1262959--3/29/2006--HINES_REAL_ESTATE_INVESTMENT_TRUST

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We have invested a significant percentage of our total current investments, and we may make additional investments, in the Core Fund. Because of our current and possible future Core Fund investments, it is likely that Hines affiliates will retain significant control over a significant percentage of our investments even if our independent directors remove our Advisor. Many of the fees we pay were not determined on an arm s-length basis and therefore may not be on the same terms we could achieve from a third party. If we are only able to sell a small number of shares in the Offering, our fixed operating expenses such as general and administrative expenses (as a percentage of gross income) would be higher than if we are able to sell a greater number of shares. Hines REIT s interest in the Operating Partnership will be diluted by the Participation Interest in the Operating Partnership held by HALP Associates Limited Partnership, and an interest in Hines REIT may be diluted if we issue additional shares. The redemption of interests in the Operating Partnership held by Hines and its affiliates (including the Participation Interest) as required in our Advisory Agreement may discourage a takeover attempt if our Advisory Agreement would be terminated in connection therewith. The Participation Interest would increase at a faster rate with frequent dispositions of properties followed by acquisitions using proceeds from such disposition. Hines ability to cause the Operating Partnership to purchase the Participation Interest and any OP Units it and its affiliates hold in connection with the termination of the Advisory Agreement may deter us from terminating the Advisory Agreement. We may issue preferred shares or separate classes or series of common shares, which issuance could adversely affect our holders of the common shares. We are not registered as an investment company under the Investment Company Act of 1940 (the Act ), and therefore we will not be subject to the requirements imposed on an investment company by the Act. Similarly, the Core Fund is not registered as an investment company. If Hines REIT, the Operating Partnership or the Core Fund is required to register as an investment company under the Act, the additional expenses and operational limitations associated with such registration may reduce our shareholders investment return. The ownership limit in our articles of incorporation may discourage a takeover attempt. We will not be afforded the protection of the Maryland General Corporation Law relating to business combinations. Business and Real Estate Risks We are different in some respects from other programs sponsored by Hines, and therefore the past performance of such programs may not be indicative of our future results. Delays in purchasing properties with proceeds received from the Offering may result in a lower rate of return to investors. If we purchase assets at a time when the commercial real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value. To date, dividends we have paid to our shareholders were funded by distributions we received from our real estate investments. However, after payment of such dividends, funds remaining were not sufficient to pay all of our general and administrative expenses. We cannot assure our shareholders that in the future we will be able to achieve cash flows necessary to pay both our expenses and dividends at our historical per-share amounts, or to maintain dividends at any particular level, if at all. We may need to incur borrowings that would otherwise not be incurred to meet REIT minimum distribution requirements. We expect to acquire additional properties in the future, which, if unsuccessful, could adversely impact our ability to pay dividends to our shareholders. We will be subject to risks as the result of joint ownership of real estate with other Hines programs or third parties. Our ability to redeem all or a portion of our investment in the Core Fund is subject to significant restrictions. If the Core Fund is forced to sell its assets in order to satisfy mandatory redemption requirements, our investment in the Core Fund may be materially adversely affected. If we invest in a limited partnership as a general partner, we could be responsible for all liabilities of such partnership. Because of our inability to retain earnings, we will rely on debt and equity financings for acquisitions. If we do not have sufficient capital resources from such financings, our growth may be limited. Our use of borrowings to partially fund acquisitions and improvements on properties could result in foreclosures and unexpected debt service expenses upon refinancing, both of which could have an adverse impact on our operations and cash flow. Our success will be dependent on the performance of Hines as well as key employees of Hines. We operate in a competitive business, and many of our competitors have significant resources and operating flexibility, allowing them to compete effectively with us. We depend on tenants for our revenue, and therefore our revenue is dependent on the success and economic viability of our tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space. The bankruptcy or insolvency of a major tenant would adversely impact our operations and our ability to pay dividends. Uninsured losses relating to real property may adversely impact the value of our portfolio. We may be unable to obtain desirable types of insurance coverage at a reasonable cost, if at all, and we may be unable to comply with insurance requirements contained in mortgage or other agreements due to high insurance costs. Terrorist attacks and other acts of violence or war may affect the markets in which we operate, our operations and our profitability. Our operations will be directly affected by general economic and regulatory factors we cannot control or predict. We may have difficulty selling real estate investments, and our ability to distribute all or a portion of the net proceeds from such sale to our shareholders may be limited. Potential liability as the result of, and the cost of compliance with, environmental matters could adversely affect our operations. All of our properties will be subject to property taxes that may increase in the future, which could adversely affect our cash flow. If we set aside insufficient working capital reserves, we may be required to defer necessary or desirable property improvements. We may be subject to additional risks if we make international investments. Investments in properties outside the United States may subject us to foreign currency risks, which may adversely affect distributions and our REIT status. If we make or invest in mortgage loans, our mortgage loans may be impacted by unfavorable real estate market conditions, which could decrease the value of our mortgage investments. If we make or invest in mortgage loans, our mortgage loans will be subject to interest rate fluctuations, which could reduce our returns as compared to market interest rates as well as the value of the mortgage loans in the event we sell the mortgage loans. Delays in liquidating defaulted mortgage loans could reduce our investment returns. Potential Conflicts of Interest Risks We compete with affiliates of Hines for real estate investment opportunities. Some of these affiliates have preferential rights to accept or reject certain investment opportunities in advance of our right to accept or reject such opportunities. Any preferential rights we have to accept or reject investment opportunities are subordinate to the preferential rights of at least one affiliate of Hines. We may compete with other entities affiliated with Hines for tenants. Employees of the Advisor and Hines will face conflicts of interest relating to time management and allocation of resources and investment opportunities. Hines may face conflicts of interest if it sells properties it acquires or develops to us. Hines may face a conflict of interest when determining whether we should dispose of any property we own that is managed by Hines because Hines may lose fees associated with the management of the property. Hines may face conflicts of interest in connection with the management of our day-to -day operations and in the enforcement of agreements between Hines and its affiliates. Certain of our officers and directors face conflicts of interest relating to the positions they hold with other entities. Our UPREIT structure may result in potential conflicts of interest. If we fail to qualify as a REIT, our operations and our ability to pay dividends to our shareholders would be adversely impacted. If the Operating Partnership is classified as a publicly traded partnership under the Internal Revenue Code, our operations and our ability to pay dividends to our shareholders could be adversely affected. Dividends to tax-exempt investors may be classified as unrelated business taxable income. Investors may realize taxable income without receiving cash dividends. Foreign investors may be subject to FIRPTA tax on sale of common shares if we are unable to qualify as a domestically controlled REIT. In certain circumstances, we may be subject to federal and state income taxes as a REIT or other state or local income taxes, which would reduce our cash available to pay dividends to our shareholders.

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1262959--3/29/2006--HINES_REAL_ESTATE_INVESTMENT_TRUST_INC