address:

KBSIII 1550 West McEwen Drive, LLC

c/o KBS Capital Advisors LLC

590 Madison Avenue, 26th Floor

New York, NY 10022

Attention: Stephen Close

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ADMINISTRATIVE AGENT:	U.S. BANK NATIONAL ASSOCIATION, a national banking association
Address:	By:	/s/: Christopher R. Coburn
U.S. Bank National Association Commercial Real Estate 4100 Newport Place, Suite 900 Newport Beach, CA 92660 Attention: Loan Administration		Its:	Vice President



LENDER:	U.S. BANK NATIONAL ASSOCIATION, a national banking association
Address:	By:	/s/: Christopher R. Coburn
U.S. Bank National Association Commercial Real Estate 4100 Newport Place, Suite 900 Newport Beach, CA 92660 Attention: Loan Administration		Its:	Vice President

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SCHEDULE 1

PRICING COMMITMENTS



Lender	$ Amount	Pro Rata Share
US Bank, N.A.	$215,000,000.00	100%

Schedule 1

EXHIBIT A

Improvements

The Improvements for each Project will consist of office and/or industrial buildings, and related structures and improvements.

Exhibit A

EXHIBIT B-1

Legal Description – Domain Gateway Project

That certain real property located in Travis County, Texas, more particularly described as follows:

Tract 1, Parcel A: Lots 3A, RREEF DOMAIN BLOCK V SUBDIVISION, a subdivision in Travis County, Texas, according to the map or plat thereof, recorded under Document No. 201100200 of the Official Public Records of Travis County, Texas.

Tract 1, Parcel B: Leasehold Estate in and to that certain Parking Ground Lease, dated April 9, 2009, executed by and between RREEF Domain LP, a Texas limited partnership, as Lessor, and Domain Gateway I, LP, a Texas limited partnership, as Lessee, as amended by that certain First Amendment to Parking Ground Lease, dated August 19, 2011, executed by and between RREEF Domain LP, a Texas limited partnership, as Lessor, and Domain Gateway I, LP, a Texas limited partnership, as Lessee, and further amended by that certain Second Amendment to Parking Ground Lease, dated September 29, 2011, executed by and between RREEF Domain LP, a Texas limited partnership, as Lessor, and Domain Gateway I, LP, a Texas limited partnership, as Lessee, evidenced by Memorandum of Lease recorded under Document No. 2011142878 , as modified, affected or amended by Assignment and Assumption of Lessee's Interest in Ground lease (Domain Gateway) dated September 29, 2011, by and between Domain Gateway I, LP, Assignor, to KBSIII Domain Gateway,LLC, Assignee, recorded in Document No. 2011143153 , Official Public Records of Travis County, Texas, in and to that certain tract or parcel of land containing 4.218 acres, more or less, being a portion of Lot 2A, DOMAIN LOT D10 SUBDIVISION, a subdivision in Travis County, Texas, according to the map or plat thereof, recorded under Document No. 201800279 , of the Official Public Records of Travis County, Texas, said tract being more particularly described by metes and bounds as follows:

Being 4.218 Acres of land out of the James Rogers Survey No. 19, situated in the City of Austin, Travis County, Texas, being a portion of Lot 1, Block "A", Rreef Domain Whole Foods Market Subdivision, of record in Document No. 201100129 of the Official Public Records of Travis County, Texas; Said 4.218 Acres of land being more particularly described by Metes and Bounds as follows:

Commencing, for reference, at a cut "X" in concrete found at the Westernmost Southwesterly corner of Lot 2-A2, Block "A", Resubdivision of Lot 2, Block "A", Domain Section 2 Subdivision, of record in Document No. 200700336 of said Official Public Records, from which a 1/2 inch iron rod with cap set at the Westernmost Northwesterly corner of said Lot 2-A2 bears, North 17 degrees 26 minutes 07 seconds East, a distance of 626.67 feet;

THENCE, North 72 degrees 33 minutes 53 seconds West, leaving the Westernmost Southwesterly corner of said Lot 2-A2, over and across said Lot 1, a distance of 67.00 feet to the point of beginning and the Easternmost Southeasterly corner hereof and the beginning of a non-tangent curve to the right;

THENCE, continuing over and across said Lot 1, for the Southerly, Westerly, Northerly and Easterly lines hereof, the following twenty-one (21) courses and distances:

1) Along said non-tangent curve to the right having a radius of 24.50 feet, a central angle of 90 degrees 00 minutes 00 seconds, an arc length of 38.48 feet and a chord which bears South 62 degrees 26 minutes 07 seconds West a distance of 34.65 feet for the end of said curve;

2) North 72 degrees 33 minutes 53 seconds West, a distance of 34.30 feet to the point of curvature of a tangent curve to the right;

Exhibit B-1

3) Along said tangent curve to the right having a radius of 5.00 feet, a central angle of 66 degrees 47 minutes 41 seconds, an arc length of 5.83 feet and a chord which bears North 39 degrees 10 minutes 03 seconds West a distance of 5.50 feet for the end of said curve;

4) North 05 degrees 46 minutes 12 seconds West, a distance of 2.13 feet to the point of curvature of a tangent curve to the left;

5) Along said tangent curve to the left having a radius of 5.00 feet, a central angle of 66 degrees 47 minutes 17 seconds, an arc length of 5.83 feet and a chord which bears North 39 degrees 09 minutes 51 seconds West a distance of 5.50 feet for the end of said curve;

6) North 72 degrees 33 minutes 29 seconds West, a distance of 91.24 feet to the point of curvature of a tangent curve to the left;

7) Along said tangent curve to the left having a radius of 6.50 feet, a central angle of 46 degrees 22 minutes 12 seconds, an arc length of 5.26 feet and a chord which bears South 84 degrees 15 minutes 25 seconds West a distance of 5.12 feet for the end of said curve;

8) South 61 degrees 04 minutes 19 seconds West, a distance of 4.67 feet to the point of curvature of a tangent curve to the right;

9) Along said tangent curve to the right having a radius of 8.50 feet, a central angle of 46 degrees 21 minutes 48 seconds, an arc length of 6.88 feet and a chord which bears South 84 degrees 15 minutes 13 seconds West a distance of 6.69 feet for the end of said curve;

10) North 72 degrees 33 minutes 53 seconds West, a distance of 25.41 feet to the point of curvature of a tangent curve to the right;

11) Along said tangent curve to the right having a radius of 10.50 feet, a central angle of 53 degrees 57 minutes 32 seconds, an arc length of 9.89 feet and a chord which bears North 45 degrees 35 minutes 07 seconds West a distance of 9.53 feet for the point of curvature of a reverse curve to the left;

12) Along said reverse curve to the left having a radius of 9.00 feet, a central angle of 54 degrees 00 minutes 43 seconds, an arc length of 8.48 feet and a chord of which bears North 45 degrees 36 minutes 43 seconds West a distance of 8.17 feet for the end of said curve;

13) North 72 degrees 37 minutes 04 seconds West, a distance of 87.18 feet to the point of curvature of a tangent curve to the left;

14) Along said tangent curve to the left having a radius of 7.50 feet, a central angle of 55 degrees 59 minutes 27 seconds, an arc length of 7.33 feet and a chord which bears South 79 degrees 23 minutes 12 seconds West a distance of 7.04 feet for the point of curvature of a reverse curve to the right;

15) Along said reverse curve to the right having a radius of 10.50 feet, a central angle of 56 degrees 02 minutes 38 seconds, an arc length of 10.27 feet and a chord which bears South 79 degrees 24 minutes 48 seconds West a distance of 9.87 feet for the end of said curve;

16) North 72 degrees 33 minutes 53 seconds West, a distance of 1.51 feet to the Southwesterly comer hereof;

17) North 17 degrees 26 minutes 07 seconds East, a distance of 548.00 feet to the Northwesterly corner hereof;

18) South 72 degrees 34 minutes 34 seconds East, a distance of 140.65 feet to an angle point;

19) North 17 degrees 30 minutes 01 seconds East, a distance of 60.00 feet to an angle point;

Exhibit B-1

20) South 72 degrees 34 minutes 34 seconds East, a distance of 178.24 feet to the Northeasterly comer hereof, from which a 1/2 inch iron rod found at the intersection of the Southeasterly terminus of Gault Lane (R.O.W. varies) with the curving Westerly right-of-way line of Burnet Road (F.M. Highway 1325 -120 feet R.O.W.), being the Northeasterly corner of said Lot 1 bears, North 35 degrees 29 minutes 43 seconds East, a distance of 2059.27 feet;

21) South 17 degrees 26 minutes 07 seconds West, a distance of 583.56 feet to the point of beginning, containing an area of 4.218 Acres (183,723 Square feet) of land, more or less, within these Metes and Bounds.

Tract 2: EASEMENT ESTATE ONLY for the benefit of Tract 1 in and to that certain Amended and Restated Declaration of Covenants, Conditions and Restrictions for the "The Domain" recorded on July 24, 2007 under Document No. 2007136702 as amended by instruments recorded under Document Nos. 2007137333 , 2007138719 , 2008106205 , and as further amended by instruments recorded under Documents No. 2007210778 and 2018145130 all of the Official Public Records of Travis County, Texas.

Tract 3: EASEMENT ESTATE ONLY for the benefit of Tract 1 in and to that certain First Amended and Restated Joint Use Access Agreement dated February 12, 2009, recorded on March 3, 2009 under Document No. 2009032626 of the Official Public Records of Travis County, Texas.

Tract 4: EASEMENT ESTATE ONLY for the benefit of Tract 1 in and to that certain Declaration of Easements and Restrictive Covenant Regarding Unified Development and Maintenance of Drainage Facilities recorded on November 20, 2007 under Document No. 2007210778 of the Official Public Records of Travis County, Texas.

Exhibit B-1

EXHIBIT B-2

Legal Description – Congress Project

That certain real property located in Travis County, Texas, more particularly described as follows

TRACT 1 (Bank of America Land):

All of Lots 4, 5 and 6, Block 56, of the Original City of Austin, Travis County, Texas, according to the Plat on file at the General Land Office of the State of Texas.

TRACT 2 (515 Aliev Tract):

The westerly one-half of the alley adjoining Lots 4, 5 and 6, Block 56, of the Original City of Austin, Travis County, Texas, according to the Plat on file at the General Land Office of the State of Texas as vacated by the City of Austin by Ordinance No. 20081211-013, a certified copy of which is recorded under Document No. 2008201289, of the Official Public Records of Travis County, Texas.

TRACT 3 (Access Easement Estate):

Easement Estate created by that certain Access Easement Agreement dated July 15, 2015, recorded under Document No. 2015113052, of the Official Public Records of Travis County, Texas, upon, over and across:

The westerly one-half of the alley adjacent to Lots 1, 2 and 3, Block 56, of the Original City of Austin, Travis County, Texas, according to the Plat on file at the General Land Office of the State of Texas as vacated by the City of Austin by Ordinance No. 20081211-013, a certified copy of which is recorded under Document No. 2008201289, of the Official Public Records of Travis County, Texas; and

The easterly one-half of the alley adjacent to Lots 11 and 12, Block 56, of the Original City of Austin, Travis County, Texas, according to the Plat on file at the General Land Office of the State of Texas as vacated by the City of Austin by Ordinance No. 20081211-013, a certified copy of which is recorded under Document No. 2008201289, of the Official Public Records of Travis County, Texas; and

The easterly one-half of the alley adjacent to the west 57 feet of Lots 7 and 8 and all of Lots 9 and 10, Block 56, of the Original City of Austin, Travis County, Texas, according to the Plat on file at the General Land Office of the State of Texas as vacated by the City of Austin by Ordinance No. 20081211-013, a certified copy of which is recorded under Document No. 2008201289, of the Official Public Records of Travis County, Texas .

Exhibit B-2

EXHIBIT B-3

Legal Description – 155 North 400 West Project

That certain real property located in Salt Lake County, Utah, more particularly described as follows:

PARCEL 1:

Beginning at the Northeast corner of Lot 8, Block 98, Plat ''A'', Salt Lake City Survey, said point being South 00°00'59'' East 67.88 feet and South 89°58'53'' West 67.00 feet from a street monument found at the intersection of 400 West and 200 North, and running thence South 00°04'10'' West 660.00 feet along the West line of said 400 West and being the East line of Block 98 to the Southeast corner of Lot 1, Block 98, Plat ''A'', Salt Lake City Survey; thence South 89°58'54'' West 165.00 feet along the North line of North Temple and being the South line of Block 98 to the Southwest corner of said Lot 1; thence North 00°04'10'' East 0.50 feet along the West line of said Lot 1; thence North 89°53'56'' West 110.23 feet; thence North 88°00'00'' West 4.57 feet; thence North 00°00'27'' West 483.92 feet; thence Northwesterly 69.60 feet along the arc of a 645.28 foot radius curve to the left (center bears South 89°59'33'' West and the long chord bears North 03°05'51'' West 69.57 feet with a central angle of 06°10'48''); thence North 06°11'15'' West 50.04 feet; thence Northwesterly 56.17 feet along the arc of 1098.72 foot radius curve to the right (center bears North 83°48'45'' East and the long chord bears North 04°43'23'' West 56.16 feet with a central angle of 02°55'45'') to the North line of said Block 98; thence North 89°58'53'' East (North 89°58'54'' East, Deed) 294.43 feet along the North line of said Block 98 and to and along the South line of 200 North Street to the point of beginning.

(The foregoing being the boundary description of the 1-lot, SALT LAKE HARDWARE MINOR SUBDIVISION, according to that certain Notice of Amended Minor Subdivision Approval for Salt Lake Hardware Minor Subdivision recorded December 21, 2011 as Entry No. 11300852 in Book 9976 at Page 2542 of the official records of the Salt Lake County Recorder.)

EXCEPTING THEREFROM all the minerals and all mineral rights as conveyed to Union Pacific Land Resources Corporation, a corporation of the State of Nebraska, in that certain Mineral Deed dated April 1, 1971 and recorded October 3, 1996 as Entry No. 6472020 in Book 7504 at Page 1156 of the official records.

FURTHER EXCEPTING THEREFROM any portion thereof lying within the bounds of the following: A portion of Block 98, Plat ''A'', Salt Lake City Survey, lying and situate in the Southwest quarter of Section 36, Township 1 North, Range 1 West, Salt Lake Base and Meridian, Salt Lake City, Salt Lake County, Utah, being more particularly described as follows: Beginning at the Northeast corner of Lot 8, Block 98, Plat ''A'', Salt Lake City Survey said point being South 00°00'59'' East 67.88 feet and South 89°58'53'' West 67.00 feet from a street monument found at the intersection of 400 West and 200 North, and running thence South 00°04'10'' West 322.11 feet along the West line of said 400 West and being the East line of Block 98; thence South 89°59'40'' West 599.47 feet to a point on the East line of property conveyed to the Utah Transit Authority by Warranty Deed recorded May 16, 2006 as Entry No. 9725435 in Book 9294 at Page 9879 of the official records of the Salt Lake County Recorder; thence North 00°04'20'' West 321.97 feet along said East line; thence North 89°58'53'' East 600.27 feet to the point of beginning. (now known as Hardware Village Phase 1)

FURTHER EXCEPTING THEREFROM the following described parcel of land conveyed to Salt Lake City Corporation, a municipal corporation of the State of Utah, in that certain Quit Claim Deed recorded October 27, 2010 as Entry No. 11061707 in Book 9872 at Page 6349 of the official records of the Salt Lake County Recorder, to-wit:

A parcel of land in fee, being part of two (2) entire tracts of property situate in Lots 2, 3 and 4, Block 98, Salt Lake City Survey, Plat ''A'', situate in the East half of the Southwest quarter of Section 36, Township 1 North, Range 1 West, Salt Lake Base and Meridian, State of Utah, incident to the construction of the ''Airport Light Rail Transit Project'', a Utah Transit Authority Project, known as ''ALRT'', and described as follows: Beginning at a Southwest corner of said entire tract, which point is 61.37 feet North 89°58'54'' East from the Southwest corner of said Block 98; and running thence North 00°04'20'' West 15.25 feet along the Westerly boundary line of said entire tract; thence East 32.04 feet; thence South 00°01'46'' West 7.51 feet; thence North 89°59'22'' East 93.01 feet; thence

Exhibit B-3

South 88°00'00'' East 198.50 feet; thence South 89°53'56'' East 110.23 feet to the Easterly line of said Lot 2; thence South 00°04'10'' West 0.50 feet along said Easterly lot line to the Southerly boundary line of said entire tracts; thence South 89°58'54'' West 433.63 feet along said Southerly boundary line to the point of beginning.

PARCEL 2:

Beginning at a point on the East line of property conveyed to the Utah Transit Authority by Warranty Deed recorded May 16, 2006 as Entry No. 9725435 in Book 9294 at Page 9879, of the official records of the Salt Lake County Recorder, said point being North 89°58'54'' East 61.38 feet and North 00°04'20'' West 15.25 feet from the Southwest corner, Block 98, Plat ''A'', Salt Lake City Survey and running thence North 00°04'20'' West 644.75 feet along the East line of said Utah Transit Authority property to the North line of Block 98, Plat ''A'', Salt Lake City Survey; thence North 89°58'53'' East 305.83 feet along the North line of said Block 98; thence Southeasterly 56.17 feet along the arc of a 1,098.72 foot radius curve to the left (center bears North 86°44'30'' East and the chord bears South 04°43'23'' East 56.16 feet with a central angle of 02°55'45''); thence South 06°11'15'' East 50.04 feet; thence Southeasterly 69.60 feet along the arc of a 645.28 foot radius curve to the right (center bears South 83°48'45'' West and the chord bears South 03°05'51'' East 69.57 feet with a central angle of 06°10'48''); thence South 00°00'27'' East 483.92 feet to the North line of property conveyed to Salt Lake City Corporation by Quit Claim Deed recorded October 27, 2010 as Entry No. 11061707 in Book 9872 at Page 6349 of the official records of the Salt Lake County Recorder; thence North 88°00'00'' West 193.94 feet along the North line of said Salt Lake City Corporation property; thence South 89°59'22'' West 93.01 feet along the North line of said Salt Lake City Corporation property; thence North 00°01'46'' East 7.51 feet along the North line of said Salt Lake City Corporation property; thence West 32.04 feet along the North line of said Salt Lake City Corporation property to the point of beginning.

