PRIME GROUP REALTY TRUST, S-11, 1997-08-13

PRIME GROUP REALTY TRUST
S-11, 1997-08-13

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997

REGISTRATION NO. 333-

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRIME GROUP REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENT)
77 WEST WACKER DRIVE
SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1500
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL W. RESCHKE
CHAIRMAN OF THE BOARD
PRIME GROUP REALTY TRUST
77 WEST WACKER DRIVE
SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1500
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
WAYNE D. BOBERG, ESQ. J. GREGORY MILMOE, ESQ.
BRIAN T. BLACK, ESQ. SKADDEN, ARPS, SLATE,
WINSTON & STRAWN MEAGHER & FLOM LLP
35 WEST WACKER DRIVE 919 THIRD AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 558-5600 (212) 735-3000

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES BEING TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest,
$.01 par value per
share................ 16,387,500 $20.00 $327,750,000 $99,319
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</TABLE>
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(1) Includes an aggregate of 2,137,500 shares that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) under the Securities Act of 1933.

----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED AUGUST 13, 1997

PROSPECTUS
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14,250,000 COMMON SHARES
[LOGO] PRIME GROUP REALTY TRUST

COMMON SHARES OF BENEFICIAL INTEREST
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Prime Group Realty Trust, a Maryland real estate investment trust (the
"Company"), is a fully-integrated, self-administered and self-managed real
estate company that has been formed to continue and expand the office and
industrial real estate business conducted by The Prime Group, Inc. and certain
of its affiliates (collectively, "Prime"). Upon the completion of this offering
(the "Offering") and the related transactions described herein, the Company,
through its subsidiaries, will own nine office properties (the "Office
Properties"), 29 industrial properties (the "Industrial Properties") and one
parking facility (collectively, the "Properties"). The Properties are located
primarily in the Chicago, Illinois metropolitan area (the "Chicago Metropolitan
Area") and contain approximately 1.7 million net rentable square feet of office
space and 4.3 million net rentable square feet of industrial space. As of March
31, 1997, the Office Properties were 86.1% leased to more than 130 tenants, and
the Industrial Properties were 86.0% leased to more than 30 tenants. The
Company also will own approximately 83.4 acres and have rights to acquire
approximately 62.8 acres of developable land, including rights to acquire one
development site located in the Chicago central business district (the "Chicago
CBD") containing approximately 58,000 square feet, which management believes
could support approximately 1.2 million square feet of additional office
development in the Chicago CBD, and approximately 2.5 million square feet of
additional industrial development primarily in the Chicago Metropolitan Area.
As of March 31, 1997, the Office Properties and the Industrial Properties
generated 66.5% and 33.5%, respectively, of the Company's Annualized Net Rent
(as defined herein).

All of the common shares of beneficial interest of the Company, $.01 par value
per share ("Common Shares"), offered hereby are being sold by the Company and
will represent approximately % of the equity of the Company following the
Offering. The remaining % of the equity of the Company will be held by Prime,
senior management of the Company and certain others (collectively, the "Limited
Partners") in the form of limited partnership interests (the "Common Units") in
Prime Group Realty, L.P., a Delaware limited partnership (the "Operating
Partnership"), which, subject to certain conditions, are exchangeable on a one-
for-one basis for Common Shares. See "Principal Shareholders of the Company."
To assist the Company in maintaining its qualification as a real estate
investment trust ("REIT") for federal income tax purposes, ownership of Common
Shares by any person is generally limited to 9.9% of the outstanding Common
Shares.

Prior to the Offering, there has been no public market for the Common Shares.
It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company intends to apply for listing of the Common Shares on the New York Stock
Exchange (the "NYSE") under the symbol PPE. See "Glossary" beginning on page G-
1 for definitions of certain terms used in this Prospectus.

SEE "RISK FACTORS" ON PAGES 28 TO 41 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON SHARES OFFERED HEREBY, INCLUDING THE:

. Possibility that the consideration paid by the Company for certain of the
Properties and other assets contributed to the Company in connection with
its formation may exceed their fair market value, and the fact that there
were no arm's-length negotiations or third-party appraisals of such
Properties and other assets;
. Geographic concentration of the Properties in the Chicago Metropolitan Area
and the significance of the 77 West Wacker Drive Building to the Company's
revenue which renders the Company vulnerable to the possible adverse effect
of general economic and other conditions in the Chicago Metropolitan Area on
real estate values and on the ability of tenants to pay rent;
. Conflicts of interest in the formation and operations of the Company,
including conflicts between the Limited Partners and their affiliates with
their positions as officers and trustees of the Company in connection with
the potential sale or refinancing of certain of the Properties or the
enforcement of certain agreements;
. Risks associated with real estate debt financing, including the potential
inability to refinance such debt upon maturity or violation of other
covenants that could result in the loss of properties secured by such debt;
. Limitation on the ownership of Common Shares to 9.9% of the outstanding
Common Shares and other provisions in certain of the organizational
documents of the Company which could make takeovers more difficult and which
may deter third parties from seeking to control or acquire the Company;
. Taxation of the Company as a regular corporation if it fails to qualify as a
REIT for federal income tax purposes and the resulting decrease in funds
available to pay distributions to shareholders; and
. Risks associated with the incurrence of net losses on a historical basis and
the possibility of net losses being incurred by the Company in the future.

----------

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

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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Common Share........................... $ $ $
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Total(3)................................... $ $ $
</TABLE>
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(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $ million.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 2,137,500 additional Common Shares on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to the Public will be $ , the total
Underwriting Discounts and Commissions will be $ and the total Proceeds
to the Company will be $ . See "Underwriting."

The Common Shares are offered by the several Underwriters, subject to delivery
by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York on
or about , 1997.

PRUDENTIAL SECURITIES INCORPORATED FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

, 1997
<PAGE>

[Maps of region and Chicago Metropolitan Area designating locations of
Properties]

[Pictures of various Properties highlighting the portfolio]

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

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING PURCHASES OF THE COMMON SHARES TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY
The Company............................................................. 3
Risk Factors............................................................ 6
Business Objective and Growth Strategies................................ 8
The Properties.......................................................... 12
The Company's Markets................................................... 16
Structure and Formation of the Company.................................. 19
Restrictions on Ownership and Transfer.................................. 22
Distribution Policy..................................................... 23
The Offering............................................................ 23
Tax Status of the Company............................................... 24
SUMMARY FINANCIAL DATA.................................................... 25
RISK FACTORS.............................................................. 28
Lack of Independent Appraisals; Market Capitalization of the Company May
Exceed Fair Market Value of the Company's Assets; Value of Services
Company................................................................ 28
Geographic Concentration of the Properties in the Chicago Metropolitan
Area, Nashville, Knoxville and Columbus; Local Economic Conditions..... 28
Conflicts of Interest; Benefits to Prime................................ 29
Real Estate Financing Risks............................................. 30
Certain Anti-Takeover Provisions May Inhibit a Change in Control of the
Company................................................................ 31
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................ 33
Distributions to Shareholders Affected by Many Factors.................. 34
Distribution Payout Percentage.......................................... 35
Historical Losses and Accumulated Deficit; Possibility of Future
Losses................................................................. 35
Risk of Acquisition and Development Activities.......................... 35
General Real Estate Investment Risks.................................... 35
Consequences of Failure to Qualify as Partnerships...................... 38
Risk Relating to Control of the Company................................. 38
Dependence on Key Personnel............................................. 38
Dependence on Significant Tenants....................................... 38
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Risks Relating to the Services Company.................................. 39
Environmental Risks..................................................... 39
Possible Adverse Effects on Share Price Arising from Shares Eligible for
Future Sale............................................................ 40
Effect of Market Interest Rates on Prices of Common Shares.............. 41
Immediate and Substantial Dilution Resulting to Purchasers of Common
Shares................................................................. 41
Absence of Prior Public Market for Common Shares........................ 41
THE COMPANY............................................................... 42
Services Company........................................................ 44
BUSINESS OBJECTIVE AND GROWTH STRATEGIES.................................. 46
Business Objective...................................................... 46
Operating Strategy...................................................... 46
Acquisition Strategy.................................................... 48
Development Strategy.................................................... 48
Financing Strategy...................................................... 49
USE OF PROCEEDS........................................................... 50
DISTRIBUTION POLICY....................................................... 51
Estimated Cash Available for Distribution............................... 52
DILUTION.................................................................. 56
CAPITALIZATION............................................................ 57
SELECTED FINANCIAL DATA................................................... 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 60
Results of Operations................................................... 60
Pro Forma Liquidity and Capital
Resources.............................................................. 62
Historical Cash Flows................................................... 64
Funds from Operations................................................... 65
Inflation............................................................... 65
BUSINESS AND PROPERTIES................................................... 66
General................................................................. 66
The Office and Industrial Properties.................................... 68
Summary Land Parcel Information......................................... 71
Occupancy and Rental Information........................................ 71
Lease Expirations....................................................... 72
Tenant Information...................................................... 81
</TABLE>

i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Office Properties....................................................... 81
Industrial Properties................................................... 82
Development, Leasing and Management Activities.......................... 82
Contribution Properties................................................. 83
Acquisition Properties.................................................. 83
Prime Contribution Properties........................................... 84
The Company's Markets................................................... 84
The Company's Office Submarkets......................................... 90
The Company's Industrial Submarkets..................................... 103
Land for Development.................................................... 111
Competition............................................................. 113
Tax-Exempt Bonds........................................................ 113
Insurance............................................................... 113
Government Regulations.................................................. 114
Management and Employees................................................ 116
Legal Proceedings....................................................... 116
Prime Assets Not Acquired by the Company................................ 116
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 117
Investment Objectives and Policies...................................... 117
Financing Policies...................................................... 117
Conflicts of Interest Policies.......................................... 118
Working Capital Reserves................................................ 119
Policies with Respect to Other Activities............................... 119
MANAGEMENT................................................................ 120
Trustees, Executive Officers and Key Employees.......................... 120
Committees of the Board of Trustees..................................... 124
Compensation of Trustees................................................ 124
Executive Compensation.................................................. 124
Employment Agreements................................................... 125
Share Incentive Plan.................................................... 125
Indemnification of Trustees and Officers................................ 126
STRUCTURE AND FORMATION OF THE COMPANY.................................... 127
Formation Transactions.................................................. 127
Reasons for the Reorganization of the Company........................... 129
Comparison of Common Shares and Common Units............................ 130
Advantages and Disadvantages of the Formation Transactions to
Unaffiliated Shareholders.............................................. 130
Benefits to Prime of the Formation Transactions and the Offering........ 130
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Benefits of the Formation Transactions to the Limited Partners other
than Prime............................................................ 131
Share Option Grants in Connection with the Formation Transactions...... 132
Determination and Valuation of Ownership Interests..................... 132
Acquisition of the Properties and the Business from Prime.............. 133
Formation of the Services Company...................................... 133
CERTAIN RELATIONSHIPS AND TRANSACTIONS................................... 134
Formation Agreement.................................................... 134
Partnership Agreement.................................................. 134
Exchange Rights and Registration Rights................................ 134
Transactions with Management and Others................................ 134
Sale of Common Shares to Mr. Reschke. 134
Other Transactions..................................................... 135
PARTNERSHIP AGREEMENT.................................................... 136
Management............................................................. 136
Indemnification........................................................ 136
Transferability of Interests........................................... 136
Extraordinary Transactions............................................. 137
Issuance of Additional Common Units.................................... 137
Capital Contributions.................................................. 137
Awards Under Share Incentive Plan...................................... 138
Additional Funds....................................................... 138
Distributions.......................................................... 138
Operations............................................................. 138
Limited Partner Exchange Rights........................................ 138
Registration Rights.................................................... 139
Tax Matters............................................................ 139
Duties and Conflicts................................................... 139
Term................................................................... 139
PRINCIPAL SHAREHOLDERS OF THE COMPANY.................................... 140
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............................. 141
Authorized Shares...................................................... 141
Common Shares.......................................................... 141
Preferred Shares....................................................... 142
Restrictions on Ownership and Transfer................................. 142
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF
TRUST AND BYLAWS........................................................ 146
</TABLE>

ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Classification of the Board of Trustees.................................. 146
Removal of Trustees...................................................... 146
Business Combinations.................................................... 146
Control Share Acquisitions............................................... 147
Amendment to the Declaration of Trust.................................... 148
Advance Notice of Trustee Nominations and New Business................... 148
Maryland Asset Requirements.............................................. 148
Meetings of Shareholders................................................. 149
SHARES ELIGIBLE FOR FUTURE SALE............................................ 150
General.................................................................. 150
Exchange Rights and Registration Rights.................................. 151
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. 152
General.................................................................. 152
Taxation of the Company.................................................. 153
Requirements for Qualification........................................... 154
Failure to Qualify....................................................... 159
Tax Aspects of the Company's Investments in Partnerships................. 159
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Income Taxation of the Partnerships and Their Partners.................. 160
Taxation of Taxable U.S. Shareholders................................... 162
Taxation of Tax-Exempt Shareholders..................................... 163
Taxation of Non-U.S. Shareholders....................................... 163
Information Reporting Requirements and Backup Withholding Tax........... 166
Other Tax Considerations................................................ 166
ERISA CONSIDERATIONS...................................................... 166
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs......... 167
Status of the Company, the Operating Partnership and the Services
Company under ERISA.................................................... 167
UNDERWRITING.............................................................. 169
LEGAL MATTERS............................................................. 170
EXPERTS................................................................... 171
ADDITIONAL INFORMATION.................................................... 171
GLOSSARY.................................................................. G-1
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>

iii
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data, including the financial statements and notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes (i) the consummation of
the transactions described under "Structure and Formation of the Company"
(collectively, the "Formation Transactions"), (ii) an initial public offering
price of $20.00 per Common Share (representing the assumed public offering
price) and (iii) that the Underwriters' over-allotment option will not be
exercised. Unless the context otherwise requires, all references to the
"Company" in this Prospectus include Prime Group Realty Trust and its
subsidiaries, including Prime Group Realty, L.P. (the "Operating Partnership"),
Prime Group Realty Services, Inc. (the "Services Company"), or any one of them.
See "Glossary" beginning on page G-1 for the definitions of certain other terms
used in this Prospectus.

THE COMPANY

The Company is a fully-integrated, self-administered and self-managed real
estate company that has been formed to continue and expand the office and
industrial real estate business of The Prime Group, Inc. and certain of its
affiliates (collectively, "Prime"). The Company expects to qualify as a real
estate investment trust ("REIT") for federal income tax purposes. In connection
with the Offering, the Company will succeed to the office and industrial
development, leasing and property management business of Prime and will acquire
certain additional office and industrial properties from third parties. Upon
the completion of the Offering, the Company will own nine office properties
(the "Office Properties") containing an aggregate of approximately 1.7 million
net rentable square feet, 29 industrial properties (the "Industrial
Properties") containing an aggregate of approximately 4.3 million net rentable
square feet and one parking facility (collectively, the "Properties"). The
Properties are located primarily in the Chicago, Illinois metropolitan area
(the "Chicago Metropolitan Area"). As of March 31, 1997, the Office Properties
and the Industrial Properties generated 66.5% and 33.5%, respectively, of the
Company's Annualized Net Rent (as defined herein). The Company also will own
approximately 83.4 acres and have rights to acquire approximately 62.8 acres of
developable land, including rights to acquire one development site located in
the Chicago central business district ("Chicago CBD") containing approximately
58,000 square feet, which management believes could support approximately 1.2
million square feet of additional office development in the Chicago CBD, and
approximately 2.5 million square feet of additional industrial development
primarily in the Chicago Metropolitan Area.

In terms of net rentable area, approximately 72.7% of the Office Properties
and 83.0% of the Industrial Properties are located in the Chicago Metropolitan
Area in prime business locations within established business communities. The
Properties located in the Chicago Metropolitan Area account for approximately
84.5% of the annualized net rent of the Properties ("Annualized Net Rent"). The
remaining Office Properties are located in the Nashville, Tennessee and
Knoxville, Tennessee metropolitan areas, and the remaining Industrial
Properties are located in the Columbus, Ohio metropolitan area. After the
completion of the Offering, the Company intends to invest in the acquisition,
development and redevelopment of office and industrial properties primarily
located in Suburban Chicago (as defined herein) and Chicago CBD office markets
and the Chicago Metropolitan Area warehouse/distribution market and overhead
crane/manufacturing market. In addition, the Company believes that it will be
the only publicly-traded REIT primarily focusing on both the office and
industrial markets in the Chicago Metropolitan Area.

3
<PAGE>

Industrial Properties, in terms of Annualized Net Rent, consist of 41.2%
warehouse/distribution properties and 58.8% overhead crane/manufacturing
properties. As of March 31, 1997, the Office Properties were 86.1% leased to
more than 130 tenants and the Industrial Properties were 86.0% leased to more
than 30 tenants. All of the Properties other than the Prime Contribution
Properties (as defined herein) and the Acquisition Properties (as defined
herein) have been developed (or redeveloped), leased or managed by management
of the Company.

The Properties have a diverse and stable base of tenants and have
historically provided steadily increasing rents which the Company believes is
due to the quality of the Properties, the existence of long-term leases with
contractual rent escalations and the strength of the markets in which the
Properties are located. As of July 1, 1997, approximately 64.2% of the leases
for the Properties, in terms of Annualized Net Rent, had contractual rent
increases, of which approximately 47.3% of the Annualized Net Rent was
attributable to leases with specified contractual rent increases which on
average provided for annual rent increases of 4.5% over the next year, and
approximately 16.9% of the Annualized Net Rent was attributable to leases with
contractual rent increases equal to 100% to 200% of the annual change in the
Consumer Price Index (the "CPI"). Furthermore, less than 32.3% of the
Annualized Net Rent is derived from leases scheduled to expire during the next
five years following the Offering. This low level of lease turnover is expected
to result in a relatively low level of capital expenditure requirements for
tenant turnovers during such five-year period. The three largest tenants in the
Properties, in terms of Annualized Net Rent, are R.R. Donnelley & Sons Company
("Donnelley"), Everen Securities, Inc. ("Everen") and Jones, Day, Reavis &
Pogue ("Jones Day"). More than 71.4% of the Annualized Net Rent of the
Properties is derived from tenants which are nationally recognized companies,
and no single tenant accounted for more than 16.9% of the Company's Annualized
Net Rent for the 12 months ended March 31, 1997. As of March 31, 1997, the
Company's ten largest office and ten largest industrial tenants (based upon
Annualized Net Rent) had leased space from the Company for an average of 8.3
and 5.4 years, respectively, and accounted for 51.2% and 22.2%, respectively,
of the rental revenues for the same period.

The Prime Group, Inc. was founded in 1981 by Michael W. Reschke and has been
involved in the ownership, acquisition, renovation, development, construction,
financing, marketing, leasing and management of institutional quality, income-
producing real estate properties for nearly 17 years. In 1994, Prime
contributed its retail development business and its multi-family housing
business to separate publicly-traded real estate investment trusts--Prime
Retail, Inc. (Nasdaq: PRME) and Ambassador Apartments, Inc. (NYSE: AAH). In May
1997, Prime contributed its senior and assisted living business to Brookdale
Living Communities, Inc. (Nasdaq: BLCI), a publicly-traded owner, operator and
developer of senior housing and a provider of senior and assisted living
services to the elderly.

The Company is a fully-integrated real estate company providing property
management, leasing, marketing, acquisition, development, redevelopment,
construction, finance and other related services. The Company has approximately
151 employees, 37 of whom are located at the Company's executive offices in
Chicago. The senior management of the Company includes the executives of Prime
who were responsible for the strategic direction, management and day-to-day
operations of Prime's office and industrial real estate business. The Company's
management personnel have substantial experience in a full range of real estate
services, including property management, leasing, marketing, development,
redevelopment, construction, finance and other related services. The top ten
senior executives of the Company have an average of 19.3 years experience in
the real estate industry in the Chicago Metropolitan Area. Upon the completion
of the Offering, Prime and senior management of the Company will, in the
aggregate, own approximately % of the Company. See "Principal Shareholders of
the Company."

4
<PAGE>

potential of such assets by raising these properties to a higher level of
operating standard through value-added renovation programs, professional
property management and aggressive leasing, retenanting and marketing efforts
and (c) own, acquire, develop, redevelop, lease, manage and operate bulk
warehouse/distribution facilities and overhead crane/manufacturing facilities.
The Company believes that it can draw upon its extensive experience and long-
term presence in the Chicago Metropolitan Area to create a strategic advantage
in competing for future development and acquisition opportunities.

The Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of the end of the first quarter of 1997, the
Chicago Metropolitan Area's industrial market's overall vacancy rate was 7.3%,
below the national average vacancy rate of 8.1%. In addition, 43.0% (in terms
of net rentable square feet) of the Company's Industrial Properties in the
Chicago Metropolitan Area consists of overhead crane facilities, which have a
replacement cost substantially in excess of the Company's basis in its
Properties. The Company believes that current rental rates in the overhead
crane/manufacturing submarket are less than the level which would justify the
construction of new overhead crane/manufacturing facilities and, therefore, the
Company believes that there will be little new competition with the Company's
overhead crane/manufacturing Properties. See "Business and Properties--The
Company's Markets."

The Company believes that the foundation for growth in cash flow per share in
future years will be from a number of sources, including contractual rent
escalations in existing leases, the leasing of all or a portion of the existing
vacant space in the Properties, the quality and strategic location of its
Properties, the acquisition, renovation (where necessary) and repositioning of
additional office and industrial properties at below replacement cost, the
strengthening of the Chicago Metropolitan Area economy, the development of new
office and industrial properties when market conditions warrant such new
development and the knowledge and experience of its senior management team and
their long-term relationships with large corporate tenants, municipalities,
landowners and institutional sellers. Further, upon the completion of the
Offering, the Company believes it will be conservatively capitalized with
outstanding debt of approximately % of the Company's total market
capitalization.

The Company was formed on July 21, 1997 as a Maryland real estate investment
trust. The Company's executive offices are located at 77 West Wacker Drive,
Suite 3900, Chicago, Illinois 60601, and its telephone number is (312) 917-
1500.

5
<PAGE>

RISK FACTORS

An investment in the Common Shares involves various material risks.
Prospective investors should carefully consider the matters discussed under
"Risk Factors" prior to making an investment decision regarding the Common
Shares offered hereby. These risks include:

. The possibility that the consideration paid by the Company for certain
of the Properties and other assets contributed to the Company in its
formation may exceed their fair market value, and the fact that there
were no arm's-length negotiations or third-party appraisals of such
Properties and other assets in connection with the formation of the
Company.

. The geographic concentration of the Properties in the Chicago
Metropolitan Area and the significance of the 77 West Wacker Drive
Building to the Company's revenue, which renders the Company vulnerable
to the local economic conditions and tenants' continued demand and
ability to pay rent for office and industrial space in the Chicago
Metropolitan Area. The local economic conditions of the Nashville,
Tennessee, Knoxville, Tennessee and Columbus, Ohio metropolitan areas
also will affect the Company due to the location of certain of its
Properties in such areas.

. The conflicts of interest between the Company and the Limited Partners
in the Operating Partnership and between the Company and certain of its
officers and trustees (including Michael W. Reschke, Richard S. Curto
and Edward S. Hadesman, who are affiliates of certain of the Limited
Partners) and the potential significant influence of such Limited
Partners or their affiliates over the affairs of the Company, which may
influence certain officers and trustees of the Company to make decisions
which may not be in the best interests of all shareholders, in
connection with the (i) Formation Transactions, (ii) operation of the
Company's ongoing businesses, including conflicts associated with the
tax consequences to Limited Partners of sales or refinancings of certain
of the Properties, which, together with certain provisions of the
Partnership Agreement, may influence the Company's decision to sell or
refinance, or to prepay debt secured by, certain Properties, (iii)
potential election by the Company to exercise its option to purchase or
right of first offer with respect to any of the land tracts owned or
controlled by one or more of the Limited Partners or their affiliates
and (iv) enforcement of agreements with affiliates of the Company. The
Company intends to engage in transactions with certain related parties.
See "Certain Relationships and Transactions."

. The risks associated with debt financing, including the potential
inability to refinance mortgage indebtedness upon maturity, the
potential loss of properties from a foreclosure proceeding if the
Company fails to meet its obligations under any secured mortgage
indebtedness, the absence of any limitation in the organizational
documents of the Company restricting the level of debt the Company may
incur and the potential increase in interest cost of the Company
resulting from increases in market interest rates upon the refinancing
of any existing mortgage indebtedness or fluctuations in any of the
Company's variable rate indebtedness, including under the Company's
$74.5 million of floating rate tax-exempt bond debt.

. The potential anti-takeover effects of provisions in the Company's
Amended and Restated Declaration of Trust (the "Declaration of Trust")
and Bylaws (the "Bylaws"), including, among other things, provisions
generally limiting the actual or constructive ownership of Common Shares
by any one person or entity to 9.9% of the outstanding Common Shares,
restricting ownership of the Common Shares and staggering the terms of
the members of the Company's board of trustees (the "Board of
Trustees"), which could deter the acquisition of control by a third
party, thus making it more difficult to effect a change in management or
limiting the opportunity for shareholders to receive a premium over the
market price for their Common Shares.

. The taxation of the Company as a regular corporation if it fails to
qualify as a REIT and the resulting decrease in funds available to pay
distributions to shareholders.

. The distribution requirements for REITs under federal income tax laws,
which may limit the Company's ability to finance future acquisitions,
developments and improvements without additional debt or equity
financing.

6
<PAGE>

. The Company's cash available for distribution, which may be less than
the Company expects and may decrease in future periods from such
expected levels, materially adversely affecting the Company's ability to
make the expected annual distributions of $ per share during the 12-
month period following the completion of the Offering (which aggregate
expected annual distributions represent approximately % of the
estimated cash available for distribution for such period) or to sustain
such distribution rate in the future.

. The incurrence of a net loss on an historical basis in accordance with
generally accepted accounting principles ("GAAP") for each of the last
five calendar years for the Prime Properties and the fact that there can
be no assurance that the Company will not experience net losses in the
future.

. The risk that permanent financing for newly-developed properties may be
unavailable or may be available only on disadvantageous terms. In
addition, an acquisition of an office or industrial property entails the
risk that such investment will fail to perform in accordance with
expectations.

. The risks relating to real estate ownership, such as the effect of
economic and other conditions on real estate values, the general lack of
liquidity of investments in real estate, competition in seeking
properties for acquisition and development and in seeking tenants, the
inability of tenants to make rent payments, increases in real estate
taxes, the possibility that the Company will be unable to lease space
currently available or as it becomes available on terms favorable to the
Company, the potential for unknown or future environmental liabilities,
uninsurable losses and the inability of a property to generate income
sufficient to meet operating expenses and debt service obligations
relating to such property, which, individually or in the aggregate, may
negatively affect the Company's ability to make distributions.

. The limitations on the Company's ability to (i) withdraw as general
partner of the Operating Partnership, (ii) transfer or assign its
interest in the Operating Partnership (without meeting certain criteria
with respect to the consideration to be received by the Limited
Partners) and (iii) dissolve the Operating Partnership, in each case
without the consent of a certain percentage of the Common Units
(effectively including, in some cases, the consent of the Limited
Partners), which may result in the Company taking action that is not in
the best interest of all shareholders.

. The ability of the Board of Trustees to change the policies of the
Company, including investment, financing and distribution policies,
without a vote of the shareholders.

. The dependence of the Company on its key personnel, particularly Michael
W. Reschke, Chairman of the Board, and Richard S. Curto, President and
Chief Executive Officer.

. The risks relating to the Company's dependence on certain significant
tenants.

. The risks associated with the Company's development, leasing and
management business, including the limitation on the ability of the
Company to control the operations of the Services Company due to the
lack of control by the Company in connection with the election of the
directors and the appointment of the officers of the Services Company.

. The potential fluctuations in market interest rates or equity markets,
which may lead prospective purchasers of Common Shares to demand higher
yields from future distributions, may adversely affect the market price
of the Common Shares or may limit the Company's ability to raise
additional equity to finance future acquisitions, developments and
improvements.

. The possible reduction in the market price of the Common Shares or
dilution on a per share basis of cash available for distribution, due to
the potential future sale of substantial amounts of additional shares of
Common Shares or the issuance of Common Units.

7
<PAGE>

. The immediate and substantial dilution of $5.91 per share in the net
tangible book value of the Common Shares purchased in the Offering.

. The absence of a prior public market for the Common Shares and the
possibility that the trading volume of the Common Shares may be limited.

BUSINESS OBJECTIVE AND GROWTH STRATEGIES

BUSINESS OBJECTIVE

The Company currently intends to invest in the acquisition, development and
redevelopment of office and industrial properties located in Suburban Chicago
and Chicago CBD office markets and the midwestern region of the United States
with a primary focus on the office and industrial markets in the Chicago
Metropolitan Area. The Company's primary business objective is to achieve
sustainable long-term growth in cash flow per share and to enhance the value of
its portfolio through the implementation of effective operating, acquisition,
development and financing strategies. While there can be no assurance that the
Company will achieve such business objective, the Company believes it will
realize increased cash flow per share by:

. contractual rent increases in existing leases;

. leasing all or a portion of the existing vacant space in the Properties;

. acquiring office and industrial properties (or entities that own or
control such properties) at or below replacement cost and at positive
spreads to its cost of capital;

. increasing rental and occupancy rates and decreasing tenant concessions
as vacancy rates in the Company's submarkets generally continue to
decline;

. developing office and industrial properties for the benefit of the
Company where such development will result in a favorable risk-adjusted
return on investment;

. expanding its property management, leasing and corporate advisory
services business; and

. using, when available, long-term, tax-exempt bonds (which typically have
lower interest costs) to finance the acquisition and renovation of
existing industrial facilities and the development of new industrial
facilities.

The Company believes that a number of factors will enable it to achieve its
business objectives, including: (a) the opportunity to lease available space at
attractive rental rates because of increasing demand and, with respect to the
Office Properties, the present limited level of new construction in the Chicago
Metropolitan Area; (b) the presence of distressed sellers and inadvertent
owners (through foreclosure or otherwise) of office and industrial properties
in the Company's markets, as well as the Company's ability to acquire
properties with Common Units (thereby deferring the seller's taxable gain), all
of which create enhanced acquisition opportunities; (c) the quality and
location of the Properties; and (d) the limited availability (or the higher
cost) of capital to competitors for the financing of new developments,
acquisitions or capital improvements.

Management believes that the Company is well-positioned to take advantage of
these opportunities because of its extensive experience in its markets, its
seasoned management team, its significant land holdings and option rights and
its ability to develop, redevelop, lease and efficiently manage office and
industrial properties. In addition, the Company believes that public ownership
and its capital structure will provide the Company with enhanced access to the
public debt and equity capital markets and new opportunities for growth. The
Company further expects to obtain a credit facility or facilities of at least
$100.0 million to provide capital for new acquisitions (the "Credit Facility").
Upon the completion of the Offering, the Company expects to have outstanding
debt of approximately % of the Company's total market capitalization. See
"Business Objective and Growth Strategies--Business Objective" and "--Financing
Strategy."

8
<PAGE>

OPERATING STRATEGY

The Company will focus on enhancing its cash flow per share by: (a)
maximizing cash flow from its Properties through contractual rent increases,
pro-active leasing programs and effective property management; (b) managing
operating expenses through the use of in-house management, leasing, marketing,
financing, accounting, legal, construction, management and data processing
functions; (c) maintaining and developing long-term relationships with a
diverse tenant group; (d) attracting and retaining motivated employees by
providing financial and other incentives to meet the Company's operating and
financial goals; and (e) continuing to emphasize value-added capital
improvements to enhance the Properties' competitive advantages in their
submarkets.

Contractual Increases in Rent

A substantial portion of the Company's existing portfolio is leased pursuant
to long-term leases with contractual annual rent increases, thereby providing
the Company with both stable and escalating rental revenues. By way of example,
the contractual rent increases from existing leases in the 77 West Wacker Drive
Building average approximately $630,000 per year over the next ten years. As of
July 1, 1997, approximately 64.2% of the leases for the Properties, in terms of
Annualized Net Rent, had contractual rent increases, of which approximately
47.3% of the Annualized Net Rent was attributable to leases with specified
contractual rent increases which on average provided for annual rent increases
of 4.5% over the next year and approximately 16.9% of the Annualized Net Rent
was attributable to leases with contractual rent increases related to the CPI.
The Company believes that reporting rental revenues on a cash basis will result
in a more accurate presentation of its actual operating activities and,
accordingly, expects to report Funds from Operations on a cash basis.

Pro-Active Leasing; Ability to Lease Vacant Space

The Company believes that the strength of its leasing program is demonstrated
by the current occupancy status of the Properties. The Company believes that
one of its most notable leasing accomplishments is the 77 West Wacker Drive
Building, a recently developed 50-story office tower located in downtown
Chicago, containing approximately 944,600 square feet of net rentable area.
Construction began in April 1990 and was successfully completed with the
opening of the building in May 1992. At its opening, the building had
commitments for long-term leases for over 95% of its net rentable office area.
The Company believes it will be able to increase cash flow per share by
continuing to lease the existing vacant space in its Properties. As of March
31, 1997, the Company had 238,751 and 607,201 net rentable square feet of
vacant space in its Office Properties and Industrial Properties, respectively.

Long-Term Leases; Low Tenant Turnover

A substantial portion of the Properties is leased on a long-term basis,
thereby providing the Company with a reduced level of costs and capital
expenditures due to tenant lease expirations. Approximately 70.1% of the
Company's Annualized Net Rent is attributable to leases expiring in 2002 or
beyond, and approximately 53.2% of the Company's Annualized Net Rent is
attributable to leases expiring in 2007 or beyond. With regard to the Office
Properties, as of July 1, 1997, 80.1% of the office leases, in terms of
Annualized Net Rent, had terms expiring in five years or more, resulting in an
average annual turnover for the next five years of only 3.8% per annum. With
regard to the Industrial Properties, as of July 1, 1997, 41.0% of the
industrial leases, in terms of Annualized Net Rent, had terms expiring in five
years or more, resulting in an average annual turnover for the next five years
of only 10.6% per annum, in terms of Annualized Net Rent. In addition, during
the last three years the Prime Properties have achieved a tenant retention
rate, based on renewals of leases with scheduled

9
<PAGE>

expirations, of approximately 63.0% in terms of net rentable square feet. The
Company intends, as market conditions permit, to continue to favor longer-term
leases with contractual annual rent increases. See "Business and Properties--
Lease Expirations."

Management of Operating Expenses

The Company believes that it has been successful in providing high-quality
and professional property management services to its tenants, while maintaining
property operating expenses and real estate taxes at or below such expense
levels for comparable properties. As the Company continues to grow through the
acquisition and development of additional office and industrial properties,
management of the Company believes that economies of scale will allow the
Company to operate its properties with increasing efficiency.

ACQUISITION STRATEGY

The Company will seek to increase its cash flow per share by acquiring
additional office and industrial properties at prices below replacement cost,
including properties that: (a) may provide attractive initial yields and
significant potential for growth in cash flow from property operations; (b) are
well-located, high quality and competitive in their respective submarkets; (c)
are located in the Company's existing submarkets and/or in other strategic
submarkets where the demand for office and industrial space exceeds available
supply; or (d) have been undermanaged or are otherwise capable of improved
performance through intensive management, marketing and leasing.

The Company plans to concentrate its acquisition activities in the Chicago
Metropolitan Area and, to a lesser extent, in other midwestern markets. The
Company believes that attractive opportunities exist to acquire office and
industrial properties in these markets at prices below replacement cost. Each
acquisition opportunity will be reviewed to evaluate whether it meets one or
more of the following criteria: (a) potential for higher occupancy levels
and/or rents as well as for lower tenant turnover and/or operating expenses;
(b) ability to generate returns in excess of the Company's weighted average
cost of capital, taking into account the estimated costs associated with
renovation and tenant turnover (i.e., tenant improvements and leasing
commissions); and (c) a purchase price at or below estimated replacement cost.

The Company believes it has certain competitive advantages that enhance its
ability to identify and complete acquisitions on a timely and efficient basis,
including: (a) management's significant local market experience with, and
knowledge of, properties, submarkets and potential tenants; (b) management's
long-standing relationships with commercial real estate brokers and
institutional and other owners of commercial real estate in the Chicago
Metropolitan Area; (c) the Company's fully-integrated real estate operations,
which allow it to quickly evaluate and respond to acquisition opportunities;
(d) the Company's ability to access relatively low-cost financing through the
capital markets; and (e) management's reputation as an experienced purchaser of
office and industrial properties with the ability to execute transactions in an
efficient and timely manner. The Company also believes it could add a number of
office and industrial properties to its portfolio without the need for a
significant increase in general and administrative expenses, due to the
Company's expertise and depth of management and the efficiencies created by its
centralized management structure.

The Company believes that many of the owners of commercial real estate
properties located in the Chicago Metropolitan Area have a low tax basis in
their properties and have the corresponding potential for the recognition of
substantial taxable gains as a result of the disposition of such properties.
Management believes that the Company's capital structure and ability to acquire
properties in exchange for Common Units, and thereby deferring a seller's
potential taxable gain, will enhance the ability of the Company to consummate
transactions quickly and to structure more competitive acquisitions than other
real estate companies in the market which lack the Company's access to capital
and ability to acquire property with Common Units. See "Business Objective and
Growth Strategies--Acquisition Strategy."

10
<PAGE>

Prime has recently acquired the Prime Contribution Properties and will
contribute such Properties to the Company in connection with the Formation
Transactions. In addition, the Company has executed agreements to acquire the
Acquisition Properties. The acquisition of the Acquisition Properties by the
Company is expected to occur prior to or concurrently with the completion of
the Offering. There can be no assurance, however, that the Company will be able
to complete any property acquisitions, including the acquisitions of the
Acquisition Properties or to improve the operating results of any acquired
properties. See "Business Objective and Growth Strategies--Acquisition
Strategy" and "Business and Properties--Acquisition Properties."

DEVELOPMENT STRATEGY

As opportunities arise and where market conditions support a favorable risk-
adjusted return on investment, the Company intends to pursue opportunities for
growth through the development of new office and industrial properties. The
Company believes that the strength and reputation of its management in the
office and industrial property development industry will provide it with a
competitive advantage in evaluating and pursuing opportunities to develop
additional properties. During the next few years, the Company expects that most
of its development activities will be focused on office and industrial
properties in the Chicago Metropolitan Area.

The Company expects that over the next several years there will be
significant demand from several large tenants that are unable to find large
blocks of contiguous Class A office space in downtown Chicago which may lead to
significant office development opportunities. The Company believes that its
significant land holdings and land option rights will provide it with a
distinct advantage in competing for future development opportunities. The
Company owns approximately 83.4 acres and has rights to acquire approximately
62.8 acres of developable land, which management believes could support
approximately 1.2 million square feet of additional office development in the
Chicago CBD, and approximately 2.5 million square feet of additional industrial
development primarily in the Chicago Metropolitan Area. The Company's option
rights include an option to acquire a development site containing approximately
58,000 square feet known as 300 North LaSalle in downtown Chicago which, to the
extent the Company is able to obtain significant preleasing commitments for
such a project, the Company believes it could develop as an office project
containing up to approximately 1.2 million net rentable square feet.

The Services Company's corporate advisory activities with third parties are
expected to give the Company further access to future development
opportunities. The Services Company also will continue to undertake build-to-
suit projects for third parties.

FINANCING STRATEGY

The Company's financing policies and objectives are determined by the Board
of Trustees. The Company presently intends to limit the ratio of debt-to-total
market capitalization (defined as the total debt of the Company as a percentage
of the sum of the market value of issued and outstanding Common Shares,
including the Common Units exchangeable for Common Shares, plus total debt) to
a maximum of 50.0%. The Company expects to operate, however, with a debt-to-
total market capitalization ratio in the range of 25.0% to 40.0%. The Company
also intends to operate in a manner that will facilitate its ability to secure
an investment grade rating on future unsecured debt as soon as practicable.
However, such objectives may be altered without the consent of the Company's
shareholders, and the Company's organizational documents do not limit the
amount or type of indebtedness that the Company may incur. Upon the completion
of the Offering and the consummation of the Formation Transactions, total debt
will constitute approximately % of the total market capitalization of the
Company.

The Company intends to use one or more sources of capital for future
acquisitions and development activities. These capital sources may include
undistributed cash flow, borrowings under certain acquisition facilities,
proceeds from the issuance of long-term, tax-exempt bonds, other debt or equity
securities and other bank and/or institutional borrowings. Initially, the
Company expects to obtain a Credit Facility of at least $100.0 million. The
Company has no existing commitments for the Credit Facility, and there can be
no assurance that such financing will be available on terms favorable to the
Company, if at all.

11
<PAGE>

The Company also expects to establish an aggregate $74.5 million facility or
facilities (the "Letter of Credit Facility") to be used to provide letters of
credit as replacement credit enhancement for (i) $26.3 million for certain Tax-
Exempt Bonds relating to the Properties in Tennessee for which one of the
former owners of such Properties provided credit support and (ii) $48.2 million
for the Tax-Exempt Bonds relating to certain of the Industrial Properties. The
Company has no existing commitments for the Letter of Credit Facility, and
there can be no assurance that such financing will be available on terms
favorable to the Company, if at all. See "Business and Properties--Development,
Leasing and Management Activities" and "Business Objective and Growth
Strategies--Financing Strategy."

THE PROPERTIES

Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company (through the Operating Partnership) will own nine
Office Properties encompassing an aggregate of approximately 1.7 million net
rentable square feet, 29 Industrial Properties containing an aggregate of
approximately 4.3 million net rentable square feet and one parking facility
with 398 parking spaces. Five of the nine Office Properties and 23 of the 29
Industrial Properties are located in the Chicago Metropolitan Area. Three of
the Office Properties are located in Knoxville, Tennessee, one Office Property
is located in downtown Nashville, Tennessee, six of the Industrial Properties
are located in the Columbus, Ohio metropolitan area and the parking facility is
located in Knoxville, Tennessee. In the Chicago Metropolitan Area, the most
notable Office Property is the 77 West Wacker Drive Building, a premier 50-
story landmark office tower in downtown Chicago, which contains approximately
944,600 net rentable square feet. The building has won numerous awards
including, in 1993, the Sun-Times Real Estate Development of the Year Award and
the Best New Building Award from Friends of Downtown. As of March 31, 1997, the
Office Properties were approximately 86.1% leased to more than 130 tenants, and
the Industrial Properties were approximately 86.0% leased to more than 30
tenants.

Management has developed, redeveloped, managed or leased 23 of the 29
Industrial Properties and six of the nine Office Properties. In the course of
such development and redevelopment, the Company has acquired experience across
a broad range of development and redevelopment projects. For example, the
Company has developed both Office Properties, such as the 77 West Wacker Drive
Building, and Industrial Properties, such as the Contribution Properties. The
Company also has redeveloped both Office Properties, such as 201 4th Avenue N.
in Nashville, and certain of the Industrial Properties, such as the Chicago
Enterprise Center, the East Chicago Enterprise Center and the Hammond
Enterprise Center, in the Chicago Metropolitan Area. The Company believes that
all of its Properties are well-maintained and, based on recent engineering
reports, do not require significant capital improvements.

In addition to its interests in the Office Properties and Industrial
Properties, the Company will own approximately 83.4 acres and have rights to
acquire approximately 62.8 acres of developable land, including rights to
acquire one development site located in the Chicago CBD containing
approximately 58,000 square feet, which management believes could support
approximately 1.2 million square feet of additional office development in the
Chicago CBD, and approximately 2.5 million square feet of additional industrial
development primarily in the Chicago Metropolitan Area. See "Business and
Properties--Land for Development." The Company also will have (a) an option to
acquire two additional industrial properties, 801 Technology Way and 901
Technology Way, in the Libertyville Business Park, from a Contributor and (b) a
15-year right of first offer to develop (or develop and acquire an ownership
interest in) all or any portion of 360 acres of undeveloped office and
industrial land in the Huntley Business Park currently owned and controlled by
an affiliate of Prime subject to a participation interest in such property held
by a third-party lender. The right of first offer will apply to the extent that
Prime determines that such parcel shall be utilized for the construction of an
office or industrial development to be owned and leased to third parties by
Prime or held by Prime for sale to a third party. See "Business and
Properties--Land for Development."

Following the completion of the Offering, the Company will provide its own
development, leasing and property management services for all of the
Properties, and the Services Company will provide fee-based development,
leasing and property management services for unaffiliated third parties. The
Company's staff of approximately 151 employees will provide these services from
the Company's executive headquarters in Chicago, Illinois and through on-site
staff at the Properties.

12
<PAGE>

THE OFFICE AND INDUSTRIAL PROPERTIES

The following table sets forth certain information relating to each of the
Properties as of March 31, 1997, unless indicated otherwise. After completion
of the Formation Transactions, the Company (through the Operating Partnership)
will own a 100% interest in all of the Office Properties and the Industrial
Properties.

13
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/97(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- -------------- -------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3818 Grandville/
1200 Northwest-
ern(10) ........ Gurnee, IL 1961/1990 345,232 100.0 1,041 3.02 1,007 2.92
306-310 Era Northbrook, IL 1984 36,495 100.0 429 11.77 426 11.67
Drive(10)(11)...
2160 McGaw
Road(9)......... Obetz, OH 1974 310,100 100.0 480 1.55 449 1.45
4849 Groveport
Road(9)......... Obetz, OH 1968 132,100 100.0 288 2.18 274 2.08
2400 McGaw
Road(9)......... Obetz, OH 1972 86,400 100.0 191 2.21 183 2.11
5160 Blazer Memo-
rial Parkway
(9)(12)......... Dublin, OH 1983 85,962 64.5 515 9.28 509 9.18
600 London
Road(9)......... Delaware, OH 1981 52,441 100.0 110 2.11 105 2.01
Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(13)... McHenry, IL 1995 217,600 100.0 1,031 4.74 1,009 4.64
515 Huehl Road/
500
Lindberg(10).... Northbrook, IL 1988 201,244 100.0 822 4.08 801 3.98
455 Academy
Drive(10)(14)... Northbrook, IL 1976 105,444 100.0 406 3.85 395 3.75
4411 Marketing
Place(9)........ Groveport, OH 1984 65,804 100.0 227 3.45 220 3.35
Chicago
Enterprise
Center.......... Chicago, IL 1916/1991-1996
13535-A South
Torrence
Avenue......... 384,806 37.9 321 2.20 321 2.20
13535-B South
Torrence
Avenue......... 239,752 100.0 649 2.71 432 1.80
13535-C South
Torrence
Avenue......... 99,333 81.9 210 2.59 106 1.31
13535-D South
Torrence
Avenue......... 77,325 100.0 236 3.05 213 2.75
13535-E South
Torrence
Avenue......... 57,453 13.9 22 2.76 19 2.38
13535-F South
Torrence
Avenue......... 44,800 100.0 124 2.76 107 2.38
13535-G South
Torrence
Avenue......... 54,743 -- -- -- -- --
13535-H South
Torrence
Avenue......... 73,612 56.3 75 1.82 71 1.72(6)
East Chicago
Enterprise
Center.......... East Chicago, IN 1917/1991-1997
Building 2...... 169,435 46.0 152 1.95 118 1.51
Building 3...... 291,550 100.0 1,423 4.88 1,306 4.48(6)
Building 4...... 87,483 98.1 286 3.33 277 3.23
4440 Railroad
Avenue(15)..... 40,000 100.0 303 7.56 293 7.34
4635 Railroad
Avenue......... 14,070 -- -- -- -- --
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/97
- -------- ------------------------------------
<S> <C>
3818 Grandville/
1200 Northwest-
ern(10) ........ Rank Video (100.0%)
306-310 Era Roche/NICL (62.3%)
Drive(10)(11)... SLJ/Lionstone (37.7%)
2160 McGaw
Road(9)......... Spartan Warehouse (100.0%)
4849 Groveport
Road(9)......... Premier Auto Glass Corp (100.0%)
2400 McGaw
Road(9)......... S.P. Richards (100.0%)
5160 Blazer Memo-
rial Parkway
(9)(12)......... Danninger Medical Tech (32.2%)
Alkon (32.3%)
600 London
Road(9)......... Schneider National, Inc. (100.0%)
Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(13)... Motorola (100.0%)
515 Huehl Road/
500
Lindberg(10).... Rank Video (100.0%)
455 Academy
Drive(10)(14)... National Service Industries (100.0%)
4411 Marketing
Place(9)........ Wes-Tran Corp. (100.0%)
Chicago
Enterprise
Center..........
13535-A South
Torrence
Avenue......... Co-Steel Lasco (37.9%)
13535-B South
Torrence
Avenue......... Welded Tube Company (100.0%)
13535-C South
Torrence
Avenue......... Sterling Steel (81.9%)
13535-D South
Torrence
Avenue......... Alpha Processing (100.0%)
13535-E South
Torrence
Avenue......... Signode (13.9%)
13535-F South
Torrence
Avenue......... Signode (100.0%)
13535-G South
Torrence
Avenue.........
13535-H South
Torrence
Avenue......... Performance Minerals (42.4%)
Jet Vac, Inc. (13.9%)
East Chicago
Enterprise
Center..........
Building 2...... Cametco Illinois (46.0%)
Building 3...... Acutus-Gladwin (47.1%)
Metro Metals (52.9%)
Building 4...... Illiana Steel (98.1%)
4440 Railroad
Avenue(15)..... Inland Steel (100.0%)
4635 Railroad
Avenue.........
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/97(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- ----------- --------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hammond
Enterprise
Center........... Hammond, IN 1920-1952
4507 Columbia 256,595 97.9 572 2.28 291 1.16(6)
Avenue..........
4527 Columbia 16,701 62.8 56 5.36 56 5.36
Avenue(17)......
4531 Columbia 250,266 74.1 274 1.48 253 1.36
Avenue..........
--------- ------ ------
Industrial Prop- 4,314,083 85.9 12,231 3.30 11,098 2.99
erties
Subtotal:........
--------- ------ ------
Portfolio To- 6,034,302 86.0 36,538 7.04 32,032 6.17
tal:.............
========= ====== ======
OTHER PROPERTIES
398--Unit Parking Knoxville, TN 1981
Facility.........
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/97
- -------- -----------------------------
<S> <C>
Hammond
Enterprise
Center...........
4507 Columbia A.M. Castle (47.3%)
Avenue.......... Slitting Services (37.8%)(16)
HECO (12.7%)
4527 Columbia The Prime Group, Inc. (24.2%)
Avenue(17)...... Town & Country (20.4%)
Great Lakes Engineering LLC
(16.6%)
4531 Columbia HECO (41.6%)
Avenue.......... Bar Processing (32.5%)
Industrial Prop-
erties
Subtotal:........
Portfolio To-
tal:.............
OTHER PROPERTIES
398--Unit Parking
Facility.........
</TABLE>
- ----
(1) Annualized Net Rent is the monthly net rent due under the lease as
determined in accordance with generally accepted accounting principles
("GAAP"), annualized for all leases in effect on March 31, 1997. Net rent
is the amount due under the lease without including operating expenses,
taxes and other similar reimbursements due from the tenant.
(2) Annualized Net Rent divided by net rentable square feet for leases in
effect at March 31, 1997.
(3) Annualized Effective Net Rent represents total net rent to be received
over their respective terms from all leases in effect at March 31, 1997
minus all tenant improvements, leasing commissions, and other concessions
("Tenant Expenditures") for all such leases, divided by the terms in
months for such leases, multiplied by 12. Tenant Expenditures for
Acquisition and Contribution Properties have been estimated at $0.05 per
square foot for leases in effect at March 31, 1997.
(4) Annualized Effective Net Rent at March 31, 1997 divided by net rentable
square feet leased at March 31, 1997.
(5) One of the Company's other significant tenants at the 77 West Wacker
Drive Building is experiencing financial difficulties and is excluded
from the calculations in this table. See "Business and Properties--The
Company's Office Submarkets--77 West Wacker Drive Building."
(6) For the purpose of this table, the historical Tenant Expenditures for
these Properties developed by Prime have been adjusted for management's
estimate of costs that can be reused for future tenants (77 West Wacker
Drive Building--$24.65 per leased square foot, other Office Properties--
$5.21 per leased square foot and Industrial Properties--$4.21 per leased
square foot).
(7) These Properties are Acquisition Properties.
(8) Complex comprised of two of the Office Properties, 1990 Algonquin Road (a
two-story office building) and 2000-2060 Algonquin Road (seven single-
story office buildings).
(9) These Properties are Prime Contribution Properties.
(10) These Properties are Contribution Properties.
(11) Roche/NICL Ltd. has a right of first refusal to purchase 306 Era Drive.
(12) This Property is a mixed use Industrial/Office Property that has been
classified as an Industrial Property.
(13) Motorola has a right of first refusal to purchase 1301 Ridgeview Drive
for $10,375,000 at the end of the first term, $11,620,040 at the end of
the first option period, $13,014,488 at the end of the second option
period and $14,576,297 at the end of the third option period.
(14) National Service Industries, Inc., the current tenant of the industrial
building at 455 Academy Drive, has a right of first refusal to purchase
the adjacent land.
(15) This is an office facility adjacent to the East Chicago Enterprise
Center.
(16) This space was leased to A.M. Castle on August 1, 1997 for $2.39 per
square foot, at which time A.M. Castle increased its existing space from
121,000 square feet to 218,589 square feet.
(17) This is an office facility within the Hammond Enterprise Center.

15
<PAGE>

LAND FOR DEVELOPMENT AND OPTION PROPERTIES

Following the completion of the Offering, the Company will own approximately
83.4 acres and have rights to acquire approximately 62.8 acres of developable
land, including rights to acquire one development site located in the Chicago
CBD containing approximately 58,000 square feet, which management believes
could support approximately 1.2 million square feet of additional office
development in the Chicago CBD, and approximately 2.5 million square feet of
additional industrial development primarily in the Chicago Metropolitan Area.
The following table provides additional information with respect to these
undeveloped parcels:

<TABLE>
<CAPTION>
OWNERSHIP
DESCRIPTION LOCATION SIZE STATUS
----------- --------------------- -------------- --------------
<S> <C> <C> <C>
425 East Algonquin Road... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Cen-
ter...................... Chicago, IL 51.2 Acres Own
East Chicago Enterprise
Center................... East Chicago, IN 9.1 Acres Own
Hammond Enterprise Cen-
ter...................... Hammond, IN 8.2 Acres Own
455 Academy Drive(1)...... Northbrook, IL 2.5 Acres Own
Libertyville Business
Park(2).................. Libertyville, IL 48.5 Acres Under contract
1301 Ridgeview Drive(3)... McHenry, IL 13.0 Acres Option
4849 Groveport Road....... Obetz, OH 4.2 Acres Own
600 London Road........... Delaware, OH 4.5 Acres Own
300 North LaSalle(4)...... Chicago, IL 58,025 Sq. Ft. Option
</TABLE>
- --------
(1) National Service Industries, Inc., the current tenant of the industrial
building at 455 Academy Drive, has a right of first refusal to purchase the
adjacent land.
(2) The Company is obligated to purchase this land for approximately $7.4
million (subject to certain purchase price adjustments), within three years
following the consummation of the Formation Transactions and the completion
of the Offering.
(3) Motorola has an option to lease or purchase this land, exercisable on or
before August 1, 1998.
(4) The Company has a ten-year fixed price option to purchase this Chicago CBD
development site.

For more information on these parcels, see "Business and Properties--Land for
Development." In addition to the parcels above, the Company has a 15-year right
of first offer to develop (or develop and acquire an ownership interest in) all
or any portion of 360 acres of undeveloped office and industrial land in the
Huntley Business Park currently owned and controlled by an affiliate of Prime
subject to a participation interest in such property held by a third-party
lender. The right of first offer will apply to the extent that Prime determines
that such parcel shall be utilized for the construction of an office or
industrial development to be owned and leased to third parties by Prime or held
by Prime for sale to a third party. The Company also has an option to acquire
two additional industrial properties, 801 Technology Way and 901 Technology
Way, in Suburban Chicago, from a Contributor. The option on each property is
exercisable for three years or until 16 days after the leasing of substantially
all of such property to a non-affiliate of the Contributor. See "Business and
Properties--Land for Development--801 Technology Way and 901 Technology Way."

THE COMPANY'S MARKETS

CHICAGO METROPOLITAN AREA

The Company's primary focus is the Chicago Metropolitan Area, the third most
populous metropolitan area in the nation, with an estimated population of 7.7
million. The Company has relied, with permission, on information concerning the
economies of the Chicago Metropolitan Area, Nashville, Tennessee, Knoxville,
Tennessee and Columbus, Ohio and office and industrial markets thereof derived
from a report commissioned by the Company and prepared by RCG, a nationally
recognized expert in real estate consulting and urban economics. The discussion
of such submarkets below and under the caption "Business and Properties--The
Company's Markets" is based upon such findings of RCG. While the Company
believes that these estimates of economic trends are reasonable, there can be
no assurance that these trends will in fact continue.

16
<PAGE>

The Company currently owns office and industrial properties in the suburban
and downtown submarkets of the Chicago Metropolitan Area. The Company believes
that the Chicago Metropolitan Area has been and will continue to be an
excellent market in which to own and operate office and industrial properties
over the long term. The Company believes that this area is attractive for a
number of reasons, including:

. The Chicago Metropolitan Area contains the largest number of jobs of any
consolidated Metropolitan Statistical Area ("MSA") in the United States,
and is the third most populous MSA, with an estimated population of over
7.7 million;

. Chicago's manufacturing sector has continued to expand, and the services
sector of the Chicago Metropolitan Area economy has grown even faster,
and has outpaced the manufacturing sector in additional employment both
in absolute terms and as a proportion of the local economy. This
development has diversified Chicago's employment base, which already
leads the nation in five (manufacturing, wholesale trade, retail trade,
transportation, communications and utilities and construction) out of the
seven major employment sectors;

. Employment sectors requiring the use of office and industrial properties
continue to expand with the Chicago Metropolitan Area's continuing growth
and diversification of industries; and

. Since 1992, there has been no increase in the inventory of Chicago CBD
office space and only a slight increase in the inventory of Suburban
Chicago office space.

The strengths of Chicago's economy include its transportation system, highly
diverse economy, strong high-technology sector, growing international trade and
high per capita income. For example, Chicago retains its preeminent role in
transportation as the location of the world's busiest airport, the hub of the
nation's rail system and the primary port connecting the Great Lakes with the
Mississippi River and the Gulf of Mexico. While Chicago has been (and continues
to be) a national center of heavy manufacturing, Illinois recently surpassed
Massachusetts in high-technology employment and merchandise exports and is
behind only California, New York and Texas, according to a 1997 ranking by the
American Electronics Association (the "AEA"). Furthermore, Chicago, as the home
of the Chicago Board of Trade (the "CBOT"), the Chicago Mercantile Exchange
(the "CME") and the Chicago Board Options Exchange (the "CBOE"), has become the
international center of options, futures and commodity trading and an important
center of international finance. In addition, according to RCG, the Chicago
Metropolitan Area's median household income in 1996 was $59,895, 28.3% above
the national average. Based on the foregoing, the Company believes that the
Chicago Metropolitan Area's long-term outlook is positive.

