Behringer Harvard Opportunity REIT I (BHOR) 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

Commission File Number: 000-51961

Behringer Harvard Opportunity REIT I, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-1862323
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

15601 Dallas Parkway, Suite 600, Addison, Texas 75001

(Address of Principal Executive Offices) (ZIP Code)

Registrant’s Telephone Number, Including Area Code:  (866) 655-3600

None

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

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 o

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

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

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

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

As of October 31, 2012, the Registrant had 56,500,472 shares of common stock outstanding.

BEHRINGER HARVARD OPPORTUNITY REIT I, INC.

FORM 10-Q

Quarter Ended September 30, 2012

PART I
FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2012 and 2011	4
	Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
Signature		43

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Behringer Harvard Opportunity REIT I, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

	September 30,			December 31,
	2012			2011
Assets
Real estate
Land and improvements, net	$	72,535		$	77,687
Buildings and improvements, net	170,434			261,336
Real estate under development	16,599			16,503
Total real estate	259,568			355,526
Condominium inventory	21,009			29,752
Assets associated with real estate held for sale	11,031			—
Cash and cash equivalents	51,360			13,503
Restricted cash	8,112			8,033
Accounts receivable, net	10,737			8,462
Prepaid expenses and other assets	950			3,344
Leasehold interests, net	19,729			19,208
Investments in unconsolidated joint ventures	21,220			34,887
Furniture, fixtures and equipment, net	4,319			5,536
Deferred financing fees, net	2,190			3,078
Notes receivable, net	228			31,508
Lease intangibles, net	6,087			11,348
Other intangibles, net	6,486			6,994
Total assets	$	423,026		$	531,179
Liabilities and Equity
Notes payable	$	185,252		$	265,857
Note payable to related parties	1,500			1,500
Accounts payable	1,222			999
Payables to related parties	1,129			4,339
Acquired below-market leases, net	1,951			7,134
Accrued and other liabilities	23,103			21,407
Obligations associated with real estate held for sale	5,371			—
Total liabilities not subject to compromise	219,528			301,236
Liabilities subject to compromise	687			—
Total liablities	220,215			301,236
Commitments and contingencies
Equity
Behringer Harvard Opportunity REIT I, Inc. Equity:
Preferred stock, $.0001 par value per share; 50,000,000 shares authorized, none outstanding	—			—
Convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 shares issued and outstanding	—			—
Common stock, $.0001 par value per share; 350,000,000 shares authorized, and 56,500,472 shares issued and outstanding at September 30, 2012 and December 31, 2011	6			6
Additional paid-in capital	502,743			502,743
Accumulated distributions and net loss	(299,258		)	(275,509		)
Accumulated other comprehensive loss	(5,270		)	(4,890		)
Total Behringer Harvard Opportunity REIT I, Inc. equity	198,221			222,350
Noncontrolling interest	4,590			7,593
Total equity	202,811			229,943
Total liabilities and equity	$	423,026		$	531,179

See Notes to Condensed Consolidated Financial Statements.

3

Behringer Harvard Opportunity REIT I, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues
Rental revenue	$	7,423		$	6,203		$	21,804		$	18,306
Hotel revenue	1,737			1,810			3,672			3,550
Condominium sales	1,655			5,288			8,491			8,253
Total revenues	10,815			13,301			33,967			30,109
Expenses
Property operating expenses	4,785			3,806			11,901			9,952
Bad debt expense	110			138			296			488
Cost of condominium sales	1,654			5,399			8,509			8,432
Condominium inventory impairment	—			—			438			5,925
Interest expense	3,386			3,269			10,115			9,651
Real estate taxes	996			975			2,940			3,074
Impairment charge	—			11,256			—			11,257
Provision for loan losses	—			—			12,022			5,342
Property management fees	286			296			827			790
Asset management fees	726			1,215			2,479			3,618
General and administrative	1,352			1,122			4,997			3,812
Depreciation and amortization	3,484			3,311			9,992			9,950
Total expenses	16,779			30,787			64,516			72,291
Interest income	17			14			35			47
Other income, net	(45		)	26			654			32
Loss from continuing operations before reorganization items, income taxes and equity in losses of unconsolidated joint ventures	(5,992		)	(17,446		)	(29,860		)	(42,103		)
Reorganization items, net	(507		)	—			(567		)	—
Provision for income taxes	(35		)	(41		)	(132		)	(158		)
Equity in losses of unconsolidated joint ventures	(623		)	(2,346		)	(4,370		)	(37,869		)
Income (loss) from continuing operations	(7,157		)	(19,833		)	(34,929		)	(80,130		)
Income (loss) from discontinued operations	4,940			(2,324		)	8,201			(6,281		)
Gain on sale of real estate	—			—			—			1,334
Net loss	(2,217		)	(22,157		)	(26,728		)	(85,077		)
Add: Net loss attributable to the noncontrolling interest
Noncontrolling interest in continuing operations	272			917			2,979			5,076
Net loss attributable to common shareholders	$	(1,945	)	$	(21,240	)	$	(23,749	)	$	(80,001	)
Weighted average shares outstanding:
Basic and diluted	56,500			56,500			56,500			56,486
Loss per share attributable to common shareholders:
Basic and diluted:
Continuing operations	$	(0.12	)	$	(0.33	)	$	(0.57	)	$	(1.31	)
Discontinued operations	0.09			(0.04		)	0.15			(0.11		)
Basic and diluted loss per share	$	(0.03	)	$	(0.37	)	$	(0.42	)	$	(1.42	)
Amounts attributable to common shareholders:
Continuing operations	$	(6,885	)	$	(18,916	)	$	(31,950	)	$	(73,720	)
Discontinued operations	4,940			(2,324		)	8,201			(6,281		)
	$	(1,945	)	$	(21,240	)	$	(23,749	)	$	(80,001	)
Comprehensive income (loss):
Net Gain (loss)	$	(2,217	)	$	(22,157	)	$	(26,728	)	$	(85,077	)
Other comprehensive loss:
Foreign currency translation loss	222			(1,212		)	(454		)	221
Unrealized gain (loss) on interest rate derivatives	(7		)	(2		)	13			(34		)
Total other comprehensive income (loss)	215			(1,214		)	(441		)	187
Comprehensive loss	(2,002		)	(23,371		)	(27,169		)	(84,890		)
Comprehensive loss attributable to noncontrolling interest	322			892			3,040			5,109
Comprehensive loss attributable to common shareholders	$	(1,680	)	$	(22,479	)	$	(24,129	)	$	(79,781	)

See Notes to Condensed Consolidated Financial Statements.

4

Behringer Harvard Opportunity REIT I, Inc.

Condensed Consolidated Statements of Equity

(in thousands, except share amounts)

(Unaudited)

									Accumulated			Accumulated
	Convertible Stock			Common Stock			Additional		Distributions			Other
	Number of	Par		Number of	Par		Paid-In		and			Comprehensive			Noncontrolling			Total
	Shares	Value		Shares	Value		Capital		Net Loss			Income (Loss)			Interest			Equity
Balance at January 1, 2011	1,000	$	—	56,379,760	$	6	$	502,102	$	(185,491	)	$	(3,956	)	$	3,609		$	316,270
Distributions declared on common stock									(1,410		)							(1,410		)
Contributions from noncontrolling interest															9,893			9,893
Distributions to non-controlling interest															(766		)	(766		)
Transfer of non-controlling interest							377								(377		)	—
Shares issued pursuant to Distribution
Reinvestment Plan, net				120,713			926											926
Comprehensive loss:
Net loss									(80,001		)				(5,076		)	(85,077		)
Other comprehensive income:
Foreign currency translation gain (loss)												254			(33		)	221
Unrealized gains (losses) on interest rate derivatives												(34		)	—			(34		)
Total comprehensive loss															(5,109		)	(84,890		)
Balance at September 30, 2011	1,000	$	—	56,500,473	$	6	$	503,405	$	(266,902	)	$	(3,736	)	$	7,250		$	240,023
Balance at January 1, 2012	1,000	$	—	56,500,472	$	6	$	502,743	$	(275,509	)	$	(4,890	)	$	7,593		$	229,943
Contributions from noncontrolling interest															37			37
Comprehensive loss:
Net loss									(23,749		)				(2,979		)	(26,728		)
Other comprehensive income:
Foreign currency translation gain (loss)												(393		)	(61		)	(454		)
Unrealized gains (losses) on interest rate derivatives												13			—			13
Total comprehensive loss															(3,040		)	(27,169		)
Balance at September 30, 2012	1,000	$	—	56,500,472	$	6	$	502,743	$	(299,258	)	$	(5,270	)	$	4,590		$	202,811

See Notes to Condensed Consolidated Financial Statements.

5

Behringer Harvard Opportunity REIT I, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Nine months ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(26,728	)	$	(85,077	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	12,028			15,641
Amortization of deferred financing fees	1,233			2,291
Loss on early extinguishment of debt	1,379			—
Gain on casualty loss	(38		)	—
Gain on sale of real estate	(12,039		)	(2,559		)
Impairment charge	1,701			22,349
Provision for loan losses	12,022			5,342
Bad debt expense	328			515
Equity in losses of unconsolidated joint ventures	4,370			37,869
Unrealized loss on derivatives	—			(35		)
Change in operating assets and liabilities:
Accounts receivable	(3,130		)	(1,763		)
Condominium inventory	8,114			23,064
Prepaid expenses and other assets	1,159			659
Accounts payable	870			(246		)
Accrued and other liabilities	2,756			1,199
Payables to related parties	(3,211		)	2,402
Lease intangibles	(1,862		)	(1,674		)
Cash provided by (used in) operating activities	(1,048		)	19,977
Cash flows from investing activities:
Proceeds from sale of real estate	111,199			38,165
Proceeds from sale of unconsolidated joint venture	12,384			(30		)
Capital expenditures for real estate under development	(3,576		)	(1,964		)
Additions of property and equipment	(1,130		)	(5,632		)
Change in restricted cash	415			(1,673		)
Cash assumed from conversion of loan to equity	11			—
Investment in notes receivable	(2,024		)	(3,663		)
Proceeds from payments on note receivables	—			425
Cash provided by investing activities	117,279			25,628
Cash flows from financing activities:
Financing costs	(1,228		)	(1,339		)
Premium paid on extinguishments of debt	(982		)	—
Proceeds from notes payable	50,267			11,365
Payments on notes payable	(89,021		)	(33,768		)
Net borrowings (repayments) on senior secured revolving credit facility	(37,463		)	(21,820		)
Borrowings on note payable related party	—			1,500
Distributions	—			(485		)
Contributions from noncontrolling interest holders	38			887
Distributions to noncontrolling interest holders	—			(766		)
Cash used in financing activities	(78,389		)	(44,426		)
Effect of exchange rate changes on cash and cash equivalents	15			56
Net change in cash and cash equivalents	37,857			1,235
Cash and cash equivalents at beginning of the period	13,503			9,833
Cash and cash equivalents at end of the period	$	51,360		$	11,068

See Notes to Condensed Consolidated Financial Statements.

6

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Business

Behringer Harvard Opportunity REIT I, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) was incorporated in November 2004 as a Maryland corporation and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.

We operate commercial real estate or real estate-related assets located in and outside the United States on an opportunistic basis.  In particular, we have focused on acquiring properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, or those located in markets and submarkets with higher volatility, lower barriers to entry, and high growth potential.  We have acquired a wide variety of properties, including office, retail, hospitality, recreation and leisure, multifamily, and other properties.  We have purchased existing and newly constructed properties and properties under development or construction, including multifamily properties.  We completed our first property acquisition in March 2006, and, as of September 30, 2012, we wholly owned six properties including one classified as held for sale on our condensed consolidated balance sheet and consolidated five properties through investments in joint ventures.  In addition, we are the mezzanine lender for one multifamily property.  We also have a noncontrolling, unconsolidated ownership interest in a joint venture consisting of 22 properties that are accounted for using the equity method.  Substantially all of our business is conducted through Behringer Harvard Opportunity OP I, LP, a Texas limited partnership organized in November 2004 (“Behringer Harvard OP I”), or subsidiaries thereof.  Our wholly owned subsidiary, BHO, Inc., a Delaware corporation, owns less than a 0.1% interest in Behringer Harvard OP I as its sole general partner.  The remaining interest of Behringer Harvard OP I is held as a limited partnership interest by our wholly owned subsidiary, BHO Business Trust, a Maryland business trust.

We are externally managed and advised by Behringer Harvard Opportunity Advisors I, LLC (“Behringer Harvard Opportunity Advisors I” or the “Advisor”), a Texas limited liability company.  Behringer Harvard Opportunity Advisors I is responsible for managing our day-to-day affairs and for identifying and making acquisitions, dispositions and investments on our behalf.

Presentation of Financial Statements

Our financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business as we proceed through our disposition phase.  As is usual for opportunity style real estate investment programs, we are structured as a finite life entity, and have entered the final phase of operations.  This phase includes the selling of our assets, retiring our liabilities, and distributing net proceed to shareholders.  We have experienced significant losses and may generate negative cash flows as mortgage note obligations and expenses exceed revenues.  If we are unable to sell a property when we determine to do so, it could have a significant adverse effect on our cash flows that are necessary to meet our mortgage obligations and our ability to satisfy our other liabilities in the normal course of business.

Our ability to continue as a going concern is, therefore, dependent upon our ability to sell real estate investments to pay down debt as it matures if extensions or new financings are unavailable, and our ability to fund ongoing costs of our Company, including our development and operating properties.

Debtors-in-Possession - Frisco Square

On June 13, 2012 (the “Petition Date”), the special purpose entity Behringer Harvard Frisco Square, LP, along with our indirect subsidiaries BHFS I, LLC, BHFS II, LLC, BHFS III, LLC, BHFS IV, LLC and BHFS Theater, LLC (collectively, the “Frisco Debtors”), filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Chapter 11 Cases”), in the United States Bankruptcy Court for the Eastern District of Texas (the “Bankruptcy Court”).  The Chapter 11 Cases pertain only to the Frisco Debtors, neither the Company nor any of its other wholly owned subsidiaries, or joint ventures, either consolidated or unconsolidated, have sought such protection.

The Frisco Debtors, all of which are consolidated in the accompanying financial statements, are currently operating as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable orders of the Bankruptcy Court.  The Frisco Debtors intend to work with their constituencies to emerge from bankruptcy by proposing a plan of reorganization.  Pursuant to Chapter 11, a debtor is afforded certain protection against its creditors and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceedings to foreclose on secured obligations) related to debts that were owed prior to the Petition Date.

