SL GREEN REALTY CORP, 10-K405/A, 1999-09-28

SL GREEN REALTY CORP
10-K405/A, 1999-09-28
OPERATORS OF NONRESIDENTIAL BUILDINGS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A Amendment No. 2

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

For the fiscal year ended December 31, 1997

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

For the transition period from ____ to _____.

Commission File No. 1-13199

SL GREEN REALTY CORP.
(Exact name of registrant as specified in its charter)

Maryland 13-3956755
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

420 Lexinton Avenue, New York, New York 10170
(Address of principal executive offices - zip code)

(212) 594-2700
(Registrant's telephone number, including area code)

70 West 36th Street, New York, New York 10018-8007
(Former Address of Principal Executive Offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class Name of Each Exchange on Which Registered
Common Stock $.01 par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

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

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

As of March 26, 1998, there were 12,292,311 shares of the Registrant's common
stock outstanding. The aggregate market value of common stock held by
non-affiliates of the Registrant (11,700,601 shares) at March 2, 1998, was
approximately $292,515,025. The aggregate market value was calculated by using
the closing price of the stock as of that date on the New York Stock Exchange.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Stockholders'
Meeting to be held May 28, 1998 are incorporated by reference into Part III.

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SL GREEN REALTY CORP.

FORM 10-K/A REPORT INDEX

10-K PART AND ITEM NO. PAGE
- ---------------------- ----

PART I

1. BUSINESS ................................................................. 3
2. PROPERTIES ............................................................... 10
3. LEGAL PROCEEDINGS ........................................................ 25
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...................... 26

PART II

5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..... 27
6. SELECTED FINANCIAL DATA .................................................. 27
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ............................................................ 30
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................. 36
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ..................................................... 81

PART III

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...................... 81
11. EXECUTIVE COMPENSATION .................................................. 81
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .......... 81
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................... 81

PART IV

14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K ... 81

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The "Company" means SL Green Realty Corp., a Maryland corporation, and one or
more of its subsidiaries (including SL Green Operating Partnership, L.P.), and
the predecessors thereof (the "SL Green Predecessor") or, as the context may
require, SL Green Realty Corp. only or SL Green Operating Partnership, L.P. only
and (ii) "Stephen L. Green Properties" means SL Green Properties, Inc., a New
York corporation, as well as the affiliated partnerships and other entities
through which Stephen L. Green has historically conducted commercial real estate
activities.

INFORMATION CONTAINED IN THIS FINANCIAL REPORT CONTAINS "FORWARD-LOOKING
STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE
AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE"
OR "FACTORS THAT MAY INFLUENCE RESULTS AND ACCURACY OF FORWARD LOOKING
STATEMENTS" AND ELSEWHERE IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS.

PART I
ITEM 1. BUSINESS

GENERAL

The Company is a self-managed Real Estate Investment Trust ("REIT") within
those capabilities in property management, development, construction and leasing
and was formed in June 1997 for the purpose of continuing the commercial real
estate business of Stephen L. Green Properties. For more than 18 years, Stephen
L. Green Properties has been engaged in the business of owning, managing,
leasing, acquiring and repositioning Class B office properties in Manhattan. As
of December 31, 1997, the Company owned interests in 12 Class B commercial
properties encompassing approximately 3.3 million rentable square feet located
primarily in midtown Manhattan (the "Properties"). The Company's wholly-owned
interests in these properties represent fee ownership (8, including ownership in
condominum units and a co-tenancy agreement at 17 Battery Place for 811,000
square feet (67% of the total square feet), holder of first mortgage (2),
leasehold ownership (2). The ownership in the first mortgages provides for
substantially all of the economic interest in the properties and the Company has
the sole right to purchase the related fee interests and, accordingly, the
Company has accounts for the investments and ownership interests in the
properties. As of December 31, 1997, the weighted average occupancy (total
occupied square feet divided by total available square feet) of the Properties
was 94%. In addition, the Company continues to manage 12 office properties owned
by third-parties and affiliated companies encompassing approximately 3.1 million
rentable square feet.

Stephen L. Green Properties was founded in 1980 by Stephen L. Green, its
Chairman, President and Chief Executive Officer. Since that time, Stephen L.
Green Properties became a full service, fully integrated real estate company.
Prior to the Company's Initial Public Offering (the "Offering" or "IPO") in
August 1997, SL Green had been involved in the acquisition of 31 Class B office
properties in Manhattan containing approximately four million square feet and
the management of 50 Class B office properties in Manhattan containing
approximately 10.5 million square feet.

There are numerous office properties that compete with the Company in
attracting tenants and numerous companies that compete in selecting properties
for acquisition.

The Company's corporate offices are located in midtown Manhattan. The
Company's corporate staff consists of 64 persons, including 40 professionals
experienced in all aspects of commercial real estate. The Company's Corporate
offices are located at 70 West 36th Street, New York, New York 10018. The
Company can be contacted at (212) 594-2700 or by email at [email protected].

The Company's primary business objective is to maximize total return to
shareholders through growth in distributable cash flow and appreciation in the
value of its assets. The Company plans to achieve this objective by capitalizing
on the external and internal growth opportunities described below and continuing
the operating strategies historically practiced by Stephen L. Green Properties.

Formation and Initial Public Offering

In connection with the Company's IPO the Operating Partnership received a
contribution of interests in the real estate properties as well as 95% of the
economic non-voting interest in the management, leasing and construction

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companies (the "Service Corporations"). The Company is organized so as to
qualify and will elect to qualify as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended; and operates as a fully
integrated, self-administered, self-managed REIT.

The authorized capital stock of the Company consists of 200 million shares
of capital stock, $.01 par value, of which the Company has authorized the
issuance of up to 100 million shares of Common Stock, $.01 par value per share,
75 million shares of Excess Stock, at $.01 par value per share, and 25 million
shares of Preferred Stock, par value $.01 per share. On August 20, 1997, the
Company issued 11.615 million shares of its Common Stock (including the
underwriters' over-allotment option of 1.52 million shares) to the public
through the Offering. Concurrent with the consummation of the Offering, the
Company issued 38,094 shares of restricted common stock pursuant to stock loans
and 85,600 shares of restricted common stock to a financial advisor. In
addition, the Company previously issued to its executive officers approximately
553,616 shares, as founders' shares. As of December 31, 1997, no shares of
Excess Stock or Preferred Stock are issued and outstanding.

Concurrent with the consummation of the Offering, the Company and the
Operating Partnership, together with the partners and members of affiliated
partnerships of the SL Green Predecessor and other parties which held ownership
interests in the properties contributed to the Operating Partnership
(collectively, the "Participants"), engaged in certain Formation Transactions
(the "Formation Transactions").

The net cash proceeds received by the Company from the Offering (after
deducting underwriting discounts) was $228.7 million. The Company utilized
approximately $42.6 million of the Offering proceeds to repay mortgage
indebtedness encumbering the properties, including $1.5 million for prepayment
penalties and other financing fees and expenses, approximately $6.6 million to
purchase the direct or indirect interests of certain participants in the
properties, approximately $95.5 million to acquire properties, approximately
$3.4 million to pay certain expenses incurred in the Formation Transactions,
$35.6 million to repay a loan from Lehman Brothers Holdings, Inc. ("LBHI")
(which included $20 million to repay a loan that was made to Green Realty LLC,
indirectly owned by Stephen L. Green), $1.8 million to fund the advisory fee
payment to Lehman Brothers, Inc. and $41.7 million to fund capital expenditures,
general working capital needs and future acquisitions.

At December 31, 1997 the Operating Partnership had 14,675,595 outstanding
partnership units. These outstanding units were the result of (i) 11,615,000
units issued to the Company in exchange for the net proceeds from the Company's
initial public offering of 11,615,000 common shares, (ii) 2,383,284 units
representing 16.2% of the total units outstanding were issued for the
contribution of interests in the properties owned by Stephen L. Green Properties
immediately prior to the IPO and 100% (representing 95% of the economic
interest) of the non-voting common stock of the Service Corporations and (iii)
the issuance of 677,311 units underlying common shares of the Company previously
issued to management and a Company financial advisor. The Company's management
and continuing investors own 2,974,994 units and common stock or 20.2% of the
common equity.

Substantially all of the Company's assets are held by, and all of its
operations are conducted through, the Operating Partnership, a Delaware limited
partnership. All of the management and leasing operations with respect to the
Properties and properties to be acquired by the Company, as well as leasing
operations with respect to a portion of the properties not owned by the Company,
is conducted through the Management L.L.C. The Operating Partnership owns a 100%
interest in the Management L.L.C. The Company is the sole managing general
partner of the Operating Partnership. Pursuant to the terms of the Operating
Partnership's partnership agreement, the Units issued to the Company's
management and continuing investors at the IPO may not, for up to two years from
the IPO date, transfer any of their rights or redeem their Units as a limited
partner without the consent of the Company.

The Service Corporations. In order to maintain the Company's qualification
as a REIT while realizing income from management, leasing, tenant representation
and construction contracts with third parties, all of these service operations
with respect to properties in which the Company will not own 100% of the
interest are conducted through these Corporations. The Company, through the
Operating Partnership, owns 100% of the non-voting common stock (representing
95% of the total equity) of the Service Corporations. Through dividends on its
equity interest, the Operating Partnership expects to receive substantially all
of the cash flow from the Service Corporations' operations. All of the voting
common stock of the Corporation's (representing 5% of the total equity) is held
by the Service Corporation L.L.C. This controlling interest give the Service
Corporation L.L.C. the power to elect all directors of the Service Corporation.

MANHATTAN OFFICE MARKET BACKGROUND

The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which are in
good physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Class B office properties can
be distinguished from Class A properties in that Class A properties are
generally newer properties with higher finishes and obtain the highest rental
rates within their markets.

A variety of tenants who do not require, desire or cannot afford Class A
space are attracted to Class B office properties due to their prime locations,
excellent amenities, distinguished architecture and relatively less expensive
rental rates. Class B office space has historically attracted many smaller
growth oriented firms (many of which have fueled the recent growth in the New
York metropolitan economy) and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, "new
media" and publishing industries. In addition, several areas of Manhattan,
including many in which particular trades or industries traditionally
congregate, are dominated by Class B office space and contain no or very limited
Class A office space. Examples of such areas include the Garment District (where
three of

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the Properties are located), the Flatiron District (where one Property is
located), the areas immediately south and north of Houston Street ("Soho" and
"Noho", respectively), Chelsea (where one Property is located), and the area
surrounding the United Nations (where one Property is located). Businesses
significantly concentrated in certain of these areas include those in the
following industries: "new media", garment, apparel, toy, jewelry, interior
decoration, antiques, giftware, and UN-related businesses. The concentration of
businesses creates strong demand for the available Class B office space in those
locations. By way of example, some of the tenants that currently occupy space in
SL Green owned or managed properties include The City of New York, New York
Association of New Americans, Inc., Cowles Business Media, Kallir, Philips, Ross
Inc., NationsBank, MCI International, New York Hospital, Newbridge
Communications, Ross Stores, UNICEF, Bell Atlantic and Dyersburg.

The Company's management team has developed a comprehensive knowledge of
the Manhattan Class B office market, an extensive network of tenant and other
business relationships and experience in acquiring underperforming office
properties and repositioning them into profitable Class B properties through
intensive full service management and leasing efforts.

The Company believes that the continuing recovery of the New York
commercial real estate market from the downturn of the late 1980s and early
1990s creates an attractive environment for owning, operating and acquiring
Class B office properties in Manhattan.

Growth Strategies

The Company seeks to capitalize on current opportunities in the Class B
Manhattan office market through (i) property acquisitions- continuing to acquire
Class B office properties at significant discounts to replacement costs that
provide attractive initial yields and the potential for cash flow growth, (ii)
property repositioning - repositioning acquired properties that are
underperforming through renovations, active management and proactive leasing and
(iii) integrated leasing and property management.

Property Acquisitions. In acquiring properties, the Company believes that
it has the following advantages over its competitors: (i) management's 18 years
of experience as a full service, fully integrated real estate company focused on
the Class B office market in Manhattan, (ii) enhanced access to capital as a
public company, (as compared to the generally fragmented institutional or
venture oriented sources of capital available to non-public ownership companies)
and (iii) the ability to offer tax-advantaged structures to sellers through the
exchange of ownership interests as opposed to solely cash sale transactions. In
addition, the Company may benefit from the recent abolition of the New York
State Real Property Transfer Gains Tax, the reduction in the Federal Capital
Gains Tax and from recent tax law developments reducing the transfer tax rates
applicable to certain REIT acquisition transactions. These previous barriers to
the sale of real property have been greatly reduced or eliminated, making
transactions more economically viable for property sellers.

Property Repositioning. The Company believes that there are a significant
number of potential acquisitions that could greatly benefit from management's
experience in enhancing property cash flow and value by renovating and
repositioning properties to be among the best in their submarkets. Many Class B
buildings are located in or near submarkets which are undergoing major
reinvestment and where the properties in these markets have low vacancy rates.
Featuring unique architectural design, large floor plates or other amenities and
functionally appealing characteristics, reinvestment in these properties poses
an opportunity to the Company to meet market needs.

Leasing and Property Management. The Company seeks to capitalize on
management's extensive knowledge of the Class B Manhattan marketplace and the
needs of the tenants therein by continuing a proactive approach to leasing and
management, which includes (i) the use of in-depth market research, (ii) the
utilization of an extensive network of third-party brokers, (iii) comprehensive
building management analysis and planning and (iv) a commitment to tenant
satisfaction by providing "Class A" tenant services. The Company believes
proactive leasing efforts have contributed to average occupancy rates at the
Properties that are above the market average. In addition, the Company's
commitment to tenant service and satisfaction is evidenced by the Company's and
its predecessor past record of renewal of approximately 75% of the expiring
leases and rentable square footage at the Properties owned and managed by the
Company and its predecessor during the period from January 1, 1994 through
December 31, 1997.

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Recent/ Pending Acquisitions

Since completion of the Offering in August 1997, the Company completed the
acquisition of three additional properties in 1997 for an aggregate purchase
price of approximately $115.0 million. These properties were financed through
excess proceeds form the Company's initial public offering, use of the Company's
revolving line of credit, and additional property level debt. The three
properties have an aggregate rentable area of approximately 1.1 million square
feet.

110 East 42nd Street

On September 16, 1997, the Company acquired the 251,000 square foot
property at 110 East 42nd Street (formerly known as the Bowery Savings Bank),
for a purchase price of $30 million in cash. The property is located directly
across the street from Grand Central Station and was 93% occupied at the time of
acquisition and at December 31, 1997.

17 Battery Place

On December 19, 1997, the Company acquired a majority interest in the
property at 17 Battery Place. The property consists of two buildings. The
Company acquired 100% of the North Tower consisting of 22 floors and 411,000
square feet and 400,000 square feet on 13 floors of the 31 story South Tower
(which contains in total, approximately 811,000 square feet). The Company's
interest in the property is a tenancy in common with another developer (pending
the completion of a condominium declaration which is in process), the other
cotenant is developing the upper floors of the South Tower into a hotel complex.
The real estate interest was acquired for $59 million. At the time of
acquisition the portion of the property acquired by the Company was
approximately 79% leased.

As a part of this acquisition, SL Green extended a $15.5 million mortgage
loan to the developer holding the cotenancy interest in the South Tower.

633 Third Avenue

On December 30, 1997, the Company acquired a condominium interest in the
first floor retail property at 633 Third Avenue. This property consists of
approximately 41,000 square feet and comprises three tenant uses which are
predominately of a retail nature. The property was acquired for $10.5 million
and a post closing reserve of $1.0 million. This reserve may be eliminated under
certain conditions, subject to future potential acquisitions of additional
property from the same seller.

Subsequent Acquisitions

In addition, the Company announced in February 1998 three (3) additional
properties put under contract for purchase at a cost of approximately $176
million. The properties aggregate rentable area is approximately 1.7 million
square feet. The Company closed two of these acquisitions on March 18, 1998 and
the third is expected to close during the second quarter of 1998.

Acquisition of Helmsley Properties

On February 20, 1998 the Company announced it had placed under contract
for purchase of the fee interest in one property (1466 Broadway) and the
operating interest of another property (420 Lexington Avenue, The Graybar
Building) from the Helmsley organization. (together, the "Helmsley Properties").
The Graybar Building is located adjacent to Grand Central Station and
encompasses approximately 1.2 million square feet. 1466 Broadway is located in
the heart of Times Square at 42nd Street and Broadway encompassing approximately
290,000 square feet. The aggregate base purchase price for the two properties is
$142 million. At the time the acquisition was announced, the

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Graybar building was 83% leased and 1466 Broadway was approximately 87% leased.
On March 18, 1998 the Company closed on its purchase of these properties.

Property Under Contract

321 West 44th Street

On January 26, 1998 SL Green announced it had placed under contract a
200,000 square foot office building at 321 West 44th Street. The property was
contracted to be acquired for $17 million in cash and was approximately 96%
leased at the time the acquisition was announced. Closing is anticipated to
occur during the second quarter of 1998.

Acquisition financing for the Helmsley Properties and property under
contract was obtained through a commitment from Lehman Brothers Holdings, Inc.
for a short term Senior Credit loan for up to $275 million. The Company expects
to use these loan proceeds to (i) re-pay the current balance on its line of
credit ($93 million at March 1, 1998), (ii) fund the closing of the announced
acquisitions and (iii) provide for general corporate purposes.

Letters of Intent

In addition to the pending and closed acquisitions discussed above, as of
March 16 the Company has entered into 2 non-binding letters of intent to acquire
four additional properties with an aggregate purchase price of approximately
$116 million and represents approximately 1.0 million rentable square feet. In
accordance with these agreements the Company may advance deposits in the amount
of $2.7 million in one instance and an as yet undertermined amount in the other.
However, in view of the fact that the letters of intent are non-binding and that
the Company has not completed its due diligence investigations with respect to
these acquisitions, the Company cannot predict whether these letters of intent
will lead to definitive agreements or whether the terms of any such definitive
agreements will be the same as the terms contemplated by the letters of intent,
or that these letters will result in actual acquisitions of these properties.

Leasing Activity

Since the Company's IPO 148,000 square feet of tenant space was leased
(85,000) or renewed (63,000). Most significant to note is that during this
period the Company nearly completed the lease up of all of its initial IPO
acquisitions. (50 West 23rd Street, 1140 Avenue of the Americas and 1372
Broadway)

The following represents the change in occupancy rates of the properties
acquired at the IPO date:

Occupancy Percent
August 21, December 31,
---------- ------------
1997 1997

1140 Avenue of the Americas 98% 98%
1372 Broadway 84% 94%
50 West 23rd street 91% 87% (A)
--- ---
89% 93%

(A) The decrease in occupancy is due to a tenant leaving prior to the lease
expiration date. The space was leased to a new tenant in January 1998,
increasing the occupancy to 91% and increasing the weighted average
occupancy rate of these three properties to 94%.

Financing Activity

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less the $140 million which is calculated by several factors including recent
acquisition activity and most recent quarterly property performance. Outstanding
loans under the Credit Facility bear interest at a rate per annum equal to the
London Interbank Offered Rate ("LIBOR") applicable to each interest period plus
130 basis points to 145 basis points per annum. The Credit Facility requires the
Company to comply with certain covenants, including but not limited to,
maintenance of certain financial ratios. At December 31, 1997 the outstanding
amount of indebtedness under the Credit Facility was $76 million, and the
interest rate on such indebtedness was 7.265% per annum. At December 31, 1997
the Company's borrowing availability was $30 million.

On December 30, 1997 the Company entered into a $7 million additional
advance under its existing mortgage loan which is secured by 50 West 23rd
Street. The note bears interest at a rate of LIBOR plus 175 basis points
(7.6875% at December 31, 1997), and can be fixed in the future at 150 basis
points plus the ten year US Treasury Note rate, maturing co-terminously with the
underlying mortgage note when certain income targets are met.

Competition in its Marketplace

All of the Properties are located in highly developed areas of Manhattan
that include a large number of other office properties. Manhattan is by far the
largest office market in the United States and contains more rentable square
feet than the next six largest central business district office markets in the
United States combined. Of the total inventory of 179 million rentable square
feet in Manhattan, approximately 172 million rentable square feet is comprised
of Class B office space and 207 million rentable square feet is comprised of
Class A office space. Many tenants have been attracted to Class B properties in
part because of their relatively less expensive rental rates (as compared to
Class A properties) and the tightening of the Class A office market in midtown
Manhattan. Consequently, an increase in vacancy rates and/or a decrease in
rental rates for Class A office space would likely have an adverse effect on
rental rates for Class B office space. Also, the number of competitive Class B
office properties in Manhattan (some of which are newer and better located)
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge.