EXCEPTING THEREFROM the following described parcel of land conveyed to the Utah Transit Authority in that certain Special Warranty Deed recorded September 28, 2012 as Entry No. 11481044 in Book 10060 at Page 9632 of the official records of the Salt Lake County Recorder, to-wit:

A parcel of land in fee, being part of an entire tract of property situate in Lot 3, Block 98, Salt Lake City Survey, Plat ''A'', situate in the East half of the Southwest quarter of Section 36, Township 1 North, Range 1 West, Salt Lake Base and Meridian, State of Utah, described as follows: Beginning at a point on the Southerly boundary line of said entire tract, said point being 190.33 feet North 89°58'54'' East and 7.59 feet North from the Southwest corner of said Block 98; and running thence North 60°00'00'' East 11.63 feet; thence East 19.42 feet; thence South 60°00'00'' East 14.57 feet to the said Southerly boundary line; thence North 88°00'00'' West 42.14 feet along said Southerly boundary line to the point of beginning.

FURTHER EXCEPTING THEREFROM all the minerals and mineral rights reserved by Union Pacific Railroad Company, a Delaware corporation, in that certain Special Warranty Deed recorded December 24, 1998 as Entry No. 7202238 in Book 8208 at Page 2578 of the official records of the Salt Lake County Recorder, wherein Gateway Associates, Ltd., a Utah limited partnership, is the Grantee.

ALSO FURTHER EXCEPTING THEREFROM any portion thereof lying within the bounds of the following:

A portion of Block 98, Plat ''A'', Salt Lake City Survey, lying and situate in the Southwest quarter of Section 36, Township 1 North, Range 1 West, Salt Lake Base and Meridian, Salt Lake City, Salt Lake County, Utah, being more particularly described as follows: Beginning at the Northeast corner of Lot 8, Block 98, Plat ''A'', Salt Lake City Survey, said point being South 00°00'59'' East 67.88 feet and South 89°58'53'' West 67.00 feet from a street monument found at the intersection of 400 West and 200 North, and running thence South 00°04'10'' West 322.11 feet along the West line of said 400 West and being the East line of Block 98; thence South 89°59'40'' West 599.47 feet to a point on the East line of property conveyed to the Utah Transit Authority by Warranty Deed recorded May 16, 2006 as Entry No. 9725435 in Book 9294 at Page 9879, of the official records of the Salt Lake County Recorder; thence North 00°04'20'' West 321.97 feet along said East line; thence North 89°58'53'' East 600.27 feet to the point of beginning. (now known as Hardware Village Phase 1)

Exhibit B-3

PARCEL 3:

A non-exclusive easement, appurtenant to Parcels 1 and 2 described herein, solely for the purposes of (a) the construction, repair and maintenance of a roadway and related improvements for vehicular and pedestrian ingress and egress, and (b) ingress, egress and access by vehicles and pedestrians to and from said Parcels 1 and 2, as defined, described and created pursuant to that certain Declaration and Grant of Access Easement recorded May 9, 2012 as Entry No. 11387974 in Book 10016 at Page 1021 of the official records of the Salt Lake County Recorder, on, over and across the following described property, to-wit:

Commencing at the Southwest corner of Block 101, Plat ''A'', Salt Lake City Survey; thence running East along the North line of 200 North Street 402.5 feet; thence South 34°51'23'' East 161.85 feet to a point on the South line of 200 North Street, said point being 165 feet West of the Northeast corner of Block 98, Plat ''A'', Salt Lake City Survey; thence West along the South line of 200 North Street 495 feet to the Northwest corner of said Block 98; thence North 131.86 feet, more or less, to the point of beginning.

EXCEPTING from said Parcel 3 any portion thereof lying West of the Easterly line of the following described parcel of land conveyed to the Utah Transit Authority in that certain Warranty Deed recorded May 16, 2006 as Entry No. 9725432 in Book 9294 at Page 9873 of the official records of the Salt Lake County Recorder, to-wit:

A parcel of land in fee for the ''Weber County to Salt Lake Commuter Rail'', a Utah Transit Authority Project, and described as follows: Beginning at the Northwest corner of Block 98, Plat A, Salt Lake City Survey; thence North 00°06'33'' West 131.92 feet to the Southwest corner of Block 101, Plat A, Salt Lake City Survey; thence North 89°54'48'' East 59.82 feet along the South line of said Block 101; thence South 00°00'53'' East 132.00 feet to the North line of said Block 98; thence South 89°59'33'' West 59.60 feet along said North line to the point of beginning.

ALSO FURTHER EXCEPTING THEREFROM said Parcel 3 all the minerals and mineral rights reserved by Union Pacific Railroad Company, a Delaware corporation, in that certain Special Warranty Deed recorded December 24, 1998 as Entry No. 7202238 in Book 8208 at Page 2578 of the official records of the Salt Lake County Recorder, wherein Gateway Associates, Ltd., a Utah limited partnership, is the Grantee.

APN: 08-36-376-056; 08-36-376-057

Exhibit B-3

EXHIBIT B-4

Legal Description – 1550 West McEwen Drive Project

That certain real property located in Williamson County, Tennessee, more particularly described as follows:

Tract 1:

Land in Williamson County, Tennessee, being Lot 145 as shown on the plan of "McEwen Place, PUD Subdivision, Revision 2, Resubdivision of Lot 103," recorded in Book P53, Page 148, Register's Office for Williamson County, Tennessee, to which plan reference is hereby made for a more complete description thereof.

Tract Il:

Land in Williamson County, Tennessee, being Lot 146 on the plan of McEwen Place PUD Subdivision, Revision l, Subdivision of Lot 103, recorded in Book P50, Page 110, Register's Office for Williamson County, Tennessee, to which plan reference is hereby made for a more complete description thereof.

Being the same property conveyed to KBSIII 1550 West McEwen Drive, LLC, a Delaware limited liability company, by deed of record in Book 5571 Page 950, in the Register's Office for Williamson County, Tennessee.

Tract Ill

Together with non-exclusive, perpetual easements:

(A) in, to, over, under, along, and across the Common Areas (as such term is defined in the Declaration, as hereinafter defined), in such areas as shall be reasonably necessary, for the purposes of (i) installing (to the extent not already present), operating, using, maintaining, repairing, replacing, relocating, and removing Utility Lines (as such term is defined in the Declaration, as hereinafter defined) and, (ii) connecting and tying into the common Utility Lines located in the Common Areas for such purpose and using such common Utility Lines in connection with the delivery of such utility services to each Lot (as such term is defined in the Declaration, as hereinafter defined) and the Buildings (as such term is defined in the Declaration, as hereinafter defined) and other improvements from time to time located thereon;

(B) of pedestrian passage and use on, over, and across all pedestrian walkways, jogging trails, or bike paths now existing or hereafter constructed in, on, under, over, and through the Common Areas;

(C) of vehicular ingress, egress, access, passage and use, on, over, and across any roads, streets and drives now existing or hereafter constructed in, on, under, and through the Common Areas;

(D) over the Lots and the Common Areas for emergency ingress, egress, and access;

(E) for utilities, drainage, landscaping and irrigation shown on any Plat (as such term is defined in the Declaration, as hereinafter defined);

(F) for the minor encroachments into, on, and over the Common Areas and the Lots that will not substantially interfere with the Common Areas and the Lots encroached upon created by the construction, reconstruction, renovation, settling, shifting or other causes of movement and for overhangs;

(G) in, on, and over the Common Areas for access and temporary encroachments by contractors and subcontractors (and the equipment and employees thereof) during construction to the extent reasonably necessary to construct the improvements on the various Lots or the Common Areas; and

(H) over the Common Areas and the Lots for grading purposes to the extent reasonably necessary to construct, maintain, repair, replace or improve any improvements,

Exhibit B-4

5310, Page 444, in Book 5436, Page 483, in Book 5436, Page 490, and in Book 5436, Page 520, Register's Office for Williamson County, Tennessee (the "Declaration").

Tract IV

Together with non-exclusive, perpetual easements of vehicular ingress, egress, access, passage and use, on, over, and across: (A) any roads, streets and driveways now existing or hereafter constructed in, on, under, and through the Grocery Parcel (as such term is defined in the Declaration, as hereinafter defined), and (B) the Protected Access Way (as such term is defined in the Declaration, as hereinafter defined), all as contained in that certain Declaration of Covenants, Conditions, Restrictions and Easements for McEwen Grocery Parcel of record in Book 4488, Page 961, as amended or affected in Book 4990, Page 785, in Book 5374, Page 169 and in Book 5436, Page 266, Register's Office for Williamson County, Tennessee (the "Declaration").

Tract V

Together with non-exclusive, perpetual easements:

(A) in, to, over, under, along, and across the Common Areas (as such term is defined in the Declaration, as hereinafter defined), in such areas as shall be reasonably necessary, for the purposes of (i) installing (to the extent not already present), operating, using, maintaining, repairing, replacing, relocating, and removing Utility Lines (as such term is defined in the Declaration, as hereinafter defined), and (ii) connecting and tying into the common Utility Lines located in the Common Areas for such purpose and using such common Utility Lines in connection with the delivery of such utility services to each Lot (as such term is defined in the Declaration, as hereinafter defined) and the buildings and other improvements from time to time located thereon;

(B) of pedestrian passage and use on, over, and across all pedestrian walkways and bike paths now existing or hereafter constructed in, on, under, over, and through the Common Areas and the Lots;

existing or hereafter constructed in, on, under, and through the Common Areas and the Lots;

(D) over the Lots and the Common Areas for emergency ingress, egress, and access;

(E) for utilities, drainage, landscaping and irrigation shown on any Plat (as such term is defined in the Declaration, as hereinafter defined);

(F) for the minor encroachments into on, and over the Common Areas and the Lots that will not substantially

interfere with the Common Areas and the Lots encroached upon created by the construction, reconstruction, renovation, settling, shifting or other causes of movement and for overhangs;

(G) over the Common Areas and the Lots for grading purposes to the extent reasonably necessary to construct, maintain, repair, replace or improve any improvements; and

(H) in, on, and over the Common Areas and the Lots, for access and temporary encroachments by contractors and subcontractors (and the equipment and employees thereof) during construction to the extent reasonably necessary to construct the improvements on the various Lots or the Common Areas,

all as contained in that certain Declaration of Covenants, Conditions, Restrictions and Easements for McEwen Southside Parcel of record in Book 4953, Page 382, as amended or affected in Book 4962, Page 119, in

Book 5310, Page 454, in Book 5435, Page 429, and in Book 5436, Page 400, Register's Office for Williamson County, Tennessee (the "Declaration").

Tract VI

Together with non-exclusive appurtenant easements for Public Utility, Drainage, Access and Landscape and shown as Lot 144 and Lot 147 on Plan of record in Plat Book 50, Page 110, Register's Office for Williamson County, Tennessee.

Exhibit B-4

Tract VII

Together with perpetual nonexclusive easement in, to, through, over, under, and across the Easement Area (as defined in the Easement Agreement, as hereinafter defined) for the Permitted Uses (as defined in the Easement Agreement, as hereinafter defined), contained in that certain Utility Easement Agreement of record in Book 5436, Page 187, Register's Office for Williamson County, Tennessee (the "Easement Agreement").

Tract VIII

Together with perpetual nonexclusive easement in, to, through, over, under, and across the Easement Area (as defined in the Easement Agreement, as hereinafter defined) for the Permitted Uses (as defined in the Easement Agreement, as hereinafter defined), contained in that certain Utility Easement Agreement of record in Book 5435, Page 508, Register's Office for Williamson County, Tennessee (the "Easement Agreement").

Tract IX

Together with perpetual nonexclusive easement in, to, through, over, under, and across the Easement Area (as defined in the Easement Agreement, as hereinafter defined) for the Permitted Uses (as defined in the Easement Agreement, as hereinafter defined), contained in that certain Utility Easement Agreement of record in Book 5435, Page 570, Register's Office for Williamson County, Tennessee (the "Easement Agreement").

Being the same property conveyed by KBSIII 1550 West McEwen Drive, LLC by deed of record in Book 5571, Page 950, in the Register's Office for Williamson County, Tennessee.

Exhibit B-4

EXHIBIT C

Permitted Encumbrances

As set forth in Administrative Agent's letter of title instructions to the Title Company setting forth Administrative Agent's requirements for the Title Policy, for each Security Instrument encumbering a Project. In no event shall any deeds of trust, mortgages, mechanic's liens or other liens securing indebtedness or monetary obligations (other than the Security Instruments in favor of Administrative Agent for the benefit of Lenders) be "Permitted Encumbrances."

Exhibit C

EXHIBIT D

[Reserved]

Exhibit D

EXHIBIT E

Financial Covenant Compliance Certificate Form

Loan Amount: $[___________]

Revised for the fiscal quarter ending on [____________] (the " Quarter-Annual Date ")

With reference to the Guaranty dated [_________], 2018, from KBS REIT Properties, III, LLC, to Administrative Agent, Guarantor hereby certifies as follows (each capitalized term used herein having the same meaning given to it in the Guaranty unless otherwise specified):

(1) As of the Quarter-Annual Date, Guarantor's Leverage Ratio is: [_______________]. Maximum Per Guaranty: 65%.

(1) As of the Quarter-Annual Date, Guarantor's Net Worth is: $[_______________]. Minimum requirement per Guaranty: $250,000,000.

(1) As of the Quarter-Annual Date, Guarantor's consolidated recourse secured Indebtedness is _______________________. Maximum per Guaranty is 15% of Guarantor's Total Asset Value.

(1) As of the Quarter-Annual Date, Guarantor's ratio of EBITDA to Fixed Charges is ______________. Minimum per Guaranty is 1.50 to 1.0.

(1) As of the Quarter-Annual Date, there exists no Default or, to Guarantor's knowledge, any condition, event or act which constitutes an Event of Default under the Term Loan Agreement.



	Guarantor: KBS REIT Properties III, LLC, a Delaware limited liability company By: ______________________________ Its: ______________________________

Exhibit E

EXHIBIT F

[Reserved.]

Exhibit F

EXHIBIT G-1

Organizational Chart – Domain Gateway Borrower

Exhibit G-1

Exhibit G-1

EXHIBIT G-2

Organizational Chart – Congress Borrower

Exhibit G-2

Exhibit G-2

EXHIBIT G-3

Organizational Chart – 155 North 400 West Borrower

Exhibit G-3

Exhibit G-3

EXHIBIT G-4

Organizational Chart – 1550 West McEwen Drive Borrower

Exhibit G-4

Exhibit G-4

EXHIBIT H

COMMERCIAL REAL ESTATE

STANDARD INSURANCE REQUIREMENTS


I.	PROPERTY INSURANCE

For each Project, all-Risk Hazard Insurance Policy or Policy Declarations Pages or Binders of Insurance, or such other evidence of insurance acceptable to U.S. Bank in its sole discretion, naming the borrowing entity as an insured, reflecting coverage of 100% of the replacement cost, and written by a carrier approved by U.S. Bank with a current A.M. Best's Insurance Guide Rating of at least A- VIII (which is authorized to do business in the state in which the property is located) that affirmatively includes the following, either in the standard policy terms or by separate endorsement to the policy:

1. Mortgagee Clause Endorsement naming U.S. Bank National Association as Mortgagee ISAOA ATIMA, with a 30-day notice to U.S. Bank in the event of cancellation or non-renewal.

2. Lender's Loss Payable Endorsement (ISO 1218 or similar) with a 30-day notice to U.S. Bank in the event of cancellation or non-renewal.

3. Replacement Cost Endorsement.

4. Agreed Amount endorsement or No Coinsurance.

5. No Exclusion for Acts of Terrorism.

6. Boiler and Machinery Coverage (aka Electrical and Mechanical Breakdown).

7. Sprinkler Leakage Coverage.

8. Vandalism and Malicious Mischief Coverage.

9. Flood Insurance, if applicable, covering the building(s) and contents owned by the mortgagor

10. Loss of Rents Insurance in an amount of not less than 100% of one year's Rental Value of the Project. "Rental Value" must include:

a) The total projected gross rental income from tenant occupancy of the Project as set forth in the Operating Budget and Business Plan,

b) The amount of all charges which are the legal obligation of tenants and which would otherwise be the obligation of Borrower, and

Exhibit H - Page 1

c) The fair rental value of any portion of the Project which is occupied by Borrower

One year's business interruption insurance in an amount acceptable to U.S. Bank.

11. Collapse Coverage.

12. Earthquake Coverage, if applicable,

13. Coastal & Other Wind Coverage (as applicable for gulf and east coast properties).

14. Extra Expense Coverage.

15. Borrower's coverage is primary and non-contributory with any insurance or self-insurance carried by U.S. Bank.

16. Waiver of Subrogation against any party whose interests are covered in the policy.

17. Demolition and Increased Cost of Construction.

18. U.S. Bank must be the only mortgagee / lender loss payee as to the Collateral covered by U.S. Bank's Security Instrument(s).

Exhibit H - Page 2


II.	LIABILITY INSURANCE

Commercial General Liability Policy or Policy Declarations Pages or Binders of Insurance, or such other evidence of insurance acceptable to U.S. Bank in its sole discretion, naming the borrowing entity as an insured, providing coverage on an "occurrence" rather than a "claims made" basis and written by a carrier approved by U.S. Bank, with a current A.M. Best's Insurance Guide Rating of at least A – VIII (which is authorized to do business in the state in which the property is located) that affirmatively includes the following, either in the standard policy terms or by separate endorsement to the policy:

1. Combined general liability policy limit of at least $5,000,000.00 each occurrence and aggregate applying liability for Bodily Injury, Personal Injury, Property Damage, Contractual and Products and Completed Operations which combined limit may be satisfied by the limit afforded under the Commercial General Liability Policy, or by such Policy in combination with the limits afforded by an Umbrella or Excess Liability Policy (or policies); provided, the coverage afforded under any such Umbrella or Excess Liability Policy is at least as broad in all material respects as that afforded by the underlying Commercial General Liability Policy. Such policies must contain a Separation of Insureds/Severability of Interest clause.

