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

Overview



We were formed on January 12, 2015 as a Maryland corporation that elected to be
taxed as a real estate investment trust ("REIT") beginning with the taxable year
ended December 31, 2015 and we intend to continue to operate in such a manner.
Substantially all of our business is conducted through our Operating
Partnership, of which we are the sole general partner. Subject to certain
restrictions and limitations, our business is externally managed by our advisor
pursuant to an advisory agreement. KBS Capital Advisors manages our operations
and our portfolio of core real estate properties. KBS Capital Advisors also
provides asset-management, marketing, investor-relations and other
administrative services on our behalf. Our advisor acquired 20,000 shares of our
Class A common stock for an initial investment of $200,000. We have no paid
employees.

We commenced a private placement offering of our shares of common stock that was
exempt from registration pursuant to Rule 506(b) of Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), on June 11, 2015. We
ceased offering shares in the primary portion of our private offering on April
27, 2016. KBS Capital Markets Group LLC, an affiliate of our advisor, served as
the dealer manager for the offering pursuant to a dealer manager agreement.

On April 26, 2016, the SEC declared our registration statement on Form S-11,
pursuant to which we registered shares of our common stock for sale to the
public, effective, and we retained KBS Capital Markets Group LLC to serve as the
dealer manager for the initial public offering. We terminated the primary
initial public offering effective June 30, 2017. We terminated the distribution
reinvestment plan offering effective August 20, 2020.

                                       45

--------------------------------------------------------------------------------
  T    able of Contents
On October 3, 2017, we launched a second private placement offering of our
shares of common stock that exempt from registration pursuant to Rule 506(c) of
Regulation D of the Securities Act. In connection with the offering, we entered
into a dealer manager agreement with KBS Capital Advisors and an unaffiliated
third party. In December 2019, our board of directors determined to suspend the
second private offering and terminated the second private offering on August 5,
2020.

Through our capital raising activities, we raised $94.0 million from the sale of
10,403,922 shares of our common stock, including $8.5 million from the sale of
924,286 shares of common stock under our dividend reinvestment plan. As of
December 31, 2022, we had 9,838,569 and 307,606 Class A and Class T shares
outstanding, respectively.

We have used substantially all of the net proceeds from our offerings to invest
in a portfolio of core real estate properties. We consider core properties to be
existing properties with at least 80% occupancy. As of December 31, 2022, we
owned four office buildings.

Going Concern Considerations



The accompanying consolidated financial statements and notes have been prepared
assuming we will continue as a going concern. We have experienced a decline in
occupancy from 90.4% as of December 31, 2020 to 73.0% as of December 31, 2022
and such occupancy may continue to decrease in the future as tenant leases
expire due to the slower than expected return-to-office, which has adversely
affected our portfolio of commercial office buildings. The decrease in occupancy
has resulted in a decrease in cash flow from operations and has negatively
impacted the market values of our properties in our portfolio.

As of February 13, 2023, we are in maturity default with respect to the
Commonwealth Building Mortgage Loan following our failure to pay the amount
outstanding on the loan on its February 1, 2023 due date. Given the reduced rent
and occupancy by the building's tenants, as well as the market conditions in
Portland, Oregon, where the property is located, the Commonwealth Building is
currently valued at less than the outstanding debt of $46.3 million. Given the
depressed office rental rates and the continued social unrest and increased
crime in downtown Portland where the property is located, we do not anticipate
any near-term recovery in value. We anticipate that we may relinquish ownership
of the property to the lender in a foreclosure transaction or other alternative
to foreclosure in satisfaction of the mortgage. Additionally, the Modified Term
Loan with an outstanding balance of $52.3 million is maturing in November 2023.
We do not expect to be able to refinance the Modified Term Loan at current terms
and may be required to pay down a portion of the maturing debt in order to
refinance the loan. With our limited amount of cash on hand, our ability to make
a loan paydown, without the sale of real estate assets, is severely limited. If
we are unable to meet our payment obligation at maturity because we cannot
refinance the Modified Term Loan, the lender could foreclose on the Offices at
Greenhouse and the Institute Property, each of which is pledged as collateral to
the lender and could potentially pursue damages under the full recourse guaranty
provided by KBS GI REIT Properties. Additionally, in order to attract or retain
tenants needed to increase occupancy and sustain operations, we will need to
spend a substantial amount on capital leasing costs, however we have limited
amounts of liquidity to make these capital commitments. In addition, the fixed
costs associated with managing a public REIT, including the significant cost of
compliance with all federal, state and local regulatory requirements applicable
to us with respect to our business activities, are substantial. These conditions
raise substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent upon our ability to
refinance our mortgage debt or sell the underlying properties prior to debt
maturity. No assurances can be given that we will be successful in achieving
these objectives.

