GLENBOROUGH PROPERTIES L P, 424B3, 1998-11-27

GLENBOROUGH PROPERTIES L P
424B3, 1998-11-27
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING PLACES

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<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-08806

GLENBOROUGH PROPERTIES, L.P.

OFFER TO EXCHANGE ALL OUTSTANDING 7 5/8% SERIES A REDEEMABLE NOTES DUE 2005
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 7 5/8% SERIES B REDEEMABLE NOTES DUE 2005 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
------------------------

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON DECEMBER 24, 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION
DATE").

Glenborough Properties, L.P., a California limited partnership (the
"Operating Partnership") hereby offers (the "Exchange Offer"), upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal"), to exchange $1,000 or
integral multiples thereof in principal amount of its 7 5/8% Series B Redeemable
Notes due 2005 (the "New Notes") for each $1,000 or integral multiples thereof
in principal amount of its outstanding 7 5/8% Series A Redeemable Notes due 2005
(the "Old Notes") (the New Notes and the Old Notes are collectively referred to
herein as the "Notes").

Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Operating Partnership has agreed that, starting on the
Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."

The Operating Partnership will accept for exchange any and all Old Notes
that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of the Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the terms and provisions
of the Registration Rights Agreement, dated as of March 23, 1998 (the
"Registration Rights Agreement"), between the Operating Partnership, Bear,
Stearns & Co. Inc., and Salomon Brothers Inc. (the "Initial Purchasers"). The
Old Notes may be tendered only in multiples of $1,000 or integral multiples
thereof. See "The Exchange Offer."

The Old Notes were issued in a transaction (the "Initial Offering")
pursuant to which the Operating Partnership issued an aggregate of $150,000,000
principal amount of the Old Notes to the Initial Purchasers on March 23, 1998
(the "Closing Date") pursuant to an Indenture, and supplement thereto, each
dated March 23, 1998 (the "Indenture"), among the Operating Partnership, the
Company, as general partner of the Operating Partnership, and Chase Manhattan
Bank and Trust Company, National Association, as trustee (the "Trustee"). The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act"). The
Operating Partnership and the Initial Purchasers also entered into the
Registration Rights Agreement pursuant to which the Operating Partnership
granted certain registration rights for the benefit of the holders of the Old
Notes. The Exchange Offer is intended to satisfy certain of the Operating
Partnership's obligations under the Registration Rights Agreement with respect
to the Old Notes. The New Notes will be obligations of the Operating Partnership
evidencing the same indebtedness as the Old Notes and will be issued under and
entitled to the benefits of the Indenture. The form and terms of the New Notes
will be registered under the Securities Act, and therefore such New Notes will
not be subject to certain transfer restrictions, registration rights and related
Special Interest (as defined herein) provisions applicable to the Old Notes. See
"The Exchange Offer -- Purpose and Effect."

(continued on next page)
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF MATERIAL RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
------------------------

THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is November 12, 1998
<PAGE> 2

(continued from cover)

The New Notes will bear interest at the rate of 7 5/8% per annum, payable
semi-annually in arrears on March 15 and September 15 of each year, commencing
September 15, 1998, to holders of record on the immediately preceding March 1
and September 1 and will mature on March 15, 2005. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereof
from the date of the original issuance of the Old Notes or date of the last
interest payment, as applicable, to, but not including, the date of issuance of
the New Notes, such interest to be payable with the first interest payment on
the New Notes. The Notes are subject to redemption at any time at the option of
the Operating Partnership, in whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest and the Make Whole Amount (as
defined herein), if any, thereon to the date fixed for redemption.

The New Notes will be general unsecured and unsubordinated obligations of
the Operating Partnership and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. However, the New Notes will be subordinated to such secured
borrowing arrangements that the Operating Partnership has and from time to time
may enter into with various banks and other lenders, and to the prior claims of
each secured mortgage lender to any specific property owned by the Operating
Partnership which secures any lender's mortgage. As of June 30, 1998, such
arrangements and mortgages aggregated approximately $451.1 million; as adjusted
to reflect the Pro Forma Adjustments (as defined herein), such arrangements and
mortgages would have aggregated approximately $492.4 million as of June 30,
1998. Subject to certain limitations set forth in the Indenture, the Indenture
permits the Operating Partnership to incur additional indebtedness and
additional secured indebtedness. See "Description of Notes -- Covenants" and
"Recent Activities -- Financing Activities."

The Operating Partnership is making the Exchange Offer in reliance on the
position of the staff of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters issued to third
parties in other transactions. However, the Operating Partnership has not sought
its own interpretive letter, and there can be no assurance that the Commission
would make a similar determination with respect to the Exchange Offer. Based on
the Commission interpretations, the Operating Partnership believes that New
Notes issued pursuant to the Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by such holder (other than a broker-dealer who purchased Old Notes
directly from the Operating Partnership for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an affiliate
of the Operating Partnership, is acquiring the New Notes in the ordinary course
of business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the New Notes. Holders
wishing to accept the Exchange Offer must represent to the Operating Partnership
that such conditions have been met. In addition, if such holder is not a
broker-dealer, it must represent that it is not engaged in, and does not intend
to engage in, a distribution of the New Notes. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer -- Resales
of the New Notes" and "Plan of Distribution." This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities.

There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchasers have advised the Operating Partnership that
they currently intend to make a market in the New Notes; however, the Initial
Purchasers are not obligated to do so and any market making activities may be
discontinued by the Initial Purchasers at any time. Therefore, there can be no
assurance that an active market for the New Notes will develop. If such trading
market develops for the New Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest rates, the Operating
Partnership's results of operations and the market for similar securities.
<PAGE> 3

Depending on such factors, the New Notes may trade at a discount from their face
value. See "Risk Factors -- Lack of Public Market."

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with the Trustee as custodian of, or
on behalf of, The Depository Trust Company ("DTC"), as the initial depository
with respect to the Old Notes (in such capacity, the "Depositary"). The Global
Old Note is registered in the name of Cede & Co. ("Cede"), as nominee of DTC,
and beneficial interests in the Global Old Note are shown on, and transfers
thereof are effected only through, records maintained by the Depositary and its
participants, and anyone holding a beneficial interest in an Old Note registered
in the name of such a participant, to transfer interests in the Old Notes
electronically in accordance with the Depositary's established procedures
without the need to transfer a physical certificate. New Notes issued in
exchange for the Global Old Note will also be issued initially as a note in
global form (the "Global New Note," and, together with the Global Old Note, the
"Global Notes") and deposited with the Trustee as custodian of, or on behalf of,
the Depositary. After the initial issuance of the Global New Note, New Notes in
certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.

THE OPERATING PARTNERSHIP WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE
OFFER. PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT, THE OPERATING PARTNERSHIP
WILL BEAR CERTAIN REGISTRATION EXPENSES.
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 1
Incorporation by Reference.................................. 1
Prospectus Summary.......................................... 3
Operating Partnership..................................... 3
The Initial Offering...................................... 4
The Exchange Offer........................................ 5
Description of New Notes.................................. 7
Summary Risk Factors...................................... 9
Risk Factors................................................ 12
Potential Inability to Grow Due to Limited Availability of
and Competition for Real Estate Acquisitions........... 12
Potential Adverse Effects on Operations Due to Competition
for Tenants............................................ 12
Potential Adverse Effects on Operations Due to Tenants'
Defaults............................................... 12
Absence of a Public Market for the Notes.................. 12
Potential Adverse Effects of Leveraged Transactions,
Change of Control and Reorganization................... 13
Risk That Cash Flow is Insufficient for Debt Service
Requirements........................................... 13
Risk That Debt Restrictions Will Affect Operations and
Negatively Affect the Operating Partnership's Ability
to Repay Indebtedness at Maturity...................... 13
Adverse Effects on Operations Due to Fluctuations in
Interest Rates......................................... 13
Redemption Feature Might Negatively Affect the Market
Price of the New Notes................................. 13
Potential Inability to Manage Expansion Due to Addition of
New Properties......................................... 13
Acquisitions Could Adversely Affect Operations............ 14
Potential Adverse Effect on Operations Due to Assumption
of General Partner Liabilities......................... 14
Uncertainty Related to Acquisitions Through Tender
Offers................................................. 14
Potential Adverse Consequences of Transactions Involving
Conflicts of Interest.................................. 14
Dependence on Executive Officers.......................... 15
Potential Liability Due to Environmental Matters.......... 15
Environmental Assessments and Potential Liability Due to
Asbestos-Containing Materials.......................... 16
Potential Environmental Liability Resulting From
Underground Storage Tanks.............................. 16
Potential Adverse Effects of Environmental Liabilities on
Operating Costs and Ability to Borrow.................. 16
General Risks of Ownership of Real Estate................. 17
General Risks Associated With Management, Leasing and
Brokerage Contracts.................................... 17
Adverse Effects on Operations Due to Uninsured Loss....... 17
Inability to Vary Portfolio Due to Illiquidity of Real
Estate................................................. 17
Potential Liability Under the Americans With Disabilities
Act.................................................... 18
Potential Adverse Effects on Operations of Development
Alliances.............................................. 18
Limitation on Ownership of Common Stock May Preclude
Acquisition of Control................................. 18
Losses Relating to Consolidation.......................... 19
Involvement of Senior Management in Previous Chapter 11
Reorganization......................................... 19
The Company's Indebtedness Restrictions May Adversely
Affect the Operating Partnership's Ability to Incur
Indebtedness........................................... 19
Uncertainty Due to the Company's Board of Directors'
Ability to Change Investment Policies.................. 20
Impact of Year 2000 Compliance Costs on Operation......... 20
The Exchange Offer.......................................... 21
Purpose and Effect........................................ 21
Consequences of Failure to Exchange Old Notes............. 21
</TABLE>

i
<PAGE> 5
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Terms of the Exchange Offer............................... 21
Expiration Date; Extensions; Amendments................... 22
Conditions of the Exchange Offer.......................... 22
Termination of Certain Rights............................. 22
Accrued Interest.......................................... 22
Procedures For Tendering Old Notes........................ 23
Guaranteed Delivery Procedures............................ 24
Acceptance of Old Notes for Exchange; Delivery of New
Notes.................................................. 25
Withdrawal Rights......................................... 25
The Exchange Agent; Assistance............................ 26
Fees and Expenses......................................... 26
Accounting Treatment...................................... 27
Resales of the New Notes.................................. 27
Capitalization.............................................. 28
Selected Historical and Pro Forma Financial and Other
Data...................................................... 29
Pro Forma Financial Information............................. 33
Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 43
Overview.................................................. 43
Results of Operations..................................... 43
Liquidity and Capital Resources........................... 48
Inflation................................................. 49
Forward Looking Statements; Factors That May Affect
Operating Results...................................... 49
Year 2000 Compliance...................................... 50
The Operating Partnership................................... 51
Growth Strategy........................................... 51
Financing Policies........................................ 52
Investment Policies....................................... 53
Policies with Respect to Other Activities................. 54
Legal Proceedings......................................... 54
Recent Activities........................................... 56
1998 and 1997 Completed Acquisitions...................... 56
Other Acquisition Opportunities........................... 59
Redeployment of Assets.................................... 60
Financing Activities...................................... 60
Ratio of Earnings to Fixed Charges........................ 61
Business & Properties....................................... 62
Management.................................................. 67
Relationships Among Directors or Executive Officers....... 69
Description of Notes........................................ 69
General................................................... 69
Leveraged Transactions, Change of Control and
Reorganizations........................................ 70
Ranking................................................... 70
Principal, Maturity and Interest.......................... 70
Optional Redemption....................................... 71
Registration Rights; Liquidated Damages................... 71
Merger, Consolidation or Sale............................. 73
</TABLE>

ii
<PAGE> 6
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Covenants................................................. 73
Certain Definitions....................................... 75
Events of Default, Notice and Waiver...................... 77
Discharge, Defeasance and Covenant Defeasance............. 79
Modification of the Indenture............................. 80
Transfer and Exchange..................................... 81
United States Federal Income Tax Consequences............... 82
Exchange Offer............................................ 82
U.S. Holders.............................................. 82
Non-U.S. Holders.......................................... 83
Information Reporting and Backup Withholding.............. 83
Prospective Final Regulations............................. 84
Plan of Distribution........................................ 85
Experts..................................................... 85
Legal Matters............................................... 85
Index to Financial Statements............................... F-1
</TABLE>

iii
<PAGE> 7

AVAILABLE INFORMATION

The Operating Partnership has filed a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the New Notes. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement and reference is
made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Operating Partnership and the New Notes
offered hereby. This Prospectus contains summaries of the material terms and
provisions of certain documents and in each instance reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Operating Partnership and the New Notes offered
hereby. This Prospectus contains summaries of the material terms and provisions
of certain documents and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.

Glenborough Realty Trust Incorporated (the "Company" (for further
definition of the term "Company," see "Prospectus Summary" herein)) is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith the Company files
proxy statements and other information with the Commission. All reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C., 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The address of the Commission's Web Site is (http://www.sec.gov). In addition,
the Common Stock is listed on the New York Stock Exchange and similar
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

The Operating Partnership is currently subject to the periodic reporting
and other informational requirements of the Exchange Act. The Operating
Partnership has agreed that, upon consummation of the Exchange Offer, whether or
not required by the rules and regulations of the Commission, so long as any
Notes are outstanding, the Operating Partnership will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Operating Partnership were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Operating Partnership and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Operating Partnership's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Operating
Partnership were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Operating
Partnership will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Operating Partnership will
agree that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered by Rule 144(d)(4) under the
Securities Act.

INCORPORATION BY REFERENCE

The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:

a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;

b. The Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997, filed with the Commission on September 10, 1998;

1
<PAGE> 8

c. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;

d. The Company's Quarterly Reports on Form 10-Q/A for the quarters
ended March 31, 1998 and June 30, 1998, each filed with the Commission on
September 10, 1998;

e. The Company's Current Reports on Form 8-K filed with the Commission
on April 29, 1998, May 7, 1998, July 10, 1998, July 15, 1998, July 22, 1998
and October 27, 1998;

f. The Company's Current Reports on Form 8-K/A filed with the
Commission on May 15, 1998, August 13, 1998 and September 10, 1998 ;

g. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-14162); and

h. The description of the Company's 7 3/4% Convertible Preferred Stock
(liquidation preference $25.00 per share), par value $0.001 per share,
contained in the Company's Registration Statement on Form 8-A (File No.
1-14162).

As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document,
copies of which are available from the Operating Partnership as described below,
each such statement being qualified in all respects by such reference.

The Operating Partnership will provide without charge to each person to
whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus (excluding exhibits to
the information that is incorporated herein by reference unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates). Requests for such copies should be directed to
Shareholder Services, Glenborough Realty Trust Incorporated, 400 South El Camino
Real Suite 1100, San Mateo, California 94402-1708; telephone number (650)
343-9300.

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus (or in the applicable Prospectus).

2
<PAGE> 9

PROSPECTUS SUMMARY

The following is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. As used herein,
the term "Operating Partnership" means Glenborough Properties, L.P., a
California limited partnership, and the term "Company" means Glenborough Realty
Trust Incorporated, a Maryland corporation, and its consolidated subsidiaries
for the periods from and after December 31, 1995 (the date the Company merged
(the "Consolidation") with and into Glenborough Corporation, a California
corporation ("Old GC") and eight public limited partnerships (collectively with
Old GC, the "GRT Predecessor Entities")) and the Company's predecessor
partnerships and companies for periods prior to the Consolidation, unless the
context indicates otherwise. The previous offering and sale in a private
placement of $150,000,000 aggregate principal amount of 7 5/8% Series A
Redeemable Notes Due 2005 (the "Old Notes"), which closed on March 23, 1998 (the
"Closing Date"), is herein referred to as the "Initial Offering," and the
exchange offering of the Old Notes for up to $150,000,000 aggregate principal
amount of 7 5/8% Series B Redeemable Notes Due 2005 (the "New Notes") which have
been registered with the Commission under the Securities Act of 1933 (the
"Securities Act") made hereby is herein referred to as the "Exchange Offer." As
used herein, the term "Pro Forma Adjustments" with respect to June 30, 1998
calculations, means that such calculations have been adjusted to reflect the
acquisition of the Pauls Portfolio and 3 Executive Drive and certain other
adjustments (see "Pro Forma Financial Information"), as if such transactions had
been completed on June 30, 1998. Unless otherwise indicated, ownership
percentages of the units of limited partnership interests in the Operating
Partnership have been calculated assuming the entire Preferred Partner Interest
(as defined below) has been converted into such units. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Operating
Partnership's and the Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth herein under "Risk Factors" and elsewhere in
this Prospectus.

OPERATING PARTNERSHIP

The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed real estate investment trust ("REIT"). As of
September 30, the Operating Partnership owned a diversified portfolio of 190
office, office/flex, industrial, retail, multi-family and hotel properties
(collectively, the "Properties," and each a "Property") aggregating
approximately 24.7 million square feet located in 24 states throughout the
country. In addition, two associated companies, Glenborough Corporation ("GC")
and Glenborough Hotel Group ("GHG," and together with GC, the "Associated
Companies"), provide comprehensive asset, partnership and property management
services for a diversified portfolio of 39 additional properties that are not
owned by the Operating Partnership. The combined portfolios encompass
approximately 28.8 million rentable square feet in 24 states.

The Operating Partnership holds directly or indirectly all of the Company's
interests in the Properties and all of the Company's operations relating to the
Properties are conducted through the Operating Partnership. The Operating
Partnership is controlled by the Company as its sole general partner and, as of
September 30, 1998, the Company owned a 1% general partnership interest and an
approximate 89% limited partnership interest in the Operating Partnership. The
description of the Company's business and properties (excluding shares of
non-voting preferred stock in GHG held by the Company and shares of non-voting
preferred stock in GC previously held by the Company and now held by the
Operating Partnership) incorporated by reference herein, would apply, without
material differences, to the Operating Partnership's business and properties.

The Operating Partnership's principal strategy is to acquire diversified
portfolios or individual properties on attractive terms. This strategy has
evolved from the Company's predecessors' experience since 1978 in managing real
estate partnerships and their assets and, since 1989, in acquiring portfolios
and management interests from third parties. As of the date of the
Consolidation, the GRT Predecessor Entities had 17 years of experience in owning
and operating properties.

In particular, unlike most REITs, which typically purchase specific types
of properties or properties located in regional markets, the Company through the
Operating Partnership seeks to purchase portfolios of properties which are
diversified by both property type and location. The management believes the
Operating

3
<PAGE> 10

Partnership can acquire such diversified portfolios at attractive prices from
partnerships as well as REITs, life insurance companies and other institutions
because it can provide liquidity to portfolio owners who might otherwise face a
limited market for their diversified portfolios, or who might be forced to
liquidate through multiple sales of the individual properties which can be more
expensive and time consuming than the single sale of the entire portfolio.

Furthermore, the Operating Partnership's UPREIT structure allows it to
address the current owners' tax concerns and structure transactions that may
defer taxable gains. The Operating Partnership has issued partnership units in
the Operating Partnership, which are redeemable for cash or exchangeable for the
Company's Common Stock, to sellers in connection with the acquisition of
Properties with a total acquisition cost of over $690 million.

The Operating Partnership's executive offices are located at 400 South El
Camino Real, Suite 1100, San Mateo, California 94402-1708 and its telephone
number is (650) 343-9300.

The following table sets forth certain information with respect to the
Properties owned by the Operating Partnership as of September 30, 1998. For
information regarding the individual Properties the Operating Partnership owned
as of September 30, 1998, see "The Properties."

PROPERTY TABLE BY PROPERTY TYPE(1)

<TABLE>
<CAPTION>
OCCUPANCY RATE
RENTABLE AS OF
TYPE OF PROPERTY SQ. FT. JUNE 30, 1998(1)
---------------- ---------- ----------------
<S> <C> <C>
Office........................................... 7,029,816 95%
Office/Flex...................................... 4,560,536 92
Industrial....................................... 4,265,126 97
Retail........................................... 1,224,055 94
---------- --
Subtotal/Weighted Average................... 17,079,533 95%
---------- --
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY RATE
RENTABLE AS OF
UNITS/ROOMS SQ. FT. JUNE 30, 1998
----------- ---------- ---------------------
<S> <C> <C> <C>
Multi-family................... 9,353 7,413,084 94%
Hotels......................... 572 252,339 69(2)
----------
Subtotal Square Feet...... 7,665,423
----------
Total Square Feet.... 24,744,956
==========
</TABLE>

- ---------------
(1) Represents physical occupancy as of June 30, 1998.

(2) Represents average physical occupancy for the three months ended June 30,
1998.

THE INITIAL OFFERING

The outstanding $150.0 million principal amount of Old Notes were sold by
the Operating Partnership to the Initial Purchasers on the Closing Date pursuant
to the Indenture among the Operating Partnership, the Company and the Trustee.
The Initial Purchasers subsequently resold the Old Notes in reliance on Rule
144A under the Securities Act. The Operating Partnership and the Initial
Purchasers also entered into the Registration Rights Agreement pursuant to which
the Operating Partnership granted certain registration rights for the benefit of
the holders of the Old Notes. The Exchange Offer is intended to satisfy certain
of the Operating Partnership's obligations under the Registration Rights
Agreement with respect to the Old Notes. See "The Exchange Offer" and "The
Exchange Offer -- Purpose and Effect."

4
<PAGE> 11

THE EXCHANGE OFFER

Securities Offered............ Up to $150.0 million principal amount of 7 5/8%
Series B Redeemable Notes Due 2005, which have
been registered under the Securities Act. The
form and term of the New Notes are substantially
identical to the Old Notes in all material
respects, except that the New Notes will be
registered under the Securities Act, and
therefore will not be subject to certain
transfer restrictions, registration rights and
related Special Interest provisions applicable
to the Old Notes.

The Exchange Offer............ The Operating Partnership is offering, upon the
terms and subject to the conditions set forth
herein and in the Letter of Transmittal, to
exchange $1,000 or integral multiples thereof in
principal amount of New Notes for each $1,000 or
integral multiples thereof in principal amount
of outstanding Old Notes of the corresponding
maturity, with Global New Notes being exchanged
for Global Old Notes. As of the date of this
Prospectus $150.0 million in aggregate principal
amount of the Old Notes were outstanding. As of
November 17, 1998 there was one registered
holder of the Old Notes, Cede & Co., which held
the entire $150.0 million of Old Notes for 18 of
its participants. See "The Exchange
Offer -- Terms of the Exchange Offer."

Expiration Date............... The Exchange Offer will expire at 5:00 p.m., New
York City time, on December 24, 1998, or such
later date and time to which it is extended. See
"The Exchange Offer -- Terms of the Exchange
Offer."

Withdrawal.................... Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m. New York City time on the Expiration Date.
See "The Exchange Offer -- Expiration Date:
Extensions; Amendments."

Conditions of the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. The only condition to the
Exchange Offer is the declaration by the
Commission of the effectiveness of the
Registration Statement of which this Prospectus
constitutes a part. Such Registration Statement
was declared effective on November 12, 1998. See
"The Exchange offer -- Conditions of the
Exchange Offer."

Procedures for Tendering Old
Notes......................... Each holder of Old Notes desiring to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal according to the
instructions contained herein and therein, and
mail or otherwise deliver the Letter of
Transmittal, together with the Old Notes and any
other required documents, to the Exchange Agent
(as defined herein) at the address set forth
herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any beneficial owner
whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such
Old Notes in the Exchange Offer should instruct
such entity or person to promptly tender on such
beneficial owner's behalf.

Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes, the Letter of Transmittal or
any other

5
<PAGE> 12

documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date may tender their Old Notes according to the
guaranteed delivery procedures set forth in the
Letter of Transmittal. See "The
Exchange -- Guaranteed Delivery Procedures."

Acceptance of Old Notes and
Delivery of New Notes......... The Operating Partnership will accept any and
all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old
Notes. See "Exchange Offer -- Acceptance of Old
Notes for Exchange; Delivery of New Notes."

The Exchange Agent............ Chase Manhattan Bank and Trust Company, National
Association has agreed to serve as the exchange
agent (in such capacity, the "Exchange Agent")
in connection with the Exchange Offer. See "The
Exchange Offer -- The Exchange Agent."

Federal Income Tax
Consequences.................. The exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an
exchange or other taxable event for U.S. federal
income tax purposes because, under the
Regulations (defined herein), the New Notes do
not differ materially in kind or extent from the
Old Notes. Instead, the New Notes received by a
holder will be treated as a continuation of the
Old Notes in the hands of such Holder. As a
result, there will be no U.S. federal income tax
consequences to holders who exchange Old Notes
for New Notes pursuant to the Exchange Offer and
any such holder will have the same tax basis and
holding period in the New Notes as it had in the
Old Notes immediately before the exchange. See
"United States Federal Income Tax Consequences."

Use of Proceeds............... There will be no proceeds to the Operating
Partnership from the exchange pursuant to the
Exchange Offer. See "Use of Proceeds."

Fees and Expenses............. All expenses incident to the Operating
Partnership's consummation of the Exchange Offer
and compliance with the Registration Rights
Agreement will be borne by the Operating
Partnership. The Operating Partnership will also
pay certain transfer taxes applicable to the
Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."

Termination of Certain
Rights........................ Pursuant to the Registration Rights Agreement,
holders of Old Notes (i) have rights to receive
Special Interest and (ii) have certain rights
intended for the holders of unregistered
securities. As used herein, "Special Interest"
means additional interest of .50% per annum of
the principal amount of the Old Notes during the
first 90 days of a Registration Default (defined
herein), increasing by an additional (0.50% per
annum for each additional 90-day period (up to a
maximum of 2.0% per annum of the principal
amount) for any period during which a
Registration Default is continuing pursuant to
the terms of the Registration Rights Agreement.
Holders of New Notes will no longer be, and upon
consummation of the Exchange Offer, holders of
Old Notes will no longer be, entitled to (i) the
right to receive Special Interest and (ii)
certain other rights under the Registration
Rights Agreement intended for holders of
unregistered

6
<PAGE> 13

securities. See "The Exchange
Offer -- Termination of Certain Rights" and
"Procedures for Tendering Old Notes."

Accrued Interest.............. The New Notes will bear interest at a rate equal
to 7 5/8% per annum from their date of issuance.
Holders whose Old Notes are accepted for
exchange will have the right to receive interest
accrued thereon from the date of original
issuance or date of the last interest payment,
as applicable, to, but not including, the date
of issuance of the New Notes, such interest to
be payable with the first interest payment on
the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on
the day prior to the issuance of the New Notes.
See "Description of Notes -- Principal, Maturity
and Interest."

Resales of New Notes.......... Based on the position of the staff of the
Commission as set forth in certain interpretive
letters issued to third parties in other
transactions, the Operating Partnership believes
that the New Notes issued pursuant to the
Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a
holder (other than (i) a broker-dealer who
purchased the Old Notes directly from the
Operating Partnership for resale pursuant to
Rule 144A under the Securities Act or any other
available exemption under the Securities Act of
and (ii) a person that is an affiliate of the
Operating Partnership within the meaning of Rule
405 under the Securities Act), without further
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such holder is not an affiliate of
the Operating Partnership, in acquiring the New
Notes in the ordinary course of business and is
not participating, and has no arrangement or
understanding with any person to participate, in
a distribution of the New Notes. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such broker as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes" and "Plan of
Distribution."

Effect of Not Tendering Old
Notes for Exchange............ Old Notes that are not tendered or that are not
properly tendered will, following the expiration
of the Exchange Offer, continue to be subject to
the existing restriction upon transfer thereof.
The Operating Partnership will have no further
obligations to provide for the registration
under the Securities Act of such Old Notes and
such Old Notes will, following the expiration of
the Exchange Offer, bear interest at the same
rate as the New Notes.

DESCRIPTION OF NEW NOTES

The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore will not be subject to
certain transfer restrictions, registration rights and related Special Interest
provisions applicable to the Old Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Operating Partnership to
the Exchange Agent of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination
of Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description
of Notes."

7
<PAGE> 14

Securities Offered............ $150.0 million aggregate principal amount of
7 5/8% Series B Redeemable Notes Due 2005 of the
Operating Partnership

Maturity Date................. March 15, 2005.

Denominations................. $1,000 or integral multiples thereof.

Interest Payment Dates........ Interest on the New Notes is payable
semi-annually on March 15 and September 15 of
each year, commencing March 15, 1999.

Optional Redemption by the
Operating Partnership......... The New Notes are redeemable at any time at the
option of the Operating Partnership, in whole or
in part, at a redemption price equal to the sum
of (i) the principal amount of the New Notes
being redeemed plus accrued interest to the
redemption date, and (ii) the Make-Whole Amount,
if any. See "Description of Notes -- Optional
Redemption."

Ranking....................... The New Notes will be general unsecured and
unsubordinated obligations of the Operating
Partnership and will rank pari passu with all
other unsecured and unsubordinated indebtedness
of the Operating Partnership from time to time
outstanding. However, the New Notes will be
subordinated to secured borrowing arrangements
that the Operating Partnership has and from time
to time may enter into with various banks and
other lenders, and to the prior claims of each
secured mortgage lender to any specific Property
which secures any lender's mortgage. As of June
30, 1998, such arrangements and mortgages
aggregated approximately $451.1 million; as
adjusted to reflect the Pro Forma Adjustments,
such arrangements and mortgages would have
aggregated $492.4 million as of June 30, 1998.
See "Recent Activities -- Financing Activities"
and "Capitalization." Subject to certain
limitations set forth in the Indenture, the
Indenture permits the Operating Partnership to
incur additional indebtedness and additional
secured indebtedness. See "Description of
Notes -- Covenants."

Certain Covenants............. The Indenture with respect to the Notes contains
various covenants, including the following:

(1) The Operating Partnership will not incur any
Debt if, after giving effect thereto, the
aggregate principal amount of all outstanding
Debt of the Operating Partnership is greater
than 60% of the sum of (i) Total Assets as of
the end of the Operating Partnership's fiscal
quarter ended immediately prior to the
incurrence of such additional Debt and (ii) the
increase in Total Assets since the end of such
quarter, including any increase in Total Assets
resulting from the incurrence of such additional
Debt (such increase, together with the Total
Assets, the "Adjusted Total Assets"). As of June
30, 1998, as adjusted to reflect the Pro Forma
Adjustments, the Operating Partnership's
aggregate principal amount of all outstanding
Debt would have been 49.5% of Adjusted Total
Assets.

(2) The Operating Partnership will not incur any
Debt if the ratio of Consolidated Income
Available for Debt Service to the Annual Service
Charge on all debt outstanding immediately after
the incurrence of such additional Debt for the
four consecutive fiscal quarters most recently
ended prior to the date of the incurrence of
such
8
<PAGE> 15

additional Debt, on a pro forma basis, would be
less than 1.5 to 1.0. As of June 30, 1998, as
adjusted to reflect the pro forma adjustments as
described under the caption "Pro Forma Financial
Information," the Operating Partnership's ratio
of Consolidated Income Available for Debt
Service would have been 2.49 times the Annual
Service Charge on all Debt.

(3) The Operating Partnership will not incur any
Secured Debt if, after giving effect thereto,
the aggregate amount of all outstanding Secured
Debt is greater than 40% of Adjusted Total
Assets. As of June 30, 1998, as adjusted to
reflect the Pro Forma Adjustments, the Operating
Partnership's aggregate amount of all
outstanding Secured Debt would have been 25.3%
of Adjusted Total Assets.

(4) The Operating Partnership will maintain
Total Unencumbered Assets of not less than 150%
of the aggregate outstanding principal amount of
Unsecured Debt. As of June 30, 1998, as adjusted
to reflect the Pro Forma Adjustments, the
Operating Partnership's Total Unencumbered
Assets would have been 232.5% of the aggregate
outstanding principal amount of Unsecured Debt.

For a more complete description of the terms and
definitions used in the foregoing limitations,
see "Description of Notes -- Certain Covenants."

Rating........................ The Notes have received ratings from Fitch IBCA
and Moody's Investors Service of BBB and Ba1,
respectively.

SUMMARY RISK FACTORS

Prospective purchasers of the Notes should carefully consider the matters
set forth under "Risk Factors" and as well as the other information, historical
financial statements and data and the pro forma financial data included in this
Prospectus in evaluating the Exchange Offer. These factors include the
following:

POTENTIAL INABILITY TO GROW DUE TO LIMITED AVAILABILITY OF AND COMPETITION
FOR REAL ESTATE ACQUISITIONS

If properties are not available for acquisition, it could have a
negative impact on the growth of the Operating Partnership. Some of the
Operating Partnership's competitors are larger and have greater financial
resources than the Operating Partnership. This competition may result in a
higher cost for properties the Operating Partnership wishes to purchase.

POTENTIAL ADVERSE EFFECTS ON OPERATIONS DUE TO COMPETITION FOR TENANTS

Although the Operating Partnership has established annual property
budgets that include estimates of costs for renovation and reletting
expenses that it believes are reasonable in light of each property's
situation, no assurance can be given that these estimates will sufficiently
cover these expenses. If the Operating Partnership is unable to promptly
lease all or substantially all of the space at its properties, if the
rental rates are significantly lower than expected, or if the Operating
Partnership's reserves for these purposes prove inadequate, then there
could be an adverse effect on the Operating Partnership's results of
operations, financial condition and ability to service debt.

POTENTIAL ADVERSE EFFECTS ON OPERATIONS DUE TO TENANTS' DEFAULTS

In the event of the financial failure or bankruptcy of a tenant, there
can be no assurance that the Operating Partnership could promptly recover
the tenant's premises from the tenant or from a trustee or

9
<PAGE> 16

debtor-in-possession in any bankruptcy proceeding filed by or against that
tenant, or that the Operating Partnership would receive rent in the
proceeding sufficient to cover its expenses with respect to the premises.
If any tenant defaults on its obligations to the Operating Partnership,
there could be an adverse effect on the Operating Partnership's results of
operations, financial condition and ability to service debt.

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

The Notes are a new issue of securities for which there is currently
no public market. The Operating Partnership does not intend to apply for
listing of the Notes on any securities exchange or on the Nasdaq National
Market. Although the Initial Purchasers have informed the Operating
Partnership that they currently intend to make a market in the Notes, they
are not obligated to do so and any such market-making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Notes. If a market for
the Notes were to develop, the Notes may trade at prices that may be higher
or lower than their respective initial offering price depending upon many
factors. In addition, such market making activity may be limited during the
Exchange Offer and the pendency of any Shelf Registration Statement.

POTENTIAL ADVERSE EFFECTS OF LEVERAGED TRANSACTIONS, CHANGE OF CONTROL AND
REORGANIZATION

DEBT FINANCING; RISK THAT CASH FLOW IS INSUFFICIENT FOR DEBT SERVICE
REQUIREMENTS; RISK THAT DEBT RESTRICTIONS WILL AFFECT OPERATIONS; RISK OF
INABILITY TO REPAY INDEBTEDNESS AT MATURITY

The Operating Partnership intends to incur additional indebtedness in
the future, including through borrowings under a credit facility, to
finance property acquisitions. As a result, the Operating Partnership
expects to be subject to risks associated with debt financing, including
the risk that interest rates may increase, the risk that the Operating
Partnership's cash flow will be insufficient to meet required payments on
its debt and the risk that the Operating Partnership may be unable to
refinance or repay the debt as it comes due (including with respect to the
Notes). The Operating Partnership's current $250 million unsecured
Acquisition Credit Facility with Wells Fargo Bank, N.A. provides that
distributions may not exceed the lesser of (i) 90% of funds from operations
and (ii) the minimum amount that the Company must distribute to its
stockholders in order to avoid federal tax liability and remain qualified
as a REIT. If the Operating Partnership is unable to obtain acceptable
financing to repay indebtedness at maturity, the Operating Partnership may
have to sell properties to repay indebtedness or properties may be
foreclosed upon, which could have an adverse effect on the Operating
Partnership's results of operations and financial condition. Also, as of
June 30, 1998, $254.6 million of the Operating Partnership's total
indebtedness was secured by mortgages that included cross-collateralization
provisions.

ADVERSE EFFECTS ON OPERATIONS DUE TO FLUCTUATIONS IN INTEREST RATES

As of June 30, 1998, the Operating Partnership had approximately
$385.7 million of variable rate indebtedness, which bears interest at a
floating rate. Therefore, an increase in interest rates will have an
adverse effect on the Company's net income, results of operations and
ability to service debt.

10
<PAGE> 17

In addition to the above risk factors, prospective purchasers should
also carefully consider the following matters set forth in the "Risk
Factors" section below:

- Redemption Feature Might Negatively Affect the Market Price of
the New Notes

- Potential Inability to Manage Expansion Due to Addition of New
Properties

- Acquisitions Could Adversely Affect Operations

- Potential Adverse Effect on Operations Due to Assumption of
General Partner Liabilities

- Uncertainty Related to Acquisitions Through Tender Offers

- Potential Adverse Consequences of Transactions Involving
Conflicts of Interest

- Dependence on Executive Officers

- Potential Liability Due to Environmental Matters

- Environmental Assessments and Potential Liability Due to
Asbestos-Containing Materials

- Potential Environmental Liability Resulting From Underground
Storage Tanks

- Potential Adverse Effects of Environmental Liabilities on
Operating Costs and Ability to Borrow

- General Risks of Ownership of Real Estate

- General Risks Associated With Management, Leasing and Brokerage
Contracts

- Adverse Effects on Operations Due to Uninsured Loss

- Inability to Vary Portfolio Due to Illiquidity of Real Estate

- Potential Liability Under the Americans With Disabilities Act

- Potential Adverse Effects on Operations of Development
Alliances

- Limitation on Ownership of Common Stock May Preclude
Acquisition of Control

- Losses Relating to Consolidation

- Involvement of Senior Management in Previous Chapter 11
Reorganization

- The Company's Indebtedness Restrictions May Adversely Affect
the Operating Partnership's Ability to Incur Indebtedness

- Uncertainty Due to Board of Directors' Ability to Change
Investment Policies

- Impact of Year 2000 Compliance Costs on Operations

11
<PAGE> 18

RISK FACTORS

Prospective investors should read this entire Prospectus carefully,
including all appendices and supplements hereto, and should consider carefully
the following factors in evaluating the Exchange Offer.

POTENTIAL INABILITY TO GROW DUE TO LIMITED AVAILABILITY OF AND COMPETITION FOR
REAL ESTATE ACQUISITIONS

The Operating Partnership's growth is dependent upon acquisitions. There
can be no assurance that properties will be available for acquisition or, if
available, that the Operating Partnership will be able to purchase such
properties on favorable terms. If such acquisitions are not available it could
have a negative impact on the growth of the Operating Partnership. Furthermore,
the Operating Partnership faces competition from other businesses, individuals,
fiduciary accounts and plans and other entities in the acquisition, operation
and sale of its properties. Some of the Operating Partnership's competitors are
larger and have greater financial resources than the Operating Partnership. This
competition may result in a higher cost for properties the Operating Partnership
wishes to purchase.

POTENTIAL ADVERSE EFFECTS ON OPERATIONS DUE TO COMPETITION FOR TENANTS

The Operating Partnership is subject to the risk that when space becomes
available at its properties the leases may not be renewed, the space may not be
let or relet, or the terms of the renewal or reletting (including the cost of
required renovations or concessions to tenants) may be less favorable to the
Operating Partnership. Although the Operating Partnership has established annual
property budgets that include estimates of costs for renovation and reletting
expenses that it believes are reasonable in light of each property's situation,
no assurance can be given that these estimates will sufficiently cover these
expenses. If the Operating Partnership is unable to promptly lease all or
substantially all of the space at its properties, if the rental rates are
significantly lower than expected, or if the Operating Partnership's reserves
for these purposes prove inadequate, then there could be an adverse effect on
the Operating Partnership's results of operations, financial condition and
ability to service debt.

POTENTIAL ADVERSE EFFECTS ON OPERATIONS DUE TO TENANTS' DEFAULTS

The ability of the Operating Partnership to manage its assets is subject to
federal bankruptcy laws and state laws affecting creditors' rights and remedies
available to real property owners. In the event of the financial failure or
bankruptcy of a tenant, there can be no assurance that the Operating Partnership
could promptly recover the tenant's premises from the tenant or from a trustee
or debtor-in-possession in any bankruptcy proceeding filed by or against that
tenant, or that the Operating Partnership would receive rent in the proceeding
sufficient to cover its expenses with respect to the premises. In the event of
the bankruptcy of a tenant, the Operating Partnership will be subject to the
provisions of the federal bankruptcy code, which in some instances may restrict
the amount and recoverability of claims held by the Operating Partnership
against the tenant. If any tenant defaults on its obligations to the Operating
Partnership, there could be an adverse effect on the Operating Partnership's
results of operations, financial condition and ability to service debt.

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

The Notes are a new issue of securities for which there is currently no
public market. The Operating Partnership does not intend to apply for listing of
the Notes on any securities exchange or on the Nasdaq National Market. Although
the Initial Purchasers have informed the Operating Partnership that they
currently intend to make a market in the Notes, they are not obligated to do so
and any such market-making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Notes. If a market for the Notes were to develop, the Notes may
trade at prices that may be higher or lower than their respective initial
offering price depending upon many factors, including prevailing interest rates,
the Operating Partnership's operating results and the markets for similar
securities. In addition, such market making activity may be limited during the
Exchange Offer and the pendency of any Shelf Registration Statement. See
"Description of Notes -- Registration Rights; Liquidated Damages." Therefore,
there can be no assurance that an active market for the Notes or, if issued, the
Exchange Notes will develop or, if such a market develops, that it will
continue.

12
<PAGE> 19

POTENTIAL ADVERSE EFFECTS OF LEVERAGED TRANSACTIONS, CHANGE OF CONTROL AND
REORGANIZATION

Except as provided under "Description of Notes -- Merger, Consolidation or
Sale" and "-- Covenants" below, the Notes and the Indenture do not contain any
other provisions that would afford Holders of the Notes protection in the event
of (i) a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the Holders of the Notes. The
financial covenants of the Operating Partnership described below would continue
to apply, unless waived by Holders of the Notes, in the event of a highly
leveraged or similar transaction involving the Operating Partnership, management
of the Operating Partnership or the Company, or any affiliate of either such
party. See "Description of Notes -- Covenants." In addition, subject to the
limitations set forth below under "Description of Notes -- Merger, Consolidation
or Sale," the Operating Partnership may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership that would increase the
amount of the Operating Partnership's indebtedness or substantially reduce or
eliminate the Operating Partnership's assets, which may have an adverse effect
on the Operating Partnership's ability to service its indebtedness, including
the Notes. The Operating Partnership has no present intention of engaging in a
highly leveraged or similar transaction involving the Operating Partnership. In
addition, certain restrictions on ownership and transfers of the Company's stock
designed to preserve its status as a REIT may act to prevent or hinder any such
transactions or a change of control.

RISK THAT CASH FLOW IS INSUFFICIENT FOR DEBT SERVICE REQUIREMENTS

RISK THAT DEBT RESTRICTIONS WILL AFFECT OPERATIONS AND NEGATIVELY AFFECT THE
OPERATING PARTNERSHIP'S ABILITY TO REPAY INDEBTEDNESS AT MATURITY

The Operating Partnership's current $250 million unsecured Acquisition
Credit Facility with Wells Fargo Bank, N.A. provides that distributions may not
exceed the lesser of (i) 90% of funds from operations and (ii) the minimum
amount that the Company must distribute to its stockholders in order to avoid
federal tax liability and remain qualified as a REIT. If the Operating
Partnership is unable to obtain acceptable financing to repay indebtedness at
maturity, the Operating Partnership may have to sell properties to repay
indebtedness or properties may be foreclosed upon, which could have an adverse
effect on the Operating Partnership's results of operations and financial
condition. Also, as of June 30, 1998, $254.6 million of the Operating
Partnership's total indebtedness was secured by mortgages that included
cross-collateralization provisions.

ADVERSE EFFECTS ON OPERATIONS DUE TO FLUCTUATIONS IN INTEREST RATES

As of June 30, 1998, the Operating Partnership had approximately $385.7
million of variable rate indebtedness, which bears interest at a floating rate.
Therefore, an increase in interest rates will have an adverse effect on the
Company's net income, results of operations and ability to service debt.