The Chicago Metropolitan Area's top companies include such national leaders
as Sears, Motorola, Ameritech, Allstate, UAL Corporation (United Airlines),
Waste Management Technologies, Baxter International, McDonald's, Abbott
Laboratories, Walgreen's, Sara Lee, Donnelley, Arthur Andersen, Amoco and First
Chicago NBD. In addition, the Chicago Metropolitan Area is predicted by market
analysts to continue its path of steady growth until at least the year 2000.
The economic fundamentals and steady growth of both the midwestern region and
the Chicago Metropolitan Area lead the Company to expect continued strength in
this market.

The Company believes that the solid, diversified local economy in the Chicago
Metropolitan Area is creating continued office space demand and absorption.
Because of steady expansion of office employment and nearly no new
construction, the overall Class A vacancy rate has steadily declined for five
years and is expected to continue to decline. According to RCG, Class A rental
rates in the Company's largest office market, the Chicago CBD, have begun to
rise as Class A vacancy rates in the Chicago CBD have decreased from 23.1% in
1992 to 9.3% by the end of the second quarter of 1997. The Chicago Metropolitan
Area also has experienced a very active market in industrial space in the
1990s. As of the end of the first quarter of 1997, the Chicago Metropolitan
Area's industrial market overall vacancy rate was 7.3%, below the national
average vacancy rate of 8.1%. In addition, 43.0% (in terms of net rentable
square feet) of the Company's Industrial Properties in the Chicago Metropolitan
Area consist of overhead crane facilities, which have a replacement cost
substantially in excess of the Company's basis in its Properties. The Company
believes that current rental rates in the overhead

17
<PAGE>

crane/manufacturing submarket are less than the level which would be required
to justify the construction of new overhead crane/manufacturing facilities,
and, therefore, the Company believes that there will be little new competition
with the Company's overhead crane/manufacturing Properties. See "Business and
Properties--The Company's Markets."

OTHER MARKETS

In addition to its Properties in the Chicago Metropolitan Area, the Company
also has one Office Property in Nashville, Tennessee, three Office Properties
in Knoxville, Tennessee, six Industrial Properties in the Columbus, Ohio
metropolitan area and a parking facility in Knoxville, Tennessee. Nashville is
the capital of the state of Tennessee and has the advantages of relatively
stable, long-term employment by the state government, Vanderbilt University and
the music publishing industry as well as growing employment by Nissan,
Columbia/HCA HealthCare and other industry market leaders. Knoxville benefits
from the presence of the University of Tennessee, a growing high-technology and
computer services industry and a healthy entrepreneurial business climate.
Columbus is the capital of the state of Ohio, and the Columbus metropolitan
area is Ohio's fastest-growing economy. As the state capital and the location
of Ohio State University, Ohio's largest university, Columbus has the advantage
of relatively stable, long-term employment by the state government and the
university. Columbus also serves as a retail and warehousing center and a
regional banking center and has a diverse economy, as well as a steadily
increasing population.

18
<PAGE>

STRUCTURE AND FORMATION OF THE COMPANY

The Formation Transactions are designed to consolidate the ownership of the
Properties in the Company and to continue and expand the operations of the
office and industrial real estate business of Prime. The Company believes that
the Formation Transactions will provide the Company with enhanced access to the
public markets for debt and equity capital, thereby enhancing its potential for
future growth to the benefit of the stockholders and the Limited Partners.

The business and operations of the Company are conducted through the
Operating Partnership and the Services Company. Fee title to the Properties is
held in separate partnerships or limited liability companies formed
specifically to own such title (the "Property Partnerships"). The Company will
hold, directly or indirectly, 100.0% of the interests in the Property
Partnerships.

The structure of the Company and the ownership of the equity in the Company
after giving effect to the Offering and the Formation Transactions is shown in
the following chart:

- --------------------------------------------------------------------------------
Prime Group Realty Trust
(the "Company")

<TABLE>
<CAPTION>
Percentage before Exchange Percentage after Exchange
Owners of Common Units of Common Units
- ------ -------------------------- -------------------------
<S> <C> <C>
Public Shareholders _____% _____%
Prime and others _____% _____%
</TABLE>
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Prime Group Realty, L.P.
(the "Operating Partnership")

<TABLE>
<CAPTION>
Percentage before Exchange of Percentage after Exchange
Owners Common Units(1) of Common Units
- ------ ----------------------------- -------------------------
<S> <C> <C>
Company _____% General Partner _____% General Partner
Prime and others _____% Limited Partner _____% Limited Partner
</TABLE>
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Prime Group Realty Services, Inc.
(the "Services Company")(2)

Owners Type of Ownership
------ -----------------
Operating 100.0% of non-voting
Partnership participating preferred stock

Messrs. 100.0% of voting common stock
Reschke and
Curto
- --------------------------------------------------------------------------------

- --------
(1) If the Underwriters' over-allotment option is exercised in full, the over-
allotment net proceeds will be contributed to the Operating Partnership for
additional Common Units and the Company's equity ownership percentage of
the Operating Partnership will increase to %, and the equity ownership of
Prime and others in the Operating Partnership will decrease to % before
conversion of any Common Units.
(2) The Operating Partnership also owns a promissory note issued by the
Services Company (the "Note") with an initial principal balance of
approximately $4.2 million. As a result of the Operating Partnership's
ownership of non-voting participating preferred stock and debt of the
Services Company, the Company, through the Operating Partnership, expects
to receive 95.0% of the after-tax economic benefits of the Services
Company. See "Structure and Formation of the Company--Formation
Transactions."

19
<PAGE>

Formation Transactions. The Company, the Operating Partnership, the Services
Company and the Property Partnerships will engage in the following series of
transactions with Prime and certain other parties:

. The Company will contribute the $265.1 million of the estimated net
proceeds from the Offering (after the deduction of underwriting discounts
and commissions but before payment of costs and expenses incurred in
connection with the Formation Transactions and the Offering) to the
Operating Partnership and the Property Partnerships in exchange for a %
general partnership interest in the Operating Partnership (evidenced by
an aggregate of Common Units). The Company also will receive a direct
1.0% limited partnership interest in each of the Property Partnerships.

. Prime will contribute to the Operating Partnership (i) its ownership
interests in the Property Partnerships that own the Prime Properties and
the Prime Contribution Properties, (ii) its rights to purchase the
subordinate mortgage encumbering the Property Partnership that owns the
77 West Wacker Drive Building from certain third-party lenders and its
rights to acquire certain third parties' ownership interests in the
Property Partnerships that own the Prime Properties and (iii)
substantially all of its assets and liabilities relating to its office
and industrial development, leasing and management business. In exchange,
Prime will receive Common Units, representing a % limited
partnership interest in the Operating Partnership (with an aggregate
value of $ million). The Operating Partnership will pay approximately
$2.2 million in transfer taxes related to Prime's contributions as
described above.

. The Operating Partnership will repay third-party lenders approximately
$206.7 million (including accrued interest and repayment fees) of
obligations of the Property Partnerships or indebtedness encumbering the
Properties. (The Operating Partnership will also borrow $35.2 million
from the Credit Facility to repay the remaining unpaid principal balance
on the 77 West Wacker Drive Building's current mortgage note payable.)

. The Operating Partnership will repay third-party lenders approximately
$23.5 million (including repayment fees) of obligations and reimburse
Prime approximately $0.9 million for certain acquisition costs relating
to the Prime Contribution Properties.

. The Contributors will contribute their interests in the Contribution
Properties to the Operating Partnership in exchange for Common Units
(with an aggregate value of $ ) representing a % interest in the
Operating Partnership. The Operating Partnership will take the
Contribution Properties subject to the existing debt of $35.1 million and
enter into various other agreements with the Contributors. See "Structure
and Formation of the Company."

. The Operating Partnership will pay approximately $10.4 million to acquire
the Acquisition Properties and approximately $6.0 million to acquire the
assets and business of Continental Offices, Ltd. and Continental Offices,
Ltd. Realty (collectively, the "Continental Management Business") from
third parties.

. The Operating Partnership will pay approximately $1.7 million in cash to
third parties for the balance of the ownership interests and subordinate
debt interests in the Property Partnerships and the Properties. As a
result, the Operating Partnership will own 99.0% of the Property
Partnerships that own the Properties.

. The Operating Partnership will deposit approximately $9.2 million of the
estimated net proceeds of the Offering into restricted escrow accounts to
fund real estate taxes and net takeover lease liabilities relating to the
77 West Wacker Drive Building.

. The Operating Partnership will pay approximately $0.7 million in fees to
obtain the Credit Facility and Letter of Credit Facility.

. The Operating Partnership will pay on behalf of Prime, or reimburse Prime
for, approximately $3.7 million of expenses incurred by it in connection
with the Formation Transactions and the Offering.

20
<PAGE>

issued by the Services Company in an initial principal amount of
approximately $4.2 million (the "Note"). Messrs. Reschke and Curto will
contribute $50,000 for 100% of the Services Company's voting common stock.
The Operating Partnership is expected to receive approximately 95.0% of
the economic benefits of the operations of the Services Company by virtue
of payments on the Note and distributions in respect of its ownership of
the Preferred Stock.

. The Operating Partnership will (i) replace the outstanding letters of
credit to secure the payment of principal and interest on $26.3 million
for certain Tax-Exempt Bonds relating to the Properties in Tennessee for
which one of the former owners of such Properties provided credit support
and (ii) shall assume the obligations of Prime under certain guaranties
and reimbursement agreements which secure the banks which have issued a
letter of credit to secure the payment of principal and interest on $48.2
million for the Tax-Exempt Bonds relating to certain of the Industrial
Properties. Upon the assumption of Prime's obligations under such
guaranties and reimbursement agreements, Prime will receive the return of
approximately $15.0 million of cash and $6.0 million of certain
marketable securities previously pledged by Prime as additional
collateral to secure its obligations to the issuer of the existing
letters of credit.

See "Structure and Formation of the Company."

Determination and Valuation of Ownership Interests. The Company's percentage
interest in the Operating Partnership was determined based upon the percentage
of estimated cash available for distribution required to pay estimated cash
distributions to stockholders, resulting in an annual distribution rate equal
to % of the assumed initial public offering price of the Common Shares of
$20.00. The Contributors will receive Common Units based on the negotiated
value of the Contribution Properties of $19.3 million, and the remaining
interest in the Operating Partnership will be allocated to Prime in connection
with the Formation Transactions. The parameters and assumptions used in
deriving the estimated cash available for distribution are described under the
caption "Distribution Policy."

In connection with the Offering, the Company did not obtain appraisals with
respect to the market value of any of the Properties or other assets that the
Company will own immediately after completion of the Offering and the Formation
Transactions or an opinion as to the fairness of the allocation of Common Units
among the Company and the Limited Partners. The initial public offering price
will be determined based upon the estimated cash available for distribution and
the factors discussed under the caption "Underwriting," rather than a property
by property valuation based on historical cost or current market value. This
methodology has been used because the Underwriters and management believe it is
appropriate to value the Company as an ongoing business rather than with a view
to values that could be obtained from a liquidation of the Company or of the
individual Properties. See "Underwriting."

Formation of the Services Company. The Services Company was formed in March
1997 under the laws of the state of Maryland to succeed to the office and
industrial property management, leasing and corporate advisory services
business of Prime. Following the consummation of the Formation Transactions,
Messrs. Reschke and Curto together will own 100.0% of the voting common stock
of the Services Company, and the Operating Partnership will own 100.0% of the
Preferred Stock of the Services Company and the Note. The ownership structure
of the Services Company is necessary to permit the Company to share in the
Service Company's income and also maintain its status as a REIT for federal
income tax purposes. Although the Company anticipates that it will receive
substantially all of the economic benefit of the business carried on by the
Services Company (by virtue of the Company's right to receive (i) dividends
through the Operating Partnership's investment in the Services Company's
Preferred Stock and (ii) interest payments on the Note held by the Operating
Partnership), the Company will not be able to elect the Services Company's
officers or directors and, consequently, will not have the ability to control
the operations of the Services Company or require the declaration of dividends.
The Operating Partnership and the Services Company will enter various
management contracts (the "Management Contracts") and other agreements in
connection with the Formation Transactions pursuant to which the Services
Company will render property management, development and leasing services

21
<PAGE>

for third parties. See "Risk Factors--Risks Relating to the Services Company--
Lack of Control over the Services Company" and "Certain Relationships and
Transactions."

Benefits to Prime of the Formation Transactions and the Offering. Prime and
certain of its affiliates will receive certain material benefits in connection
with the Formation Transactions and the Offering, including the following:

. Prime will receive in the aggregate Common Units with an aggregate
value of $ (assuming that each Common Unit held by Prime has a value
equal to that of a Common Share and that the initial public offering
price of the Common Share offered hereby is $20.00, the assumed initial
public offering price).

. Prime will receive the return of approximately $15.0 million of cash and
$6.0 million of marketable securities previously pledged as additional
collateral by Prime to secure its obligations to the issuers of the
letter of credit which secures the payment of principal and interest of
$48.2 million of Tax-Exempt Bonds relating to certain of the Industrial
Properties. Such collateral will be returned to Prime upon the completion
of the Offering and the assumption of such obligations by the Operating
Partnership.

. Prime will realize an immediate increase in the net tangible book value
of its investment in the Company of $ per Common Unit upon the
completion of the Offering.

. Prime will no longer be liable as a general partner of the Property
Partnerships that own certain of the Properties. In addition, Prime will
be released from various limited recourse guaranties and obligations to
indemnify the lenders in connection with $74.5 million principal amount
of Tax-Exempt Bonds encumbering certain of the Properties and $60.0
million of other debt. The Operating Partnership will pay on behalf of
Prime, or reimburse Prime for, approximately $3.7 million of expenses
incurred by or on behalf of Prime in connection with the Formation
Transactions and the Offering.

. Prime will defer certain tax consequences to it from certain of the
Formation Transactions through the contribution to the Operating
Partnership of its interests in the Properties and the business related
thereto for Common Units.

. Prime will obtain improved liquidity of its investment in its office and
industrial real estate business as a result of the Formation Transactions
through the ownership of Common Units, which are exchangeable for Common
Shares or cash, at the option of the Company.

The value of the cash and Common Units acquired by Prime (approximately $
million assuming that each Common Unit held by Prime has a value equal to that
of a Common Share) in exchange for its interests in the Properties and the
office and industrial development, leasing and property management businesses
will significantly exceed the historical book value of such interests computed
in accordance with GAAP (approximately $ million). Similarly, the value of
the Company will exceed the depreciated book value of its tangible assets. See
"Dilution." The Company does not believe, however, that book value is a
relevant measure of the going concern value of its office and industrial real
estate business.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

Subject to certain conditions, beginning 12 months following completion of
the Offering, each Common Unit held by a Limited Partner may be exchanged for
one Common Share or, at the option of the Company, cash equal to the fair
market value of a Common Share at the time of exchange. Prime and the
Contributors have agreed not to sell or exchange their Common Units for a
certain period (two years in the case of Prime; one year in the case of the
Contributors) after completion of the Offering without the consent of the
Company and Prudential Securities Incorporated, on behalf of the Underwriters.
The exchange of Common Units for Common Shares will not cause any dilution of
the then existing shareholders' indirect interest in the Operating Partnership,
because any decrease in such shareholders' interest in the Company will be
offset by a corresponding increase in the Company's interest in the Operating
Partnership. See "Partnership Agreement--Transferability of Interests" and "--
Limited Partner Exchange Rights," "Shares Available for Future Sale" and
"Underwriting."

22
<PAGE>

Ownership of the Common Shares by any one person is generally restricted in
the Declaration of Trust to 9.9% of the outstanding Common Shares. Exchange of
interests in the Operating Partnership for Common Shares is restricted to the
extent that ownership of the Common Shares upon exchange would exceed the
ownership limitation with respect to the Common Shares. The Board of Trustees
may, but in no event will be required to, waive such ownership limitation with
respect to a particular shareholder if it determines that such ownership will
not jeopardize the Company's status as a REIT and the Board of Trustees
otherwise decides such action would be in the best interest of the Company. See
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer" and "Partnership Agreement--Limited Partner Exchange Rights."

DISTRIBUTION POLICY

The Company presently intends to make regular quarterly distributions to
holders of Common Shares and Common Units. The Company intends to declare and
pay a pro rata distribution with respect to the period commencing on the
completion of the Offering and ending on , 1997, based upon $ per
share for a full quarter. On an annualized basis, this would be approximately
$ per share, or an annual distribution rate of approximately % based on
the assumed initial public offering price per share of $20.00. The Company does
not intend to reduce the expected distribution per share if the Underwriters'
over-allotment option is exercised in whole or in part. The Company expects
this distribution to represent approximately % of the Company's cash
available for distribution for the 12 months ending June 30, 1998. Common Units
and Common Shares will receive equal distributions. The Board of Trustees may
vary the percentage of cash available for distribution which is distributed if
the actual results of operations, economic conditions or other factors differ
from the assumptions used in the Company's estimates.

THE OFFERING

Common Shares Offered Hereby.......... 14,250,000 shares.

Common Shares to be Outstanding after shares(1)
the Offering.........................

Use of Proceeds....................... The Company will use the net proceeds
of the Offering, which are estimated to
be approximately $261.4 million, to
acquire a % general partner's interest
in the Operating Partnership. The
Operating Partnership will use such
funds to (i) repay, assume or purchase
certain mortgage and other indebtedness
related to the Properties and held by
third-party lenders, (ii) acquire the
ownership interests in the Prime
Properties not held by Prime, (iii)
acquire the Acquisition Properties, and
acquire the assets and business of the
Continental Management Business and
(iv) pay expenses of the Formation
Transactions and the Offering. See "Use
of Proceeds" and "Capitalization."

Proposed NYSE Symbol.................. PPE
- --------
(1) Includes the Common Shares being offered hereby and Common Units held by
Prime and management of the Company (which, subject to certain conditions,
are exchangeable for up to Common Shares or, at the Company's option,
cash), but does not include Common Shares reserved for issuance
pursuant to the Company's Share Incentive Plan and assumes that the
Underwriters' over-allotment option to purchase up to 2,137,500 Common
Shares will not be exercised. See "Management--Share Incentive Plan."

23
<PAGE>

TAX STATUS OF THE COMPANY

The Company will elect to be taxed as a REIT under Section 856(c) of the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
taxable year ending December 31, 1997. REITs are subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its REIT taxable income each year,
determined without regard to the deduction for dividends paid and by excluding
any net capital gains. If the Company qualifies for taxation as a REIT, the
Company generally will not be subject to federal income tax at the corporate
level on income it distributes currently to its shareholders. If the Company
fails to qualify as a REIT for federal income tax purposes in any taxable year,
the Company will be subject to federal income tax (including any alternative
minimum tax) on its taxable income at regular corporate rates. See "Risk
Factors--Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities" and "Certain Federal Income Tax Considerations--Failure to
Qualify" for a more detailed discussion of the consequences of the failure of
the Company to qualify as a REIT for federal income tax purposes. The Company
may be subject to certain state and local taxes on its income and property
notwithstanding its qualification for taxation as a REIT.

24
<PAGE>

SUMMARY FINANCIAL DATA

The following table presents certain financial and operating data on a pro
forma basis for the Company, and on an historical basis for the Prime
Properties being contributed to the Company (the "Combined Financial
Statements"), whose financial results will be consolidated in the pro forma
financial statements of the Company. The financial and operating data should be
read in conjunction with the historical and pro forma financial statements and
notes thereto included in this Prospectus. The combined historical financial
data as of March 31, 1997 and December 31, 1996 and 1995 and for the three
months ended March 31, 1997 and for the years ended December 31, 1996, 1995 and
1994 have been derived from the audited combined financial statements of the
Prime Properties included elsewhere in this Prospectus. The combined historical
financial data as of December 31, 1994, 1993 and 1992 and for the years ended
December 31, 1993 and 1992 have been derived from the combined financial
statements of the Prime Properties not included in this Prospectus. The
combined historical financial data for the three months ended March 31, 1996
has been derived from the unaudited combined financial statements of the Prime
Properties included elsewhere in this Prospectus. The pro forma data assume the
consummation of the Formation Transactions, including the contribution of the
Prime Properties and the Prime Contribution Properties by Prime, the
contribution of the Contribution Properties by the Contributors, the
acquisition of the Acquisition Properties and the Continental Management
Business and the completion of the Offering, and use of the aggregate net
proceeds therefrom as described under "Use of Proceeds" as of the beginning of
the periods presented for the operating data and as of the balance sheet date
for the balance sheet data. The pro forma financial data are not necessarily
indicative of what the actual financial position or results of operations of
the Company would have been as of and for the periods indicated, nor does it
purport to represent the future financial position and results of operations.

25
<PAGE>

SUMMARY FINANCIAL DATA

THE COMPANY (PRO FORMA) AND PRIME PROPERTIES (COMBINED HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------
COMBINED
HISTORICAL COMBINED HISTORICAL
PRO FORMA ---------------- PRO FORMA -----------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
--------- ------- ------- --------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
REVENUE:
Rental............... $10,421 $ 7,986 $ 7,400 $39,869 $ 30,538 $ 33,251 $ 30,352 $ 28,177 $17,339
Tenant reimburse-
ments............... 4,698 4,206 3,520 15,790 14,225 14,382 12,451 10,750 5,221
Insurance settle-
ment................ -- -- -- -- -- 7,257 -- -- --
Other................ 263 426 586 2,778 3,397 2,715 3,170 1,527 1,435
------- ------- ------- ------- -------- -------- -------- -------- -------
Total revenue...... 15,382 12,618 11,506 58,437 48,160 57,605 45,973 40,454 23,995
------- ------- ------- ------- -------- -------- -------- -------- -------
EXPENSES:
Property operations.. 2,428 2,357 2,201 10,001 9,767 9,479 8,852 8,452 6,518
Real estate taxes.... 3,276 2,823 2,511 10,985 9,383 9,445 9,057 7,167 4,331
Depreciation and
amortization........ 3,488 3,079 3,155 14,045 12,409 12,646 11,624 11,739 7,558
Interest............. 1,991 6,568 6,766 7,717 27,080 27,671 25,985 22,827 10,936
Interest--affiliate.. -- 2,930 2,398 -- 10,137 8,563 7,402 6,335 6,699
Property management
fee--affiliate...... -- 389 366 -- 1,561 1,496 1,388 1,106 1,384
Financing fees....... 368 368 -- 1,232 1,232 -- -- -- --
General and adminis-
trative............. 1,304 979 980 4,865 4,927 4,508 3,727 3,657 1,277
Write-off of deferred
tenant costs........ -- -- -- -- 3,081 13,373 -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------
Total expenses..... 12,855 19,493 18,377 48,845 79,577 87,181 68,035 61,283 38,703
------- ------- ------- ------- -------- -------- -------- -------- -------
Income (loss) before
share of income of
investments
subsidiary and
minority interest... 2,527 (6,875) (6,871) 9,592 (31,417) (29,576) (22,062) (20,829) (14,708)
Share of income of
investment
subsidiary.......... 143 -- -- 407 -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------
Income (loss) before
minority interest... 2,670 (6,875) (6,871) 9,999 (31,417) (29,576) (22,062) (20,829) (14,708)
Minority interest.... (615) 259 275 (2,302) 894 3,281 5,393 10,531 8,941
------- ------- ------- ------- -------- -------- -------- -------- -------
Net income (loss).... $ 2,055 $(6,616) $(6,596) $ 7,697 $(30,523) $(26,295) $(16,669) $(10,298) $(5,767)
======= ======= ======= ======= ======== ======== ======== ======== =======
Pro forma net income
per share(1)(2)..... $ 0.14 $ 0.54
======= =======
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31,
-------------------- ------------------------------------------------
COMBINED HISTORICAL
COMBINED ------------------------------------------------
PRO FORMA HISTORICAL 1996 1995 1994 1993 1992
--------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets,
before accumulated
depreciation.......... $382,264 $293,070 $291,757 $289,558 $285,687 $281,316 $259,469
Total assets........... 427,184 319,417 325,230 343,641 356,421 357,158 327,776
Mortgages notes and
bonds payable......... 144,775 426,227 421,983 405,562 388,309 361,832 294,691
Total liabilities...... 166,373 448,992 447,927 434,993 421,257 397,539 343,098
Minority interest...... 60,039 (7,164) (6,905) (6,047) 886 (11,527) (10,297)
Shareholders'
equity/partners' defi-
cit................... 200,772 (122,411) (115,792) (85,305) (65,722) (28,854) (5,025)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------------------
COMBINED HISTORICAL COMBINED HISTORICAL
PRO FORMA -------------------- PRO FORMA -------------------------------
1997 1997 1996 1996 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from (used in)
Operations(3)......... $ 6,111 $ (3,945) $ (3,865) $ 23,010 $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by
(used in):
Operating activi-
ties............... -- (3,734) (2,938) -- (3,165) (1,259) (13,875)
Investing activi-
ties............... -- 543 378 -- 1,126 (9,176) (6,495)
Financing activi-
ties............... -- 1,327 2,680 -- 5,733 10,873 15,422
Office Properties:
Square footage...... 1,720,219 1,414,897 1,414,897 1,720,219 1,414,897 1,414,897 1,414,897
Occupancy (%)....... 92.7 93.1 88.8 92.3 92.5 95.8 93.7
Industrial Properties:
Square footage...... 4,314,083 2,462,430 2,478,030 4,314,083 2,462,430 2,551,624 2,547,388
Occupancy (%)....... 85.9 76.6 73.3 83.9 73.5 72.9 62.3
</TABLE>
- --------
(1) Pro forma net income per share equals pro forma net income divided by the
14,250 Common Shares of beneficial interest outstanding after the Offering.
(2) The pro forma net income (loss) per Common Share based solely on the number
of shares issued in the Offering, the proceeds of which will be used to
retire debt, would be $(0.14) and $(0.87) per share for the three months
ended March 31, 1997 and the year ended December 31, 1996, respectively,
calculated as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro forma Common Shares in the Of-
fering issued to retire debt..... 10,263 10,263
======= ========
Historical net loss............... $(6,616) $(30,523)
Plus pro forma reduction in inter-
est expense due to repayment of
indebtedness..................... 5,226 21,588
------- --------
Pro forma net loss................ $(1,390) $ (8,935)
======= ========
Pro forma net loss per Common
Share............................ $ (0.14) $ (0.87)
======= ========
</TABLE>
(3) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), Funds from Operations represents net income (loss) before
minority interest of holders of Common Units (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Non-cash adjustments to
Funds from Operations were as follows: in all periods, depreciation and
amortization, for the years ended December 31, 1996, 1995, 1994 and pro
forma 1996, gains on the sale of real estate, for the years ended December
31, 1996 and 1995, write-off of deferred tenant costs, for the year ended
December 31, 1995, excess proceeds from insurance claims, and for the year
ended December 31, 1994, lease termination fees. Management considers Funds
from Operations an appropriate measure of performance of an office and/or
industrial REIT because industry analysts have accepted it as such. The
Company computes Funds from Operations in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White
Paper (with the exception that the Company expects to report rental
revenues on a cash basis, rather than a straight-line GAAP basis, which the
Company believes will result in a more accurate presentation of its actual
operating activities), which may differ from the methodology for
calculating Funds from Operations used by other office and/or industrial
REITs and, accordingly, may not be comparable to such other REITs. Further,
Funds from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. (See
"Distribution Policy"). Funds from Operations should not be considered as
an alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP.

27
<PAGE>

RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective investors should carefully consider the following matters before
purchasing Common Shares in the Offering.

When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are not
limited to, those described below, under the headings "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business
and Properties--The Company's Markets" and elsewhere in this Prospectus.

LACK OF INDEPENDENT APPRAISALS; MARKET CAPITALIZATION OF THE COMPANY MAY
EXCEED FAIR MARKET VALUE OF THE COMPANY'S ASSETS; VALUE OF SERVICES
COMPANY. The valuation of the Company's assets has not been determined through
arm's-length negotiations or from independent third-party appraisals of the
Properties and the Company's other assets; therefore, the consideration being
paid by the Company for the Properties and other assets may exceed the current
fair market value of such assets. Furthermore, management believes it is
appropriate to value the Company as an ongoing business enterprise rather than
with a view to values that could be obtained from a liquidation of the Company
or of individual properties owned by the Company. Accordingly, the valuation of
the Company has been determined based on a capitalization of the Company's
estimated cash available for distribution and the other factors set forth in
the section captioned "Underwriting." See "Structure and Formation of the
Company--Determination and Valuation of Ownership Interests." Because the
liquidation value of the Company may be less than the value of the Company as a
going concern, holders of Common Shares may suffer a loss in the value of their
Common Shares if the Company is required to sell its assets in a liquidation.
The Company's estimate of cash available for distribution is based on certain
assumptions, including assumptions with respect to future leasing,
acquisitions, and anticipated operating expense levels, which may not prove
accurate and actual results may vary substantially from the estimate. See
"Distribution Policy." Accordingly, there can be no assurance that the value of
the Common Units (based on the initial offering price of the Common Shares)
received by Prime and others in exchange for their interests in certain of the
Properties is equivalent to the actual value of those assets to the Company or
that the initial public offering price of the Common Shares reflects the fair
market value of the Common Shares purchased in the Offering.

The valuation of the Company's office and industrial property management,
leasing and corporate advisory services business has not been determined
through arm's-length negotiations or from independent third-party appraisals.
The value has been derived, in part, from a capitalization of the estimated net
profit derived from the Company's agreements with third parties for
development, leasing and management services. Accordingly, there can be no
assurance that the value of the Common Units (based on the initial offering
price of the Common Shares) received by Prime in exchange for its interests in
such businesses is equivalent to the actual value of such assets to the
Company. Upon completion of the Offering, these development, leasing and
management services will be provided through the Services Company, a separate
corporation that is subject to federal and state income tax at the corporate
level. See "--Conflicts of Interest; Benefits to Prime" and "Structure and
Formation of the Company--Formation of the Services Company."

GEOGRAPHIC CONCENTRATION OF THE PROPERTIES IN THE CHICAGO METROPOLITAN AREA,
NASHVILLE, KNOXVILLE AND COLUMBUS; LOCAL ECONOMIC CONDITIONS. The Company's
revenues and the value of its Properties may be affected by a number of
factors, including the local economic climate (which may be adversely impacted
by business layoffs or downsizing, industry slowdowns, changing demographics
and other factors) and local real estate conditions (such as oversupply of or
reduced demand for office and industrial properties). Further, five of the
Office Properties and 23 of the Industrial Properties, comprising an aggregate
of approximately 1.2 million and 3.6 million rentable square feet, respectively
(representing approximately 72.7% of the aggregate net rentable

28
<PAGE>

square feet of the Company's office space and 83.0% of the aggregate net
rentable square feet of the Company's industrial space, and approximately 84.5%
of the Annualized Net Rent of all of the Properties), are located in the
Chicago Metropolitan Area. Further, the 77 West Wacker Drive Building, which
represents 49.0% of the Annualized Net Rent of the Properties, is located in
the Chicago CBD. A material decline in the demand and/or the ability of tenants
to pay rent for office and industrial space in the Chicago Metropolitan Area
may result in a material decline in the demand for the Company's office or
industrial space and the Company's cash available for distribution, which may
have a material adverse effect greater than if the Company had a more
geographically diverse portfolio of properties. The local economic conditions
of the Nashville, Tennessee, Knoxville, Tennessee and Columbus, Ohio
metropolitan areas also will affect the Company due to the location of certain
of its Properties in such areas.

CONFLICTS OF INTEREST; BENEFITS TO PRIME

No Arm's-Length Negotiations; Benefits to Prime. The Company is acquiring a
substantial portion of the Properties from partnerships that are controlled by
Prime or in which Prime has ownership interests. As a result, the agreements
pursuant to which such Properties will be acquired were not negotiated on an
arm's-length basis, and the representations, warranties and covenants in these
agreements may not provide the same level of protection as those contained in a
purchase contract negotiated on an arm's-length basis. In addition, Prime will
receive material benefits from the Formation Transactions, such as the return
of approximately $21.0 million of collateral (consisting of cash and marketable
securities) currently securing certain indebtedness of the Properties, release
of guarantees and indemnification obligations relating to certain indebtedness
of the Properties and the deferral of certain tax consequences through the
contribution of the Properties to the Operating Partnership, that will not
generally be received by other participants in the Formation Transactions. See
"Structure and Formation of the Company--Benefits of the Formation Transactions
and Offering to Prime."

Ability of Limited Partners, Officers and Trustees to Influence Operating
Partnership. Upon completion of the Offering, Prime will own a % interest in
the Operating Partnership. Because of Prime's ownership interest in the
Operating Partnership and the fact that Messrs. Reschke, Curto, Rudnik and
Patterson are executive officers and/or trustees of the Company and also are
owners of Prime, Prime may be in a position to exercise significant influence
over the affairs of the Company. Certain conflicts exist between the
obligations of Mr. Reschke as a trustee of the Company and his interest as a
Limited Partner through his ownership of Prime. In addition, the Contributors
will own a % interest in the Operating Partnership, and an affiliate of the
Contributors, Edward S. Hadesman, will be an officer of the Company. As Limited
Partners, Prime and the Contributors may suffer different and more adverse tax
consequences than the Company upon the sale or refinancing of certain of the
Properties. In addition, Prime has agreed to indemnify the Company for certain
amounts the Company may be required to pay for tax liabilities incurred by the
Contributors upon the sale of Properties they contributed to the Company in
connection with the Formation Transactions. Therefore, the Limited Partners and
the Company may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of such Properties. While the Company, as the
sole general partner of the Operating Partnership, has the exclusive authority
to determine whether and on what terms to sell or refinance an individual
Property, those members of the Company's management and Board of Trustees who
directly or indirectly hold Common Units, including Messrs. Reschke, Curto,
Rudnik, Patterson and Hadesman, could have an ability to influence the Company
not to sell or refinance certain Properties, even though such sale might
otherwise be financially advantageous to the Company, or may influence the
Company to refinance a Property with a high level of debt. See "Policies With
Respect to Certain Activities--Conflicts of Interest Policies."

Other Activities of the Chairman of the Board. Under the terms of his
employment agreement as Chairman of the Board of the Company, Mr. Reschke will
be permitted to devote a considerable portion of his time to the management of
interests outside of the Company. In addition to serving as Chairman of the
Board of the Company, Mr. Reschke expects to continue to serve as Chairman of
the Board of Prime Retail, Inc. (Nasdaq: PRME), Chairman of the Board of
Brookdale Living Communities, Inc. (Nasdaq: BLCI), Chairman of the Board and
CEO of The Prime Group, Inc., a member of the board of Ambassador Apartments,
Inc. (NYSE: AAH) and to serve on various other boards and civic organizations.
See "Management" and "Principal Shareholders of

29
<PAGE>

the Company." As a result of these interests and the business time to be
devoted to activities related to them, certain conflicts of interest may arise
between Mr. Reschke's duties and responsibilities to the Company and his other
interests. The Company could be adversely affected if these conflicts of
interest adversely affect his performance of managerial duties and
responsibilities to the Company. Prime and Mr. Reschke have entered a Non-
Compete Agreement with the Company (the "Non-Compete Agreement") that contains
restrictions on their ability to compete with the Company. However, there can
be no assurance that these contracts or the Company's policies with respect to
conflicts of interest always will be successful in eliminating the influence
of such conflicts and, if they are not successful, decisions could be made
that might fail to reflect fully the interests of all shareholders. See
"Policies with Respect to Certain Activities--Conflicts of Interest Policies"
and "Certain Relationships and Transactions."

Certain Limited Partner Approval Rights. While the Company will be the sole
general partner of the Operating Partnership, and generally will have full and
exclusive responsibility and discretion in the management and control of the
Operating Partnership, certain provisions of the Partnership Agreement place
limitations on the Company's ability to act with respect to the Operating
Partnership. The Partnership Agreement provides that the Company shall not, on
behalf of the Operating Partnership, take any action without the prior consent
of the holders of more than 50.0% of the Common Units representing limited
partner interests (excluding Common Units held by the Company) to dissolve the
Operating Partnership, other than incident to a merger or sale of
substantially all of the Company's assets. Furthermore, the Partnership
Agreement provides that, except in connection with certain transactions, the
Company may not voluntarily withdraw from the Operating Partnership, or
transfer or assign its interest in the Operating Partnership, without the
consent of the holders of at least 50.0% of the Common Units (including Common
Units held by the Company) and without meeting certain other criteria with
respect to the consideration to be received by the Limited Partners. See
"Partnership Agreement--Transferability of Interests."

REAL ESTATE FINANCING RISKS

Debt Financing. The Company will be subject to the risks associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk
that the Company will not be able to refinance existing indebtedness on the
Properties or that the terms of such refinancing will not be as favorable to
the Company as the terms of existing indebtedness and the risk that necessary
capital expenditures for purposes such as reletting space will not be able to
be financed on favorable terms. If a property is mortgaged to secure payment
of indebtedness and the Company is unable to meet mortgage payments, the
property could be transferred (by foreclosure or otherwise) to the mortgagee
with a consequent loss of any prospective income and equity value from such
property to the Company.

No Limitation on Debt. Immediately following the completion of the Offering
and the Formation Transactions, the Company will have outstanding debt equal
to approximately % of the total market capitalization of the Company. See
"Management's Discussion and Analysis of Financial Condition and Result of
Operations--Liquidity and Capital Resources." The Company's organizational
documents do not limit the level or amount of debt that it may incur. It is
the Company's current policy to pursue a strategy of conservative use of
leverage, generally with a ratio of debt-to-total market capitalization in the
range of 25.0% to 40.0%, although this policy is subject to reevaluation and
modification by the Board of Trustees. See "Policies with Respect to Certain
Activities--Financing Policies." If this policy were modified to permit a
higher degree of leverage and the Company were to incur additional
indebtedness, debt service requirements would increase accordingly, and such
an increase could adversely affect the Company's financial condition and
results of operations. In addition, increased leverage could increase the risk
of default by the Company on its debt obligations, with the potential for loss
of cash available for distribution, and asset values, of the Company.

The Company established its debt policy relative to the market
capitalization of the Company rather than relative to the aggregate book value
of its assets. The Company chose to use market capitalization because it
believes that the book value of its assets (which is primarily the historic
cost of real property less depreciation) does not accurately reflect its
ability to borrow and to meet debt service requirements. The market
capitalization

30
<PAGE>

of the Company, however, is more variable than book value, and does not
necessarily reflect the fair market value of the underlying assets of the
Company at all times. Although the Company will consider factors other than
market capitalization in making decisions regarding the incurrence of debt
(such as the purchase price of properties to be acquired with debt financing,
the estimated market value of the properties to be financed, and the ability of
particular properties and the Company as a whole to generate cash flow to cover
expected debt service and to make distributions), there can be no assurance
that management decisions based on the ratio of debt-to-total market
capitalization (or to any other measure of asset value) will not adversely
affect the expected level of distributions to shareholders.

Ability to Obtain Permanent Financing. The Company anticipates that it will
finance its acquisitions and developments in part with proceeds from the Credit
Facility and that such acquisition financing then will be replaced by permanent
financing. There can be no assurance that the Company will be able to obtain
such permanent financing on acceptable terms. Further, if interest rates were
to increase at a time when amounts are outstanding under the Credit Facility,
or if other variable rate debt amounts were outstanding, the Company's debt
service obligations likewise would increase, with potentially adverse effects
on the Company's financial condition and results of operations.

CERTAIN ANTI-TAKEOVER PROVISIONS MAY INHIBIT A CHANGE IN CONTROL OF THE
COMPANY

General. Certain provisions contained in the Declaration of Trust and Bylaws
and the Maryland General Corporation Law (the "MGCL"), as applicable to
Maryland REITs, and certain provisions of the Partnership Agreement may have
the effect of discouraging a third party from making an acquisition proposal
for the Company and may thereby delay, deter or prevent a change in control of
the Company or the removal of existing management and, as a result, could
prevent the shareholders of the Company from being paid a premium for their
Common Shares over then-prevailing market prices. See "Description of Shares of
Beneficial Interest--Restrictions on Ownership and Transfer" and "Certain
Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws."

In order to protect the Company against the risk of losing REIT status for
federal income tax purposes due to a concentration of ownership among its
shareholders, the Ownership Limit set forth in the Declaration of Trust
provides that, subject to certain specified exceptions, no person or entity
(which does not include certain pension plans and mutual funds) may own, or be
deemed to own by virtue of the applicable constructive ownership provisions of
the Code, more than 9.9% (by number or value, whichever is more restrictive) of
the outstanding Common Shares. In addition, the Declaration of Trust provides
that, in general, pension plans and mutual funds may actually and beneficially
own no more than 15.0% of the outstanding Common Shares (the "Look-Through
Ownership Limit"). The Board of Trustees may, but in no event will be required
to, waive the Ownership Limit, the Look-Through Ownership Limit or such other
limit set forth in the Declaration of Trust, as applicable, with respect to a
particular shareholder if the Board of Trustees determines that such ownership
will not jeopardize the Company's status as a REIT and the Board of Trustees
otherwise decides such action would be in the best interest of the Company. As
a condition of such waiver, the Board of Trustees may require a ruling from the
IRS or an opinion of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to preserving the REIT status
of the Company. The foregoing ownership limitations may have the effect of
precluding acquisition of control of the Company without the consent of the
Board of Trustees and, consequently, shareholders may be unable to realize a
premium for their shares over the then-prevailing market price (a premium is
customarily associated with such acquisitions).

Preferred Shares. The Declaration of Trust permits the Board of Trustees to
issue up to 30.0 million shares of Preferred Shares, par value $.01 per share,
and to establish the preferences and rights (including the right to vote,
participate in earnings, and to convert into Common Shares) of any such
Preferred Shares issued. Thus, the Board of Trustees could authorize the
issuance of Preferred Shares with terms and conditions which could have the
effect of discouraging a takeover or other transaction in which holders of some
or a majority of the Common Shares might receive a premium for their Common
Shares over the then-prevailing market price of such Common Shares. See
"Description of Shares of Beneficial Interest--Preferred Shares."

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Staggered Board. The Board of Trustees has three classes of trustees. The
terms of the first, second and third classes will expire in 1998, 1999 and
2000, respectively. Trustees for each class will be chosen for a three-year
term upon the expiration of the current class' term, beginning in 1998. Subject
to the right of the holders of any Preferred Shares to elect and remove
trustees in certain circumstances, the affirmative vote of two-thirds of the
outstanding Common Shares is required to remove a trustee.

Certain Provisions of the Operating Partnership Agreement. The Operating
Partnership Agreement provides that the Company may not generally engage in any
merger, consolidation or other combination with or into another person or sale
of all or substantially all of its assets, or any reclassification, or any
recapitalization or change of outstanding Common Shares (a "Business
Combination"), unless the holders of Common Units will receive, or have the
opportunity to receive, the same consideration per Common Unit as holders of
Common Shares receive per Common Share in the transaction; if holders of Common
Units will not be treated in such manner in connection with a proposed Business
Combination, the Company may not engage in such transaction unless Limited
Partners (other than the Company) holding more than 50.0% of the Common Units
held by Limited Partners vote to approve the Business Combination. In addition,
the Company, as general partner of the Operating Partnership, has agreed in the
Operating Partnership Agreement with the Limited Partners that the Company will
not consummate a Business Combination in which the Company conducted a vote of
the shareholders unless the matter would have been approved had holders of
Common Units been able to vote together with the shareholders on the
transaction. The foregoing provision of the Operating Partnership Agreement
would under no circumstances enable or require the Company to engage in a
Business Combination which required the approval of the Company's shareholders
if the Company's shareholders did not in fact give the requisite approval.
Rather, if the Company's shareholders did approve a Business Combination, the
Company would not consummate the transaction unless (i) the Company as general
partner first conducts a vote of holders of Common Units (including the
Company) on the matter, (ii) the Company votes the Common Units held by it in
the same proportion as the shareholders of the Company voted on the matter at
the shareholder vote and (iii) the result of such vote of the Common Unit
holders (including the proportionate vote of the Company's Common Units) is
that had such vote been a vote of shareholders, the Business Combination would
have been approved by the shareholders. As a result of these provisions of the
Operating Partnership, a third party may be inhibited from making an
acquisition proposal that it would otherwise make, or the Company, despite
having the requisite authority under its Declaration of Trust, may not be
authorized to engage in a proposed Business Combination.

Exemption from Maryland Business Combination Statute. Under the MGCL, as
applicable to Maryland REITs, certain "business combinations" (including
certain issuances of equity securities) between a Maryland REIT such as the
Company and any person who owns 10.0% or more of the voting power of the
trust's shares or an affiliate of the trust which, at any time within the two-
year period prior to the date in question, was the beneficial owner of 10.0% of
more of the voting shares of beneficial interest of then-outstanding voting
shares of beneficial interest of the trust (an "Interested Shareholder"), are
prohibited for five years after the most recent date on which the Interested
Shareholder became an Interested Shareholder. Thereafter, any such business
combination must be approved by two super-majority shareholder votes unless,
among other things, the holders of shares of beneficial interest receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. As permitted by the MGCL, the Declaration of Trust
exempts any "business combinations" involving the issuance of Common Shares to
Prime or any of the Contributors or any of their respective affiliates
(including Mr. Reschke) upon the exchange of Common Units acquired by any of
them in connection with the Formation Transactions or the acquisition by any of
them of any additional shares of beneficial interest. Accordingly, the five-
year prohibition and the super-majority vote requirement will not apply to any
"business combinations" between Prime or any of the Contributors and their
respective affiliates and the Company or certain "business combinations," as
described above. As a result, Prime or any of the Contributors and their
respective affiliates may be able to enter into "business combinations" with
the Company, which may or may not be in the best interests of the shareholders,
without the super-majority shareholder approval. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws--Business
Combinations."

Maryland Control Share Acquisitions. Maryland law provides that "control
shares" of a Maryland REIT acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-

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thirds of the votes eligible under the statute to be cast on the matter.
"Control shares" are voting shares of stock or beneficial interest which, if
aggregated with all other such shares of stock or beneficial interest
previously acquired by the acquiror, would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority or (iii) a majority of all voting power. Control
shares do not include shares that the acquiring person is then entitled to vote
as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.

If voting rights are not approved at a meeting of shareholders then, subject
to certain conditions and limitations, the trust may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for control shares are approved at a
shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other shareholders may
exercise appraisal rights.

The Bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any person of the Company's shares of
beneficial interest. There can be no assurance that such provision will not be
amended or eliminated at any point in the future. If the foregoing exemptions
in the Declaration of Trust or the Bylaws are rescinded, the business
combination statute or the control share acquisition statute, as the case may
be, could have the effect of discouraging offers to acquire the Company and of
increasing the difficulty of consummating any such offer. See "Certain
Provisions of Maryland Law and the Company's Declaration of Trust and Bylaws--
Control Share Acquisitions."

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES

Tax Liabilities as a Consequence of Failure to Qualify as a REIT. The Company
intends to operate its business so as to qualify as a REIT under the Code
commencing with its taxable year ending December 31, 1997. Although management
believes that the Company will be organized and will operate in such a manner,
no assurance can be given that the Company will be able to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and others on a
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations
and involves the determination of various factual matters and circumstances not
entirely within the Company's control. For example, in order to qualify as a
REIT, at least 95% of the Company's gross income in any year must be derived
from qualifying sources and the Company must pay distributions to shareholders
aggregating annually at least 95% of its REIT taxable income (determined
without regard to the dividends paid deduction and by excluding net capital
gains). The complexity of these provisions and of the applicable Treasury
Regulations that have been promulgated under the Code is greater in the case of
a REIT that holds its assets in partnership form. In addition, no assurance can
be given that new legislation, regulations, administrative interpretations or
court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT. The Company has received the opinion of Winston & Strawn, counsel to the
Company, regarding the Company's ability to qualify as a REIT. See "Certain
Federal Income Tax Considerations--Taxation of the Company" and "Legal
Matters." Such legal opinion is based on various assumptions and factual
representations by the Company regarding the Company's ability to meet the
various requirements for qualification as a REIT, and no assurance can be given
that actual operating results will meet these requirements. Such legal opinion
is not binding on the IRS or any court.

Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5.0% of the value of the
REIT's total assets on certain testing dates. See "Certain Federal Income Tax
Considerations--Requirements for Qualification." The Company believes that its
allocable share of the aggregate value of the securities of the Services
Company to be held by the Operating Partnership (i.e., the Note and the
Preferred Stock) will be less than 5.0% of the value of the Company's total
assets, based on the initial allocation of Common Units among participants in
the Formation Transactions and the Company's opinion

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<PAGE>

regarding the maximum value that could be assigned to the expected securities
and net operating income contributions of the Services Company after the
Offering. In rendering its opinion as to the qualifications of the Company as a
REIT, Winston & Strawn is relying on the conclusion of the Company regarding
the value of the Services Company. In addition to the 5.0% limitation, a REIT
is not permitted to own more than 10.0% of the voting securities of any
particular issuer. The Preferred Stock and Note of the Services Company held by
the Operating Partnership should not be treated as voting securities. However,
the IRS could challenge this conclusion if it determines that the Operating
Partnership exercises de facto control over and management of the Services
Company.

If the Company fails to satisfy the 5.0% or 10.0% limitations or otherwise
fails to qualify as a REIT in any taxable year, except as to certain failures
for which there may be statutory relief or imposition of intermediate sanctions
in the form of monetary penalties, the Company would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates and would not be allowed a deduction in
computing its taxable income for amounts distributed to its shareholders. This
treatment would reduce the net earnings of the Company available for investment
or distribution to shareholders because of the additional tax liability to the
Company for the years involved. In addition, unless entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. See "Certain Federal Income Tax Considerations--Failure
to Qualify."

Other Tax Liabilities. Even if the Company qualifies as and maintains its
status as a REIT, it will be subject to certain federal, state and local taxes
on its income and property. For example, if the Company has net income from a
"prohibited transaction," such income will be subject to a 100% tax. See
"Certain Federal Income Tax Considerations--Requirements for Qualification--
Penalty Tax on Prohibited Transactions."

DISTRIBUTIONS TO SHAREHOLDERS AFFECTED BY MANY FACTORS. Distributions by the
Company to its shareholders will be based principally on cash available for
distribution from the Properties. Contractual increases in rent under the
leases of the Properties or the receipt of rental revenue in connection with
future acquisitions will increase the Company's cash available for distribution
to shareholders. However, in the event of a default or a lease termination by a
lessee, there could be a decrease or cessation of rental payments and thereby a
decrease in cash available for distribution. In addition, the amount available
to make distributions may decrease if properties acquired in the future yield
lower than expected returns.

The distribution requirements for REITs under federal income tax laws may
limit the Company's ability to finance future developments, acquisitions and/or
expansions without additional debt or equity financing. If the Company incurs
additional indebtedness in the future, it will require additional funds to
service such indebtedness and as a result amounts available to make
distributions may decrease. Distributions by the Company will also be dependent
on a number of other factors, including the Company's financial condition, any
decision to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Company deems relevant. In addition, the
Company may issue from time to time additional Common Shares in connection with
the acquisition of properties or in certain other circumstances. No prediction
can be made as to the number of such Common Shares which may be issued, if any,
and, if issued, the effect on cash available for distributions on a per share
basis to holders of Common Shares. Such issuances, if any, will have a dilutive
effect on cash available for distribution on a per share basis to holders of
Common Shares. See "Business Objective and Growth Strategies." The possibility
exists that actual results of the Company may differ from the assumptions used
by the Board of Trustees in determining the initial distribution rate. In such
event, the trading price of the Common Shares may be adversely affected.

To obtain the favorable tax treatment associated with REITs, the Company
generally will be required to distribute to its shareholders at least 95.0% of
its REIT taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains) each year. See "Certain Federal
Income Tax Considerations--Requirements for Qualification--Annual Distribution
Requirements." In addition, the

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<PAGE>

Company will be subject to tax at regular corporate rates to the extent that it
does not distribute all of its net capital gain or distributes more than 95.0%
but less than 100.0% of its REIT taxable income each year. The Company will
also be subject to a 4.0% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it for any calendar year are less than the
sum of 85.0% of its REIT ordinary income, 95.0% of its REIT capital gain net
income and 100.0% of its undistributed income from prior years.

The Company intends to make distributions to its stockholders to comply with
the distribution requirements of the Code and to eliminate, or at least
minimize, exposure to federal income taxes and the nondeductible excise tax.
Differences in timing between the receipt of income and the payment of expenses
in arriving at taxable income and the effect of required debt amortization
payments could require the Company to borrow funds on a short-term basis to
meet the distribution requirements that are necessary to achieve the tax
benefits associated with qualifying as a REIT.

DISTRIBUTION PAYOUT PERCENTAGE. The Company's expected annual distributions
for the 12 months following the completion of the Offering of $20.00 per share
are expected to be approximately % of the estimated cash available for
distribution during such period. If cash available for distribution generated
by the Company's assets for such 12-month period is less than the Company's
estimate, or if such cash available for distribution decreases in future
periods from expected levels, the Company's ability to make the expected
distributions would be adversely affected. Any such failure to make expected
distributions may result in a decrease in the market price of the Common
Shares. See "Distribution Policy."

HISTORICAL LOSSES AND ACCUMULATED DEFICIT; POSSIBILITY OF FUTURE LOSSES. The
Company, through the Prime Properties, has had historical accounting losses for
certain fiscal years, and there can be no assurance that the Company will not
have similar losses in the future. The Prime Properties had a net loss before
allocation to minority interest of approximately $31.4 million in the aggregate
in 1996 and had cumulative aggregate deficits in owners' equity, inclusive of
minority interest, of approximately $129.6 million and $122.7 million at March
31, 1997 and December 31, 1996, respectively.

RISK OF ACQUISITION AND DEVELOPMENT ACTIVITIES

General. The Company intends to acquire additional office and industrial
properties. See "Business Objective and Growth Strategies." The Company
anticipates that future acquisitions will be financed, in part, through a
combination of secured or unsecured financing. If new developments are financed
through construction loans, there is a risk that, upon completion of
construction, permanent financing for newly-developed properties may not be
available or may be available only on disadvantageous terms. In addition, an
acquisition of an office or industrial property entails the risk that such
investment will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may also prove
inaccurate. Further, there are general investment risks associated with any
real estate investment. See "--General Real Estate Investment Risks."

While the Company expects to limit its business primarily to the Chicago
Metropolitan Area, and to a lesser extent the rest of the midwestern United
States, and to continue to explore opportunities within these areas, it is
possible that the Company will in the future expand its business to new
geographic markets. The Company will not initially possess the same level of
familiarity with new markets that it has with respect to the markets in which
it currently operates, which could adversely affect its ability to develop,
acquire, manage or lease properties in such markets.

Cash Is Uncertain. A portion of the Company's anticipated cash available for
distribution may be generated from development activities, which are partially
dependent on the availability of development opportunities and which are
subject to the risks inherent in development and general economic conditions.
There can be no assurance that the Company will realize such anticipated cash
flows from future development projects.

GENERAL REAL ESTATE INVESTMENT RISKS

General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the
amount of income earned and capital appreciation generated by the

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<PAGE>

Properties as well as the expenses incurred in connection therewith. If the
Properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, the ability to make
distributions to the Company's shareholders could be adversely affected. Income
from, and the value of, the Properties may be adversely affected by the general
economic climate, local conditions such as oversupply of office or industrial
space or a reduction in demand for office or industrial space in the area, the
attractiveness of the Properties to potential tenants, competition from other
office or industrial buildings, and the ability of the Company to provide
adequate maintenance and insurance and increased operating costs (including
insurance premiums, utilities and real estate taxes). In addition, revenues
from properties and real estate values also are affected by such factors as
interest rate levels, the availability of financing, the cost of compliance
with regulations and the potential for liability under applicable laws,
including changes in tax laws. See "Business and Properties--Competition."

The Company's income would be adversely affected if a significant number of
tenants were unable to pay rent or if office or industrial space could not be
rented on favorable terms. Certain significant expenditures associated with an
investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in rental income from tenants. It would be very difficult for the
Company to convert a project to an attractive alternative use or to sell a
project to recoup the Company's investment if a project were not successful.
Should such an event occur, the Company's income and funds available for
distribution would be adversely affected.

Illiquidity of Real Estate. Real estate investments are relatively illiquid
and, therefore, the Company has a limited ability to vary its portfolio quickly
in response to changes in economic or other conditions. In addition, the Code
and related regulations prohibit a REIT from holding property for sale, which
may affect the Company's ability to sell properties without adversely affecting
distributions to the Company's shareholders.

Competition. The Company plans to expand, primarily through the acquisition
and development of additional office and industrial buildings in the Chicago
Metropolitan Area and other midwestern markets where the acquisition and/or
development of property would, in the opinion of management, result in a
favorable risk-adjusted return on investment. There are a number of office and
industrial building developers and real estate companies that compete with the
Company in seeking properties for acquisition, prospective tenants and land for
development. All of the Properties are in developed areas where there are
generally other properties of the same type and quality. Competition from other
office and industrial properties may affect the Company's ability to attract
and retain tenants, rental rate and expenses of operation (particularly in
light of the higher vacancy rates of many competing properties which may result
in lower-priced space being available in such properties). The Company also may
be competing with other entities that have greater financial and other
resources than the Company.

Lease Expirations and Reletting. Certain leases expiring during the first
several years following the Offering are at rental rates higher than those
attained by the Company in its recent leasing activity. Such leases, or other
leases of the Company, may not be renewed or, if renewed, may be renewed at
rental rates lower than rental rates in effect immediately prior to expiration.
Decreases in the rental rates for the Company's properties, the failure of
tenants to renew any such leases or the failure of the Company to relet any of
the Company's space could materially adversely affect the Company and its
ability to make distributions. During the 2.5 calendar years ending December
31, 1999, the Company will have expiring Office Property leases covering
approximately 229,242 net rentable square feet (which represent 9.2% of the
Annualized Net Rent of the Company) and Industrial Property leases covering
approximately 898,447 net rentable square feet (which represent 19.8% of the
Annualized Net Rent of the Company). For the year ended December 31, 1996, such
leases had a weighted average annual net rent per net rentable square foot of
approximately $9.71 for Office Property leases and $2.63 for Industrial
Property leases. See "Business and Properties--General" and "--Lease
Expirations."

The Company has established initial and annual reserves for renovation and
reletting expenses, which take into consideration its views of both the current
and expected business conditions in the markets in which the Properties are
located, but no assurance can be given that these reserves will be sufficient
to cover such expenses. If the Company were unable to promptly relet or renew
the leases for all or a substantial portion of this space, if

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the rental rate upon such renewal or reletting were significantly lower than
expected rates or if the Company's reserves for these purposes proved
inadequate, then the Company's cash flow and ability to make expected
distributions to shareholders would be adversely affected.

Capital Improvements. The Properties vary in age and require regular capital
improvements. If the cost of improvements, whether required to attract and
retain tenants or to comply with governmental requirements, substantially
exceeds management's expectations, cash available for distribution may be
reduced.

