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

For the fiscal year ended December 31, 1998

[ ] 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 Lexington Avenue, New York, New York 10170
(Address of principal executive offices - zip code)

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

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 15, 1999, there were 24,191,826 shares of the Registrant's common
stock outstanding. The aggregate market value of common stock held by
non-affiliates of the Registrant (23,200,601 shares) at March 15, 1999, was
$413,260,705. The aggregate market value was calculated by using the closing
price of the stock as of that date on the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Stockholders'
Meeting to be held May 19, 1999 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
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PART I

<S> <C>
1. BUSINESS ................................................................... 3
2. PROPERTIES ................................................................. 10
3. LEGAL PROCEEDINGS .......................................................... 22
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................ 23

PART II

5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....... 24
6. SELECTED FINANCIAL DATA .................................................... 24
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ............................................................. 27
7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 38
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................ 39
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ...................................................... 79

PART III

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ........................ 79
11. EXECUTIVE COMPENSATION .................................................... 79
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 82
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................ 82

PART IV

14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K ..... 82

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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") with
in-house 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
19 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, 1998, the Company owned interests
in 18 Class B commercial properties encompassing approximately 6.3 million
rentable square feet located primarily in midtown Manhattan (the
"Properties"). The Company's wholly-owned interests in these properties
represent fee ownership (14), including ownership in condominium units,
leasehold ownership (2) and operating sublease ownership (2). Pursuant to the
operating sublease arrangements, we, as tenant under the operating sublease,
perform the functions traditionally performed by landlords with respect to
our subtenants. We are responsible for not only collecting rent from our
subtenants, but also maintaining the property and paying expenses relating to
the property. As of December 31, 1998, the weighted average occupancy (total
occupied square feet divided by total available square feet) of the
Properties was 93%. In addition, the Company continues to manage six office
properties owned by third-parties and affiliated companies encompassing
approximately 1.6 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, Stephen L. Green Properties 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 83 persons, including 49 professionals
experienced in all aspects of commercial real estate. The Company's Corporate
offices are located at 420 Lexington Avenue, New York, New York 10170. The
Company can be contacted at (212) 594-2700 or visit the Company's website at
www.slgreen.com.

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 real estate

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properties as well as 95% of the economic non-voting interest in the management,
leasing and construction companies (the "Service Corporations"). The Company is
organized so as to qualify and has elected to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended.

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.

INITIAL PUBLIC OFFERING

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.

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, 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.

MAY 1998 PUBLIC OFFERINGS

On May 12, 1998 the Company completed the sale of 11.5 million shares of
common stock and 4.6 million share of 8% Preferred Income Equity Redeemable
Shares with a mandatory liquidation preference of $25.00 per share (the
"PIERS"). Gross proceeds from these equity offerings ($353 million, net of
underwriter's discount) were used principally to repay the Acquisition
Facility (see Item 1 - Financing Activity) and acquire additional properties.
These offerings resulted in the reduction of continuing investor's interest
in the Operating Partnership from 16.2% to 9.2%.

At December 31, 1998 the Operating Partnership had 26,379,882
outstanding partnership units. These outstanding units were the result of (i)
23,115,000 units issued to the Company in exchange for the net proceeds from
the Company's initial and secondary public offering of 23,115,000 common
shares, (ii) 2,383,284 units representing 9.2% of the total units outstanding
were issued for the contribution of interests in the properties owned by
Green Properties Inc. immediately prior to the IPO and 100% (representing
95% of the economic interest) of the non-voting common stock of the Service
Corporations (iii) 44,772 units issued for partial consideration for the 50%
fee interest in the property located at 711 Third Avenue in July 1998 and
(iv) the issuance of 836,826 units underlying common shares of the Company
previously issued to management and a Company financial advisor. The
Company's management and continuing investors own 3,179,281 units and common
stock or 12.1% 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. The Company is the sole managing general partner of the
Operating Partnership. All of the management and leasing operations with
respect to the properties as well as leasing operations with respect to a
portion of the properties not owned by the Company is conducted through the
management LLC. The operating partnership owns 100% of the management LLC.
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
qualifications 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
Corporations' (representing 5% of the total equity) is held by the Service
Corporation LLC. This controlling interest gives the Service Corporation LLC
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 and has played a critical role in satisfying the space

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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 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
Company owned properties include The City of New York, New York Association of
New Americans, Inc., Metro North, Parade Publications, Dow Jones, Crains
Communications, Ann Taylor, Escada, Cowles Business Media, Kallir, Philips, Ross
Inc., Bank Leumi, NationsBank, MCI International, New York Presbyterian
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 recovery of the New York commercial real
estate market from the downturn of the late 1980s and early 1990s combined with
the ongoing strength of the New York City economy 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 19 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 private companies) and (iii)
the ability to offer tax-advantaged structures to sellers through the exchange
of ownership interests as opposed to solely cash transactions. In addition, the
Company may benefit from the abolition of the New York State Real Property
Transfer Gains Tax, the reduction in the Federal Capital Gains Tax and from 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, 1998.

1998 ACQUISITIONS

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Since December 31, 1997, the Company completed the acquisition of six
additional properties for an aggregate purchase price of approximately $339
million. These properties were financed through excess proceeds from the
Company's May public offerings, use of the Company's revolving line of credit,
and additional property level debt. These six properties have an aggregate
rentable area of approximately 2.9 million square feet.

420 Lexington Avenue and 1466 Broadway

On March 18, 1998 the Company closed on its 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 was $142 million. At the time the
acquisition was announced, the Graybar building was 83% leased and 1466 Broadway
was approximately 87% leased.

321 West 44th Street

On March 31, 1998 the Company closed on its purchase of a 203,000 square
foot office building at 321 West 44th Street. The property was acquired for $17
million in cash and was approximately 96% leased at the time the acquisition was
announced.

711 Third Avenue

On May 21, 1998 the Company acquired the outstanding leasehold mortgage of
the property located at 711 Third Avenue for approximately $44.6 million in
cash. The 20-story, 524,000 square foot building was 79% occupied at the date of
acquisition. The Company's outstanding mortgage position provides for the
Company to receive 100% of the economic benefit from the property, and
accordingly for the period owned, the Company has recorded the operating results
of the property in the statement of operations. On July 2, 1998 the Company
acquired 50% of the fee interest in 711 Third Avenue for $20 million and 44,772
Operating Partnership Units.

440 Ninth Avenue

On June 1, 1998 the Company acquired the property located at 440 Ninth
Avenue for approximately $32 million in cash. The 18-story, 340,000 square foot
building was 76% occupied at the date of acquisition. In connection with this
purchase, the Company contracted to acquire the properties located at 38 East
30th Street and later assigned these contracts to third parties. In connection
with the assignment 38 East 30th Street, the Company extended a mortgage for
$6.2 million bearing interest at 8% and was repaid during September 1998.

1412 Broadway

On August 14, 1998 the Company purchased the property located at 1412
Broadway - The Fashion Gallery Building - for $72 million, plus approximately $5
million for reimbursement of loan prepayment charges and $5 million related to
capital expenditures, commissions and other closing costs. The property is a
25-story office building totaling 389,000 square feet with an occupancy rate at
the acquisition date, including pending leases, of 89.5%.

OTHER TRANSACTIONS

On January 8, 1998, the Company acquired fee title to its property located
at 1372 Broadway. Prior to this date, the Company held a mortgagee's interest in
this property with a right to acquire the fee without additional cost.

On April 14, 1998, the Company converted its mortgage interest in 36 West
44th Street into a fee interest and its mortgage interest in 36 West 43rd Street
into a leasehold interest (collectively known as the Bar Building) for an
additional cost of approximately $1.0 million.

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On January 15, 1999 the Company discontinued the current redevelopment and
subsequent purchase of 636 11th Avenue, and did not purchase the 469,000 square
foot industrial and warehouse property. Termination of the purchase agreement
signed last June resulted in a 1998 charge of approximately $1.1 million. The
Company continues to hold a $10.9 million first mortgage which is fully secured
by the property yielding a current rate of 8.875%, increasing to 9%, effective
March 1, 1999.

SUBSEQUENT AND PENDING ACQUISITIONS

Graybar Building Sublease

During January 1999, the Company purchased a sub-leasehold interest in 420
Lexington Avenue for $27.3 million. The sub-leasehold expires on December 30,
2008 with one 21-year renewal term expiring on December 30, 2029. The
acquisition was funded through the Company's revolving line of credit.

BMW Building

During January 1999, the Company acquired a 65% interest in the property
located at 555 West 57th Street (The BMW Building) for approximately $66.7
million (including an acquired 65% interest in existing mortgage debt totaling
$44 million). The 941,000 square foot property was approximately 100% leased as
of the acquisition date. The cash portion of the acquisition was funded through
the Company's revolving line of credit.

During March 1999 the Company contracted to acquire the remaining 35% of
the property located at 555 West 57th Street for approximately $20 milion.

Reckson Associates Realty Corp. Properties

On March 12, 1999, the Company entered into an agreement with Reckson
Associates Realty Corp. to purchase four office properties totaling 675,000
square feet for approximately $84.5 million. The acquisition will be financed
through a mortgage on the acquired properties ($53 million) and a mortgage on
the Graybar Building ($65 million). The excess funds will be used to reduce the
balance outstanding on the Company's Credit Facility.

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LEASING ACTIVITY

The following represents the change in occupancy lease rates of the
Company's properties from December 31, 1997 (or their date of acquisition in
1998) as compared to December 31, 1998:

Occupancy Percent

December 31,

PROPERTY 1998 1997
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Same Store1 99% 95%
=== ===

ACQUIRED 1997 POST IPO

110 East 42nd Street2 72%2 92%

17 Battery Place 85% 79%

633 Third Avenue 100% 100%
--- ---

Weighted Average Total 83% 83%
=== ===

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Occupancy Percent
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ACQUIRED 1998 December 31, 1998 At Acquisition Acquisition Date
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<S> <C> <C> <C>
1466 Broadway 90% 87% March 1999

420 Lexington Avenue 98% 83% March 1999

321 West 44th Street 97% 96% March 1999

440 Ninth Avenue 73% 76% June 1999

711 Third Avenue 96% 79% May 1999

1412 Broadway 89% 90% August 1999
--- ---

Weighted Average Total 93% 84%
=== ===

</TABLE>

FINANCING ACTIVITY

During March 1998, 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

- ----------

1 Represents properties owned/acquired at August 14, 1997 and consist of the
properties located at 673 First Avenue, 470 Park Avenue South, Bar
Building, 70 West 36th Street, 1414 Avenue of the Americas, 29 West 35th
Street, 1372 Broadway, 1140 Avenue of the Americas and 50 West 23rd Street.
2 Does not reflect new lease taking effect January 1, 1999 resulting in the
building's occupancy rate to increase to 99% and increasing the 1998
weighted average occupancy to 89%.

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financing necessary to acquire the Helmsley properties (the "Acquisition
Facility"). The Acquisition Facility, which closed on March 18, 1998, financed
the acquisition of the Helmsley properties, paid-off the outstanding balance on
the Credit Facility and provided liquidity for future acquisition and corporate
needs. The term of the Acquisition Facility was one year with a graduated
interest rate that was determined by a schedule based on the percent of loan
commitment outstanding and the duration of the outstanding commitments, ranging
from 170 to 300 basis points over LIBOR. The Acquisition Facility was secured by
the unencumbered assets of the Company. The Acquisition Facility was repaid
through the Company's May 1998 equity financings, resulting in an extraordinary
charge to earnings. All assets were released from the lien related to the
Acquisition Facility, resulting in some being reassigned to the Credit Facility
unencumbered asset pool. The Company's Credit Facility was reinstated subsequent
to the repayment of the Acquisition Facility during the second quarter. As of
December 31, 1998 current borrowings on the $140 million Credit Facility totaled
$23.8 million, with remaining availability of $110 million with a current
effective interest rate of 6.86%. Availability was reduced by the issuance of $6
million of Letters of Credit.

During December 1998, the Company closed two short-term bridge financings.
The first financing was a $51.5 million bridge loan with Prudential Securities
at an interest rate (7.58% at December 31, 1998) equal to 200 basis points over
the current one-month LIBOR . The loan matures on December 30, 1999 and is
secured by the properties located at 1412 Broadway and 633 Third Avenue. The
second financing was a $36 million bridge loan with Lehman Brothers at an
interest rate (8.29% at December 31, 1998) equal to 275 basis points over the
current one-month LIBOR . The loan matures on December 15, 1999 and is secured
by the properties located at 70 West 36th Street, 1414 Avenue of the Americas
and The Bar Building.

INTEREST RATE PROTECTION AGREEMENT

In anticipation of financing properties, the Company executed a forward
treasury rate lock on September 2, 1998 for $100 million of future debt. The
underlying rate for that position was 5.13%. On December 3rd this rate lock
expired and was not renewed. The negative value of this hedge at expiration was
$3.2 million. In connection with the hedge, during April 1999 the Company has
mortgage commitments to complete five permanent mortgage financings totaling
$103 million on properties located at 70 West 36th Street, 36 West 44th Street,
1414 Avenue of the Americas, 633 Third Avenue and 1412 Broadway. The hedge cost
represents a deferred financing cost which will be amortized over the life of
these financings, except for $0.2 million which related to a mismatch in terms
resulting in a charge to 1998 earnings.

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 Unites States combined. Of the total inventory of 379 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 Cass 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, 1999, the Company employed approximately 372 employees, over 60
of whom were managers and professionals, approximately 275 of whom were hourly
paid employees involved in building operations and approximately 37 of whom were
clerical, data processing and other administrative employees. There are
currently three collective bargaining agreements relating to 19 of the Company's
properties covering 275 employees of the Company. The Company believes that its
relations with its employees are good.

9
<PAGE>

ITEM 2. PROPERTIES

THE PORTFOLIO

GENERAL. As of December 31, 1998, the Company owned interests in 18 Class B
office properties encompassing approximately 6.3 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, 1998:

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/ 811,000 13.0% 85% $14,260,149 9.9% 45 $20.69 $18.93
Battery Place
29 W. 35th Street.... 1911/1985 Garment 78,000 1.2 97 1,533,539 1.2 11 20.31 19.50
50 W. 23rd Street.... 1892/1992 Chelsea 333,000 5.3 96 6,319,275 4.4 16 19.74 19.55
36 West 44th......... Grand Central
Street (5)......... 1922/1985 North 165,000(5) 2.6 100 4,579,606(5) 3.2 69 27.19 24.62

70 W. 36th Street.... 1923/1994 Garment 151,000 2.4 100 2,815,529 2.0 45 18.22 14.82
110 E. 42nd Street... 1921/---- Grand Central No. 251,000 4.0 72 4,543,456 3.1 35 25.19 26.37
470 Park Avenue Park Avenue
South(4)........... 1912/1994 South 260,000(4) 4.2 99 6,176,569 4.3 34 23.90 19.73
633 Third Avenue (7). 1962/---- Grand Central No. 41,000 0.7 100 1,709,433 1.2 3 42.08 44.64
673 First Avenue..... 1928/1990 Grand Central 422,000 6.8 100 10,733,289 7.5 18 25.43 23.40
South
1140 Avenue of the Rockefeller
Americas........... 1926/1951 Center 191,000 3.0 100 5,381,583 3.7 40 28.18 26.80
1372 Broadway ....... 1914/1985 Garment 508,000 8.1 99 10,988,757 7.6 48 21.85 22.43
1414 Avenue of the Rockefeller
Americas........... 1923/1990 Center 111,000 1.8 99 3,783,035 2.6 37 33.42 34.67
1466 Broadway........ 1907/1982 Garment 289,000 4.6 90 9,190,417 6.4 139 35.33 35.74
420 Lexington (8).... 1927/1982 Grand Cent.No. 1,188,000 19.0 98 29,452,425 20.4 294 25.30 25.65
321 W. 44th Street... 1929/---- Times Square 203,000 3.3 97 3,310,026 2.3 40 16.81 18.23
440 Ninth Avenue..... 1927/1989 Penn Station 339,000 5.4 73 4,441,837 3.1 19 17.95 17.49
711 Third Avenue..... 1955/---- Grand Cent.No. 524,000 8.4 96 15,194,853 10.5 29 30.21 27.36
1412 Broadway (9).... 1927/1989 Garment 389,000 6.3 89 9,714,657 6.7 123 28.06 30.71
-------------------------------------------------------------------------------

Total/Weighted
Average............ 6,254,000(6) 100.0% 93% $144,128,435 100.0% 1,045 $24.70 $24.02
============ ====== === ============ ====== ===== ====== ======

</TABLE>

(1) Annualized Rent represents the monthly contractual rent under existing
leases as of December 31, 1998 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 1998 for the 12 months ended December 31, 1998 are
approximately $3,052,000.