In addition to the notes payable related to the BHFS loans and the Theater loan (see Note 7 Notes Payable — Debtors-in-Possession — Frisco Debtors), the Frisco Debtors are subject to certain executory contracts.  The Frisco Debtors,

7

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

subject to approval of the Bankruptcy Court, may assume or reject these contracts.  Although the Frisco Debtors may consider the rejection of certain of such contracts (other than our operating property tenant leases), none have been rejected as of September 30, 2012.

Since the Petition Date, the Bankruptcy Court has granted various motions that allow the Frisco Debtors to continue to operate their business in the normal course without interruption, and covering, among other things, critical service providers and new tenant leases. The Frisco Debtors have retained, pursuant to the Bankruptcy Court approval, legal and financial professionals to advise the Frisco Debtors on the bankruptcy proceedings.  From time to time the Frisco Debtors may seek approval from the Bankruptcy Court for the retention of additional professionals (see Note 13 Frisco Square Debtors — Unaudited Financial Information for further discussion).  On October 22, 2012, the Frisco Debtors submitted a plan of reorganization to the Bankruptcy Court.  There can be no assurance at this time that the submitted plan of reorganization will be confirmed by the Bankruptcy Court.

2.Interim Unaudited Financial Information

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission (“SEC”) on March 29, 2012.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in this report on Form 10-Q pursuant to the rules and regulations of the SEC.

The results for the interim periods shown in this report are not necessarily indicative of future financial results.  The accompanying condensed consolidated balance sheet and condensed consolidated statement of equity as of September 30, 2012, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2012 and 2011, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011 have not been audited by our independent registered public accounting firm.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to fairly present our condensed consolidated financial position as of September 30, 2012 and our condensed consolidated results of operations, equity, and cash flows for the periods ended September 30, 2012 and 2011.  Such adjustments are normal and recurring in nature.

We have evaluated subsequent events for recognition or disclosure in our condensed consolidated financial statements.

3.Summary of Significant Accounting Policies

Described below are certain of our significant accounting policies.  The disclosures regarding several of the policies have been condensed or omitted in accordance with interim reporting regulations specified by Form 10-Q.  Please see our Annual Report on Form 10-K for a complete listing of all of our significant accounting policies.

Real Estate

We amortize the value of in-place leases acquired to expense over the term of the respective leases.  The value of tenant relationship intangibles is amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the in-place lease value and tenant relationship intangibles would be charged to expense.  As of September 30, 2012, the estimated remaining useful lives for acquired lease intangibles range from less than one year to approximately ten years.

8

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Anticipated amortization expense associated with the acquired lease intangibles and acquired other intangible assets for each of the following five years as of September 30, 2012 is as follows (in thousands):

	Lease / Other Intangibles
October 1, 2012 - December 31, 2012	$	181
2013	664
2014	334
2015	312
2016	300

Accumulated depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows ($ in thousands):

										Acquired
	Buildings and			Land and			Lease			Below-Market			Leasehold			Other
September 30, 2012	Improvements			Improvements			Intangibles			Leases			Interest			Intangibles
Cost	$	208,443		$	73,556		$	13,245		$	(3,929	)	$	21,362		$	10,438
Less: depreciation and amortization	(38,009		)	(1,021		)	(7,158		)	1,978			(1,633		)	(3,952		)
Net	$	170,434		$	72,535		$	6,087		$	(1,951	)	$	19,729		$	6,486

										Acquired
	Buildings and			Land and			Lease			Below-Market			Leasehold			Other
December 31, 2011	Improvements			Improvements			Intangibles			Leases			Interest			Intangibles
Cost	$	306,724		$	78,553		$	25,027		$	(17,991	)	$	20,382		$	10,439
Less: depreciation and amortization	(45,388		)	(866		)	(13,679		)	10,857			(1,174		)	(3,445		)
Net	$	261,336		$	77,687		$	11,348		$	(7,134	)	$	19,208		$	6,994

Condominium Inventory

Condominium inventory is stated at the lower of cost or fair market value, and consists of land acquisition costs, land development costs, construction costs, interest, and real estate taxes, which are capitalized during the period beginning with the commencement of development and ending with the completion of construction.  At September 30, 2012, condominium inventory consisted of $8.1 million of finished units related to our condominiums at Chase — The Private Residences and $12.9 million of work in progress related to The Lodge and Spa at Cordillera (“Cordillera”).  As of December 31, 2011, condominium inventory consisted of $16.9 million of finished units related to our condominiums at Chase — The Private Residences and $12.9 million of work in progress related to Cordillera.  In February 2011, we received $14.7 million related to the monetization of State of Missouri historic tax credits on the redevelopment of the Chase Park Plaza Hotel located in St. Louis, Missouri, which was recorded as a reduction of our condominium inventory.  The proceeds from these historic tax credits were used to pay down the outstanding balance of the Chase Park Plaza Hotel loan.

For condominium inventory, at each reporting date, management compares the estimated fair value less costs to sell to the carrying value.  An adjustment is recorded to the extent that the fair value less costs to sell is less than the carrying value.  We determine the estimated fair value of condominiums based on comparable sales in the normal course of business under existing and anticipated market conditions.  This evaluation takes into consideration estimated future selling prices, costs incurred to date, estimated additional future costs, and management’s plans for the property.

The nationwide downturn in the housing and related condominium market that began during 2007 has resulted in lower than expected sales volume and reduced selling prices.  As a result of our evaluations in the first quarter of 2012, we recognized a non-cash charge of $0.4 million during the nine months ended September 30, 2012 to reduce the carrying value of condominiums at Chase-The Private Residences.  This non-cash charge is classified as a condominium inventory impairment charge in the accompanying consolidated statement of operations.  We recognized a non-cash charge of $1.9 million during the nine months ended September 30, 2011 to reduce the carrying value of the condominiums at Chase — The Private Residences and non-cash charge of $4 million during the nine months ended September 30, 2011 to reduce the carrying value of the condominium development at Cordillera.  In the event that market conditions continue to decline

9

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

in the future or the current difficult market conditions extend beyond our expectations, additional adjustments may be necessary.

Accounts Receivable

Accounts receivable primarily consist of straight-line rental revenue receivables of $7.9 million and $6.6 million as of September 30, 2012 and December 31, 2011, respectively, and receivables from our hotel operators and tenants related to our other consolidated properties of $3.4 million and $2.3 million as of September 30, 2012 and December 31, 2011, respectively.  The allowance for doubtful accounts was $0.5 million and $0.4 million as of September 30, 2012 and December 31, 2011, respectively.

Debtors-in-Possession - Frisco Debtors

Consolidation of Real Estate in Bankruptcy - On June 13, 2012, the Frisco Debtors filed Chapter 11 bankruptcy.  We continued to consolidate the balance sheets and operations of the Frisco Debtors.  In accordance with ASC 852-10, “Reorganizations,” we provide the unaudited condensed financial statements of the Frisco Debtors in Note 13 Frisco Debtors - Unaudited Financial Information.

Liabilities Subject to Compromise - Liabilities Subject to Compromise consists of unsecured prepetition liabilities related to the Frisco Debtors.  The classification of liabilities “subject to compromise” is based upon currently available information and analysis.  As the bankruptcy process proceeds and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification may change.  The amount of any such changes could be significant.

Reorganization Expense - Reorganization items are expense or income items that were incurred or realized by the Frisco Debtors as a result of the Chapter 11 Cases and are presented separately in the condensed consolidated statements of operations and comprehensive loss and in the unaudited condensed combined statements of the Frisco Debtors in Note 13 - Frisco Debtors - Unaudited Financial Information.

Investment Impairment

For all of our real estate and real estate related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers and changes in the global and local markets or economic conditions.  Our assets may at times be concentrated in limited geographic locations and, to the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at a portion of our properties within a short time period, which may result in asset impairments.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.  We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist.  While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

We also evaluate our investments in notes receivable as of each reporting date.  If we believe that it is probable we will not collect all principal and interest in accordance with the terms of the notes, we consider the loan impaired.  When evaluating loans for potential impairment, we compare the carrying amount of the loans to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans.  For impaired loans, a provision is made for loan losses to adjust the reserve for loan losses.  The reserve for loan losses is a valuation allowance that reflects our current estimate of loan losses as of the balance sheet date.  The reserve is adjusted through the provision for loan losses account on our condensed consolidated statement of operations.

In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, planned development and the projected sales price of each of the properties.

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A future change in these estimates and assumptions could result in understating or overstating the book value of our investments, which could be material to our financial statements.

We also evaluate our investments in unconsolidated joint ventures at each reporting date.  If we believe there is an other than temporary decline in market value, we will record an impairment charge based on these evaluations.  We assess potential impairment by comparing our portion of estimated future undiscounted operating cash flows expected to be generated by the joint venture over the life of the joint venture’s assets to the carrying amount of the joint venture.  In the event that the carrying amount exceeds our portion of estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the joint venture to its estimated fair value.

The value of our properties held for development depends on market conditions, including estimates of the project start date, as well as estimates of future demand for the property type under development.  We have analyzed trends and other information related to each potential development and incorporated this information, as well as our current outlook, into the assumptions we use in our impairment analyses.  Due to the judgment and assumptions applied in the estimation process with respect to impairments, including the fact that limited market information regarding the value of comparable land exists at this time, it is possible actual results could differ substantially from those estimated.

We believe the carrying value of our operating real estate assets, properties under development, investments in unconsolidated joint ventures, and notes receivable is currently recoverable.  However, if market conditions worsen beyond our current expectations, or if our assumptions regarding expected future cash flows from the use and eventual disposition of our assets decrease or our expected hold periods decrease, or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take additional charges in future periods for impairments related to existing assets.  Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Real Estate Held for Sale

We classify properties as held for sale when certain criteria are met, in accordance with GAAP.  We present the assets and obligations of a property held for sale separately on our condensed consolidated balance sheet, and we cease recording depreciation and amortization expense related to that property.  Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell.  As of September 30, 2012, our Bent Tree Green property was classified as held for sale.  We had no properties classified as held for sale at December 31, 2011.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as purchase price allocation for real estate acquisitions, impairment of long-lived assets, depreciation and amortization, allowance for doubtful accounts, and allowance for loan losses.  Actual results could differ from those estimates.

New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued updated guidance for fair value measurements.  The guidance amends existing guidance to provide common fair value measurements and related disclosure requirements between GAAP and International Financial Reporting Standards.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance during 2012 is reflected in our financial statements and footnotes.

In June 2011, the FASB issued updated guidance related to comprehensive income.  The guidance requires registrants to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, registrants will be required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance during 2012 is reflected in our financial statements.

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

4.Assets and Liabilities Measured at Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recurring Fair Value Measurements

Currently, we use interest rate swaps and caps to manage our interest rate risk.  The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, and foreign currency exchange rates.

We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties.  However, as of September 30, 2012 and December 31, 2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The following fair value hierarchy table presents information about our assets measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011 ($ in thousands):

September 30, 2012	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments	$	—	$	6	$	—	$	6

December 31, 2011	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments	$	—	$	64	$	—	$	64

Derivative financial instruments classified as assets are included in prepaid expenses and other assets on the balance sheet.

Nonrecurring Fair Value Measurements

For the nine months ended September 30, 2012, we recognized condominium inventory impairment charges of $0.4 million related to Chase - The Private Residences; a non-cash charge of $12 million related to our notes receivable from Royal Island; and impairment charges of approximately $1.3 million in discontinued operations related to Bent Tree Green.  For the year ended December 31, 2011, we recognized impairment charges of $6.2 million related to Rio Salado and $5.1 million related to Frisco Square.  We also recorded a $1.4 million impairment related to our 50% unconsolidated joint venture in Santa Clara 800.  We recognized a non-cash charge of $1.9 million to reduce the carrying value of

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

condominiums at Chase - The Private Residences and a $4 million non-cash charge related to our condominium development at Cordillera during the year ended December 31, 2011.

The inputs used to calculate the fair value of these assets included projected cash flows and a risk-adjusted rate of return that we estimated would be used by a market participant in valuing these assets or by obtaining third-party broker valuation estimates, bona fide purchase offers or the expected sales price of an executed sales agreement.  The capitalization rate ranges and discount rate ranges were obtained from third-party service providers, and the capitalization rate ranges were gathered for specific metro areas and applied on a property-by-property basis.  These fair value estimates are considered Level 3 under the fair value hierarchy described above.

The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012 and the year ended December 31, 2011 ($ in thousands):

September 30, 2012	Level 1		Level 2		Level 3		Total Fair Value		Gain / (Loss)
Assets
Land and improvements, net	$	—	$	1,276	$	—	$	1,276	$	(178	)(1)
Buildings and improvements, net	—		9,292		—		9,292		(1,086		)(1)
Condominium inventory	—		—		8,135		8,135		(438		)
Note receivable, net	—		—		18,037		18,037		(12,022		)
	$	—	$	10,568	$	26,172	$	36,740	$	(13,724	)

(1) The $1.3 million in impairment loss related to the sale of Bent Tree Green which is included in discontinued operations, was disposed of on October 16, 2012.  The associated assets and liabilities are classified as held for sale on our condensed consolidated balance sheet as of September 30, 2012.

December 31, 2011	Level 1		Level 2		Level 3		Total Fair Value		Gain / (Loss)(2)
Assets
Note receivable, net	$	—	$	—	$	31,280	$	31,280	$	(7,881	)
Land and improvements, net	—		—		37,016		37,016		(993		)
Buildings and improvements, net	—		—		34,151		34,151		(4,095		)
Real estate under development	—		—		14,900		14,900		(6,169		)
Condominium inventory	—		—		29,752		29,752		(5,925		)
Investment in unconsolidated joint venture	—		—		12,524		12,524		(1,425		)
Total	$	—	$	—	$	159,623	$	159,623	$	(26,488	)

(2)  Excludes $5.2 million in impairment loss in our discontinued operations related to real estate that was disposed of as of the year ended December 31, 2011.

Quantitative Information about Level 3 Fair Value Measurements

($ in thousands, except per square feet and acre)

	Fair Value at September 30, 2012		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Condominium inventory	$	8,135	Market comparable	Amount per condo unit due to limited market comparables	$355 to $607 per square feet
Note receivable, net	$	18,037	Market comparable	Amount per acre due to limited market comparables	$43,909 to $79,529 per acre

There were no transfers of assets or liabilities between the levels of the fair value hierarchy during the nine months ended September 30, 2012.