Uninsured Loss. Management believes that the Properties are covered by
adequate comprehensive liability, fire, flood, extended coverage, rental loss
and all-risk insurance provided by reputable companies and with commercially
reasonable deductibles, limits and policy specifications customarily carried
for similar properties. Certain types of losses, however, may be either
uninsurable or not economically insurable, such as losses due to floods, riots
or acts of war, or may be insured subject to certain limitations, such as large
deductibles or copayments. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its investment in and the cash
flow from a property and may be obligated on any mortgage indebtedness or other
obligations related to such property. Any such loss could adversely affect the
Company and its ability to make distributions.

Bankruptcy and Financial Condition of Tenants. At any time, a tenant of the
Properties may seek the protection of the bankruptcy laws, which could result
in the rejection and termination of such tenant's lease and thereby cause a
reduction in the cash available for distribution by the Company. No assurance
can be given that certain tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due,
which may adversely affect the Company's cash flow and its ability to make
expected distributions to shareholders. For example, one of the Company's
significant tenants at the 77 West Wacker Drive Building is experiencing
financial difficulties, and the Company has taken certain legal action to
obtain possession of the leased premises.

Risks Involved in Investments in Securities Related to Real Estate. The
Company may pursue its investment objectives through the ownership of
securities of entities engaged in the ownership of real estate. Ownership of
such securities may not entitle the Company to control the ownership, operation
and management of the underlying real estate. In addition, the Company may have
no ability to control the distributions with respect to such securities, which
may adversely affect the Company's ability to make required distributions to
shareholders. Furthermore, if the Company desires to control an issuer of
securities, it may be prevented from doing so by the limitations on the asset
and gross income tests which must be satisfied by the Company in order for the
Company to qualify as a REIT for federal income tax purposes. See "Certain
Federal Income Tax Considerations--Taxation of the Company" and "--Requirements
for Qualification." The Company intends to operate its business in a manner
that will not require the Company to register under the Investment Company Act
of 1940, as amended, and shareholders will therefore not have the protection of
such act.

The Company also may invest in mortgages or other debt instruments secured by
real estate and may do so as a strategy for ultimately acquiring the underlying
real estate. In general, investments in mortgages include the risk that
borrowers may be unable to make debt service payments or pay principal when
due, the risk that the value of the mortgaged property may be less than the
principal amount of the mortgage note securing such property and the risk that
interest rates payable on the mortgages may be lower than the Company's cost of
funds to acquire these mortgages. In any of these events, Funds from Operations
and the Company's ability to make required distributions to shareholders could
be adversely affected.

Changes in Laws and Property Tax Rates. Costs resulting from changes in real
estate laws and property taxes generally may be passed through to tenants of
the Properties and should not adversely affect the Company. Increases in
income, services or transfer taxes, however, generally are not passed through
to tenants and may adversely affect the Company's results of operations and
ability to make distributions to its shareholders. Similarly, changes in laws
increasing the potential liability for environmental conditions existing on
properties

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<PAGE>

or increasing the restrictions on discharges or other conditions, however, may
result in significant unanticipated expenditures, which could adversely affect
the Company's ability to make distributions to shareholders.

Americans with Disabilities Act Compliance. Under the Americans with
Disabilities Act of 1990, as amended (the "ADA"), all public accommodations
and commercial facilities are required to meet certain federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. Compliance with the ADA requirements could require removal
of access barriers, and non-compliance could result in imposition of fines by
the federal government or an award of damages to private litigants. Although
the Company believes that the Properties are substantially in compliance with
these requirements, the Company may incur additional costs to comply with the
ADA. Although the Company believes that such costs will not have a material
adverse effect on the Company, if required changes involve a greater
expenditure than the Company currently anticipates, the Company's ability to
make expected distributions to shareholders could be adversely affected.

CONSEQUENCES OF FAILURE TO QUALIFY AS PARTNERSHIPS. The Company expects that
the Operating Partnership and each of the Property Partnerships will be
organized as partnerships and will be treated as partnerships for federal
income tax purposes. If the Operating Partnership or any of the Property
Partnerships failed to qualify as a partnership for federal income tax
purposes and were instead taxable as a corporation, the Company would cease to
qualify as a REIT and such partnership would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. See "Certain Federal Income Tax Considerations--
Failure to Qualify" and "--Tax Aspects of the Company's Investment in
Partnerships--Partnership Classification." The imposition of a corporate level
tax on the Operating Partnership would reduce the amount of cash available for
distribution to the Company and its shareholders.

RISK RELATING TO CONTROL OF THE COMPANY

Ability to Change Certain Policies Without Shareholder Approval. The
investment and financing policies of the Company and its policies with respect
to other activities, including acquisitions, developments, expansions,
capitalizations, distributions and operations will be determined by the Board
of Trustees. Although the Board of Trustees has no present intention to do so,
the Board of Trustees may amend or revise these and other policies from time
to time without a vote of the shareholders of the Company. Change in these
policies could adversely affect the Company's financial condition or results
of operations. The Company cannot, however, change its policy of seeking to
maintain its qualification as a REIT for federal income tax purposes without
the approval of the holders of at least a majority of the outstanding Common
Shares. See "Policies with Respect to Certain Activities."

Ability to Engage in Investment Activity Without Shareholder Approval. In
the future, the Company expects to acquire and develop additional real estate
assets pursuant to its investment strategies and consistent with its
investment policies. See "Business Objective and Growth Strategies." The
shareholders of the Company will not be entitled to receive historical
financial statements regarding, or to vote on, any such activities and,
instead, will be required to rely entirely on the decisions of management.

DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of
certain of its executive officers and trustees, particularly Mr. Reschke,
Chairman of the Board, and Mr. Curto, President and Chief Executive Officer,
for strategic business direction and experience in the Chicago Metropolitan
Area and other real estate markets. While the Company believes that it could
find replacement for these key personnel, the loss of their services could
have an adverse effect on the operations of the Company. The Company has
entered employment agreements with Mr. Reschke and Mr. Curto. See
"Management--Employment Agreements."

DEPENDENCE ON SIGNIFICANT TENANTS. The Company's ten largest office tenants
represented approximately 51.0% of the total Annualized Net Rent for the 12
months ended March 31, 1997, and its ten largest industrial tenants
represented approximately 22.0% of the Annualized Net Rent for the same
period. Of this amount, its three largest tenants, Donnelley, Everen and Jones
Day, currently lease approximately 594,500 rentable square feet of office
space in the 77 West Wacker Drive Building, representing approximately 43.1%
of the Annualized Net Rent for the 12 months ended March 31, 1997. The
Company's revenues and cash available for distribution

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to shareholders would be disproportionately and materially adversely affected
in the event of bankruptcy or insolvency of, or a downturn in the business of,
or the nonrenewal of leases by, any of its significant tenants or the renewal
of such leases on terms less favorable to the Company than their current terms.

RISKS RELATING TO THE SERVICES COMPANY

Lack of Control Over the Services Company. To comply with the REIT asset
tests that restrict ownership of shares of other corporations, upon the
completion of the Offering, the Operating Partnership will own 100.0% of the
Preferred Stock of the Services Company, Messrs. Reschke and Curto of the
Company will hold 100.0% of the voting stock of the Services Company, and the
initial board of directors of the Services Company will consist of Messrs.
Reschke, Curto and Derderian. This ownership structure is necessary to permit
the Company to share in the income of the Services Company while also
maintaining its status as a REIT. Moreover, such persons, as the holders of
100.0% of the voting stock, will retain the ability to elect the board of
directors of the Services Company after the terms of the initial directors
expire. Although it is anticipated that the Company will receive substantially
all of the economic benefit of the business carried on by the Services Company
due to the Company's right to receive interest on the Note and dividends
through the Operating Partnership, the Company will not be able to elect
directors or officers of the Services Company. Therefore, the Company will not
have the ability to influence directly the operations of the Services Company
or to require that the Services Company's board of directors declare and pay a
cash dividend on the Preferred Stock held by the Operating Partnership. As a
result, the board of directors and management of the Services Company may
implement business policies or decisions that would not have been implemented
by entities controlled by the Company and that are adverse to the interests of
the Company or that lead to adverse financial results, which could adversely
impact the Company's net operating income and cash flow.

Tax Liabilities and Adverse Consequences of REIT Status on the Business of
the Services Company. The Services Company will be subject to federal and state
income tax on its taxable income at regular corporate rates. Certain
requirements for REIT qualification may in the future limit the Company's
ability to receive increased distributions from the Services Company without
jeopardizing the Company's qualifications as a REIT. See
"--Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities."

ENVIRONMENTAL RISKS. Under various federal, state and local laws, ordinances
and regulations relating to the protection of the environment, an owner or
operator of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in such
property. These laws often impose liability without regard to whether the owner
or operator was responsible for, or even knew of, the presence of such
hazardous or toxic substances. The costs of investigation, removal or
remediation of such substances may be substantial, and the presence of such
substances may adversely affect the owner's or operator's ability to rent or
sell such property or to borrow using such property as collateral and may
expose such owner or operator to liability resulting from any release of or
exposure to such substances. Persons who arrange for the disposal or treatment
of hazardous or toxic substances at another location also may be liable for the
costs of removal or remediation of such substances at the disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may also seek recovery from owners or
operators of real properties for personal injury associated with asbestos-
containing materials and other hazardous or toxic substances. In connection
with the ownership (direct or indirect), operation, management and development
of real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and therefore potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental penalties
and injuries to persons and property.

All of the Properties were subject to Phase I or similar environmental
assessments by independent environmental consultants in connection with the
formation of the Company. Phase I assessments are intended to discover
information regarding, and to evaluate the environmental condition of, the
surveyed property and surrounding properties. Phase I assessments generally
include an historical review, a public records review, an investigation of the
surveyed site and surrounding properties, and preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
The Company is aware of contamination at certain

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of the older Industrial Properties, which are already in remediation programs
sponsored by the state in which they are located. Prime has sued a former
environmental consultant and a former tenant of one of these Properties for
damages. Prime has contractually agreed to retain liability, and indemnify the
Company, for environmental remediation with regard to these Industrial
Properties, which environmental consultants have estimated will cost, in the
aggregate, approximately $3.3 million. The Company also has received
contractual indemnification from a tenant for possible environmental
liabilities caused by the tenant at one of the Contribution Properties. See
"Business and Properties--Government Regulations--Environmental Matters."

The Company believes that the other Properties are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances. The Company has not been
notified by any governmental authority, and is not otherwise aware, of any
material noncompliance liability or claim relating to hazardous or toxic
substances in connection with any of its other Properties. None of the
Company's environmental assessments of the Properties has revealed any
environmental liability that, after giving effect to the contractual
indemnities described above, the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no
assurance that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition
of the Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company. If
compliance with the various laws and regulations, now existing or hereafter
adopted, exceeds the Company's budgets for such items, the Company's ability
to make expected distributions to shareholders could be adversely affected.

Other Regulations. The Properties also are subject to various federal, state
and local regulatory requirements, such as state and local fire and safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
material compliance with all such regulatory requirements. There can be no
assurance, however, that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated
expenditures by the Company and could have an adverse effect on the Company's
Funds from Operations and expected distributions.

POSSIBLE ADVERSE EFFECTS ON SHARE PRICE ARISING FROM SHARES ELIGIBLE FOR
FUTURE SALE

No prediction can be made as to the effect, if any, of future sales of
Common Shares, or the availability of shares for future sales, on the market
price of the Common Shares. Sales of substantial amounts of Common Shares
(including shares issued upon the exchange of Common Units), or the perception
that such sales could occur, may adversely affect prevailing market prices for
the Common Shares.

In connection with the Formation Transactions, approximately Common
Units in the aggregate will be issued to Prime and the Contributors. Pursuant
to the terms of their Common Units, neither Prime nor any of the Contributors
can exchange such Common Units for Common Shares until the first anniversary
of the completion of the Offering. Further, each of the Limited Partners has
agreed not to directly or indirectly offer, sell, offer to sell, contract to
sell, grant any option to purchase or otherwise sell or dispose of (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition of) any Common Units or Common Shares
or other shares of beneficial interest of the Company, or any securities
convertible or exercisable or exchangeable for any Common Units or Common
Shares or other shares of beneficial interest of the Company for a certain
period from the date of this Prospectus (two years in the case of Prime; one
year in the case of the Contributors), and the Company has agreed not to
offer, sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose of (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or disposition
of) any Common Shares or other shares of beneficial interest of the Company,
or any securities convertible or exercisable or exchangeable for any Common
Units or Common Shares or other shares of beneficial interest of the Company
(other than pursuant to the Share Incentive Plan), for a period of 180 days
from the date of this Prospectus, in each case

40
<PAGE>

without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, subject to certain limited exceptions. Prudential
Securities Incorporated, at any time and without notice, may release all or
any portion of the Common Shares subject to the foregoing lock-up agreements.
Following the expiration of the foregoing restrictions, any Common Shares
issued to Prime or any of the Contributors upon exchange of their respective
Common Units may be sold in the public market pursuant to registration
statements which the Company will be obligated to file pursuant to the
exercise of registration rights that have been granted by the Company or
available exemptions from registration. See "Shares Eligible for Future Sale"
and "Underwriting."

Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company will have 14,250,000 Common Shares outstanding (or
16,387,500 Common Shares if the Underwriters' over-allotment option is
exercised in full), all of which will be freely tradeable in the public market
by persons other than "affiliates" of the Company without restriction or
registration under the Securities Act. All Common Shares that are issuable
upon the exchange of Common Units will be deemed to be "restricted securities"
within the meaning of Rule 144 under the Securities Act and may not be
transferred unless such Common Units (or Common Shares, if such Common Units
are converted into Common Shares) are registered under the Securities Act or
an exemption from registration is available, including any exemption from
registration provided under Rule 144. In general, upon satisfaction of certain
conditions, Rule 144 permits the sale of certain amounts of restricted
securities one year following the date of acquisition of the restricted
securities from the Company and, after two years, permits unlimited sales by
persons unaffiliated with the Company.

It is expected that immediately after the Offering the Company will grant
options to purchase an aggregate of Common Shares at the initial
public offering price to certain trustees, executive officers and other
employees of the Company, and an additional Common Shares will be
reserved for issuance upon the exercise of options granted under the Share
Incentive Plan. See "Management--Share Incentive Plan." In addition, the
Company may issue from time to time additional Common Shares or Common Units
in connection with the acquisition of properties. See "Business Objective and
Growth Strategies--Acquisition Strategy." The Company has agreed to provide
registration rights to the Limited Partners receiving Common Units in
connection with the Formation Transactions with respect to the Common Shares
acquired by them upon exchange of Common Units for Common Shares. See "Shares
Eligible for Future Sale--Exchange Rights and Registration Rights." The
Company also anticipates that it will file a registration statement with
respect to the Common Shares issuable under the Share Incentive Plan following
the completion of the Offering. Such registration statement and registration
rights generally will allow Common Shares covered thereby, including Common
Shares issuable upon exchange of Common Units or the exercise of options, to
be transferred or resold without restriction under the Securities Act.

EFFECT OF MARKET INTEREST RATES ON PRICES OF COMMON SHARES. One of the
factors that will influence the market prices of the Common Shares will be the
annual yield on the price paid for Common Shares from distributions by the
Company. An increase in market interest rates may lead prospective purchasers
of the Common Shares to demand a higher annual yield from future
distributions. Such an increase in the required yield from distributions may
adversely affect the market price of the Common Shares. In addition, the
market value of the Common Shares could be affected substantially by other
general market conditions. Numerous other factors, such as government
regulatory action and modification of tax laws, could have a significant
effect on the future market price of the Common Shares.

IMMEDIATE AND SUBSTANTIAL DILUTION RESULTING TO PURCHASERS OF COMMON
SHARES. Purchasers of Common Shares in the Offering will suffer an immediate
and substantial dilution of $5.91 per share in the net tangible book value of
the shares from the initial public offering price, which will result in an
immediate increase in the net tangible book value of the interests in the
Operating Partnership held by the Limited Partners. See "Dilution."

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES. Prior to the Offering,
there has been no public market for the Common Shares and there can be no
assurance that an active trading market will develop in the Common Shares or
that if such a market develops, it will be sustained. The initial public
offering price of the Common Shares will be determined through negotiations
among the Company, Prime and the Underwriters and may not be indicative of the
market prices for the Common Shares after the Offering. See "Underwriting."

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<PAGE>

THE COMPANY

The Company is a fully-integrated, self-administered and self-managed real
estate company that has been formed to continue and expand the office and
industrial real estate business of Prime. The Company expects to qualify as a
REIT for federal income tax purposes. In connection with the Offering, the
Company will succeed to the office and industrial development, leasing and
property management business of Prime and will acquire certain additional
office and industrial properties from third parties. Upon the completion of
the Offering, the Company will own nine Office Properties containing an
aggregate of approximately 1.7 million net rentable square feet, 29 Industrial
Properties containing an aggregate of approximately 4.3 million net rentable
square feet and one parking facility. The Properties are located primarily in
the Chicago Metropolitan Area. As of March 31, 1997, the Office Properties and
the Industrial Properties generated 66.5% and 33.5%, respectively, of the
Company's Annualized Net Rent. The Company also will own approximately 83.4
acres and have rights to acquire approximately 62.8 acres of developable land,
including rights to acquire one development site located in the Chicago CBD
containing approximately 58,000 square feet, which management believes could
support approximately 1.2 million square feet of additional office development
in the Chicago CBD, and approximately 2.5 million square feet of additional
industrial development primarily in the Chicago Metropolitan Area.

In terms of net rentable square feet, approximately 72.7% of the Office
Properties and 83.0% of the Industrial Properties are located in the Chicago
Metropolitan Area in prime business locations within established business
communities. The Properties located in the Chicago Metropolitan Area account
for approximately 84.5% of the Company's Annualized Net Rent. The remaining
Office Properties are located in the Nashville, Tennessee and Knoxville,
Tennessee metropolitan areas, and the remaining Industrial Properties are
located in the Columbus, Ohio metropolitan area. After the completion of the
Offering, the Company intends to invest in the acquisition, development and
redevelopment of office and industrial properties primarily located in the
Suburban Chicago and Chicago CBD office markets and the Chicago Metropolitan
Area warehouse/distribution market and overhead crane/manufacturing market.

The Company believes that the Properties are well-located and have excellent
highway access, attract high-quality tenants, are well-maintained and
professionally managed, and achieve among the highest rent, occupancy, and
tenant retention rates within their markets. Approximately 81.5% of the Office
Properties, in terms of Annualized Net Rent, are Class A properties. The
Company considers Class A office buildings to be buildings that are centrally
located, professionally managed and maintained, attract high-quality tenants,
command upper-tier rental rates and are modern structures or have been
modernized to compete with new buildings. The Industrial Properties, in terms
of Annualized Net Rent, consist of 41.2% warehouse/distribution properties and
58.8% overhead crane/manufacturing properties. As of March 31, 1997, the
Office Properties were 86.1% leased to more than 130 tenants, and the
Industrial Properties were 86.0% leased to more than 30 tenants. All of the
Properties other than the Prime Contribution Properties and the Acquisition
Properties have been developed (or redeveloped), leased or managed by
management of the Company.

The Properties have a diverse and stable base of tenants and have
historically provided steadily increasing rents which the Company believes is
due to the quality of the Properties, the existence of long-term leases with
contractual rent escalations and the strength of the markets in which the
Properties are located. As of July 1, 1997, approximately 64.2% of the leases
for the Properties, in terms of Annualized Net Rent, had contractual rent
increases, of which approximately 47.3% of the Annualized Net Rent was
attributable to leases with specified contractual rent increases which on
average provided for annual rent increases of 4.5% over the next year, and
approximately 16.9% of the Annualized Net Rent was attributable to leases with
contractual rent increases related to the CPI. Furthermore, less than 32.3% of
the Annualized Net Rent is derived from leases scheduled to expire during the
next five years following the Offering. This low level of lease turnover is
expected to result in a relatively low level of capital expenditure
requirements for tenant turnovers during such five-year period. The three
largest tenants in the Properties, in terms of Annualized Net Rent, are
Donnelley, Everen and Jones Day. More than 71.4% of the Annualized Net Rent of
the Properties is derived from tenants which are nationally recognized
companies, and no single tenant accounted for more than 16.9% of the Company's

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Annualized Net Rent for the 12 months ended March 31, 1997. As of March 31,
1997, the Company's ten largest office and ten largest industrial tenants
(based upon Annualized Net Rent) had leased space from the Company for an
average of 8.3 and 5.4 years, respectively and accounted for 51.2% and 22.2%,
respectively, of the rental revenues for the same period.

Prime has been involved in the office and industrial real estate business
since 1985. During this time, Prime has achieved recognition for its commitment
to excellence in terms of architecture, construction, urban planning and
design, as well as its ability to implement aggressive marketing and leasing
programs to achieve among the highest rents and occupancies within its
submarkets. Most notably, Prime successfully developed and leased the 77 West
Wacker Drive Building, a recently-developed 50-story, Class A office tower in
the Chicago CBD, which started construction in April 1990 and opened in May
1992 with commitments for long-term leases for more than 95% of the net
rentable office area in the building.

The Company's primary business strategy is to achieve its investment and
growth objectives by focusing on the acquisition, development and operation of
office and industrial real estate located in the Chicago Metropolitan Area and,
to a lesser extent, other midwestern markets. To implement this strategy, the
Company intends to (a) own, acquire, develop, redevelop, lease, manage and
operate Class A office properties, (b) acquire distressed, underperforming and
undermanaged office properties in desirable locations and improve the income
potential of such assets by raising these properties to a higher level of
operating standard through value-added renovation programs, professional
property management and aggressive leasing, retenanting and marketing efforts
and (c) own, acquire, develop, redevelop, lease, manage and operate bulk
warehouse/distribution facilities and overhead crane/manufacturing facilities.
The Company believes that it can draw upon its extensive experience and long-
term presence in the Chicago Metropolitan Area to create a strategic advantage
in competing for future development and acquisition opportunities.

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<PAGE>

The Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of the end of the first quarter of 1997, the
Chicago Metropolitan Area's industrial market's overall vacancy rate was 7.3%,
below the national average vacancy rate of 8.1%. In addition, 43.0% (in terms
of net rentable square feet) of the Company's Industrial Properties in the
Chicago Metropolitan Area consists of overhead crane facilities, which have a
replacement cost substantially in excess of the Company's basis in its
Properties. The Company believes that current rental rates in the overhead
crane/manufacturing market are less than the level which would justify the
construction of new overhead crane/manufacturing facilities and, therefore, the
Company believes that there will be little new competition with the Company's
overhead crane/manufacturing Properties. See "Business and Properties--The
Company's Markets."

The Company believes that the foundation for growth in cash flow per share in
future years will be from a number of sources, including contractual rent
escalations in existing leases, the leasing of all or a portion of the existing
vacant space in the Properties, the quality and strategic location of its
Properties, the acquisition, renovation (where necessary) and repositioning of
additional office and industrial properties at below replacement cost, the
strengthening of the Chicago Metropolitan Area economy, the development of new
office and industrial properties when market conditions warrant such new
development and the knowledge and experience of its senior management team and
their long-term relationships with large corporate tenants, municipalities,
landowners and institutional sellers. In addition, the Company believes that it
will be the only publicly-traded REIT primarily focusing on both the office and
industrial markets in the Chicago Metropolitan Area. Further, upon the
completion of the Offering, the Company believes it will be conservatively
capitalized with outstanding debt of approximately % of the Company's total
market capitalization.

SERVICES COMPANY

The Services Company. The Services Company was formed in March 1997 under the
laws of the state of Maryland to succeed to Prime's office and industrial
property management, leasing and corporate advisory services business.
Following the consummation of the Formation Transactions, Mr. Reschke and Mr.
Curto together will own 100.0% of the voting common stock of the Services
Company, representing 5.0% of its economic value. The Operating Partnership
will own 100.0% of the nonvoting Preferred Stock of the Services Company,
representing 95.0% of its economic value. See "Structure and Formation of the
Company--Formation Transactions." The Operating Partnership also will hold the
approximately $4.2 million Note to be issued by the Services Company. The Note
is expected to have a term of ten years, to bear interest at 11.0% per annum
and to require quarterly interest only payments in arrears. The ownership
structure of the Services Company is necessary to permit the Company to share
in the Service Company's income and also maintain its status as a REIT for
federal income tax purposes. Although the Company anticipates receiving
substantially all of the economic benefit of the businesses carried on by the
Services Company by virtue of the Company's rights to receive (i) dividends
through the Operating Partnership's investment in the Service Company's
Preferred Stock and (ii) interest payments on the Note held by the Operating
Partnership, the Company will not be able to elect the Services Company's
officers or directors and, consequently, will not have the ability to control
the operations of the Services Company or require the declaration of dividends.
See "Risk Factors--Risks Relating to the Services Company--Lack of Control Over
the Services Company."

In addition to succeeding to Prime's businesses, the Services Company also
will receive the contribution of certain other operations. Upon completion of
the Offering, the Company will acquire, and simultaneously contribute to the
Services Company, the Continental Management Business. The Continental
Management Business includes a construction business and the property
management and/or leasing operations at five properties. The Company expects to
pay approximately $6.0 million, subject to applicable purchase price
adjustments, for the Continental Management Business. The health club facility
located in the 77 West Wacker

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<PAGE>

Drive Building will also be contributed to the Services Company. After
completion of the Offering, the Company will employ various individuals from
the Continental Management Business and Prime's businesses. For a description
of these individuals, see "Management--Trustees, Executive Officers and Key
Employees."

The Services Company will provide management, leasing, tenant improvement
construction, painting contracting and tenant representation services to
buildings owned by others pursuant to contracts contributed to the Services
Company by the Operating Partnership. Such contracts generally provide for
management fees of 1.5% to 5.0% of collected revenue. As is customary in the
real estate industry, most of the management contracts with the building owners
to be contributed are terminable upon 30 days notice. The Services Company's
responsibilities under these contracts include providing and coordinating
accounting services, lease administration, maintenance, repair and engineering
services, management, leasing, tenant improvement construction, painting
contracting and tenant representation.

The Services Company's leasing division will provide leasing services to
other property owners for fees paid as leases are executed. In general, leasing
fees range from 4.0% to 5.0% of the lease rental amount during the first five
years of the lease term and 2.0% to 2.5% for the next five years of the lease
term. The Services Company's construction management division will provide
construction management services for tenant improvements, renovations and other
construction to the properties managed by the Services Company.

The Services Company will initially have three directors: Messrs. Reschke,
Curto and Derderian. Mr. Curto will serve as the Services Company's Chairman of
the Board, Mr. Derderian will serve as the Services Company's Chief Executive
Officer, and John O. Wilson will serve as the Services Company's President.

The real estate management and leasing industries are highly competitive. The
Services Company's major competitors for construction, leasing and management
contracts include a variety of Chicago Metropolitan Area and national firms.
The Services Company expects to continue to be competitive in these areas based
upon the quality of its employees and services and its current market presence.

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BUSINESS OBJECTIVE AND GROWTH STRATEGIES

BUSINESS OBJECTIVE

The Company currently intends to invest primarily in the acquisition,
development and redevelopment of commercial real estate properties located in
the (i) Suburban Chicago office market, (ii) Chicago CBD office market, (iii)
Chicago Metropolitan Area warehouse/distribution market and (iv) Chicago
Metropolitan Area overhead crane/manufacturing market. The Company's primary
business objective is to achieve sustainable long-term growth in cash flow per
share and to enhance the value of its portfolio through the implementation of
effective operating, acquisition, development and financing strategies. The
Company believes that opportunities exist to increase cash flow per share by:

. contractual rent increases in existing leases;

. leasing all or a portion of the existing vacant space in the Properties;

. acquiring office and industrial properties (or entities that own or
control such properties) at or below replacement cost and at positive
spreads to its cost of capital;

. increasing rental and occupancy rates and decreasing tenant concessions
as vacancy rates in the Company's submarkets generally continue to
decline;

. developing office and industrial properties for the benefit of the
Company where such development will result in a favorable risk-adjusted
return on investment;

. expanding its property management, leasing and corporate advisory
services business; and

The Company believes that a number of factors will enable it to achieve its
business objectives, including: (a) the opportunity to lease available space
at attractive rental rates because of increasing demand and, with respect to
the Office Properties, the present limited level of new construction in the
Chicago Metropolitan Area; (b) the presence of distressed sellers and
inadvertent owners (through foreclosure or otherwise) of office and industrial
properties in the Company's submarkets, as well as the Company's ability to
acquire properties with Common Units (thereby deferring the seller's taxable
gain), all of which create enhanced acquisition opportunities; (c) the quality
and location of the Properties; and (d) the limited availability (or the
higher cost) of capital to competitors for the financing of new developments,
acquisitions or capital improvements.

Management believes that the Company is well-positioned to take advantage of
these opportunities because of its extensive experience in its submarkets, its
seasoned management team, its significant land holdings and option rights and
its ability to develop, redevelop, lease and efficiently manage office and
industrial properties. In addition, the Company believes that public ownership
and its capital structure will provide the Company with enhanced access to the
public debt and equity capital markets and new opportunities for growth. Upon
the completion of the Offering, the Company expects to obtain a Credit
Facility of at least $100.0 million and to have a debt-to-total market
capitalization ratio of approximately %.

OPERATING STRATEGY

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<PAGE>

Contractual Increases in Rent

A substantial portion of the Company's existing portfolio is leased pursuant
to long-term leases with contractual annual rent increases, thereby providing
the Company with both stable and escalating rental revenues. By way of
example, the contractual rent increases from existing leases in the 77 West
Wacker Drive Building average approximately $630,000 per year over the next
ten years. As of July 1, 1997, approximately 64.2% of the leases for the
Properties, in terms of Annualized Net Rent, had contractual rent increases,
of which approximately 47.3% of the Annualized Net Rent was attributable to
leases with specified contractual rent increases which on average provided for
annual rent increases of 4.5% over the next year and approximately 16.9% of
the Annualized Net Rent was attributable to leases with contractual rent
increases related to the CPI. The Company believes that reporting rental
revenues on a cash basis will result in a more accurate presentation of its
actual operating activities and, accordingly, expects to report funds from
operations on a cash basis.

Pro-Active Leasing; Ability to Lease Vacant Space

The Company believes that the strength of its leasing program is
demonstrated by the current occupancy status of the Properties. As of March
31, 1997, the Office Properties were approximately 86.1% leased, and the
Industrial Properties were approximately 86.0% leased. See "Business and
Properties--General," "--Occupancy and Rental Information," "--Office
Properties," "--Industrial Properties" and "--The Company's Office
Submarkets--Chicago Metropolitan Area Office Submarkets."

The Company believes that one of its most notable leasing accomplishments is
the 77 West Wacker Drive Building, a recently-developed 50-story office tower
located in downtown Chicago, containing approximately 944,600 square feet of
net rentable area. Construction began in April 1990 and was successfully
completed with the opening of the building in May 1992. At its opening, the
building had commitments for long-term leases for over 95% of its net rentable
office area. The Company believes it will be able to increase cash flow per
share by continuing to lease the existing vacant space in its Properties. As
of March 31, 1997, the Company had 238,751 and 607,201 net rentable square
feet of vacant space in its Office Properties and Industrial Properties,
respectively.

Long-Term Leases; Low Tenant Turnover

A substantial portion of the Properties is leased on a long-term basis,
thereby providing the Company with a reduced level of costs and capital
expenditures due to tenant lease expirations. Approximately 70.1% of the
Company's Annualized Net Rent is attributable to leases expiring in 2002 or
beyond and 53.2% of the Company's Annualized Net Rent is attributable to
leases expiring in 2007 or beyond. With regard to the Office Properties, as of
July 1, 1997, 80.1% of the office leases in terms of Annualized Net Rent, had
terms expiring in five years or more, resulting in an average annual turnover
for the next five years of only 3.8% per annum. With regard to the Industrial
Properties, as of March 31, 1997, 41.0% of the industrial leases in terms of
Annualized Net Rent, had terms expiring in five years or more, resulting in an
average annual turnover for the next five years of only 10.6% per annum, in
terms of Annualized Net Rent. In addition, during the last three years the
Prime Properties have achieved a tenant retention rate, based on renewals of
leases with scheduled expirations, of approximately 63.0% in terms of net
rentable square feet. The Company intends, as market conditions permit, to
continue to favor longer-term leases with contractual annual rent increases.
See "Business and Properties--Lease Expirations."

Management of Operating Expenses

The Company believes that it has been successful in providing high-quality
and professional property management services to its tenants, while
maintaining property operating expenses and real estate taxes at or below such
expense levels for comparable properties. As the Company continues to grow
through the acquisition and development of additional office and industrial
properties, management of the Company believes that economies of scale will
allow the Company to operate its properties with increasing efficiency.

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ACQUISITION STRATEGY

The Company believes that many of the owners of commercial real estate
properties located in the Chicago Metropolitan Area have a low tax basis in
their properties and have the corresponding potential for the recognition of
substantial taxable gains as a result of the disposition of such properties.
Management believes that the Company's capital structure and ability to acquire
properties in exchange for Common Units, and thereby defer a seller's potential
taxable gain, will enhance the ability of the Company to consummate
transactions quickly and to structure more competitive acquisitions than other
real estate companies in the market which lack the Company's access to capital
and ability to acquire property with Common Units.

Prime has recently acquired the Prime Contribution Properties and will
contribute such Properties to the Company in connection with the Formation
Transactions. In addition, the Company has executed agreements to acquire the
Acquisition Properties. The acquisition of the Acquisition Properties by the
Company is expected to occur prior to or concurrently with the completion of
the Offering. There can be no assurance, however, that the Company will be able
to complete any property acquisitions, including the acquisitions of the
Acquisition Properties, or to improve the operating results of any acquired
properties. See "Business and Properties--Acquisition Properties."

DEVELOPMENT STRATEGY

48
<PAGE>

opportunities to develop additional properties. During the next few years, the
Company expects that most of its development activities will be focused on
suburban office and industrial properties in the Chicago Metropolitan Area.

The Company expects that over the next several years there will be
significant demand from several large tenants that are unable to find large
blocks of contiguous Class A office space in downtown Chicago which may lead to
significant office development opportunities. The Company believes that its
significant land holdings and land option rights will provide it with a
distinct advantage in competing for future development opportunities. Following
the completion of the Offering, the Company will own approximately 83.4 acres
and have rights to acquire approximately 62.8 acres of developable land, which
management believes could support approximately 1.2 million square feet of
additional office development in the Chicago CBD and approximately 2.5 million
square feet of additional industrial development primarily in the Chicago
Metropolitan Area. The Company's option rights include an option to acquire a
development site containing approximately 58,000 square feet known as 300 North
LaSalle in downtown Chicago which, to the extent the Company is able to obtain
significant preleasing commitments for such a project, the Company believes it
could develop as an office or mixed-use project containing up to approximately
1.2 million net rentable square feet.

FINANCING STRATEGY

The Company's financing policies and objectives are determined by the
Company's Board of Trustees. The Company presently intends to limit the ratio
of debt-to-total market capitalization (defined as the total debt of the
Company as a percentage of the sum of the market value of issued and
outstanding Common Shares, including the Common Units exchangeable for Common
Shares, plus total debt) to a maximum of 50.0%. The Company expects to operate,
however, with a debt-to-total market capitalization ratio in the range of 25.0%
to 40.0%. The Company also intends to operate in a manner that will facilitate
its ability to secure an investment grade rating on future unsecured debt as
soon as practicable. However, such objectives may be altered without the
consent of the Company's shareholders, and the Company's organizational
documents do not limit the amount or type of indebtedness that the Company may
incur. Upon the completion of the Offering and the consummation of the
Formation Transactions, total debt will constitute approximately % of the
total market capitalization of the Company.

The Company intends to use one or more sources of capital for future
acquisitions and development activities; these capital sources may include
undistributed cash flow, borrowings under certain acquisition facilities,
proceeds from the issuance of long-term, tax-exempt bonds and other debt or
equity securities and other bank and/or institutional borrowings. Initially,
the Company expects to obtain a Credit Facility of at least $100.0 million. The
Company has no existing commitments for the Credit Facility, and there can be
no assurance that such financing will be available on terms favorable to the
Company, if at all.

The Company also expects to establish an aggregate $74.5 million Letter of
Credit Facility to be used to provide letters of credit as replacement credit
enhancement for (i) $26.3 million for certain Tax-Exempt Bonds relating to the
Properties in Tennessee for which one of the former owners of such Properties
provided credit support and (ii) $48.2 million for the Tax-Exempt Bonds
relating to certain of the Industrial Properties. The Company has no existing
commitments for the Letter of Credit Facility, and there can be no assurance
that such financing will be available on terms favorable to the Company, if at
all.

49
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of Common Shares in the
Offering, after the deduction of underwriting discounts and commissions and
the Offering, are estimated to be approximately $265.1 million ($304.1 million
if the Underwriters' over-allotment option is exercised in full). The Company
will use the net proceeds of the Offering to acquire Common Units
(representing a % common equity interest in the Operating Partnership) and a
direct 1.0% interest in all of the Property Partnerships.

The Operating Partnership will use the funds it receives from the Company as
follows:

. $206.7 million (including accrued interest and repayment fees) will be
used to repay certain mortgage and other indebtedness related to the
Properties and held by third-party lenders (the Operating Partnership
will also borrow $35.2 million from the Credit Facility to repay the
remaining unpaid principal balance on the 77 West Wacker Drive
Building's current mortgage note payable);

. $23.5 million (including repayment fees) will be used to repay third-
party lenders for certain obligations, and $0.9 million will be used to
reimburse to Prime for certain acquisition costs relating to the Prime
Contribution Properties.

. $10.4 million to acquire the Acquisition Properties from third parties
and to pay approximately $6.0 million for the Continental Management
Business;

. $9.2 million for deposit into restricted escrow accounts to fund real
estate taxes and net takeover lease liabilities relating to the 77 West
Wacker Drive Building;

. $2.2 million in transfer taxes related to Prime's contribution of its
ownership interests in the Prime Properties;

. $1.7 million will be used to acquire the ownership interests and
subordinate debt interests in the Property Partnerships and the Prime
Properties not held by Prime;

. $0.7 million will be used to pay commitment fees relating to the Credit
Facility and the Letter of Credit Facility; and

. The Operating Partnership will pay on behalf of Prime, or reimburse
Prime for, approximately $3.7 million of such costs and expenses
incurred by it in connection with the Formation Transactions and the
Offering.

The balance of the net proceeds will be used for future acquisitions and
development and general working capital purposes. If the Underwriters' over-
allotment option is exercised, the Company will use the proceeds from the
exercise of the option to acquire additional Common Units, and the Operating
Partnership will use the funds it receives from the Company for working
capital and general corporate purposes, including future acquisitions and
development. See the Pro Forma Condensed Consolidated Balance Sheet and the
Pro Forma Condensed Consolidated Statements of Operations included elsewhere
in this Prospectus for the pro forma effects of the foregoing transactions and
the debt reduction under certain assumptions described therein. See also
"Structure and Formation of the Company--Formation Transactions."

As of March 31, 1997, the weighted average debt service cost (including the
cost of credit enhancement and remarketing fees) on the indebtedness being
repaid with the net proceeds of the Offering was approximately 10.0% per
annum, and the weighted average maturity of such indebtedness was less than
two years.

Pending application of the net proceeds of the Offering, the Operating
Partnership will invest such proceeds in interest-bearing accounts and short-
term investment-grade, interest-bearing securities which will be selected to
permit the Company to qualify as a REIT for federal income tax purposes.

50
<PAGE>

DISTRIBUTION POLICY

The Company presently intends to make regular quarterly distributions to the
holders of its Common Shares and Common Units. The Company intends to declare
and pay a pro rata distribution with respect to the period commencing on the
completion of the Offering and ending on , 1997 based upon $
per share for a full quarter. On an annualized basis, this would be
approximately $ per share, or an annual distribution rate of
approximately % based on the assumed initial public offering price per
share of $20.00. The Company does not intend to reduce the expected
distribution per share if the Underwriters' overallotment option is exercised,
in whole or in part. The following discussion and the information set forth in
the table and footnotes below should be read together with the financial
statements and notes thereto, the pro forma financial information and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Pro Forma Liquidity and Capital Resources" included
elsewhere in this Prospectus.

The distribution described above is expected to represent approximately %
of the Company's cash available for distribution for the 12 months ending June
30, 1998. The Company's estimate of the cash available for distribution for
the 12 months ending June 30, 1998 is based upon pro forma Funds from
Operations for the 12 months ended March 31, 1997, with certain adjustments
based on the items described below. To estimate cash available for
distribution for the 12 months ending June 30, 1998, pro forma Funds from
Operations for the 12 months ended March 31, 1997 was adjusted (a) without
giving effect to any changes in working capital resulting from changes in
current assets and current liabilities (which changes are not anticipated to
be material) or the amount of cash estimated to be used for (i) development,
acquisition or other activities and (ii) financing activities, (b) for certain
known events and/or contractual commitments that either occurred subsequent to
March 31, 1997 or during the 12 months ended March 31, 1997 but were not in
effect for the full year and (c) for certain non-GAAP adjustments consisting
of (i) adjusting historical straight-line rents as reported on a GAAP basis to
the actual amounts currently being paid or due from tenants, (ii) an estimate
of amounts anticipated for recurring tenant improvements, leasing commissions,
and capital expenditures and (iii) scheduled debt principal payments. The
estimate of cash available for distribution is being made solely for the
purpose of setting the initial distribution and is not intended to be a
projection or forecast of the Company's results of operations or its
liquidity, nor is the methodology upon which such adjustments were made
necessarily intended to be a basis for determining future distributions.

Future distributions by the Company will be at the discretion of the Board
of Trustees and will depend on a number of factors, including the amount of
cash available for distribution and the Operating Partnership's financial
condition. Any decision by the Board of Trustees to reinvest the cash
available for distribution rather than to distribute such funds to the Company
will depend upon the Operating Partnership's capital requirements, the annual
distribution requirements under the REIT provisions of the Code (see "Certain
Federal Income Tax Considerations--Requirements for Qualification--Annual
Distribution Requirements") and such other factors as the Board of Trustees
deems relevant. There can be no assurance that any distributions will be made
or that the estimated level of distributions will be maintained by the
Company.

The Company anticipates that its distributions will exceed earnings and
profits for income tax reporting purposes due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company. Therefore,
approximately 15.2% (or $ per share) of the distributions anticipated to be
paid by the Company for the first 12 months subsequent to the Offering are
expected to represent a return of capital for federal income tax purposes and
in such event will not be subject to federal income tax under current law to
the extent such distributions do not exceed a shareholder's basis in his or
her Common Shares. The nontaxable distributions will reduce the shareholder's
tax basis in the Common Shares and, therefore, the gain (or loss) recognized
on the sale of such Common Shares or upon liquidation of the Company will be
increased (or decreased) accordingly. The percentage of shareholder
distributions that represents a nontaxable return of capital may vary
substantially from year to year.

Federal income tax law requires that a REIT distribute annually at least
95.0% of its REIT taxable income. See "Certain Federal Income Tax
Considerations--Requirements for Qualification--Annual Distribution
Requirements." The amount of distributions on an annual basis necessary to
maintain the Company's REIT

51
<PAGE>

status based on pro forma taxable income of the Operating Partnership for the
12 months ended December 31, 1996, as adjusted for certain items in the
following table, would have been approximately $13.5 million. The estimated
cash available for distribution is anticipated to be in excess of the annual
distribution requirements applicable to REITs. Under certain circumstances, the
Company may be required to make distributions in excess of cash available for
distribution in order to meet such distribution requirements. For a discussion
of the tax treatment of distributions to holders of Common Shares, see "Certain
Federal Income Tax Considerations."

The Company believes that its estimate of cash available for distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company expects to maintain its initial distribution rate for the 12 months
subsequent to the Offering unless actual results of operations, economic
conditions or other factors differ from the assumptions used in the estimate.
The Company's actual results of operations will be affected by a number of
factors, including the revenue received from the Properties, the operating
expense of the Company, interest expense, the ability of tenants of the
Properties to meet their obligations and unanticipated capital expenditures.
Variations in the net proceeds from the Offering as a result of a change in the
initial public offering price or the exercise of the Underwriters'
overallotment option may affect the cash available for distribution and the
payout ratio of cash available for distribution and available reserves. No
assurance can be given that the Company's estimate will prove accurate. Actual
results may vary substantially from the estimate.

ESTIMATED CASH AVAILABLE FOR DISTRIBUTION

The following table illustrates the adjustments made by the Company to its
pro forma Funds from Operations for the 12 months ended March 31, 1997 in order
to calculate estimated initial cash available for distribution for the 12
months ending June 30, 1998:

<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Pro forma net income before minority interests for the year
ended December 31, 1996....................................... $ 9,999
Plus pro forma net income before minority interests for the
three months ended March 31, 1997............................. 2,670
Less pro forma net income before minority interests for the
three months ended March 31, 1996............................. (1,254)
-------
Pro forma net income before minority interests for the 12
months ended March 31, 1997................................... 11,415
Add (deduct) non-cash items:
Pro forma depreciation and amortization for the 12 months
ended March 31, 1997(1)..................................... 14,331
Gain on sales of property(2)................................. (674)
-------
Pro forma Funds from Operations for the 12 months ended March
31, 1997...................................................... 25,072
Adjustments:
Net increase in contractual rental income(3)................. 1,447
Increases from new leases(4)................................. 3,139
Net effect of lease expirations, assuming no renewals(5)..... (4,397)
Net effect of straight-line rents(6)......................... 638
-------
Estimated cash flow from operating activities for the 12 months
ending June 30, 1998.......................................... 25,899
Estimated capitalized tenant improvements and leasing commis-
sions(7)...................................................... (1,315)
Estimated capital expenditures(8).............................. (330)
Scheduled debt principal payments(9)........................... (89)
-------
Estimated cash available for distribution for the 12 months
ending June 30, 1998.......................................... $24,165
=======
Company's share of cash available for distribution(10)....... $
Minority interest's share of cash available for distribu-
tion........................................................ $
=======
Total estimated initial distribution........................... $
=======
Estimated initial annual distribution per share................ $
=======
Estimated cash available for distribution on payout ratio(11)..
=======
</TABLE>

52
<PAGE>

- --------
(1) Pro forma depreciation and amortization of $14,407 for the year ended
December 31, 1996 plus $3,579 for the three months ended March 31, 1997
less $3,655 for the three months ended March 31, 1996, exclusive of
amortization of deferred financing costs for each respective period.
Amounts include the Company's proportionate share of depreciation and
amortization of the Services Company for each respective period.
(2) Gain on sales of property included in pro forma net income before minority
interest for the 12 months ended March 31, 1997.
(3) Represents the incremental increase in Funds from Operations attributable
to contractual rent increases for the 12 months ending June 30, 1998 over
actual rental revenue included in pro forma Funds from Operations for the
12 months ended March 31, 1997. (Contractual rental increases are limited
to the actual number of months in which the increased rental rate will be
in effect for each lease.) Amount includes an adjustment for the 77 West
Wacker Drive Building for the respective period for contractual expense
recoveries of $542 from leased space that was vacant during a portion of
the 12 months ended March 31, 1997 which is not reflected in pro forma net
income for the 12 months ended March 31, 1997.
(4) Represents the incremental increase in pro forma Funds from Operations
attributable to rental revenue from new executed leases commencing after
March 31, 1996 for the 12 months ending June 30, 1998.
(5) Represents the elimination of rental revenue for the 12 months ended March
31, 1997 from: (i) leases which expired between March 31, 1996 and March
31, 1997; (ii) leases which will expire between April 1, 1997 and June 30,
1998 for that portion of the 12 months ending June 30, 1998 that such
leases are no longer in effect; and (iii) elimination of rental revenues
attributable to tenants leasing on a month-to-month basis for such period.
Rental revenue attributable to a significant tenant at the 77 West Wacker
Drive Building currently experiencing financial difficulties is eliminated
for the 12 months ended June 30, 1998. Pro forma net income before
minority interests for the 12 months ended March 31, 1997 includes
operating expense and real estate tax reimbursement income of $1,271 from
such tenant. The Company is currently actively remarketing such space. See
Note 5 to Combined Financial Statements of the Prime Properties for
additional information.
This table assumes that leases which expire prior to June 30, 1998 will not
be renewed or released during the period. As a result of this assumption,
the average occupancy rate of the 77 West Wacker Drive Building and the
Properties overall for the 12-month period ending June 30, 1998 will equal
approximately 81.0% and 79.0%, respectively, versus the actual occupancy
rate of the 77 West Wacker Drive Building and the Properties overall as of
March 31, 1997 of approximately 82.6% and 86.0%, respectively. (Occupancy
rates reflected above do not include the significant tenant of the 77 West
Wacker Drive Building mentioned in the previous paragraph.) The Company's
average retention rate for expiring leases for January 1, 1994 through
March 31, 1997 was approximately 85.0% for the 77 West Wacker Drive
Building, and 63.0% for the Properties overall.
(6) Represents the net effect of adjusting straight-line rental income
included in pro forma net income from an accrual basis under GAAP to a
cash basis.
(7) Represents management's estimate of projected non-incremental revenue-
generating tenant improvement ("TI") and leasing commission ("LC") for the
12-month period ending June 30, 1998. Projected TI and LC for the Prime
Properties only (excluding the 77 West Wacker Drive Building) is provided
below (amounts not rounded to thousands) based on the weighted average TI
and LC expenditures for all renewed and retenanted space during 1994,
1995, 1996, and the three months ended March 31, 1997, multiplied by the
average annual net rentable square feet of leased space expiring during
the three 12-month periods following the consummation of the Offering.
Projected TI and LC for the remaining Properties (77 West Wacker Drive
Building, the Prime Contribution Properties, the Contribution Properties
and the Acquisition Properties) represents management's estimate of the
costs to be incurred for these Properties based upon a weighted average of
leased space expiring for these Properties during 1998, 1999, and 2000.

53
<PAGE>

<TABLE>
<CAPTION>
WEIGHTED
1994 1995 1996 1997 AVERAGE
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
PRIME PROPERTIES--OFFICE (EXCLUDING
THE 77 WEST WACKER DRIVE BUILDING):
Retenanted
TI per net rentable square foot..... $10.68 $11.18 $ 9.96 $ -- $ 8.85
LC per net rentable square foot..... $ 3.98 $ 1.68 $ 2.63 $ 1.61 $ 2.69
----------
Total weighted average TI and LC... $ 11.54
Average annual net rentable square
feet of leased space expiring dur-
ing the three 12-month periods
following the Offering............ 65,480
----------
Total estimated annual TI and LC... $ 755,639
Rate of retenant................... 45%
----------
Total cost of retenant............. $ 340,038
Renewals
TI per net rentable square foot..... $ 5.24 $ 3.48 $ 0.33 $ 1.55 $ 3.06
LC per net rentable square foot..... $ 1.02 $ 2.25 $ 0.82 $ 0.79 $ 1.62
----------
Total weighted average TI and LC... $ 4.68
Average annual net rentable square
feet of leased space expiring dur-
ing the three 12-month periods
following the Offering............ 65,480
----------
Total estimated annual TI and LC... $ 306,446
Rate of renewal.................... 55%
----------
Total cost of renewal.............. $ 168,545
----------
Total TI and LC cost of Prime Proper-
ties--Office (excluding the 77 West
Wacker Drive Building).............. $ 508,583
PRIME PROPERTIES--INDUSTRIAL:
Retenanted
TI per net rentable square foot..... $ -- $ 0.43 $ 0.16 $ -- $ 0.37
LC per net rentable square foot..... $ -- $ 0.42 $ 0.53 $ -- $ 0.44
----------
Total weighted average TI and LC... $ 0.81
Average annual net rentable square
feet of leased space expiring dur-
ing the three 12-month periods
following the Offering............ 176,130
----------
Total estimated annual TI and LC... $ 142,665
Rate of retenant................... 35%
----------
Total cost of retenant............. $ 49,933
Renewals
TI per net rentable square foot..... $ -- $ -- $ -- $ -- $ --
LC per net rentable square foot..... $ 0.58 $ 0.51 $ -- $ -- $ 0.32
----------
Total weighted average TI and LC... $ 0.32
Average annual net rentable square
feet of leased space expiring dur-
ing the three 12-month periods
following the Offering............ 176,130
----------
Total estimated annual TI and LC... $ 56,362
Rate of renewal.................... 65%
----------
Total cost of renewal.............. $ 36,635
----------
Total TI and LC cost of Prime Proper-
ties--Industrial.................... $ 86,568
----------
Total Prime Properties (excluding the
77 West Wacker Drive Building)....... $ 595,151
Estimated costs for the 77 West Wacker
Drive Building, the Prime Contribu-
tion Properties, the Contribution
Properties and the Acquisition Prop-
erties............................... $ 719,684
----------
Total................................. $1,314,835
==========
</TABLE>

54
<PAGE>

(8) Estimated annual capital expenditures not reimbursed by tenants. These
capital expenditures are based on management's reasonable estimates
derived from historical non-reimbursed capital expenditures necessary to
maintain the Properties.
(9) Estimated principal payments on the mortgage notes payable.
(10) The Company's share of estimated distributions based on its approximately
% partnership interest in the Operating Partnership.
(11) Calculated as the estimated initial annual distribution divided by the
estimated cash flow available for distribution for the 12 months ending
June 30, 1998. The payout ratio of estimated adjusted pro forma Funds
from Operations (which is substantially equivalent to the Company's
estimated pro forma cash flow from operating activities) for the 12
months ending June 30, 1998 equals %.

Cash available for distribution is based on Funds from Operations (which is
defined by NAREIT as net income (loss) computed in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding amortization
of deferred financing costs)) and after adjustments for unconsolidated
partnerships and joint ventures. The calculation of adjustments to pro forma
Funds from Operations is being made solely for the purpose of setting the
initial distribution amount and is not intended to be a projection or
prediction of the Company's actual results of operations nor is the
methodology upon which such adjustments are made intended to be a basis for
determining future distributions. Management considers Funds from Operations
an appropriate measure of performance of an equity REIT because industry
analysts have accepted it as such. The Company computes Funds from Operations
in accordance with standards established by the Board of Governors of NAREIT
in its March 1995 White Paper (with the exception that the Company expects to
report rental revenues on a cash basis, rather than a straight-line GAAP
basis, which the Company believes will result in a more meaningful
presentation of its actual operating activities), which may differ from the
methodology for calculating Funds from Operations used by other office and/or
industrial REITs and, accordingly, may not be comparable to such other REITs.
Further, Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Funds from Operations."

THE ESTIMATES OF PRO FORMA CASH FLOWS FROM OPERATING ACTIVITIES AND CASH
AVAILABLE FOR DISTRIBUTION ARE BEING MADE SOLELY FOR THE PURPOSE OF SETTING
THE INITIAL DISTRIBUTION RATE AND ARE NOT INTENDED TO BE A PROJECTION OR
FORECAST OF THE COMPANY'S RESULTS OF OPERATIONS OR OF ITS LIQUIDITY. FUNDS
FROM OPERATIONS DOES NOT REPRESENT CASH FLOW FROM OPERATIONS AS DEFINED BY
GAAP, IS NOT NECESSARILY INDICATIVE OF CASH AVAILABLE TO FUND ALL OF THE
COMPANY'S CASH NEEDS AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO NET
INCOME FOR PURPOSES OF EVALUATING THE COMPANY'S OPERATING PERFORMANCE.

55
<PAGE>

DILUTION

Purchasers of the Common Shares offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of the Common
Shares from the initial public offering price. Net tangible book value per
share represents the Company's total tangible assets less total liabilities
divided by the total number of Common Shares outstanding. After further giving
effect to the sale by the Company of the 14,250,000 Common Shares to be sold by
the Company in the Offering (at an assumed initial public offering price of
$20.00 per share, and after deducting underwriting discounts and commissions
and estimated expenses of the Offering to be paid by the Company), and the
application of the net proceeds as set forth for planned repayments of
indebtedness, the Company's as adjusted pro forma net tangible book value per
Common Share as of March 31, 1997 would have been $14.09, representing an
immediate increase of $ in pro forma net tangible book value per share to
existing shareholders and an immediate dilution of $5.91 per share to persons
purchasing shares in the Offering. The following table illustrates this
dilution per Common Share:

<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)............................ $20.00
Pro forma net tangible book value before the Offering(2).... $( )
Increase in pro forma net tangible book value attributable
to the Offering(3).........................................
Pro forma net tangible book value after the Formation Transactions
and Offering(4).................................................... 14.09
------
Dilution to new investors(5)........................................ $(5.91)
======
</TABLE>
- --------
(1) Before deducting the underwriting discounts and commissions and estimated
expenses of the Offering.
(2) Pro forma net tangible book value before the Offering is determined by
dividing the Prime Properties' negative combined net tangible book value of
approximately $129.6 million at March 31, 1997, or $ per Common Share
issued to Prime (assuming the exchange of Units issued to Prime in
connection with the Formation Transactions into Common Shares on a one-for-
one basis).
(3) Based upon the initial public offering price after the deduction of the
underwriting discounts and commissions and estimated expenses of the
Offering.
(4) Pro forma net tangible book value after the Formation Transactions and the
Offering is determined by dividing the Company's consolidated net tangible
book value of approximately $200.8 million at March 31, 1997 by 14,250,000
Common Shares outstanding. There is no impact on dilution attributable to
the exchange of Units issued to the Limited Partners due to the effect of
minority interest.
(5) Dilution is determined by subtracting pro forma net tangible book value
after giving effect to the Offering and the Formation Transactions from the
initial public offering price paid by a new investor for a Common Share.

The following table sets forth the total contributions to be paid to the
Company by purchasers of Common Shares sold in the Offering, the number of
Common Units to be issued to Prime in connection with the Formation
Transactions and the net tangible book value as of March 31, 1997 of the
average contribution per share based on total contributions. See "Structure and
Formation of the Company."

<TABLE>
<CAPTION>
BOOK VALUE OF
COMMON SHARES/ BOOK VALUE OF AVERAGE
COMMON UNITS ISSUED(1) TOTAL CONTRIBUTIONS CONTRIBUTIONS PER
---------------------- ----------------------- COMMON SHARE OR
SHARES PERCENT AMOUNT PERCENT COMMON UNIT
-------------- --------------------- --------- -----------------
(IN 000'S)
<S> <C> <C> <C> <C> <C>
Common Shares sold by
the Company in the Of-
fering................. 14,250,000 $20.00
Common Units issued to
Prime..................
Amounts allocated to mi-
nority interests in the
Operating Partnership..
Offering Cost...........
Total...................
</TABLE>
- --------
(1) Includes Common Units exchangeable into Common Shares or, at the option of
the Company, cash. See "Structure and Formation of the Company."