REDEMPTION FEATURE MIGHT NEGATIVELY AFFECT THE MARKET PRICE OF THE NEW NOTES

The New Notes are redeemable at any time at the option of the Operating
Partnership, in whole or in part, at a redemption price equal to the sum of (i)
the principal amount of the New Notes being redeemed plus accrued interest to
the redemption date, and (ii) the Make Whole Amount, if any. This redemption
feature might affect the market value of the New Notes. Since the Operating
Partnership may be expected to redeem such New Notes when prevailing interest
rates are relatively low, an investor might not be able to reinvest the
redemption proceeds at an effective rate as high as the interest rate on such
New Notes.

POTENTIAL INABILITY TO MANAGE EXPANSION DUE TO ADDITION OF NEW PROPERTIES

The Operating Partnership has experienced a period of rapid growth. Since
the Consolidation on December 31, 1995, the Operating Partnership has invested
approximately $1.76 billion in properties, as of the

13
<PAGE> 20

date of this filing. The Operating Partnership's ability to manage its growth
effectively will require it to apply successfully its experience managing its
existing portfolio to new markets and to an increased number of properties.
There can be no assurance that the Operating Partnership will be able to manage
these operations effectively. The Operating Partnership's inability to
effectively manage its expansion could have an adverse effect on the Operating
Partnership's results of operations, financial condition and ability to service
debt.

ACQUISITIONS COULD ADVERSELY AFFECT OPERATIONS

Consistent with its growth strategy, the Operating Partnership is
continually pursuing and evaluating potential acquisition opportunities, and is
from time to time actively considering the possible acquisition of specific
properties, which may include properties managed or controlled by one of the
Associated Companies or owned by affiliated parties. It is possible that one or
more of such possible future acquisitions, if completed, could adversely affect
the Operating Partnership's results from operations, financial condition and
ability to service debt.

POTENTIAL ADVERSE EFFECT ON OPERATIONS DUE TO ASSUMPTION OF GENERAL PARTNER
LIABILITIES

The Operating Partnership and its predecessors have acquired a number of
their properties by acquiring partnerships that own the properties or by first
acquiring general partnership interests and at a later date acquiring the
properties, and the Operating Partnership may pursue acquisitions in this manner
in the future. When the Operating Partnership uses this acquisition technique, a
subsidiary of the Company becomes a general partner. As a general partner the
Company's subsidiary becomes generally liable for the debts and obligations of
the partnership, including debts and obligations that may be contingent or
unknown at the time of the acquisition. In addition, the Company's subsidiary
assumes obligations under the partnership agreements, which may include
obligations to make future contributions for the benefit of other partners. The
Company undertakes detailed due diligence reviews to ascertain the nature and
extent of obligations that its subsidiary will assume when it becomes a general
partner, but there can be no assurance that the obligations assumed will not
exceed the Company's estimates or that the assumed liabilities will not have an
adverse effect on the Operating Partnership's results of operations or financial
condition. In addition, an Associated Company may enter into management
agreements pursuant to which it assumes certain obligations as manager of
properties. There can be no assurance that these obligations will not have an
adverse effect on the Associated Companies' results of operations or financial
condition, which could adversely affect the value of the Operating Partnership's
results of operations or financial conditions and ability to service debt.

UNCERTAINTY RELATED TO ACQUISITIONS THROUGH TENDER OFFERS

The Operating Partnership may, as part of its growth strategy, acquire
properties and portfolios of properties through tender offer acquisitions of
interests in public and private partnerships and other REITs. Tender offers
often result in competing tender offers, as well as litigation initiated by
limited partners in the subject partnerships or by competing bidders. Due to the
inherent uncertainty of litigation, the Operating Partnership could be subject
to adverse judgments in substantial amounts. As the Operating Partnership has
not yet attempted an acquisition through the tender offer process, and because
of competing offers and possible litigation, there can be no assurance that, if
undertaken, the Operating Partnership would be successful in acquiring
properties through a tender offer or that the tender offer process would not
result in litigation and a significant judgment adverse to the Operating
Partnership.

POTENTIAL ADVERSE CONSEQUENCES OF TRANSACTIONS INVOLVING CONFLICTS OF INTEREST

The Operating Partnership has acquired, and from time to time may acquire,
properties from partnerships that Robert Batinovich, the Company's Chairman and
Chief Executive Officer, and Andrew Batinovich, the Company's President and
Chief Operating Officer, control, and in which they and members of their
families have substantial interests. These transactions involve or will involve
conflicts of interest. These transactions may provide substantial economic
benefits such as the payments or unit issuances, relief or deferral of tax
liabilities, relief of primary or secondary liability for debt, and reduction in
exposure to other property-related liabilities. Company policy provides that
interested directors may not vote with regard to transactions in which they have
a substantial interest, and such transactions may only be completed if they are
approved by a majority of the disinterested directors, with the interested
directors abstaining. Despite this policy and the presence of appraisals or
fairness opinions or review by parties who have no interest in the transactions,
the transactions will not be the product of arm's-length negotiation and there
can be no assurance that these

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transactions will be as favorable to the Operating Partnership as transactions
that the Operating Partnership negotiates with unrelated parties or will not
result in undue benefit to Robert and Andrew Batinovich and members of their
families. Neither Robert Batinovich nor Andrew Batinovich has guaranteed that
any properties acquired from entities they control or in which they or their
families have a significant interest will be as profitable as other investments
made by the Operating Partnership or will not result in losses.

DEPENDENCE ON EXECUTIVE OFFICERS

The Operating Partnership is dependent on the efforts of Robert and Andrew
Batinovich, its Chief Executive Officer and its President and Chief Operating
Officer, respectively, of the Company and of the Company's other executive
officers. The loss of the services of any of them could have an adverse effect
on the results of operations and financial condition of the Operating
Partnership and the Company. Both Robert and Andrew Batinovich have entered into
employment agreements with the Company.

POTENTIAL LIABILITY DUE TO ENVIRONMENTAL MATTERS

Under federal, state and local laws, ordinances and regulations relating to
protection of the environment ("Environmental Laws"), a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of petroleum products or other hazardous or toxic
substances at such property, and may be required to investigate and clean-up
such contamination at such property or such contamination which has migrated
from such property. Such laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of, or was
responsible for, the presence of such contamination, and the liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. In
addition, the owner or operator of a property may be subject to claims by third
parties based on personal injury, property damage and/or other costs, including
investigation and clean-up costs, resulting from environmental contamination
present at or emanating from such property. Environmental Laws may also impose
restrictions on the manner in which a property may be used or transferred or in
which businesses may be operated, and these restrictions may require
expenditures. Under the Environmental Laws, any person who arranges for the
transportation, disposal or treatment of hazardous or toxic substances may also
be liable for the costs of investigation or clean-up of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person.

Although tenants of the Properties owned by the Operating Partnership
generally are required by their leases to operate in compliance with all
applicable federal, state and local environmental laws, ordinances and
regulations and to indemnify the Operating Partnership against any environmental
liability arising from the tenants' activities on the Properties, the Operating
Partnership could nevertheless be subject to environmental liability relating to
its management of the Properties or strict liability by virtue of its ownership
interest in the Properties and there can be no assurance that the tenants would
satisfy their indemnification obligations under the leases. There can be no
assurance that any environmental assessments of the Properties owned by the
Operating Partnership, properties being considered for acquisition by the
Operating Partnership, or the properties owned by the partnerships managed by
the Associated Companies have revealed all potential environmental liabilities,
that any prior owner or prior or current operator of such properties did not
create an environmental condition not known to the Operating Partnership or that
an environmental condition does not otherwise exist as to any one or more of
such properties that could have an adverse effect on the Operating Partnership's
results of operations and financial condition or ability to service debt, either
directly (with respect to properties owned by the Operating Partnership), or
indirectly (with respect to properties owned by partnerships managed by an
Associated Company) by adversely affecting the financial condition of the
Associated Company and thus the value of the Operating Partnership's interest in
the Associated Company. Moreover, there can be no assurance that (i) future
environmental laws, ordinances or regulations will not have an adverse effect on
the Operating Partnership's results of operations, financial condition and
ability to service debt or (ii) the current environmental condition of such
properties will not be affected by tenants and occupants of such properties, by
the condition of land or operations in the vicinity of the properties (such as
the presence of underground storage tanks), or by third parties unrelated to the
Operating Partnership.

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ENVIRONMENTAL ASSESSMENTS AND POTENTIAL LIABILITY DUE TO ASBESTOS-CONTAINING
MATERIALS

Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACM"). Such laws require that ACM be
properly managed and maintained, that those who may come into contact with ACM
be adequately apprised and trained, and that special precautions, including
removal or other abatement, be undertaken in the event ACM is disturbed during
renovation or demolition of a building. Such laws may impose fines and penalties
on building owners or operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers.

All of the Properties presently owned by the Operating Partnership have
been subject to Phase I environmental assessments by independent environmental
consultants. Some of the Phase I environmental assessments recommended further
investigations in the form of Phase II environmental assessments, including soil
and groundwater sampling, and all of these investigations have been completed by
the Operating Partnership or are in the process of being completed. Certain of
the Properties owned by the Operating Partnership have been found to contain
ACMs. The Operating Partnership believes that these materials have been
adequately contained and that an ACM operations and maintenance program has been
implemented or is in the process of being implemented for the Properties found
to contain ACMs.

Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or remediation.
Certain of these properties contain ACMs. In each case the responsible
Associated Company believes that these materials have been adequately contained
and that an ACM operations and maintenance program has been implemented for the
properties found to contain ACMs.

POTENTIAL ENVIRONMENTAL LIABILITY RESULTING FROM UNDERGROUND STORAGE TANKS

Some of the Properties, as well as properties previously owned by the
Operating Partnership, are leased or have been leased, in part, to owners and
operators of dry cleaners that operate on-site dry cleaning plants, auto care
centers, or to owners or operators of other businesses that use, store or
otherwise handle petroleum products or other hazardous or toxic substances. Some
of these Properties contain, or may have contained, underground storage tanks
for the storage of petroleum products and other hazardous or toxic substances.
These operations create a potential for the release of petroleum products or
other hazardous or toxic substances. Some of the Properties are adjacent to or
near other properties that have contained or currently contain underground
storage tanks used to store petroleum products or other hazardous or toxic
substances. Several of the Properties have been contaminated with petroleum
products or other hazardous or toxic substances from on-site operations or
operations on adjacent or nearby properties. In addition, certain of the
Properties are on, or are adjacent to or near other properties upon which
others, including former owners or tenants of the Properties, have engaged or
may in the future engage in activities that may release petroleum products or
other hazardous or toxic substances.

POTENTIAL ADVERSE EFFECTS OF ENVIRONMENTAL LIABILITIES ON OPERATING COSTS AND
ABILITY TO BORROW

The Operating Partnership's operating costs may be affected by the
obligation to pay for the cost of complying with existing Environmental Laws as
well as the cost of complying with future legislation. In addition, the presence
of petroleum products or other hazardous or toxic substances at any of the
Properties owned by the Operating Partnership, or the failure to remediate such
property properly, may adversely affect the Operating Partnership's ability to
borrow by using such real property as collateral. The cost of defending against
claims of liability and the cost of complying with Environmental Laws, including
investigation or clean-up of contaminated property, could materially adversely
affect the Operating Partnership's results of operations, financial condition
and ability to service debt.

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GENERAL RISKS OF OWNERSHIP OF REAL ESTATE

The Operating Partnership is subject to risks generally incidental to the
ownership of real estate, including changes in general economic or local
conditions, changes in supply of or demand for similar or competing properties
in an area, the impact of environmental protection laws, changes in interest
rates and availability of financing which may render the sale or financing of a
property difficult or unattractive, changes in tax, real estate and zoning laws,
and the creation of mechanics' liens or similar encumbrances placed on the
property by a lessee or other parties without the Operating Partnership's
knowledge and consent. Should any of these events occur, there could be an
adverse effect on the Operating Partnership's results of operations, financial
condition and ability to service debt.

GENERAL RISKS ASSOCIATED WITH MANAGEMENT, LEASING AND BROKERAGE CONTRACTS

The Operating Partnership is subject to the risks associated with the
property management, leasing and brokerage businesses. These risks include the
risk that management contracts or service agreements may be terminated, that
contracts will not be renewed upon expiration or will not be renewed on terms
consistent with current terms, and that leasing and brokerage activity generally
may decline. Acquisition of properties by the Operating Partnership from the
Associated Companies could result in a decrease in revenues to the Associated
Companies and a corresponding decrease in dividends received by the Operating
Partnership from the Associated Companies. Each of these developments could have
an adverse effect on the Operating Partnership's results of operations,
financial condition and ability to service debt.

To maintain the Company's status as a REIT while realizing income from the
Company's third-party management business, the capital stock of Glenborough
Hotel Group, a Nevada corporation ("GHG") and Glenborough Corporation, a
California corporation ("GC," and together with GHG, the "Associated Companies")
(which conduct the Company's third-party management, leasing and brokerage
businesses) is divided into two classes. All of the voting common stock of the
Associated Companies, representing 5% of the total equity of GC, and 25% of the
total equity of GHG, is held by individual stockholders. Nonvoting preferred
stock representing the remaining equity of GHG is held entirely by the Company
and nonvoting preferred stock representing the remaining equity of GC is held
entirely by the Operating Partnership. Although the Company and the Operating
Partnership hold a majority of the equity interest in the respective Associated
Company, they are not able to elect directors of any Associated Company and,
consequently, the Company and the Operating Partnership have no ability to
influence the day-to-day decisions of the respective entity.

ADVERSE EFFECTS ON OPERATIONS DUE TO UNINSURED LOSS

The Operating Partnership or in certain instances tenants of the properties
carry comprehensive liability, fire and extended coverage with respect to the
Operating Partnership's properties, with policy specification and insured limits
customarily carried for similar properties. There are, however, certain types of
losses (such as from earthquakes and floods) that may be either uninsurable or
not economically insurable. Further, certain of the properties are located in
areas that are subject to earthquake activity and floods. Should a property
sustain damage as a result of an earthquake or flood, the Operating Partnership
may incur losses due to insurance deductibles, co-payments on insured losses or
uninsured losses. Should an uninsured loss occur, the Operating Partnership
could lose some or all of its capital investment, cash flow and anticipated
profits related to one or more properties, which could have an adverse effect on
the Operating Partnership's results of operations, financial condition and
ability to service debt.

INABILITY TO VARY PORTFOLIO DUE TO ILLIQUIDITY OF REAL ESTATE

Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of the Operating Partnership to vary its portfolio promptly
in response to changes in economic or other conditions. In addition, the
Internal Revenue Code of 1986 (the "Code") and individual agreements with
sellers of properties place limits on the Company's ability to sell properties.
Forty-two of the properties owned by the Operating Partnership were acquired on
terms and conditions under which they can be disposed of only in a like-kind

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exchange or other non-taxable transaction; the agreed upon time periods for such
restrictions on such dispositions vary from transaction to transaction.

POTENTIAL LIABILITY UNDER THE AMERICANS WITH DISABILITIES ACT

As of January 26, 1992, all of the Operating Partnership's properties were
required to be in compliance with the Americans With Disabilities Act (the
"ADA"). The ADA generally requires that places of public accommodation be made
accessible to people with disabilities to the extent readily achievable.
Compliance with the ADA requirements could require removal of access barriers
and non-compliance could result in imposition of fines by the federal
government, an award of damages to private litigants and/or a court order to
remove access barriers. Because of the limited history of the ADA, the impact of
its application to the Operating Partnership's properties, including the extent
and timing of required renovations, is uncertain. Pursuant to certain lease
agreements with tenants in certain of the "single-tenant" Properties, the
tenants are obligated to comply with the ADA provisions. If the Operating
Partnership's costs are greater than anticipated or tenants are unable to meet
their obligations, there could be an adverse effect on the Operating
Partnership's results of operations, financial condition and ability to service
debt.

POTENTIAL ADVERSE EFFECTS ON OPERATIONS OF DEVELOPMENT ALLIANCES

The Operating Partnership may from time to time enter into alliances with
selected developers ("Alliance Partners") for the purpose of developing new
projects in which such Alliance Partner has, in the opinion of management,
significant expertise or experience. Such projects generally require various
governmental and other approvals, the receipt of which cannot be assured. Such
development activities may entail certain risks, including the risk that: (i)
the expenditure of funds on and devotion of management's time to projects which
may not come to fruition; (ii) construction costs of a project may exceed
original estimates, possibly making the project uneconomical; (iii) occupancy
rates and rents at a completed project may be less than anticipated; and (iv)
expenses at a completed development may be higher than anticipated. In addition,
Alliance Partners may have significant control over the operation of the
alliance project. Therefore, such investments may, under certain circumstances,
involve risks such as the possibility that the Alliance Partner might become
bankrupt, have economic or business interests or goals that are inconsistent
with the business interest or goals of the Operating Partnership, or be in a
position to take action contrary to the instructions or the requests of the
Operating Partnership or contrary to the Operating Partnership's policies or
objectives. Consequently, actions by an Alliance Partner might result in
subjecting property owned by the alliance to additional risk. Although the
Operating Partnership will seek to maintain sufficient control of any alliance
to permit the Operating Partnership's objectives to be achieved, it may be
unable to take action without the approval of its Alliance Partners or its
Alliance Partners could take actions binding on the alliance without the
Operating Partnership's consent. Additionally, should an Alliance Partner become
bankrupt the Operating Partnership could become liable for such Alliance
Partner's share of the project's liabilities. These risks may result in a
development project having an adverse effect on the Operating Partnership's
result of operations, financial condition and ability to service debt.

LIMITATION ON OWNERSHIP OF COMMON STOCK MAY PRECLUDE ACQUISITION OF CONTROL

Provisions of the Company's Charter are designed to assist the Company in
maintaining its qualification as a REIT under the Code by preventing
concentrated ownership of the Company which might jeopardize REIT qualification.
Among other things, these provisions provide that (a) any transfer or
acquisition of Common Stock (or preferred stock, as the case may be) that would
result in the disqualification of the Company as a REIT under the Code will be
void, and (b) if any person attempts to acquire shares of Common Stock (or
shares of preferred stock, as the case may be) that after the acquisition would
cause the person to own or to be deemed to own, by operation of certain
attribution rules set out in the Code, an amount of Common Stock and preferred
stock in excess of a predetermined limit, which, pursuant to Board action,
currently is 9.9% of the value of the outstanding shares of Common Stock and
preferred stock (the "Ownership Limitation" and as to the Common Stock or
preferred stock, the transfer of which would cause any person to actually own
Common Stock and preferred stock in excess of the Ownership Limitation, the
"Excess Shares"), the transfer shall be void and the Common Stock (or preferred
stock, as the case may be)

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subject to the transfer shall automatically be transferred to an unaffiliated
trustee for the benefit of a charitable organization designated by the Board of
Directors of the Company until sold by the trustee to a third party or purchased
by the Company. This limitation on the ownership of Common Stock and preferred
stock may have the effect of precluding the acquisition of control of the
Company by a third party without the consent of the Board of Directors. If the
Board of Directors waives the Ownership Limitation for any person, the Ownership
Limitation shall be proportionally and automatically reduced with regard to all
other persons such that no five persons may own more than 50% of the value of
the Common Stock and preferred stock (the aggregate Ownership Limitations as to
all of these persons, as adjusted, the "Adjusted Ownership Limitation").

LOSSES RELATING TO CONSOLIDATION

Prior to the completion of the Consolidation, two lawsuits were filed in
1995 contesting the fairness of the Consolidation, one in California State court
(the "State Court Action") and one in federal court (the "Federal Court
Action"). The complaints in both actions alleged, among other things, breaches
by the defendants of fiduciary duties and inadequate disclosures. The State
Court Action was settled and, upon appeal, the settlement was affirmed by the
State Court of Appeals on February 17, 1998. The objectors petitioned the
California Supreme Court for review, which was denied on May 21, 1998. On August
18, 1998, the objectors filed with the United States Supreme Court a petition
for writ of certiorari. On September 18, 1998, the defendants filed a brief in
opposition to the objectors' petition for writ of certiorari, and on September
25, 1998, the objectors filed a reply in support of their petition. The United
States Supreme Court has not yet ruled on the petition for writ of certiorari.
Pursuant to the terms of the settlement in the State Court Action, pending
appeal, the Company has paid one-third of the $855,000 settlement amount and the
remaining two-thirds is being held in escrow. In the Federal Action, the court
in December of 1995 deferred all further proceedings pending a ruling in the
State Court Action, and the Federal Court Action has been voluntarily stayed
pending final outcome of the State Court Action. The Operating Partnership
believes that it is very unlikely that this litigation would result in a
liability that would exceed the accrued liability by a material amount. However,
given the inherent uncertainties of litigation, there can be no assurance that
the ultimate outcomes of these actions will be favorable to the Company. See
"The Operating Partnership -- Legal Proceedings."

From time to time the Company and the Operating Partnership are involved in
other litigation arising out of their business activities. Certain other claims
and lawsuits have arisen against the Company and the Operating Partnership in
their normal course of business. It is possible that this litigation and the
other litigation previously described could result in significant losses in
excess of amounts reserved, which could have an adverse effect on the Company's
or the Operating Partnership's results of operations and the financial condition
of the Company or the Operating Partnership.

INVOLVEMENT OF SENIOR MANAGEMENT IN PREVIOUS CHAPTER 11 REORGANIZATION

Robert and Andrew Batinovich, two of the senior officers of the Company,
were also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor
and, in order to prevent foreclosure, filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in May of 1992. The public
partnership, which owns an approximate 1.6% limited partner interest in the
Operating Partnership along with other substantial real estate assets, and less
than 0.5% interest in the Company, settled the litigation and obtained
confirmation of a plan of reorganization in January 1994.

THE COMPANY'S INDEBTEDNESS RESTRICTIONS MAY ADVERSELY AFFECT THE OPERATING
PARTNERSHIP'S ABILITY TO INCUR INDEBTEDNESS

The Company's organizational documents limit the Company's ability to incur
additional debt if the total debt, including the additional debt, would exceed
50% of the Borrowing Base, defined as the greater of Fair Market Value or Total
Market Capitalization. The debt limitation in the Company's Charter can only be
amended by an affirmative vote of the majority of all outstanding stock entitled
to vote on such amendment. Fair Market Value is based upon the value of the
Company's assets as determined by an independent appraiser. Total Market
Capitalization is the sum of the market value of the Company's outstanding
capital stock, including shares issuable

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on exercise of redemption options by holders of units of the Operating
Partnership, plus debt. An exception is made for refinancings and borrowings
required to make distributions to maintain the Company's status as a REIT. In
addition, in light of the debt restrictions set forth in the Company's
organizational documents, it should be noted that a change in the value of the
Common Stock could affect the Borrowing Base as defined in such documents, and
therefore the Operating Partnership's ability to incur additional indebtedness,
even though such change in the Common Stock's value is unrelated to the
Operating Partnership's liquidity.

UNCERTAINTY DUE TO THE COMPANY'S BOARD OF DIRECTORS' ABILITY TO CHANGE
INVESTMENT POLICIES

The Company's Board of Directors may change the investment policies of the
Company without a vote of the stockholders. If the Company changes its
investment policies, the risks and potential rewards of an investment in the
Operating Partnership may also change. In addition, the methods of implementing
the Company's investment policies may vary as new investment techniques are
developed.

IMPACT OF YEAR 2000 COMPLIANCE COSTS ON OPERATIONS

The Operating Partnership's State of Readiness. The Operating Partnership
utilizes a number of computer software programs and operating systems across its
entire organization, including applications used in financial business systems
and various administrative functions. To the extent that the Operating
Partnership's software applications contains source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification or replacement of such applications will be necessary. The
Operating Partnership currently believes that its "Year 2000" issues are limited
to information technology ("IT") systems (i.e., software programs and computer
operating systems). There are no non-IT systems (i.e., embedded systems such as
devices used to control, monitor or assist the operation of equipment and
machinery), the failure of which would have a material effect on the Operating
Partnership's operations.

The Operating Partnership, employing a team made up of internal personnel
has completed its identification of IT systems that are not yet Year 2000
compliant and has commenced modification or replacement of such systems as
necessary. The Operating Partnership is currently communicating with third
parties with whom it does significant business, such as financial institutions
and vendors to determine their readiness for Year 2000 compliance. The Operating
Partnership has also completed its assessment of the Year 2000 compliance issues
presented by its hardware components.

Costs of Addressing the Operating Partnership's Year 2000 issues. Given the
information known at this time about the Operating Partnership's systems that
are non-compliant, coupled with the Operating Partnership's ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
management does not expect Year 2000 compliance costs to have any material
adverse impact on the Operating Partnership's liquidity or ongoing results of
operations. The costs of such assessment and remediation will be paid out of the
Operating Partnership's general and administrative expenses.

Risks of the Operating Partnership's Year 2000 issues. In light of the
Operating Partnership's assessment and remediation efforts to date, and the
planned, normal course-of-business upgrades, management believes that any
residual Year 2000 risk is limited to non-critical business applications and
support hardware. No assurance can be given, however, that all of the Operating
Partnership's systems will be Year 2000 compliant or that compliance will not
have a material adverse effect on the Operating Partnership's future liquidity
or results of operations or ability to service debt.

The Operating Partnership's Contingency Plans. The Operating Partnership is
currently developing its contingency plan for all operations to address the most
reasonably likely worst case scenarios regarding Year 2000 compliance.
Management expects such contingency plan to be completed by the end of the year.

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THE EXCHANGE OFFER

The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available upon
request to the Trustee.

PURPOSE AND EFFECT

The Old Notes were sold by the Operating Partnership to the Initial
Purchasers on March 23, 1998. The Initial Purchasers subsequently resold the Old
Notes in reliance on Rule 144A under the Securities Act. The Operating
Partnership and the Initial Purchasers entered into the Registration Rights
Agreement, pursuant to which the Operating Partnership agreed, with respect to
the Old Notes and subject to the Operating Partnership's determination that the
Exchange Offer is permitted under applicable law, to (i) cause to be filed, on
or prior to May 22, 1998, a registration statement with the Commission under the
Securities Act concerning the Exchange Offer, and, (ii) use its best efforts to
(a) cause such registration statement to be declared effective by the Commission
on or prior to August 20, 1998, and (b) to consummate the Exchange Offer on or
prior to October 2, 1998. The Operating Partnership will keep the Exchange Offer
open for a period of not less than 20 days (or longer if required by applicable
law) after the date the notice of the Exchange Offer is mailed to the holders of
the Old Notes. This Exchange Offer is intended to satisfy the Operating
Partnership's exchange offer obligations under the Registration Rights
Agreement.

CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES

Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered will not have any further registration rights
and such Old Notes will continue to be subject to the existing restrictions on
transfer thereof. Accordingly, the liquidity of the market for a holder's Old
Notes could be adversely affected upon expiration of the Exchange Offer if such
holder elects not to participate in the Exchange Offer.

TERMS OF THE EXCHANGE OFFER

The Operating Partnership hereby offers, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of Transmittal, to
exchange $150 million aggregate principal amount of New Notes for up to $150
million aggregate principal amount of the outstanding Old Notes. The Operating
Partnership will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the Expiration Date.
Tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to the terms and provisions of the
Registration Rights Agreement. See "-- Conditions of the Exchange Offer."

As of the date of this Prospectus, $150 million in aggregate principal
amount of the Old Notes was outstanding. Only a holder of the Old Notes (or such
holder's legal representative or attorney-in-fact) may participate in the
Exchange Offer. There will be no fixed record date for determining holders of
the Old Notes entitled to participate in the Exchange Offer. The Operating
Partnership believes that, as of the date of this Prospectus, no such holder is
an affiliate (as defined in Rule 405 under the Securities Act) of the Operating
Partnership.

The Operating Partnership shall be deemed to have accepted validly tendered
Old Notes when, as and if the Operating Partnership has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders of Old Notes and for the purposes of receiving the New
Notes from the Operating Partnership.

If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be

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<PAGE> 28

returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The Expiration Date shall be December 24, 1998 at 5:00 p.m., New York City
time, unless the Operating Partnership, in its sole discretion, extends the
Exchange Offer, in which case the Expiration Date shall be the latest date and
time to which the Exchange Offer is extended.

In order to extend the Exchange Offer, the Operating Partnership will
notify the Exchange Agent of any extension by oral or written notice and will
make a public announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date.

The Operating Partnership reserves the right, in its sole discretion, (i)
to delay accepting any Old Notes, (ii) to extend the Exchange Offer, in which
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended, and (iii) to amend the terms of the Exchange
Offer in any manner. If the Exchange Offer is amended in a manner determined by
the Operating Partnership to constitute a material change, the Operating
Partnership will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
Modifications of the Exchange Offer, including but not limited to extension of
the period during which the Exchange Offer is open, may require that at least
five business days remain in the Exchange Offer. In order to extend the Exchange
Offer, the Operating Partnership will notify the Exchange Agent of any extension
by oral or written notice and will make a public announcement thereof, each
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.

CONDITIONS OF THE EXCHANGE OFFER

The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this Prospectus constitutes a part. Such
Registration Statement was declared effective on November 12, 1998.

TERMINATION OF CERTAIN RIGHTS

The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Liquidated Damages of 0.5% per annum of the
principal amount of the Old Notes during the first 90 days of a Registration
Default, increasing by an additional 0.5% per annum for each additional 90 day
period of a Registration Default (up to a maximum of 2.0% per annum). A
"Registration Default" with respect to the Exchange Offer shall occur if: (i)
the Operating Partnership fails to file the Exchange Offer Registration
Statement on or prior to May 22, 1998, (ii) the Registration Statement is not
declared effective by the Commission on or prior to August 20, 1998 or (iii) the
Operating Partnership fails to consummate the Exchange Offer on or prior to
October 2, 1998 or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective during the period specified in
the Registration Rights Agreement. Holders of New Notes will not be and, upon
consummation of the Exchange Offer, holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated Damages and (ii) certain
other rights under the Registration Rights Agreement intended for holders of Old
Notes. The Exchange Offer shall be deemed consummated upon the occurrence of the
delivery by the Operating Partnership to the Registrar under the Indenture of
New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.

ACCRUED INTEREST

The New Notes will bear interest at a rate equal to 7 5/8% per annum from
and including their date of issuance. Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued thereon from the last
date on which interest was paid on the Old Notes, or if no interest had been
paid on such Old Notes, from the date of their original issue, to, but not
including, the date of issuance of the New Notes,
22
<PAGE> 29

such interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange, which interest accrued at the
rate of 7 5/8% per annum, will cease to accrue on the day prior to the issuance
of the New Notes. See "Description of Notes -- Exchange Offer; Registration
Rights."

PROCEDURES FOR TENDERING OLD NOTES

The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Operating Partnership will constitute a binding agreement between
the tendering holder and the Operating Partnership upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent, provided that the book-entry transfer procedure is made in
accordance with DTC's ATOP (as defined below) procedures for transfer and such
procedures are complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.

DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., New York City time, on the Expiration
Date, in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent by
an "Agent's Message." To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the participant's acknowledgement of its receipt of and agreement to be
bound by the Letter of Transmittal for such Old Notes.

Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined below). In the event that a signature on
a Letter of Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Operating
Partnership in its sole discretion, duly executed by the registered holder, with
the signature thereon guaranteed by an Eligible Institution. The term
"registered holder" as used herein with respect to the Old Notes means any
person in whose name the Old Notes are registered on the books of the Registrar.

23
<PAGE> 30

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Operating Partnership in its sole discretion, which
determination shall be final and binding. The Operating Partnership reserves the
absolute right to reject any and all Old Notes not properly tendered and to
reject any Old Notes the Operating Partnership's acceptance of which might, in
the judgment of the Operating Partnership or its counsel, be unlawful. The
Operating Partnership also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Operating Partnership shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such period of time as the Operating Partnership
shall determine. The Operating Partnership will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.

If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Operating Partnership, proper evidence satisfactory to the Operating
Partnership, in its sole discretion, of such person's authority to so act must
be submitted.

Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.

By tendering, each registered holder will represent to the Operating
Partnership that, among other things, (i) the New Notes to be acquired in
connection with the Exchange Offer by the holder and each Beneficial Owner of
the Old Notes are being acquired by the holder and each Beneficial Owner in the
ordinary course of business of the holder and each Beneficial Owner, (ii) the
holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the New Notes, (iii) the holder and each
Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offer for the purpose of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by such
person and cannot rely on the position of the staff of the Commission set forth
in no-action letters that are discussed herein under "Resales of the New Notes,"
(iv) that if the holder is a broker-dealer that acquired Old Notes as a result
of market making or other trading activities, it will deliver a prospectus in
connection with any resale of New Notes acquired in the Exchange Offer, (v) the
holder and each Beneficial Owner understand that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling security holder information required by Item
507 of Regulation S-K of the Commission, and (vi) neither the holder nor any
Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Operating Partnership. In connection with a book-entry transfer,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the following guaranteed
delivery procedures: (i) such tender

24
<PAGE> 31

must be made by or through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal) must be signed by such
Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must have
received from the Holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder, the certificate
number or numbers of the tendered Old Notes, and the principal amount of
tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date. Any Holder who wishes to tender Old
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes to 5:00 p.m., New York City time, on the
Expiration Date. DTC participants may also submit the Notice of Guaranteed
Delivery through ATOP.

For purposes of the Exchange Offer, "Notice of Guaranteed Delivery" means a
notice from an Eligible Institution setting forth the name and address of the
holder, the certificate number(s) and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five (5) NYSE trading days after the Expiration Date, either (x) the
Letter of Transmittal (or facsimile thereof) together with the Old Notes (or a
Book-Entry Confirmation) in proper form for transfer will be deposited by the
Eligible Institution with the Exchange Agent or (y) an Agent's Message will be
properly transmitted to the Exchange Agent.

ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES

Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Operating Partnership will accept any and all Old Notes that are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Operating Partnership shall be deemed to have accepted
validly tendered Old Notes, when, as, and if the Operating Partnership has given
oral or written notice thereof to the Exchange Agent.

In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Operating Partnership reserves the absolute right to
waive any defects or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any reason, such
unaccepted Old Notes will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.

WITHDRAWAL RIGHTS

Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of a notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes, as applicable), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by the Operating Partnership in its sole
discretion, duly executed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution together with the other

25
<PAGE> 32

documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Operating Partnership, in its sole discretion. The Old Notes so withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the Exchange Offer. Any Old Notes which have been tendered for exchange but
which are withdrawn will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal. Properly withdrawn Old Notes may
be retendered by following one of the procedures described under "The Exchange
Offer -- Procedures for Tendering Old Notes" at any time on or prior to the
Expiration Date.

THE EXCHANGE AGENT; ASSISTANCE

The Trustee is the Exchange Agent. All tendered Old Notes, executed Letters
of Transmittal and other related documents should be directed to the Exchange
Agent. Questions and requests for assistance and requests for additional copies
of the Prospectus, the letter of Transmittal and other related documents should
be addressed to the Exchange Agent as follows:

By Hand, or Overnight Courier:
Chase Manhattan Bank & Trust Company National Association
c/o Chase Bank Texas
1 Main Place
1201 Main Street
Dallas, TX 75202
Attn: Frank Ivins

Facsimile Transmissions (Eligible Institutions Only):
(214) 672-5932

To confirm by telephone or for information call:
(214) 672-5678

FEES AND EXPENSES

All expenses incident to the Operating Partnership's consummation of the
Exchange Offer and compliance with the Registration Agreement will be borne by
the Operating Partnership, including, without limitation: (i) all registration
and filing fees (including, without limitation, fees and expenses of compliance
with state securities or Blue Sky laws); (ii) printing expenses (including,
without limitation, expenses of printing certificates for the New Notes in a
form eligible for deposit with DTC and of printing Prospectuses); (iii)
messenger, telephone and delivery expenses; (iv) fees and disbursements of
counsel for the Operating Partnership; (v) fees and disbursements of independent
certified public accountants; (vi) rating agency fees; and (vii) internal
expenses of the Operating Partnership (including, without limitation, all
salaries and expenses of officers and employees of the Operating Partnership
performing legal or accounting duties).

The Operating Partnership has not retained any dealer-manager in connection
with the Exchange Offer and will not make any payments to brokers, dealers or
others soliciting acceptance of the Exchange Offer. The Operating Partnership,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.

The Operating Partnership will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.

26
<PAGE> 33

ACCOUNTING TREATMENT

The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Operating Partnership's accounting records on the date of
the exchange. Accordingly, no gain or loss will be recognized by the Operating
Partnership for accounting purposes. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.

RESALES OF THE NEW NOTES

Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Operating Partnership believes that the New Notes issued pursuant to the
Exchange Offer to any holder of Old Notes in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by such holder (other than
(i) a broker-dealer who purchased Old Notes directly from the Operating
Partnership for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Operating Partnership within the meaning of Rule 405 under the
Securities Act) without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such holder is not an
affiliate of the Operating Partnership, is acquiring the New Notes in the
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. However, the Operating Partnership has not sought its own interpretive
letter and there can be no assurance that the Commission would make a similar
determination with respect to the Exchange Offer. The Operating Partnership and
holders of Old Notes are not entitled to rely on interpretive letter and there
can be no assurance that the Commission would make a similar determination with
respect to the Exchange Offer. The Operating Partnership and holders of Old
Notes are not entitled to rely on interpretive advice provided by the staff to
other persons, which advice was based on the facts and conditions represented in
such letters. However, the Exchange Offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any holder acquires New Notes in the Exchange Offer for the purpose
of distributing or participating in a distribution of the New Notes, such holder
cannot rely on the position of the staff of the Commission enunciated in Morgan
Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1989), or interpreted in the Commission's letter
to Shearman and Sterling (available July 2, 1993), or similar no-action or
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."

It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Operating Partnership within the meaning of
the Securities Act will be subject to certain limitations on resale under Rule
144 of the Securities Act. Such persons will only be entitled to sell New Notes
in compliance with the volume limitations set forth in Rule 144, and sales of
New Notes by affiliates will be subject to certain Rule 144 requirements as to
the manner of use, notice and the availability of current public information
regarding the Operating Partnership. The foregoing is a summary only of Rule 144
as it may apply to affiliates of the Operating Partnership. Any such persons
must consult their own legal counsel for advice as to any restrictions that
might apply to the resale of their Notes.

27
<PAGE> 34

CAPITALIZATION

The following table sets forth the historical capitalization of the
Operating Partnership as of June 30, 1998, and on a pro forma basis as if the
acquisitions of the Pauls Portfolio and 3 Executive Drive and indebtedness
incurred and equity issued in connection therewith, had each been completed on
June 30, 1998. This capitalization table should be read in conjunction with all
pro forma and historical financial statements and notes thereto included in this
Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Acquisition Credit Facility(1).............................. $ 125,152 $ 144,847
Mortgage loans(2)........................................... 451,084 492,439
Bridge Loan(3).............................................. 142,170 147,710
The Old Notes(4)............................................ 150,000 --
The New Notes(4)............................................ -- 150,000
---------- ----------
Total debt........................................ 868,406 934,996
---------- ----------
PARTNERS' CAPITAL
General Partner, 354,625 and 359,032 partnership units
outstanding, respectively(5)........................... 9,256 9,369
Limited Partners, 35,107,853 and 35,544,196 partnership
units outstanding, respectively(5)..................... 925,857 937,000
---------- ----------
Total Partners' Equity...................................... 935,113 946,369
---------- ----------
TOTAL CAPITALIZATION........................................ $1,803,519 $1,881,365
========== ==========
</TABLE>

- ---------------
(1) The pro forma balance reflects borrowings under the Acquisition Credit
Facility in connection with property acquisitions and advances for
development after June 30, 1998.

(2) The pro forma balance reflects the assumption of mortgage loans in
connection with the acquisition of the Pauls Portfolio.

(3) The pro forma balance reflects borrowings on the Bridge Loan in connection
with property acquisitions and advances for development after June 30, 1998.

(4) The pro forma balances reflect the retirement of the Old Notes and
corresponding issuance of $150.0 million of New Notes in connection with the
Exchange Offering.

(5) The pro forma balance reflects the issuance of 423,843 units of partnership
interest in the Operating Partnership in connection with the acquisition of
the Pauls Portfolio. In addition, the Operating Partnership issued 16,907
units of partnership interest in the Operating Partnership to the Company
related to the issuance of an equal number of shares of Common Stock of the
Company in connection with the exercise of employee stock options.

28
<PAGE> 35

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

The following table sets forth selected financial and other data on a
historical, as adjusted and pro forma basis for the Operating Partnership, and
on a historical and combined basis for the GRT Predecessor Entities. As Adjusted
operating data is presented for the years ended December 31, 1995 and 1994, and
assumes the Consolidation and related transactions occurred on January 1, 1994,
in order to present the operations of the Operating Partnership for those
periods as if the Consolidation had been in effect for those periods and to
provide amounts which are comparable to the consolidated results of operations
of the Operating Partnership for the years ended December 31, 1997 and 1996.

The following unaudited, pro forma, condensed consolidated operating and
other data for the six months ended June 30, 1998 and for the year ended
December 31, 1997 have been prepared to reflect: (i) all property acquisitions
completed in 1997 and in 1998 through the date hereof, as described under
"Recent Activities -- 1998 and 1997 Completed Acquisitions;" (ii) advances made
by the Operating Partnership to enter into development alliances; (iii) the
Exchange Offer; (iv) the Initial Offering, the January 1998 Offering, the
October 1997 Offering, the July 1997 Offering and the March 1997 Offering (each
as defined herein) and the application of the respective net proceeds therefrom;
(v) debt assumed and borrowings under the Bridge Loan and the Acquisition Credit
Facility, as described under the caption "Recent Activities -- Financing
Activities;" (vi) the repayment of certain mortgage and other loans; (vii) the
sale of certain properties, and use of sales proceeds for the repayment of
related mortgage debt and the funding of certain property acquisitions; (viii)
the collection of a mortgage loan receiveable and (ix) the sale of various
properties held by the partnerships managed by Glenborough Corporation to the
Operating Partnership or to third parties as if each of such transactions had
been completed on January 1, 1997. The unaudited, pro forma, condensed
consolidated balance sheet data as of June 30, 1998 has been prepared to
reflect: (i) all property acquisitions completed in 1998 through the date
hereof, as described under "Recent Activities -- 1998 and 1997 Completed
Acquisitions;" (ii) advances made by the Operating Partnership to enter into
development alliances; (iii) the Exchange Offer, and (iv) debt assumed and
borrowings under the Bridge Loan and the Acquisition Credit Facility, as
described under the caption "Recent Activities -- Financing Activities;" (v)
repayment of certain mortgage loans and a portion of the borrowings on the
Acquisition Credit Facility as if each of such transactions had been completed
on June 30, 1998.

The selected pro forma financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods. The following
table should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and with financial statements and
related notes of the Operating Partnership included herein and in the Company's
reports filed under the Exchange Act which are incorporated by reference in this
Prospectus.