In addition, the Company competes with other property owners that have
greater resources than the Company. In particular, although currently no other
publicly traded REITs have been formed solely to own, operate and acquire
Manhattan Class B office properties, the Company may in the future compete with
such other REITs. In addition, the Company may face competition from other real
estate companies (including other REITs that currently invest in markets other
than Manhattan) that have greater financial resources than the Company or that
are willing to acquire properties in transactions which are more highly
leveraged than the Company is willing to undertake. The Company also faces
competition from other real estate companies that provide management leasing and
construction similar to those to be provided by the Service Corporations. In
addition, certain requirements for REIT qualification may in the future limit
the Company's ability to increase operations conducted by the Service
Corporations without jeopardizing the Company's qualifications as a REIT.

Employees

At March 1, 1998, the Company employed approximately 230 employees, over
42 of whom were managers and professionals, approximately 159 of whom were
hourly paid employees involved in building operations and approximately 25 of
whom were clerical, data processing and other administrative employees. There
are currently two collective bargaining agreements relating to 11 of the
Company's properties covering 157 employees of the Company. The Company believes
that its relations with its employees are good.

Environmental Matters

Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with any contamination. In addition, some
environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the release of hazardous substances.
The cost of any required remediation and the owner's liability therefore as to
any property is generally not limited under such enactments and could exceed the
value of the property and/or the aggregate assets of the owner. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. No assurances can be given that (i) a prior owner, operator or
occupant, such as a tenant, did not create a material environmental condition
not known to the Company or SL Green, (ii) a material environmental condition
with respect to any Property does not exist, or (iii) future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liability.

At the time of the IPO, the Company engaged independent environmental
consulting firms to perform Phase I environmental site assessments on the
Properties purchased or contributed in connection with the IPO in order to
assess existing environmental conditions. All of the Phase I assessments were
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the requirements of the American Society for Testing and Materials ("ASTM")
Standard Practice for Phase I Environmental Site Assessments (the "ASTM
Standard"). Under the ASTM Standard, a Phase I environmental site

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assessment consists of a site visit, an historical record review, a review of
regulatory agency data bases and records, interviews, and a report, with the
purpose of identifying potential environmental concerns associated with real
estate. The Phase I assessments conducted at the Properties also addressed
certain issues that were not covered by the ASTM Standard, including asbestos,
radon, lead-based paint and lead in drinking water. These environmental site
assessments did not reveal any known environmental liability that the Company
believes will have a material adverse effect on the Company's financial
condition or results of operations or would represent a material environmental
cost, nor is the Company aware of any such material environmental liability. See
"The Properties-Environmental Matters."

The Company maintains a policy of conducting Phase I site inspections for
all acquisitions. Such reports have been completed at or prior to the
acquisition of all properties acquired since the IPO. These environmental
reports did not reveal any environmental liability that would have a material
adverse effect on the Company or its business.

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ITEM 2. Properties

The Portfolio

General. As of December 31, 1997, the Company owned interests in 12 Class
B office properties encompassing approximately 3.3 million rentable square feet
located primarily in midtown Manhattan. Certain of the Properties include at
least a small amount of retail space on the lower floors, as well as
basement/storage space. One Property (673 First Avenue) includes an underground
parking garage.

The following table sets forth certain information with respect to each of
the Properties as of December 31, 1997:

<TABLE>
<CAPTION>
Annual
Net
Percentage Annualized Effective
of Percentage Rent Rent
Approximate Portfolio of Per Per
Year Rentable Rentable Portfolio Number Leased Leased
Built/ Square Square Percent Annualized Annualized of Square Square
Renovated Submarket Feet Feet Leased Rent(1) Rent Leases Foot(2) Foot(3)
--------- --------- ---- ---- ------ ------- ---- ------ ------- -------
Property
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17 Battery Place.... 1903/1973 World Trade Ctr 811,000 24.5% 79% $13,073,251 18.7% 38 $20.52 $21.23
29 W. 35th Street... 1911/1985 Garment 78,000 2.3 92 1,407,620 2.0 9 19.73 16.22
50 W. 23rd Street... 1892/1992 Chelsea 333,000 10.0 87 5,647,325 8.1 14 19.70 17.19
36 West 44th
Street (5)......... 1922/1985 Rockefeller 165,000(5) 5.0 99 4,559,339(5) 6.5 70 27.95 24.52
Center
70 W. 36th Street... 1923/1994 Garment 151,000 4.5 100 2,850,097 4.1 37 18.88 16.03
110 E. 42nd Street.. 1921/---- Grand Central. 251,000 7.6 92 5,469,318 7.8 32 23.60 23.72
470 Park Avenue Park Avenue
South(4)......... 1912/1994 South/Flatiron 260,000(4) 7.8 99 5,994,254 8.6 27 23.21 19.42
633 Third
Avenue........... 1962/---- Grand Central 41,000 1.2 100 1,030,920 1.5 3 25.38 38.60
673 First Avenue.... 1928/1990 Grand Central 422,000 12.7 100 10,912,914 15.6 15 25.86 21.79
South
1140 Avenue of the Rockefeller
Americas......... 1926/1951 Center 191,000 5.8 99 5,035,238 7.2 41 26.64 24.70
1372 Broadway (7)... 1914/1985 Garment 508,000 15.3 92 10,375,221 14.9 32 22.26 21.13
1414 Avenue of the Rockefeller
Americas......... 1923/1990 Center 111,000 3.3 99 3,409,628 5.0 32 30.98 30.97
------------------------------------------------------------------------------------
Total/Weighted
Average 3,322,000(6) 100.0% 94% $69,765,126 100.0% 349 $23.05 $21.91
</TABLE>

- ----------

(1) Annualized Rent represents the monthly contractual rent under existing
leases as of December 31, 1997 multiplied by 12. This amount reflects
total rent before any rent abatements and includes expense reimbursements,
which may be estimated as of such date. Total rent abatements for leases
in effect as of 1997 for the 12 months ended December 31, 1998 are
approximately $888,000.

(2) Annualized Rent Per Leased Square Foot, represents Annualized Rent, as
described in footnote (1) above, presented on a per leased square foot
basis.

(3) Annual Net Effective Rent Per Leased Square Foot represents (a) for leases
in effect at the time an interest in the relevant property was first
acquired by SL Green, the remaining lease payments under the lease
(excluding "free rent" and operating expense pass-throughs, if any)
divided by the number of months remaining under the lease multiplied by 12
and (b) for leases entered into after an interest in the relevant property
was first acquired by SL Green or the Company, all lease payments under
the lease (excluding "free rent" and operating expense pass-throughs, if
any) divided by the number of months in the lease multiplied by 12, and,
in the case of both (a) and (b), minus tenant improvement costs and
leasing commissions, if any, paid or payable by SL Green or the Company
and presented on a per leased

11
<PAGE>

square foot basis. Annual Net Effective Rent Per Leased Square Foot
includes future contractual increases in rental payments and therefore, in
certain cases, may exceed Annualized Rent Per Leased Square Foot.

(4) 470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story office building) and 470 Park Avenue South (a 12-story office
building).

(5) The 36 West 44th Street is comprised of two buildings, 36 West 44th Street
(a 14-story building) and 35 West 43rd Street (a four-story building). The
Company acquired the first mortgage related to the property in June 1997
which provides for substantially all of the economic interest in the
property and has the sole right to purchase the fee interest; accordingly,
the Company accounted for the 36 West 44th investment as an ownership
interest in the property.

(6) Includes approximately 3,037,000 square feet of rentable office space,
255,000 square feet of rentable retail space and 30,000 square feet of
garage space.

(7) The Company acquired the first mortgage related to the property in August
1997 which provides for substantially all of the economic interest in the
property and has the sole right to purchase the fee interest; accordingly,
the Company has accounted for the 1372 Broadway investment as ownership
interest in the property. The Company purchased the fee interest in
January 1998.

Historical Occupancy. The Company has historically achieved consistently higher
occupancy rates in comparison to the overall Class B Midtown Markets, as shown
in the following table:

Occupancy Rate of Class B
Percent Office Properties
Leased at the in the Midtown
Properties (1) Markets (2)
-------------- -----------

December 31, 1997..................... 94 90%
December 31, 1996..................... 95 89
December 31, 1995..................... 95 87
December 31, 1994..................... 98 86
December 31, 1993..................... 96 84

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

(1) Includes space for leases that were executed as of the relevant date in
Properties owned by the Company or Stephen L. Green Properties as of that
date.

(2) Includes vacant space available for direct lease, but does not include
vacant space available for sublease; including vacant space available for
sublease would reduce the occupancy rate as of each date shown. Sources:
RELocate, Rosen Consulting Group.

Lease Expirations. Leases at the Properties, as at many other Manhattan office
properties, typically extend for a term of ten or more years, compared to
typical lease terms of 5-10 years in other large U.S. office markets. From
January 1, 1994 through December 31, 1997, the Company or its predecessor
renewed approximately 75% of the leases scheduled to expire at the Properties
owned and managed by the Company or its predecessor during such period,
constituting renewal of approximately 75% of the expiring rentable square
footage during such period. Through December 31, 2002, the average annual
rollover at the Properties is approximately 195,425 square feet, representing an
average annual expiration of 5.9% of the total leased square feet at the
properties per year (assuming no tenants exercise renewal or cancellation
options and no tenant bankruptcies or other tenant defaults).
<PAGE>

The following table sets out a schedule of the annual lease expirations at
the properties with respect to leases in place as of December 31, 1997 for each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):

<TABLE>
<CAPTION>
Annualized
Rent
Percentage Per
Square of Annualized Leased
Number Footage Total Rent Square
of of Leased of Foot of
Expiring Expiring Square Expiring Expiring
Year of Lease Expiration Leases Leases Feet Leases(1) Leases (2)
- ------------------------ ------ ------ ---- --------- ----------
<S> <C> <C> <C> <C> <C>
1998...................... 50 197,898 6.54% $5,071,810 $25.63
1999...................... 41 183,900 6.08% 4,598,555 25.01
2000...................... 48 204,476 6.76% 5,382,213 26.32
2001...................... 40 148,261 4.90% 3,535,839 23.85
2002...................... 46 304,062 10.04% 6,632,543 21.81
2003...................... 29 276,328 9.13% 6,809,524 24.64
2004...................... 25 388,390 12.83% 8,977,707 23.12
2005...................... 18 377,372 12.47% 8,610,928 22.82
2006...................... 16 196,776 6.50% 4,904,811 24.93
2007...................... 18 431,792 14.26% 8,789,548 20.36
2008 & thereafter......... 18 317,755 10.50% 6,451,648 20.30
----------------------------------------------------------
Total/weighted
average........... 349 3,027,010 100.0% $69,765,126 $23.05
==========================================================
</TABLE>

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

(1) Annualized Rent of Expiring Leases, as used throughout this report,
represents the monthly contractual rent under existing leases as of
December 31, 1997 multiplied by 12. This amount reflects total rent before
any rent abatements and includes expense reimbursements, which may be
estimated as of such date. Total rent abatements for leases in effect as
of December 31, 1997 for the 12 months ending December 31, 1998 are
approximately $888,000.

(2) Annualized Rent Per Leased Square Foot of Expiring Leases, as used
throughout this report, represents Annualized Rent of Expiring Leases, as
described in footnote (1) above, presented on a per leased square foot
basis.
<PAGE>

Tenant Diversification. The properties currently are leased to approximately 350
tenants which are engaged in a variety of businesses, including publishing,
health services, retailing and banking. The following table sets forth
information regarding the leases with respect to the 15 largest tenants at the
properties based on the amount of square footage leased by such tenants as of
December 31, 1997:

<TABLE>
<CAPTION>
Percentage
of Percentage
Aggregate of
Portfolio Aggregate
Remaining Leased Portfolio
Lease Term Total Leased Square Annualized Annualized
Tenant(1) Properties in Months Square Feet Feet Rent Rent
- --------- ---------- --------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
City Of New York............. 17 Battery Place 120 295,371 9.76% $5,614,655 8.05%
NYANA........................ 17 Battery Place 60 132,306 4.37% 2,710,544 3.89%
Greenpoint Savings Bank(2)... 110 East 42nd Street 35 109,939 3.63% 2,569,898 3.68%
Kallir, Philips & Ross....... 673 First Avenue 78 80,000 2.64% 1,911,453 2.74%
UNICEF....................... 673 First Avenue 72 80,000 2.64% 2,165,092 3.10%
New York Pres. Hospital...... 673 First Avenue 104 76,000 2.51% 1,906,829 2.73%
Gibbs & Cox.................. 50 West 23rd Street 92 71,200 2.35% 1,591,802 2.28%
Capital-Mercury.............. 1372 Broadway 91 64,122 2.12% 1,292,732 1.85%
Board Of Education of the
City of New York.......... 50 West 23rd Street 150 64,000 2.11% 700,000 1.00%
Ann Taylor................... 1372 Broadway 151 58,975 1.95% 1,169,118 1.68%
Nations Bank................. 1372 Broadway 27 55,238 1.82% 1,364,343 1.96%
Vollmer Associates........... 50 West 23rd Street 90 53,577 1.77% 1,307,501 1.87%
Ross Stores.................. 1372 Broadway 113 50,599 1.67% 973,760 1.40%
Newbridge Communications..... 673 First Avenue 94 49,000 1.62% 1,455,930 2.09%
---------------------------------------------------
McMillan Book Club........... 673 First Avenue 94 40,000 1.32% 1,198,398 1.72%
---------------------------------------------------

TOTAL/Weighted Average(3).... 1,280,327 42.30% $27,932,055 40.04%
=========== ===========
</TABLE>

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

(1) This list is not intended to be representative of the Company's tenants as
a whole.

(2) 76,241 square feet expires September 1998, 17,842 square feet expires
December 1999, 15,856 square feet expires December 2003.

(3) Weighted average calculation based on total rentable square footage leased
by each tenant.
<PAGE>

The following properties represent properties owned by the Company and
comprise greater than 10% of the Company's assets at December 31, 1997 or 10% of
the Company rental revenue for the period August 14, 1997 (inception) through
December 31, 1997:

673 First Avenue

673 First Avenue is a 12-story office building that occupies the entire
block front on the west side of First Avenue between East 38th Street and East
39th Street in the Grand Central South submarket of the Manhattan office market.
673 First Avenue contains approximately 422,000 rentable square feet (including
approximately 366,000 square feet of office space, 26,000 square feet of retail
space and a 30,000 square foot garage), with floor plates of approximately
40,000 square feet on all but the top two floors. The building, located three
blocks from the United Nations, was completed in 1928 and converted from a
warehouse/distribution facility to an office building by the Company's
Predecessor in 1989 and 1990. The Company holds a net leasehold interest (which
expires in 2037) in the Property and a ground leasehold interest (which expires
in 2037) in the land underlying the Property.

At 673 First Avenue, the Company's Predecessor converted a distribution
and warehouse facility into an office property to take advantage of desirable
40,000 square foot floor plates and a strategic location near the United Nations
complex. To accomplish the repositioning, the Company's Predecessor invested
approximately $25 million in the Property for (i) new building entrance, lobby
and storefronts, (ii) complete replacement of the elevator systems, (iii) the
creation of common areas, (iv) entirely reconfigured HVAC and electrical systems
and (v) the build-out of tenant spaces. The repositioning resulted in the
conversion of a 43% occupied warehouse/distribution facility into a 100%
occupied Class B office building within 24 months. The Property's net operating
income (NOI) increased dramatically from approximately $466,000 per annum upon
acquisition to approximately $7.6 million per annum following repositioning and
lease-up (exclusive of net lease payments and debt service payments).

As of December 31, 1997, 100% of the rentable office and retail square
footage in 673 First Avenue was leased. The following table sets forth certain
information with respect to the Property:

Annualized
Rent per Leased
Year-End Percent Leased Square Foot
- -------- -------------- -----------

1997.......................................... 100 $25.86
1996.......................................... 100 25.12
1995.......................................... 97 24.83
1994.......................................... 100 23.83
1993.......................................... 100 23.48
<PAGE>

As of December 31, 1997, 673 First Avenue was leased to 15 tenants
operating in various industries, including healthcare, advertising and
publishing, three of whom occupied 10% or more of the rentable square footage at
the Property. A major New York City hospital occupied approximately 76,000
square feet (approximately 18% of the Property) under two leases expiring on
August 31, 2006, that provide for an aggregate annualized base rent as of
December 31, 1997 of approximately $1.9 million (approximately $25.00 per square
foot) and renewal options for five years on the two direct leases. In addition,
such tenant occupies an additional 65,000 square feet under two subleases, one
expiring on December 31, 2003 and the other expiring on December 31, 2004. In
addition to annualized base rent, this tenant pays real estate tax escalations
and operating escalations in excess of a base year amount.

In addition, an advertising firm occupied approximately 80,000 square feet
(approximately 19% of the Property) under a lease expiring on June 30, 2004 that
provides for annualized base rent as of December 31, 1997 of approximately $1.76
million (approximately $22.00 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.

Also, a publishing company occupied approximately 49,000 square feet
(approximately 11.6% of the Property) under two leases expiring on October 31,
2005 that provide for an aggregate annualized base rent as of December 31, 1997
of approximately $1.37 million (approximately $28.00 per square foot). In
addition, such tenant occupies an additional 13,000 square feet under a sublease
expiring on April 30, 2004. In addition to annualized base rent, this tenant
pays real estate tax escalations and operating escalations in excess of a base
year payment.

The following table sets out a schedule of the annual lease expirations at
673 First Avenue for leases executed as of December 31, 1997 with respect to
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
<PAGE>

<TABLE>
<CAPTION>
Annualized
Square Percentage Annualized Rent Per
Number Footage of Rent Leased
of of Total of Square Foot of
Expiring Expiring Leased Square Expiring Expiring
Year of Lease Expiration Leases Leases Feet Leases Leases
- ------------------------ ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
1998 ............................ -- -- -- -- --
1999 ............................ 1 1,018 0.2% $ 10,180 $ 10.00
2000 ............................ 1 100 -- 46,434 464.34(1)
2001 ............................ -- -- -- -- --
2002 ............................ 1 1,046 0.2 22,835 21.83
2003 ............................ 2 80,300 19.1 2,309,628 28.76
2004 ............................ 6 203,944 48.3 4,895,944 24.01
2005 ............................ 1 49,000 11.7 1,455,931 29.71
2006 ............................ 1 76,000 18.0 1,906,829 25.09
2007 ............................ -- -- -- -- --
2008 and thereafter ............. 2 10,659 2.5 265,134 24.87
---------------------------------------------------------
SUBTOTAL/WEIGHTED AVERAGE ....... 15 422,067 100.0% $10,912,915 $ 25.86
Unleased at December 31, 1997 ... -- --
----------------------
TOTAL ..................... 422,067 100.0%
======================
</TABLE>

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

(1) These rental rates reflect the lease of approximately 100 square feet of
roof and office space at the Property for the placement of cellular
telephone antennas and equipment.

The aggregate undepreciated tax basis of depreciable real property at 673
First Avenue for Federal income tax purposes was $19,193,732 as of December 31,
1997. Depreciation and amortization are computed for Federal income tax purposes
on the straight-line method over lives which range up to 39 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. The total annual tax for 673 First Avenue at
this rate for the 1997-98 tax year is $1,236,756 (at a taxable assessed value of
$12,168,000).

470 Park Avenue South

470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story building) and 470 Park Avenue South (a 12-story building), that
occupy the entire blockfront on the west side of Park Avenue South between East
31st and East 32nd Streets in the Park Avenue South/Flatiron submarket of the
Manhattan office market. The buildings are joined together by a single lobby and
common base building systems. 468 Park Avenue South was
<PAGE>

completed in 1912 and 470 Park Avenue South was completed in 1917. Various
portions of the common areas of both buildings were substantially renovated in
1987, 1990 and 1994. The Company owns a 100% fee simple interest in this
Property. The Property contains an aggregate of approximately 260,000 rentable
square feet (including approximately 232,000 square feet of office space and
approximately 28,000 square feet of retail space), with floor plates of
approximately 8,400 square feet in the 468 building and floor plates of
approximately 9,735 square feet in the 470 building.