(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 operating expense pass-throughs, if any) divided by the number
of months remaining under the lease multiplied by

10
<PAGE>

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 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 the Company and presented on a per leased 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).

(6) Includes approximately 5,812,400 square feet of rentable office space,
366,600 square feet of rentable retail space and 75,000 square feet of
garage space.

(7) The Company holds fee interests in condominium units.

(8) The Company holds an operating sublease interest in the land and
improvements.

(9) The Company holds a leasehold mortgage interest, a net sub-leasehold
interest and a co-tenancy interest in this property.

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:

<TABLE>
<CAPTION>
OCCUPANCY RATE OF CLASS B
PERCENT OFFICE PROPERTIES
LEASED AT THE IN THE MIDTOWN
PROPERTIES (1) MARKETS (2)
-------------- -----------
<S> <C> <C>
December 31, 1998................. 93 92%
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
</TABLE>

- ----------
(1) Includes space for leases that were executed as of the relevant date in
Properties owned by the Company or SL Green 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, 1998, 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, 2003, the average annual
rollover at the Properties and the Pending Acquisitions is approximately 478,909
square feet, representing an average annual expiration of 7.7% of the total
leased square feet at the Properties and the Pending Acquisitions per year
(assuming no tenants exercise renewal or cancellation options and no tenant
bankruptcies or other tenant defaults).

11
<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, 1998 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>
1999...................... 187 468,608 8.03% $11,455,082 $24.44
2000...................... 189 584,596 10.02% 15,710,736 26.87
2001...................... 132 488,748 8.38% 12,195,526 24.95
2002...................... 119 604,686 10.36% 14,937,901 24.70
2003...................... 126 498,795 8.55% 12,905,091 25.87
2004...................... 67 491,493 8.42% 11,716,979 23.84
2005...................... 43 510,807 8.76% 11,576,147 22.66
2006...................... 40 356,778 6.12% 9,054,378 25.38
2007...................... 49 518,019 8.88% 11,218,746 21.66
2008...................... 40 511,645 8.77% 13,348,965 26.09
2009 & thereafter......... 53 800,161 13.71% 20,008,884 25.01
--------------------------------------------------------

Total/weighted
average........... 1,045 5,834,336 93% $144,128,435 $24.70
=========================================================
</TABLE>

- ----------
(1) Annualized Rent of Expiring Leases, as used throughout this report,
represents the monthly contractual rent under existing leases as of
December 31, 1998 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, 1998 for the 12 months ending December 31, 1999 are
approximately $3,052,000.

(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.

12
<PAGE>

TENANT DIVERSIFICATION. The Properties currently are leased to over 1,000
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 20 largest tenants at the
Properties and the Pending Acquisitions, based on the amount of square footage
leased by such tenants as of December 31, 1998:

<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 108 295,371 5.06% $5,614,655 4.18%
NYANA........................ 17 Battery Place 48 132,306 2.27% 2,710,544 2.02%
MetroNorth................... Graybar Building 205 129,675 2.22% 2,477,452 1.85%
Parade Publications.......... 711 Third Avenue 140 82,444 1.41% 1,813,768 1.35%
Dow Jones.................... Graybar Building 31 82,431 1.41% 2,562,788 1.91%
UNICEF....................... 673 First Avenue 60 80,000 1.37% 2,165,092 1.61%
Kallir, Philips & Ross....... 673 First Avenue 66 80,000 1.37% 1.910,515 1.42%
NY Presbterian Hospital...... 673 First Avenue 92 76,000 1.30% 1,898,558 1.41%
Gibbs & Cox.................. 50 West 23rd Street 80 71,200 1.22% 1,591,802 1.15%
Crains Communications........ 711 Third Avenue 121 66,735 1.14% 2,068,785 1.54%
Capital-Mercury.............. 1372 Broadway 79 64,122 1.10% 1,292,732 0.96%
Board of Education of the City
of New York............... 50 West 23rd Street 138 64,000 1.10% 700,000 0.52%
Leslie Fay Companies......... 1412 Broadway 116 60,999 1.05% 1,731,996 1.29%
Ann Taylor................... 1372 Broadway 139 58,975 1.01% 1,199,389 0.89%
Ross Stores.................. 1372 Broadway 101 57,094 0.98% 1,193,323 0.89%
NationsBank.................. 1372 Broadway 15 55,238 0.95% 1,364,343 0.95%
Escada....................... 1412 Broadway 92 49,038 0.84% 1,639,118 1.22%
Newport News................. 711 Third Avenue 147 48,468 0.83% 1,163,232 0.87%
Hill Knowlton/JW Thompson....
Graybar Building 92 47,977 0.82% 1,199,424 0.89%
Bank Leumi................... Graybar Building 115 47,610 0.82% 1,356,885 1.01%
-------------------------------------------------------------------

TOTAL/Weighted Average(2).... 1,649,683 28.27% $37,654,401 27.85%
======================================================
</TABLE>

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

(2) Weighted average calculation based on total rentable square footage leased
by each tenant.

13
<PAGE>

17 BATTERY PLACE

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.

During 1998 the building was converted into a three unit condominium. The
Company's co-tenancy interest was converted to two units comprising 389,000
square feet in the South Building and 422,000 square feet in the North Building.
The Company anticipates spending approximately $11.2 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 its condominium
interests, 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 was due and payable on
September 30, 1998 and was extended to March 31, 1999. The note bears interest
at 12% per annum. The entire interest obligation through the extended maturity
is cash-collateralized, with the cash collateral held by the Company. 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 co-tenant.

17 Battery Place is located in the 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, 1998, approximately 85% of the rentable square footage
in 17 Battery Place was leased (including space for leases that were executed as
of December 31, 1998). The office space was 86% leased and the retail space
was 55% leased. The following table sets forth certain information with respect
to the Property:

ANNUALIZED
RENT PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT
- -------- -------------- -----------
<S> <C> <C>
1998....................... 85% $20.69
1997....................... 79 20.52
1996....................... 80 18.27
</TABLE>

14
<PAGE>

As of December 31, 1998, 17 Battery Place was leased to 33 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 292,000 square feet
(approximately 36% of the Property) under leases expiring on December 31, 2007,
that provide for an aggregate annualized base rent as of December 31, 1998 of
approximately $5.6 million (approximately $19.22 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 132,000
square feet (approximately 16% of the Property) under a lease expiring on
December 31, 2002 that provides for annualized base rent as of December 31, 1998
of approximately $2.7 million (approximately $20.50 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.

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, 1998 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 RENT PER
NUMBER OF FOOTAGE OF PERCENTAGE OF ANNUALIZED RENT LEASED SQUARE
EXPIRING EXPIRING TOTAL LEASED OF EXPIRING FOOT OF
YEAR OF LEASE EXPIRATION LEASES LEASES SQUARE FEET LEASES EXPIRING LEASES
- ------------------------ ------ ------ ----------- ------ ---------------
<S> <C> <C> <C> <C> <C>
1999........................... 10 82,257 10.1% $ 1,889,166 $22.97
2000........................... 6 16,308 2.0% 401,668 24.63
2001........................... 4 38,505 4.7% 571,531 14.84
2002........................... 3 112,633 13.9% 2,997,786 26.62
2003........................... 7 14,762 1.8% 421,636 28.56
2004........................... 4 30,535 3.8% 680,351 22.28
2005........................... 3 53,643 6.6% 827,967 15.43
2006........................... 2 31,740 3.9% 612,369 19.29
2007........................... 1 269,631 33.3% 5,015,225 18.60
2008........................... 4 36,480 4.5% 758,450 20.79
2009 & thereafter.............. 1 2,700 0.3 84,000 31.11
------------------------------------------------------------------------
Subtotal/Weighted Average...... 45 689,194 84.9% $14,260,149 $20.69
======= ===========
</TABLE>

15
<PAGE>

The aggregate undepreciated tax basis of depreciable real property at 17
Battery Place for Federal income tax purposes was $65.5 million as of December
31, 1998. 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
$10.236 per $100 of assessed value. The total annual tax including applicable
BID taxes for 17 Battery Place at this rate for the 1998-99 tax year is $2.5
million (at an assessed value of $22.5 million), of which the Company is
responsible for approximately $1.7 million pursuant to its co-tenancy interest
in the Property.

420 LEXINGTON AVENUE (THE GRAYBAR BUILDING)

The Company purchased the operating sublease at the Graybar Building,
a.k.a. 420 Lexington Avenue in March 1998. This 31-story office property sits at
the foot of Grand Central Terminal in the Grand Central North sub-market of the
midtown Manhattan office market. The Property was designed by Sloan and
Robertson and completed in 1927. The building takes its name from its original
owner, the Graybar Electric Company. The Property contains approximately 1.2
million rentable square feet (including approximately 1,150,000 square feet of
office space, 12,260 square feet of mezzanine space and 27,463 square feet of
retail space), with floor plates ranging from 17,000 square feet to 50,000
square feet. The Company anticipates restoring the grandeur of this building
through the implementation of an $11.9 million capital improvement program
geared toward certain cosmetic upgrades including steam cleaning the facade, new
entrance and storefronts, new lobby, elevator cabs, and elevator lobbies and
corridors.

The Graybar Building offers unsurpassed convenience to transportation.
This Property enjoys excellent accessibility to a wide variety of transportation
options with a direct passageway to Grand Central Station. Grand Central Station
is the major transportation destination for commutation from southern
Connecticut and Westchester County. Major bus and subway lines serve this
Property, as well. The Property is ideally located to take advantage of the
renaissance of Grand Central Terminal, which is being redeveloped into a major
retail/transportation hub containing restaurants such as Michael Jordan's
Steakhouse and retailers such as Banana Republic and Kenneth Cole.

The Graybar Building consists of the building at 420 Lexington Avenue and
fee title to a portion of the land above the railroad tracks and associated
structures which form a portion of the Grand Central Terminal complex in midtown
Manhattan. The Company interest consists of a tenant's interest in a controlling
sublease, as described below. The ownership structure of the Graybar Building is
as follows.

Fee title to the building and the land parcel is owned by an unaffiliated
third party, who also owns landlord's interest under a lease (the "Ground
Lease") the term of which expires December 31, 2008 subject to renewal by the
tenant through December 31, 2029. The Company controls the exercise of this
renewal option through the terms of the subordinate leases described below.

16
<PAGE>

The tenant under the Ground Lease is the holder of the landlord's interest
under a lease (the "Ground Sublease") which is coterminous (except that it ends
on December 30, 2029) and has a complementary renewal option term structure and
control to the Ground Lease. The tenant's interest under the Ground Sublease is
held by an unaffiliated third party. The tenant under the Ground Sublease is the
holder of the landlord's interest under a lease (the "Operating Lease") which is
coterminous (except that it ends on December 28, 2029) and has a complementary
renewal option term structure and control to the Ground Lease. The tenant's
interest under the Operating Lease is held by an unaffiliated third party. The
tenant under the Operating Lease is the holder of the landlord's interest under
a lease (the "Operating Sublease") which is coterminous and has a complementary
renewal option term structure and control to the Ground Lease. The tenant's
interest under the Operating Sublease is held by the Company.

As of December 31, 1998, approximately 98% of the rentable square footage
in the Graybar Building was leased. The office space was 98% leased, the
mezzanine space was 98% leased and the retail space was 97% leased. The
following table sets forth certain information with respect to the Property:

ANNUALIZED
RENT PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT
- -------- -------------- -----------
<S> <C> <C>
1998........................ 98 $25.30
1997........................ 86 26.80
1996........................ 88 27.26
1995........................ 91 28.97
</TABLE>

As of December 31, 1998, the Graybar Building was leased to 277 tenants
operating in various industries, including legal services, financial services
and advertising, none of whom occupied 10% or more of the rentable square
footage at the Property.

The following table sets out a schedule of the annual lease expirations at
the Graybar Building for leases executed as of December 31, 1998 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):

17
<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>
1999.............................. 52 179,956 15.1% $ 4,161,408 $23.12
2000.............................. 65 145,151 12.2% 3,496,576 24.09
2001.............................. 40 149,738 12.6% 3,712,362 24.79
2002.............................. 37 146,962 12.4% 3,610,698 24.57
2003.............................. 36 85,081 7.2% 2,244,672 26.38
2004.............................. 15 57,413 4.8% 1,538,669 26.80
2005.............................. 12 50,605 4.3% 1,339,284 26.47
2006.............................. 9 72,742 6.1% 1,932,241 26.56
2007.............................. 13 35,243 3.0 1,041,610 29.56
2008.............................. 7 168,601 14.2% 4,446,838 26.37
2009 and thereafter............... 8 72,581 6.1% 1,928,067 26.56
-----------------------------------------------------------------
Subtotal/Weighted average......... 294 1,164,073 98.0% $29,452,425 $25.30
========= ===========
</TABLE>

The aggregate undepreciated tax basis of depreciable real property at the
Graybar Building for Federal income tax purposes was $84.1 million as of
December 31, 1998. 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
$10.236 per $100 of assessed value. The total annual tax for the Graybar
Building at this rate including the applicable BID tax for the 1998-99 tax year
is $6.5 million (at a taxable assessed value of $63 million).

1412 BROADWAY

1412 Broadway is a 25-story, 389,000 square foot office building located on
Broadway between 39th and 40th Street in the submarket, two blocks from Times
Square. The building was constructed in 1927 and has undergone substantial
renovation within the last five years. These renovations include lobby upgrades,
installation of a new entryway, new video security, and elevator modernization,
at an aggregate cost of approximately $5 million. The Company owns a 100% fee
simple interest in the property. The property contains approximately
374,000 square feet of office space and 15,000 square feet of retail space.

As of December 31, 1998, approximately 89% of the rentable square footage in
1412 was leased. The office space was 88% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
property:

<TABLE>
<CAPTION>
PERCENT ANNUALIZED RENT PER LEASED
YEAR END LEASED SQUARE FOOT
- -------- ------ -----------
<S> <C> <C>
1998............................ 98% $28.06
</TABLE>

18
<PAGE>

As of December 31, 1998, the property was leased to 110 tenants operating
primarily in the fashion industry. The three largest tenants in the fashion
industry occupy more than 10% of the property. The largest tenant occupies
approximately 61,000 rentable square feet of office/showroom space (at an
annualized rent of $28.39 per square foot) and the lease expires in August 2008.
The second largest tenant occupies approximately 49,000 rentable square feet of
office space (at an annualized rent of $33.42 per square foot) and the lease
expires in August 2006. The third largest tenant occupies approximately 40,000
rentable square feet of office space (at an annualized rent of $25.78 per
square foot) and the lease expires in March 2008.

The following table sets out a schedule of the property's annual lease
expirations with respect to leases executed as of December 31, 1998 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 PERCENTAGE OF LEASED
FOOTAGE TOTAL ANNUALIZED SQUARE
NUMBER OF OF LEASED RENT OF FOOT OF
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING
YEAR OF LEASE EXPIRATION LEASES LEASES FOOTAGE LEASES LEASES
------------------------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
1999 43 18,845 4.8% $ 782,705 $ 41.53
2000 20 37,862 9.7% 1,100,808 29.07
2001 16 28,276 7.3% 707,530 25.02
2002 11 18,587 4.8% 612,682 32.96
2003 18 42,429 10.9% 941,386 22.19
2004 2 6,800 1.7% 141,837 20.86
2005 2 10,617 2.7% 140,152 13.20
2006 4 56,762 14.6% 1,932,875 34.05
2007 1 2,910 0.7% 178,200 61.24
2008 4 114,996 29.6% 2,892,482 25.15
2009 and thereafter 2 8,126 2.1% 284,000 34.95
--------------------------------------------------------------------------------

Subtotal/Weighted Average 123 346,210 88.9% $ 9,714,657 $ 28.06
================================================================================
</TABLE>

The aggregate undepreciated tax basis of depreciable real property at 1412
Broadway for Federal income tax purposes was $65.1 million as of December 31,
1998. 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 $10.236
per $100 of assessed value. The total annual tax for 1412 Broadway at this rate
for the 1998-99 tax year is $1.7 million (at an assessed value of $16.8
million).

19
<PAGE>

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 properties owned as of the IPO (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 to 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 taxes 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 fee 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 a 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 $138.4 million of indebtedness
secured by nine of the Properties.