2. No Exclusion for Acts of Terrorism.

3. Aggregate limit to apply per location.

4. Borrower's coverage is primary and non-contributory with any insurance or self-insurance carried by U.S. Bank.

5. Waiver of Subrogation against any party whose interests are covered in the policy.

6. Additional Insured Endorsement naming U.S. Bank National Association as an additional insured with a 30-day notice to U.S. Bank in the event of cancellation, non-renewal, or material change.

U.S. Bank may from time to time to make changes to the foregoing insurance requirements and/or to require additional coverages not described above. In addition, the above insurance requirements are subject to change or the imposition of additional coverages if required by applicable Laws, regulations or policies applicable to U.S. Bank or the Projects.

Exhibit H - Page 3

EXHIBIT I

Form of Promissory Note

PROMISSORY NOTE

$[___________] [_____________], 2018

1. Payment Terms . Borrower agrees to pay the principal sum of this Note, to the extent advanced pursuant to the Loan Agreement, and interest on the unpaid principal sum of this Note from time to time outstanding at the rates and at the times specified in the Loan Agreement. The outstanding principal balance of the principal sum of this Note and all accrued and unpaid interest thereon is due and payable in full on the Maturity Date. This Note may only be prepaid in accordance with the terms and conditions of the Loan Agreement.

2. Acceleration . The Loan Agreement contains, among other things, provisions for the acceleration of the outstanding principal balance of the principal sum of this Note together with all interest accrued and unpaid hereon and all other sums, including late charges, LIBOR Breakage Costs and other costs relating to the Loan, due to Lender under this Note, the Loan Agreement or any other Loan Document (the "Debt") upon the happenings of certain stated events.

3. Loan Documents . This Note is one of the Notes referred to in the Loan Agreement. This Note is secured by each Security Instrument (as defined in the Loan Agreement) executed by a Borrower and given to Administrative Agent, covering the respective Project described therein (as defined in the Loan Agreement). In the event of a conflict or

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inconsistency between the terms of this Note and the Loan Agreement, the terms and provisions of the Loan Agreement will govern.

4. Savings Clause . In the event that the interest and/or charges in the nature of interest, if any, provided for by this Note, the Loan Agreement or by any other Loan Document, contravenes a legal or statutory limitation applicable to the Loan, if any, Borrower will pay only such amounts as would legally be permitted; provided, however, that if the defense of usury and all similar defenses are unavailable to Borrower, Borrower will pay all amounts provided for herein, in the Loan Agreement and in the other Loan Documents. If, for any reason, amounts in excess of the amounts permitted in the foregoing sentence have been paid, received, collected or applied hereunder, whether by reason of acceleration or otherwise, then, and in that event, any such excess amounts will be applied to principal, unless principal has been fully paid, in which event such excess amount will be refunded to Borrower.

5. Waivers . Borrower and all others who may become liable for the payment of all or any part of the Debt (including, without limitation, each New Borrower upon execution of a Joinder Agreement) do hereby severally waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Loan Agreement or the other Loan Documents made by agreement between Lender or any other Person will release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower or any other Person who may become liable for the payment of all or any part of the Debt under this Note, the Loan Agreement or the other Loan Documents (including, without limitation, each New Borrower upon execution of a Joinder Agreement). No notice to or demand on Borrower will waive any obligation of Borrower or waive any right of Lender or Administrative Agent to take further action without further notice or demand as provided for in this Note, the Loan Agreement or the other Loan Documents. If Borrower is a partnership or limited liability company, the agreements herein contained will remain in force and be applicable, notwithstanding any changes in the individuals comprising the partnership or limited liability company, and the term "Borrower," as used herein, will include any alternate or successor partnership or limited liability company, but any predecessor partnership or limited liability company and their partners or members will not thereby be released from any liability. If Borrower is a corporation, the agreements contained herein will remain in full force and be applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation, and the term "Borrower," as used herein, will include any alternative or successor corporation, but any predecessor corporation will not be relieved of liability hereunder. Nothing in the foregoing sentences may be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, limited liability company or corporation, which may be set forth in the Loan Agreement, any Security Instrument or any other Loan Document.

6. No Oral Change . This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

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7. Joint Borrower Provisions . Section 10.13 of the Loan Agreement (Joint Borrower Provisions) is by this reference incorporated herein in its entirety.

8. Governing Law; Waiver of Jury Trial; Jurisdiction . IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD CAUSE ANOTHER STATE'S LAWS TO APPLY) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE AND THE LOAN AGREEMENT, AND THIS NOTE AND THE LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND ANY LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO NATIONAL BANKS.

TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION RELATING TO THE LOAN AND/OR THE LOAN DOCUMENTS. BORROWER, TO THE FULLEST EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF CALIFORNIA OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS NOTE, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA, (C) SUBMITS TO THE JURISDICTION AND VENUE OF SUCH COURTS AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT, AND (D) AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN WILL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). BORROWER FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO BORROWER AT THE ADDRESSES FOR NOTICES DESCRIBED IN THE LOAN AGREEMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE WILL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN WILL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).

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extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

10. Time of the Essence . Time is of the essence hereof with respect to the dates, terms and conditions of this Note and the Loan Agreement.

11. Notices . All notices or other written communications hereunder must be delivered in accordance with Section 10.7 of the Loan Agreement.

12. Limitation on Liability . Notwithstanding anything to the contrary set forth herein, under no circumstances shall any of the members, partners, directors, shareholders or other constituent owners of Borrower (direct or indirect), other than Guarantor, have any liability for Borrower’s obligations hereunder.

[NO FURTHER TEXT ON THIS PAGE]

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IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly executed and delivered as of the day and year first above set forth.

BORROWER:

KBSIII DOMAIN GATEWAY, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION I, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By:

Charles J. Schreiber, Jr.,

Chief Executive Officer

Exhibit I

KBSIII 515 CONGRESS, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION XXVII, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By:

Charles J. Schreiber, Jr.,

Chief Executive Officer

Exhibit I

KBSIII 155 NORTH 400 WEST, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION V, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By:

Charles J. Schreiber, Jr.,

Chief Executive Officer

Exhibit I

KBSIII 1550 WEST MCEWEN DRIVE, LLC,

a Delaware limited liability company

By: KBSIII REIT ACQUISITION IV, LLC,

a Delaware limited liability company,

its sole member

By: KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member

By: KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member

By: KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner

By:

Charles J. Schreiber, Jr.,

Chief Executive Officer

Exhibit I

EXHIBIT J

Form of Assignment and Assumption Agreement

This Assignment and Assumption (the " Assignment and Assumption ") is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the " Assignor ") and [ Insert name of Assignee ] (the " Assignee "). Capitalized terms used but not defined herein will have the meanings given to them in the Loan Agreement identified below (as amended, the " Loan Agreement "), receipt of a copy of which is hereby acknowledged by the Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by Administrative Agent as contemplated below, the interest in and to all of the Assignor's rights and obligations in its capacity as a Lender under the Loan Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor's outstanding rights and obligations under the respective facilities identified below (including without limitation, to the extent permitted to be assigned under applicable Law, all claims (including without limitation contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity), suits, causes of action and any other right of the Assignor against any Person whether known or unknown arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby) (the " Assigned Interest "). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

Assignor:

[ ]

Assignee:

[ ] [and is an Affiliate of

[ identify Lender ] ¹

Borrower(s):

[ ]

Administrative Agent:

U.S. Bank National Association, as the agent under the Loan Agreement.

¹ Select as applicable.

Exhibit J - Page 1

Loan Agreement:

The Loan Agreement dated as of [_______________], 20[__] among [ name of Borrower(s) ], the Lenders party thereto, U.S. Bank National Association, as Administrative Agent, and the other agents party thereto.

Assigned Interest:

Aggregate Amount of Commitment/Advances for all Lenders ²

Amount of Commitment/Advances Assigned ³

Percentage Assigned of Commitment/Advances ⁴

$[____________]

[_______]%

$[____________]

[_______]%

$[____________]

[_______]%

Trade Date:

[______________________] ⁵

Effective Date: [____________________], 20[__] [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH WILL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY ADMINISTRATIVE AGENT.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR

[NAME OF ASSIGNOR]

By:_________________________________

Title:

ASSIGNEE

[NAME OF ASSIGNEE]

By:_________________________________

Title:

[Consented to and] ⁶ Accepted:

² Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.

³ Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.

⁴ Set forth, to at least 9 decimals, as a percentage of the Commitment/Advances of all Lenders thereunder.

⁵ Insert if satisfaction of minimum amounts is to be determined as of the Trade Date.

⁶ To be added only if the consent of Administrative Agent is required by the terms of the Credit Agreement.

Exhibit J - Page 2

U.S. BANK NATIONAL ASSOCIATION, as Administrative Agent

By:____________________________

Title:

Exhibit J - Page 3



[Consented to:] ⁷ ACKNOWLEDGED AND AGREED; Borrower is executing in the signature block below solely for the purpose of acknowledging receipt of the Assignment and Assumption Agreement to which this acknowledgement is attached and by signing below Borrower shall not be incurring any additional obligations or additional liability except as contemplated by the Loan Documents

[NAME OF RELEVANT PARTY]

By:____________________________
Title:

⁷ To be added only if the consent of Borrower and/or other parties (e.g. Swing Line Lender, LC Issuer) is required by the terms of the Credit Agreement.

Exhibit J - Page 4

ANNEX 1
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties .

1.1 Assignor . The Assignor represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys will be responsible for (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency, perfection, priority, collectibility, or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of Borrower, any of its Affiliates or any other Person obligated in respect of any Loan Document, (iv) the performance or observance by Borrower, any of its Affiliates or any other Person of any of their respective obligations under any Loan Documents, (v) inspecting any of the Project, books or records of Borrower, or any guarantor, or (vi) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loan or the Loan Documents.

1.2. Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) from and after the Effective Date, it will be bound by the provisions of the Loan Agreement as a Lender thereunder and, to the extent of the Assigned Interest, will have the obligations of a Lender thereunder, (iii) agrees that its payment instructions and notice instructions are as set forth in Schedule 1 to this Assignment and Assumption, (iv) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, (v) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment and Assumption, (vi) it has received a copy of the Loan Agreement, together with copies of financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on Administrative Agent or any other Lender, and (vii) attached as Schedule 1 to this Assignment and Assumption is any documentation required to be delivered by the Assignee with respect to its tax status pursuant to the terms of the Loan Agreement, duly completed and executed by the Assignee and (b) agrees that (i) it will, independently and without reliance on Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it will deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with

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their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments . The Assignee will pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. From and after the Effective Date, Administrative Agent will make all payments in respect of the Assigned Interest (including payments of principal, interest, reimbursement obligations, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions . This Assignment and Assumption will be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together will constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy will be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption will be governed by, and construed in accordance with, the law of the State of California.

Exhibit J - Page 6

EXHIBIT K

ASSUMPTION AND JOINDER AGREEMENT

This ASSUMPTION AND JOINDER AGREEMENT, dated as of _________, 20__ (this " Joinder Agreement "), is made by ___________________________, a __________ limited liability company (the " Additional Borrower "), each of the other Borrowers party to the Loan Agreement referred to below, and U.S. Bank National Association, a national banking association, as administrative agent for the Lenders party to the Loan Agreement referred to below (" Agent ") and the Lenders described below.

RECITALS

A. Reference is made to that certain Term Loan Agreement dated as of _________, 20__ (as amended, restated, extended, supplemented, or otherwise modified in writing from time to time, the " Loan Agreement "), among ____________ , and each other New Borrower that has become a Borrower under the Loan Agreement (each, an " Existing Borrower " and, collectively, " Existing Borrowers "), each lender from time to time a party hereto (individually, a "Lender" and collectively, the "Lenders" ), and Agent. Any capitalized term used and not defined in this Joinder Agreement shall have the meaning given to such term in the Loan Agreement. This Joinder Agreement is a "Joinder Agreement" described in the Loan Agreement.

B. The Additional Borrower is a New Borrower which is owned, directly or indirectly, by one or more Guarantors. The Organizational Chart of the New Borrower is hereby added as Exhibit G-[__] to the Loan Agreement.

C. Pursuant to Section 10.30 of the Loan Agreement, Existing Borrowers and the Additional Borrower have requested that certain real property owned by the Additional Borrower (the " Additional Project ") more particularly described on Exhibit A attached hereto be included in the Borrowing Base Value and Borrowing Base Amount as an Additional Project. The legal description of the Additional Project attached as Exhibit A hereto is hereby added as Exhibit B-[___] to the Loan Agreement. The Additional Project Improvements (the " _____________ Improvements ") are described in Exhibit B attached hereto and incorporated herein, and are by this reference added as Exhibit A-[__] to the Loan Agreement. The U.S. EIN of Additional Borrower is ____________________.

D. Upon the effective date of this Joinder Agreement, the outstanding principal balance of the Loan is $_________________.

E. As one of the conditions to the admission of the Additional Project as a Project, the parties hereto are executing this Joinder Agreement.

NOW, THEREFORE, in consideration of the foregoing Recitals and the terms, covenants, and conditions of this Joinder Agreement, the receipt of which and sufficiency of which are hereby acknowledged, the Additional Borrower, Existing Borrowers, Agent and Lenders agree as follows:

Exhibit K - Page 1

1. Joinder As Borrower; Additional Project as a Project . The Additional Borrower assumes and agrees to be bound by all of the terms, obligations, covenants, representations, warranties and conditions of the Loan Agreement, the Notes, the Fee Letter, the Indemnity and the other Loan Documents to which Borrowers are a party, jointly and severally with the other persons comprising the Borrowers, and assumes and agrees to be bound thereby, and shall be deemed to be a party thereto, as a Borrower and Indemnitor (as defined in the Indemnity), as if the Additional Borrower had originally executed the Loan Agreement, the Notes, the Fee Letter, the Indemnity and the other Loan Documents to which Borrowers are a party. The Additional Borrower hereby agrees (i) that the Additional Project shall constitute a Project for all purposes under the Loan Agreement, Indemnity and the other Loan Documents and (ii) to execute and deliver such additional documents as Agent may reasonably require, including a Security Instrument. Additionally, Additional Borrower assumes and agrees to be bound by all of the terms, obligations, covenants, representations, warranties and conditions of that certain Contribution And Indemnity Agreement dated as of ____________, 20__ executed by and among the Borrowers.

2. Consent and Acceptance . Existing Borrowers, Agent, Lenders and Guarantors (by their signatures to the consent attached hereto) hereby consent to the assumption of the Loan Agreement, the Notes, the Fee Letter, the Indemnity and the other Loan Documents to which Borrowers are a party and the Obligations by the Additional Borrower and agree and acknowledge that after the date of this Joinder Agreement, (i) the Additional Borrower shall be a " Borrower " and (ii) the Additional Project shall be a " Project ," for all purposes of the Loan Agreement, the Notes, the Fee Letter and the Indemnity and each of the other Loan Documents, including for purposes of the Indemnity provided to Agent and Lenders by each of the Borrowers (including Additional Borrower upon execution of this Joinder Agreement) under the Indemnity.

3. Ownership of Additional Borrower . The Additional Borrower and each other Borrower represent and warrant to Lenders and Agent that the Additional Borrower is wholly-owned, directly or indirectly, by ______________.

4. Legal Status; Organizational Documents . The Additional Borrower represents and warrants to Agent and each Lender that (i) true, correct and accurate copies of all of the organizational documents of the Additional Borrower have been delivered to Agent and (ii) Additional Borrower is a [limited liability company] duly formed, validly existing and in good standing under the laws of the State of [_____________] and is duly registered and qualified to transact business in, and is in good standing under the laws of, the state in which the Additional Project it owns is located, and has all power, authority, permits, consents, authorizations and licenses necessary to carry on its business, to construct, equip, own and operate such Additional Project and to execute, deliver and perform this Joinder Agreement and the other Loan Documents; all consents of the members of Additional Borrower necessary to authorize the execution, delivery and performance of this Joinder Agreement and of the other Loan Documents which have been or are to be executed by and on behalf of Additional Borrower have been duly obtained and are in full force and effect; this Joinder Agreement and such other Loan Documents have been duly authorized, executed and delivered by and on behalf of Additional Borrower so as to constitute this Joinder Agreement and such other Loan Documents the valid and binding obligations of Additional Borrower, enforceable in accordance with their terms; and Additional Borrower has complied with all applicable assumed and/or

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fictitious name requirements of the state in which it is organized and of the state in which the Additional Project it owns is located, if different.

5. No Default; Compliance with Loan Agreement . The Additional Borrower and each other Borrower covenant, represent and warrant to Agent and each Lender that:

(a) Additional Borrower owns [fee] title to the Additional Project, does not own any other property other than the Additional Project, and has satisfied the other requirements set forth in Section 10.30 of the Loan Agreement.

(b) The Additional Project is free from all Hazardous Substances except as disclosed in that certain Phase I Environmental Site Assessment prepared by _________________ dated as of _________ (Project No. ______________), in the form disclosed to Agent as of the date of the recordation of a Security Instrument against the Additional Project.

(c) The Additional Project and all related personal property is free and clear of all liens, charges and encumbrances other than Permitted Encumbrances (as defined in the Loan Agreement) or except as otherwise agreed by Agent in writing. For purposes of clarification, the Security Instrument to be recorded against the Additional Project shall be a "Security Instrument" as defined in the Loan Agreement and the title policy insuring Agent's and the Lenders' lien under such Security Instrument shall be a "Title Policy" as defined in the Loan Agreement.

(d) Except as otherwise disclosed to Agent in writing, each of the representations and warranties made by Borrowers pursuant to the Loan Agreement, including, without limitation, those set forth in Article IV therein, are true and correct in all material respects with regard to the Additional Borrower.

(e) No Event of Default, or event which, with notice or lapse of time or both, could become an Event of Default, has occurred and is continuing under any Loan Document.