As of December 31, 1997, 99% of the rentable square footage in 470 Park
Avenue South was leased (including space for leases that were executed as of
December 31, 1997). The office space was 99% leased and the retail space was
100% leased. The following table sets forth certain information with respect to
the Property:

Annualized Rent
Per Leased
Year-End Percent Leased Square Foot
- -------- -------------- -----------

1997........................................... 99 $23.21
1996........................................... 95 21.93
1995........................................... 93 21.79
1994........................................... 99 21.23
1993........................................... 98 21.15

As of December 31, 1997, 470 Park Avenue South was leased to 27 tenants
operating in various industries, including financial services, publishing and
general contracting, one of whom leased 10% or more of the Property's rentable
square feet. A general contractor occupied approximately 27,870 square feet
(approximately 11% of the Property) under a lease expiring on December 31, 2009
that provides for annualized base rent as of December 31, 1997 of approximately
$621,000 (approximately $22.28 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
<PAGE>

The following table sets out a schedule of the annual lease expirations at
470 Park Avenue South with respect to leases executed as of December 31, 1997
for each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):

<TABLE>
<CAPTION>
Annualized
Percentage Rent Per
Square of Annualized Leased
Number Footage Total Rent Square
of of Leased of Foot of
Expiring Expiring Square Expiring Expiring
Year of Lease Expiration Leases Leases Foot Leases Leases
- ------------------------ ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
1998........................ 1 2,400 0.9% $54,000 $22.50
1999........................ 3 18,800 7.2 447,793 23.82
2000........................ 2 18,135 7.0 455,438 25.11
2001........................ 3 19,271 7.4 483,753 25.10
2002........................ 6 53,520 20.6 1,219,558 22.79
2003........................ 5 61,062 23.5 1,345,941 22.04
2004........................ 2 18,364 7.1 330,707 18.01
2005........................ 1 9,735 3.7 198,096 20.35
2006........................ 2 26,135 10.1 667,166 25.53
2007........................ 1 3,000 1.2 156,000 52.00
2008 and thereafter......... 1 27,870 10.7 635,802 22.81
--------------------------------------------------
SUBTOTAL/
WEIGHTED AVERAGE............ 27 258,292 99.4% $5,994,254 $23.21
============
Unleased at
December 31, 1997........ 1,637 0.6%
--------------------
TOTAL................. 259,929 100.0%
====================
</TABLE>

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

In 1987, 1990 and 1994, 470 Park Avenue South was substantially renovated
by the Company's predecessor to upgrade the building's amenities and services to
accommodate first class office use. The renovations were completed at a total
cost of approximately $2.6 million and included a significant restoration of the
exterior of the building, a new lobby, a cosmetic upgrade of the elevator cabs,
modernization of the elevator machinery, new plumbing risers, electrical service
upgrades, heating plant replacement, asbestos abatement, installation of a new
roofing system and new windows and replacement of the bathrooms and HVAC systems
on a floor by floor basis.

The aggregate undepreciated tax basis of depreciable real property at 470
Park Avenue South for Federal income tax purposes was $15,283,589 as of December
31, 1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
<PAGE>

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. The total annual tax for 470 Park Avenue
South at this rate for the 1997-98 tax year is $654,053 (at an assessed value of
$6,435,000).

1372 Broadway

1372 Broadway is a 21-story office building located on the northeast
corner of West 37th Street in the Garment submarket of the Manhattan office
market. The building, situated within four blocks of the Port Authority Bus
Terminal and Penn Station, was completed in 1914 and a renovation commenced in
the fall of 1997. The Property contains approximately 508,000 rentable square
feet (including approximately 475,000 square feet of office space, approximately
24,000 square feet of retail space and 9,000 square feet of mezzanine space),
with floor plates ranging from 34,000 square feet to 11,000 square feet.

The Property is located within five blocks of Times Square has undergone
large-scale redevelopment in recent years.

The Company has commenced a $2.0 million capital improvement program
geared toward enhancing the infrastructure and marketability of the Property.
Included in this renovation is a new lobby, elevator cab modernization, freight
elevator upgrade, facade restoration and cleaning, sidewalk replacement and
asbestos abatement. Through the repositioning efforts of the Company, the
Property was 96% leased as of March 31, 1998.

As of December 31, 1997, approximately 92% of the rentable square footage
in 1372 Broadway was leased. The office space was 86% leased and the retail and
mezzanine space were 100% leased. The following table sets forth certain
information with respect to the Property:

Annualized
Rent
Per Leased
Year-End Percent Leased Square Foot
- -------- -------------- -----------

1997............................................... 92 $22.26
1996............................................... 89 22.05

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

As of December 31, 1997, 1372 Broadway was leased to 32 tenants operating
in various industries including financial services, textiles and retailing,
three of whom occupied 10% or more of the rentable square footage at the
Property. A shirt manufacturer occupied approximately 64,000 square feet
(approximately 12.6% of the Property) under a lease expiring on July 31, 2005
that provides for annualized base rent as of December 31, 1997 of approximately
$1.28 million (approximately $20.00 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.

Also, a women's fashion retailer occupied approximately 58,975 square feet
(approximately 11.6% of the Property) under a lease expiring on July 31, 2010
that provides for annualized base rent as of December 31, 1997 of approximately
$1.17 million (approximately $19.84 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
<PAGE>

In addition, a commercial bank occupied approximately 55,238 square feet
(approximately 10.9% of the Property) under a lease expiring on March 31, 2000
that provides for annualized base rent as of December 31, 1997 of approximately
$1.24 million (approximately $22.45 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.

In addition, a department store buying office occupied approximately
50,599 square feet (approximately 10.0% of the Property) under a lease expiring
on May 31, 2007 that provides for annualized base rent as of December 31, 1997
of approximately $954,000 (approximately $18.86 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.

The following table sets out a schedule of the annual lease expirations at
1372 Broadway with respect to leases executed as of December 31, 1997 for each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):

<TABLE>
<CAPTION>
Annualized
Square Percentage Annualized Rent Per
Number Footage of Rent Leased
of of Total of Square Foot of
Expiring Expiring Leased Square Expiring Expiring
Year of Lease Expiration Leases Leases Feet Leases Leases (1)
- ------------------------ ------ ------ ---- ------ ----------
<S> <C> <C> <C> <C> <C>
1998.......................... 2 2,847 0.6% $138,555 $48.67
1999.......................... 5 5,276 1.0 129,686 24.58
2000.......................... 4 76,133 15.0 1,955,175 25.68
2001.......................... - - - - -
2002.......................... 5 33,867 6.7 697,033 20.58
2003.......................... 1 20,500 4.0 429,987 20.97
2004.......................... - - - - -
2005.......................... 2 98,167 19.2 1,871,498 19.06
2006.......................... 3 6,577 1.3 464,415 70.61
2007.......................... 3 68,897 13.6 1,483,964 21.54
2008 and thereafter........... 7 153,812 30.3 3,204,908 20.84
---------------------------------------------------
SUBTOTAL/WEIGHTED AVERAGE..... 32 466,076 91.7% $10,375,221 $22.26
------------
Unleased at 12/31/97.......... 41,924 8.3%
--------------------
TOTAL................... 508,000 100.0%
====================
</TABLE>

- -----------
(1) The Annualized Rent Per Leased Square Foot of Expiring Leases includes the
effect of retail rental rates at this Property, which are generally higher
than office rental rates. Excluding rental payments attributable to retail
space at this Property, the weighted average Annualized Rent Per Leased
Square Foot of Expiring Leases would be $20.34.
<PAGE>

1372 Broadway is located in the Fashion Center Business Improvement
District ("BID"), which encompasses the area bordered to the north and south by
41st Street and 35th Street, respectively, and to the east and west by Avenue of
the Americas and Ninth Avenue, respectively. The BID includes approximately 450
buildings with over 5,000 fashion-related tenants occupying more than 34 million
square feet of office space. The Fashion Center BID provides a private,
uniformed security force for on-street, five-day-per-week surveillance and
response and a private, uniformed sanitation force. In addition, the BID has
been responsible for the implementation of various special projects in the area,
including the construction of handicapped access curbs and the installation of
enhanced street lighting.

The aggregate undepreciated tax basis of depreciable real property at 1372
Broadway for Federal income tax purposes was $52.9 million as of December 31,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. The total annual tax for 1372 Broadway at
this rate for the 1997-98 tax year, including the applicable BID tax, is
$2,277,788 (at an assessed value of $21,793,000).

17 Battery Place

Formerly an option property, the Company purchased a co-tenancy interest
in 17 Battery Place in December 1997. 17 Battery Place is comprised of a 423,000
square foot glass and steel high-rise office structure (the "North Building")
built in approximately 1972 and an 799,000 square foot Beaux Art office building
(the "South Building") constructed in two-phases during the 1910's.

The co-tenancy agreement contemplates the formation of a three unit
condominium. The co-tenancy interest of the Company will be converted to two
units comprising 389,000 square feet in the South Building and 422,000 square
feet in the North Building. It is the current intention of the Company to
complete the condominium organization process in the second quarter of 1998. The
Company anticipates spending approximately $6.0 million on a redevelopment
program which will include a new entrance and modernized lobby, facade repair
and restoration, upgraded air conditioning, fire protection and electrical
systems, and redecorated elevator lobby and corridors.

The interest of the Company in 17 Battery is comprised of a co-tenancy
interest in the co-tenancy that owns the land and building, and a note and
mortgage encumbering the interest of the other co-tenant in the co-tenancy. The
note and mortgage held by the Company are in the principal amount of
$15,500,000. The obligation is due and payable on September 30, 1998. The note
bears interest at 12% per annum. The entire interest obligation through maturity
is cash-collateralized, with the cash collateral held by the Company. At the
acquisition of the Property, a co-tenancy was created between a subsidiary of
the Company and Upper, an arm's length third party. Pursuant to the co-tenancy
agreement, the Company acts as managing and leasing agent for the entire
property. The economic risks and benefits of the lower thirteen (13) floors
(excluding certain portions of the ground floor) of the South Building and the
entire North Building are vested with the Company, and these risks and benefits
for the fourteenth and higher floors (together with certain tenanted areas of
the ground floor) of the south building are vested with Upper.
<PAGE>

Pursuant to the co-tenancy agreement, the Company is restricted from
renting 153,000 rentable square feet of currently vacant space in the portion of
the Property which forms the Company's co-tenancy interest until December 31,
1998, other than to current tenants of the portion of the Property which forms
Upper's co-tenancy interest.

17 Battery Place is located in the re-emerging World Trade/Battery
submarket of downtown Manhattan. The Property contains 811,000 rentable square
feet (including approximately 802,421 square feet of office space and
approximately 8,579 square feet of retail space), with floor plates ranging from
13,325 square feet to 30,740 square feet. Immediately adjacent to the Property
is the Downtown Athletic Club ("DAC"), home of the Heisman Trophy award.
Adjacent to the DAC is a 300,000 square foot rental apartment building
conversion. In addition, the Property offers unobstructed views of New York
Harbor, the Statue of Liberty and Ellis Island.

As of December 31, 1997, approximately 78.6% of the rentable square
footage in 17 Battery Place was leased (including space for leases that were
executed as of December 31, 1997). The office space was 78.4% leased and the
retail space was 100% leased. The following table sets forth certain information
with respect to the Property:

Annualized
Rent per Leased
Year-End Percent Leased Square Foot
- -------- -------------- -----------

1997........................................... 79 $20.52
1996........................................... 80 18.27

As of December 31, 1997, 17 Battery Place was leased to 38 tenants
operating in various industries, including security, not-for-profit and sales
training, two of whom occupied 10% or more of the rentable square footage at the
Property. New York City agencies occupied approximately 288,000 square feet
(approximately 35.5% of the Property) under leases expiring on December 31,
2007, that provide for an aggregate annualized base rent as of December 31, 1997
of approximately $5.6 million (approximately $19.50 per square foot). The tenant
has the right pursuant to these leases to cancel the term upon 270 days prior
notice and payment of a cancellation penalty in the amount of the unamortized
initial leasing costs. In addition to annualized base rent, this tenant pays
real estate tax escalations and operating escalations in excess of a base year
amount.

In addition, a not-for-profit organization occupied approximately 124,000
square feet (approximately 15.3% of the Property) under a lease expiring on
December 31, 2002 that provides for annualized base rent as of December 31, 1997
of approximately $2.6 million (approximately $21.00 per square foot). The tenant
has the right pursuant to the lease to cancel up 99,755 rentable square feet of
the tenancy on six months' prior notice, upon payment of a cancellation penalty
in the amount of the unamortized initial leasing costs for the cancelled space.
In addition to annualized base rent, this tenant pays real estate tax
escalations and operating escalations in excess of a base year amount.
<PAGE>

The following table sets out a schedule of the annual lease expirations at
17 Battery Place with respect to leases executed as of December 31, 1997 for
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):

<TABLE>
<CAPTION>
Annualized
Rent Per
Square Leased Square
Number of Footage of Percentage of Annualized Rent Foot of
Expiring Expiring Total Leased of Expiring Expiring
Year of Lease Expiration Leases Leases Square Feet Leases Leases
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998.......................... 7 17,140 2.1% $321,324 $18.75
1999.......................... 8 56,793 7.0 1,161,576 20.45
2000.......................... 6 9,629 1.2 389,171 40.42
2001.......................... 6 53,761 6.6 1,004,785 18.69
2002.......................... 3 134,654 16.7 2,843,176 21.11
2003.......................... 2 9,493 1.2 295,488 31.13
2004.......................... 1 25,161 3.1 528,381 21.00
2005.......................... 3 39,807 4.9 830,695 20.87
2006.......................... - - - - -
2007.......................... 1 287,931 35.5 5,614,655 19.50
2008 & thereafter............. 1 2,700 0.3 84,000 31.11
--------- ------------
Subtotal/Weighted Average..... 38 637,069 78.6% $13,073,251 $20.52
============
Unleased at 12/31/97.......... 173,747 21.4%
------------------------
Total......................... 810,816 100.0%
========================
</TABLE>

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

The aggregate undepreciated tax basis of depreciable real property at 17
Battery Place for Federal income tax purposes was $58.4 million as of December
31, 1997. Depreciation and amortization are computed on the straight-line method
over 39 years.

The current real estate tax rate for all Manhattan office properties is
$10.164 per $100 of assessed value. The total annual tax for 17 Battery Place at
this rate for the 1997-98 tax year is $2,469,852 (at an assessed value of
$24,300,000), of which the Company is responsible for approximately $2.0 million
pursuant to its co-tenancy interest in the Property.

Environmental Matters

The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties, in order to assess
existing environmental conditions. All of the Phase I assessments have been
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the ASTM Standard. Under the ASTM Standard, a Phase I environmental site
assessment consists of a site visit, an historical record review, a review of
regulatory agency data bases and records, interviews, and a report, with the
purpose of identifying potential environmental concerns associated with real
estate. The Phase I assessments conducted at the Properties also addressed
certain issues that are not covered by the ASTM Standard, including asbestos,
radon, lead-based paint and lead in drinking water. These environmental site
assessments did not reveal any known environmental liability that the Company
believes will have a material adverse effect on the Company's financial
condition or results of operations or would represent a material environmental
cost.

The following summarizes certain environmental issues described in the
Phase I environmental site assessment reports:

The asbestos surveys conducted as part of the Phase I site assessments
identified immaterial amounts of damaged, friable asbestos-containing material
("ACM") in isolated locations in three of the Core Properties (470 Park Avenue
South, 29 West 35th Street and the Bar Building) and in the Acquisition
Properties (1140 Avenue of the Americas and 1372 Broadway). At each of these
Properties, the environmental consultant recommended abatement of the damaged,
friable ACM and this was completed by the Company at each of these properties.
At all of the Properties except 50 West 23rd Street, non-friable ACM, in good
condition, was identified. For each of these Properties, the consultant
recommended preparation and implementation of an asbestos Operations and
Maintenance ("O & M") program, to monitor the condition of ACM and to ensure
that any ACM that becomes friable and damaged is properly addressed and as of
this date the Company has implemented such an Operations and Maintenance
program.

The Phase I environmental site assessments identified minor releases of
petroleum products at the Bar Building and at 70 West 36th Street. The
consultant recommended implementation of certain measures to further
investigate, and to clean up, these releases. The Company does not believe that
any actions that may be required as a result of these releases will have a
material adverse effect on the Company's business.

General Terms of Leases in the Midtown Markets

Leases entered into for space in the Midtown Markets typically contain
terms which may not be contained in leases in other U.S. office markets. The
initial term of leases entered into for space in excess of 10,000 square feet in
the midtown Markets generally is ten to 15 years. The tenant often will
negotiate an option to extend the term of the lease for one or two renewal
periods of five years each. The base rent during the initial term often will
provide for agreed upon increases periodically over the term of the lease. Base
rent for renewal terms, and base rent for the final years of a long-term lease
(in those leases which do not provide an agreed upon rent during such final
years), often is based upon a percentage of the fair market rental value of the
premises (determined by binding arbitration in the event the landlord and the
tenant are unable to mutually agree upon the fair market value) but not less
than the base rent payable at the end of the prior period. Leases typically do
not provide for increases in rent based upon increases in the consumer price
index.

In addition to base rent, the tenant also generally will pay the tenant's
pro rata share of increases in real estate tax and operating expenses for the
building over a base year. In some leases, in lieu of paying additional rent
based upon increases in real estate taxes and building operating expenses, the
tenant will pay additional rent based upon increases in the wage rate paid to
porters over the porters' wage rate in effect during a base year.

Electricity is most often supplied by the landlord either on a submetered
basis or rent inclusion basis (i.e., a fixed rate is included in the rent for
electricity which amount may increase based upon increases in electricity rates
or increases in electrical usage by the tenant). Base building services other
than electricity (such as heat, air-conditioning and freight elevator service
during business hours, and base building cleaning) typically are provided at no
additional cost, with the tenant paying additional rent only for services which
exceed base building services or for services which are provided other than
during normal business hours.

In a typical lease for new tenant, the landlord, at its expense, will
deliver the premises with all existing improvements demolished and any asbestos
abated. The landlord also typically will provide a tenant improvement allowance,
which is a fixed sum which the landlord will make available to the tenant to
reimburse the tenant for all or a portion of the tenant's initial construction
of its premises. Such sum typically is payable as work progresses upon
submission of invoices for the cost of construction. However, in certain leases
(most often for relatively small amounts of space), the landlord will construct
the premises for the tenant.

Mortgage Indebtedness

The Company has outstanding approximately $52.8 million of indebtedness
secured by four of the Properties.

The mortgage notes payable collateralized by the respective Properties and
assignment of leases at December 31, 1997 are as follows:

Property Mortgage Notes Balance
- --------------------- --------------------------------------- -------
(in 000's)
50 West 23rd Street Notes payable to an affiliate of $21,000
Lehman Brothers with interest at a
blended rate of 7.33% as of
December 31, 1997 due December 2007
and August 2007.
29 West 35th Street First mortgage note with interest 2,974
payable at 8.464%, due February 1, 2001
673 First Avenue First mortgage note with interest 18,013
payable at 9.0%, due December 13, 2003
470 Park Avenue South First mortgage note with interest 11,833
payable at 8.25%, due April 1, 2004
-------
Total Mortgage Notes
Payable $52,820
=======

12
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 1997 the Company is not presently involved in any
material litigation nor, to management's knowledge, is any material litigation
threatened against them or their properties other than routine litigation
arising in the ordinary course of business.

13
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders.

14
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock of the Company began trading on the New York Stock
Exchange ("NYSE") on August 15, 1997 under the symbol "SLG". On March 26, 1997,
the reported closing sale price per share of Common Stock on the NYSE was $25.00
and there were approximately 37 holders of record of the Company's Common Stock.
The table below sets forth the quarterly high and low closing sales prices of
the Common Stock on the NYSE and the distributions paid by the Company with
respect to the periods indicated.

HIGH LOW DISTRIBUTIONS
---- --- -------------
Period August 21, 1997 (inception) to September
30, 1997 $25 7/8 $23 1/16 $0.16 (a)

Quarter ended December 31, 1997 $26 15/16 $23 11/16 $0.35 (b)

(a) On November 5, 1997, the Company's Board of Directors declared a $0.16 per
share distribution to stockholders of record on November 17, 1997, and the
distribution was paid November 19, 1997. The distribution was for the
period August 21, 1997 (closing date of the IPO) through September 30,
1997, which is approximately equivalent to a full quarterly distribution
of $0.35 per share of Common Stock and annual distribution of $1.40 per
common share.