Plan of Liquidation

Our board of directors and the Special Committee has each approved the sale of
all of our assets and our dissolution pursuant to the Plan of Liquidation. The
Plan of Liquidation is subject to approval by our stockholders. On February 13,
2023, we commenced distribution of a definitive proxy statement to our
stockholders for a liquidation vote to be held on May 9, 2023. The principal
purpose of the Plan of Liquidation is to provide liquidity to our stockholders
by selling our assets, paying our debts and distributing the net proceeds from
liquidation to our stockholders. We can provide no assurances as to the ultimate
approval of the Plan of Liquidation by our stockholders or the timing of the
liquidation of the company.

If our stockholders approve the Plan of Liquidation, we intend to pursue an
orderly liquidation of our company by selling all of our remaining assets,
paying our debts and our known liabilities, providing for the payment of unknown
or contingent liabilities, distributing the net proceeds from liquidation to our
stockholders and winding up our operations and dissolving our company. In the
interim, we intend to continue to manage our portfolio of assets to maintain
and, if possible, improve the quality and income-producing ability of our
properties to enhance property stability and better position our assets for a
potential sale.

                                       46


--------------------------------------------------------------------------------
  T    able of Contents
We cannot complete the sale of all of our assets or our dissolution pursuant to
the terms of the Plan of Liquidation unless our stockholders approve the Plan of
Liquidation. If the Plan of Liquidation is not approved by our stockholders, our
board of directors will meet to determine what other alternatives to pursue in
the best interest of the company and our stockholders, including, without
limitation, continuing to operate under our current business plan or seeking
approval of a plan of liquidation at a future date. However, if we are unable to
obtain the stockholder approval, we may be unable to meet our maturing debt
obligations in the near term, including with respect to the Modified Term Loan
maturing in November 2023. If we are unable to meet our payment obligation at
maturity because we cannot refinance the Modified Term Loan, the lender could
foreclose on the Offices at Greenhouse and the Institute Property, each of which
is pledged as collateral to the lender and could potentially pursue damages
under the full recourse guaranty provided by KBS GI REIT Properties.

In connection with its consideration of a plan of liquidation, our board of
directors determined to cease regular quarterly distributions and terminated the
share redemption program. We expect any future liquidity to our stockholders
will be provided in the form of liquidating distributions.

We elected to be taxed as a REIT under the Internal Revenue Code, beginning with
the taxable year ended December 31, 2015. If we meet the REIT qualification
requirements, we generally will not be subject to federal income tax on the
income that we distribute to our stockholders each year. If we fail to qualify
for taxation as a REIT in any year after electing REIT status, our income will
be taxed at regular corporate rates, and we may be precluded from qualifying for
treatment as a REIT for the four-year period following our failure to qualify.
Such an event could materially and adversely affect our net income and
liquidating distribution to our stockholders. However, we are organized and will
operate in a manner that will enable us to qualify for treatment as a REIT for
federal income tax purposes beginning with our taxable year ended December 31,
2015, and we will continue to operate so as to remain qualified as a REIT for
federal income tax purposes thereafter.

Market Outlook - Real Estate and Real Estate Finance Markets



The ongoing challenges affecting the U.S. commercial real estate industry,
especially as it pertains to commercial office buildings, continues to be one of
the most significant risks and uncertainties we face. In particular, the
geographic regions where our properties are located have suffered more
significant adverse economic effects following the COVID-19 pandemic relative to
geographies in other parts of the country. The combination of the continued
economic slowdown, rapidly rising interest rates and significant inflation (or
the perception that any of these events may continue) as well as a lack of
lending activity in the debt markets have contributed to considerable weakness
in the commercial real estate markets. Upcoming and recent tenant lease
expirations amidst the aforementioned headwinds coupled with slower than
expected return-to-office have had direct and material impacts on the value of
our real estate and our ability to access the debt markets.

We recognized impairment charges related to a projected reduction in cash flows
as a result of changes in leasing projections that were impacted in part by the
COVID-19 pandemic at the Institute Property and 210 W. Chicago during the year
ended December 31, 2020, the Commonwealth Building during the year ended
December 31, 2021 and the Commonwealth Building and the Institute Property
during the year ended December 31, 2022. We cannot predict to what extent
economic activity, including the use of and demand for office space, will return
to pre-pandemic levels. During 2021 and 2022, the usage of our assets remained
lower than pre-pandemic levels. In addition, we experienced a significant
reduction in leasing interest and activity when compared to pre-pandemic levels.