29
<PAGE> 36
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------ -----------------------------------------------
AS
PROFORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL ADJUSTED
1998 1998 1997 1997 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental Revenue................... $ 129,718 $ 97,582 $ 19,691 $ 235,504 $ 61,393 $ 17,943 $13,495
Equity in earnings of Associated
Company........................ 745 850 436 966 1,687 1,571 --
Fees and reimbursements.......... 1,232 1,232 367 367 719 311 --
Interest and other income........ 704 555 516 2,253 1,627 1,070 982
Total Revenues(1)................ 132,399 102,358 22,232 239,090 66,917 21,216 14,477
Property operating expenses...... 43,473 31,936 6,710 83,650 20,904 5,735 4,624
General and administrative....... 5,059 4,475 1,174 7,373 4,002 1,490 983
Interest expense................. 31,329 18,852 3,800 48,858 9,668 3,913 2,767
Depreciation and Amortization.... 21,387 20,918 4,043 61,538 14,829 4,583 3,654
Income (loss) from operations
before extraordinary items and
Preferred Partner Interest
distributions.................. 31,151 26,177 6,505 37,671 17,514 (1,742) 1,586
Net-income (loss) before
Preferred Partner Interest
distributions (2).............. 31,151 26,177 6,505 37,671 16,671 (1,928) 1,586
Net income (loss) allocable to
Operating Partnership Units.... $ 20,010 $ 16,697 $ 6,505 $ 15,390 $ 16,671 $ (1,928) $ 1,586
Per unit (3):
Net income (loss) before
extraordinary items allocable
to Operating Partnership
Units........................ $ 0.56 $ 0.49 $ 0.53 $ 0.43 $ 0.92 $ (0.24) $ 0.40
Net income (loss) allocable to
Operating Partnership
Units........................ $ 0.56 $ 0.49 $ 0.53 $ 0.43 $ 0.88 $ (0.27) $ 0.40
Balance Sheet Data:
Net investment in real estate.... $1,765,844 $1,698,554 $315,837 -- $825,218 $161,945 --
Mortgage loans receivable, net... 41,269 41,269 3,547 -- 3,692 9,905 --
Total assets..................... 1,911,303 1,833,305 334,002 -- 864,450 183,335 --
Total debt....................... 934,996 868,406 152,681 -- 228,299 75,891 --
Partners' equity................. $ 946,369 $ 935,113 $176,266 -- $623,884 $104,128 --
Other Data:
Distributions per unit (excluding
Preferred Partner Interest
distributions)(4).............. $ 0.84 $ 0.84 $ 0.64 $ 0.42 $ 1.38 $ 1.22 $ 1.20
Preferred Partner Interest
distributions.................. 11,141 9,480 -- 22,281 -- -- --
EBIDA(5)......................... $ 83,867 $ 63,808 $ 13,126 148,067 40,520 $ 13,670 $ --
Ratios:
Ratio of Earnings to Fixed
Charges(6)..................... 1.93x 2.37x -- 1.55x 2.81x 0.55x --
Ratio of Earnings to Fixed
Charges and Preferred Partner
Interest distributions (7)..... 1.43x 1.58x -- 1.15x 2.81x 0.55x --
Annual Service Charge
Coverage(8).................... 2.49x 3.77x -- -- 4.29x 3.67x --
Debt to Total Assets(9).......... 49.5% 48.0% -- -- 27.0% 39.0% --
Secured Debt to Total
Assets(10)..................... 25.3% 24.1% -- -- 16.7% 37.3% --
Total Unencumbered Assets to
Unsecured Debt(11)............. 232.5% 240.6% -- -- 632.9% -- --
Cash flow provided by (used for):
Operating activities............. $ 51,791 $ 39,237 $ 8,139 $ 85,563 $ 19,570 $ 5,163 $ --
Investing activities............. 758 (602,438) (124,147) (1,203,127) (569,373) (61,974) --
Financing activities............. $ (41,300) $ 566,102 $117,585 $1,122,112 $552,688 $ 57,458 $ --

AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
AS
HISTORICAL ADJUSTED HISTORICAL HISTORICAL
1995 1994 1994 1993
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Data:
Rental Revenue................... $ 15,454 $12,867 $ 13,797 $ 13,546
Equity in earnings of Associated
Company........................ -- -- -- --
Fees and reimbursements.......... 16,019 -- 13,327 15,439
Interest and other income........ 2,698 1,109 3,557 3,239
Total Revenues(1)................ 34,171 13,976 30,681 32,224
Property operating expenses...... 8,576 4,188 6,782 7,553
General and administrative....... 15,947 954 13,454 14,321
Interest expense................. 2,129 2,767 1,140 1,301
Depreciation and Amortization.... 4,762 3,442 4,041 4,572
Income (loss) from operations
before extraordinary items and
Preferred Partner Interest
distributions.................. 524 (5,145) 1,580 2,144
Net-income (loss) before
Preferred Partner Interest
distributions (2).............. 524 (5,145) 1,580 4,418
Net income (loss) allocable to
Operating Partnership Units.... $ 524 $(5,145) $ 1,580 $ 4,418
Per unit (3):
Net income (loss) before
extraordinary items allocable
to Operating Partnership
Units........................ $ -- $ (1.29) $ -- $ --
Net income (loss) allocable to
Operating Partnership
Units........................ $ -- $ (1.29) $ -- $ --
Balance Sheet Data:
Net investment in real estate.... $ 77,574 -- $ 63,994 $ 70,245
Mortgage loans receivable, net... 7,216 -- 19,953 18,825
Total assets..................... 95,801 -- 117,321 102,635
Total debt....................... 33,685 -- 17,906 12,172
Partners' equity................. $ 57,592 -- $ 80,558 $ 85,841
Other Data:
Distributions per unit (excluding
Preferred Partner Interest
distributions)(4).............. $ -- $ 1.20 $ -- --
Preferred Partner Interest
distributions.................. -- -- -- --
EBIDA(5)......................... $ 9,291 $ -- $ 10,269 $ 10,326
Ratios:
Ratio of Earnings to Fixed
Charges(6)..................... 1.41x -- 2.58x 2.67x
Ratio of Earnings to Fixed
Charges and Preferred Partner
Interest distributions (7)..... 1.41x -- 2.58x 2.67x
Annual Service Charge
Coverage(8).................... -- -- -- --
Debt to Total Assets(9).......... -- -- -- --
Secured Debt to Total
Assets(10)..................... -- -- -- --
Total Unencumbered Assets to
Unsecured Debt(11)............. -- -- -- --
Cash flow provided by (used for):
Operating activities............. $ (15,057) $ -- $ 22,426 $ 12,505
Investing activities............. 8,656 -- (1,947) (2,002)
Financing activities............. $ (17,390) $ -- $ (2,745) $ (8,927)
</TABLE>

30
<PAGE> 37

- ---------------
(1) Pro forma amounts exclude gains on the disposition of property and
collection of a mortgage loan receivable which were recognized on an
historical basis. Certain revenues which are included in the historical
combined amounts for 1995 and prior are not included on an as adjusted
basis. These revenues are included in the financial statements of the
unconsolidated Associated Companies, on an as adjusted basis, from which
the Operating Partnership receives lease payments and the Company and the
Operating Partnership receive dividends.

(2) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of
Consolidation and litigation costs incurred in connection with the
Consolidation. As adjusted 1994 data give effect to the Consolidation and
related transactions as if such transactions had occurred on January 1,
1994, whereas historical 1996 data reflect such transactions in the periods
they were expensed. The Consolidation and litigation costs were expensed on
January 1, 1996, the Operating Partnership's first day of operations.

(3) Pro Forma net income per unit (excluding Preferred Partner Interest
distributions) is based upon pro forma weighted average units outstanding
of 35,903,228 for the six months ended June 30, 1998 and the year ended
December 31, 1997. As adjusted net income per unit is based upon as
adjusted weighted average units outstanding of 3,979,376 for 1995 and 1994.

(4) Historical distributions per unit for the six months ended June 30, 1998
and 1997 and for the year ended December 31, 1997 consist of distributions
declared for the periods then ended. Pro forma distributions per unit for
the six months ended June 30, 1998 and the year ended December 31, 1997 are
based upon $0.42 per unit per quarter. As adjusted distributions per unit
for each of the years ended December 31, 1995 and 1994 are based on $0.30
per unit per quarter.

(5) EBIDA is computed as income (loss) before minority interests and
extraordinary items plus interest expense, depreciation and amortization,
gains (losses) on disposal of properties and loss provisions. In 1996,
consolidation and litigation costs were also added back to net income to
determine EBIDA. The Operating Partnership believes that in addition to net
income and cash flows, EBIDA is a useful measure of the financial
performance of an equity REIT because, together with net income and cash
flows, EBIDA provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions,
developments and other capital expenditures. To evaluate EBIDA and the
trends it depicts, the components of EBIDA, such as rental revenues, rental
expenses, real estate taxes and general and administrative expenses, should
be considered. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Excluded from EBIDA are financing
costs such as interest as well as depreciation and amortization, each of
which can significantly affect the Operating Partnership's results of
operations and liquidity and should be considered in evaluating the
Operating Partnership's operating performance. Further, EBIDA does not
represent net income or cash flows from operating, financing and investing
activities as defined by generally accepted accounting principles and does
not necessarily indicate that cash flows will be sufficient to fund all of
the Operating Partnership's cash needs. It should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
operating performance or as an alternative to cash flows as a measure of
liquidity. Further, EBIDA as disclosed by other REITs may not be comparable
to the Operating Partnership's calculation of EBIDA. The following table
reconciles net income (loss) of the Operating Partnership to EBIDA for the
periods presented.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30,
-----------------------------------
PRO FORMA HISTORICAL HISTORICAL
1998 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) before Preferred
Partner interest distributions....... $31,151 $26,177 $ 6,505
Extraordinary items................... -- -- --
Interest expense...................... 31,329 18,852 3,800
Depreciation and amortization......... 21,387 20,918 4,043
Gains (losses) on disposal of
properties and collection of mortgage
loan receivable...................... -- (2,139) (1,222)
Consolidation and litigation costs.... -- -- --
Loss provisions....................... -- -- --
------- ------- -------
EBIDA................................. $83,867 $63,808 $13,126

AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1997 1997 1996 1995 1994 1993
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) before Preferred
Partner interest distributions....... $ 37,671 $16,671 $(1,928) $ 524 $ 1,580 $ 4,418
Extraordinary items................... -- 843 186 -- -- (2,274)
Interest expense...................... 48,858 9,668 3,913 2,129 1,140 1,301
Depreciation and amortization......... 61,538 14,829 4,583 4,762 4,041 4,572
Gains (losses) on disposal of
properties and collection of mortgage
loan receivable...................... -- (1,491) (321) -- -- --
Consolidation and litigation costs.... -- -- 7,237 -- -- --
Loss provisions....................... -- -- -- 1,876 3,508 2,309
-------- ------- ------- ------ ------- -------
EBIDA................................. $148,067 $40,520 $13,670 $9,291 $10,269 $10,326
</TABLE>

(6) The ratio of earnings to fixed charges is computed as net income (loss)
from operations, before extraordinary items, plus fixed charges (excluding
capitalized interest) divided by fixed charges. Fixed

31
<PAGE> 38

charges consist of interest costs including amortization of deferred
financing costs. For the historical year ended December 31, 1996, earnings
were insufficient to cover fixed charges by $1,742.

(7) The ratio of earnings to fixed charges and Preferred Partner Interest
distributions is computed as income (loss) from operations, before
extraordinary items, plus fixed charges (excluding capitalized interest)
divided by fixed charges plus Preferred Partner Interest distributions.
Fixed charges consist of interest costs including amortization of deferred
financing costs. For the historical year ended December 31, 1996, earnings
were insufficient to cover fixed charges plus Preferred Partner Interest
distributions by $1,742.

(8) The annual service charges coverage is computed as EBIDA divided by annual
service charge, as defined in "Description of Notes -- Certain
Definitions."

(9) Debt to total assets is computed as debt divided by total assets, both as
defined in "Description of Notes -- Certain Definitions."

(10) Secured debt to total assets is computed as secured debt divided by total
assets, as defined in "Description of Notes -- Certain Definitions."

(11) Total unencumbered assets to unsecured debt is computed as total
unencumbered assets divided by unsecured debt, both as defined in
"Description of Notes -- Certain Definitions"

32
<PAGE> 39

PRO FORMA FINANCIAL INFORMATION

The following unaudited, pro forma, condensed consolidated balance sheet as
of June 30, 1998 has been prepared to reflect: (i) all property acquisitions
completed in 1998 through the date hereof, as described under "Recent Activities
- -- 1998 and 1997 Completed Acquisitions;" (ii) advances made by the Operating
Partnership to enter into development alliances; (iii) the Exchange Offer, and
(iv) debt assumed and borrowings under the Acquisition Credit Facility and the
Bridge Loan, as described under the caption "Recent Activities -- Financing
Activities" as if each of such transactions had been completed on June 30, 1998.

The following unaudited, pro forma, condensed consolidated statements of
operations for the six months ended June 30, 1998 and for the year ended
December 31, 1997 have been prepared to reflect: (i) all property acquisitions
completed in 1997 and in 1998 through the date hereof, as described under
"Recent Activities -- 1998 and 1997 Completed Acquisitions;" (ii) advances made
by the Operating Partnership to enter into development alliances; (iii) the
Exchange Offer; (iv) the Initial Offering, the January 1998 Offering, the
October 1997 Offering, the July 1997 Offering and the March 1997 Offering (each
as defined herein) and the application of the respective net proceeds therefrom;
(v) debt assumed and borrowings under the Bridge Loan and the Acquisition Credit
Facility, as described under the caption "Recent Activities -- Financing
Activities;" (vi) the repayment of certain mortgage and other loans; (vii) the
sale of certain properties and use of sales proceeds therefrom for the repayment
of related mortgage debt and the funding of certain property acquisitions;
(viii) the collection of a mortgage loan receivable and (ix) the sale of various
properties held by the partnerships managed by Glenborough Corporation to the
Operating Partnership or to third parties as if each of such transactions had
been completed on January 1, 1997.

These unaudited, pro forma condensed consolidated financial statements
should be read in conjunction with the financial statements and related notes of
the Operating Partnership included herein and in the Company's reports filed
under the Exchange Act which are incorporated by reference in this Prospectus.
In the opinion of management, all adjustments necessary to reflect the effects
of the transactions have been made.

The pro forma, condensed consolidated financial information is unaudited
and is not necessarily indicative of the results of which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations, or cash flows for future periods.

33
<PAGE> 40

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMPLETED EXCHANGE OTHER
HISTORICAL(1) TRANSACTIONS(2) OFFER(3) ADJUSTMENTS(4) PRO FORMA
------------- --------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Rental property, net.................. $1,698,554 $ 67,290 $ -- -- $1,765,844
Investment in Associated Company...... 8,611 -- -- -- 8,611
Mortgage loans receivable, net........ 41,269 -- -- -- 41,269
Cash and cash equivalents............. 6,571 609 (400) (5,780) 1,000
Other Assets.......................... 78,300 -- 400 15,879 94,579
---------- -------- --------- ------- ----------
Total Assets.................... $1,833,305 $ 67,899 $ -- $10,099 $1,911,303
========== ======== ========= ======= ==========
LIABILITIES
Acquisition Credit Facility........... $ 125,152 $ 13,136 $ -- $ 6,559 $ 144,847
Mortgage loans........................ 451,084 41,355 -- -- 492,439
Bridge loan........................... 142,170 2,000 -- 3,540 147,710
The Old Notes......................... 150,000 -- (150,000) -- --
The New Notes......................... -- -- 150,000 -- 150,000
Other liabilities..................... 29,786 152 -- -- 29,938
---------- -------- --------- ------- ----------
Total Liabilities............... 898,192 56,643 -- 10,099 964,934
---------- -------- --------- ------- ----------
PARTNERS' EQUITY
General Partner....................... 9,256 113 -- -- 9,369
Limited Partners...................... 925,857 11,143 -- -- 937,000
---------- -------- --------- ------- ----------
Total Equity.................... 935,113 11,256 -- -- 946,369
---------- -------- --------- ------- ----------
Total liabilities and Partners'
Equity........................ $1,833,305 $ 67,899 -- $10,099 $1,911,303
========== ======== ========= ======= ==========
</TABLE>

34
<PAGE> 41

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)

1. Reflects the historical consolidated balance sheet of the Operating
Partnership as of June 30, 1998, which includes the acquisitions of the
following properties and property portfolios since January 1, 1997:

<TABLE>
<CAPTION>
PURCHASE PRICE
PROPERTY (IN 000'S) DATE ACQUIRED
-------- -------------- -------------
<S> <C> <C>
Galesi Portfolio.......................... $275,820 June 30, 1998
Donau/Gruppe Portfolio.................... 28,550 June 30, 1998
Covance................................... 16,500 June 23, 1998
One and Three Pacific..................... 20,100 May 20, 1998
Eaton & Lauth Portfolio................... 68,700 April 22, 1998
BGK Portfolio............................. $ 50,200 March 27, 1998
400 El Camino Real........................ 34,700 March 6, 1998
Capitol Center............................ 12,300 February 27, 1998
Windsor Portfolio......................... 423,200 January 8, 1998
Marion Bass Portfolio..................... 58,300 December 31, 1997
Opus Portfolio............................ 27,900 December 22, 1997
Thousand Oaks............................. 51,300 December 13, 1997
Bryant Lake............................... 9,400 November 4, 1997
Copley Properties......................... 63,700 October 24, 1997
Citibank Park Property.................... 23,300 September 30, 1997
Advance Properties........................ 103,000 September 12, 1997
T. Rowe Price Properties.................. 146,800 September 12, 1997
Centerstone Property...................... 30,400 July 1, 1997
CRI Properties............................ 14,800 June 18, 1997
CIGNA Properties.......................... 45,400 April 29, 1997
E&L Properties............................ 22,200 April 18, 1997
Riverview Property........................ 20,500 April 14, 1997
Lennar Properties......................... 23,200 April 8, 1997
Scottsdale Hotel.......................... 12,100 February 28, 1997
</TABLE>

Also reflects the sale of sixteen retail, one residential, three
industrial, one office/flex property and two hotels during 1997 and through
June 30, 1998 for an aggregate sales price of approximately $52.0 million.

2. Reflects the completed acquisitions of the following property and property
portfolio since June 30, 1998:

<TABLE>
<CAPTION>
PURCHASE PRICE
(IN 000'S) DATE ACQUIRED
-------------- -----------------
<S> <C> <C>
3 Executive Drive.......................... $ 12,350 August 13, 1998
Pauls Portfolio............................ 54,940 July 8, 1998
</TABLE>

These acquisitions were funded with approximately $41.4 million of mortgage
debt assumed, approximately $2.0 million of the proceeds of the Bridge
Loan, approximately $13.1 million of borrowings under the Acquisition
Credit Facility and the issuance of 423,843 units in the Operating
Partnership (based on an agreed per unit value of $26.556).

The debt assumed in the acquisition of the Pauls Portfolio bears interest
at rates ranging from 6.95% to 8.25% and matures between 2006 and 2008.

35
<PAGE> 42
GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1998
(UNAUDITED)

The Bridge Loan has a term of six months and bears interest at a rate of
LIBOR plus 1.3% (assumed to be 6.74%, the rate prevailing as of the date of
this filing, for the six months ended June 30, 1998 and for the year ended
December 31, 1997). The Acquisition Credit Facility has a three year term
and bears interest on a sliding scale ranging from LIBOR plus 1.1% to LIBOR
plus 1.3% (assumed to be 6.69%, the rate prevailing as of the date of this
filing, for the six months ended June 30, 1998 and for the year ended
December 31, 1997).

Tenant security deposits of approximately $152,000 related to these
acquisitions are reflected as cash and other liabilities.

3. Reflects the Exchange Offering of $150 million of Old Notes, for an equal
amount of New Notes with identical rates and terms. In connection with the
Exchange Offering, the Operating Partnership is expected to incur costs of
approximately $400,000.

4. Reflects loans made for development purposes or advances made to
development joint ventures after June 30, 1998. The loans and advances were
funded with a portion of the proceeds from the Bridge Loan and borrowings
under the Acquisition Credit Facility. No recognition has been given to
either interest income on the loans or interest expense related to the
loans and advances on a pro forma basis as these loans and advances have
been made by the Operating Partnership for development purposes.

36
<PAGE> 43

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
OTHER
COMPLETED DEBT TRANS- ADJUST- PRO
HISTORICAL(1) TRANSACTIONS(2) ACTIONS(3) MENTS(4) FORMA
------------- --------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenue..................... $ 97,582 $33,330 $ -- $(1,194) $ 129,718
Equity in earnings of Associated
Company......................... 850 -- -- (105) 745
Fees, interest and other income.... 1,787 -- -- 149 1,936
---------- ------- ------- ------- ----------
Total Revenue.............. 100,219 33,330 -- (1,150) 132,399
---------- ------- ------- ------- ----------
OPERATING EXPENSES
Operating expenses................. 31,936 12,071 -- (534) 43,473
General and administrative......... 4,475 400 -- 184 5,059
Depreciation and amortization...... 20,918 676 -- (207) 21,387
Interest expense................... 18,852 7,569 5,624 (716) 31,329
---------- ------- ------- ------- ----------
Total operating expenses... 76,181 20,716 5,624 (1,273) 101,248
---------- ------- ------- ------- ----------
Net income before Preferred Partner
Interest Distributions(5)....... 24,038 12,614 (5,624) 123 31,151
Preferred Partner Interest
Distributions................... (9,480) -- -- (1,661) (11,141)
---------- ------- ------- ------- ----------
Net income allocable to Operating
Partnership units............... $ 14,558 $12,614 $(5,624) $(1,538) $ 20,010
========== ======= ======= ======= ==========
Net income per unit(6)............. $0.43 $ 0.56
========== ==========
Weighted average units outstanding
excluding Preferred Partner
Interest(6)..................... 34,038,659 35,903,228
========== ==========
</TABLE>

37
<PAGE> 44

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
OTHER
COMPLETED DEBT TRANS- ADJUST- PRO
HISTORICAL(1) TRANSACTIONS(2) ACTIONS(3) MENTS(4) FORMA
------------- --------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenue........................... $ 61,393 $178,549 $ -- $ (4,438) $ 235,504
Equity in earnings of Associated
Company............................... 1,687 -- -- (721) 966
Fees, interest and other income.......... 2,346 -- -- 274 2,620
---------- -------- -------- -------- ----------
Total Revenue.................... 65,426 178,549 -- (4,885) 239,090
---------- -------- -------- -------- ----------
OPERATING EXPENSES
Operating expenses....................... 20,904 64,751 -- (2,005) 83,650
General and administrative............... 4,002 2,239 -- 1,132 7,373
Depreciation and amortization............ 14,829 34,765 -- (736) 48,858
Interest expense......................... 9,668 29,347 24,515 (1,992) 61,538
---------- -------- -------- -------- ----------
Total operating expenses......... 49,403 131,102 24,515 (3,601) 201,419
---------- -------- -------- -------- ----------
Net income before Preferred Partner
Interest Distributions(5)............. $ 16,023 $ 47,447 $(24,515) $ (1,284) $ 37,671
Preferred Partner Interest
Distributions......................... -- -- -- (22,281) (22,281)
---------- -------- -------- -------- ----------
Net income allocable to Operating
Partnership units..................... $ 16,023 $ 47,447 $(24,515) $(23,565) $ 15,390
---------- -------- -------- -------- ----------
Net income per unit(6)................... $ 0.84 $ 0.43
========== ==========
Weighted average units outstanding
excluding Preferred Partner
Interest(6)........................... 19,025,314 35,903,228
========== ==========
</TABLE>

38
<PAGE> 45

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)

1. Reflects the historical consolidated operations of the Operating Partnership
for the six months ended June 30, 1998, excluding the gains on the sale of
property totaling $2,139, and reflects the historical consolidated operations
of the Operating Partnership for the year ended December 31, 1997, excluding
the gains on the sale of property and the collection of a note receivable
totaling $1,491 and an extraordinary loss on refinancing of debt of $843. All
such gains and losses are non-recurring.

2. Reflects the historical operations of 3 Executive Drive, the Pauls Portfolio,
the Galesi Portfolio, the Donau/Gruppe Portfolio, Covance, One and Three
Pacific, the Eaton & Lauth Portfolio, the BGK Portfolio, 400 El Camino Real,
Capitol Center, and the Windsor Portfolio, (collectively the "Recent
Acquisitions") for the six months ended June 30, 1998, or portion of 1998
prior to acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
(OR PORTION OF 1998 PRIOR TO ACQUISITION)
--------------------------------------------------------------------------------------------
EATON
3 EXECUTIVE PAULS GALESI DONAU/GRUPPE ONE AND & LAUTH
DRIVE PORTFOLIO PORTFOLIO PORTFOLIO COVANCE THREE PACIFIC PORTFOLIO
----------- --------- --------- ------------ ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $1,371 $2,308 $21,828 $1,454 $488 $1,153 $2,934
Operating expenses.......... -- (760) (9,376) -- -- (363) (867)
------ ------ ------- ------ ---- ------ ------
$1,371 $1,548 $12,452 $1,454 $488 $ 790 $2,067
====== ====== ======= ====== ==== ====== ======

<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
(OR PORTION OF 1998 PRIOR TO ACQUISITION)
--------------------------------------------------------

BGK 400 EL CAPITOL WINDSOR COMBINED
PORTFOLIO CAMINO REAL CENTER PORTFOLIO TOTAL
--------- ----------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 475 $207 $ 376 $ 736 $ 33,330
Operating expenses.......... (173) (91) (162) (279) (12,071)
----- ---- ----- ----- --------
$ 302 $116 $ 214 $ 457 $ 21,259
===== ==== ===== ===== ========
</TABLE>

Also reflects the historical operations of the Recent Acquisitions and the
1997 Acquisitions for the year ended December 31, 1997 or the portion of 1997
prior to acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(OR PORTION OF 1997 PRIOR TO ACQUISITION)
----------------------------------------------------------------------------------------------------
EATON
3 EXECUTIVE PAULS GALESI DONAU/GRUPPE ONE AND & LAUTH BGK
DRIVE PORTFOLIO PORTFOLIO PORTFOLIO COVANCE THREE PACIFIC PORTFOLIO PORTFOLIO
----------- --------- --------- ------------ ------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $1,072 $2,872 $ 35,542 $2,907 $1,022 $2,742 $ 9,362 $ 6,157
Operating expenses... -- (769) (16,646) -- -- (951) (3,034) (2,120)
------ ------ -------- ------ ------ ------ ------- -------
$1,072 $2,103 $ 18,896 $2,907 $1,022 $1,791 $ 6,328 $ 4,037
====== ====== ======== ====== ====== ====== ======= =======

<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(OR PORTION OF 1997 PRIOR TO ACQUISITION)
-----------------------------------------------------------

400 EL CAPITOL WINDSOR 1997 COMBINED
CAMINO REAL CENTER PORTFOLIO ACQUISITIONS TOTAL
----------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues............. $ 3,019 $ 2,369 $ 53,732 $ 57,753 $178,549
Operating expenses... (1,331) (1,018) (20,402) (18,480) (64,751)
------- ------- -------- -------- --------
$ 1,688 $ 1,351 $ 33,330 $ 39,273 $113,798
======= ======= ======== ======== ========
</TABLE>

39
<PAGE> 46
GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)

Also, reflects estimated annual depreciation and amortization, based upon
estimated useful lives of 30 years on a straight-line basis and estimated
general and administrative expenses related to these acquisitions.

Also, reflects the estimated pro forma interest on the mortgage debt
assumed, the Bridge Loan and advances under Acquisition Credit Facility in
connection with the Recent Acquisitions and the 1997 Acquisitions. The
estimated interest on the mortgage loans assumed is based upon rates
ranging from 6.75% to 9.25%, including adjustments to interest expense for
premiums recorded on certain mortgage loans on the date of assumption. The
Bridge Loan bears interest at a rate of LIBOR plus 1.3% (assumed to be
6.74%, the rate prevailing as of the date of this filing, for the six
months ended June 30, 1998 and for the year ended December 31, 1997). The
Acquisition Credit Facility bears interest on a sliding scale ranging from
LIBOR plus 1.1% to LIBOR plus 1.3% assumed to be 6.69%, the rate prevailing
as of the date of this filing, for the six months ended June 30, 1998 and
for the year ended December 31, 1997). A 1/8% change in LIBOR would cause
the interest expense on the outstanding pro forma balances of the Bridge
Loan and the Acquisition Credit Facility as of June 30, 1998 to change by
$176 on an annualized basis.

All properties in the Donau/Gruppe Portfolio, 3 Executive Drive and Covance
are single tenant buildings under triple net leasing arrangements for which
the tenants are responsible for the payment of all operating expenses.

The results of operations of the Pauls Portfolio for the year ended
December 31, 1997 include the operations for certain properties from the
later of January 1, 1997 or date of completion to December 31, 1997. Two
properties in the Pauls Portfolio were not completed until May 1998,
therefore, the results of operations of these properties are not included
for the year ended December 31, 1997.

3. Reflects the estimated pro forma interest and the related effect on loan fee
amortization expense on the repayment of advances on various borrowings made
by Operating Partnership during periods subsequent to January 1997 including
the Operating Partnership's previous line of credit, a $114,000 interim
loan, certain mortgage debt, the Bridge Loan, the Notes, and the Acquisition
Credit Facility. Also reflects the pro forma loan fee amortization expense
and unused facility fees related to the Acquisition Credit Facility for each
of the periods presented. Also reflects the pro forma unused facility fees
related to the Acquisition Credit Facility for each of the periods
presented. These transactions result in net changes to interest expense
consisting of the following:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Interest differential............................. $ 8,926 $30,544
Interest on repayments............................ (3,197) (7,006)
Amortization of new loan fees..................... 124 924
Amortization of old loan fees..................... (308) (105)
Unused Acquisition Credit Facility fees........... 79 158
------- -------
$ 5,624 $24,515
======= =======
</TABLE>

The Notes bear interest at a fixed rate of 7.625% and have a term of seven
years, unless previously redeemed.

40
<PAGE> 47
GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

The amortization of the new loan fees is based upon total estimated fees
and costs of approximately $4,508 over the respective terms of the related
Acquisition Credit Facility, the Bridge Loan and the New Notes. The unused
Acquisition Credit Facility fees are based upon 0.15% of the pro forma
unused Acquisition Credit Facility capacity as of June 30, 1998 of
approximately $105,153.

4. Reflects the following adjustments:

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED FOR THE YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------- ------------------
<S> <C> <C>
Rental Revenue
Elimination of revenues of sold properties.............. $(1,194) $(4,438)
======= =======
Equity in earnings of Associated Company
Elimination of fees earned by GC..................... $ (105) $ (721)
------- -------
Fees, interest and other income
Reduction of interest due to collection of mortgage loan
receivable........................................... $ -- $ (50)
Interest on mortgage note receivable.................... 149 324
------- -------
Net increase in fees, interest and other income...... $ 149 $ 274
======= =======
Operating expenses
Elimination of expenses of sold properties.............. $ (534) $(2,031)
Additional expenses of the E&L Properties............... -- 26
------- -------
Net decrease in operating expenses................... $ (534) $(2,005)
======= =======
General and administrative expenses
Absorption by the Operating Partnership of costs
previously reimbursed by GC.......................... $ 184 $ 1,132
======= =======
Depreciation and amortization expense
Elimination of expenses of sold properties.............. $ (207) $ (736)
======= =======
Interest expense and loan fee amortization expense
Reduction due to repayment of mortgage debt from
proceeds from sold properties........................... $ (149) $ (600)
Reduction for capitalized interest...................... (567) (1,392)
------- -------
Net decrease in interest expense..................... $ (716) $(1,992)
======= =======
</TABLE>

Excludes the effects of the sale of the Shannon Crossing Center and Country
Suites hotels in Tucson, Ontario and Arlington, which will not occur until
late 1998 due to provisions of a secured borrowing prohibiting an earlier
sale and excludes the sale of the Belshaw Industrial property which
management believes is not material to the accompanying pro forma
consolidated statements of operations for the six months ended June 30, 1998
and for the twelve months ended December 31, 1997.

41
<PAGE> 48
GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

5. The pro forma taxable income for the Operating Partnership for the six
months ended June 30, 1998 and for the year ended December 31, 1997 is
calculated as follows:

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
-------------- ------------------
<S> <C> <C>
Pro forma net income from operations..................... $ 31,151 $ 37,671
Add: GAAP basis depreciation and amortization.......... 21,387 48,858
Less: Tax basis depreciation and amortization.......... (19,072) (38,145)
Other book-to-tax differences.......................... (1,538) (4,434)
-------- --------
Pro forma taxable income............................... $ 31,928 $ 43,950
======== ========
</TABLE>

6. Pro forma weighted average units outstanding excluding Preferred Partner
Interest is determined by assuming all units of Operating Partnership
interest outstanding at June 30, 1998, or issued subsequent to that date or
deemed to be probable of issuance as of the date of this filing, were issued
and outstanding on January 1, 1997. The components of pro forma weighted
average units outstanding are as follows:

<TABLE>
<S> <C>
Units outstanding at June 30, 1998.......................... 35,462,478
Units issued in connection with the acquisition of
property.................................................. 423,843
Units issued to the Company related to issuance of Common
Shares of the Company in connection with exercise of
employee stock options.................................... 16,907
----------
Pro forma weighted average units outstanding................ 35,903,228
==========
</TABLE>

Pro forma net income per unit is computed by dividing pro forma weighted
average units outstanding into pro forma net income allocable to Operating
Partnership units. No Preferred Partner Interest is assumed to be converted
as its effect is anti-dilutive in all periods presented.

42
<PAGE> 49

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

As part of the Consolidation, on December 31, 1995, the GRT Predecessor
Entities added to the Operating Partnership approximately 1,980,761 rentable
square feet of office, office/flex, industrial and retail Properties,
multi-family Properties aggregating 104 units and hotel Properties aggregating
499 rooms. Since the Consolidation, the Operating Partnership has completed
approximately $1.76 billion of acquisitions, consisting of 179 Properties.

RESULTS OF OPERATIONS

The statements of operations and cash flows for the year ended December 31,
1995 of the GRT Predecessor Entities include the historical operations of GC and
the Partnerships. These statements have been adjusted to reflect the
consolidation of two joint ventures which were, in aggregate, wholly owned by
the Partnerships. The statements of operations and cash flows for the year ended
December 31, 1995 of the GRT Predecessor entities are included as the
Consolidation of these entities to form the Operating Partnership did not occur
until December 31, 1995.

Certain components of the Operating Partnership's results of operations are
not comparable to those of the GRT Predecessor Entities. The primary reason for
the difference is the segregation in 1996 of the operations (management fees and
reimbursements, as well as related expenses) of certain affiliated companies,
all of which were combined in the GRT Predecessor Entities 1995 financial
statements. Also, contributing to the comparability difference is the change in
the operational structure of three original hotel properties, not including the
San Antonio Hotel which was acquired in 1996 and the Irving, Texas Hotel, (the
"Hotels").

In June 1998, the Operating Partnership sold two hotel properties for
$6,100,000. The sales generated a net gain of approximately $253,000 and net
proceeds of approximately $2,327,000. The Operating Partnership received
consideration in cash for one of the hotels with a selling price of $1,900,000.
In conjunction with the sale of the other hotel with a selling price of
$4,200,000, the Operating Partnership agreed to loan $3,600,000 to the buyer for
a term of six months at a fixed interest rate of 9% (see Note 5). As the buyer
contributed cash (approximately $600,000) to the purchase of this hotel, the
historical operations of the hotel are sufficient to service the loan and the
Operating Partnership has no other continuing obligations or involvement with
this property, the Operating Partnership recognized the sale under the full
accrual method of accounting.

The Company has entered into three short-term lease agreements relating to
the remaining hotel Properties located in Arlington, Texas, Tucson, Arizona and
Ontario, California, with three prospective purchasers of these properties.
These prospective purchasers have entered into agreements to acquire these
properties, with closing dates of December 30, 1998. These leases all terminate
upon the closing date of the sale of the Properties.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE
30, 1997.

Rental Revenues. Rental revenues increased $77,891,000, or 396%, to
$97,582,000 for the six months ended June 30, 1998, from $19,691,000 for the six
months ended June 30, 1997. The increase included growth in revenues from the
office, industrial, office/flex, retail and multi-family Properties of
$49,728,000, $4,331,000, $15,778,000, $2,385,000 and $5,896,000, respectively.
Of the rental revenue for the six months ended June 30, 1998, $8,768,000
represented rental revenues generated from the acquisition of 20 properties in
the third and fourth quarters of 1996 (the "1996 Acquisitions"), $48,715,000
represented rental revenues generated from the acquisition of 90 properties in
1997 (the "1997 Acquisitions") and $34,596,000 represented rental revenues
generated from the acquisition of 58 properties during the six months ended June
30, 1998 (the "1998 Acquisitions").

Fees and Reimbursements. Fees and reimbursements revenue consists primarily
of property management fees, asset management fees and lease commissions paid to
the Operating Partnership under property

43
<PAGE> 50

and asset management agreements. This revenue increased $865,000, or 236%, to
$1,232,000 for the six months ended June 30, 1998, from $367,000 for the six
months ended June 30, 1997. The increase primarily consisted of increased lease
commissions and sales fees from the managed portfolio.

Equity in Earnings of Glenborough Corporation. Equity in earnings of
Glenborough Corporation increased $414,000, or 95%, to $850,000 for the six
months ended June 30, 1998, from $436,000 for the six months ended June 30,
1997. The increase is primarily due to transaction fees earned by GC related to
the disposition of several of the managed properties.

Net Gain on Sales of Rental Properties. The net gain on sales of rental
properties of $2,139,000 during the six months ended June 30, 1998, resulted
from the sales of one multi-family property, two industrial properties, two
office/flex properties and two hotel properties from the Operating Partnership's
portfolio. The net gain on sales of rental properties of $570,000 during the six
months ended June 30, 1997, resulted from the sales of 15 retail properties from
the Operating Partnership's portfolio.

Gain on Collection of Mortgage Loan Receivable. The gain on collection of
mortgage loan receivable of $652,000 during the six months ended June 30, 1997
resulted from the collection of a mortgage loan receivable which had a net
carrying value of $6,700,000. The payoff amount totaled $6,863,000, plus a
$500,000 note receivable, which, net of legal costs, resulted in a gain of
$652,000.

Property Operating Expenses. Property operating expenses increased
$25,226,000, or 376%, to $31,936,000 for the six months ended June 30, 1998,
from $6,710,000 for the six months ended June 30, 1997. Of this increase,
$25,571,000 represents increases in property operating expenses attributable to
the 1997 Acquisitions and the 1998 Acquisitions. This increase is partially
offset by decreases in expenses due to the 1997 and 1998 sales of properties.

General and Administrative Expenses. General and administrative expenses
increased $3,301,000, or 281%, to $4,475,000 for the six months ended June 30,
1998, from $1,174,000 for the six months ended June 30, 1997. The increase is
primarily due to increased salary and overhead costs resulting from the 1997
Acquisitions and 1998 Acquisitions.

Depreciation and Amortization. Depreciation and amortization increased
$16,875,000, or 417%, to $20,918,000 for the six months ended June 30, 1998,
from $4,043,000 for the six months ended June 30, 1997. The increase is
primarily due to depreciation and amortization associated with the 1997
Acquisitions and 1998 Acquisitions.

Interest Expense. Interest expense increased $15,052,000, or 396%, to
$18,852,000 for the six months ended June 30, 1998, from $3,800,000 for the six
months ended June 30, 1997. Substantially all of the increase was the result of
higher average borrowings during the six months ended June 30, 1998, as compared
to the six months ended June 30, 1997, due to new debt and the assumption of
debt related to the 1997 Acquisitions and 1998 Acquisitions.

Net Income and Net Income Allocable to General and Limited Partners. Net
income increased $19,672,000, or 302%, to $26,177,000 for the six months ended
June 30, 1998, from $6,505,000 for the six months ended June 30, 1997. However,
net income allocable to general and limited partners decreased $0.04 per share
for the six months ended June 30, 1998, from the six months ended June 30, 1997.
The decrease is due to a decrease in Net Income Allocable to General and Limited
Partners resulting from the preferred partner interest distributions paid to
preferred partners in 1998. There were no preferred partner distributions paid
in 1997.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS ENDED
JUNE 30, 1997.

Rental Revenues. Rental revenues increased $39,835,000, or 338%, to
$51,619,000 for the three months ended June 30, 1998, from $11,784,000 for the
three months ended June 30, 1997. The increase included growth in revenues from
the office, industrial, office/flex, retail and multi-family Properties of
$26,015,000, $2,088,000, $7,585,000, $1,463,000 and $3,264,000, respectively. Of
the rental revenue for the three months ended June 30, 1998, $4,389,000
represented rental revenues generated from the acquisition of 20 properties in

44
<PAGE> 51

the third and fourth quarters of 1996 (the "1996 Acquisitions"), $24,821,000
represented rental revenues generated from the acquisition of 90 properties in
1997 (the "1997 Acquisitions") and $19,908,000 represented rental revenues
generated from the acquisition of 58 properties during the six months ended June
30, 1998 (the "1998 Acquisitions").

Fees and Reimbursements. Fees and reimbursements revenue consists primarily
of property management fees, asset management fees and lease commissions paid to
the Operating Partnership under property and asset management agreements. This
revenue increased $579,000, or 322%, to $759,000 for the three months ended June
30, 1998, from $180,000 for the three months ended June 30, 1997. The increase
was primarily due to a disposition fee from GC of $581,000 related to the sale
of one of the managed properties.

Equity in Earnings of Glenborough Corporation. Equity in earnings of
Glenborough Corporation increased $312,000, or 73%, to $740,000 for the three
months ended June 30, 1998, from $428,000 for the three months ended June 30,
1997. The increase is primarily due to transaction fees earned by GC related to
the disposition of several of the managed properties.

Net Gain on Sales of Rental Properties. The net gain on sales of rental
properties of $693,000 during the three months ended June 30, 1998, resulted
from the sales of one office/flex property and two hotel properties from the
Operating Partnership's portfolio. The net gain on sales of rental properties of
$570,000 during the three months ended June 30, 1997, resulted from the sales of
15 retail properties from the Operating Partnership's portfolio.

Gain on Collection of Mortgage Loan Receivable. The gain on collection of
mortgage loan receivable of $498,000 during the three months ended June 30, 1997
resulted from the collection of a mortgage loan receivable. The payoff amount
included a $500,000 note receivable, which was recorded as deferred income to be
recognized as cash was received. Payments received in the three months ended
March 31, 1997 totaled $2,000. The remaining balance of the note receivable was
assigned to a third party in June 1997 which resulted in a gain of $498,000
during the three months ended June 30, 1997.

Property Operating Expenses. Property operating expenses increased
$12,193,000, or 299%, to $16,265,000 for the three months ended June 30, 1998,
from $4,072,000 for the three months ended June 30, 1997. Of this increase,
$12,529,000 represents increases in property operating expenses attributable to
the 1997 Acquisitions and the 1998 Acquisitions. This increase is partially
offset by decreases in property operating expenses due to the 1997 and 1998
sales of properties.

General and Administrative Expenses. General and administrative expenses
increased $2,016,000, or 344%, to $2,602,000 for the three months ended June 30,
1998, from $586,000 for the three months ended June 30, 1997. The increase is
primarily due to increased salary and overhead costs resulting from the 1997
Acquisitions and 1998 Acquisitions.

Depreciation and Amortization. Depreciation and amortization increased
$8,429,000, or 336%, to $10,934,000 for the three months ended June 30, 1998,
from $2,505,000 for the three months ended June 30, 1997. The increase is
primarily due to depreciation and amortization associated with the 1997
Acquisitions and 1998 Acquisitions.

Interest Expense. Interest expense increased $7,452,000, or 335%, to
$9,679,000 for the three months ended June 30, 1998, from $2,227,000 for the
three months ended June 30, 1997. Substantially all of the increase was the
result of higher average borrowings during the three months ended June 30, 1998,
as compared to the three months ended June 30, 1997, due to new debt and the
assumption of debt related to the 1997 Acquisitions and 1998 Acquisitions.

Net Income and Net Income Allocable to General and Limited Partners. Net
income increased $10,262,000, or 239%, to $14,549,000 for the three months ended
June 30, 1998, from $4,287,000 for the three months ended June 30, 1997.
However, net income allocable to general and limited partners decreased $0.05
per share for the three months ended June 30, 1998, from the three months ended
June 30, 1997. The decrease is due to a decrease in Net Income Allocable to
General and Limited Partners resulting from the

45
<PAGE> 52

preferred partner interest distributions paid to preferred partners in 1998.
There were no preferred partner distributions paid in 1997.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996.

Rental Revenue. Rental revenue increased $43,450,000, or 242%, to
$61,393,000 for the year ended December 31, 1997, from $17,943,000 for the year
ended December 31, 1996. The increase included growth in revenue from the
office, office/flex, industrial, retail, multi-family and hotel Properties of
$21,166,000, $9,585,000, $3,829,000, $3,478,000, $4,017,000 and $1,467,000,
respectively. Of the rental revenue for the year ended December 31, 1997,
$48,030,000 represents rental revenue generated from the acquisition of 20
properties (the "1996 Acquisitions") in the third and fourth quarters of 1996
and the acquisition of 89 properties during the year ended December 31, 1997
(the "1997 Acquisitions"). The increase in rental revenue for the year ended
December 31, 1997, was partially offset by a decrease in revenue due to the 1996
sale of two industrial properties and the 1997 sales of sixteen retail
properties.