The mortgage notes payable collateralized by the respective properties
and assignment of leases at December 31, 1999 are as follows:

Property Locations Mortgage Notes 1998
- -------------------------------- ------------------------------------------------ --------------
(In 000's)
<S> <C> <C>
50 West 23rd Street Note paybale to GMAC with interest at 7.33%
due December 2007 $21,000
29 West 35th Street First mortgage note with interest payable at
8.464%, due February 1, 2001 2,903
673 First Avenue First mortgage note with interest payable at
9.0%, due December 13, 2003 16,452
470 Park Avenue South First mortgage note with interest payable at
8.25% payable at 8.25%, due April 1, 2004 10,507
1412 Broadway and Loan with Prudential Securities with interest
633 Third Avenue based on LIBOR plus 2% (7.58% at
December 31, 1998) due December 30, 1999 51,500
36 West 44th Street, Loan with Lehman Brothers with interest
1414 Avenue of the Americas based on LIBOR plus 2.758 (8.29% at
and 70 West 36th Street December 31, 1998) due December 15, 1999 36,000
---------

Total mprtgage notes payable $138,362
=========
</TABLE>

20
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 1998 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.

21
<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.

22
<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 15, 1999,
the reported closing sale price per share of Common Stock on the NYSE was
$17.8125 and there were approximately 58 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
---- --- -------------
<S> <C> <C> <C>
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

Quarter ended March 31, 1998 $27 7/8 $24 $0.35

Quarter ended June 30, 1998 $261/2 $21 15/16 $0.35

Quarter ended September 30, 1998 $24 3/8 $17 7/8 $0.35

Quarter ended December 31, 1998 $213/4 $171/2 $0.35

</TABLE>

(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.

Dividends are declared during each quarter and the dividend is paid during
the subsequent quarter.

UNITS

At December 31, 1998 the Company had 2,428,056 Operating Partnership Units
outstanding. These units received distributions per unit in the same manner as
dividends were distributed per share to common shareholders.

SALE OF UNREGISTERED SECURITIES

The Company's issuance of securities in the transactions referenced below
were not registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.

The Company issued 159,515 shares of its Common Stock in July 1998 for
deferred stock-based compensation in connection with employment contracts.

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, 1998 and 1997 represented the
consolidated balance sheet of the Company and the statement of income for the
year ended December 31, 1998 and 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, 1995 and 1994 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 "SL Green Predecessor" consists of the assets, liabilities, and owners'
deficits 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.

23
<PAGE>

THE COMPANY AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

THE COMPANY SL GREEN PREDECESSOR
--------------------------- -------------------------------------------
YEAR ENDED AUGUST 21 - JANUARY 1 -
DECEMBER 31, DECEMBER 31, AUGUST 20, YEAR ENDED DECEMBER 31,
1998 1997 1997 1996 1995 1994
--------- -------- -------- -------- ------- -------
Operating Data:
<S> <C> <C> <C> <C> <C> <C>
Total revenue ................. $ 136,972 $ 23,207 $ 9,724 $ 10,182 $ 6,564 $ 6,600
--------- -------- -------- -------- ------- -------
Property operating
expenses .................... 47,627 7,077 2,722 3,197 2,505 2,009
Real estate taxes ............. 21,224 3,498 705 703 496 543
Interest ...................... 13,086 2,135 1,062 1,357 1,212 1,555
Depreciation and
amortization ................ 15,404 2,815 811 975 775 931
Loss on terminated
project ..................... 1,065 -- -- -- -- --
Loss on hedge transaction ..... 176 -- -- -- -- --
Marketing, general and
administration .............. 5,760 948 2,189 3,250 3,052 2,351
--------- -------- -------- -------- ------- -------
Total expenses ................ 104,342 16,473 7,489 9,482 8,040 7,389
--------- -------- -------- -------- ------- -------

Operating income (loss) ....... 32,630 6,734 2,235 700 (1,476) (789)
Equity in net income (loss)

from Service Corporations .... 387 (101) -- -- -- --
Equity in net loss of
uncombined joint ventures ... -- -- (770) (1,408) (1,914) (1,423)
--------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary items and
minority interest ........... 33,017 6,633 1,465 (708) (3,390) (2,212)
Minority interest ............. (3,043) (1,074) -- -- -- --
--------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary items ......... 29,974 5,559 1,465 (708) (3,390) (2,212)
Extraordinary items (net of
minority interest) .......... (522) (1,874) 22,087 8,961 -- --
--------- -------- -------- -------- ------- -------
Net income (loss) ............. 29,452 $ 3,685 $ 23,552 $ 8,253 $(3,390) $(2,212)
========= ======== ======== ======== ======= =======
Mandatory preferred divi-
dends and accretion ......... (5,970)
---------

Income available to common
shareholders ................ $ 23,482
=========
Income per common share
before extraordinary item
(basic and diluted) (2) ..... $ 1.22 $ 0.45
== ========= ========

Net income per common share
(basic and diluted) (2) ..... $ 1.19 $ 0.30
== ========= ========

Cash dividends declared per
common share ................ $ 1.40 $ 0.51
========= ========

Basic weighted average common
shares outstanding .......... 19,675 12,292
========= ========

Diluted weighted average
common share and common
share equivalents outstanding 19,739 12,404
========= ========

</TABLE>

24
<PAGE>

THE COMPANY SL GREEN PREDECESSOR
---------------- -----------------------
DECEMBER 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Commercial real estate,
before accumulated
depreciation ............. $697,061 $338,818 $ 26,284 $ 15,559 $ 15,761
Total assets ............... 777,796 382,775 30,072 16,084 15,098
Mortgages and notes payable 162,162 128,820 16,610 12,700 12,699
Accrued interest payable ... 494 552 90 2,894 2,032
Minority interest .......... 41,491 33,906 -- -- --
Stockholders' equity/owners'
(deficit) ................ 404,826 176,208 (8,405) (18,848) (15,521)

</TABLE>

</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 and significant non-recurring events that
materially distort the comparative measurement of the Company's'performance
over time, 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. 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

25
<PAGE>

the notes to the consolidated financial statement in Item 8 beginning on
page 39.

26
<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.

FINANCIAL CONDITION

Commercial real estate properties before accumulated depreciation increased
approximately $358 million from December 31, 1997 to December 31, 1998 primarily
as a result of the purchase of the leasehold operating positions in 420
Lexington Avenue and 711 Third Avenue (including a 50% fee interest), and the
property purchases of 1466 Broadway, 321 West 44th Street, 440 Ninth Avenue and
1412 Broadway. These acquisitions were funded through a short-term loan facility
(the "Acquisition Facility"), cash on hand and funds available under the
Company's revolving credit facility (the "Credit Facility"). The Acquisition
Facility also repaid $93 million that was outstanding on the Company's Credit
Facility. The Company completed two public equity offerings on May 12, 1998,
which included the issuance of 11.5 million shares of common stock and 4.6
million shares of 8% Preferred Income Equity Redeemable Shares with a mandatory
liquidation preference of $25.00 per share. These offerings raised net proceeds
to the Company of $353 million, after underwriters discount (the "1998
Offerings"). Proceeds from the offerings were used to repay the Acquisition
Facility ($240 million), acquire 440 Ninth Avenue ($32 million) and the
outstanding mortgage and 50% fee interest in 711 Third Avenue ($64.6 million)
with the remainder used for working capital purposes. The Company acquired 1412
Broadway ($82 million) during August 1998 and funded this acquisition with
proceeds from borrowings on the Company's Credit Facility. During December 1998,
the Company closed two short-term bridge financings totaling $87.5 million. The
proceeds were initially used to partially repay the Company's Credit Facility
($23.8 million at December 31, 1998).

RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT PERCENTAGE DATA)

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997

For discussion purposes, the results of operations from the year ended
December 31, 1998 represent the operations of SL Green Realty Corp. and the
results of operations for the year ended December 31, 1997 represent (i) the
operating results of the SL Green Realty Predecessor (represented by 70 West
36th Street, 1414 Avenue of the Americas and 36 West 44th Street (since
acquisition date in July 1997) for the period January 1, 1997 to August 20, 1997
and (ii) the results of the Company from August 21, 1997 to December 31, 1997.
The following transactions have occurred that have had a material impact on the
comparison of the 1998 and 1997 results: (i) the Formation Transactions resulted
in three buildings previously accounted for

27
<PAGE>

under the equity method (673 Third Avenue, 470 Park Avenue South and 29 West
35th Street) which are now reported as property results, three acquired
buildings (50 West 23rd Street, 1140 Avenue of the Americas and 1372 Broadway)
collectively the "IPO Acquisitions" being included in the 1998 results which
were included in the 1997 results of the Company as of August 21, 1997; (ii) the
results of 110 East 42nd Street (acquired September 1997) 17 Battery Place
(acquired December 1997) and 633 Third Avenue (acquired December 1997) "the 1997
Acquisitions" are included in the consolidated results for 1998 and were
included for only a portion of the 1997 results (iii) the results of 420
Lexington Avenue (acquired March 1998), 1466 Broadway (acquired March 1998), 321
West 44th Street (acquired March 1998), 711 Third Avenue (acquired May 1998),
440 Ninth Avenue (acquired June 1998) and 1412 Broadway (acquired August 1998)
(the "1998 Acquisitions") which are included for a portion of the 1998 results,
and were not included in the 1997 results.

Rental revenue for the year ended December 31, 1998 totaled $117.3 million
representing an increase of $93.2 million compared to $24.1 million for the year
ended December 31, 1997. The increase is primarily attributable to the revenue
associated with the following: (i) the IPO Acquisitions which increased rental
revenue $28.1 million (ii) the 1997 Acquisitions which increased rental revenue
by $17.8 million, (iii) the 1998 Acquisitions which increased rental revenue by
$46.9 million and (iv) $0.4 million due to increased rental revenue in the SL
Green Predecessor buildings.

Escalation and reimbursement revenue for the year ended December 31, 1998
totaled $15.9 million representing an increase of $12.9 million compared to $3.0
million for the year ended December 31, 1997. The increase is primarily
attributable to the revenue associated with the following: (i) the IPO
Acquisitions which increased revenue by $3.3 million, (ii) the 1997 Acquisitions
which increased revenue by $1.6 million, (iii) the 1998 Acquisitions which
increased revenue by $8.0 million.

Investment income totaled $3.3 million for the year ended December 31, 1998
representing an increase of $2.8 million compared to $0.5 million for the year
ended December 31, 1997. This amount primarily represents interest income from
the 17 Battery Park mortgage ($1.9 million), interest on other mortgage notes
($0.4 million) and interest from excess cash on hand ($0.5 million).

As of the IPO date, third party management, leasing and construction
revenues and related expenses are incurred by the Service Corporations, which
are 95% owned subsidiaries of the Company, which are accounted for on the equity
method. This change in recognition of income and expense from third party
business activities was made in order to be consistent with the REIT qualifying
income test, as defined by the IRS. Consequently, in 1998, management fees,
leasing commissions and construction fees, were recorded on these operating
subsidiaries, compared to the 1997 third party revenue, which was recorded on
the SL Green Predecessor.

Operating expenses for the year ended December 31, 1998 totaled $36.5
million representing an increase of $28.3 million compared to $8.2 million for
the year ended December 31, 1997. The increase was primarily attributable to:
(i) the IPO Acquisitions which increased operating expenses by $6.3 million (ii)
the 1997 Acquisitions which increased operating expenses by $6.7 million and
(iii) the 1998 Acquisition properties with operating expenses of $15.3 million.

Ground rent for the year ended December 31, 1998 totaled $11.1 million
representing an increase of $9.5 million compared to $1.6 million for the year
ended December 31, 1997. This increase primarily results from newly acquired
properties having ground and sub-lease lease arrangements at 420 Lexington
Avenue ($6.0 million), and 711 Third Avenue ($0.8 million) and increased ground
rent at 673 First Avenue ($2.5 million) and 1140 Avenue of the Americas ($0.2
million).

Interest expense for the year ended December 31, 1998 totaled $13.1 million
representing an increase of $9.9 million compared to $3.2 million for the year
ended December 31, 1997. This increase is primarily attributable to (i) interest
incurred on the Company's Credit Facility, and Acquisition Facility ($7.0
million) principally used to acquire new properties (ii) interest from the
December 1998 bridge financings ($0.3 million) and (iii) additional secured
mortgage debt, including interest on the Company's capital lease obligation on
673 First Avenue which was previously accounted for under the equity method,
($2.6 million).

Depreciation and amortization for the year ended December 31, 1998 totaled
$15.4 million representing an increase of $11.8 million compared to $3.6 million
for the year ended December 31, 1997. The increase is primarily attributable to:
(i) the IPO Acquisitions which increased depreciation by $4.2 milllion (ii) the
1997 Acquisitions which increased depreciation by $2.0 million (iii) the 1998
Acquisitions which increased depreciation by $4.6 million, (iv) and an increase
in the amortization of

28
<PAGE>

deferred finance costs totaling $1.0 million associated with fees incurred on
the Company's Credit Facility and Acquisition Facility.

Real estate taxes for the year ended December 31, 1998 totaled $21.2
million representing an increase of $17.0 million compared to $4.2 million for
the year ended December 31, 1997. The increase is primarily attributable to (i)
the IPO Acquisitions which increased real estate taxes by $4.2 million (ii) the
1997 Acquisitions which increased real estate taxes by $3.2 million and (iii)
the 1998 Acquisitions which increased real estate taxes by $9.6 million.

Marketing, general and administrative expense for the year ended December
31, 1998 totaled $5.8 million representing an increase of $2.7 million compared
to $3.1 million for the year ended December 31, 1997. The increase is due to
increased personnel costs associated with the Company's recent growth ($2.1
million) and increased public entity and technology costs ($0.6 million). This
increase was partially off-set by third party costs included in the 1997 expense
which were reclassified to the Service Corporations in 1998 to correspond with
the reclassification of third party revenue which has been included in equity in
net loss from Service Corporations since August 21, 1997.

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 ended
December 31, 1997 were $27.1 million, representing an increase of 411% compared
to $5.3 million 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 $1.1 million 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 $0.6 million and (ii) $0.5
million 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
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 SL Green Predecessor, management
revenues were earned from affiliated properties in which the SL Green
Predecessor had an interest and were not eliminated. The amounts related to
these properties are:

<TABLE>
<S> <C>
1997 (Pre-IPO) $0.5 million
1996 $0.4 million
1995 $0.4 million

</TABLE>

Leasing commission revenues increased $1.6 million for year ended December
31, 1997 compared to the year ended December 31, 1996 due to strong 1997 leasing
activity.

Investment income increased $0.5 million 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.

29
<PAGE>

Other income decreased by $0.1 million or 87% to $0.02 million during the
year ended December 31, 1997 compared to $0.1 million 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 Corporations 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 $0.1 million as its share of the loss by these
subsidiaries.

Operating expenses, depreciation and amortization, and real estate taxes
increased $6.6 million, $2.7 million and $3.5 million, 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 $1.9 million 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
$0.02 million in mortgage debt acquired in August 1997 ($0.01 million) and
December 1997 ($0.01 million) and (iii) the borrowing of $0.1 million on
December 19, 1997 under the Credit Facility to finance the acquisition of 17
Battery Place.

PRO FORMA RESULTS OF OPERATIONS

(IN THOUSANDS)

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER
31, 1997. The pro forma statement of operations for the year ended December 31,
1997, is presented as if the Company's IPO and the Formation Transactions
occurred on January 1, 1997 and the effect thereof was carried forward through
December 31, 1997. In addition to the IPO and Formation Transactions, the
following transactions also affect the 1998 and 1997 comparable results: (i) the
results of 110 East 42nd Street (acquired September 1997), 17 Battery Place
(acquired December 1997) and 633 Third Avenue (acquired December 1997) the "1997
Acquisitions" are included in the consolidated results for the full year ended
December 31, 1998 and included only for a portion of the 1997 results and (ii)
the results of 420 Lexington Avenue (acquired March 1998), 1466 Broadway
(acquired March 1998), 321 West 44th Street (acquired March 1998) 711 Third
Avenue (acquired May 1998), 440 Ninth Avenue (acquired June 1998) and 1412
Broadway (acquired August 1998) the "1998 Acquisitions" are included in a
portion of the 1998 results and not included in the 1997 results. During May
1998, the Company completed two public offerings for 11.5 million shares of
common stock and 4.6 million of preferred shares resulting in net proceeds of
$353 million, net of underwriting costs.

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 Company's IPO 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 combined financial statements of SL Green
Predecessor included in the Company's registration statements on Form S-11 dated
May 12, 1998 and August 14, 1997 and the consolidated financial statements of
the Company, included elsewhere herein.