Further, the challenging economic circumstances have created a difficult
environment in which to continue to create value in our portfolio consistent
with our core-plus investment strategy. The properties in our portfolio were
acquired to provide an opportunity for us to achieve more significant capital
appreciation by increasing occupancy, negotiating new leases with higher rental
rates and/or executing enhancement projects, all of which have become more
difficult as a result of the impacts of COVID-19 on the demand for office space,
in particular in the Portland area where one of our properties is located which
has been further impacted by the social unrest that continues in the area.

Continued disruptions in the financial markets and economic uncertainty could
adversely affect our ability to implement the Plan of Liquidation, if approved
by our stockholders, and the liquidation proceeds available for distribution to
our stockholders. Further, potential changes in customer behavior, such as the
continued acceptance, desirability and perceived economic benefits of
work-from-home arrangements, resulting from the COVID-19 pandemic, could
materially and negatively impact the future demand for office space, adversely
impacting our ability to implement the Plan of Liquidation and the liquidation
proceeds available for distribution to our stockholders. Moreover, valuations
for U.S. office properties continue to fluctuate due to weakness in the current
real estate capital markets as a result of the factors above and the lack of
transaction volume for U.S. office properties, increasing the uncertainty of
valuations in the current market environment.

                                       47

--------------------------------------------------------------------------------
  T    able of Contents
Liquidity and Capital Resources

As described above under "-Overview - Going Concern Considerations," our
management determined that substantial doubt exists about our ability to
continue as a going concern. In addition, as described above under "-Overview -
Plan of Liquidation," our board of directors has approved the sale of all of our
assets and our dissolution pursuant to the terms of the Plan of Liquidation and
submitted such plan to our stockholders for approval. The principal purpose of
the Plan of Liquidation is to provide liquidity to our stockholders by selling
our assets, paying our debts and distributing the net proceeds from liquidation
to our stockholders. We expect our principal demands for funds during the short
and long-term are and will be for the payment of operating expenses, capital
expenditures and general and administrative expenses, including expenses in
connection with the Plan of Liquidation (if approved by our stockholders);
payments under debt obligations; capital commitments; and payments of
distributions to stockholders pursuant to the Plan of Liquidation (if approved
by our stockholders). If the Plan of Liquidation is approved by our
stockholders, we expect to use our cash on hand and proceeds from the sale of
properties as our primary sources of liquidity. To the extent available, we also
intend to use cash flow generated by our real estate investments and proceeds
from debt financing; however, asset sales will further reduce cash flow from
these sources. Although this is the current intention of our board of directors,
we can provide no assurance as to the ultimate approval of the Plan of
Liquidation by our stockholders or the timing of the liquidation of the company.

We cannot complete the sale of all of our assets or our dissolution pursuant to
the terms of the Plan of Liquidation unless our stockholders approve the Plan of
Liquidation. If the Plan of Liquidation is not approved by our stockholders, our
board of directors will meet to determine what other alternatives to pursue in
the best interest of the company and our stockholders, including, without
limitation, continuing to operate under our current business plan or seeking
approval of a plan of liquidation at a future date. However, if we are unable to
obtain the stockholder approval, we may be unable to meet our maturing debt
obligations in the near term, including with respect to the Modified Term Loan
maturing in November 2023. If we are unable to meet our payment obligation at
maturity because we cannot refinance the Modified Term Loan, the lender could
foreclose on the Offices at Greenhouse and the Institute Property, each of which
is pledged as collateral to the lender and could potentially pursue damages
under the full recourse guaranty provided by KBS GI REIT Properties.

On December 15, 2022, in connection with the approval of the Plan of
Liquidation, our board of directors approved the termination of our share
redemption program effective December 30, 2022. Our share redemption program
provided only for special redemptions and for the calendar year 2022 was limited
to an amount not to exceed $250,000. Our board of directors expects that future
liquidity will be provided to our stockholders through liquidating
distributions, subject to stockholder approval of the Plan of Liquidation.

Our investments in real estate generate cash flow in the form of rental revenues
and tenant reimbursements, which are reduced by operating expenditures, capital
expenditures, debt service payments, the payment of asset management fees and
corporate general and administrative expenses. Cash flow from operations from
real estate investments is primarily dependent upon the occupancy level of our
portfolio, the net effective rental rates on our leases, the collectibility of
rent and operating recoveries from our tenants and how well we manage our
expenditures, all of which may be adversely affected by the impact of the
COVID-19 pandemic on office properties as discussed above and more recently
inflation.