(f) Additional Borrower has been afforded the opportunity to carefully read this Joinder Agreement, the Loan Agreement, the Notes, the Fee Letter and the Indemnity, and to review such documents with an attorney of Additional Borrower's choice before signing this Joinder Agreement. Additional Borrower acknowledges having read and understood the meaning and effect of this Joinder Agreement, the Loan Agreement, the Notes, the Fee Letter, and the Indemnity before signing this Joinder Agreement and understands it shall thereafter be bound by the Loan Documents and liable for all Obligations owing by Borrowers under the Loan Documents.

6. Counterparts; Joint Borrower Provisions . This Joinder Agreement may be executed in multiple counterparts, each of which shall constitute an original but all of which when taken together shall constitute one and the same instrument. Section 10.13 of the Loan Agreement (the joint borrower provisions) is by this reference hereby incorporated herein in its entirety.

Exhibit K - Page 3

7. Governing Law . The validity, enforcement, and interpretation of this Joinder Agreement, shall for all purposes be governed by and construed in accordance with the laws of the State of California and applicable United States federal law, and is intended to be performed in accordance with, and only to the extent permitted by, such laws. To the maximum extent permitted by applicable Law, Additional Borrower hereby waives any right to a trial by jury in any action relating to the Loan and/or the Loan Documents.

[SIGNATURE PAGES FOLLOW]

Exhibit K - Page 4

IN WITNESS WHEREOF, this Joinder Agreement is executed as of the date first above written.



	ADDITIONAL BORROWER: _______________, a __________ limited liability company By: __________________________ Its: __________________________

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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EXISTING BORROWERS :

[___________]

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	ADMINISTRATIVE AGENT: U.S. BANK NATIONAL ASSOCIATION, a national banking association, as Administrative Agent By: ______________________________ Name: ______________________________ Title: ______________________________



	LENDERS: U.S. BANK NATIONAL ASSOCIATION, a national banking association By: ______________________________ Name: ______________________________ Title: ______________________________

Exhibit K - Page 7

CONSENT OF GUARANTOR:

_____________ (individually and collectively referred to herein as " Guarantor ") hereby (i) consent to the terms, conditions and provisions of the foregoing Joinder Agreement and the transactions contemplated by such Joinder Agreement, including, without limitation, the admission of the Additional Borrower as a Borrower under the Loan Agreement and the other Loan Documents, and the assumption of the Obligations by the Additional Borrower, and (ii) reaffirm the full force and effectiveness of [_______________] [Describe all guaranties and Indemnity]

GUARANTOR:

[___________]

Exhibit K - Page 8

EXHIBIT A

Legal Description of Additional Project (______)

That certain real property located in the County of _______, State of ________ and more particularly described as follows:

[ATTACH FINAL LEGAL DESCRIPTION]

Exhibit K - Page 9

EXHIBIT B

Description of _____________ Improvements

The _____________ Improvements include a __________ building totaling approximately _______ rentable square feet, constructed in ______ and containing approximately ______ parking spaces.

Exhibit K - Page 10

EXHIBIT L

LIST OF LEASES

[to be provided]

Exhibit L

Exhibit 10.16

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

RECORDING REQUESTED BY AND

WHEN RECORDED RETURN TO:

Sheppard, Mullin, Richter & Hampton LLP

650 Town Center Dr., 4 ^th Floor

Costa Mesa, CA 92626

Attn: Matthew B. Holbrook

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

(DOMAIN GATEWAY PROJECT)

KBSIII DOMAIN GATEWAY, LLC ,
a Delaware limited liability company, as grantor
(Grantor)

JAMES A. JOHNSON ,
an individual, as trustee
(Trustee)

for the benefit of

U.S. BANK NATIONAL ASSOCIATION ,

in its capacity as Administrative Agent, as beneficiary
(Beneficiary)

__________________________

Recording Office: Travis County, Texas

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

(DOMAIN GATEWAY PROJECT)

(This Document Serves as a Fixture Filing under Section 9.502 of

the Texas Business and Commerce Code)

Borrower’s Organizational Identification Number: 5029796

THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (DOMAIN GATEWAY PROJECT) (this “ Security Instrument ”) is made as of this 17th day of October, 2018, by KBSIII DOMAIN GATEWAY, LLC, a Delaware limited liability company, having an address at c/o KBS Capital Advisors LLC, 800 Newport Center Drive, Suite 700, Newport Beach, California 92660, Attention: Giovanni Cordoves (“ Trustor ”), to JAMES A. JOHNSON, having an address at 1717 West Loop South, Suite 1200, Houston, Texas 77027 (“ Trustee ”), for the benefit of U.S. BANK NATIONAL ASSOCIATION, a national banking association, as a “Lender” and as “Administrative Agent” for the “Lenders” under the Loan Agreement (as hereinafter defined), in such capacity, together with its successors and assigns, “ Administrative Agent ”, having an address at 4100 Newport Place, Suite 900, Newport Beach, CA 92660.

W I T N E S S E T H :

WHEREAS, pursuant to that certain Term Loan Agreement dated as of the date hereof among Trustor and each of the other borrowers from time to time a party thereto (individually and collectively, as the context may require, “ Borrowers ”), the Lenders from time to time party thereto and Administrative Agent (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “ Loan Agreement ”), the Lenders have agreed to make certain advances from time to time to Borrower in the maximum aggregate principal amount of TWO HUNDRED FIFTEEN MILLION AND NO/100 DOLLARS ($215,000,000.00) (which amount may be increased to THREE HUNDRED EIGHTY-FIVE MILLION AND NO/100 DOLLARS ($385,000,000.00) pursuant to the terms and conditions set forth in the Loan Agreement) (the “ Loan ”) and evidenced by one or more promissory notes made by Borrowers and delivered to the Lenders (as the same may be amended, restated, replaced, extended, renewed, supplemented or otherwise modified from time to time, collectively, the “ Notes ”);

WHEREAS, Borrowers desire to secure the payment of the Loan, including the payment of LIBOR Breakage Costs, Swap Obligations of Borrower, Fees and other costs, expenses, fees and interest relating to the Loan, and the other obligations of Borrowers under the Loan Documents (as hereinafter defined) and the performance of all of their obligations under the Notes, the Loan Agreement and the other Loan Documents (all hereinafter referred to collectively, as the “ Debt ”); and

Agreement and the Notes, including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties therein, are hereby incorporated by reference herein as though set forth in full and will be considered a part of this Security Instrument (the Loan Agreement, the Notes, this Security Instrument, and all other documents evidencing or securing the Debt or delivered in connection with the making of the Loan (but expressly excluding the Indemnity and the Guaranties), together with all amendments, restatements, replacements, extensions, renewals, supplements or other modifications of any of the foregoing, are hereinafter referred to collectively as the “ Loan Documents ”). For avoidance of doubt, the Indemnity and the Guaranties shall not constitute “Loan Documents” as such term is defined herein, and neither the Indemnity nor any of the Guaranties is secured by this Security Instrument.

NOW THEREFORE, in consideration of the making of the Loan by the Lenders and the covenants, agreements, representations and warranties set forth in this Security Instrument:

Article 1 - GRANTS OF SECURITY

Section 1.1 PROPERTY CONVEYED . For and in consideration of the sum of Ten Dollars ($10.00), and other valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Trustor grants to Administrative Agent a security interest in the Personal Property (as defined below) and Trustor does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee, in trust, with GENERAL WARRANTY and with POWER OF SALE and right of entry and possession, all of Trustor’s right, title and interest in, to and under the following property, rights, interests and estates now owned, or hereafter acquired by Trustor (collectively, the “ Property ”):

(a) Land . The real property described in Exhibit A attached hereto and made a part hereof (the “ Land ”), subject to the Permitted Encumbrances;

(b) Additional Land . All additional lands, estates and development rights hereafter acquired by Trustor for use in connection with the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental deed of trust or otherwise be expressly made subject to the lien of this Security Instrument;

(c) Improvements . The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (collectively, the “ Improvements ”);

(d) Easements . All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of

Trustor of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto;

(e) Equipment . All “equipment,” as such term is defined in Article 9 of the Uniform Commercial Code (as hereinafter defined), now owned or hereafter acquired by Trustor, which is used at or in connection with the Improvements or the Land or is or will be located thereon or therein (including any Stored Materials wherever located, all machinery, equipment, furnishings, and electronic data-processing and other office equipment now owned or hereafter acquired by Trustor and any and all additions, substitutions and replacements of any of the foregoing), together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto (collectively, the “ Equipment ”);

(f) Fixtures . All Equipment now owned, or the ownership of which is hereafter acquired, by Trustor which is so related to the Land and Improvements forming part of the Property that it is deemed fixtures or real property under the law of the particular state in which the Equipment is located, including all building or construction materials intended for construction, reconstruction, alteration or repair of or installation on the Property, construction equipment, appliances, machinery, plant equipment, fittings, apparatuses, fixtures and other items now or hereafter attached to, installed in or used in connection with (temporarily or permanently) any of the Improvements or the Land, including engines, devices for the operation of pumps, pipes, plumbing, cleaning, call and sprinkler systems, fire extinguishing apparatuses and equipment, heating, ventilating, plumbing, laundry, incinerating, electrical, air conditioning and air cooling equipment and systems, gas and electric machinery, appurtenances and equipment, pollution control equipment, security systems, disposals, dishwashers, refrigerators and ranges, recreational equipment and facilities of all kinds, and water, gas, electrical, storm and sanitary sewer facilities, utility lines and equipment (whether owned individually or jointly with others, and, if owned jointly, to the extent of Trustor’s interest therein) and all other utilities whether or not situated in easements, all water tanks, water supply, water power sites, fuel stations, fuel tanks, fuel supply, and all other structures, together with all accessions, appurtenances, additions, replacements, betterments and substitutions for any of the foregoing and the proceeds thereof (collectively, the “ Fixtures ”);

(g) Personal Property . All personal property of Trustor which Trustor now or hereafter owns or in which Trustor now or hereafter acquires an interest or right, including without limitation, all furniture, furnishings, objects of art, machinery, goods, tools, supplies, appliances, general intangibles, contract rights, accounts, accounts receivable, franchises, licenses, certificates and permits, and all other personal property of any kind or character whatsoever (as defined in and subject to the provisions of the Uniform Commercial Code as hereinafter defined), other than Fixtures, wherever located (including Stored Materials located off-site), including without limitation all such personal property which is used at or in connection with, or located within or about, the Land and the Improvements, or used or which it is contemplated will be used at or in connection with the development or construction of the Improvements together with all accessories, replacements and substitutions thereto or therefor and the proceeds thereof (collectively, the “ Personal Property ”), and the right, title and interest of Trustor in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state, states, commonwealth or commonwealths where any of the Property is located (as amended from time

to time, the “ Uniform Commercial Code ”), superior in lien to the lien of this Security Instrument and all proceeds and products of the above. Trustor represents, warrants and covenants that the Personal Property is not used or bought for personal, family or household purposes;

(h) Leases and Rents . All leases, subleases, subsubleases, lettings, licenses, concessions or other agreements (whether written or oral) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of the Land and the Improvements, and every modification, amendment or other agreement relating to such leases, subleases, subsubleases, or other agreements entered into in connection with such leases, subleases, subsubleases, or other agreements and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, heretofore or hereafter entered into, whether before or after the filing by or against Trustor of any petition for relief under 11 U.S.C. §101 et seq., as the same may be amended from time to time (the “ Bankruptcy Code ”) (collectively, the “ Leases ”) and all right, title and interest of Trustor, its successors and assigns therein and thereunder, including all cash, letters of credit or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents (including, specifically, all “rents” as defined in TARA [as hereinafter defined]), additional rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Trustor or its agents or employees from any and all sources arising from or attributable to the Property, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Trustor or Property Manager and proceeds, if any, from business interruption or other loss of income insurance whether paid or accruing before or after the filing by or against Trustor of any petition for relief under the Bankruptcy Code (collectively, the “ Rents ”) and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Obligations (as hereinafter defined);

(i) Condemnation Awards . All awards or payments (including any administrative fees or attorneys’ fees), including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property;

(j) Insurance Proceeds . All proceeds (including any administrative fees or attorneys’ fees) in respect of the Property under any insurance policies covering the Property, including the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property;

(k) Tax Certiorari . All refunds, rebates or credits in connection with reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction;

(l) Rights . The right, in the name and on behalf of Trustor, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Administrative Agent in the Property;

(m) Agreements . All agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof and all right, title and interest of Trustor therein and thereunder, including the right, upon the happening of any default hereunder, to receive and collect any sums payable to Trustor thereunder;

(n) Trademarks . All tradenames, trademarks, servicemarks, logos, copyrights, goodwill, books and records and all other general intangibles relating to or used in connection with the operation of the Property;

(o) Accounts . All reserves, escrows and deposit accounts maintained by Trustor with respect to the Property, including all accounts established or maintained pursuant to the Loan Documents and including, without limitation, funds on deposit in any Operating Account; together with all deposits or wire transfers made to such accounts and all cash, checks, drafts, certificates, securities, investment property, financial assets, instruments and other property held therein from time to time and all proceeds, products, distributions or dividends or substitutions thereon and thereof;

(p) Swap Transactions . All of Trustor’s present and future rights, titles and interests, but not its obligations, duties or liabilities for any breach, in, under and to all Swap Transactions, any and all amounts received by Trustor in connection therewith or to which Trustor is entitled thereunder, and all proceeds of the foregoing including all “accounts”, “chattel paper”, “general intangibles” and “investment property” (as such terms are defined in the Uniform Commercial Code as from time to time in effect) constituting or relating to the foregoing;

(q) Proceeds . All proceeds of any of the foregoing, including, without limitation, proceeds of insurance and condemnation awards, whether cash, liquidation or other claims or otherwise; and

(r) Other Rights . Any and all other rights of Trustor in and to the items set forth in Subsections (a) through (q) above.

AND without limiting any of the other provisions of this Security Instrument, to the extent permitted by applicable law, Trustor expressly grants to Administrative Agent, as secured party, for the benefit of Administrative Agent and the Lenders, a security interest in the portion of the Property which is or may be subject to the provisions of the Uniform Commercial Code which are applicable to secured transactions; it being understood and agreed that the Improvements and Fixtures are part and parcel of the Land (the Land, the Improvements and the Fixtures are collectively referred to as the “ Real Property ”) appropriated to the use thereof and, whether affixed or annexed to the Real Property or not, will for the purposes of this Security Instrument be deemed conclusively to be real estate and encumbered hereby.

Section 1.2 ASSIGNMENT OF RENTS .

(a) For other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor does hereby irrevocably, absolutely and unconditionally transfer, sell, assign, pledge and convey (and, as to all Rents subject to TARA (defined below), grant a security interest) to Administrative Agent and its successors and assigns, all of the right, title and interest whether now owned or hereinafter acquired by Trustor, as lessor, in and to the following property, rights, interests and estates: the Leases; the Rents; any and all claims and rights to the payment of damages and other claims arising from any rejection by a tenant of any Lease (a “ Tenant ”) under Title 11 of the United States Code (the “ Bankruptcy Claims ”); any and all claims and rights under any and all lease guaranties, letters of credit and any other credit support given to Trustor by any guarantor in connection with any of the Leases (the “ Lease Guaranties ”); all proceeds from the sale or other disposition of the Leases and Rents, the Lease Guaranties and the Bankruptcy Claims; all rights, powers, privileges, options and other benefits of Trustor as lessor under the Leases and as agent under the Lease Guaranties, including without limitation, the immediate and continuing right to make claim for, receive, collect and apply all Rents payable or receivable under the Leases and all sums payable under the Lease Guaranties or pursuant thereto (and apply the same to the payment of Debt), and to do all other things which Trustor or any lessor is or may become entitled to do under the Leases or the Lease Guaranties; the right, at Administrative Agent’s option, upon revocation of the license granted herein, to enter upon the Property in person, by agent or by court-appointed receiver, to collect the Rents and enforce the Leases and contracts as that term is defined by the Uniform Commercial Code (“ Contracts ”); Trustor’s irrevocable power of attorney, coupled with an interest, to take any and all of the actions set forth in this Security Instrument or any other Loan Document and any other actions designated by Administrative Agent for the proper management and preservation of the Property; any and all Contracts; and any and all other rights of Trustor in and to the items set forth in this Section 1.2(a) , and all amendments, modifications, replacements, renewals, extensions, supplements, restatements and substitutions thereof.

(b) The assignment in this Section 1.2 is subject to the Texas Assignment of Rents Act, Chapter 64 of the Texas Property Code, as amended and supplemented from time to time (herein referred to as, “ TARA ”). Notwithstanding anything to the contrary contained herein, Administrative Agent is entitled to all the rights and remedies of an assignee set forth in TARA. This Security Instrument will constitute and serve as a security instrument under TARA as to all Rents subject to TARA. Administrative Agent will have the ability to exercise its rights related to the Leases and Rents, in Administrative Agent’s sole discretion and without prejudice to any other remedy available, as provided in this Security Instrument or any other Loan Document or as otherwise allowed by applicable law, including, without limitation, TARA. Notwithstanding anything to the contrary contained in this Security Instrument or the other Loan Documents, to the extent this Security Instrument modifies the requirements of TARA and such modification is permitted by the agreement of the parties, this Security Instrument will govern.

(c) Notwithstanding that this instrument is a present, unconditional, absolute and executed assignment of the Leases, a present, unconditional security interest in the Rents pursuant to TARA, and a present, unconditional, absolute and executed grant of all powers herein granted to Administrative Agent, subject to the provisions hereof and of TARA, Trustor is hereby permitted and is hereby granted a limited license by Administrative Agent, revocable as

set forth herein, to enter into and otherwise deal with the Leases, as applicable to each of them, including collecting, receiving, retaining and utilizing and disbursing the Rents and other amounts due under the Leases as they become due (not more than one month in advance in the case of Rent that is payable on a monthly basis and not more than one installment in advance if paid otherwise), all subject to and in accordance with the Loan Agreement, until an Event of Default occurs, in which event the foregoing right and license will be terminated (until said Event of Default is cured by Trustor) and of no further force and effect, and Administrative Agent will be entitled to all Rents and other amounts then due under the Leases and thereafter accruing without the institution of legal proceedings of any kind whatsoever, and this Security Instrument will constitute a direction to and full authority to the Tenants to pay all such amounts to Administrative Agent upon notice to the Tenants from Administrative Agent. Each of the Tenants, upon written notice from Administrative Agent, will be and is hereby authorized by Trustor to pay to Administrative Agent any Rents, rental or other sums which may be or thereafter become due under the Leases, or any of them, and to perform each of such Tenant’s undertakings under the Leases without any obligation to determine whether or not such an Event of Default has in fact occurred. The requirement for notice to the Tenants is intended solely for the benefit of such Tenants and not for the benefit of Trustor and all payments made to Trustor by the Tenants after the occurrence and during the continuance of an Event of Default, whether before or after notice to the Tenants that an Event of Default has occurred, will be held in trust by Trustor for the benefit of Administrative Agent following Trustor’s receipt of written notice of such Event of Default.