Fees and Reimbursements. Fees and reimbursements revenue consists primarily
of property management fees, asset management fees and lease commissions paid to
the Operating Partnership under property and asset management agreements. This
revenue increased $408,000, or 131%, to $719,000 for the year ended December 31,
1997, from $311,000 for the year ended December 31, 1996. The increase primarily
consisted of increases in asset management fees of $131,000, property management
fees of $257,000 and lease commissions of $20,000.

Interest and Other Income. Interest and other income, which consists
primarily of interest on cash investments and mortgage loans receivable,
increased $557,000, or 52%, to $1,627,000 for the year ended December 31, 1997,
from $1,070,000 for the year ended December 31, 1996. The increase was primarily
due to a $786,000 increase in interest income as a result of higher invested
cash balances and a $365,000 increase in interest income from the Grunow
mortgage loan receivable. This increase in interest income is partially offset
by a $649,000 reduction in interest and other income due to the payoff of the
Hovpark mortgage loan receivable in January 1997.

Equity in Earnings of Glenborough Corporation. Equity in earnings of
Glenborough Corporation increased $116,000, or 7%, to $1,687,000 for the year
ended December 31, 1997, from $1,571,000 for the year ended December 31, 1996.
The increase is primarily due to an increase in transaction fees earned by GC.

Net Gain on Sales of Rental Properties. The net gain on sales of rental
properties of $839,000 during the year ended December 31, 1997, resulted from
the sales of sixteen retail properties. The net gain on sales of rental
properties of $321,000 during the year ended December 31, 1996, resulted from
the sale of two self-storage facilities from the Operating Partnership's
industrial portfolio.

Gain on Collection of Mortgage Loan Receivable. The gain on collection of
mortgage loan receivable of $652,000 during the year ended December 31, 1997
resulted from the collection of the Hovpark mortgage loan receivable which had a
net carrying value of $6,700,000. The payoff amount totaled $6,863,000 in cash,
plus a $500,000 note receivable, which, net of legal costs, resulted in a gain
of $652,000.

Property Operating Expenses. Property operating expenses increased
$15,169,000, or 264%, to $20,904,000 for the year ended December 31, 1997, from
$5,735,000 for the year ended December 31, 1996. Of this increase, $15,060,000
represents property operating expenses attributable to the 1996 Acquisitions and
the 1997 Acquisitions, which was slightly offset by the reduction in expenses
resulting from the 1996 sale of two industrial properties and the 1997 sales of
sixteen retail properties. Property operating expenses include property
management fees and salary reimbursements paid to the Company of $3,028,000 and
$769,000 during the years ended December 31, 1997 and 1996, respectively.

General and Administrative Expenses. General and administrative expenses
increased $2,512,000, or 169%, to $4,002,000 for the year ended December 31,
1997, from $1,490,000 for the year ended December 31, 1996. This increase is
primarily due to an increase in asset management fees paid to the Company of
$2,262,000. Asset management fees are calculated and paid to the Company based
on the estimated fair value of the Operating Partnership's real estate assets
which increased from $161,945,000 as of December 31, 1996

46
<PAGE> 53

to $825,218,000 as of December 31, 1997. General and administrative expenses
include asset management fees paid to the Company of $3,382,000 and $1,120,000
during the years ended December 31, 1997 and 1996, respectively.

Depreciation and Amortization. Depreciation and amortization increased
$10,246,000, or 224%, to $14,829,000 for the year ended December 31, 1997, from
$4,583,000 for the year ended December 31, 1996. The increase is primarily due
to depreciation and amortization associated with the 1996 Acquisitions and the
1997 Acquisitions.

Interest Expense. Interest expense increased $5,755,000, or 147%, to
$9,668,000 for the year ended December 31, 1997, from $3,913,000 for the year
ended December 31, 1996. Substantially all of the increase was the result of
higher average borrowings during the year ended December 31, 1997, as compared
to the year ended December 31, 1996, due to new debt and the assumption of debt
related to the 1996 Acquisitions and the 1997 Acquisitions.

Loss on early extinguishment of debt. Loss on early extinguishment of debt
of $843,000 during the year ended December 31, 1997, resulted from the write-off
of unamortized loan fees related to the $50 million secured line of credit from
Wells Fargo Bank which was replaced with a new $250 million unsecured line of
credit (the "Acquisition Credit Facility") from Wells Fargo Bank. Loss on early
extinguishment of debt of $186,000 during the year ended December 31, 1996,
resulted from the write-off of unamortized loan fees related to the $10,000,000
line of credit from Imperial Bank which was paid-off with proceeds from the $50
million secured line of credit from Wells Fargo Bank.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995.

Rental Revenue. Rental Revenue increased by $2,489,000, or 16%, to
$17,943,000 in 1996 from $15,454,000 in 1995. Of this increase, $4,442,000
represents rental revenues generated from the 1996 Acquisitions. The increase in
1996 revenues was offset by the elimination of revenues from the All American
Industrial Properties due to the sale of such properties in June 1996. The
increase in rental revenues was also offset by a decrease in hotel revenues due
to the change in the operational structure of the Hotels as discussed above.

Fees and Reimbursements and Equity in Earnings of Glenborough
Corporation. Fees and reimbursements revenue decreased to $311,000 for the year
ended December 31, 1996, from $16,019,000 for the year ended December 31, 1995;
equity in earnings of Glenborough Corporation increased to $1,571,000 for the
year ended December 31, 1996 from zero for the year ended December 31, 1995. As
previously discussed, the primary reason for the difference between 1996 and
1995 results is the segregation in 1996 of the operations of GC and the
resulting recognition of earnings from GC using the equity method by the
Operating Partnership. In 1995, the earnings of Glenborough Corporation and
other affiliated companies were consolidated with the partnerships participating
in the Consolidation; however, in 1996, these earnings are excluded. For the
year ended December 31, 1996, fees and reimbursements consist of asset
management fees.

Interest and Other Income. Interest and other income decreased $1,628,000,
or 60%, in 1996 to $1,070,000 from $2,698,000 in 1995. This decrease resulted
primarily from a lower note receivable balance in 1996, primarily as a result of
the early repayment of various notes receivable in 1995. Also, in 1996, cash
balances decreased primarily as a result of the payment of distributions and the
payment of costs associated with the Consolidation.

Net Gain on Sales of Rental Properties. The net gain on sales of rental
properties of $321,000 in 1996 resulted from the sale of the two self-storage
facilities from the Operating Partnership's industrial portfolio.

Property Operating Expenses. Property operating expenses decreased
$2,841,000, or 33%, to $5,735,000 in 1996 from $8,576,000 in 1995. Of the
decrease, $4,993,000 is primarily the result of the change in the operational
structure of the hotels, as previously discussed. The decrease was offset by an
increase of $1,601,000 associated with the operating expenses of the 1996
Acquisitions. Property operating expenses include property management fees and
salary reimbursements paid to the Company of $769,000 during the year ended
December 31, 1996.

47
<PAGE> 54

General and Administrative. General and administrative expenses decreased
to $1,490,000 in 1996 from $15,947,000 in 1995. The decrease is due primarily to
the segregation in 1996 of the operations of certain affiliated companies, as
previously discussed. General and administrative expenses include asset
management fees paid to the Company of $1,120,000 during the year ended December
31, 1996.

Depreciation and Amortization. Depreciation and amortization decreased to
$4,583,000 in 1996 from $4,762,000 in 1995. Depreciation and amortization in
1995 includes the amortization of GRT Predecessor Entities' management
contracts, which are no longer reflected in the Operating Partnership's results
of operations in 1996. Depreciation and amortization in 1996 includes
depreciation and amortization related to the 1996 Acquisitions.

Interest Expense. Interest expense increased $1,784,000, or 84%, to
$3,913,000 in 1996 from $2,129,000 in 1995. Substantially all of the increase
was the result of higher average borrowings during 1996 as compared to 1995. The
increased borrowings were used to finance the 1996 Acquisitions.

Consolidation Costs. Consolidation costs for the year ended December 31,
1996, consist of the costs associated with preparing, printing and mailing the
Prospectus/Consent Solicitation Statement and other documents related to the
Consolidation, and all other costs incurred in the forwarding of the Prospectus/
Consent Solicitation Statement to investors.

Litigation Costs. Litigation costs for the year ended December 31, 1996,
consist of the legal fees incurred in connection with defending two class action
complaints filed by investors in certain of the GRT Predecessor Entities as well
as an accrual for the proposed settlement in one case.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 1998, cash provided by operating
activities increased by $31,098,000 to $39,237,000 as compared to $8,139,000 for
the same period in 1997. The increase is primarily due to an increase in net
income of $35,442,000 (before depreciation and amortization and net gain on
sales of rental properties) due to the 1997 Acquisitions and 1998 Acquisitions.
The increase is partially offset by an increase in investments in development
alliances. Cash used for investing activities increased by $478,291,000 to
$602,438,000 for the six months ended June 30, 1998, as compared to $124,147,000
for the same period in 1997. The increase is primarily due to the 1998
Acquisitions, additions to mortgage loans receivable and other investments. This
increase was partially offset by the collection of a mortgage loan receivable in
1997 and the proceeds from the 1998 sales of properties. Cash provided by
financing activities increased by $448,517,000 to $566,102,000 for the six
months ended June 30, 1998, as compared to $117,585,000 for the same period in
1997. This increase was primarily due to partner contributions related to
acquisitions, the net proceeds from an issuance of Notes (as defined below) and
the proceeds from new debt. This increase was partially offset by increased
distributions to partners resulting from an increase in the number of Operating
Partnership units outstanding in connection with acquisitions.

The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital, its Acquisition Credit
Facility (as defined below) and cash generated by operations. Planned capital
improvements consist of tenant improvements and expenditures necessary to lease
and maintain the Properties.

The Operating Partnership's principal sources of funding for acquisitions,
development, expansion and renovation of properties include an unsecured
Acquisition Credit Facility, permanent secured debt financing, public unsecured
debt financing, contributions from the Company, privately placed financing,
issuance of Operating Partnership units and cash flow provided by operations.

Mortgage loans payable increased from $148,139,000 at December 31, 1997, to
$451,084,000 at June 30, 1998. This increase primarily resulted from the
assumption of mortgage loans totaling $317,527,000 in connection with the 1998
Acquisitions. These increases were partially offset by the payoff of $13,581,000
of mortgage loans in connection with 1998 sales of properties and scheduled
principal payments on other mortgage debt.

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The Operating Partnership has a $250,000,000 unsecured line of credit
provided by a commercial bank (the "Acquisition Credit Facility"). Outstanding
borrowings under the Acquisition Credit Facility increased from $80,160,000 at
December 31, 1997, to $125,152,000 at June 30, 1998. The $80,160,000 balance
outstanding at December 31, 1997, was paid off in January 1998 with proceeds
from the January 1998 Convertible Preferred Stock Offering (as defined below).
The $125,152,000 balance outstanding at June 30, 1998 consists of draws for 1998
Acquisitions. Borrowings under the Acquisition Credit Facility currently bear
interest at an annual rate of LIBOR plus 1.2%.

In January 1998, the Operating Partnership closed a $150 million loan with
Wells Fargo Bank (the "Interim Loan"). The Interim Loan had a term of three
months with interest at LIBOR plus 1.75%. The purpose of the Interim Loan was to
fund acquisitions. The Interim Loan was paid off in March 1998 with proceeds
from the issuance of $150 million of unsecured Senior Notes (discussed below).

In June 1998, the Operating Partnership obtained a $150 million unsecured
loan from a commercial bank (the "Bridge Loan") which bears interest at a
variable rate of LIBOR plus 1.3%, and has a maturity date of December 31, 1998.
As of the date of this filing, approximately $147.7 million has been drawn under
the Bridge Loan to fund acquisitions and development activities.

At June 30, 1998, the Operating Partnership's total indebtedness included
fixed-rate debt of $482,696,000 (including $139,008,000 subject to
cross-collateralization) and floating-rate indebtedness of $385,710,000
(including $115,589,000 subject to cross-collateralization). Approximately 41.4%
of the Operating Partnership's total assets, comprising 74 properties, is
encumbered by debt at June 30, 1998.

INFLATION

Substantially all of the leases at the retail Properties provide for
pass-through to tenants of certain operating costs, including real estate taxes,
common area maintenance expenses, and insurance. Leases at the multi-family
Properties generally provide for an initial term of one month or one year and
allow for rent adjustments at the time of renewal. Leases at the office
Properties typically provide for rent adjustment and pass-through of certain
operating expenses during the term of the lease. All of these provisions may
permit the Operating Partnership to increase rental rates or other charges to
tenants in response to rising prices and therefore, serve to reduce the
Operating Partnership's exposure to the adverse effects of inflation.

FORWARD LOOKING STATEMENTS; FACTORS THAT MAY AFFECT OPERATING RESULTS

These financial statements contain forward looking statements, including
statements regarding the Operating Partnership's expectations, hopes,
intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding potential acquisitions, the anticipated
performance of future acquisitions, recently completed acquisitions and existing
properties, and statements regarding the Operating Partnership's financing
activities. All forward looking statements included in this document are based
on information available to the Operating Partnership on the date hereof. It is
important to note that the Operating Partnership's actual results could differ
materially from those stated or implied in such forward-looking statements.

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Factors which may cause the Operating Partnership's results to differ
include the inability to complete anticipated future acquisitions, defaults or
non-renewal of leases, increased interest rates and operational costs, failure
to obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate and zoning laws and increases in real property tax rates.

YEAR 2000 COMPLIANCE

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THE OPERATING PARTNERSHIP

The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed REIT. As of September 30, 1998, the Operating
Partnership owned a diversified portfolio of 190 office, office/flex,
industrial, retail, multi-family and hotel properties aggregating approximately
24.7 million square feet located in 24 states throughout the country. In
addition, the Associated Companies provide comprehensive asset, partnership and
property management services for a diversified portfolio of 39 additional
properties that are not owned by the Operating Partnership. The combined
portfolios encompass over 28.8 million rentable square feet in 24 states.

The Company holds a 1% interest as the sole general partner of the
Operating Partnership and an approximate 89% limited partnership interest in the
Operating Partnership.

GROWTH STRATEGY

The Operating Partnership seeks to achieve sustainable long-term growth in
Funds from Operations primarily through the following strategies:

- Acquiring diversified portfolios or individual properties on attractive
terms, either directly or through joint ventures, often from public and
private partnerships as well as from REITs and life insurance companies
and other institutions;

- Improving the performance of the Properties in the Operating
Partnership's portfolio;

- Constantly reviewing the Operating Partnership's current portfolio for
opportunities to redeploy capital from certain Properties into other
properties which the Operating Partnership believes are more suited to
its strategy and operating goals; and

- Entering into real estate development alliances with selected real estate
developers.

Acquisitions

Acquisition Characteristics. The Operating Partnership primarily seeks to
acquire diversified portfolios and individual properties with certain of the
following characteristics: (i) a stable stream of income, both historical and
projected; (ii) existing management fees and costs that, when internalized,
would augment the Operating Partnership's investment return; (iii) generally
constructed after 1980; (iv) little or no exposure to hazardous materials; (v)
debt levels acceptable to the Operating Partnership; (vi) potential for overhead
savings acceptable to the Operating Partnership; (vii) low-to-moderate vacancy
levels; (viii) diversified tenant risk; (ix) low-to-moderate deferred
maintenance; (x) substantial geographic overlap with the Operating Partnership's
existing portfolio, to capitalize on the Operating Partnership's existing
management capabilities; and (xi) comprised of office, office/flex, industrial,
retail or multi-family properties.

Portfolio Acquisitions. The Operating Partnership seeks to grow by
acquiring diversified property portfolios, and believes there are significant
acquisition opportunities for such portfolios from public and private
partnerships, other REITs and life insurance companies and other institutions.
Furthermore, because many buyers of real estate focus on investing in specific
property types and/or geographic regions, the Operating Partnership believes
that there is a limited number of buyers who seek to purchase diversified
portfolios. For example, most REITs pursue a strategy that focuses either on
specific property types or geographic regions or both, and thus do not provide
an outlet for bulk sales by diversified portfolio owners. For a diversified
portfolio seller that is seeking to liquidate, an alternative to a bulk sale
might be a gradual sell-off of assets, which may require an extended period of
time and/or be prohibitively expensive.

The Operating Partnership believes that it can acquire diversified
portfolios on attractive terms because, through the Company's issuance of shares
of Common Stock or the Operating Partnership's issuance of partnership units
which may be redeemed for cash or exchanged for Common Stock, it can provide
owners with liquidity as well as address the owners' tax concerns and structure
transactions that may defer taxable gains. By providing sellers with Common
Stock or partnership units in the Operating Partnership as partial consideration
in acquisition transactions, the Operating Partnership reduces its need to raise
capital to finance such transactions.
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The Operating Partnership has issued partnership units to sellers as a portion
of the consideration in connection with the acquisition of Properties
aggregating a total acquisition cost of over $690 million.

Individual Property Acquisitions. From time to time the Operating
Partnership will acquire individual properties that it believes will enhance the
Operating Partnership's profitability and take advantage of the Company's
existing management resources.

Possible Tender Offer Acquisitions. In addition to its current program of
negotiated portfolio and individual property acquisitions, the Operating
Partnership may consider opportunities to acquire interests in portfolios and
individual properties through tender offers for public and private limited
partnerships and other REITs. Depending upon the opportunity and the
circumstances, such offers may be made with or without the cooperation of their
respective general partners or boards of directors. See "Risk Factors -- Risks
Associated with Acquisitions -- Risks Relating to Tender Offers."

Internal Growth

The Operating Partnership seeks to increase cash flow from its existing
portfolio by: (i) increasing the occupancy of all Properties that are not fully
leased; (ii) increasing rental rates of expiring leases; (iii) maintaining high
occupancy rates; (iv) increasing economies of scale in management and leasing
activities; and (v) controlling operating expenses and capital expenditures.

Development Alliances

The Operating Partnership has entered into and intends to, from time to
time, enter into alliances with selected developers for the purposes of
developing new projects within a region in which such developer has significant
expertise and experience. The Operating Partnership believes that such alliances
provide it with the flexibility to develop certain property types in selected
markets where it becomes economically viable without the Operating Partnership
having to make a significant investment in development infrastructure.

Redeployment of Assets

The Operating Partnership periodically reviews its current portfolio for
opportunities to redeploy capital from certain existing Properties into other
properties which the Operating Partnership believes have characteristics more
suited to its overall growth strategy and operating goals. For example, the
Operating Partnership may: (i) sell properties that have matured beyond a point
of significant future growth potential and replace them with properties with
higher growth potential; and (ii) sell smaller or management intensive
properties and replace them with larger or more management-efficient properties.
By redeploying assets in this manner, the Operating Partnership believes it can
achieve certain economies of scale with respect to staffing and overhead levels.
See "Recent Activities -- Redeployment of Assets."

FINANCING POLICIES

Conservative Debt Strategy. The Operating Partnership's total indebtedness
as of June 30, 1998 was approximately $868.4 million, which represents
approximately 41.6% of the total market capitalization of the Company (debt
divided by the sum of debt plus the market value of equity, including common
stock, preferred stock and redeemable Operating Partnership Units). This ratio
is consistent with the Company's organizational documents which limit the
Company's ability to incur, or permit any consolidated partnership or subsidiary
corporation to incur, additional debt if the total debt, including the
additional debt, would exceed 50% of the Borrowing Base, defined as the greater
of Fair Market Value or Total Market Capitalization. The debt of the Operating
Partnership is included in the calculation of such additional debt and total
debt. Fair Market Value is based upon the value of the Company's assets as
determined by an independent appraiser. Total Market Capitalization is based
upon the market value of the Company's outstanding capital stock, including
shares issuable on exercise of redemption options by holders of units of the
Operating Partnership. An exception is made for refinancings and borrowings
required to make distributions to maintain the Company's status as a REIT. This
debt limitation contained in the Company's Charter cannot be changed

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without the affirmative vote of a majority of the stockholders of the Company in
accordance with Maryland General Corporation Law.

Limited Floating Interest Rate Debt. The Operating Partnership seeks to
limit the amount of its indebtedness that is subject to floating interest rates.
As of June 30, 1998, approximately $385.7 million, or 44.4% of the Company's
aggregate indebtedness, was subject to floating rates of interest.

Senior Securities. Consistent with restrictions on debt levels contained in
the Company's Charter and contractual debt covenants, the Operating Partnership
may from time to time issue senior securities. The New Notes are general
unsecured and unsubordinated obligations of the Operating Partnership and rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Operating Partnership from time to time outstanding. However, the New Notes will
be subordinated to the prior claims of each secured mortgage lender to any
specific property which secures any lender's mortgage. As of June 30, 1998, such
arrangements and mortgages aggregated approximately $451.1 million.

Lending Policies. In general, the Operating Partnership is not in the
business of making loans. However, the Operating Partnership has and may from
time to time make loans in connection with development alliances. The Operating
Partnership has during the past 15 months made such loans aggregating
approximately $49.0 million, all of which was outstanding as of the date of this
Prospectus. In addition, the Operating Partnership may consider offering
purchase money financing in connection with the sale of Properties.

INVESTMENT POLICIES

The Board of Directors of the Company, the general partner of the Operating
Partnership, reviews the investment policies of the Operating Partnership
periodically to determine that the investment policies being followed by the
Operating Partnership at any time are in the best interests of the limited
partners of the Operating Partnership. The Board of Directors may alter the
Operating Partnership's investment policies if it determines in the future that
such a change is in the best interests of the limited partners of the Operating
Partnership. The methods of implementing the Company's investment policies may
vary as new investment and financing techniques are developed or for other
reasons.

Investments in Real Estate or Interests in Real Estate. The Operating
Partnership currently intends to continue its strategy of acquiring diversified
portfolios or individual properties, either directly or through joint ventures,
often from private partnerships as well as from other REITs, life insurance
companies and other institutions. The Operating Partnership's investments are
focused primarily on office, office/flex, industrial, retail, multi-family and
hotel properties, but the Operating Partnership may invest in other types of
properties which represent investment opportunities at the discretion of
management. The Operating Partnership expects to pursue its investment
objectives through the direct and indirect ownership of properties and ownership
interests in other entities. The Operating Partnership focuses on properties in
those markets where the Operating Partnership currently has operations and in
new markets selectively targeted by management. However, future investments,
including the activities described below, will not be limited to any geographic
area or to a specified percentage of the Operating Partnership's assets.

The Operating Partnership seeks primarily to invest in real property that
produces income and not necessarily for capital gains. Prospective real estate
investment opportunities undergo an underwriting process that evaluates the
following: (i) reasonably anticipated levels of net cash and ultimate sales
value, based on evaluation of a range of factors including, but not limited to,
rental levels under existing leases; (ii) financial strength of tenants; (iii)
levels of expense required to maintain operating services and routine building
maintenance at competitive levels; and (iv) levels of capital expenditures
required to maintain the capital components of the building in good working
order and in conformance with building codes, health, safety and environmental
and other standards.

The Operating Partnership conducts physical site inspections of each
property under consideration and also engages outside professionals to
independently inspect properties prior to acquisition. The Operating Partnership
either engages outside professionals to conduct Phase I environmental
assessments for all acquisitions, or relies on either: (i) the availability of a
recent report prepared for a third party; or (ii) in the case of a property
managed by

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an Associated Company, the experience of the Associated Company in managing the
property, when the incremental benefit of obtaining a report is believed by the
Company to be outweighed by the cost. Based upon the results of these
inspections, assessments, reports and experience, the Company evaluates the
risks associated with a proposed acquisition prior to its completion and takes
appropriate corrective measures.

Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring investments or in connection with refinancing existing
investments. Any such financing or indebtedness will have priority over the
Company's equity interest in such property.

Investments in Real Estate Mortgages. The Operating Partnership emphasizes
equity real estate investments, but may also invest in mortgages, securitized
mortgage portfolios or other assets consistent with maintaining qualification as
a REIT. The Operating Partnership will not invest in derivative financial
instruments except for the limited purpose of prudently hedging interest rate
risk under variable interest rate debt.

Securities of or Interests in Entities Primarily Engaged in Real Estate
Activities and Other Issuers. The Operating Partnership has in the past and may
from time to time invest in securities of or interests in entities primarily
engaged in real estate activities, including other publicly traded REITs. As of
September 30, 1998, the Operating Partnership had investments of approximately
$20.1 million of securities of a private REIT, and approximately $4.1 million of
securities in a variety of companies with publicly traded securities. In
selecting such investments in the future, if any, the Operating Partnership
expects to consider the same factors used to identify individual properties for
investment as well as other factors which the Operating Partnership may consider
to be relevant, including, among others, historical performance, financial
condition and management. The Operating Partnership may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Operating Partnership's
investment policies. In general, the Operating Partnership does not invest in
securities of entities not primarily engaged in real estate activities. In any
event, the Operating Partnership does not intend that its investments in
securities will require it to register as an "investment company" under the
Investment Company Act of 1940, as amended.

Conflict of Interest Policy. The Company has adopted a policy that no
acquisition of properties from Glenborough Partners or Robert or Andrew
Batinovich or their families or from other entities in which they have an
interest will be made without the approval of at least two-thirds of the
Company's independent directors.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Operating Partnership may, but does not presently intend to, make
investments other than as previously described. The Company has offered its
shares of Common Stock in exchange for property and may engage in such
activities in the future. Similarly, the Operating Partnership has offered Units
in the Operating Partnership that are exchangeable for shares of Common Stock or
of the Company in exchange for property and may engage in such activities in the
future. The Operating Partnership has and may from time to time make loans in
connection with development alliances. Neither the Company nor the Operating
Partnership will engage in trading, underwriting or the agency distribution or
sale of securities of other issuers. Further, the Operating Partnership and
Company do not currently intend to repurchase or otherwise reacquire their
respective securities

LEGAL PROCEEDINGS

Prior to the completion of the Consolidation, two lawsuits were filed in
1995 contesting the fairness of the Consolidation, one in California State court
and one in federal court. On February 21, 1995, a class action complaint was
filed in the Superior Court of the State of California in and for San Mateo
County in connection with the Consolidation (the "Stock Court Action"). The
plaintiff is Anthony E. Blumberg, an investor in Equitec B, one of the GRT
Predecessor Entities, on behalf of himself and all others similarly situated.
The defendants are GC (formerly know as Glenborough Realty Corporation),
Glenborough Realty Corporation ("GRC"), Robert Batinovich, the Partnerships and
the Company.

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The State Court Action complaint alleged breaches by the defendants of
their fiduciary duty and duty of good faith and fair dealing to investors in the
Partnerships. The complaint sought injunctive relief and compensatory damages.
The complaint alleged that the valuation of GC was excessive and was done
without appraisal of GC's business or assets. The complaint further alleged that
the interest rate for the Notes to be issued to investors in lieu of shares of
Common Stock, if they so elected was too low for the risk involved and that the
Notes would likely sell, if at all, at a substantial discount from their face
value (as a matter entirely distinct from the litigation and subsequent
settlement, the Company, as it had the option to, paid in full the amounts due
plus interest in lieu of issuing Notes).

On December 1, 1995, a second class action compliant relating to the
Consolidation was filed in Federal District Court for the Northern District of
California (the "Federal Court Action"). The plaintiffs are BEJ Equity Partners,
J/B Investment Partners, Jesse B. Small and Sean O'Reilly as custodian f/b/o
Jordan K. O'Reilly, who as a group held limited partner interests in certain of
the GRT Predecessor Entities know as Outlook Properties Fund IV, Glenborough All
Suites Hotels, L.P., Glenborough Pension Investors, Equitec Income Real Estate
Investors-Equitec Fund 4, Equitec Income Real Estate Investors C and Equitec
Mortgage Investors Fund IV, on behalf of themselves and all other similarly
situated. The defendants are GRC, GC, the Company, GPA, Ltd., Robert Batinovich
and Andrew Batinovich. The Partnerships are named as nominal defendants. This
action alleges the same disclosure violations and breaches of fiduciary duty as
were alleged in the State Court Action.

The State Court Action was settled and, upon appeal, the settlement was
affirmed by the State Court of Appeals on February 17, 1998. The objectors
petitioned the California Supreme Court for review, which was denied on May 21,
1998. On August 18, 1998, the objectors filed with the United States Supreme
Court a petition for writ of certiorari. On September 18, 1998, the defendants
filed a brief in opposition to the objectors' petition for writ of certiorari,
and on September 25, 1998, the objectors filed a reply in support of their
petition. The United States Supreme Court has not yet ruled on the petition for
writ of certiorari. Pursuant to the terms of the settlement in the State Court
Action, pending appeal, the Company has paid one-third of the $855,000
settlement amount and the remaining two-thirds is being held in escrow. In the
Federal Action, the court in December of 1995 deferred all further proceedings
pending a ruling in the State Court Action, and the Federal Court Action has
been voluntarily stayed pending final outcome of the State Court Action.
However, the Federal Court Action may be revived upon final disposition of the
State Court Action. The Operating Partnership believes that it is very unlikely
that this litigation would result in a liability that would exceed the accrued
liability by a material amount. However, given the inherent uncertainties of
litigation, there can be no assurance that the ultimate outcomes of these
actions will be favorable to the Company.

From time to time the Company and the Operating Partnership are involved in
other litigation arising out of their business activities. It is possible that
this litigation and the other litigation previously described could result in
significant losses in excess of amounts reserved, which could have an adverse
effect on the Company's or the Operating Partnership's results of operations and
the financial condition of the Company or the Operating Partnership.

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RECENT ACTIVITIES

The following is a summary of the Operating Partnership's acquisition and
financing activities since January 1, 1997.

1998 AND 1997 COMPLETED ACQUISITIONS

3 Executive Drive. In August 1998, the Operating Partnership acquired a
85,765 square foot office building located in northern New Jersey ("3 Executive
Drive") from a German partnership. The total acquisition cost, including
capitalized costs, was approximately $12.4 million which was paid entirely in
cash. The cash portion was financed through advances under the Acquisition
Credit Facility.

The Pauls Portfolio. In July 1998, the Operating Partnership acquired a
portfolio of ten properties (the "Pauls Portfolio") from The Pauls Corporation,
a premier national developer headquartered in Denver, Colorado. The Pauls
Portfolio properties aggregate 1,128,785 square feet located in Aurora,
Colorado, and consist of one office, three office/flex and six industrial
buildings. The total acquisition cost, including capitalized costs, was
approximately $54.9 million, comprising: (i) approximately $41.3 million of net
assumed debt; (ii) approximately $11.3 million of equity in the form of 423,843
partnership units in the Operating Partnership (based on an agreed per unit
value of $26.556; and (iii) the balance in cash.

The Donau/Gruppe Portfolio. In June 1998, the Operating Partnership
acquired a 133,090 square foot office property and a 229,352 square foot
industrial property, both located in northern New Jersey (the "Donau/Gruppe
Portfolio") from a German partnership. The total acquisition cost, including
capitalized costs, was approximately $28.5 million, comprising: (i)
approximately $10.5 million of assumed debt; and (ii) the balance in cash. The
cash portion was financed through advances under the $150 million Bridge Loan
(defined hereafter) from a commercial bank. In addition, in August 1998 the
Operating Partnership acquired from the seller another 85,765 square foot office
building for $12.4 million.

The Galesi Portfolio. In June 1998, the Operating Partnership acquired a
portfolio of multi-family properties (the "Galesi Portfolio") from the Galesi
Group, a privately owned company. The Galesi Portfolio includes 21 properties
with 6,536 units located primarily in Houston, Austin, Dallas and San Antonio.
Four properties are located outside of Texas: two in Atlanta, one in Nashville
and one in Colorado Springs. The total acquisition cost, including capitalized
costs, was approximately $275.8 million, comprising: (i) approximately $169.4
million of net assumed debt (including an unamortized premium aggregating
approximately $3.1 million, which results in an effective interest rate on these
instruments of 6.75%); (ii) approximately $21.2 million of equity in the form of
806,393 partnership units in the Operating Partnership (based on an agreed per
unit value of $26.2315); and (iii) the balance in cash. The cash portion was
financed through advances under the $150 million Bridge Loan.

The Covance Property. In June 1998, the Operating Partnership acquired a
263,610 square foot office/ flex property located in Indianapolis, Indiana (the
"Covance Property") from Eaton & Lauth. The total acquisition cost, including
capitalized costs, was approximately $16.5 million, comprising: (i)
approximately $4 million of equity in the form of 161,492 partnership units in
the Operating Partnership (based on an agreed per unit value of $25.00); (ii)
approximately $220,000 of equity in the form of 8,802 shares of Common Stock of
the Company (based on an agreed per share value of $25.00); and (iii) the
balance in cash. The cash portion was financed through advances under the
Acquisition Credit Facility.

One and Three Pacific. In May 1998, the Operating Partnership acquired a
125,492 square foot office building and adjacent 87,120 square foot parcel of
land located in Omaha, Nebraska ("One and Three Pacific"). The total acquisition
cost, including capitalized costs, was approximately $20.1 million, all of which
was paid in cash, including cash from borrowings under the Acquisition Credit
Facility.

Eaton & Lauth Portfolio. In April 1998, the Operating Partnership acquired
a portfolio of three office properties and four retail properties aggregating
417,745 square feet and three multi-family properties containing 670 units (the
"Eaton & Lauth Portfolio") from a number of partnerships in which affiliates of
Eaton & Lauth serve as general partners. The total acquisition cost, including
capitalized costs, was approximately $68.7 million, comprising: (i)
approximately $32.0 million of net assumed debt; (ii) approximately $15.9
million of equity which consists of: (a) approximately $3.2 million in the form
of 126,764 shares of Common Stock of the Company

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(based on an agreed per share value of $25.00); (b) approximately $12.7 million
in the form of 506,788 partnership units in the Operating Partnership (based on
an agreed per unit value of $25.00); and (iii) the balance in cash. The cash
portion was financed through advances under the Acquisition Credit Facility. The
Eaton & Lauth Portfolio properties are located in the Indianapolis, Indiana
area.

The BGK Portfolio. In April 1998, the Operating Partnership acquired a
portfolio of seven properties (the "BGK Portfolio"), comprising six properties
in Massachusetts and one in Kansas, aggregating 515,445 rentable square feet.
The Operating Partnership acquired the BGK Portfolio from BGK Equities, Inc., of
Santa Fe, New Mexico. Four of the properties are office, one is office/flex and
two are industrial. The total acquisition costs, including capitalized costs,
was approximately $50.2 million, comprised of: (i) approximately $13.4 million
in assumption of debt, and (ii) the balance in cash, including cash from
borrowings under the Acquisition Credit Facility.

400 El Camino Real. In March 1998, the Operating Partnership acquired a
15-story office property located in San Mateo, California ("400 El Camino
Real"), containing 139,109 square feet, which currently houses the Company's
corporate headquarters, from Prudential Insurance Company of America. The
Company's corporate headquarters occupy approximately 30,000 square feet and the
balance of the rentable square feet is leased to third parties. The 400 El
Camino Real property includes a contiguous parking garage. The total acquisition
cost, including capitalized costs, was approximately $34.7 million, which was
paid in cash, including cash from borrowings under the Acquisition Credit
Facility.

Capitol Center. In February 1998, the Operating Partnership acquired a
161,468 square foot office complex ("Capitol Center") located in Des Moines,
Iowa. The total acquisition cost, including capitalized costs, was approximately
$12.3 million, comprising: (i) approximately $116,000 in the form of 3,874
partnership units in the Operating Partnership (based on an agreed per unit
value of $30.00) and (ii) the balance in cash.

Windsor Portfolio. In January 1998, the Operating Partnership acquired a
portfolio of 13 suburban office Properties and one office/flex Property (the
"Windsor Portfolio") located in eight states. The Company acquired the Windsor
Portfolio from Windsor Realty Fund II, L.P., of which Windsor Advisor, LLC is
the general partner and DuPont Pension Fund Investments and Gid/S&S Limited
Partnership are limited partners, and other entities affiliated with Windsor
Realty Fund II, L.P. The Windsor Portfolio properties aggregate 3,383,240 net
rentable square feet, located in the eastern and mid-western United States and
are concentrated in suburban Washington, D.C., Chicago, Atlanta, Boston,
Philadelphia, Tampa, Florida and Cary, North Carolina. The total acquisition
cost, including capitalized costs, was approximately $423.2 million, comprised
of: (i) approximately $160.5 million in assumption of debt and (ii) the balance
in cash, including cash from borrowings under a $150.0 million interim loan with
Wells Fargo Bank (the "Interim Loan") and the Acquisition Credit Facility.

Marion Bass Portfolio. In December 1997, the Operating Partnership acquired
10 multi-family Properties (the "Marion Bass Portfolio") aggregating 1,385 units
from 14 limited partnerships each of whose general partner is Marion Bass Real
Estate Group. The total acquisition cost, including capitalized costs, was
approximately $58.3 million, comprising $23.5 million of assumed debt and the
balance in cash, including cash from borrowings under the Acquisition Credit
Facility. Of the 10 Marion Bass Properties, six are located in Charlotte, North
Carolina, two are in Monroe, North Carolina, one is in Raleigh, North Carolina
and one is in Pineville, North Carolina.

Opus Portfolio. In December 1997, the Operating Partnership acquired four
office/flex Properties and one office Property (the "Opus Portfolio")
aggregating 289,874 square feet from four limited liability companies affiliated
with Opus Properties, LLC. The total acquisition cost, including capitalized
costs, was approximately $27.9 million, all of which was paid in cash, including
cash from borrowings under the Acquisition Credit Facility. Four of the Opus
Portfolio Properties are located in or near Tampa, Florida, and one is located
in Denver, Colorado.

Thousand Oaks. In December 1997, the Operating Partnership acquired an
office complex consisting of three office buildings, aggregating 418,457 square
feet ("Thousand Oaks"). The total acquisition cost, including capitalized costs,
was approximately $51.3 million, which was paid entirely in cash, including cash
from borrowings

57
<PAGE> 64

under the Acquisition Credit Facility. The Thousand Oaks property includes 10
acres suitable for the development of 182,000 square feet of office space.
Thousand Oaks is located in Memphis Tennessee.

Bryant Lake. In November 1997, the Operating Partnership acquired a 171,789
square-foot office/flex building in Eden Prairie, Minnesota ("Bryant Lake"),
from Outlook Income Fund 9, a limited partnership in which GC is managing
general partner. Robert Batinovich is co-general partner of Outlook Income Fund
9 and holds an indirect economic interest therein equal to an approximate 0.83%
limited partnership interest. Because of this affiliation, and consistent with
the Company's Board of Directors' policy, neither Robert Batinovich nor Andrew
Batinovich voted when the Board of Directors considered and acted to approve
this acquisition. The price paid for Bryant Lake equaled 100% of the appraised
value as determined by an independent appraiser. The total acquisition cost,
including capitalized costs, was approximately $9.4 million, comprising
approximately $4.6 million in the form of cash and the balance in the form of
assumption of debt.

Copley Properties. In October 1997, the Operating Partnership acquired
eight Properties from six separate limited partnerships in which affiliates of
AEW Capital Management, L.P. (successors in interest to one or more affiliates
of Copley Advisors Inc.) serve as general partners (the "Copley Properties").
The total acquisition cost, including capitalized costs, was approximately $63.7
million, which was paid entirely in cash. The Copley Properties comprise 766,269
square feet of industrial space, with one property located in Tempe, Arizona,
one in Anaheim, California, one in Columbia, Maryland and five in Las Vegas,
Nevada.

Citibank Park. In September 1997, the Operating Partnership acquired a
147,978 square-foot office building in Las Vegas, Nevada ("Citibank Park"). The
total acquisition cost, including capitalized costs, was approximately $23.3
million, which consisted of: (i) approximately $1.66 million in the form of
61,222 partnership units in the Operating Partnership (based on an agreed per
unit value of $27.156); and (ii) the balance in cash.

Advance Properties. In September 1997, the Operating Partnership acquired
from a group of partnerships affiliated with The Advance Group a portfolio of 10
Properties aggregating 755,006 square feet (the "Advance Properties"). The total
acquisition cost, including capitalized costs, was approximately $103.0 million,
which consisted of: (i) approximately $13.6 million in the form of 599,508
partnership units in the Operating Partnership (based on an agreed per unit
value of $22.625); (ii) approximately $7.4 million in assumption of debt; and
(iii) the balance in cash. The Advance Properties consist of five office
Properties and three office/flex Properties located in northern New Jersey and
Maryland and two industrial Properties located in northern New Jersey.
Concurrent with this acquisition, the Operating Partnership entered into a joint
venture with The Advance Group for the development of selected new projects.
This joint venture owns 57 acres of land suitable for office and office/flex
development of up to 560,000 square feet.

T. Rowe Price Properties. In September 1997, the Operating Partnership
acquired from five limited partnerships, two general partnerships and one
private REIT, each organized by affiliates of T. Rowe Price, a portfolio of 27
properties aggregating approximately 2,888,000 square feet (the "T. Rowe Price
Properties"). The total acquisition cost, including capitalized costs, was
approximately $146.8 million, which was paid entirely in cash. The T. Rowe Price
Properties consist of four office Properties, 12 office/flex Properties, eight
industrial Properties and three retail Properties located in 12 states.

Centerstone Property. In July 1997, the Operating Partnership acquired an
office property containing 157,579 square feet (the "Centerstone Property")
located in Irvine, California. The total acquisition cost, including capitalized
costs, was approximately $30.4 million, which consisted of: (i) approximately
$5.5 million in the form of 275,000 partnership units in the Operating
Partnership (based on an agreed per unit value of $20.00); and (ii) the balance
in cash.

CRI Properties. In June 1997, the Operating Partnership acquired from
Carlsberg Realty Inc. a portfolio of three Properties, aggregating approximately
245,600 square feet (the "CRI Properties"). The total acquisition cost,
including capitalized costs, was approximately $14.8 million, which was paid
entirely in cash. The CRI Properties consist of one office Property in
California and one office/flex Property and one industrial Property in Arizona.
The CRI Properties have been managed by GC since November 1996.

CIGNA Properties. In April 1997, the Operating Partnership acquired from
two partnerships formed and managed by affiliates of CIGNA a portfolio of six
Properties, aggregating approximately 616,000 square feet and

58
<PAGE> 65

224 multi-family units (the "CIGNA Properties"). The total acquisition cost,
including capitalized costs, was approximately $45.4 million, which was paid
entirely in cash. The CIGNA Properties consist of two office Properties, two
office/flex Properties, a shopping center and a multi-family Property, and are
located in four states.

E&L Properties. In April 1997, the Operating Partnership acquired from
seven partnerships and their general partner, a Southern California syndicator,
a portfolio of 11 Properties, aggregating approximately 523,000 square feet,
together with associated management interests (the "E&L Properties"). The total
acquisition cost, including capitalized costs, was approximately $22.2 million,
which consisted of: (i) approximately $12.8 million of mortgage debt assumed;
(ii) approximately $6.7 million in the form of 352,197 partnership units in the
Operating Partnership (based on an agreed per unit value of $19.075); (iii)
approximately $633,000 in the form of approximately 33,198 shares of Common
Stock of the Company (based on an agreed per share value of $19.075); and (iv)
the balance in cash. The E&L Properties consist of one office Property, nine
office/flex Properties and one industrial Property, all located in Southern
California.

Riverview Property. In April 1997, the Operating Partnership acquired from
a private seller a 15-story office property containing 227,129 square feet
located in Bloomington, Minnesota (the "Riverview Property"). The total
acquisition cost, including capitalized costs, was approximately $20.5 million,
which was paid entirely in cash.

Lennar Properties. In April 1997, the Operating Partnership acquired from
two limited partnerships and one limited liability company managed by affiliates
of Lennar Partners a portfolio of three Properties, aggregating approximately
282,000 square feet (the "Lennar Properties"). The total acquisition cost,
including capitalized costs, was approximately $23.2 million, which was paid
entirely in cash. The Lennar Properties consist of one office Property located
in Virginia and one office/flex Property and one industrial Property, each
located in Massachusetts.