Our cash and cash equivalents on hand are currently limited. The fixed costs
associated with managing a public REIT, including the significant cost of
compliance with all federal, state and local regulatory requirements applicable
to us with respect to our business activities, are substantial. Such costs
include, without limitation, the cost of preparing all financial statements
required under applicable regulations and all reports, documents and filings
required under the Exchange Act, or other federal or state laws for the general
maintenance of our status as a REIT, under the applicable provisions of the
Code, or otherwise. Given the size of our portfolio of properties, these costs
constitute a significant percentage of our gross income, reducing our net income
and cash flow.

Our advisor advanced funds to us, which are non-interest bearing, for distribution record dates through the period ended May 31, 2016. In connection with the adoption of the Plan of Liquidation by our board of directors, our Advisor waived payment of the $1.3 million advanced funds.


                                       48

--------------------------------------------------------------------------------
  T    able of Contents
We expect that our debt financing and other liabilities will be between 45% and
65% of the cost of our tangible assets (before deducting depreciation and other
non-cash reserves). Though this is our target leverage, our charter does not
limit us from incurring debt until our aggregate borrowings would exceed 300% of
our net assets (before deducting depreciation and other non-cash reserves),
which is effectively 75% of the cost of our tangible assets (before deducting
depreciation and other non-cash reserves), though we may exceed this limit under
certain circumstances. To the extent financing in excess of this limit is
available at attractive terms, the conflicts committee may approve debt in
excess of this limit. As of December 31, 2022, we had mortgage debt obligations
in the aggregate principal amount of $102.2 million and our aggregate borrowings
were approximately 61% of our net assets before deducting depreciation and other
non-cash reserves. Due to the current market environment, the value of our
assets has been significantly impacted and our aggregate borrowing as a
percentage of the current fair value of our assets before depreciation is
substantially higher. As of February 13, 2023, we are in maturity default with
respect to the Commonwealth Building Mortgage Loan following our failure to pay
the amount outstanding on the loan on its February 1, 2023 due date. Given the
reduced rent and occupancy by the building's tenants, as well as the market
conditions in Portland, Oregon, where the property is located, the Commonwealth
Building is currently valued at less than the outstanding debt of $46.3 million.
Given the depressed office rental rates and the continued social unrest and
increased crime in downtown Portland where the property is located, we do not
anticipate any near-term recovery in value. We anticipate that we may relinquish
ownership of the property to the lender in a foreclosure transaction or other
alternative to foreclosure in satisfaction of the mortgage. Additionally, the
Modified Term Loan with an outstanding balance of $52.3 million is maturing in
November 2023. We do not expect to be able to refinance the Modified Term Loan
at current terms and may be required to pay down a portion of the maturing debt
in order to refinance the loan. With our limited amount of cash on hand, our
ability to make a loan paydown, without the sale of real estate assets, is
severely limited. If we are unable to meet our payment obligation at maturity
because we cannot refinance the Modified Term Loan, the lender could foreclose
on the Offices at Greenhouse and the Institute Property, each of which is
pledged as collateral to the lender and could potentially pursue damages under
the full recourse guaranty provided by KBS GI REIT Properties. Given the current
disruptions in the market, rising interest rates and inflation, the cash flow
from the properties may be insufficient to cover debt service and other required
payments due on the loan which may result in a payment default. In the event we
default on the loan, the lender would be entitled to foreclose on the
properties.

In addition to using our capital resources to meet our debt service obligations,
for capital expenditures and for operating costs, we have used our capital
resources to make certain payments to our advisor and our affiliated property
manager.

We pay our advisor fees in connection with the management of our assets and
costs incurred by our advisor in providing certain services to us. The asset
management fee was a monthly fee payable to our advisor in an amount equal to
one-twelfth of 1.0% of the cost of our investments including the portion of the
investment that is debt financed. Our advisor waived asset management fees for
the second and third quarters of 2017 and deferred payment of asset management
fees related to the periods from October 2017 through September 2022. Recently,
in connection with the board of directors' review of the Plan of Liquidation,
our advisor waived $3.0 million of accrued asset management fees as well as
payment of its asset management fee as of October 1, 2022 through our
liquidation. As a result, $5.9 million of accrued asset management fees are
payable to our Advisor, which we expect to pay with proceeds from asset sales
upon stockholder approval of the Plan of Liquidation.

We also pay fees to KBS Management Group, LLC (the "Co-Manager"), an affiliate
of our advisor, pursuant to property management agreements with the Co-Manager,
for certain property management services at our properties. The Co-Manager has
agreed to waive payment of its property management fees as of October 1, 2022
through our liquidation.

We elected to be taxed as a REIT and to operate as a REIT beginning with our
taxable year ended December 31, 2015. To maintain our qualification as a REIT,
we will be required to make aggregate annual distributions to our stockholders
of at least 90% of our REIT taxable income (computed without regard to the
dividends-paid deduction and excluding net capital gain). Our board of directors
may authorize distributions in excess of those required for us to maintain REIT
status depending on our financial condition and such other factors as our board
of directors deems relevant. We do not expect to pay regular distributions
during the liquidation process.