(d) Trustor does hereby irrevocably appoint and empower Administrative Agent, its agents or attorneys, as Trustor’s true and lawful attorney in its name and stead (with or without taking possession of the Property) after the occurrence, and during the continuance, of an Event of Default, if Trustor fails to take any such action reasonably requested by Administrative Agent within five (5) Business Days after such request, to rent, lease or let all or any portion of the Property to any party or parties at such rental and upon such terms as Administrative Agent will, in its discretion, determine and, to collect, sue for, settle, compromise and give acquittances for all of the Rents and all rights and claims of any kind which Trustor now has or may hereafter have against any Tenant under any Lease or any subtenants or occupants of the Property, and to avail itself of and pursue all remedies for the enforcement of the Leases and Trustor’s rights in and under the Leases as Trustor might have pursued but for this assignment.

(e) Upon issuance of a deed or deeds pursuant to foreclosure of the Security Instrument, all right, title and interest of Trustor in and to the Leases will thereupon vest in and become the absolute property of the grantee or grantees in such deed or deeds without any further act or assignment by Trustor. Trustor hereby irrevocably appoints Administrative Agent and its successors and assigns, as its agent and attorney in fact, if Trustor fails to take any such action reasonably requested by Administrative Agent within five (5) Business Days after such request, to execute all instruments of assignment for further assurance in favor of such grantee or grantees in such deed or deeds, as may be reasonably necessary for such purpose.

(f) Trustor represents and agrees that no Rent has been or will be paid by any person in possession of any portion of the Property for more than one (1) installment in advance and that the payment of none of the Rents to accrue for any portion of the said Property will be waived, released, reduced, discounted or otherwise discharged or compromised by Trustor, except as

permitted by the Loan Agreement. As between Trustor and Administrative Agent, Trustor waives any rights of set off against any person in possession of any portion of the Property. Trustor agrees that it will not assign any of the Rents other than to Administrative Agent.

(g) Nothing herein contained will be construed as constituting Administrative Agent as a mortgagee in possession in the absence of the taking of actual possession of the Property by Administrative Agent pursuant to this Security Instrument. IN THE EXERCISE OF THE POWERS HEREIN GRANTED TO ADMINISTRATIVE AGENT, NO LIABILITY (OTHER THAN IN RESPECT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) WILL BE ASSERTED OR ENFORCED AGAINST ADMINISTRATIVE AGENT ALL SUCH LIABILITY BEING EXPRESSLY WAIVED AND RELEASED BY TRUSTOR TO THE FULLEST EXTENT PERMITTED BY LAW. Nothing contained herein, including without limitation the assignment provisions set forth above, will impose upon Administrative Agent any duty to produce any rents, issues or profits or cause Administrative Agent, to be (i) responsible for performing any of the obligations of lessor under any lease, or (ii) responsible or liable for any waste or for any dangerous or defective conditions of the Property, for negligence in the management, upkeep, repair or control of the Property, or for any other act or omission by any other person.

(h) Trustor further agrees to assign and transfer to Administrative Agent all future Leases upon all or any part of the Property and to execute and deliver, at the request of Administrative Agent, all such further assurances and assignments in the Property as Administrative Agent will from time to time reasonably require.

(i) All Leases entered into by Trustor with respect to the Property, and all of Trustor’s rights with respect to such Leases, will conform with the requirements of the Loan Agreement.

(j) Notwithstanding anything contained herein to the contrary, in no event will this assignment be deemed to reduce the Debt by an amount in excess of the actual amount of cash received by Administrative Agent under any Lease, whether before or after the occurrence of an Event of Default, and Trustor acknowledges that in no event will the Debt be reduced by the value from time to time of the Rents of or from the Property. Trustor will not be relieved of its obligations hereunder by reason of (i) the failure of Administrative Agent to comply with any of Trustor’s requests (or the request of any other party) to take any action to enforce any provision in this Security Instrument or any other Loan Document, (ii) the release, regardless of consideration, of the whole or any part of the Property, or (iii) any agreement or stipulation by Administrative Agent extending the time for payment or otherwise modifying or supplementing the terms of this Agreement or any other Loan Documents. The right of Administrative Agent to collect the Debt and enforce any other right therefore held by it may be exercised by Administrative Agent either prior to, simultaneously with or subsequent to any action taken pursuant to this Security Instrument. Furthermore, Administrative Agent may resort for the payment of the Obligations to any other security held by Administrative Agent in such order and manner as Administrative Agent, in its discretion, may elect. Trustor’s receipt of any Rents, issues, and profits pursuant to this assignment after the institution of foreclosure proceedings, either by court action or by the private power of sale contained in the Security Instrument, will not cure an Event of Default, or affect such proceedings or sale. THIS ASSIGNMENT WILL

NOT CONSTITUTE OR EVIDENCE ANY PAYMENT WHATSOEVER ON ACCOUNT OF THE OBLIGATIONS, AND THE OBLIGATIONS WILL BE REDUCED BY AMOUNTS COLLECTED BY ADMINISTRATIVE AGENT ONLY IF AND TO THE EXTENT THAT SUCH AMOUNTS ARE ACTUALLY PAID TO ADMINISTRATIVE AGENT AND APPLIED BY ADMINISTRATIVE AGENT IN REDUCTION OF THE UNPAID PRINCIPAL BALANCE OF THE NOTES .

Section 1.3 SECURITY AGREEMENT . This Security Instrument is both a real property mortgage/deed of trust and a “security agreement” within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Trustor in the Property. By executing and delivering this Security Instrument, Trustor hereby grants to Administrative Agent, for the benefit of Administrative Agent and the Lenders, as security for the Obligations, a security interest in the Fixtures, the Equipment, the Personal Property and other property constituting the Property to the full extent that the Fixtures, the Equipment, the Personal Property and such other property may be subject to the Uniform Commercial Code (said portion of the Property so subject to the Uniform Commercial Code being called the “ Collateral ”). If an Event of Default occurs, Administrative Agent will have an option to proceed with respect to both the Property and the Collateral as permitted or required by Section 51.002 of the Texas Property Code relating to the sale of real property or and Chapter 9 of the Uniform Commercial Code relating to the sale of collateral after default by a debtor (as said section and chapter now exist or may be hereinafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same. The parties agree that if Administrative Agent elects to proceed with respect to the Collateral separately from the Property, Administrative Agent will have all remedies granted to a secured party upon default under the Uniform Commercial Code, including without limitation the right and power to sell, at one or more public or private sales, or otherwise dispose of, lease, or utilize the Collateral and any part or parts thereof in any manner authorized or permitted under the Uniform Commercial Code after default by a debtor and, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Administrative Agent may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Administrative Agent after the occurrence, and during the continuance, of an Event of Default, Trustor will, at its expense, assemble the Collateral and make it available to Administrative Agent at a convenient place (at the Land if tangible property) acceptable to Administrative Agent. Trustor will pay to Administrative Agent on demand any and all expenses, including legal expenses and attorneys’ fees, incurred or paid by Administrative Agent in protecting its interest in the Collateral and in enforcing its rights hereunder with respect to the Collateral after the occurrence, and during the continuance, of an Event of Default. Any notice of sale, disposition or other intended action by Administrative Agent with respect to the Collateral sent to Trustor in accordance with the provisions hereof at least 10 Business Days prior to such action, will, except as otherwise provided by applicable law, constitute reasonable notice to Trustor. The proceeds of any disposition of the Collateral, or any part thereof, may, except as otherwise required by applicable law, be applied by Administrative Agent to the payment of the Obligations in such priority and proportions as Administrative Agent in its discretion deems proper. Without limiting the foregoing, Administrative Agent has the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale and sales, to purchase the whole or any part

of the Collateral so sold, free of any right or equity of redemption in Trustor, whether on Property or elsewhere.

Section 1.4 FIXTURE FILING . Trustor and Administrative Agent agree, to the extent permitted by law, that (i) all of the goods described within the definition of the term “Property” herein are or are to become fixtures on the Land; (ii) this Security Instrument, upon recording or registration in the real estate records of the proper office, will constitute a “fixture filing” within the meaning of Sections 9.102 and 9.502 of the Uniform Commercial Code; and (iii) Trustor is the record owner of the certain fee simple estate in the Land. To the extent permitted under applicable law, a carbon, photographic or other reproduction of this Security Instrument or of any financing statement relating to this Security Instrument will be sufficient as a financing statement for any of the purposes referred to in this Section. The organizational identification number of Trustor is set forth on the first page of this Security Instrument. The addresses of Trustor and Administrative Agent are:

Trustor (Debtor):

KBSIII Domain Gateway, LLC

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attn: Giovanni Cordoves

With a copy to:

KBSIII Domain Gateway, LLC

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attn: Todd Smith

Administrative Agent (Secured Party):

U.S. Bank National Association

4100 Newport Place

Suite 900

Newport Beach, CA 92660

Section 1.5 PLEDGES OF MONIES HELD . Trustor hereby pledges to Administrative Agent, for the benefit of Administrative Agent and the Lenders, any and all monies now or hereafter held by Administrative Agent or on behalf of Administrative Agent in connection with the Loan, including the Net Proceeds, any sums deposited in the Operating Accounts and any Deficiency Deposit (defined below), as additional security for the Obligations until expended or applied as provided in this Security Instrument or the Loan Agreement.

CONDITIONS TO GRANT

TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Administrative Agent and its successors and assigns, in fee simple forever;

PROVIDED , HOWEVER , this grant is made upon the express condition that, if Borrowers pay to Administrative Agent the Obligations at the time and in the manner provided in the Loan Documents, and perform the Obligations in the time and manner set forth in the Loan Documents and comply with each and every covenant and condition set forth herein and in the other Loan Documents, the estate hereby granted will cease, terminate and be void; provided , however , that Trustor’s obligation to indemnify and hold harmless Administrative Agent and the Lenders pursuant to the provisions hereof will survive any such payment or release.

Article 2 - DEBT AND OBLIGATIONS SECURED

Section 2.1 DEBT . This Security Instrument and the grants, assignments and transfers made in Article 1 are given for the purpose of securing the Debt which includes, but is not limited to, the obligations of Borrowers to pay to Administrative Agent and the Lenders the principal and interest owing pursuant to the terms and conditions of the Notes and the Loan Agreement.

Section 2.2 OTHER OBLIGATIONS . This Security Instrument and the grants, assignments and transfers made in Article 1 are also given for the purpose of securing the following (the “ Other Obligations ”):

(a) the payment and performance of all other obligations of Trustor contained herein, including all fees and charges payable by Trustor;

(b) the payment and performance of all obligations of any other Borrower contained in any other Security Instrument (as defined in the Loan Agreement), including all fees and charges payable by such Borrower;

(c) the payment and performance of each obligation of Borrowers contained in the Loan Agreement and any other Loan Document, including all Swap Obligations of Borrower and all fees and charges payable by Borrowers; and

(d) the performance of each obligation of Borrowers contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Notes, the Loan Agreement or any other Loan Document.

Section 2.3 DEBT AND OTHER OBLIGATIONS . Borrowers’ obligations for the payment of the Debt and the payment and performance of the Other Obligations will be referred to collectively herein as the “ Obligations .”

Article 3 - TRUSTOR COVENANTS

Trustor covenants and agrees that:

Section 3.1 PAYMENT OF OBLIGATIONS . Trustor will pay and perform the Obligations at the time and in the manner provided in the Loan Agreement, the Notes and this Security Instrument.

Section 3.2 INCORPORATION BY REFERENCE . All the covenants, conditions and agreements contained in (a) the Loan Agreement, (b) the Notes and (c) all and any of the other Loan Documents, are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein.

Section 3.3 INSURANCE . Trustor will obtain and maintain, or cause to be maintained, in full force and effect at all times insurance with respect to Trustor and the Property as required pursuant to the Loan Agreement. In the event Trustor fails to obtain, maintain, keep in force or deliver to Administrative Agent the policies of insurance required by the Loan Agreement in accordance with the terms thereof, Administrative Agent may (but has no obligation to) procure (upon no less than five (5) Business Days’ notice to Trustor) such insurance or single-interest insurance for such risks covering Administrative Agent’s and the Lenders’ interests, and Trustor will pay all premiums thereon promptly upon demand by Administrative Agent, and until such payment is made by Trustor, the amount advanced by Administrative Agent with respect to all such premiums will, at Administrative Agent’s option, bear interest at the Default Rate.

Section 3.4 MAINTENANCE OF PROPERTY . Trustor will cause the Property to be maintained in a good and safe condition and repair and otherwise in accordance with this Security Instrument. The Improvements, the Fixtures, the Equipment and the Personal Property will not be removed, demolished or altered without the consent of Administrative Agent and the Required Lenders other than in accordance with the terms and conditions of the Loan Agreement. Trustor will promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty or become damaged, worn or dilapidated or which may be affected by any condemnation, and will complete and pay for any structure at any time in the process of construction or repair on the Land.

Section 3.5 WASTE . Trustor will not commit or knowingly suffer any waste of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or allow the cancellation of any insurance policy which Trustor is obligated to maintain pursuant to the Loan Agreement, or do or permit to be done thereon anything that may in any way materially impair the value of the Property or the security of this Security Instrument. Trustor will not, without the prior written consent of Administrative Agent and the Required Lenders, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, except as permitted by the Permitted Encumbrances, regardless of the depth thereof or the method of mining or extraction thereof.

Section 3.6 PAYMENT FOR LABOR AND MATERIALS .

(a) Subject to the terms of Section 3.6(b) below, Trustor will promptly pay when due all bills and costs for labor and materials (“ Labor and Material Costs ”) incurred in connection with the Property and not permit to exist beyond the due date thereof in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event not permit to be created or exist in respect of the Property or any part thereof any other or additional Lien or Security Interest other than the liens or security interests hereof except for the Permitted Encumbrances.

(b) After prior written notice to Administrative Agent, Trustor, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Labor and Material Costs, provided that (i) no Event of Default has occurred and is continuing, (ii) such proceeding is permitted and conducted in accordance with the provisions of any other instrument to which Trustor or the Property is subject and will not constitute a default thereunder, (iii) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, and (iv) Trustor has furnished such security as may be required in the proceeding, or as may be reasonably requested by Administrative Agent to insure the payment of any contested Labor and Material Costs, together with all interest and penalties thereon. Administrative Agent may pay over (upon no less than five (5) Business Days’ written notice to Trustor) any such security or part thereof held by Administrative Agent to the claimant entitled thereto at any time when, in the reasonable judgment of Administrative Agent, the entitlement of such claimant is established or the Property (or part thereof or interest therein) is in danger of being sold, forfeited, terminated, cancelled or lost or there is any danger of any Lien related to the contested Labor and Material Costs becoming senior in priority, in whole or in part, to the Lien of the Security Instrument. If Administrative Agent shall make any such payment, Trustor shall provide (at Trustor’s sole cost and expense) such endorsements to Administrative Agent’s title insurance policy or such other evidence as Administrative Agent may require to confirm no loss of priority of the Security Instrument.

Section 3.7 PAYMENT OF TAXES AND IMPOSITIONS .

(a) Trustor will pay, or cause to be paid prior to delinquency, all real property taxes and assessments, general and special, and all other taxes, assessments, duties, levies, imposts, deductions, charges or withholdings, of any kind or nature whatsoever, including nongovernmental levies or assessments such as maintenance charges, levies or charges resulting from covenants, conditions and restrictions affecting the Property, which are assessed or imposed upon the Property, or become due and payable, and which create or may create a lien upon the Property (all the foregoing, collectively, “ Impositions ”).

(b) After prior notice to Administrative Agent, Trustor, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Impositions, provided that (i) no Event of Default has occurred and is continuing, (ii) such proceeding is permitted and conducted in accordance with the provisions of any other instrument to which Trustor or the Property is subject and will not constitute a default thereunder, (iii) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, canceled or lost, (iv) Trustor will promptly upon final determination thereof pay the amount of any such Impositions, together with all costs, interest and penalties which may be payable in connection therewith, and (v) Trustor has furnished such security as may be required in the proceeding, or as may be reasonably requested by Administrative Agent to insure the payment of any contested Impositions, together with all interest and penalties thereon. Administrative Agent may pay over (upon no less than five (5) Business Days’ written notice to Trustor) any such security or part thereof held by Administrative Agent to the claimant entitled thereto at any time when, in the reasonable judgment of Administrative Agent, the entitlement of such claimant is established or the Property (or part thereof or interest therein) is in danger of

being sold, forfeited, terminated, cancelled or lost or there is any danger of any Lien related to the contested Impositions becoming senior in priority, in whole or in part, to the Lien of the Security Instrument. If Administrative Agent shall make any such payment, Trustor shall provide (at Trustor’s sole cost and expense) such endorsements to Administrative Agent’s title insurance policy or such other evidence as Administrative Agent may reasonably require to confirm no loss of priority of the Security Instrument.

Section 3.8 CHANGE OF NAME, JURISDICTION . In addition to the restrictions contained in the Loan Agreement, Trustor will not change Trustor’s name, identity (including its trade name or names) or jurisdiction of formation or organization unless Trustor has first obtained the prior written consent of Administrative Agent to such change (which consent shall not be unreasonably withheld, conditioned or delayed), and has taken all actions reasonably necessary or reasonably required by Administrative Agent to file or amend any financing statements or continuation statements to assure perfection and continuation of perfection of security interests under the Loan Documents. Trustor will notify Administrative Agent in writing of any change in its organizational identification number at least 10 Business Days in advance of such change becoming effective. If Trustor does not now have an organizational identification number and later obtains one, Trustor will promptly notify Administrative Agent in writing of such organizational identification number. At the request of Administrative Agent, Trustor will execute a certificate in form reasonably satisfactory to Administrative Agent listing the trade names under which Trustor intends to operate the Property, and representing and warranting that Trustor does, and has previously never done, business under no other trade name with respect to the Property.