(b) The Company's Board of Directors declared a distribution of $0.35 per
share of Common Stock on December 19, 1998. The distribution was to
stockholders of record on December 30, 1997 and was paid January 15, 1998.

UNITS

On August 21, 1997 (closing date of the IPO) the Company had 2,383,284
Operating Partnership Units outstanding. These units received distributions per
unit in the same manner as dividends were distributed per share to common
shareholders. On December 31, 1997 there remained 2,383,284 units outstanding.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the Company,
and on an historical combined basis for the SL Green Predecessor (as defined
below), and should be read in conjunction with the Company's Financial
Statements and notes thereto included in Item 8 on this form 10-K and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The balance sheet information as of December 31, 1997 represented
the consolidated balance sheet of the Company and the statement of income for
the period August 21, 1997 to December 31, 1997 represents consolidated results
of the Company since the IPO. The combined balance sheet information as of
December 31, 1996 and statements of income for the period January 1, 1997 to
August 20, 1997 and for the years ended December 31, 1996, 1995, and 1994 of the
SL Green Predecessor have been derived from the historical combined financial
statements. The operating data for the year ended December 31, 1993 has been
derived from the unaudited combined financial statements of the SL Green
Predecessor. In the opinion of management of the SL Green Predecessor, the
operating data for the year ended December 31, 1993 includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.

The "SL Green Predecessor" consists of the net assets and results of
operations of two Properties, 1414 Avenue of the Americas and 70 West 36th
Street, equity interests in four other Properties, 673 First Avenue, 470 Park
Avenue South, 29 West 35th Street and the Bar Building (which interests are
accounted for under the equity method) and of the net assets and results of
operations of the Company's affiliated service corporations.

15
<PAGE>

The Company and the SL Green Predecessor (Historical)
(In thousands, except for per share data)

<TABLE>
<CAPTION>
Historical
---------------------------------------------------------

Year Ended December 31,
-----------------------
August 21 - January 1 -
December 31, August 20,
1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Total revenue ................ $ 23,207 $ 9,724 $ 10,182 $ 6,564 $ 6,600 $ 5,926
-------- -------- -------- -------- -------- --------

Property operating
expenses ................. 7,077 2,722 3,197 2,505 2,009 1,741
Real estate taxes ............ 3,498 705 703 496 543 592
Interest ..................... 2,135 1,062 1,357 1,212 1,555 1,445
Depreciation and
amortization ............. 2,815 811 975 775 931 850
Marketing, general and
administration ........... 948 2,189 3,250 3,052 2,351 1,790
-------- -------- -------- -------- -------- --------
Total expenses ............... 16,473 7,489 9,482 8,040 7,389 6,418
-------- -------- -------- -------- -------- --------
Operating income (loss) ...... 6,734 2,235 700 (1,476) (789) (492)
Equity in net (loss) from
Service Corp's ............ (101) -- -- -- -- --
Equity in net income (loss) of
uncombined joint ventures -- (770) (1,408) (1,914) (1,423) 88
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
minority interest ........ 6,633 1,465 (708) (3,390) (2,212) (404)
Minority interest ............ (1,074) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item ....... 5,559 1,465 (708) (3,390) (2,212) (404)
Extraordinary item (net of
minority interest) ....... (1,874) 22,087 8,961 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) ............ $ 3,685 $ 23,552 $ 8,253 $ (3,390) $ (2,212) $ (404)
======== ======== ======== ======== ======== ========
Income per share before
extraordinary item (basic
and diluted) (2) ......... $0.45
=====
Net income per share (basic
and diluted) (2) ......... $0.30
=====
Cash dividends declared per
common
share .................... $0.51
=====
Basic weighted average common
shares
outstanding .............. 12,292
========
Diluted weighted average
common share and common
share equivalents
outstanding .............. 12,404
========
</TABLE>

16
<PAGE>

Historical
--------------------------------------
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Unaudited)
Balance Sheet Data:
Commercial real estate,
before accumulated

Depreciation .............. $338,818 $ 26,284 $ 15,559 $ 15,761 $ 15,352

Total assets ................. 382,775 30,072 16,084 15,098 16,218
Mortgages and notes payable .. 128,820 16,610 12,700 12,699 12,698
Accrued interest payable ..... 552 90 2,894 2,032 1,576
Minority interest ............ 33,906 0 0 0 0
Stockholders' Equity/ Owners'
(deficit) ................. 176,208 (8,405) (18,848) (15,521) (13,486)

<TABLE>
<CAPTION>
Historical
---------------------------------------------------------

Year Ended December 31,
-----------------------
August 21 - January 1 -
December 31, August 20,
1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Funds from operations (1) .... $ 9,355 $ -- $ -- $ -- $ -- $ --
Net cash provided by (used in)
operating activities ...... 5,713 2,838 272 (234) 939 --
Net cash provided by financing
activities ................ 224,234 2,782 11,960 63 178 --
Net cash (used in) investing
activities ................ (217,165) (5,559) (12,375) (432) (567) --
</TABLE>

- ----------

(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 defines Funds from Operations as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company computes
Funds from Operations in accordance with standards established by NAREIT which
may not be comparable to Funds from Operations reported by other REITs that do
not define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating

17
<PAGE>

activities in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's liquidity,
nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make cash distributions. For a reconciliation of net
income and Funds from Operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Funds from Operations."

(2) The earnings per share amounts are presented to comply with statement of
Financial Accounting Standards No. 128, Earnings Per Share. For further
discussion of earnings per share and the impact of statement No. 128, see the
notes to the consolidated financial statement in Item 8 beginning on page 36.

18
<PAGE>

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

Overview

This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of historical facts, included
in this report that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), expansion and other development trends of the
real estate industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Any such statements are not guarantees of future performance and
actual results or developments may differ materially from those anticipated in
the forward-looking statements.

The following discussion related to the consolidated financial statements
of the Company and the combined financial statements of SL Green Predecessor
should be read in conjunction with the financial statements appearing in Item 8.
In connection with the Formation Transactions as described in Note 1 to the
financial statements there were significant changes in the financial condition
and results of operations of the Company which are outlined below, consequently,
the comparison of the historical periods provides only limited information
regarding the operations of the Company. Therefore, in addition to the
historical comparison, the Company has provided a comparison of the results of
operations on a pro forma basis.

Results of Operations
(In thousands except percentage data)

Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996

For discussion purposes and to provide comparable periods for analysis,
the following discussion of the results of operations (as presented in Item 8
beginning on page 30) for the year ended December 31, 1997, combines the
operating results of SL Green Predecessor for the period January 1, 1997 to
August 20, 1997 and the operating results of the Company for the period August
21, 1997 to December 31, 1997. Management believes that this provides for more
meaningful analysis of the financial statements to be made. The results of
operations for the year ended December 31, 1996 represent solely the operating
results of the SL Green Predecessor.

Rental revenue and escalation and reimbursement revenue for the year
December 31, 1997 were $27,137, representing an increase of 411% compared to
$5,250 for the year ended December 31, 1996. The increase is primarily
attributable to (i) the Formation Transactions in which three buildings
accounted for on the equity method are consolidated in the financial statements
of the Company for the period August 21, 1997 to December 31, 1997 and three
buildings (50 West 23rd Street, 1140 Avenue of the Americas and 1372 Broadway)
were acquired (ii) the inclusion of revenue from 1414 Avenue of the Americas for
the full year during 1997 as compared to six months (purchased in July 1996)
during 1996, and (iii) the results of 110 East 42nd Street (acquired September
15, 1997) 17 Battery Place (acquired December 19, 1997) and 633 Third Avenue
(acquired December 30, 1997) (collectively the "1997 Acquisitions") are included
in the consolidated financial statements for a portion of the period August 21,
1997 to December 31, 1997 and not included during any portion of 1996.

Management fee income decreased $1,068 for the year ended December 31,
1997 compared to the year ended December 31, 1996 due to (i) lower management
fee revenue being earned in the aggregate $600 and (ii) $500 in management fee
income which was recorded in the Equity Income (loss) from Service Corp's for
the period August 21, 1997 to December 31, 1997. As of the IPO date, all third
party management income and related expense are incurred

19
<PAGE>

on the books of SL Green Management Corp., a 95% owned subsidiary of the
Company. This change in the recognition of income and expense from third party
management business activity was made in order to maintain management fee
revenue in a manner which is consistent with the REIT qualifying income test, as
defined by the IRS.

During the reported periods for the Predecessor Company, management
revenues were earned from affiliated properties in which the Predecessor had an
interest and were not eliminated. The amounts related to these properties are:

1997 (Pre-IPO) $458
1996 447
1995 449

Leasing commission revenues increased $1,576 for year ended December 31,
1997 compared to the year ended December 31, 1996 due to strong leasing activity
in the current market.

Investment income increased $485 for the year ended December 31, 1997
compared to the year ended December 31, 1996 due to interest income earned on
cash on hand. The cash on hand primarily represents excess proceeds from the
Company's Offering on August 21, 1997.

Other income decreased by $107 or 87% to $16 during the year ended
December 31, 1997 compared to $123 during the year ended December 31, 1996,
primarily due to a one-time consulting engagement in 1996.

Prior to the IPO, third party revenues and income were derived from
various management, leasing and construction activities. As part of the
Formation Transactions, to the extent the Company continues to pursue such
business, it will be conducted through separate subsidiaries. The equity income
(loss) from service corp's represents the Company's 95% interest in the net
income or loss derived from these activities. From the period August 21, 1997 to
December 31, 1997 the Company recognized $101 as its share of the loss by these
subsidiaries.

Operating expenses, depreciation and amortization, and real estate taxes
increased $6,602, $2,651 and $3,500, respectively, as compared to the year ended
December 31, 1996. The increase in these expenses are primarily attributable to
(i) the Formation Transactions in which three buildings (50 West 23rd Street,
1140 Avenue of the Americas and 1372 Broadway) were acquired and three buildings
accounted for on the equity method are consolidated in the financial statements
of the Company for the period August 21, 1997 to December 31, 1997, (ii) the
inclusion of expenses from 1414 Avenue of the Americas for the full year during
1997 as compared to six months (purchased July 1996) during 1996, and (iii) the
results of the 1997 Acquisitions included in a portion of 1997 and not included
during any portion of 1996.

Interest expense increased $1,840 for the year ended December 31, 1997 as
compared to the year ended December 31, 1996. The increase is primarily due to
(i) interest expense related to the capitalized lease acquired with a building
previously accounted for under the equity method, (ii) increase of $21,000 in
mortgage debt acquired in August 1997 ($14,000) and December 1997 ($7,000) and
(iii) the borrowing of $76,000 on December 19, 1997 under the Credit Facility to
finance the acquisition of 17 Battery Place.

Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995

Rental revenue increased $1,783, or 73.8%, to $4,199 from $2,416 for the
year ended December 31, 1996 compared to the year ended December 31, 1995. The
increase was due primarily to the acquisition of 1414 Avenue of the Americas
during July 1996 which had rental revenue of $1,612 and increased occupancy.

Escalations and reimbursement revenues increased $293, or 38.6%, to $1,051
from $758 for the year ended December 31, 1995. The acquisition of 1414 Avenue
of the Americas accounted for an increase of $428 which was offset by a decrease
of $166 at 70 West 36th Street due to reduced real estate tax escalations and
porter wage escalation revenue. New leases with more current base years utilized
to calculate the escalations and a reduction in real estate tax expense
accounted for the decreased escalation revenue.

20
<PAGE>

Management revenues remained substantially unchanged with a slight
increase for the year ended December 31, 1996 compared to the year ended
December 31, 1995.

Leasing commission revenues increased $1,475, or 164.4%, to $2,372 from
$897 for the year ended December 31, 1996 compared to the year ended December
31, 1995 due to the addition of several buildings under service contracts and
intensified efforts (prior to the IPO) to perform leasing services for
unaffiliated third parties.

Construction revenue decreased by $132, or 56.7%, to $101 from $233 for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
Overall construction revenue remained constant but a larger amount related to
property-owning partnerships and was eliminated pursuant to the equity method of
accounting.

Other income for the year ended December 31, 1996 was $123 which consisted
of miscellaneous consulting fees and interest.

Share of net loss of uncombined joint ventures decreased $506 or 26.4% to
$1,408 from $1,914 for the year ended December 31, 1996 compared to the year
ended December 31, 1995 as follows:

Increase
Property (Decrease)
- -------- ----------

673 First Avenue......................................... $(392)
470 Park Avenue South.................................... (130)
29 West 35th Street...................................... 22
Bar Building............................................. (6)
--------
$(506)

The decrease in net loss for 673 First Avenue was due primarily to lower
interest expense as a result of mortgage loan principal amortization and lower
amortization expense as a result of deferred leasing commissions written off
during 1995 for a tenant that vacated.

The decrease in net loss for 470 Park Avenue South was due primarily to a
reduction in real estate tax expense as a result of a decrease in assessed
valuation.

The decrease in net income for 29 West 35th Street was due primarily to
reduced rental revenue as a result of a vacancy.

The increase in net income for the Bar Building was due to the acquisition
of an interest in the Property during October 1996.

Operating expenses increased $692, or 27.6%, to $3,197 from $2,505 for the
year ended December 31, 1996 compared to the year ended December 31, 1995 due
substantially to the inclusion of 1414 Avenue of the Americas which was acquired
during July 1996.

Interest expense increased $145 or 12.0%, to $1,357 from $1,212 for the
year ended December 31, 1996 compared to the year ended December 31, 1995. The
inclusion of 1414 Avenue of the Americas accounted for an increase of $445 which
was offset by a decrease of $300 for 70 West 36th Street due to refinancing at a
lower interest rate.

Depreciation and amortization increased $200, or 25.9%, to $975 from $775
for the year ended December 31, 1996 compared to the year ended December 31,
1995. The increase was due primarily to the inclusion of 1414 Avenue of the
Americas.

21
<PAGE>

Real estate taxes increased $207 or 41.7%, to $703 from $496 for the year
ended December 31, 1996 compared to year ended December 31, 1995. The increase
was due to the inclusion of $290 for 1414 Avenue of the Americas offset by a
decrease of $83 for 70 West 36th Street which resulted from a reduction in
property assessment.

Marketing, general and administrative expenses increased $198, or 6.5%, to
$3,250 from $3,052 for the year ended December 31, 1996 compared to the year
ended December 31, 1995, due primarily to staff increases for the corporation
which provided leasing services.

As a result of the foregoing, the loss before extraordinary item decreased
$2,682, or 79.1%, to $708 from $3,390 for the year ended December 31, 1996
compared to the year ended December 31, 1995.

Pro Forma Results Of Operations
(in thousands except percentage data)

Comparison of the year ended December 31, 1997 to the year ended December
31, 1996 are presented as if the Offering and Formation Transactions (see Item-1
General) occurred on January 1, 1996 and the effect thereof was carried forward
through December 31, 1997.

The pro forma results of operations do not purport to represent what the
Company's results would have been assuming the completion of the Formation
Transactions and the Offering at the beginning of the period indicated, nor do
they purport to project the Company's financial results of operations at any
future date or for any future period. The pro forma statements of operations
should be read in conjunction with the pro forma financial statements of the
Company included in the Company's registration statement on Form S-11 dated
August 14, 1997 and the consolidated financial statements of the Company
included elsewhere herein.

Year ended December 31, 1997 compared to year ended December 31, 1996
(in thousands except percentage data)

<TABLE>
<CAPTION>
Year Ended
December 31, Dollar Percent
(Unaudited) Change Change
------------------ -------- -------
1997 1996
<S> <C> <C> <C> <C>
Revenue
Rental revenue ................................... $ 49,472 $ 44,338 $ 5,134 11.6%
Escalations & reimbursement revenues ............. 5,500 6,629 (1,129) 17.0
Leasing commissions .............................. 2,251 1,257 994 79.1
Investment income ................................ 485 20 465 2,325.0
Other income ..................................... 1,676 945 731 77.4
-------- -------- -------- -------
Total revenues ........ 59,384 53,189 6,195 11.7
-------- -------- -------- -------

Equity in net income (loss) of Service Corps 168 (504) 672 --
-------- -------- -------- -------

Expenses
Operating expenses ............................... 13,165 12,299 866 7.0
Ground rent ...................................... 4,297 3,925 372 9.5
Interest ......................................... 5,509 5,858 (349) (6.0)
Depreciation and amortization .................... 7,413 6,979 434 6.2
Real estate taxes ................................ 8,658 8,248 410 5.0
Marketing, general and administrative ............ 2,578 2,643 (65) (2.5)
-------- -------- -------- -------
Total expenses ........ 41,620 39,952 1,668 4.2
-------- -------- -------- -------

Income before minority interest and extraordinary
======== ======== ======== =======
</TABLE>

22
<PAGE>

Rental revenue increased by $5,134 to $49,472 during the year ended
December 31, 1997 as compared to $44,338 for the year ended December 31, 1996.
The increase is primarily due to (i) the inclusion of $1,600 in additional
rental income from 1414 Avenue of the Americas (acquired June 1996) for the full
year 1997 compared to six months during the full year 1996, (ii) the recent 1997
acquisitions of 110 East 42nd Street, 17 Battery Place and 633 Third Avenue (the
"1997 Acquisitions") increased revenue $1,300 and (iii) the remaining increase
is due to re-tenanting and new tenant income generated in 1997.

Escalation and reimbursement revenue decreased $1,129 to $5,500 during the
year ended December 31, 1997 as compared to $6,629 for the year ended December
31, 1996. The decrease is primarily due to the reduction of escalations revenue
in old leases and the reduction of real estate taxes in 1997 compared to 1996 at
certain properties due to the Company's overall program to reduce real estate
tax assessments at the property level.

Leasing commission revenues increased by $944 to $2,251 during the year
ended December 31, 1997 compared to $1,257 for the year ended December 31, 1996.
The increase is primarily due to the maturation of the Company's tenant-rep
business and the generally stronger leasing market during 1997.

Investment income increased by $465 to $485 during the year ended December
31, 1997 compared to $20 for the year ended December 31, 1996. The increase was
due to interest income earned on cash on hand which consists primarily of net
proceeds remaining from the Offering.

Other income increase by $731 to $1,676 during the year ended December 31,
1997 compared to $945 for the year ended December 31, 1996. The increase is due
primarily to a large, non-recurring, tenant lease cancellation income at 1372
Broadway compared to the prior year.

Operating expenses, depreciation and amortization and real estate taxes
increased by $866, $434 and $410, respectively, during the year ended December
31, 1997 as compared to the year ended December 31, 1996. The increases are
primarily due to the full year expense in 1997 for 1414 Avenue of the Americas
(acquired July 1996) and the expense incurred from the 1997 Acquisitions.

The increase in ground rent is primarily due to a reclassification in 1997
between ground rent and interest expense (which had a corresponding decrease).

Liquidity and Capital Resources

The SL Green Predecessor historically relied on mortgage financing plus
the use of its capital for the acquisition, redevelopment and renovation of
properties. The proceeds from the Offering as well as a new mortgage loan in the
amount of $14 million with Lehman Brothers Holdings, Inc. ("LBHI"), which is
secured by 50 West 23rd Street, were utilized to repay existing mortgage loans,
acquire properties, pay Offering and Formation Transaction expenses and provide
working capital. Total mortgage loans including the new mortgage loan amounted
to $45.8 million as a result of the Formation Transactions. All mortgage loans
encumbering the Properties at the time of the IPO closing had fixed interest
rates ranging from 7.47% to 9.0%.

On December 19, 1997 the Company entered into an agreement with LBHI for a
$140 million three year senior unsecured revolving credit facility (the "Credit
Facility") due December 2000. Availability under the Credit Facility may be
limited to an amount less the $140 million which is calculated by several
factors including recent acquisition activity and the most recent quarterly
operating income performance of certain unencumbered properties. Outstanding
loans under the Credit Facility bear interest at a rate per annum equal to the
London Interbank Offered Rate ("LIBOR") applicable to each interest period plus
130 basis points to 145 basis points per annum. The Credit Facility requires the
Company to comply with certain covenants, including but not limited to,
maintenance of certain financial ratios. At December 31, 1997 the outstanding
amount of indebtedness

23
<PAGE>

under the Credit Facility was $76 million, and the interest rate on such
indebtedness was 7.265% per annum. At December 31, 1997 the Company's borrowing
availability was $40 million.