56
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company (based on
the historical combined financial statements of the Properties) as of March 31,
1997 and pro forma as adjusted to reflect completion of the Offering and the
consummation of the Formation Transactions and the use of the estimated net
proceeds from the Offering as described under "Use of Proceeds." See the
historical and pro forma financial information relating to the Company and the
Properties set forth elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------
HISTORICAL PRO FORMA
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage notes payable................................. $ 339,777 $ 35,125
Tax-exempt and taxable bonds payable................... 86,450 74,450
Credit Facility(1)..................................... -- 35,200
----------- ----------
Total debt............................................. 426,227 144,775
Partners' deficit/minority interest.................... (129,575) 60,039
Shareholders' equity:
Preferred shares, $.01 par value; 30 million shares
authorized, none issued or outstanding.............. -- --
Common shares, $.01 par value; 100 million shares
authorized, 14.25 million shares issued and
outstanding(2)(3)................................... -- 143
Additional paid-in capital........................... -- 200,629
----------- ----------
Total shareholders' equity............................. -- 200,772
----------- ----------
Total capitalization................................... $ 296,652 $ 405,586
=========== ==========
</TABLE>
- --------
(1) The Company, on behalf of the Operating Partnership, currently is
negotiating a $100.0 million Credit Facility, which the Company expects to
enter into at the consummation of the Offering. See "Business Objective and
Growth Strategies--Financing Strategy."
(2) Assumes no exchange of Units to be issued to the Limited Partners in
connection with the Formation Transactions. If all of the Units were
exchanged, Common Shares would be outstanding.
(3) Excludes shares of the Common Shares reserve for issuance
pursuant to the Share Incentive Plan. See "Management--Share Incentive
Plan."

57
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth certain financial information on a pro forma
basis for the Company and on a combined historical basis for the Prime
Properties. The combined historical financial information should be read in
conjunction with the combined financial statements and notes thereto included
elsewhere in this Prospectus.

Pro forma operating information is presented as if the Formation Transactions
and the Offering were conducted as of the beginning of each period presented
and therefore incorporates certain assumptions that are described in the Notes
to the Pro Forma Condensed Consolidated Statements of Operations found
elsewhere in this Prospectus. The pro forma Condensed Consolidated balance
sheet information is prepared as if the aforementioned transactions had
occurred on March 31, 1997. The pro forma information is not necessarily
indicative of what the actual consolidated financial position and results of
operations of the Company would have been as of or for the periods indicated,
nor does it purport to represent the Company's future consolidated financial
position or results of operations.

THE COMPANY (PRO FORMA) AND PRIME PROPERTIES (COMBINED HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------
COMBINED
HISTORICAL COMBINED HISTORICAL
PRO FORMA ---------------- PRO FORMA -----------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
--------- ------- ------- --------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
REVENUE:
Rental............... $10,421 $ 7,986 $ 7,400 $39,869 $ 30,538 $ 33,251 $ 30,352 $ 28,177 $17,339
Tenant reimburse-
ments............... 4,698 4,206 3,520 15,790 14,225 14,382 12,451 10,750 5,221
Insurance settle-
ment................ -- -- -- -- -- 7,257 -- -- --
Other................ 263 426 586 2,778 3,397 2,715 3,170 1,527 1,435
------- ------- ------- ------- -------- -------- -------- -------- -------
Total revenue...... 15,382 12,618 11,506 58,437 48,160 57,605 45,973 40,454 23,995
------- ------- ------- ------- -------- -------- -------- -------- -------
EXPENSES:
Property operations.. 2,428 2,357 2,201 10,001 9,767 9,479 8,852 8,452 6,518
Real estate taxes.... 3,276 2,823 2,511 10,985 9,383 9,445 9,057 7,167 4,331
Depreciation and am-
ortization.......... 3,488 3,079 3,155 14,045 12,409 12,646 11,624 11,739 7,558
Interest............. 1,991 6,568 6,766 7,717 27,080 27,671 25,985 22,827 10,936
Interest--affiliate.. -- 2,930 2,398 -- 10,137 8,563 7,402 6,335 6,699
Property management
fee--affiliate...... -- 389 366 -- 1,561 1,496 1,388 1,106 1,384
Financing fees....... 368 368 -- 1,232 1,232 -- -- -- --
General and
administrative...... 1,304 979 980 4,865 4,927 4,508 3,727 3,657 1,277
Write-off of deferred
tenant costs........ -- -- -- -- 3,081 13,373 -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------
Total expenses..... 12,855 19,493 18,377 48,845 79,577 87,181 68,035 61,283 38,703
------- ------- ------- ------- -------- -------- -------- -------- -------
Income (loss) before
share of income of
investments subsidi-
ary and minority in-
terest.............. 2,527 (6,875) (6,871) 9,592 (31,417) (29,576) (22,062) (20,829) (14,708)
Share of income of
investment subsidi-
ary................. 143 -- -- 407 -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------
Income (loss) before
minority interest... 2,670 (6,875) (6,871) 9,999 (31,417) (29,576) (22,062) (20,829) (14,708)
Minority interest.... (615) 259 275 (2,302) 894 3,281 5,393 10,531 8,941
------- ------- ------- ------- -------- -------- -------- -------- -------
Net income (loss).... $ 2,055 $(6,616) $(6,596) $ 7,697 $(30,523) $(26,295) $(16,669) $(10,298) $(5,767)
======= ======= ======= ======= ======== ======== ======== ======== =======
Pro forma net income
per share(1)(2)..... $ 0.14 $ 0.54
======= =======
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------------------
COMBINED HISTORICAL COMBINED HISTORICAL
PRO FORMA -------------------- PRO FORMA -------------------------------
1997 1997 1996 1996 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from (used in)
Operations(3)......... $ 6,111 $ (3,945) $ (3,865) $ 23,010 $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by
(used in):
Operating activi-
ties............... -- (3,734) (2,938) -- (3,165) (1,259) (13,875)
Investing activi-
ties............... -- 543 378 -- 1,126 (9,176) (6,495)
Financing activi-
ties............... -- 1,327 2,680 -- 5,733 10,873 15,422
Office Properties:
Square footage...... 1,720,219 1,414,897 1,414,897 1,720,219 1,414,897 1,414,897 1,414,897
Occupancy (%)....... 92.7 93.1 88.8 92.3 92.5 95.8 93.7
Industrial Properties:
Square footage...... 4,314,083 2,462,430 2,478,030 4,314,083 2,462,430 2,551,624 2,547,388
Occupancy (%)....... 85.9 76.6 73.3 83.9 73.5 72.9 62.3
</TABLE>
- --------
(1) Pro forma net income per share equals pro forma net income divided by the
14,250 Common Shares of beneficial interest outstanding after the Offering.
(2) The pro forma net income (loss) per Common Share based solely on the number
of shares issued in the Offering, the proceeds of which will be used to
retire debt would be $(0.14) and $(0.87) per share for the three months
ended March 31, 1997 and the year ended December 31, 1996, respectively,
calculated as follows:

(3) As defined by NAREIT, Funds from Operations represents net income (loss)
before minority interest of holders of Common Units (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate related depreciation and amortization
(excluding amortization of deferred financing costs) and after adjustments
for unconsolidated partnerships and joint ventures. Non-cash adjustments to
Funds from Operations were as follows: in all periods, depreciation and
amortization, for the years ended December 31, 1996, 1995, 1994, and pro
forma 1996 gains on the sale of real estate for the years ended December
31, 1996 and 1995, write-off of deferred tenant costs, for the year ended
December 31, 1995, excess proceeds from insurance claims, and for the year
ended December 31, 1994, lease termination fees. Management considers Funds
from Operations an appropriate measure of performance of an office and/or
industrial REIT because industry analysts have accepted it as such. The
Company computes Funds from Operations in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White
Paper (with the exception that the Company expects to report rental
revenues on a cash basis, rather than a straight-line GAAP basis, which the
Company believes will result in a more accurate presentation of its actual
operating activities), which may differ from the methodology for
calculating Funds from Operations used by other office and/or industrial
REITs and, accordingly, may not be comparable to such other REITs. Further,
Funds from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. (See
"Distribution Policy"). Funds from Operations should not be considered as
an alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP.

59
<PAGE>

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

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Combined Financial Statements for the Prime Properties
and notes thereto appearing elsewhere in this Prospectus. The Combined
Financial Statements of the Prime Properties are comprised of the operations,
assets and liabilities of the Properties other than the Contribution
Properties and the Acquisition Properties. As part of the Formation
Transactions, the Properties will be contributed to the Operating Partnership,
of which the Company will be the sole general partner and the beneficial owner
of an approximately % interest. As a result, for accounting purposes, the
financial information of the Operating Partnership and the Company will be
consolidated.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996

Total revenue increased $1.1 million, or 9.6%, to $12.6 million for the
three months ended March 31, 1997 compared to $11.5 million for the three
months ended March 31, 1996. Rental revenue increased $0.6 million, or 8.1%,
to $8.0 million in the 1997 from $7.4 million in 1996. In 1997, rental revenue
from Office Properties increased $0.6 million, or 10.2%, to $6.5 million from
$5.9 million in 1996 primarily due to increased average percentage leased
(92.8% in 1997 and 92.3% in 1996) and increased net rent per leased square
foot ($19.59 in 1997 and $17.98 in 1996). In 1997 and 1996, rental revenue
from Industrial Properties remained constant at $1.5 million primarily due to
increased averaged occupancy (75.0% in 1997 and 72.3% in 1996) offset by
decreased net rent per leased square foot ($3.13 in 1997 and $3.37 in 1996).
Tenant reimbursements increased $0.7 million, or 20%, to $4.2 million in 1997
from $3.5 million in 1996. In 1997, tenant reimbursements from Office
Properties increased $0.7 million, or 23.3%, to $3.7 million from $3.0 million
in 1996 primarily due to the restructuring of one of the 77 West Wacker Drive
Building's significant tenants. During 1996, the tenant paid no tenant
reimbursements until a final restructuring agreement was reached in late 1996.
During 1997, the tenant paid $0.6 million of tenant reimbursements. Tenant
reimbursements from the Industrial Properties remained consistent at $0.5
million in both 1997 and 1996. All other revenue amounts remained comparable
between 1997 and 1996.

Total expenses increased $1.2 million, or 6.6%, to $19.5 million for the
three months ended March 31, 1997 compared to $18.3 million for the three
months ended March 31, 1996. Property operating expenses increased $0.1
million, or 4.3%, to $2.3 million in 1997 from $2.2 million in 1996. In 1997,
property operating expenses from Office Properties increased $0.1 million, or
4.0%, to $2.1 million from $2.0 million in 1996 primarily due to the increased
occupancy described above. In 1997, property operating expenses from
Industrial Properties remained consistent at $0.2 million in both 1997 and
1996. Although there was an increase in Industrial Properties occupancy in
1997, property operations were at such a level that the increase had minimal
effect on the overall property operations. In 1997, real estate tax expenses
increased $0.3 million, or 12.0%, to $2.8 million from $2.5 million in 1996
primarily due to higher property assessments in 1997. In 1997, total interest
expense increased $0.3 million, or 3.3%, to $9.5 million from $9.2 million in
1996 primarily due to a $15.6 million increase in outstanding debt in 1997 and
1996. Financing fees increased $0.4 million in 1997 from the same period in
1996 due to a letter of credit facility obtained in May 1996 on behalf of the
Industrial Properties. All other expense amounts remained comparable between
1997 and 1996.

In both 1997 and 1996, loss allocated to minority interest remained
consistent at $0.2 million primarily due to minority interest's ownership in
the Prime Properties and loss before minority interest remained consistent in
1997 and 1996.

Net loss increased $0.1 million, or 1.5%, to $6.8 million in 1997 compared
to $6.7 million in 1996, primarily due to the changes described above.

60
<PAGE>

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Total revenue decreased $9.4 million, or 16.3%, to $48.2 million for the year
ended December 31, 1996 compared to $57.6 million for the year ended December
31, 1995 primarily due to the realization of a gain in 1995 from a non-
recurring insurance settlement payment to the Company relating to fire damage
to one of the Industrial Properties. Rental revenue decreased $2.8 million, or
8.4%, to $30.5 million in 1996 from $33.3 million in 1995. In 1996, rental
revenue from Office Properties decreased $3.8 million, or 13.3%, to $24.7
million from $28.5 million in 1995 primarily due to the restructuring of one of
the 77 West Wacker Drive Building's significant tenants. The restructuring
resulted in decreased average percentage leased (94.1% in 1996 and 94.7% in
1995) and net rent per leased square foot ($18.71 in 1996 and $21.40 in 1995).
In 1996, rental revenue from Industrial Properties increased $1.0 million, or
20.8%, to $5.8 million from $4.8 million in 1995 primarily due to increased
average percentage leased (73.2% in 1996 and 67.6% in 1995) and net rent per
leased square foot ($3.18 in 1996 and $2.77 in 1995). Tenant reimbursements
decreased $0.2 million, or 1.4%, to $14.2 million in 1996 from $14.4 million in
1995. In 1996, tenant reimbursements from Office Properties decreased $0.4
million, or 3.2%, to $12.1 million from $12.5 million in 1995 primarily due to
the restructuring of the lease with one tenant as described above. In 1996,
tenant reimbursements from Industrial Properties increased $0.3 million, or
16.6%, to $2.1 million from $1.8 million in 1995 primarily due to the increased
occupancy described above. In 1995, one of the Industrial Properties received a
final insurance settlement of $7.3 million related to a fire that destroyed the
Property. No such proceeds were received in 1996. Other revenue increased to
$2.2 million in 1996 from $1.7 million in 1995 primarily due to a $0.6 million
increase in interest income. The increase in interest income was due to a $1.0
million increase in the average balance outstanding of amounts due from
affiliates from 1995 to 1996. All other revenue amounts remained comparable
between 1996 and 1995.

Total expenses decreased $7.6 million, or 8.7%, to $79.6 million for the year
ended December 31, 1996 compared to $87.2 million for the year ended December
31, 1995 primarily due to a decrease of $10.3 million, or 77.4%, to $3.1
million in 1996 from $13.3 million in 1995 of the write-off by the Company of
deferred tenant costs as part of the restructuring of the lease of one tenant
as described above. Property operating expenses increased $0.3 million, or
1.1%, to $9.8 million in 1996 from $9.5 million in 1995. Property operating
expenses from Office Properties remained constant at $8.2 million in both 1996
and 1995. Although there was a decline in Office Properties' occupancy in 1996,
property operations were at such a level that a decline in occupancy had a
minimal effect on the overall property operations. In 1996, property operating
expenses from Industrial Properties decreased $0.1 million, or 7.6%, to $1.2
million from $1.3 million in 1995. In 1996, depreciation and amortization
expense decreased $0.2 million, or 1.6%, to $12.4 million from $12.6 million in
1995, primarily due to the restructuring of the lease of one tenant as
described above, offset by an increase in occupancy and additional tenant
improvements at the Industrial Properties described above. No additional costs
were written off in 1996. In 1996, total interest expense increased $1.0
million, or 2.8%, to $37.2 million from $36.2 million in 1995 primarily due to
a $16.4 million increase in outstanding debt during May 1996. Financing fees
increased $1.2 million in 1996 from the same period in 1995 due to a letter of
credit facility obtained in 1996 on behalf of the Industrial Properties. In
1996, general and administrative expenses increased $0.4 million, or 8.9%, to
$4.9 million from $4.5 million in 1995 primarily due to a $0.5 million
allowance for uncollectible tenant receivables due from the restructured lease
with one tenant as described above recorded in 1996. All other expenses
remained comparable between 1996 and 1995.

In 1996, loss allocated to minority interest decreased $2.4 million, or
74.4%, to $0.9 million from $3.3 million in 1995 primarily due to a reduction
of the minority interest's ownership in the Prime Properties during 1995.

Net loss increased $4.2 million to $30.5 million in 1996 compared to a net
loss of $26.3 million in 1995, primarily due to the changes described above.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Total revenue increased $11.6 million, or 25.2%, to $57.6 million for the
year ended December 31, 1995 compared to $46.0 million for the year ended
December 31, 1994 the booking in 1995 of a non-recurring

61
<PAGE>

insurance settlement payment to the Company relating to fire damage to one of
the Industrial Properties. Rental revenue increased $2.9 million, or 9.5%, to
$33.3 million in 1995 compared to $30.4 million in 1994. In 1995, rental
revenue from Office Properties increased $2.4 million, or 9.2%, to $28.5
million from $26.1 million in 1994 primarily due to increased average
percentage leased (94.7% in 1995 and 92.9% in 1994) and net rent per leased
square foot ($21.40 in 1995 and $19.97 in 1994). In 1995, rental revenue from
Industrial Properties increased $0.5 million, or 11.6%, to $4.8 million from
$4.3 million in 1994 due to increased average percentage leased (67.6% in 1995
and 64.1% in 1994) and net rent per leased square foot ($2.77 in 1995 and
$2.51 in 1994). In 1995, tenant reimbursements increased $1.9 million, or
15.2%, to $14.4 million in 1995 from $12.5 million in 1994. In 1995, tenant
reimbursements from Office Properties increased $1.8 million, or 16.8%, to
$12.5 million from $10.7 million in 1994 primarily due to the increase in
occupancy described above. In 1995, tenant reimbursements from Industrial
Properties increased $0.1 million, or 5.9%, to $1.8 million from $1.7 million
in 1994 primarily due to the increased occupancy described above. In 1995, one
of the Industrial Properties received a final insurance settlement of $7.3
million related to a fire that destroyed the Property. In 1995, gain on sale
of assets increased $0.8 million to $0.8 million from $0.0 million in 1994
primarily due to a $0.9 million increase in proceeds from the sale of real
estate. Other revenue decreased to $1.6 million in 1995 from $2.8 million in
1994, primarily due to a $1.7 million lease termination fee received in 1994.
No such fee was received in 1995. All other revenue amounts remained
comparable between 1995 and 1994.

Total expenses increased $19.2 million, or 28.2%, to $87.2 million for the
year ended December 31, 1995 compared to $68.0 million for the year ended
December 31, 1994 primarily due to the write-off by the Company in 1995 of
approximately $13.3 million of deferred tenant costs as part of the
restructuring of the lease of one tenant as described above which included
approximately $3.1 million of leasing commissions and tenant improvements.
Property operating expenses increased $0.6 million, or 6.7%, to $9.5 million
in 1995 from $8.9 million in 1994. In 1995, property operating expenses from
Office Properties increased $0.6 million, or 8.0%, to $8.1 million from $7.5
million in 1994 primarily due to the increase in occupancy described above.
Property operating expenses from Industrial Properties remained constant at
$1.3 million in both 1995 and 1994. Although there was an increase in
Industrial Properties' occupancy in 1995, property operations were at such a
level that an increase in occupancy had minimal effect on the overall property
operations. In 1995, real estate tax expense increased $0.4 million, or 4.4%,
to $9.5 million from $9.1 million in 1994. The increase is primarily due to
higher property assessments in 1995. In 1995, depreciation and amortization
expense increased $1.0 million, or 8.6%, to $12.6 million from $11.6 million
in 1994, primarily due to the increase in occupancy and additional tenant
improvements at the Office Properties and Industrial Properties described
above. In 1995, total interest expense increased $2.8 million, or 8.4%, to
$36.2 million from $33.4 million in 1994 primarily due to a $17.3 million
increase in outstanding debt during 1995. In 1995, general and administrative
expenses increased $0.8 million, or 21.6%, to $4.5 million from $3.7 million
in 1994 primarily due to an increase in occupancy at both the Office
Properties and Industrial Properties. All other expenses remained comparable
between 1995 and 1994.

In 1995, loss allocated to minority interest decreased $2.1 million, or
38.9%, to $3.3 million from $5.4 million in 1995 primarily due a reduction of
the minority interest's ownership in the Prime Properties during 1995 and
1994.

The net loss increased $9.6 million to $26.3 million in 1995 compared to a
net loss of $16.7 million in 1994, due to the changes described above.

PRO FORMA LIQUIDITY AND CAPITAL RESOURCES

Upon completion of the Offering and the Formation Transactions and the
application of the net proceeds therefrom as described in "Use of Proceeds,"
the Company expects to have reduced total indebtedness on the Properties from
$426.2 million to $144.8 million, comprised of debt secured by certain of the
Properties (the "Mortgage Debt"). The $144.8 million Mortgage Debt is expected
to be comprised of $35.2 million of borrowings from the Credit Facility, two
mortgage notes payable totaling $35.1 million and 14 issues of Tax-Exempt
Bonds totaling $74.5 million. See "Pro Forma Mortgage Indebtedness." There
will be a total of approximately $90,000 of scheduled loan principal payments
due during the year ending December 31, 1997. The Company's debt-to-total
market capitalization ratio will be % ( % if the underwriters'
overallotment option is exercised in full) of the Company's total market
capitalization.

62
<PAGE>

Pro Forma Mortgage Indebtedness. As of March 31, 1997 on a pro forma basis,
the Company expects to have outstanding approximately $144.8 million of
indebtedness secured by each of the Properties as listed below:

<TABLE>
<CAPTION>
ESTIMATED
ANNUAL DEBT MATURITY BALANCE AT
PROPERTIES INTEREST RATE (%) PRINCIPAL SERVICE DATE MATURITY
- ---------- ----------------- ------------- -------------- -------- -------------
(IN MILLIONS) (IN THOUSANDS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
77 West Wacker Drive Building(1) 7.15 $ 35.2 $2,517 10/00 $ 35.2
Contribution Properties(2) 7.16 28.7 2,056 10/02 28.7
1001 Technology Way(3) 8.30 6.4 618 10/11 4.2
201 4th Avenue N.(4) 5.00 4.8 240 12/14 4.8
620 Market Street(4) 5.00 9.0 450 12/14 9.0
625 Gay Street(4) 5.00 9.0 450 12/14 9.0
4823 Old Kingston Pike(4) 5.00 3.5 175 12/14 3.5
Chicago Enterprise Center(4) 5.00 23.3 1,165 6/22 23.3
East Chicago Enterprise
Center(4) 5.00 15.0 750 6/22 15.0
Hammond Enterprise Center(4) 5.00 9.9 495 6/22 9.9
------ ------ ------
Total $144.8 $8,916 $142.6
====== ====== ======
</TABLE>
- --------
(1) Represents borrowings from the Credit Facility with an estimated initial
interest rate of 7.15% and interest only annual debt service.
(2) Represents mortgage notes payable on the Contribution Properties
(excluding 1001 Technology Way) with annual debt service equal to interest
only at a floating rate of LIBOR plus 1.5% (assumed rate of 7.16%).
(3) Interest rate is fixed at 8.30% with annual debt service including
principal and interest.
(4) Interest rates represent floating tax-exempt bond rates at March 31, 1997
plus the related annualized credit enhancement fees and expenses. Annual
debt service represents interest and fees only.

The Credit Facility. The Company expects to obtain a commitment to establish
a Credit Facility of at least $100.0 million, which will be secured by a
pledge of the Operating Partnership's interest in the Property Partnership
that owns the 77 West Wacker Drive Building and certain unencumbered
Properties and mortgages on certain of the Properties. The Credit Facility
will be used to provide capital for new acquisitions. The Company has no
existing commitments for the Credit Facility, and there can be no assurance
that such financing will be available on terms favorable to the Company, if at
all.

Analysis of Liquidity and Capital Resources. Upon completion of the Offering
and the Formation Transactions and the use of proceeds therefrom, the Company
will have reduced its total indebtedness by approximately $281.5 million.

The Company believes the Offering and the Formation Transactions will
improve its financial performance through changes in its capital structure,
principally the substantial reduction in its overall debt and its debt to
equity ratio. The Company anticipates that distributions will be paid from
cash available for distribution, which is expected to exceed cash historically
available for distribution as a result of the reduction in debt service
resulting from the repayment and forgiveness of indebtedness. Through the
Formation Transactions, the Company will repay and be forgiven $351.8 million
of its existing debt and add new debt of $70.3 million, reducing pro forma
1996 annual interest expense by approximately $29.5 million.

The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and net cash provided by operations. The
Properties require periodic investments of capital for tenant-related capital
expenditures and for general capital improvements. For the years ended
December 31, 1992 through December 31, 1996, the Company's recurring tenant
improvements and leasing commissions averaged $1.44 per square foot of leased
space per year. The Company expects that the average annual cost of recurring

63
<PAGE>

tenant improvements and leasing commissions will be approximately $2.0 million
based upon an average annual square feet for which leases expire during the
years ending December 31, 1998 through December 31, 2000 of 418,212 square
feet. The Company expects the cost of general capital improvements to the
Properties to average approximately $0.5 million annually based upon an
estimate of $0.09 per square foot.

The Company expects to meet its long-term liquidity requirements for the
funding of property development, property acquisitions and other non-recurring
capital improvements through long-term secured and unsecured indebtedness
(including the Credit Facility) and the issuance of additional equity
securities from the Company.

HISTORICAL CASH FLOWS

Historically, the Prime Properties' principal sources of funding for
operations and capital expenditures were from debt financings. Prime incurred
net losses before extraordinary items in each of the last five years and for
the three-month periods ended March 31, 1997 and 1996. However, after adding
back depreciation and amortization, the Properties have generated positive net
operating cash flows for each of the last four years.

The Prime Properties had net cash used in operating activities of $3.7
million, $2.9 million, $3.2 million, $1.3 million and $13.9 million for the
three months ended March 31, 1997 and 1996 and the years ended December 31,
1996, 1995 and 1994, respectively. The $12.6 million decrease in net cash used
in operating activities from 1994 to 1995 is primarily due to a $5.9 million
decrease in loss before minority interest (exclusive of the write-off of
deferred tenant costs in 1995) and a $4.8 million decrease in the adjustment
related to the straight-lining of rents. The $1.9 million increase in net cash
used in operating activities from 1995 to 1996 is primarily due to a $12.1
million increase in loss before minority interest (exclusive of the write-off
of deferred tenant costs in 1996 and 1995), offset by a $8.1 million decrease
in the adjustment related to the straight-lining of rent and a $1.6 million
increase in interest added to principal on mortgage note payable-affiliate. The
$0.5 million increase in net cash used in net cash used in operating activities
for the three months ended March 31, 1997 from the three months ended March 31,
1996 was primarily due $1.1 million increase in deferred costs and a $2.4
million decrease in accounts payable offset by a $1.3 million decrease in the
adjustments related to the straight-lining of rent and a $1.5 increase in other
assets.

The Prime Properties had net cash provided by (used in) investing activities
of $0.5 million, $0.4 million, $1.1 million, ($9.2 million) and ($6.5 million)
for the three months ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994, respectively. The $2.7 million increase in
net cash used in investing activities from 1994 to 1995 was primarily due to a
$4.9 million increase in advances made to affiliates, offset by a $1.3 million
decrease in real estate expenditures. The $10.3 million increase in net cash
provided by investing activities from 1995 to 1996 was primarily due to an $8.1
million net repayment of advances to affiliates, a $1.2 million increase in
proceeds from sale of real estate and a $1.0 million decrease in real estate
expenditures. The $0.2 million increase in net cash provided by investing
activities for the three months ended March 31, 1997 from the three months
ended March 31, 1996 was primarily due to a $1.2 million increase in the
repayment of advances made to affiliates offset by $1.0 million increase in
real estate expenditures.

The Prime Properties had net cash provided by financing activities of $1.3
million, $2.7 million, $5.7 million, $10.9 million and $15.4 million for the
three months ended March 31, 1997 and 1996 and the years ended December 31,
1996, 1995 and 1994, respectively. The $4.5 million decrease in net cash
provided by financing activities from 1994 to 1995 was primarily due to a $3.7
million decrease in proceeds from mortgage notes payable and a $1.3 million
increase in the repayment of mortgage notes payable. The $5.2 million decrease
in net cash provided by financing activities from 1995 to 1996 was primarily
due to a $5.4 million decrease in proceeds from mortgage notes payable, offset
by a $0.2 million decrease in distributions to partners. The $1.4 million
decrease in net cash provided by financing activities for the three months
ended March 31, 1997 from the three months ended March 31, 1996 was primarily
due to $1.1 million decrease in proceeds from mortgage notes payable.

64
<PAGE>

FUNDS FROM OPERATIONS

Industry analysts generally consider Funds from Operations, as defined by
NAREIT, an alternative measure of performance of an equity REIT. Funds from
Operations is defined by NAREIT to mean net income (loss) determined in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization (other than amortization
of deferred financing costs and depreciation of non-real estate assets) and
after adjustment for unconsolidated partnerships and joint ventures. The
Company believes that in order to facilitate a clear understanding of the
combined historical operating results of the Company, Funds from Operations
should be examined in conjunction with net income (loss) as presented in the
audited Combined Financial Statements and selected financial data included
elsewhere in this Prospectus. The Company computes Funds from Operations in
accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper (with the exception that the Company expects to
report rental revenues on a cash basis, rather than a straight-line GAAP
basis, which the Company believes will result in a more accurate presentation
of its actual operating activities), which may differ from the methodology for
calculating Funds from Operations used by other office and/or industrial REITs
and, accordingly, may not be comparable to such other REITs. Funds from
Operations should not be considered as an alternative to net income (loss), as
an indication of the Company's performance or to cash flows as a measure of
liquidity or the ability to pay dividends or make distributions.

INFLATION

The Company's leases with the majority of its tenants require the tenants to
pay most operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenses, which reduce the Company's
exposure to increases in costs and operating expenses resulting from
inflation.

65
<PAGE>

BUSINESS AND PROPERTIES

Unless indicated otherwise, information contained herein concerning the
economies of the Chicago Metropolitan Area, Nashville, Tennessee, Knoxville,
Tennessee, and Columbus, Ohio and office and industrial markets thereof is
derived from a report commissioned by the Company and prepared by RCG, a
nationally known real estate consulting company, and is included herein with
the consent of RCG.

GENERAL

Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company (through the Operating Partnership) will own nine
Office Properties encompassing an aggregate of approximately 1.7 million net
rentable square feet, 29 Industrial Properties encompassing an aggregate of
approximately 4.3 million net rentable square feet and one parking facility
with 398 parking spaces. Five of the nine Office Properties and 23 of the 29
Industrial Properties are located in the Chicago Metropolitan Area. In the
Chicago Metropolitan Area, the most notable Office Property is the 77 West
Wacker Drive Building, a premier 50-story landmark office tower in downtown
Chicago, which contains approximately 944,600 net rentable square feet. The
building has won numerous awards, including, in 1993, the Sun-Times Real Estate
Development of the Year and the Best New Building Award from Friends of
Downtown. Three Office Properties are located in Knoxville, Tennessee, one
Office Property is located in downtown Nashville, Tennessee, six Industrial
Properties are located in the Columbus, Ohio metropolitan area and the parking
facility is located in Knoxville, Tennessee. As of March 31, 1997, the Office
Properties were approximately 86.1% leased to more than 130 tenants, and the
Industrial Properties were approximately 86.0% leased to more than 30 tenants.

Management has developed, redeveloped, managed or leased 23 of the 29
Industrial Properties and six of the nine Office Properties. In the course of
such development and redevelopment, the Company has acquired experience across
a broad range of development and redevelopment projects. For example, the
Company has developed both Office Properties, such as the 77 West Wacker Drive
Building, and Industrial Properties, such as the Contribution Properties. The
Company also has redeveloped both Office Properties, such as 201 4th Avenue. N.
in Nashville, and Industrial Properties, such as the Chicago Enterprise Center,
the East Chicago Enterprise Center and the Hammond Enterprise Center, in the
Chicago Metropolitan Area. The Company believes that all of its Properties are
well-maintained and, based on recent engineering reports, do not require
significant capital improvements.

Upon the consummation of the Formation Transactions, in addition to its
interests in the Office Properties and Industrial Properties, the Company will
own approximately 83.4 acres and have the rights to acquire approximately 62.8
acres of developable land, including rights to acquire one development site
located in the Chicago CBD containing approximately 58,000 square feet, which
management believes could support approximately 1.2 million square feet of
additional office development in the Chicago CBD, and approximately 2.5 million
square feet of additional industrial development primarily in the Chicago
Metropolitan Area, including approximately 9.0 acres of developable land
located adjacent to certain of its Industrial Properties in the Columbus, Ohio
metropolitan area, currently zoned and suitable for development of up to
approximately 116,000 square feet of additional industrial space. See "--Land
for Development." The Company also will have (a) an option to acquire two
additional industrial properties, 801 Technology Way and 901 Technology Way, in
the Libertyville Business Park, from a Contributor and (b) a 15-year right of
first offer to develop (or develop and acquire an ownership interest in) all or
any portion of 360 acres of undeveloped office and industrial land in the
Huntley Business Park currently owned and controlled by an affiliate of Prime
subject to a participation interest in such property held by a third-party
lender. The right of first offer will apply if it is determined by Prime that
the parcel can be best utilized through the construction of an office or
industrial development to be owned and leased to third parties by Prime or held
by Prime for sale to a third party. See "--Land for Development."

In general, the Office Properties are leased to tenants on a net basis with
tenants obligated to pay their proportionate share of real estate taxes,
insurance, utility and operating expenses or on a full service basis, with the
landlord responsible for the payment of taxes, insurance and operating expenses
up to the amount incurred during the tenant's first year of occupancy ("Base
Year") or a negotiated amount approximating the tenant's pro rata share of real
estate taxes, insurance and operating expense ("Expense Stop"). The tenant pays
its pro rata share of increases in expenses above the Base Year or Expense
Stop. Most of the leases for the Industrial Properties are written on a net
basis, with tenants paying their proportionate share of real estate taxes,
insurance, utility and operating expenses.

66
<PAGE>

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Prime Properties that
comprise a portion of the Office Properties since 1994 (based upon an average
of all renovating and renewal lease transactions during the respective
periods):

PRIME PROPERTIES-OFFICE PROPERTIES(1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTH
------------------------- PERIOD ENDED
1994 1995 1996 MARCH 31, 1997
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Number of lease transactions during
period(2).......................... 12 18 15 6
Rentable square feet during peri-
od(2).............................. 34,225 55,497 30,513 19,752
Net Rent ($)(2)..................... 14.05 14.96 13.14 15.33(3)
Tenant Improvements ($)(4).......... 8.47 5.42 6.16 0.75
Leasing Commissions ($)(5).......... 2.77 2.10 1.92 1.21
Effective Net Rent ($).............. 12.17 13.45 11.45 14.87(6)
Occupancy rate at end of period
(%)................................ 87% 88% 90% 91%
</TABLE>
- --------
(1) Does not include information with respect to the 77 West Wacker Drive
Building because there was not a significant number of lease transactions
involving such Property during the periods presented.
(2) Includes only office tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.
(3) Equals aggregate net rent received over their respective terms from all
lease transactions during the period, divided by the number of months of
such lease, multiplied by 12, divided by the total net rentable square
feet leased under all lease transactions during the period.
(4) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs. The
decrease from 1996 to March 31, 1997 is predominantly due to five of the
six transactions being renewals which incur minimal tenant improvement
costs.
(5) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(6) Equals aggregate net rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the number of months of such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.

The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Industrial Properties
managed by the Company (i.e., all of the Industrial Properties other than the
Contribution Properties and the Prime Contribution Properties)since 1994
(based upon an average of all lease transactions during the respective
periods):

PRIME PROPERTIES-INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, THREE MONTH
------------------------ PERIOD ENDED
1994 1995 1996 MARCH 31, 1997
------- ------- ------ --------------
<S> <C> <C> <C> <C>
Number of lease transactions during
period(1)........................... 2 5 2 3
Rentable square feet during peri-
od(1)............................... 121,362 236,027 41,440 149,421
Net Rent ($)(1)...................... 2.95 2.60 1.82 2.23(2)
Tenant Improvements ($)(3)........... -- 0.28 0.16 --
Leasing Commissions ($)(4)........... 0.58 0.45 0.53 --
Effective Net Rent ($)............... 2.84 2.45 1.72 2.23(5)
Occupancy rate at end of period (%).. 68% 72% 75% 74%
</TABLE>
- --------
(1) Includes only industrial tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.
(2) Equals aggregate net rent received over their respective terms from all
lease transactions during the period, divided by the number of months of
such lease, multiplied by 12, divided by the total net rentable square
feet leased under all lease transactions during the period.
(3) Equals work letter costs net of estimated profit and overhead. Actual
tenant improvements may differ from estimated work letter costs.
(4) Equals the aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Equals aggregate net rent received over their respective terms from all
lease transactions during the period minus all tenant improvements,
leasing commissions and other concessions from all lease transactions
during the period, divided by the number of months of such leases,
multiplied by 12, divided by the total net rentable square feet leased
under all lease transactions during the period.

67
<PAGE>

THE OFFICE AND INDUSTRIAL PROPERTIES

68
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET
PROPERTY LOCATION RENOVATED FEET 3/31/97(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3)
- -------- -------- -------------- -------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3818 Grandville/
1200 Northwestern(10).. Gurnee, IL 1961/1990 345,232 100.0 1,041 3.02 1,007
306-310 Era Northbrook, IL 1984 36,495 100.0 429 11.77 426
Drive(10)(11)...
2160 McGaw
Road(9)......... Obetz, OH 1974 310,100 100.0 480 1.55 449
4849 Groveport
Road(9)......... Obetz, OH 1968 132,100 100.0 288 2.18 274
2400 McGaw
Road(9)......... Obetz, OH 1972 86,400 100.0 191 2.21 183
5160 Blazer Memo-
rial
Parkway(9)(12).. Dublin, OH 1983 85,962 64.5 515 9.28 509
600 London
Road(9)......... Delaware, OH 1981 52,441 100.0 110 2.11 105
Chicago
Metropolitan
Area--Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(13)... McHenry, IL 1995 217,600 100.0 1,031 4.74 1,009
515 Huehl
Road/500
Lindberg(10).... Northbrook, IL 1988 201,244 100.0 822 4.08 801
455 Academy
Drive(10)(14)... Northbrook, IL 1976 105,444 100.0 406 3.85 395
4411 Marketing
Place(9)........ Groveport, OH 1984 65,804 100.0 227 3.45 220
Chicago
Enterprise
Center.......... Chicago, IL 1916/1991-1996
13535-A South
Torrence
Avenue......... 384,806 37.9 321 2.20 321
13535-B South
Torrence
Avenue......... 239,752 100.0 649 2.71 432
13535-C South
Torrence
Avenue......... 99,333 81.9 210 2.59 106
13535-D South
Torrence
Avenue......... 77,325 100.0 236 3.05 213
13535-E South
Torrence
Avenue......... 57,453 13.9 22 2.76 19
13535-F South
Torrence
Avenue......... 44,800 100.0 124 2.76 107
13535-G South
Torrence
Avenue......... 54,743 -- -- -- --
13535-H South
Torrence
Avenue......... 73,612 56.3 75 1.82 71
East Chicago
Enterprise
Center.......... East Chicago, IN 1917/1991-1997
Building 2...... 169,435 46.0 152 1.95 118
Building 3...... 291,550 100.0 1,423 4.88 1,306
Building 4...... 87,483 98.1 286 3.33 277
4440 Railroad
Avenue(15)..... 40,000 100.0 303 7.56 293
4635 Railroad
Avenue......... 14,070 -- -- -- --
<CAPTION>
TENANTS LEASING
10% OR MORE OF
ANNUALIZED NET RENTABLE
EFFECTIVE NET SQUARE
RENT PER FEET PER PROPERTY
PROPERTY SQ. FT.($)(4) AS OF 3/31/97
- -------- ------------- ------------------------------------
<S> <C> <C>
3818 Grandville/
1200 Northwestern(10).. 2.92 Rank Video (100.0%)
306-310 Era 11.67 Roche/NICL (62.3%)
Drive(10)(11)... SLJ/Lionstone (37.7%)
2160 McGaw
Road(9)......... 1.45 Spartan Warehouse (100.0%)
4849 Groveport
Road(9)......... 2.08 Premier Auto Glass Corp (100.0%)
2400 McGaw
Road(9)......... 2.11 S.P. Richards (100.0%)
5160 Blazer Memo-
rial
Parkway(9)(12).. 9.18 Danninger Medical Tech (32.2%)
Alkon (32.3%)
600 London
Road(9)......... 2.01 Schneider National Inc. (100.0%)
Chicago
Metropolitan
Area--Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(13)... 4.64 Motorola (100.0%)
515 Huehl
Road/500
Lindberg(10).... 3.98 Rank Video (100.0%)
455 Academy
Drive(10)(14)... 3.75 National Service Industries (100.0%)
4411 Marketing
Place(9)........ 3.35 Wes-Tran Corp. (100.0%)
Chicago
Enterprise
Center..........
13535-A South
Torrence
Avenue......... 2.20 Co-Steel Lasco (37.9%)
13535-B South
Torrence
Avenue......... 1.80 Welded Tube Company (100.0%)
13535-C South
Torrence
Avenue......... 1.31 Sterling Steel (81.9%)
13535-D South
Torrence
Avenue......... 2.75 Alpha Processing (100.0%)
13535-E South
Torrence
Avenue......... 2.38 Signode (13.9%)
13535-F South
Torrence
Avenue......... 2.38 Signode (100.0%)
13535-G South
Torrence
Avenue......... --
13535-H South
Torrence
Avenue......... 1.72(6) Performance Minerals (42.4%)
Jet Vac, Inc. (13.9%)
East Chicago
Enterprise
Center..........
Building 2...... 1.51 Cametco Illinois (46.0%)
Building 3...... 4.48(6) Acutus-Gladwin (47.1%)
Metro Metals (52.9%)
Building 4...... 3.23 Illiana Steel (98.1%)
4440 Railroad
Avenue(15)..... 7.34 Inland Steel (100.0%)
4635 Railroad
Avenue......... --
</TABLE>

69
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/97(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- ----------- --------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hammond
Enterprise
Center.......... Hammond, IN 1920-1952
4507 Columbia 256,595 97.9 572 2.28 291 1.16(6)
Avenue.........
4527 Columbia 16,701 62.8 56 5.36 56 5.36
Avenue(17).....
4531 Columbia 250,266 74.1 274 1.48 253 1.36
Avenue.........
--------- ------ ------
Industrial Prop- 4,314,083 85.9 12,231 3.30 11,098 2.99
erties
Subtotal:.......
--------- ------ ------
Portfolio To- 6,034,302 86.0 36,538 7.04 32,032 6.17
tal:............
========= ====== ======
OTHER PROPERTIES
398--Unit Parking Knoxville, TN 1981
Facility........
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/97
- -------- -----------------------------
<S> <C>
Hammond
Enterprise
Center..........
4507 Columbia A.M. Castle (47.3%)
Avenue......... Slitting Services (37.8%)(16)
HECO (12.7%)
4527 Columbia The Prime Group, Inc. (24.2%)
Avenue(17)..... Town & Country (20.4%)
Great Lakes Engineering LLC
(16.6%)
4531 Columbia HECO (41.6%)
Avenue......... Bar Processing (32.5%)
Industrial Prop-
erties
Subtotal:.......
Portfolio To-
tal:............
OTHER PROPERTIES
398--Unit Parking
Facility........
</TABLE>
- ------
(1) Annualized Net Rent is the monthly net rent due under the lease as
determined in accordance with generally accepted accounting principles
("GAAP"), annualized for all leases in effect on March 31, 1997. Net rent
is the amount due under the lease without including operating expenses,
taxes and other similar reimbursements due from the tenant.
(2) Annualized Net Rent divided by net rentable square feet for leases in
effect at March 31, 1997.
(3) Annualized Effective Net Rent represents total net rent to be received
over their respective terms from all leases in effect at March 31, 1997
minus all tenant improvements, leasing commissions, and other concessions
("Tenant Expenditures") for all such leases, divided by the terms in
months for such leases, multiplied by 12. Tenant Expenditures for
Acquisition and Contribution Properties have been estimated at $0.05 per
square foot for leases in effect at March 31, 1997.
(4) Annualized Effective Net Rent at March 31, 1997 divided by net rentable
square feet leased at March 31, 1997.
(5) One of the Company's other significant tenants at the 77 West Wacker Drive
Building is experiencing financial difficulties and is excluded from the
calculations in this table. See "Business and Properties--The Company's
Office Submarkets--77 West Wacker Drive Building."
(6) For purpose of this table, the historical Tenant Expenditures for these
Properties developed by Prime have been adjusted for management's estimate
of costs that can be reused for future tenants (77 West Wacker Drive
Building--$24.65 per leased square foot, other Office Properties--$5.21
per leased square foot and Industrial Properties--$4.21 per leased square
foot).
(7) These Properties are Acquisition Properties.
(8) Complex comprised of two of the Office Properties, 1990 Algonquin Road (a
two-story office building) and 2000-2060 Algonquin Road (seven single-
story office buildings).
(9) These Properties are Prime Contribution Properties.
(10) These Properties are Contribution Properties.
(11) Roche/NICL Ltd. has a right of first refusal to purchase 306 Era Drive.
(12) This Property is a mixed use Industrial/Office Property that has been
classified as an Industrial Property.
(13) Motorola has a right of first refusal to purchase 1301 Ridgeview Drive for
$10,375,000 at the end of the first term, $11,620,040 at the end of the
first option period, $13,014,488 at the end of the second option period
and $14,576,297 at the end of the third option period.
(14) National Service Industries, Inc., the current tenant of the industrial
building at 455 Academy Drive, has a right of first refusal to purchase
the adjacent land.
(15) This is an office facility adjacent to the East Chicago Enterprise Center.
(16) This space was leased to A.M. Castle on August 1, 1997 for $2.39 per
square foot, at which time A.M. Castle increased its existing space from
121,000 square feet to 218,589 square feet.
(17) This is an office facility within the Hammond Enterprise Center.

70
<PAGE>

SUMMARY LAND PARCEL INFORMATION

<TABLE>
<CAPTION>
OWNERSHIP
DESCRIPTION LOCATION SIZE STATUS
- ----------- -------- ---- ---------
<S> <C> <C> <C>
425 East Algonquin Road... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Cen-
ter...................... Chicago, IL 51.2 Acres Own
East Chicago Enterprise
Center................... East Chicago, IN 9.1 Acres Own
Hammond Enterprise Cen-
ter...................... Hammond, IN 8.2 Acres Own
455 Academy Drive(1)...... Northbrook, IL 2.5 Acres Own
Libertyville Business
Park(2).................. Libertyville, IL 48.5 Acres Under contract
1301 Ridgeview Drive(3)... McHenry, IL 13.0 Acres Option
4849 Groveport Road....... Obetz, OH 4.2 Acres Own
600 London Road........... Delaware, OH 4.5 Acres Own
300 North LaSalle(4)...... Chicago, IL 58,025 Sq. Ft. Option
</TABLE>
- --------
(1) National Services Industries, Inc., the current tenant of the industrial
building at 455 Academy Drive, has a right of first refusal to purchase the
adjacent land.
(2) The Company is obligated to purchase this land for $7.4 million (subject to
certain purchase price adjustments) within three years following the
consummation of the Formation Transactions and the completion of the
Offering.
(3) Motorola has an option to lease or purchase this land, exercisable on or
before August 1, 1998.
(4) The Company has a ten-year fixed-price option to purchase this Chicago CBD
development site.

For additional information regarding these parcels, see "--Land for
Development."

OCCUPANCY AND RENTAL INFORMATION

The following table sets forth the average percentage leased and average
annual base rent per leased square foot for the Prime Properties for the three
months ended March 31, 1997 and for the past three calendar years:

<TABLE>
<CAPTION>
AVERAGE AVERAGE ANNUAL BASE
PERCENTAGE RENT PER RENTABLE
YEAR LEASED(%)(1) SQUARE FOOT($)(2)
---- ------------ -------------------
<S> <C> <C>
Office:
March 31, 1997............................ 92.8 19.59
December 31, 1996......................... 94.1 18.71
December 31, 1995......................... 94.7 21.40
December 31, 1994......................... 92.9 19.97
Industrial:
March 31, 1997............................ 75.0 3.13
December 31, 1996......................... 73.2 3.18
December 31, 1995......................... 67.6 2.77
December 31, 1994......................... 64.1 2.51
</TABLE>
- --------
(1) Average of aggregate percentage leased for the beginning and end of the
period ending on date indicated.
(2) Total Base Rent for the period ending on the date indicated divided by the
average of the aggregate rentable square feet leased for the beginning and
end of such period.

71
<PAGE>

LEASE EXPIRATIONS

The following table sets out a schedule of the lease expirations for the
Prime Properties which are Office Properties for each of the ten years
beginning with July 1, 1997, assuming that none of the tenants exercises
renewal options or termination rights:(1)

<TABLE>
<CAPTION>
AVERAGE ANNUAL
PERCENTAGE OF RENT PER NET
TOTAL LEASED ANNUAL RENTABLE SQUARE
NET RENTABLE SQUARE FEET NET RENT FOOT
NUMBER OF AREA SUBJECT TO REPRESENTED UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING EXPIRING BY EXPIRING LEASES EXPIRING
EXPIRATION LEASES LEASES(SQ. FT.) LEASES(%) ($000) LEASES($)
------------- --------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97......... 9 35,636 2.90 391 10.96
1998.................... 17 93,421 7.60 892 9.55
1999.................... 15 51,205 4.17 481 9.40
2000.................... 11 70,251 5.72 522 7.43
2001.................... 12 47,535 3.87 433 9.11
2002.................... 9 74,402 6.05 903 12.14
2003.................... 2 25,175 2.05 270 10.74
2004.................... 2 58,981 4.80 655 11.11
2005.................... 1 12,820 1.04 129 10.04
2006.................... 1 4,485 0.36 46 10.29
2007+................... 9 755,046 61.44 17,278 22.88
--- --------- ------ ------
88 1,228,957 100.00 22,000 17.90
=== ========= ====== ======
</TABLE>
- --------
(1) Properties included are the 77 West Wacker Drive Building, 201 4th Avenue
N., 620 Market Street, 625 Gay Street and 4823 Old Kingston Pike.

The following table sets out a schedule of the lease expirations for the
Prime Properties which are Industrial Properties for each of the ten years
beginning with July 1, 1997, assuming that none of the tenants exercises
renewal options or termination rights:(1)

<TABLE>
<CAPTION>
AVERAGE ANNUAL
NET PERCENTAGE OF RENT PER
RENTABLE TOTAL LEASED ANNUAL NET NET RENTABLE
AREA SUBJECT SQUARE FEET RENT UNDER SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES(%) ($000) LEASES($)
------------- --------- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97(2)...... 2 40,279 2.23 304 7.55
1998.................... 1 145,941 8.06 321 2.20
1999.................... 4 218,371 12.06 463 2.12
2000.................... 4 303,966 16.79 793 2.61
2001.................... 3 66,410 3.67 178 2.69
2002.................... 1 2,766 0.15 13 --
2003.................... 1 239,752 13.25 649 2.71
2004.................... -- -- -- -- --
2005.................... 3 247,102 13.65 780 3.16
2006.................... 2 35,278 1.95 84 2.39
2007+................... 5 510,139 28.18 1,916 3.76
--- --------- ------ -----
26 1,810,004 100.00 5,501 3.04
=== ========= ====== =====
</TABLE>
- --------
(1) Properties included are the Industrial Properties in the Chicago
Enterprise Center, East Chicago Enterprise Center and Hammond Enterprise
Center and 425 East Algonquin Road, as well as the office buildings at the
East Chicago Enterprise Center and the Hammond Enterprise Center.
(2) Excludes the 1997 expiration of space formerly leased by Slitting Services
which was relet to A.M. Castle on August 1, 1997 for $2.39 per square foot
at which time A.M. Castle increased its leased space of 121,000 square
feet from $1.95 to $2.39 per square foot. In 2013, the entire A.M. Castle
lease expires, including this 97,100 square foot space.

72
<PAGE>

The following table sets out a schedule of the lease expirations for the
Acquisition Properties, Prime Contribution Properties and Contribution
Properties which are Office Properties for each of the ten years beginning
with July 1, 1997, assuming that none of the tenants exercises renewal options
or termination rights:(1)

<TABLE>
<CAPTION>
NET PERCENTAGE OF ANNUAL AVERAGE ANNUAL
RENTABLE TOTAL LEASED NET RENT PER NET
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($)
------------- --------- ------------ -------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97......... 4 8,540 2.96 74 8.63
1998.................... 10 16,205 5.61 144 8.88
1999.................... 12 27,547 9.54 277 10.06
2000.................... 13 42,078 14.57 431 10.23
2001.................... 7 29,927 10.36 273 9.11
2002.................... 8 72,448 25.09 778 10.74
2003.................... 3 92,019 31.87 715 7.77
2004.................... -- -- -- -- --
2005.................... -- -- -- -- --
2006.................... -- -- -- -- --
2007+................... -- -- -- -- --
--- ------- ------ -----
57 288,764 100.00 2,692 9.32
=== ======= ====== =====
</TABLE>
- --------
(1) Properties included are 2000-2060 Algonquin Road, 1990 Algonquin Road,
1699 East Woodfield Road and 555 Huehl Road.

The following table sets out a schedule of the lease expirations for the
Prime Contribution Properties and Contribution Properties which are Industrial
Properties for each of the ten years beginning with July 1, 1997, assuming
that none of the tenants exercises renewal options or termination rights:(1)

<TABLE>
<CAPTION>
NET PERCENTAGE OF ANNUAL AVERAGE ANNUAL
RENTABLE TOTAL LEASED NET RENT PER NET
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($)
------------- --------- ------------ -------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97......... 1 52,441 2.88 110 2.11
1998.................... 2 332,821 18.28 800 2.40
1999.................... 1 13,774 0.76 109 7.93
2000.................... 2 283,404 15.56 1,257 4.44
2001.................... 6 691,187 37.95 2,677 3.87
2002.................... -- -- -- -- --
2003.................... 2 229,031 12.58 982 4.29
2004.................... -- -- -- -- --
2005.................... 1 86,400 4.74 191 2.21
2006.................... -- -- -- -- --
2007+................... 1 132,100 7.25 288 2.18
--- --------- ------ -----
16 1,821,158 100.00 6,414 3.52
=== ========= ====== =====
</TABLE>
- --------
(1) Properties included are 1301 Ridgeview Drive, 1001 Technology Way, 3818
Grandville/1200 Northwestern, 515 Huehl Road/500 Lindberg, 455 Academy
Drive, 306-310 Era Drive, 2160 McGaw Road, 4849 Groveport Road, 2400
McGraw Road, 4411 Marketing Place, 5160 Blazer Memorial Parkway and 600
London Road.

73
<PAGE>

The following table set forth detailed lease expiration information for each
of the Properties for leases in place as of July 1, 1997, assuming that none of
the tenants exercise renewal options or terminations rights, if any, at or
prior to the schedule expirations:

OFFICE PROPERTIES
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-----------------------------------------------------------------------------------------------------
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- ------- ------- ------- ------- ------- ------- ------- ------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chicago CBD:
77 West Wacker
Drive Building
Square Footage
of Expiring
Leases......... -- 24,662 1,424 21,862 12,844 55,055 25,175 22,576 -- 4,485 634,145 802,228
Percentage of
Total Leased
Sq. Ft. (%).... -- 3.07 0.18 2.73 1.60 6.86 3.14 2.81 -- 0.56 79.05 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ -- 251,627 17,871 113,541 166,054 745,532 270,385 206,993 -- 46,147 16,307,682 $18,125,832
Percentage of
Total
Annualized Net
Rent (%)....... -- 1.39 0.10 0.63 0.92 4.11 1.49 1.14 -- 0.25 89.97 100.00%
Number of Leases
Expiring....... -- 4 1 2 2 4 2 1 -- 1 8 25
Suburban Chicago:
1699 East
Woodfield Road
(Citibank Office
Plaza)
Square Footage
of Expiring
Leases......... 3,651 965 6,417 6,841 6,691 63,849 11,909 -- -- -- -- 100,323
Percentage of
Total Leased
Sq. Ft. (%).... 3.64 0.96 6.40 6.82 6.67 63.64 11.87 -- -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 23,512 4,534 66,069 34,635 51,702 706,671 120,937 -- -- -- -- $ 1,008,060
Percentage of
Total
Annualized Net
Rent (%)....... 2.33 0.45 6.55 3.44 5.13 70.10 12.00 -- -- -- -- 100.00%
Number of Leases
Expiring....... 2 1 3 3 2 6 1 -- -- -- -- 18
2000-2060 Algon-
quin Road (Salt
Creek Office
Center)
Square Footage
of Expiring
Leases......... 4,889 13,002 10,521 34,134 15,726 6,600 6,110 -- -- -- -- 90,982
Percentage of
Total Leased
Sq. Ft. (%).... 5.37 14.29 11.56 37.52 17.28 7.25 6.72 -- -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 50,178 129,147 93,253 384,738 146,174 50,124 64,882 -- -- -- -- $ 918,496
Percentage of
Total
Annualized Net
Rent (%)....... 5.46 14.06 10.15 41.89 15.91 5.46 7.06 -- -- -- -- 100.00%
Number of Leases
Expiring....... 2 8 7 9 3 1 1 -- -- -- -- 31
1990 Algonquin
Road (Salt Creek
Office Center)
Square Footage
of Expiring
Leases......... -- 2,238 10,609 1,103 7,510 1,999 -- -- -- -- -- 23,459
Percentage of
Total Leased
Sq. Ft. (%).... -- 9.54 45.22 4.70 32.01 8.52 -- -- -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ -- 10,291 117,901 11,271 74,643 21,117 -- -- -- -- -- $ 235,223
Percentage of
Total
Annualized Net
Rent (%)....... -- 4.37 50.12 4.79 31.73 8.98 -- -- -- -- -- 100.00%
Number of Leases
Expiring....... -- 1 2 1 2 1 -- -- -- -- -- 7
555 Huehl
Square Footage
of Expiring
Leases......... -- -- -- -- -- -- 74,000 -- -- -- -- 74,000
Percentage of
Total Leased
Sq. Ft. (%).... -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ -- -- -- -- -- -- 528,954 -- -- -- -- $ 528,954
Percentage of
Total
Annualized Net
Rent (%)....... -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Number of Leases
Expiring....... -- -- -- -- -- -- 1 -- -- -- -- 1
Other:
201 4th Avenue N.
Square Footage
of Expiring
Leases.......... 30,476 13,993 2,789 23,611 19,428 1,988 -- -- 12,820 -- 120,901 226,006
Percentage of
Total Leased
Sq. Ft. (%).... 13.48 6.19 1.23 10.45 8.60 0.88 -- -- 5.67 -- 53.49 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 338,320 156,943 22,704 199,959 144,684 17,647 -- -- 128,676 -- 969,903 $ 1,978,836
Percentage of
Total
Annualized Net
Rent (%)....... 17.10 7.93 1.15 10.10 7.31 0.89 -- -- 6.50 -- 49.01 100.00%
Number of Leases
Expiring....... 6 3 3 5 4 1 -- -- 1 -- 1 24
</TABLE>

74
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
---------------------------------------------------------------------------------------------------------
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- --------- ------- ------- ------- --------- ------- ------- ------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
620 Market Street
Square Footage
of Expiring
Leases......... 1,760 24,435 8,212 -- 9,308 11,848 -- 29,735 -- -- -- 85,298
Percentage of
Total Leased
Sq. Ft. (%).... 2.06 28.65 9.63 -- 10.91 13.89 -- 34.86 -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 19,616 244,537 64,867 -- 80,154 90,019 -- 390,022 -- -- -- $ 889,215
Percentage of
Total
Annualized Net
Rent (%)....... 2.21 27.50 7.29 -- 9.01 10.12 -- 43.86 -- -- -- 100.00%
Number of Leases
Expiring....... 1 2 3 -- 3 2 -- 1 -- -- -- 12
625 Gay Street
Square Footage
of Expiring
Leases......... 3,400 25,832 13,382 24,778 2,314 4,411 -- 6,670 -- -- -- 80,787
Percentage of Total
Leased Sq. Ft.
(%)............ 4.21 31.98 16.56 30.67 2.86 5.46 -- 8.26 -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 32,610 205,137 137,189 208,657 17,335 42,619 -- 58,048 -- -- -- $ 701,595
Percentage of
Total
Annualized Net
Rent (%)....... 4.65 29.24 19.55 29.74 2.47 6.07 -- 8.27 -- -- -- 100.00%
Number of Leases
Expiring....... 2 4 4 4 1 1 -- 1 -- -- -- 17
4823 Old Kingston
Pike
Square Footage
of Expiring
Leases......... -- 4,499 25,398 -- 3,641 1,100 -- -- -- -- -- 34,638
Percentage of Total
Leased Sq. Ft.
(%)............ -- 12.99 73.32 -- 10.51 3.18 -- -- -- -- -- 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ -- 34,116 238,679 -- 24,943 7,178 -- -- -- -- -- $ 304,916
Percentage of
Total
Annualized Net
Rent (%)....... -- 11.19 78.28 -- 8.18 2.35 -- -- -- -- -- 100.00%
Number of Leases
Expiring....... -- 4 3 -- 2 1 -- -- -- -- -- 10
OFFICE SUBTOTALS
Square Footage
of Expiring
Leases......... 44,176 109,626 78,752 112,329 77,462 146,850 117,194 58,981 12,820 4,485 755,046 1,517,721
Percentage of
Aggregate
Leased Sq. Ft.
(%)............ 2.91 7.22 5.19 7.40 5.10 9.68 7.72 3.89 0.84 0.30 49.75 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ 464,236 1,036,332 758,533 952,801 705,689 1,680,907 985,158 655,063 128,676 46,147 17,277,585 $24,691,127
Percentage of
Total
Annualized Net
Rent (%)....... 1.88 4.20 3.07 3.86 2.86 6.81 3.99 2.65 0.52 0.19 69.97 100.00%
Number of Leases
Expiring....... 13 27 26 24 19 17 5 3 1 1 9 145
</TABLE>
- ------
(1)Represents lease expiration data from July 1, 1997 to December 31, 1997.