Section 3.9 UTILITIES . Trustor will pay or cause to be paid prior to delinquency all utility charges that are incurred by Trustor for the benefit of the Property or that may become a charge or lien against the Property for gas, electricity, water or sewer services furnished to the Property and all other assessments or charges of a similar nature, whether public or private, affecting or related to the Property or any portion thereof, whether or not such assessments or charges are or may become liens thereon.

Section 3.10 CASUALTY After obtaining knowledge of the occurrence of any damage, destruction or other casualty to the Property or any part thereof, whether or not covered by insurance, Trustor must immediately notify Administrative Agent in writing. In the event of such casualty, all proceeds of insurance (collectively, the “ Insurance Proceeds ”) must be payable to Administrative Agent and no other party, and Trustor hereby authorizes and directs any affected insurance company to make payment of such Insurance Proceeds directly to Administrative Agent and no other party. If Trustor receives any Insurance Proceeds, Trustor must pay over such Insurance Proceeds to Administrative Agent within 5 Business Days. Administrative Agent is hereby authorized and empowered by Trustor to settle, adjust or compromise any and all claims for loss, damage or destruction under any policy or policies of insurance. Notwithstanding the above, provided that (i) such proceeds do not exceed $500,000 for any Property (as defined in the Loan Agreement), (ii) no Event of Default exists, and (iii) the casualty does not materially impair the value of the Project, Trustor may retain such proceeds (which shall be applied to the restoration of the Improvements to the extent required to repair a casualty). In the event of a foreclosure of this Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and interest of

Trustor in and to any Insurance Proceeds will vest in the purchaser at such foreclosure or in Administrative Agent, for the benefit of Administrative Agent and the Lenders or other transferee in the event of such other transfer of title. Nothing herein will be deemed to excuse Trustor from repairing or maintaining the Property as provided in this Security Instrument or restoring all damage or destruction to the Property, regardless of the availability or sufficiency of Insurance Proceeds, and the application or release by Administrative Agent of any Insurance Proceeds will not cure or waive any Default, Event of Default or notice of Default or Event of Default or invalidate any action taken by or on behalf of Administrative Agent pursuant to any such notice.

Section 3.11 CONDEMNATION If any proceeding or action is commenced for the taking of the Property, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, condemnation or otherwise, or if the same is taken or damaged by reason of any public improvement or condemnation proceeding, or in any other manner, or should Trustor receive any notice or other information regarding such proceeding, action, taking or damage, Trustor must immediately notify Administrative Agent in writing. Administrative Agent may commence, appear in and prosecute in its own name any such action or proceeding. Administrative Agent may also make (during the existence of an Event of Default) any compromise or settlement in connection with such taking or damage. Administrative Agent will not be liable to Trustor for any failure by Administrative Agent to collect or to exercise diligence in collecting any such compensation for a taking. All compensation, awards, damages, rights of action and proceeds awarded to Trustor by reason of any such taking or damage to the Property or any part thereof or any interest therein for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation proceeding, or in any other manner (the “ Condemnation Proceeds ”) are hereby assigned to Administrative Agent, for the benefit of Administrative Agent and the Lenders and Trustor agrees to execute such further assignments of the Condemnation Proceeds as Administrative Agent may require. Nothing herein will be deemed to excuse Trustor from repairing, maintaining or restoring the Property as provided in this Security Instrument, regardless of the availability or sufficiency of any Condemnation Proceeds, and the application or release by Administrative Agent of any Condemnation Proceeds will not cure or waive any Default, Event of Default or notice of Default or Event of Default or invalidate any action taken by or on behalf of Administrative Agent pursuant to any such notice. In the event of a foreclosure of this Security Instrument, or other transfer of title to the Property in extinguishment in whole or in part of the Obligations, all right, title and interest of Trustor in and to the Condemnation Proceeds will vest in the purchaser at such foreclosure or in Administrative Agent, for the benefit of Administrative Agent and the Lenders, or other transferee in the event of such other transfer of title.

Section 3.12 AVAILABILITY OF NET PROCEEDS .

amount of the Insurance Proceeds, if any, the amount of operating expenses and interest that will accrue under the Notes, and any additional funds deposited by Trustor with Administrative Agent (“ Deficiency Deposit ”) to pay for such costs of reconstruction); (c) Administrative Agent has determined, in its sole discretion, that the damage or destruction can be repaired and that the damaged portion of the Improvements can be completed according to the requirements of the Loan Agreement; (d) Administrative Agent and all applicable governmental authorities have approved the final plans and specifications for reconstruction of the damaged portion of the Improvements; (e) Administrative Agent has approved, for the reconstruction of the damaged portion of the Improvements, in its sole discretion, the budget, the construction schedule and the construction contract; and (f) Administrative Agent has determined, in its sole discretion, that after the reconstruction work is completed, the Borrowing Base Amount as a percentage of the Borrowing Base Value of the Projects shall not exceed the Maximum Borrowing Base Leverage Ratio (as defined in the Loan Agreement), provided Trustor may pay down the Loan so that the foregoing requirement in this clause (f) is satisfied. If any one or more of such conditions set forth herein have not been met, Administrative Agent will not be obligated to make any further disbursements pursuant to the Loan Agreement, and Administrative Agent shall apply all Insurance Proceeds, after deductions as herein provided, to the repayment of the outstanding balance of the Notes, (without payment of a prepayment premium other than LIBOR Breakage Costs) together with all accrued interest thereon, in such order as Administrative Agent may elect, notwithstanding that the outstanding balance may not be due and payable.

(b) In the event of any taking or condemnation of the Property or any part thereof or interest therein, all Condemnation Proceeds will be paid to Administrative Agent, for the benefit of Administrative Agent and the Lenders. After deducting therefrom all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit), including attorneys’ fees, incurred by it in connection with any such action or proceeding, Administrative Agent shall apply all such Condemnation Proceeds to the restoration of the Improvements (other than Condemnation Proceeds attributable to temporary use or occupancy which may be applied, at Administrative Agent’s option, to installments of principal and interest and other charges due under the Notes and other Loan Documents when the same become due and payable, without payment of a prepayment premium other than LIBOR Breakage Costs) provided that:

(i) the taking or damage will not, in Administrative Agent’s reasonable judgment, materially impair the security for the Loan; and

(ii) all conditions set forth in Section 3.12(a) above with respect to the disbursement of Insurance Proceeds are met.

the other Loan Documents. If the Condemnation Proceeds are not sufficient to repay the portion of the Loan allocable to the Property covered by this Deed of Trust and Administrative Agent or Lenders have determined that its security for the Loan is materially impaired, Trustor shall immediately pay any such remaining balance allocable to the Property, together with all accrued interest thereon. Notwithstanding the above, provided the Condemnation Proceeds do not exceed $125,000, no Event of Default exists, and the taking has not materially impaired the value of the Property, Trustor may retain such Condemnation Proceeds.

(c) The term “ Net Proceeds ” means (i) the net amount of the Insurance Proceeds received by Administrative Agent after deduction of Administrative Agent’s costs and expenses (including attorneys’ fees), if any, in collecting the same; or (ii) the net amount of the Condemnation Proceeds received by Administrative Agent after deduction of Administrative Agent’s costs and expenses (including attorneys’ fees), if any, in collecting the same, whichever the case may be; and (iii) any additional deposit the Administrative Agent requires the Trustor to make to the Administrative Agent in connection with such casualty or condemnation proceeding.

Article 4 - OBLIGATIONS AND RELIANCES

Section 4.1 RELATIONSHIP OF TRUSTOR AND LENDERS . The relationship between Trustor and Administrative Agent and the Lenders is solely that of debtor and creditor, and neither Administrative Agent nor any Lender has any fiduciary or other special relationship with Trustor, and no term or condition of any of the Loan Agreement, the Notes, this Security Instrument, any of the other Loan Documents, the Indemnity or the Guaranties will be construed so as to deem the relationship between Trustor and Administrative Agent and the Lenders to be other than that of debtor and creditor.

Section 4.2 NO RELIANCE ON LENDERS . The general partners, members, principals and (if Trustor is a trust) beneficial owners of Trustor are experienced in the ownership and operation of properties similar to the Property, and Trustor and Administrative Agent and Lenders are relying solely upon such expertise and business plan in connection with the ownership and operation of the Property. Trustor is not relying on Administrative Agent’s or any Lender’s expertise, business acumen or advice in connection with the Property.

Section 4.3 NO ADMINISTRATIVE AGENT OBLIGATIONS .

(a) Notwithstanding anything to the contrary contained in this Security Instrument, neither Administrative Agent nor any Lender is undertaking the performance of (i) any obligations under the Leases; or (ii) any obligations with respect to any other agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents.

(b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Administrative Agent or any Lender pursuant to this Security Instrument, the Loan Agreement, the Notes, the other Loan Documents, the Indemnity or the Guaranties, including any officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, neither Administrative Agent nor any Lender will be deemed to have warranted, consented to, or affirmed the sufficiency, legality or

effectiveness of same, and such acceptance or approval thereof will not constitute any warranty or affirmation with respect thereto by Administrative Agent or any Lender.

Section 4.4 RELIANCE . Trustor recognizes and acknowledges that in accepting the Loan Agreement, the Notes, this Security Instrument, the other Loan Documents, the Indemnity and the Guaranties, Administrative Agent and the Lenders are expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article V of the Loan Agreement without any obligation to investigate the Property and notwithstanding any investigation of the Property by Administrative Agent or any Lender; that such reliance existed on the part of Administrative Agent and Lenders prior to the date hereof; that the warranties and representations are a material inducement to the Lenders in making the Loan; and that Administrative Agent and the Lenders in entering into the Loan Agreement; and that the Lenders would not be willing to make the Loan and accept this Security Instrument in the absence of the warranties and representations as set forth in Article V of the Loan Agreement.

Article 5 - FURTHER ASSURANCES

Section 5.1 RECORDING OF SECURITY INSTRUMENT, ETC . Trustor forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument and any of the other Loan Documents creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Administrative Agent in, the Property. Trustor will pay all taxes, filing, registration or recording fees, and all reasonable expenses incident to the preparation, execution, acknowledgment and/or recording of the Notes, this Security Instrument, the other Loan Documents, any note, deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any deed of trust or mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do.

Section 5.2 FURTHER ACTS, ETC. Trustor will, at Trustor’s sole cost and expense, and without expense to Administrative Agent or any Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances as Administrative Agent or Trustee may, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Administrative Agent and/or Trustee (for the benefit or itself and the Lenders) the property and rights hereby mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Trustor may be or may hereafter become bound to convey or assign to Administrative Agent and/or Trustee, in each case for the benefit of Administrative Agent and the Lenders, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with

all applicable Laws and Governmental Requirements. Trustor, within ten (10) Business Days following written demand by Administrative Agent, will execute and deliver, and in the event it fails to so execute and deliver, hereby authorizes Administrative Agent and/or Trustee to execute in the name of Trustor or file or record without the signature of Trustor to the extent Administrative Agent or Trustee may lawfully do so, one or more financing statements (including initial financing statements and amendments thereto and continuation statements), to evidence more effectively the security interest of Administrative Agent in the Property. Trustor also ratifies its authorization for Administrative Agent or Trustee to have filed or recorded any like initial financing statements, amendments thereto and continuation statements, if filed or recorded prior to the date of this Security Instrument. Trustor grants to Administrative Agent an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Administrative Agent at law and in equity during the existence of an Event of Default, including such rights and remedies available to Administrative Agent pursuant to this Section . To the extent not prohibited by applicable law, Trustor hereby ratifies all acts Administrative Agent has lawfully done in the past or will lawfully do or cause to be done in the future by virtue of such power of attorney.

Section 5.3 CHANGES IN TAX, DEBT, CREDIT AND DOCUMENTARY STAMP LAWS .

(a) If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Administrative Agent’s interest in the Property, Trustor will pay the tax, with interest and penalties thereon, if any, in accordance with the applicable provisions of the Loan Agreement.

(b) Trustor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes assessed against the Property, or any part thereof, and no deduction will otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt.

(c) If at any time the United States of America, any State thereof or any subdivision of any such State will require revenue or other stamps to be affixed to the Notes, this Security Instrument, or any of the other Loan Documents or impose any other tax or charge on the same, Trustor will pay for the same, with interest and penalties thereon, if any.

Article 6 - DUE ON SALE/ENCUMBRANCE

Section 6.1 ADMINISTRATIVE AGENT RELIANCE . Trustor acknowledges that Administrative Agent and the Lenders have examined and relied on the experience of Trustor and its general partners, members, principals and (if Trustor is a trust) beneficial owners in owning and operating properties such as the Property in agreeing to make the Loan, and will continue to rely on Trustor’s ownership of the Property as a means of maintaining the value of the Property as security for repayment and performance of the Obligations. Trustor acknowledges that Administrative Agent and the Lenders have a valid interest in maintaining the value of the Property so as to ensure that, should Borrowers default in the repayment of the Obligations or the performance of the Obligations, Administrative Agent, for the benefit of Administrative Agent and the Lenders can recover the Obligations by a sale of the Property.

Section 6.2 NO TRANSFER . Trustor will comply in all respects with the provisions of the Loan Agreement regarding (a) selling, transferring, leasing, conveying or encumbering the Land, the Equipment or the Improvements or the direct or indirect interests in Trustor, and (b) changing control of Trustor.

Article 7 - RIGHTS AND REMEDIES UPON DEFAULT

Section 7.1 REMEDIES . Upon the occurrence, and during the continuance, of any Event of Default, unless such Event of Default is subsequently waived in writing by the Required Lenders or Administrative Agent, as applicable ( provided that the Required Lenders and Administrative Agent have no obligation whatsoever to grant any such waiver and any such waiver, if granted, will be considered a one-time waiver), Administrative Agent may exercise any or all of the following rights and remedies, consecutively or simultaneously, and in any order:

(a) Intentionally omitted;

(b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable provision of law, in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner;

(c) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Security Instrument for the portion of the Obligations then due and payable, subject to the continuing lien and security interest of this Security Instrument for the balance of the Obligations not then due, unimpaired and without loss of priority;

(d) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Notes, the Loan Agreement or in the other Loan Documents;

(e) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Obligations and without regard for the solvency of Borrower, any guarantor or any indemnitor with respect to the Loan or of any Person liable for the payment of the Obligations. Trustor waives any right to any hearing or notice of hearing prior to the appointment of a receiver. Such receiver and his agents will be empowered to (i) take possession of the Property and perform all necessary or desirable acts with respect to management and operation of the Property, (ii) exclude Trustor and Trustor’s agents, servants, and employees from the Property, (iii) collect the rents, issues, profits, and income therefrom, (iv) complete any construction which may be in progress, (v) do such maintenance and make such repairs and alterations as the receiver deems necessary, (vi) use all stores of materials, supplies, and maintenance equipment on the Property and replace such items at the expense of the receivership estate, (vii) to pay all taxes and assessments against the Property, all premiums for insurance thereon, all utility and other operating expenses, and all sums due under any prior or subsequent encumbrance, (viii) generally do anything which Trustor could legally do if Trustor were in possession of the Property, and (ix) take any other action

permitted by law. All expenses incurred by the receiver or his agents will constitute a part of the Obligations. Any revenues collected by the receiver will be applied first to the expenses of the receivership, including reasonable attorneys’ fees incurred by the receiver and by Administrative Agent, together with interest thereon at the Default Rate from the date incurred until repaid, and the balance will be applied toward the Obligations or in such other manner as the court may direct. Unless sooner terminated with the express consent of Administrative Agent, any such receivership will continue until the Obligations have been discharged in full, or until title to the Property has passed after a receivership sale or a foreclosure sale and all applicable periods of redemption have expired;

(f) the license granted to Trustor under Section 1.2 hereof will automatically be revoked and Administrative Agent may enter into or upon the Property, either personally or by its agents, nominees or attorneys (with or without bringing any action or proceeding) or by court-appointed receiver and dispossess Trustor and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Trustor and its agents or servants wholly therefrom, and may take possession of all books, records and accounts relating thereto and Trustor agrees to surrender possession of the Property and of such books, records and accounts to Administrative Agent upon demand, and thereupon Administrative Agent may (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (ii) complete any construction on the Property in such manner and form as Administrative Agent deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Property; (iv) exercise all rights and powers of Trustor with respect to the Property, whether in the name of Trustor or otherwise, including the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property and every part thereof; (v) require Trustor to pay monthly in advance to Administrative Agent, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be occupied by Trustor; (vi) require Trustor to vacate and surrender possession of the Property to Administrative Agent or to such receiver and, in default thereof, Trustor may be evicted by summary proceedings or otherwise; and (vii) apply the receipts from the Property to the payment of the Obligations, in such order, priority and proportions as Administrative Agent deems appropriate in its sole discretion after deducting therefrom all expenses (including attorneys’ fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Insurance Premiums and other expenses in connection with the Property, as well as just and reasonable compensation for the services of Administrative Agent, its in-house and outside counsel, agents and employees;

(g) Exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Fixtures, the Equipment and the Personal Property, or any part thereof, and to take such other measures as Administrative Agent may deem necessary for the care, protection and preservation of the Fixtures, the Equipment and the Personal Property for the benefit of Administrative Agent and the Lenders, and (ii) require Trustor at its expense to assemble the Fixtures, the Equipment and the Personal Property and make it available to Administrative Agent at a convenient place acceptable to Administrative Agent, for the benefit of Administrative Agent and the Lenders. Any notice of sale, disposition or other intended action by Administrative Agent with respect to the Fixtures, the Equipment and/or the Personal

Property sent to Trustor in accordance with the provisions hereof at least 5 days prior to such action, will constitute commercially reasonable notice to Trustor;

(h) Apply any sums then deposited or held in escrow or otherwise by or on behalf of Administrative Agent in accordance with the terms of the Loan Agreement, this Security Instrument or any other Loan Document to the payment of the following items in any order as determined in the sole and absolute discretion of Administrative Agent and the Required Lenders:

(i) Taxes;

(ii) Insurance Premiums;

(iii) Interest on the unpaid principal balance of the Notes;

(iv) The unpaid principal balance of the Notes;

(v) All other sums payable pursuant to the Notes, the Loan Agreement, this Security Instrument and the other Loan Documents, including advances made by Administrative Agent pursuant to the terms of this Security Instrument;

(i) apply the undisbursed balance of any Net Proceeds and any Deficiency Deposit held by Administrative Agent or Lenders, together with interest thereon, if any, to the payment of the Obligations in such order, priority and proportions as Administrative Agent and the Required Lenders will deem to be appropriate in their discretion; and

(j) Pursue such other remedies as Administrative Agent may have under the other Loan Documents, the Indemnity or the Guaranties and/or applicable law.