On December 30, 1997 the Company entered into a $7 million additional
advance under its existing mortgage loan with LBHI which is secured by 50 West
23rd Street. The note bears interest at a rate of LIBOR plus 175 basis points
(7.6875% at December 31, 1997), and can be fixed in the future at 150 basis
points plus the ten year US Treasury Note rate and maturing co-terminously with
the underlying mortgage note when certain income targets are met.

At December 31, 1997 the Company's mortgage loans and the outstanding
balance under the Credit Facility represent approximately 25.2% of the Company's
market capitalization based on an estimated total market capitalization (debt
and equity, assuming conversion of all operating partnership units) of $509.2
million (based on a common stock price of $25.938 per share, the closing price
of the Company's common stock on the New York Stock Exchange on December 31,
1997). As a matter of policy, the Company has established a maximum debt to
market cap limit of 50%. This policy can be changed at any time however, by the
Board of Directors. The Company's principal debt amortization is scheduled to be
$1.97 million and $2.23 million for the years ended December 31, 1998 and 1999,
respectively.

Subsequent to December 31, 1997, the Company asked the Credit Facility
banking group to temporarily relieve the Company from its obligations under the
financial covenants of the Credit Facility, in order to close an additional
financing necessary to acquire the Helmsley Properties (the "Senior Credit
Facility"). In connection with the Senior Credit Facility financing, the Credit
Facility was repaid and the financial covenants related in limitations of total
debt and total unsecured debt were waived. This $275 million unsecured Senior
Credit Facility which closed in March financed the Helmsley Properties
acquisition, paid off the outstanding balance on the Company's Credit Facility
and will provide on-going liquidity for future acquisition and corporate needs.
The term of the Senior Credit Facility is one year. The interest rate is
determined by a schedule of the percent of the loan commitment outstanding and
the duration of the loan commitment outstanding ranging from 170 basis points
over LIBOR to 300 basis points over LIBOR (7.3875% at the date of borrowing). On
March 18, 1999, the balance outstanding on the Senior Credit Facility totaled
approximately $235.0 million representing the acquisition of the Helmsley
Properties ($142 million) and the repayment of the Credit Facility ($93
million). The original Credit Facility will remain committed but unused until
the Senior Credit Facility is paid off through either permanent debt or an
equity financing and the Company's financial covenant obligations are restored.

The Company estimates that for the 12 months ending December 31, 1998 and
1999, it will incur approximately $6.6 million and $3.2 million, respectively,
of capital expenditures on properties currently owned. In 1998, over $5.8
million of the capital investments are dedicated to redevelopment costs
associated with properties purchased at or after the Company's IPO. The Company
expects to fund these capital expenditures with the Senior Credit Facility,
Credit Facility, operating cash flow and cash on hand. Future property
acquisitions may require substantial capital investments in such properties for
refurbishment and leasing costs. The Company expects that these financing
requirements will be provided primarily from its existing Credit Facility, from
additional borrowings secured by one or more existing or acquired properties and
from future issuances of equity and debt. The Company believes that it will have
sufficient capital resources to satisfy its obligations during the next 12 month
period.

For the next several years after 1998, the Company expects that capital
needs will be met through a combination of the Credit Facility, net cash
provided by operations, additional property-level mortgages and additional
common equity issuances or initial preferred equity issuances.

For the next several years, the Company expects to continue making
distributions to its stockholders primarily based on its distributions received
from the Operating Partnership or, if necessary, from working capital or
additional borrowings. The Operating Partnership income will be derived
primarily from lease revenue from the Properties and, to a limited extent, from
fees generated by the Service Corporations.

Cash Flows
(In thousands)

Comparison of the Year Ended December 31, 1997 to Year Ended December 31,
1996

Net cash provided by operating activities increased $8,279 during the year
ended December 31, 1997 to $8,551 from $272 for the year ended December 31,
1996. The increase was due primarily to the inclusion of properties encompassed
in the Offering and Formation Transaction (the acquisition of 50 West 23rd
Street, 1140 Avenue of the Americas and 1372 Broadway) as of August 21, 1997,
the acquisition of 1414 Avenue of the Americas (acquired July 1996) 110 East
42nd Street (acquired September 1997) and 17 Battery Place (acquired December
1997) and an increase in leasing commission and investment income. Net cash used
in investing activity increased $210,349 during the year

24
<PAGE>

ended December 31, 1997 to $222,724 as compared to $12,375 for the year ended
December 31, 1996. The increase is primarily due to the acquisition of certain
properties at the date of the Offering, the purchase of 110 East 42nd Street in
September 1997 and the purchase of an interest in 17 Battery Place and 633 Third
Avenue in December 1997. Net cash provided by financing activities increased by
$215,056 during the year ended December 31, 1997 to $227,016 as compared to
$11,960 during the year ended December 31, 1996. The primary reason for the
increase is (i) net proceeds from the Offering (ii) net proceeds from mortgage
notes payable and (iii) proceeds from the Credit Facility. These proceeds were
used to purchase the properties described above.

Comparison of Year Ended December 31, 1996 to Year Ended December 31,
1995.

Net cash provided by operating activities increased $506 to $272 from a
deficit of $234 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. The increase was due primarily to the acquisition of 1414
Avenue of the Americas, an increase in leasing commission income. Net cash used
in investing activities increased $11,943 to $12,375 from $432 for the year
ended December 31, 1996 compared to the year ended December 31, 1995. The
increase was due primarily to the acquisition of 1414 Avenue of the Americas
plus contributions to the partnerships that own 470 Park Avenue South and the
Bar Building. Net cash provided by financing activities increased $11,897 to
$11,960 from $63 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. The increase was due primarily to the financing of the
acquisition of 1414 Avenue of the Americas, the refinancing of the mortgage on
70 West 36th Street and net cash contribution from owners.

Funds from Operations

The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. Funds from Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.

On a pro forma basis after giving effect to the Offering, Funds from
Operations for the year ended December 31, 1997 and for the year ended December
31, 1996, respectively, are as follows:

(In thousands)
Pro Forma
---------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------- --------
Income before minority interest and extraordinary
item ................................................ $ 17,932 $ 12,733
Add:
Depreciation and amortization ...................... 7,413 6,979

Amortization of deferred financing costs and
depreciation of non-rental real estate assets..... (186) (155)
-------- --------
Funds From Operations ................................ $ 25,159 $ 19,557
======== ========

25
<PAGE>

Inflation

Substantially all of the office leases provide for separate real estate
tax and operating expense escalations over a base amount. In addition, many of
the leases provide for fixed base rent increases or indexed escalations. The
Company believes that inflationary increases may be at least partially offset by
the contractual rent increases described above.

Recently Issued Accounting Pronouncements

Financial Accounting Standards Board Statement No. 131 ("FAS No. 131")
"Disclosure about Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after December
15, 1997. FAS No. 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates.

The Company does not believe that the implementation of or FAS No. 131
will have a significant effect on its financial statements.

Year 2000 Compliance

The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. The Company's
comprehensive Year 2000 initiative is being managed by a team of internal staff
and outside consultants. The team's activities are designed to ensure that there
is no adverse effect on the Company's core business operations and that
transactions with customers, suppliers, and financial institutions are fully
supported. The Company is well under way with these efforts, which are scheduled
to be completed in mid-1998. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material effect on the
Company. The cost of the Year 2000 initiatives is not expected to be material to
the Company's results of operation or financial position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Schedules

SL GREEN REALTY CORP

Consolidated Balance Sheet as of December 31, 1997 ........................30
Consolidated Statement of Operations for the period August 21,
1997 (Inception) to December 31, 1997 ...................................32
Consolidated Statement of Stockholders' Equity for the Period
August 21, 1997 (Inception) to December 31, 1997 ........................33
Consolidated Statement of Cash Flows for the period August 21, 1997
(Inception) to December 31, 1997 ........................................35
Notes to Consolidated Financial Statements ................................37

THE SL GREEN PREDECESSOR

Combined Balance Sheet as of December 31, 1996 ............................30
Combined Statements of Operations for the period January 1, 1997 to
August 20, 1997 and the Years Ended December 31, 1996 and 1995 ..........32
Combined Statements of Owners' Equity (Deficit) for the period
January 1, 1997 to August 20, 1997 and the Years Ended
December 31, 1996 and 1995 ..............................................34

26
<PAGE>

Combined Statements of Cash Flows for the period January 1, 1997
to August 20, 1997 and the Years Ended December 31, 1996 and 1995 .......35
Notes to the Combined Financial Statements ................................37

UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS

Combined Balance Sheets as of December 31, 1996 and 1995 ..................60
Combined Statements of Operations for the period January 1, 1997 to
August 20, 1997 and the Years Ended December 31, 1996 and 1995 ..........61
Combined Statements of Owners' Deficit for the Period January 1,
1997 to August 20, 1997 and the Years Ended December 31, 1996 and 1995 ..62
Combined Statements of Cash Flows for the Period January 1, 1997 to
August 20, 1997 and the Years Ended December 31, 1996 and 1995 ..........63

Notes to Combined Financial Statements ....................................65

Schedules

Schedule III Real Estate and Accumulated Depreciation as of
December 31, 1997 .......................................................78

27
<PAGE>

Report of Independent Auditors

The Board of Directors
SL Green Realty Corp.

We have audited the accompanying balance sheet of SL Green Realty Corp. as
of December 31, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the period August 21, 1997 (date of
commencement of operations) to December 31, 1997. We have also audited the
financial statement schedule listed in the Index as Item 14(a). These financial
statements and financial statement schedule are the responsibility of SL Green
Realty Corp.'s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.

We conducted our audit 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 audit provides 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 SL Green Realty
Corp. at December 31, 1997 and the consolidated results of its operations and
its cash flows for the period August 21, 1997 (date of commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.

/S/ Ernst & Young LLP

New York, New York
February 10, 1998 except for the
last two paragraphs in Note 15,
as to which date is March 18, 1998

28
<PAGE>

Report of Independent Auditors

The Board of Directors
SL Green Realty Corp.

We have audited the accompanying combined balance sheet of SL Green
Predecessor as of December 31, 1996 and the related combined statements of
operations, owners' deficit and cash flows for the period from January 1, 1997
to August 20, 1997 and for each of the two years in the period ended December
31, 1996. We have also audited the financial statement schedule listed in the
index as Item 14(a). These financial statements and financial statement
schedule are the responsibility of SL Green Predecessor's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 combined financial statements referred to above
present fairly in all material respects, the combined financial position of SL
Green Predecessor at December 31, 1996 and the combined results of its
operations and its cash flows for the period from January 1, 1997 to August 20,
1997 and for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/S/ Ernst & Young LLP

New York, New York
February 10, 1998

29
<PAGE>

SL Green Realty Corp.
Balance Sheets
(Dollars in Thousands)

<TABLE>
<CAPTION>
SL Green SL Green
Realty Corp. Predecessor
December 31, December 31,
1997 1996
--------------- -----------------
(Consolidated) (Combined)
<S> <C> <C>
Assets
Commercial real estate properties, at cost:
Land ................................................... $ 53,834 $ 4,465
Buildings and improvements ............................. 272,776 21,819
Property under capital lease ........................... 12,208 --
--------- ---------
338,818 26,284
Less accumulated depreciation .......................... (23,800) (5,721)
--------- ---------
315,018 20,563
Cash and cash equivalents .............................. 12,782 476
Restricted cash ........................................ 10,310 1,227
Receivables ............................................ 738 914
Related party receivables .............................. 1,971 1,186
Deferred rents receivable net of provision for doubtful
accounts of $399 in 1997 ............................ 11,563 1,265
Investment in Service Corporations ..................... 1,480 --
Mortgage loan receivable ............................... 15,500 --
Investment in uncombined joint venture ................. -- 1,730
Deferred costs, net .................................... 6,099 1,371
Other assets ........................................... 7,314 1,340
--------- ---------

Total assets ........................................... $ 382,775 $ 30,072
========= =========
</TABLE>

See accompanying notes.

30
<PAGE>

SL Green Realty Corp.
Balance Sheets
(Dollars in Thousands, except per share data)

<TABLE>
<CAPTION>
SL Green SL Green
Realty Corp. Predecessor
December 31, December 31,
1997 1996
--------------- -----------------
(Consolidated) (Combined)
<S> <C> <C>
Liabilities and Stockholders' Equity/ Owners' Deficit
Mortgage notes payable ................................... $ 52,820 $ 16,610
Revolving credit facility ................................ 76,000 --
Accrued interest payable ................................. 552 90
Accounts payable and accrued expenses .................... 3,340 1,037
Accounts payable to related parties ...................... 367 2,213
Excess of distributions and share of losses over
investments in uncombined joint ventures ........ -- 17,300
Capitalized lease obligations ............................ 14,490 --
Deferred land lease payable .............................. 8,481 --
Dividend and distributions payable ....................... 5,136 --
Security deposits ........................................ 11,475 1,227
--------- ---------
Total liabilities ........................................ 172,661 38,477
Minority interest ........................................ 33,906 --

Commitments, contingencies and other matters .............

Stockholders' Equity/ Owners' Deficit
Preferred stock, $.01 par value 25,000 shares
authorized, none outstanding
Common stock, $.01 par value 100,000 shares
authorized, 12,292 issued and outstanding .... 123 --
Additional paid - in capital .................... 178,669 --
Distributions in excess of earnings ............. (2,584) --
--------- ---------
Total stockholders' equity ............................... 176,208 --
--------- ---------
Owners' deficit .......................................... -- (8,405)
--------- ---------
Total liabilities and stockholders' equity/owners' deficit $ 382,775 $ 30,072
========= =========
</TABLE>

See accompanying notes.

31
<PAGE>

SL Green Realty Corp.

Statements Of Operations

(Dollars in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
SL Green
Realty Corp SL Green Predecessor
----------- -------------------------------------
August 21 to January 1 to
December 31, August 20, Year ended December 31,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Rental revenue ................................................. $ 20,033 $ 4,107 $ 4,199 $ 2,416
Escalation and reimbursement revenues .......................... 2,205 792 1,051 758
Management revenues, including $458 (1997), $447 (1996), and
$449 (1995) from affiliates ................................. -- 1,268 2,336 2,260
Leasing commissions ............................................ 484 3,464 2,372 897
Construction revenues, net, including $6 (1997), $35 (1996), and
$82 (1995), from affiliates ................................. -- 77 101 233
Investment Income .............................................. 485 -- -- --

Other income ................................................... -- 16 123 --
-------- -------- -------- --------
Total revenues .................................................... 23,207 9,724 10,182 6,564
-------- -------- -------- --------
Equity in net (loss) from Service Corp's .......................... (101) -- -- --
Equity in net (loss) of uncombined joint ventures ................. -- (770) (1,408) (1,914)
-------- -------- -------- --------
Expenses
Operating expenses ............................................. 7,077 2,722 3,197 2,505
Interest ....................................................... 2,135 1,062 1,357 1,212
Depreciation and amortization .................................. 2,815 811 975 775
Real estate taxes .............................................. 3,498 705 703 496
Marketing, general and administrative .......................... 948 2,189 3,250 3,052
-------- -------- -------- --------
Total expenses .................................................... 16,473 7,489 9,482 8,040
-------- -------- -------- --------
Income (loss) before minority interest and extraordinary item ..... 6,633 1,465 (708) (3,390)
Minority interest in operating partnership ........................ (1,074) -- -- --
Extraordinary item, net of minority interest of $362 in 1997 ...... (1,874) 22,087 8,961 --
-------- -------- -------- --------
Net income (loss) ................................................. $ 3,685 $ 23,552 $ 8,253 $ (3,390)
======== ======== ======== ========
Per share data:

Income per share before extraordinary item ........................ $ 0.45
Extraordinary item ................................................ (0.15)
--------
Net income per share - basic and diluted .......................... $ 0.30
========
Basic weighted average common share outstanding ................... 12,292
========
Diluted weighted average common share and common share
equivalents outstanding ......................................... 12,404
========
</TABLE>

See accompanying notes.

32
<PAGE>

SL Green Realty Corp.

Consolidated Statement of Stockholders' Equity

(Dollars in Thousands)

<TABLE>
<CAPTION>
Distributions in Additional
Excess of Paid-
Earnings Common Stock In Capital Total
-------- ------------ ---------- -----
<S> <C> <C> <C> <C>
Balance at August 20, 1997 (Inception)

Net proceeds from Initial Public Offering of
Common Stock.................................. -- $123 $223,366 $223,489
Net Income...................................... $3,685 -- -- 3,685
Cash Distributions declared ($0.51 per
common share of which none represented a
return of capital for Federal Income Tax
purposes)..................................... (6,269) -- -- (6,269)
Contribution of the net assets of SL Green
Predecessor in exchange for Units of the
Operating Partnership and other Formation
Transactions.................................. -- -- (44,697) (44,697)
============ ============ ========== =========
Balance at December 31, 1997.................... $(2,584) $123 $178,669 $176,208
============ ============ ========== =========
</TABLE>

33
<PAGE>

SL Green Realty Corp.

Combined Statements Of Owners' Equity (Deficit)

(Dollars in Thousands)

SL Green
Predecessor
-----------
Balance at December 31, 1994...................................... $(15,521)
Distributions................................................... --
Contributions................................................... 63
Net loss for the year ended December 31, 1995................... (3,390)
-----------
Balance at December 31, 1995...................................... (18,848)
Distributions................................................... (552)
Contributions................................................... 2,742
Net income for the year ended December 31, 1996................. 8,253
-----------
Balance at December 31, 1996...................................... (8,405)
Distributions................................................... (4,024)
Contributions................................................... 25
Net income for the period ended August 20, 1997................. 23,552
-----------
Balance at August 20, 1997........................................ $ 11,148
===========

See accompanying notes.

34
<PAGE>

SL Green Realty Corp.
Statements Of Cash Flows
(Dollars in Thousands)

<TABLE>
<CAPTION>
SL Green
Realty Corp. SL Green Predecessor
--------- ---------------------------------
Year ended December 31,
August 21, to January 1, to
December 31, August 20,
1997 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) .................................................... $ 3,685 $ 23,552 $ 8,253 $ (3,390)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization ..................................... 2,815 811 975 775
Equity in net loss (income) from Service Corp's.................... 101 -- -- --
Minority interest.................................................. 712 --
Share of net (income) loss from uncombined joint ventures ......... -- (21,072) 1,763 2,249
Deferred rents receivable ......................................... (946) (102) (362) 87
Extraordinary -non cash portion, net of
minority interest in 1997 ...................................... 803 -- (8,961) --
Changes in operating assets and liabilities:
Restricted cash ................................................... (223) -- (563) (38)
Receivables ....................................................... (614) (190) (531) 47
Related party receivables ......................................... (1,633) (365) (170) (299)
Deferred costs .................................................... (707) (279) (1,108) (465)
Other assets ...................................................... (3,101) 579 (287) (858)
Accounts payable and accrued expenses ............................. 3,142 118 280 (180)
Accounts payable to related parties ............................... 830 (201) 121 948
Deferred land lease payable ....................................... 297 -- -- --
Security deposits ................................................. -- 77 -- --
Security deposits payable ......................................... -- (67) 564 29
Accrued interest payable .......................................... 552 (23) 298 861
--------- --------- --------- ---------
Net cash provided by (used in) operating activities .................. 5,713 2,838 272 (234)
--------- --------- --------- ---------
Investing activities
Additions to land, buildings and improvements ........................ (217,165) (7,411) (10,725) (369)
Contributions to partnership investments ............................. -- (25) (1,650) (63)
Distributions from partnership investments ........................... -- 1,877 -- --
--------- --------- --------- ---------
Net cash used in investing activities ................................ (217,165) (5,559) (12,375) (432)
--------- --------- --------- ---------
Financing Activities
Proceeds from mortgage notes payable ................................. 21,000 7,000 16,680 --
Payments of mortgage notes payable ................................... (76,822) (219) (6,910) --
Proceeds form senior revolving credit facility ....................... 76,000 -- -- --
Capitalized lease obligation ......................................... 58 -- -- --
Mortgage loan receivable ............................................. (15,500) -- -- --
Cash distributions to owners ......................................... -- (4,024) (552) --
Cash contributions from owners ....................................... -- 25 2,742 63
Dividends and distributions paid ..................................... (2,348) -- -- --
Deferred loan costs .................................................. (1,643) -- -- --
Net proceeds from sale of common stock ............................... 228,704 -- -- --
</TABLE>

35
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Formation expenses ................................................... (5,215) -- -- --
--------- --------- --------- ---------
Net cash provided by financing activities ............................ 224,234 2,782 11,960 63
Net increase (decrease) in cash and cash
equivalents ....................................................... 12,782 61 (143) (603)
Cash and cash equivalents at beginning of period ..................... -- 476 619 1,222
--------- --------- --------- ---------
Cash and cash equivalents at end of period ........................... $ 12,782 $ 537 $ 476 $ 619
========= ========= ========= =========

Supplemental cash flow disclosures
Interest paid ........................................................ $ 1,583 $ 1,085 $ 1,059 $ 351
========= ========= ========= =========
Income taxes paid .................................................... $ -- $ -- $ -- $ 35
========= ========= ========= =========

Supplemental disclosure of non-cash investing and financing activities
Formation transaction activity:
Assets acquired
Commercial real estate, net ....................................... $ 91,123
Other assets ...................................................... $ 16,751

Liabilities Assumed
Mortgage notes payable ............................................ $ 73,073
Capitalized lease obligation ...................................... $ 14,431
Deferred land lease ............................................... $ 8,184
Security deposits payable ......................................... $ 4,262
</TABLE>

In December 1997 the Company declared distributions per unit of $0.35. The
distributions were paid in 1998.