5.Fair Value Measurement of Financial Instruments

We determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies.  Considerable judgment is necessary to interpret market data and develop the related estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

As of September 30, 2012 and December 31, 2011, management estimated that the carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, other liabilities, payables/receivables from related parties, and distributions payable were at amounts that reasonably approximated their fair value based on their highly liquid nature and/or short-term maturities, and the carrying value of notes receivable reasonably approximated fair value based on expected interest rates for notes to similar borrowers with similar terms and remaining maturities.

The notes payable totaling $190.6 million, including the loan secured by Bent Tree Green (classified as held for sale), and $265.9 million as of September 30, 2012 and December 31, 2011, respectively, have a fair value of approximately $190.2 and $265.4 million, respectively, based upon interest rates for mortgages with similar terms and remaining maturities that management believes we could obtain.  Interest rate swaps and caps are recorded at their respective fair values in prepaid expenses and other assets.  The fair value of the notes payable is categorized as a Level 2 basis.  The fair value is estimated using a discounted cash flow analysis valuation on the borrowing rates currently available for loans with similar terms and maturities.  The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate.

The fair value estimates presented herein are based on information available to our management as of September 30, 2012 and December 31, 2011.  Although our management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since those respective dates, and current estimates of fair value may differ significantly from the amounts presented herein.

6.Real Estate Investments

As of September 30, 2012, we wholly owned six properties (including one classified as held for sale) and consolidated five properties through investments in joint ventures.  We are the mezzanine lender for one multifamily property.  In addition, we have a noncontrolling, unconsolidated ownership interest in a joint venture consisting of 22 properties that are accounted for using the equity method.  Capital contributions, distributions, and profits and losses of these properties are allocated in accordance with the terms of the applicable partnership agreement.

The following table presents certain information about our consolidated properties as of September 30, 2012:

Property Name	Location	Approximate Rentable Square Footage	Description	Ownership Interest		Year Acquired
Bent Tree Green (1)	Dallas, Texas	138,000	3-story office building	100	%	2006
Las Colinas Commons	Irving, Texas	239,000	3-building office complex	100	%	2006
5000 S. Bowen Road (2)	Arlington, Texas	—	land	100	%	2007
Northpoint Central	Houston, Texas	180,000	9-story office building	100	%	2007
Northborough Tower	Houston, Texas	207,000	14-story office building	100	%	2007
Rio Salado Business Center	Phoenix, Arizona	—	development property	100	%	2007
Chase Park Plaza	St. Louis, Missouri	—	hotel and condominium development property	95	%	2006
The Lodge & Spa at Cordillera	Edwards, Colorado	—	hotel and development property	94	%	2007
Frisco Square (3)	Frisco, Texas	100,500	mixed-use development (multifamily, retail, office, and restaurant)	94	%	2007
Becket House (4)	London, England	46,000	long-term leasehold interest	80	%	2007
Royal Island (5)	Commonwealth of Bahamas	—	resort hotel, spa, golf course, marina, and residence	87	%	2012

(1)Classified as held for sale on our condensed consolidated balance sheet as of September 30, 2012.  On October 16, 2012, we sold Bent Tree Green to an unaffiliated third party.

(2)On August 16, 2012, we sold 5000 S. Bowen Road to an unaffiliated third party but retained the approximately 40 acres of excess land.

(3)Operating as Debtors-in-Possession.

(4)In September 2012, the ground lessor notified us of a breach of a covenant.  We are in negotiations with the landlord to cure the default.

(5)We consolidated Royal Island as of June 6, 2012 when we obtained all of the outstanding shares of Royal Island (Australia) Pty Limited.

14

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Real Estate Asset Acquisitions

Royal Island

In May 2007, for an initial cash investment of $20 million, we acquired an approximate 31% limited partnership interest in a partnership (“Royal Island Partnership”) that was developing a resort hotel, spa, golf course, marina, and residences on three islands located in the Commonwealth of The Bahamas (“Royal Island”).

In December 2007, we participated in a bridge loan financing arrangement for the continuing development and construction of Royal Island.  The aggregate principal amount available under the bridge loan was $60 million, consisting of three tranches.  Under the bridge loan, we agreed to lend a tranche of up to $40 million, which was subordinate to the other two tranches.  The bridge loan accrued interest at the one-month LIBOR rate plus 8% per annum with accrued interest and principal payable at the maturity date of December 20, 2008, and was secured by the Royal Island.  In June 2009, we purchased the interest in the first of the two superior tranches, the A-1 tranche, for $3.1 million.  In March 2010, we purchased the interest in two notes in the A-2 tranche for $2.2 million.

Under the terms of the loan documents, the bridge loan could have been extended once for a period of six months upon the satisfaction of certain conditions upon notice given by the borrower by November 20, 2008 and a payment of an extension fee.  At the maturity date, not all of the conditions were satisfied, and as a result, the bridge loan went into default and became a non-performing loan.  The balance owed to us at the time of default was $37.7 million, including accrued interest and fees.  In accordance with GAAP, from the time the loan went into default until the time that a foreclosure occurs, a satisfactory workout is completed, or the loan is reinstated by the borrower, we do not recognize interest income on the loan.

In January 2010, we collected $5.5 million, which was applied to unpaid interest and fees from the borrower, pursuant to the terms of the bridge loan agreement.

On September 14, 2010, we entered into a forbearance agreement with the borrower pursuant to which, among other things, the borrower agreed not to contest or oppose any foreclosure, exercise of power of sale, or similar action that we may seek in order to protect our investment.  Further, the borrower agreed to fully cooperate to expedite the proceedings should we take such a course of action.  The forbearance period expired on May 27, 2011.

In January 2011, pursuant to a settlement agreement with Shannon B. Skokos and Theodore C. Skokos (the “Skokoses”) related to a lawsuit filed in December 2008, a new joint venture was created among Behringer Harvard RI Lender, LLC, Behringer Harvard RI A-1 Lender, LLC, and the Skokoses to own all of the outstanding notes related to Royal Island (the “Royal Island Debt Partnership”).  Each lender contributed its respective note in exchange for a pro rata ownership interest in the joint venture, which resulted in our owning approximately 87% of Royal Island Debt Partnership.  As part of this settlement, the Skokos $7 million note was contributed to the partnership in exchange for a 13% ownership interest in the Royal Island Debt Partnership.

In the second quarter of 2011, the long-lived assets of Royal Island were evaluated for impairment due to an impairment indicator associated with significant changes to the development and construction plans.  As a result of this assessment, it was determined that the net book value could not be recovered through future cash flows based on the then revised development plan.  Therefore, Royal Island Partnership recorded an impairment charge of approximately $101 million to bring the assets (which now primarily consist of land) to their fair value.  Our portion of the impairment was approximately $31 million, which was recorded in our statement of operations through the equity in losses of unconsolidated joint ventures line item.  The equity method losses exceeded the investment balance in the Royal Island Partnership.  As a result, our investment was reduced to zero during the second quarter of 2011 and has remained zero since.  In accordance with GAAP, equity method losses that exceed our investment balance are recorded against the basis of other investments we had in Royal Island.  As such, the excess equity method losses of $22.7 million were recorded as a reduction in our note receivable through the equity in losses for unconsolidated joint ventures.  Additionally, we recorded $5.3 million as provision for loan losses against the allowance to record the note to the fair value of the underlying collateral.

On March 22, 2012, we executed an Agreement Regarding Transfer with the borrowers and guarantors of our Royal Island note receivable.  Under the agreement, we would obtain all of the outstanding shares of Royal Island (Australia) Pty Limited, a parent company of the Royal Island borrowers and a subsidiary of the Royal Island Partnership, for, among other things, the release of the guarantors from their guarantees under the Royal Island notes receivable.  A valuation of the long-lived assets of Royal Island indicated that our note receivable had been further impaired and we recorded a $6 million provision for loan loss to record the note to the fair value of the underlying collateral during the quarter ending September 30, 2012.  On June 6, 2012, we completed the transaction and the remaining shares of Royal

15

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Island (Australia) Pty Limited were transferred to us, and we now have control of the property.  As part of the transaction whereby we obtained the shares in Royal Island (Australia) Pty Limited, we have taken on the assets and liabilities of the Royal Island subsidiary partnerships, which include $7.7 million of other liabilities for deposits paid by third party purchasers for lots.  We are currently in negotiations with those lot holders to settle the outstanding deposits.  The net assets we received at the close of the transfer transaction were $18 million, and as a result we recorded an additional $6 million of provision for loan losses to further reduce the note receivable to the collateral received at the close of the transaction.  As we now have control of the property, we have consolidated Royal Island and the note receivable between the Company and Royal Island is eliminated as an intercompany transaction on our condensed consolidated balance sheet as of September 30, 2012.

Royal Island contributed a net loss of $1.5 million to our condensed consolidated statements of operations for the period from June 6, 2012 through September 30, 2012.  The following unaudited pro forma summary presents consolidated information as if the business combination had occurred on January 1, 2011:

	Pro Forma for the Nine Months Ended September 30,
	2012			2011
Revenue	$	34,936		$	31,059
Net loss	$	(28,512	)	$	(93,454	)
Net loss per share	$	(0.50	)	$	(1.65	)

These pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Royal Island to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2011.  Included in the pro forma net loss for both the nine months ended September 30, 2012 and 2011 is depreciation and amortization expense of $0.4 million.

During the nine months ended September 30, 2012, we incurred $1.2 million in acquisition expenses related to the acquisition of Royal Island. The following table summarizes the amounts of identified assets and liabilities acquired at the acquisition date:

	Royal Island
Cash	$	11
Restricted cash	493
Prepaid expenses	675
Land	21,071
Buildings	2,842
Furniture, fixture and equipment	567
Land improvement	87
Total identifiable net assets	$	25,746
Accounts Payable	$	4
Other liabilities (lot deposits)	7,705
Total identifiable net liabilities	$	7,709

We are in the process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.

Real Estate Asset Dispositions

Santa Clara 700/750 Joint Venture

On May 18, 2012, we sold Santa Clara 700/750 Joint Venture for a contract sales price of $47.8 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property.  We recorded a gain of less than $0.1 million related to the sale and received net proceeds of $8.2 million.

Tanglewood at Voss

On May 29, 2012, we sold Tanglewood at Voss for a contract sales price of $52.5 million, excluding transaction costs.  The proceeds from the sale were used to satisfy the existing indebtedness related to the property.  We recorded a gain of $3.2 million and received net proceeds of $13 million.

16

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5000 S. Bowen Road

On August 16, 2012, we sold 5000 S. Bowen Road for a contract sales price of $25.9 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property. We recorded a gain of $8.9 million related to the sale and received net proceeds of $9.2 million.

Bent Tree Green

On October 16, 2012, we sold Bent Tree Green for a contract sales price of $12 million, excluding transaction costs.  We received net proceeds of $6 million.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property.

Investments in Unconsolidated Joint Ventures

The following table presents certain information about our unconsolidated investments as of September 30, 2012 and December 31, 2011 ($ in thousands):

			Carrying Value of Investment
Property Name	Interest		September 30, 2012		December 31, 2011
Royal Island (1)	30.69	%	$	—	$	—
Santa Clara 800 Joint Venture (2)	50.00	%	—		12,525
Central Europe Joint Venture	47.27	%	21,220		22,362
			$	21,220	$	34,887

(1)Our previously held equity investment in Royal Island was reduced to zero during the second quarter of 2011 as a result of an impairment recorded by the property and has remained zero since.  As discussed above, we now have control of Royal Island and we consolidated Royal Island as of the closing date of the transaction, June 6, 2012.

(2)On May 4, 2012, we sold Santa Clara 800 Joint Venture for a contract sales price of $12.4 million to an unaffiliated third party.  No gain or loss was recorded as a result of this transaction.

Our investments in unconsolidated joint ventures as of September 30, 2012 and December 31, 2011 consisted of our proportionate share of the combined assets and liabilities of our investment properties shown at 100% as follows: ($ in thousands):

	September 30,		December 31,
	2012		2011
Real estate assets, net	$	118,340	$	202,876
Cash and cash equivalents	3,952		5,389
Other assets	2,000		8,764
Total assets	$	124,292	$	217,029
Notes payable	$	82,480	$	189,402
Other liabilities	2,939		26,117
Total liabilities	85,419		215,519
Equity	38,873		1,510
Total liabilities and equity	$	124,292	$	217,029

17

Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

For the three and nine months ended September 30, 2012, we recognized $0.6 million and $4.4 million, respectively, of equity in losses.  For the three and nine months ended September 30, 2011, we recognized $2.3 million and $37.9 million, respectively, of equity in losses.  Our equity in losses from these investments is our proportionate share of the combined losses of our unconsolidated joint ventures for the three and nine months ended September 30, 2012 and 2011 shown at 100% as follows ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenue	$	2,917		$	5,050		$	9,108		$	15,316
Operating expenses:
Operating expenses	679			7,450			3,914			11,992
Property taxes	74			376			(199		)	1,008
Total operating expenses	753			7,826			3,715			13,000
Operating income (loss)	2,164			(2,776		)	5,393			2,316
Non-operating expenses:
Depreciation and amortization	1,190			2,261			3,941			6,310
Interest and other, net	2,293			1,699			14,568			116,487
Total non-operating expenses	3,483			3,960			18,509			122,797
Net loss	$	(1,319	)	$	(6,736	)	$	(13,116	)	$	(120,481	)
Equity in losses of unconsolidated joint ventures (1)	$	(623	)	$	(2,346	)	$	(4,370	)	$	(37,869	)

(1)Company’s share of net loss.

Held for Sale

We had one and no properties classified as held for sale at September 30, 2012 and December 31, 2011, respectively.  See note 12 for more details.