Under our charter, we are required to limit our total operating expenses to the
greater of 2% of our average invested assets or 25% of our net income for the
four most recently completed fiscal quarters, as these terms are defined in our
charter, unless the conflicts committee has determined that such excess expenses
were justified based on unusual and non-recurring factors. Operating expenses
for the four fiscal quarters ended December 31, 2022 did not exceed the
charter-imposed limitation.

Cash Flows from Operating Activities



As of December 31, 2022, we owned four office properties. During the year ended
December 31, 2022, net cash used in operating activities was $0.8 million.
During the year ended December 31, 2021, net cash provided by operating
activities was $1.7 million. Net cash used in operating activities increased due
to a decrease in rental income and the timing of payment of lease incentives and
lease commissions during 2022. We expect cash flows provided by operating
activities to decrease in future periods to the extent the Plan of Liquidation
is approved by our stockholders and we begin selling our assets.

                                       49

--------------------------------------------------------------------------------
  T    able of Contents
Cash Flows from Investing Activities

Net cash used in investing activities was $1.1 million for the year ended December 31, 2022 due to improvements to real estate.

Cash Flows from Financing Activities



During the year ended December 31, 2022, net cash provided by financing
activities was $0.4 million as a result of proceeds from notes payable, offset
by principal payments on notes payable, payments of deferred financing costs and
redemption of common stock.

Debt Obligations

The following is a summary of our debt obligations as of December 31, 2022 (in thousands).



                                                                            Payments Due During the Years Ending December 31,
Debt Obligations                                Total               2023              2024-2025           2026-2027           Thereafter
Outstanding debt obligations (1)             $ 102,179          $   98,603          $    3,576          $        -          $         -
Interest payments on outstanding debt
obligations (2)                                  3,688               3,550                 138                   -                    -


_____________________

(1) Amounts include principal payments only. Includes $46.3 million for the Commonwealth Mortgage Loan which was in maturity default as of February 13, 2023.



(2) Projected interest payments are based on the outstanding principal amount,
maturity date and contractual interest rate in effect as of December 31, 2022
(consisting of the contractual interest rate). We incurred interest expense of
$4.6 million, excluding amortization of deferred financing costs totaling $0.2
million and unrealized gains on derivative instruments of $0.6 million during
the year ended December 31, 2022.

Capital Expenditures Obligations



As of December 31, 2022, we have capital expenditure obligations of $3.1 million
(of which $0.9 million relates to the Commonwealth Building), the majority of
which is expected to be spent in the next twelve months and of which $1.4
million has already been accrued and included in accounts payable and accrued
liabilities on our consolidated balance sheet as of December 31, 2022. This
amount includes unpaid contractual obligations for building improvements and
unpaid portions of tenant improvement allowances which were granted pursuant to
lease agreements executed as of December 31, 2022, including amounts that may be
classified as lease incentives pursuant to GAAP. In certain cases, tenants may
have discretion when to utilize their tenant allowances and may delay the start
of projects or tenants control the construction of their projects and may not
submit timely requests for reimbursement or there are general construction
delays, all of which could extend the timing of payment for a portion of these
capital expenditure obligations beyond twelve months.

Results of Operations



In this section, we discuss the results of our operations for the year ended
December 31, 2022 compared to the year ended December 31, 2021. For a discussion
of the year ended December 31, 2021 compared to the year ended December 31,
2020, please refer to   Item 7 of Part II, "Management's Discussion and Analysis
of Financial Condition and Results of Operations"   in our Annual Report on Form
10-K for the fiscal year ended December 31, 2021, which was filed with the SEC
on March 31, 2022.

As of December 31, 2022 and 2021, we owned four office properties. If the Plan
of Liquidation is approved by our stockholders, we will undertake an orderly
liquidation by selling all of our assets, paying our debts, providing for known
and unknown liabilities and distributing the net proceeds from liquidation to
our stockholders. There can be no assurances regarding the amounts of any
liquidating distributions or the timing thereof. In general, subject to other
factors as described below, we expect income and expenses to decrease in future
periods due to reduced occupancy at our properties and disposition activity.