Scottsdale Hotel. In February 1997, the Operating Partnership acquired a
163-suite hotel Property (the "Scottsdale Hotel"), which began operations in
January 1996 and is located in Scottsdale, Arizona. The total acquisition cost,
including capitalized costs, was approximately $12.1 million, which consisted of
approximately $4.6 million of mortgage debt assumed, and the balance in cash.
The Scottsdale Hotel and four of the Operating Partnership's other hotel
Properties are marketed as Country Suites by Carlson.

OTHER ACQUISITION OPPORTUNITIES

Acquisition Pipeline. The Operating Partnership maintains an active
acquisition department which identifies, evaluates, negotiates and consummates
portfolio and individual property investments. Currently, the Operating
Partnership has no potential acquisitions that it considers probable, but is
considering acquisitions involving, in the aggregate, in excess of $1.0 billion
in total capitalized costs. Any future acquisition would be subject to a number
of contingencies, including a review of the physical and economic
characteristics of the properties involved, negotiation of detailed terms and
formal documentation. There can be no assurance that any of the acquisitions
under consideration will ultimately be consummated.

Pru-Bache Portfolio. The Operating Partnership has entered into a
definitive agreement to acquire all of the real estate assets of
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership in which the managing general partner is Prudential-Bache
Properties, Inc., and in which Glenborough Corporation and Robert Batinovich,
the Company's Chairman and Chief Executive Officer, have served as co-general
partners since March 1994, but do not hold a material equity or economic
interest (the "Pru-Bache Portfolio"). The total acquisition cost, including
capitalized costs, is expected to be approximately $49.9 million, which is to be
paid entirely in cash. The Pru-Bache Portfolio comprises four office buildings
aggregating 405,825 square feet and one office/flex property containing 121,645
square feet. This acquisition is subject to certain contingencies including the
resolution of litigation relating to the proposed acquisition, to which neither
the Company nor the Operating Partnership is a party, and customary closing
conditions. Although the Operating Partnership is still pursuing this
acquisition, because of the litigation contingency, the Operating Partnership
does not currently believe the acquisition is probable.

59
<PAGE> 66

REDEPLOYMENT OF ASSETS

The Operating Partnership periodically reviews its current portfolio of
investments for opportunities to redeploy capital from certain existing
Properties or mortgage receivables to other properties or investments that the
Operating Partnership believes have characteristics more suited to its overall
growth strategy and operating goals. The Operating Partnership used the net
proceeds from the sale of such properties to fund the acquisition of properties
which the Operating Partnership believes have greater growth potential. The
Operating Partnership also has entered into a definitive agreement to sell from
its retail portfolio the Shannon Crossing Property. This sale is subject to a
number of contingencies, and there can be no assurance that such sale will be
consummated.

In June 1998, the Operating Partnership sold two hotel properties for
$6,100,000. The sales generated a net gain of approximately $253,000 and net
proceeds of approximately $2,327,000. The Operating Partnership received
consideration in cash for one of the hotels with a selling price of $1,900,000.
In conjunction with the sale of the other hotel with a selling price of
$4,200,000, the Operating Partnership agreed to loan $3,600,000 to the buyer for
a term of six months at a fixed interest rate of 9%. As the buyer contributed
cash (approximately $600,000) to the purchase of this hotel, the historical
operations of the hotel are sufficient to service the loan and the Company has
no other continuing obligations or involvement with this property, the Company
recognized the sale under the full accrual method of accounting.

FINANCING ACTIVITIES

The Operating Partnership seeks to utilize the most appropriate sources of
capital for acquisitions, development, expansion and renovation of properties
and joint ventures, which sources include undistributed Funds from Operations,
borrowings under its credit facilities, permanent secured or unsecured debt
financing, contribution of cash from public equity and privately placed
financing of the Company, issuance of partnership units in the Operating
Partnership and/or bank and other institutional borrowings. As of June 30, 1998,
the Operating Partnership's total debt constituted approximately 49.3% of the
total market capitalization of the Company after giving effect to the Pro Forma
Adjustments.

Secured Financing. In October 1998, the Operating Partnership obtained a
$249 million loan from Goldman Sachs Mortgage Corporation which has a term of
ten years, bears interest at a fixed rate of 6.125% and is secured by 36
properties. The proceeds were used to retire the Operating Partnership's $150
million Bridge Loan maturing December 31, 1998, to pay off four mortgage loans
and to pay down the Acquisition Credit Facility.

Initial Offering. In March 1998 the Operating Partnership completed the Initial
Offering, a private placement of $150 million of 7 5/8% Series A Redeemable
Notes due 2005. The net proceeds of approximately $148.2 million were used to
repay substantially all of the outstanding balance under the Interim Loan
(defined below).

January 1998 Offering. In January 1998, the Company completed a public
offering of 11,500,000 shares of 7 3/4% Series A Convertible Preferred Stock
(which are convertible into 8,757,234 shares of Common Stock of the Company) at
a price of $25.00 per share (the "January 1998 Offering"). The net proceeds of
approximately $275.5 million were contributed to the Operating Partnership and
used to fund acquisition activity, to repay approximately $257.1 million of
indebtedness and for general corporate purposes.

$150 Million Bridge Loan. In June 1998, the Operating Partnership closed a
$150 million unsecured loan agreement with Wells Fargo Bank (the "Bridge Loan").
The Bridge Loan bears interest at LIBOR plus 1.30% and has a term of six months.
The purpose of the Bridge Loan was to fund the acquisition of the Galesi
Portfolio, 3 Executive Drive, the Pauls Portfolio and the Donau/Gruppe
Portfolio.

$150 Million Interim Loan. In January 1998, the Operating Partnership
closed a $150 million unsecured loan agreement with Wells Fargo Bank (the
"Interim Loan"). The Interim Loan bears interest at LIBOR plus 1.75% and has a
term of three months with an option to extend the term an additional three
months. The

60
<PAGE> 67

purpose of the Interim Loan was to fund the acquisition of the Windsor
Portfolio. The outstanding balance under the Interim Loan was repaid with the
proceeds from the Initial Offering and working capital.

$250 Million Acquisition Credit Facility. In December 1997, the Operating
Partnership replaced its previous $50 million secured line of credit with a new
$250 million unsecured Acquisition Credit Facility with Wells Fargo Bank. The
Acquisition Credit Facility has a three year term and bears interest on a
sliding scale ranging from LIBOR plus 1.1% to LIBOR plus 1.3%. The Acquisition
Credit Facility agreement provides that if the Operating Partnership's debt
securities receive certain ratings from at least two rating agencies, as
specified in the Acquisition Credit Facility agreement, the interest rate will
decrease to a sliding scale ranging from LIBOR plus 0.8% to LIBOR plus 1.15%,
depending upon the rating.

Private Equity Issuance. In December 1997, the Operating Partnership issued
(the "Private Equity Issuance") approximately $12.1 million in the form of
433,362 partnership units in the Operating Partnership (based on an agreed per
unit value of $27.896), the Company issued approximately $2.0 million in the
form of 72,564 shares of Common Stock (based on an agreed per share value of
$27.896) and the Operating Partnership paid approximately $200,000 in cash to
acquire all of the limited partnership interests of GRC Airport Associates, a
California limited partnership ("GRCAA"). GRCAA's sole asset consisted of one
property that was sold to a third party in February 1998 and generated net cash
proceeds of approximately $14.1 million. By virtue of interests held directly or
indirectly in GRCAA, GC received consideration of approximately $1.7 million and
Robert Batinovich received consideration of approximately $2.2 million, both in
the form of partnership units in the Operating Partnership, in connection with
the Private Equity Issuance. Consistent with the Company's Board of Directors'
policy, neither Robert Batinovich nor Andrew Batinovich voted when the Board of
Directors considered and acted to approve this transaction.

October 1997 Offering. In October 1997, the Company completed a public
offering of 11,300,000 shares of Common Stock at a price of $25.00 per share
(the "October 1997 Offering"). The net proceeds of approximately $267.3 million
were contributed to the Operating Partnership and used for the acquisitions of
certain Properties, to repay approximately $142.8 million of indebtedness and
for general corporate purposes.

July 1997 Offering. In July 1997, the Company completed a public offering
of 6,980,000 shares of Common Stock at a price of $22.625 per share (the "July
1997 Offering"). The net proceeds of approximately $149.2 million were
contributed to the Operating Partnership and used to fund acquisitions and for
general corporate purposes.

March 1997 Offering. In March 1997, the Company completed a public offering
of 3,500,000 shares of its Common Stock at a price of $20.25 per share (the
"March 1997 Offering"). The net proceeds of approximately $66.0 million were
contributed to the Operating Partnership and used for the acquisition of certain
Properties and to repay approximately $24.9 million of the then outstanding
balance under the Company's previous $50 million secured line of credit.

Increased Distributions. In January 1998, the Company announced a 31%
increase in its regular quarterly distribution from $.32 to $.42 per share of
Common Stock.

RATIO OF EARNINGS TO FIXED CHARGES

The Operating Partnership's ratio of earnings to fixed charges for the
years ended December 31, 1996 and 1997, and for the six-month period ended June
30, 1998 was 0.55x, 2.81x and 2.37x, respectively. Prior to the Consolidation,
the Operating Partnership's predecessor's combined ratio of earnings to fixed
charges for 1993, 1994 and 1995 was 2.67x, 2.58x and 1.41x, respectively. The
ratio of earnings to fixed charges is computed as net income (loss) from
operations, before extraordinary items, plus fixed charges (excluding
capitalized interest) divided by fixed charges. Fixed charges consist of
interest costs including amortization of deferred financing costs.

Effective with the six months period ending June 30, 1998, the Operating
Partnership began paying a preferred partner interest distribution. The ratio of
earnings to fixed charges and preferred partner interest distributions for the
six months ended June 30, 1998 was 1.58x.

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<PAGE> 68

BUSINESS AND PROPERTIES

The Operating Partnership owns a diversified portfolio of 190 office,
office/flex, industrial, retail, multi-family and hotel Properties located in 24
states throughout the country. In addition, the Associated Companies provide
comprehensive asset, partnership and property management services for a
diversified portfolio of 39 additional properties that are not owned by the
Operating Partnership. The following table lists the Properties owned by the
Operating Partnership, as of September 30, 1998 and the 39 additional
properties.

<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. JUNE 30, 1998(1)
-------- ---- ----- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Tradewinds Financial Center...... Phoenix AZ 1986 17,778 93%
Vintage Pointe................... Phoenix AZ 1985 56,112 98
Warner Village Medical........... Fountain Valley CA 1977 32,272 84
Hillcrest Office Plaza........... Fullerton CA 1974 34,623 91
Centerstone Plaza................ Irvine CA 1988 157,579 98
University Tech Center........... Pomona CA 1986 100,516 96
Academy Professional Center...... Rolling Hills CA 1974 29,960 71
Dallidet Professional Center..... San Luis Obispo CA 1993 23,511 90
400 El Camino Real............... San Mateo CA 1973 139,109 97
One Gateway Center............... Aurora CO 1997 80,049 66
Park Place....................... Clearwater FL 1986 164,435 91
Buschwood III.................... Tampa FL 1989 76,930 92
Temple Terrace Business Center... Temple Terrace FL 1997 79,393 100
Ashford Perimeter................ Atlanta GA 1983 288,278 98
Powers Ferry Landing East........ Atlanta GA 1985 393,672 99
Capitol Center I, II, III........ Des Moines IA 1984 161,468 100
Oak Brook International.......... Oak Brook IL 1975 98,443 100
Oakbrook Terrace
Corporate Center III.......... Oak Brook IL 1991 253,069 99
Columbia Centre II............... Rosemont IL 1988 150,133 97
Embassy Plaza.................... Schaumburg IL 1986 141,373 89
Crosspoint Four.................. Indianapolis IN 1990 41,121 100
Meridian Park.................... Indianapolis IN 1989 86,332 100
The Osram Building............... Indianapolis IN 1990 45,265 100
Leawood Office Building.......... Leawood KS 1981 93,667 95
Blue Ridge Office Building....... Braintree MA 1984 74,727 98
Hartwood Building................ Lexington MA 1985 52,721 100
Bronx Park I..................... Marlborough MA 1986 86,935 100
Marlborough Corporate Place...... Marlborough MA 1988 569,027 94
Westford Corporate Center........ Westford MA 1987 163,247 100
Montgomery Executive Center...... Gaithersburg MD 1982 116,348 85
Rockwall I & II.................. Rockville MD 1985 340,220 88
Bond Street Building............. Farmington Hills MI 1986 40,595 97
Riverview Office Tower........... Bloomington MN 1973 227,129 100
University Club Tower............ St. Louis MO 1974 272,443 92
Woodlands Plaza.................. St. Louis MO 1993 72,276 93
Edinburgh Center................. Cary NC 1991 115,030 92
One Pacific Place................ Omaha NE 1988 125,492 94
One Professional Square.......... Omaha NE 1980 34,836 86
Regency Westpointe............... Omaha NE 1981 35,937 97
</TABLE>

62
<PAGE> 69

<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. JUNE 30, 1998(1)
-------- ---- ----- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Morristown Medical Offices....... Bedminster NJ 1990 14,255 100
Bridgewater Exec. Quarters....... Bridgewater NJ 1995 65,000 100
Frontier Exec. Quarters I........ Bridgewater NJ 1986 224,314 100
Frontier Exec. Quarters II....... Bridgewater NJ 1987 40,565 100
Executive Place.................. Franklin NJ 1988 85,765 100
Vreeland Business Center......... Florham Park NJ 1985 133,090 100
Gatehall......................... Parsipanny NJ 1983 113,604 84
25 Independence Boulevard........ Warren NJ 1989 106,879 100
Citibank Park.................... Las Vegas NV 1987 147,841 75
Thousand Oaks.................... Memphis TN 1990 418,226 91
Post Oak Place................... Houston TX 1971 57,411 85
4500 Plaza....................... Salt Lake City UT 1983 70,001 100
700 South Washington............. Alexandria VA 1989 56,348 100
Cameron Run...................... Alexandria VA 1991 143,707 100
2000 Corporate Ridge............. McLean VA 1985 255,980 98
Globe Building................... Mercer Island WA 1979 24,779 100
--------- ---
TOTAL OFFICE............. 55 buildings 7,029,816 95%
========= ===
OFFICE/FLEX
Hoover Industrial................ Mesa AZ 1985 57,441 92%
Magnolia Industrial.............. Phoenix AZ 1984 35,385 100
Baseline Business Park........... Tempe AZ 1984 100,204 96
Kraemer Industrial Park.......... Anaheim CA 1974 55,246 72
Dominguez Industrial............. Carson CA 1973 85,120 96
Chatsworth Industrial Park....... Chatsworth CA 1975 29,764 100
Glassell Industrial Center....... Orange CA 1976 46,912 74
Dunn Way Industrial.............. Placentia CA 1968 59,832 97
Monroe Industrial................ Placentia CA 1988 38,655 74
Rancho Bernardo.................. Rancho Bernardo CA 1982 52,865 88
Scripps Terrace.................. San Diego CA 1986 56,796 84
Tierrasanta Research Park........ San Diego CA 1985 104,234 78
Upland Industrial................ Upland CA 1978 27,414 72
Gateway I........................ Aurora CO 1996 72,000 100
Gateway IV....................... Aurora CO 1996 100,000 100
Gateway VI....................... Aurora CO 1997 107,200 74
Gateway VIII..................... Aurora CO 1997 79,112 100
Northglenn Business Center....... Denver CO 1997 65,000 100
Valley Business Park............. Denver CO 1984 202,540 91
Grand Regency Business Center.... Brandon FL 1997 48,551 100
Newport Business Center.......... Deerfield Beach FL 1984 61,786 77
Cypress Creek Business Center.... Ft. Lauderdale FL 1982 66,371 84
Lake Point Business Park......... Orlando FL 1985 135,032 87
Fingerhut Business Center........ Tampa FL 1996 48,840 100
PrimeCo Business Center.......... Tampa FL 1996 48,090 100
The Business Park................ Norcross GA 1984 157,153 94
Oakbrook Corners................. Norcross GA 1984 124,776 100
Covance Business Center.......... Indianapolis IN 1990 263,610 100
Park 100 -- Building 42.......... Indianapolis IN 1980 37,200 79
</TABLE>

63
<PAGE> 70

<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. JUNE 30, 1998(1)
-------- ---- ----- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Canton Business Center........... Canton MA 1988 79,565 100
Fisher-Pierce.................... Weymouth MA 1988 79,825 100
Columbia Warehouse............... Columbia MD 1974 38,840 88
Germantown Business Center I &
II............................ Germantown MD 1993 60,000 100
Winnetka Industrial Center....... Crystal MN 1982 188,260 100
Bryant Lake Business Center...... Eden Prairie MN 1985 171,789 96
Riverview Industrial Park........ St. Paul MN 1978 113,700 100
Woodlands Tech Center............ St. Louis MO 1986 98,037 100
Fox Hollow Business Quarters..... Branchburg NJ 1987 42,173 86
Fairfield Business Quarters...... Fairfield NJ 1978 42,792 100
Palms Business Center III........ Las Vegas NV 1990 136,160 90
Palms Business Center IV......... Las Vegas NV 1991 37,414 74
Palms Business Center North...... Las Vegas NV 1988 92,087 86
Palms Business Center South...... Las Vegas NV 1988 132,387 70
Post Palms Business Center....... Las Vegas NV 1991 139,406 74
Lehigh Valley Executive Campus... Allentown PA 1989 161,421 95
Clark Avenue..................... King of Prussia PA 1965 40,000 92
Valley Forge Corporate Center.... Norristown PA 1988 300,894 96
Walnut Creek Business Center..... Austin TX 1984 100,000 80
Kent Business Park............... Kent WA 1981 138,157 100
--------- ---
TOTAL OFFICE/FLEX........ 49 buildings 4,560,536 92%
========= ===

INDUSTRIAL
Fifth Street Industrial.......... Phoenix AZ 1986 109,699 100%
Fairmont Commerce Center......... Tempe AZ 1980 83,200 100
East Anaheim Industrial.......... Anaheim CA 1986 106,232 100
Coronado Industrial.............. Anaheim CA 1975 95,732 100
Benicia Industrial Park.......... Benicia CA 1980 156,800 100
Springdale Commerce Center....... Santa Fe Springs CA 1985 144,000 88
Gateway II....................... Aurora CO 1996 135,792 100
Gateway III...................... Aurora CO 1996 121,189 100
Gateway VII...................... Aurora CO 1997 156,720 89
Gateway IX....................... Aurora CO 1997 147,723 80
Gateway X........................ Aurora CO 1998 129,000 100
Burnham Industrial Warehouse..... Boca Raton FL 1980 71,168 100
Airport Perimeter Business
Park.......................... College Park GA 1982 120,986 81
Atlantic Industrial.............. Norcross GA 1975 102,295 86
Bonnie Lane Business Center...... Elk Grove Village IL 1981 119,590 100
Navistar Intl. Transportation
Corp.......................... W. Chicago IL 1977 474,426 100
Glenn Avenue Business Center..... Wheeling IL 1981 82,000 100
Wood Dale Business Center........ Wood Dale IL 1979 89,718 59
Park 100-Building 46............. Indianapolis IN 1981 102,400 100
J.I. Case Equipment Corp......... Kansas City KS 1975 199,750 100
Forest Street Business Center.... Marlborough MA 1981 32,500 100
Southworth-Milton................ Milford MA 1989 146,125 100
Flanders Industrial Park......... Westborough MA 1982 105,500 100
Navistar Intl. Transportation
Corp.......................... Baltimore MD 1962 274,000 100
</TABLE>

64
<PAGE> 71

<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. JUNE 30, 1998(1)
-------- ---- ----- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Eatontown Industrial............. Eatontown NJ 1988 36,800 100
Cottontail Distribution Center... Franklin Township NJ 1989 229,252 100
Jencraft Industrial.............. Totowa NJ 1967 120,943 100
J.I. Case Equipment
Corporation................... Memphis TN 1950 205,594 100
Pinewood Industrial.............. Arlington TX 1971 46,060 100
Mercantile I..................... Dallas TX 1970 236,092 100
Quaker Industrial................ Dallas TX 1974 42,083 100
SeaTac II........................ Seattle WA 1984 41,657 100
--------- ---
TOTAL INDUSTRIAL......... 32 buildings 4,265,126 97%
========= ===
RETAIL
Park Center...................... Santa Ana CA 1979 73,500 98%
Sonora Plaza..................... Sonora CA 1974 162,126 85
Piedmont Plaza................... Apopka FL 1985 151,000 96
River Run Shopping Center........ Miramar FL 1988 92,787 94
Westwood Plaza................... Tampa FL 1984 99,304 96
Shannon Crossing................. Atlanta GA 1981 64,039 96
Westbrook Commons................ Westchester IL 1983 132,190 97
Broad Ripple Retail Centre....... Indianapolis IN 1988 37,540 100
Cross Creek Retail Centre........ Indianapolis IN 1989 76,908 91
Geist Retail Centre.............. Indianapolis IN 1989 72,348 97
Woodfield Centre................. Indianapolis IN 1988 58,171 93
Goshen Plaza..................... Gaithersburg MD 1988 45,546 88
Auburn North Shopping Center..... Auburn WA 1978 158,596 96
--------- ---
TOTAL RETAIL............. 13 buildings 1,224,055 94%
========= ===
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY AS OF
YEAR RENTABLE JUNE 30,
PROPERTY CITY STATE COMPLETED SQ. FT. UNITS 1998(1)
-------- ---- ----- --------- ---------------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
MULTI-FAMILY
Overlook Apartments...... Scottsdale AZ 1988 188,432 224 90%
Aspen Ridge.............. Colorado Springs CO 1984 180,748 196 95
Stone Ridge at Vinings... Atlanta GA 1970/92 452,408 440 86
Woodmere Trace........... Duluth GA 1986 172,530 220 93
Crosscreek Apartments.... Indianapolis IN 1990 159,492 208 87
Harcourt Club Indianapolis IN 1991 149,900 148 87
Apartments............
Island Club Apartments... Indianapolis IN 1990 245,389 314 92
Arrowood Crossing I & Charlotte NC 1990 187,692 200 96
II....................
Sharonridge I & II....... Charlotte NC 1980 59,850 75 96
The Chase Charlotte NC 1986 105,360 132 75
(Commonwealth)........
The Courtyard............ Charlotte NC 1985 60,500 55 89
The Landing on Charlotte NC 1986 98,000 125 98
Farmhurst.............
Wendover Glen............ Charlotte NC 1983 75,072 96 78
The Chase (Monroe)....... Monroe NC 1988 100,512 120 98
Willow Glen.............. Monroe NC 1981 104,040 120 98
Sabal Point I, II & Pineville NC 1990 381,463 374 96
III...................
</TABLE>

65
<PAGE> 72

<TABLE>
<CAPTION>
OCCUPANCY AS OF
YEAR RENTABLE JUNE 30,
PROPERTY CITY STATE COMPLETED SQ. FT. UNITS 1998(1)
-------- ---- ----- --------- ---------------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
The Oaks................. Raleigh NC 1985 68,256 88 92
Sahara Gardens........... Las Vegas NV 1983 277,056 312 96
Villas de Mission........ Las Vegas NV 1979 192,370 226 95
Players Club of Nashville TN 1988 179,784 258 88
Brentwood.............
Hunters Chase............ Austin TX 1984 322,080 424 96
Hunterwood............... Austin TX 1984 105,260 160 93
Longspur Crossing........ Austin TX 1986 186,424 252 93
Silver Vale.............. Austin TX 1982 204,096 336 92
Walnut Creek............. Austin TX 1986 192,050 280 94
Wind River............... Austin TX 1983 241,792 352 91
Bear Creek Crossing...... Houston TX 1982 140,860 200 93
Cypress Creek Crossing... Houston TX 1983 174,912 256 93
North Park Crossing...... Houston TX 1983 230,736 336 97
The Park at Woodlake..... Houston TX 1975 456,730 564 90
Willow Brook Crossing.... Houston TX 1982 155,280 208 92
Jefferson Creek.......... Irving TX 1990 248,900 300 94
Jefferson Place.......... Irving TX 1990 345,952 424 92
La Costa................. Plano TX 1993 371,294 462 93
Bandera Crossing......... San Antonio TX 1986 147,672 204 93
The Hollows.............. San Antonio TX 1984 281,824 432 91
Vista Crossing........... San Antonio TX 1985 168,368 232 91
--------- ----- --
TOTAL MULTI-FAMILY......... 37 buildings 7,413,084 9,353 94%
========= ===== ==
</TABLE>

<TABLE>
<CAPTION>
OCCUPANCY AS OF
YEAR RENTABLE UNITS/ JUNE 30,
PROPERTY CITY STATE COMPLETED SQ. FT. ROOMS 1998(2)
-------- ---------------- ----- --------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
HOTELS
Country Inn and Suites by Scottsdale AZ 1995 80,568 163 67%
Carlson...............
Country Suites by Tucson AZ 1986 61,552 157 82
Carlson...............
Country Suites by Ontario CA 1985 54,019 120 72
Carlson...............
Country Suites by Arlington TX 1986 56,200 132 60
Carlson...............
--------- ----- --
Total Hotels..... 4 buildings 252,339 572 69%
========= ===== ==
</TABLE>

- ---------------
(1) Represents physical occupancy as of June 30, 1998.

(2) Represents average physical occupancy for the six months ended June 30,
1998.

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<PAGE> 73

MANAGEMENT

The following table sets forth certain information with respect to the
directors and the executive officers of the Company, the general partner of the
Operating Partnership, including their ages.

<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
---- --- ------------------
<S> <C> <C>
Robert Batinovich.............. 62 Chairman and Chief Executive Officer
Andrew Batinovich.............. 39 Director, President and Chief Operating Officer
Sandra L. Boyle................ 50 Executive Vice President
Stephen Saul................... 44 Executive Vice President, Chief Financial Officer
Frank E. Austin................ 50 Senior Vice President, General Counsel and Secretary
Terri Garnick.................. 37 Senior Vice President, Chief Accounting Officer and
Treasurer
Steven F. Hallsey.............. 46 Senior Vice President, Commercial Property Management
Richard C. Blum................ 63 Director
Patrick Foley.................. 66 Director
Richard A. Magnuson............ 41 Director
Laura Wallace.................. 45 Director
</TABLE>

ROBERT BATINOVICH has served as the Company's Chairman and Chief Executive
Officer since the Company began operations on December 31, 1995. Mr. Batinovich
also served as President of the Company since the Company began operations
through September 1997. He also was the founder of Old GC and certain of its
affiliates, and has been engaged in real estate investment and management, and
corporate finance, since 1970. He served as President, Chief Executive Officer
and Chairman of Old GC from its formation in 1978 until its consolidation and
merger with the Company (the "Consolidation") on December 31, 1995. Mr.
Batinovich served as a member of the California Public Utilities Commission from
1975 to 1979, serving as its President the last two years. He is a member of the
Board of Directors of the Farr Company, a publicly held company that
manufactures industrial filters. Mr. Batinovich's business background includes
seven years as an executive with Norris Industries, managing and/or owning
manufacturing, vending and service companies and a national bank, and providing
investment consulting to businesses and individuals. He has served on a number
of governmental commissions and participated in a variety of policy research
efforts sponsored by government bodies and universities.

ANDREW BATINOVICH has served as director, Chief Operating Officer and Chief
Financial Officer of the Company since the Company began operations on December
31, 1995 until September 1997 when he became President and Chief Operating
Officer of the Company. He also served as a director of Old GC prior to the
Consolidation, was employed by Old GC from 1983 until the Consolidation and
functioned as its Chief Operating Officer and Chief Financial Officer since
1987. Mr. Batinovich holds a California real estate broker's license and is a
Member of the National Advisory Council of Building Owners and Managers
Association ("BOMA") International. Prior to joining Glenborough, Mr. Batinovich
was a lending officer with the International Banking Group and the Corporate
Real Estate Division of Security Pacific National Bank. Mr. Batinovich has a
B.A. in International Finance from the American University of Paris.

SANDRA L. BOYLE has served as Executive Vice President of the Company since
September 1997, prior to which she served as Senior Vice President of the
Company since the Company began operations on December 31, 1995. Ms. Boyle has
been associated with Old GC or its affiliated entities since 1984. She was
originally responsible for residential marketing. Her responsibilities were
gradually expanded to include residential leasing and management in 1985, and
commercial leasing and management in 1987. She was elected Vice President of Old
GC in 1989. She currently supervises asset management, property management and
management information services for the Company. Ms. Boyle holds a California
real estate broker's license and a CPM designation, is a past President of BOMA
San Francisco, and is a member of the National Advisory and Finance Committee of
BOMA International, and the Board of Directors of BOMA San Francisco and BOMA
California.

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<PAGE> 74

STEPHEN R. SAUL has served as Vice President of the Company since May 1996
and became the Company's Executive Vice President and Chief Financial Officer in
September 1997. He has served as Manager of Real Estate Finance since joining
Old GC in April 1995. Prior to joining Old GC, Mr. Saul served for four years as
President of KSA Financial Corporation, a company which was based in Sacramento,
California and which originated equity and debt financing for real estate
projects in Northern California; he also served five years with Security Pacific
National Bank and five years with the development company of Harrington and
Kulakoff. Mr. Saul has a B.A. in Architecture and Urban Studies from Stanford
University and an M.B.A. from Harvard University.

FRANK E. AUSTIN has served as Senior Vice President, General Counsel and
Secretary of the Company since the Company began operations on December 31,
1995. Mr. Austin also served as a Vice President of Old GC from 1985 until the
completion of the Consolidation. He is a member of the State Bar of California.
Prior to joining Glenborough, Mr. Austin served for three years as committee
counsel in the California State Senate, three years with the law firm of
Neumiller & Beardslee, and four years at State Savings and Loan Association and
American Savings and Loan Association.

TERRI GARNICK has served as Senior Vice President, Chief Accounting Officer
and Treasurer of the Company since the Company began operations on December 31,
1995. Ms. Garnick joined Old GC in 1989, and between that time and the
completion of the Consolidation was responsible for property management,
accounting, financial statements, audits, SEC reports, and tax returns for
partnerships under management of Old GC and its affiliates. Prior to joining Old
GC in 1989, Ms. Garnick was a controller at August Financial Corporation from
1986 to 1989 and was a Senior Accountant at Deloitte Haskins & Sells from 1983
to 1986. She is a Certified Public Accountant.

STEVEN F. HALLSEY joined the Company on January 12, 1998, as Senior Vice
President of Commercial Property Management. Prior to joining the Company, Mr.
Hallsey served for three years as President and Chief Operating Officer of
Western National Group, a national property management firm based in Irvine,
California; and for two years as President of the Harbor Group of Norfolk,
Virginia, which owned and operated a regional portfolio of commercial and
multifamily properties. He also served four years as a Senior Vice President of
Balcor Property Management and six years as Senior Executive Vice President of
Clark Financial Corporation, a regional property management firm based in Salt
Lake City, Utah. Mr. Hallsey serves on the boards of directors of the National
Multi Housing Counsel and the California Apartment Association, and is the
founder of the South Coast Apartment Association.

RICHARD C. BLUM has served as a director of the Company since January 1998.
Mr. Blum is chairman and president of Richard C. Blum & Associates, Inc., which
is the general partner of Richard C. Blum & Associates, L.P., a merchant banking
firm which acts as general partner for various investment partnerships. Mr. Blum
also serves as a director of Northwest Airlines Corporation, URS Corporation
(architectural and engineering services) and CB Commercial Real Estate Group
(formerly Coldwell Banker, a holding company for various real estate
enterprises).

PATRICK FOLEY has served as director of the Company since January 11, 1996.
He is also Chairman and Chief Executive Officer of DHL Corporation, Inc. and its
major subsidiary, DHL Airways, positions he has held since 1988. Prior to
joining DHL, Mr. Foley was associated with the Hyatt Hotels Corporation
("Hyatt") for 26 years: in a variety of capacities, from 1962 to 1972; as
Executive Vice President for Operations, from 1972 to 1978; as President, from
1978 to 1984; as Chairman from 1984 to 1988; as Vice Chairman and later Chief
Executive Officer of Braniff Airlines, a Hyatt subsidiary, from 1984 to 1988.
Mr. Foley currently is a member of the board of directors of Continental
Airlines, Inc., Foundation Health Systems, Inc., Del Monte Foods Corporation and
Flextronics International Ltd.

RICHARD A. MAGNUSON has served as director of the Company since January 11,
1996. He is also currently Managing Director at Nomura International, plc.
("Nomura"). Mr. Magnuson joined Nomura in 1997, prior to which he served as a
director at Nomura Securities International Inc. ("Nomura International"), a
position he held since March 1994. Before joining Nomura International, Mr.
Magnuson was a director in Real Estate Investment Banking at Merrill Lynch & Co.
for five years. Mr. Magnuson is an active member of the Urban

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<PAGE> 75

Land Institute, the National Association of Real Estate Investment Trusts, and
the International Council of Shopping Centers.

LAURA WALLACE has served as director of the Company since January 11, 1996.
She is also Chief Investment Officer of the Public Employees Retirement System
of Nevada (the "System"), a position she has held since 1985 and to which she
was promoted after serving four years as Investment Analyst. The System
comprises 60,000 active members, 40,000 inactive members, and 15,000 benefit
recipients, with an investment portfolio of $10.0 billion. Prior to joining the
System, Ms. Wallace served from 1977 to 1980 as Manager of the Beaverton, Oregon
office of Safeco Title Insurance Company, and from 1975 to 1977 as Senior
Assistant Manager of the Beaverton office of Household Finance Corporation. Ms.
Wallace is a member of the executive council of the National Association of
State Investment Officers, of which she is past chairman; a member of the
National Council on Teacher Retirement; a member of the Advisory Board for the
Retired Senior Volunteer Program; past member of the Editorial Board of the
Institutional Real Estate Letter; and serves as guest lecturer at the University
of Nevada.

RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS

Robert Batinovich, the Company's Chairman and Chief Executive Officer, is
the father of Andrew Batinovich, the Company's President, Chief Financial
Officer and Director. There are no other family relationships among any
directors and executive officers of the Company.

DESCRIPTION OF NOTES

Except as otherwise indicated below, the following summary of the material
provisions of the Indenture applies to both the Old Notes and the New Notes. As
used herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.

The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the exchange of the New Notes pursuant
to the Exchange Offer will be registered under the Securities Act and,
therefore, the New Notes will not bear any legends restricting transfer thereof.
The New Notes will evidence the same debt as the Old Notes and will be treated
as a single class under the Indenture with any Old Notes that remain
outstanding. Each series of New Notes will be issued solely in exchange for an
equal principal amount of the corresponding series of Old Notes. As of the date
hereof, $150 million in aggregate principal amount of Old Notes is outstanding.
See "The Exchange Offer." The following summary of certain provisions of the
Indenture, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. The Indenture is incorporated herein by reference. Whenever particular
defined terms of the Indenture not otherwise defined herein are referred to, the
definitions ascribed to such terms in the Indenture are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "-- Certain Definitions."

GENERAL

The Old Notes were, and the New Notes will be, issued pursuant to an
Indenture. The Old Notes are a series of Debt Securities issued under the
Indenture designated as 7 5/8% Series A Redeemable Notes due 2005, and were
issued in a private transaction that was not subject to the registration
requirements of the Securities Act. The New Notes are a series of Debt
Securities issuable under the Indenture designated as 7 5/8% Series B Redeemable
Notes due 2005, and will be issued in the Exchange Offer. The Notes will be
limited to $150,000,000 in aggregate principal amount. The terms of the Notes
include those provisions contained in the Notes and the Indenture. The following
summary of certain provisions of the Indenture does not purport to be complete
and is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below but not defined herein.

69
<PAGE> 76

Pursuant to the Indenture, the Operating Partnership may issue series of
debt securities (the "Debt Securities") in addition to the Notes. Except for any
series of Debt Securities which is specifically subordinated to other
indebtedness of the Operating Partnership, the Debt Securities will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Operating
Partnership. Under the Indenture, the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company as sole general partner of
the Operating Partnership or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.

LEVERAGED TRANSACTIONS, CHANGE OF CONTROL AND REORGANIZATIONS

Except as provided under "-- Merger, Consolidation or Sale" and
"-- Covenants" below, the Notes and the Indenture do not contain any other
provisions that would afford Holders of the Notes ("Holders") protection in the
event of (i) a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the Holders of the Notes. The
financial covenants of the Operating Partnership described below would continue
to apply, unless waived by Holders of the Notes, in the event of a highly
leveraged or similar transaction involving the Operating Partnership, management
of the Operating Partnership or the Company, or any affiliate of either such
party. See "-- Covenants." In addition, subject to the limitations set forth
below under "-- Merger, Consolidation or Sale," the Operating Partnership may,
in the future, enter into certain transactions such as the sale of all or
substantially all of its assets or the merger or consolidation of the Operating
Partnership that would increase the amount of the Operating Partnership's
indebtedness or substantially reduce or eliminate the Operating Partnership's
assets, which may have an adverse effect on the Operating Partnership's ability
to service its indebtedness, including the Notes. The Operating Partnership has
no present intention of engaging in a highly leveraged or similar transaction
involving the Operating Partnership. In addition, certain restrictions on
ownership and transfers of the Company's stock designed to preserve its status
as a REIT may act to prevent or hinder any such transactions or a change of
control.

RANKING

The Old Notes are, and the New Notes will be, general unsecured and
unsubordinated obligations of the Operating Partnership and will rank pari passu
with all other unsecured and unsubordinated indebtedness of the Operating
Partnership from time to time outstanding. However, the Old Notes are, and the
New Notes will be, subordinated to such secured borrowing arrangements that the
Operating Partnership has and from time to time may enter into with various
banks and other lenders, and to the prior claims of each secured mortgage lender
to any specific property owned by the Operating Partnership which secures any
lender's mortgage. As of June 30, 1998, such arrangements and mortgages
aggregated approximately $451.1 million; as adjusted to reflect the Pro Forma
Adjustments, such arrangements and mortgages would have aggregated approximately
$492.4 million as of June 30, 1998. Subject to certain limitations set forth in
the Indenture described below under the caption "Covenants," the Indenture will
permit the Operating Partnership to incur additional indebtedness and additional
secured indebtedness. See "Covenants," "Recent Activities -- Financing
Activities."

PRINCIPAL, MATURITY AND INTEREST

The Old Notes are, and the New Notes will be, limited in aggregate
principal amount to $150,000,000 and will mature on March 15, 2005 (the
"Maturity Date"). The New Notes will be issued in minimum denominations of
$1,000 and in integral multiples thereof.

Interest on the Old Notes and on the New Notes will accrue at the rate of
7 5/8% per annum and will be payable semi-annually in arrears on March 15 and
September 15 of each year, commencing on March 15, 1999, to holders of record on
the immediately preceding March 1 and September 1. Holders of New Notes will
receive interest accrued thereof from the date of original issuance of the Old
Notes or the date of last
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<PAGE> 77

interest payment as applicable, to, but not including, the date of issuance of
the New Notes. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.

Principal, premium, if any, and interest on the Notes will be payable at
the office or agency of the Operating Partnership maintained for such purpose
or, at the option of the Operating Partnership, payment may be made by check
mailed to holders of the Notes at their respective addresses set forth in the
register of holders; provided that all payments with respect to Notes the
Holders of which have given wire transfer instructions to the Operating
Partnership will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Operating Partnership, the Operating Partnership's
office or agency will be the office of the Trustee maintained for such purpose
in the Borough of Manhattan, The City of New York, which currently is c/o Chase
Manhattan Bank and Trust Company, National Association, 55 Water Street, Room
234, and at the Trustee's corporate trust office at 101 California Street, Suite
2725, San Francisco, California 94111.

OPTIONAL REDEMPTION

The Notes may be redeemed at any time at the option of the Operating
Partnership, in whole or from time to time in part, at a redemption price (the
"Redemption Price") equal to the sum of (i) the principal amount of the Notes
(or portion thereof) being redeemed plus accrued interest thereon to the
redemption date and (ii) the Make-Whole Amount, if any, with respect to the
Notes (or portion thereof).

If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price.

Notice of any redemption of any Notes (or any portion thereof) will be
given to Holders at their addresses, as shown in the Note Register, not more
than 60 nor less than 30 days prior to the date fixed for redemption. The notice
of redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed.

The Operating Partnership will notify the Trustee at least 45 days prior to
giving notice of redemption (or such shorter period as is satisfactory to the
Trustee) of the aggregate principal amount of such Notes to be redeemed and
their redemption date. If less than all of the Notes are to be redeemed at the
option of the Operating Partnership, the Trustee shall select, in such manner as
it shall deem fair and appropriate, such Notes to be redeemed in whole or in
part.

REGISTRATION RIGHTS; LIQUIDATED DAMAGES

In connection with the original issuance and sale of the Old Notes, the
Initial Purchasers and their assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Operating Partnership agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Operating Partnership will offer to the Holders of
Transfer-Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the Operating Partnership is
not required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities notifies the Operating Partnership on or prior to the 20th business
day following consummation of the Exchange Offer that (a) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (b) that it
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or

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<PAGE> 78

(c) that it is a broker-dealer and owns Old Notes acquired directly from the
Operating Partnership or an affiliate of the Operating Partnership, the
Operating Partnership will file with the Commission a Shelf Registration
Statement to cover resales of the Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Operating Partnership will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Note until (i) the date on which
such Note has been exchanged by a person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Act.

The Registration Rights Agreement provides that (i) the Operating
Partnership will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) the Operating
Partnership will use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to 150 days after the
Closing Date, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Operating Partnership will commence the
Exchange Offer and use its best efforts to issue, on or prior to 30 business
days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Operating Partnership will use its best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 150 days
after such obligation arises. If (a) the Operating Partnership fails to file any
of the Registration Statements required by the Registration Rights Agreement on
or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Operating Partnership fails to consummate the Exchange Offer within 30 business
days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or useable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Operating Partnership and the Company will pay Liquidated
Damages to each Holder of Notes, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default, in an
amount equal to one-half of the one percentage point (0.5%) per annum of the
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of two percent (2.0%) per
annum. All accrued Liquidated Damages will be paid on each Damages Payment Date
to the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Definitive Notes by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.

Holders of the Old Notes are required to make certain representations to
the Operating Partnership (as described in the Registration Rights Agreement) in
order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide information reasonably requested by the Operating Partnership for use
in connection with the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.

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<PAGE> 79

MERGER, CONSOLIDATION OR SALE

The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
person, provided (a) either the Operating Partnership shall be the continuing
person, or the successor (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal,
premium, if any, and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture, (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Operating Partnership or any Subsidiary as a result thereof as having been
incurred by the Operating Partnership or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an Event of Default,
shall have occurred and be continuing and (c) an officers' certificate of the
Company as General Partner of the Operating Partnership and an opinion of
counsel covering such conditions shall be delivered to the Trustee.

COVENANTS

Limitations on Incurrence of Debt

The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Debt, other than intercompany debt representing Debt to which the only
parties are the Company, the Operating Partnership and any of their Subsidiaries
(but only so long as such Debt is held solely by any of the Company, the
Operating Partnership and any Subsidiary) that is subordinate in right of
payment to the Notes, if, immediately after giving effect to the incurrence of
such additional Debt and the application of the net proceeds thereof, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with GAAP
is greater than 60% of the sum (without duplication) of (i) Total Assets of the
Operating Partnership and its Subsidiaries as of the end of the most recently
completed fiscal quarter of the Operating Partnership for which financial
information is available prior to the incurrence of such additional Debt and
(ii) the purchase price or cost of any real estate assets or mortgages
receivable acquired or developed, and the amount of any securities offering
proceeds or asset sale proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable, to develop real
estate assets or to reduce Debt) by the Operating Partnership or any Subsidiary
since the end of such fiscal quarter, including those proceeds obtained in
connection with the incurrence of such additional Debt (such increase, together
with the Total Assets, is referred to as "Adjusted Total Assets").

In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge on all Debt outstanding immediately after the incurrence
of such additional Debt for the four consecutive fiscal quarters most recently
ended prior to the date on which such additional Debt is to be incurred shall
have been less than 1.5 to 1.0, and calculated on the assumption that (i) such
Debt and any other Debt incurred by the Operating Partnership or its
Subsidiaries since the first day of such four-quarter period and the application
of the net proceeds therefrom, including to refinance other Debt, had occurred
at the beginning of such period, (ii) the repayment or retirement of any other
Debt by the Operating Partnership or its Subsidiaries since the first day of
such four-quarter period had been incurred, repaid or retired at the beginning
of such period (except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon the average
daily balance of such Debt during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned, on an annualized basis, during such period and (iv) in the case of
any acquisition or disposition by the Operating Partnership or any Subsidiary of
any asset or group of assets since the first day of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the

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first day of such period with the appropriate adjustments with respect to such
acquisition or disposition being included in such pro forma calculation.