75
<PAGE>

INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- ------- ------- --------- --------- ---- ------- ---- ------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Warehouse/Distribution
Facilities:
425 East Algonquin Road
Square Footage of Ex-
piring Leases........ -- -- 57,404 -- -- -- -- -- 247,102 -- -- 304,506
Percentage of Total
Leased Sq. Ft. (%)... -- -- 18.85 -- -- -- -- -- 81.15 -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- 166,657 -- -- -- -- -- 779,610 -- -- $ 946,267
Percentage of Total
Annualized Net Rent
(%).................. -- -- 17.61 -- -- -- -- -- 82.39 -- -- 100.00%
Number of Leases Ex-
piring............... -- -- 1 -- -- -- -- -- 3 -- -- 4
1001 Technology Way
Square Footage of Ex-
piring Leases ....... -- -- -- -- 212,831 -- -- -- -- -- -- 212,831
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- -- 1,042,080 -- -- -- -- -- -- $1,042,080
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring............... -- -- -- -- 2 -- -- -- -- -- -- 2
3818 Grandville/1200
Northwestern
Square Footage of Ex-
piring Leases ....... -- -- -- -- 345,232 -- -- -- -- -- -- 345,232
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- -- 1,041,332 -- -- -- -- -- -- $1,041,332
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring............... -- -- -- -- 2 -- -- -- -- -- -- 2
306-310 Era Drive
Square Footage........ -- 22,721 13,774 -- -- -- -- -- -- -- -- 36,495
Percentage of Total
Leased Sq. Ft. (%)... -- 62.26 37.74 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- 320,218 109,212 -- -- -- -- -- -- -- -- $ 429,430
Percentage of Total
Annualized Net Rent
(%).................. -- 74.57 25.43 -- -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring............... -- 1 1 -- -- -- -- -- -- -- -- 2
1301 Ridgeview Drive
Square Footage of Ex-
piring Leases ....... -- -- -- 217,600 -- -- -- -- -- -- -- 217,600
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- 1,030,568 -- -- -- -- -- -- -- $1,030,568
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring............... -- -- -- 1 -- -- -- -- -- -- -- 1
515 Huehl Road/500
Lindberg
Square Footage of Ex-
piring Leases ....... -- -- -- -- -- -- 201,244 -- -- -- -- 201,244
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- -- -- -- 821,580 -- -- -- -- $ 821,580
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Number of Leases Ex-
piring............... -- -- -- -- -- -- 1 -- -- -- -- 1
</TABLE>

76
<PAGE>

<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- ------- ------- ------- ------- ---- ------- ---- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
455 Academy Drive
Square Footage of Ex-
piring Leases......... -- -- -- -- 105,444 -- -- -- -- -- -- 105,444
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- 405,648 -- -- -- -- -- -- $405,648
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- -- -- -- 1 -- -- -- -- -- -- 1
Chicago Enterprise Cen-
ter(2)
13535-A South Torrence
Avenue
Square Footage of Ex-
piring Leases......... -- 145,941 -- -- -- -- -- -- -- -- -- 145,941
Percentage of Total
Leased Sq. Ft. (%) ... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 321,072 -- -- -- -- -- -- -- -- -- $321,072
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- 1 -- -- -- -- -- -- -- -- -- 1
13535-B South Torrence
Avenue
Square Footage of Ex-
piring Leases......... -- -- -- -- -- -- 239,752 -- -- -- -- 239,752
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- -- 648,634 -- -- -- -- $648,634
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- -- 100.00 -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- -- -- -- -- -- 1 -- -- -- -- 1
13535-C South Torrence
Avenue
Square Footage of Ex-
piring Leases......... -- -- -- 81,328 -- -- -- -- -- -- -- 81,328
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 210,299 -- -- -- -- -- -- -- $210,299
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- -- -- 1 -- -- -- -- -- -- -- 1
13535-D South Torrence
Avenue
Square Footage of
Expiring Leases....... -- -- 77,325 -- -- -- -- -- -- -- -- 77,325
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 235,532 -- -- -- -- -- -- -- -- $235,532
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- -- 1 -- -- -- -- -- -- -- -- 1
13535-E/13535-F South
Torrence Avenue
Square Footage of
Expiring Leases...... -- -- -- -- 52,800 -- -- -- -- -- -- 52,800
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- -- 145,600 -- -- -- -- -- -- $145,600
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- -- 100.00 -- -- -- -- -- -- 100.00%
Number of Leases
Expiring............. -- -- -- -- 1 -- -- -- -- -- -- 1
</TABLE>

77
<PAGE>

<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- ---- ------ ------- ------ ---- ---- ---- ---- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13535--H South Torrence
Avenue
Square Footage of
Expiring Leases....... -- -- -- -- 10,200 -- -- -- -- 31,240 -- 41,440
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- 24.61 -- -- -- -- 75.39 -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- 17,255 -- -- -- -- 58,046 -- $ 75,301
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- 22.91 -- -- -- -- 77.09 -- 100.00%
Number of Leases
Expiring.............. -- -- -- -- 1 -- -- -- -- 1 -- 2
East Chicago Enterprise
Center (2)
4440 Railroad Avenue
Square Footage of Ex-
piring Leases.......... 40,000 -- -- -- -- -- -- -- -- -- -- 40,000
Percent of Total
Leased Sq. Ft. (%)..... 100.00 -- -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).... 302,561 -- -- -- -- -- -- -- -- -- -- $ 302,561
Percentage of Total
Annualized Net Rent
(%).................... 100.00 -- -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................. 1 -- -- -- -- -- -- -- -- -- -- --
Building 3
Square Footage of
Expiring Leases....... -- -- -- -- -- -- -- -- -- -- 291,550 291,550
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- -- -- -- -- -- 100.00 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- -- -- -- -- -- 1,422,636 $1,422,636
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- -- -- -- -- -- 100.00 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- -- -- -- -- -- 2 2
Building 4
Square Footage of
Expiring Leases....... -- -- -- 85,799 -- -- -- -- -- -- -- 85,799
Percentage of Total
Leases Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 285,653 -- -- -- -- -- -- -- $ 285,653
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
Hammond Enterprise Cen-
ter
4507 Columbia Avenue
Square Footage of
Expiring Leases....... -- -- 2,280 32,657 -- -- -- -- -- -- 218,589 253,526
Percentage of Total
Leased Sq. Ft. (%).... -- -- 0.90 12.88 -- -- -- -- -- -- 86.22 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 4,970 78,681 -- -- -- -- -- -- 492,941 $ 576,592
Percentage of Total
Annualized Net Rent
(%)................... -- -- 0.86 13.65 -- -- -- -- -- -- 85.49 100.00%
Number of Leases
Expiring.............. -- -- 1 1 -- -- -- -- -- -- 3 5
4531 Columbia Avenue
Square Footage of
Expiring Leases....... -- -- 81,362 104,182 -- -- -- -- -- -- -- 185,544
Percentage of Total
Leased Sq. Ft. (%).... -- -- 43.85 56.15 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Lease ($).... -- -- 55,651 218,030 -- -- -- -- -- -- -- $ 273,681
Percentage of Total
Annualized Net
Rent (%).............. -- -- 20.33 79.67 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 1 1 -- -- -- -- -- -- -- 2
</TABLE>

78
<PAGE>

<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+ TOTAL
------- ------- ---- ------- ------- ------ ------- ---- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4527 Columbia Avenue
Square Footage of
Expiring Leases....... 279 -- -- -- 3,410 2,766 -- -- -- 4,038 -- 10,493
Percentage of Total
Leased Sq. Ft. (%).... 2.66 -- -- -- 32.50 26.36 -- -- -- 38.48 -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... 1,741 -- -- -- 15,584 12,641 -- -- -- 26,287 -- $ 56,253
Percentage of Total
Annualized Net Rent
(%)................... 3.09 -- -- -- 27.70 22.47 -- -- -- 46.73 -- 100.00%
Number of Leases
Expiring.............. 1 -- -- -- 1 1 -- -- -- 1 -- 4
4411 Marketing Place
Square Footage of
Expiring Leases....... -- -- -- 65,804 -- -- -- -- -- -- -- 65,804
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 226,800 -- -- -- -- -- -- -- $226,800
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
2160 McGaw Road
Square Footage of
Expiring Leases....... -- 310,100 -- -- -- -- -- -- -- -- -- 310,100
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 480,000 -- -- -- -- -- -- -- -- -- 480,000
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- -- -- -- -- 1
2400 McGaw Road
Square Footage of
Expiring Leases....... -- -- -- -- -- -- -- -- 86,400 -- -- 86,400
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- -- -- -- 100.00 -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- -- -- -- 191,352 -- -- $191,352
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- -- -- -- 100.00 -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- -- -- -- 1 -- -- 1
4849 Groveport Road
Square Footage of
Expiring Leases....... -- -- -- -- -- -- -- -- -- -- 132,100 132,100
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- -- -- -- -- -- 100.00 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- -- -- -- -- -- 287,688 $287,688
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- -- -- -- -- -- 100.00 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- -- -- -- -- -- 1 1
600 London Road
Square Footage of
Expiring Leases...... 52,441 -- -- -- -- -- -- -- -- -- -- 52,441
Percentage of Total
Leased Sq. Ft. (%)... 100.00 -- -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. 110,400 -- -- -- -- -- -- -- -- -- -- $110,400
Percentage of Total
Annualized Net Rent
(%).................. 100.00 -- -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring............. 1 -- -- -- -- -- -- -- -- -- -- 1
5160 Blazer Memorial
Parkway
Square Footage of
Expiring Leases...... -- -- -- -- 27,680 -- 27,787 -- -- -- -- 55,467
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- -- 49.90 -- 50.10 -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- -- 188,112 -- 160,035 -- -- -- -- $348,147
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- -- 54.03 -- 45.97 -- -- -- -- 100.00%
Number of Leases
Expiring............. -- -- -- -- 1 -- 1 -- -- -- -- 2
</TABLE>

79
<PAGE>

<TABLE>
<CAPTION>
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007+
-------- --------- --------- --------- --------- --------- --------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Subtotals
Square Footage
of Expiring
Leases.......... 92,720 478,762 232,145 587,370 757,597 2,766 468,783 -- 333,502 35,278 642,239
Percentage of
Aggregate Leased
Sq. Ft. (%)..... 2.55 13.18 6.39 16.18 20.86 0.08 12.91 -- 9.18 0.97 17.69
Annualized Net
Rent of Expiring
Leases ($)...... 414,702 1,121,290 572,022 2,050,031 2,855,611 12,641 1,630,249 -- 970,962 84,333 2,203,265
Percentage of
Aggregate
Annualized Net
Rent (%)........ 3.48 9.41 4.80 17.21 23.97 0.11 13.68 -- 8.15 0.71 18.49
Number of Leases
Expiring........ 3 3 5 6 9 1 3 -- 4 2 6
Office Subtotals
Square Footage
of Expiring
Leases.......... 44,176 109,626 78,752 112,329 77,462 146,850 117,194 58,981 12,820 4,485 755,046
Percentage of
Total Leased Sq.
Ft. (%)......... 2.91 7.22 5.19 7.40 5.10 9.68 7.72 3.89 0.84 0.30 49.75
Annualized Net
Rent of Expiring
Leases ($)...... 464,236 1,036,332 758,533 952,801 705,689 1,680,907 985,158 655,063 128,676 46,147 17,277,585
Percentage of
Total Annualized
Net Rent (%).... 1.88 4.20 3.07 3.86 2.86 6.81 3.99 2.65 0.52 0.19 69.97
Number of Leases
Expiring........ 13 27 26 24 19 17 5 3 1 1 9
Portfolio Total
Square Footage
of Expiring
Leases.......... 136,896 588,388 310,897 699,699 835,059 149,616 585,977 58,981 346,322 39,763 1,397,285
Percentage of
Total Leased Sq.
Ft. (%)......... 2.66 11.43 6.04 13.59 16.22 2.91 11.38 1.15 6.73 0.77 27.14
Annualized Net
Rent of Expiring
Leases ($)...... 878,938 2,157,622 1,330,555 3,002,832 3,561,300 1,693,548 2,615,407 655,063 1,099,638 130,480 19,480,850
Percentage of
Total Annualized
Net Rent (%).... 2.40 5.89 3.63 8.20 9.73 4.63 7.14 1.79 3.00 0.36 53.22
Number of Leases
Expiring........ 16 30 31 30 28 18 8 3 5 3 15
<CAPTION>
TOTAL
------------
<S> <C>
Industrial
Subtotals
Square Footage
of Expiring
Leases.......... 3,631,162
Percentage of
Aggregate Leased
Sq. Ft. (%)..... 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... $11,915,106
Percentage of
Aggregate
Annualized Net
Rent (%)........ 100.00%
Number of Leases
Expiring........ 42
Office Subtotals
Square Footage
of Expiring
Leases.......... 1,517,721
Percentage of
Total Leased Sq.
Ft. (%)......... 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... $24,691,127
Percentage of
Total Annualized
Net Rent (%).... 100.00%
Number of Leases
Expiring........ 145
Portfolio Total
Square Footage
of Expiring
Leases.......... 5,148,883
Percentage of
Total Leased Sq.
Ft. (%)......... 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... $36,606,233
Percentage of
Total Annualized
Net Rent (%).... 100.00%
Number of Leases
Expiring........ 187
</TABLE>
- ----
(1) Represents lease expirations date from July 1, 1997 to December 31, 1997.
(2) This table excludes three Industrial Properties that had no leases in
effect at July 1, 1997: (i) 13535-G South Torrence Avenue, (ii) East
Chicago Enterprise Center Building 2 and (iii) 4635 Railroad Avenue.

80
<PAGE>

TENANT INFORMATION

The Company's tenants include significant corporate and other commercial
enterprises representing a range of industries including, among others,
commercial and financial printing, legal services, investment brokerage,
manufacturing, banking, insurance, consulting and finance. The following table
set forth information as to the Company's ten largest office and industrial
tenants based upon Annualized Net Rent for the twelve months ended March 31,
1997:

<TABLE>
<CAPTION>
PERCENTAGE OF
TENANT COMPANY'S
ANNUAL TOTAL
NET RENTAL NET RENTAL INITIAL LEASE LEASE EXPIRATION
REVENUE($)(1) REVENUES(%) DATE DATE
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Office Tenants
Donnelley.............. 6,158,276 16.86 July 1, 1992 June 30, 2007
Everen................. 6,009,902 16.45 June 1, 1992 May 31, 2007
Jones Day.............. 3,559,291 9.74 July 6, 1992 June 30, 2007
SunTrust Bank.......... 992,931 2.72 March 1, 1968 February 28, 2008
The Prime Group, Inc... 511,445 1.40 June 8, 1992 May 31, 2002
Morton, Lewis, King &
Kreig................. 390,022 1.07 April 1, 1988 March 31, 2004
McGladrey & Pullen..... 325,712 0.89 November 1, 1989 October 31, 2002
Parrillo, Weiss &
O'Halloran............ 317,604 0.87 June 1, 1992 May 31, 1998
Silicon Graphics....... 227,452 0.62 June 15, 1995 June 30, 2000
Talbots................ 227,344 0.62 April 1, 1989 March 31, 1999
----------- -----
Total............... $18,719,979 51.24%
=========== =====
<CAPTION>
PERCENTAGE OF
TENANT COMPANY'S
ANNUAL TOTAL
NET RENTAL NET RENTAL INITIAL LEASE LEASE EXPIRATION
REVENUE($)(1) REVENUES(%) DATE DATE
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Industrial Tenants
Rank Video............. 3,160,432 8.65 December 1, 1989 October 30, 2001
Motorola............... 1,030,568 2.82 July 1, 1995 June 30, 2000
Metro Metals........... 887,263 2.43 November 15, 1995 November 30, 2015
Welded Tube............ 648,634 1.78 July 1, 1993 June 30, 2003
Acutus-Gladwin......... 535,373 1.47 March 1, 1997 February 28, 2017
Spartan Warehouse...... 480,000 1.31 January 1, 1993 May 31, 1998
Major Corp./NSI,
Inc. ................. 405,648 1.11 June 1, 1996 October 30, 2001
Berlin Packaging....... 332,060 0.91 May 1, 1995 April 30, 2005
Co-Steel Lasco......... 321,072 0.88 January 1, 1995 June 30, 1998
Roche/NICL Ltd......... 320,218 0.88 February 1, 1990 April 30, 1998
----------- -----
Total............... $8,121,268 22.23%
=========== =====
</TABLE>
- --------
(1) Determined in accordance with GAAP.

OFFICE PROPERTIES

Approximately 67.7% of the Office Properties (based on net rentable square
feet) are Class A office buildings. The Office Properties contain an aggregate
of approximately 1.7 million net rentable square feet in nine buildings. Five
of the Office Properties are located in the Chicago Metropolitan Area, one in
Nashville, Tennessee and three in Knoxville, Tennessee. As of March 31, 1997,
the Office Properties had an occupancy rate of 86.1%. The Office Properties
range in size from one to 50 stories and are easily accessible from major
highways and major airports. Management believes that the location, quality of
construction and amenities at the

81
<PAGE>

Office Properties as well as the Company's reputation for providing a high
level of tenant service have enabled the Company to attract and retain a
national tenant base. Management believes that as a result of these factors,
the Office Properties in the Chicago Metropolitan Area achieve among the
highest rent, occupancy and tenant retention rates when compared to other
properties within their respective submarkets.

Approximately 84.1% of the Company's Annualized Net Rent from the Office
Properties is attributable to leases expiring in the year 2002 or beyond and
approximately 70.0% of such income is attributable to leases expiring in the
year 2007 or beyond. In terms of square footage and Annualized Net Rent, the
average annual turnover for the next five years is only 6.3% and 3.8% per
annum, respectively. In addition, several of the Company's largest Office
Property tenants, such as Donnelley, Everen and Jones Day have signed long-
term leases with contractual rent escalations, which provide an average annual
increase in base rents of 2.5% through 2007.

INDUSTRIAL PROPERTIES

Like the Office Properties, the Industrial Properties were designed and
developed to provide above-standard quality and meet the long-term needs of
tenants. While many of the Industrial Properties are occupied by a single
tenant, they have been designed (or redesigned) for multitenant operations and
most can be reconfigured for such use, if necessary. The Industrial Properties
are located in the Chicago Metropolitan Area and the Columbus, Ohio
metropolitan area and are primarily comprised of one-story buildings ranging
in size from approximately 14,100 to 385,000 square feet. Certain of the
Industrial Properties feature supporting office space for management and
administrative functions.

Most of the Industrial Property leases are written on a net basis (i.e., the
tenant has responsibility for its proportionate share of all operating costs,
real estate taxes and common area expenses) with initial terms of three to 20
years and options to renew for up to an additional five to ten years at the
then current fair market value. Approximately 35.6% of the Company's
Annualized Net Rent from the Industrial Properties is attributable to leases
expiring in the year 2002 or beyond and approximately 18.5% of such income is
attributable to leases expiring in the year 2007 or beyond. In terms of square
footage and Annualized Net Rent, the average annual turnover for the next five
years is 12.5% and 10.6% per annum, respectively. The leases generally provide
for rent increases based on specific contractual increases. Several of the
Company's largest Industrial Property tenants, such as Welded Tube Company and
Metro Metals, have signed long-term leases with contractual rent escalations,
which provide an average annual increase in Annualized Net Rent of 3.2%
through 2003.

Certain of the Industrial Properties can support additional development and,
subject to substantial pre- leasing, the Company may develop approximately 1.4
million additional square feet. The Company anticipates that any such
development would be funded at least partially with amounts available under
the Credit Facility. There can be no assurance, however, that the Company will
be able to successfully develop any of the Industrial Properties or obtain
financing for any such development on terms favorable to the Company. See
"Risk Factors--Real Estate Financing Risks--Ability to Obtain Permanent
Financing" and "--No Limitation on Debt."

DEVELOPMENT, LEASING AND MANAGEMENT ACTIVITIES

Since 1981, Prime has developed (or redeveloped) over 10.0 million square
feet of office and industrial space, primarily located in the Chicago
Metropolitan Area, Texas and Tennessee for its own portfolio. Development and
redevelopment activities include site selection, land entitlement, project
design and construction, marketing, leasing, finance, build-to-suit projects,
base building and tenant construction. The Company has successfully developed
numerous sophisticated development projects for some of the nation's most
prominent corporations both in the Chicago Metropolitan Area and around the
country. The Company's extensive experience has enabled it to form key
alliances with major corporate tenants, landowners and contractors in the
Chicago Metropolitan Area. The Company's relationships with tenants and users
has enabled it to receive fees in connection with its role as developer of
various projects, or, in several cases, such as the 77 West Wacker Drive
Building, to develop the land for its own account where such development may
result in an attractive risk-

82
<PAGE>

adjusted return on investment. In connection with the Formation Transactions,
the Company will succeed to Prime's rights in and to Prime's office and
industrial development, leasing and management business.

The Company will provide its own development, leasing and property
management services for the Properties. The Company's staff of approximately
151 employees will provide these services from the Company's headquarters in
Chicago, Illinois and through on-site staff at the Properties. The Services
Company may provide building management services for independent building
owners for terms that vary in length and which generally provide for
management fees of 1.5% to 5.0% of collected revenue and reimbursement of
expenses. The Services Company also will provide third-party development
services for third parties at market rates.

CONTRIBUTION PROPERTIES

The Company has entered into agreements to acquire the Contribution
Properties prior to or upon completion of the Offering. Acquisition of these
properties is subject to the satisfactory completion of certain closing
conditions. Although each of the acquisitions is expected to be completed
prior to or upon completion of the Offering, there is no assurance that any of
the Contribution Properties will be acquired. Upon the completion of the
Offering and the consummation of the Formation Transactions, the seven
Contribution Properties are expected to be acquired by the Company from the
Contributors, which include several companies founded and managed by
management of the Company. The Company expects to finance the acquisition cost
(approximately $53.5 million in the aggregate) through the assumption of
indebtedness, other borrowings and the issuance of Common Units to certain of
the Contributors.

The Contribution Properties include six Industrial Properties and one Office
Property. The Contribution Properties encompass an aggregate of approximately
1.2 million net rentable square feet, of which 100% was leased as of March 31,
1997. Major tenants of the Contribution Properties include Rank Video,
Motorola and National Service Industries, Rank Video, a British videotape
company, completely occupies two of the Industrial Properties (and most of a
third) and has located its U.S. corporate headquarters in the Office Property.
Other tenants include National Service Industries and Motorola, which have
each established large production facilities in the Properties they lease. The
Contribution Properties are all located in Suburban Chicago. For a further
description of these Properties, see "--Other Chicago Metropolitan Area Office
Buildings," "--Warehouse/Distribution Industrial Submarket--Description of
Chicago Metropolitan Area Warehouse Distribution Properties," "Overhead
Crane/Manufacturing Industrial Submarket--Description of Chicago Metropolitan
Area Overhead Crane/Manufacturing Properties" and "--Industrial Properties."

Two of the Industrial Properties, 455 Academy Drive and 1301 Ridgeview
Drive, can support additional development. 455 Academy Drive has approximately
2.5 additional acres, and 1301 Ridgeview Drive has approximately 13.0
additional acres for development. There can be no assurance, however, that the
Company will be able to successfully develop any of the land or obtain
financing for any such development on terms favorable to the Company.
Additionally, in connection with the acquisition of the Contribution
Properties (i) the Company is obligated to purchase an additional 48.5 acres
of land in Libertyville, Illinois in the event that an existing contract for
the sale of such property is terminated and (ii) the Company has an option to
purchase two industrial properties, known as 801 Technology Way and 901
Technology Way, in Libertyville, Illinois, for a purchase price of ten times
the pro forma net operating income, but not less than the development cost nor
more than 120% of the development cost. See "--Land for Development" and "Risk
Factors--Real Estate Financing Risks" and "--No Limitation on Debt."

ACQUISITION PROPERTIES

The Company has entered into agreements to acquire the Acquisition
Properties prior to or upon completion of the Offering. Acquisition of each of
these properties is subject to the satisfactory completion of certain closing
conditions. Although each of the acquisitions is expected to be completed
prior to or upon completion of the Offering, there is no assurance that any of
the Acquisition Properties will be acquired. The Company expects to finance
the acquisition cost (approximately $10.4 million in the aggregate) with the
proceeds of the Offering.

83
<PAGE>

Unless otherwise indicated, all calculations and information contained in this
Prospectus give pro forma effect to the acquisition of the Acquisition
Properties.

The Acquisition Properties consist of an aggregate of approximately 125,900
net rentable square feet, of which 91.2% was leased as of March 31, 1997.
Major tenants of the facilities include Silicon Graphics, Ticor Title
Insurance and Little Caesar's. These properties are both in the Schaumburg
suburban submarket, which was the most active office submarket in the Chicago
Metropolitan Area in 1996. For a further description of these properties, see
"--The Company's Office Submarkets--Schaumburg Submarket--Description of
Schaumburg Properties."

PRIME CONTRIBUTION PROPERTIES

Concurrently with the completion of the Offering, the Prime Contribution
Properties will be acquired by the Company from Prime.

On July 24, 1997, Prime acquired 1699 East Woodfield Road, one of the Prime
Contribution Properties. 1699 East Woodfield Road is a Class A office building
located in Schaumburg, Illinois. This building has approximately 105,400 net
rentable square feet, of which 84.0% was leased as of March 31, 1997. The
building's tenants include Citibank, Merrill Lynch and McGladrey & Pullen.

On July 31, 1997, Prime also acquired six Industrial Properties located in
the Columbus, Ohio metropolitan area. These properties range in size from
52,000 to 310,000 net rentable square feet and encompass an aggregate of
approximately 732,800 net rentable square feet, of which 95.8% was leased as
of March 31, 1997. Five of these Properties are warehouse/distribution
facilities, and one is a light industrial manufacturing or "flex space"
facility. Major tenants of the facilities include Spartan Warehouse, Premier
Autoglass, S.P. Richards, Alkon Corporation, Danninger Medical, Wes-Tran Corp.
and Schneider National. The Company believes that these Properties are well-
located for warehousing and distribution in the Columbus, Ohio market. For a
further description of these Properties, see "--The Company's Industrial
Submarkets--Columbus Industrial Submarket--Description of Columbus Industrial
Properties."

THE COMPANY'S MARKETS

Because of the Company's primary focus on the Chicago Metropolitan Area,
general economic information on the Chicago Metropolitan Area is presented
below, followed by discussions of the submarkets in which the Company has
Properties, including the Chicago Metropolitan Area office and industrial
markets, as well as Nashville, Tennessee, Knoxville, Tennessee and Columbus,
Ohio. The Company has relied, with permission, on research of the Company's
submarkets performed by RCG, a nationally recognized expert in real estate
consulting and urban economics. The discussion of such submarkets below and
under the caption "Prospectus Summary--The Company's Markets--Chicago
Metropolitan Area" is based upon the findings of RCG. While the Company
believes that these estimates of economic trends are reasonable, there can be
no assurance that these trends will in fact continue.

Information contained in this section contains "forward-looking statements"
relating to the future performance of the economies of the Chicago
Metropolitan Area, Nashville, Tennessee, Knoxville, Tennessee, and Columbus,
Ohio and office and industrial markets thereof. Actual results may differ
materially from those set forth herein as the result of a number of factors,
including, without limitation, the national and regional economic climate
(which may be adversely affected by business layoffs or downsizing, industry
slowdowns, relocations of business, changing demographics, infrastructure
quality and governmental budgetary constraints) and priorities and conditions
in the national, regional and Chicago Metropolitan Area office and industrial
markets (such as oversupply of or reduced demand for office or industrial
space, and increased telecommuting).

The Chicago Metropolitan Area--General Overview. The Company currently owns
or has an interest in office and industrial properties in the suburban and
downtown submarkets of the Chicago Metropolitan Area. The Company believes
that the Chicago Metropolitan Area has been and will continue to be an
excellent market

84
<PAGE>

in which to own and operate office and industrial properties over the long
term. The Company believes that this area is attractive for a number of
reasons, including:

. The Chicago Metropolitan Area contains the largest number of jobs of any
MSA in the United States, and is the third most populous MSA, with an
estimated population of over 7.7 million;

. Chicago's manufacturing sector has continued to expand, and the services
sector of the Chicago Metropolitan Area economy has grown even faster,
and has outpaced the manufacturing sector in additional employment both
in absolute terms and as a proportion of the local economy. This
development has diversified Chicago's employment base, which already
leads the nation in five (manufacturing, wholesale trade, retail trade,
transportation, communications and utilities and Construction) out of
the seven major employment sectors;

. Employment sectors requiring the use of office and industrial properties
continue to expand with the Chicago Metropolitan Area's continuing
growth and diversification of industries; and

. Since 1992, there has been no increase in the inventory of Chicago CBD
office space and only a slight increase in the inventory of Suburban
Chicago office space.

Chicago is the nation's largest and one of its fastest-growing economies in
terms of absolute job growth. The Chicago Metropolitan Area had approximately
4.0 million jobs as of April 1997, which ranks it as the nation's largest
metropolitan economy. Chicago also has been one of the fastest-growing
metropolitan areas in terms of absolute job growth. During the last five years,
from April 1992 through April 1997, Chicago ranked second nationwide in terms
of total jobs added. The Chicago Metropolitan Area economy grew by 389,400 jobs
over the last five years compared to first-ranked Atlanta, which added 407,300
jobs and third-ranked Phoenix, which added 354,800 new jobs over the same
period. The following charts indicate the five largest MSAs in the United
States for both total employment and growth in employment for the last five
years.

Total Employment as of April 1997
Top Five MSAs
================================================================================
<TABLE>
<CAPTION>
Jobs (000)s
<S> <C>
Chicago 3,997.4

New York 3,893.3

LA 3,857.2

Washington 2,446.4

Philadelphia 2,235.0

</TABLE>

Source: Bureau of Labor Statistics

85
<PAGE>

Fastest Growing MSAs, April 1992 to April 1997
================================================================================
<TABLE>
<CAPTION>
Jobs (000)s
<S> <C>
Atlanta 407.3

Chicago 389.4

Phoenix 354.8

Dallas 294.2

Detroit 240.3

</TABLE>

Source: Bureau of Labor Statistics

The strengths of Chicago's economy include its transportation system, highly
diverse economy, strong high-technology sector, growing international trade and
high per capita income. For example, Chicago retains its preeminent role in
transportation as the location of the world's busiest airport, the hub of the
nation's rail system and the primary port connecting the Great Lakes with the
Mississippi River and the Gulf of Mexico. While Chicago has been (and continues
to be) a national center of heavy manufacturing, Illinois recently surpassed
Massachusetts in high-technology employment and merchandise exports and is
behind only California, New York and Texas, according to a 1997 ranking by AEA.
Furthermore, Chicago, as the home of the CBOT, the CME and the CBOE, has become
the international center of options, futures and commodity trading and an
important center of international finance. In addition, according to RCG, the
Chicago Metropolitan Area's median household income in 1996 was $59,895, 28.3%
above the national average. Based on the foregoing, the Company believes that
the Chicago Metropolitan Area's long-term outlook is positive.

The Chicago Metropolitan Area's top companies include such national leaders
as Sears, Motorola, Inc., Ameritech, Allstate, UAL Corporation (United
Airlines), Waste Management Technologies, Baxter International, McDonald's,
Abbott Laboratories, Walgreen's, Sara Lee, Donnelley, Arthur Andersen, Amoco
and First Chicago NBD. Regional Financial Associates ("RFA") estimates the
Chicago Metropolitan Area's gross metropolitan product ("GMP") in 1996 will
expand 2.3% per year through the year 2000. The economic fundamentals and
steady growth of both the Midwest and the Chicago Metropolitan Area lead the
Company to expect continued strength in this market.

The Company believes that the solid, diversified local economy in the Chicago
Metropolitan Area is creating continued office space demand and absorption.
Because of the steady expansion of office employment and nearly no new
construction, the overall Class A vacancy rate has steadily declined for five
years and is expected to continue to decline. According to RCG, Class A rental
rates in the Company's largest office market, the Chicago CBD, have risen as
Class A vacancy rates have decreased from 23.1% in 1992 to 9.3% by the end of
the second quarter of 1997.

86
<PAGE>

The Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of the first quarter of 1997, the Chicago
Metropolitan Area's industrial market overall vacancy rate was 7.3%, below the
national average vacancy rate of 8.1%. In addition, 43.0% (in terms of net
rentable square feet) of the Company's Industrial Properties in the Chicago
Metropolitan Area consists of overhead crane facilities which have a relatively
expensive replacement cost substantially in excess of the Company's basis in
its Properties. The Company believes that current rental rates in the overhead
crane/manufacturing submarket are less than the level which would justify the
construction of new overhead crane/manufacturing facilities and, therefore, the
Company believes that there will be little new competition in this area with
the Company's overhead crane/manufacturing Properties.

Increasing Employment. The Chicago Metropolitan Area economy experienced
significant recessionary conditions during the 1989-1993 period. While the
Chicago Metropolitan Area entered the recession earlier than other parts of the
nation, in part due to cutbacks in the manufacturing sector, it also entered
the economic recovery before many other areas. As of April 1997, the Chicago
Metropolitan Area experienced a net increase in employment of approximately
66,500 jobs, representing an approximately 1.7% increase for the previous
twelve months. Of the total, approximately 38,800 jobs (approximately 58.3% of
the total) were created in the services sector. Total employment was
approximately 4.0 million as of April 1997, according to the Bureau of Labor
Statistics. RCG expects an average increase of approximately 50,000 jobs
annually through 1999, representing an annual growth rate of approximately 1.1%
to 1.4%.

The Chicago Metropolitan Area's unemployment rate has steadily decreased from
its 1992 peak and is currently below the national average unemployment rate.
The national unemployment rate as of April 1997 was approximately 4.9% versus
approximately 4.7% in the Chicago Metropolitan Area. By comparison, the 1992
unemployment rates for the United States and Illinois were both approximately
7.4%. According to the Bureau of Labor Statistics, unemployment in the Chicago
Metropolitan Area has been declining for the last five years. According to RCG,
the unemployment rate in the Chicago Metropolitan Area will probably remain
lower than the unemployment rate for the nation as a whole through the year
2000.

87
<PAGE>

Growing Service Economy. Chicago's economy is highly diversified.
Traditionally strong industries such as manufacturing and transportation
continue to be vibrant sectors of the economy, and increasingly, knowledge-
based industries are growing at a rapid pace. The dynamic growth of knowledge-
based industries is evident in the strong growth in subsectors within the
services and finance, insurance and real estate ("FIRE") sectors. During the
year ended April 1997, the services sector, which grew from 25.1% of the total
employment base in 1987 to 31.1% in 1997, grew at a rate of 3.2% compared to a
rate of 3.4% nationally. The following graph illustrates the growing
diversification of Chicago's economic base.

[Charts depicting changes in percentages of employment among major sectors in
the Chicago Metropolitan Area from 1987 to 1997.]

Growth was particularly strong in the following knowledge-based services
employment subsectors: educational services (5.6%), engineering and management
(5.3%) and business services (4.6%). Tourism-related services also enjoyed
strong growth, with employment in amusement and recreation up 5.2% and hotel
employment up 3.7%. RCG expects that the recent $675.0 million expansion of
McCormick Place Convention Center will boost visitor volume and tourism-
related services in Chicago. In addition, Chicago has a large legal services
industry. A number of the largest law firms in the U.S. are based in Chicago,
in a concentration second only to New York.

Growth in knowledge-based industries is also occurring in the financial
services industry. As the home of the CBOT, the CME and the CBOE, Chicago is
the international center of options, futures and commodity trading and an
important center of international finance. The CBOT is the world's oldest and
largest futures and options exchange. In February 1997, the CBOT opened its
new 60,000 square foot trading facility, which combined with its existing
facility, makes it the largest trading facility in the world. The CME,
consisting of twin 40-story office towers with one of the world's largest
trading floors is by far the world's largest financial marketplace in terms of
open interest (open interest represents the number of futures contracts and
options positions outstanding at the close of trading). With the increasing
use of options, the CBOE has grown to become the world's largest options
exchange and the second largest securities exchange in the U.S. Currently, the
CBOE captures the largest share of the U.S. options market and as of December
31, 1996, the CBOE's options trades

88
<PAGE>

accounted for more than 47.0% of equity options trading, 95.0% of index options
trading and 65.0% of all options trading nationwide.

Reflecting the importance of Chicago as a center of derivative finance,
employment in the FIRE sector, especially security and commodity broker jobs,
is highly concentrated in Chicago. Employment in these sectors grew
significantly during the year ended April 1997. During such period, employment
in the security and commodity brokers industry increased 2.8%, and employment
in the security brokers and dealers industry increased 3.5%. The high
concentration of financial services employment has significant spillover
effects in other industries, such as business services and publishing. For
example, Donnelley, one of the nation's largest financial publishers, is a
Fortune 500 company headquartered in Chicago at the Company's 77 West Wacker
Drive Building.

The Company believes that strong employment growth in the services and FIRE
sectors is a good sign for the Chicago office market, because employment growth
in these two sectors is a major source of demand for office space, particularly
in the Company's largest market of the Chicago CBD.

Growing Manufacturing Sector. Chicago has historically been, and continues to
be, associated with heavy manufacturing, and it has the second fastest growing
manufacturing employment base nationwide. Much of the fast growth is occurring
in high-wage, high technology industries, which are relocating and expanding in
the Chicago Metropolitan Area, due to its large pool of educated workers and
affordable cost of living. Illinois recently surpassed Massachusetts in high-
technology employment and is behind only California, New York and Texas,
according to a 1997 ranking by the AEA. Similarly, Illinois is also ranked
fourth for high technology merchandise exports, according to the AEA survey.
Because of the continued strong presence of heavy manufacturing and the
increased presence of high technology manufacturing, Chicago's manufacturing
employment base has expanded at an average rate of 1.2% during the last five
years, compared to national growth of 0.2% over the same period. Similarly,
during the year ended April 1997, Chicago's manufacturing employment increased
1.6% compared to a national rate of 0.1%. During the last year, the fastest
growing manufacturing subsectors have all been high technology subsectors such
as electronics and other electric equipment (3.3%), medical instruments (2.2%)
and electronic components (2.1%). Several large high technology companies are
headquartered in Chicago, including Motorola. The Company believes this growth
in high technology manufacturing, which is reflected in the Company's tenant
base, has strengthened the submarkets in which the Properties are located,
including the Schaumburg submarket, because Schaumburg contains the
headquarters of Motorola, the second-largest tenant of the Company's Industrial
Properties.

While high technology is a fast-growing segment of the manufacturing industry
in Chicago, the steel industry, which contains several of the Company's largest
industrial tenants, remains a stable and important local industry. Many of the
manufacturing subsectors associated with steel manufacturing and fabrication,
such as metal forging and stamping, metalworking machinery and fabricated metal
products, are highly concentrated in the Chicago Metropolitan Area. Inland
Steel Industries and Acme Metals are the largest local steel processors.
Several large steel fabricators are also based in the Chicago Metropolitan
Area, including Tempel Steel Company, a manufacturer of magnetic steel
laminations, and A.M. Castle, a processor of specialty metals. A.M. Castle is a
tenant of the Company's Hammond Enterprise Center.

Other Sectors. The retail and wholesale trade sectors have enjoyed moderate
growth over the last year. During the year ended April 1997, trade employment
was up 1.1%, compared to 2.8% nationwide. Growth in the retail sector has been
particularly strong, increasing 2.1% during the last year. Sears, Roebuck &
Co., a large Fortune 500 retail company headquartered in the Chicago
Metropolitan Area, is growing rapidly. Other large retailers headquartered in
the Chicago Metropolitan Area are Walgreen's and Spiegel Inc.

Reflecting its role as a major international trade center, the Chicago
Metropolitan Area has a high concentration of transportation-related
employment. Air transportation is particularly concentrated in the Chicago
Metropolitan Area, because of the size and volume of activity of Chicago O'Hare
International Airport. Chicago

89
<PAGE>

O'Hare International Airport has handled more passengers and aircraft
operations than any other airport in the world for the past 30 years. As the
hub of the nation's rail system and the primary port linking the Great Lakes
with the Mississippi River and the Gulf of Mexico, the Chicago Metropolitan
Area also has a high concentration of employment in trucking and warehousing
and transportation services. Employment growth in these two sectors was up a
strong 5.0% and 7.1%, respectively, as of the year ended April 1997.

The Company believes that all four of the sectors described above,
manufacturing, retail and wholesale trade and transportation are important
indicators of demand for warehouse/distribution space.

Forecasted Employment Growth. RCG forecasts that the Chicago Metropolitan
Area employment base will continue to grow at a moderate rate of 1.1% to 1.4%
per year during the next three years, with an absolute growth of approximately
50,000 jobs per year on average. RCG believes that the strongest job growth
will continue to occur in services, finance and manufacturing (particularly
high technology manufacturing). The following tables illustrate the employment
trends and forecasts for the Chicago Metropolitan Area and the United States.

[Graph depicting Chicago Metropolitan Area and U.S. total non-agricultural
employment from 1979 to 1999 (forecasted).]

THE COMPANY'S OFFICE SUBMARKETS

Chicago Metropolitan Area Office Submarkets.

Reflecting the large size of the metropolitan economy, the Chicago
Metropolitan Area was one of the top office markets nationwide in the second
quarter of 1997. The overall metropolitan area office market is third in size,
but the Chicago CBD office market ranks second only to New York's combined
Midtown and Downtown office markets.

90
<PAGE>

The Chicago Metropolitan Area office market has improved significantly over
the last five years; the vacancy rate has declined from 19.3% in 1992 to a low
of 13.2% in the second quarter of 1997. As the largest financial and business
center in the Midwest and the international center of derivative finance, the
Chicago Metropolitan Area has a large and growing office employment sector.
Strong growth in office employment sectors has contributed greatly to the
improved health of the Chicago Metropolitan Area office market. During the
five years from April 1992 to April 1997, office employment (defined as
employment in FIRE and business services) grew by 97,500, ranking the Chicago
Metropolitan Area first among all metropolitan areas nationwide in terms of
office employment growth over the last five years. The Chicago CBD office
market consists of 108.7 million net rentable square feet, in the aggregate,
and the Suburban Chicago office market consists of 79.7 million net rentable
square feet, in the aggregate.

Chicago Metropolitan Area office market vacancy rates have declined steadily
over the last five years; the vacancy rate has declined from a high of 19.3%
in 1993 to a low of 13.2% in the second quarter of 1997. The greatest gains
have occurred in the Class A office market, where the vacancy rate has fallen
from a high of 19.0% in 1992 to 8.7% in 1996 and has fallen further recently
to 8.0% in the second quarter of 1997. The Class A office market has had
strong net absorption of over 3.0 million square feet per year since 1992. The
total office market has averaged net absorption of only 2.4 million square
feet per year since 1992, which reflects the movement of tenants of Class B
and Class C space into Class A spaces, where the rents have remained moderate.
However, rents have recently been increasing at an accelerating pace. The
following tables illustrate historical and forecasted conditions in the
Chicago Metropolitan Area overall office market and Class A office market,
respectively.

TOTAL CHICAGO METROPOLITAN AREA OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 190,329 190,534 190,490 189,899 188,849 188,342 189,139 189,104 189,154
New Construction 3,893 205 230 0 216 0 797 965 800
Conversion/Demolition 0 0 274 591 1,266 507 507 1,000 750
Net Absorption 1,257 3,510 2,721 1,322 1,059 2,650 3,150 2,700
Occupied Stock 153,596 154,853 158,363 161,084 162,406 163,465 165,056 168,206 171,906
Vacancy Rate 19.3% 18.7% 16.9% 15.2% 14.0% 13.2% 12.7% 11.1% 9.6%
</TABLE>
Source: RCG

CHICAGO METROPOLITAN AREA CLASS A OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 73,544 73,544 73,749 73,979 73,979 74,195 74,776 75,741 76,541
New Construction 3,893 205 230 0 216 0 797 965 800
Net Absorption 759 1,941 2,650 2,628 1,440 790 1,700 1,700 1,400
Occupied Stock 58,452 60,392 63,042 65,671 67,111 67,900 68,811 70,586 71,986
Vacancy Rate 20.5% 17.9% 14.5% 11.2% 9.3% 8.5% 8.0% 6.8% 6.0%
</TABLE>
Source: RCG

Chicago Central Business District Office Submarket.

The Company owns and operates the 77 West Wacker Drive Building in the
Chicago CBD submarket.

The Chicago CBD submarket encompasses Chicago's downtown area. The Chicago
CBD submarket is the primary location within the city for financial
institutions, business services companies, law firms and government agencies.
In addition, a number of major corporations have a significant presence in the
Chicago Business District submarket, including Donnelley, Leo Burnett, Helene
Curtis, Wrigley, Everen, Morton International, Aon, Blue Cross/Blue Shield,
Quaker Oats, Amoco and First Chicago NBD.

91
<PAGE>

The Chicago CBD office market has improved since 1993, when the office
vacancy rate peaked at 19.6%. In the second quarter of 1997, the overall
Chicago CBD office vacancy rate fell to 14.9%.

RCG believes that the improvement in the Chicago CBD office market is the
result of both strong growth in office employment and the lack of new
construction in the Chicago CBD office market since 1992. During the first
half of 1997, several large tenants, including Commonwealth Edison, the State
of Illinois and Andersen Consulting, leased significant space in the Chicago
CBD. In addition, the Class A office market has been the main beneficiary of
strong office employment growth. As a result, Class A vacancy rates in the
Chicago CBD have declined from a high of 23.1% in 1992 to a low of 9.3% in the
second quarter of 1997.

RCG forecasts a further decline in vacancy rates in the Chicago CBD office
market in 1997 and 1998, due to expected continued strong growth in office
employment, lack of construction of new office space and the conversion of
Class C buildings to other uses. Other than a build-to-suit office building
for Blue Cross/Blue Shield, no new office space is expected during the next
three years, and RCG believes, based on a three-year construction cycle for
large office buildings in the Chicago CBD, that there is little likelihood of
new office space in the Chicago CBD before the year 2001.

The following graph illustrates the historical and forecasted declines in
Chicago CBD office vacancy rates.

[Graph depicting Chicago CBD office vacancy rate, total and for Class A
properties from 1991 to 1999 (forecasted).]

92
<PAGE>

An additional factor contributing to the decline in office vacancy rates is
the conversion of office buildings to other uses. Since 1994, the Chicago CBD
office stock has shrunk by over two million square feet, due to conversions and
demolitions. Older Class C office buildings are being converted, largely to
residential units and hotels. During the first half of 1997, three conversions
resulted in the removal of 507,000 square feet of office space from the Chicago
CBD market. The Chicago Department of Planning and Development has reported
that over 20 conversion projects are either under construction or being
planned. In addition, one of the tax increment financing districts for the
Chicago CBD was amended in February 1997 to enlarge the area covered by the
district and to set aside approximately $300.0 million for the renovation of
the infrastructure and building stock in the older, eastern portion of the
Chicago CBD. Because of the new redevelopment subsidies, the continuing
increases in housing renovation and the expanding demand for hotel space, RCG
expects an acceleration in the rate of conversions of older office buildings to
other uses and a decline in vacancy rates in the overall Chicago CBD office
market. The following tables illustrate historical and forecasted conditions in
the Chicago CBD overall office market and Class A office market, respectively.

TOTAL CHICAGO CBD OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 111,329 111,329 111,055 110,464 109,198 108,691 108,691 107,691 106,941
New Construction 3,893 0 0 0 0 0 0 0 0
Conversion/Demolition 0 0 274 591 1,266 507 507 1,000 750
Net Absorption (334) 1,334 179 813 661 1,700 1,750 1,500
Occupied Stock 89,843 89,509 90,843 91,022 91,836 92,496 93,536 95,286 96,786
Vacancy Rate 19.3% 19.6% 18.2% 17.6% 15.9% 14.9% 13.9% 11.5% 9.5%
</TABLE>
Source: RCG

CHICAGO CBD CLASS A OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 43,915 43,915 43,915 43,915 43,915 43,915 43,915 43,915 43,915
New Construction 3,893 0 0 0 0 0 0 0 0
Net Absorption 759 1,230 1,669 1,493 1,230 439 800 800 600
Occupied Stock 33,771 35,000 36,669 38,163 39,392 39,831 40,192 40,992 41,592
Vacancy Rate 23.1% 20.3% 16.5% 13.1% 10.3% 9.3% 8.5% 6.7% 5.3%
</TABLE>
Source: RCG

Central Loop Submarket.

The Central Loop is the largest submarket in the Chicago CBD and the center
of Chicago's downtown financial district, with a tenant base that consists
primarily of financial institutions, business services companies, law firms,
major corporations and government agencies. The 77 West Wacker Drive Building
is located within the Central Loop.

The Central Loop office vacancy rate declined from a high of 18.2% in 1993 to
15.5% in the second quarter of 1997. The vacancy rate also dropped
substantially in the first half of 1997. The Central Loop Class A vacancy rate
is 9.1%, which is lower than the overall Chicago CBD Class A vacancy rate of
9.3%. The Central Loop had a high amount of net absorption for the first half
of 1997, due in large part to large leases by Commonwealth Edison, Andersen
Consulting and the law firm of O'Donnell, Wicklun, Pigozzi and Peterson.

93
<PAGE>

The Central Loop has had no new additions to office space since 1992, and
although Class A rents are rising, RCG does not expect any new construction of
office space in the Central Loop before 2001. RCG expects the Central Loop,
because of its large base of financial, legal, corporate and government
tenants, to remain a strong submarket. The following table illustrates
historical and forecasted conditions in the Central Loop Class A office
market.

CENTRAL LOOP CLASS A OFFICE SUBMARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 18,999 18,999 18,999 18,999 18,999 18,999 18,999 18,999 18,999
New Construction 2,841 0 0 0 0 0 0 0 0
Net Absorption 3,901 114 931 665 323 171 350 360 240
Occupied Stock 15,066 15,180 16,111 16,776 17,099 17,270 17,449 17,809 18,049
Vacancy Rate 20.7% 20.1% 15.2% 11.7% 10.0% 9.1% 8.2% 6.3% 5.0%
</TABLE>

[Graph depicting Central Loop office submarket construction and absorption
levels and vacancy rates from 1992 to 1999 (forecasted).]

Because the book value of the 77 West Wacker Drive Building will be in
excess of 10.0% of the Company's total assets and the gross revenues for the
77 West Wacker Drive Building for the year ended December 31, 1996 were in
excess of 10.0% of the Company's aggregate gross revenues, additional
information regarding this Property is presented hereafter.

77 West Wacker Drive Building. The Company developed, leases, manages and
owns the 77 West Wacker Drive Building, a Class A high-rise, multitenant
corporate office building situated in what the Company considers

94
<PAGE>

to be a premier location in the Chicago CBD. The 77 West Wacker Drive Building
was completed in 1992 to high-quality specifications to address the
anticipated demands of the submarket's tenants. The building, upon its
completion, opened with commitments for long term leases for over 95.0% of its
net rentable office area even though office space occupancy rates in the
Central Loop submarket averaged 79.3% in 1992. The building has received
awards for its design, structural engineering, lighting and general merit,
including the Sun-Times Real Estate Development of the Year Award for 1993,
Chicago's most prestigious real estate industry award, and the Best New
Building Award from the Friends of Downtown. The Company believes the 77 West
Wacker Drive Building has a premier location in the Chicago CBD submarket for
a number of reasons, including convenience of access to mass transportation,
views from the building and close proximity to hotels, restaurants and other
attractions of downtown Chicago.

The building is comprised of 50 floors, encompassing an aggregate of
approximately 944,600 net rentable square feet, of which 82.6% was leased as
of March 31, 1997. The building has an exterior curtain wall of silver
reflective glass enclosed in a grid of white granite and is topped by a
"Grecian temple," which creates distinctive tenant spaces on the 49th and 50th
floors. The exterior is lighted at night by 540 high-intensity lamps which
accentuate the building's position on Chicago's downtown skyline. One design
feature of the 77 West Wacker Drive Building is its floor plates, which
provide highly efficient, column free space for tenants. The building was
designed and constructed with above-standard floor loadings and floor-to-
ceiling heights to accommodate the weight and raised floors requirements of
computers and other equipment. The building's floors are climate controlled in
16 zones, thus increasing tenant comfort, allowing for separate thermostat
controls for areas housing temperature sensitive equipment and reducing costs
for after-hour operations. In this area, the building has been recognized by
the American Society of Heating, Refrigeration and Air-Conditioning Engineers
for its energy-efficient heating, ventilating and air conditioning systems,
which reduce operating costs for both the Company and its tenants. The
building was designed for tenant efficiency and convenience and features a
very high ratio of elevators to rentable square feet, as well as 24-hour on-
site security and management, and convenient on-site facilities, such as a
health club and dining facilities. Management believes that because of these
and other high-quality features, the 77 West Wacker Drive Building continues
to attract long-term major corporate tenants at rates above those of other
facilities in the Chicago CBD and neighboring submarkets.

Major tenants of the facility include the headquarters of Donnelley, a
financial printer, the headquarters of Everen, a securities firm, and a law
firm, Jones Day. These tenants have been tenants in the building since its
opening. One of the Company's other significant tenants at the 77 West Wacker
Drive Building is experiencing financial difficulties, and the Company has
taken certain legal action to obtain possession of the premises. Unless
otherwise noted, all the occupancy and vacancy rates, Annualized Net Rent and
Annualized Effective Net Rent for the 77 West Wacker Drive Building on or
after March 31, 1997 set forth in this Prospectus have excluded such tenant.

The annual net rent, in accordance with GAAP, per leased square foot of the
77 West Wacker Drive Building for the years ended December 31, 1992, 1993,
1994, 1995 and 1996 was $22.26, $20.79, $21.19, $21.56 and $20.39,
respectively.

The 77 West Wacker Drive Building had a percentage leased rate of 90.5%,
95.3%, 97.0%, 99.6% and 93.6% for each of the five years ended December 31,
1992 through 1996. As of March 31, 1997, Donnelley occupied approximately
25.6% of the Property's net rentable square feet. The lease for this space
commenced on July 1, 1992 for occupancy of 241,569 square feet. Pursuant to
its lease, Donnelley is obligated to pay net rent per square foot of $29.90 in
1997 (escalating at a rate of 2.5% per annum through June 30, 2007), for an
aggregate of $7,222,913. The current lease term is subject to two ten-year
options to renew at 95% of fair market value basis. As of March 31, 1997,
Everen occupied approximately 25.5% of the Property's net rentable square
feet. The lease for this space commenced on June 1, 1992 for occupancy of
241,225 square feet. Pursuant to its lease, Everen is obligated to pay net
rent per square foot of $29.43 in 1997 (escalating at an annual rate of the
change in the CPI but not to exceed 2.5% per annum on a cumulative compounded
basis through March 31, 2007), for an aggregate of $7,099,252. The current
lease term is subject to two five-year options to renew at

95
<PAGE>

95% of fair market value basis. Everen has an option to terminate the lease
effective approximately June 1, 2002, upon two years prior written notice, and
upon payment of a termination fee calculated at more than $37,900,167. As of
March 31, 1997, Jones Day occupied approximately 11.8% of the Property's net
rentable square feet. The lease for this space commenced on August 1, 1992 for
occupancy of 111,706 square feet. Pursuant to its lease, Jones Day is obligated
to pay net rent per square foot of $27.32 in 1997 (escalating at an average
rate of 3.2% per annum through April 30, 2007), for an aggregate of $3,051,808.
The current lease term is subject to two five-year options to renew at 95% of
fair market value basis.

Management believes that because of the high quality and strategic location
of the 77 West Wacker Drive Building, it has had higher occupancy, tenant
retention and rental rates than other properties within this submarket. The
vacancy rate of office buildings in the Chicago CBD submarket was approximately
15.9% for 1996 as compared to approximately 8.8% for the 77 West Wacker Drive
Building for 1996. The average net rental rate in the Chicago CBD submarket
during the second quarter of 1997 was approximately $11.94 per square foot for
Class A office buildings compared to an average net rental rate of $18.50 per
square foot plus three percent per annum for the 77 West Wacker Drive Building
as of July 1, 1997. The Company is aware of the construction of only one new
office building in the Chicago CBD, the new headquarters for Blue Cross/Blue
Shield, a major insurance company. To the Company's knowledge, no other new
construction is being undertaken in the near future in the Chicago CBD
submarket.