                                       50

--------------------------------------------------------------------------------
  T    able of Contents
The following table provides summary information about our results of operations
for the year ended December 31, 2022 and 2021 (dollar amounts in thousands):

Comparison of the year ended December 31, 2022 versus the year ended
December 31, 2021

                                                       For the Years Ended December 31,          Increase
                                                           2022                2021             (Decrease)           Percentage Change
Rental income                                          $   14,466          $  16,099          $     (1,633)                       (10) %
Other operating income                                        136                177                   (41)                       (23) %
Operating, maintenance and management costs                 3,721              3,926                  (205)                        (5) %
Property management fees and expenses to
affiliate                                                      70                114                   (44)                       (39) %
Real estate taxes and insurance                             3,182              2,899                   283                         10  %
Asset management fees to affiliate                         (1,740)             1,740                (3,480)                      (200) %
General and administrative expenses                         1,871              1,509                   362                         24  %
Depreciation and amortization                               5,926              7,536                (1,610)                       (21) %
Interest expense                                            4,185              2,343                 1,842                         79  %
Impairment charges on real estate                          18,665             13,164                 5,501                         42  %
Interest and other income                                      44                  -                    44                        100  %
Gain related to forgiveness of advance from the
Advisor                                                     1,338                  -                 1,338                        100  %




Rental income decreased from $16.1 million for the year ended December 31, 2021
to $14.5 million for the year ended December 31, 2022, primarily as a result of
lease expirations, which decreased our occupancy rate from 75.3% as of
December 31, 2021 to 73.0% as of December 31, 2022. In addition, tenant
reimbursements decreased in 2022 primarily as a result of the abatement of
operating expense and property tax reimbursements during 2022 for one tenant at
our Houston property. Overall, we expect rental income to decrease in future
periods due to reduced occupancy at our properties and anticipated dispositions
of real estate properties. In addition, potential changes in customer behavior,
such as continued acceptance and desirability of work-from-home arrangements
resulting from the COVID-19 pandemic, could negatively impact demand for office
space, adversely impacting our ability to re-lease vacant space and adversely
impact our rental income.

Operating, maintenance, and management costs decreased from $3.9 million for the
year ended December 31, 2021 to $3.7 million for the year ended December 31,
2022, primarily due to a decrease in operating costs, including janitorial and
repairs and maintenance costs, as a result of a decrease in physical occupancy
at our real estate properties. We expect operating, maintenance, and management
costs to decrease in future periods due to reduced occupancy at our properties
and anticipated dispositions of real estate properties, offset by general
increase due to inflation and as physical occupancy increases as employees
return to the office.

Real estate taxes and insurance increased from $2.9 million for the year ended
December 31, 2021 to $3.2 million for the year ended December 31, 2022,
primarily due to property tax consulting fees incurred in 2022 and a decrease in
property tax refund received in 2022. We expect real estate taxes and insurance
to decrease in future periods due to anticipated dispositions of real estate
properties, partially offset by general increase due to inflation.

Asset management fees to affiliate decreased from $1.7 million for the year
ended December 31, 2021 to $(1.7) million for the year ended December 31, 2022,
primarily due to our advisor's waiver of $3.0 million of accrued asset
management fees. As a result, as of December 31, 2022, $5.9 million of the $8.9
million accrued and deferred asset management fees related to the periods from
October 2017 through September 2022 is due to our advisor. We do not expect any
asset management fees in future periods as our advisor has waived payment of its
asset management fees as of October 1, 2022 through our liquidation. As a
result, we will no longer accrue asset management fees payable to our advisor
for any periods after September 30, 2022.

General and administrative expenses increased from $1.5 million for the year
ended December 31, 2021 to $1.9 million for the year ended December 31, 2022,
primarily due to legal fees related to our plan of liquidation incurred during
the year ended December 31, 2022. General and administrative costs consisted
primarily of legal fees, internal audit compensation expense, errors and
omissions insurance, board of directors fees and audit cost.

                                       51

--------------------------------------------------------------------------------
  T    able of Contents
Depreciation and amortization decreased from $7.5 million for the year ended
December 31, 2021 to $5.9 million for the year ended December 31, 2022,
primarily due to lease expirations, early lease terminations and reduced
depreciable asset basis for the Commonwealth Building as a result of non-cash
impairment charges recorded subsequent to December 31, 2021. We expect
depreciation and amortization to decrease in future periods due to anticipated
dispositions of real estate properties and fully amortized tenant origination
and absorption costs related to lease expirations, partially offset by increases
in capital improvements.

Interest expense increased from $2.3 million for the year ended December 31,
2021 to $4.2 million for the year ended December 31, 2022. Included in interest
expense is the amortization of deferred financing costs of $0.2 million and
$0.2 million for the years ended December 31, 2022 and 2021, respectively.
Interest expense (including gains and losses) incurred as a result of our
derivative instruments, decreased interest expense by $0.2 million and $3,000
during the years ended December 31, 2022 and 2021, respectively. The increase in
interest expense is primarily due to an increase in one-month LIBOR and
one-month Term SOFR and its impact on interest expense related to our variable
rate debt. In general, we expect interest expense to decrease in future periods
due to debt repayments related to anticipated asset sales, which may be offset
by certain fees and costs that may be incurred due to the prepayment of certain
loans. Our interest expense in future periods will also vary based on
fluctuations in one-month LIBOR and one-month Term SOFR and our level of future
borrowings, which will depend on the availability and cost of debt financing,
draws on our debts and any debt repayments we make.