In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt is greater than 40% of Adjusted Total Assets.

For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership or a Subsidiary whenever the Operating Partnership and its
Subsidiary shall create, assume, guarantee or otherwise become liable in respect
thereof. In addition, the amount of Debt issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.

Maintenance of Total Unencumbered Assets

The Operating Partnership is required to maintain Total Unencumbered Assets
of not less than 150% of the aggregate outstanding principal amount of all
outstanding Unsecured Debt.

Provision of Financial Information

The Indenture provides that upon the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be,
whether or not required by the rules and regulations of the Commission, so long
as any Notes are outstanding, the Operating Partnership will furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Operating Partnership were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Operating Partnership and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Operating Partnership's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Operating
Partnership were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Operating
Partnership will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Operating Partnership has
agreed that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

Existence

Except as permitted under "Merger, Consolidation or Sale," the Indenture
requires each of the Operating Partnership and the Company to do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights (partnership and statutory) and franchises; provided, however,
that each of the Operating Partnership and the Company shall not be required to
preserve any right or franchise if the Board of Directors of the Company
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Operating Partnership and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Notes.

Maintenance of Properties

The Indenture requires each of the Operating Partnership and the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously

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conducted at all times; provided, however, that the Operating Partnership or the
Company, as the case may be, and its Subsidiaries shall not be prevented from
selling or otherwise disposing of their properties for value in the ordinary
course of business.

Insurance

The Indenture requires the Operating Partnership and each of its
Subsidiaries to keep its insurable Properties insured against loss or damage
with commercially reasonable amounts and types of insurance provided by insurers
of recognized responsibility.

Payment of Taxes and Other Claims

The Indenture requires each of the Operating Partnership and the Company to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership or the Company shall not be required to pay or discharge or cause to
be paid or discharged any tax, assessment, charge or claim whose amount or
applicability is being contested in good faith.

Waiver of Covenants; Compliance

The Operating Partnership may omit to comply with any term, provision or
condition of the foregoing covenants, and with any other term, provision or
condition with respect to the Notes (except any such term, provision or
condition which could not be amended without the consent of all Holders of
Notes), if before or after the time for such compliance the Holders of at least
a majority in principal amount of all the outstanding Notes either waive such
compliance in such instance or generally waive compliance with such covenant or
condition. Except to the extent so expressly waived, and until such waiver shall
become effective, the obligations of the Operating Partnership and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect. Notwithstanding the foregoing, the defeasance and
covenant defeasance provisions of the Indenture described under "-- Discharge,
Defeasance and Covenant Defeasance" below applies to the Notes.

The Operating Partnership will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate as to the Operating
Partnership's compliance or non-compliance with the conditions and covenants
under the Indenture. Further, upon any request by the Operating Partnership to
the Trustee to take any action under the Indenture, the Operating Partnership
will furnish to the Trustee (a) an Officers' Certificate stating that all
conditions precedent, if any, provided for in the Indenture relating to the
proposed action have been complied with, and (b) an opinion of counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.

CERTAIN DEFINITIONS

As used herein:

"Annual Service Charge" for any period means the aggregate interest expense
for such period in respect of, and the amortization during such period of any
original issue discount of, Debt of the Operating Partnership and its
Subsidiaries and the amount of dividends which are payable during such period in
respect of any Disqualified Stock.

"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.

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"Consolidated Income Available For Debt Service" for any period means
Consolidated Net Income plus amounts which have been deducted, and minus amounts
which have been added, for the following (without duplication): (a) interest on
Debt of the Operating Partnership and its Subsidiaries, (b) provision for taxes
of the Operating Partnership and its Subsidiaries based on income, (c)
amortization of Debt discount, (d) provisions for gains and losses on
properties, (e) depreciation and amortization on properties, (f) the effect of
any non-cash charge resulting from a change in accounting principles in
determining Consolidated Net Income for such period and (g) amortization of
deferred charges.

"Consolidated Net Income" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.

"Debt" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or such Subsidiary, as applicable,
whether or not contingent, in respect of (i) borrowed money evidenced by bonds,
notes, debentures or similar instruments, (ii) indebtedness secured by any
mortgage, pledge, lien, charge, encumbrance or any security interest existing on
property owned by the Operating Partnership or such Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance that
constitutes an accrued expense or trade payable or (iv) any lease of property by
the Operating Partnership or such Subsidiary as lessee which is reflected in the
Operating Partnership's consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles, in the case of items
of indebtedness under (i) through (iii) above to the extent that any such items
(other than letters of credit) would appear as a liability on the Operating
Partnership's consolidated balance sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise included,
any obligation by the Operating Partnership or such Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person
(other than the Operating Partnership or any Subsidiary).

"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock), (ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part (other than Capital Stock which is redeemable solely in
exchange for Capital Stock which is not Disqualified Stock or the redemption
price of which may, at the option of such Person, be paid in Capital Stock which
is not Disqualified Stock), in each case on or prior to the Maturity Date of the
Notes. For purposes of this definition, it is expressly understood that the
partnership units in the Operating Partnership and shares of perpetual preferred
stock of the Company (which do not possess any of the features of clauses (i),
(ii) or (iii) above) shall not constitute Disqualified Stock.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.

"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or

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accelerated payment had not been made, over (ii) the aggregate principal amount
of the Notes being redeemed or paid.

"Reinvestment Rate" means .25% plus the arithmetic mean of the yields under
the respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.

"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Operating
Partnership.

"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.

"Total Assets" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).

"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt, excluding infrastructure assessment bonds, and
(ii) all other assets of the Operating Partnership and its Subsidiaries
determined in accordance with GAAP (but excluding intangibles and accounts
receivable) which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt.

"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.

"Unsecured Debt" means Debt which is not secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind upon any of the
properties of the Operating Partnership or any Subsidiary.

EVENTS OF DEFAULT, NOTICE AND WAIVER

The Indenture provides that the following events are "Events of Default'
with respect to the Notes: (a) default for 30 days in the payment of any
interest on the Notes; (b) default in the payment of any principal of, premium,
if any, or any Make-Whole Amount on any Notes when due; (c) default in the
performance of any other covenant or warranty of the Operating Partnership or
the Company contained in the Indenture with respect to the Notes, continued for
60 days after written notice as provided in the Indenture; (d) default under any
bond, debenture, note, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed (except for nonrecourse mortgage indebtedness which individually or in
the aggregate does not exceed $20,000,000) by the Operating Partnership or the
Company (or by any Subsidiary, the repayment of which the Operating Partnership
or the Company has guaranteed or for which the Operating Partnership or the
Company is directly responsible or liable as obligor or guarantor), having an
aggregate principal amount outstanding of at least $10,000,000, whether such
indebtedness now exists or shall hereafter be created, which default shall have
resulted in such

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indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after written notice to the Operating Partnership or
the Company, as the case may be, as provided in the Indenture; (e) the entry by
a court of competent jurisdiction of one or more judgments, orders or decrees
against the Operating Partnership or any Subsidiary in an aggregate amount
(excluding amounts covered by insurance) in excess of $10,000,000 and such
judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an
aggregate amount (excluding amounts covered by insurance) in excess of
$10,000,000 for a period of 30 consecutive days; and (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership or the Company or any
Significant Subsidiary. The term "Significant Subsidiary" has the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act. If
an Event of Default specified in clause (f) above relating to the Operating
Partnership or the Company or any Significant Subsidiary occurs, the principal
amount of, and the Make-Whole Amount, on all outstanding Notes shall become
automatically due and payable without any declaration or other act on the part
of the Trustee or of the Holders.

If an Event of Default under the Indenture with respect to the Notes occurs
and is continuing, then in every such case the Trustee or the Holders of not
less than a majority in principal amount of the then outstanding Notes may
declare the principal amount of all of the Notes to be due and payable
immediately by written notice thereof to the Company and the Operating
Partnership (and to the Trustee if given by the Holders). However, any time
after such a declaration of acceleration with respect to the Notes has been
made, but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the Holders of not less then a majority in principal
amount of outstanding Notes may rescind and annul such declaration and its
consequences if (a) the Operating Partnership shall have paid or deposited with
the Trustee all required payments of the principal of, premium, if any, and
interest on the Notes plus certain fees, expenses, disbursements and advances of
the Trustee and (b) all Events of Default, other than the nonpayment of
accelerated principal or interest with respect to the Notes have been cured or
waived as provided in the Indenture. The Indenture will also provide that the
Holders of not less than a majority in principal amount of the outstanding Notes
may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal, premium, if any, or
interest on the Notes or (y) in respect of a covenant or provision contained in
the Indenture that cannot be modified or amended without the consent of the
Holder of each outstanding Note affected thereby.

The Trustee is required under the Indenture to give notice to the Holders
of Notes within 90 days of a default under the Indenture; provided, however,
that the Trustee may withhold from the Holders of the Notes notice of any
default (except a default in the payment of the principal, premium, if any, or
interest on the Notes) if the Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders.

The Indenture provides that no Holders of the Notes may institute any
proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than a majority in principal
amount of the outstanding Notes, as well as an offer of reasonable indemnity.
This provision does not prevent, however, any Holder of Notes from instituting
suit for the enforcement of payment of the principal, premium, if any, and
interest on such Notes at the respective due date thereof.

Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Notes
then outstanding under the Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity. The Holders of not less than a
majority in principal amount of the outstanding Notes of any series shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the

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Indenture, which may involve the Trustee in personal liability or which may be
unduly prejudicial to the Holders of Notes not joining therein.

Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company must deliver to the Trustee a certificate, signed by
one of several specified officers of the Company, stating whether or not such
officer has knowledge of any default under the Indenture and, if so, specifying
each such default and the nature and status thereof.

DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE

The Operating Partnership may discharge certain obligations to Holders of
the Notes that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or are scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Notes
are payable in an amount sufficient to pay the entire indebtedness on such Notes
in respect of principal of, premium, if any, and interest on the Notes to the
date of such deposit (if such Notes have become due and payable) or to the
Maturity Date or Redemption Date, as the case may be.

The Indenture provides that the Operating Partnership may elect either (a)
to decease and be discharged from any and all obligations with respect to such
Notes (except for the obligations to register the transfer or exchange of such
Notes, to replace temporary or mutilated, destroyed, lost or stolen Notes, to
maintain an office or agency in respect of such Notes to compensate the Trustee
and to hold moneys for payment in trust) ("defeasance") or (b) to be released
from its obligations with respect to such Notes under Sections 1006 through
1008, inclusive, of the Indenture (being the restrictions described under
"-- Covenants") or, if provided pursuant to Section 301 of the Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such Notes ("covenant defeasance"), in either case upon the
irrevocable deposit by the Operating Partnership or the Company, as the case may
be, with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Notes
are payable on the Maturity Date, or Government Obligations, or both applicable
to such Notes which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal, premium, if any, and interest on such Notes, and any mandatory
sinking fund or analogous payments thereon, on the scheduled due dates therefor.

Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and such
Opinion of Counsel, in the case of defeasance, must refer to and be based upon a
ruling of the Internal Revenue Service or a change in applicable United States
federal income tax law occurring after the date of the Indenture.

"Government Obligations" means securities which are (i) direct obligations
of The United States of America or the government which issued the Foreign
Currency in which the Notes are payable, for the payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of The United States of America or
such government which issued the Foreign Currency in which the Notes of such
series are payable, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the option
of the issuer thereof, and shall also include a depository receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the holder of a
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository

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receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.

If after the Operating Partnership or the Company, as the case may be, has
deposited funds and/or Government Obligations to effect defeasance or covenant
defeasance with respect to the Notes, (a) the Holder of a Note is entitled to,
and does, elect pursuant to Section 301 of the Indenture or the terms of such
Note to receive payment in a currency, currency unit or composite currency other
than that in which such deposit has been made in respect of such Note, or (b) a
Conversion Event occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness represented by
such Note shall be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal, premium, if any, and interest on
such Note as the same becomes due out of the proceeds yielded by converting the
amount so deposited in respect of such Note into the currency, currency unit or
composite currency in which such Note becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange rate
(Section 1405). "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency either by the government of the country
which issued such currency and for the settlement of transactions by a central
bank or other public institutions or within the international banking community,
(ii) the ECU either within the European Monetary System or for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. (Section 101.) All payments of principal,
premium, if any, and interest on any Note that is payable in a Foreign Currency
that cease to be used by its government of issuance shall be made in U.S.
dollars.

In the event the Operating Partnership or the Company, as the case may be,
effects covenant defeasance with respect to the Note and such Notes are declared
due and payable because of the occurrence of any Event of Default other than the
Event of Default described in clause (d) under "Events of Default, Notice and
Waiver" with respect to Section 1006 through 1008 of the Indenture (which
Sections would no longer be applicable to such Notes) or described in clause (g)
under "Events of Default, Notice and Waiver" with respect to any other covenant
as to which there has been covenant defeasance, the amount in such currency,
currency unit or composite currency in which such Notes are payable, and
Government Obligations on deposit with the Trustee, will be sufficient to pay
amounts due on such Notes at the time of the Maturity Date but may not be
sufficient to pay amounts due on such Notes at the time of the acceleration
resulting from such Event of Default. However, the Operating Partnership would
remain liable to make payment of such amounts due at the time of acceleration.

MODIFICATION OF THE INDENTURE

Modifications and amendments of provisions of the Indenture may be made
only with consent of the Holders of not less than a majority in principal amount
of the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each such Notes affected
thereby, (a) change the Maturity Date of the principal, premium, if any, or
interest on any such Notes; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Notes,
or adversely affect any right of repayment of the Holder of any such Note; (c)
change the Place of Payment, or the coin or currency, for payment of principal
of, premium, if any, or interest on any such Note; (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any such
Note on or after the Maturity Date thereof; (e) reduce the above-stated
percentage of outstanding Notes necessary to modify or amend the Indenture, to
waive compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Note.

The Holders of not less than a majority in principal amount of outstanding
Notes have the right to waive compliance by the Operating Partnership or the
Company with certain covenants in the Indenture relating to such series.

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Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Company and the Trustee without the consent of any Holder of
Notes for any of the following purposes: (i) to evidence the succession of
another Person to the Operating Partnership as obligor under the Indenture; (ii)
to add to the covenants of the Operating Partnership and the Company for the
benefit of the Holders of the Notes or to surrender any right or power conferred
upon the Operating Partnership or the Company in the Indenture; (iii) to add
Events of Default for the benefit of the Holders of the Notes; (iv) to add or
change any provisions of the Indenture to facilitate the issuance of the Notes
in bearer form, or to permit or facilitate the issuance of the Notes in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Notes in any material respect; (v) to secure the
Notes; (vi) to provide for the acceptance of appointment by a successor Trustee
or facilitate the administration of the trust under the Indenture by more than
one Trustee; (vii) to cure any ambiguity, defect or inconsistency in the
Indenture, provided that such action shall not adversely affect the interests of
Holders of the Notes in any material respect; and (viii) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Notes, provided that such action
shall not adversely affect the interests of the Holders of the Notes in any
material respect.

The Indenture contains provisions for convening meetings of the Holders of
Notes (Section 1501). A meeting may be called at any time by the Trustee, and
also, upon request, by the Operating Partnership or the Holders of at least 25%
in principal amount of the outstanding Notes, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
Holder of each Note affected by certain modifications and amendments of the
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the outstanding Notes;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Notes may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative vote of the Holders
of such specified percentage in principal amount of the outstanding Notes. Any
resolution passed or decision taken at any meeting of Holders of Notes duly held
in accordance with the Indenture will be binding on all Holders of Notes. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the outstanding Notes; provided, however, that if any action is to be taken
at such meeting with respect to a consent or waiver which may be given by the
Holders of not less than a specified percentage in principal amount of the
outstanding Notes, the Persons holding or representing such specified percentage
in principal amount of the outstanding Notes will constitute a quorum.

Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Notes with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that the Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage in
principal amount of all outstanding Notes: (i) there shall be no minimum quorum
requirement for such meeting and (ii) the principal amount of the outstanding
Notes that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture.

TRANSFER AND EXCHANGE

A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Operating Partnership
may require a holder to pay any taxes and fees required by law or permitted by
the Indenture. The Operating Partnership is not required to transfer or exchange
any Note selected for redemption. Also, the Operating Partnership is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.

The registered holder of a Note will be treated as the owner of it for all
purposes.

81
<PAGE> 88

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

In the opinion of Morrison & Foerster, LLP, counsel to the Operating
Partnership, the following are the material U.S. federal income tax consequences
relevant to the exchange of the Old Notes for New Notes pursuant to the Exchange
Offer and the ownership and disposition of the New Notes by holders who acquire
the New Notes pursuant to the Exchange Offer. However, the following discussion
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), U.S. Treasury Regulations ("Regulations"), Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions all in effect as of
the date hereof, all of which are subject to change at any time, and any such
change may be applied retroactively in a manner that could adversely affect a
holder of the New Notes. The discussion does not address all of the U.S. federal
income tax consequences that may be relevant to a holder of the New Notes in
light of such holder's particular circumstances or to holders subject to special
rules, such as certain financial institutions, insurance companies, dealers in
securities, tax-exempt organizations and persons holding the New Notes as part
of a "straddle," hedge" or "conversion transaction." In addition, this
discussion is limited to persons that acquired the Old Notes in the Initial
Offering and are exchanging the Old Notes for New Notes. Moreover, the effect of
any applicable state, local or foreign tax laws is not discussed. The discussion
deals only with New Notes held as "capital assets" within the meaning of Section
1221 of the Code.

As used herein, "U.S. Holder" means a beneficial owner of the New Notes who
or that (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership or other entity created or organized in or under the
laws of the United States or political subdivision thereof (unless, in the case
of a partnership, the U.S. Treasury provides otherwise by Regulations), (iii) is
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, (iv) is a trust if (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one or
more U.S. persons, within the meaning of Section 7701(a)(30) of the Code, have
authority to control all substantial decisions of the trust, or (v) is otherwise
subject to U.S. federal income tax on a net income basis in respect of the New
Notes. As used herein, a "Non-U.S. Holder" means a holder of the New Notes who
or that is not a U.S. Holder.

The Operating Partnership has not sought and will not seek any rulings from
the IRS with respect to the matters discussed below. There can be no assurance
that the IRS will not take a different position concerning the tax consequences
of the exchange, ownership or disposition of the New Notes or that any such
position would not be sustained.

HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS INCLUDING GIFT AND ESTATE TAX LAWS.

EXCHANGE OFFER

The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. federal income tax
purposes because, under the Regulations, the New Notes do not differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such Holder.
As a result, there will be no U.S. federal income tax consequences to holders
who exchange Old Notes for New Notes pursuant to the Exchange Offer and any such
holder will have the same tax basis and holding period in the New Notes as it
had in the Old Notes immediately before the exchange.

U.S. HOLDERS

INTEREST. The stated interest on the New Notes generally will be taxable to
a U.S. Holder as ordinary income at the time that it is paid or accrued, in
accordance with the U.S. Holder's method of accounting for U.S. federal income
tax purposes. It is not anticipated that the New Notes will give rise to
"original issue discount" income in the hands of U.S. Holders.

82
<PAGE> 89

SALE, RETIREMENT OR REDEMPTION OF A NOTE. A U.S. Holder of a New Note will
recognize capital gain or loss upon the sale, retirement, redemption or other
taxable disposition of such New Note in an amount equal to the difference
between (a) the amount of cash and the fair market value of other property
received in exchange therefor (other than amounts attributable to accrued but
unpaid stated interest) and (b) the U.S. Holder's adjusted tax basis in such New
Note. The tax rate applicable to capital gain of a non-corporate U.S. Holder
varies depending on such holder's holding period for the New Notes. In the case
of a non-corporate U.S. Holder, any capital gain will be subject to a maximum
U.S. federal income tax rate of 20% if such holder's holding period in the New
Notes is more than one year on the date of the disposition.

NON-U.S. HOLDERS

U.S. Withholding Tax

Interest paid to Non-U.S. Holders of the New Notes will not be subject to
U.S. income or withholding tax, provided that (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the capital or profits of the
Operating Partnership, (ii) the Non-U.S. Holder is not (a) a "controlled foreign
corporation" for U.S. federal income tax purposes that is related to the
Operating Partnership through equity ownership or (b) a bank that received the
New Note on an extension of credit made pursuant to a loan agreement entered
into in the ordinary course of its trade or business, (iii) the beneficial owner
of the New Note provides a statement signed under penalties of perjury that
includes its name and address and certifies that it is not a U.S. Person in
compliance with applicable requirements or an exemption is otherwise established
and (iv) the interest is not effectively connected with a United States trade or
business of the Non-U.S. Holder. If requirements (i) through (iii) cannot be
met, a Non-U.S. Holder will be subject to U.S. withholding tax at a rate of 30%
(or lower treaty rate, if applicable) on interest payments on the New Notes.

If a Non-U.S. Holder of a New Note is engaged in a trade or business in the
United States and interest on the new Note is effectively connected with the
conduct of such trade or business, such holder, although exempt from U.S.
federal withholding tax by reason of the delivery of a properly completed Form
4224, will be subject to U.S. federal income tax on such interest in the same
manner as if it were a U.S. Holder.

In general, any gain realized by any Non-U.S. Holder upon the sale,
exchange or redemption of a New Note will not be subject to U.S. income or
withholding tax. However, such gain will be subject to U.S. income or
withholding tax if (i) it is effectively connected with a U.S. trade or business
of the Non-U.S. Holder, (ii) a Non-U.S. Holder is an individual who is present
in the United States for a total of 183 days or more during the taxable year is
which the gain is realized and certain other conditions are satisfied or (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.

U.S. Estate Tax

New Notes owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the time of death ("Nonresident Decedent") will not be
includible in the Nonresident Decedent's gross estate for U.S. federal estate
tax purposes as a result of the Nonresident Decedent's death, provided that, at
the time of death, the Nonresident Decedent does not own, actually or
constructively, 10% or more of the capital or profits of the Operating
Partnership and payments with respect to such New Notes would not have been
effectively connected with the conduct of a trade or business in the United
States by the Nonresident Decedent. A Nonresident Decedent's estate may be
subject to U.S. federal estate tax on property includible in his or her estate
for U.S. federal estate tax purposes.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Certain noncorporate U.S. Holders may be subject to IRS information
reporting and backup withholding at a rate of 31% on payments of principal and
interest on the New Notes, and the proceeds from a disposition of the New Notes.
Backup withholding will be imposed where the U.S. Holder: (i) fails to furnish
its taxpayer

83
<PAGE> 90

identification number ("TIN"), which, for an individual, would ordinarily be his
or her social security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he or she has failed to properly report payments of
interest or dividends, or (iv) under certain circumstances, fails to certify,
under penalties of perjury, that he or she has furnished a correct TIN and has
not been notified by the IRS that he or she is subject to backup withholding.
The Operating Partnership also will institute backup withholding on payments
made on a New Note to a U.S. Holder if instructed to do so by the IRS. A U.S.
Holder's failure to provide a correct TIN to the Operating Partnership when
requested may also subject the U.S. holders to IRS penalties.

In general interest paid with respect to a New Note and received by a
Non-U.S. Holder will not be subject to IRS information reporting or backup
withholding if the payor has received appropriate certification statements and
provided that the payor does not have actual knowledge that the Non-U.S. Holder
is a U.S. Person. Holders of the New Notes should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.

The payment of the proceeds from the disposition of New Notes to or through
the U.S. office of any U.S. or foreign broker will be subject to IRS information
reporting and possibly backup withholding unless the owner certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. Person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through the non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to IRS information reporting or backup
withholding. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for U.S. federal income tax purposes or (ii) a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a U.S. trade or
business.

In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is a U.S. related person, the
Regulations require IRS information reporting on the payment unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
the broker has no knowledge to the contrary. Backup withholding will not apply
to payments made through foreign offices of a broker that is a U.S. Person or a
U.S. related person (absent actual knowledge that the payee is a U.S. Person).

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's U.S.
federal income tax liability, if any, or otherwise be refundable, provided that
the requisite IRS procedures are followed.

PROSPECTIVE FINAL REGULATIONS

On October 6, 1997, new Regulations ("New Regulations") were issued that
modify the requirements imposed on a Non-U.S. Holder and certain intermediaries
for establishing the recipient's status as a non-U.S. Holder eligible for
exemption from or reduction in U.S. withholding tax and backup withholding
described above. In general, the New Regulations do not significantly alter the
substantive withholding and information reporting requirements but rather unify
current certification procedures and forms and clarify reliance standards. The
New Regulations generally are effective for payments made after December 31,
1999, subject to certain transition rules. In addition, the New Regulations
impose more stringent conditions on the ability of financial intermediaries
acting for a Non-U.S. Holder to provide certifications on behalf of the Non-U.S.
Holder, which may include entering into an agreement with the IRS to audit
certain documentation with respect to such certifications. Non-U.S. Holders
should consult their own tax advisors to determine the effects of the
application of the New Regulations to their particular circumstances.

84
<PAGE> 91

PLAN OF DISTRIBUTION

Each broker-dealer that received New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Operating Partnership will amend or supplement the
disclosure contained herein as necessary to update this Prospectus and has
agreed that, starting on the Expiration Date and ending one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until such date, all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.

The Operating Partnership will not receive any proceeds from any sales of
New Notes by broker-dealers or others. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of New Notes and any commissions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

For a period one year after the Expiration Date, the Operating Partnership
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Operating Partnership have agreed to pay
certain expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.

EXPERTS

The financial statements of the Company, the GRT Predecessor Entities and
Glenborough Hotel Group, and related financial statements schedules included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
have been audited by Arthur Andersen LLP, independent public accountants, to the
extent and for the periods indicated in their reports, and have been
incorporated herein in reliance on such reports given on the authority of that
firm as experts in accounting and auditing.

In addition, the respective statements of revenues and certain expenses of
the BGK Portfolio, the Eaton and Lauth Portfolio, One and Three Pacific, the
Pauls Portfolio, the Galesi Portfolio and the Donau/Gruppe Portfolio, including
in various Current Reports on Form 8-K and Form 8-K/A, have also been audited by
Arthur Andersen LLP, independent public accountants, to the extent and for the
periods indicated in their reports, and have been incorporated herein, in
reliance on such reports given on the authority of that firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the New Notes offered by this Prospectus has been passed
upon for the Operating Partnership by Morrison & Foerster LLP, Palo Alto,
California. Morrison & Foerster LLP will rely upon the opinion of Hogan &
Hartson LLP, Baltimore, Maryland as to certain matters of Maryland law. In
addition, the description of the tax consequences of the exchange of Old Notes
for New Notes pursuant to the Exchange Offer contained in the Prospectus under
the caption "United States Federal Income Tax Consequences" is based upon the
opinion of Morrison & Foerster LLP.

85
<PAGE> 92

GLENBOROUGH PROPERTIES, L.P.
A CALIFORNIA LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS OF
GLENBOROUGH PROPERTIES, L.P. AND COMBINED FINANCIAL
STATEMENTS OF THE GRT PREDECESSOR ENTITIES
Report of Independent Public Accountants.................... F-2
Glenborough Properties, L.P. Consolidated Balance Sheets as
of June 30, 1998, and December 31, 1997 and 1996.......... F-3
Glenborough Properties, L.P. Consolidated Statements of
Operations for the six months ended June 30, 1998 and
1997...................................................... F-4
Glenborough Properties, L.P. Consolidated Statements of
Operations for the three months ended June 30, 1998 and
1997...................................................... F-5
Glenborough Properties, L.P. and GRT Predecessor Entities
Consolidated and Combined Statements of Operations for the
years ended December 31, 1997, 1996 and 1995.............. F-6
Glenborough Properties, L.P. and GRT Predecessor Entities
Consolidated and Combined Statements of Equity for the
years ended December 31, 1997, 1996 and 1995 and the
six months ended June 30, 1998............................ F-7
Glenborough Properties, L.P. Consolidated Statements of Cash
Flows for the
six months ended June 30, 1998 and 1997................... F-8
Glenborough Properties, L.P. and GRT Predecessor Entities
Consolidated and Combined Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995.............. F-9
Glenborough Properties, L.P. Notes to Consolidated Financial
Statements................................................ F-10
Glenborough Properties, L.P. Schedule III -- Real Estate and
Accumulated Depreciation.................................. F-30
Glenborough Properties, L.P. Schedule IV -- Mortgage Loans
Receivable, Secured by Real Estate........................ F-37
</TABLE>

F-1
<PAGE> 93

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

We have audited the accompanying consolidated balance sheets of GLENBOROUGH
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1997 and
1996, the related consolidated statements of operations, equity and cash flows
for the years ended December 31, 1997 and 1996, and the combined statements of
operations, equity and cash flows of the GRT Predecessor Entities for the year
ended December 31, 1995. These consolidated and combined financial statements
and the schedules referred to below are the responsibility of the Operating
Partnership's management. Our responsibility is to express an opinion on these
consolidated and combined financial statements and schedules based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GLENBOROUGH
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1997 and
1996, the consolidated results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, and the combined results of operations
and cash flows of the GRT Predecessor Entities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
consolidated and combined financial statements taken as a whole. The
accompanying schedules, Schedule III -- Real Estate and Accumulated Depreciation
and Schedule IV -- Mortgage Loans Receivable Secured by Real Estate, are
presented for the purpose of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic consolidated and
combined financial statements. These schedules have been subjected to the
auditing procedures applied in our audits of the basic consolidated and combined
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic consolidated and combined financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

San Francisco, California
January 21, 1998

F-2
<PAGE> 94

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C>
Rental property, net of accumulated depreciation of
$61,182, $41,213 and $28,784 in 1998, 1997 and 1996,
respectively........................................ $1,698,554 $825,218 $161,945
Investment in Glenborough Corporation................. 8,611 8,519 5,261
Mortgage loans receivable, net of provision for loss
of $863 in 1996..................................... 41,269 3,692 9,905
Cash and cash equivalents............................. 6,571 3,670 785
Other assets.......................................... 78,300 23,351 5,439
---------- -------- --------
TOTAL ASSETS................................ $1,833,305 $864,450 $183,335
========== ======== ========

LIABILITIES AND PARTNERS' EQUITY

Liabilities:
Mortgage loans...................................... $ 451,084 $148,139 $ 54,584
Secured bank line................................... -- -- 21,307
Unsecured bank line................................. 125,152 80,160 --
Unsecured redeemable notes.......................... 150,000 -- --
Unsecured loan...................................... 142,170 -- --
Other liabilities................................... 29,786 12,267 3,316
---------- -------- --------
Total liabilities........................... 898,192 240,566 79,207
---------- -------- --------
Partners' Equity:
General partner, 354,625, 337,018 and 100,948 units
issued and outstanding at June 30, 1998 and
December 31, 1997 and 1996, respectively......... 9,256 6,239 1,041
Limited partners, 35,107,853, 33,364,801 and
9,993,820 units issued and outstanding at June
30, 1998 and December 31, 1997 and 1996,
respectively..................................... 925,857 617,645 103,087
---------- -------- --------
Total partners' equity...................... 935,113 623,884 104,128
---------- -------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY...... $1,833,305 $864,450 $183,335
========== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 95

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Rental revenue............................................ $ 97,582 $ 19,691
Fees and reimbursements from affiliate.................... 1,232 367
Interest and other income................................. 555 516
Equity in earnings of Glenborough Corporation............. 850 436
Net gain on sales of rental properties.................... 2,139 570
Gain on collection of mortgage loan receivable............ -- 652
----------- -----------
Total revenue..................................... 102,358 22,232
----------- -----------
EXPENSES
Property operating expenses, including $1,101 paid to an
affiliate in 1997...................................... 31,936 6,710
General and administrative, including $1,815 and $964 paid
to an affiliate in 1998 and 1997, respectively......... 4,475 1,174
Depreciation and amortization............................. 20,918 4,043
Interest expense.......................................... 18,852 3,800
----------- -----------
Total expenses.................................... 76,181 15,727
----------- -----------
Net income.................................................. $ 26,177 $ 6,505
----------- -----------
Preferred partner interest distribution requirement......... (9,480) --
----------- -----------
Net income allocable to general and limited partners........ $ 16,697 $ 6,505
=========== ===========
Net income allocable to general and limited partners per
partnership unit.......................................... $ 0.49 $ 0.53
=========== ===========
Weighted average number of partnership units outstanding.... 34,038,659 12,224,708
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
F-4
<PAGE> 96

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Rental revenue............................................ $ 51,619 $ 11,784
Fees and reimbursements from affiliate.................... 759 180
Interest and other income................................. 218 217
Equity in earnings of Glenborough Corporation............. 740 428
Net gain on sales of rental properties.................... 693 570
Gain on collection of mortgage loan receivable............ -- 498
----------- -----------
Total revenue..................................... 54,029 13,677
----------- -----------
EXPENSES
Property operating expenses, including $645 paid to an
affiliate in 1997...................................... 16,265 4,072
General and administrative, including $482 paid to an
affiliate in 1997...................................... 2,602 586
Depreciation and amortization............................. 10,934 2,505
Interest expense.......................................... 9,679 2,227
----------- -----------
Total expenses.................................... 39,480 9,390
----------- -----------
Net income.................................................. $ 14,549 $ 4,287
----------- -----------
Preferred partner interest distribution requirement......... (5,570) --
----------- -----------
Net income allocable to general and limited partners........ $ 8,979 $ 4,287
=========== ===========
Net income allocable to general and limited partners per
partnership unit.......................................... $ 0.26 $ 0.31
=========== ===========
Weighted average number of partnership units outstanding.... 34,370,381 13,908,166
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
F-5
<PAGE> 97

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
AND GRT PREDECESSOR ENTITIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(AUDITED)

<TABLE>
<CAPTION>
GLENBOROUGH GLENBOROUGH GRT
PROPERTIES, PROPERTIES, PREDECESSOR
L.P. L.P. ENTITIES
CONSOLIDATED CONSOLIDATED COMBINED
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
REVENUE
Rental revenue....................................... $ 61,393 $ 17,943 $15,454
Fees and reimbursements, including $719, $311 and
$2,995 from affiliates in 1997, 1996 and 1995,
respectively...................................... 719 311 16,019
Interest and other income............................ 1,627 1,070 2,698
Equity in earnings of Glenborough Corporation........ 1,687 1,571 --
Net gain on sales of rental properties............... 839 321 --
Gain on collection of mortgage loan receivable....... 652 -- --
----------- ---------- -------
Total revenue................................ 66,917 21,216 34,171
----------- ---------- -------
EXPENSES
Property operating expenses, including $3,028 and
$769 paid to an affiliate in 1997 and 1996,
respectively...................................... 20,904 5,735 8,576
General and administrative, including $3,382 and
$1,120 paid to an affiliate in 1997 and 1996,
respectively...................................... 4,002 1,490 15,947
Depreciation and amortization........................ 14,829 4,583 4,762
Interest expense..................................... 9,668 3,913 2,129
Provision for loss on investments in real estate,
real estate partnerships and mortgage loans
receivable........................................ -- -- 1,876
Consolidation costs.................................. -- 6,082 --
Litigation costs..................................... -- 1,155 --
----------- ---------- -------
Total expenses............................... 49,403 22,958 33,290
----------- ---------- -------
Income (loss) from operations before provision for
income taxes and extraordinary item.................. 17,514 (1,742) 881
Provision for income taxes............................. -- -- (357)
Loss on early extinguishment of debt................... (843) (186) --
----------- ---------- -------
Net income (loss)...................................... $ 16,671 $ (1,928) $ 524
=========== ========== =======
PER PARTNERSHIP UNIT DATA:
Net income (loss) before extraordinary item............ $ 0.92 $ (0.24)
Extraordinary item..................................... (0.04) (0.03)
----------- ----------
Net income (loss)...................................... $ 0.88 $ (0.27)
=========== ==========
Weighted average number of partnership units
outstanding.......................................... 19,025,314 7,104,648
=========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.
F-6
<PAGE> 98

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
AND GRT PREDECESSOR ENTITIES

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (AUDITED)
AND THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GRT PREDECESSOR ENTITIES COMBINED
-----------------------------------------------------------------------------
ADDITIONAL RECEIVABLE RETAINED
GENERAL LIMITED COMMON PAID-IN FROM EARNINGS
PARTNER PARTNERS STOCK CAPITAL STOCKHOLDER (DEFICIT) TOTAL
------- -------- ------ ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............. (1,730) 85,337 5 6,613 (8,763) (904) 80,558
Distributions.......................... (117) (10,507) -- -- -- -- (10,624)
Redemption of shares................... -- -- (2) (6,613) -- (6,533) (13,148)
Repayment of Stockholder advances,
net.................................. -- -- -- -- 8,763 -- 8,763
Net income (loss)...................... 17 1,751 -- -- -- (1,244) 524
Issuance of investor notes in exchange
for units of limited partnership
interest............................. -- (2,483) -- -- -- -- (2,483)
Equity in consolidation attributable to
GHG and other assets of the
Company.............................. -- (1,735) -- -- -- -- (1,735)
Consolidation and issuance of
partnership units.................... 1,830 (72,363) (3) -- -- 8,681 (61,855)
------- -------- --- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1995............. -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
Contributions.......................... -- -- -- -- -- -- --
Distributions ($0.90 per unit)......... -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1996............. -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
Contributions.......................... -- -- -- -- -- -- --
Distributions ($1.28 per unit)......... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997............. -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
Contributions.......................... -- -- -- -- -- -- --
Distributions ($1.26 per unit)......... -- -- -- -- -- -- --
Unrealized gain on marketable
securities........................... -- -- -- -- -- -- --
Net income............................. -- -- -- -- -- -- --
------- -------- --- ------- ------- ------- --------
BALANCE AT JUNE 30, 1998................. $ -- $ -- $-- $ -- $ -- $ -- $ --
======= ======== === ======= ======= ======= ========

<CAPTION>
GLENBOROUGH PROPERTIES, L.P.
CONSOLIDATED
-----------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............. -- -- --
Distributions.......................... -- -- --
Redemption of shares................... -- -- --
Repayment of Stockholder advances,
net.................................. -- -- --
Net income (loss)...................... -- -- --
Issuance of investor notes in exchange
for units of limited partnership
interest............................. -- -- --
Equity in consolidation attributable to
GHG and other assets of the
Company.............................. -- -- --
Consolidation and issuance of
partnership units.................... 618 61,237 61,855
------ -------- --------
BALANCE AT DECEMBER 31, 1995............. 618 61,237 61,855
------ -------- --------
Contributions.......................... 511 50,594 51,105
Distributions ($0.90 per unit)......... (69) (6,835) (6,904)
Net loss............................... (19) (1,909) (1,928)
------ -------- --------
BALANCE AT DECEMBER 31, 1996............. 1,041 103,087 104,128
------ -------- --------
Contributions.......................... 5,283 523,010 528,293
Distributions ($1.28 per unit)......... (252) (24,956) (25,208)
Net income............................. 167 16,504 16,671
------ -------- --------
BALANCE AT DECEMBER 31, 1997............. 6,239 617,645 623,884
------ -------- --------
Contributions.......................... 3,204 317,160 320,364
Distributions ($1.26 per unit)......... (355) (35,122) (35,477)
Unrealized gain on marketable
securities........................... 1 164 165
Net income............................. 167 26,010 26,177
------ -------- --------
BALANCE AT JUNE 30, 1998................. $9,256 $925,857 $935,113
====== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 99

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 26,177 $ 6,505
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 20,918 4,043
Amortization of loan fees, included in interest
expense............................................... 592 128
Net gain on sales of rental properties................. (2,139) (570)
Gain on collection of mortgage loan receivable......... -- (652)
Equity in earnings of Glenborough Corporation.......... (850) (436)
Changes in certain assets and liabilities, net......... (5,461) (879)
--------- ---------
Net cash provided by operating activities......... 39,237 8,139
--------- ---------
Cash flows from investing activities:
Net proceeds from sales of rental properties.............. 37,804 11,889
Additions to rental property.............................. (570,536) (144,157)
Additions to mortgage loans receivable.................... (38,084) (2,344)
Principal receipts on mortgage loans receivable........... 507 9,354
Distributions from Glenborough Corporation................ 758 1,111
Other investments (included in other assets).............. (32,887) --
--------- ---------
Net cash used for investing activities............ (602,438) (124,147)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................................. $ 530,321 $ 166,675
Repayment of borrowings................................... (207,741) (107,371)
Partner contributions..................................... 278,999 66,039
Partner distributions..................................... (35,477) (7,758)
--------- ---------
Net cash provided by financing activities......... 566,102 117,585
--------- ---------
Net increase in cash and cash equivalents................... 2,901 1,577
Cash and cash equivalents at beginning of period............ 3,670 785
--------- ---------
Cash and cash equivalents at end of period.................. $ 6,571 $ 2,362
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 12,186 $ 3,539
========= =========
Supplemental disclosure of Non-Cash Investing and Financing
Activities:
Acquisition of real estate through assumption of first
trust deed notes payable............................... $ 317,527 $ 17,486
========= =========
Acquisition of real estate through issuance of Partnership
units.................................................. $ 41,365 $ 7,351
========= =========
Unrealized gain on marketable securities.................. $ 165 $ --
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.
F-8
<PAGE> 100

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
AND GRT PREDECESSOR ENTITIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
(AUDITED)

<TABLE>
<CAPTION>
GLENBOROUGH GLENBOROUGH GRT
PROPERTIES, PROPERTIES, PREDECESSOR
L.P. L.P. ENTITIES
CONSOLIDATED CONSOLIDATED COMBINED
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 16,671 $ (1,928) $ 524
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization........................... 14,829 4,583 4,762
Amortization of loan fees, included in interest
expense................................................ 221 193 --
Provision for loss on investments in real estate, real
estate partnerships and mortgage loans receivable...... -- -- 1,876
Equity in earnings of Glenborough Corporation........... (1,687) (1,571) --
Net gain on sales of rental properties.................. (839) (321) --
Gain on collection of mortgage loan receivable.......... (652) -- --
Loss on debt refinancing................................ 843 186 --
Consolidation costs..................................... -- 6,082 --
Litigation costs........................................ -- 1,155 --
Changes in certain assets and liabilities, net.......... (9,816) (3,216) (22,219)
--------- -------- --------
Net cash provided by (used for) operating
activities........................................... 19,570 5,163 (15,057)
Cash flows from investing activities:
Net proceeds from sales of rental properties.............. 12,950 2,882 --
Additions to rental property.............................. (586,965) (62,286) (3,925)
Additions to mortgage loans receivable.................... (1,855) (2,694) --
Principal receipts on mortgage loans receivable........... 8,068 4 12,581
Investment in Glenborough Corporation..................... (3,700) (1,690) --
Distributions from Glenborough Corporation................ 2,129 1,810 --
--------- -------- --------
Net cash provided by (used for) investing
activities........................................... (569,373) (61,974) 8,656
--------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings.................................. $ 467,689 $ 52,599 $ 8,910
Repayment of borrowings................................... (375,909) (35,593) (14,050)
Advances to/repayments from Stockholder, net.............. -- -- 8,763
Redemption of shares...................................... -- -- (10,389)
Partner contributions..................................... 486,116 47,356 --
Partner distributions..................................... (25,208) (6,904) (10,624)
--------- -------- --------
Net cash provided by (used for) financing
activities........................................... 552,688 57,458 (17,390)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 2,885 647 (23,791)
Cash and cash equivalents at beginning of period............ 785 138 23,929
--------- -------- --------
Cash and cash equivalents at end of period.................. $ 3,670 $ 785 $ 138
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 9,352 $ 3,234 $ 1,951
========= ======== ========
Supplemental disclosure of Non-Cash Investing and Financing
Activities:
Acquisition of real estate through assumption of first
trust deed notes payable................................ $ 60,628 $ 25,200 $ --
========= ======== ========
Acquisition of real estate through issuance of Partnership
units................................................... $ 42,177 $ 3,749 $ --
========= ======== ========
Conversion of partnership units into investor notes
payable................................................. $ -- $ -- $ 2,483
========= ======== ========
Consolidation and issuance of partnership units........... $ -- $ -- $ 63,590
========= ======== ========
Refinancing of debt of GRT Predecessor Entities........... $ -- $ -- $ 28,200
========= ======== ========
Acquisition of real estate through foreclosure and
assumption of first trust deed note payable............. $ -- $ -- $ 3,908
========= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-9
<PAGE> 101

GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 1. ORGANIZATION

Glenborough Properties, L.P., a California Limited Partnership (the
"Operating Partnership") was organized in the State of California on August 23,
1995. The Operating Partnership is the primary operating subsidiary of
Glenborough Realty Trust Incorporated (the "Company"). On December 31, 1995, the
Company completed a consolidation (the "Consolidation") in which eight public
limited partnerships (the "Partnerships," collectively with Glenborough
Corporation (defined below), the "GRT Predecessor Entities"), merged with and
into the Company. The Company (i) issued 5,753,709 shares (the "Shares") of
$.001 par value Common Stock to the Partnerships in exchange for 3,979,376
Operating Partnership units; and (ii) merged with Glenborough Corporation, a
California Corporation ("GC"), with the Company being the surviving entity. The
Company then transferred certain real estate and related assets to the Operating
Partnership in exchange for a sole general partner interest of 1% and a limited
partnership interest of 85.37% (89.16% total partnership interest as of June 30,
1998). The Operating Partnership also acquired interests in certain warehouse
distribution facilities from GPA, Ltd., a California limited partnership
("GPA"). The Operating Partnership commenced operations on January 1, 1996.