The following table sets forth for the 77 West Wacker Drive Building for each
of the ten years following the completion of the Offering: (i) the number of
tenants whose leases will expire, (ii) the total net rentable square feet
covered by such leases, (iii) the percentage of total leased net rentable
square feet represented by such leases, (iv) the annual net rent represented by
such leases and (v) the average annual net rent per net rentable square foot
represented by such leases.

<TABLE>
<CAPTION>
NET PERCENTAGE OF AVERAGE ANNUAL
RENTABLE TOTAL LEASED ANNUAL NET NET RENT PER NET
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YAR OF LEASEE EXPIRING LEASES EXPIRING LEASES EXPIRING
XPIRATIONE LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($)
- ------------- --------- ------------ -------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97......... -- -- -- -- --
1998.................... 4 24,662 3.07 252 10.20
1999.................... 1 1,424 0.18 18 12.55
2000.................... 2 21,862 2.73 114 5.19
2001.................... 2 12,844 1.60 166 12.93
2002.................... 4 55,055 6.86 746 13.54
2003.................... 2 25,175 3.14 270 10.74
2004.................... 1 22,576 2.81 207 9.17
2005.................... -- -- -- -- --
2006.................... 1 4,485 0.56 46 10.29
2007+................... 8 634,145 79.05 16,308 25.72
--- ------- ------ ------
25 802,228 100.00 18,127 22.59
=== ======= ====== ======
</TABLE>
- --------

The Company's tax basis in the 77 West Wacker Drive Building for federal
income tax purposes as of December 31, 1996 was approximately $221.0 million
(net of accumulated depreciation and reductions in depreciable basis). The
Property is depreciated using the modified accelerated cost recovery system
straight-line method, based on an estimated useful life ranging from five years
to 39 years, depending upon the date of certain capitalized improvements to the
Property. For the year ended December 31, 1996, the estimated average
depreciation rate for this Property under the modified accelerated cost
recovery system was 3.3%. For the 12- month period ending March 31, 1997, the
Company was assessed property taxes on this Property at an effective annual
rate of approximately 9.3%. Property taxes on this Property for the 12-month
period ending March 31, 1997 totaled approximately $7.0 million, which
represents 1995 taxes paid in 1996. Management does not believe that any
capital improvements made during the 12-month period immediately following the
Offering should result in an increase in annual property taxes.

In the Company's opinion, this Property is adequately covered by insurance.

96
<PAGE>

Chicago Metropolitan Area Suburban Office Submarket.

The Company will own and operate four Office Properties in the Suburban
Chicago office submarket, with approximately 305,300 aggregate net rentable
square feet.

The Suburban Chicago office submarket consists of the suburbs surrounding the
City of Chicago. The suburban market is comprised of four distinct submarkets.
Besides the Office Properties attached to the Industrial Properties, the
Company owns Office Properties in both the north and northwest suburbs of
Chicago.

The north and northwest suburbs have served as the primary alternative choice
for large corporations which choose not to locate in the Chicago CBD, and
currently, although the Chicago CBD retains its traditional dominance as the
primary home of the Chicago Metropolitan Area's governmental, financial and
legal communities, the north and northwest suburbs contain the headquarters of
several of the Chicago Metropolitan Area's most prominent companies, ranging
from Motorola (in Schaumburg) and McDonald's (in Oak Brook) to Allstate
Insurance, Baxter International, W.W. Grainger and Abbott Laboratories (in Lake
County) and Sears, Ameritech and Siemens (in the northwest suburbs).

The Suburban Chicago office market has experienced a dramatic decline in
office vacancy rates, from a high of 19.3% in 1992 to 10.8% in the second
quarter of 1997. The Suburban Chicago Class A office market vacancy rate of
7.3% in the second quarter of 1997 is lower than that of the market as a whole.
RCG believes that this better performance is the result of the movement of
tenants from Class B and Class C space into Class A space, because during the
last four and a half years, Suburban Chicago Class A net absorption has
averaged over 1.7 million square feet per year and has exceeded the total net
absorption in the Suburban Chicago office market.

RCG believes that Class A office rents in Suburban Chicago have risen to the
point where construction of new Class A office space is economically feasible.
A total of ten new office buildings, with an aggregate of 796,800 net rentable
square feet (representing approximately 1.0% of the existing net rentable
square feet in the Suburban Chicago office market) are scheduled to be
completed during 1997. Seven new office buildings with an aggregate of 965,200
net rentable square feet (representing approximately 1.2% of the existing net
rentable square feet in the Suburban Chicago office market) are scheduled to be
completed in 1998. Several other office buildings are being planned, but are
not scheduled to be completed before 1999.

97
<PAGE>

RCG believes that the outlook for the Suburban Chicago office market is
strong. RCG believes that, because office employment growth is expected to
remain in the 2.0% range, overall vacancy rates in the Suburban Chicago office
market may rise slightly but will remain relatively low, despite the addition
of new office space. Furthermore, RCG believes that Suburban Chicago Class A
vacancy rates will continue to decline for the next three years. Because of the
disparity between the Class A and Class B office markets, the Company believes
that there are increasingly more development and redevelopment opportunities in
Suburban Chicago. The following graph and tables illustrate Suburban Chicago
vacancy rates and historical and forecasted conditions in the Suburban Chicago
office market.

[Graph depicting Suburban Chicago office vacancy rate, total and for Class A
properties from 1992 to 1999 (forecasted).]

SUBURBAN CHICAGO OFFICE MARKET

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 79,000 79,205 79,435 79,435 79,651 79,651 80,448 81,413 82,213
New Construction 0 205 230 0 216 0 797 965 800
Net Absorption -- 1,591 2,176 2,542 509 398 950 1,400 1,200
Occupied Stock 63,753 65,344 67,520 70,062 70,571 70,969 71,521 72,921 74,121
Vacancy Rate 19.3% 17.5% 15.0% 11.8% 11.4% 10.9% 11.1% 10.4% 9.8%
</TABLE>
Source: RCG

98
<PAGE>

SUBURBAN CHICAGO CLASS A OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 29,629 29,629 29,834 30,064 30,064 30,280 30,861 31,826 32,626
New Construction 0 205 230 0 216 0 797 965 1,000
Net Absorption 1,133 711 981 1,135 210 351 900 975 800
Occupied Stock 24,681 25,392 26,373 27,509 27,719 28,070 28,619 29,594 30,394
Vacancy Rate 16.7% 14.3% 11.6% 8.5% 7.8% 7.3% 7.3% 7.0% 6.8%
</TABLE>
Source: RCG

SUBURBAN CHICAGO OFFICE SUBMARKETS: RECENT VACANCY RATE STATISTICS

<TABLE>
<CAPTION>
Change
N.R.A. % Vacant 4Q96-
Submarket 2Q97 2Q97 1Q97 4Q96 2Q97
--------- ---------- ----- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Lake Shore 4,210,145 13.4% 13.4% 13.0% 0.3%
North Suburbs 5,088,456 6.3% 6.2% 6.7% -0.4%
SCHAUMBURG 21,595,252 10.7% 10.9% 12.6% -1.8%
O'Hare 12,847,991 13.0% 13.1% 13.9% -0.9%
East-West Tollway 26,276,766 10.1% 10.3% 9.4% 0.7%
West Cook 1,276,779 14.3% 13.7% 12.9% 1.4%
South Suburbs 2,395,264 12.9% 12.8% 13.3% -0.4%
Lake County 6,070,883 10.5% 12.5% 12.8% -2.3%
Suburban Total 79,761,536 10.9% 11.1% 11.4% -0.6%
</TABLE>

Schaumburg Submarket.

The Company will own and operate three Office Properties in the Schaumburg
submarket, two of which are Acquisition Properties to be acquired upon the
consummation of the Formation Transactions. The Schaumburg submarket
encompasses the communities of Schaumburg, Hoffman Estates, Itasca, Mt.
Prospect, Rolling Meadows and Arlington Heights in northwest Cook County and
is located 20 to 30 minutes west of Chicago O'Hare International Airport. The
Schaumburg submarket serves as the headquarters for some of the Chicago
Metropolitan Area's top companies, such as Motorola and Sears. In addition,
several other major office employers have large facilities in the Schaumburg
submarket, including Ameritech, U.S. Robotics (now 3Com) and Siemens.

The Schaumburg office submarket has the highest concentration of office
space in the Suburban Chicago office market. During the 1980s, Schaumburg
emerged as a popular business location, and approximately 70.0% of the
submarket's current inventory of 18.8 million square feet of Class A and Class
B office space was built during the 1980s. The Schaumburg Class A office
submarket has experienced the largest decline in vacancy rates of any office
submarket in the Chicago metropolitan area; the Schaumburg Class A office
vacancy rate declined from a high of 20.1% in 1992 to 5.5% in the second
quarter of 1997. During 1996, the Schaumburg submarket recorded the largest
amount of leasing activity of any suburban submarket. Large leases included
Ameritech and U.S. Robotics (now 3Com). In the first half of 1997, several
major tenants, including Prudential Insurance, leased large amounts of office
space. In the second quarter of 1997, the Schaumburg submarket's overall
office vacancy rate declined to 10.7%, less than half of its 1992 vacancy rate
of 23.9%. RCG believes that the low vacancy rates in the Schaumburg Class A
office market are beginning to affect vacancy rates to the Class B market,
which still has a relatively high vacancy rate of 16.7% in the second quarter
of 1997.

99
<PAGE>

Absorption of office space in Schaumburg has been extremely strong for the
past four years and has averaged 360,000 and 500,000 square feet per year,
respectively, in the overall and Class A markets. However, there has been very
little new construction. During the last five years, only two buildings totaling
110,000 square feet were constructed. RCG believes that only five office
buildings with an aggregate of approximately 179,000 net rentable square feet
will be completed during 1997 and 1998. Two other proposed buildings are likely
to be completed in early 1999.

RCG believes that the outlook for the Schaumburg office market is strong.
Demand for office space is expected to remain strong, but will be constrained
by the lack of new supply of Class A office space. RCG forecasts that Class A
vacancy rates will remain low through 1998. RCG believes that the vacancy rates
for the total office submarket will slowly decline below 10.0% by 1999. The
following tables illustrate historical and forecasted conditions in the
Schaumburg overall and Class A office markets.

SCHAUMBURG SUBMARKET CLASS A OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,175 10,175 10,230 10,285 10,285 10,285 10,434 10,464 10,664
New Construction 0 55 55 0 0 0 149 30 200
Net Absorption (51) 265 536 439 206 144 250 100 175
Occupied Stock 8,130 8,394 8,931 9,370 9,575 9,719 9,825 9,925 10,000
Vacancy Rate 10.1% 17.5% 12.7% 8.9% 6.9% 5.5% 5.8% 5.1% 5.3%
</TABLE>
Source: RCG

[Graph depicting Schaumburg office submarket construction and absorption levels
and vacancy rates from 1992 to 1999 (forecasted).]

100
<PAGE>

Description of Schaumburg Properties

The Company has three Office Properties in the Schaumburg submarket. Each is
easily accessible from Interstate 355 and Interstate 90, which are major
highways providing access to downtown Chicago. Also, these Properties have
convenient access to Chicago O'Hare International Airport, which is
approximately 10 miles away.

1699 East Woodfield Road. 1699 East Woodfield Road, also known as Citibank
Office Plaza, is a five-story Class A office building located in Schaumburg,
across from the Woodfield Mall, a large regional shopping center. The building
is situated on a 5.2 acre parcel of land and includes 410 spaces for surface
parking. It was built in 1979 and renovated from 1991 to 1997. It has
approximately 105,400 net rentable square feet of office space, of which 84.0%
was leased as of March 31, 1997. The building's exterior is clad in pebbled
white quartz set in precast concrete, with bronze-tinted thermopaned windows.
The building's tenants include Citibank, Merrill Lynch and McGladrey & Pullen,
the nation's seventh largest accounting firm.

1990 Algonquin Road and 2000-2060 Algonquin Road. 1990 Algonquin Road and
2000-2060 Algonquin Road constitute a complex of office buildings in
Schaumburg known as the Salt Creek Office Center. The Salt Creek Office Center
comprises one two-story office building and seven single-story office
buildings situated on approximately ten acres of land. The two-story building
is 1990 Algonquin Road, and the seven single-story buildings are 2000-2060
Algonquin Road. The complex includes 478 spaces of surface parking. It was
built in phases from 1979 through 1986. The buildings have masonry exterior
walls with tinted glass windows. The complex has approximately 125,900 net
rentable square feet of office space, of which 91.2% was leased as of March
31, 1997. The buildings are close to, and visible from, Interstate 355 and a
ten-minute drive from O'Hare International Airport. Tenants include Silicon
Graphics, Ticor Title Insurance and Little Caesar's.

Other Chicago Metropolitan Area Office Properties.

555 Huehl Road. 555 Huehl Road is a two-story Class A office building
located in Northbrook, Illinois. It was built in 1987 and has approximately
74,000 net rentable square feet of office space, of which 100% was leased as
of March 31, 1997 and contains three interior docks. The building is leased
entirely by Rank Video, a video duplication company, as its corporate
headquarters. The building also houses Rank Video's U.S. computer and
communication centers.

Nashville and Knoxville Office Submarkets.

The Company owns and operates four Office Properties and owns a parking
facility in Tennessee. The Company believes that the inclusion of the
Tennessee Properties in the portfolio of Properties provides some measure of
balance in the portfolio from an exclusive focus on the Chicago Metropolitan
Area, and provides valuable contacts in and information about these growing
markets to the Company.

The Nashville Office Market.

The Company owns and operates one Office Property in the Nashville office
submarket. Nashville, the capital of the state of Tennessee, has a population
of approximately 1.1 million and is home to a number of major employers,
including Vanderbilt University, Columbia/HCA HealthCare, Gaylord
Entertainment, Nissan Motor Manufacturing Corp. USA and Kroger. According to
RCG, during the five years from April 1992 to April 1997, employment growth in
Nashville averaged 3.7% per year compared to a 2.3% average annual rate for
the nation as a whole. For the year ended in April 1997, total employment
growth in Nashville slipped to 1.3% compared with the national growth rate of
2.2%. RCG believes that weaker Nashville growth resulted from cyclical
weakness in the manufacturing sector. Office employment in Nashville grew at
an average annual rate of 5.0% from April 1992 to April 1997, compared to a
3.2% average annual rate for the nation as a whole. For the year ended April
1997, office employment grew 3.4%, compared with the national growth rate of
3.1%.

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<PAGE>

Description of Nashville Property.

201 4th Avenue N. 201 4th Avenue N. is a 20-story office building centrally
located in downtown Nashville. It was built in 1968, renovated in 1985,
acquired by Prime in 1993 and further redeveloped. It has approximately
250,600 net rentable square feet of office space, of which 89.6% was leased as
of March 31, 1997. The building is the regional headquarters of SunTrust Bank,
which leases approximately 49.0% of the net rentable square footage.

The Knoxville Office Market.

The Company owns three Office Properties and a parking facility in the
Knoxville office submarket. Each of the Knoxville Office Properties was
developed by Prime and is among the highest quality buildings in Knoxville.

Knoxville has a diverse economy and real estate market and has benefited
from, among other things, the presence of the University of Tennessee, a
growing computer and electronics sector and a healthy entrepreneurial business
climate. Knoxville's economy has grown rapidly and steadily during the 1990s.
Unemployment has long been significantly lower than the national average. From
April 1992 to April 1997, employment growth in Knoxville averaged 2.1% per
year compared with an average national employment growth rate of 2.3%. For the
year ended April 1997, Knoxville employment declined 0.1% and office
employment declined 0.3%. RCG believes that these declines are temporary and
were primarily the result of a large 2.4% decline in the manufacturing sector.

Description of Knoxville Properties.

620 Market Street. 620 Market Street, also known as One Centre Square, is a
six-story Class A office building located in downtown Knoxville. Prime built
One Centre Square in 1988, and the same year, the building won the First Place
Certificate of Merit for Quality Construction from the Associated Builders and
Contractors. The building has approximately 93,700 net rentable square feet of
office space, of which 91.4% was leased as of March 31, 1997. One Centre
Square shares the Knoxville parking facility with Two Centre Square. Major
tenants include Morton, Lewis, King & Kreig, a major local law firm, which
leases approximately 31.7% of the building and FNB Financial Corp., a bank,
which leases approximately 20.7% of the building.

625 Gay Street. 625 Gay Street, also known as Two Centre Square, is a six-
story Class A office building located in downtown Knoxville adjacent to One
Centre Square. Prime built Two Centre Square in 1988, and in 1989, the
building, along with One Centre Square, won the Grand Certificate of Merit for
Quality Construction from the Associated Builders and Contractors. It has
approximately 91,400 net rentable square feet of office space, of which
approximately 87.0% was leased as of March 31, 1997. Two Centre Square shares
the Knoxville parking facility with One Centre Square. Major tenants of the
building include Healthsource, a health maintenance organization, and
PaineWebber.

4823 Old Kingston Pike. 4823 Old Kingston Pike is a three-story Class A
office building located in western Knoxville, in the premium
residential/office neighborhood in Knoxville. Prime built 4823 Old Kingston
Pike in 1988, and the building, like the Company's other Office Properties in
Knoxville, is one of the highest-quality buildings in Knoxville. It has
approximately 34,600 net rentable square feet of office space, of which
approximately 100.0% was leased as of March 31, 1997. Talbots operates one of
its two national telemarketing centers in 4823 Old Kingston Pike and leases
approximately 68.1% of the office space.

Knoxville Parking Facility. The Company also owns a 398-space parking
facility in downtown Knoxville. The parking facility was built in 1981 and
acquired by Prime in 1987. It services the One Centre Square and Two Centre
Square buildings.

102
<PAGE>

THE COMPANY'S INDUSTRIAL SUBMARKETS

Chicago Metropolitan Area Industrial Submarkets--General Overview.

The Company owns and operates 23 Industrial Properties in the Chicago
Metropolitan Area. Seventeen Industrial Properties are Prime Properties located
in four industrial parks which were acquired by Prime between 1988 and 1992 and
subsequently substantially renovated, and six Industrial Properties are
Contribution Properties, which will be acquired upon the consummation of the
Formation Transactions. The industrial parks acquired from Prime are located in
East Chicago, Indiana; Hammond, Indiana; the city of Chicago; and Arlington
Heights, Illinois.

The Chicago Metropolitan Area's manufacturing employment, already the highest
of any metropolitan area in the nation, is also the second-fastest growing.
According to RCG, Chicago's manufacturing employment base has expanded at an
average rate of 1.2% during the last five years, compared to national growth of
0.2% over the same period. Similarly, during the year ended April 1997,
Chicago's manufacturing employment increased 1.6%, compared to a national rate
of 0.1%, and growth in manufacturing in the Chicago Metropolitan Area is
expected by RCG to outpace the nation over the next several years.

Chicago has one of the nation's largest industrial markets, second only to
Los Angeles in terms of the total square footage of its vacant and occupied
stock of industrial space. Chicago's industrial vacancy rate of 7.3% in the
first quarter of 1997 (which reflects conditions in both overhead
crane/manufacturing facilities and warehouse/distribution facilities) was lower
than the national average industrial vacancy rate of 8.1%.

The Chicago Metropolitan Area industrial market benefits from strong
manufacturing and trade-related demand. The Chicago Metropolitan Area is the
nation's largest metal-processing market and one of the nation's major
manufacturing centers. In addition, the Chicago Metropolitan Area's central
location and its highly efficient and extensive, well-integrated transportation
system both contribute to the high volume of trade conducted through the area's
distribution system. Located mid-way between the East and West coasts and
between Canada and Mexico, with the world's busiest airport, the hub of the
nation's rail system and the primary port connecting the Great Lakes with the
Mississippi River and the Gulf of Mexico, Chicago plays a preeminent role in
U.S. trade and transportation. The following graphs illustrate historical and
forecasted conditions in the Chicago Metropolitan Area overall industrial
market and vacancy rates in and additions to the Chicago Metropolitan Area
industrial market.

TOTAL CHICAGO METROPOLITAN AREA INDUSTRIAL MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
---- ---- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock -- -- 858,378 870,377 888,264 898,298 906,264 918,264 928,264
New Construction -- -- -- 11,999 17,887 10,034 18,000 12,000 10,000
Net Absorption -- -- -- 26,169 9,373 7,065 13,000 11,000 12,000
Occupied Stock -- -- 788,678 814,847 824,220 831,285 837,220 848,220 860,220
Vacancy Rate 8.5% 8.4% 8.1% 6.4% 7.2% 7.5% 7.6% 7.6% 7.3%
</TABLE>
Source: RCG

103
<PAGE>

<TABLE>
<CAPTION>
Industrial Market
Chicago Metropolitan Area
- --------------------------------------------------------------------------------
Additions Net Absorption
(000) (000)
<S> <C> <C>
1995 11,999 26,169
1996 17,887 9,373
2Q97 10,034 7,065
1997 18,000 13,000
1998 12,000 11,000
1999 10,000 12,000

</TABLE>

[Graph also depicts vacancy rates for Chicago Metropolitan Area industrial
market from 1995 to 1999 (forecasted).]

The Chicago Metropolitan Area industrial market comprises over 898.0 million
square feet of space. Demand for industrial space has been strong over the
last two years, with net absorption averaging approximately 17.5 million
square feet per year. Gross leasing activity, which RCG considers a good
measure of demand, has also been robust. During the first half of 1997, gross
leasing activity in the Chicago Metropolitan Area was nearly double 1996's
level and close to the peak of 45.1 million square feet in 1995. Although the
vacancy rate increased to 7.5% in the second quarter of 1997, RCG believes
that this reflects new space coming into the market, rather than a weakness in
demand. The greatest vacancy rates were in larger buildings of over 100,000
square feet. The following graph illustrates gross leasing activity in the
Chicago Metropolitan Area.

104
<PAGE>

[Graph also depicts distribution of Chicago Metropolitan Area industrial market
gross leasing volume between manufacturing and warehouse leasing.]

The Industrial Parks. The industrial parks acquired from Prime consist of
certain industrial properties commonly referred to as the Enterprise Centers,
which consist of overhead crane/manufacturing facilities and one
warehouse/distribution facility. The East Chicago Enterprise Center (the
"ECEC"), Hammond Enterprise Center (the "HEC") and Chicago Enterprise Center
(the "CEC") are primarily composed of high bay, heavy overhead crane warehouse
facilities. The fourth park, 425 East Algonquin Road, also known as the
Arlington Heights Enterprise Center (the "AHEC"), contains a
warehouse/distribution facility. Each of the parks also contains a small
portion of office space available for lease. For a description of the office
space available for lease, see "--Description of Chicago Metropolitan Area
Overhead Crane/Manufacturing Properties." The AHEC, CEC and ECEC contain
acreage sufficient for the construction of build-to-suit opportunities: up to
80,000 square feet at the AHEC; 670,000 square feet at the CEC; and 250,000
square feet at the ECEC.

The industrial parks were acquired by Prime between 1988 and 1992, and all
four had previously been utilized as single tenant sites. Upon acquiring the
Properties, Prime redeveloped the parks to reposition them as multitenant
facilities. Among the improvements Prime made to the parks were the separation
of utilities, installation of demising walls, exterior wall and roof repair
(or replacement), repair of uneven floors, insulation, lighting,
paint/signage/graphics, reconfiguration of site lay-outs and construction of
railroad spurs to service the sites. The industrial parks were redeveloped
using funds provided by the issuance of Tax-Exempt Bonds. For a description,
see "--Tax-Exempt Bonds."

The ECEC, CEC and HEC are located in close proximity to the steel industry
of northwest Indiana and contain primarily tenants who service the steel
industry. These tenants are primarily steel processors, who perform functions
formerly performed by more vertically integrated steel companies before the
downsizing of those companies. These steel processors purchase steel from
steel producers and process it for end users in various ways, including
slitting, cutting, leveling, straightening, strengthening and
electrogalvanizing the steel.

105
<PAGE>

Other tenants include a manufacturer of steel roll strapping, a refurbisher of
steel mill generators, a steel caster repair and maintenance firm and a
metallurgist. The AHEC is located in the northwest suburb of Arlington Heights
and contains a wide variety of tenants. Each of these Industrial Properties
has convenient access to Interstate highways and the ECEC, CEC and HEC is each
served by rail. The Company is aware of environmental contamination at certain
of the industrial parks. For a description, see "--Government Regulations--
Environmental Matters."

Warehouse/Distribution Industrial Submarket.

The Company owns four warehouse/distribution Industrial Properties located
in Suburban Chicago, which contain an aggregate of approximately 899,100
rentable square feet. At March 31, 1997, the Company's warehouse/distribution
Industrial Properties were 100.0% leased to more than five tenants.

The strength of trade in the industrial market is reflected in the growth of
transportation services at 5.5% per year for the last five years. Chicago
remains the hub of the nation's rail system, and trucking and warehousing
employment has grown significantly during the last five years, increasing 5.0%
to 11.0% per year since 1992.

RCG believes that the warehouse/distribution submarket is strong. After four
consecutive years of declining vacancy rates, the vacancy rate in this
submarket increased to 11.4% in the second quarter of 1997. RCG believes that
this reflects new space coming into the market, rather than a weakness in
demand. Gross leasing activity, which RCG considers a good measure of demand,
is particularly strong, averaging over 20.0 million square feet per year for
the last five years. RCG believes that while demand in this market continues
to be strong, increases in new construction will keep the vacancy rate from
declining significantly in the near term. The following graph illustrates
vacancy rates in and additions to the Chicago Metropolitan Area
warehouse/distribution submarket.

Warehouse/Distribution Submarket
Chicago Metropolitan Area
- --------------------------------------------------------------------------------
Additions
(000)
<S> <C>
1992 1,496
1993 1,329
1994 4,124
1995 5,099
1996 6,193
2Q97*

</TABLE>

* 2Q Additions NA

[Graph also depicts vacancy rates for Chicago Metropolitan Area warehouse/
distribution submarket from 1992 to the second quarter of 1997.]

106
<PAGE>

Description of Chicago Metropolitan Area Warehouse/Distribution Properties.

425 East Algonquin Road. 425 East Algonquin Road, also known as the Arlington
Heights Enterprise Center, is a warehouse/distribution facility located in
Arlington Heights, Illinois. It was built in 1978 for a single user and
acquired by Prime in 1992. Prime redeveloped the AHEC by demising the facility
into four separate spaces in order to convert the single-user building into a
multitenant facility. The building has approximately 304,500 net rentable
square feet of space, of which 100.0% was leased as of March 31, 1997, located
on an approximately 17 acre parcel of land. The existing facility may be
expanded by an additional 80,000 square feet to 385,000 square feet by
expansion along the southern portion of the property. This expansion option is
currently being marketed as a build-to-suit opportunity for prospective
tenants. The building has 23 truck docks and excellent access to the local
Interstate highways. Major tenants include Berlin Packaging Corp., a personal
products packaging company, AM International, Inc., an office machine supply
company, and International Components Corp., which uses its space for
distribution and some light assembly for Motorola.

1001 Technology Way. 1001 Technology Way is a warehouse/distribution facility
built in 1996 and located in Libertyville, Illinois. The building has
approximately 212,800 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1997. Located on an approximately 13.1 acre parcel of
land, the building has 15 exterior docks. Major tenants include Rank Video.

3818 Grandville/1200 Northwestern. 3818 Grandville/1200 Northwestern is a
warehouse/distribution facility built in 1990 and located in Gurnee, Illinois.
The building has approximately 345,000 net rentable square feet of space, of
which 100.0% was leased as of March 31, 1997, located on an approximately 15.0
acre parcel of land. The building has ten exterior docks. Rank Video leases the
entire facility.

306-310 Era Drive. 306-310 Era Drive is a warehouse/distribution facility
built in 1984 and located in Northbrook, Illinois. The building has
approximately 36,500 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1997. Located on an approximately 2.09 acre parcel of
land, the building has three interior docks. The facility is 62.3% leased by
Roche/NICL Ltd., which has installed a high end clinical testing laboratory on
the Property.

Overhead Crane/Manufacturing Industrial Submarket.

The Company owns 19 overhead crane/manufacturing Industrial Properties
located in the Chicago Metropolitan Area, which contain an aggregate of
approximately 2.7 million rentable square feet. At March 31, 1997, the
Company's overhead crane/manufacturing Industrial Properties were 78.5% leased
to more than 20 tenants. RCG believes that the manufacturing submarket is
strong. In the second quarter of 1997, the manufacturing vacancy rate declined
to 7.5%. RCG believes that the decline resulted from a relatively moderate pace
of construction of manufacturing space, which allowed the continuing demand to
shrink the available supply of manufacturing space. Gross leasing activity,
which RCG considers a good measure of demand, has averaged approximately 14.6
million square feet between December 1991 and December 1996. RCG believes that
the manufacturing submarket will continue to experience moderate to strong
growth in demand, which in conjunction with moderate levels of new
construction, will result in stable vacancy rates in the near term. The
following graph illustrates vacancy rates in and additions to the Chicago
Metropolitan Area manufacturing submarket.

107
<PAGE>

LOGO

Three of the overhead crane/manufacturing facilities are manufacturing
facilities located in the north suburbs of the Chicago Metropolitan Area. The
remaining overhead crane/manufacturing facilities are located in three of the
industrial parks, the ECEC, CEC and HEC, each of which contain both
manufacturing and overhead crane buildings. The market for overhead crane
buildings in the Chicago Metropolitan Area is closely tied to the local steel-
processing industry, the nation's largest, which produces 23.0% of the
nation's steel output. Over the past few years, major steel companies have
outsourced certain steel processing operations, such as those performed in the
Company's overhead crane buildings, and smaller companies, which have proven
able to process steel at a lower cost, have fulfilled some of the demand for
this outsourced steel processing. These developments have increased the demand
for overhead crane facilities that can accommodate such operations. The
Company believes this development is a positive signal of future demand for
large crane buildings in this market. The Company also believes that its
overhead crane buildings are well-positioned to take advantage of this demand,
due to, among other things, the relatively high cost of constructing
appropriate replacement buildings in that submarket.

RCG believes that the overhead crane market, which has a vacancy rate of
less than 4.0%, is strong. The vacancy rate is low primarily because during
the last five years, strong industrial output, particularly of large durable,
steel-intensive products like automobiles, has increased the demand for
overhead crane facilities to handle the processing and distribution of steel.
In addition, while demand has grown for these facilities during the last ten
to 15 years, particularly in markets like Chicago, which is the nation's
largest steel-processing market, few overhead crane buildings have been built
during the last seven years. Because of high land costs and greater structural
reinforcing required for overhead crane facilities as opposed to more
conventional manufacturing facilities, the cost to erect a 100,000 square-foot
building with 20-ton cranes is approaching $60.00 per square foot, and RCG
estimates that the rents required to justify new construction are currently
close to $8.00 per square foot compared to a market rent of $3.25 to $4.50 per
square foot for the Company's Properties.

108
<PAGE>

Description of Chicago Metropolitan Area Overhead Crane/Manufacturing
Properties

The Company's overhead crane/manufacturing Properties in the Chicago
Metropolitan Area industrial market consist of certain of the Contribution
Properties and the ECEC, HEC and CEC.

1301 Ridgeview Drive. 1301 Ridgeview Drive is a manufacturing facility built
in 1995 and located in McHenry, Illinois. It has approximately 217,600 net
rentable square feet of space, of which 100% was leased as of March 31, 1997.
Located on an approximately 20.0 acre parcel of land, the Company has an
option to purchase 13.0 acres of land adjacent to this Property. The building
has 18 exterior docks, rail access and excellent access to the local highway
system. The Property is occupied by Motorola's fastest growing division,
Cellular Infrastructure Group, which has installed a high-tech manufacturing
and assembly facility and which has an option to lease or purchase this land,
exercisable on or before August 1, 1998.

515 Huehl Road/500 Lindberg. 515 Huehl Road/500 Lindberg is a manufacturing
facility built in 1988 and located in Northbrook, Illinois. The building has
approximately 201,200 net rentable square feet of space, of which 100% was
leased as of March 31, 1997. Located on an approximately 7.9 acre parcel of
land, the building has two interior docks and eight exterior docks. Rank Video
uses the entire building for its video duplication and packaging facility,
which currently operates around the clock seven days a week.

455 Academy Drive. 455 Academy Drive is a manufacturing facility built in
1976 and located in Northbrook, Illinois. The building has approximately
105,400 net rentable square feet of space, of which 100% was leased as of
March 31, 1997. Located on an approximately 6.7 acre parcel of land, the
existing facility may be expanded by an additional 50,000 square feet to
approximately 155,000 square feet. The building has four interior docks. This
Property is occupied by National Service Industries, which uses it as a
production, warehouse and distribution center for commercial lighting
reflectors and which has a right of first refusal to purchase this Property.
The Company is aware of environmental contamination at this Property and will
receive indemnification for such contamination from National Service
Industries. For a description, see "--Government Regulations--Environmental
Matters."

Chicago Enterprise Center. The CEC is an overhead crane facility located on
the south side of Chicago. The facility consists of four main buildings of
overhead crane steel processing space and four light manufacturing/warehouse
buildings situated on approximately 113.0 acres of land. The crane facilities
contain overhead cranes with a lifting capacity of 7.5 tons to 40.0 tons. The
warehouse buildings are suited for light manufacturing and distribution. The
facility was built in multiple phases from 1916 through 1991 and was acquired
and redeveloped by Prime in 1990. The facility has approximately 1,031,800 net
rentable square feet of space, of which 61.9% was leased as of March 31, 1997.
The existing facility may be expanded by an additional 670,000 square feet to
1,700,000 square feet, on which manufacturing and distribution space may be
constructed. The CEC has convenient access to all of the steel mills in
northwest Indiana, as well as all Interstate highways in the area. It is
located within one mile of a four-way entrance/exit ramp to the Calumet
Expressway and within four miles of a four-way entrance/exit ramp to
Interstate 90. The facility is also served by the Norfolk & Southern, EJ&E,
Conrail and Indiana Harbor Belt railways. Major tenants include Co-Steel
Lasco, Inc., Welded Tube Company, Alpha Processing, Inc. and Sterling Steel
Services, Inc., which are all steel processing companies.

East Chicago Enterprise Center. The ECEC is an overhead crane facility
located in East Chicago, Indiana. The facility consists of three main
buildings of overhead crane steel processing space, one warehouse building and
one office building situated on approximately 41.3 acres of land. The crane
facilities contain high bays and overhead cranes with lifting capacities
ranging from five tons to 100 tons. The warehouse building is a single-story,
free standing metal clad building with approximately 14,100 net rentable
square feet. The facility was built in multiple phases from 1917 through 1952
and was acquired by Prime in 1988. Prime redeveloped facilities at the ECEC by
insulating and heating certain facilities, installing new roofs, refinishing
floors and purchasing new cranes. The ECEC (excluding the office building) has
approximately 562,500 net rentable square feet of

109
<PAGE>

industrial space, of which 80.9% was leased as of March 31, 1997. The existing
facility contains a 9.1 acre parcel of land on which the Company may construct
an additional 250,000 square feet of manufacturing and distribution space. The
ECEC has convenient access to all of the steel mills in northwest Indiana, as
well as all Interstate highways in the area. The facility is located within
two miles of an entrance to Interstate 90 and within five miles of a four-way
entrance/exit ramp to Interstate 80/94. It is also served by rail, and the
three industrial buildings have rail spurs located within the crane bay areas,
providing access to the Indiana Harbor Belt railroad. Major tenants include
Acutus-Gladwin, Metro Metals and Illiana Steel, which are all steel processing
companies.

Hammond Enterprise Center. The HEC is an overhead crane facility located in
Hammond, Indiana. The facility consists of two buildings of overhead crane
steel processing space and one office building situated on approximately 37
acres of land. It was built in multiple phases from 1920 through 1952 and was
acquired and redeveloped by Prime in 1989. The HEC (excluding the office
building) has approximately 506,900 net rentable square feet of industrial
space, of which 86.2% was leased as of March 31, 1997. The HEC has convenient
access to all of the steel mills in northwest Indiana, as well as Interstate
highways in the area. It is located within one half-mile of an entrance to
Interstate 90 and within four miles of a four-way entrance/exit ramp to
Interstate 90. It is also served by rail, and the two industrial buildings
have rail spurs located within the crane bay areas providing access to the CSX
railroad. Major tenants include HECO, A.M. Castle and Bar Processing.

4440 Railroad Avenue. 4440 Railroad Avenue is a single-story office building
located adjacent to the East Chicago Enterprise Center in East Chicago,
Indiana. It was built in 1917, renovated in 1991 and has approximately 40,000
net rentable square feet of office space, of which 100% was leased as of March
31, 1997. The building is leased entirely by Inland Steel as the headquarters
for its human resources department.

4527 Columbia Avenue. 4527 Columbia Avenue is a single-story office building
located within the Hammond Enterprise Center in Hammond, Indiana. It was built
in phases from 1920 through 1952 and has approximately 16,700 net rentable
square feet of office space, of which 62.8% was leased as of March 31, 1997.
Tenants of the building include the Company, Town & Country and Great Lakes
Engineering LLC.

The Columbus Metropolitan Area Industrial Market

The Company will own and operate six Industrial Properties in the Columbus
industrial market. Although the Company has no present plans to expand its
presence in Columbus, management believes that it is prudent for the Company
to acquire these Properties because of their current profitability.

Columbus, the capital of the state of Ohio, has a population of
approximately 1.5 million and is home to a number of major employers,
including Ohio State University, CompuServe, The Limited and Lucent
Technologies.

Columbus' employment base has expanded at an average rate of 2.7% during the
last five years, compared to national growth of 2.0% over the same period.
However, during the year ended April 1997, Columbus' employment grew 1.3%
compared to 2.3% for the nation as a whole.

The Columbus industrial market, which is comprised of approximately 92
million square feet of industrial space, had a vacancy rate of 7.3% as of the
first quarter of 1997, which was lower than the national average industrial
vacancy rate of 8.1%. RCG believes that the outlook for the Columbus
industrial market is strong, with an industrial vacancy rate of 6.0% to 7.0%
over the next three years.

Employment in the transportation, communications and public utilities sector
increased by 2.8% during the year ended April 1997, reflecting, in part,
expansion in cargo shipping operations at Rickenbacker International Airport
and Port Columbus International Airport. Although manufacturing employment was
down slightly for

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the year ended April 1997, several large companies, including Kraft Foods, AK
Steel, Coca-Cola, Crane Plastics Company and General Castings Company (a
manufacturer of iron castings and provider of machine shop services) have
proposed expansions in the Columbus, Ohio metropolitan area.

Forecasted Employment Growth. RCG forecasts that the Columbus metropolitan
area employment base will continue to grow at a moderately strong rate of 1.8%
to 2.2% per year during the next three years, with growth in the services
sector accelerating in the next two to three years.

Description of Columbus, Ohio Properties.

2160 McGaw Road. 2160 McGaw Road is a warehouse/distribution building built
in 1974 and located in Obetz, Ohio. The building has approximately 310,100 net
rentable square feet of space, of which 100.0% was leased as of March 31,
1997, located on an approximately 18.1 acre parcel of land. Spartan Warehouse
leases the entire facility.

4849 Groveport Road. 4849 Groveport Road is a warehouse/distribution
building built in 1968 and located in Obetz, Ohio. The building has
approximately 132,100 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1997, located on an approximately 11.7 acre parcel of
land. Approximately 4.2 acres of this land can be further developed. Premier
Auto Glass Corp. leases the entire facility.

2400 McGaw Road. 2400 McGaw Road is a warehouse/distribution building built
in 1972 and located in Obetz, Ohio. The building has approximately 86,400 net
rentable square feet of space, of which 100.0% was leased as of March 31,
1997, located on an approximately 6.1 acre parcel of land. S.P. Richards
leases the entire facility.

5160 Blazer Memorial Parkway. 5160 Blazer Memorial Parkway is a light
industrial warehouse/distribution/office or "flex" building built in 1983 and
located in Dublin, Ohio. The building has approximately 86,000 net rentable
square feet of space, of which 64.5% was leased as of March 31, 1997, located
on an approximately 10.0 acre parcel of land. Major tenants include Alkon
Corporation and Danninger Medical. Most of the leased space in this Property
is currently used as office space, but could be converted to light industrial
or warehouse use.

4411 Marketing Place. 4411 Marketing Place is a manufacturing building built
in 1984 and located in Groveport, Ohio. The building has approximately 65,800
net rentable square feet of space, of which 100.0% was leased as of March 31,
1997, located on an approximately 5.4 acre parcel of land. Wes Tran Corp.
leases the entire facility.

600 London Road. 600 London Road is a warehouse/distribution building built
in 1980 and located in Delaware, Ohio. The building has approximately 52,440
net rentable square feet of space, of which 100.0% was leased as of March 31,
1997, located on an approximately 9.2 acre parcel of land. Approximately 4.5
acres of this land can be further developed. Schneider National Inc. leases
the entire facility.

LAND FOR DEVELOPMENT AND OPTION PROPERTIES

The Company has significant experience in the development of both Office
Properties, such as the 77 West Wacker Drive Building, and Industrial
Properties, such as the Contribution Properties. The Company expects to
continue to develop properties, both for "build-to-suit" projects and under
pre-leasing arrangements. The Company already owns several prime parcels of
developable land in the Chicago Metropolitan Area. Following the completion of
the Offering, the Company will own approximately 83.4 acres and have rights to
acquire approximately 62.8 acres of developable land, including rights to
acquire one development site located in the Chicago CBD containing
approximately 58,000 square feet, which management believes could support
approximately 1.2 million square feet of additional office development in the
Chicago CBD, and approximately

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2.5 million square feet of additional industrial development primarily in the
Chicago Metropolitan Area. The following table provides additional information
with respect to these undeveloped parcels:

<TABLE>
<CAPTION>
OWNERSHIP
DESCRIPTION LOCATION SIZE STATUS
----------- -------- ---- --------------
<S> <C> <C> <C>
425 East Algonquin
Road................... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Cen-
ter.................... Chicago, IL 51.2 Acres Own
East Chicago Enterprise
Center................. East Chicago, IN 9.1 Acres Own
Hammond Enterprise Cen-
ter.................... Hammond, IN 8.2 Acres Own
455 Academy Drive(1).... Northbrook, IL 2.5 Acres Own
Libertyville Business
Park(2)................ Libertyville, IL 48.5 Acres Under contract
1301 Ridgeview
Drive(3)............... McHenry, IL 13.0 Acres Option
4849 Groveport Road..... Obetz, OH 4.2 Acres Own
600 London Road......... Delaware, OH 4.5 Acres Own
300 North LaSalle(4).... Chicago, IL 58,025 Sq. Ft. Option
</TABLE>
- --------
(1) National Service Industries, the current tenant of the industrial building
at 455 Academy Drive, has a right of first refusal to purchase the adjacent
land.
(2) The Company is obligated to purchase this land for $7.4 million (subject to
certain purchase price adjustments), within three years following the
consummation of the Formation Transactions and the completion of the
Offering.
(3) Motorola has an option to lease or purchase this land, exercisable on or
before August 1, 1998.
(4) The Company has a ten-year fixed price option to purchase this Chicago CBD
development site.

The Company has successfully developed land both for its own portfolio and
for other parties. For example, in 1991, Prime developed a build-to-suit
project and in 1996 sold a parcel of land formerly attached to the CEC, and in
1996, sold a parcel of land formerly attached to the ECEC. The Company believes
that it has developed close working relationships with quality subcontractors
in its markets, and that its reputation in its current markets for developing
properties for its own account and others has aided and will aid it in working
with potential clients and tenants on a "build-to-suit" or pre-lease basis.

Following are descriptions of certain developable parcels of land which the
Company owns or has an option to purchase. For a description of the parcels of
land attached to Properties, see the descriptions of those Properties above.

Libertyville Business Park. Libertyville Business Park is a site located in
the north suburb of Libertyville, Illinois. The Company has entered into an
agreement with the current owner to purchase the entire 48.5 acre undeveloped
portion of the site over the next three years. The parcel is suitable for
industrial development, is zoned for the development of an approximately 1.1
million square feet of office or industrial space and is located adjacent to
several buildings, including 801 Technology Way, 901 Technology Way and 1001
Technology Way, which were developed by certain members of management.

801 Technology Way and 901 Technology Way. 801 Technology Way and 901
Technology Way are industrial buildings located in the Libertyville Business
Park in Libertyville, Illinois. The two buildings are adjacent to each other,
and each is a single-story building developed by certain members of management
and completed in early 1997. The buildings are pre-cast concrete and have
tinted glass windows with blue aluminum accents. Each has approximately 68,800
net rentable square feet. 901 Technology Way has one tenant, Production
Associates, a display company, which leases approximately 12,000 square feet,
or approximately 18.3% of the net rentable square feet, for use as a light
production and warehouse/distribution center. 801 Technology Way currently has
no tenants, and both buildings are being actively marketed by the owner to
prospective tenants. Upon completion of the Offering, the Company will receive
an option to purchase these buildings, which are currently owned by one of the
Contributors. The option on each property is exercisable for three years or
until 16 days after the leasing of substantially all of such property to a non-
affiliate of the

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<PAGE>

Contributor. Under the terms of the option, the Company may buy the property
for a purchase price of the product of ten times the pro forma net operating
income from the property for the following 12 months. The purchase price may
be no less than the direct out-of-pocket cost to develop and construct the
property and no more than 120% of such cost.

300 North LaSalle. 300 North LaSalle is a site located in the Chicago CBD
and currently contains a parking facility. Prime owns the site. Upon the
consummation of the Formation Transactions, Prime will grant the Company a
ten-year option to purchase a site consisting of approximately 58,000 square
feet for a purchase price equal to 95% of the then fair market value of such
site. The parcel is in the heart of downtown Chicago and is a highly suitable
site for a variety of developments. In management's opinion, this site is
suitable for the development of a major office or mixed-use project containing
up to 1.2 million rentable square feet of space.

Huntley Property. The Company has a 15-year right of first offer to develop
(or develop and acquire an ownership interest in) all or any portion of 360
acres of undeveloped office and industrial land in the Huntley Business Park
currently owned and controlled by an affiliate of Prime subject to a
participation interest in such property held by a third-party lender. The
right of first offer will apply to the extent that Prime determines that such
parcel shall be utilized for the construction of an office or industrial
development facility to be owned and leased to third parties by Prime or held
by Prime for sale to a third party.

COMPETITION

The Company may be competing with other owners and developers that may have
greater resources and more experience than the Company. Additionally, the
number of competitive properties in any particular market or submarket in
which the Properties are located could have a material adverse effect on both
the Company's ability to lease space at the Properties or any newly-acquired
property and on the rents charged at the Properties. The Company believes that
the Offering, the Credit Facility and the Company's access as a public company
to the capital markets to raise funds during periods when conventional sources
of financing may be unavailable or prohibitively expensive will provide the
Company with substantial competitive advantages. Further, the Company believes
that its capital structure and ability to acquire properties in exchange for
Common Units, and thereby defer a seller's potential taxable gain, will
enhance the ability of the Company to consummate transactions quickly and to
structure more competitive acquisitions than other real estate companies in
the market which lack the Company's access to capital and ability to acquire
property with Common Units. See "Business Objective and Growth Strategies--
Acquisition Strategy." The Company believes that the number of real estate
developers has decreased as a result of the recessionary market conditions and
tight credit markets during the early 1990s as well as the reluctance on the
part of more conventional financing sources to fund development and
acquisition projects. In addition, the Company believes that it will be one of
a limited number of publicly-traded real estate companies primarily focusing
on the office and industrial market in the Chicago Metropolitan Area.

TAX-EXEMPT BONDS

The development or redevelopment of the industrial parks and certain of the
Properties in Tennessee were financed in part by proceeds from the issuance of
the Tax-Exempt Bonds. The Tax-Exempt Bonds are credit enhanced. Upon
completion of the Offering, the Company expects to enter into new credit
enhancement arrangements with the issuers of credit enhancement for the Tax-
Exempt Bonds. The Company expects the credit enhancement to have a term of at
least three years. However, the Company expects that the interest rate with
respect to such Tax-Exempt Bonds will fluctuate with changes in market
interest rates. There is no assurance that the Company will be able to enter
into new credit enhancement arrangements with its credit enhancement
providers.

INSURANCE

Management believes that the Properties are covered by adequate
comprehensive liability, rental loss, and all-risk insurance, provided by
reputable companies, with commercially reasonable deductibles, limits and
policy

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specifications customarily carried for similar properties. There are, however,
certain types of losses which may be either uninsurable or not economically
insurable, such as losses due to floods, riots or acts of war. Should an
uninsured loss occur, the Company could lose both its invested capital in, and
anticipated profits from, the property.

GOVERNMENT REGULATIONS

Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.

Costs of Compliance with Americans with Disabilities Act. Under the ADA, all
public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. Compliance with the ADA requirements
could require removal of access barriers, and noncompliance could result in the
imposition of fines by the federal government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may incur additional costs
to comply with the ADA. Although the Company believes that such costs will not
have a material adverse effect on the Company, if required changes involve a
greater amount of expenditures than the Company currently anticipates, the
Company's ability to make expected distributions could be adversely affected.

Environmental Matters. Under various federal, state and local laws,
ordinances and regulations relating to the protection of the environment, an
owner or operator of real property may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in such
property. These laws often impose liability without regard to whether the owner
or operator was responsible for, or even knew of, the presence of such
hazardous or toxic substances. The costs of investigation, removal or
remediation of such substances may be substantial, and the presence of such
substances may adversely affect the owner's or operator's ability to rent or
sell the property or to borrow using such property as collateral and may expose
such owner or operator to liability resulting from any release of or exposure
to such substances. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at another location also may be liable for the
costs of removal or remediation of such substances at the disposal or treatment
facility, whether or not such facility is owned or operated by such person.
Certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may also seek recovery from owners or
operators of real properties for personal injury associated with asbestos-
containing materials and other hazardous or toxic substances. In connection
with the ownership (direct or indirect), operation, management and development
of real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and therefore potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental penalties
and injuries to persons and property.

The Company is aware of environmental contamination at certain of the older
Industrial Properties, which are already in remediation programs sponsored by
the appropriate state environmental agencies. Prime has contractually agreed to
retain liability, and indemnify the Company, for environmental remediation with
regard to these Industrial Properties, which environmental consultants have
estimated will cost, in the aggregate, approximately $3.3 million.
Investigation of the CEC by Prime and its environmental consultants revealed
contamination from petroleum underground storage tanks located on the Property.
In August 1996, Prime submitted the CEC into the Illinois Site Remediation
Program of the Illinois Environmental Protection Agency (the "IEPA"). The
environmental consultants prepared a site assessment and submitted it to the
IEPA as the

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basis for a remedial action plan, as required by the IEPA. They estimate that
the remedial action will cost approximately $2.6 million. In August 1996, the
Company filed suit against a former tenant, seeking past and future costs of
remediation associated with the presence of hazardous substances at the CEC.
Substantial settlement negotiations between Prime and the tenant have been
conducted recently. In June 1997, Prime filed suit against one of its former
environmental consultants for negligence in failing to disclose the presence
of the petroleum underground storage tanks at the CEC. The former consultant
has not yet responded in court.

Investigation of the ECEC by Prime and its environmental consultants
revealed contamination on the Property. In March 1997, Prime submitted the
ECEC into the Indiana Department of Environmental Management ("IDEM")
Voluntary Remediation Program. Upon completion of any necessary remediation
approved by IDEM, the Company will receive a Covenant Not to Sue from the
Governor of Indiana. The environmental consultants estimate that the remedial
action will cost approximately $371,000.

In addition, IDEM has requested that the owner of the ECEC participate,
along with numerous other property owners, in the development of a Natural
Resources Damage Assessment (the "Assessment") for the Grand Calumet River and
Indiana Harbor Canal System in northwest Indiana. No lawsuit has been filed or
threatened, and no claim for specified damages has been received in connection
with this matter. The Company anticipates that the Assessment will take more
than twelve months to complete and that prior to that time, the quantity of
environmental damage, if any, and the identity of the parties responsible for
any damage will remain unknown. Until additional information is known, the
likelihood that this matter could result in a liability cannot be determined.

Investigation of the HEC by Prime and its environmental consultants revealed
contamination on the Property. In March 1997, Prime submitted the HEC into the
IDEM Voluntary Remediation Program. Upon completion of any necessary
remediation approved by IDEM, the Company will receive a Covenant Not to Sue
from the Governor of Indiana. The environmental consultants estimate that the
remedial action will cost approximately $295,000.

The Company also is aware of contamination at 455 Academy Drive, one of the
Contribution Properties. The current tenant of the Property, National Service
Industries has provided the Company with an indemnity for all of the costs of
environmental remediation regarding the Property caused by National Service
Industries either knowingly or unknowingly.

The Company believes that the other Properties are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances. The Company has not been
notified by any governmental authority, and is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances in connection with any of its other Properties. None of the
Company's environmental assessments of the Properties has revealed any
environmental liability that, after giving effect to the contractual
indemnities described above, the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no
assurance that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition
of the Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company. If
compliance with the various laws and regulations, now existing or hereafter
adopted, exceeds the Company's budgets for such items, the Company's ability
to make expected distributions to shareholders could be adversely affected.

Other Regulations. The Properties are also subject to various federal, state
and local regulatory requirements, such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
material compliance with all such regulatory requirements.

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<PAGE>

However, there can be no assurance that these requirements will not be changed
or that new requirements will not be imposed which would require significant
unanticipated expenditures by the Company and could have an adverse effect on
the Company's Funds from Operations and expected distributions.

Except as described in this Prospectus, there are no other laws or
regulations which have a material effect on the Company's operations, other
than typical state and local laws affecting the development and operation of
real property, such as zoning laws. See "Risk Factors--Environmental Risks,"
"Certain Provisions of Maryland Law and of the Company's Declaration of Trust
and Bylaws," "Partnership Agreement," "Certain Federal Income Tax
Considerations" and "ERISA Considerations."

MANAGEMENT AND EMPLOYEES

The Operating Partnership has been structured as the entity through which
the Company will conduct substantially all of its operations. The Services
Company has been structured as an entity through which the Company will
conduct substantially all of its management, leasing, acquisition and
development activities and related operations. The Company generally has full,
exclusive and complete responsibility and discretion in the management and
control of the Operating Partnership, but not of the Services Company.

The Company (primarily through the Operating Partnership and the Services
Company) initially will employ approximately 151 persons. The Company, the
Operating Partnership and the Services Company will employ substantially all
of the professional employees of Prime that are currently engaged in asset
management and administration. The Company, the Operating Partnership and the
Services Company believe that relations with their employees are good.

LEGAL PROCEEDINGS

Neither the Company nor any of the Properties is subject to any material
litigation nor, to the Company's knowledge, is any material litigation
threatened against any of them, other than routine litigation arising in the
ordinary course of business, which is expected to be covered by liability
insurance. The Company has sued various parties in connection with
environmental remediation at one of its Industrial Properties. See "--
Government Regulations--Environmental Matters."

PRIME ASSETS NOT ACQUIRED BY THE COMPANY

Prime will retain substantial other assets and liabilities, including
certain commercial and residential real estate interests, which will not be
transferred to the Company in the Formation Transactions. These assets are
either not office or industrial properties or were determined to be
inconsistent with the Company's investment objectives. The excluded assets
include (i) minority limited partnership interests in two partnerships which
own two industrial buildings one of which properties is located in
Massachusetts and the other of which properties, located in Chicago, Illinois,
is subject to a condemnation proceeding and (ii) an approximately 2650-acre
development site in Huntley, Illinois which has land available for office and
industrial development, which consists of approximately 2,290.0 acres which
are zoned for residential and other non-offices and industrial uses and
approximately 360.0 acres of which is zoned for office and industrial use and
subject to a right of first offer described herein. The development or
transfer by Prime of all or any portion of the 2,650 acres of the Huntley
property is subject to obtaining a third-party lender's prior consent. See "--
Land for Development."

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of investment objectives and policies,
financing policies, conflict of interest policies and policies with respect to
certain other activities of the Company. The policies with respect to these
activities have been determined by the Board of Trustees of the Company and may
be amended or revised from time to time at the discretion of the Board of
Trustees without a vote of the shareholders of the Company, except that (i) the
Company cannot change its policy of holding its assets and conducting its
business only through the Operating Partnership and other subsidiaries, (ii)
changes in certain policies with respect to conflicts of interest must be
consistent with legal requirements and (iii) the Company cannot take any action
intended to terminate the Company's status as a REIT without the approval of
the holders of a majority of the Common Shares entitled to vote thereon and
outstanding at the time, voting together as a single class. No assurance can be
given that the Company's investment objectives will be attained or that the
value of the Company will not decrease.

INVESTMENT OBJECTIVES AND POLICIES

The Company's investment objectives are to provide regular quarterly cash
dividends to its shareholders and achieve long-term capital appreciation
through increases in cash flow from the Company's properties. The Company will
seek to accomplish these objectives through the ownership and the enhanced
operation of the Properties, the selective acquisition and development of
additional office and industrial properties and, where appropriate, renovations
and expansions of these properties. See "Business Objective and Growth
Strategies--Acquisition Strategies." One of the key criteria for new
investments will be that they offer the opportunity for growth in per share
Funds from Operations. All of the Company's investment activities will be
conducted through the Operating Partnership and the Property Partnerships,
although the Company also may hold temporary cash investments from time to time
pending investment or distribution to shareholders. The Company will not have
any limit on the amount or percentage of assets invested in any Property.

The Company may purchase or lease properties for long-term investment, expand
and improve the properties presently owned, or sell such properties, in whole
or in part, when circumstances warrant. The Company also may participate with
other entities in property ownership, through partnerships or other types of
co-ownership arrangements.

While the Company emphasizes equity real estate investments, it may in its
discretion invest in mortgages, stock of other REITs and other real estate
interests. Such mortgage investments may include participating or convertible
mortgages. The Company does not currently intend to invest in the securities of
other issuers except in connection with the Company's acquisitions of indirect
interests in properties (normally through partnership interests in special
purpose partnerships owning title to properties) and investments in short-term
income producing investments. Any such investments in the securities of other
issuers will be subject to the asset valuation of ownership limitations and
gross income tests necessary for REIT qualification for federal income tax
purposes. Further, equity investments by the Company may be subject to existing
mortgage financing and other indebtedness which have priority over the equity
interest of the Company. See "Certain Federal Income Tax Considerations--
Requirements for Qualification." In any event, the Company does not intend that
its investment in securities will require it to register as an "investment
company" under the Investment Company Act of 1940, as amended, and the Company
would intend to divest securities before any such registration would be
required.