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(Unaudited)

7.Notes Payable

The following table sets forth our notes payable on our consolidated properties, including the debt obligations of properties we consolidate at September 30, 2012 and December 31, 2011 ($ in thousands):

	Notes Payable as of				Interest	Maturity
Description	September 30, 2012		December 31, 2011		Rate	Date
BHFS I, LLC (Land) (1)	13,346		13,878		30-day LIBOR + 5%(2)	01/28/12
BHFS II, LLC (1)	7,532		7,565		30-day LIBOR + 4%(2)	01/28/12
BHFS III, LLC (1)	8,253		8,338		30-day LIBOR + 4%(2)	01/28/12
BHFS IV, LLC (1)	14,458		14,480		30-day LIBOR + 4%(2)	01/28/12
BHFS Theatre, LLC (3)	4,639		4,708		30-day LIBOR + 4.5%(2)	02/14/12
Senior Secured Credit Facility (4)	—		37,462		30-day LIBOR + 1.5% or Prime Rate	—
Tanglewood at Voss (5)	—		39,025		30-day LIBOR + 4% (2)	—
Becket House(6)	25,377		23,798		90-day LIBOR + 2.5%(7) 15%(8)	12/31/12
Santa Clara 700/750 Joint Venture	—		20,000		4.75% + Greater of 1% or 30-day LIBOR(2)	(9)
Santa Clara 700/750 Joint Venture Mezzanine	—		5,000		8.5% + Greater of 1% or 30-day LIBOR(2)	(9)
Bent Tree Green (10)	—		6,503		4.75%	5/19/2014 (11)
Rio Salado (12)	3,485		1,032		12.0%	09/15/14
Chase Park Plaza Hotel and Chase - The Private Residences	50,662		58,429		30-day LIBOR + 6.75%(2)(13)	12/09/14
Northborough Tower	20,228		20,584		5.67%	01/11/16
Royal Island	9,307		5,055		15.00%	10/10/16
Northpoint Central (14)	16,096		—		5.15%	05/09/17
Las Colinas Commons (14)	11,869		—		5.15%	05/09/17
	$	185,252	$	265,857
Notes Payable included with Obligations related to real estate held for sale:
Bent Tree Green (10)	$	5,371

(1)The BHFS loans matured on January 28, 2012 and we did not pay the outstanding principal balance of the loans.  On June 13, 2012, the BHFS Entities filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Court, which places an automatic stay for lender enforcement actions.  Each of the Frisco Square loans was subject to an increase of 2% (default interest rate) as of January 28, 2012, which has been accrued through the Petition Date.  Thereafter, we accrued interest at the non-default rate.

(2)30-day London Interbank Offer Rate (“LIBOR”) was 0.214% at September 30, 2012.

(3)As a result of the maturity default on the BHFS loans, the lenders accelerated the maturity date of the BHFS Theater loan on February 14, 2012 (original maturity date of July 28, 2012).  On June 13, 2012, BHFS Theater, LLC filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Court, which placed an automatic stay for lender enforcement actions.

(4)Loan was repaid in full on May 9, 2012 with proceeds from the Northpoint Central and Las Colinas financings and cash held by the Company.

(5)Tanglewood at Voss was sold on May 29, 2012.  The loan was repaid on May 29, 2012 and both Tanglewood at Voss and The Lodge & Spa at Cordillera, which provided additional collateral support for this loan, were released.

(6)The Becket House loan consists of three loans.  The balances of the A, B and Junior loans were $12.9 million, $6 million and $6.5 million, respectively at September 30, 2012.

(7)90-day LIBOR was 0.359% at September 30, 2012.

(8)Rate for junior loan.

(9)Loans were repaid at the sale of the property on May 18, 2012.

(10)Classified in Notes Payable as obligations associated with real estate held for sale on our condensed consolidated balance sheet as of September 30, 2012.  On October 16, 2012, we sold Bent Tree Green to an unaffiliated third party.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property,

(11)Effective May 15, 2012, the loan was modified and extended to May 19, 2014.  We made a $1 million principal pay down at the extension.

(12)On October 26, 2012, we fully repaid the loan related to Rio Salado.

(13)Interest rate subject to floor of 0.75%.

(14)On May 9, 2012, we obtained new financing totaling $28 million secured by Las Colinas Commons and Northpoint Central.

Our notes payable balance was $190.6 million, including the loan secured by Bent Tree Green (classified as held for sale) at September 30, 2012, as compared to $265.9 million at December 31, 2011 and consisted of borrowings of debt related to our property acquisitions, loan assumptions and our borrowings under our senior secured credit facility.  Each of our notes payable is collateralized by one or more of our properties.  At September 30, 2012, our notes payable interest

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

rates ranged from 2.9% to 15%, with a weighted average interest rate of approximately 6%.  Of our $190.6 million in notes payable at September 30, 2012, $124.3 million represented debt subject to variable interest rates.  At September 30, 2012, our notes payable had maturity dates that ranged from January 2012 to May 2017.  We have unconditionally guaranteed payment of the notes payable related to the BHFS loans.

As of September 30, 2012, we are not in compliance with covenants related to Becket House.  The Becket House senior loan requires that a hedging arrangement remain in place during the term of the loan.  We currently do not have a hedge in place.  This is not an event of default unless the lender provides notification and requires us to purchase the hedge.

The following table summarizes our aggregate contractual obligations for principal payments excluding obligations associated with real estate held for sale as of September 30, 2012 ($ in thousands):

Principal Payments Due:
October 1, 2012 - December 31, 2012	$	73,779
2013	724
2014	54,911
2015	807
2016	28,278
Thereafter	26,193
Unamortized premium	560
	$	185,252

Credit Facility

In February 2008, we entered into a senior secured credit facility providing for up to $75 million of secured borrowings.  The initial credit facility allowed us to borrow up to $75 million in revolving loans, of which up to $20 million was available for issuing letters of credit.  We unconditionally guaranteed payment of the senior secured credit facility.  The availability of credit under the senior secured credit facility is limited by the terms of the credit agreement.  As of December 31, 2011, the maximum availability under the senior secured credit facility was fully utilized.  Effective February 13, 2012, we reached an agreement with the lenders to extend the maturity date of the loan from February 13, 2012 to April 13, 2012.  The loan bore interest at LIBOR plus 4%.  The credit facility was fully repaid on May 9, 2012 with proceeds from new financings and cash.

New Financing and Modification

On May 9, 2012, we obtained new financing of $28 million secured by our Las Colinas Commons and Northpoint Central properties and used the net proceeds from the new financing, along with $8 million of our cash to repay the senior secured credit facility in full.  The five-year loan bears interest at 5.148% and requires monthly principal and interest payments based upon a 30-year amortization schedule.  The loan may not be prepaid until May 8, 2013 after which it is pre-payable with yield maintenance.  After February 6, 2017, the loan is pre-payable at par.  The loan is nonrecourse to us except for customary carve-outs.

Effective May 15, 2012, we modified and extended the loan secured by our Bent Tree Green property.  The maturity date was extended to May 19, 2014, and we made a principal payment of $1 million.  On October 16, 2012, we sold Bent Tree Green for a contract sales price of $12 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property.

On May 18, 2012, we obtained new financing of $15 million secured by our 5000 S. Bowen Road property.  The two-year loan bears interest at LIBOR + 5.5% (with a 7% minimum rate) and requires interest-only payments for the first twelve months, then monthly principal payments of $60,000 plus accrued interest thereafter.  The loan is nonrecourse to us except for customary carve-outs.  The loan may be prepaid at any time subject to payment of an exit fee of $150,000, and satisfaction of interest equal to $1 million less total cumulative interest paid.  On August 16, 2012, we sold 5000 S. Bowen Road for a contract sales price of $25.9 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property including $0.8 million paid for the yield maintenance, and we recorded an $8.9 million gain related to the sale.

Debtor- in-Possession - Frisco Debtors

On August 31, 2011, effective as of August 28, 2011, the Frisco Debtors entered into a Modification and Extension Agreement (the “Frisco Square Loan Extension”) with the lenders for the five BHFS loan tranches associated

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

with our Frisco Square investment (the “BHFS Loans”) to extend the maturity date of the BHFS loans to January 28, 2012.  The interest rates for the five separate tranches of the Frisco Square Loan Extension were unchanged from the terms of the original BHFS loans, subject to the lender condition that if less than $10 million of lender approved sales contracts were in place by October 28, 2011, the interest rates for each tranche within the Frisco Square Loan Extension would increase by 50 basis points.  As of October 28, 2011, $10 million of lender approved sales were not in place.  The Frisco Square Loan Extension requires that a principal payment of $0.2 million be made each month and that all excess cash flow after interest and required amortization be placed into a restricted deposit account and held as additional collateral.  We have unconditionally guaranteed payment of the BHFS Loans.

On January 28, 2012, the BHFS Loans matured and we did not pay the outstanding principal balance of the loan which constituted an event of default.  On February 1, 2012, we were notified by the lenders that we were in default on the BHFS Theater loan (the “Theater Loan”) as a result of the maturity default of the BHFS Loans and that the lenders intended to accelerate the Theater Loan if the maturity defaults on the BHFS Loans were not cured by February 9, 2012.  We did not cure the defaults.

The Frisco Debtors were actively working with the lenders and made numerous proposals to the lenders to restructure and extend the BHFS Loans and the Theater Loan; however, negotiations stalled and we were unsuccessful in reaching an agreement with the lenders.  Thus, we determined that bankruptcy protection represented the best option to preserve value for all stakeholders at the Frisco Square development.  Therefore on June 13, 2012, the Frisco Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the Eastern District of Texas.  The filing for Chapter 11 resulted in an immediate and automatic stay on any lender enforcement actions, and enabled business at the Frisco Square development project to continue to operate until a reorganization plan is finalized, with no interruption in services.  On October 22, 2012, we submitted a plan of reorganization to the Bankruptcy Court.

Interest expense related to the Frisco Debtors’ loans totaling $580,000 and $2,216,000 for the three and nine month periods ended September 30, 2012, respectively, was recorded within these unaudited condensed consolidated statements of operations and was calculated at the default rate up to the Petition Date and since the Petition Date at the non-default rate.  However, any amount to ultimately be paid will be dependent on the Bankruptcy Court’s rulings and accordingly could change significantly.  Had the amount of interest been accrued at the default rate after the Petition Date, total interest expense would have increased by $247,000 and $295,000 for the three and nine month periods ended September 30, 2012, respectively.

8.Derivative Instruments and Hedging Activities

We may be exposed to the risk associated with variability of interest rates that might impact our cash flows and the results of operations.  The hedging strategy of entering into interest rate caps and swaps, therefore, is to eliminate or reduce, to the extent possible, the volatility of cash flows.  In addition, we may be exposed to foreign currency exchange risk related to our net investments in the Becket House leasehold interest and the Central Europe Joint Venture.

In November 2011, we entered into an interest rate cap agreement related to the debt on our Chase Park Plaza Hotel and Chase — The Private Residences.

Derivative instruments classified as assets were reported at their combined fair values of less than $0.1 million and $0.1 million in prepaid expenses and other assets at September 30, 2012 and December 31, 2011, respectively.  We had no derivative instruments classified as liabilities as of September 30, 2012 or December 31, 2011.  During the nine months ended September 30, 2012 and 2011, we recorded an unrealized gain of less than $0.1 million to accumulated other comprehensive income (“AOCI”) in our statement of equity to adjust the carrying amount of the interest rate swaps and caps qualifying as hedges at September 30, 2012 and 2011.

The following table summarizes the notional values of our derivative financial instruments as of September 30, 2012.  The notional values provide an indication of the extent of our involvement in these instruments at September 30, 2012, but do not represent exposure to credit, interest rate, or market risks ($ in thousands):

Type / Description	Notional Value (in thousands)		Interest Rate / Strike Rate		Maturity	Fair Value Asset
Cash Flow Hedges
Interest rate cap - Chase Park Plaza Hotel and Chase - The Private Residences	$	59,000	3.0	%	December 9, 2014	$	6

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents the fair value of our derivative financial instruments, as well as their classification on the condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011 ($ in thousands).

		Asset Derivatives
Derivatives designated as hedging instruments:	Balance Sheet Location	Fair Value at September 30, 2012		Fair Value at December 31, 2011
Interest rate derivative contracts	Prepaid expenses and other assets	$	6	$	64

The table below presents the effect of our derivative financial instruments on the condensed consolidated statements of operations as of September 30, 2012 and 2011 ($ in thousands).

	Amount of Gain or (Loss) Recognized in AOCI on Derivative (Effective Portion)						Amount of Gain or (Loss) Recognized in AOCI on Derivative (Effective Portion)
	Three Months Ended Sepember 30,						Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2012			2011			2012		2011
Interest rate	$	(7	)	$	(2	)	$	13	$	(34	)

	Amount of Loss Reclassified from AOCI into Income (Effective Portion)					Amount of Loss Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended Sepember 30,					Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2012			2011		2012			2011
Interest rate	$	(3	)	$	—	$	(71	)	$	—

Credit risk and collateral

Our credit exposure related to interest rates is represented by the fair value of contracts with a net liability fair value at the reporting date.  These outstanding instruments may expose us to credit loss in the event of nonperformance by the counterparties to the agreements.  However, we have not experienced any credit loss as a result of counterparty nonperformance in the past.  To manage credit risk, we select and will periodically review counterparties based on credit ratings and limit our exposure to any single counterparty.  Under our agreement with the counterparty related to our interest rate caps of Chase Park Plaza Hotel and Chase — The Private Residences, cash deposits may be required to be posted by the counterparty whenever its credit rating falls below certain levels.  At September 30, 2012, no collateral has been posted with our counterparties nor have our counterparties posted collateral with us related to our derivative instruments.

9.Distributions

We initiated the payment of monthly distributions in August 2006.  In April 2007, and through March 2009, the declared distribution rate was a 3% annualized rate of return, calculated on a daily record basis of $0.0008219 per share.  Pursuant to our distribution reinvestment plan (the “DRP”), many of our stockholders elected to reinvest any cash distributions in additional shares of common stock.  We record all distributions when declared, except that the stock issued through the DRP was recorded when the shares were actually issued.

In connection with entering our disposition phase, on March 28, 2011, our board of directors discontinued regular, quarterly distributions in favor of those that may arise from proceeds available to be distributed from the sale of assets and we ceased offering shares pursuant to the DRP.

10.Related Party Transactions

Behringer Harvard Opportunity Advisors I and certain of its affiliates receive fees and compensation in connection with the acquisition, financing, management, and sale of our assets.

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Since our inception, the Advisor or its predecessors have been responsible for managing our day-to-day affairs and for, among other things, identifying and making acquisitions and other investments on our behalf.  Our relationship with the Advisor, including the fees paid by us to the Advisor or the reimbursement of expenses by us for amounts paid, or incurred by the Advisor, on our behalf is governed by an advisory management agreement that has been in place since September 20, 2005 and amended at various times thereafter.

On December 20, 2011, we entered into an amendment to our advisory management agreement pursuant to which the annual asset management fee payable by us to the Advisor was reduced from 0.75% to 0.60% of the aggregate asset value of acquired real estate and real estate related assets effective January 1, 2012.  Also on December 20, 2011, we renewed the Amended Agreement, as amended, through December 31, 2012.  Other than as described above, the terms of the advisory management agreement remain unchanged.