The Operating Partnership, through several subsidiaries, is engaged
primarily in the ownership, operation, management, acquisition, expansion and
development of various income-producing properties. As of June 30, 1998, the
Operating Partnership, directly and through various subsidiaries in which it
owns 99% of the ownership interests, controls a total of 190 real estate
projects.

Effective April 1, 1998, the Company contributed to the Operating
Partnership the majority of its assets, including 100% of its shares of the
non-voting preferred stock of Glenborough Corporation ("GC"), as well as all of
the Company's tangible personal property including furniture and fixtures, all
cash and investments, and a property management contract. As part of that
transaction, the Company also agreed to a substantial reduction in the asset
management fees paid by the Operating Partnership to the Company. In return, the
Operating Partnership canceled certain obligations of the Company to the
Operating Partnership, and issued 2,248,869 units of partnership interest to the
Company. The contribution of 100% of the shares of non-voting preferred stock in
GC has been accounted for as a reorganization of entities under common control,
similar to a pooling of interests. All periods have been restated to give effect
to the transaction as if it occurred on December 31, 1995.

As a result of this transaction, the only assets of the Company that are
not attributable to its interest in the Operating Partnership are (i) its shares
of non-voting preferred stock in Glenborough Hotel Group, and (ii) its shares of
common stock in seven qualified REIT subsidiaries, which produce dividends that
are not material to the Company.

As of June 30, 1998, resulting from the transaction discussed above, the
Operating Partnership now holds 100% of the non-voting preferred stock of GC. GC
is the general partner of several real estate limited partnerships and provides
asset and property management services for these partnerships (the "Controlled
Partnerships"). It also provides partnership administration, asset management,
property management and development services under a long term contract to a
group of unaffiliated partnerships which include five public partnerships
sponsored by Rancon Financial Corporation, an unaffiliated corporation which has
significant real estate assets in the Inland Empire region of Southern
California (the "Rancon Partnerships"). The services to the Rancon Partnerships
were previously provided by Glenborough Inland Realty Corporation ("GIRC"), a
California corporation, which merged with GC effective June 30, 1997. GC also
provides property management services for a limited portfolio of property owned
by other unaffiliated third parties.

F-10
<PAGE> 102
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements present the consolidated financial
position of the Operating Partnership and its majority owned subsidiaries as of
June 30, 1998 (unaudited), and December 31, 1997 and 1996, the consolidated
results of operations and cash flows of the Operating Partnership and its
majority owned subsidiaries for the six months ended June 30, 1998 (unaudited)
and 1997 (unaudited) and the years ended December 31, 1997 and 1996, and the
combined results of operations and cash flows of the GRT Predecessor Entities
for the year ended December 31, 1995, as the Consolidation discussed in Note 1
was not effective until December 31, 1995. All intercompany transactions,
receivables and payables have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position and results of operations of
the Operating Partnership as of June 30, 1998, and for the period then ended.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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 results of operations during the reporting period. Actual
results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which will be effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS 131
will require the Operating Partnership to report certain financial and
descriptive information about its reportable operating segments, segments for
which separate financial information is available that is evaluated regularly by
management in deciding how to allocate resources and in assessing performance.
For these segments, SFAS 131 will require the Operating Partnership to report
profit and loss, certain specific revenue and expense items and assets. It also
requires disclosures about each segment's products and services, geographic
areas of operation and major customers. The Operating Partnership will adopt the
disclosures required by SFAS 131 in the financial statements for the year ended
December 31, 1998.

INVESTMENTS IN REAL ESTATE

Investments in real estate are stated at cost unless circumstances indicate
that cost cannot be recovered, in which case, the carrying value of the property
is reduced to estimated fair value. Estimated fair value: (i) is based upon the
Operating Partnership's plans for the continued operation of each property; and
(ii) is computed using estimated sales price, as determined by prevailing market
values for comparable properties and/or the use of capitalization rates
multiplied by annualized rental income based upon the age, construction and use
of the building. The fulfillment of the Operating Partnership's plans related to
each of its properties is dependent upon, among other things, the presence of
economic conditions which will enable the Operating Partnership to continue to
hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Operating Partnership's properties could be materially different than current
expectations.

F-11
<PAGE> 103
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

Depreciation is provided using the straight line method over the useful
lives of the respective assets.

The useful lives are as follows:

<TABLE>
<S> <C>
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
</TABLE>

INVESTMENT IN GLENBOROUGH CORPORATION

The Operating Partnership's investment in Glenborough Corporation is
accounted for using the equity method, as discussed further in Note 4.

MORTGAGE LOANS RECEIVABLE

The Operating Partnership monitors the recoverability of its loans and
notes receivable through ongoing contact with the borrowers to ensure timely
receipt of interest and principal payments, and where appropriate, obtains
financial information concerning the operation of the properties. Interest on
mortgage loans is recognized as revenue as it accrues during the period the loan
is outstanding. Mortgage loans receivable will be evaluated for impairment if it
becomes evident that the borrower is unable to meet its debt service obligations
in a timely manner and cannot satisfy its payments using sources other than the
operations of the property securing the loan. If it is concluded that such
circumstances exist, then the loan will be considered to be impaired and its
recorded amount will be reduced to the fair value of the collateral securing it.
Interest income will also cease to accrue under such circumstances. Due to
uncertainties inherent in the valuation process, it is reasonably possible that
the amount ultimately realized from the Operating Partnership's collection on
these receivables will be different than the recorded amounts.

CASH EQUIVALENTS

The Operating Partnership considers short-term investments (including
certificates of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.

MARKETABLE SECURITIES

In accordance with Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities,"
the Operating Partnership records its marketable securities at fair value.
Accordingly, unrealized gains and losses on these securities are reported as a
separate component of partners' equity and realized gains and losses are
included in net income. As of June 30, 1998, marketable securities with a fair
value of approximately $26,000,000 were included in other assets on the
accompanying consolidated balance sheet.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments. Based on the borrowing rates
currently available to the Operating Partnership, the carrying amount of debt
approximates fair value. Cash and cash equivalents consist of demand deposits,
certificates of deposit and short-term investments with financial institutions.
The carrying amount of cash and cash equivalents, as well as the mortgage notes
receivable described above, approximates fair value.

F-12
<PAGE> 104
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

DEFERRED FINANCING AND OTHER FEES

Fees paid in connection with the financing and leasing of the Operating
Partnership's properties are amortized over the term of the related notes
payable or leases and are included in other assets.

REVENUES

All leases are classified as operating leases. Rental revenue is recognized
as earned over the terms of the leases.

For the six months ended June 30, 1998 (unaudited), and the years ended
December 31, 1997 and 1996, no tenants represented 10% or more of rental revenue
of the Operating Partnership. For the year ended December 31, 1995, rental
revenue from two properties leased to Navistar International represented
approximately 10% of the GRT Predecessor Entities' total rental revenue.

Fees and reimbursement revenue (in 1995 and 1998) consists of property
management fees, overhead administration fees and transaction fees from the
acquisition, disposition, refinancing, leasing and construction supervision of
real estate (see Note 8).

Revenues are recognized only after the Operating Partnership is
contractually entitled to receive payment, after the services for which the fee
is received have been provided, and after the ability and timing of payments are
reasonably assured and predictable.

Scheduled rent increases are based primarily on the Consumer Price Index or
a similar factor. Material incentives paid, if any, by the Operating Partnership
to a tenant are amortized as a reduction of rental income over the life of the
related lease.

The Operating Partnership recognizes contingent rental income after the
related target is achieved.

NET INCOME (LOSS) PER PARTNERSHIP UNIT

Net income (loss) per partnership unit is calculated using the weighted
average number of partnership units outstanding during the period. No effect on
per unit amounts has been attributed to a potential conversion of the Preferred
Partner Interest (see Note 10) into limited partner units as the impact is anti-
dilutive. No other potentially dilutive securities of the Operating Partnership
exist.

INCOME TAXES

No provision for income taxes is included in the Consolidated Statements of
Operations for the six months ended June 30, 1998 (unaudited) and 1997
(unaudited) and the years ended December 31, 1997 and 1996, as the Operating
Partnership's results of operations are allocated to the partners for inclusion
in their respective income tax returns.

Certain of the Operating Partnership's predecessors were subject to income
taxes, the provisions for which have been included in the accompanying combined
results of operations of the GRT Predecessor Entities.

F-13
<PAGE> 105
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 3. INVESTMENTS IN REAL ESTATE

The cost and accumulated depreciation of real estate investments as of June
30, 1998, and December 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
BUILDINGS AND TOTAL ACCUMULATED NET
LAND IMPROVEMENTS COST DEPRECIATION RECORDED VALUE
1998: -------- ------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Office properties........... $ 90,219 $ 750,324 $ 840,543 $(22,752) $ 817,791
Office/Flex properties...... 52,233 231,807 284,040 (7,046) 276,994
Industrial properties....... 17,836 96,260 114,096 (8,310) 105,786
Retail properties........... 20,523 70,359 90,882 (6,976) 83,906
Multi-family properties..... 19,158 373,483 392,641 (2,771) 389,870
Hotel properties............ 3,849 33,685 37,534 (13,327) 24,207
-------- ---------- ---------- -------- ----------
Total............. $203,818 $1,555,918 $1,759,736 $(61,182) $1,698,554
======== ========== ========== ======== ==========
1997:
Office properties........... $ 62,442 $ 282,129 $ 344,571 $ (9,310) $ 335,261
Office/Flex properties...... 46,496 163,606 210,102 (3,274) 206,828
Industrial properties....... 20,903 88,802 109,705 (7,503) 102,202
Retail properties........... 16,687 50,447 67,134 (5,845) 61,289
Multi-family properties..... 19,512 71,288 90,800 (1,780) 89,020
Hotel properties............ 5,587 38,532 44,119 (13,501) 30,618
-------- ---------- ---------- -------- ----------
Total............. $171,627 $ 694,804 $ 866,431 $(41,213) $ 825,218
======== ========== ========== ======== ==========
1996:
Office properties........... $ 9,721 $ 39,582 $ 49,303 $ (4,224) $ 45,079
Office/Flex properties...... 2,326 9,163 11,489 (624) 10,865
Industrial properties....... 4,293 23,633 27,926 (5,533) 22,393
Retail properties........... 16,578 30,681 47,259 (6,164) 41,095
Multi-family properties..... 5,652 17,440 23,092 (510) 22,582
Hotel properties............ 5,586 26,074 31,660 (11,729) 19,931
-------- ---------- ---------- -------- ----------
Total............. $ 44,156 $ 146,573 $ 190,729 $(28,784) $ 161,945
======== ========== ========== ======== ==========
</TABLE>

The Operating Partnership leases its commercial and industrial property
under non-cancelable operating lease agreements. Future minimum rents to be
received as of December 31, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------
<S> <C>
1998..................................................... $17,160
1999..................................................... 13,131
2000..................................................... 13,393
2001..................................................... 12,109
2002..................................................... 6,174
Thereafter............................................... 24,123
-------
$86,090
=======
</TABLE>

F-14
<PAGE> 106
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

1996 PROPERTY ACQUISITIONS AND DISPOSITIONS (IN THOUSANDS, EXCEPT UNIT AND SHARE
AMOUNTS) --

In June 1996, the Operating Partnership sold the two self-storage
facilities held in its industrial portfolio. The sales price for these two
facilities was $2,900. The sales generated a gain of $321 and cash proceeds of
$2,882. From these proceeds, $790 was paid down on the Operating Partnership's
previous secured line of credit from Wells Fargo Bank (the "Line of Credit").

In July 1996, the Operating Partnership acquired a 23-story, 272,443 square
foot office building (the "UCT Property"), in St. Louis, Missouri. The total
acquisition cost, including capitalized costs, was approximately $18,844, which
consisted of $350 in the form of 23,333 Operating Partnership units (based on a
per unit value of $15.00), and the balance paid in cash. The cash portion was
financed through advances under the Line of Credit.

In August 1996, the Operating Partnership acquired a 64-room hotel property
(the "the San Antonio Hotel"), which is located in San Antonio, Texas. The total
acquisition cost, including capitalized costs, was approximately $2,805, which
was paid in cash. The acquisition was financed with an advance under the Line of
Credit.

In August 1996, the Operating Partnership also expanded an existing
shopping center in Tampa, Florida through a purchase-leaseback transaction with
the anchor tenant. The Operating Partnership's initial acquisition cost,
including capitalized costs, was approximately $1,617, all of which was paid in
cash through advances under the Line of Credit. In addition, the Operating
Partnership committed an additional $1,786 for future expansion and tenant
improvements, which was paid in 1998.

In September 1996, the Operating Partnership acquired a two-story, 40,595
square foot office building (the "Bond Street Property"), in Farmington Hills,
Michigan. The total acquisition cost, including capitalized costs, was
approximately $3,185, which consisted of $391 in the form of 26,067 Operating
Partnership units (based on a per unit value of $15.00), and the balance paid in
cash. The cash portion was financed through advances under the Line of Credit.

In October 1996, the Operating Partnership acquired a portfolio of 12
properties, aggregating approximately 784,000 square feet and 538 multi-family
units, together with associated management interests (the "TRP Properties"). The
total acquisition cost, including capitalized costs, was approximately $43,798,
which consisted of (i) approximately $16,300 of mortgage debt assumed, (ii)
approximately $760 in the form of 52,387 Operating Partnership units (based on a
per unit value of $14.50), (iii) approximately $2,600 in the form of 182,000
shares of Common Stock of the Company (based on a per share value of $14.50) and
(iv) the balance in cash. The cash portion was financed through advances under
the Line of Credit. The TRP Properties consist of three office, six industrial,
one retail and two multi-family Properties, located in six states.

In November 1996, the Operating Partnership acquired from various
partnerships and their general partner, a Southern California syndicator, a
portfolio of six properties (including one property on which the Operating
Partnership made a mortgage loan which included a purchase option), aggregating
approximately 342,000 square feet, together with associated management interests
(the "Carlsberg Properties"). The total acquisition cost including the mortgage
loan and capitalized costs, was approximately $23,152, which consisted of (i)
approximately $8,900 of mortgage debt assumed, (ii) approximately $350 in the
form of 24,844 shares of Common Stock of the Company (based on a per share value
of $14.09) and (iii) the balance in cash. The cash portion was financed through
advances under the Line of Credit. The Carlsberg Properties consist of five
office properties and one retail property, located in two states. Concurrent
with the Operating Partnership's acquisition of the Carlsberg Properties, one of
the Associated Companies assumed management of a portfolio of 13 additional
properties with an aggregate of one million square feet under a venture with an
affiliate of the seller.
F-15
<PAGE> 107
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

1997 PROPERTY ACQUISITIONS AND DISPOSITIONS (IN THOUSANDS, EXCEPT UNIT AND SHARE
AMOUNTS) --

In February 1997, the Operating Partnership acquired a 163-suite hotel
property (the "Scottsdale Hotel"), which began operations in January 1996 and is
located in Scottsdale, Arizona. The total acquisition cost, including
capitalized costs, was approximately $12.1 million, which consisted of
approximately $4.6 million of mortgage debt assumed, and the balance in cash.
The cash portion was financed through advances under the Line of Credit (see
Note 6). The Scottsdale Hotel is marketed as a Country Inn and Suites by
Carlson.

In April 1997, the Operating Partnership acquired from two limited
partnerships and one limited liability company managed by affiliates of Lennar
Partners, a portfolio of three properties, aggregating approximately 282,000
square feet (the "Lennar Properties"). The total acquisition cost, including
capitalized costs, was approximately $23.2 million, which was paid in cash from
the proceeds of the March 1997 Offering (see Note 10). The Lennar Properties
consist of one office property located in Virginia and one office/flex property
and one industrial property, each located in Massachusetts.

In April 1997, the Operating Partnership acquired from a private seller a
227,129 square foot, 15-story office building located in Bloomington, Minnesota
(the "Riverview Property"). The total acquisition cost, including capitalized
costs, was approximately $20.5 million, of which approximately $16.3 million was
paid in cash from the proceeds of the March 1997 Offering, and the balance was
paid in cash from borrowings under the Line of Credit.

In April 1997, the Operating Partnership acquired from seven partnerships
and their general partner, a Southern California syndicator, a portfolio of
eleven properties, aggregating approximately 523,000 square feet, together with
associated management interests (the "E&L Properties"). The total acquisition
cost, including capitalized costs, was approximately $22.2 million, which
consisted of (i) approximately $12.8 million of mortgage debt assumed; (ii)
approximately $6.7 million in the form of 352,197 Operating Partnership units
(based on an agreed per unit value of $19.075); (iii) approximately $633,000 in
the form of 33,198 shares of Common Stock of the Company (based on an agreed per
share value of $19.075); and (iv) the balance in cash. The cash portion was paid
from borrowings under the Line of Credit. Of the $12.8 million of mortgage debt
assumed in the acquisition, approximately $8.9 million was paid off on May 1,
1997, through a draw on the Line of Credit. The E&L Properties consist of one
office property, nine office/flex properties and one industrial property, all
located in Southern California.

In April 1997, the Operating Partnership acquired from two partnerships
formed and managed by affiliates of CIGNA, a portfolio of six properties,
aggregating approximately 616,000 square feet and 224 multi-family units (the
"CIGNA Properties"). The total acquisition cost, including capitalized costs,
was approximately $45.4 million, which was paid entirely in cash from the
proceeds of a $40 million unsecured loan from Wells Fargo Bank (see Note 6) and
a draw under the Line of Credit. The CIGNA Properties are located in four states
and consist of two office properties, two office/flex properties, a shopping
center and a multi-family property.

In June 1997, the Operating Partnership acquired from Carlsberg Realty,
Inc. a portfolio of three properties, aggregating approximately 245,600 square
feet (the "CRI Properties"). The total acquisition cost, including capitalized
costs, was approximately $14.8 million, which was paid entirely in cash from
borrowings under the Line of Credit. The CRI Properties consist of one office
property located in California and one office/flex property and one industrial
property, each located in Arizona. The CRI Properties had been managed by GC
since December 1996.

In June 1997, the Operating Partnership sold from its retail portfolio six
Atlanta Auto Care Center properties and nine of the ten QuikTrip properties for
an aggregate sales price of approximately $12 million.
F-16
<PAGE> 108
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

The proceeds from the sale of the QuikTrip properties were used to fund the
acquisition of the Centerstone Property (as discussed below) and the proceeds
from the sale of the Auto Care Center properties were used to pay down the Line
of Credit and to payoff a mortgage loan. The remaining QuikTrip property was
sold in October 1997, for a sales price of approximately $1.1 million. These
sales generated a total net gain of $839,000.

In July 1997, the Operating Partnership acquired an office property
containing 157,579 square feet (the "Centerstone Property") located in Irvine,
California. The total acquisition cost, including capitalized costs, was
approximately $30.4 million, which consisted of (i) approximately $5.5 million
in the form of 275,000 Operating Partnership units (based on an agreed per unit
value of $20.00); and (ii) the balance in cash from a combination of borrowings
under the Line of Credit and the net proceeds from the sale of the QuikTrip
retail properties (as discussed above).

In September 1997, the Operating Partnership acquired a portfolio of 27
properties, aggregating approximately 2,888,000 square feet (the "T. Rowe Price
Properties") from five limited partnerships, two general partnerships and one
private REIT, each organized by affiliates of T. Rowe Price Associates, Inc. The
total acquisition cost, including capitalized costs, was approximately $146.8
million, which was paid entirely in cash from the proceeds of a $114 million
unsecured loan from Wells Fargo Bank (see Note 6), approximately $23 million of
the proceeds from a $60 million secured loan from Wells Fargo Bank (see Note 6),
a $6.5 million draw on the Line of Credit and the balance from the proceeds from
the July 1997 Offering (see Note 10). The T. Rowe Price Properties consist of
four office properties, twelve office/flex properties, eight industrial
properties and three retail properties located in 12 states.

In September 1997, the Operating Partnership acquired a portfolio of ten
properties, aggregating 755,006 square feet (the "Advance Properties") from a
group of partnerships affiliated with The Advance Group of Bedminster, New
Jersey. The total acquisition cost, including capitalized costs, was
approximately $103.0 million, which consisted of (i) approximately $7.4 million
of mortgage debt assumed; (ii) approximately $13.6 million in the form of
599,508 Operating Partnership units (based on an agreed per unit value of
$22.625); (iii) approximately $37 million of the proceeds from a $60 million
secured loan from Wells Fargo Bank; and (iv) the balance in cash. The cash
portion of the acquisition was paid with proceeds from the July 1997 Offering.
The Advance Properties consist of five office properties, three office/flex
properties and two industrial properties. Nine of the properties are located in
New Jersey and one is located in Maryland. Concurrent with this acquisition, the
Operating Partnership invested $2,985,000 in exchange for a 50% ownership
interest in Advance/GLB Development Partners, LLC (the "Alliance"), a Delaware
limited liability company formed by the Operating Partnership and The Advance
Group for the development of selected new projects. The Alliance owns 57 acres
of land suitable for office and office/flex development of up to 560,000 square
feet. The Operating Partnership accounts for its investment in the Alliance
using the equity method as the Operating Partnership has a significant ownership
interest. At June 30, 1998 and December 31, 1997, the Operating Partnership's
investment in the Alliance totaled $7,783,000 and $7,251,000, respectively, and
is included in other assets.

In September 1997, the Operating Partnership acquired a 147,978 square-foot
office building ("Citibank Park") located in Las Vegas, Nevada. The total
acquisition cost, including capitalized costs, was approximately $23.3 million,
which consisted of (i) approximately $1.66 million in the form of 61,222
Operating Partnership units (based on an agreed per unit value of $27.156); (ii)
a $19.4 million draw on the Line of Credit, and (iii) the balance in cash.

In October 1997, the Operating Partnership acquired eight properties,
aggregating 766,269 square feet, from six separate limited partnerships in which
affiliates of AEW Capital Management, L.P. (successors in interest to one or
more affiliates of Copley Advisors Inc.) serve as general partners (the "Copley
Properties").
F-17
<PAGE> 109
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

The total acquisition cost, including capitalized costs, was approximately $63.7
million, which was paid entirely in cash. The Copley Properties are comprised of
two industrial properties located in Tempe, Arizona and Anaheim, California, and
six office/flex properties, one in Columbia, Maryland and five in Las Vegas,
Nevada.

In November 1997, the Operating Partnership acquired a 171,789 square-foot
office/flex building in Eden Prairie, Minnesota ("Bryant Lake"), from Outlook
Income Fund 9, a limited partnership in which GC was the managing general
partner. Robert Batinovich was co-general partner of Outlook Income Fund 9 and
held an economic interest therein equal to an approximate 0.83% limited
partnership interest. Because of this affiliation, and consistent with the
Company's Board of Directors' policy, neither Robert Batinovich nor Andrew
Batinovich voted when the Board of Directors considered and acted to approve
this acquisition. The price paid for Bryant Lake equaled 100% of the appraised
value as determined by an independent appraiser. The total acquisition cost,
including capitalized costs, was approximately $9.4 million, comprising
approximately $4.6 million in the form of cash and the balance in the form of
assumption of debt.

In December 1997, the Operating Partnership acquired an office complex
consisting of three office buildings, aggregating 418,457 square feet ("Thousand
Oaks"). The total acquisition cost, including capitalized costs, was
approximately $51.3 million, which was paid entirely in cash, including cash
from borrowings under the Acquisition Credit Facility (see Note 6). The Thousand
Oaks property includes 10 acres suitable for the development of 182,000 square
feet of office space. Thousand Oaks is located in Memphis, Tennessee.

In December 1997, the Operating Partnership acquired four office/flex
properties and one office property (the "Opus Portfolio") aggregating 289,874
square feet from four limited liability companies affiliated with Opus
Properties, LLC. The total acquisition cost, including capitalized costs, was
approximately $27.9 million, all of which was paid in cash, including cash from
borrowings under the Acquisition Credit Facility. Four of the Opus Portfolio
properties are located in or near Tampa, Florida, and one is located in Denver,
Colorado.

In December 1997, the Operating Partnership acquired 10 multi-family
properties (the "Marion Bass Portfolio") aggregating 1,385 units from various
limited partnerships, each of whose general partner is Marion Bass Real Estate
Group. The total acquisition cost, including capitalized costs, was
approximately $58.3 million, comprising $23.5 million of assumed debt and the
balance in cash, including cash from borrowings under the Acquisition Credit
Facility. Of the 10 Marion Bass Portfolio properties, six are located in
Charlotte, North Carolina, two are in Monroe, North Carolina, one is in Raleigh,
North Carolina and one is in Pineville, North Carolina.

1998 PROPERTY ACQUISITIONS AND DISPOSITIONS (UNAUDITED, IN THOUSANDS, EXCEPT
UNIT AND SHARE AMOUNTS)

In December 1997, the Operating Partnership and the Company issued
approximately $14.1 million in the form of 433,362 Operating Partnership units
and 72,564 shares of the Company's Common Stock (based on an agreed per unit and
per share value of $27.896, respectively, which was equal to the average closing
price of the Company's Common Stock for the ten business days preceding the
closing) and paid approximately $200,000 in cash to acquire all of the limited
partnership interests of GRC Airport Associates, a California limited
partnership ("GRCAA"). GRCAA's sole asset consisted of one industrial property
("Skypark") that was subject to a binding sales agreement to an unaffiliated
third party. By virtue of interests held directly or indirectly in GRCAA, Robert
Batinovich received consideration of approximately $2.2 million and GC (as
defined in Note 1) received consideration of approximately $1.7 million for the
GRCAA limited partnership interests in the form of Operating Partnership units.
Consistent with the Company's Board of Directors' policy, neither Robert
Batinovich nor Andrew Batinovich voted when the Board of Directors considered
and acted to approve this transaction. In February 1998, the sale of the Skypark
property was completed to an
F-18
<PAGE> 110
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

unaffiliated third party for a price of $22 million. This sale generated a net
gain of approximately $134,000 and net proceeds of approximately $14.1 million.
The proceeds from the sale of the property were deposited into a deferred
exchange account and were applied to the acquisition of 400 El Camino Real (as
defined below) on a tax-deferred basis pursuant to Section 1031 of the Internal
Revenue Code.

In January 1998, the Operating Partnership acquired a portfolio of 13
suburban office properties and one office/flex property (the "Windsor
Portfolio") located in eight states. The Operating Partnership acquired the
Windsor Portfolio from Windsor Realty Fund II, L.P., of which Windsor Advisor,
LLC is the general partner and DuPont Pension Fund Investments and Gid/S&S
Limited Partnership are limited partners, and other entities affiliated with
Windsor Realty Fund II, L.P. The Windsor Portfolio properties aggregate
3,383,240 net rentable square feet, located in the eastern and mid-western
United States and are concentrated in suburban Washington, D.C., Chicago,
Atlanta, Boston, Philadelphia, Tampa, Florida and Cary, North Carolina. The
total acquisition cost, including capitalized costs, was approximately $423.2
million, comprised of (i) approximately $99 million in assumption of debt; (ii)
$150.0 million in borrowings under a $150 million loan agreement with Wells
Fargo Bank (the "Interim Loan" as defined in Note 6); and (iii) the balance in
cash, including cash from borrowings under the Acquisition Credit Facility.

In January 1998, the Operating Partnership sold a multi-family property for
a sales price of $4.95 million. This sale generated a net gain of approximately
$948,000 and net proceeds of approximately $2.1 million. The proceeds from the
sale were deposited into a deferred exchange account and were applied to the
acquisition of 400 El Camino Real (as defined below) on a tax-deferred basis
pursuant to Section 1031 of the Internal Revenue Code.

In February 1998, the Operating Partnership acquired a 161,468 square foot
office complex ("Capitol Center") located in Des Moines, Iowa. The total
acquisition cost, including capitalized costs, was approximately $12.3 million,
comprising: (i) $116,000 in the form of 3,874 Operating Partnership units (based
on an agreed per unit value of $30.00) and (ii) the balance in cash.

In February 1998, the Operating Partnership sold an industrial property to
an unaffiliated third party for $930,000. The sale generated a net gain of
approximately $246,000 and net proceeds of approximately $359,000. The proceeds
from the sale were deposited into a deferred exchange account and were applied
to the acquisition of 400 El Camino Real on a tax-deferred basis pursuant to
Section 1031 of the Internal Revenue Code.

In March 1998, the Operating Partnership acquired a 15-story office
property located in San Mateo, California ("400 El Camino Real"), which contains
139,109 square feet and currently houses the Company's corporate headquarters in
approximately 45,000 square feet, from Prudential Insurance Company of America.
The total acquisition cost, including capitalized costs, was approximately $34.7
million and was paid in cash, including cash from borrowings under the
Acquisition Credit Facility.

In March 1998, the Operating Partnership sold an office/flex property to an
unaffiliated third party for $1,368,000. The sale generated a net gain of
approximately $106,000 and net proceeds of approximately $696,000. The proceeds
from the sale were deposited into a deferred exchange account and will be
applied to a future acquisition of property on a tax-deferred basis pursuant to
Section 1031 of the Internal Revenue Code.

In March 1998, the Operating Partnership acquired a portfolio of seven
properties (the "BGK Portfolio") from BGK Development. The BGK Portfolio
properties aggregate 515,445 net rentable square feet, located in Boston,
Massachusetts and Kansas City, Kansas, and consist of four office properties,
two industrial properties and one office/flex property. The total acquisition
cost, including capitalized costs, was approximately $50.2 million, comprised of
(i) approximately $13.3 million in assumption of debt; and (ii) the balance in
cash, including cash from borrowings under the Acquisition Credit Facility.
F-19
<PAGE> 111
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

In April 1998, the Operating Partnership acquired a portfolio of three
office properties and four retail properties aggregating 417,745 square feet and
three multi-family properties containing 670 units (the "Eaton & Lauth
Portfolio") from a number of partnerships in which affiliates of Eaton & Lauth
serve as general partners. The total acquisition cost, including capitalized
costs, was approximately $70.0 million, comprising: (i) approximately $32.0
million of net assumed debt; (ii) approximately $15.9 million of equity which
consisted of (a) approximately $3.2 million in the form of 126,764 shares of
Common Stock of the Company (based on an agreed per share value of $25.00); and
(b) approximately $12.7 million in the form of 506,788 Operating Partnership
units (based on an agreed per unit value of $25.00); and (iii) the balance in
cash. The cash portion was financed through advances under the Acquisition
Credit Facility. The Eaton & Lauth Portfolio properties are located in Indiana.

In April 1998, the Operating Partnership sold an office/flex property for
$3,600,000. The sale generated a net gain of approximately $452,000 and net
proceeds of approximately $1,571,000. The proceeds from the sale were deposited
into a deferred exchange account and were applied to the acquisition of One and
Three Pacific on a tax-deferred basis pursuant to Section 1031 of the Internal
Revenue Code.

In May 1998, the Operating Partnership acquired a 125,507 square foot
office building and a 5.45 acre parcel of land located in Omaha, Nebraska ("One
and Three Pacific") from Shorenstein Company, L.P. The total acquisition cost,
including capitalized costs, was approximately $20.1 million which was paid
entirely in cash, including cash from borrowings under the Acquisition Credit
Facility and proceeds from the sales of two office/flex properties as discussed
above.

In June 1998, the Operating Partnership acquired a 263,610 square foot
office/flex property located in Indianapolis, Indiana (the "Covance Property")
from Eaton & Lauth. The total acquisition cost, including capitalized costs, was
approximately $16.5 million, comprising: (i) approximately $4 million of equity
in the form of 161,492 Operating Partnership units (based on an agreed per unit
value of $25.00); (ii) approximately $220,000 of equity in the form of 8,802
shares of Common Stock of the Company (based on an agreed per share value of
$25.00); and (iii) the balance in cash. The cash portion was financed through
advances under the Acquisition Credit Facility.

In June 1998, the Operating Partnership acquired a portfolio of
multi-family properties (the "Galesi Portfolio") from the Galesi Group, a
privately owned company. The Galesi Portfolio includes 21 properties with 6,536
units located primarily in Houston, Austin, Dallas and San Antonio. Four
properties are located outside of Texas: two in Atlanta, one in Nashville and
one in Colorado Springs. The total acquisition cost, including capitalized
costs, was approximately $275.8 million, comprising: (i) approximately $169.4
million of net assumed debt (including an unamortized premium totaling
approximately $3.1 million, which results in an effective interest rate on these
instruments of 6.75%); (ii) approximately $21.2 million of equity in the form of
806,393 Operating Partnership units (based on an agreed per unit value of
$26.2315); and (iii) the balance in cash. The cash portion was financed through
advances under a $150 million Bridge Loan from a commercial bank as discussed in
Note 6.

F-20
<PAGE> 112
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

In June 1998, the Operating Partnership acquired a 133,090 square foot
office property and a 229,352 square foot industrial property, both located in
northern New Jersey (the "Donau/Gruppe Portfolio") from a German partnership.
The total acquisition cost, including capitalized costs, was approximately $28.5
million, which was comprised of: (i) approximately $10.5 million of assumed
debt; and (ii) the balance in cash. The cash portion was financed through
advances under a $150 million Bridge Loan from a commercial bank. In addition,
the Operating Partnership was under contract to acquire from the seller another
85,765 square foot office building for $12.4 million. This acquisition closed in
August 1998 (see Note 12).

The Operating Partnership has entered into a definitive agreement to sell
the Shannon Crossing retail property for $9.3 million. The property is currently
undergoing a $6.2 million renovation and expansion. As of the date of this
filing, approximately $2.6 million of the project budget for the renovation and
expansion has been funded. The sale of Shannon Crossing will not be completed
until the first quarter of 1999.

The Operating Partnership has entered into three short-term lease
agreements on the hotel properties located in Arlington, Texas, Tucson, Arizona
and Ontario, California, with three prospective purchasers of these properties.
These prospective purchasers have entered into purchase agreements for these
properties, with closing dates of December 30, 1998. These leases all terminate
on that closing date for the sale of the properties.

PRO FORMA STATEMENTS OF OPERATIONS

Following are unaudited pro forma statements of operations of the Operating
Partnership for each of the years ended December 31, 1997 and 1996 giving effect
to the 1997 and 1996 securities offerings as discussed in Note 10 and related
property acquisitions and dispositions completed prior to December 31, 1997
(discussed above) as if they had been completed on January 1, 1996 (in
thousands, except for weighted average units and per unit amounts):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Rental Revenue..................................... $ 118,286 $ 111,862
Equity in earnings of GC........................... 1,687 1,571
Fees, interest and other income.................... 2,296 1,123
----------- -----------
Total Revenue...................................... 122,269 114,556
----------- -----------
OPERATING EXPENSES
Operating expenses................................. 39,312 36,080
General and administrative......................... 5,241 3,231
Depreciation and amortization...................... 23,563 21,958
Interest expense................................... 16,700 15,363
----------- -----------
Total Operating Expenses........................... 84,816 76,632
----------- -----------
Net Income......................................... $ 37,453 $ 37,924
=========== ===========
Net income per unit................................ $ 1.11 $ 1.13
=========== ===========
Weighted average units outstanding................. 33,701,819 33,701,819
=========== ===========
</TABLE>

F-21
<PAGE> 113
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 4. INVESTMENT IN GLENBOROUGH CORPORATION

The Operating Partnership accounts for its investment in Glenborough
Corporation ("GC") using the equity method as a substantial portion of GC's
economic benefits flow to the Operating Partnership by virtue of its 100%
non-voting preferred stock interest in GC, which interest constitutes
substantially all of GC's capitalization. Two of the holders of the voting
common stock of GC are officers of the Company; however, the Operating
Partnership has no direct voting or management control of GC. The Operating
Partnership records earnings on its investment in GC equal to its cash flow
preference, to the extent of earnings, plus its pro rata share of remaining
earnings, based on cash flow allocation percentages. Distributions received from
GC are recorded as a reduction of the Operating Partnership's investment.

As of June 30, 1998, the Operating Partnership had the following investment
in GC (in thousands):

<TABLE>
<S> <C>
Investment at December 31, 1995............................. $3,810
Contributions............................................. 1,690
Distributions............................................. (1,810)
Equity in earnings........................................ 1,571
------
Investment at December 31, 1996............................. $5,261
Contribution.............................................. 3,700
Distributions............................................. (2,129)
Equity in earnings........................................ 1,687
------
Investment at December 31, 1997............................. $8,519
Contributions............................................. (758)
Equity in earnings........................................ 850
------
Investment at June 30, 1998................................. $8,611
======
</TABLE>

F-22
<PAGE> 114
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 5. MORTGAGE LOANS RECEIVABLE

The Operating Partnership's mortgage loans receivable consist of the
following as of June 30, 1998, and December 31, 1997 and 1996 (dollars in
thousands):

<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
(UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C>
Note secured by an office and research complex in Eatontown,
NJ, with interest-only payable monthly at a fixed rate of
8%. This loan was paid off in 1997........................ $ -- $ -- $6,700
Note secured by an industrial property in Los Angeles, CA,
with a fixed interest rate of 9% and a maturity date of
June 2001. This note was paid off early in June 1998...... -- 507 511
Note secured by an office property in Phoenix, AZ, with a
fixed interest rate of 11% and a maturity date of November
1999. The Operating Partnership is committed to additional
advances totaling $530 as of June 30, 1998, for tenant
improvements and other leasing costs...................... 3,320 3,185 2,694
Note secured by a hotel property in Dallas, TX, with a fixed
interest rate of 9%, monthly interest-only payments and a
maturity date of December 1998............................ 3,600 -- --
Note secured by land located in Aurora, CO, with a fixed
interest rate of 13%, quarterly interest-only payments and
a maturity date of July 2005.............................. 34,349 -- --
------- ------ ------
Total............................................. $41,269 $3,692 $9,905
======= ====== ======
</TABLE>

NOTE 6. SECURED AND UNSECURED LIABILITIES

The Operating Partnership had the following mortgage loans, bank lines,
unsecured notes and notes payable outstanding as of June 30, 1998, and December
31, 1997 and 1996 (dollars in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
(UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C>
Secured $50,000 line of credit with a bank with a variable
interest rate of LIBOR plus 2.375% (8.00% at December 31,
1996), monthly interest only payments and a maturity date
of July 14, 1998, with an option to extend for 10 years.
This line was paid off and replaced by the Acquisition
Credit Facility (discussed below) in December 1997....... $ -- $ -- $21,307
Unsecured $250,000 line of credit with a bank ("Acquisition
Credit Facility") with a variable interest rate ranging
between LIBOR plus 1.10% and LIBOR plus 1.30% (6.89% and
7.07% at June 30, 1998 and December 31, 1997,
respectively), monthly interest only payments and a
maturity date of December 22, 2000, with one option to
extend for 10 years...................................... 125,152 80,160 --
Unsecured loan with a bank ("$150 Million Bridge Loan")
with a variable interest rate of LIBOR plus 1.3% (6.99%
at June 30, 1998), monthly interest only payments and a
maturity date of December 31, 1998. See below for further
discussion............................................... 142,170 -- --
</TABLE>

F-23
<PAGE> 115
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
(UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C>
Secured loan with a bank with a fixed interest rate of
7.50%, monthly principal and interest payments of $443
and a maturity date of October 1, 2022. The loan is
secured by ten properties with an aggregate net carrying
value of $110,933 and $111,372 at June 30, 1998 and
December 31, 1997, respectively.......................... $ 59,394 $ 59,724 --
Secured loan with an investment bank with a fixed interest
rate of 7.57%, monthly principal and interest payments
(based upon a 25 year amortization) of $149 and a
maturity date of January 1, 2006. The loan is secured by
nine properties with an aggregate net carrying value of
$38,998, $37,711 and $39,298 at June 30, 1998 and
December 31, 1997 and 1996, respectively................. 19,285 19,444 $19,744
Secured loans with various lenders, bearing interest at
fixed rates between 7.25% and 9.25% (approximately
$169,440 of these loans include an unamortized premium of
approximately $3,118 which reduces the effective interest
rate on those instruments to 6.75%), with monthly
principal and interest payments ranging between $8 and
$371 and maturing at various dates through October 1,
2010. These loans are secured by properties with an
aggregate net carrying value of $397,128, $66,353 and
$30,441 at June 30, 1998 and December 31, 1997 and 1996,
respectively............................................. 223,560 30,519 17,581
Secured loans with various banks bearing interest at
variable rates (ranging between 6.75% and 8.18% at June
30, 1998), monthly principal and interest payments
ranging between $4 and $773 and maturing at various dates
through May 1, 2017. These loans are secured by
properties with an aggregate net carrying value of
$170,877, $17,246 and $6,975 at June 30, 1998 and
December 31, 1997 and 1996, respectively................. 118,389 7,806 3,807
Secured loans with various lenders, bearing interest at
fixed rates between 7.25% and 7.85%, with monthly
principal and interest payments ranging between $5 and
$55 and maturing at various dates through December 1,
2030. These loans are secured by multi-family properties
with an aggregate net carrying value of $41,773, $41,862
and $9,491 at June 30, 1998 and December 31, 1997 and
1996, respectively....................................... 30,456 30,646 7,332
Unsecured Redeemable Notes with a fixed interest rate of
7.625%, interest payable semiannually on March 15 and
September 15, commencing September 15, 1998, and a
maturity date of March 15, 2005. See below for further
discussion............................................... 150,000 -- --
Secured loan with a bank with variable interest rates of
LIBOR plus 2.375% and prime rate plus 0.50%, monthly
interest only payments and a maturity date of July 14,
1998. The loan was paid off in June 1997 upon the sale of
the properties securing the loan......................... -- -- 6,120
-------- -------- -------
Total............................................ $868,406 $228,299 $75,891
======== ======== =======
</TABLE>

In April 1997, the Operating Partnership entered into a $40 million
unsecured loan with Wells Fargo Bank to fund the acquisition of the CIGNA
Properties (the "CIGNA Acquisition Financing"). The CIGNA Acquisition Financing
had a term of three months (extendible to six months at the Operating
Partnership's option), interest at a variable annual rate equal to 175 basis
points above 30-day LIBOR, was unsecured and was guaranteed by the Operating
Partnership. Required payments under the CIGNA Acquisition Financing were
monthly, interest only.

F-24
<PAGE> 116
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

In June 1997, Wells Fargo had substantially completed underwriting and due
diligence for a $60 million mortgage loan to the Operating Partnership (the "$60
Million Mortgage") to be secured by the Lennar Properties, the Riverview
Property, the Centerstone Property and five of the CIGNA Properties. In the
interim, Wells Fargo funded a $60 million unsecured "bridge" loan (the "$60
Million Unsecured Bridge Loan"), which was used to (i) repay all principal and
accrued interest under the $40 million CIGNA Acquisition Financing, and (ii)
reduce the outstanding balance under the Line of Credit by approximately $20
million.