FINANCING POLICIES

The Company will be conservatively capitalized immediately subsequent to the
Offering; total debt will constitute approximately % of the total market
capitalization of the Company. The Company expects to operate with a debt-to-
total market capitalization ratio in the range of 25.0% to 40.0%. Management
currently intends to adhere to a policy of maintaining a ratio of debt-to-total
market capitalization of not more than 50.0%. The Company has based its debt
policy on the relationship between its debt and its total market
capitalization, rather than the book value of its assets or other historical
measures that typically have been employed by publicly traded REITs, because
management believes that market capitalization more accurately reflects the
Company's

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ability to borrow money and meet its debt service requirements. Market
capitalization is, however, more variable than book value of assets or other
historical measures. Because market capitalization is a function of the market
price of the Company's Common Shares, the Company's ratio of debt-to-total
market capitalization may be affected by changes in that market price, which
are beyond the control of the Company. Although the organizational documents of
the Company do not limit the amount or percentage of indebtedness that the
Company may incur, the Company may from time to time modify its debt policy in
light of then current economic conditions, relative costs of debt and equity
capital, the market values of its properties, general conditions in the market
for debt and equity securities, fluctuations in the fair market prices of the
Common Shares, growth and acquisition opportunities and other factors.
Accordingly, the Company may increase or decrease its debt-to-total market
capitalization ratio above or below the limit described above. See "Risk
Factors--Real Estate Financing Risks--No Limitation on Debt." If the Board of
Trustees determines that additional funding is required, the Company may raise
such funds through additional equity offerings, debt financing, retention of
cash flow (subject to provisions in the Code concerning taxability of
undistributed REIT taxable income) or a combination of these methods.

In the event that the Board of Trustees determines to raise additional equity
capital, it has the authority, without shareholder approval, to issue
additional shares of Common Shares or Preferred Shares of the Company in any
manner and on such terms and for such consideration it deems appropriate,
including in exchange for property. Existing shareholders would have no
preemptive right to purchase shares issued in any offering and any such
offering might cause a dilution of a shareholder's ownership interest in the
Company.

It is anticipated that any additional borrowings will be made through the
Operating Partnership, the Property Partnerships or new property partnerships;
however, the Company itself may incur indebtedness, which may be re-loaned to
the Operating Partnership. Indebtedness incurred by the Company may be in the
form of bank borrowings, secured or unsecured, and publicly or privately placed
debt instruments. Indebtedness incurred by the Operating Partnership, the
Property Partnerships or any new property partnership may be in the form of
purchase money obligations to the sellers of properties, long-term, tax-exempt
bonds or other publicly or privately placed debt instruments, financing from
banks, institutional investors or other lenders, any of which indebtedness may
be unsecured or may be secured by mortgages or other interests in the property
owned by the Operating Partnership, the Property Partnerships or any new
property partnership. Such indebtedness may be recourse to all or any part of
the property of the Company, the Operating Partnership, any Property
Partnership or any new property partnership, or may be limited to the
particular property to which the indebtedness relates. The proceeds from any
borrowings by the Company, the Operating Partnership, any Property Partnership
or any new property partnership may be used for the payment of distributions,
for working capital, to refinance existing indebtedness or to finance
acquisitions, expansions or development of new properties; provided, that the
Company cannot borrow to pay distributions to shareholders except through the
Operating Partnership.

CONFLICTS OF INTEREST POLICIES

The Company has adopted certain policies and entered into various agreements
designed to reduce conflicts of interest involving the owners and management of
the Company. For a discussion of such conflicts, see "Risk Factors--Conflicts
of Interest; Benefits to Prime."

Michael W. Reschke, the Chairman of the Board of the Company and the
principal stockholder of Prime, will continue to devote a considerable portion
of his time to the management of Prime's continuing commercial real estate
operations. Pursuant to the Non-Compete Agreement, Mr. Reschke and Prime have
agreed that, so long as Prime and/or its affiliates own a 5.0% or greater
economic interest in the Company or Mr. Reschke is Chairman of the Board of the
Company, neither Mr. Reschke nor Prime (including its affiliates) will own or
manage office or industrial properties (except any ownership resulting from
foreclosure of indebtedness). Excluded from the foregoing restrictions are all
properties in which Prime had an interest prior to the Formation Transactions
and Prime's or Mr. Reschke's ownership of less than 5.0% of any class of
securities listed on a national securities exchange or on the Nasdaq National
Market. See "Certain Relationships and Transactions--Non-Compete Agreement."

118
<PAGE>

Richard S. Curto entered an employment agreement that contains noncompetition
provisions designed to reduce potential conflicts of interest. These provisions
prohibit Mr. Curto from engaging directly or indirectly in the development or
acquisition of office properties during the period he is employed with the
Company and for an additional 24-month period following any termination of such
employment either by the Company for cause or by Mr. Curto voluntarily. See
"Management."

As holders of Common Units, the Limited Partners may suffer different and
more adverse tax consequences than the Company upon the sale or refinancing of
the properties and therefore the Limited Partners and the Company may have
different objectives regarding the appropriate pricing and timing of any sale
or refinancing of such properties. The decision to proceed with any such sale
or refinancing will be made by the Board of Trustees. The Partnership Agreement
provides that the Company has no obligation to consider the separate interests
of the Limited Partners, including tax consequences to Limited Partners, in
deciding whether to sell a property. See "Risk Factors--Conflicts of Interest;
Benefits to Prime."

In addition, under the Declaration of Trust and the Bylaws of the Company,
each trustee will be obligated to offer to the Company any opportunity which
comes to such trustee and which the Company could reasonably be expected to
have an interest in pursuing. In addition, under Maryland law (the jurisdiction
under which the Company was formed), any contract or transaction between the
Company and any trustee or any entity in which the trustee has a material
financial interest would not be voidable solely because of such trustee's
interest if (a) it is approved after disclosure of the interest, by an
affirmative vote of a majority of disinterested trustees or by the affirmative
vote of a majority of the votes cast by disinterested shareholders or (b) it is
fair and reasonable to the Company.

WORKING CAPITAL RESERVES

The Company will maintain working capital reserves (and when not sufficient,
access to borrowings) in amounts the Board of Trustees determines to be
adequate to meet normal contingencies in connection with the operation of the
Company's business and investments.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to offer its shares of beneficial interest or other
equity or debt securities in exchange for property and to repurchase or
otherwise reacquire its shares or any other securities and may engage in such
activities in the future. Similarly, the Company may offer additional interests
in the Operating Partnership that are exchangeable into Common Shares or, at
the Company's option, cash, in exchange for property. The Company also may make
loans to the Operating Partnership. The Company expects to issue Common Shares
to holders of interests in the Operating Partnership upon exchange thereof,
subject to certain restrictions and limitations. Any election by the Company
with respect to Common Units held by Prime or any other officer or trustee of
the Company will be made with the approval of the independent trustees. Except
in connection with the Formation Transactions, the Company has not issued or
caused to be issued Common Shares, interests in the Operating Partnership or
other securities. The Company has not made loans to any entities or persons,
including its officers and trustees. The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers and
does not intend to do so. At all times, the Company intends to make investments
in such manner as to be consistent with the requirements of the Code for the
Company to qualify as a REIT unless, because of changing circumstances or
changes in the Code (or in the Treasury Regulations), the Board of Trustees
with the consent of the holders of the majority of the votes entitled to be
cast on such matter, determines that it is no longer in the best interests of
the Company to qualify as a REIT.

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<PAGE>

MANAGEMENT

TRUSTEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information concerning each of the
Company's trustees, executive officers and key employees:

<TABLE>
<CAPTION>
NAME(1) AGE POSITION
------- --- --------
<S> <C> <C>
Michael W. Reschke...... 41 Chairman of the Board, Trustee
Richard S. Curto........ 45 President and Chief Executive Officer, Trustee
W. Michael Karnes....... 51 Executive Vice President and Chief Financial Officer
Robert J. Rudnik........ 43 Executive Vice President, General Counsel and
Secretary
Jeffrey A. Patterson.... 38 Executive Vice President and Chief Investment Officer
Kevork M. Derderian..... 46 President--Office Division
Edward S. Hadesman...... 64 President--Industrial Division
John O. Wilson.......... 43 President--Prime Group Realty Services, Inc.
Donald H. Faloon........ 50 Executive Vice President--Development
Philip A. Hoffer........ 47 Senior Vice President--Real Estate Operations
Steven R. Baron......... 48 Senior Vice President--Marketing and Leasing/CBD
Office
Faye I. Oomen........... 48 Senior Vice President--Corporate Development and
Marketing/ Leasing--Suburban Office
Christopher "Kit" J. 31 Senior Vice President--Industrial Operations
Sultz..................
Tucker B. Magid......... 32 Senior Vice President--Industrial Development
James F. Hoffman........ 35 Vice President--Associate General Counsel
Kathryn A. Deane........ 48 Vice President--Controller
Donald E. Anderson...... 55 Vice President--Property Management
Phillip E. Waters....... 38 Vice President--Marketing and Leasing
Rolanda H. Derderian.... 42 Vice President--Real Estate Tax Specialist
Rux B. Currin........... 41 Vice President--Development
James F. Runnion........ 53 Vice President--Asset Management
Scott D. McKibben....... 32 Vice President--Acquisitions
Independent Trustee
Independent Trustee
Independent Trustee
Independent Trustee
</TABLE>
- --------
(1) Prior to or upon the effectiveness of the Registration Statement that
contains this Prospectus, the Company intends to nominate and elect four
additional persons (each of whom will be unaffiliated with the Company and
Prime) to serve as trustees of the Company, each of whom will be referred
to herein as an "Independent Trustee."

Michael W. Reschke. Michael W. Reschke serves as the Chairman of the Board
of Trustees of the Company. Mr. Reschke founded Prime in 1981 and, since that
time, has acted as Prime's Chairman and Chief Executive Officer. Mr. Reschke
is also Chairman of the Executive Committee of Prime and is Chairman of the
Board of Prime Retail, Inc. and Brookdale Living Communities, Inc. and a
member of the Board of Directors of Ambassador Apartments, Inc. For the last
17 years, Mr. Reschke has directed and managed the acquisition, development,
finance, construction, leasing, marketing, renovation and property management
activities of Prime. Mr. Reschke is licensed to practice law in the State of
Illinois and is a certified public accountant. Mr. Reschke is a member of the
Chairman's Roundtable and the Executive Committee of the National Realty
Committee and is a full member of the Urban Land Institute. Mr. Reschke also
serves on the Board of Visitors of the University of Illinois Law School.

Richard S. Curto. Richard S. Curto serves as President, Chief Executive
Officer and Trustee of the Company. Mr. Curto joined Prime in May 1994 and,
since that time, has served as Executive Vice President.

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<PAGE>

Since joining Prime, Mr. Curto has been responsible for the capital markets
transactions and other project-related financings of Prime. From September 1981
to April 1994, Mr. Curto was employed by Kemper Financial Services, a $65
billion money management firm overseeing the activities of the lending and
equity investment group related to real property, most recently serving as
Senior Vice President. Mr. Curto held various positions with Northwestern
Mutual Life Insurance Co. in the Real Estate Department prior to 1981. Mr.
Curto is a member of the Urban Land Institute and the National Realty
Committee.

W. Michael Karnes. W. Michael Karnes serves as Executive Vice President and
Chief Financial Officer of the Company. From July 1997 to immediately prior to
the Offering, Mr. Karnes was employed by Prime as an Executive Vice President.
From April 1996 to June 1997, Mr. Karnes served as Senior Executive Vice
President, Finance and Chief Financial Officer of Capstar Hotel Company. From
1994 to April 1996, Mr. Karnes served as Senior Vice President and Chief
Financial Officer of Tucker Properties Corporation, a publicly-traded REIT.
From 1991 to 1994, Mr. Karnes served as Senior Vice President, Finance and
Administration for Banyan Management Corp., a company that provides management
services for five public REITs and three master limited partnerships. Prior to
that, from 1989 to 1991, Mr. Karnes served as Chief Operating Officer of
Miglin-Beiter, Inc., a private real estate development, management and leasing
firm.

Robert J. Rudnik. Robert J. Rudnik serves as Executive Vice President,
General Counsel and Secretary of the Company. Mr. Rudnik joined Prime in April
1984 and, since that time, has served as Executive Vice President, General
Counsel and Secretary of Prime, responsible for all legal, insurance and human
resource matters for Prime. Mr. Rudnik continues to serve in such capacity for
Prime and serves as General Counsel and Secretary for Brookdale Living
Communities, Inc.

Jeffrey A. Patterson. Jeffrey A. Patterson serves as Executive Vice President
and Chief Investment Officer of the Company. From 1989 to immediately prior to
the Offering, Mr. Patterson was Executive Vice President of Prime, with primary
responsibility for the acquisition, financing and redevelopment of office and
mixed-use properties. Mr. Patterson also was asset manager for Prime's office
properties and has provided real estate advisory services for several major
institutional investors related to office buildings. Prior to joining Prime,
Mr. Patterson served as Director of Development in Tishman Speyer Properties'
Chicago office and as a Senior Financial Analyst at the Metropolitan Life
Insurance Company's Real Estate Investment Group. Mr. Patterson is an associate
member of the Urban Land Institute.

Kevork M. Derderian. Kevork M. Derderian serves as President--Office Division
of the Company. Prior to joining the Company, Mr. Derderian was the President
and Chief Executive Officer of Continental Offices Ltd. ("Continental"). At
Continental, he oversaw all business operations, including office property
management, leasing and construction and the initiation of a successful "green
building" services program. Continental managed in excess of $650.0 million in
properties. Mr. Derderian is a member of the Urban Land Institute and BOMA
International and a member of the board of the U.S. Green Buildings Council.
Mr. Derderian is the husband of Ms. Rolanda Derderian.

Edward S. Hadesman. Edward S. Hadesman serves as President--Industrial
Division of the Company. In such capacity, Mr. Hadesman is responsible for the
acquisition, development, operation of the properties and the management
personnel of the Industrial Division. Prior to joining the Company, Mr.
Hadesman was the President and Chief Executive of the Industrial Building and
Development Company ("IBD"), which he formed in 1965. IBD owned, operated,
leased and managed in excess of 1.1 million square feet and developed and
constructed over 1.6 million square feet, consisting primarily of high quality
warehouse, distribution, manufacturing and office buildings. Mr. Hadesman, as
founder and President of IBD, personally supervised all aspects of IBD's
business, including development, leasing, acquisition and management.

John O. Wilson. John O. Wilson serves as President--Prime Group Realty
Services, Inc. of the Company. From January 1995 to immediately prior to the
Offering, Mr. Wilson served as President of Prime's Corporate Real Estate
Services department. Over a 15-year period prior to joining Prime, Mr. Wilson
served as President and Chief Executive Officer of Realsource, Inc., a regional
real estate service firm, which he co-founded in 1981.

121
<PAGE>

Mr. Wilson's responsibilities included overseeing all aspects of property
marketing, corporate client services and the implementation of management
plans. Prior to 1981, Mr. Wilson was an officer in the Chicago office of
Cushman & Wakefield. He is a Charter Member of the Chicago Office Leasing
Brokers Association and The International Development and Research Council.

Donald H. Faloon. Donald H. Faloon serves as Executive Vice President--
Development of the Company. From January 1989 to immediately prior to the
Offering, Mr. Faloon was employed by Prime in its commercial development
activities. Previous responsibilities for Prime included overseeing Prime's
Diagonal Mar project in Barcelona, Spain and serving as Executive Project
Manager for the 77 West Wacker Drive Building. Prior to joining Prime, Mr.
Faloon had 17 years of experience in the management of real estate development
at Homart Development Co. and Urban Investment and Development Co.

Philip A. Hoffer. Philip A. Hoffer serves as Senior Vice President--Real
Estate Operations of the Company. Prior to joining the Company, Mr. Hoffer was
Vice President and Chief Operating Officer of Continental. He has over 15 years
of experience in real estate development, management, construction and
brokerage in Chicago, California and New York. Past responsibilities include
serving as project manager for the 676 North Michigan Avenue Building in
Chicago, overseeing the renovation of health care, office and industrial
buildings and managing over 13 million square feet of office, industrial and
retail space in Chicago and Los Angeles as a third-party manager.

Steven R. Baron. Steven R. Baron serves as Senior Vice President--Marketing
and Leasing/CBD Office of the Company. From December 1996 to immediately prior
to the Offering, Mr. Baron was employed by Prime as Senior Vice President
responsible for commercial development and sales at a 2650-acre planned
development in Huntley, Illinois. From February 1996 to December 1996, he
served as Senior Vice President of Benjamin E. Sherman & Sons, a real estate
company, where he oversaw the management portfolio and leasing activity. From
February 1994 to December 1995, he was the Managing Director of PM Realty
Group's Midwest Division where he oversaw the leasing and management portfolio.
From 1988 to 1994, Mr. Baron was employed by Prime as Executive Vice President
responsible for the leasing and marketing of the 77 West Wacker Drive Building.
Mr. Baron is a licensed real estate broker and is an instructor at Kellogg
School of Management where he lectures on commercial real estate development,
leasing and marketing.

Faye I. Oomen. Faye I. Oomen serves as Senior Vice President--Corporate
Development and Marketing/Leasing--Suburban Office of the Company. Prior to
joining the Company, Ms. Oomen was Executive Vice President of Continental. She
has over 23 years of experience in real estate leasing, marketing and
development. At Continental, she negotiated more than 200 leasing transactions
for more than 1.5 million square feet of Continental's portfolio, including
Continental Towers, Continental Office Plaza, Regency Office Plaza and The
Marquette Building. She also was responsible for development and base building
construction at One Financial Place and Continental Towers. She has received
numerous awards, including being named the 1995 Sun-Times Suburban Property
Representative of the Year.

Christopher "Kit" J. Sultz. Christopher J. Sultz serves as Senior Vice
President--Industrial Operations of the Company. From June 1994 to immediately
prior to the Offering, Mr. Sultz was employed by Prime in its Industrial
Division as Vice President--Asset Management. Prior to joining Prime, Mr. Sultz
was employed by Coopers & Lybrand, LLP from August 1991 to June 1994 in its
real estate consulting practice. Mr. Sultz is a certified public accountant.

Tucker B. Magid. Tucker B. Magid serves as Senior Vice President--Industrial
Development of the Company. In such capacity, he is responsible for overseeing
the development activities of the industrial division. From 1991 to immediately
prior to the Offering, Mr. Magid was Senior Vice President of IBD, where he was
responsible for the management, leasing and operations of the approximately 1.2
million square foot industrial portfolio and development of the Motorola
Building and Libertyville Business Park. Mr. Magid is a member of the
Association of Industrial Real Estate Brokers ("AIREB").

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<PAGE>

James F. Hoffman. James F. Hoffman serves as Vice President--Associate
General Counsel of the Company. From January 1991 to immediately prior to the
Offering, Mr. Hoffman served as Assistant General Counsel of Prime. Prior to
his employment with Prime, Mr. Hoffman was an associate with the law firm of
Mayer, Brown & Platt from September 1987 to December 1990.

Kathryn A. Deane. Kathryn A. Deane serves as Vice President-Controller of
the Company. From March 1997 to immediately prior to the Offering, Ms. Deane
was Chief Financial Officer of Continental. From August 1995 to February 1997,
Ms. Deane was Vice President of Operational Accounting and Vice President of
Investor Relations for Equity Group Investments, Inc. and its affiliate EGI
Capital Markets, LLC. Ms. Deane is a certified public accountant and is a
member of the Illinois CPA Society and Chicago Building Owners and Managers
Association ("BOMA").

Donald E. Anderson. Donald E. Anderson serves as Vice President--Property
Management of the Company. From 1992 to immediately prior to the Offering, Mr.
Anderson was employed by Prime as the Manager of the Property Management
section of its Industrial Development Group. Mr. Anderson's primary
responsibilities at Prime involved the oversight of Prime's four industrial
parks: the AHEC, CEC, ECEC and HEC.

Phillip E. Waters. Phillip E. Waters serves as the Vice President--Marketing
and Leasing for the Company. From January 1995 to immediately prior to the
Offering, Mr. Waters was employed by Prime as the Director of Marketing of its
Industrial Development Group. Mr. Waters' primary responsibilities at Prime
involved the development and implementation of a marketing program for
industrial properties, the repositioning of properties as multitenant
facilities and the formation of build-to-suit projects. From 1990 to 1995, Mr.
Waters worked for the M-B Sales Division of the Havi Group, creating private
partnerships for a multifamily redevelopment project. Mr. Waters is a licensed
real estate broker in Illinois and Indiana. He serves on the Board of
Directors of the Northwest Indiana Forum, a regional development group, and
the East Chicago Chamber of Commerce.

Rolanda H. Derderian. Rolanda H. Derderian serves as the Vice President--
Real Estate Tax Specialist of the Company. From 1976 to immediately prior to
the Offering, Ms. Derderian served as Vice President and Chief Information
Officer of Continental. Ms. Derderian's primary responsibilities at
Continental involved real estate tax defense strategies and computer system
design and implementation. Ms. Derderian serves as Co-Chairman of the Real
Estate Tax Committee of the Chicago Development Council. She is the wife of
Mr. Kevork Derderian.

Rux B. Currin. Rux B. Currin serves as Vice President--Development of the
Company. From July 1990 to immediately prior to the Offering, Mr. Currin was
employed by Prime, most recently serving as Vice President of Development
involved in various build to suit developments. Prior to joining Prime, Mr.
Currin was employed by The Webb Companies from 1986 to 1990 as Development
Manager with development, leasing, and management responsibilities. From 1982
to 1986, Mr. Currin was employed by Cadillac Fairview Urban Development
Company as an Investment Analyst and Development Officer.

James F. Runnion. James F. Runnion serves as Vice President--Asset
Management of the Company. From October 1991 to immediately prior to the
Offering, Mr. Runnion was employed by Prime as Vice President--Management with
primary responsibility for the 77 West Wacker Drive Building. Prior to joining
Prime, Mr. Runnion had 19 years of experience in the development, leasing and
management of commercial office properties. Mr. Runnion holds the Real
Property Administrator designation from BOMA.

Scott D. McKibben. Scott D. McKibben serves as Vice President--Acquisitions
of the Company. Prior to joining the Company, Mr. McKibben was employed by
Continental, most recently serving as Development Analyst. Mr. McKibben's
primary responsibilities at Continental involved conducting financial analyses
for over $300.0 million in commercial and medical office and land development
projects and assisting in arranging the financing of several prospective land
development projects. Mr. McKibben is a licensed Illinois real estate broker.

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<PAGE>

COMMITTEES OF THE BOARD OF TRUSTEES

Audit Committee. Promptly following the closing of the Offering, the Board of
Trustees of the Company will establish an Audit Committee that will initially
consist of three Independent Trustees. The Audit Committee will be established
to make recommendations concerning the engagement of independent public
accountants, to review with the independent accountants the plans and results
of the audit engagement, to approve professional service provided by the
independent public accountants, to review the independence of the independent
public accountants, to consider the range of audit and non-audit fees and to
review the adequacy of the Company's internal accounting controls.

Executive Committee. Promptly following the closing of the Offering, the
Board of Trustees of the Company will establish an Executive Committee. Subject
to the Company's conflicts of interest policies, the Executive Committee may be
granted certain authority to acquire and dispose of real property and the power
to authorize, on behalf of the full Board of Trustees, the execution of certain
contracts and agreements, including those related to the borrowing of money by
the Company, and, consistent with the Partnership Agreement, to cause the
Operating Partnership to take such actions. The Executive Committee will
initially consist of Michael W. Reschke and Richard S. Curto.

Executive Compensation Committee. Promptly following the closing of the
Offering, the Board of Trustees of the Company will establish an Executive
Compensation Committee to determine compensation for the Company's executive
officers and to implement and administer the Company's Share Incentive Plan.
The Executive Compensation Committee will initially consist of two or more
Independent Trustees.

COMPENSATION OF TRUSTEES

The Company intends to pay its trustees who are not employees of the Company
or affiliated with Prime or the Company a fee for their services as trustees.
They will receive annual compensation of $26,000 plus a fee of $1,000 for
attendance at each meeting of the Board of Trustees and $500 for attendance at
each committee meeting, and will receive reimbursement of all travel and
lodging expenses related to their attendance at both board and committee
meetings. Each non-employee trustee also will receive a grant of options to
purchase 5,000 Common Shares under the Company's Share Incentive Plan, which
will vest at the rate of 33.3% per year over the next three years commencing on
the first anniversary of their date of grant and will have a term of ten years.
See "--Share Incentive Plan."

EXECUTIVE COMPENSATION

The Company was organized in July 1997, did not conduct any prior operations
and, accordingly, did not pay any compensation to its executive officers for
the year ended December 31, 1996. The following table sets forth the annual
base salary for the year following completion of the Offering that the Company
intends to establish for the Chairman of the Board, the Chief Executive Officer
and the four other persons who are expected to be the most highly compensated
executive officers of the Company during that period. In addition to base
salaries, the Executive Compensation Committee may authorize the payment of
cash bonuses based upon performance.

<TABLE>
<CAPTION>
ANNUAL
NAME TITLE BASE SALARY
---- ----- -----------
<S> <C> <C>
Michael W. Reschke...... Chairman of the Board of Trustees $150,000
Richard S. Curto........ President and Chief Executive Officer $275,000
W. Michael Karnes....... Executive Vice President and Chief Financial Officer $200,000
Jeffrey A. Patterson.... Executive Vice President and Chief Investment Officer $200,000
Kevork M. Derderian..... President--Office Division $200,000
Edward S. Hadesman...... President--Industrial Division $200,000
</TABLE>

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<PAGE>

EMPLOYMENT AGREEMENTS

The Company will enter employment agreements with each of the executive
officers named in the table above. These agreements provide that the executive
officers shall devote substantially all of their business time to the operation
of the Company, except Mr. Reschke, who shall only be required to devote such
time as he deems necessary to fulfill his duties and obligations to the Company
as Chairman of the Board. The agreements establish the initial base salaries
set forth in the table above and provide for an initial term of one to three
years, which is automatically extended for an additional year after expiration
of the initial term and any extension period unless either the Company or the
executive officer provides the other with at least one year's prior written
notice that such term shall not be extended. If the agreements are terminated
by the Company "without cause" or are terminated by the executive after a
"change in control" or "for good reason" (as such terms are defined in the
agreements), the executive will be entitled to a lump sum payment. With regard
to Mr. Reschke, such payment will be an amount equal to the greater of his
annual base salary or 50% of the remaining aggregate base salary due him under
his employment agreement. With regard to other executives of the Company, such
lump sum payment will be an amount equal to the greater of 50% of such
executive's annual base salary or 50% of the remaining aggregate base salary
due the executive under his or her employment agreement. The agreements contain
non-compete provisions restricting the executive officers from developing,
acquiring or operating office or industrial properties for two years following
termination of employment if the employment is terminated either by the Company
for cause or by the officer voluntarily.

Michael W. Reschke, Richard S. Curto, Robert J. Rudnik and Jeffery A.
Patterson will each enter three year employment agreements with the Company.
Kevork M. Derderian and W. Michael Karnes will each enter three year employment
agreements providing for a minimum of one year base salary or the remaining
term of the contract in the event of change in control of the Company or, with
respect to Mr. Karnes, a diminution of responsibilities or a change in location
of Mr. Karnes' office to a location outside of the Chicago Metropolitan Area.
Edward S. Hadesman and Tucker B. Magid will each enter an employment agreement
in accordance with the attached contracts. Faye I. Oomen and Philip A. Hoffer
will each enter a one year contract for their annual base salary on a pro rata
basis depending on the remainder of their contract term.

SHARE INCENTIVE PLAN

The Company has established a Share Incentive Plan (the "Share Incentive
Plan") for the purpose of attracting and retaining trustees, executive officers
and other key employees. Each option granted pursuant to the Share Incentive
Plan shall be designated at the time of grant as either an "incentive share
option" or as a "non-qualified share option."

The Share Incentive Plan provides for the grants of options ("Share Options")
to purchase a specified number of Common Share. Under the Share Incentive Plan,
Common Shares will be available for grants. Participants in the Share
Incentive Plan, who may be trustees, officers or employees of the Company, or
its subsidiaries or Company-owned partnerships, will be selected by the
Compensation Committee. See "--Compensation of Trustees."

The Share Incentive Plan authorizes the Compensation Committee to grant
incentive share options at an exercise price to be determined by it, provided
that such price cannot be less than 100.0% of the fair market value of Common
Shares on the date on which the Share Option is granted. If an incentive share
option is to be granted to an employee who owns over 10.0% of the total
combined voting power of all classes of the Company's shares of beneficial
interest, then the exercise price may not be less than 110.0% of the fair
market value of the Common Shares covered by such option on the day it is
granted. The exercise price of non-qualified share options may be any price
determined by the Compensation Committee.

Upon completion of the Offering, the Company will grant Share Options (the
"Initial Grants") to the following key officers and employees of the Company:
Michael W. Reschke ( ); Richard S. Curto ( ); W. Michael Karnes
( ); Robert J. Rudnik ( ); Jeffrey A. Patterson ( ); Kevork M.
Derderian ( ); Edward S. Hadesman ( ); John O. Wilson ( );
Donald H. Faloon ( ); Philip

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<PAGE>

A. Hoffer ( ); Steven R. Baron ( ); Faye I. Oomen ( );
Christopher J. Sultz ( ); Tucker B. Magid ( ); James F. Hoffman
( ); Kathryn A. Deane ( ); Donald E. Anderson ( ); Philip E.
Waters ( ); Rolanda H. Derderian ( ); Rux B. Currin ( ); James
F. Runnion ( ); Scott D. McKibben ( ); and certain other employees
( ).

The Initial Grants will vest, subject to certain conditions being met, at a
rate of 33.3% per year over three years commencing on the first anniversary of
their date of grant and will have a term of ten years. The exercise price of
the Share Options issued pursuant to the Initial Grants will be the initial
public offering price of the Common Shares. The exercise price for any Share
Option is generally payable in cash or, in certain circumstances, by the
surrender, at the fair market value on the date on which the Share Option is
exercised, of Common Shares.

All unvested Share Options held by an optionee will automatically be
forfeited if the optionee leaves employment for any reason. Upon a "change in
control" (as defined in the Share Incentive Plan), all unvested Share Options
will vest. The rights of any participants to exercise a Share Option may not
be transferred in any way other than by will or applicable laws of descent and
distribution.

The Company also anticipates that it will grant an aggregate of Share
Options to its non-employee trustees that will vest at the rate of 33.3% per
year over three years commencing on the first anniversary of their date of
grant and will have a term of ten years. The exercise price of these Share
Options will be the initial public offering price of the Common Shares. The
exercise price for any of these Share Options will generally be payable in
cash or, in certain circumstances, by the surrender, at the fair market value
on the date on which the Share Option is exercised, of Common Shares.

The Compensation Committee may grant options under the Share Incentive Plan
in substitution for outstanding options with higher exercise prices. In
addition, in the event of certain extraordinary events, the Compensation
Committee may make adjustments in the aggregate number and kind of shares of
beneficial interest reserved for issuance, the number and kind of shares of
beneficial interest covered by outstanding awards and the exercise prices
specified therein as may be determined to be appropriate.

INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust contains a provision permitted under Maryland law
eliminating (with limited exceptions) each trustee's personal liability for
monetary damages for breach of any duty as a trustee. In addition, the
Declaration of Trust and Bylaws authorize the Company to indemnify its present
and former trustees and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding to the maximum
extent permitted from time to time under Maryland law. Maryland law provides
that indemnification of a person who is a party, or threatened to be made a
party, to legal proceedings by reason of the fact that such a person is or was
a trustee, officer, employee or agent of a corporation, or is or was serving
as a trustee, officer, employee or agent of a corporation or other firm at the
request of a corporation, against expenses, judgments, fines and amounts paid
in settlement, is mandatory in certain circumstances and permissive in others,
subject to authorization by the Board of Trustees.

The Company intends to enter into indemnification agreements with each of
the Company's trustees and certain of its executive officers. The
indemnification agreements will require, among other things, that the Company
indemnify such trustees and officers to the fullest extent permitted by law,
and advance to the trustees and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred
by trustees and officers seeking to enforce their rights under the
indemnification agreements and cover trustees and officers under the Company's
trustees' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Declaration of Trust and Bylaws, it provides
greater assurance to trustees and officers that indemnification will be
available, because as a contract, it cannot be unilaterally modified by the
Board of Trustees or by the shareholders to eliminate the rights it provides.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been

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advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

STRUCTURE AND FORMATION OF THE COMPANY

The Company was formed on July 21, 1997. The Operating Partnership and the
Services Company were formed in March 1997.

FORMATION TRANSACTIONS

Prior to or simultaneous with the completion of the Offering, the Company,
the Operating Partnership, the Services Company and the Limited Partners will
engage in the Formation Transactions designed to enable the Company to continue
and expand the office and industrial real estate operations of Prime,
consolidate the ownership interests in the Properties and the office and
industrial development, leasing and property management business of Prime,
facilitate the Offering, enable the Company to qualify as a REIT for federal
income tax purposes commencing with its taxable year ending December 31, 1997,
and preserve certain tax advantages for the existing owners of the Properties.

The Company, the Operating Partnership, the Services Company and the Property
Partnerships will engage in the following series of transactions with Prime and
certain other parties:

. The Company will sell Common Shares in the Offering and contribute
$265.1 million of the estimated net proceeds from the Offering (after
the deduction of underwriting discounts and commissions but before
payment of costs and expenses incurred in connection with the Formation
Transactions and the Offering) to the Operating Partnership and the
Property Partnerships in exchange for a % general partnership
interest in the Operating Partnership (evidenced by an aggregate of
Common Units). The Company also will receive a direct 1.0% limited
partnership interest in each of the Property Partnerships.

. Prime will contribute to the Operating Partnership (i) its ownership
interests in the Property Partnerships that own the Prime Properties and
Prime Contribution Properties, (ii) its rights to purchase the
subordinate mortgage encumbering the Property Partnership that owns the
77 West Wacker Drive Building from certain third-party lenders and its
rights to acquire certain third parties' ownership interests in the
Property Partnerships that own the Prime Properties and (iii)
substantially all of its assets and liabilities relating to its office
and industrial development, leasing and management business. In
exchange, Prime will receive Common Units, representing a %
limited partnership interest in the Operating Partnership (with an
aggregate value of $ million). The Operating Partnership will pay
approximately $2.2 million in transfer taxes related to Prime's
contribution as described herein.

. The Operating Partnership will repay third-party lenders approximately
$206.7 million (including repayment fees) of obligations of the Property
Partnerships or indebtedness encumbering the Properties. (The Operating
Partnership will also borrow $35.2 million from the Credit Facility to
repay the remaining unpaid principal balance on the 77 West Wacker Drive
Building's current mortgage note payable.)

. The Operating Partnership will repay third-party lenders approximately
$23.5 million (including repayment fees) of obligations and reimburse
Prime $0.9 million for certain acquisition costs on the Prime
Contribution Properties.

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. The Contributors will contribute their interests in the Contribution
Properties to the Operating Partnership in exchange for Common Units
(with an aggregate value of $ ) representing a % interest in the
Operating Partnership. The Operating Partnership will take the
Contribution Properties subject to the existing debt of $35.1 million
and enter into various other agreements with the Contributors. See
"Structure and Formation of the Company."

. The Operating Partnership will pay approximately $10.4 million to
acquire the Acquisition Properties and approximately $6.0 million to
acquire the Continental Management Business from third parties.

. The Operating Partnership will deposit approximately $9.2 million of the
estimated net proceeds into restricted escrow accounts to fund real
estate taxes and net takeover lease liabilities relating to the 77 West
Wacker Drive Building.

. The Operating Partnership will pay approximately $0.7 million in fees to
obtain the Credit Facility and Letter of Credit Facility.

. The Operating Partnership will pay on behalf of Prime, or reimburse
Prime for, approximately $3.7 million of expenses incurred by it in
connection with the Formation Transactions and the Offering.

. The Operating Partnership will contribute the Continental Management
Business, the health club facility located in the 77 West Wacker Drive
Building and the office and industrial development, leasing and property
management business of Prime to the Services Company in exchange for (i)
100% of the Preferred Stock of the Services Company and (ii) the Note
issued by the Services Company in the original principal amount of
approximately $4.2 million, and Messrs. Reschke and Curto will
contribute $50,000 for 100% of the Services Company's voting common
stock. The Operating Partnership is expected to receive approximately
95.0% of the economic benefits of the operations of the Services Company
by virtue of payments on the Note and distributions in respect of its
ownership of the Preferred Stock.

. The Operating Partnership will (i) replace the outstanding letters of
credit to secure the payment of principal and interest on $26.3 million
for certain Tax-Exempt Bonds relating to the Properties in Tennessee for
which one of the former owners of such Properties provided credit
support and (ii) shall assume the obligations of Prime under certain
guaranties and reimbursement agreements which secure the banks which
have issued a letter of credit to secure the payment of principal and
interest on $48.2 million for the Tax-Exempt Bonds relating to certain
of the Industrial Properties. Upon the assumption of Prime's obligations
under such guaranties and reimbursement agreements, Prime will receive
the return of approximately $15.0 million of cash and $6.0 million of
certain marketable securities previously pledged by Prime as additional
collateral to secure its obligations to the issuer of the existing
letters of credit.

As a result of the foregoing transactions, the Company will own Common
Units of the Operating Partnership, which will represent an approximately %
economic interest in the Operating Partnership, and the Limited Partners will
own Common Units, which will represent the remaining approximately %
economic interest in the Operating Partnership. If the Underwriters' over-
allotment option is exercised in full and the net proceeds from the additional
Common Shares sold by the Company are contributed to the Operating
Partnership, the Company's percentage ownership interest in the Operating
Partnership will increase to approximately %. The Company will be the sole
general partner and retain management control over the Operating Partnership.

Pursuant to the Partnership Agreement and subject to certain conditions,
each Common Unit held by a Limited Partner may be exchanged for one Common
Share or, at the option of the Company, cash equal to the fair market value of
a Common Share at the time of exchange. However, neither Prime nor the
Contributors may exchange any Common Units for Common Shares if actual or
constructive ownership of such Common Shares would violate the Ownership Limit
with respect to the Common Shares. See "Description of Shares of Beneficial
Interest--Restrictions on Ownership and Transfer."

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The Limited Partners have agreed not to exchange their Common Units for
Common Shares unless the Operating Partnership receives an opinion of counsel
reasonably satisfactory to the General Partner that upon such exchange, the
Operating Partnership will not cease to qualify as a partnership for federal
income tax purposes and that the Company will continue to qualify as a REIT.

REASONS FOR THE REORGANIZATION OF THE COMPANY

The Company believes that the benefits of the Formation Transactions
outweigh the detriments to the Company. The benefits of the Company's REIT
status and structure include the following:

. Access to Capital. The Company's structure will, in the Company's
judgment, provide it with greater access to capital for refinancing and
growth. Sources of capital include the Common Shares sold in the
Offering and possible future issuances of debt or equity through public
offerings or private placements. The financial strength of the Company
should enable it to obtain financing at better rates and on better terms
than would otherwise be available to the Property Partnerships, some of
which are single asset entities.

. Growth of the Company. The Company's structure will allow shareholders,
and the Limited Partners through their ownership of Common Units, an
opportunity to participate in the growth of the real estate market
through an ongoing business enterprise. In addition to the existing
portfolio of Properties, the Company gives shareholders and the Limited
Partners an interest in all future development by the Company and in the
office and industrial development, leasing and property management
business being contributed by the Company to the Services Company.

. Deleveraging. Upon completion of the Offering and the Formation
Transactions, the Company will have substantially reduced the debt
encumbering the Properties. This reduction, with a consequent reduction
in debt service, will increase the aggregate amount of cash available
for distribution to shareholders. The Formation Transactions also will
permit the Company to refinance its existing indebtedness at more
favorable rates.

. Liquidity. The equity interests in the Property Partnerships are
typically not marketable. The Company's structure allows shareholders,
and the Limited Partners, the opportunity to liquidate their capital
investment through the disposition of Common Shares or Common Units.
Pursuant to the Partnership Agreement and subject to certain conditions,
each Common Unit held by Prime or the Contributors may be exchanged for
one Common Share (subject to adjustment) or, at the option of the
Company, cash equal to the fair market value of a Common Share at the
time of exchange. However, neither Prime nor any Contributor may
exchange any Common Units for Common Shares if actual or constructive
ownership of such Common Shares would violate the Ownership Limit with
respect to the Common Shares. See "Description of Shares of Beneficial
Interest--Restrictions on Ownership and Transfer." Further, Prime has
agreed not to, among other things, sell or exchange any Common Units,
without the consent of the Company and Prudential Securities
Incorporated, on behalf of the Underwriters, for a period of two years
following the completion of the Offering and the Contributors have
agreed not, among other things, to sell or exchange any Common Units,
without the consent of the Company and Prudential Securities
Incorporated, on behalf of the Underwriters, for a period of one year
following completion of the Offering. Notwithstanding these
restrictions, Prime and the Contributors will be permitted to exchange
their Common Units for Common Shares (or cash, at the option of the
Company) in order to raise funds necessary to satisfy any tax
obligations incurred in connection with the Formation Transactions,
unless such exchange would result in the Company no longer being
qualified as a REIT for federal income tax purposes.

. Public Market Valuation of Real Estate Assets. The Company's structure
may allow investors to benefit potentially from the current public
market valuation of REITs, which management believes is favorable in
light of the current private market valuation of comparable assets.

. Tax Deferral. The Formation Transactions provide to the Limited Partners
the opportunity to defer the tax consequences that would arise from a
sale or contribution of their interests in the Properties and other
assets to the Company or to a third party.

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COMPARISON OF COMMON SHARES AND COMMON UNITS

Conducting the Company's operations through the Operating Partnership allows
the Limited Partners to defer certain tax consequences by contributing their
interests in Properties to the Operating Partnership and also offers favorable
methods of accessing capital market and acquiring additional properties. Common
Units in the Operating Partnership will be held by the Limited Partners and the
Company. Each Common Unit was designed to result in a distribution per Common
Unit equal to a distribution per Common Share (assuming the Company distributes
to its shareholders all amounts it receives as distributions from the Operating
Partnership). Pursuant to the Partnership Agreement and subject to certain
conditions, each Common Unit held by Prime or the Contributors may be exchanged
for one Common Share (subject to adjustment) or, at the option of the Company,
cash equal to the fair market value of a Common Share at the time of exchange.
However, neither Prime nor the Contributors may exchange any Common Units for
Common Shares if actual or constructive ownership of such Common Shares would
violate the Ownership Limit with respect to the Common Shares. See "Description
of Shares of Beneficial Interest--Restrictions on Ownership and Transfer."
Prime has agreed not to, among other things, sell or exchange any Common Units,
without the consent of the Company and Prudential Securities Incorporated, on
behalf of the Underwriters, for a period of two years following the completion
of the Offering, and the Contributors have agreed not to sell or exchange any
Common Units, without the consent of the Company and Prudential Securities
Incorporated, on behalf of the Underwriters, for a period of one year following
completion of the Offering.

. Voting Rights. Holders of Common Shares will elect the Board of Trustees
of the Company, which, as the general partner of the Operating
Partnership, controls the business of the Operating Partnership. Holders
of Common Units may not elect trustees of the Company.

. Transferability. The Common Shares sold in the Offering will be freely
transferable under the Securities Act by holders who are not affiliates
of the Company or the Underwriters. The Common Units and the Common
Shares for which they are exchangeable are subject to transfer
restrictions under applicable securities laws and under the Partnership
Agreement, including the required consent of the general partner to the
admission of any new limited partner. See "Shares Available for Future
Sale" for a description of the Registration Rights Agreement applicable
to holders of Common Units.

. Distributions. Because the relative tax bases of the contributions by
the public investors and the Limited Partners are expected to be
different, it is possible that the public investors' distribution will
include a return of capital that exceeds that of the Limited Partners.
See "Certain Federal Income Tax Considerations."

ADVANTAGES AND DISADVANTAGES OF THE FORMATION TRANSACTIONS TO UNAFFILIATED
SHAREHOLDERS

The potential advantages of the Formation Transactions to unaffiliated
shareholders of the Company include their ability to participate, through
ownership of the Company, in the cash flow of the Properties and all future
office and industrial property acquisitions and developments by the Company.
The potential disadvantages of such transactions to unaffiliated shareholders
of the Company may be several, including the impact of shares available for
future sale, substantial and immediate dilution in the tangible book value per
share and the lack of arm's-length negotiations to determine the terms of the
transfers of certain of the Properties to the Company and the Operating
Partnership. See "Risk Factors."

BENEFITS TO PRIME OF THE FORMATION TRANSACTIONS AND THE OFFERING

Prime and certain of its affiliates will receive certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:

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Benefits to Prime

. Assuming that each Common Unit held by Prime has a value equal to that
of a Common Share and that the initial public offering price of the
Common Shares offered hereby is $20.00, the assumed initial public
offering price, and the exchange (for Common Shares) of all of the
Common Units issued in the Formation Transactions, Prime will
receive % of the Common Shares (or % if the Underwriters' over-
allotment option is exercised in full).

. Prime will receive the return of approximately $15.0 million of cash and
$6.0 million of marketable securities previously pledged as additional
collateral by Prime to secure its obligations to the issuers of the
letter of credit which secures the payment of principal and interest of
$48.2 million of Tax-Exempt Bonds relating to certain of the Industrial
Properties. Such collateral will be returned to Prime upon the
completion of the Offering and the assumption of such obligations by the
Operating Partnership.

. Prime will realize an immediate increase in the net tangible book value
of its investment in the Company of $ per Common Unit upon the
completion of the Offering. The assets to be transferred by Prime in the
Formation Transactions had an aggregate book value of approximately $
(as determined at December 31, 1996 in accordance with GAAP). The Common
Units and cash received by Prime will have a value of approximately $
million.

. Prime will obtain improved liquidity of its investment in its office and
industrial real estate business as a result of the Formation
Transactions through the ownership of Common Units, which are
exchangeable for Common Shares or cash, at the option of the Company.

BENEFITS OF THE FORMATION TRANSACTIONS TO THE LIMITED PARTNERS OTHER THAN
PRIME

Benefits of the Formation Transactions to the Limited Partners other than
Prime include:

. improved liquidity of their interests in the Properties and increased
diversification of their investment;

. repayment of indebtedness in the aggregate net amount of approximately
$206.7 million resulting from the refinancing of existing mortgage
indebtedness, of which approximately $ million is guaranteed by ;
and

. the deferral, together with the indemnity under the TIA, of certain tax
consequences of taxable dispositions of assets through the creation of
the Operating Partnership and the direct contribution of their interests
in the Properties to the Operating Partnership in exchange for Common
Units.

The following table contains information concerning the grant of share
Options under the Company's Share Incentive Plan expected to be made for the
year ended December 31, 19 to and . The table also lists potential
realizable values of such options on the basis of assumed annual compounded
share appreciation rates of 5.0% and 10.0% over the life of the Share Options.

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SHARE OPTION GRANTS IN CONNECTION WITH THE FORMATION TRANSACTIONS

<TABLE>
<CAPTION>
POTENTIAL
NUMBER OF REALIZABLE VALUE AT
SECURITIES ASSUMED
UNDERLYING ANNUAL RATES OF
OPTIONS EXERCISE OR SHARE PRICE
GRANTED BASE PRICE EXPIRATION APPRECIATION
(#)(1) PER SHARE(2) DATE(3) FOR OPTION TERM(4)
---------- ------------ ---------- -------------------
(IN THOUSANDS)
5% 10%
--------- ---------
<S> <C> <C> <C> <C> <C>
Michael W. Reschke.......
Richard S. Curto.........
W. Michael Karnes........
Robert J. Rudnik.........
Jeffrey A. Patterson.....
Kevork M. Derderian......
Edward S. Hadesman.......
John O. Wilson...........
Donald H. Faloon.........
Philip A. Hoffer.........
Steven R. Baron..........
Faye I. Oomen............
Christopher J. Sultz.....
Tucker B. Magid..........
James F. Hoffman.........
Kathryn A. Deane.........
Donald E. Anderson.......
Phillip E. Waters........
Rolanda H. Derderian.....
Rux B. Currin............
James F. Runnion.........
Scott D. McKibben........
Other....................
</TABLE>
- --------
(1) The options granted will vest in three equal installments on the first,
second and third anniversaries of the date of the grant.
(2) The option price will be equal to the initial public offering price of the
Common Shares.
(3) The expiration date of the options will be ten years after the date of the
grant.
(4) The potential realizable value is reported net of the option price, but
before the income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5.0% and 10.0% only from
the date of grant to the expiration date of the option.

DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS

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and the Formation Transactions or an opinion as to the fairness of the
allocation of Common Units among the Company and the Limited Partners. The
initial public offering price will be determined based upon the estimated cash
available for distribution and the factors discussed under the caption
"Underwriting," rather than a property by property valuation based on
historical cost or current market value. This methodology has been used
because the Underwriters and management believe it is appropriate to value the
Company as an ongoing business rather than with a view to values that could be
obtained from a liquidation of the Company or of the individual Properties.
See "Underwriting."

Based on the issuance of 14,250,000 Common Shares in the Offering, the
Company will hold an approximately % ownership interest in the Operating
Partnership and the Limited Partners will hold an approximately % ownership
interest in the Operating Partnership. If the Underwriters' over-allotment
option is exercised in full, the Company will hold an approximately %
ownership interest in the Operating Partnership and the Limited Partners will
hold an approximately % ownership interest in the Operating Partnership.

ACQUISITION OF THE PROPERTIES AND THE BUSINESS FROM PRIME

The Operating Partnership will acquire Prime's interests in the Properties
and the office and industrial development, leasing and property management
business of Prime pursuant to an agreement relating to the Formation
Transactions with Prime (the "Formation Agreement"). The obligations of Prime
to transfer under their agreement is or will be conditioned upon the
completion of the Offering, the closing under the other agreements and normal
and customary conditions to the closing of real estate transactions, including
the consents of various lenders. The Company is in the process of obtaining
such lender consents and expects to obtain all necessary consents prior to the
completion of the Offering. The Formation Agreement also contains
representations and warranties to the Operating Partnership concerning the
operation of the Prime Properties and environmental matters and certain other
covenants, representations and warranties customarily found in real estate
purchase agreements. Claims for indemnification for any breach under the
Formation Agreement could be made by the Company for one year from the
completion of the Offering. In the event that any of such representations or
warranties is breached, the Company's recovery will be limited to recourse
against the Common Units received by Prime in the Formation Transactions. See
"Risk Factors--Conflicts of Interest; Benefits to Prime."

FORMATION OF THE SERVICES COMPANY

The Services Company was formed in March 1997 under the laws of the state of
Maryland to succeed to the office and industrial property management, leasing
and corporate advisory services business of Prime. Following the consummation
of the Formation Transactions, Messrs. Reschke and Curto together will own
100% of the voting common stock of the Services Company. The Operating
Partnership will own 100% of the Preferred Stock of the Services Company and
the Note to be issued by the Services Company in an initial principal amount
of approximately $4.2 million. The ownership structure of the Services Company
is necessary to permit the Company to share in the Service Company's income
and also maintain its status as a REIT for federal income tax purposes.
Although the Company anticipates that it will receive substantially all of the
economic benefit of the business carried on by the Services Company (by virtue
of the Company's right to receive (i) dividends through the Operating
Partnership's investment in the Services Company's Preferred Stock and (ii)
interest payments on the Note held by the Operating Partnership), the Company
will not be able to elect the Services Company's officers or directors and,
consequently, will not have the ability to control the operations of the
Services Company. The Operating Partnership and the Services Company will
enter the Management Contracts in connection with the Formation Transactions
pursuant to which the Services Company will render development, leasing and
property management services for third parties. See "Risk Factors--Risks
Relating to the Services Company--Lack of Control over the Services Company"
and "Certain Relationships and Transactions."

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

In addition to the Formation Transactions which are described in the section
entitled "Structure and Formation of the Company," the following transactions
have occurred or will occur simultaneously with the completion of the
Offering.

FORMATION AGREEMENT

Concurrently with the completion of the Offering and pursuant to the
Formation Agreement, Prime will contribute to the Operating Partnership,
subject to certain liabilities, (i) all of its ownership interests in the
Prime Properties and the Prime Contribution Properties, (ii) its rights to
purchase the subordinate mortgage encumbering the Property Partnership that
owns the 77 West Wacker Drive Building from certain third-party lenders and
its rights to acquire certain third parties' ownership interests in the
Property Partnerships that own the Prime Properties and (iii) substantially
all of the assets and liabilities relating to its office and industrial
development, leasing and management business in exchange for an aggregate of
Common Units, representing a % limited partnership interest in the
Operating Partnership (with an aggregate value of approximately $ million).
The obligations of Prime to transfer under their agreement is or will be
conditioned upon the completion of the Offering, the closing under the other
agreements and normal and customary conditions to the closing of real estate
transactions, including the consents of various lenders. The Formation
Agreement also contains representations and warranties to the Operating
Partnership concerning the operation of the Prime Properties and environmental
matters and certain other covenants, representations and warranties
customarily found in real estate purchase agreements. Claims for
indemnification for any breach under the Formation Agreement could be made by
the Company for one year from the completion of the Offering. In the event
that any of such representations or warranties is breached, the Company's
recovery will be limited to recourse against the Common Units received by
Prime in the Formation Transactions. See "Risk Factors--Conflicts of Interest;
Benefits to Prime."

PARTNERSHIP AGREEMENT

The Company, Prime and the Limited Partners other than Prime have entered
into the Partnership Agreement which sets forth the terms of such partnership
and establishes the Company as the sole general partner of the Operating
Partnership with full responsibility and discretion in the management and
control of the Operating Partnership. For a summary description of the
Partnership Agreement, see "Partnership Agreement."

EXCHANGE RIGHTS AND REGISTRATION RIGHTS

For a description of certain exchange and registration rights held by the
Limited Partners, see "Shares Available for Future Sale--Exchange Rights and
Registration Rights."

TRANSACTIONS WITH MANAGEMENT AND OTHERS

Non-Compete Agreement. The Company, Prime and Michael W. Reschke will enter
a Non-Compete Agreement that will provide that, so long as Prime and/or its
affiliates own a 5.0% or greater economic interest in the Company or Mr.
Reschke is Chairman of the Board of the Company, neither Mr. Reschke nor Prime
(including its affiliates) will own or manage office or industrial properties
(except any ownership resulting from foreclosure of indebtedness). Excluded
from the foregoing restrictions are all properties in which Prime had an
interest prior to the Formation Transactions and Prime's or Mr. Reschke's
ownership of less than 5.0% of any class of securities listed on a national
securities exchange or on the Nasdaq National Market.

SALE OF COMMON SHARES TO MR. RESCHKE

Prior to the Offering, the Company sold 100 unregistered Common Shares to
Michael W. Reschke for $10 per share, or an aggregate consideration of $1,000.
Such Common Shares were purchased by Mr. Reschke solely to facilitate the
organization of the Company. Upon completion of the Offering, all of the
shares so acquired by Mr. Reschke will be redeemed by the Company for an
aggregate redemption price of $1,000.

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OTHER TRANSACTIONS

Prime has in the past provided asset and property management, leasing,
acquisition, renovation, development, construction management, legal and
administrative services for the Property Partnerships owning certain of the
Properties. Prime received fees relating to these services in the amounts of
$2,277, $2,698, $2,533 (in thousands) for the years ended December 31, 1996,
1995 and 1994, respectively. Following the Offering, all such services with
respect to the Properties will be performed by personnel of the Company.

The Operating Partnership will pay on behalf of Prime, or reimburse Prime,
for approximately $3.7 million of expenses incurred in connection with the
Formation Transactions and the Offering.

The Company is aware of contamination at certain of the older Industrial
Properties. Prime has contractually agreed to retain liability for, and
indemnify the Company for, environmental costs with regard to these
Properties.

The Company has entered a Tax Indemnification Agreement (the "TIA") with
certain of the Contributors (the "Indemnified Contributors") pursuant to which
the Company is required to indemnify the Indemnified Contributors for, among
other things, income or gain which they might realize upon the sale by the
Company of the Properties they contributed. Under the terms of the TIA, the
Company will indemnify the Indemnified Contributors for certain tax
liabilities based on income or gain which an Indemnified Contributor is
required to include in its gross income for federal or state income tax
purposes. The percentage of the tax liabilities which the Company is required
to indemnify is 100% for the taxable years ending on or before December 31,
1998, and declines by 10.0% each year thereafter until December 31, 2007. The
Company is not required to indemnify the Indemnified Contributors for income
or gain realized by them after the taxable year ended December 31, 2007. Prime
has entered an agreement with the Company pursuant to which Prime has agreed
to indemnify the Company for any amounts paid by the Company to the
Indemnified Contributors pursuant to the TIA; provided, that Prime shall be
liable to the Company for such amounts only to the extent that the Company
used its best efforts to avoid such tax liability (including exploring the
opportunity for a tax-free exchange under Section 1031 of the Code for the
transaction that gave rise to the obligation under the TIA).

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PARTNERSHIP AGREEMENT

The following summary of the Amended and Restated Agreement of Limited
Partnership of Prime Group Realty, L.P. (the "Partnership Agreement"), and the
descriptions of certain provisions set forth elsewhere in this Prospectus, are
qualified in their entirety by reference to the Partnership Agreement, which
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part. See "Additional Information."

MANAGEMENT

The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. The Company will be the
sole general partner of, and will initially hold approximately % of the
economic interests in, the Operating Partnership. The Company will conduct
substantially all of its business through the Operating Partnership, except
for office and industrial development, leasing and property management
services, which will be conducted through the Services Company in order to
preserve the Company's REIT status. The Operating Partnership will own a 95.0%
economic interest in the Services Company through the ownership of 100.0% of
the Services Company's Preferred Stock and the Note. Generally, pursuant to
the Partnership Agreement, the Company, as the sole general partner of the
Operating Partnership, will have full, exclusive and complete responsibility
and discretion in the management and control of the Operating Partnership,
including the ability to cause the Operating Partnership to enter into certain
major transactions, including acquisitions, dispositions and refinancings and
to cause changes in the Operating Partnership's line of business and
distribution policies.

The Limited Partners in their capacities as limited partners of the
Operating Partnership will have no authority to transact business for, or
participate in the management or decisions of, the Operating Partnership,
except as provided in the Partnership Agreement and as required by applicable
law. However, any decision of the Operating Partnership to effect certain
amendments to the Partnership Agreement, to take title to any property other
than in the name of the Operating Partnership or a Property Partnership, to
institute any proceeding for bankruptcy or to be dissolved prior to December
31, 2050 (which is the expiration of the Operating Partnership's term) or
prior to the occurrence of certain liquidating events generally would require
the consent of a majority in interest of the Common Units. The Limited
Partners have no right to remove the Company as general partner of the
Operating Partnership.

INDEMNIFICATION

To the extent permitted by law, the Partnership Agreement provides for
indemnification of the Company, as general partner, its officers and trustees
and such other persons as the Company may designate to the same extent
indemnification is provided to officers and trustees of the Company in the
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership to the same extent liability of
officers and trustees of the Company is limited under the Declaration of
Trust.