30
<PAGE>

Year ended December 31, 1998 compared to year ended December 31, 1997
(in thousands except percentage data)
(Unaudited)

Dollar
1998 1997 Change
---- ---- ------
(Historical) (Pro forma)
(Unaudited)
REVENUE
<S> <C> <C> <C>
Rental revenue........................................................ $117,304 $49,472 $ 67,832
Escalation & reimbursement revenues ................................... 15,923 5,500 10,423
Investment income ..................................................... 3,267 485 2,782
Leasing commissions ................................................... -- 2,251 (2,251)
Other income .......................................................... 478 1,676 (1,198)
-------- ------- --------
Total revenues ................................ 136,972 59,384 77,588
-------- ------- --------
Equity in net income from Service
Corporations ........................................................ 387 168 219
-------- ------- --------

EXPENSES
Operating expenses .................................................... 36,545 13,165 23,380
Ground rent ........................................................... 11,082 4,297 6,785
Interest .............................................................. 13,086 5,509 7,577
Depreciation and amortization ......................................... 15,404 7,413 7,991
Real estate taxes ..................................................... 21,224 8,658 12,566
Loss on terminated contract ........................................... 1,065 -- 1,065
Loss on hedge transaction ............................................. 176 -- 176
Marketing, general and administrative ................................. 5,760 2,578 3,182
-------- ------- --------
Total expenses ................................ 104,342 41,620 62,722
-------- ------- --------

Income before minority interest,
preferred stock dividends and
extraordinary items............................ $ 33,017 $17,932 $ 15,085
======== ======= ========

</TABLE>

Rental revenue for the year ended December 31, 1998 totaled $117.3 million
representing an increase of $67.8 million compared to $49.5 million for the year
ended December 31, 1997. The increase is primarily attributable to the revenue
associated with the following properties not previously owned or acquired at the
IPO date: (i) the 1997 acquisitions which increased rental revenue by $17.8
million, (ii) the 1998 acquisitions which increased rental revenue by $46.9
million and (iii) increased occupancy and additional rollover rental income in
the other portfolio buildings which increased $3.1 million.

Escalation and reimbursement revenue for the year ended December 31, 1998
totaled $15.9 million an increase of $10.4 million compared to $5.5 million
during the year ended December 31, 1997. The increase is attributable to the
revenue associated with: (i) the 1997 Acquisitions which increased revenue by
$1.6 million, (ii) the 1998 Acquisitions which increased revenue by $8.0 million
and (iii) the properties owned or acquired at the IPO date where revenue
increased by $0.8 million.

Investment income for the year ended December 31, 1998 totaled $3.3
million, which represents an increase of $2.8 million as compared to $0.5
million for the year ended December 31, 1997. The increase in interest income is
primarily due to the 17 Battery Place mortgage ($1.9 million), other mortgage
notes receivable ($0.4 million) and the balance ($0.5 million) earned from
excess cash on hand.

Leasing commission income decreased $2.3 million. Leasing commission income
as reported in the 1997 pro forma financial statements represents Tenant-Rep
income through September 30, 1997 and is subsequently being recorded by the
Service Corporations for the remainder of 1997 and the comparable 1998 period.
Tenant-rep revenue totaled $2.6 million for the year ended December 31, 1998
representing a decrease of $0.3 million. This decrease reflects the strong
results in the 1997 period.

Other income for the year ended December 31, 1998 totaled $0.5 million
representing a decrease of $1.2 million as compared to December 31, 1997. The
decrease is the result of 1997 lease termination income exceeding 1998 primarily
due to a large tenant buy-out at 1372 Broadway.

31
<PAGE>

Operating expenses for the year ended December 31, 1998 totaled $36.5
million representing an increase of $23.4 million compared to $13.1 million for
the year ended December 31, 1997. The increase was primarily attributable to
properties not previously owned or acquired at the IPO date: (i) the 1997
Acquisitions which increased operating expenses by $6.7 million and (ii) the
1998 Acquisitions which increased operating expenses by $15.3 million (iii) $1.4
million of increased costs from properties owned or acquired at the IPO date
primarily due to the provision for tenant straight-line credit loss which
increased $0.6 million.

Ground rent for the year ended December 31, 1998 totaled $11.1 million
representing an increase of $6.8 million compared to $4.3 million for the year
ended December 31, 1997. The increase is primarily attributable to the ground
and sub-lease rent on new acquisitions at 420 Lexington Avenue ($6.0 million)
and 711 Third Avenue ($0.8 million).

Interest expense for the year ended December 31, 1998 totaled $13.1 million
representing an increase of $7.6 million compared to $5.5 million for the year
ended December 31, 1997. The increase is primarily attributable to interest
incurred on the Company's Credit Facility and Acquisition Facility ($7.0
million) and additional mortgage loans ($0.6 million).

Depreciation and amortization for the year ended December 31, 1998 totaled
$15.4 million representing an increase of $8.0 million compared to $7.4 million
for the year ended December 31, 1997. The increase is primarily attributable to
properties not previously owned or acquired at the IPO date: (i) the 1997
Acquisitions which increased depreciation by $2.0 million (ii) the 1998
Acquisitions which increased depreciation by $4.6 million, (iii) amortization of
financing costs increased $0.9 million primarily due to fees recognized on the
Company's revolving line of credit and acquisition facility and (iv) the
properties owned or acquired at the IPO date which increased $0.5 million
primarily due to increased tenant improvement amortization.

Real estate taxes for the year ended December 31, 1998 totaled $21.2
million representing an increase of $12.5 million compared to $8.7 million for
the year ended December 31, 1997. The increase is primarily attributable to
properties not previously owned or acquired at the IPO date (i) the 1997
Acquisitions which increased real estate taxes by $3.2 million and (ii) the 1998
Acquisitions which increased real estate taxes by $9.6 million. These increases
were partially off-set by a $0.3 million reduction in taxes related to the core
and IPO properties primarily from lower tax rates and management's effort to
obtain reductions in assessed values.

Marketing, general and administrative expense for the year ended December
31, 1998 totaled $5.8 million representing an increase of $3.2 million compared
to $2.6 million for the year ended December 31, 1997. The increase is due to
additional staffing, and incremental absorption of lost third party management
related costs ($2.6 million), costs associated with management information
systems and year 2000 compliance and higher public entity costs ($0.6 million).

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER
31, 1996 . The pro forma statements of operations for the years ended December
31, 1997 and 1996, respectively, 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.

32
<PAGE>

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

Year ended
December 31, Dollar
(Unaudited) Change
----------------- --------
1997 1996
------- --------
Revenue
<S> <C> <C> <C>
Rental revenue ........................................................... $49,472 $ 44,338 $ 5,134
Escalation & reimbursement revenues ...................................... 5,500 6,629 (1,129)
Leasing commissions ...................................................... 2,251 1,257 994
Investment income ........................................................ 485 20 465
Other income ............................................................. 1,676 945 731
------- -------- -------
Total revenues ...................................................... 59,384 53,189 6,195
------- -------- -------
Equity in net income (loss) of Service Corporations ...................... 168 (504) 672
------- -------- -------

Expenses
Operating expenses ....................................................... 13,165 12,299 866
Ground rent .............................................................. 4,297 3,925 372
Interest ................................................................. 5,509 5,858 (349)
Depreciation and amortization ............................................ 7,413 6,979 434
Real estate taxes ........................................................ 8,658 8,248 410
Marketing, general and administrative .................................... 2,578 2,643 (65)
------- -------- -------
Total expenses ...................................................... 41,620 39,952 1,668
------- -------- -------
Income before minority interest, preferred
stock dividends and extraordinary item ................................. $17,932 $ 12,733 $ 5,199
------- -------- -------

</TABLE>

Rental revenue increased by $5.1 million to $49.5 million during the year
ended December 31, 1997 as compared to $44.3 million for the year ended December
31, 1996. The increase is primarily due to (i) the inclusion of $1.6 million 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 $1.3 million and (iii)
the remaining increase is due to re-tenanting and new tenant income generated in
1997.

Escalation and reimbursement revenue decreased $1.1 million to $5.5 million
during the year ended December 31, 1997 as compared to $6.6 million 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 $0.9 million to $2.3 million
during the year ended December 31, 1997 compared to $1.3 million 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 to $0.5 million during the year ended December
31, 1997 compared to $0.02 million 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 $0.7 million to $1.7 million during the year ended
December 31, 1997 compared to $0.9 million 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.

33
<PAGE>

Operating expenses, depreciation and amortization and real estate taxes
increased by $0.9 million, $0.4 million and $0.4 million, 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

During 1998, the Company financed its 1998 acquisitions primarily with
proceeds from common and preferred stock offerings. Property level mortgage debt
totaled $50.9 million with interest rates ranging from 7.33% to 9%.

During December 1998, the Company closed two short-term bridge financings.
The first financing was a $51.5 million bridge loan with Prudential Securities
at an interest rate (7.58% at December 31, 1998) equal to 200 basis points over
the current one-month London Interbank Offered Rate ("LIBOR") . The loan matures
on December 30, 1999 and is secured by the properties located at 1412 Broadway
and 633 Third Avenue. The second financing was a $36 million bridge loan with
Lehman Brothers at an interest rate (8.29% at December 31, 1998) equal to 275
basis points over the current one-month LIBOR . The loan matures on December 15,
1999 and is secured by the properties located at 70 West 36th Street, 1414
Avenue of the Americas and The Bar Building.

In March 1998 the Company requested 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 "Acquisition Facility"). This
Acquisition Facility closed on March 18, 1998 financed the Helmsley Properties
acquisition, paid-off the outstanding balance on the Company's Credit Facility
and provided on-going liquidity for future acquisition and corporate needs. The
term of the Acquisition Facility was one year. The interest rate was 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 to 300 basis
points over LIBOR. The Acquisition Facility was paid off on May 18, 1998 through
proceeds from the 1998 Offerings. The Company's Credit Facility was restored
during May 1998; at year end $23.8 million of borrowings were outstanding with
remaining availability of $110 million. Availability was reduced by the issuance
of $6.2 million of letters of credit. The effective borrowing rate at December
31, 1998 was 6.6%.

At December 31, 1998 the mortgage loans, secured bridge facilities and
Credit Facility borrowings represented 19.1% of the Company's market
capitalization based on a total market capitalization (debt and equity including
preferred stock), assuming conversion of all operating partnership units of $848
million (based on a common stock price of $21.63 per share, the closing price of
the Company's common stock on the New York Stock Exchange on December 31, 1998).
The Company's principal debt maturities are scheduled to be $ 2.2 million and
$27.3 million for the years ending December 31, 1999 and 2000, respectively. The
1999 debt maturities exclude the secured bridge facilities being refinanced in
1999.

The Company expects to make distributions to its stockholders primarily
based on its distributions received from the Operating Partnership primarily
from property revenues or, if necessary, from working capital or borrowings.

The Company estimates that for the years ending December 31, 1999 and 2000,
it will incur approximately $27.3 million and $5.9 million, respectively, of
capital expenditures on properties currently owned. In 1999 and 2000, $25.3
million and $3.8 million, respectively, of the capital investments are
associated with properties acquired at or after the Company's IPO. The Company
expects to fund these capital expenditures with the 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 the Credit Facility, from additional borrowings secured by the properties
and from future issuances of equity and debt. The

34
<PAGE>

Company believes that it will have sufficient capital resources to satisfy its
obligations during the next 12 month period. Thereafter, the Company expects
that capital needs will be met through net cash provided by operations or
additional borrowings.

In anticipation of financing properties, the Company executed a forward
treasury rate lock on September 2, 1998 for $100 million of future financing.
The underlying rate for that position was 5.13%. On December 3, 1997 this rate
lock expired and was not renewed. The negative value of this hedge at expiration
was $3.2 million. In connection with the hedge, during April 1999 the Company
has mortgage commitments to complete five long-term permanent mortgage
financings totaling $103 million on properties located at 70 West 36th Street,
36 West 44th Street, 1414 Avenue of the Americas, 633 Third Avenue and 1412
Broadway. The hedge cost represents a deferred financing cost which will be
amortized over the life of these financings, except for $0.2 million which
related to a mismatch in terms resulting in a charge to 1998 earnings.

During January 1999, the Company completed acquisitions totaling $65.4
million which it funded on the Company's Credit Facility.

Reckson Associates Realty Corp. Properties

CASH FLOWS
(IN THOUSANDS)

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997.

Net cash provided by operating activities increased $14.1 million to $22.7
million for the year ended December 31, 1998 as compared to $8.6 million for the
year ended December 31, 1997. The increase was due primarily to the operating
cash flow generated by the IPO Acquisitions, 1997 Acquisitions and 1998
Acquisitions and an increase in investment income. Net cash used in investing
activities increased $153.9 million to $376.6 million for the year ended
December 31, 1998 compared to $222.7 million for the year ended December 31,
1997. The increase was due primarily to the increased amount of property
acquisitions in 1998 ($339 million) as compared to the amount of property
acquisitions in 1997 ($224.4 million). Net cash provided by financing activities
increased $120.4 million to $347.4 million for the year ended December 31, 1998
compared to $227.0 million cash provided by financing activities for the year
ended December 31, 1997. The increase was primarily due to net proceeds from the
Company's 1998 public offerings of common stock ($243.1 million) and preferred
stock ($110.4 million) which were used to pay-off the Company's Acquisition
Facility ($240 million) and purchase certain 1998 acquisitions. The increase was
partially off-set by the $32.1 million common stock and OP Unit dividend
distribution payments and $1.2 million in deferred loan cost payments.

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

Net cash provided by operating activities increased $8.3 million during the
year ended December 31, 1997 to $8.6 million from $0.3 million for the year
ended December 31, 1996. The increase was due primarily to the inclusion of
properties encompassed in the Offering and Formation Transactions (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 $210.3 million
during the year ended December 31, 1997 to $222.7 million as compared to $12.4
million 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 $215.0 million during the year ended December
31, 1997 to $227.0 million as compared to $12.0 million 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.

35
<PAGE>

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 and significant non-recurring events that
materially distort the comparative measurement of the Company's performance over
time, 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, 1998, on a historical basis, are as follows:

Year ended
December 31,
------------
1998 1997
-------- --------
(Historical) (Pro forma)
<S> <C> <C>
Income before minority interest and extraordinary
item .......................................... $ 33,017 $ 17,932
Add:
Depreciation and amortization ................. 15,404 7,413
Loss on hedge transaction ..................... 176 --
Loss on terminated transaction ................ 1,065 --
Less:
Dividends on preferred shares ................. (5,720) --
Amortization of deferred financing costs and
depreciation of non-rental real estate assets (1,084) (186)
-------- --------
Funds From Operations ........................... $ 42,858 $ 25,159
======== ========

</TABLE>

In compliance with the White Paper issued by NAREIT the Company has excluded
a loss from a hedge transaction ($176,000) and a loss on a terminated
transaction ($1.1 million) from the calculation of Funds from Operations. The
Company believes these transactions are non-recurring based on the Company's
operating history of not entering into these types of transactions and,
therefore, are non-recurring and would materially distort the Company's
performance if included in the calculation of Funds from Operations.

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

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement effective January 1, 2000. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through the
income statement. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's

36
<PAGE>

change in fair value will be immediately recognized in earnings. The Company
does not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.

YEAR 2000 COMPLIANCE

The Company is providing the following disclosure pursuant to the
Securities and Exchange Commission's interpretation titled "Disclosure of Year
2000 Issues and Consequences by Public Companies, Investment Advisers Investment
Companies, and Municipal Securities Issuers" effective August 4, 1998.

STATE OF READINESS

The Company has identified three areas of focus for Year 2000 Compliance:
internal information technology, property operating equipment, and third party
service suppliers.

INFORMATION TECHNOLOGY: In 1997, the Company began a project to update its
information technology resources by installing new hardware and software
throughout the Company. The Company completed the implementation of the systems
during 1998. All hardware components and software were acquired from major U.S.
manufacturers. The manufacturer of the new financial systems has supplied the
Company with documentation of Year 2000 testing to demonstrate that their
software meets and exceeds Year 2000 compliance requirements. The company plans
to internally test the financial systems, although there is no assurance this
test will confirm Year 2000 compliance. The Company is currently contacting
other software and hardware providers for confirmation of Year 2000 compliance
with regard to its network and operating systems.

PROPERTY OPERATING EQUIPMENT: The Company inquired regarding compliance
status from all vendors providing systems identified as having potential Year
2000 compliance problems. The Company then tested each system with these
vendors. The Company believes that it has all identified building operating
systems (primarily elevators and fire safety systems) that contain embedded
chips or use software that require Year 2000 testing. The Company received
confirmation from these vendors and manufacturers that the equipment and related
systems are Year 2000 compliant. In addition, the Company has since tested
approximately 95% of these identified systems. During the course of this
testing, the fire command station at one of the Company's properties failed due
to a CPU chip which was subsequently replaced at no cost. The system was
retested and found to be fully functional. Further testing is scheduled to be
completed by March 31, 1999.