During the year ended December 31, 2022, we recorded non-cash impairment charges
of $18.7 million to write down the carrying value of the Commonwealth Building
and the Institute Property to their estimated fair values as a result of changes
in cash flow estimates including a change in leasing projections at both
properties and a continued decrease in occupancy at the Commonwealth Building,
which triggered the future estimated undiscounted cash flows to be lower than
the net carrying value of the properties. During the year ended December 31,
2021, we recorded non-cash impairment charges of $13.2 million to write down the
carrying value of the Commonwealth Building to its estimated fair value as a
result of a continued decrease in occupancy and changes in cash flow estimates
including a change in leasing projections, which triggered the future estimated
undiscounted cash flows to be lower than the net carrying value of the property.
The decrease in cash flow projections during the years ended December 31, 2022
and 2021 was primarily due to reduced demand for the office space at both
properties resulting in longer lease-up periods and a decrease in projected
rental rates due to the COVID-19 pandemic which resulted in additional
challenges to re-lease the vacant space. In addition, the decrease in cash flow
projections during the years ended December 31, 2022 and 2021 for the
Commonwealth Building was affected by the disruptions caused by protests and
demonstrations and increased crime in the downtown area of Portland, Oregon,
where the property is located. Also, tenants at the Institute Property have been
adversely impacted by the measures put in place to control the spread of
COVID-19 and certain tenants at the Institute Property were granted rent
concessions as their businesses have been severely impacted. Subsequent to
December 31, 2022, we are in maturity default with respect to the Commonwealth
Building Mortgage Loan following our failure to pay the amount outstanding on
the loan on its February 1, 2023 maturity date. Given the reduced rent and
occupancy by the building's tenants, as well as the market conditions in
Portland, Oregon, where the property is located, the Commonwealth Building is
currently valued at less than the outstanding debt of $46.3 million.
Additionally, there are a significant number of distressed properties in the
Downtown Portland market, which may further impact the value of the Commonwealth
Building. Given the depressed office rental rates and the continued social
unrest and increased crime in downtown Portland where the property is located,
we do not anticipate any near-term recovery in value. We anticipate that we may
relinquish ownership of the property to the lender in a foreclosure transaction
or other alternative to foreclosure in satisfaction of the mortgage. See " -
Subsequent Events - Commonwealth Building Mortgage Loan Default."

During the year ended December 31, 2022, in connection with the adoption of the
Plan of Liquidation by our board of directors, our advisor has agreed to waive
the advisor advance payable of $1.3 million that was due to our advisor. See
"-Liquidity and Capital Resources."

Distributions



Cash distributions will be determined by our board of directors based on our
financial condition and such other factors as our board of directors deems
relevant. Our board of directors has not pre-established a percentage rate of
return for cash distributions to stockholders. We have not established a minimum
distribution level, and our charter does not require that we make distributions
to our stockholders. In connection with its consideration of a plan of
liquidation, our board of directors determined to cease paying regular quarterly
distributions with the first quarter of 2022 and expects that any future
distributions to our stockholders would be liquidating distributions from the
sale of our remaining assets.

                                       52


--------------------------------------------------------------------------------
  T    able of Contents
Critical Accounting Policies and Estimates

Below is a discussion of the accounting policies that management believes are or
will be critical to our operations. We consider these policies critical in that
they involve significant management judgments and assumptions, require estimates
about matters that are inherently uncertain and because they are important for
understanding and evaluating our reported financial results. These judgments
affect the reported amounts of assets and liabilities and our disclosure of
contingent assets and liabilities as of the dates of the financial statements
and the reported amounts of revenue and expenses during the reporting periods.
With different estimates or assumptions, materially different amounts could be
reported in our financial statements. Additionally, other companies may utilize
different estimates that may impact the comparability of our results of
operations to those of companies in similar businesses.