In the event of a sale, by foreclosure, power of sale or otherwise, of less than all of Property, this Security Instrument will continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority.

Section 7.2 APPLICATION OF PROCEEDS . The purchase money, proceeds and avails of any disposition of the Property, and or any part thereof, or any other sums collected by Administrative Agent pursuant to the Notes, this Security Instrument or the other Loan Documents, may be applied by Administrative Agent to the payment of the Obligations in such priority and proportions as Administrative Agent and the Required Lenders in their discretion will deem proper, to the extent consistent with applicable Laws.

Section 7.3 ACTIONS AND PROCEEDINGS . Trustor will give Administrative Agent prompt written notice of the assertion of any claim with respect to, or the filing of any action or proceeding purporting to affect the Property, the security hereof or the rights or powers of Administrative Agent. Administrative Agent has the right to appear in and defend any action or proceeding brought with respect to the Property and to bring any action or proceeding, in the name and on behalf of Trustor, which Administrative Agent, in its discretion, decides should be brought to protect its interest in the Property.

Section 7.4 RECOVERY OF SUMS REQUIRED TO BE PAID . Administrative Agent will have the right from time to time to take action to recover any sum or sums which constitute a part of the Obligations as the same become due, without regard to whether or not the balance of the Obligations is due, and without prejudice to the right of Administrative Agent or Trustee thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Trustor existing at the time such earlier action was commenced. In the event Trustor is curing a default or is paying off the Loan and Administrative Agent has incurred fees which Trustor is obligated to pay to Administrative Agent under any of the Loan Documents, and such amount has not been reduced to a final amount at the time Trustor is curing the default or is paying off the Loan, Administrative Agent may require Trustor to pay a reasonable estimate of such fees with the payment curing the default or with the payoff of the Loan, and any amount paid in excess of the estimate by the Trustor will be refunded to the Trustor after the final amount of such fee is determined.

Section 7.5 OTHER RIGHTS, ETC.

(a) The failure of Administrative Agent or the Lenders to insist upon strict performance of any term hereof will not be deemed to be a waiver of any term of this Security Instrument. Trustor will not be relieved of Trustor’s obligations hereunder by reason of (i) the failure of Administrative Agent or Trustee to comply with any request of Trustor or any guarantor or indemnitor with respect to the Loan to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Notes, the other Loan Documents, the Indemnity or the Guaranties, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any Person liable for the Obligations or any portion thereof, or (iii) any agreement or stipulation by Administrative Agent or the Lenders extending the time of payment or otherwise modifying or supplementing the terms of the Notes, this Security Instrument or the other Loan Documents, the Indemnity or the Guaranties.

(b) It is agreed that the risk of loss or damage to the Property is on Trustor, and neither Administrative Agent nor any Lender will have any liability whatsoever for decline in value of the Property, for failure to maintain any insurance policies, or for failure to determine whether insurance in force is adequate as to the amount or nature of risks insured. Possession by Administrative Agent will not be deemed an election of judicial relief if any such possession is requested or obtained with respect to all or any portion of the Property or collateral not in Administrative Agent’s possession.

(c) Administrative Agent may resort for the payment of the Obligations to any other security held by Administrative Agent in such order and manner as Administrative Agent, in its discretion, may elect. Administrative Agent may take action to recover the Obligations, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Administrative Agent thereafter to foreclose this Security Instrument. The rights of Administrative Agent under this Security Instrument will be separate, distinct and cumulative and none will be given effect to the exclusion of the others. No act of Administrative Agent or Trustee will be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Administrative Agent will not be limited exclusively to the rights and remedies herein stated but will be entitled to every right and remedy now or hereafter afforded at law or in equity.

Section 7.6 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY . Administrative Agent may release, or cause Trustee to release, any portion of the Property for such consideration as Administrative Agent may require without, as to the remainder of the Property, in any way impairing or affecting the lien or priority of this Security Instrument, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the obligations hereunder are reduced by the actual monetary consideration, if any, received by Administrative Agent for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as Administrative Agent may require without being accountable for so doing to any other lienholder. This Security Instrument will continue as a lien on, and security interest in, the remaining portion of the Property.

Section 7.7 INTENTIONALLY DELETED .

Section 7.8 RIGHT OF ENTRY . Upon reasonable notice to Trustor (and subject to the rights of tenants under their leases), Administrative Agent and its agents will have the right to enter and inspect the Property at all reasonable times.

Section 7.9 BANKRUPTCY .

(a) After the occurrence, and during the continuance, of an Event of Default, Administrative Agent will have the right to proceed in its own name or in the name of Trustor in respect of any claim, suit, action or proceeding relating to the rejection of any Lease, including the right to file and prosecute, to the exclusion of Trustor, any proofs of claim, complaints, motions, applications, notices and other documents, in any case in respect of the lessee under such Lease under the Bankruptcy Code.

(b) If there is filed by or against Trustor a petition under the Bankruptcy Code and Trustor, as lessor under any Lease, determines to reject such Lease pursuant to Section 365(a) of the Bankruptcy Code, then Trustor will give Administrative Agent not less than 10 days’ prior notice of the date on which Trustor will apply to the bankruptcy court for authority to reject the Lease (or such lesser notice as may be reasonably practicable under the circumstances). Administrative Agent will have the right, but not the obligation, to serve upon Trustor within such 10 day period a notice stating that (i) Administrative Agent demands that Trustor assume and assign the Lease to Administrative Agent pursuant to Section 365 of the Bankruptcy Code and (ii) Administrative Agent covenants to cure or provide adequate assurance of future performance under the Lease. If Administrative Agent serves upon Trustor the notice described in the preceding sentence, Trustor will not seek to reject the Lease and will comply with the demand provided for in clause (i) of the preceding sentence within 30 days after the notice is given, subject to the performance by Administrative Agent of the covenant provided for in clause (ii) of the preceding sentence.

Section 7.10 ACCEPTANCE OF CURE . Administrative Agent may accept a cure of an Event of Default from time to time in its discretion but without any obligation whatsoever to do so. Trustor will only be entitled to rely on such an acceptance if Administrative Agent expressly states, in writing, that it has accepted such a cure. If Administrative Agent accepts a cure of an Event of Default, and no other uncured Event of Default is then continuing, then Administrative Agent may agree in its discretion, but without any obligation to do so, to treat any provision in

this Security Instrument or in any other Loan Document as if no Event of Default had ever occurred.

Section 7.11 ACCEPTANCE OF PAYMENTS . Trustor agrees that if Trustor makes a tender of a payment but does not simultaneously tender payment of any late charge, Default Rate interest, LIBOR Breakage Costs, Swap Obligations of Borrower or other amount then due and owing by Trustor under this Security Instrument or the other Loan Documents, and such payment is accepted by Administrative Agent or any Lender, with or without protest, such acceptance will not constitute any waiver of Administrative Agent’s or such Lender’s rights to receive such amounts. Furthermore, if Administrative Agent accepts any payment from Trustor or any Guarantor after a Default or Event of Default, such acceptance will not constitute a waiver or satisfaction of any such Default or Event of Default. Any waiver or satisfaction of a Default or Event of Default must be evidenced by an express writing of Administrative Agent.

Article 8 - ENVIRONMENTAL HAZARDS

Section 8.1 ENVIRONMENTAL COVENANTS . Trustor has provided representations, warranties and covenants regarding environmental matters set forth in the Indemnity and Trustor will comply with the aforesaid covenants regarding environmental matters. Notwithstanding anything in this Security Instrument to the contrary, the term “Obligations” does not include any obligations or liabilities under the Indemnity (as defined in the Loan Agreement) and the obligations and liabilities under the Indemnity are not secured by this Security Instrument.

Article 9 - INDEMNIFICATION

The provisions of Section 2.10(b), Section 6.24 [Fees and Expenses] and Section 10.1 [General Indemnities] of the Loan Agreement are hereby incorporated by reference into this Security Instrument to the same extent and with the same force as if fully set forth herein. Notwithstanding the foregoing or anything in this Security Instrument to the contrary, however, this Security Instrument shall not secure Borrower’s or Guarantor’s obligations under the Indemnity or Guarantor’s obligations under any Guaranty.

Article 10 - CERTAIN WAIVERS

Section 10.1 WAIVER OF OFFSETS; DEFENSES; COUNTERCLAIM . Trustor hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Administrative Agent and/or any Lender to offset any obligations to make the payments required by the Loan Documents. No failure by Administrative Agent or any Lender to perform any of its obligations hereunder will be a valid defense to, or result in any offset against, any payments which Trustor is obligated to make under any of the Loan Documents.

Section 10.2 MARSHALLING AND OTHER MATTERS . To the extent permitted by applicable law, Trustor hereby waives the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption Laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Trustor hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Trustor, and on behalf of each and

every Person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all other Persons to the extent permitted by applicable law.

Section 10.3 WAIVER OF NOTICE . To the extent permitted by applicable law, and unless such notice is required pursuant to the terms hereof, the Indemnity, Guaranties or any Loan Documents, Trustor will not be entitled to any notices of any nature whatsoever from Administrative Agent and/or the Lenders except with respect to matters for which this Security Instrument or any of the other Loan Documents specifically and expressly provides for the giving of notice by Administrative Agent or any Lender to Trustor and except with respect to matters for which Administrative Agent or any Lender is required by applicable law to give notice, and Trustor hereby expressly waives the right to receive any notice from Administrative Agent and/or the Lenders with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Administrative Agent and/or the Lenders to Trustor. All sums payable by Trustor pursuant to this Security Instrument must be paid without notice, demand, counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Trustor hereunder will in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any condemnation or similar taking of the Property or any part thereof; (b) any restriction or prevention of or interference by any third party with any use of the Property or any part thereof; (c) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; (d) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Administrative Agent or any Lender, or any action taken with respect to this Security Instrument by any trustee or receiver of Administrative Agent or any Lender, or by any court, in any such proceeding; (e) any claim which Trustor has or might have against Administrative Agent or any Lender; (f) any default or failure on the part of Administrative Agent or any Lender to perform or comply with any of the terms hereof or of any other agreement with Trustor; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing; whether or not Trustor has notice or knowledge of any of the foregoing.

Section 10.4 WAIVER OF STATUTE OF LIMITATIONS . To the extent permitted by applicable law, Trustor hereby expressly waives and releases to the fullest extent permitted by law, the pleading of any statute of limitations as a defense to payment or performance of the Obligations.

Article 11 - NOTICES

All notices or other written communications hereunder will be delivered in accordance with the notice provisions of the Loan Agreement.

Article 12 - APPLICABLE LAW

GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, TRUSTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS SECURITY INSTRUMENT, AND THIS SECURITY INSTRUMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND ANY LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO NATIONAL BANKS.

TO THE FULLEST EXTENT PERMITTED BY LAW, TRUSTOR ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION RELATING TO THE LOAN AND/OR THE LOAN DOCUMENTS. TRUSTOR, TO THE FULLEST EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF TEXAS OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS SECURITY INSTRUMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF TEXAS, (C) SUBMITS TO THE JURISDICTION AND VENUE OF SUCH COURTS AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT, AND (D) AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN WILL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT AND EACH LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). TRUSTOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO TRUSTOR AT THE ADDRESSES FOR NOTICES DESCRIBED IN THIS SECURITY INSTRUMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE WILL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN WILL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).

Section 12.2 PROVISIONS SUBJECT TO APPLICABLE LAW . All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Security Instrument or any application thereof will be invalid or unenforceable, the remainder of this Security Instrument and any other application of the term will not be affected thereby.

Article 13 - DEFINITIONS

All capitalized terms not defined herein will have the respective meanings set forth in the Loan Agreement. If a capitalized term is defined herein and the same capitalized term is defined in the Loan Agreement, then the capitalized term that is defined herein will be utilized for the purposes of this Security Instrument, provided that the foregoing does not impact provisions that are incorporated herein by reference. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word “ Trustor ” will mean “each Trustor and any subsequent owner or owners of the Property or any part thereof or any interest therein, without limitation or waiver of any restrictions on transfers of any interest therein as set forth in any Loan Document,” the word “ Administrative Agent ” will mean “Administrative Agent and any subsequent administrative agent for the Lenders with respect to the Loan, the word “ Property ” will include any portion of the Property and any interest therein, and the phrases “ attorneys ’ fees ”, “ legal fees ” and “ counsel fees ” will include any and all in-house and outside attorneys’, paralegals’ and law clerks’ fees and disbursements, including fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Administrative Agent and/or any Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder.

Article 14 - MISCELLANEOUS PROVISIONS

Section 14.1 NO ORAL CHANGE . This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Trustor, Administrative Agent or Trustee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

Section 14.2 SUCCESSORS AND ASSIGNS . This Security Instrument will be binding upon and inure to the benefit of Trustor, Administrative Agent and the Lenders and their respective successors and assigns forever.

Section 14.3 INAPPLICABLE PROVISIONS . If any term, covenant or condition of the Loan Agreement, the Notes or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Loan Agreement, the Notes and this Security Instrument will be construed without such provision.

Section 14.4 HEADINGS, ETC. The headings and captions of various Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof.

for the benefit of Administrative Agent and the Lenders, and are merged with the lien and security interest created herein as cumulative security for the repayment of the Obligations, the performance and discharge of Trustor’s obligations hereunder, under the Loan Agreement, the Notes and the other Loan Documents and the performance and discharge of the Other Obligations.

Section 14.6 ENTIRE AGREEMENT . The Notes, the Loan Agreement, this Security Instrument and the other Loan Documents constitute the entire understanding and agreement among Trustor, the Lenders and Administrative Agent with respect to the transactions arising in connection with the Obligations and supersede all prior written or oral understandings and agreements among Trustor, the Lenders and Administrative Agent with respect thereto. Trustor hereby acknowledges that, except as incorporated in writing in the Notes, the Loan Agreement, this Security Instrument and the other Loan Documents, there are not, and were not, and no Persons are or were authorized by Administrative Agent or the Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the transaction which is the subject of the Notes, the Loan Agreement, this Security Instrument and the other Loan Documents.

Section 14.7 LIMITATION ON ADMINISTRATIVE AGENT’S RESPONSIBILITY . No provision of this Security Instrument will operate to place any obligation or liability for the control, care, management or repair of the Property upon Trustee, Administrative Agent or any Lender, nor will it operate to make Trustee, Administrative Agent or any Lender responsible or liable for any waste committed on the Property by the tenants or any other Person, or for any dangerous or defective condition of the Property, or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any tenant, licensee, employee or stranger. Nothing herein contained will be construed as constituting Administrative Agent a “mortgagee in possession.”

Section 14.8 JOINT AND SEVERAL . If more than one Person has executed this Security Instrument as “Trustor,” the representations, covenants, warranties and obligations of all such Persons hereunder will be joint and several.

Section 14.9 ADMINISTRATIVE AGENT’S DISCRETION . Whenever, pursuant to this Security Instrument or any of the other Loan Documents, Administrative Agent exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory or acceptable to Administrative Agent, or Administrative Agent exercises any right to grant or withhold consent, or Administrative Agent exercises its discretion in making any decision, the decision of Administrative Agent will, except as is otherwise specifically herein provided, be in the sole and absolute discretion of Administrative Agent and will be final and conclusive.

Section 14.10 NO MERGER . So long as the Obligations owed to the Lenders secured hereby remain unpaid and undischarged and unless Administrative Agent otherwise consents in writing, the fee, leasehold, subleasehold and sub-subleasehold estates in and to the Property will not merge but will always remain separate and distinct, notwithstanding the union of estates (without implying Trustor’s consent to such union) either in Trustor, Administrative Agent, any tenant or any third party by purchase or otherwise. In the event this Security Instrument is

originally placed on a leasehold estate and Trustor later obtains fee title to the Property, such fee title will be subject and subordinate to this Security Instrument.

Section 14.11 JOINT BORROWER PROVISIONS . Section 10.13 of the Loan Agreement is hereby incorporated in this Security Instrument by reference as if more fully set forth herein.

Section 14.12 LIMITED RECOURSE PROVISION. Except as to Guarantor as set forth in the Guaranties, Administrative Agent and Lenders shall have no recourse against, nor shall there be any personal liability to, the members of any Borrower (including the members of Trustor), or to any shareholders, members, partners, beneficial interest holders or any other entity or person in the ownership (directly or indirectly) of any Borrower, including any such owners of Trustor (except for Guarantor as provided in the Guaranties) with respect to the obligations of Borrowers (including Trustor) and Guarantor under the Loan. For purposes of clarification, in no event shall the above language limit, reduce or otherwise affect any Borrowers’ liability or obligations under the Loan Documents, Guarantor’s liability or obligations under the Guaranties or Administrative Agent’s right to exercise any rights or remedies against any collateral securing the Loan.

Article 15 - STATE-SPECIFIC PROVISIONS

Section 15.1 PRINCIPLES OF CONSTRUCTION . In the event of any inconsistencies between the terms and conditions of this Article 15 and the other terms and conditions of this Security Instrument, the terms and conditions of this Article 15 will control and be binding.

Section 15.2 POWER OF SALE; FORECLOSURE .