THIRD PARTY SERVICE SUPPLIERS: At present, the Company has no automated
interfaces from third party service providers into the Company's financial
systems. However, the Company does rely on information from two types of third
parties service providers: financial institutions and a payroll and benefits
processing company. The company has begun the process of confirming with the
third parties that systems that relate to the Company are Year 2000 compliant.
The Company will not be able to test the systems of these service providers and
will have to rely on these confirmation responses. However, the Company cannot
represent that these responses are accurate and may result in lost services if
these vendors are not Year 2000 compliant.

Assessment Remediation Direct Testing Indirect Testing Implementation
---------- ----------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Information Technology 100% complete 75% complete 0% 75% complete based on 75% complete
Expected completion complete representations Expected completion
6/30/99 Expected received from third 6/30/99
completion party vendor
9/30/99

Property 90% complete 95% complete 95% complete Not applicable 70% complete
Operating
Equipment

</TABLE>

37
<PAGE>

Assessment Remediation Direct Testing Indirect Testing Implementation
---------- ----------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Third Party 100% complete Not yet fully Not applicable 25% complete based on 50% complete
Service assessed representations Expected completion
Providers received from third 9/30/99
party vendors

</TABLE>

COSTS

The Company does not expect the direct costs related to Year 2000 to be
material. These direct costs exclude the costs to replace the hardware and
software systems, as the decision to replace these systems was not accelerated
by the Year 2000 issues.

RISKS

The Company believes that it has an effective program in place to identify
and resolve Year 2000 issues in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, the Company may be
unable to collect rents, process Company payroll, and disburse funds. The
Company also does not have any plan, and cannot make any assurances regarding
any loss of governmental, utility services or financial market functionality
that may be lost as a result of Year 2000. The Company cannot make any
assurances that its tenants will be able to disburse funds to pay rental
invoices due to Year 2000 compliance deficiencies.

CONTINGENCIES

The Company expects to complete all phases of its Year 2000 program by the
end of the third quarter 1999 and currently has no contingency plan in place.
The Company plans to evaluate the status of completion in June 1999 and
determine whether such a plan is necessary.

ITEM 7A MARKET RISK AND RISK MANAGEMENT POLICIES

The Company is exposed to changes in interest rates primarily from its
floating rate debt arrangements. The Company currently does not use interest
rate derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point adverse move (increase) in interest rates along the
entire interest rate curve would adversely affect the Company's annual interest
cost by approximately $1.1 million annually. Based on the acquisition activity
during January 1999, and a mortgage commitment that will fix the rate on $52
million of debt by April 1999, the additional interest cost on a 100 basis point
increase in interest rates would result in a $1.7 million annual increase in
interest costs.

INTEREST RATE HEDGE TRANSACTIONS

The Company may enter into derivative financial instruments such as
interest rate swaps and interest rate collars in order to mitigate its
interest rate risk on a related financial instrument. The Company may
designate these derivative financial instruments as hedges and applies
deferral accounting. Gains and losses related to the termination of such
derivative financial instruments are deferred and amortized to interest
expense over the term of the debt instrument. Payments to or from
counterparties are recorded as adjustments to interest expense.

The Company may also utilize interest rate contracts to hedge interest
rate risk on anticipated debt offerings. These anticipatory hedges are
designated, as effective hedges for identified debt issuances which have
a high probability of occurring. Gains and losses resulting from changes in
the market value of these contracts are deferred and amortized into interest
expense over the life of the related debt instrument. Hedges determined to be
ineffective and hedges not correlated to financings are charged to operations.

38
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

SL GREEN REALTY CORP

<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997.............................................. 42
Consolidated Statements of Income for the year ended December 31, 1998 and the period August 21,
1997 (Inception) to December 31, 1997................................................................... 44
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998 and
for the period August 21, 1997 (Inception) to December 31, 1997 ........................................ 45
Consolidated Statements of Cash Flows for the year ended December 31, 1998 and
for the period August 21, 1997 (Inception) to December 31, 1997......................................... 47
Notes to Consolidated Financial Statements ............................................................... 49

THE SL GREEN PREDECESSOR

Combined Statements of Income for the period January 1, 1997 to
August 20, 1997 and the year ended December 31, 1996 .................................................. 44
Combined Statements of Owners' Equity (Deficit) for the period
January 1, 1997 to August 20, 1997 and the year ended December 31, 1996 ................................ 46
Combined Statements of Cash Flows for the period January 1, 1997
to August 20, 1997 and the year ended December 31, 1996 ................................................ 47
Notes to the Combined Financial Statements ............................................................... 49

UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS Combined
Statements of Operations for the period January 1, 1997 to
August 20, 1997 and the year ended December 31, 1996 ................................................... 68
Combined Statements of Owners' Deficit for the period January 1,
1997 to August 20, 1997 and the year ended December 31, 1996 ........................................... 69
Combined Statements of Cash Flows for the period January 1, 1997 to
August 20, 1997 and the year ended December 31, 1996 ................................................... 70
Notes to Combined Financial Statements ................................................................... 72

Schedule

Schedule III Real Estate and Accumulated Depreciation as of
December 31, 1998 ...................................................................................... 77

</TABLE>

39
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
SL Green Realty Corp.

We have audited the accompanying consolidated balance sheets of SL Green
Realty Corp. as of December 31, 1998 and 1997 and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1998 and 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 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 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, 1998 and 1997 and the consolidated results of its
operations and its cash flows for the year ended December 31, 1998 and for the
period August 21, 1997 (date of commencement of operations) to December 31, 1997
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, 1999 except
for the last paragraph in
Note 16, as to which the
date is March 12, 1999

40
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
SL Green Realty Corp.

We have audited the accompanying combined balance sheet of SL Green
Predecessor as of December 31, 1996 (not presented herein) and the related
combined statements of income, owners' deficit and cash flows for the period
from January 1, 1997 to August 20, 1997 and for the year 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.

In our opinion, the 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
the year 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

41
<PAGE>

SL GREEN REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

December 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Commercial real estate properties, at cost:
Land and land interests ................................................................... $ 112,123 $ 53,834
Buildings and improvements ................................................................ 492,568 272,776
Building leasehold ........................................................................ 80,162 --
Property under capital lease .............................................................. 12,208 12,208

--------- ---------
697,061 338,818
Less accumulated depreciation ............................................................. (37,355) (23,800)
--------- ---------
659,706 315,018
Cash and cash equivalents ................................................................. 6,236 12,782
Restricted cash ........................................................................... 18,635 10,310
Receivables ............................................................................... 3,951 738
Related party receivables ................................................................. 245 725
Deferred rents receivable, net of reserve for tenant credit loss of $2,369 and $399 in 1998
and 1997, respectively .................................................................. 20,891 11,563
Investment in and advances to Service Corporations ........................................ 10,694 2,726
Mortgage loans receivable ................................................................. 26,401 15,500
Deferred costs, net ....................................................................... 15,282 6,099
Other assets .............................................................................. 15,755 7,314
--------- ---------
Total assets .............................................................................. $ 777,796 $ 382,775
========= =========

</TABLE>

The accompanying notes are an integral part to these financial statements.

42
<PAGE>

SL GREEN REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY

<S> <C> <C>
Mortgage notes payable .............................................................. $ 50,862 $ 52,820
Secured bridge facilities ........................................................... 87,500 --
Revolving credit facility ........................................................... 23,800 76,000
Accrued interest payable ............................................................ 494 552
Accounts payable and accrued expenses ............................................... 5,588 3,340
Accounts payable to related parties ................................................. 63 367
Capitalized lease obligations ....................................................... 14,741 14,490
Deferred land lease payable ......................................................... 9,947 8,481
Dividend and distributions payable .................................................. 11,585 5,136
Security deposits ................................................................... 16,949 11,475
--------- ---------
Total liabilities ................................................................... 221,529 172,661

Minority interest in operating partnership .......................................... 41,491 33,906

Commitments and Contingencies

8%Preferred Income Equity Redeemable SharesSM $0.01 par value $25.00
mandatory liquidation preference, 25,000 authorized and 4,600
outstanding
at December 31, 1998 .............................................................. 109,950 --

STOCKHOLDERS' EQUITY

Common stock, $0.01 par value 100,000 shares
authorized, 23,952 and 12,292 issued and outstanding at December 31, 1998 and 1997,
respectively ..................................................................... 240 123
Additional paid - in capital ........................................................ 416,939 178,669
Deferred compensation plan .......................................................... (3,266) --
Officers' loans ..................................................................... (528) --
Distributions in excess of earnings ................................................. (8,559) (2,584)
--------- ---------
Total stockholders' equity .......................................................... 404,826 176,208
--------- ---------

Total liabilities and stockholders' equity .......................................... $ 777,796 $ 382,775
========= =========

</TABLE>

The accompanying notes are an integral part to these financial statements.

43
<PAGE>

SL GREEN REALTY CORP.
STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SL GREEN REALTY CORP SL GREEN PREDECESSOR
(Consolidated) (Combined)
Year ended August 21 to January 1 to Year ended
December 31, December 31, August 20, December 31
1998 1997 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue .............................................. $ 117,304 $ 20,033 $ 4,107 $ 4,199
Escalation and reimbursement revenues ....................... 15,923 2,205 792 1,051
Management revenues, including $458 (1997), and
$447 (1996), from affiliates .............................. -- -- 1,268 2,336
Leasing commissions ......................................... -- 484 3,464 2,372
Construction revenues, net, including $6 (1997), and
$35 (1996), from affiliates ............................... -- -- 77 101
Investment income ........................................... 3,267 485 -- --
Other income ................................................ 478 -- 16 123
--------- -------- -------- --------
Total revenues .............................................. 136,972 23,207 9,724 10,182
--------- -------- -------- --------
Equity in net income/(loss) from Service Corporations ....... 387 (101) -- --
Equity in net (loss) of uncombined joint ventures ........... -- -- (770) (1,408)
EXPENSES
Operating expenses including $2,118 (1998), $282 (1997)
and $93 (1996) to affiliates .............................. 36,545 5,517 2,709 3,197
Ground rent ................................................. 11,082 1,560 13 --
Interest .................................................... 13,086 2,135 1,062 1,357
Depreciation and amortization ............................... 15,404 2,815 811 975
Real estate taxes ........................................... 21,224 3,498 705 703
Loss on terminated project .................................. 1,065 -- -- --
Loss on hedge transaction ................................... 176 -- -- --
Marketing, general and administrative ....................... 5,760 948 2,189 3,250
--------- -------- -------- --------
Total expenses .............................................. 104,342 16,473 7,489 9,482
--------- -------- -------- --------
Income (loss) before minority interest and extraordinary item 33,017 6,633 1,465 (708)
Minority interest in operating partnership .................. (3,043) (1,074) -- --
Extraordinary item, net of minority interest of $52 and
$362 in 1998 and 1997, respectively ....................... (522) (1,874) 22,087 8,961
--------- -------- -------- --------
Net income .................................................. 29,452 $ 3,685 $ 23,552 $ 8,253
========= ======== ======== ========

Preferred stock dividends ................................... (5,720)
Preferred stock accretion ................................... (250)
---------
Net income available to common shareholders ................. $ 23,482
=========
Per share data:
Income per common share before extraordinary item ........... $ 1.22 $ 0.45
Extraordinary item per common share ......................... (0.03) (0.15)
-------- --------

Net income per common share - basic and diluted ............. $ 1.19 $ 0.30
======== ========
Basic weighted average common shares outstanding ............ 19,675 12,292
======== ========
Diluted weighted average common shares and common
share equivalents outstanding ............................. 19,739 12,404
======== ========

</TABLE>

The accompanying notes are an integral part to these financial statements.

44
<PAGE>

SL GREEN REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

Distributions in Additional Deferred
Excess of Common Officers' Paid-In Compensation
Earnings Stock Loans Capital Plan Total
-------- ----- ----- ------- ---- -----
<S> <C> <C> <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

Net income ............................................ 29,452 -- -- -- -- 29,452
Preferred dividend and accretion requirement .......... (5,970) -- -- -- -- (5,970)
Issuance of common stock net offering cost ($1,615) and
revaluation increase in minority interest ($6,934) .. -- 115 -- 234,709 -- 234,824
Deferred compensation plan ............................ -- 2 -- 3,561 $(3,563) --
Amortization of deferred compensation plan ............ -- -- -- -- 297 297
Cash distributions declared ($1.40 per common share
of which none represented a return of capital for
federal income tax purposes) ........................ (29,457) -- -- -- -- (29,457)
Officers' loan, net ................................... -- -- $(528) -- -- (528)
-------- ---- ----- --------- ------- ---------

Balance at December 31, 1998 .......................... $ (8,559) $240 $(528) $ 416,939 $(3,266) $ 404,826
======== ==== ===== ========= ======= =========

</TABLE>

The accompanying notes are an integral part to these financial statements.

45
<PAGE>

SL GREEN REALTY CORP.
COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)

SL Green
Predecessor
-----------
<S> <C>
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
========

</TABLE>

The accompanying notes are an integral part to these financial statements.

46
<PAGE>

SL GREEN REALTY CORP.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

SL Green Realty Corp SL Green Predecessor
-------------------- --------------------
(Consolidated) (Combined)
Year ended August 21, to January 1, to Year ended
December 31, December 31, August 20, December 31,
1998 1997 1997 1996
---- ---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income .......................................................... $ 29,452 $ 3,685 $ 23,552 $ 8,253
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization ..................................... 15,404 2,815 811 975
Equity in net (income) loss from Service Corporations ............. (387) 101 -- --
Minority interest in operating partnership ........................ 2,991 712 -- --
Share of net (income) loss from uncombined joint ventures.......... -- -- (21,072) 1,763
Deferred rents receivable ......................................... (11,748) (946) (102) (362)
Provision for straight-line credit loss ........................... 2,420 -- -- --
Provision for bad debts ........................................... 374 -- -- --
Amortization for officer loans and deferred
compensation .................................................... 747 -- -- --
Extraordinary items - non cash portion, net of
minority interest in 1998 and 1997 .............................. 574 803 -- (8,961)
Changes in operating assets and liabilities:
Restricted cash ................................................... (6,147) (223) -- (563)
Receivables ....................................................... (3,587) (614) (190) (531)
Related party receivables ......................................... 619 (1,633) (365) (170)
Deferred costs .................................................... (5,810) (707) (279) (1,108)
Other assets ...................................................... (8,441) (3,101) 656 (287)
Accounts payable, accrued expenses and other
liabilities ..................................................... 4,738 4,524 (173) 1,263
Deferred land lease payable ......................................... 1,466 297 -- --
--------- --------- -------- --------
Net cash provided by operating activities ........................... 22,665 5,713 2,838 272
--------- --------- -------- --------
INVESTING ACTIVITIES
Additions to land, buildings and improvements ....................... (357,243) (217,165) (7,411) (10,725)
Contributions to partnership investments ............................ -- -- (25) (1,650)
Investment in and advances to Service Corporations .................. (8,449) -- -- --
Mortgage loan receivable ............................................ (10,901) -- -- --
Distributions from partnership investments .......................... -- -- 1,877 --
--------- --------- -------- --------
Net cash used in investing activities ............................... (376,593) (217,165) (5,559) (12,375)
--------- --------- -------- --------

</TABLE>

The accompanying notes are an integral part of these financial statements.

47
<PAGE>

SL GREEN REALTY CORP.
STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)

SL Green Realty Corp. SL Green Predecessor
--------------------- --------------------
(Consolidated) (Combined)
Year ended August 21, to January 1, to Year ended
December 31, December 31, August 20, December 31,
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from mortgage notes payable ................................. -- 21,000 7,000 16,680
Payments of mortgage notes payable ................................... (1,958) (76,822) (219) (6,910)
Repayments of senior revolving credit facility ....................... (207,450) -- -- --
Proceeds from bridge financings ...................................... 327,460 -- -- --
Repayments of bridge financings ...................................... (239,960) -- -- --
Proceeds from senior revolving credit facility ....................... 155,250 76,000 -- --
Capitalized lease obligation ......................................... 251 58 -- --
Mortgage loan receivable ............................................. -- (15,500) -- --
Net proceeds from sale of 8% mandatory preferred stock ............... 109,700 -- -- --
Cash distributions to owners ......................................... -- -- (4,024) (552)
Cash contributions from owners ....................................... -- -- 25 2,742
Dividends and distributions paid ..................................... (32,144) (2,348) -- --
Deferred loan costs ................................................. (5,822) (1,643) -- --
Net proceeds from sale of common stock ............................... 242,055 228,704 -- --
Formation expenses ................................................... -- (5,215) -- --
--------- --------- ------- --------
Net cash provided by financing activities ............................ 347,382 224,234 2,782 11,960
--------- --------- ------- --------
Net (decrease) increase in cash and cash
equivalents ........................................................ (6,546) 12,782 61 (143)
Cash and cash equivalents at beginning of period ..................... 12,782 -- 476 619
--------- --------- ------- --------
Cash and cash equivalents at end of period ........................... $ 6,236 $ 12,782 $ 537 $ 476
========= ========= ======= ========

Supplemental cash flow disclosures
Interest paid ........................................................ $ 13,144 $ 1,583 $ 1,085 $ 1,059
========= ========= ======= ========

Supplemental disclosure of non-cash investing and financing activities
Investing and Financing Activities:
Land interest acquired for operating partnership units ............... $ 1,000
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 1998 and 1997 the Company declared distributions per unit of
$0.35 and these distributions were paid in 1999 and 1998, respectively.