See accompanying notes.

36
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements
December 31, 1997

(Dollars in Thousands)

1. Organization and Basis of Presentation

Initial Public Offering and Formation Transactions

SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL
Green Operating Partnership, L.P., (the "Operating Partnership"), were formed in
June 1997 for the purpose of combining the commercial real estate business of
S.L. Green Properties, Inc. and its affiliated partnerships and entities ("SL
Green Properties"). The Operating Partnership received a contribution of
interest in the real estate properties as well as 95% of the economic interest
in the management, leasing and construction companies (the "Service
Corporations"). The Company qualifies as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended; and operates as a
self-managed REIT. A REIT is a legal entity that holds real estate interests
and, through payments of dividends to shareholders, is permitted to reduce or
avoid the payment of federal income taxes at the corporate level.

The authorized capital stock of the Company consists of 200 million shares
of capital stock, $.01 par value, of which the Company has authorized the
issuance of up to 100 million shares of Common Stock, $.01 par value per share,
75 million shares of Excess Stock, at $.01 par value per share, and 25 million
shares of Preferred Stock, par value $.01 per share. On August 20, 1997, the
Company issued 11.615 million shares of its Common Stock (including the
underwriters' over-allotment option of 1.52 million shares) to the public
through a public offering (the "Offering"). Concurrently with the consummation
of the Offering, the Company issued 38,095 shares of restricted common stock
pursuant to stock loans and 85,600 shares of restricted common stock to a
financial advisor. In addition, the Company previously issued to its executive
officers approximately 553,616 shares, as founders' shares. As of December 31,
1997, no shares of Excess Stock or Preferred Stock are issued and outstanding.

Concurrent with the consummation of the Offering, the Company and the
Operating Partnership, together with the partners and members of the affiliated
partnerships of the SL Green Predecessor and other parties which held ownership
interests in the properties contributed to the Operating Partnership
(collectively, the "Participants"), engaged in certain Formation Transactions
(the "Formation Transactions").

The net cash proceeds received by the Company from the Offering (after
deducting underwriting discounts) was $228.7 million. The Company utilized
approximately $42.6 million of the Offering proceeds to repay mortgage
indebtedness encumbering the properties, including $1.5 million for prepayment
penalties and other financing fees and expenses, approximately $6.6 million to
purchase the direct or indirect interests of certain participants in the
properties, approximately $95.5 million to acquire properties (50 West 23rd
Street, 1140 Avenue of the Americas, and 1372 Broadway) approximately $3.4
million to pay certain expenses incurred in the Formation Transactions, $35.6
million to repay a loan from Lehman Brothers Holdings, Inc. ("LBHI") (which
included $20 million to repay a loan that was made to a company indirectly owned
by Stephen L. Green), $1.8 million to fund the advisory fee payment to Lehman
Brothers, Inc. and $41.7 million to fund capital expenditures, general working
capital needs and future acquisitions (See note 2).

Substantially all of the Company's assets are held by, and it conducts its
operations through, the Operating Partnership, a Delaware limited partnership.
The Company is the sole managing general partner of the Operating Partnership.
Continuing investors hold, in the aggregate, a 16.2% limited partnership
interest in the Operating Partnership.

37
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

Principles of Combination - SL Green Predecessor

The SL Green Predecessor is not a legal entity but rather a combination of
real estate properties and affiliated real estate management, construction and
leasing entities under common control and management of Stephen L. Green; and
interests owned and managed by Stephen L. Green in entities accounted for on the
equity method (see note 2) that are organized as partnerships and a limited
liability company. The entities included in this financial statement have been
combined for only the periods that they were under common control and
management. All significant intercompany transactions and balances have been
eliminated in combination. Capital contributions, distributions and profits and
losses are allocated in accordance with the terms of the applicable agreements.

The accompanying combined financial statements include partnerships and
corporations which are under common control as follows:

Stephen L. Green
Percentage
Entity Property/Service Ownership Ownership Type
------ ---------------- --------- --------------

Office Property Entities

64-36 Realty Associates 70 West 36th Street 95% General partner
1414 Management 1414 Avenue of the
Associates, LP Americas 100% General partner

Service Corporations

SL Green Management,
Corp. Management 100% Sole shareholder
Management and
SL Green Leasing, Inc. leasing 100% Sole shareholder
Emerald City
Construction Corp. Construction 100% Sole shareholder

On June 30, 1997, the majority owner of SL Green Predecessor purchased the
remaining 90% interest in Praedium Bar Associates LLC, which was funded by a
loan from Lehman Brothers Holdings Inc., which as of that date is included in
the combined financial statements (see note 2).

For the entities accounted for on the equity method, SL Green Predecessor
records its investments in partnerships and limited liability company at cost
and adjusts the investment accounts for its share of the entities' income or
loss and for cash distributions and contributions.

Management

In order to maintain the Company's qualification as a REIT while realizing
income from management leasing and construction contracts from third parties,
all of the management operations with respect to properties in which the Company
will not own 100% of the interest are conducted through the Service
Corporations. In so doing, the Company should not incur a risk of this revenue
exceeding the 5% REIT Qualifying Income Test. The Company, through the Operating
Partnership, owns 100% of the non-voting common stock (representing 95% of the
total equity) of the Service Corporations. Through dividends on its equity
interest, the Operating Partnership will receive substantially all of the cash
flow (if any) from the Service Corporations' operations. All of the voting
common stock of the Service Corporations (representing 5% of the total equity)
is held by an SL Green affiliate. This controlling interest

38
<PAGE>

gives the SL Green affiliate the power to elect all directors of the Service
Corporations. The Operating Partnership owns a 100% interest in the Management
LLC. The Company accounts for its investment in the Service Corporations on the
equity basis of accounting on the basis that it has significant influence with
respect to management and operations.

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

All of the management and leasing with respect to the properties contributed and
acquired by the Company are conducted through the management LLC. The Operating
Partnership owns 100% interest in the management LLC.

Partnership Agreement

In accordance with the partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), all allocations of distributions and
profits and losses are to be made in proportion to the percentage ownership
interests of their respective partners. As the managing general partner of the
Operating Partnership, the Company will be required to take such reasonable
efforts, as determined by it in its sole discretion, to cause the Operating
Partnership to distribute sufficient amounts to enable the payment of sufficient
distributions by the Company to avoid any federal income or excise tax at the
Company level as a consequence of a sale of a SL Green property. Under the
Operating Partnership agreement each limited partner will have the right to
redeem limited partnership interest for cash, or if the Company so elects shares
of common stock. In accordance with the Operating Partnership Agreement, the
Company is prohibited from selling 673 First Avenue and 470 Park Avenue South
through August 2009. Pursuant to the terms of the Operating Partnership's
partnership agreement, the Units issued to the Company's management and
continuing investors at the IPO may not, for up to two years from the IPO date,
transfer any of their rights or redeem their Units as a limited partner without
the consent of the Company.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Depreciation of Real Estate Properties

Depreciation and amortization is computed on the straight-line method as
follows.

Category Term
- -------- ----

Building (fee ownership) 40 years
Building improvements remaining life of the building
Building (leasehold interest) lesser of 40 years or remaining life of the
lease
Property under capital lease 49 years
Furniture and fixtures four to seven years
Tenant improvements remaining life of the lease

Depreciation expense included amortization of the capital lease asset
amounted to $2,526 for the period August 21, 1997 to December 31, 1997 and $591
for the period January 1, 1997 to August 20, 1997, $788 and $579 in 1996 and
1995 respectively.

39
<PAGE>

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

Restricted Cash

Restricted cash primarily consists of security deposits held on behalf of
tenants.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying balance sheets. The Company establishes an allowance on a current
basis a reserve for future potential tenant credit losses, which may occur
against this account. The balance reflected on the balance sheet is net of such
allowance.

Rent Expense

Rent expense is recognized on a straight-line basis over the initial term
of the lease. The excess of the rent expense recognized over the amounts
contractually due pursuant to the underlining lease is included in the deferred
lease payable in the accompanying combined balance sheet.

Deferred Lease Costs

Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.

Deferred Financing Costs

Deferred financing costs represent commitment fees, legal and other third
party costs associated with obtaining commitments for financing which result in
a closing of such financing. These costs are amortized over the terms of the
respective agreements. Unamortized deferred financing costs are expensed when
the associated debt is refinanced before maturity. Costs incurred in seeking
financial transactions which do not close are expensed in the period incurred.

Earnings Per Share

In 1997, Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share ("SFAS No. 128"), replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for the quarter ended
September 30, 1997 have been restated to conform to SFAS No. 128 requirements.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash investments and accounts
receivable. The Company places its cash investments with high quality
institutions.

40
<PAGE>

Management of the Company performs ongoing credit evaluation of its tenants and
requires certain tenants to provide security deposits. Though these security
deposits are insufficient to meet the terminal value of a tenant's lease
obligation, they are a measure of good faith and a source of funds to offset the
economic costs associated with lost rent and the costs associated with
retenanting the space. Although the SL Green Predecessors' buildings and new
acquisitions are all located in Manhattan, the tenants located in these
buildings operate in various industries and no single tenant represents a
dominant share of the Company's revenue and no tenant represents 10% of the
Company's

41
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

revenue. Approximately 19% of the Company's revenue for the period August 21,
1997 to December 31, 1997 was derived from 673 First Avenue.

Stock-Based Compensation

The Company accounts for its stock compensation arrangements under the
provisions of APB opinion No. 25, "Accounting for Stock Issued to Employees".
Since the stock options are granted by the Company at the fair value of the
shares at the date of grant, no compensation expense is recognized in the
financial statements. Awards of stock, restricted stock or employee loans to
purchase stock which may be forgiven over a period of time are expensed as
compensation expense on a current basis over the benefit period.

Income Taxes

The Company is taxed as a REIT under Section 856(c) of the Internal
Revenue Code of 1986, as amended, commencing with the period August 21, 1997 to
December 31, 1997. As a REIT, the Company generally is not subject to federal
income tax. To maintain qualification as a REIT, the Company must distribute at
least 95% of its REIT taxable income to its stockholders and meet certain other
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate rates. The Company may also be subject to certain state and local
taxes on its income and property. Under certain circumstances, federal income
and excise taxes may be due on its undistributed taxable income. At December 31,
1997, the Company believes it is in compliance with all REIT requirements and
was not subject to federal income taxes.

Recently Issued Accounting Pronouncements

SFAS 131, Disclosure about Segments of an Enterprise and Related
Information ("SFAS No. 131") is effective for financial statements issued for
periods beginning after December 15, 1997. SFAS No. 131 requires disclosures
about segments of an enterprise and related information regarding the different
types of business activities in which an enterprise engages and the different
economic environments in which it operates.

The Company does not believe that the implementation of SFAS No. 131 will
have a material impact on its financial statements.

2. Investment in Uncombined Joint Ventures

The SL Green Predecessor's investments in three partnerships and a limited
liability company had been accounted for under the equity method since control
was shared with other parties. The investment in partnerships and limited
liability company were as follows:

<TABLE>
<CAPTION>
Partnerships/Limited Green Group
Liability Company Property Ownership Ownership Type
----------------- -------- --------- --------------
<S> <C> <C> <C>
673 First Realty Company....... 673 First Avenue 67% Co-general partner
470 Park South Associates, LP.. 470 Park Avenue South 65% Co-general partner
29/35 Realty Associates, LP.... 29 West 35th Street 21.5% Co-general partner
Praedium Bar Associates, Has veto rights relating to sale
</TABLE>

42
<PAGE>

<TABLE>
<S> <C> <C> <C>
LLC ("Praedium Bar")........... 36 West 44th Street 10%(A) and financing
</TABLE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

- ----------

(A) Praedium Bar acquired the first mortgage related to the property in
October, 1996 which provides for substantially all the economic interest
in the property and has the sole right to purchase the fee interest, (the
property deed is in escrow), for a nominal cost; accordingly SL Green
Predecessor has accounted for Praedium Bar investment as a ownership
interest in the property. On June 30, 1997, the majority owner of SL Green
Predecessor purchased the remaining 90% interest in Praedium Bar
Associates, LLC for $6.3 million. The current owners of the fee interest
in 36 West 44th Street and the leasehold interest in 35 West 43rd Street
are obligated to transfer their interests, in this property to the Company
not later than October 1, 1998.

43
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

Condensed combined financial statements of the partnerships and the
limited liability company, are as follows:

December 31,
1996
------------
Condensed balance sheets
Assets:
Commercial real estate property, net.............. $72,958
Deferred rent receivable.......................... 14,860
Cash and cash equivalents, including restricted
cash of $1,588.................................. 3,811
Deferred costs and other assets................... 7,271
----------
Total assets...................................... $98,900
==========

Liabilities:
Mortgages and accrued interest
payable ........................................ $90,245
Obligations under capital lease................... 14,265
Deferred rent payable............................. 11,459
Accounts payable and other liabilities............ 4,560
Owners' deficit
SL Green Predecessor............................ (15,570)
Other partners.................................. (6,059)
----------
Total owners' deficit............................. (21,629)
==========
Total liabilities and owner's deficit............. $98,900
==========

<TABLE>
<CAPTION>
January 1, to Year ended December 31,
August 20, -----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Condensed statements of operations
Rental revenue and escalations.................. $13,552 $18,874 $17,934

Other revenue................................... -- 28 18
------------ ---------- ---------
Total revenues.................................. 13,552 18,902 17,952
Interest........................................ 5,320 7,743 7,785
Depreciation and amortization................... 2,510 3,580 3,768
Operating and other expenses.................... 7,142 10,036 9,552
------------ ---------- ---------
Total expenses.................................. 14,972 21,359 21,105
Operating loss before outside partner's interest (1,420) (2,457) (3,153)
Elimination of inter-company management fees.... 240 355 335
Extraordinary gain on forgiveness of
debt.......................................... 33,419 -- --

Other partner share of the (income) loss........ (10,922) 694 904
============ ========== =========
Income (loss) allocated to the SL Green
Predecessor................................... $21,317 $(1,408) $(1,914)
============ ========== =========
</TABLE>

44
<PAGE>

There are several business relationships with related parties which
involve management, leasing and construction fee revenues and maintenance
expense. Transactions relative to the aforementioned combined statements of

45
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

operations and balance sheet for the equity investees include the following
before elimination of intercompany transactions:

January 1, to Year ended December 31,
August 20, -----------------------
1997 1996 1995
---- ---- ----

Management fee expenses................. $448 $622 $563
Leasing commission expenses............. 295 218 48
Construction fees....................... 1,796 185 376
Maintenance expenses.................... 186 227 132

3. Property Acquisitions

In connection with the Formation Transaction (see note 1), the Company
acquired the first mortgage related to 1372 Broadway on August 21, 1997 which
provides for substantially all of the economic interest in the property and has
the sole right to purchase the fee interest; accordingly, the Company has
accounted for the 1372 Broadway investment as ownership interest in the
property. The Company purchased the fee interest in January 1998 for
approximately $1 million.

On September 15, 1997, the Operating Partnership acquired the land and
building at 110 East 42nd Street for $30 million. The acquisition was funded by
proceeds of an LBHI loan and the Offering.

On December 19, 1997, the Operating Partnership exercised the Company's
option to acquire an interest in 17 Battery Place for approximately $59 million.
In connection with this acquisition, the Company also loaned $15.5 million to
the co-tenant at 17 Battery Place. The mortgage receivable bears interest at 12%
and is due September 30, 1998 and is secured by a first mortgage on the
co-tenant's interest in the property. The cash required to purchase and the loan
were funded through borrowings under the Company's senior unsecured revolving
credit facility.

In connection with the acquisition of 17 Battery Place, prior to January
1, 1999, the Company is required to make available up to 153,000 rentable square
feet of vacant office space to tenants of 17 Battery Place, who currently occupy
portions of the co-tenants space. In order to convert the upper floors of the
South Building into hotel/ residential space, the co-tenant plans to exercise
relocation options to relocate tenants from its hotel/ residential space to the
Company's office space.

On December 30, 1997 the Operating Partnership acquired a condominium
ownership interest at 633 Third Avenue for $10.5 million and a capital reserve
of $1 million. The acquisition was funded by proceeds from a mortgage loan on 50
West 23rd Street and cash on hand.

The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above and each acquisition
included in the Offering and Formation Transactions was made on January 1, 1996.

46
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

1997 1996
------- -------
Revenues ............................................. $80,675 $78,648
Pro forma net income ................................. 18,147 14,348
Pro forma basic earnings per share ................... 1.47 1.18
Pro forma diluted earnings per share ................. 1.46 1.17
Common and common equivalent share - basic ........... 12,293 12,293
Common and common equivalent share - diluted ......... 12,404 12,404

4. Deferred Costs

Deferred costs consist of the following:

1997 1996
---- ----
Deferred financing ........................... $ 3,147 $ 982
Deferred lease ............................... 7,201 1,613
Deferred offering ............................ -- 87
-------- --------
10,348 2,682
Less accumulated amortization ................ (4,249) (1,311)
-------- --------
$ 6,099 $ 1,371
======== ========

5. Mortgage Notes Payable and Revolving Credit Facility

The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
Property Mortgage Notes 1997 1996
-------- -------------- ---- ----
<S> <C> <C> <C>
1414 Avenue of the First mortgage note with interest payable at
Americas 7.875%, due June 1, 2006(A) ......................... $ -- $9,946

70 West 36th Street First mortgage note with interest payable at
LIBOR plus 2%, due January 29, 2001 (A) (B) ......... -- 6,664

50 West 23rd Street Note payable to Lehman Brothers Holdings, Inc. with
interest based on LIBOR plus 1.75% (7.6875% at
December 31, 1997) due December,
</TABLE>

47
<PAGE>

48
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

<TABLE>
<CAPTION>
<S> <C> <C> <C>
50 West 23rd Street Note payable to Lehman Brothers Holdings Inc., with interest
at 7.47% due August, 2007 (C)........... 14,000 --
29 West 35th Street First mortgage note with interest payable at 8.464%, due
February 1, 2001................................. $2,974
673 First Avenue First mortgage note with interest payable at 9.0%, due
December 13, 2003............................................ 18,013
470 Park Avenue South First mortgage note with interest payable at 8.25%, due April
1, 2004...................................................... 10,833
-------- --------
Total mortgage notes payable.................................. $52,820 $16,610
======== ========
</TABLE>

- ----------

(A) These loans were repaid in connection with proceeds from the Offering.

(B) In January, 1996, the first mortgage was bifurcated into a first and
second mortgage; the second mortgage was acquired by an unrelated entity
for no consideration. In December 1996 the holder of the second mortgage
on 70 West 36th Street forgave the indebtedness for no consideration; as a
result SL Green Predecessor recognized extraordinary income of $8,961. The
remaining unpaid portion of the first mortgage was paid during August
1997.

(C) The Lehman Brothers Holdings Inc. loan is collateralized by partnership
interests in certain Property-owning entities.