(a) If an Event of Default has occurred hereunder and is continuing, or when the Debt or any part thereof becomes due, whether by acceleration or otherwise, Trustee, or his successor or substitute, is authorized and empowered and it will be his special duty at the request of Administrative Agent to sell the Property or any part thereof situated in the State of Texas, at the courthouse of any county (whether or not the counties in which the Property is located are contiguous, if the Property is located in more than one county) in the State of Texas in which any part of the Property is situated, at public venue to the highest bidder for cash between the hours of ten o’clock a.m. and four o’clock p.m. on the first Tuesday in any month or at such other place, time and date as provided by the statutes of the State of Texas then in force governing sales of real estate under powers of sale conferred by deed of trust, after having given notice of such sale in accordance with such statutes. Any sale made by Trustee hereunder may be as an entirety or in such parcels as Administrative Agent may request. The sale will be made in accordance with Texas Property Code § 51.002 or any successor statute. To the extent permitted by applicable law, any sale may be adjourned by announcement at the time and place appointed for such sale without further notice except as may be required by law. The sale by Trustee of less than the whole of the Property will not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Property is sold; and, if the proceeds of such sale of less than the whole of the Property are less than the aggregate of the Debt and the expense of executing this trust as provided herein, this Security Instrument and the lien hereof will remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided , however , that Trustor

will never have any right to require the sale of less than the whole of the Property but Administrative Agent has the right, at its sole election, to request Trustee to sell less than the whole of the Property. Trustee may, after any request or direction by Administrative Agent, sell not only the real property but also the Collateral (as hereinafter defined) and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property. It is not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral. After each sale, Trustee will make to the purchaser or purchasers at such sale good and sufficient conveyances in the name of Trustor, conveying the property so sold to the purchaser or purchasers with general warranty of title of Trustor, subject to the Permitted Encumbrances (and to such Leases and other matters, if any, as Trustee may elect upon request of Administrative Agent), and will receive the proceeds of said sale or sales and apply the same as herein provided. Payment of the purchase price to Trustee will satisfy the obligation of purchaser at such sale therefor, and such purchaser will not be responsible for the application thereof. If any sale hereunder is not completed or is defective in the opinion of Administrative Agent, such sale will not exhaust the power of sale hereunder and Administrative Agent will have the right to cause a subsequent sale or sales to be made hereunder. Any and all statements of fact or other recitals made in any deed or deeds or other conveyances given by Trustee or any successor or substitute appointed hereunder as to nonpayment of the Obligations or as to the occurrence of any default, or as to Administrative Agent’s having declared all of said indebtedness to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale and the properties to be sold having been duly given, or as to the refusal, failure or inability to act of Trustee or any substitute or successor trustee, or as to the appointment of any substitute or successor trustee, or as to any other act or thing having been duly done by Administrative Agent or by such Trustee, substitute or successor, will be taken as prima facie evidence of the truth of the facts so stated and recited. Trustee or his successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, his successor or substitute. If Trustee or his successor or substitute give notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(b) Administrative Agent may release, without the joinder of Trustee, a portion of the Property or one or more of the interests encumbered by this Security Instrument from the lien of this Security Instrument (without the lien of this Security Instrument losing its priority) and, following such event, foreclose on the remaining portion of the Property or the remaining interests affected by this Security Instrument; provided , however , that all persons now or at any time hereafter liable therefor, or interested in the Property, will be held to assent to such extension, variation or release, and their liability and the lien and all provisions hereof will continue in full force, the right of recourse, if any, against all such persons being expressly reserved by Administrative Agent, notwithstanding such partial release.

(c) Any sale or sales made under or by virtue of this section, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, will operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Trustor in and to the properties and rights so

sold, and will be a perpetual bar both at law and in equity against Trustor and against any and all persons claiming or who may claim the same, or any part thereof from, through or under Trustor.

(d) Trustor irrevocably appoints Administrative Agent as Trustor’s true and lawful attorney in fact, which appointment is coupled with an interest and is unconditional and irrevocable, in Trustor’s name and stead and on its behalf, for the purposes of effectuating any sale, assignment, transfer or delivery of the Property or any part thereof or any interest therein for the enforcement of this Security Instrument as Administrative Agent may consider necessary or appropriate as set forth above after the occurrence and during the continuance of an Event of Default, if Trustor fails to take any such action reasonably requested by Administrative Agent, with full power of substitution, Trustor hereby ratifying and confirming all that such attorney will lawfully do by virtue hereof. If so requested by Administrative Agent or any other purchaser, Trustor will ratify and confirm any such sale, assignment, transfer or delivery by executing and delivering to Administrative Agent or such other purchaser, all proper deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request.

(e) Administrative Agent has the right to be a purchaser at any sale made under or by virtue of this Security Instrument, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, and on so purchasing will have the right to be credited upon the amount of the bid made therefor with the amount payable to Administrative Agent of the net proceeds of such sale.

(f) The provisions hereinabove set forth relating to the remedy of foreclosure of the lien of this Security Instrument by public sale to be conducted by Trustee, are not intended as an exclusive method of foreclosure hereunder or to deprive Administrative Agent of any other legal or equitable remedies available to Administrative Agent. Accordingly, it is specifically agreed that such remedy will be cumulative and will not in any way be construed as an exclusive remedy, and Administrative Agent will be fully entitled to a court foreclosure and to avail itself of any and all other legal or equitable remedies at any time available under the law.

(g) In connection with any foreclosure of the lien hereof (whether by judicial proceeding or power of sale) or any action to enforce any other remedy of Administrative Agent under this Security Instrument or any of the other Loan Documents, Trustor agrees to pay all expenditures and expenses which may be paid or incurred by or on behalf of Administrative Agent for reasonable attorneys’ fees and costs, a reasonable fee to Trustee (not exceeding five percent (5%) of the gross proceeds of such sale) appraiser’s fees and costs, outlays for documentary and expert evidence, stenographers’ charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies, and similar data, and assurances with respect to title and value as Administrative Agent may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Property and the right to such fees and expenses will be deemed to have accrued on commencement of such action and will be enforceable whether or not such action is prosecuted to judgment. All expenditures and expenses of the nature in this Section mentioned, and such expenses and fees as may be incurred in the protection of the Property and the maintenance of the lien of this Security Instrument, including the reasonable fees of any attorney employed by Administrative Agent in any litigation

or proceeding affecting this Security Instrument, the Notes, the Loan Agreement and any other Loan Document, or the Property (including without limitation the occupancy thereof or any construction work performed thereon), including probate and bankruptcy proceedings, or in preparations for the commencement or defense of any proceeding or threatened suit or proceeding whether or not an action is actually commenced, will be due and payable by Trustor promptly upon twenty (20) days written notice, with interest thereon at the Default Rate and will be secured by this Security Instrument.

(h) WITHOUT LIMITING THE LIABILITY OF TRUSTOR AS SET FORTH ABOVE, TRUSTOR MUST INDEMNIFY THE INDEMNIFIED PARTIES AND HOLD THEM HARMLESS FROM AND AGAINST ALL CLAIMS, INJURY, DAMAGE, LOSS AND LIABILITY (COLLECTIVELY, “ CLAIMS ”) OF ANY AND EVERY KIND (INCLUDING REASONABLE ATTORNEY’S FEES AND CHARGES) TO ANY PERSONS OR PROPERTY BY REASON OF (1) THE OPERATION OR MAINTENANCE OF THE PROPERTY; OR (2) ANY OTHER ACTION OR INACTION BY, OR MATTER WHICH IS THE RESPONSIBILITY OF, TRUSTOR (BUT EXPRESSLY EXCLUDING ANY CLAIMS WHICH ARE SOLELY THE RESULT OF AN INDEMNIFIED PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). As used herein, the term “ Indemnified Parties ” means, collectively, Administrative Agent and its affiliates, directors, officers and employees, agents and advisors.

(i) TRUSTOR MUST INDEMNIFY AND HOLD HARMLESS THE INDEMNIFIED PARTIES AGAINST ALL LIABILITY, COST AND EXPENSE, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ CHARGES, DISBURSEMENTS AND REASONABLE FEES, INCURRED IN CONNECTION WITH ANY CLAIMS WHICH MAY BE ASSERTED BY ANY BROKER OR FINDER OR SIMILAR AGENT ALLEGING TO HAVE DEALT WITH TRUSTOR IN ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. WITHOUT LIMITATION, THE INDEMNITIES CONTAINED IN SECTION 15.2(h) AND THIS SECTION 15.2(i) APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO MATTERS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF, OR ARE CLAIMED TO BE CAUSED BY OR ARISE OUT OF, THE NEGLIGENCE (WHETHER SOLE, COMPARATIVE OR CONTRIBUTORY) OR STRICT LIABILITY OF SUCH INDEMNIFIED PERSON. HOWEVER, SUCH INDEMNITIES WILL NOT APPLY TO A PARTICULAR INDEMNIFIED PARTY TO THE EXTENT THAT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THAT INDEMNIFIED PERSON.

(j) The proceeds of any foreclosure sale of the Property will be distributed and applied in the following order of priority: (i) FIRST , to the payment of all necessary costs and expenses incident to such foreclosure sale, including but not limited to all attorneys’ fees and legal expenses, advertising costs, auctioneer’s fees, costs of title rundowns and lien searches, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character (not exceeding five percent (5%) of the gross proceeds of such sale), to Trustee acting under the provisions of this Security Instrument if foreclosed by power of sale as provided in said paragraph, and to the payment of the other Obligations, excluding any amounts owed to Administrative Agent or Lenders in

respect of any Swap Obligations, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Administrative Agent and Lenders under this Security Instrument, the order and manner of application to the items in this clause (all with interest at the rate per annum provided in the Loan Agreement) in Administrative Agent’s sole discretion; (ii) SECOND , to amounts due and payable to Administrative Agent or Lenders under any Swap Obligations; and (iii) THIRD , the remainder, if any, will be paid to Trustor, or to Trustor’s successors or assigns, or such other persons (including holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided , however , that if Administrative Agent is uncertain which person or persons are so entitled, Administrative Agent may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action will be a part of the Obligations and will be reimbursable (without limitation) from such remainder.

(k) In the event an interest in any of the Property is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, Trustor agrees as follows: notwithstanding the provisions of Sections 51.003, 51.004, and 51.005 of the Texas Property Code (as the same may be amended from time to time), and to the extent permitted by law, Trustor agrees that Administrative Agent is entitled to seek a deficiency judgment from Trustor and any/or other party obligated on the Obligations equal to the difference between the amount owing on the Obligations and the amount for which the Property was sold pursuant to judicial or nonjudicial foreclosure sale. Trustor expressly recognizes that this Section 15.2(k) constitutes a waiver of the above-cited provisions of the Texas Property Code which would otherwise permit Trustor and other Persons against whom recovery of deficiencies is sought (even absent the initiation of deficiency proceedings against them) to present competent evidence of the fair market value of the Property as of the date of the foreclosure sale and offset against any deficiency the amount by which the foreclosure sale price is determined to be less than such fair market value. Trustor further recognizes and agrees that this waiver creates an irrebuttable presumption that the foreclosure sale price is equal to the fair market value of the Property for purposes of calculating deficiencies owed by Trustor and/or others against whom recovery of a deficiency is sought.

(l) Alternatively, in the event the waiver provided for in Section 15.2(k) above is determined by a court of competent jurisdiction to be unenforceable, the following will be the basis for the finder of fact’s determination of the fair market value of the Property as of the date of the foreclosure sale in proceedings governed by Sections 51.003, 51.004 and 51.005 of the Texas Property Code (as amended from time to time): (i) the Property will be valued in an “as is” condition as of the date of the foreclosure sale, without any assumption or expectation that the Property will be repaired or improved in any manner before a resale of the Property after foreclosure; (ii) the valuation will be based upon an assumption that the foreclosure purchaser desires a resale of the Property for cash promptly (but not later than twelve [12] months) following the foreclosure sale; (iii) all reasonable closing costs customarily borne by the seller in commercial real estate transactions should be deducted from the gross fair market value of the Property, including, without limitation, brokerage commissions, title insurance, a survey of the Property, tax prorations, attorneys’ fees, and marketing costs; (iv) the gross fair market value of the Property will be further discounted to account for any estimated holding costs associated with maintaining the Property pending sale, including, without limitation, utilities expenses, property management fees, taxes and assessments (to the extent not accounted for in (iii) above), and

other maintenance, operational and ownership expenses; and (v) any expert opinion testimony given or considered in connection with a determination of the fair market value of the Property must be given by persons having at least five (5) years’ experience in appraising property similar to the Property and who have conducted and prepared a complete written appraisal of the Property taking into consideration the factors set forth above.

Section 15.3 SUBSTITUTE TRUSTEE . Trustee may resign by an instrument in writing addressed to Administrative Agent, or Trustee may be removed at any time with or without cause by an instrument in writing executed by Administrative Agent. In case of the death, resignation, removal, or disqualification of Trustee, or if for any reason Administrative Agent deems it desirable to appoint a substitute or successor trustee to act instead of the herein named trustee or any substitute or successor trustee, then Administrative Agent will have the right and is hereby authorized and empowered to appoint a successor trustee(s), or a substitute trustee(s), without other formality than appointment and designation in writing executed by Administrative Agent and the authority hereby conferred will extend to the appointment of other successor and substitute trustees successively until the Obligations have been paid in full, or until the Property is fully and finally sold hereunder. If Administrative Agent is a corporation or association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment will be conclusively presumed to be executed with authority and will be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association. Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property will vest in the named successor or substitute Trustee(s) and he will thereupon succeed to, and will hold, possess and execute, all the rights, powers, privileges, immunities and duties herein conferred upon Trustee. All references herein to “Trustee” are deemed to refer to Trustee (including any successor(s) or substitute(s) appointed and designated as herein provided) from time to time acting hereunder.

Section 15.4 NO LIABILITY OF TRUSTEE . Trustee is not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct. Trustee has the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. All moneys received by Trustee will, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee will be under no liability for interest on any moneys received by him hereunder. Trustor hereby ratifies and confirms any and all acts which the herein named Trustee or his successor or successors, substitute or substitutes, in this trust, will do lawfully by virtue hereof. Trustor will reimburse Trustee for, and save him harmless against, any and all liability and expenses which may be incurred by him in the performance of his duties, subject to the limitations set forth in this Section 15.4 . The foregoing indemnity will not terminate upon discharge of the indebtedness secured hereby or foreclosure, or release or other termination, of this Security Instrument.

Section 15.5 WAIVERS . Trustor does hereby waive presentment and demand for payment, notice of dishonor, notice of intention to accelerate, notice of acceleration, protest and notice of protest

and non-payment and all other notices of any kind, except where any such notice is expressly provided for pursuant to the terms of any Loan Documents.

Section 15.6 COLLATERAL PROTECTION INSURANCE NOTICE .

PURSUANT TO TEXAS FINANCE CODE SECTION 307.052, (A) TRUSTOR IS REQUIRED TO: (i) KEEP THE PROPERTY INSURED AGAINST DAMAGE IN THE AMOUNT THAT ADMINISTRATIVE AGENT SPECIFIES; (ii) PURCHASE INSURANCE FROM AN INSURER THAT IS AUTHORIZED TO DO BUSINESS IN THE STATE OF TEXAS OR AN ELIGIBLE SURPLUS LINES INSURER; AND (iii) NAME ADMINISTRATIVE AGENT AS THE PERSON TO BE PAID UNDER THE POLICY IN THE EVENT OF A LOSS; (B) TRUSTOR MUST, IF REQUIRED BY ADMINISTRATIVE AGENT, DELIVER TO ADMINISTRATIVE AGENT A COPY OF THE POLICY AND PROOF OF THE PAYMENT OF PREMIUMS; AND (C) IF TRUSTOR FAILS TO MEET ANY REQUIREMENT LISTED IN PARAGRAPH (A) OR (B), ADMINISTRATIVE AGENT MAY OBTAIN COLLATERAL PROTECTION INSURANCE ON BEHALF OF TRUSTOR AT TRUSTOR’S EXPENSE.

THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES .

Section 15.7 ASSESSMENTS AGAINST PROPERTY . Trustor will not, without the prior written approval of Administrative Agent, which may be withheld for any reason, consent to or allow the creation of any so-called special districts, special improvement districts, benefit assessment districts or similar districts, or any other body or entity of any type, or allow to occur any other event, that would or might result in the imposition of any additional taxes, assessments or other monetary obligations or burdens on the Property, and this provision serves as RECORD NOTICE to any such district or districts or any governmental entity under whose authority such district or districts exist or are being formed that, should Trustor or any other person or entity include all or any portion of the Property in such district or districts, whether formed or in the process of formation, without first obtaining Administrative Agent’s express written consent, the rights of Administrative Agent in the Property pursuant to this Security Instrument or following any foreclosure of this Security Instrument, and the rights of any person or entity to whom Administrative Agent might transfer the Property following a foreclosure of this Security Instrument, will be senior and superior to any taxes, charges, fees, assessments or other impositions of any kind or nature whatsoever, or liens (whether statutory, contractual or otherwise) levied or imposed, or to be levied or imposed, upon the Property or any portion thereof as a result of inclusion of the Property in such district or districts.

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IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Trustor as of the day and year first above written.

KBSIII DOMAIN GATEWAY, LLC,

a Delaware limited liability company


By:	KBSIII REIT ACQUISITION I, LLC,

a Delaware limited liability company,

its sole member


By:	KBS REIT PROPERTIES III, LLC,

a Delaware limited liability company,

its sole member


By:	KBS LIMITED PARTNERSHIP III,

a Delaware limited partnership,

its sole member


By:	KBS REAL ESTATE INVESTMENT TRUST III, INC.,

a Maryland corporation,

its general partner


By:	/s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.,

Chief Executive Officer

Signature Page to Deed of Trust



ACKNOWLEDGMENT

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

	State of California
	County of Orange )

	On October 9, 2018 , before me, K. Godin, Notary Public , personally appeared Charles J. Schreiber, Jr. , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

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

	WITNESS my hand and official seal.
	Signature /s/ K. Godin (Seal)

EXHIBIT A

LEGAL DESCRIPTION