The accompanying notes are an integral part to these financial statements.

48
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998

(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
Predecessor"). 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 believes it qualifies 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. 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,
$.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) 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 officer 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, 1998, no shares of Excess Stock
are issued and outstanding.

Concurrent with the consummation of the Offering in 1997, 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 in 1997
(after deducting underwriting discounts) was $228.7 million. The Company
utilized $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 a Lehman Brothers, Inc. advisory fee and $41.7
million to fund capital expenditures, general working capital needs and future
acquisitions (see note 3).

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.

MAY 1998 PUBLIC OFFERINGS

On May 12, 1998 the Company completed the sale of 11.5 million shares of
common stock and 4.6 million shares of 8% Preferred Income Equity Redeemable
Shares with a mandatory liquidation preference of $25.00 per share (the
"PIERS"). Gross proceeds from these equity offerings ($353 million, net of
underwriter's discount) were used principally to repay the Acquisition Facility
(see note 13) and acquire additional properties. These offerings resulted in the
reduction of continuing investor's interest in the Operating Partnership from
16.2% to 9.2%.

49
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

PRINCIPLES OF COMBINATION - SL GREEN PREDECESSOR

The SL Green Predecessor was 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 by Stephen L. Green in entities accounted for on the equity
method (see note 2) that were 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 prior to August 21, 1997
include partnerships and corporations which are under common control as follows:

STEPHEN L. GREEN
PERCENTAGE
ENTITY PROPERTY/SERVICE OWNERSHIP OWNERSHIP TYPE
- ------ ---------------- --------- --------------

<S> <C> <C> <C>
Office Property Entities
64-36 Realty Associates 70 West 36th Street 95% General partner
1414 Management Associates, LP 1414 Avenue of the Americas 100% General partner
Service Corporations
SL Green Management, Corp. Management 100% Sole shareholder
SL Green Leasing, Inc. Management and leasing 100% Sole shareholder
Emerald City Construction Corp. Construction 100% Sole shareholder

</TABLE>

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 gives the SL Green
affiliate the power to elect all directors of the Service Corporations. 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.

50
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(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 (95% of taxable income) to avoid any federal income
or excise tax at the Company level. 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.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned or majority-owned. All
significant intercompany balances and transactions have been eliminated.

MARKETABLE SECURITIES

Marketable securities held by the preferred stock subsidiaries are
classified as available for sale. The cost of these securities approximates
their fair value at December 31, 1998.

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

<S> <C>
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 (lease term)
Furniture and fixtures four to seven years
Tenant improvements remaining life of the lease

</TABLE>

Depreciation expense (including amortization of the capital lease asset)
amounted to $13,555 for the year ended December 31, 1998, $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 for the year ended December 31, 1996.

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.

51
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(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, 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
land lease payable in the accompanying 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 an
estimated average lease term of seven years.

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.
Deferred costs associated with the Company's forward treasury lock (see note 5)
are classified as deferred financing costs and are to be amortized over the term
of the committed April 1999 mortgage financings.

INTEREST RATE HEDGE TRANSACTIONS

The Company may enter into derivative financial instruments such as
interest rate swaps and interest rate collars in order to mitigate its interest
rate risk on a related financial instrument. The Company may designate these
derivative financial instruments as hedges and applies deferral accounting.
Gains and losses related to the termination of such derivative financial
instruments are deferred and amortized to interest expense over the term of the
debt instrument. Payments to or from counterparties are recorded as adjustments
to interest expense.

The Company may also utilize interest rate contracts to hedge interest rate
risk on anticipated debt offerings. These anticipatory hedges are designated,
and effective, as hedges of identified debt issuances which have a high
probability of occurring. Gains and losses resulting form changes in the market
value of these contracts are deferred and amortized into interest expense over
the life of the related debt instrument. Hedges determined to be ineffective and
hedges not correlated to financings are charged to operations.

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. 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 revenue. Approximately 19% of the Company's revenue for the period
August 21, 1997 to

52
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

December 31, 1997 was derived from 673 First Avenue. Approximately 19% and 11%
of the Company's revenue was derived from 420 Lexington Avenue and 17 Battery
Place, respectively, for the year ended December 31, 1998

The Company currently has 74% of its workforce covered by three collective
bargaining agreements which service all of the Company's properties.

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, 1998, the
Company believes it is in compliance with all REIT requirements and was not
subject to federal income taxes.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement effective January 1, 2000. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.

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:

53
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

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
LLC ("Praedium Bar)................ 36 West 44th Street 10%(A) sale and financing

</TABLE>

- ----------

(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 owners of the fee interest, in 36
West 44th Street and the leasehold interest in 35 West 43rd Street
transferred their interests, in this property to the Company on April 14,
1998.

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

JANUARY 1, TO YEAR ENDED
AUGUST 20, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Rental revenue and escalations ................. $ 13,463 $ 18,874
Other revenue .................................. 89 28
-------- --------
Total revenues ................................. 13,552 18,902
-------- --------
Interest ....................................... 5,320 7,743
Depreciation and amortization .................. 2,510 3,580
Operating and other expenses ................... 7,142 10,036
-------- --------
Total expenses ................................. 14,972 21,359
-------- --------
Operating loss before outside partner's interest (1,420) (2,457)
Elimination of inter-company management fees ... 240 355
Extraordinary gain on forgiveness of
debt ......................................... 33,418 --
Other partner share of the (income) loss ....... (10,921) 694
-------- --------

Income (loss) allocated to the SL Green
Predecessor .................................. $ 21,317 $ (1,408)
======== ========

</TABLE>

54
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

There were several business relationships with related parties which
involved management, leasing and construction fee revenues and maintenance
expense. Transactions relative to the aforementioned combined statements of
operations and balance sheet for the equity investees include the following
before elimination of intercompany transactions:

JANUARY 1, TO YEAR ENDED
AUGUST 20, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Management fee expenses ..... $ 448 $622
Leasing commission expenses.. 295 218
Construction fees ........... 1,796 185
Maintenance expenses ........ 186 227

</TABLE>

3. PROPERTY ACQUISITIONS

On August 14, 1998 the Company purchased the property located at 1412
Broadway - The Fashion Gallery Building - for $72 million, plus approximately $5
million for reimbursement of loan prepayment charges and $5 million related to
capital expenditures, commissions and other closing costs. The property is a
25-story office building totaling 389,000 square feet and had an occupancy rate
at the date of acquisition, including pending leases, of 89.5%.

On August 6, 1998 the Company closed the acquisition of an existing first
mortgage secured by the property located at 636 11th Avenue, which is a 469,000
square foot industrial and warehouse block front property located between 46th
and 47th Streets for $10.9 million. The mortgage bears interest at 8.875% at
December 31, 1998. The Company had contracted to buy this mortgage on June 11,
1998 and simultaneously entered into an agreement to purchase the property
during January 1999. This property is currently in Chapter 11 bankruptcy
proceedings. During January 1999 the Company terminated this purchase agreement.
The unrecoverable project costs and settlement costs resulted in a $1.1 million
charge to 1998 earnings.

On June 1, 1998 the Company acquired the property located at 440 Ninth
Avenue for approximately $32 million in cash. The 18-story, 340,000 square foot
building was 76% occupied at the date of acquisition. In connection with this
purchase, the Company obtained a $6.2 million mortgage note receivable secured
by the property located at 38 East 30th Street. The note's interest rate was 8%
and was paid back during September 1998.

On May 21, 1998 the Company acquired the outstanding mortgage of the
property located at 711 Third Avenue for approximately $44.6 million in cash.
The 20-story, 524,000 square foot building was 79% occupied at the date of
acquisition. The Company's outstanding mortgage position provides for the
Company to receive 100% of the economic benefit from the property, and
accordingly for the period owned, the Company has recorded the operating results
of the property in the statement of operations. On July 2, 1998 the Company
acquired 50% of the fee interest in 711 Third Avenue for $20 million and 44,772
Operating Partnership Units.

During March 1998, the Company purchased the operating leasehold
interest in the property located at 420 Lexington Avenue (the "Graybar
Building") and the fee interest in the property located at 1466 Broadway from
the Helmsley organization for $142 million. The Graybar Building is located
adjacent to Grand Central Station and encompasses approximately 1.2 million
square feet and the property at 1466 Broadway is located at 42nd Street and
Broadway encompassing approximately 290,000 square feet.

During March 1998 the Company purchased the property located at 321 West
44th Street for approximately $17 million, comprised of approximately 209,000
square feet.

55
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

On January 8, 1998, the Company acquired fee title to its property located
at 1372 Broadway. Prior to this date the Company held a mortgagee's
interest in this property with a right to acquire the fee.

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 March 31, 1999 and is secured by a first
mortgage on the mortgagor's condominium interest in the property. The cash
required to purchase the property and fund the loan were financed through
borrowings under the Company's senior unsecured revolving credit facility.

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 (subsequently returned in 1998). 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, 1998 and 1997 as though each acquisition described above and each
acquisition included in the Offering and Formation Transactions was made on
January 1, 1997.

1998 1997
--------- ---------
<S> <C> <C>
Revenues ................................... $ 160,110 $ 150,785
Pro forma net income ....................... $ 28,607 $ 25,798
Pro forma basic earnings per common share .. $ 1.20 $ 1.08
Pro forma diluted earnings per common share $ 1.20 $ 1.08
Common and common equivalent share - basic . 23,952 23,792
Common and common equivalent share - diluted 23,993 23,863

4. DEFERRED COSTS 1998 1997
--------- ---------
Deferred costs consist of the following: ... $ 8,342 $ 3,147

Deferred financing ......................... 13,010 7,201
--------- ---------
Deferred lease ............................. 21,352 10,348

Less accumulated amortization .............. (6,070) (4,249)
--------- ---------
$ 15,282 $ 6,099
========= =========

</TABLE>

56
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

5. MORTGAGE NOTES PAYABLE AND REVOLVING CREDIT FACILITY

The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1998 and 1997 are as follows:

PROPERTY MORTGAGE NOTES 1998 1997
-------- -------------- ---- ----
<S> <C> <C> <C>
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,
2007 ............................................................... -- $ 7,000
50 West 23rd Street Note payable to Lehman Brothers Holdings Inc., with interest
at 7.47% due August, 2007 .......................................... -- 14,000
50 West 23rd Street Note payable to GMAC with interest at 7.33%
due December 2007................................................... $21,000 --
29 West 35th Street First mortgage note with interest payable at 8.464%, due
February 1, 2001.................................................... 2,903 $ 2,974
673 First Avenue First mortgage note with interest payable at 9.0%, due
December 13, 2003................................................... 16,452 18,013
470 Park Avenue South First mortgage note with interest payable at 8.25%, due April
1, 2004............................................................. 10,507 10,833
------- -------
Total mortgage notes payable........................................ $50,862 $52,820
======= =======

</TABLE>

As of December 31, 1998, the carrying values of 50 West 23rd Street, 29
West 35th Street, 673 Third Avenue and 470 Park Avenue South were $35.6 million,
$5.6 million, $33.7 million and $27.0 million, respectively.

During December 1998, the Company closed two short-term bridge financings.
The first financing was a $51.5 million bridge loan with Prudential Securities
at an interest rate equal to 200 basis points over the current one-month LIBOR
(7.58% at December 31, 1998 weighted average interest rate). The loan matures on
December 30, 1999 and is secured by the properties located at 1412 Broadway and
633 Third Avenue. The second financing was a $36 million bridge loan with Lehman
Brothers at an interest rate equal to 275 basis points over the current
one-month LIBOR (8.29% at December 31, 1998 weighted average interest rate). The
loan matures on December 15, 1999 and is secured by the properties located at 70
West 36th Street, 1414 Avenue of the Americas and The Bar Building.

During March 1998, the Company converted the notes payable that were
collateralized by 50 West 23rd Street into fixed rate obligations at an interest
rate of 7.33%.

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
than 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 on a graduated 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, 1998 the
outstanding amount of indebtedness under the Credit Facility was $23.8 million,
and the interest rate on such indebtedness was 6.86% per annum. At December 31,
1998 the Company's borrowing availability was $110 million. Availability under
the Credit Facility was reduced further by letters of credit in the amount of
$6.2 million for acquisition deposits.

57
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

In anticipation of financing properties, the Company executed a forward treasury
rate lock on September 2, 1998 for $100 million of future financing. The
underlying rate for that position was 5.13%. On December 3rd this rate lock
expired and was not renewed. The negative value of this hedge at expiration was
$3.2 million. In connection with the hedge, during April 1999 the Company has
commitments to complete five permanent mortgage financings totaling $103 million
on properties located at 70 West 36th Street, 36 West 44th Street, 1414 Avenue
of the Americas, 633 Third Avenue and 1412 Broadway. The hedge cost represents a
deferred financing cost which will be amortized over the life of these
financings, except for $0.2 million which related to a mismatch in terms
resulting in a charge to 1998 earnings.

PRINCIPAL MATURITIES

Combined aggregate principal maturities of mortgages and notes payable as
of December 31, 1998 are as follows:

<TABLE>

<S> <C>
1999............................... $ 89,726
2000............................... 27,309
2001............................... 6,487
2002............................... 3,932
2003............................... 5,400
Thereafter......................... 29,308
--------
$162,162
========

</TABLE>

MORTGAGE RECORDING TAX - HYPOTHECATED LOAN

The Operating Partnership mortgage tax credit loans totaled approximately
$134 million from LBHI at December 31, 1998. These loans are collateralized by
the mortgages encumbering the Operating Partnership's interests in 711 Third
Avenue. 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 commensurate with that of the portfolio of six month US
Treasury securities, which mature on May 18, 1999. 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, 1998. 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 Company 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.

58
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)

Cash equivalents, mortgage receivables, variable 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, 1998. 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 1999 to 2013. 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, 1998 are as follows:

<TABLE>

<S> <C>
1999...................................... $131,925
2000...................................... 121,522
2001...................................... 111,744
2002...................................... 101,244
2003...................................... 88,765
Thereafter................................ 345,766
--------
$900,966
========

</TABLE>

59
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(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:

SL GREEN REALTY CORP. SL GREEN PREDECESSOR
--------------------- --------------------
AUGUST 21 JANUARY 1 TO
TO DECEMBER 31, AUGUST 20,

1998 1997 1997 1996
------ ---- ---- ----
<S> <C> <C> <C> <C>
Management revenues ........................................ $ 178 $ 78 $172 $180
Leasing commission revenues ................................ 181 8 29 37
Construction fees .......................................... -- 14 37 25
Rental income .............................................. -- -- 43 33
Maintenance expense ........................................ 2,118 119 163 93

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

1998 1997
---- ----
<S> <C> <C>
17 Battery Condominium Association ......................... $245 --
Officers ................................................... 528 $725
---- ----
$773 $725
==== ====

Amounts due to related parties at December 31, consist of:
1998 1997
---- ----
29 West 35th Street Predecessor Partnership ................ $ -- $ 45
36 West 44th Street Predecessor Partnership ................ 12 56
70 West 36th Street Predecessor Partnership ................ 12 67
1414 Avenue of the Americas Predecessor Partnership ........ 25 88
470 Park Avenue South Predecessor Partnership .............. 6 72
673 First Avenue Predecessor Partnership ................... 8 39
---- ----
$ 63 $367
==== ====

</TABLE>

60
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

9. STOCKHOLDERS' EQUITY

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, 1998,
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
------------------ ----------- -----------
<S> <C> <C> <C>
Balances at August 21, 1997 . -- -- --
Granted ..................... 670,000 -- $21.00 - $26.19
Became Exercisable .......... -- -- --
Canceled .................... (10,000) -- $ 21.00
------- ----------------
Balances at December 31, 1997 660,000 -- $21.00 - $26.19

Granted ..................... 1,306,000 -- $18.375 - $27.00
Vested ...................... -- 188,666 $21.00 - $26.19
Cancelled ................... (168,000) -- $18.375 - $27.00
--------- -------
Balances at December 31, 1998 1,798,000 188,666
========= =======

</TABLE>

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 Company's Common Stock of .3695
and a weighted-average expected life of options of approximately four years,
the Company's pro forma net income, basic pro forma earnings per common share
and diluted pro forma earnings per common share would have been and would
have been $20.9 million, $1.06 and $1.06, respectively, for the year ended
December 31, 1998 and $3.4 million, $0.28 and $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. The estimated fair
market value of the Company's options issued 1998 and 1997 were $6.2 million
and $2.7 million, respectively.