During the nine months ended September 30, 2012, Behringer Harvard Opportunity Advisors I received an annual asset management fee of 0.60% of the aggregate asset value of acquired real estate and real estate related assets.  The fee is payable monthly in arrears in an amount equal to one-twelfth of 0.60% of the aggregate asset value as of the last day of the month.  For the nine months ended September 30, 2012 and 2011, we incurred $2.6 million and $4.2 million, respectively, of asset management fees.  Amounts include asset management fees from discontinued operations.

Behringer Harvard Opportunity Advisors I, or its affiliates, receives acquisition and advisory fees of 2.5% of the contract purchase price of each asset for the acquisition, development or construction of real property or 2.5% of the funds advanced in respect of a loan investment.  For each of the nine months ended September 30, 2012 and 2011, we incurred less than $0.1 million and $0.2 million, respectively, in acquisition and advisory fees.

Under the advisory management agreement, the debt financing fee paid to the Advisor for a Loan (as defined in the agreement) will be 1% of the loan commitment amount.  Amounts due to the Advisor for a Revised Loan (as defined in the agreement) will be 40 basis points of the loan commitment amount for the first year of any extension (provided the extension is for at least 120 days), an additional 30 basis points for the second year of an extension, and another 30 basis points for the third year of an extension in each case, prorated for any extension period less than a full year.  The maximum debt financing fee for any extension of three or more years is 1% of the loan commitment amount.  We incurred $0.2 million in debt financing fees for the nine months ended September 30, 2012.  For the nine months ended September 30, 2011, we incurred $0.5 million in debt financing fees.

We reimburse Behringer Harvard Opportunity Advisors I or its affiliates for all expenses paid or incurred by them in connection with the services they provide to us, including direct expenses and the costs of salaries and benefits of persons employed by those entities and performing services for us, subject to the limitation that we will not reimburse for any amount by which our Advisor’s operating expenses (including the asset management fee) at the end of the four fiscal quarters immediately preceding the date reimbursement is sought exceeds the greater of:  (1) 2% of our average invested assets or (2) 25% of our net income for that four quarter period other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and any gain from the sale of our assets for that period.  Notwithstanding the preceding sentence, we may reimburse the Advisor for expenses in excess of this limitation if a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors.  The salaries and benefits that we reimburse to our Advisor exclude the salaries and benefits that our Advisor or its affiliates may pay to our named executive officers.  For the nine months ended September 30, 2012 and 2011, we incurred costs for administrative services of $1.4 million and $1.3 million, respectively.

We pay our property manager and affiliate of the Advisor, Behringer Harvard Opportunity Management Services, LLC or its affiliates (collectively, “BH Property Management”), fees for management, leasing, and construction supervision of our properties.  Such fees are equal to 4.5% of gross revenues plus leasing commissions based upon the customary leasing commission applicable to the same geographic location of the respective property.  In the event that we contract directly with a non-affiliated third-party property manager in respect of a property, we will pay BH Property Management an oversight fee equal to 0.5% of gross revenues of the property managed.  In no event will we pay both a property management fee and an oversight fee to BH Property Management with respect to any particular property.  In the event we own a property through a joint venture that does not pay BH Property Management directly for its services, we will pay BH Property Management a management fee or oversight fee, as applicable, based only on our economic interest in the property.  For the nine months ended September 30, 2012 and 2011, we incurred property management fees or oversight fees of $0.6 million and $0.7 million, respectively.

To bridge our liquidity needs until asset sales occur, in January 2011, we obtained a deferral from our Advisor of the payment of all asset management fees accruing during the months of May 2010 through March 2011 and all debt financing fees and expense reimbursements accruing during the months of July 2010 through March 2011 until the earlier

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

of January 10, 2013 or such time as the Company has sufficient (a) net sales proceeds, (b) net refinancing proceeds, or (c) cash flow from operations, after establishing appropriate working capital reserves, to enable the Company to make payments thereon.  Also in January 2011, BH Property Management deferred our obligation to pay property management oversight fees accruing during the months of July 2010 through March 2011 until the earlier of January 10, 2013 or such time as the Company has sufficient (a) net sales proceeds, (b) net refinancing proceeds, or (c) cash flow from operations, after establishing appropriate working capital reserves, to enable the Company to make payments thereon.  The total deferred fees and expenses at December 31, 2011 was $2.9 million.  In August 2012, we paid the balance of the deferred fees and expenses due to the Advisor.

On March 29, 2011, we obtained a $2.5 million loan from our Advisor to further bridge our short-term liquidity needs.  The $2.5 million loan bears interest at a rate of 5% and has a maturity date of the earliest of (i) March 29, 2013, (ii) the termination without cause of the advisory management agreement, or (iii) the termination without cause of the property management agreement.  The balance on the loan at September 30, 2012 and December 31, 2011 was $1.5 million.

At September 30, 2012, we had a payable to our Advisor and its affiliates of $2.8 million.  This balance consists of accrued and deferred fees, including asset management fees, administrative service expenses, debt financing fees, acquisition fees, property management fees, a loan of $1.5 million and other miscellaneous costs payable to Behringer Harvard Opportunity Advisors I and BH Property Management.  At December 31, 2011, we had a payable to our Advisor and its affiliates of $5.8 million.

We are dependent on Behringer Harvard Opportunity Advisors I and BH Property Management for certain services that are essential to us, including asset acquisition and disposition decisions, property management and leasing services, and other general administrative responsibilities.  In the event that these companies are unable to provide us with the respective services, we would be required to obtain such services from other sources.

On September 26, 2011, we, through a wholly owned subsidiary of our operating partnership, entered into a lease agreement with Behringer Harvard REIT I, Inc., a real estate investment program sponsored by our sponsor Behringer Harvard Holdings LLC, to lease approximately 14,500 rentable square feet at Bent Tree Green to Behringer Harvard REIT I, Inc.  The lease commenced on December 1, 2011 for a 66-month term (the first six months of which are free rent) with scheduled rent increases every 12 months.  Our management and board of directors determined that the lease was fair and reasonable to us and on terms and conditions that are no less favorable to us than can be obtained from unaffiliated third parties for comparable transactions or services in the same location.  On October 16, 2012, we sold Bent Tree Green to an unaffiliated third party and are no longer the lessor to Behringer Harvard REIT I, Inc.

11.Supplemental Cash Flow Information

Supplemental cash flow information is summarized below.

	Nine months ended September 30,
	2012			2011
Supplemental disclosure:
Interest paid, net of amounts capitalized	$	8,761		$	10,380
Reorganization expenses paid	$	562		$	—
Non-cash investing and financing activities:
Property and equipment additions and purchases of real estate in accrued liabilities	$	48		$	77
Capital expenditures for real estate under development in accounts payable and accrued liabilities	$	(7	)	$	90
Contribution of notes receivable and accrued interest by noncontrolling interest holder	$	—		$	8,607
Amortization of deferred financing fees in properties under development	$	33		$	—
Common stock issued in distribution reinvestment plan	$	—		$	925
Capitalized deferred financing costs in accrued liabilities	$	—		$	521

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

12.Discontinued Operations and Real Estate Held for Sale

On April 26, 2011, we sold 12600 Whitewater to an unaffiliated third party for $9.6 million.  On June 30, 2011, we sold 2603 Augusta to an unaffiliated third party for $24 million. On October 4, 2011, we sold Crossroads to an unaffiliated third party for $27.9 million.  On December 21, 2011, we sold Regency Center to an unaffiliated third party for $16.8 million.  On May 18, 2012, we sold the Santa Clara 700/750 Joint Venture property to an unaffiliated third party for $47.8 million.  On May 29, 2012, we sold Tanglewood at Voss to an unaffiliated third party for $52.5 million.  On August 16, 2012, we sold the 5000 S. Bowen Road property to an unaffiliated third party for $25.9 million.  We recorded a gain of $8.9 million related to the sale of 5000 S. Bowen Road and a loss on the early extinguishment of debt of $1.4 million.  On October 16, 2012, we sold Bent Tree Green to an unaffiliated third party for $12 million and therefore, classified the property as held for sale on our condensed consolidated balance sheet at September 30, 2012.  We recorded an impairment of $1.3 million related to the sale of Bent Tree Green.

We have classified the results of operations for the properties discussed above into discontinued operations in the consolidated statements of operations for the nine months ended September 30, 2012 and 2011.  The results of these properties are classified as discontinued operations in the accompanying condensed consolidated statements of operations and other comprehensive loss for the nine months ended September 30, 2012 and 2011 and summarized in the following table ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues
Rental revenue	$	750		$	5,061		$	6,863		$	17,367
Expenses
Property operating expenses	349			1,312			1,625			4,204
Bad debt expense	4			27			32			27
Interest expense	240			1,696			2,570			4,624
Real estate taxes	28			631			966			2,360
Impairment charge	1,263			1,539			1,263			5,167
Property management fees	27			159			212			570
Asset management fees	34			190			137			650
General and administrative	—			—			—			—
Depreciation and amortization	399			1,837			2,515			7,266
Total expenses	2,344			7,391			9,320			24,868
Interest Income	—			(2		)	(2		)	(4		)
Loss on early extinguishment of debt (1)	(1,379		)	—			(1,379		)	—
Gain on sale of real estate property	7,913			8			12,039			1,224
Income (loss) from discontinued operations	$	4,940		$	(2,324	)	$	8,201		$	(6,281	)

(1)Loss on early extinguishment of debt for the nine months ended September 30, 2012 was approximately $1.4 million and represents premiums paid and the write-off of unamortized debt issuance costs related to 5000 S. Bowen Road.

During the nine months ended September 30, 2012, we sold 13 of the Chase — The Private Residences condominiums for an aggregate of $8.5 million.  These sales are not classified as discontinued operations.

The major classes of Bent Tree Green assets and liabilities associated with the real estate held for sale net of impairment as of September 30, 2012 were as follows ($ in thousands):

	September 30, 2012
Land and improvements, net	$	1,276
Buildings and improvements, net	9,292
Furniture, fixtures and equipment, net	5
Lease intangibles, net	458
Assets associated with real estate held for sale	$	11,031
Notes payable	$	5,371
Obligations associated with real estate held for sale	$	5,371

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

13.Frisco Debtors - Unaudited Financial Information

The unaudited condensed financial statements of the Frisco Debtors, presented below, have been prepared in accordance with ASC 852-10, “Reorganization” and on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  ASC 852-10 provides that if a debtor or group of debtors has significant combined assets and liabilities of entities that have not sought Chapter 11 bankruptcy protection, the debtors and non-debtors should continue to be combined.  However, separate disclosure of financial statement information solely related to the debtor entities should be presented.

The unaudited combined condensed statement of operations and cash flow are presented for the four months ended September 30, 2012 as a matter of convention as our financial statement processes utilize month-end cut-off as opposed to mid-month cut-off.  The unaudited combined condensed financial statements of the Frisco Debtors are presented as follows ($ in thousands):

Unaudited Combined Condensed Balance Sheet

	September 30,
	2012
Real estate assets, net	$	70,003
Restricted cash	1,674
Cash and cash equivalents	1
Other assets	2,371
Total assets	$	74,049
Notes payable	$	48,228
Other liabilities	2,913
Total liabilities not subject to compromise	51,141
Liabilities subject to compromise (1)	$	687
Total liabilities	$	51,828
Equity	22,221
Total liabilities and equity	$	74,049

(1)The following table summarizes the components of the liabilities included in the line liabilities subject to compromise in our condensed consolidated balance sheet:

Accounts payable	$	238
Payable to related party	140
Accrued expenses (security deposits)	273
Accrued expenses	36
Total liabilities subject to compromise	$	687

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Behringer Harvard Opportunity REIT I, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Unaudited Combined Condensed Statement of Operations

	Four Months Ended September 30,
	2012
Revenue	$	2,113
Operating expenses:
Operating expenses	1,302
Interest expense (1)	814
Property taxes	371
Reorganization items, net (2)	567
Total operating expenses	3,054
Operating income	(941		)
Non-operating expenses:
Depreciation and amortization	848
Interest and other, net	216
Total non-operating expenses	1,064
Net loss	$	(2,005	)

(1)Interest expense related to the Frisco Debtors’ loans totaling $814 for the four months ended September 30, 2012 was recorded and was calculated at the default rate up to the Petition Date and since the Petition Date at the non-default rate.  However, any amount to ultimately be paid will be dependent on the Bankruptcy Court’s rulings and accordingly could change significantly.  Had the amount of interest been accrued at the default rate after the Petition Date, total interest expense would have increased by $295 for the four months ended September 30, 2012.

(2)Reorganization expenses consist of legal fees of $388, other professional fees of $156 and trustee fees of $23.

Unaudited Combined Condensed Statement of Cash flow

	Four Months Ended September 30,
	2012
Net cash provided by:
Operating activities	$	556
Investing activities	(1,247		)
Financing activities	(7		)
Net decrease in cash and cash equivalents	$	(698	)
Cash and cash equivalents, beginning of period	698
Cash and cash equivalents, end of period	$	—

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of the Company and the notes thereto:

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Opportunity REIT I, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “REIT,” “we,” “us,” or “our”), including our ability to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, the value of our assets, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated per share value of our common stock and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions.  These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements.  Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 29, 2012, the Risk Factors in Part II herein, and the factors described below:

·market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our properties are located;

·the availability of cash flow from operating activities for capital expenditures;

·our level of debt and the terms and limitations imposed on us by our debt agreements;

·the availability of credit generally, and any failure to refinance or extend our debt as it comes due or a failure to satisfy the conditions and requirements of that debt;

·the need to invest additional equity in connection with debt financings as a result of reduced asset values and requirements to reduce overall leverage;

·future increases in interest rates;

·our ability to raise capital in the future by issuing additional equity or debt securities, selling our assets or otherwise;

·our ability to retain our executive officers and other key personnel of our Advisor, our property manager and their affiliates;

·impairment charges;

·conflicts of interest arising out of our relationships with our Advisor and its affiliates;

·unfavorable changes in laws or regulations impacting our business or our assets; and

·factors that could affect our ability to qualify as a real estate investment trust.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect.  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.  We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Cautionary Note

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants

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to or with any other parties.  Moreover, these representations, warranties or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

Executive Overview

We are a Maryland corporation that was formed in November 2004 to invest in and operate commercial real estate or real-estate related assets located in or outside the United States on an opportunistic basis.  We conduct substantially all of our business through our operating partnership and its subsidiaries. We are organized and qualify as a REIT for federal income tax purposes.