On December 19, 1997 the Company entered into a $140 million three year
senior unsecured revolving credit facility (the "Credit Facility") due December
2000. Availability under the Credit Facility may be limited to an amount less
the $140 million which is calculated by several factors including recent
acquisition activity and most recent quarterly property performance. Outstanding
loans under the Credit Facility bear interest at a rate per annum equal to the
London Interbank Offered Rate ("LIBOR") applicable to each interest period plus
130 basis points to 145 basis points per annum. The Credit Facility requires the
Company to comply with certain covenants, including but not limited to,
maintenance of certain financial ratios. At December 31, 1997 the outstanding
amount of indebtedness under the Credit Facility was $76 million, and the
interest rate on such indebtedness was 7.265% per annum. At December 31, 1997
the Company's borrowing availability was $40 million.

The interest rate of the existing mortgage loan which is collateralized by
50 West 23rd Street can be fixed in the future at 150 basis points plus the ten
year US Treasury Note rate and maturing co-terminously with the underlying
mortgage note when certain income targets are met.

Principal Maturities

Combined aggregate principal maturities of mortgages and notes payable as
of December 31, 1997 are as follows:

1998............................................................. $1,973
1999............................................................. 2,228
2000............................................................. 79,241
2001............................................................. 3,473
2002............................................................. 3,782
Thereafter....................................................... 38,123
========
$128,820
========

49
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

Mortgage Recording Tax Credit Loan

The Operating Partnership received loans totaling approximately $69.5
million from LBHI. These loans are collateralized by the mortgages encumbering
the Operating Partnership's interests in 1140 Avenue of the Americas and 110
East 42nd Street. The loans are also collateralized by an equivalent amount of
the Company's cash which is held by LBHI and invested in US Treasury securities.
Interest earned on the cash collateral is applied by LBHI to service the loans
which interest rate is commensurate with that of the portfolio of six month US
Treasury securities. The mortgage tax crdit loans and the US Treasury securities
both mature on May 15, 1998. The Operating Partnership and LBHI each have the
right of offset and therefore the loans and the cash collateral have been
presented on a net basis in the consolidated balance sheet at December 31, 1997.
The purpose of these loans is to temporarily preserve mortgage recording tax
credits for future potential acquisitions of real property which the Company may
make, the financing of which may include property based debt, for which these
credits would be applicable and provide a financial savings.

6. Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the SL Green Predecessor could realize
on disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

Cash equivalents, variable rate mortgages and fixed rate debt are carried
at amounts which reasonably approximate their fair values.

Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.

7. Rental Income

The Operating Partnership is the lessor and the sublessor to tenants under
operating leases with expiration dates ranging from 1998 to 2011. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or adjustments. The leases generally also require that the
tenants reimburse the Company for increases in certain operating costs and real
estate taxes above their base year costs. Approximate future minimum rents to be
received over the next five years and thereafter for leases in effect at
December 31, 1997 are as follows:

1998............................................................. $61,039
1999............................................................. 59,423
2000............................................................. 56,234
2001............................................................. 53,146
2002............................................................. 50,683
Thereafter....................................................... 212,478
========
$493,003
========

50
<PAGE>

51
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

8. Related Party Transactions

There are several business relationships with related parties, entities
owned by Stephen L. Green or relatives of Stephen L. Green exclusive of the
uncombined joint ventures (see note 2) which involve management, leasing, and
construction fee revenues, rental income and maintenance expenses in the
ordinary course of business. These transactions for the years ended December 31,
include the following:

August 21,
to January 1,
December to
31, August 20,
1997 1997 1996 1995
---- ---- ---- ----

Management revenues............. $78 $172 $180 $221
Leasing commission revenues..... 8 29 37 36
Construction fees............... 14 37 25 69
Rental income................... -- 43 33 25
Maintenance expense............. 119 163 93 32

Amounts due from related parties at December 31, consist of:

1997 1996
------ ------

SL Green Properties Inc. ....................... $ -- $ 507
First Quality Maintenance ...................... -- 160
250 PAS, Associates, LP. ....................... -- 363
SL Green Management ............................ 582 --
SL Green Leasing ............................... 498 --
Emerald City Corporation ....................... 166 --
Officers ....................................... 725 156
------ ------
$1,971 $1,186
====== ======

Amounts due to related parties at December 31, consist of:

1997 1996
------ ------
29 West 35th Street Predecessor Partnership ................ $ 45 $ --
36 West 44th Street Predecessor Partnership ................ 56 --
70 West 36th Street Predecessor Partnership ................ 67 --
1414 Avenue of the Americas Predecessor Partnership ........ 88 --
470 Park Avenue South Predecessor Partnership .............. 72 --
673 First Avenue Predecessor Partnership ................... 39 --

SL Green Properties, Inc. .................................. -- 2,213
------ ------
$ 367 $2,213
====== ======

52
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

9. Stockholders' Equity

The authorized capital stock of the Company consists of $200 million
shares of capital stock, $.01 par value, of which the Company has authorized the
issuance of up to 100 million shares of Common Stock $0.01 par value per share,
75 million shares of excess stock, at $0.01 par value per share and 25 million
shares of preferred stock, par value $0.01 per share. Under the Company's
Charter, the Board of Directors will have authority to issue, without any
further action by the stockholders, shares of capital stock in one or more
series having such preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as the Board of Directors may determine.

During August 1997, the Company instituted the 1997 Stock Option and
Incentive Plan (The "Stock Option Plan"). The Stock Option Plan authorizes (i)
the grant of stock options that qualify as incentive stock options under Section
422 of the Code ("ISOs"), (ii) the grant of stock options that do not so qualify
("NQSOs"), (iii) the grant of stock options in lieu of cash Directors' fees and
employee bonuses, (iv) grants of shares of Common Stock, in lieu of compensation
and (v) the making of loans to acquire shares of Common Stock, in lieu of
compensation. The exercise price of stock options will be determined by the
Compensation Committee, but may not be less than 100% of the fair market value
of the shares of Common Stock on the date of grant in the case of ISOs; provided
that, in the case of grants of NQSOs granted in lieu of cash Director's fees and
employee bonuses, the exercise price may not be less than 50% of the fair market
value of the shares of Common Stock on the date of grant. At December 31, 1997,
1.1 million shares of Common Stock are reserved for exercise of warrants and
stock options.

Options granted under the 1997 qualified stock option plan are exercisable
at the fair market value on the date of grant and, subject to termination of
employment, expire ten years form the date of grant, are not transferable other
than on death, and are exercisable in three equal annual installments commencing
one year from the date of grant (with the exception of 10,000 options which have
a vesting period of one year).

Information on stock options is shown in the following table:

Shares Outstanding Exercisable Price Range
------------------ ----------- -----------
Balances at August 21, 1997 -- -- --
Granted 626,000 -- $21.00
Granted 34,000 -- $24.69
Granted 10,000 -- $26.19
Became Exercisable -- -- --
Canceled (10,000) -- $21.00
------- --------
Balances at December 31, 1997 660,000 -- $21.00 - $26.19
=======

The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for stock-based
employee compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation," the Company's pro forma net income and earnings per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially effect fair value
estimates and, therefore, do not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model for all options
granted on or after August 20, 1997 and a risk-free interest rate of 5.00%,
dividend yield on common stock of 5%, a volatility factor for the market price
of the

53
<PAGE>

Company's Common Stock of .259 and a weighted-average expected life of options
of approximately four years, the Company's pro forma net income, basic pro forma
earnings per share and diluted pro forma earnings per share would have been
$3,439, $0.28 and

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

$0.28, respectively, for the period August 20, 1997 to December 31, 1997. For
purposes of these pro forma disclosures, the estimated fair value of options is
amortized over the options' vesting period. Since the number of options granted
and their fair value may vary significantly from year to year, the pro forma
compensation expense in future years may be materially different.

Earnings Per Share

Basic and diluted earnings per common share for the period ended December
31, 1997 have been computed based upon weighted average equivalent shares
outstanding of 12,292 and 12,404 respectively. The difference in the weighted
average shares outstanding represents the inclusion of common share equivalents
from options issued and outstanding at December 31, 1997 in the calculation of
diluted earnings per share which is not included in basic earnings per share.

10. Benefit Plans

The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $35, $44, $30 and $7
during the periods August 21, 1997 to December 31, 1997, January 1, 1997 to
August 20, 1997 and the years ended December 31, 1996 and 1995, respectively.
Separate actuarial information regarding such plans is not made available to the
contributing employers by the union administrators or trustees, since the plans
do not maintain separate records for each reporting unit.

401(k) Plan

During August 1997, the Company implemented a 401(k) Savings/ Retirement
Plan (the "401(k) Plan") to cover eligible employees of the Company and any
designated affiliate. The 401(k) Plan permits eligible employees of the Company
to defer up to 15% of their annual compensation, subject to certain limitations
imposed by the Code. The employees' elective deferrals are immediately vested
and non-forfeitable upon contribution to the 401(k) Plan. The Company did not
make any contributions to the 401(k) Plan during 1997.

11. Commitments and Contingencies

The Company and the Operating Partnership are not presently involved in
any material litigation nor, to their knowledge, is any material litigation
threatened against them or their properties, other than routine litigation
arising in the ordinary course of business. Management believes the costs, if
any, incurred by the Company and the Operating Partnership related to this
litigation will not materially affect the financial position, operating results
or liquidity of the Company and the Operating Partnership.

The Company has entered into employment agreements with certain executive
officers. Six executive officers have three year employment agreements which
expire in August 2000. The base compensation associated with these employment
agreements total $1,100 annually.

The SL Green Predecessor is the lessor and sub-lessor of commercial
buildings under operating leases with expiration dates ranging from 1998 to
2031. The minimum rental amounts due under the leases are generally either

54
<PAGE>

subject to scheduled fixed increases or adjustments. The leases generally also
require that the tenants reimburse the SL Green Predecessor for increases in
certain operating costs and real estate taxes above their base year costs.

55
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

70% of the fair market value of the property. The portion of the lease
attributed to land is classified as an operating lease and the remainder as a
capital lease. The initial lease term is 49 years with an option for an
additional 26 years. Beginning in lease year 11 and 25, the lessor is entitled
to additional rent as defined by the lease agreement.

The Company leases 673 First Avenue with a cost basis of $12,208 and
cumulative amortization of $2,284 under a capital lease at December 31, 1997.
The following is a schedule of future minimum lease payments under capital
leases and noncancellable operating leases with initial terms in excess of one
year as of December 31, 1997:

Noncancellable
Operating
December 31 Capital Leases Leases
----------- -------------- ------

1998 $ 1,140 $ 3,101
1999 1,140 3,101
2000 1,177 3,218
2001 1,290 3,451
2002 1,290 4,741
Thereafter 62,886 158,015
-------- --------
Total minimum lease
payments 68,923 $175,627
========
Less amount
representing interest (54,433)
--------
Present value of net
minimum lease payments $ 14,490
========

Rent expense under noncancellable operating leases for the year ended
December 31, 1997 was $1,560.

12. Environmental Matters

The management of the Company believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on the Company's financial position, results of
operations or cash flows. Management is unaware of any instances in which it
would incur significant environmental cost if any of the properties were sold.

13. Extraordinary Items

Forgiveness of subordinated property-level mortgage debt totaling $22,087
(net of other partners' share of $11,332 for the period January 1, 1997 to
August 20, 1997) represents the restructuring of property-level debt owned or
contributed at the IPO date and is reflected in the accompanying SL Green
Predecessor financial statements as an extraordinary gain.

Prepayment penalties of $1,071 (net of minority interest of $207) and
unamortized deferred charges of $803 (net of minority interest of $155) related
to mortgages paid in connection with the Formation Transactions were expensed
and are reflected in the Company's financial statements as an extraordinary
loss.

56
<PAGE>

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

14. Quarterly Financial Data (Unaudited)

The following summary represents the Company's results of operations for
the quarters ended September 30, 1997 (August 21, 1997 to September 30, 1997)
December 31, 1997 (in thousands, except share amounts)

Quarter Ended Quarter Ended
December 31, 1997 September 30, 1997
----------------- ------------------

Total revenues ............................ $16,058 $ 7,149
======= =========
Income net of minority interest and before
extraordinary item .................... $ 3,033 $ 2,056
======= =========
Net income ................................ $ 3,503 $ 182
======= =========
Income per share before extraordinary item. $ 0.29 $ 0.17
======= =========
Net income per share - basic .............. $ 0.29 $ 0.01
======= =========
Net income per share - diluted ............ $ 0.28 $ 0.01
======= =========

The 1997 quarter's earnings per share amounts have been restated to comply
with SFAS No. 128.

15. Subsequent Events

Acquisition of 321 and Helmsley Properties.

The Company announced in February 1998 three (3) additional properties
placed under contract for purchase at a cost of approximately $176 million. The
properties aggregate rentable area is approximately 1.7 million square feet. The
Company closed two of these acquisitions in March 1998 and the third is expected
to close during the second quarter of 1998. Acquisition financing for these
properties was obtained through a commitment from Lehman Brothers Holdings, Inc.
for a short term Senior Credit loan for up to $275 million. The Company expects
to use these loan proceeds to (i) re-pay the current balance on its line of
credit ($93 million at March 1, 1998), (ii) fund the closing of the announced
acquisitions and (iii) provide for general corporate purposes. The three
acquisition properties are as follows:

321 West 44th Street

On January 26, 1998 SL Green announced it had placed under contract a
200,000 square foot office building at 321 West 44th Street. The property was
contracted to be acquired for $17 million in cash and was approximately 96%
leased at the time of acquisition. Closing is anticipated to occur during the
second quarter of 1998.

Acquisition of Helmsley Properties

57
<PAGE>

Building) from the Helmsley organization. The Graybar building is located
adjacent to Grand Central Station and encompasses approximately 1.2 million
square feet. 1466 Broadway is located in the heart of Times Square at 42nd
Street and Broadway encompassing approximately 290,000 square feet. The
aggregate base purchase price for the two properties is $142 million. At the
time the acquisition was announced, the Graybar building was 83% leased and 1466
Broadway was approximately 87% leased. The Company closed on these acquisitions
on March 18, 1998.

SL Green Realty Corp.
Notes to Consolidated Financial Statements (Continued)
December 31, 1997

(Dollars in Thousands)

Acquisition Financing

58
<PAGE>

Report of Independent Auditors

The Board of Directors
SL Green Realty Corp.

We have audited the accompanying combined balance sheet of the uncombined
joint ventures of SL Green Predecessor as of December 31, 1996 and the related
combined statements of operations, owners' deficit and cash flows for the period
from January 1, 1997 to August 20, 1997 and for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of SL Green Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the combined financial statements referred to above
present fairly in all material respects, the combined financial position of the
uncombined joint ventures of SL Green Predecessor at December 31, 1996 and the
combined results of its operations and its cash flows for the period from
January 1, 1997 to August 20, 1997 and for each of the two years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.

/S/ Ernst & Young LLP

New York, New York
February 10, 1998

59
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

Combined Balance Sheet

(Dollars in Thousands)

December 31, 1996

Assets
Commercial real estate properties, at cost:
Land................................................ $6,366
Buildings and improvements.......................... 75,307
Property under capital lease........................ 12,208
---------
93,881
Less accumulated depreciation....................... (20,923)
---------
72,958
Cash and cash equivalents............................... 2,223
Restricted cash......................................... 1,588
Deferred rents receivable............................... 14,860
Deferred costs, net..................................... 4,812
Other assets............................................ 2,459
---------
Total assets............................................ $98,900
=========

Liabilities and owners' deficit
Mortgages and note payable.............................. $74,827
Accrued interest payable................................ 15,418
Obligations under capital lease......................... 14,265
Deferred rent payable................................... 11,459
Accounts payable and accrued expenses................... 1,200
Accounts payable to related parties..................... 688
Security deposits....................................... 2,672
---------
Total liabilities....................................... 120,529
Commitments, contingencies and other comments
Owners' deficit:
SL Green Predecessor.................................. (15,570)
Other partners........................................ (6,059)
---------
Total owners' deficit................................... (21,629)
---------
Total liabilities and owners' deficit................... $98,900
=========

See accompanying notes.

60
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

Combined Statements of Operations

(Dollars in Thousands)

January 1, to Year ended December 31,
August 20 -----------------------
1997 1996 1995
-------- -------- --------

Revenues:
Rental revenue ........................... $ 12,604 $ 17,386 $ 16,519
Escalation and reimbursement revenues .... 859 1,488 1,415
Other income ............................. 89 28 18
-------- -------- --------
Total revenues ............................. 13,552 18,902 17,952
-------- -------- --------
Expenses:
Operating expenses:
Other .................................. 2,342 3,115 2,931
Related parties ........................ 634 849 695
Real estate taxes ........................ 1,741 2,316 2,183
Rent expense ............................. 2,425 3,756 3,743
Interest ................................. 5,320 7,743 7,785
Depreciation and amortization ............ 2,510 3,580 3,768
-------- -------- --------
Total expenses ............................. 14,972 21,359 21,105
-------- -------- --------
Loss before extraordinary gain ............. (1,420) (2,457) (3,153)
-------- -------- --------
Extraordinary Gain ......................... 33,419 -- --
-------- -------- --------
Net income (loss) .......................... $ 31,999 $ (2,457) $ (3,153)
======== ======== ========

See accompanying notes.

61
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

Combined Statements Of Owners' Deficit

(Dollars in Thousands)

<TABLE>
<CAPTION>
SL Green & All other
Related Entities Partners Total
---------------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1994 ....................... $(13,271) $ (7,473) $(20,744)
Distributions .................................... -- -- --
Contributions .................................... 63 62 125
Net loss for the year ended December 31, 1995 .... (2,249) (904) (3,153)
-------- -------- --------
Balance at December 31, 1995 ....................... (15,457) (8,315) (23,772)
Distributions .................................... -- (1,150) (1,150)
Contributions .................................... 1,650 4,100 5,750
Net loss for the year ended December 31, 1996 .... (1,763) (694) (2,457)
-------- -------- --------
Balance at December 31, 1996 ....................... (15,570) (6,059) (21,629)
Distributions .................................... (1,702) (1,345) (3,047)
Other-reclassification of joint venture to
combined property .............................. (880) (4,463) (5,343)
Contributions .................................... 450 385 835
Net income for the period ending August 20, 1997 . 21,102 10,897 31,999
-------- -------- --------
Balance at August 20, 1997 ......................... $ 3,400 $ (585) $ 2,815
======== ======== ========
</TABLE>

See accompanying notes.

62
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

Combined Statements Of Cash Flows

(Dollars in Thousands)

<TABLE>
<CAPTION>
January 1, to Year ended December 31,
August 20 -----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net Income (loss) ....................................... $ 31,999 $ (2,457) $ (3,153)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Extraordinary item .................................... (33,419) -- --
Depreciation and amortization ......................... 2,510 3,580 3,768
Deferred rents receivable ............................. (293) (524) (370)
Other ................................................. 93 -- --
Changes in operating assets and liabilities:
Restricted cash ....................................... (135) (383) 70
Deferred costs ........................................ (639) (705) (54)
Other assets .......................................... 1,552 (1,033) (75)
Accounts payable and accrued expenses ................. (616) 768 (192)
Accounts payable to related parties ................... (85) (91) (124)
Security deposits ..................................... 133 409 (102)
Accrued interest on mortgage notes
payable ............................................. 1,144 969 1,781
-------- -------- --------
Net cash provided by operating activities ............... 2,244 533 1,549
-------- -------- --------
Investing activities
Additions to land, buildings and
improvements .......................................... (1,232) (4,583) (690)
-------- -------- --------
Net cash used in investing activities ................... (1,232) (4,583) (690)
-------- -------- --------
Financing activities
Payments of mortgage notes payable ...................... (1,211) (1,674) (1,531)
Cash distributions to owners ............................ (3,047) (1,150) --
Cash contributions from owners .......................... 835 5,750 125
Capitalized lease obligations ........................... 824 1,277 1,532
-------- -------- --------
Net cash provided by (used in) financing
activities ............................................ (2,599) 4,203 126
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ........................................... (1,587) 153 985
Cash transfer related to Praedium Bar
Associates, LLC presented as a
combined entity ....................................... (185) -- --
Cash and cash equivalents at beginning
of period ............................................. 2,223 2,070 1,085
-------- -------- --------
Cash and cash equivalents at end of
period ................................................ $ 451 $ 2,223 $ 2,070
======== ======== ========
Supplemental cash flow disclosures
Interest paid ........................................... $ 4,176 $ 6,774 $ 6,004
======== ======== ========
Supplemental schedule of non cash
investing and financing activities:
Assumption of mortgage in connection with property
acquisition ......................................... -- $ 10,200 --
</TABLE>

63
<PAGE>

On June 30, 1997 the remaining interest of Praedium Bar Associates, LLC
("Praedium Bar") was purchased by an affiliate of Stephen L. Green. In
connection with the purchase as of June 30, 1997, the assets and liabilities of
Praedium Bar have been excluded from the financial statements of the uncombined
joint ventures of SL Green Predecessor and have been presented in the combined
financial statements of SL Green Predecessor. The assets, liabilities and
owners' equity of Praedium Bar as of June 30, 1997 were as follows:

Commercial real estate property, net............................. $14,383
Total assets..................................................... 16,174
Mortgage notes payable........................................... 10,200
Total liabilities................................................ 10,831
Owners' equity................................................... 5,343

See accompanying notes.