61
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA))

EARNINGS PER SHARE

The basic and diluted earnings per common share for the year ended December
31, 1998 have been computed based upon weighted average equivalent shares
outstanding of 19,675 and 19,739 respectively. 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 differences in the weighted average shares outstanding
represents the inclusion of common share equivalents from options issued and
outstanding at December 31, 1998 and 1997 in the calculation of diluted earnings
per share which is not included in basic earnings per share. The conversion of
the PIERS which are currently anti-dilutive using the "if converted" method may
result in the dilution of future earnings per share calculations.

PREFERRED STOCK

The Company's 8% Preferred Income Equity Redeemable Shares (the "PIERS")
are non-voting and are convertible at any time at the option of the holder into
the Company's common stock at a conversion price of $24.475 per share. The
conversion of all PIERS would result in the issuance of 4,699,000 of the
Company's common stock which has been reserved for issuance. The PIERS receive
annual dividends of $2.00 per shares paid on a quarterly basis and dividends are
cumulative. On or after July 15, 2003 the PIERS may be redeemed at the option of
Company at a redemption price of $25.889 and thereafter at prices declining to
the par value of $25.00 on or after July 15, 2007 with a mandatory redemption on
April 15, 2008 at a price of $25.00 per share. The PIERS were recorded net of
underwriters discount and issuance costs. These costs are being accreted over
the expected term of the PIERS using the interest mtehod.

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 $366, $35, $44, and $30
during the year ended December 31, 1998, the periods August 21, 1997 to December
31, 1997, January 1, 1997 to August 20, 1997 and the year ended December 31,
1996, 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.

Effective January 1, 1999 the Company implemented a deferred compensation
plan (the "Deferred Plan") covering certain executives of the Company. In
connection with the Deferred Plan the Company issued 240,000 restricted shares.
The shares issued under the Deferred Plan were granted to certain executives and
vesting will occur annually upon the Company meeting established financial
performance criteria. Annual vesting occurs at rates ranging from 15% to 35%
once performance criteria are reached.

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 1998 and 1997.

62
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS)

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.

During July 1998, the Company issued 150,000 shares in connection with an
employment contract. These shares vest annually at rates of 15% to 35% and were
recorded at fair value.

The Company has entered into employment agreements with certain executives.
Nine executives have employment agreements which expire between July 2000 and
July 2003. The cash based compensation associated with these employment
agreements totals approximately $1.8 million annually.

During March 1998, the Company acquired an operating sub-leasehold position
at 420 Lexington Avenue. The operating sub-leasehold position requires annual
ground lease payments totaling $6 million and sub-leasehold position payments
totaling $1.1 million (excluding an operating sub-lease position purchased
January 1999 - see note 16). The ground lease and sub-leasehold positions expire
2008. The Company may extend the positions through 2029 and the extension has no
additional cost.

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.

The property located at 1140 Avenue of the Americas operates under a net
ground lease ($348 annually) with a term expiration date of 2016 with an option
to renew for an additional 50 years.

The property located at 711 Third Avenue operates under an operating
sub-lease which expires in 2083. Under the sub-lease, the Company is responsible
for ground rent payments of $1.6 million annually increasing to $3.1 million in
July 2001 for ten years. The ground rent is reset after year ten based on the
estimated fair market value of the property.

The Company continues to lease the 673 First Avenue property which has been
classified as a capital lease with a cost basis of $12,208 and cumulative
amortization of $2,533 and $2,284 at December 31, 1998 and 1997, respectively.
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, 1998:

63
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Noncancellable
December 31, Capital Leases Operating Leases
- ------------ -------------- ----------------
<S> <C> <C>
1999 $ 1,140 $ 11,725
2000 1,177 11,792
2001 1,290 12,850
2002 1,290 13,625
2003 1,290 13,625
Thereafter ........... 61,600 363,028
-------- --------

Total minimum lease
Payments ............. 67,787 $426,645
======== ========

Less amount
representing interest (53,046)

Present value of net
minimum lease payments $ 14,741
========

</TABLE>

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

In March 1998 the Company requested 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 "Acquisition Facility"). This
Acquisition Facility closed on March 18, 1998 financed the Helmsley Properties
acquisition, paid-off the outstanding balance on the Company's Credit Facility
and provides on-going liquidity for future acquisition and corporate needs. The
term of the Acquisition Facility was one year. The interest rate was 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 to 300 basis
points over LIBOR. As a result of the Company's May 1998 Public Equity
Offerings, on May 18, 1998 the Company repaid the Acquisition Facility prior to
its scheduled maturity date of March 18, 1999. The Company's early
extinguishment of the Acquisition Facility resulted in the write-off of
unamortized deferred financing costs totaling approximately $574 which were
classified as an extraordinary loss during the quarter ended June 30, 1998.

Forgiveness of subordinated property mortgage debt totaling $22,087 (net of
other partners' share of $11,332 for the period January 1, 1997 to August 20,
1997) 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. This debt was foregiven in connection with the Formation Transactions.

64
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA))

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)
through December 31, 1998 (in thousands, except share amounts)

Quarter ended Quarter ended
December 31, 1997 September 30, 1997
----------------- ------------------
<S> <C> <C>
Total revenues ........................... $ 16,058 $ 7,149
======== =======
Income net of minority interest and before
extraordinary item ..................... $ 3,533 $ 2,056
Extraordinary item ....................... -- (1,874)
-------- -------
Net income per common share .............. $ 3,503 $ 182
======== =======
Income per share before extraordinary item $ 0.29 $ 0.17
======== =======
Net income per common share - basic ...... $ 0.29 $ 0.01
======== =======
Net income per common share - diluted .... $ 0.28 $ 0.01
======== =======

</TABLE>

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

Quarter ended Quarter ended Quarter ended Quarter ended
December 31, 1998 September 30, 1998 June 30, 1998 March 31, 1998
----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Total revenues .................... $ 40,063 $ 40,460 $ 34,252 $22,197
======== ======== ======== =======

Income net of minority interest and

before extraordinary item ....... $ 9,256 $ 10,256 $ 6,372 $ 4,089

Extraordinary Item ................ -- -- (522) --
-------- -------- -------- -------

Net income ........................ 9,256 10,256 5,850 4,089

Preferred dividends and accretion . (2,346) (2,433) (1,191) --
-------- -------- -------- -------

Income available to common

shareholders .................... $ 6,910 $ 7,823 $ 4,659 $ 4,089
======== ======== ======== =======

Income per common share before

extraordinary item .............. $ 0.29 $ 0.33 $ 0.28 $ 0.33
======== ======== ======== =======

Net income per common share -

basic and diluted .............. $ 0.29 $ 0.33 $ 0.25 $ 0.33
======== ======== ======== =======

</TABLE>

65
<PAGE>

SL GREEN REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA))

15. SEGMENT INFORMATION

The Company is a REIT engaged in owning, managing, leasing and repositioning
class B office properties Manhattan, New York and has one reportable segment,
office real estate. The Company evaluates real estate performance and allocates
resources based on net income.

The Company's real estate portfolio is located in one geographical market of
Manhattan. The primary sources of revenue are generated from tenant rents and
escalations and reimbursement revenue. Real estate property operating expenses
primarily consist of security, maintenance, utility costs and ground rent
expense (at certain applicable properties). The single office real estate
business segment meets the quantitative threshold for determining reportable
segments. The Company has no tenant with rental revenue greater than 10% of the
Company's revenue.

16. SUBSEQUENT EVENTS

Graybar Building Sublease

BMW Building

During January 1999, the Company acquired a 65% interest in the property located
at 555 West 57th Street (The BMW Building) for approximately $66.7 million
(including an acquired 65% interest in existing mortgage debt totaling $44
million). The 941,000 square foot property was approximately 100% leased as of
the acquisition date.

The Company funded these acquisitions through its Credit Facility.

On March 12, 1999, the Company entered into an agreement with Reckson Associates
Realty Corp. to purchase four office properties totaling 675,000 square feet for
approximately $84.5 million and expects to finance the acquisitions through two
mortgages (including $65 million on 420 Lexington Avenue) totaling approximately
$118 million.

66
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
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 (not presented
herein) 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 the
year 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 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 the year ended December 31, 1996 in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP

New York, New York
February 10, 1998

67
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

January 1, to Year ended
August 21 December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Rental revenue ...................... $ 12,604 $ 17,386
Escalation and reimbursement revenues 859 1,488
Other income ........................ 89 28
-------- --------
Total revenues ........................ 13,552 18,902
-------- --------
Expenses:
Operating expenses:
Other ............................. 2,342 3,115
Related parties ..................... 634 849
Real estate taxes ................... 1,741 2,316
Rent expense ........................ 2,425 3,756
Interest ............................ 5,320 7,743
Depreciation and amortization ....... 2,510 3,580
-------- --------
Total expenses ........................ 14,972 21,359
-------- --------
Loss before extraordinary gain ........ (1,420) (2,457)
-------- --------
Extraordinary gain .................... 33,418 --
-------- --------
Net income (loss) ..................... $ 31,998 $ (2,457)
======== ========

</TABLE>

The accompanying notes are an integral part to these financial statements.

68
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OWNERS' DEFICIT

(DOLLARS IN THOUSANDS)

SL Green & All other
Related Entities Partners Total
---------------- --------- -----
<S> <C> <C> <C>
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 21,101 10,897 31,999
-------- -------- --------
Balance at August 20, 1997 ....................... $ 3,399 $ (585) $ 2,815
======== ======== ========

</TABLE>

The accompanying notes are an integral part to these financial statements..

69
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR

COMBINED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

January 1, to Year ended
August 20 December 31
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) .................................. $ 31,998 $ (2,457)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Extraordinary item ............................... (33,418) --
Depreciation and amortization .................... 2,510 3,580
Deferred rents receivable ........................ (293) (524)
Other ............................................ 93 --
Changes in operating assets and liabilities:
Restricted cash ................................... (135) (383)
Deferred costs ................................... (639) (705)
Other assets ..................................... 1,552 (1,033)
Accounts payable and accrued expenses ............ (616) 768
Accounts payable to related parties .............. (85) (91)
Security deposits ................................ 133 409
Accrued interest on mortgage notes
payable ........................................ 1,144 969
-------- --------
Net cash provided by operating activities .......... 2,244 533
-------- --------
INVESTING ACTIVITIES
Additions to land, buildings and
improvements ..................................... (1,232) (4,583)
-------- --------
Net cash used in investing activities .............. (1,232) (4,583)
-------- --------
FINANCING ACTIVITIES
Payments of mortgage notes payable ................. (1,211) (1,674)
Cash distributions to owners ....................... (3,047) (1,150)
Cash contributions from owners ..................... 835 5,750
Capitalized lease obligations ...................... 824 1,277
-------- --------
Net cash provided by (used in) financing
activities ....................................... (2,599) 4,203
-------- --------
Net increase (decrease) in cash and cash
equivalents ...................................... (1,587) 153
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
-------- --------
Cash and cash equivalents at end of
period ........................................... $ 451 $ 2,223
======== ========
Supplemental cash flow disclosures
Interest paid ...................................... $ 4,176 $ 6,774
======== ========
Supplemental schedule of non cash
investing and financing activities:
Assumption of mortgage in connection with property
acquisition .................................... -- $ 10,200
========

</TABLE>

70
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

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:

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

</TABLE>

See accompanying notes.

71
<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.

72
<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:

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>

(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 an ownership 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.

73
<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:

<TABLE>

CATEGORY TERM
-------- ----
<S> <C>
Building..................................... 40 years
Property under capital lease................. 49 years
Building improvements........................ remaining life of the building
Tenant improvements........................... remaining life of the lease

</TABLE>

Depreciation expense including the amortization of the capital lease asset
amounted to $2,917, in 1996 . 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.

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.

74
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR

(DOLLARS IN THOUSANDS)

NOTES TO COMBINED STATEMENTS (CONTINUED)
DECEMBER 31, 1996

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.

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.

2. EXTRAORDINARY ITEM

Forgiveness of subordinated mortgage debt totaling $33,418 is reflected in
the 1997 Combined Statement of Operation as in extraordinary gain.

3. 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.

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

75
<PAGE>

UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR

(DOLLARS IN THOUSANDS)

NOTES TO COMBINED STATEMENTS (CONTINUED)
DECEMBER 31, 1996

4. 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
AUGUST 20, DECEMBER 31,
1997 1996
------ ----
<S> <C> <C>
Management expenses ......... $ 448 $622
Leasing commission expenses.. 295 218
Construction fees ........... 1,796 185
Maintenance expenses ........ 186 227

</TABLE>

5. 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 in 1996 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.

6. 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.

7. 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.

76
<PAGE>

SL GREEN REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)

COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
INITIAL COST COST CAPITALIZED SUBSEQUENT TO
------------ -------------------------------
ACQUISITION
-----------

BUILDING AND BUILDING AND
DESCRIPTION (1) ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
--------------- ----------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
70 West 36th St. (2) -- $1,517 $7,700 $13 $7,499
1414 Avenue of the Americas (2)
-- 2,948 6,790 60 1,382
673 First Avenue $16,452
(1 mortgage) 0 43,618 -- 85
29 West 35th Street 2,903
(1 mortgage) 339 5,682 -- 366
470 Park Avenue South 10,507
(1 mortgage) 3,750 30,718 1 762
36 West 44th Street (2) -- 3,259 13,330 1,028 1,466
1372 Broadway -- 10,478 41,912 66 3,407
1140 Avenue of the Americas
-- 4,207 16,828 54 836
50 West 23rd Street 21,000
(1 mortgage) 7,217 28,866 43 461
17 Battery Place -- 11,686 46,744 20 7,392
110 East 42nd Street -- 6,000 24,070 26 1,271
633 Third Avenue (3) -- 2,171 8,682 (200) (1)
1466 Broadway -- 11,643 53,608 -- 348
420 Lexington Ave -- -- 83,272 -- 1,152
321 West 44th Street -- 3,404 14,355 -- 254
440 Ninth Avenue -- 6,326 25,172 -- 476
711 Third Avenue -- 19,843 40,342 -- 959
1412 Broadway (3) -- 16,221 64,886 3 248
------- -------- -------- ------ -------
$50,862 $111,009 $556,575 $1,114 $28,363
======= ======== ======== ====== =======

COLUMN A COLUMN E COLUMN F COLUMN G
-------- -------- -------- --------
GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD
------------------------------------------------

BUILDING AND ACCUMULATED DATE OF
DESCRIPTION (1) LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
--------------- ---- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
70 West 36th St. (2) $1,530 $15,199 $16,729 $6,716
1414 Avenue of the Americas (2)
3,008 8,172 11,180 608
673 First Avenue
-- 43,703 43,703 9,989
29 West 35th Street
339 6,048 6,387 756
470 Park Avenue South
3,751 31,480 35,231 8,367
36 West 44th Street (2) 4,287 14,796 19,083 889
1372 Broadway 10,544 45,319 55,863 1,616
1140 Avenue of the Americas
4,261 17,664 21,925 597
50 West 23rd Street
7,260 29,327 36,587 1,000
17 Battery Place 11,706 54,136 65,842 1,215
110 East 42nd Street 6,026 25,341 31,367 857
633 Third Avenue (3) 1,971 8,681 10,652 207
1466 Broadway 11,643 53,956 65,599 1,056
420 Lexington Ave -- 84,424 84,424 1,624
321 West 44th Street 3,404 14,609 18,013 270
440 Ninth Avenue 6,326 25,648 31,974 374
711 Third Avenue 19,843 41,301 61,144 601
1412 Broadway (3) 16,224 65,134 81,358 611
-------- -------- -------- -------
$112,123 $584,938 $697,061 $37,353
======== ======== ======== =======

COLUMN A COLUMN H COLUMN I
-------- -------- --------

LIFE ON WHICH
DATE DEPRECIATION IS
DESCRIPTION (1) ACQUIRED COMPUTED
--------------- -------- --------
<S> <C> <C>
70 West 36th St. (2) 12/19/84 Various
1414 Avenue of the Americas (2)
6/18/96 Various
673 First Avenue
8/20/97 Various
29 West 35th Street
8/20/97 Various
470 Park Avenue South
8/20/97 Various
36 West 44th Street (2) 8/20/97 Various
1372 Broadway 8/20/97 Various
1140 Avenue of the Americas
8/20/97 Various
50 West 23rd Street
8/20/97 Various
17 Battery Place 12/19/97 Various
110 East 42nd Street 9/15/97 Various
633 Third Avenue (3) 12/30/97 Various
1466 Broadway 3/18/98 Various
420 Lexington Ave 3/18/98 Various
321 West 44th Street 3/31/98 Various
440 Ninth Avenue 6/1/98 Various
711 Third Avenue 5/20/98 Various
1412 Broadway (3) 8/14/98 Various

</TABLE>

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

(1) All properties located in New York, New York

(2) Mortgage loan totaling $36 million encumbers 1414 Avenue of Americas, 36
West 44th Street and 70 West 36th Street

(3) Mortgage loan totaling $51.5 million encumbers 1412 Broadway and 633 Third
Avenue

77
<PAGE>

The changes in real estate for the three years ended December 31, 1998 are
as follows:

1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year ...... $338,818 $ 26,284 $15,559
Property Acquisitions and Formation
Transactions .................... 339,072 306,752 --
Improvements ...................... 19,171 5,782 10,725
-------- -------- -------
Balance at end of year ............ $697,061 $338,818 $26,284
======== ======== =======

</TABLE>

The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1998 was approximately $650,493.