We are externally managed and advised by Behringer Harvard Opportunity Advisors I, a Texas limited liability company formed in June 2007.  Behringer Harvard Opportunity Advisors I is responsible for managing our day-to-day affairs and for identifying and making acquisitions and investments on our behalf.

As of September 30, 2012, we wholly owned six properties including one classified as held for sale on our condensed consolidated balance sheet and consolidated five properties through investments in joint ventures.  We are the mezzanine lender for one multifamily property.  In addition, we have a noncontrolling, unconsolidated ownership interest in an investment in a joint venture consisting of 22 properties that are accounted for using the equity method.  Our investment properties are located in Arizona, Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, London, England, the Czech Republic, Poland, Hungary, and Slovakia.

On June 13, 2012, the special purpose entity Behringer Harvard Frisco Square, LP, along with our indirect subsidiaries BHFS I, LLC, BHFS II, LLC, BHFS III, LLC, BHFS IV, LLC and BHFS Theater, LLC (collectively, the “Frisco Debtors”), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the Eastern District of Texas.

Liquidity and Capital Resources

Strategic Asset Sales

Our management is continually reviewing its overall business plan and revising the strategies necessary to maximize liquidity and value for the Company and its stockholders.  To that end, management has identified three distinct sub-portfolios of our investments: a near-term disposition portfolio, a mid-term disposition portfolio and a long-term disposition portfolio.  Properties are assigned to and may shift among sub-portfolios based on changes in market conditions, property performance, debt maturities, required capital expenditures or other factors.   The near-term disposition portfolio is currently comprised of our joint venture leasehold interest which we are marketing for sale.  It also includes the 40 acres of Bowen Road land.  On October 16, 2012 we sold our Bent Tree Green office building.  The majority of the net proceeds from sales occurring in 2012 will be used to provide liquidity to refinance or repay maturing debt, cover operating expenses, and make enhancements to portfolio properties in cases where additional investment is warranted.  The mid-term disposition portfolio is currently comprised of five properties that are either in markets that would benefit from anticipated rental increases and improving local markets before sale, or are in various stages of the stabilization process.  As several of the properties stabilize, they may require additional time and capital resources to lease up vacancy, retain key tenants, create value through reinvestment, or sell condominium units or land parcels before their ultimate disposition.  The remaining properties in the mid-term portfolio have stabilized and may be refinanced, providing us with more flexibility as to the timing of their dispositions.  The long-term disposition portfolio is currently comprised of four development projects and one note receivable, and a final exit is contingent upon a stabilized economy and resurgent demand for the respective product types.  It is possible that we will invest enough additional capital in some of these sites to make them attractive to market to other developers rather than completing the original development plan.  However, there can be no assurance that future dispositions will occur as planned, or, if they occur, that they will help us to meet our liquidity demands.  Once we anticipate selling all or substantially all of our assets, we will seek stockholder approval prior to liquidating our entire portfolio.

Liquidity Demands

The U.S., European and global economies continue to experience the effects of the significant downturn that began more than three years ago.  This downturn continues to disrupt the broader financial and credit markets, weaken consumer confidence, weaken financial institutions and adversely impact unemployment rates.  While it is unclear when the overall economy will fully recover from these weakened market conditions, we do not expect conditions to improve significantly in the near future.  The primary objectives of our current business plan are to continue to preserve capital, as well as sustain and enhance property values, while continuing to focus on the disposition of our properties.  Our ability to execute this plan is contingent on our ability to dispose of our properties in an orderly fashion thus providing needed liquidity.  The disposal of our properties will be subject to these economic factors, including the ability of potential purchasers to access debt capital financing.

Our financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business as we proceed through our disposition phase.  As is usual for opportunity style real estate investment programs, we are structured as a finite life entity, and have entered the final phase of

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operations.  This phase includes the selling of our assets, retiring our liabilities, and distributing net proceeds to shareholders.  We have experienced significant losses and may generate negative cash flows as mortgage note obligations and expenses exceed revenues.   If we are unable to sell a property when we determine to do so as contemplated in our business plan, it could have a significant adverse effect on our cash flows that are necessary to meet our mortgage obligations and to satisfy our other liabilities in the normal course of business.

Our ability to continue as a going concern is, therefore, dependent upon our ability to sell real estate investments as discussed above in strategic asset sales, to pay or retire debt as it matures if extensions or new financings are unavailable, and to fund certain ongoing costs of our company, including our development and operating properties. Our principal demands for funds for the next twelve months and beyond will be for the payment of costs associated with the lease-up of available space at our operating properties (including commissions, tenant improvements, and capital improvements), certain ongoing costs at our development properties, Company operating expenses, and interest and principal on our outstanding indebtedness.  We expect to fund a portion of these demands by using cash flow from operations of our current investments and borrowings.  Additionally, we will use proceeds from our strategic asset sales.

To bridge our liquidity needs until these asset sales occur, in January 2011, we obtained a deferral from our Advisor of the payment of all asset management fees accruing during the months of May 2010 through March 2011 and all debt financing fees and expense reimbursements accruing during the months of July 2010 through March 2011 until the earlier of January 10, 2013 or such time as we have sufficient (a) net sales proceeds, (b) net refinancing proceeds, or (c) cash flow from operations, after establishing appropriate working capital reserves, to enable us to make payments thereon.  Also in January 2011, BH Property Management deferred our obligation to pay property management oversight fees accruing during the months of July 2010 through March 2011 until the earlier of January 10, 2013 or such time as we have sufficient (a) net sales proceeds, (b) net refinancing proceeds, or (c) cash flow from operations, after establishing appropriate working capital reserves, to enable us to make payments thereon.  The total deferred fees and expenses at December 31, 2011 was $2.9 million.  In August 2012, we paid the balance of the deferred fees and expenses due to the Advisor.

On March 29, 2011, we obtained a $2.5 million loan from our Advisor to further bridge our liquidity needs.  The $2.5 million loan bears interest at a rate of 5% and has a maturity date of the earliest of (i) March 29, 2013, (ii) the termination without cause of the advisory management agreement or (iii) the termination without cause of the property management agreement.  The balance on the loan at September 30, 2012 and December 31, 2011 was $1.5 million.

We continually evaluate our liquidity and ability to fund future operations and debt obligations.  As part of those analyses, we consider lease expirations and other factors.  Leases representing 13.6% of our annualized base rent will expire by the end of 2013.  In the normal course of business, we are pursuing renewals, extensions and new leases.  If we are unable to renew or extend the expiring leases under similar terms or is unable to negotiate new leases, it would negatively impact our liquidity and consequently adversely affect our ability to fund our ongoing operations.  In addition, our portfolio is concentrated in certain geographic regions and industries, and downturns relating generally to such regions or industries may result in defaults on a number of our investments within a short time period.  Such defaults would negatively affect our liquidity and adversely affect our ability to fund our ongoing operations.  As of September 30, 2012, 62% and 17% of our 2012 base rent was derived from tenants in Texas and Missouri, respectively.

Chapter 11 Bankruptcy Filings - Frisco Debtors

On the Petition Date, the Frisco Debtors filed the Chapter 11 Cases in Bankruptcy Court.  The Chapter 11 Cases pertain only to the Frisco Debtors, neither the Company nor any of its other wholly owned subsidiaries, or joint ventures, either consolidated or unconsolidated, have sought such protection.

The Frisco Debtors are currently operating as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the order of the Bankruptcy Court.  The Frisco Debtors intend to work with their constituencies to emerge from bankruptcy by proposing a plan of reorganization.  Pursuant to Chapter 11, a debtor is afforded certain protection against its creditors and creditors are prohibited from taking certain actions (such as pursuing collection efforts or proceedings to foreclose on secured obligations) related to debts that were owed prior to the commencement of the Chapter 11 filing.  The Frisco Debtors have retained, subject to Bankruptcy Court approval, legal and financial professionals to advise the Debtors on the bankruptcy proceedings.  From time to time, the Frisco Debtors may seek approval from the Bankruptcy Court for the retention of additional professionals.

On October 22, 2012, we submitted a plan of reorganization to the Bankruptcy Court.  There can be no assurance at this time that a plan of reorganization will be confirmed by the Bankruptcy Court or that any such plan will be implemented successfully.

The Frisco Debtors have incurred and will continue to incur costs associated with the reorganization.

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Interest expense related to the Frisco Debtors’ loans totaling $580,000 and $2,216,000 for the three and nine month periods ended September 30, 2012, respectively, was recorded within these unaudited condensed consolidated statements of operations and was calculated at the default rate up to the Petition Date and since the Petition Date at the non-default rate.  However, any amount to ultimately be paid will be dependent on the Bankruptcy Court’s rulings and accordingly could change significantly.  Had the amount of interest been accrued at the default rate after the Petition Date, total interest expense would have increased by $247,000 and $295,000 for the three and nine month periods ended September 30, 2012.

As a result of the Chapter 11 filing, the Frisco Debtors are required to periodically file various documents with, and provide certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities and monthly operating reports in forms prescribed by Chapter 11 or the U.S. Trustee, as well as certain financial information on an unconsolidated basis.  Such materials will be prepared according to the requirements of the Bankruptcy Code.  While we believe that these documents and reports provide the then-current information required, they are prepared in a format different from that used in this quarterly report and other reports we file with the SEC, and there has not been nor will there be any association of our independent registered public accounting firm with such information.  Accordingly, we believe that the substance and format do not allow meaningful comparison with our regular publicly-disclosed consolidated financial statements.  Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for evaluating our securities, or for comparison with other financial information filed with the SEC.

Debt Financings

One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt.  The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of September 30, 2012.  The table does not represent any extension options ($ in thousands).

	Payments Due by Period(1)
	October 1, 2012 - December 31, 2012		2013		2014		2015		2016		After 2016		Total
Principal payments - fixed rate debt	$	174	$	724	$	4,248	$	806	$	28,278	$	26,194	$	60,424
Interest payments - fixed rate debt	1,107		4,407		4,262		3,901		2,650		564		16,891
Principal payments - variable rate debt	73,605		—		50,663		—		—		—		124,268
Interest payments - variable rate debt (based on rates in effect as of September 30, 2012)	1,141		3,852		3,853		—		—		—		8,846
Total	$	76,027	$	8,983	$	63,026	$	4,707	$	30,928	$	26,758	$	210,429

(1)Does not include approximately $0.6 million of unamortized premium related to debt we assumed on our acquisition of Northborough Tower.  Does not include the loan secured by our Bent Tree Green property which is classified as obligations associated with real estate held for sale on our consolidated balance sheet.  The BHFS Loans matured on January 28, 2012 and we did not pay the outstanding principal balance of the loans.  As a result of the maturity default on the BHFS Loans, the lenders accelerated the maturity date of the BHFS Theatre loan on February 14, 2012 (original maturity date of July 28, 2012).  On June 13, 2012, the Frisco Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Court, which places an automatic stay for lender enforcement actions.

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The table below provides information regarding our notes payable with scheduled maturities in the twelve months following September 30, 2012, along with extension options, if available.  Available extension options that are associated with the notes payable listed below are subject to certain conditions as required under the respective loan agreements ($ in thousands).

Description	Balance at September 30, 2012		Maturity Date	Extension Options	Recourse to the Company
BHFS I, LLC (Land)	$	13,346	1/28/2012 (1)	none	100	%
BHFS II, LLC	7,532		1/28/2012 (1)	none	100	%
BHFS III, LLC	8,253		1/28/2012 (1)	none	100	%
BHFS IV, LLC	14,458		1/28/2012 (1)	none	100	%
BHFS Theatre, LLC	4,639		2/14/2012 (2)	none	100	%
Becket House	25,377		12/31/12	none	n/a
Total due in next twelve months	$	73,605

(1)The BHFS Loans matured on January 28, 2012 and we did not pay the outstanding principal balance of the loan.  On June 13, 2012, the BHFS I, LLC, BHFS II, LLC, BHFS III, LLC and BHFS IV, LLC filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Court which places an automatic stay for lender enforcement actions.

(2)As a result of the maturity default on the BHFS loans, the lenders accelerated the maturity date of the BHFS Theatre loan on February 14, 2012 (original maturity date of July 28, 2012).  On June 13, 2012 the BHFS Theater, LLC filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Court which places an automatic stay for lender enforcement actions.

As of September 30, 2012, we are not in compliance with covenants related to Becket House.  The Becket House senior loan requires that a hedging arrangement remain in place during the term of the loan.  We currently do not have a hedge in place.  This is not an event of default unless the lender provides notification and requires us to purchase the hedge.

We currently expect to use funds generated by our operating properties, additional borrowings, and proceeds from the disposition of properties to continue making our scheduled debt service payments until the maturity dates of the loans are extended, the loans are refinanced, or the outstanding balance of the loans are completely paid off.  However, there is no guarantee that we will be able to refinance our borrowings with more or less favorable terms or extend the maturity dates of such loans.  In addition, the continued economic downturn and lack of available credit to buyers could delay or inhibit our ability to dispose of our properties in an orderly manner, or cause us to have to dispose of our properties for a lower than anticipated return.  To the extent we are unable to reach agreeable terms with respect to extensions or refinancings, we may not have the cash necessary to repay our debt as it matures, which could result in an event of default that could allow lenders to foreclose on the property in satisfaction of the debt, seek repayment of the full amount of the debt outstanding from us or pursue other remedies.

Each of our loans is secured by one or more of our properties.  At September 30, 2012, our notes payable interest rates ranged from 2.9% to 15%, with a weighted average interest rate of 6%.  Generally, our notes payable mature at approximately two to nine years from origination and require payments of interest only for approximately two to five years, with all principal and interest due at maturity.  Notes payable associated with our Northborough Tower, Frisco Square, Las Colinas Commons and Northpoint Central investments require monthly payments of both principal and interest.  At September 30, 2012, our notes payable had maturity dates that ranged from January 2012 to May 2017.

Credit Facility

In February 2008, we entered into a senior secured credit facility providing for up to $75 million of secured borrowings.  The initial credit facility allowed us to borrow up to $75 million in revolving loans, of which up to $20 million was available for issuing letters of credit.  We unconditionally guaranteed payment of the senior secured credit facility.  The availability of credit under the senior secured credit facility was limited by the terms of the credit agreement.  As of December 31, 2011, the maximum availability under the senior secured credit facility was fully utilized.  Effective February 13, 2012, we reached an agreement with the lenders to extend the maturity date of the loan from February 13, 2012 to April 13, 2012.  The loan bore interest at LIBOR plus 4%.  The credit facility balance was fully repaid on May 9, 2012 with proceeds from new financings as well as cash from asset sales.