64
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

December 31, 1996

Notes to Combined Statements

(Dollars in Thousands)

1. Description of Business and Significant Accounting Policies

The uncombined joint ventures of SL Green Predecessor are engaged in the
business of owning, managing and leasing, and repositioning Class B office
properties in Manhattan, New York.

Formation Transactions

Concurrently with the consummation of the initial public offering of SL
Green Realty Corp. (the "REIT") Common Stock (the "Offering"), which was
completed on August 20, 1997 the REIT and a newly formed limited partnership, SL
Green Operating Partnership, L.P. (the "Operating Partnership"), together with
the partners and members of the affiliated partnerships of the SL Green
Predecessor and other parties which hold ownership interests in the properties
(collectively, the "Participants"), engaged in certain formation transactions
(the "Formation Transactions"). The Formation Transactions were designed to (i)
enable the REIT to raise the necessary capital to acquire the remaining
interests in the uncombined joint ventures of the SL Green Predecessor and repay
certain mortgage debt relating thereto and pay other indebtedness, (ii) enable
the REIT to acquire properties, (iii) fund costs, capital expenditures, and
working capital, (iv) provide a vehicle for future acquisitions, (v) enable the
REIT to comply with certain requirements under the Federal income tax laws and
regulations relating to real estate investment trusts, and (vi) preserve certain
tax advantages for certain Participants.

The REIT is the sole general partner in the Operating Partnership. The
Operating Partnership received a contribution of interests in the real estate
properties in exchange for units of limited partnership interests in the
Operating Partnership and/or cash. The REIT is a fully integrated
self-administered and self-managed.

65
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

Principles of Combination

The uncombined joint ventures of the SL Green Predecessor is not a legal
entity but rather a combination of real estate properties (collectively, the
"Properties") and interests in entities that are organized as partnerships and a
limited liability company. The operations of the properties are included in the
financial statements of the SL Green Predecessor from the date of acquisition
and management. All significant intercompany transactions and balances have been
eliminated in combination.

Capital contributions, distributions and profits and losses are allocated
to the owners in accordance with the terms of the applicable agreements.

The joint ventures, included in the accompanying combined financial
statements include partnerships and a limited liability company which are
managed but not controlled by the SL Green Predecessor, are as follows:

<TABLE>
<CAPTION>
Partnerships/Limited SL Green Predecessor
Liability Company Property Percentage Ownership Ownership Type
- ----------------- -------- -------------------- --------------
<S> <C> <C> <C>
673 First Realty Company....... 673 First Avenue 67.0% Co-general partner
29/35 Realty Associates, LP.... 29 West 35th Street 21.5% Co-general partner
470 Park South Associates, LP.. 470 Park Avenue South 65.0% Co-general partner
Praedium Bar Associates, LLC... 36 West 44th Street 10.0%(A) Has veto rights
("Praedium Bar") relating to sale and
financing
</TABLE>

66
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

Use of Estimates

Depreciation of Real Estate Properties

Depreciation and amortization is computed on the straight-line method as
follows:

Category Term
-------- ----

Building............................ 40 years
Property under capital lease........ 49 years
Building improvements............... remaining life of the building
Tenant improvements................. remaining life of the lease

Depreciation expense including the amortization of the capital lease asset
amounted to $2,917, and $2,999 in 1996 and 1995 respectively. For the period
ended August 20, 1997 depreciation expense amounted to $1,859.

Cash and Cash Equivalents

The SL Green Predecessor considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

Restricted cash consists of security deposits.

67
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheet. Contractually due but unpaid rents are
included in other assets on the accompanying combined balance sheet. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases in
certain economic indexes.

Deferred Lease Costs

Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases, and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is retired before maturity.

Capitalized Interest

Interest for borrowings used to fund development and construction is
capitalized to individual property costs.

Rent Expense

68
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

Income Taxes

The properties are not taxpaying entities for Federal income tax purposes,
and, accordingly, no provision or credit has been made in the accompanying
financial statements for Federal income taxes. Owners' allocable shares of
taxable income or loss are reportable on their income tax returns.

Concentration of Revenue and Credit Risk

Approximately 60% of the properties revenue for the two years ended
December 31, 1996 were derived from 673 First Avenue. Approximately 50% of the
properties revenue for the period January 1, 1997 to August 20, 1997 were
derived from 673 First Avenue. The loss or a material decrease in revenues from
this building for any reason may have a material adverse effect on the
properties. In addition approximately 30% of the properties revenue for the two
years ended December 31, 1996 and the period January 1, 1997 to August 20, 1997
were derived from three tenants, (Society of NY Hospital, Kallir, Phillips,
Ross, Inc. and UNICEF), which lease space in the 673 First Avenue building.

Management of the SL Green Predecessor performs on going credit
evaluations of its tenants and requires certain tenants to provide security
deposits.

69
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

2. Mortgage Notes Payable

The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Mortgage Accrued
Payable Interest
Property Mortgage Notes With Fixed Interest 1996 1996
- -------- ---------------------------------- ---- ----
<S> <C> <C> <C>
29 West 35th Street First mortgage note with interest payable
at 8.464%, due February 1, 2001 $3,040 $21

673 First Avenue First mortgage note with interest payable
at 9.0%, due December 13, 2003 19,439 --

470 Park Avenue South First mortgage note with interest payable
at 8.25%, due April 1, 2004 11,132 77

470 Park Avenue South Second mortgage note with interest
payable at 10.0%, due October 31, 1999 1,067 9

(A) 470 Park Avenue South Third mortgage note with interest payable
at 10.98%, due September 30, 2001 13,000 10,204
-------- ------
Total Fixed Rate Notes 47,678 10,311
-------- ------
<CAPTION>
Mortgage Notes With Variable Interest
-------------------------------------
<S> <C> <C> <C>
36 W 44th Street First mortgage note with interest based
on LIBOR + 3.4%, due September 30, 1998 10,200 --
</TABLE>

70
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

673 First Avenue Second mortgage note with interest
based on adjusted LIBOR rate, as
defined by the mortgage agreement,
or Prime + 1.0%, due January 1, 2014 15,180 4,574
------- -------

Total Variable Rate Notes 25,380 4,574
------- -------

Unsecured Note
--------------
673 First Avenue Unsecured note with interest based
on Prime plus 1.0%, due January 1,
2014 1,769 533
------- -------
Total Unsecured Note 1,769 533
------- -------

Total Mortgages and Note Payable $74,827 $15,418
======= =======

An analysis of the mortgages and accrued interest are as follows:

Mortgage Accrued
Payable Interest
Mortgage Type 1996 1996
- ------------- ---- ----

First mortgages $43,811 $98
Second mortgages 16,247 4,583
Third mortgage 13,000 10,204
Unsecured note 1,769 533
------- -------
$74,827 $15,418
======= =======

- ----------

(A) 470 Park Avenue South

The third mortgage requires the monthly payment of minimum interest at 6%.
The difference between the minimum interest and the base interest of
10.98% may be deferred until the maturity of the mortgage. The mortgage
requires additional interest of 50% of adjusted gross revenue, as defined
in the mortgage agreement, of the property for the applicable loan year.
If the total loan balance exceeds 90% of the appraised value in lieu of
payments of additional interest all of the adjusted gross revenue shall be
paid and applied as a reduction of the principal indebtedness until such
time as the loan balance is reduced to 90% of the appraised value. Upon
payment of the outstanding principal balance at maturity or on another
date shared appreciation interest, as defined in the mortgage agreement
will be due. The holder of the mortgage is entitled to an annual rate of
return on the mortgage of 13%. If the annual rate of return is less than
13%, the share

71
<PAGE>

appreciation interest will be increased to the percentage necessary to
provide the mortgage holder with such return. Additional interest of $19
was due in 1996 and was unpaid as of December 31, 1996.

72
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

3. Extraordinary Item

Forgiveness of subordinated property-level mortgage debt totaling $33,419
represents the restructuring of property-level debt owned or contributed at the
IPO date and is reflected in the 1997 Combined Statement of Operation, as in
extraordinary gain.

4. Deferred Costs

Deferred costs consist of the following:

1996
----

Deferred financing....................... $3,372
Deferred lease........................... 7,415
-------
10,787
Less accumulated amortization............ (5,975)
-------
$4,812
=======

5. Fair Value of Financial Instruments

The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the properties could realize on
disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.

Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values. Estimated fair value is based on
anticipated settlement in connection with the REIT formation, interest rates and
other related factors currently available to the properties.

73
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

for issuance of debt with similar terms and remaining maturities. The fair value
by mortgage type as of December 31, 1996 is as follows:

Carrying
Mortgage Type Amount Fair Value
- --------------- -------- ----------
First Mortgages............................... $43,811 $44,369
Second Mortgages.............................. 16,247 6,067
Third Mortgages............................... 13,000 12,000
Unsecured Note................................ 1,769 0

Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.

6. Lease Agreements

Capital Lease

In April 1988, the SL Green Predecessor entered into a lease agreement for
property at 673 First Avenue in New York City, which has been capitalized for
financial statement purposes. Land was estimated to be approximately 70% of the
fair market value of the property. The portion of the lease attributed to land
is classified as an operating lease and the remainder as a capital lease. The
initial lease term is 49 years with an option for an additional 26 years.
Beginning in lease year 11 and 25, the lessor is entitled to additional rent as
defined by the lease agreement.

74
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

Rent expense amounted to approximately $3,756 for each year ended December
31, 1996 and 1995 respectively. For the period January 1, 1997 to August 20,
1997 rent expense amounted to approximately $2,425.

Capital lease building

Leased property consists of the following:

1996
----

Building.................................... $12,208
Less accumulation amortization.............. 2,035
-------
Leased property, net........................ $10,173
=======

75
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

7. Related Party Transactions

There are several business relationships with related parties which
involve management, leasing, and construction fee revenues and maintenance
expenses in the ordinary course of business. Transactions include the following:

January 1 to Year ended December 31,
August 20, -----------------------
1997 1996 1995
---- ---- ----

Management expenses.......... $448 $622 $563
Leasing commission expenses.. 295 218 48
Construction fees............ 1,796 185 376
Maintenance expenses......... 186 227 132

Amounts due to related parties consist of:

December 31,
1996
------------

SL Green Management Corp......................... $512
Other partners................................... 176
----
$688
====

8. Benefit Plan

The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $42 and $30 in 1996 and
1995 respectively; and $38 for the period January 1 to August 20, 1997. Separate
actuarial information regarding such plans is not made available to the
contributing employers by the union administrators or trustees, since the plans
do not maintain separate records for each reporting unit.

76
<PAGE>

Uncombined Joint Ventures of
SL Green Predecessor

(Dollars in Thousands)

Notes to Combined Statements (Continued)

December 31, 1996

9. Contingencies

SL Green Predecessor is party to a variety of legal proceedings relating
to the ownership of the Properties arising in the ordinary course of business.
SL Green Predecessor management believes that substantially all of these
liabilities are covered by insurance. All of these matters, taken together, are
not expected to have a material adverse impact on the uncombined joint venture
of SL Green Predecessor's, financial position, results of operations or cash
flows.

10. Environmental Matters

The management of SL Green Predecessor believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on the uncombined joint venture of SL Green
Predecessor's financial position, results of operations or cash flows.
Management is unaware of any instances in which it would incur significant
environmental cost if any of the properties were sold.

77
<PAGE>

SL Green Realty Corp.
Schedule III-Real Estate And Accumulated Depreciation
December 31, 1997
(Dollars In Thousands)

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Initial Cost Cost Capitalized Gross Amount at Which Carried
------------ ---------------- -----------------------------
Subsequent to Acquisition at Close of Period
------------------------- ------------------

Building and Building and Building and
Description (2) Encumbrance Land Improvements Land Improvements Land Improvements Total
--------------- ----------- ---- ------------ ---- ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
70 West 36th St. -- $1,517 $7,700 $13 $7,342 $1,530 $15,042 $16,572
1414 Avenue of the Americas -- 2,948 6,790 60 716 3,008 7,506 10,514
673 First Avenue $18,013
(1 mortgage) 0 43,618 -- 82 -- 43,700 43,700
29 West 35th Street 2,974
(1 mortgage) 339 5,682 -- 89 339 5,771 6,110
470 Park Avenue 10,833
South (1 mortgage) 3,750 30,718 -- 212 3,750 30,930 34,680
36 West 44th Street -- 3,259 13,330 -- 592 3,259 13,922 17,181
1372 Broadway -- 10,478 41,912 66 485 10,544 42,397 52,941
1140 Avenue of the Americas -- 4,207 16,828 54 231 4,261 17,059 21,320
50 West 23rd Street 21,000
(1 mortgage) 7,217 28,866 43 180 7,260 29,046 36,306
17 Battery Place -- 11,686 46,744 -- -- 11,686 46,744 58,430
110 East 42nd Street -- 6,000 24,070 26 115 6,026 24,185 30,211
633 Third Avenue -- 2,171 8,682 -- -- 2,171 8,682 10,853
------------ ------- -------- ---- ------- ------- -------- --------
$52,820 $53,572 $274,940 $262 $10,044 $53,834 $284,984 $338,818
============ ======= ======== ==== ======= ======= ======== ========
</TABLE>

Column A Column F Column G Column H Column I
-------- -------- -------- -------- --------

Life on Which
Accumulated Date of Date Depreciation is
Description (2) Depreciation Construction Acquired Computed
--------------- ------------ ------------ -------- --------

70 West 36th St. $6,183 12/19/84 Various
1414 Avenue of the Americas 378 6/18/96 Various
673 First Avenue
8,432 8/20/97 Various
29 West 35th Street
474 8/20/97 Various
470 Park Avenue
South 7,044 8/20/97 Various
36 West 44th Street 307 8/20/97 Various
1372 Broadway 385 8/20/97 Various
1140 Avenue of the Americas 154 8/20/97 Various

50 West 23rd Street 265 8/20/97 Various
17 Battery Place 0 12/19/97 Various
110 East 42nd Street 178 9/15/97 Various
633 Third Avenue 0 12/30/97 Various
-------
$23,800
=======

- ----------

(1) Encumbrance includes accrued interest of $235 December 31, 1996
(2) All properties located in New York, New York

78
<PAGE>

The changes in real estate for the three years ended December 31, 1997 are
as follows:

1997 1996 1995
-------- -------- --------

Balance at beginning of year ............... $ 26,284 $ 15,559 $ 15,190
Property Acquisitions and Formation
Transactions ............................. 306,752 -- --
Improvements ............................... 5,782 10,725 369
-------- -------- --------
Balance at end of year ..................... $338,818 $ 26,284 $ 15,559
======== ======== ========

The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1997 was approximately $338,818.

The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1997 are as follows:

1997 1996 1995
------- ------- -------

Balance at beginning of year ............ $ 5,721 $ 5,025 $ 4,508
Formation Transactions .................. 14,073 -- --
Depreciation for year ................... 4,006 696 517
------- ------- -------
Balance at end of year .................. $23,800 $ 5,721 $ 5,025
======= ======= =======

79
<PAGE>

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A under the Securities and
exchange Act of 1934, as amended, prior to April 30, 1998 (the "1998 Proxy
Statement"), is incorporated herein by reference.

ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION

The information set forth under the captions "Executive and Director
Compensation" and "Compensation Committee Interlocks and Insider Participation"
in the 1997 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1998 Proxy Statement is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Relationships and
Related Transactions" in the 1998 Proxy Statement is incorporated herein by
reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE, AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements

SL GREEN REALTY CORP

THE SL GREEN PREDECESSOR

80
<PAGE>

UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS

Notes to Combined Financial Statements ....................................65

(a)(2) Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation as of December 31,
1997

Schedules other than those listed are omitted as they are not applicable or the
required or equivalent information has been included in the financial statements
or notes thereto.

81
<PAGE>

INDEX TO EXHIBITS

(a)
Exhibits Page
- -------- ----

3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Specimen Share certificate*
10.1 Form of Agreement of Limited Partnership of the Operating Partnership*
10.2 Form of Articles of Incorporation and Bylaws of the Management
Corporation*
10.3 Form of Articles of Incorporation and Bylaws of the Leasing
Corporation*
10.4 Form of Articles of Incorporation and Bylaws of the Construction
Corporation*
10.5 Form of Employment and Noncompetition Agreement among the Executive
Officers and the Company*
10.6 Employment and Noncompetition Agreement between David J. Nettina and
the Company*
10.7 Form of Registration Rights Agreement between the Company and the
persons named therein*
10.8 Amended 1997 Stock Option and Incentive Plan
10.9 Option to Purchase 110 East 42nd Street*
10.10 Assignment and Assumption of Contract**
10.11 Contract of Sale between 110 East 42nd Street Associates Limited
Partnership and Green 110 East 42nd Street Realty LLC**
10.12 Option to Purchase 17 Battery Place*
10.13 Amended and Restricted Agreement of Sale relating to 17 Battery
Place***
10.14 Assignment and Assumption of Contract relating to 17 Battery Place***
10.15 Assignment and Assumption of Agreement relating to 17 Battery Place***
10.16 Tenancy in Common Agreement relating to 17 Battery Place***
10.17 Amended and Restricted Substitute Mortgage Note No. 1 relating to 17
Battery Place***
10.18 Senior Unsecured Credit Facility documentation between the Company and
LBHI***
21.1 Subsidiaries of the Registrant*
27.1 Financial Data Schedule

- ----------

* Incorporated by reference to the Company's Registration Statement on Form
S-11 (333-29329).
** Incorporated by reference to the Company's Form 8-K filed on September 24,
1997.
*** Incorporated by reference to the Company's Form 8-K filed on January 2,
1998.

(b) Report on Form 8-K

The following reports on Form 8-K were filed during the quarter ended
December 31, 1997.

(1) On September 24, 1997, the Registrant filed a Form 8-K relating to the
acquisition of 110 East 42nd Street. On November 12, 1997, the Registrant filed
a Form 8-K/A containing the acquired financial statements for that acquisition.

82
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SL GREEN REALTY CORP.

Dated: September 24, 1999 By: /s/ Thomas E. Wirth
---------------------------------
Thomas E. Wirth
Chief Financial Officer

KNOW ALL MEN BY THESE PRESENTS, that we the undersigned officers and
directors of SL Green Realty Corp. hereby severally constitute Stephen L. Green,
Benjamin P. Feldman and Ann Iseley, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Annual Report on Form 10-K, and
generally to do all such things in our names and in our capacities as officers
and directors to enable SL Green Realty Corp. to comply with the provisions of
the Securities Exchange Act of 1934, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Annual Report on Form
10-K and any all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

Signatures Title Date
- ---------- ----- ----

/s/ Stephen L. Green*
- --------------------------- Chairman of the Board, September 24, 1999
Stephen L. Green Chief Executive Officer and
President (Principal
Executive Officer)

/s/ David J. Nettina*
- --------------------------- Executive Vice President, September 24, 1999
David J. Nettina Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)

/s/ Benjamin P. Feldman*
- --------------------------- Executive Vice President, September 24, 1999
Benjamin P. Feldman General Counsel, Secretary
and Director

/s/ John H. Alschuler, Jr.*
- --------------------------- Director September 24, 1999
John H. Alschuler, Jr.

/s/ Edwin Thomas Burton, III*
- ---------------------------- Director September 24, 1999
Edwin Thomas Burton, III

/s/ John S. Levy*
- --------------------------- Director September 24, 1999
John S. Levy

* - By Power of Attorney