The $60 Million Unsecured Bridge Loan was paid-off in July 1997 from the
proceeds of the July 1997 Offering (see Note 10) and was replaced with the $60
Million Mortgage in September 1997. This loan has a 25-year term, bears interest
at a fixed annual rate of 7.5%, and requires monthly payments of principal and
interest. Proceeds from the $60 Million Mortgage were used to fund the
acquisitions of the T. Rowe Price Properties and the Advance Properties.

In September 1997, the Operating Partnership closed a $114 million
unsecured loan (the "$114 Million Interim Unsecured Loan") with Wells Fargo
Bank. This loan had a 90-day term with two 90-day extension options, interest at
a fixed annual rate of 7.5% and required monthly interest-only payments. The
proceeds of this loan were used to fund a portion of the purchase price for the
T. Rowe Price Properties. In October 1997, the Operating Partnership repaid the
$114 Million Interim Unsecured Loan with net proceeds from the October 1997
Offering (see Note 10).

In December 1997, the Operating Partnership replaced its $50 million
secured line of credit with a new $250 million unsecured line of credit (the
"Acquisition Credit Facility") with Wells Fargo Bank. The Acquisition Credit
Facility has a three year term with an option to extend the term for an
additional 10 years and bears interest on a sliding scale ranging from LIBOR
plus 1.1% to LIBOR plus 1.3%, which represents a rate that is lower by at least
0.45% than the rate under the Operating Partnership's previous $50 million
secured line of credit. In connection with the repayment of the $50 million
secured line of credit, the Operating Partnership expensed, as an extraordinary
item, the unamortized deferred costs incurred to obtain the secured line of
credit of $843,000. Draws under the Acquisition Credit Facility were used to
fund acquisitions as discussed in Note 3.

In January 1998, the Operating Partnership closed a $150 million loan
agreement with Wells Fargo Bank (the "Interim Loan"). The Interim Loan had a
term of three months with interest at LIBOR plus 1.75%. The purpose of the
Interim Loan was to fund the acquisition of the Windsor Portfolio as discussed
in Note 3. The Interim Loan was paid off in March 1998 with proceeds from the
$150 million of unsecured Redeemable Notes as discussed below.

In March 1998, the Operating Partnership issued $150 million of 7 5/8%
Series A Redeemable Notes in an unregistered 144A offering. The Old Notes mature
on March 15, 2005, unless previously redeemed. Interest on the Old Notes will be
payable semiannually on March 15 and September 15, commencing September 15,
1998. The Notes may be redeemed at any time at the option of the Operating
Partnership, in whole or in part, at a redemption price equal to the sum of (i)
the principal amount of the Notes being redeemed plus accrued interest to the
redemption date and (ii) the Make-Whole Amount, as defined, if any. The Notes
will be general unsecured and unsubordinated obligations of the Operating
Partnership, and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Operating Partnership. The Notes will be
subordinated to secured borrowing arrangements that the Operating Partnership
has and from time to time may enter into with various banks and other lenders,
and to the prior claims of each secured mortgage lender to any specific property
which secures any lender's mortgage. As of June 30, 1998, such secured
arrangements and mortgages aggregated approximately $451.1 million.

F-25
<PAGE> 117
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

The required principal payments on the Operating Partnership's debt for the
next five years and thereafter, as of June 30, 1998 (unaudited), are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1998................................................... $148,078
1999................................................... 123,822
2000................................................... 186,249
2001................................................... 12,841
2002................................................... 11,503
Thereafter............................................. 385,913
--------
Total......................................... $868,406
========
</TABLE>

NOTE 7. CONSOLIDATION AND LITIGATION COSTS

The consolidation costs included in the Operating Partnership's December
31, 1996 consolidated statement of operations included accounting fees as well
as the costs of mailing and printing the Prospectus/ Consent Solicitation
Statement, any supplements thereto or other documents related to the
Consolidation, the costs of the Information Agent, Investor brochure, telephone
calls, broker-dealer fact sheets, printing, postage, travel, meetings, legal and
other fees related to the solicitation of consents, as well as reimbursement of
costs incurred by brokers and banks in forwarding the Prospectus/Consent
Solicitation Statement to Investors.

The litigation costs included in the Operating Partnership's December 31,
1996 consolidated statement of operations included the legal fees incurred in
connection with defending two class action complaints filed by investors in
certain of the GRT Predecessor Entities as well as an accrual for the amount of
the settlement that the plaintiff's counsel in one case was requesting be
awarded by the court.

NOTE 8. RELATED PARTY TRANSACTIONS

During the years ended December 31, 1997 and 1996, the Operating
Partnership paid property management and asset management fees to the Company.
Property management fees ranged from 3% to 5% of rental collections on a
property by property basis and are disclosed as a component of property
operating expenses in the accompanying statements of operations. Asset
management fees were calculated and paid to the Company at a rate ranging from
0.5% to 1.0% of the estimated fair value of the Operating Partnership's real
estate assets. Asset management fees are disclosed as general and administrative
expenses in the accompanying statements of operations.

Fee and reimbursement income earned by the GRT Predecessor Entities from
related partnerships totaled $2,995,000 for the year ended December 31, 1995,
and consisted of property management fees, asset management fees, reimbursements
and related expenses.

F-26
<PAGE> 118
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 9. PROVISION FOR LOSS ON INVESTMENTS IN REAL ESTATE, REAL ESTATE
PARTNERSHIPS AND MORTGAGE LOANS RECEIVABLE

The loss provisions recorded during the year ended December 31, 1995 were
as follows:

<TABLE>
<S> <C>
Reduction in the carrying value of the New Jersey note
receivable to the value of collateral..................... $ 863
Reduction in value of the GC investments in real estate
partnerships to estimated net realizable value............ 955
Other....................................................... 58
------
$1,876
======
</TABLE>

NOTE 10. SECURITIES OFFERINGS

1996

In October 1996, the Company completed a public offering of 3,666,000
shares of Common Stock (the "October 1996 Offering"). The 3,666,000 shares were
sold at a per share price of $13.875 for total proceeds of $47,814,000 (net of
6% underwriting fee of $3,052,000). The proceeds from the October 1996 Offering
were contributed to the Operating Partnership in exchange for 3,666,000
Operating Partnership units. The Operating Partnership used the funds to acquire
the TRP Properties (see Note 3) and to repay $24,000,000 of the outstanding
balance under the Operating Partnership's $50 million secured line of credit
with Wells Fargo Bank (see Note 6) which was then available to fund the
acquisition of the Carlsberg Properties (see Note 3).

1997

In March 1997, the Company completed a public offering of 3,500,000 shares
of Common Stock (the "March 1997 Offering"). The 3,500,000 shares were sold at a
per share price of $20.25 for total proceeds of $66,955,000 (net of 6%
underwriting fee of $3,920,000). The proceeds from the March 1997 Offering were
contributed to the Operating Partnership in exchange for 3,500,000 Operating
Partnership units. The Operating Partnership used the funds to acquire the
Scottsdale Hotel and the Lennar, Riverview and Ellis & Lane Properties (see Note
3) and to repay the outstanding balance under the Operating Partnership's Line
of Credit.

In July 1997, the Company completed a public offering of 6,980,000 shares
of Common Stock (the "July 1997 Offering"). The 6,980,000 shares were sold at a
per share price of $22.625 for total proceeds of $149,965,300 (net of
underwriting fees of $7,957,200). The proceeds from the July 1997 Offering were
contributed to the Operating Partnership in exchange for 6,980,000 Operating
Partnership units. The Operating Partnership used the funds to repay the $60
Million Unsecured Bridge Loan and the outstanding balance under the Operating
Partnership's Line of Credit with Wells Fargo (see Note 6). In addition, the
remaining proceeds were used to fund the acquisitions of the T. Rowe Price
Properties and the Advance Properties as discussed in Note 3.

In October 1997, the Company completed a public offering of 11,300,000
shares of Common Stock (the "October 1997 Offering"). The 11,300,000 shares were
sold at a per share price of $25.00 for total proceeds of $268,092,500 (net of
underwriting fees of $14,407,500). The proceeds from the October 1997 Offering
were contributed to the Operating Partnership in exchange for 11,300,000
Operating Partnership units. The Operating Partnership used the funds to repay
the $114 Million Interim Unsecured Loan and the outstanding balance under the
Operating Partnership's Line of Credit with Wells Fargo (see Note 6).

F-27
<PAGE> 119
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

1998 (unaudited)

In January 1998, the Company completed a public offering of 11,500,000
shares of 7 3/4% Series A Convertible Preferred Stock (the "January 1998
Convertible Preferred Stock Offering"). The 11,500,000 shares were sold at a per
share price of $25.00 for net proceeds of approximately $276 million. The
proceeds from the January 1998 Convertible Preferred Stock Offering were
contributed to the Operating Partnership for which the Company received a
Preferred Partner Interest, which is entitled to a priority distribution
sufficient to pay dividends to the holders of the Company's Series A Convertible
Preferred Stock. A portion of this additional capital was used to repay the
outstanding balance under the Operating Partnership's Acquisition Credit
Facility. The remaining proceeds were used to fund the acquisitions discussed in
Note 3 and for general corporate purposes.

In March 1998, the Operating Partnership issued $150 million of 7 5/8%
Series A Redeemable Notes in an unregistered 144A offering. The Notes mature on
March 15, 2005, unless previously redeemed. Interest on the Notes is payable
semiannually on March 15 and September 15, commencing September 15, 1998. The
Operating Partnership used the net proceeds of the offering to repay the
outstanding balance under the Interim Loan.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Environmental Matters. The Operating Partnership follows a policy of
monitoring its properties for the presence of hazardous or toxic substances. The
Operating Partnership is not aware of any environmental liability with respect
to the properties that would have a material adverse effect on the Operating
Partnership's business, assets or results of operations. There can be no
assurance that such a material environmental liability does not exist. The
existence of any such material environmental liability could have an adverse
effect on the Operating Partnership's results of operations and cash flow.

General Uninsured Losses. The Operating Partnership carries comprehensive
liability, fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which may
be either uninsurable, or not economically insurable. Further, certain of the
properties are located in areas that are subject to earthquake activity. Should
a property sustain damage as a result of an earthquake, the Operating
Partnership may incur losses due to insurance deductibles, co-payments on
insured losses or uninsured losses. Should an uninsured loss occur, the
Operating Partnership could lose its investment in, and anticipated profits and
cash flows from, a property.

Litigation. Prior to the completion of the Consolidation, two lawsuits were
filed in 1995 contesting the fairness of the Consolidation, one in California
State court and one in federal court. The complaints in both actions alleged,
among other things, breaches by the defendants of fiduciary duties and
inadequate disclosures. The State court action was settled and, upon appeal, the
settlement was affirmed by the State court on February 17, 1998. Pursuant to the
terms of the settlement in the State court action, pending appeal, the Operating
Partnership has paid one-third of the $855,000 settlement amount and the
remaining two-thirds is being held in escrow. In the federal action, the court
in December of 1995 deferred all further proceedings pending a ruling in the
State court action. Following the State court decision approving the settlement,
the defendants filed a motion to dismiss the federal court action. The Operating
Partnership believes that it is very unlikely that this litigation would result
in a liability that would exceed the accrued liability by a material amount.
However, given the inherent uncertainties of litigation, there can be no
assurance that the ultimate outcomes of these actions will be favorable to the
Operating Partnership.

F-28
<PAGE> 120
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 (UNAUDITED), AND DECEMBER 31, 1997 (AUDITED) AND 1996 (AUDITED)

NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)

Completed Acquisitions.

Pauls Portfolio. In July 1998, the Operating Partnership acquired a
portfolio of ten properties (the "Pauls Portfolio") from The Pauls Corporation,
a premier national developer headquartered in Denver, Colorado. The Pauls
Portfolio properties aggregate 1,128,785 square feet located in Aurora,
Colorado, and consist of one office, three office/flex and six industrial
buildings. The total acquisition cost, including capitalized costs, was
approximately $54.9 million, comprising: (i) approximately $41.3 million of net
assumed debt; (ii) approximately $11.3 million of equity in the form of 423,843
Operating Partnership units (based on an agreed per unit value of $26.556); and
(iii) the balance in cash. The cash portion was financed through advances under
the Bridge Loan from a commercial bank as discussed in Note 6. In addition to
the acquisition of the Pauls Portfolio, the Operating Partnership has entered
into a development alliance with The Pauls Corporation. Under this development
alliance, the Operating Partnership has committed approximately $34 million to
continue the build-out of Gateway Park, including 1.6 million square feet of
office space, 945,000 square feet of office/flex space, 395,000 square feet of
industrial space and 1,600 apartment units. Additionally, the Operating
Partnership has committed $20 million to the development alliance for the
following Class A office building properties: a 292,000 square foot project in
Kansas City, Kansas; an 84,000 square foot project in Auburn Hills, Michigan; a
158,000 square foot project in Farmington Hills, Michigan; a 168,000 square foot
project in Southfield, Michigan, and a 209,000 square foot project in Troy,
Michigan. In this development alliance, the Operating Partnership has certain
rights under certain conditions and subject to certain contingencies to purchase
the properties upon completion of development and, thus, through this alliance,
the Operating Partnership could acquire up to 3.8 million square feet of office,
office/flex, industrial and multi-family properties over the next five years.

Pending Acquisition.

The Operating Partnership has entered into a definitive agreement to
acquire all of the real estate assets of Prudential-Bache/Equitec Real Estate
Partnership ,a California limited partnership in which the managing general
partner is Prudential-Bache Properties, Inc., and in which Glenborough
Corporation and Robert Batinovich, the Company's Chairman and Chief Executive
Officer, have served as co-general partners since March 1994, but do not hold a
material equity or economic interest (the "Pru-Bache Portfolio"). The total
acquisition cost, including capitalized costs, is expected to be approximately
$49.9 million, which is to be paid entirely in cash. The Pru-Bache Portfolio
comprises four office buildings aggregating 405,825 square feet and one
office/flex property containing 121,645 square feet. This acquisition is subject
to certain contingencies including the resolution of litigation relating to the
proposed acquisition, to which neither the Company nor the Operating Partnership
is a party, and customary closing conditions. Although the Operating Partnership
is still pursuing this acquisition, because of the litigation contingency, the
Operating Partnership does not currently believe the acquisition is probable.

F-29
<PAGE> 121

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
COST
CAPITALIZED
(REDUCED)
SUBSEQUENT TO
INITIAL COST TO ACQUISITION(6) GROSS AMOUNT CARRIED
PARTNERSHIP(1) IMPROVEMENTS AT DECEMBER 31, 1997
----------------------- -------------- ----------------------------------
BUILDINGS BUILDINGS
AND AND (3)(10)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------------ -------- ------------ -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Properties:
4500 Plaza, UT(8)............... $ 875 $ 1,192 $ 4,606 $ 667 $ 1,123 $ 5,342 $ 6,465
Warner Village, CA.............. -- 558 2,232 24 558 2,256 2,814
Globe Building, WA.............. -- 375 1,501 165 375 1,666 2,041
One Professional Square, NE..... -- 285 1,142 112 285 1,254 1,539
Vintage Pointe, AZ.............. 2,087 738 2,950 130 738 3,080 3,818
Tradewinds Financial, AZ........ -- 303 1,214 22 304 1,235 1,539
Dallidet Center, CA............. -- 676 2,703 11 677 2,713 3,390
Hillcrest Office Plaza, CA...... -- 330 1,319 146 330 1,465 1,795
Academy Prof. Center, CA........ -- 467 1,866 107 481 1,959 2,440
University Tech Center, CA...... -- 2,011 8,046 450 2,086 8,421 10,507
Montgomery Exec. Center, MD..... -- 1,919 7,676 288 1,928 7,955 9,883
Post Oak Place, TX.............. -- 395 1,579 26 396 1,604 2,000
Gatehall, NJ.................... -- 1,857 7,427 46 1,865 7,465 9,330
Buschwood III, FL............... -- 1,472 5,890 42 1,479 5,925 7,404
25 Independence Blvd., NJ....... -- 4,535 18,141 60 4,547 18,189 22,736
Morristown Medical Offices,
NJ............................ -- 517 1,832 6 518 1,837 2,355
Frontier Executive Quarters I,
NJ............................ -- 4,189 33,892 99 4,200 33,980 38,180
Frontier Executive Quarters II,
NJ............................ -- 629 5,091 15 631 5,104 5,735
Bridgewater Exec. Quarters,
NJ............................ 4,487 2,069 7,337 25 2,075 7,356 9,431
Citibank Park, NV............... -- 4,611 18,442 107 4,628 18,532 23,160
Temple Terrace, FL.............. -- 1,782 6,949 18 1,786 6,963 8,749
Thousand Oaks, TN............... -- 10,741 40,355 190 10,741 40,545 51,286
Regency Westpointe, NE(8)....... (5) 530 3,147 834 530 3,981 4,511
Centerstone Plaza, CA........... (4) 6,066 24,265 88 6,077 24,342 30,419
Woodlands Plaza, MO............. (4) 1,107 4,426 143 1,114 4,562 5,676
700 South Washington, VA........ (4) 1,974 7,894 53 1,981 7,940 9,921
Riverview Office Tower, MN...... (4) 4,083 16,333 409 4,095 16,730 20,825
Westford Corporate Center, MA... (4) 2,078 8,310 68 2,091 8,365 10,456

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Office Properties:
4500 Plaza, UT(8)............... $ 2,629 3/86 1-30 yrs.
Warner Village, CA.............. 114 10/96 1-30 yrs.
Globe Building, WA.............. 86 10/96 1-30 yrs.
One Professional Square, NE..... 67 10/96 1-30 yrs.
Vintage Pointe, AZ.............. 159 11/96 1-30 yrs.
Tradewinds Financial, AZ........ 62 11/96 1-30 yrs.
Dallidet Center, CA............. 136 11/96 1-30 yrs.
Hillcrest Office Plaza, CA...... 74 11/96 1-30 yrs.
Academy Prof. Center, CA........ 49 4/97 1-30 yrs.
University Tech Center, CA...... 142 6/97 1-30 yrs.
Montgomery Exec. Center, MD..... 135 9/97 1-30 yrs.
Post Oak Place, TX.............. 27 9/97 1-30 yrs.
Gatehall, NJ.................... 124 9/97 1-30 yrs.
Buschwood III, FL............... 99 9/97 1-30 yrs.
25 Independence Blvd., NJ....... 304 9/97 1-30 yrs.
Morristown Medical Offices,
NJ............................ 31 9/97 1-30 yrs.
Frontier Executive Quarters I,
NJ............................ 566 9/97 1-30 yrs.
Frontier Executive Quarters II,
NJ............................ 85 9/97 1-30 yrs.
Bridgewater Exec. Quarters,
NJ............................ 122 9/97 1-30 yrs.
Citibank Park, NV............... 155 9/97 1-30 yrs.
Temple Terrace, FL.............. 58 12/97 1-30 yrs.
Thousand Oaks, TN............... 336 12/97 1-30 yrs.
Regency Westpointe, NE(8)....... 1,491 6/87 5-30 yrs.
Centerstone Plaza, CA........... 407 7/97 1-30 yrs.
Woodlands Plaza, MO............. 183 4/97 1-30 yrs.
700 South Washington, VA........ 199 4/97 1-30 yrs.
Riverview Office Tower, MN...... 424 4/97 1-30 yrs.
Westford Corporate Center, MA... 209 4/97 1-30 yrs.
</TABLE>

F-30
<PAGE> 122

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
COST
CAPITALIZED
(REDUCED)
SUBSEQUENT TO
INITIAL COST TO ACQUISITION(6) GROSS AMOUNT CARRIED
PARTNERSHIP(1) IMPROVEMENTS AT DECEMBER 31, 1997
----------------------- -------------- ----------------------------------
BUILDINGS BUILDINGS
AND AND (3)(10)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------------ -------- ------------ -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Properties continued:
Bond Street, MI................. $ -- $ 716 $ 2,147 $ 189 $ 716 $ 2,336 $ 3,052
University Club Tower, MO....... -- 4,087 14,519 1,472 4,087 15,991 20,078
Windsor Portfolio(7)............ -- -- 13,036 -- -- 13,036 13,036
-------- -------- -------- ------ -------- -------- --------
Office Total.............. 62,292 276,267 6,012 62,442 282,129 344,571
Office/Flex Properties:
Park 100 -- Building 42,
IN(8)......................... -- 712 3,286 (560) 712 2,726 3,438
Rancho Bernardo, CA............. -- 518 2,072 55 518 2,127 2,645
Hoover Industrial, AZ........... -- 322 1,290 14 322 1,304 1,626
Walnut Creek Industrial. TX..... 1,407 773 3,093 3 774 3,095 3,869
Chatsworth Ind. Park, CA........ 833 253 1,014 74 264 1,077 1,341
Sandhill Industrial Park,
CA(9)......................... 1,753 563 2,254 104 584 2,337 2,921
San Dimas Industrial Ctr.,
CA(9)......................... 591 237 947 49 246 987 1,233
Glassell Industrial Center,
CA............................ 1,273 658 2,630 264 704 2,848 3,552
Kraemer Industrial Park, CA..... 1,425 384 1,537 90 401 1,610 2,011
Magnolia Industrial, AZ......... -- 310 1,241 58 322 1,287 1,609
The Business Park, GA........... -- 1,478 5,912 52 1,485 5,957 7,442
Newport Business Center, FL..... -- 651 2,604 31 654 2,632 3,286
Oakbrook Corners, GA............ -- 1,052 4,209 36 1,057 4,240 5,297
Baseline Business Park, AZ...... -- 882 3,527 27 886 3,550 4,436
Cypress Creek Business Ctr.,
FL............................ -- 872 3,490 76 876 3,562 4,438
Scripps Terrace, CA............. -- 676 2,685 15 678 2,698 3,376
Riverview Industrial Park, MN... -- 837 3,348 19 841 3,363 4,204
Winnetka Industrial Center,
MN............................ -- 1,184 4,737 27 1,190 4,758 5,948
Kent Business Park, WA.......... -- 1,206 4,822 46 1,211 4,863 6,074
Valley Business Park, CO........ -- 1,757 7,027 39 1,765 7,058 8,823
Tierrasanta Research Park, CA... -- 1,297 5,189 249 1,303 5,432 6,735
Germantown Business Center,
MD............................ -- 1,438 5,753 19 1,442 5,768 7,210
Fox Hollow Business Quarters,
NJ............................ -- 1,572 2,358 10 1,576 2,364 3,940

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Office Properties continued:
Bond Street, MI................. $ 106 9/96 1-40 yrs.
University Club Tower, MO....... 731 7/96 1-40 yrs.
Windsor Portfolio(7)............ -- (7) (7)
------- ----- ---------
Office Total.............. 9,310
Office/Flex Properties:
Park 100 -- Building 42,
IN(8)......................... 643 10/86 5-25 yrs.
Rancho Bernardo, CA............. 109 10/96 1-30 yrs.
Hoover Industrial, AZ........... 66 10/96 1-30 yrs.
Walnut Creek Industrial. TX..... 155 10/96 1-30 yrs.
Chatsworth Ind. Park, CA........ 27 4/97 1-30 yrs.
Sandhill Industrial Park,
CA(9)......................... 58 4/97 1-30 yrs.
San Dimas Industrial Ctr.,
CA(9)......................... 25 4/97 1-30 yrs.
Glassell Industrial Center,
CA............................ 71 4/97 1-30 yrs.
Kraemer Industrial Park, CA..... 40 4/97 1-30 yrs.
Magnolia Industrial, AZ......... 32 6/97 1-30 yrs.
The Business Park, GA........... 100 9/97 1-30 yrs.
Newport Business Center, FL..... 44 9/97 1-30 yrs.
Oakbrook Corners, GA............ 71 9/97 1-30 yrs.
Baseline Business Park, AZ...... 60 9/97 1-30 yrs.
Cypress Creek Business Ctr.,
FL............................ 64 9/97 1-30 yrs.
Scripps Terrace, CA............. 43 9/97 1-30 yrs.
Riverview Industrial Park, MN... 56 9/97 1-30 yrs.
Winnetka Industrial Center,
MN............................ 79 9/97 1-30 yrs.
Kent Business Park, WA.......... 82 9/97 1-30 yrs.
Valley Business Park, CO........ 117 9/97 1-30 yrs.
Tierrasanta Research Park, CA... 98 9/97 1-30 yrs.
Germantown Business Center,
MD............................ 96 9/97 1-30 yrs.
Fox Hollow Business Quarters,
NJ............................ 39 9/97 1-30 yrs.
</TABLE>

F-31
<PAGE> 123

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
COST
CAPITALIZED
(REDUCED)
SUBSEQUENT TO
INITIAL COST TO ACQUISITION(6) GROSS AMOUNT CARRIED
PARTNERSHIP(1) IMPROVEMENTS AT DECEMBER 31, 1997
----------------------- -------------- ----------------------------------
BUILDINGS BUILDINGS
AND AND (3)(10)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------------ -------- ------------ -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Office/Flex Properties continued:
Fairfield Business Quarters,
NJ............................ $ 2,903 $ 816 $ 3,479 $ 3 $ 817 $ 3,481 $ 4,298
Columbia Warehouse, MD.......... -- 391 1,565 7 393 1,570 1,963
Palms Business Centre North,
NV............................ -- 2,483 7,067 35 2,492 7,093 9,585
Palms Business Centre South,
NV............................ -- 4,119 9,610 51 4,134 9,646 13,780
Palms Business Centre III, NV... -- 3,970 10,207 53 3,984 10,246 14,230
Palms Business Centre IV, NV.... -- 623 3,272 16 626 3,285 3,911
Post Palms, NV.................. -- 2,513 9,453 44 2,522 9,488 12,010
Bryant Lake Business Center,
MN............................ -- 1,883 7,531 135 1,907 7,642 9,549
ADS Alliance Data Systems, CO... -- 1,331 3,354 10 1,334 3,361 4,695
Fingerhut Call Center Facility,
FL............................ -- 1,184 3,282 9 1,187 3,288 4,475
PrimeCo Call Center Facility,
FL............................ -- 947 3,418 10 949 3,426 4,375
Atlantic Tech @ Regency, FL..... -- 1,117 4,302 11 1,119 4,311 5,430
Clark Avenue, PA................ -- 646 2,584 14 649 2,595 3,244
Dominguez Industrial, CA........ -- 665 2,662 168 697 2,798 3,495
Dunn Way Industrial, CA......... -- 400 1,601 166 427 1,740 2,167
Monroe Industrial, CA........... 733 275 1,101 58 282 1,152 1,434
Upland Industrial, CA........... -- 144 576 64 155 629 784
Fisher-Pierce, MA............... (4) 715 2,860 16 718 2,873 3,591
Woodlands Tech Center, MO....... (4) 943 3,773 138 949 3,905 4,854
Lake Point Business Park, FL.... (4) 1,336 5,343 99 1,344 5,434 6,778
-------- -------- -------- ------ -------- -------- --------
Office/Flex Total......... 46,133 162,065 1,904 46,496 163,606 210,102
Industrial Properties:
Case Kansas City, KS(8)......... -- 383 3,264 (1,397) 236 2,014 2,250
Case Memphis, TN(8)............. -- 305 2,583 (1,106) 187 1,595 1,782
Park 100 -- Building 46,
IN(8)......................... -- -- -- 211 -- 211 211
Mercantile I, TX................ -- 783 3,133 118 783 3,251 4,034
Quaker Industrial, TX........... -- 103 412 40 103 452 555
Pinewood Industrial, TX......... -- 144 577 6 144 583 727

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Office/Flex Properties continued:
Fairfield Business Quarters,
NJ............................ $ 58 9/97 1-30 yrs.
Columbia Warehouse, MD.......... 13 10/97 1-30 yrs.
Palms Business Centre North,
NV............................ 59 10/97 1-30 yrs.
Palms Business Centre South,
NV............................ 80 10/97 1-30 yrs.
Palms Business Centre III, NV... 85 10/97 1-30 yrs.
Palms Business Centre IV, NV.... 27 10/97 1-30 yrs.
Post Palms, NV.................. 79 10/97 1-30 yrs.
Bryant Lake Business Center,
MN............................ 63 11/97 1-30 yrs.
ADS Alliance Data Systems, CO... 28 12/97 1-30 yrs.
Fingerhut Call Center Facility,
FL............................ 27 12/97 1-30 yrs.
PrimeCo Call Center Facility,
FL............................ 29 12/97 1-30 yrs.
Atlantic Tech @ Regency, FL..... 36 12/97 1-30 yrs.
Clark Avenue, PA................ 43 9/97 1-30 yrs.
Dominguez Industrial, CA........ 71 4/97 1-30 yrs.
Dunn Way Industrial, CA......... 43 4/97 1-30 yrs.
Monroe Industrial, CA........... 28 4/97 1-30 yrs.
Upland Industrial, CA........... 16 4/97 1-30 yrs.
Fisher-Pierce, MA............... 72 4/97 1-30 yrs.
Woodlands Tech Center, MO....... 105 4/97 1-30 yrs.
Lake Point Business Park, FL.... 137 4/97 1-30 yrs.
------- ----- ---------
Office/Flex Total......... 3,274
Industrial Properties:
Case Kansas City, KS(8)......... 558 3/84 50 yrs.
Case Memphis, TN(8)............. 442 3/84 50 yrs.
Park 100 -- Building 46,
IN(8)......................... 94 10/86 5-25 yrs.
Mercantile I, TX................ 179 10/96 1-30 yrs.
Quaker Industrial, TX........... 23 10/96 1-30 yrs.
Pinewood Industrial, TX......... 30 10/96 1-30 yrs.
</TABLE>

F-32
<PAGE> 124

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Industrial Properties continued:
Fifth Street, AZ................ $ 65 6/97 1-30 yrs.
Airport Perimeter Bus. Park,
GA............................ 33 9/97 1-30 yrs.
Springdale Commerce Ctr., CA.... 69 9/97 1-30 yrs.
Atlantic Industrial, GA......... 65 9/97 1-30 yrs.
Coronado Industrial, CA......... 47 9/97 1-30 yrs.
</TABLE>
<TABLE>
Glenn Avenue Business Ctr., IL. -- 563 2,250 12 565 2,260 2,825
<S> <C> <C> <C> <C> <C> <C> <C>
Wood Dale Business Center, IL... -- 601 2,403 13 603 2,414 3,017
Burnham Industrial Warehouse,
FL............................ -- 591 2,366 14 594 2,377 2,971
Bonnie Lane Business Center,
IL............................ -- 735 2,938 16 738 2,951 3,689
Jencraft Industrial, NJ......... -- 1,323 4,975 16 1,326 4,988 6,314
Eatontown Industrial, NJ........ -- 763 1,963 7 765 1,968 2,733
E. Anaheim, CA.................. -- 1,474 3,282 18 1,480 3,294 4,774
Fairmont Commerce Center, AZ.... -- 732 2,928 14 735 2,939 3,674
Benicia Industrial Park,
CA(8)......................... (5) 1,037 4,787 66 978 4,912 5,890
Navistar Int'l -- W. Chicago,
IL(8)......................... (5) 1,289 10,941 (4,618) 793 6,819 7,612
Navistar Int'l -- Baltimore,
MD(8)......................... (5) 577 4,911 (2,100) 356 3,032 3,388
Belshaw Industrial, CA(9)....... 530 103 520 46 134 535 669
Southworth-Milton, MA........... (4) 1,913 7,652 43 1,922 7,686 9,608
Skypark, CA(9).................. 7,428 3,899 17,802 -- 3,899 17,802 21,701
Sea Tac II, WA(2)(8)............ -- 712 1,474 (178) 712 1,296 2,008
-------- -------- -------- ------ -------- -------- --------
Industrial Total.......... 21,842 96,409 (8,546) 20,903 88,802 109,705
Retail Properties:
Auburn North, WA................ -- 1,099 4,397 162 1,099 4,559 5,658
Piedmont Plaza, FL.............. -- 1,308 5,233 43 1,317 5,267 6,584
River Run Shopping Ctr., FL..... -- 1,422 5,687 41 1,428 5,722 7,150
Goshen Plaza, MD................ -- 989 3,958 22 994 3,975 4,969
Westbrook Commons, IL........... -- 3,053 12,213 68 3,067 12,267 15,334
Sonora Plaza, CA................ 4,965 1,945 7,781 18 1,947 7,797 9,744

<CAPTION>
Glenn Avenue Business Ctr., IL. 38 9/97 1-30 yrs.
<S> <C> <C> <C>
Wood Dale Business Center, IL... 40 9/97 1-30 yrs.
Burnham Industrial Warehouse,
FL............................ 40 9/97 1-30 yrs.
Bonnie Lane Business Center,
IL............................ 49 9/97 1-30 yrs.
Jencraft Industrial, NJ......... 83 9/97 1-30 yrs.
Eatontown Industrial, NJ........ 33 9/97 1-30 yrs.
E. Anaheim, CA.................. 27 10/97 1-30 yrs.
Fairmont Commerce Center, AZ.... 24 10/97 1-30 yrs.
Benicia Industrial Park,
CA(8)......................... 1,866 7/86 5-30 yrs.
Navistar Int'l -- W. Chicago,
IL(8)......................... 1,892 3/84 50 yrs.
Navistar Int'l -- Baltimore,
MD(8)......................... 839 3/84 50 yrs.
Belshaw Industrial, CA(9)....... 13 4/97 1-30 yrs.
Southworth-Milton, MA........... 192 4/97 1-30 yrs.
Skypark, CA(9).................. 443 12/97 30 yrs.
Sea Tac II, WA(2)(8)............ 319 2/86 5-25 yrs.
------- ----- ---------
Industrial Total.......... 7,503
Retail Properties:
Auburn North, WA................ 229 10/96 1-30 yrs.
Piedmont Plaza, FL.............. 132 4/97 1-30 yrs.
River Run Shopping Ctr., FL..... 95 9/97 1-30 yrs.
Goshen Plaza, MD................ 66 9/97 1-30 yrs.
Westbrook Commons, IL........... 204 9/97 1-30 yrs.
Sonora Plaza, CA................ 390 11/96 1-30 yrs.
</TABLE>

F-33
<PAGE> 125

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
COST
CAPITALIZED
(REDUCED)
SUBSEQUENT TO
INITIAL COST TO ACQUISITION(6) GROSS AMOUNT CARRIED
PARTNERSHIP(1) IMPROVEMENTS AT DECEMBER 31, 1997
----------------------- -------------- ----------------------------------
BUILDINGS BUILDINGS
AND AND (3)(10)
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------------ -------- ------------ -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Properties continued:
Shannon Crossing, GA(8)......... $ (5) $ 2,488 $ 2,075 $ 360 $ 2,488 $ 2,435 $ 4,923
Westwood Plaza, FL(8)........... (5) 2,599 5,110 563 2,599 5,673 8,272
Park Center, CA(2)(8)........... -- 1,748 3,296 (544) 1,748 2,752 4,500
-------- -------- -------- ------ -------- -------- --------
Retail Total.............. 16,651 49,750 733 16,687 50,447 67,134
Multi-family Properties:
Summer Breeze, CA(8)(9)......... 2,578 1,857 2,138 217 1,857 2,355 4,212
Sahara Gardens, NV.............. -- 1,871 7,500 215 1,872 7,714 9,586
Sharonridge I & II, NC.......... 1,756 518 2,071 24 542 2,071 2,613
Wendover Glen, NC............... 2,497 586 2,346 27 613 2,346 2,959
The Oaks, NC.................... 2,341 662 2,649 31 693 2,649 3,342
The Landing on Farmhurst, NC.... 3,131 826 3,306 39 865 3,306 4,171
The Courtyard, NC............... 1,595 431 1,723 20 451 1,723 2,174
Sabal Point I, II & III, NC..... -- 3,650 14,602 169 3,819 14,602 18,421
Willow Glen, NC................. 2,412 809 3,236 37 846 3,236 4,082
Arrowood Crossing I & II, NC.... 6,504 1,805 7,222 83 1,888 7,222 9,110
The Chase (Commonwealth), NC.... 3,190 771 3,083 35 806 3,083 3,889
The Chase (Monroe), NC.......... -- 1,015 4,062 47 1,062 4,062 5,124
Villas de Mission, NV........... 7,220 1,924 7,695 99 1,924 7,794 9,718
Overlook, AZ.................... (4) 2,259 9,036 104 2,274 9,125 11,399
-------- -------- -------- ------ -------- -------- --------
Multi-family Total........ 18,984 70,669 1,147 19,512 71,288 90,800
Hotel Properties:
Country Inn by Carlson:
San Antonio, TX (9)........... -- 784 2,032 99 785 2,130 2,915
Country Inn & Suites by Carlson:
Scottsdale, AZ................ 4,457 -- 12,059 61 -- 12,120 12,120

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Retail Properties continued:
Shannon Crossing, GA(8)......... $ 1,581 10/88 3-14 yrs.
Westwood Plaza, FL(8)........... 2,523 1/88 3-23 yrs.
Park Center, CA(2)(8)........... 625 9/86 5-25 yrs.
------- ----- ---------
Retail Total.............. 5,845
Multi-family Properties:
Summer Breeze, CA(8)(9)......... 407 1/95 3-18 yrs.
Sahara Gardens, NV.............. 385 10/96 1-30 yrs.
Sharonridge I & II, NC.......... 17 12/97 1-30 yrs.
Wendover Glen, NC............... 20 12/97 1-30 yrs.
The Oaks, NC.................... 22 12/97 1-30 yrs.
The Landing on Farmhurst, NC.... 28 12/97 1-30 yrs.
The Courtyard, NC............... 14 12/97 1-30 yrs.
Sabal Point I, II & III, NC..... 122 12/97 1-30 yrs.
Willow Glen, NC................. 27 12/97 1-30 yrs.
Arrowood Crossing I & II, NC.... 60 12/97 1-30 yrs.
The Chase (Commonwealth), NC.... 26 12/97 1-30 yrs.
The Chase (Monroe), NC.......... 34 12/97 1-30 yrs.
Villas de Mission, NV........... 390 10/96 1-30 yrs.
Overlook, AZ.................... 228 4/97 1-30 yrs.
------- ----- ---------
Multi-family Total........ 1,780
Hotel Properties:
Country Inn by Carlson:
San Antonio, TX (9)........... 126 8/96 3-30 yrs.
Country Inn & Suites by Carlson:
Scottsdale, AZ................ 594 2/97 3-30 yrs.
</TABLE>

F-34
<PAGE> 126

<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H

(1) LIFE
ACCUMULATED DATE DEPRECIATED
DESCRIPTION DEPRECIATION ACQUIRED OVER
----------- ------------ -------- -----------
<S> <C> <C> <C>
Hotel Properties continued:
Country Suites by Carlson:
Arlington, TX (8)............. 3,751 12/86 7-25 yrs.
Irving, TX(2)(8) (9).......... 798 10/86 5-25 yrs.
Ontario, CA (8)............... 3,260 11/86 5-30 yrs.
Tucson, AZ (8)................ 4,972 12/86 7-25 yrs.
------- ----- ---------
Hotel Total............... 13,501
------- ----- ---------
Combined Total............ $41,213
======= ===== =========
</TABLE>

- ---------------
(1) Initial cost and date acquired by GRT Predecessor Entities, where
applicable.

(2) The Operating Partnership holds a participating first mortgage interest in
the property. In accordance with GAAP, the Operating Partnership is
accounting for the property as though it holds fee title.

(3) The aggregate cost for Federal income tax purposes is $711,995.

(4) Pledged as security for Wells Fargo Bank Secured Loan -- $59,724.

(5) Pledged as security for loan with an investment bank -- $19,444.

(6) Bracketed amounts represent reductions to carrying value in prior years.

(7) Initial Cost represents escrow deposit related to the acquisition of the
Windsor Portfolio which occurred in January 1998 (see Note 3).

(8) Initial Cost represents original book value carried forward from the
financial statements of the GRT Predecessor Entities.

(9) This property was sold in 1998.

(10) In aggregate, approximately $931,300 of real estate has been acquired
during the six months ended June 30, 1998.

F-35
<PAGE> 127

GLENBOROUGH PROPERTIES, L.P.

DECEMBER 31, 1997
(IN THOUSANDS)

Reconciliation of gross amount at which real estate was carried for the
years ended December 31:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Investments in real estate:
Balance at beginning of year............................. $190,729 $102,451 $ 83,449
Additions during year:
Property acquisitions............................... 687,523 89,653 17,151
Improvements........................................ 2,691 1,572 1,851
Retirements/sales..................................... (14,512) (2,947) --
-------- -------- --------
Balance at end of year................................... $866,431 $190,729 $102,451
======== ======== ========
Accumulated Depreciation:
Balance at beginning of year............................. $ 28,784 $ 24,877 $ 19,455
Additions during year:
Depreciation........................................ 14,496 4,305 2,254
Acquisitions........................................ 443 -- 3,168
Retirements/sales........................................ (2,510) (398) --
-------- -------- --------
Balance at end of year................................... $ 41,213 $ 28,784 $ 24,877
======== ======== ========
</TABLE>

F-36
<PAGE> 128

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE IV -- MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G

DESCRIPTION OF LOAN CURRENT MATURITY PERIODIC FACE CARRYING
AND SECURING PROPERTY INTEREST RATE DATE PAYMENT TERMS PRIOR LIENS AMOUNT AMOUNT
---------------------- ------------- -------- ------------------------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loan 9% 6/1/01 Monthly interest and principal None 553 507
Industrial property, payments, based on a thirty
Los Angeles, CA year amortization
First Mortgage Loan 11% 11/19/99 Monthly interest only payments None 3,850 3,185(1)
Medical building commencing January 1, 1997
Phoenix, AZ Principal due upon maturity
$4,403 $3,692
====== ======

<CAPTION>
COLUMN A COLUMN H
PRINCIPAL AMOUNT
OF LOANS SUBJECT
DESCRIPTION OF LOAN TO DELINQUENT
AND SECURING PROPERTY PRINCIPAL OR INTEREST
---------------------- ---------------------
<S> <C>
First Mortgage Loan None
Industrial property,
Los Angeles, CA
First Mortgage Loan None
Medical building
Phoenix, AZ
</TABLE>

- ---------------
(1) The loan amount is $3,850,000, of which $2,694,000 was initially disbursed
to the borrower and $906,000 was held by the Operating Partnership as
leasing and interest reserves. In 1997, $491,000 of the leasing and interest
reserves were drawn by the borrower.

F-37
<PAGE> 129

GLENBOROUGH PROPERTIES, L.P.
SCHEDULE IV -- MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

DECEMBER 31, 1997
(IN THOUSANDS)

The following is a summary of changes in the carrying amount of mortgage
loans for the years ended December 31, 1997, 1996 and 1995 (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ --------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 9,905 $7,465 $ 19,953
Additions during year:
New mortgage loans........................................ 491 2,694 7
Deductions during year:
Loss provision............................................ -- -- (863)
Collections of principal.................................. (6,704) (254) (11,632)
------- ------ --------
Balance at end of year...................................... $ 3,692 $9,905 $ 7,465
======= ====== ========
</TABLE>

F-38
<PAGE> 130

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE OPERATING PARTNERSHIP. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING
PARTNERSHIP SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

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

UNTIL DECEMBER 24, 1999 (ONE YEAR AFTER THE DATE OF THIS EXCHANGE OFFER)
ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUEST FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:

THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE MANHATTAN BANK & TRUST
COMPANY NATIONAL ASSOCIATION
C/O CHASE BANK TEXAS
1 MAIN PLACE
1201 MAIN STREET
DALLAS, TEXAS 75202
ATTN: FRANK IVINS

FACSIMILE TRANSMISSIONS
(ELIGIBLE INSTITUTIONS ONLY)
(214) 672-5932
------------------------
TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
(214) 672-5678
------------------------
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)

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OFFER TO EXCHANGE
ALL OUTSTANDING
7 5/8% SERIES A REDEEMABLE
NOTES DUE 2005
($150,000,000 PRINCIPAL AMOUNT)
FOR
7 5/8% SERIES B REDEEMABLE
NOTES DUE 2005

GLENBOROUGH PROPERTIES, L.P.
---------------------------
PROSPECTUS
---------------------------
DATED NOVEMBER 12, 1998
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