New Financing and Modification

On May 9, 2012, we obtained new financing of $28 million secured by our Las Colinas Commons and Northpoint Central properties and used the net proceeds from the new financing, along with $8 million of our cash, to repay the senior secured credit facility in full.  The five-year loan bears interest at 5.148% and requires monthly principal and interest payments based upon a 30-year amortization schedule.  The loan may not be prepaid until May 8, 2013, after which it is pre-payable with yield maintenance.  After February 6, 2017, the loan is pre-payable at par.  The loan is nonrecourse except for customary carve-outs.

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Effective May 15, 2012, we modified and extended the loan secured by our Bent Tree Green property.  The maturity date was extended to May 19, 2014, and we made a principal payment of $1 million.  On October 16, 2012, we sold Bent Tree Green for a contract sales price of $12 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property.

On May 18, 2012, we obtained new financing of $15 million secured by our 5000 S. Bowen Road property.  The two year loan bears interest at LIBOR + 5.5% (with a 7% minimum rate) and requires interest-only payments for the first twelve months, then monthly fixed principal payments of $60,000 plus accrued interest thereafter.  The loan may be prepaid at any time subject to payment of an exit fee of $150,000, and satisfaction of interest equal to $1 million less total cumulative interest paid.  The loan is nonrecourse except for customary carve-outs.  On August 16, 2012, we sold 5000 S. Bowen Road for a contract sales price of $ 25.9 million, excluding transaction costs.  The proceeds from the sale were used to fully satisfy the existing indebtedness related to the property including $0.8 million paid for yield maintenance.

Our ability to fund our liquidity requirements is expected to come from cash and cash equivalents (which total $51.4 million on our consolidated balance sheet as of September 30, 2012), new borrowings, additional borrowings that may become available under our existing loan agreements by satisfying certain terms, and proceeds from the disposition of our properties.  As necessary, we may seek alternative sources of financing, including using the proceeds from the sale of our properties to achieve our investment objectives.

As of September 30, 2012, restricted cash on the consolidated balance sheet of $8.1 million included $1.1 million for the cash held by the Frisco Debtors, which was classified as restricted cash as a result of the bankruptcy filing.  The remaining balance of $7 million included amounts set aside related to certain operating properties for tenant improvements and commission reserves, tax reserves, maintenance and capital expenditures reserves, and other amounts as may be required by our lenders.

Market Outlook

During the third quarter of 2012, the U.S. economy showed signs of stabilizing, but with growth coming at a slower pace as compared to prior economic recoveries.  According to the advanced estimate released by the Bureau of Economic Analysis, GDP growth increased to 2% from 1.3% in the prior quarter, a pace that is too slow to dramatically improve the overall economy in the near term.  A major contributor to this slow growth was the European debt crisis and its effect on the global economy, as well as uncertainty by U.S. businesses as to the impact of the presidential election and the resolution of the so-called “fiscal cliff”.  Consequently, projections for global growth were reduced and U.S. exports were down for the third quarter of 2012. However, domestically, many economic reports suggested that several sectors are in a recovery mode. The U.S. economy added 171,000 new jobs in October 2012, which puts job creation for the year ahead of 2011’s pace. The labor force participation rate, which is a key metric that measures those working or looking for jobs, was also higher.  However, the U6 unemployment rate, which includes unemployed members of the workforce who are actively looking for work and workers with part-time jobs who are seeking full-time employment, remains high at 14.6%.  American manufacturing and factory output were up 2.8% for the year to September 2012, beating consensus estimates. Retail sales reported higher growth in August and September of 2012 than had been reported since 2010.  Housing, which is critical to a sustained recovery, is providing clearer evidence that it has moved off the bottom and rebounding with increased housing starts and sales and improved projections and confidence by homebuilders going forward. All of these factors are leading to increased consumer sentiment and spending.  Overall the economy appears to be improving at a slow and uneven pace.  Given the tepid recovery, we are cautious as we manage the Company in this weak economic environment.

If the economy continues to improve, we expect room rates for hotels to increase since demand for hotel rooms is generally correlated with growth in the U.S. gross domestic product (GDP).  The U.S. hotel industry reported year-over-year increases in all three key performance metrics for the third quarter 2012.  By contrast, we expect our office properties, to have minimal growth as employment growth has posted gains, but at a slow rate.  Nationally, vacancy rates have remained steady at nearly 17% in the third quarter of 2012 and asking rent growth increased by 0.2% in the third quarter of 2012.  Certain office markets will continue to benefit from employment gains specific to the location and regionally based growth industries such as technology, energy and health care.   The Dallas and Houston markets asking rent growth increased by 0.5% and 0.3% in the third quarter of 2012.

We have several projects in various stages of development including land and condominiums.  We are continuing to evaluate whether to perform any further substantive development activities on these projects in the near term.  Our ability to develop is affected by market and other forces impacting the U.S. economy and the real estate industry as a whole and by the local economic conditions in the markets in which our properties are located, including the dislocations in the credit markets.  Tightened underwriting standards and risk adverse capital markets have resulted in less availability and increased cost of debt financing secured by commercial real estate.  These conditions have and may continue to materially affect the availability or the terms of financing that we have or may anticipate utilizing for development.

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Results of Operations

As of September 30, 2012, we were invested in 13 assets including six wholly-owned properties (including one asset classified as held for sale) on our condensed consolidated balance sheet and five properties consolidated through investments in joint ventures.  In addition, we are the mezzanine lender for one multifamily property.  We also have a noncontrolling, unconsolidated ownership interest in a joint venture consisting of 22 properties that are accounted for using the equity method.  Our investment properties are located in Arizona, Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, London, England, the Czech Republic, Poland, Hungary, and Slovakia.

As of September 30, 2011, we had invested in 20 assets, including ten wholly-owned properties (including six in discontinued operations); four properties consolidated through investments in joint ventures and a consolidated interest in a note receivable joint venture.  In addition, we were the mezzanine lender for one multifamily property.  We also had noncontrolling, unconsolidated ownership interests in three properties and one investment in a joint venture consisting of 22 properties that was accounted for using the equity method.  Our investment properties were located in Arizona, California, Colorado, Missouri, Nevada, Texas, the Commonwealth of The Bahamas, London, England, the Czech Republic, Poland, Hungary, and Slovakia.

Three months ended September 30, 2012 as compared to three months ended September 30, 2011 ($ in thousands)

Continuing Operations

Revenues.  Our total revenues decreased by $2.5 million to $10.8 million for the three months ended September 30, 2012.  The change in revenues was primarily due to:

·an increase in rental revenue of $1.2 million to $7.4 million for the three months ended September 30, 2012 compared to $6.2 million for the three months ended September 30, 2011; and

·an decrease in condominium sales of $3.6 million to $1.7 million for the three months ended September 30, 2012 compared to $5.3 million for the three months ended September 30, 2011.  We sold three condominium units at Chase — The Private Residences in the three months ended September 30, 2012 as compared to five units sold during the three months ended September 30, 2011.

Cost of Condominium Sales.  Cost of condominium sales, relating to the sale of condominium units at Chase — The Private Residences, for the three months ended September 30, 2012 was $1.7 million as compared to $5.4 million for the three months ended September 30, 2011.  We sold three condominium units at Chase — The Private Residences during the three months ended September 30, 2012.  We sold five condominium unit during the three months ended September 30, 2011.

Impairment charge.  There were zero impairment charges for the three months ended September 30, 2012.  For the three months ended September 30, 2011, we recognized impairment charges related to Rio Salado of $6.2 million and related to Frisco Square of $5.1 million.

Reorganization expenses.   During the three months ended September 30, 2012, we recorded reorganization expense of $0.5 million related to Frisco Square.

Nine months ended September 30, 2012 as compared to nine months ended September 30, 2011 ($ in thousands)

Continuing Operations

Revenues.  Our total revenues increased by $3.9 million to $34 million for the nine months ended September 30, 2012.  The change in revenues was primarily due to:

·an increase in rental revenue of $3.5 million to $21.8 million for the nine months ended September 30, 2012 compared to $18.3 million for the nine months ended September 30, 2011; and

·an increase in condominium sales of $0.2 million to $8.5 million for the nine months ended September 30, 2012 compared to $8.3 million for the nine months ended September 30, 2011.  We sold 13 condominium units at Chase — The Private Residences in the nine months ended September 30, 2012 as compared to 11 units sold during the nine months ended September 30, 2011.

Cost of Condominium Sales.  Cost of condominium sales, relating to the sale of condominium units at Chase — The Private Residences, for the nine months ended September 30, 2012 was $8.5 million as compared to $8.4 million for the nine months ended September 30, 2011.  We sold 13 condominium units at Chase — The Private Residences during the nine months ended September 30, 2012.  We sold 11 condominium units during the nine months ended September 30, 2011.

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Impairment charge.  There were zero impairment charges for the nine months ended September 30, 2012.  For the nine months ended September 30, 2011, we recognized impairment charges related to Rio Salado of $6.2 million and related to Frisco Square of $5.1 million.

Condominium inventory impairment.  We recognized a non-cash charge of $0.4 million to reduce the carrying value of condominiums at Chase — The Private Residences during the nine months ended September 30, 2012.  We recognized a non-cash charge of $1.9 million to reduce the carrying value of condominiums at Chase - The Private Residences and a $4 million non-cash charge to our condominium development at Cordillera during the nine months ended September 30, 2011, due largely to the nationwide downturn in the housing and related condominium market that began during 2007 and has continued through 2012.  This downturn has resulted in lower than expected sales volume and reduced selling prices.

Provision for loan losses.  During the nine months ended September 30, 2012, we recorded a $12 million provision for loan losses related to our Royal Island note receivable to record the note receivable balance to the underlying collateral value (See Note 6 — Real Estate Investments for further discussion).  During the nine months ended September 30, 2011, we recorded a $5.3 million provision for loan losses related to our Royal Island note receivable to record the note receivable balance to the underlying collateral value.

Equity in losses of unconsolidated joint ventures.  Our equity in losses of unconsolidated joint ventures decreased by $33.5 million for the nine months ended September 30, 2012.  This decrease was primarily due to an impairment of the Royal Island assets recorded by the joint venture during 2011 and no impairment recorded during 2012.

Reorganization expenses.  During the nine months ended September 30, 2012, we recorded reorganization expense of $0.6 million related to Frisco Square.

Cash Flow Analysis

Cash used in operating activities for the nine months ended September 30, 2012 was $1 million, and was comprised of the net loss of $26.7 million adjusted for depreciation and amortization, including amortization of deferred financing fees of $13.3 million, an impairment charge of $1.7 million, loss on early extinguishment of debt of $1.4 million, equity in losses of our unconsolidated joint venture of $4.4 million, change in condominium inventory of $8.3 million, provision for loan losses of $12 million and offset by the adjustment for gain on sale of real estate of $12 million and cash used by working capital and other operating activities of approximately $3.4 million.  Cash provided by operating activities for the nine months ended September 30, 2011 was $20 million, and was comprised of the net loss of $85.1 million adjusted for depreciation and amortization, including amortization of deferred financing fees of $17.9 million, an impairment charge of $22.3 million, provision for loan losses of $5.3 million, equity in losses of our unconsolidated joint venture of $37.9 million and change in condominium inventory of $23.1 million, primarily from the sale of the historic tax credits and cash provided by working capital and other operating activities of approximately $1.2 million, offset by the adjustment for gain on sale of real estate of $2.6 million.

Cash provided by investing activities for the nine months ended September 30, 2012 was $117.3 million and was comprised proceeds from the sale of real estate and unconsolidated joint venture of $123.6 million and change in restricted cash of $0.4 million.  This was offset by capital expenditures for real estate under development of $3.6 million, investment in notes receivable of $2 million and additions of property and equipment of $1.1 million.  Cash provided by investing activities for the nine months ended September 30, 2011 was $25.6 million and was comprised of proceeds from the sale of real estate of $38.2 million and proceeds from notes receivable repayments of $0.4 million.  This was offset by cash for expenditures for real estate under development of $2 million, additions of property and equipment of $5.6 million, investment in notes receivable of $3.7 million, and changes in restricted cash of $1.7 million.

Cash used in financing activities for the nine months ended September 30, 2012 was $78.4 million and was primarily comprised of payments on notes payable and credit facility of $126.5 million offset by borrowings, net of financing costs, of $49 million and contributions from noncontrolling interest holders of less than $0.1 million.  Cash used in financing activities for the nine months ended September 30, 2011 was $44.4 million and was comprised of payments on notes payable and credit facility of $55.5 million offset by borrowings, net of financing costs, of $10 million.  Borrowings on a note payable to a related party were $1.5 million.  Cash distributions were $0.5 million and net contributions from noncontrolling interest holders was $0.1 million.

Funds from Operations

Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  We use FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) in the April 2002 “White Paper of Funds From Operations” which is net income (loss), computed in accordance with GAAP,

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excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, subsidiaries, and noncontrolling interests as one measure to evaluate our operating performance.  In October 2011, NAREIT clarified the FFO definition to exclude impairment charges of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership). We have calculated FFO for all periods presented in accordance with this clarification.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate 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 alone to be insufficient.  As a result, our management believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance.

We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments of depreciable assets, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income.

FFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor as an indication of funds available to fund our cash needs, including our ability to make distributions and should be reviewed in connection with other GAAP measurements.  Additionally, the exclusion of impairments limits the usefulness of FFO as a historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected.  FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.  Our FFO as presented may not be comparable to amounts calculated by other REITs that do not define these terms in accordance with the current NAREIT definition or that interpret the definition differently.

Our calculation of FFO for the three and nine months ended September 30, 2012 and 2011 is presented below ($ in thousands except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net loss attributable to common shareholders	$	(1,945	)	$	(21,240	)	$	(23,749	)	$	(80,001	)
Adjustments for (1):
Impairment charge(2)	1,264			—			2,378			—
Real estate depreciation and amortization(3)	4,326			5,974			13,955			19,776
(Gain) loss on sale of real estate	(7,913		)	105			(12,039		)	(2,364		)
Funds from operations (FFO)	$	(4,268	)	$	(15,161	)	$	(19,455	)	$	(62,589	)
GAAP weighted average shares:
Basic and diluted	56,500			56,500			56,500			56,486
FFO per share	$	(0.08	)	$	(0.27	)	$	(0.34	)	$	(1.11	)
Net loss per share	$	(0.03	)	$	(0.37	)	$	(0.42	)	$	(1.42	)

(1)Reflects the adjustments for continuing operations, as well as discontinued operations.