The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1998 are as follows:

1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Balance at beginning of year $23,800 $ 5,721 $5,025
Formation Transactions ..... -- 14,073 --
Depreciation for year ...... 13,555 4,006 696
------- ------- ------
Balance at end of year ..... $37,355 $23,800 $5,721
======= ======= ======

</TABLE>

78
<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, 1999 (the "1999 Proxy
Statement"), is incorporated herein by reference.

ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION

EXECUTIVE COMPENSATION

The Company was organized as a Maryland corporation in June 1997. The
following table sets forth information regarding the base compensation awarded
to the Company's Chief Executive Officer and each of the Company's other five
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") whose base salary (other than the Chief Executive
Officer) on an annualized basis exceeded $100,000 during the fiscal year ended
December 31, 1998.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-----------------------------------------------------------------
LONG
TERM
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUSES($) OPTIONS(1) ALL OTHER ($)
- --------------------------- ---- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Stephen L. Green, Chairman of the......... 1998 $250,000 -0- $125,000 -0-
Board, Chief Executive Officer 1997 $250,000 -0- -0- -0-
David J. Nettina, President and........... 1998 $200,000 $100,000 $175,000 $307,000
Chief Operating Officer 1997 $200,000 -0- $75,000 -0-
Steven H. Klein, Executive Vice........... 1998 $175,000 $75,000 $125,000 $100,000
President-Acquisitions 1997 $175,000 -0- $50,000 -0-
Gerard Nocera, Executive Vice............. 1998 $175,000 $75,000 $125,000 -0-
President-Leasing 1997 $175,000 -0- $50,000 -0-
Nancy A. Peck, Executive Vice
President-Development.................. 1998 $150,000 $50,000 100,000 -0-
and Operations 1997 $150,000 -0- $50,000 -0-
Benjamin P. Feldman, Executive Vice 1998 $150,000 $50,000 100,000 -0-
President and General Counsel 1997 $150,000 -0- $50,000 -0-
Marc Holliday, Chief Investment
Officer (2)............................ 1998 $126,923 $50,000 300,000 -0-
Ann Isely, Chief Financial Officer (2) ... 1998 $100,961 $50,000 50,000 $40,055
- -------------
</TABLE>

(1) As of December 31, 1998, options to purchase a total of 1,698,000 shares of
Common Stock have been granted to directors and employees of the Company,
including options to purchase 1,100,000 shares of Common Stock granted to
the Named Executive Officers. Excludes 100,000 options returned to the
Company by David J. Nettina during 1999.

(2) Not employed During 1997.

79
<PAGE>

The following table sets forth the options granted with respect to the
fiscal year ended December 31, 1998 to the Company's Named Executive Officers.

<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1998
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS EXERCISE SHARE PRICE
SECURITIES GRANTED TO PRICE PER APPRECIATION
UNDERLYING EMPLOYEES SHARE OF FOR OPTION TERM (2)
OPTIONS IN FISCAL COMMON EXPIRATION -------------------------
NAME GRANTED(1) YEAR STOCK(3) DATE 5%(4) 10%(5)
- ---- ---------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen L. Green....................... 125,000 10.4% $18.4375 10/05/08 $1,637,100 $ 4,270,855
David J. Nettina....................... 100,000 8.3% $18.4375 10/05/08 1,309,608 3,416,684
Nancy A. Peck.......................... 50,000 4.1% $18.4375 10/05/08 654,844 1,708,342
Benjamin P. Feldman.................... 50,000 4.1% $18.4375 10/05/08 654,844 1,708,342
Steven H. Klein........................ 75,000 6.2% $18.4375 10/05/08 982,266 2,562,513
Gerard Nocera.......................... 75,000 6.2% $18.4375 10/05/08 982,266 2,562,513
Marc Holliday.......................... 300,000 24.9% $23.75 07/17/08 5,061,168 13,203,457
Ann Iseley............................. 50,000 4.1% $22.50 0513/08 799,132 2,084,756
</TABLE>

- ----------------------
(1) All options are granted at the fair market value of the common stock at the
date of grant. These options will vest in three equal annual installments
(rounded to the nearest whole share) over three years. . Excludes 100,000
options returned to the Company by David J. Nettina during 1999.

(2) In accordance with the rules of the Commission, these amounts are the
hypothetical gains or "option spreads" that would exist for the respective
options based on assumed rates of annual compound share price appreciation
of 5% and 10% from the date the options were granted over the full option
term. No gain to the optionee is possible without an increase in the price
of the Common Stock, which would benefit all stockholders.

(3) The exercise price for the options are was based on the current market
price of the Common Stock on the date of issuance.

(4) An annual compound share price appreciation of 5% from the issuance price
of the Common Stock yields a price of $35.26 per share of Common Stock.

(5) An annual compound share price appreciation of 10% from the issuance price
of the Common Stock yields a price of $58.82 per share of Common Stock.

No options were exercised in 1998. The following table sets forth the
value of options held at the end of 1998 by the Company's Named Executive
Officers.

80
<PAGE>

AGGREGATED FISCAL YEAR-END 1998 OPTION VALUES

NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Stephen L. Green........................................ 0/125,000 $0/$398,438
David J. Nettina........................................ 25,000/150,000 $15,625/$350,000
Nancy A. Peck........................................... 16,666/83,334 $10,416/$180,209
Benjamin P. Feldman..................................... 16,666/83,334 $10,416/$180,209
Steven H. Klein......................................... 16,666/108,334 $10,416/$259,896
Gerard Nocera........................................... 16,666/108,334 $10,416/$259,896
Marc Holliday 0/300,000 $0/$0
Ann Iseley 0/50,000 $0/$0

</TABLE>

- -----------------
(1) The value of unexercised in-the-money options at fiscal year-end based on
the fair market value for Common Stock, $21-5/8 share, as of December 31,
1998.

REPORT ON EXECUTIVE COMPENSATION

The following is a report by the Company's Compensation Committee
regarding the Company's executive compensation objectives, executive
compensation program and the compensation of the Company's chief executive
officer.

EXECUTIVE COMPENSATION OBJECTIVES. The objective of the Company's
executive compensation program is to attract, retain and motivate talented
executives that will maximize stockholder value. In order to achieve this
objective, in addition to annual base salaries, the executive compensation
program utilizes a combination of long-term incentives through equity-based
compensation and annual incentives through cash bonuses. The program is intended
to align the interests of executives with those of the Company's stockholders by
linking a portion of executive compensation directly to increases in stockholder
value. The Company seeks to provide total compensation to its executive officers
which is competitive with total compensation paid by REITs similar to the
Company.

PROCEEDINGS OF THE COMPENSATION COMMITTEE. The Compensation Committee
determines compensation for the Company's executive officers and is comprised of
three nonemployee directors, John H. Alschuler, Jr., Edwin Thomas Burton, III
and John S. Levy. Final compensation determinations for each fiscal year
generally are made after the end of the fiscal year and after audited financial
statements for such year become available. At that time, base salaries for the
following fiscal year are set to the extent not already dictated by the terms of
existing employment agreements, cash bonuses, if any, will be determined for the
past year's performance, and option grants, if any, will generally be made.

81
<PAGE>

The Compensation Committee exercises independent discretion in respect
of executive compensation matters. With respect to the compensation of the Named
Executive Officers other than Mr. Stephen L. Green, the Compensation Committee
reviews the recommendations of Mr. Stephen L. Green.

The following is a discussion of each element of the Company's
executive compensation:

ANNUAL BASE SALARY. Base salaries for each of the Named Executive
Officers are the subject of the employment agreement between the Company and
each such executive as indicated above.

ANNUAL INCENTIVES. Annual incentives are provided in the form of cash
bonuses to be paid if certain performance objectives are achieved. The
Compensation Committee may in the future award cash bonuses based primarily upon
the Company's level of Funds from Operations. Cash bonuses will also be subject
to adjustment based upon the Compensation Committee's evaluation of an
executive's personal performance. Mr. Nettina's employment and noncompetition
agreement provides for a minimum annual cash bonus (commencing on the first
anniversary of the date of the agreement) of $100,000.

LONG-TERM INCENTIVES. Long-term incentives are provided through the
grant of stock options. The grant of stock options are intended to align the
executive's long-term objectives with those of the Company's stockholders. The
Amended 1997 Stock Option and Incentive Plan is administered by the Compensation
Committee, which has the discretion to determine those individuals to whom
options will be granted, the number of shares subject to options and other terms
and conditions of the options.

1998 CHIEF EXECUTIVE OFFICER COMPENSATION. As indicated above, Stephen
L. Green's salary was determined prior to the IPO and prior to the formation of
the Compensation Committee. Accordingly, the Compensation Committee took no
action with respect to such determination. As indicated above, the Committee
determined to forgo awards of cash bonuses to executive officers during the
Company's first fiscal year of operations. During 1998 cash bonus awards were
awarded to all the executive officers except for Stephen L. Green who requested
that he forego a 1998 cash bonus award. A long-term award of stock options was
granted to Mr. Green during 1998. The grant was for 10-year options to purchase
125,000 shares of the Company's common stock at $18.4375 per share.

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the
Internal Revenue Code of 1986, as amended, limits the deductibility on the
Company's tax return of compensation over $1 million to any of the named
executive officers of the Company unless, in general, the compensation is paid
pursuant to a plan which is performance-related, non-discretionary and has been
approved by the Company's stockholders. The Compensation Committee's policy with
respect to Section 162(m) is to make every reasonable effort to ensure that
compensation is deductible to the extent permitted while simultaneously
providing Company executives with appropriate compensation for their
performance. The Company did not pay any compensation during 1997 that would be
subject to the limitations set forth in Section 162(m).

82
<PAGE>

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 1999 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

<TABLE>

<S> <C>
SL GREEN REALTY CORP
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................................................32
Consolidated Statements of Income for the year ended December 31, 1998 and the period August 21,
1997 (Inception) to December 31, 1997..................................................................................34
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1998 and the period
August 21, 1997 (Inception) to December 31, 1997 ......................................................................35
Consolidated Statements of Cash Flows for the year ended December 31, 1998 and the period August 21, 1997
(Inception) to December 31, 1997 ......................................................................................37
Notes to Consolidated Financial Statements ..............................................................................39

THE SL GREEN PREDECESSOR
Combined Statements of Operations for the period January 1, 1997 to
August 20, 1997 and the year ended December 31, 1996 ..................................................................34
Combined Statements of Owners' Equity (Deficit) for the period
January 1, 1997 to August 20, 1997 and the Year ended
December 31, 1996......................................................................................................36

</TABLE>

83
<PAGE>

<TABLE>
<S> <C>
Combined Statements of Cash Flows for the period January 1, 1997
to August 20, 1997 and the years ended December 31, 1996 ..............................................................47
Notes to the Combined Financial Statements ..............................................................................49

UNCOMBINED JOINT VENTURES - COMBINED FINANCIAL STATEMENTS

Combined Statements of Operations for the period January 1, 1997 to

August 20, 1997 and the year ended December 31, 1996 ..................................................................68
Combined Statements of Owners' Deficit for the Period January 1,
1997 to August 20, 1997 and the year ended December 31, 1996 ..........................................................69
Combined Statements of Cash Flows for the period January 1, 1997 to
August 20, 1997 and the year ended December 31, 1996 ..................................................................70
Notes to Combined Financial Statements ..................................................................................72

(a)(2) Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1998..........................................77

</TABLE>

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.

84
<PAGE>

INDEX TO EXHIBITS

(a)

EXHIBITS PAGE
- -------- ----
<S> <C> <C>
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***
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1 Subsidiaries of the Registrant*
27.1 Financial Data Schedule

</TABLE>

- ----------

* 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, 1998.

1. Form 8-K/A dated August 14, 1998, Items 2 and 7
2. Form 8-K dated November 11, 1998, Item 5

85
<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:
-----------------------
Thomas E. Wirth
Chief Financial Officer

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

- ------------------------- Chairman of the Board of Directors March 15, 1999
Stephen L. Green Chief Executive Officer

- ------------------------- President and Chief Operating Officer March 15, 1999
David J. Nettina (Principal Executive Officer)

- ------------------------- Executive Vice President and March 15, 1999
Thomas E. Wirth Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

- ------------------------ Executive Vice President, March 15, 1999
Benjamin P. Feldman General Counsel, Secretary
and Director

- ------------------------ Director March 15, 1999
John H. Alschuler, Jr.

- ------------------------- Director March 15, 1999
Edwin Thomas Burton, III

- ------------------------- Director March 15, 1999
John S. Levy

<PAGE>

EXHIBIT 12.1

<TABLE>
<CAPTION>
SL GREEN REALTY CORP. SL GREEN COMPANY PREDECESSOR
(CONSOLIDATED) (COMBINED)
------------------------------------------------ ---------------------------------
YEAR ENDED AUGUST 21, 1997 JANUARY 1, 1997
DECEMBER 31, TO DECEMBER 31, TO AUGUST 20, YEARS ENDED DECEMBER 31,
------------ --------------- --------------- ---------------------------------
1998 1997 1997 1996 1995 1994
------------ --------------- --------------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) from
continuing operations ......... $23,482 $6,633 $ (100) $(3,470) $(6,923) $(5,040)
Interest ....................... 11,699 1,637 4,874 7,252 7,338 7,639
Portion of rent expense
representative of interest .... 9,903 497 867 1,344 1,323 1,295
Amoritzation of loan costs ..... 1,084 110 143 192 200 266
------- ------ ------ ------- ------- -------
Total earnings ................. $46,168 $8,877 $5,784 $ 5,318 $ 1,938 $ 4,160
------- ------ ------ ------- ------- -------
------- ------ ------ ------- ------- -------
FIXED CHARGES AND:
PREFERRED STOCK DIVIDENDS(1)
Interest ....................... $11,699 $1,637 $4,874 $ 7,252 $ 7,388 $ 7,639
Preferred stock dividends ...... 5,720 -- -- -- -- --
Interest capitalized ........... -- -- -- -- -- --
Portion of rent expense
representative of interest .... 9,903 497 867 1,344 1,323 1,295
Amoritazation of loan costs
expensed ...................... 1,084 110 143 192 200 266
Amoritazation of loan costs
capitalized ................... -- -- -- -- -- --
------- ------ ------ ------- ------- -------
Total fixed charges and
preferred stock dividends ..... $28,406 $2,244 $5,884 $ 8,788 $ 8,861 $ 9,200
------- ------ ------ ------- ------- -------
------- ------ ------ ------- ------- -------
Ratio of earnings to combined
fixed charges and preferred
stock dividends ............... 1.63x 3.96x (2) (2) (2) (2)
------- ------ ------ ------- ------- -------
------- ------ ------ ------- ------- -------
</TABLE>

- ---------
1) Prior to May 16, 1998, no preferred stock had been issued or was oustanding.

2) For the period January 1, 1997 to August 20, 1997 and the years ended
December 31, 1996, 1995 and 1994, SL Green Predecessor's fixed charge ratios
are deficits of $100, $3,470, $6,923 and $5,040, respectively.