Revenue Recognition - Operating Leases



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

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

•whether the lessee or lessor supervises the construction and bears the risk of cost overruns;

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

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

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

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



In accordance with Topic 842, tenant reimbursements for property taxes and
insurance are included in the single lease component of the lease contract (the
right of the lessee to use the leased space) and therefore are accounted for as
variable lease payments and are recorded as rental income on our statement of
operations. In addition, we adopted the practical expedient available under
Topic 842 to not separate nonlease components from the associated lease
component and instead to account for those components as a single component if
the nonlease components otherwise would be accounted for under the new revenue
recognition standard (Topic 606) and if certain conditions are met, specifically
related to tenant reimbursements for common area maintenance which would
otherwise be accounted for under the revenue recognition standard. We believe
the two conditions have been met for tenant reimbursements for common area
maintenance as (i) the timing and pattern of transfer of the nonlease components
and associated lease components are the same and (ii) the lease component would
be classified as an operating lease. Accordingly, tenant reimbursements for
common area maintenance are also accounted for as variable lease payments and
recorded as rental income on our statement of operations.

In accordance with Topic 842, we make a determination of whether the
collectibility of the lease payments in an operating lease is probable. If we
determine the lease payments are not probable of collection, we would fully
reserve for any contractual lease payments, deferred rent receivable, and
variable lease payments and would recognize rental income only to the extent
cash has been received. We make estimates of the collectability of the lease
payments which requires significant judgment by management. We consider payment
history, current credit status, the tenant's financial condition, security
deposits, letters of credit, lease guarantees and current market conditions that
may impact the tenant's ability to make payments in accordance with its lease
agreements, including the impact of the COVID-19 pandemic on the tenant's
business, in making the determination. These changes to our collectibility
assessment are reflected as an adjustment to rental income.

We, as a lessor, record costs to negotiate or arrange a lease that would have
been incurred regardless of whether the lease was obtained, such as legal costs
incurred to negotiate an operating lease, as an expense and classify such costs
as operating, maintenance, and management expense on our consolidated statement
of operations, as these costs are no longer capitalizable under the definition
of initial direct costs under Topic 842.

                                       53

--------------------------------------------------------------------------------
  T    able of Contents
Sales of Real Estate

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

ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606). Under ASC 610-20, if we
determine we do not have a controlling financial interest in the entity that
holds the asset and the arrangement meets the criteria to be accounted for as a
contract, we would derecognize the asset and recognize a gain or loss on the
sale of the real estate when control of the underlying asset transfers to the
buyer. The application of these criteria can be complex and incorrect
assumptions on collectability of the transaction price or transfer of control
can result in the improper recognition of the gain or loss from sales of real
estate during the period.

Real Estate

Depreciation and Amortization

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

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

Real Estate Acquisition Valuation



We record the acquisition of income-producing real estate or real estate that
will be used for the production of income as a business combination or an asset
acquisition. If substantially all of the fair value of the gross assets acquired
are concentrated in a single identifiable asset or group of similar identifiable
assets, then the set is not a business. For purposes of this test, land and
buildings can be combined along with the intangible assets for any in-place
leases and accordingly, most acquisitions of investment properties would not
meet the definition of a business and would be accounted for as an asset
acquisition. To be considered a business, a set must include an input and a
substantive process that together significantly contributes to the ability to
create an output. All assets acquired and liabilities assumed in a business
combination are measured at their acquisition-date fair values. For asset
acquisitions, the cost of the acquisition is allocated to individual assets and
liabilities on a relative fair value basis. Acquisition costs associated with
business combinations are expensed as incurred. Acquisition costs associated
with asset acquisitions are capitalized.

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

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

                                       54

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

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



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

Impairment of Real Estate and Related Intangible Assets and Liabilities



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

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

Income Taxes

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

Subsequent Events

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

Commonwealth Building Mortgage Loan Default



On January 18, 2018, we, through an indirect wholly owned subsidiary (the
"Commonwealth Borrower") entered into a loan agreement secured by the
Commonwealth Building in Portland, Oregon with the Metropolitan Life Insurance
Company (the "Commonwealth Lender"), an unaffiliated lender, for borrowings of
up to $51.4 million (the "Commonwealth Building Mortgage Loan").

On February 13, 2023, the Commonwealth Borrower defaulted on the Commonwealth
Building Mortgage Loan following its failure to pay the amount of the debt
outstanding and due to the lender on the February 1, 2023 maturity date. As
previously disclosed, given the reduced rent and occupancy by the building's
tenants, as well as the market conditions in Portland, Oregon, where the
property is located, the Commonwealth Building is currently valued at less than
the outstanding debt of $47.4 million. Given the depressed office rental rates
and the continued social unrest and increased crime in downtown Portland where
the property is located, we do not anticipate any near-term recovery in value.
We may relinquish ownership of the property to the lender in a foreclosure
transaction or other alternative to foreclosure in satisfaction of the mortgage.
The loan is non-recourse to us.

                                       55

--------------------------------------------------------------------------------

T able of Contents

© Edgar Online, source Glimpses