(2)Includes impairment of our investments in unconsolidated entities which resulted from a measurable decrease in the fair value of the depreciable real estate held by the joint venture or partnership.

(3)Real estate depreciation and amortization includes our consolidated real depreciation and amortization expense, as well as our pro rata share of those unconsolidated investments which we account for under the equity method of accounting and the noncontrolling interest adjustment for the third-party partners’ share of the real estate depreciation and amortization.

Distributions

Distributions are authorized at the discretion of our board of directors based on its analysis of our forthcoming cash needs, earnings, cash flow, anticipated cash flow, capital expenditure requirements, cash on hand, general financial condition and other factors that our board deems relevant.  The board’s decision will be influenced, in substantial part, by its obligation

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to ensure that we maintain our status as a REIT.  In connection with entering our disposition phase, on March 28, 2011, our board of directors discontinued regular quarterly distributions in favor of those that may arise from proceeds available to be distributed from our asset sales.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP.  The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  We evaluate these estimates, including investment impairment, on a regular basis.  These estimates will be based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates.

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

Principles of Consolidation and Basis of Presentation

Our condensed consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control.  All inter-company transactions, balances, and profits have been eliminated in consolidation.  Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to consolidate entities deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary.  If the interest in the entity is determined not to be a VIE, then the entity will be evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement.

There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary.  The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity.  Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses.  A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.

Debtors-in-Possession - Frisco Debtors

Consolidation of Real Estate in Bankruptcy - On June 13, 2012, the Frisco Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code.  We continued to consolidate the balance sheets and operations of the Frisco Debtors.  In accordance with ASC 852-10, “Reorganizations” we provide the unaudited condensed financial statements of the Frisco Debtors in Note 13 Frisco Debtors - Unaudited Financial Information.

Liabilities Subject to Compromise - Liabilities Subject to Compromise consists of unsecured prepetition liabilities related to the Frisco Debtors.  The classification of liabilities “subject to compromise” is based upon currently available information and analysis.  As the bankruptcy process proceeds and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification may change.  The amount of any such changes could be significant.

Reorganization Expense - Reorganization item, are expense or income items that were incurred or realized by the Frisco Debtors as a result of the Chapter 11 Cases are presented separately in the condensed consolidated statements of operations and comprehensive loss and in the unaudited condensed combined statements of the Frisco Debtors in Note 13 - Frisco Debtors - Unaudited Financial Information.

Real Estate

Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisition date, measured at their fair values.  The acquisition date is the date on which we obtain control of the real estate property.  These assets acquired and liabilities assumed may consist of buildings, any assumed debt, identified intangible assets and asset retirement obligations.  Identified intangible assets generally consist of the above-market and below-market leases, in-place leases, in-place tenant improvements and tenant relationships.  Goodwill

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is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired.  Acquisition-related costs are expensed in the period incurred.

The fair value of the tangible assets acquired, consisting of land and buildings is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants.  The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method.

We determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain at the date of the debt assumption.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.

We determine the value of above-market and below-market leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any below-market fixed rate renewal options that, based on a qualitative assessment of several factors, including the financial condition of the lessee, the business conditions in the industry in which the lessee operates, the economic conditions in the area in which the property is located, and the ability of the lessee to sublease the property during the renewal term, are reasonably assured to be exercised by the lessee for below-market leases.  We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the determined lease term.

The total value of identified real estate intangible assets acquired is further allocated to in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model. The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we include such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions.  The estimates of the fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal fees and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize the value of in-place leases, in-place tenant improvements and in-place leasing commissions to expense over the initial term of the respective leases.  The tenant relationship values are amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense.  The estimated remaining average useful lives for acquired lease intangibles range from less than one year to approximately ten years.

Other intangible assets include the value of identified hotel trade names and in-place property tax abatements.  These fair values are based on management’s estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  The value of the trade names is amortized over its respective estimated useful life of 20 years using the straight-line method and the value of the in-place property tax abatement is amortized over its estimated term of 10 years using the straight-line method.

Investment Impairments

For all of our real estate and real estate related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to:  a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers and changes

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in the global and local markets or economic conditions.  Our assets may at times be concentrated in limited geographic locations and, to the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at a portion of our properties within a short time period, which may result in asset impairments.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.  We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist.  While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

We also evaluate our investments in notes receivable as of each reporting date.  If we believe that it is probable we will not collect all principal and interest in accordance with the terms of the notes, we consider the loan impaired.  When evaluating loans for potential impairment, we compare the carrying amount of the loans to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to the estimated fair value of the related collateral net of any senior loans.  For impaired loans, a provision is made for loan losses to adjust the reserve for loan losses.  The reserve for loan losses is a valuation allowance that reflects our current estimate of loan losses as of the balance sheet date.  The reserve is adjusted through the provision for loan losses account on our condensed consolidated statement of operations.

In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, planned development and the projected sales price of each of the properties.  A future change in these estimates and assumptions could result in understating or overstating the book value of our investments, which could be material to our financial statements.

The value of our properties held for development depends on market conditions, including estimates of the project start date, as well as estimates of future demand for the property type under development.  We have analyzed trends and other information related to each potential development and incorporated this information, as well as our current outlook, into the assumptions we use in our impairment analyses.  Due to the judgment and assumptions applied in the estimation process with respect to impairments, including the fact that limited market information regarding the value of comparable land exists at this time, it is possible actual results could differ substantially from those estimated.

We believe the carrying value of our operating real estate assets, properties under development, investments in unconsolidated joint ventures, and notes receivable is currently recoverable.  However, if market conditions worsen beyond our current expectations, or if our assumptions regarding expected future cash flows from the use and eventual disposition of our assets decrease or our expected hold periods decrease, or if changes in our development strategy significantly affect any key assumptions used in our fair value calculations, we may need to take additional charges in future periods for impairments related to existing assets.  Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Condominium Inventory

Condominium inventory is stated at the lower of cost or fair market value.  In addition to land acquisition costs, land development costs, and construction costs, costs include interest and real estate taxes, which are capitalized during the period beginning with the commencement of development and ending with the completion of construction.

For condominium inventory, at each reporting date, management compares the estimated fair value less costs to sell to the carrying value.  An adjustment is recorded to the extent that the fair value less costs to sell is less than the carrying value.  We determine the estimated fair value of condominiums based on comparable sales in the normal course of business under existing and anticipated market conditions.  This evaluation takes into consideration estimated future selling prices, costs incurred to date, estimated additional future costs, and management’s plans for the property.

The nationwide downturn in the housing and related condominium market that began during 2007 and has continued has resulted in reduced selling prices.  As a result of our evaluations in the first quarter of 2012, we recognized a non-cash charge of $0.4 million to reduce the carrying value of condominiums at Chase-The Private Residences during the nine months ended September 30, 2012.  This non-cash charge is classified as condominium inventory impairment charge in the accompanying condensed consolidated statement of operations.  We recognized a noncash charge of $1.9 million to reduce the carrying value of condominiums at Chase - The Private Residences and a $4 million non- cash charge to reduce the carrying value of our condominium development at Cordillera during the nine months ended September 30, 2011.  In the

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event that market conditions continue to decline in the future or the current difficult market conditions extend beyond our expectations, additional adjustments may be necessary.

Item 3.           Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We may be exposed to interest rate changes, primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates.  With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.  We may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps, or floors to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt.  Of our $190.6 million in notes payable including the loan secured by Bent Tree Green (classified as held for sale) at September 30, 2012, $124.3 million represented debt subject to variable interest rates.  If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, including interest expensed, interest capitalized, and the effects of the interest rate caps and swaps, would increase by $0.7 million.

At September 30, 2012, interest rate caps classified as assets were reported at their combined fair value of less than $0.1 million within prepaid expenses and other assets.  A 100 basis point decrease in interest rates would result in less than $0.1 million net decrease in the fair value of our interest rate caps and swaps.  A 100 basis point increase in interest rates would result in a $0.2 million net increase in the fair value of our interest rate caps and swaps.

Foreign Currency Exchange Risk

We currently have a leasehold interest in London, England that holds $0.3 million in Euro-denominated accounts at European financial institutions.  We also own an approximately 47% interest in a joint venture consisting of 22 properties in the Czech Republic, Poland, Hungary, and Slovakia that holds $4 million in Euro-denominated accounts at European financial institutions.  As such, we believe that we are not materially exposed to any significant foreign currency fluctuations related to these accounts.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate.  However, we include provisions in the majority of our tenant leases that would protect us from the impact of inflation.  These provisions include reimbursement billings for common area maintenance charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance.

Item 4.           Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of September 30, 2012, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012 to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

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

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.           Legal Proceedings.

On January 28, 2012, the BHFS Loans matured and we did not pay the outstanding principal balance of the loans, which constituted an event of default.  As a result of the maturity default of the BHFS Loans, the lenders accelerated the Theater Loan.  Attempts to restructure and extend the BHFS Loans and the Theater Loan have been unsuccessful.  Therefore, on June 13, 2012, the Frisco Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the Eastern District of Texas.

In connection with the Chapter 11 proceedings, on August 8, 2012, the City of Frisco, Texas commenced an adversary proceeding by filing a complaint for declaratory relief against the Frisco Debtors and their lenders, (Bank of America, N.A. and Regions Bank), in the Bankruptcy Court.  In its complaint, the City of Frisco requests a judgment determining the extent, validity and priority of the City’s liens on the Frisco Debtors’ real property.  The Frisco Debtors and their counsel are defending the adversary proceeding vigorously.

On October 22, 2012, the Frisco Debtors submitted a plan of reorganization to the Bankruptcy Court; however, there can be no assurances that the Bankruptcy Court will approve the submitted plan of reorganization.

Item 1A.        Risk Factors.

The Frisco Debtors may not be successful in their efforts to emerge from bankruptcy and the costs associated with the bankruptcy petition may adversely affect our results of operations and our ability to generate a return on your investment.

On June 13, 2012, the Frisco Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Texas.  On October 22, 2012, the Frisco Debtors submitted a plan of reorganization to the Bankruptcy Court; however, there can be no assurances that the Bankruptcy Court will approve the submitted plan of reorganization.  This could protract the Chapter 11 Cases and negatively impact the Frisco Debtors’ ability to operate the Frisco Square property.  In addition, we have incurred and will continue to incur costs associated with the reorganization which will adversely affect our results of operations and our ability to provide a return on your investment.

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

Unregistered Sales of Common Stock

During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

Share Redemption Program

In February 2006, our board of directors authorized a share redemption program for stockholders who held their shares for more than one year.  Under the program, our board reserved the right in its sole discretion at any time, and from time to time, to (1) waive the one-year holding period in the event of the death, disability or bankruptcy of a stockholder or other exigent circumstances, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) terminate, suspend or amend the share redemption program.

On March 30, 2009, our board of directors voted to accept all redemption requests submitted during the first quarter of 2009 from stockholders whose requests were made on circumstances of death, disability, or confinement to a long-term care facility (referred to herein as “Exceptional Redemptions”).  However, the board determined to not accept, and to suspend until further notice, redemptions other than Exceptional Redemptions.

On January 10, 2011, as is customary for REITs entering the disposition phase, the board suspended the redemption program with respect to all redemption requests until further notice.  Therefore, we did not redeem any shares of our common stock during the nine months ended September 30, 2012.

We have not presented information regarding submitted and unfulfilled redemptions during the nine months ended September 30, 2012 as our board of directors suspended all redemptions as of the first quarter of 2011 and we believe many stockholders who may otherwise desire to have their shares redeemed have not submitted a request due to the program’s suspension.

Any redemption requests submitted while the program is suspended will be returned to investors and must be resubmitted upon resumption of the share redemption program.  If the share redemption program is resumed, we will give all

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stockholders notice that we are resuming redemptions, so that all stockholders will have an equal opportunity to submit shares for redemption.  Upon resumption of the program, any redemption requests will be honored pro rata among all requests received based on funds available.  Requests will not be honored on a first come, first served basis.

Item 3.           Defaults Upon Senior Securities.

None.

Item 4.           Mine Safety Disclosures.

None.

Item 5.           Other Information.

We held our annual meeting of stockholders on November 9, 2012.  A total of 28,863,162 shares of our common stock outstanding and entitled to vote were represented at the meeting in person or by proxy, representing approximately 51.08% of the total number of shares entitled to vote at the annual meeting.

At the annual meeting, our stockholders elected the five nominees listed below to serve on our board of directors until the next annual meeting of stockholders, and each will continue in office until his or her successor has been elected and qualified or until his or her earlier death, resignation or retirement.  The votes cast with respect to each director were as follows:

Nominee	Votes For	Votes Withheld
Robert M. Behringer	25,223,607	3,639,555
Robert S. Aisner	25,266,177	3,596,985
Barbara C. Bufkin	25,316,266	3,546,896
Terry L. Gage	25,329,826	3,533,336
Steven J. Kaplan	25,289,126	3,574,036

Following our annual meeting of stockholders, our board of directors met and voted to extend the deadline by which we must list or liquidate from the sixth anniversary of the termination of our primary offering or December 28, 2013 to June 30, 2020, subject to the ability to further defer this deadline upon the approval of the majority of the board of directors, including a majority of the independent directors.

Item 6.           Exhibits.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

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SIGNATURE

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

	Behringer Harvard Opportunity REIT I, Inc.
Dated: November 13, 2012	By:	/s/ Andrew J. Bruce
		Andrew J. Bruce
		Chief Financial Officer
		(Principal Financial Officer)

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Index to Exhibits

Exhibit Number	Description
3.1	Second Articles of Amendment and Restatement of the Registrant (previously filed in and incorporated by reference to Form 8-K, filed on July 29, 2008)
3.2	Certificate of Correction to Second Articles of Amendment and Restatement of the Registrant (previously filed in and incorporated by reference to Form 8-K, filed on June 9, 2011)
3.3	Amended and Restated Bylaws of the Registrant (previously filed in and incorporated by reference to Form 8-K filed on March 11, 2010)
31.1*	Rule 13a-14(a)/15d-14(a) Certification
31.2*	Rule 13a-14(a)/15d-14(a) Certification
32.1*(1)	Section 1350 Certification
32.2*(1)	Section 1350 Certification
99.1	Second Amended and Restated Policy for Estimation of Common Stock (previously filed and incorporated by reference to Form 10-Q, filed on May 14, 2012)
101(2)	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 13, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

*filed herewith

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

(2)   As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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