TRANSFERABILITY OF INTERESTS

Except for a transaction described in the following two paragraphs, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership, without the consent of the holders of at least 50.0% of
the partner interests (including the interests of the Company, which will
represent approximately % of the total partner interests upon completion
of the Offering). A Limited Partner may transfer its interests in the
Operating Partnership to a transferee subject to certain conditions, including
that such transferee assumes all obligations of the transferor Limited Partner
and provided further that such transfer does not cause a termination of the
Operating Partnership for federal or state income tax purposes and does not
cause the Company to cease to comply with requirements under the Code for
qualification as a REIT. Pursuant to the Partnership Agreement, except as
described below under "--Limited Partner Exchange Rights," Prime and the
Contributors have agreed not to transfer, assign, sell, encumber or otherwise
dispose of the Common Units evidencing their initial Common Units, or any
Common Shares issued upon exchange of such Common Units, for a period of two
years and one year,

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respectively, from the completion of the Offering without the consent of the
Company and Prudential Securities Incorporated, as representative of the
Underwriters, other than to (i) the Company, (ii) family members, (iii)
Affiliates (as defined in the Partnership Agreement), (iv) shareholders,
members, partners or beneficiaries, (v) a charitable beneficiary or charitable
foundation or (vi) a lender (as security for a bona fide loan or other
extension of credit), in each case provided the transferee agrees to assume
the obligations of the transferor under the Partnership Agreement.

EXTRAORDINARY TRANSACTIONS

The Operating Partnership Agreement provides that the Company may not
generally engage in any merger, consolidation or other combination with or
into another person or sale of all or substantially all of its assets, or any
reclassification, recapitalization or change of outstanding Common Shares (a
"Business Combination"), unless the holders of Common Units will receive, or
have the opportunity to receive, the same consideration per Common Unit as
holders of Common Shares receive per Common Share in the transaction; if
holders of Common Units will not be treated in such manner in connection with
a proposed Business Combination, the Company may not engage in such
transaction unless Limited Partners (other than the Company) holding more than
50% of the Common Units held by Limited Partners vote to approve the Business
Combination. In addition, the Company, as general partner of the Operating
Partnership, has agreed in the Operating Partnership Agreement with the
Limited Partners that the Company will not consummate a Business Combination
in which the Company conducted a vote of the shareholders unless the matter
would have been approved had holders of Common Units been able to vote
together with the shareholders on the transaction. The foregoing provision of
the Operating Partnership Agreement would under no circumstances enable or
require the Company to engage in a Business Combination which required the
approval of the Company's shareholders if the Company's shareholders did not
in fact give the requisite approval. Rather, if the Company's shareholders did
approve a Business Combination, the Company would not consummate the
transaction unless (i) the Company as general partner first conducts a vote of
holders of Common Units (including the Company) on the matter, (ii) the
Company votes the Common Units held by it in the same proportion as the
shareholders of the Company voted on the matter at the shareholder vote and
(iii) the result of such vote of the Common Unit holders (including the
proportionate vote of the Company's Common Units) is that had such vote been a
vote of shareholders, the Business Combination would have been approved by the
shareholders. As a result of these provisions of the Operating Partnership, a
third party may be inhibited from making an acquisition proposal that it would
otherwise make, or the Company, despite having the requisite authority under
its Declaration of Trust, may not be authorized to engage in a proposed
Business Combination.

ISSUANCE OF ADDITIONAL COMMON UNITS

As sole general partner of the Operating Partnership, the Company has the
ability to cause the Operating Partnership to issue additional Common Units
representing general and limited partnership interests in the Operating
Partnership, including preferred Common Units of limited partnership
interests.

CAPITAL CONTRIBUTIONS

The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital
contributions, the Company may borrow such funds from a financial institution
or other lender or through public or private debt offerings and lend such
funds to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. As an alternative to
borrowing funds required by the Operating Partnership, the Company may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate
basis. Conversely, the partnership interests of the Limited Partners will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company. See "Policies With Respect to Certain
Activities--Financing Policies."

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AWARDS UNDER SHARE INCENTIVE PLAN

If options granted in connection with the Share Incentive Plan are exercised
at any time or from time to time, the Partnership Agreement requires the
Company to contribute to the Operating Partnership as an additional
contribution the exercise price received by the Company in connection with the
issuance of Common Shares to such exercising participant. Upon such
contribution the Company will be issued a number of Common Units in the
Operating Partnership equal to the number of Common Shares so issued.

ADDITIONAL FUNDS

The Partnership Agreement provides that if the Operating Partnership requires
additional funds at any time or from time to time in excess of funds available
to the Operating Partnership from borrowings or prior capital contributions,
the Company may borrow such funds and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the Company's
borrowing of such funds. The Partnership Agreement and the Share Incentive Plan
also provide that in the event the Company issues additional shares of
beneficial interest (including any issuance of Common Shares pursuant to the
Company's Share Incentive Plan), the Company is required to contribute to the
Operating Partnership as an additional capital contribution any net proceeds
from such issuance in exchange for additional partnership interests with
preferences and rights corresponding to the beneficial interests so issued.

DISTRIBUTIONS

The Partnership Agreement sets forth the manner in which the net cash flow of
the Operating Partnership (which includes operating revenues and proceeds from
sales or refinancings less certain expenditures) will be distributed with
respect to the Common Units.

OPERATIONS

The Partnership Agreement requires that the Operating Partnership be operated
in a manner that will enable the Company to satisfy the requirements for being
classified as a REIT and to avoid any federal income or excise tax liability.
The Partnership Agreement provides that the net operating cash revenues of the
Operating Partnership, as well as net sales and refinancing proceeds, will be
distributed from time to time as determined by the Company (but not less
frequently than quarterly) pro rata in accordance with the partners' respective
percentage interests. Pursuant to the Partnership Agreement, the Operating
Partnership will assume and pay when due, or reimburse the Company for payment
of, all expenses it incurs relating to the ownership and operation of, or for
the benefit of, the Operating Partnership and all costs and expenses relating
to the operations of the Company.

LIMITED PARTNER EXCHANGE RIGHTS

Subject to certain conditions, each Common Unit held by Prime or any of the
Contributors may be exchanged for one Common Share (subject to adjustment) or,
at the option of the Company, cash equal to the fair market value of a Common
Share at the time of exchange. However, neither Prime nor any Contributor may
exchange any Common Units for Common Shares if Prime's or the Contributors'
actual or constructive ownership of such Common Shares would violate the
Ownership Limit with respect to the Common Shares. See "Description of Shares
of Beneficial Interest--Restrictions on Ownership and Transfer." Following the
expiration of the foregoing restrictions, any Common Shares issued to Prime or
any of the Contributors upon exchange of their respective Common Units may be
sold in the public market pursuant to the registration statements which the
Company will be obligated to file pursuant to the exercise of registration
rights that have been granted by the Company or available exemptions from
registration. See "Shares Available for Future Sale." Notwithstanding these
restrictions, Prime will be permitted to exchange its Common Units for Common
Shares (or for cash, at the option of the Company) in order to raise funds
necessary to satisfy any tax obligations incurred in connection with the
Formation Transactions, unless such exchange would result in the Company no
longer being qualified as a REIT.

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REGISTRATION RIGHTS

For a description of certain registration rights held by the Limited
Partners, see "Shares Available for Future Sale--Exchange Rights and
Registration Rights."

TAX MATTERS

Pursuant to the Partnership Agreement, the Company will be the "tax matters
partner" of the Operating Partnership and, as such, will have authority to make
certain tax decisions under the Code on behalf of the Operating Partnership.

The net income or net loss of the Operating Partnership generally will be
allocated to each class of Partners in accordance with the relative aggregate
percentage interests of each such class, and within each class, to the Partners
in accordance with their respective percentage interests in such class, subject
to compliance with the provisions of Sections 704(b), respecting allocations
generally, and 704(c), respecting allocations with respect to contributed
properties, of the Code and the applicable Treasury Regulations. For further
discussion of such allocations, see "Certain Federal Income Tax
Considerations--Income Taxation of the Partnerships and Their Partners."

DUTIES AND CONFLICTS

Except as otherwise set forth in "Policies with Respect to Certain
Activities--Conflicts of Interest Policies" and "Management--Employment
Agreements," any Limited Partner may engage in other business activities
outside the Operating Partnership, including business activities that directly
compete with the Operating Partnership.

TERM

The Operating Partnership will continue in full force and effect until
December 31, 2050 or until sooner dissolved and terminated upon the
dissolution, bankruptcy, insolvency or termination of the Company (unless the
Limited Partners elect to continue the Operating Partnership), the election of
the Company with the consent of a majority in interest of the Limited Partners,
the sale or other disposition of all or substantially all the assets of the
Operating Partnership or by operation of law.

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PRINCIPAL SHAREHOLDERS OF THE COMPANY

The following table sets forth certain information regarding the beneficial
ownership of the Common Shares and Common Units as of , 1997, and as
adjusted to reflect the sale of the Common Shares offered hereby and to give
effect to the issuance of Common Shares in connection with the Formation
Transactions, by (a) each person known by the Company to be the beneficial
owner of more than 5.0% of the Common Shares, (b) each trustee of the Company,
(c) each executive officer of the Company and (d) all trustees and executive
officers of the Company as a group. Unless otherwise indicated in the
footnotes, all of such interests are owned directly, and the indicated person
or entity has sole voting and investment power. The number of shares represents
the number of Common Shares the person holds or the number of Common Shares
into which Common Units held by the person are exchangeable (if the Company
elects to issue shares rather than pay cash upon such exchange). The extent to
which a person holds Common Shares as opposed to Common Units is set forth in
the notes to the following table. The Partnership Agreement provides that the
Common Units may be exchanged, subject to certain limitations and only after
the first year following completion of the Offering, into Common Shares or, at
the option of the Company, cash equal to the fair market value of a Common
Share at the time of exchange. Prime has agreed not to sell or exchange any
Common Units, without the consent of the Company and Prudential Securities
Incorporated, on behalf of the Underwriters, for a period of two years
following the completion of the Offering and the Contributors have agreed not
to sell or exchange any Common Units, without the consent of the Company and
Prudential Securities Incorporated, for a period of one year following
completion of the Offering. See "Partnership Agreement--Limited Partner
Exchange Rights."

<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES/ PERCENTAGE OF ALL
COMMON UNITS PERCENTAGE OF ALL COMMON SHARES/
NAME BENEFICIALLY OWNED COMMON SHARES(1) COMMON UNITS(2)
---- ------------------------ ----------------- -----------------
<S> <C> <C> <C>
The Prime Group,
Inc.(3)................
Michael W. Reschke(3)...
Richard S. Curto........
W. Michael Karnes.......
Robert J. Rudnik........
Jeffrey A. Patterson....
Kevork M. Derderian.....
Edward S. Hadesman......
Trustees and Officers of
the Executive Company
as a group
( persons)............
</TABLE>
- --------
(1) Assumes exchange only of Common Units owned by such beneficial owner for
Common Shares.
(2) Assumes exchange of all outstanding Common Units for Common Shares.
(3) The shares shown for this person are not beneficially owned because the
Common Units held by such person may not be exchanged for Common Shares for
at least one year following the completion of the Offering and are
disclaimed for beneficial ownership purposes. Such shares are shown to
illustrate the ownership resulting from an exchange of Common Units for
Common Shares by such person after such prohibition expires.

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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The Company was formed as a real estate investment trust under the laws of
the State of Maryland. Rights of shareholders are governed by Title 8 of the
Corporations and Associations Articles, Annotated Code of Maryland (the
"Maryland REIT Law") and by the Declaration of Trust and Bylaws. The following
summary of the terms of the shares of beneficial interest of the Company does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Declaration of Trust and Bylaws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part.

AUTHORIZED SHARES

The Declaration of Trust provides that the Company may issue up to 100.0
million Common Shares, par value $.01 per share, 65.0 million shares of Excess
Shares, par value $.01 per share ("Excess Shares"), and 30.0 million Preferred
Shares, par value $.01 per share. Under Maryland law, shareholders are not
personally liable for the Company's obligations. As of , 1997, in
connection with the formation of the Company, 100 Common Shares were issued to
Michael W. Reschke and are outstanding. Upon completion of the Offering and the
consummation of the Formation Transactions, there will be 14,250,000 Common
Shares issued and outstanding, excluding the 2,137,500 shares which are subject
to the Underwriters' over-allotment option.

Under the Maryland REIT Law, a shareholder is not liable for obligations of
the Company solely as a result of his status as a shareholder. The Declaration
of Trust provides that no shareholder shall be liable for any debt or
obligation of the Company by reason of being a shareholder nor shall any
shareholder be subject to any personal liability in tort, contract or otherwise
to any person in connection with the property or affairs of the Company by
reason of being a shareholder. The Company's Bylaws further provide that the
Company shall indemnify each present or former shareholder against any claim or
liability to which the shareholder may become subject by reason of being or
having been a shareholder and that the Company shall reimburse each shareholder
for all reasonable expenses incurred by him in connection with any such claim
or liability. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain statutory
liability, the shareholders may, in some jurisdictions, be personally liable to
the extent that such claims are not satisfied by the Company. Inasmuch as the
Company carries public liability insurance which it considers adequate, any
risk of personal liability to shareholders is limited to situations in which
the Company's assets plus its insurance coverage would be sufficient to satisfy
the claims against the Company and its shareholders.

COMMON SHARES

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of shares of beneficial interest and to the provisions of the Declaration of
Trust regarding the Excess Shares, holders of Common Shares will be entitled to
receive distributions on such shares if, as and when authorized and declared by
the Board of Trustees out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to the
shareholders in the event of the liquidation, dissolution or winding-up of the
Company after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company intends to pay quarterly distributions,
beginning with the quarter ending December 31, 1997. The first distribution is
expected to include a partial distribution for the third quarter of 1997 based
on a rate of $ per share for a full quarter. See "Distribution Policy."

Subject to the provisions of the Declaration of Trust regarding Excess
Shares, each outstanding Common Share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees
and, except as otherwise required by law or except as provided with respect to
any other class or series of shares of beneficial interest, the holders of such
shares will possess exclusive voting power. There is no cumulative voting in
the election of trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the trustees then standing for
election, and the holders of the remaining shares will not be able to elect any
trustees.

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<PAGE>

Holders of Common Shares have no conversion, sinking fund, redemption rights,
exchange rights or preemptive rights to subscribe for any securities of the
Company.

Subject to the provisions of the Declaration of Trust regarding Excess
Shares, Common Shares will have equal dividend, distribution, liquidation and
other rights, and will have no preference, appraisal (except as provided by
Maryland law) or exchange rights.

Pursuant to Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the trust's declaration of trust. The
Company's Declaration of Trust contains such a provision providing for a lesser
percentage, a majority of outstanding shares, with respect to transactions
pursuant to which the Company's assets will be combined with those of one or
more other entities (whether by merger, sale or other transfer of assets,
consolidation or share exchange).

The transfer agent and registrar for the Common Shares is LaSalle National
Bank.

The Company intends to apply for listing of the Common Shares on the NYSE
under the trading symbol "PPE."

PREFERRED SHARES

Preferred Shares may be issued from time to time, in one or more series, as
authorized by the Board of Trustees. No Preferred Shares are currently issued
or outstanding. Prior to the issuance of shares of each series, the Board of
Trustees is required by the Maryland REIT Law and the Declaration of Trust to
fix for each series the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions, qualifications and terms
or conditions of redemption, as permitted by Maryland law. Because the Board of
Trustees has the power to establish the preferences, powers and rights of each
series of Preferred Shares, it may afford the holders of any series of
Preferred Shares preferences, powers and rights, voting or otherwise, senior to
the rights of holders of Common Shares. The issuance of Preferred Shares could
have the effect of delaying or preventing a change of control of the Company
that might involve a premium price for holders of Common Shares or otherwise be
in their best interest. The Board of Trustees has no present plans to issue any
Preferred Shares.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

For the Company to qualify as a REIT under the Code, among other things, no
more than 50% in value of its outstanding shares of beneficial interest may be
owned, actually or constructively under the applicable attribution rules of the
Code, by five or fewer individuals (as defined in the Code to include certain
tax-exempt entities other than, in general, qualified domestic pension funds)
during the last half of a taxable year (other than the first year for which the
election to be taxed as a REIT has been made) or during a proportionate part of
a shorter taxable year (the "five or fewer requirement"). In addition, if the
Company, or an owner of 10.0% or more of the Company, actually or
constructively owns 10.0% or more of a tenant of the Company (or a tenant of
any partnership in which the Company is a partner), the rent received by the
Company (either directly or through any such partnership) from such tenant will
not be qualifying income for purposes of the REIT gross income tests of the
Code. A REIT's stock or beneficial interests must also be owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year (other than the first year for
which an election to be treated as a REIT has been made).

Because the Company expects to qualify as a REIT, the Declaration of Trust
contains restrictions on the ownership and transfer of Common Shares which are
intended to assist the Company in complying with these requirements. The
Ownership Limit set forth in the Declaration of Trust provides that, subject to
certain specified

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exceptions, no person or entity (other than certain "Look-Through Entities" (as
defined below)) may own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Code, more than 9.9% (by number or
value, whichever is more restrictive) of the outstanding Common Shares. The
constructive ownership rules of the Code are complex, and may cause Common
Shares owned actually or constructively by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.9% of the Common Shares (or
the acquisition of an interest in an entity that owns, actually or
constructively, Common Shares) by an individual or entity, could, nevertheless
cause that individual or entity, or another individual or entity, to be deemed
to own constructively in excess of 9.9% of the outstanding Common Shares and
thus to violate the Ownership Limit, or such other limit as provided in the
Declaration of Trust or as otherwise permitted by the Board of Trustees. The
Declaration of Trust provides that pension plans described in Section 401(a) of
the Code and having 100 or more participants and mutual funds registered under
the Investment Company Act of 1940, as amended ("Look-Through Entities"), are
subject to a 15% "Look-Through Ownership Limit." Pension plans and mutual funds
are among the entities that are not treated as holders of stock or beneficial
interests under the five or fewer requirement and instead the beneficial owners
of such entities are counted as holders for this purpose. The Board of Trustees
may, but in no event will be required to, waive the Ownership Limit, the Look-
Through Ownership Limit or such other limit as provided in the Declaration of
Trust, as applicable, with respect to a particular shareholder if it determines
that such ownership will not jeopardize the Company's status as a REIT and the
Board of Trustees otherwise decides such action would be in the best interest
of the Company. As a condition of such waiver, the Board of Trustees may
require a ruling from the IRS or an opinion of counsel satisfactory to it
and/or undertakings or representations from the applicant with respect to
preserving the REIT status of the Company.

The Declaration of Trust further prohibits (i) any person from actually or
constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code
(i.e., a violation of the five or fewer requirement) or otherwise cause the
Company to fail to qualify as a REIT and (ii) any person from transferring
shares of beneficial interest of the Company if such transfer would result in
shares of beneficial interest of the Company being owned by fewer than 100
persons.

Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Company that
will or may violate any of the foregoing restrictions on transferability of
ownership is required to give notice immediately to the Company and provide the
Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT.

Pursuant to the Declaration of Trust, if any purported transfer of Common
Shares of the Company or any other event would otherwise result in any person
violating the Ownership Limit, the Look-Through Ownership Limit or such other
limit as provided in the Declaration of Trust, as applicable, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the Ownership Limit, the Look-Through Ownership Limit or such
other limit as provided in the Declaration of Trust, as applicable, and the
Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to any such shares in excess of the Ownership Limit, the Look-Through
Ownership Limit or such other limit as provided in the Declaration of Trust, as
applicable (the "Prohibited Owner") shall cease to own any right or interest)
in such excess shares. Any such excess shares described above will be converted
automatically into an equal number of shares of Excess Shares (the "Shares-in-
Trust") and transferred automatically, by operation of law, to a trust (the
"Share Trust"), the beneficiary of which will be a qualified charitable
organization selected by the Company (the "Beneficiary"). Such automatic
transfer shall be deemed to be effective as of the close of business on the
business day prior to the date of such violative transfer. Within 20 days of
receiving notice from the Company of the transfer of shares to the Share Trust,
the trustee of the Share Trust (who shall be designated by the Company and be
unaffiliated with the Company or any Prohibited Transferee or Prohibited Owner)
will be required to sell such Shares-in-Trust to a person or entity who could
own such shares without violating the Ownership Limit, or such other limit as
provided in the Declaration of Trust, and distribute to the Prohibited

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<PAGE>

Transferee an amount equal to the lesser of the price paid by the Prohibited
Transferee for such Shares-in-Trust or the sales proceeds received by the Share
Trust for such Shares-in-Trust. In the case of any Shares-in-Trust issued as a
result of any event other than a transfer, or from a transfer for no
consideration (such as a gift), the trustee will be required to sell such
Shares-in-Trust to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the Market Price (as defined
in the Declaration of Trust) of such Shares-in-Trust as of the date of such
event or the sales proceeds received by the trust for such Shares-in-Trust. In
either case, any proceeds in excess of the amount distributable to the
Prohibited Transferee or Prohibited Owner, as applicable, will be distributed
to the Beneficiary. Prior to a sale of any such Shares-in-Trust by the Share
Trust, the trustee will be entitled to receive, in trust for the Beneficiary,
all dividends and other distributions paid by the Company with respect to such
Shares-in-Trust, and also will be entitled to exercise all voting rights with
respect to such Shares-in-Trust. Subject to Maryland law, effective as of the
date that such Shares-in-Trust have been transferred to the Share Trust, the
trustee shall have the authority (at the trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Transferee or Prohibited Owner,
as applicable, prior to the discovery by the Company that such Shares-in-Trust
have been transferred to the Share Trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
Beneficiary. However, if the Company has already taken irreversible trust
action, then the trustee shall not have the authority to rescind and recast
such vote. Any dividend or other distribution paid to the Prohibited Transferee
or Prohibited Owner (prior to the discovery by the Company that such Shares-in-
Trust have been automatically transferred to the Share Trust as described
above) will be required to be repaid to the trustee upon demand for
distribution to the Beneficiary, and any dividend declared but unpaid shall be
rescinded. In the event that the transfer to the Share Trust as described above
is not automatically effective (for any reason) to prevent violation of the
Ownership Limit or such other limit as provided in the Declaration of Trust,
then the Declaration of Trust provide that the transfer of the Common Shares in
excess of the Ownership Limit will be void.

In addition, Shares-in-Trust held in the Share Trust shall be deemed to have
been offered for sale to the Company, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that resulted
in such transfer to the Share Trust (or in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer until the trustee has sold the Shares-in-
Trust. Upon such a sale to the Company, the interest of the Beneficiary in the
Shares-in-Trust sold shall terminate and the trustee shall distribute the net
proceeds of the sale to the Prohibited Transferee or Prohibited Owner.

If any purported transfer of Common Shares would cause the Company to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to
Common Shares.

The foregoing restrictions on transferability and ownership will not apply if
the Board of Trustees determines that it is no longer in the best interest of
the Company to attempt to qualify, or to continue to qualify, as a REIT and
such determination is approved by an affirmative vote of two-thirds of the
votes entitled to be cast on such matter at a regular or special meeting of the
shareholders of the Company. Except as otherwise described above, any change in
the Ownership Limit would require an amendment to the Declaration of Trust.
Amendments to the Declaration of Trust require the affirmative vote of holders
owning at least two-thirds of the shares of the beneficial interest of the
Company outstanding and entitled to vote thereon.

All certificates representing shares of beneficial interest of the Company
will bear a legend referring to the restrictions described above.

If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Shares may be deemed, at the option of the Company, to
have acted as agent on behalf of the Company in acquiring such Excess Shares
and to hold such Excess Shares on behalf of the Company.

Under the Declaration of Trust, every owner of more than 5% (or such lower
percentage as required by the Code or Treasury Regulations) of the outstanding
Common Shares must file a written notice with the Company

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containing information regarding their ownership of such shares, as set forth
in the Treasury Regulations. Under current Treasury Regulations, the percentage
will be set between one-half of 1% and 5%, depending upon the number of record
holders of the Company's shares. Further, each shareholder shall upon demand be
required to disclose to the Company in writing such information as the Company
may request in order to determine the effect, if any, of such shareholder's
actual and constructive ownership of Common Shares on the Company's status as a
REIT.

The foregoing ownership limitations may have the effect of precluding
acquisition of control of the Company without the consent of the Board of
Trustees and, consequently, shareholders may be unable to realize a premium for
their shares over the then-prevailing market price which is customarily
associated with such acquisitions and to ensure compliance with the Ownership
Limit, or such other limit as provided in the Declaration of Trust.

These restrictions will not preclude settlement for transactions through the
NYSE.

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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST
AND BYLAWS

The following paragraphs summarize certain provisions of Maryland law and of
the Declaration of Trust and the Bylaws of the Company. This summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the MGCL, the Maryland REIT Law, the Declaration of Trust and the
Bylaws, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part.

CLASSIFICATION OF THE BOARD OF TRUSTEES

The Declaration of Trust provides that the number of trustees of the Company
shall be established by the Bylaws but shall not be less than three. The Bylaws
currently provide that the Board of Trustees will consist of not fewer than
five nor more than thirteen trustees. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the remaining trustees, or in the case of a vacancy resulting from
an increase in the number of trustees, by a majority of the entire Board of
Trustees.

Pursuant to the terms of the Declaration of Trust, the Board of Trustees is
divided into three classes as nearly equal in size as practicable. One class
will hold office initially for a term expiring at the annual meeting of
Shareholders to be held in 1998, another class will hold office initially for a
term expiring at the annual meeting of Shareholders to be held in 1999 and
another class will hold office initially for a term expiring at the annual
meeting of Shareholders to be held in 2000. As the term of each class expires,
trustees in that class will be elected for a term of three years and until
their successors are duly elected and qualified, and the trustees in the other
two classes will continue in office. The Company believes that classification
of the Board of Trustees will help to assure the continuity and stability of
the Company's business strategies and policies as determined by the Board of
Trustees.

The classified board provision could have the effect of making the removal of
incumbent trustees more time-consuming and difficult, which could discourage a
third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its Shareholders. At least two annual meetings of Shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Trustees. Thus, the classified board provision could increase the
likelihood that incumbent trustees will retain their positions. Holders of
Common Shares will have no right to cumulative voting for the election of
trustees. Consequently, at each annual meeting of Shareholders, the holders of
a majority of the Common Shares will be able to elect all of the successors of
the class of trustees whose term expires at that meeting.

REMOVAL OF TRUSTEES

While the Declaration of Trust empowers the Shareholders to fill vacancies in
the Board of Trustees that are caused by the removal of a trustee, the
Declaration of Trust also precludes Shareholders from removing incumbent
trustees except upon a substantial affirmative vote. Specifically, the
Declaration of Trust provides that a trustee may be removed only for cause and
only by the affirmative vote of at least two-thirds of the votes then entitled
to be cast in the election of trustees. Under the Maryland REIT law, the term
"cause" is not defined and is, therefore, subject to Maryland common law and to
judicial interpretation and review in the context of the unique facts and
circumstances of any particular situation. This provision, when coupled with
the provision in the Bylaws authorizing the Board of Trustees to fill vacant
trusteeships, precludes Shareholders from removing incumbent trustees except
upon a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.

BUSINESS COMBINATIONS

Under the MGCL, as applicable to Maryland REITs, certain "business
combinations" (including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between the Company and any Interested Shareholder or an affiliate
thereof are prohibited for

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five years after the most recent date on which the Interested Shareholder
became an Interested Shareholder. Thereafter, any such business combination
must be recommended by the Board of Trustees and approved by the affirmative
vote of at least (a) 80.0% of the votes entitled to be cast by holders of the
Company's outstanding voting shares of beneficial interest and (b) two-thirds
of the votes entitled to be cast by holders of the Company's outstanding voting
shares of beneficial interest other than shares held by the Interested
Shareholder with whom the business combination is to be effected, unless, among
other things, the Company's shareholders receive a minimum price (as defined in
the MGCL) for their shares of beneficial interest and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. These provisions of the MGCL do not apply, however,
to business combinations that are approved or exempted by the Board of Trustees
of the Company prior to the time that the Interested Shareholder becomes an
Interested Shareholder. The Board of Trustees has exempted from these
provisions of the MGCL any business combination involving the issuance of
Common Shares to Prime or any of the Contributors, or any of their respective
affiliates, upon the exchange of Common Units acquired by such entities in
connection with the Formation Transactions. In addition, the Partnership
Agreement requires that any merger or sale of all or substantially all of the
assets of the Operating Partnership be approved by the holders of at least
50.0% of the Common Units, including the Common Units held by the Company.

CONTROL SHARE ACQUISITIONS

The MGCL, as applicable to Maryland REITs, provides that "control shares" of
a Maryland real estate investment trust acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter, excluding shares of
beneficial interest owned by the acquiror or by officers or trustees who are
employees of the trust.

"Control shares" are voting shares which, if aggregated with all other such
shares previously acquired by the acquiror or in respect of which the acquiror
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing trustees within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority or (iii) a majority or more of all voting power. Control shares
do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained shareholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Trustees to call a special meeting of shareholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the Company may itself present the
question at any shareholders' meeting.

If voting rights are not approved at the shareholders' meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the MGCL, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares of beneficial interest are considered
and not approved. If voting rights for control shares are approved at a
shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares of beneficial interest entitled to vote, all other shareholders may
exercise appraisal rights. The fair value of the shares of beneficial interest
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise
of dissenters' rights do not apply in the context of a control share
acquisition.

The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction or to acquisitions approved or exempted by the trust's declaration
of trust or bylaws.

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If the foregoing exemption in the Bylaws is rescinded, the control share
acquisition statute could have the effect of discouraging offers to acquire the
Company and of increasing the difficulty of consummating any such offer.

AMENDMENT TO THE DECLARATION OF TRUST

The Declaration of Trust, with certain limited exceptions, may be amended
with the affirmative vote of the holders of not less than a majority of the
aggregate number of shares of beneficial interest outstanding and entitled to
vote thereon voting generally in the election of trustees. The provisions
relating to the classification of the Board of Trustees and removal of trustees
may be amended only by the affirmative vote of the holders of not less than
two-thirds of the aggregate number of shares of beneficial interest outstanding
and then entitled to vote thereon voting generally in the election of trustees.

Under the Maryland REIT Law, a declaration of trust may permit the trustees
by a two-thirds vote to amend the declaration of trust from time to time to
qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. Also under
the Maryland REIT Law, a declaration of trust may permit the board of trustees
to amend the declaration of trust to increase the aggregate number of shares of
beneficial interest or the number of shares of any class without shareholder
approval. Pursuant to this statute, the Declaration of Trust authorizes the
Board of Trustees to increase or decrease the aggregate number of shares of
beneficial interest of the Company or the number of shares of beneficial
interest of any class of beneficial interest of the Company but requires that
such action be approved by the affirmative vote of a majority of all the votes
cast on the matter at a meeting of shareholders at which a quorum is present.

ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS

The Bylaws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to the Company's notice of the meeting, (ii) by the Board of Trustees
or (iii) by a shareholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Declaration of
Trust and (b) with respect to special meetings of shareholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of shareholders and nominations of persons for election to the Board of
Trustees may be made only (i) pursuant to the Company's notice of meeting, (ii)
by the Board of Trustees or (iii) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
procedures set forth in the Declaration of Trust.

The provisions in the Declaration of Trust on classification of the Board of
Trustees and amendments to the Declaration of Trust and removal of trustees,
the business combination statute and, if the applicable provision in the
Declaration of Trust is revoked, control shares acquisition provisions of the
MGCL, and the advance notice provisions of the Bylaws could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Shares might receive a premium for their shares over
the then-prevailing market price or which such holders might believe to be
otherwise in their best interests.

MARYLAND ASSET REQUIREMENTS

To maintain its qualification as a Maryland REIT, the Maryland REIT Law
requires that the Company hold, either directly or indirectly, at least 75.0%
of the value of its assets in real estate assets, mortgages or mortgage related
securities, government securities, cash and cash equivalent items, including
high-grade short-term securities and receivables. The Maryland REIT Law also
prohibits using or applying land for farming, agricultural, horticultural or
similar purposes.

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MEETINGS OF SHAREHOLDERS

The Bylaws provide for annual meetings of shareholders, commencing with the
year 1998, to elect the Board of Trustees and transact such other business as
may properly be brought before the meeting. Special meetings of shareholders
may be called by the President, the Board of Trustees or the Chairman of the
Board and shall be called at the request in writing of the holders of 50.0% or
more of the outstanding shares of beneficial interest of the Company entitled
to vote.

The Bylaws provide that any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
shareholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each shareholder entitled to notice of the meeting but not
entitled to vote at it.

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SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Prime and the Contributors have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or
disposition) of any Common Units or Common Shares or other shares of
beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Common Units or Common Shares or other
shares of beneficial interest of the Company for a period of two years and one
year, respectively, from the date of this Prospectus, and the Company has
agreed not to offer, sell, offer to sell, contract to sell, grant any option
to purchase or otherwise sell or dispose (or announce any offer, sale, offer
of sale, contract of sale, grant of any option to purchase or other sale or
disposition) of any (other than pursuant to the Share Incentive Plan) Common
Shares or other shares of beneficial interest of the Company, or any
securities convertible or exercisable for any Common Units or Common Shares or
other shares of beneficial interest of the Company, for a period of 180 days
from the date of this Prospectus, in each case without the prior written
consent of Prudential Securities Incorporated, subject to certain limited
exceptions. Prudential Securities Incorporated, at any time and without
notice, may release all or any portion of the Common Shares subject to the
foregoing lock-up agreements. See "Structure and Formation of the Company--
Allocation of Consideration in the Formation Transactions."

The Common Shares owned by "affiliates" of the Company and the Common Shares
issuable upon exchange of Common Units (other than those issued pursuant to
registration rights, as described below), will be subject to Rule 144
promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with them in accordance with Rule 144) who has
beneficially owned "restricted securities" (defined generally as securities
acquired from the issuer or an affiliate of the issuer in a transaction not
involving a public offering) for at least one year, and including the holding
period of any prior owner unless such prior owner is an affiliate, would be
entitled to sell within any three-month period a number of Common Shares that
does not exceed the greater of 1.0% of the then-outstanding number of Common
Shares or 1.0% of the average weekly trading volume of the Common Shares on
the NYSE during the four calendar weeks preceding each such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated with them in
accordance with Rule 144) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, notice requirements or public information requirements. An
"affiliate" of the Company is a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or under common
control with, the Company.

The Company has established the Share Incentive Plan for the purpose of
attracting and retaining executive officers, trustees and other key employees.
See "Management--Share Incentive Plan." Upon the completion of the Offering,
the Company will issue in the aggregate options to purchase Common
Shares to executive officers, trustees and certain key employees and will
reserve additional Common Shares for

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future issuance under the Share Incentive Plan. The Company intends to file a
registration statement under the Securities Act registering the Common Shares
reserved for issuance upon the exercise of options granted under the Share
Incentive Plan. See "Management--Share Incentive Plan." This registration
statement is expected to be filed soon after the date of this Prospectus and
will become effective automatically upon filing. Accordingly, shares
registered under such registration statement will be available for sale in the
open market, unless such shares are subject to vesting restrictions with the
Company and except to the extent that the holders of such options are subject
to the lock-up agreements described above.

Prior to the date of this Prospectus, there has been no public market for
the Common Shares. It is expected that the Common Shares will be approved for
listing on the NYSE, subject to official notice of issuance. No prediction can
be made as to the effect, if any, that future sales of Common Shares
(including sales pursuant to Rule 144) or the availability of Common Shares
for future sale will have on the market price prevailing from time to time.
Sales of substantial amounts of Common Shares (including Common Shares issued
upon the exercise of options or the exchange of Common Units), or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Shares and impair the Company's ability to obtain
additional capital through the sale of equity securities. See "Risk Factors--
Possible Adverse Effects on Share Price Arising from Shares Eligible for
Future Sale." For a description of certain restrictions on transfers of Common
Shares held by certain shareholders of the Company, see "Underwriting" and
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer."

EXCHANGE RIGHTS AND REGISTRATION RIGHTS

Subject to certain conditions, each Common Unit held by a Limited Partner
may be exchanged for one Common Share (subject to adjustment) or, at the
option of the Company, for cash equal to the fair market value of a Common
Share at the time of exchange. The Limited Partners have agreed not to
exchange their Common Units for Common Shares unless the Operating Partnership
receives an opinion of counsel reasonably satisfactory to the Company that,
upon such exchange, the Operating Partnership would not cease to qualify as a
partnership for federal income tax purposes and that the Company will continue
to qualify as a REIT. In order to protect the Company's status as a REIT, each
holder of Common Units is prohibited from exchanging such Common Units for
Common Shares to the extent that as a result of such exchange any person would
own or would be deemed to own, actually or constructively, more than 9.9% of
the Common Shares, except to the extent such holder has been granted an
exception to the Ownership Limit. See "Description of Shares of Beneficial
Interest--Restrictions on Ownership and Transfer."

The Company has granted the Limited Partners receiving Common Units in
connection with the Formation Transactions certain "demand" and "piggyback"
registration rights (collectively, the "Registration Rights") with respect to
the Common Shares acquired by them upon exchange of Common Units for Common
Shares (the "Registrable Shares"). The Company has granted the Limited
Partners piggyback registration rights with respect to Common Shares acquired
by them by any means. The Company also has agreed to provide the Registration
Rights to any other person who may become an owner of Common Units, provided
such person provides the Company with satisfactory undertakings. The Company
will bear expenses arising from the exercise of such registration rights,
except that the Company shall not pay any underwriting discounts or
commissions, transfer taxes, Securities and Exchange Commission or Blue Sky
registration fees relating to registration of Registrable Shares.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material federal income tax considerations that
may be relevant to a prospective holder of Common Shares who purchases such
shares in the Offering. Winston & Strawn has acted as special tax counsel ("Tax
Counsel") to the Company in connection with the Offering and the preparation of
this Prospectus. This summary should not be construed as tax advice. The
discussion contained herein does not address all aspects of federal income
taxation that may be relevant to particular holders in light of their personal
investment or tax circumstances, or to certain types of holders (including,
without limitation, insurance companies, financial institutions, broker-
dealers, persons whose functional currency is other than the United States
dollar, persons who hold the Common Shares as part of a straddle, hedging, or
conversion transaction or, except as specifically described herein, tax-exempt
entities and foreign persons) who are subject to special treatment under the
federal income tax laws. In addition, this summary is generally limited to
investors who will hold the Common Shares as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code").

The statements in this summary are based on current provisions of the Code,
Treasury Regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly with retroactive effect. The provisions of the Code, the
Treasury Regulations promulgated thereunder and the administrative and judicial
interpretations thereof that concern REITs are highly technical and complex,
and this summary is qualified in its entirety by such Code provisions, Treasury
Regulations, and administrative and judicial interpretations. No assurance can
be given that future legislative, judicial, or administrative actions or
decisions will not affect the accuracy of any statements in this summary. In
addition, no ruling will be sought from the Internal Revenue Service (the
"IRS") with respect to any matter discussed herein, and there can be no
assurance that the IRS or a court will agree with the statements made herein.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALE OF COMMON SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

GENERAL

The Company intends to make an election to be taxed as a REIT under Sections
856 through 860 of the Code and the applicable Treasury Regulations promulgated
thereunder, which together set forth the requirements for qualifying as a REIT
(the "REIT Requirements"), beginning with its taxable year ending December 31,
1997. The Company believes that it will be organized and will operate in such a
manner to qualify for taxation as a REIT under the Code. No assurance can be
given, however, that the Company actually will operate in such a manner to so
qualify as a REIT or will continue to operate in such a manner so as to remain
qualified as a REIT.

Subject to the qualifications stated herein and in its opinion, Tax Counsel
has given the Company an opinion that the Company will qualify to be taxed as a
REIT under the Code beginning with its taxable year ending December 31, 1997.
An opinion of counsel is not binding on the IRS or a court and there can be no
assurance that the IRS or a court will not take a position different from that
expressed by Tax Counsel. It also must be emphasized that Tax Counsel's opinion
is based on various assumptions and is conditioned upon numerous
representations made by the Company and the Operating Partnership as to factual
matters, including those related to their businesses and properties as set
forth in this Prospectus. Tax Counsel has not independently verified the
Company's representations. Moreover, the Company's qualification and taxation
as a REIT depend upon the Company's ability to meet on a continuing basis the
actual operating results, distribution levels, diversity of ownership and the
various other qualification tests imposed by the Code as discussed below. Tax
Counsel will not review the Company's compliance with these tests on a
continuing basis. Accordingly, no assurance can be

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given that the actual results of the Company's operations for any given
taxable year will satisfy the requirements for qualification and taxation as a
REIT. See "Certain Federal Income Tax Considerations--Failure to Qualify".

TAXATION OF THE COMPANY

For any taxable year in which the Company qualifies for taxation as a REIT,
it generally will not be subject to federal corporate income tax on that
portion of its ordinary income or capital gain that is currently distributed
to its shareholders. The REIT provisions of the Code generally allow a REIT to
deduct dividends paid to its shareholders. This deduction for dividends paid
to shareholders substantially eliminates the federal "double taxation" on
earnings (once at the corporate level and once again at the shareholder level)
that generally results from an investment in a corporation.

Even if the Company continues to qualify for taxation as a REIT, it may be
subject to federal income tax in certain circumstances. First, the Company
will be taxed at regular corporate rates on any undistributed "REIT taxable
income" and undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the corporate "alternative
minimum tax" on its items of tax preference, if any. Third, if the Company has
(i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying income from foreclosure property, the
Company will be subject to tax on such income at the highest regular corporate
rate (currently 35%). Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property), such income will be subject to a
100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but nonetheless
maintains its qualification as a REIT because certain other requirements are
met, the Company will be subject to a 100% tax on the greater of the amount by
which the Company fails the 75% or the 95% test, multiplied by a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute for each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Finally, if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate level tax) in a transaction in which the basis of
the asset in the Company's hands is determined by reference to the basis of
the asset (or any other property) in the hands of the C corporation, and the
Company subsequently recognizes gain on the disposition of such asset during
the ten-year period (the "Recognition Period") beginning on the date on which
the asset was acquired by the Company, then, pursuant to guidelines issued by
the IRS, the excess of (i) the fair market value of the asset as of the
beginning of the applicable Recognition Period, over (ii) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period
(i.e., "built-in gain") will be subject to tax at the highest regular
corporate rate. The Taxpayer Relief Act of 1997 ("the 1997 Tax Act"), would
also tax the Company on any built-in gains during the Recognition Period
attributed to the disposition of Assets of an acquired corporation which is a
"qualified REIT subsidiary." See "Certain Federal Income Tax Considerations--
Requirements for Qualification--Qualified REIT Subsidiary."

If the Company invests in properties in foreign countries, the Company's
profits from such investments will generally be subject to tax in the
countries where such properties are located. The precise nature and amount of
any such taxation will depend on the laws of the countries where the
properties are located. If the Company satisfies the annual distribution
requirements for qualification as a REIT and is therefore not subject to
federal corporate income tax on that portion of its ordinary income and
capital gain that is currently distributed to its shareholders, the Company
will generally not be able to recover the cost of any foreign tax imposed on
profits from its foreign investments by claiming foreign tax credits against
its U.S. tax liability on such profits. Moreover, a REIT is not able to pass
foreign tax credits through to its shareholders.

The Company will use the calendar year for both federal income tax purposes
and financial reporting purposes.

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REQUIREMENTS FOR QUALIFICATION

To qualify as a REIT, the Company must meet and continue to meet the
requirements, discussed below, relating to the Company's organization, the
sources of its gross income, the nature of its assets, and the level of
distributions to its shareholders.

Organizational Requirements

The Code requires that a REIT be a corporation, trust, or association:

(i)which is managed by one or more trustees or directors;

(ii) the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;

(iii)which would be taxable as a domestic corporation but for compliance
with the REIT Requirements;

(iv) which is neither a financial institution nor an insurance company
subject to certain special provisions of the Code;

(v)the beneficial ownership of which is held by 100 or more persons;

(vi) at any time during the last half of each taxable year not more than
50% in value of the outstanding stock or shares of beneficial interest
of which is owned, directly or indirectly through the application of
certain attribution rules, by or for five or fewer individuals (as
defined in the Code to include certain tax-exempt entities other than,
in general, qualified domestic pension funds); and

(vii) which meets certain other tests, described below, regarding the
nature of its income and assets and distribution requirements.

The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.

The Company intends to issue sufficient Common Shares to enough holders to
allow the Company to satisfy the requirement set forth in (v) above (the "100
holder" requirement). For purposes of determining ongoing compliance with the
100 holder requirement, Treasury Regulations require the Company to issue
letters to certain shareholders demanding information regarding the amount of
shares each such shareholder actually or constructively owns ("shareholder
demand letters").

As set forth in (vi) above, to qualify as a REIT, the Company must also
satisfy the requirement set forth in Section 856(a)(6) of the Code that it not
be closely held. The Company will not be closely held so long as at all times
during the last half of any taxable year of the Company (other than the first
taxable year for which the REIT election is made) not more than 50% in value
of its outstanding shares of beneficial interest is owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain tax-exempt
entities, other than, in general, qualified domestic pension funds) (the "five
or fewer" requirement). Although the Company's Declaration of Trust contains
certain restrictions on the ownership and transfer of the Common Shares, the
restrictions do not ensure that the Company will be able to satisfy the "five
or fewer" requirement. If the Company fails to satisfy the "five or fewer"
requirement, the Company's status as a REIT will terminate, and the Company
will not be able to prevent such termination. However, the 1997 Tax Act states
that, for taxable years beginning after the date of enactment of the 1997 Tax
Act, if the Company complies with the procedures prescribed in Treasury
Regulations for issuing shareholder demand letters and does not know, or with
the exercise of reasonable diligence would not have known, that the five or
fewer requirement was violated, the requirement will be deemed to be satisfied
for the year. See "Certain Federal Income Tax Considerations--Failure to
Qualify."

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Ownership of a Partnership Interest

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the assets of the partnership corresponding to the REIT's capital interest in
such partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of the REIT Requirements, including satisfying
the gross income tests and the asset tests. Accordingly, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership, including the Operating Partnership's proportionate
share of the assets, liabilities and items of income of each Property
Partnership, are treated as assets, liabilities and items of income of the
Company for purposes of applying the REIT Requirements, provided that the
Operating Partnership and each of the Property Partnerships are treated as
partnerships for federal income tax purposes. See "Certain Federal Income Tax
Considerations--Tax Aspects of the Company's Investments in Partnerships--
Partnership Classification."

Qualified REIT Subsidiary

If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
within the meaning of section 856(i) of the Code, that subsidiary is
disregarded for federal income tax purposes, and all assets, liabilities, and
items of income, deduction, and credit of the subsidiary are treated as
assets, liabilities and such items of the REIT itself. A "qualified REIT
subsidiary" is a corporation all of the capital stock of which has been owned
by the REIT from the commencement of such corporation's existence. Pursuant to
the 1997 Tax Act, an existing corporation all of the stock of which is
acquired by a REIT could be a "qualified REIT Subsidiary" so long as the
acquired corporation is considered to have liquidated for federal income tax
purposes and any pre-acquisition earnings and profits are distributed before
the end of the REIT's taxable year. Any corporation formed directly by the
Company to act as a general partner in any of the Property Partnerships will
be a qualified REIT subsidiary and thus all of its assets, liabilities, and
items of income, deduction, and credit will be treated as assets, liabilities,
and items of income, deduction and credit of the Company.

Income Tests

To maintain its qualification as a REIT, the Company must satisfy three
gross income requirements annually. First, at least 75% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments and from dividends, interest, and
gain from the sale or disposition of stock or securities or from any
combination of the foregoing. Third, gain from the sale or other disposition
of stock or securities held for less than one year, gain from prohibited
transactions, and gain from the sale or other disposition of real property
held for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross
income (including gross income from prohibited transactions) for each taxable
year. The 1997 Tax Act repeals the 30% limitation for taxable years beginning
after the date of enactment.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent received or accrued with
respect to any property must not be based in whole or in part on the income or
profits derived by any person from such property, although an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of gross receipts or gross sales. Rents received from a tenant that are based
on the tenant's income from the property will not be treated as rents based on
income or profits and thus excluded from the term "rents from real property"
if the tenant derives substantially all of its income with respect to such
property from the leasing or subleasing of

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substantially all of such property, provided that the tenant receives from
subtenants only amounts that would be treated as rents from real property if
received directly by a REIT. Second, rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or an owner of 10% or more of the REIT, directly or constructively
owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, a REIT generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an "independent contractor" from whom the REIT
derives no income. The independent contractor requirement, however, does not
apply to the extent the services rendered by the REIT are customarily furnished
or rendered in connection with the rental of the real property such that they
are services that a tax-exempt organization could provide to its tenants
without causing its rental income to be unrelated business taxable income under
the Code. A tax-exempt organization may provide services which are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant," without incurring
unrelated business taxable income. Pursuant to the 1997 Tax Act, a de minimis
amount of non-customary services will not disqualify income as rents from real
property so long as the value of the impermissible services does not exceed
1.0% of the gross income for the property.

Substantially all of the gross income of the Company is expected to be
attributable to investments in real property and specifically to rents
attributable to and gains from the disposition of real property. The Company
does not expect to receive rents based on the net income or profits of a
tenant. Moreover, the Company believes that it will not receive rents in excess
of a de minimis amount (generally rent from certain office space leased to
Prime affiliates) from a Related Party Tenant. The Company also does not expect
to receive any rent attributable to personal property leased in connection with
a lease of real property that exceeds 15% of the total rents received under any
such lease (for this purpose the Company took into account as personal property
the overhead cranes in use at certain of its Industrial Properties).

The Operating Partnership expects to provide certain services with respect to
the Properties, but does not satisfy the "independent contractor" requirements
described above. To the extent necessary to preserve the Company's status as a
REIT, the Operating Partnership will arrange to have services provided by
independent contractors from whom the Company or Operating Partnership does not
derive or receive any income.

The Operating Partnership may also receive fees in exchange for the
performance of certain usual and customary services relating to properties not
owned entirely by the Operating Partnership. The ratable portion of these fees
attributable to the part of the property not owned by the Operating Partnership
does not constitute qualifying income under the 75% or 95% gross income tests.
The remainder of these fees is ignored under the 75% and 95% gross income test
so long as the Company has a significant interest in such property. The Company
believes that the aggregate amount of such nonqualifying fees (and any other
nonqualifying income) in any taxable year will not exceed the limits on
nonqualifying income under the gross income tests described above.

The Properties include a 398-space parking facility for which the Company,
through the Operating Partnership, receives fees. This parking facility will be
operated through an independent contractor from whom the Company will derive no
income.

The Services Company, pursuant to contractual arrangements, will perform
management services with respect to properties not owned by the Company or the
Operating Partnership. The health club located in the 77 West Wacker Drive
Building (which is available for use at certain membership fees by employees of
tenants as well as by the general public) will be contributed to the Services
Company. The income from such services and the revenues from the health club
will be taxed to the Services Company at the regular corporate tax rates. Note
payments and dividends paid by the Services Company to the Operating
Partnership will constitute qualifying income for purposes of the 95% gross
income test but not for the purposes of the 75% gross income test.

Should the potential amount of nonqualifying income in the future create a
risk as to the qualification of the Company as a REIT, the Company intends to
take action to avoid not qualifying as a REIT. The Company may

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for instance transfer certain nonqualifying activities to a taxable corporation
such as the Services Company, from which it would receive dividends. If this
should occur, the Operating Partnership would be entitled to receive dividends
as a stockholder of such corporation. The amount of dividends available for
distribution to the Company would be reduced below the comparable amount of fee
income that would otherwise be received by the Operating Partnership because
such a corporation would be subject to a corporate level tax on its taxable
income, thereby reducing the amount of cash available for distribution.
Furthermore, the Company would be required to structure the stock interest
owned by the Operating Partnership in such a corporation to ensure that the
various asset tests described below were not violated (i.e., the Operating
Partnership would not own more than 10% of the voting securities of such
corporation and the value of the stock interest would not exceed 5% of the
value of the Company's total assets).

If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will be generally available if (i) the Company's
failure to meet such test(s) was due to reasonable cause and not due to willful
neglect, (ii) the Company reported the nature and amount of each item of its
income included in the test(s) for such taxable year on a schedule attached to
its return, and (iii) any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally earns
exceeds the limits on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. As discussed
above in "--Taxation of the Company" even if these relief provisions apply, the
Company will still be subject to a 100% tax on the greater of the amount by
which the Company failed the 75% or the 95% test, multiplied by a fraction
intended to reflect the Company's profitability. See "--Failure to Qualify."

Asset Tests

At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets, including its allocable share of
assets held by the Operating Partnership and each Property Partnership in which
the Operating Partnership is a partner, must be represented by real estate
assets (which for this purpose includes stock or debt instruments held for not
more than one year purchased with proceeds of a stock offering or a long-term
(at least five years) debt offering of the Company), cash, cash items and U.S.
government securities. Second, not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities. By virtue of its partnership interest
in the Operating Partnership, the Company will be deemed to own for purposes of
the three asset tests its pro rata share of the assets of the Operating
Partnership, and the assets of each Property Partnership in which the Operating
Partnership is a partner. The Operating Partnership owns 100% of the Preferred
Stock of the Services Company and the Note issued by the Services Company, but
none of that corporation's voting stock. The Company does not believe that its
pro rata share of the stock and securities (i.e., the Note) the Operating
Partnership owns in such corporation exceeds 5% of the total value of the
Company's assets. No independent appraisals will be obtained to support this
conclusion, and Tax Counsel, in rendering its opinion as to the qualification
of the Company as a REIT, is relying on the Company's representation that the
Preferred Stock and Note issued by the Services Company and held by the
Operating Partnership does not cause the Company to fail the 5% value test.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy any of the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance

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with the asset tests, and to take such other action within 30 days after the
close of any quarter as may be required to cure any noncompliance.

Annual Distribution Requirements

To continue to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to (i) the sum of (A) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and
the Company's net capital gain) plus (B) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of non-
cash income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. A distribution which is not pro rata
within a class of beneficial interest entitled to a dividend or which is not
consistent with the rights to distributions between classes of beneficial
interest (a "preferential dividend") is not taken into consideration for the
purpose of meeting the distribution requirement. Accordingly, the payment of a
preferential dividend could affect the Company's ability to meet this
distribution requirement.

To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains or ordinary corporate tax rates, as the case may be.
Furthermore, if the Company should fail to distribute for each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, plus (iii) any
undistributed taxable income from prior periods, the Company will be subject
to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.

The Company intends to make timely distributions sufficient to satisfy all
of the annual distribution requirements. The Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy these
distribution requirements. It is possible that, from time to time, the Company
may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to the insufficiency of cash flow from the
Operating Partnership in a particular year or to timing differences between
the actual receipt of income and actual payment of deductible expenses, on the
one hand, and the inclusion of such income and deduction of such expenses in
computing the Company's "REIT taxable income," on the other hand. In the event
that such an insufficiency or such timing differences occur, in order to meet
the 95% distribution requirement, the Company may find it necessary to cause
the Operating Partnership to pay dividends in the form of taxable stock
dividends, to borrow funds, or to liquidate assets.

If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the IRS upon audit, the Company
may retroactively cure the failure by paying "deficiency dividends" to its
shareholders in a later year, which may then be included in the Company's
deduction for dividends paid for the earlier year. The Company may thus be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest to the IRS based upon
the amount of any deduction taken for deficiency dividends.

Penalty Tax on Prohibited Transactions

The Company's share of any gain realized on the sale of any property held as
inventory or otherwise primarily for sale to customers in the ordinary course
of its trade or business generally will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction.
The Operating Partnership, through the Property Partnerships, intends to hold
the Properties for investment with a view to long-term appreciation, to engage
in the business of acquiring, developing, owning and operating the Properties
and to make such occasional sales of the Properties as are consistent with the
Company's investment objectives.

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Based upon such investment objectives, the Company believes that in general the
Properties should not be considered inventory or other property held primarily
for sale to customers in the ordinary course of a trade or business and that
the amount of income from prohibited transactions, if any, will not be
material.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify as a REIT will not be required and, if made, will not
be deductible by the Company. As a result, the Company's failure to qualify as
a REIT will reduce the cash available for distribution by the Company to its
shareholders. In addition, if the Company fails to qualify as a REIT, all
distributions to the Company's shareholders will be taxable as ordinary
dividend income to the extent of the Company's then current and accumulated
earnings and profits, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be ineligible for qualification as a REIT during the four taxable years
following the year during which qualification was lost. It is not possible to
determine whether the Company would be entitled to such statutory relief in all
circumstances.

TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS

The Company holds direct or indirect interests in the Operating Partnership
and each of the Property Partnerships (each individually a "Partnership" and,
collectively, the "Partnerships"). The following discussion summarizes certain
federal income tax considerations applicable solely to the Company's
investments in the Partnerships. The discussion does not address state or local
tax laws or any federal tax laws other than income tax laws.

Partnership Classification

The Company is entitled to include in its income its distributive share of
the income, and to deduct its distributive share of the losses, of each of the
Partnerships only if each such Partnership is classified for federal income tax
purposes as a partnership rather than as an association (or publicly-traded
partnership) taxable as a corporation.

Prior to January 1, 1997, an organization formed as a partnership was treated
as a partnership for federal income tax purposes rather than a corporation only
if it had no more than two of the four corporate characteristics that the
Treasury Regulations in effect at that time used to distinguish a partnership
from a corporation for tax purposes. These four characteristics were (i)
continuity of life, (ii) centralization of management, (iii) limited liability
and (iv) free transferability of interests. Under final Treasury Regulations
which became effective January 1, 1997, the four factor test has been
eliminated, and an entity with two or more members formed as a partnership
under relevant state law will be taxed as a partnership for federal income tax
purposes unless it specifically elects otherwise. The final regulations also
provide that the IRS will not challenge the classification of an existing
partnership for tax periods prior to January 1, 1997 so long as (1) the entity
had a reasonable basis for its claimed classification, (2) the entity and all
its members recognized the federal income tax consequences of any changes in
the entity's classification within the 60 months prior to January 1, 1997, and
(3) neither the entity nor any member of the entity had been notified in
writing on or before May 8, 1996, that the classification of the entity was
under examination by the IRS.

The Company believes that each Partnership formed on or after January 1, 1997
will be treated as a partnership for federal income tax purposes because each
was or will be formed as a partnership under state law and will have two or
more partners. Further, for each Partnership that was formed prior to January
1, 1997, the Company expects that such Partnership will be treated as a
partnership for federal income tax purposes for the periods before January 1,
1997 as (1) such Partnership had a reasonable basis for its claimed
classification, (2)

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such Partnership and all its partners recognized the federal income tax
consequences of any changes in the partnership's classification within the 60
months prior to January 1, 1997, and (3) neither the Partnership nor any
member of the Partnership had been notified in writing on or before May 8,
1996, that the classification of the entity was under examination by the IRS.

Additionally, the Company believes that none of the Partnerships will be
treated as publicly traded partnerships within the meaning of Code section
7704 that is taxed as a corporation for federal income tax purposes because,
under the applicable Treasury Regulations, none of the interests in the
Partnerships are registered under the Securities Act or traded on an
established securities market and none of the Partnerships have more than 100
partners. The Company further believes that none of the Partnerships will be
treated as a publicly traded partnership on the basis of the gross income
exception that 90% or more of its annual gross income will be from certain
passive sources, such as rents from real property, interest, and the sale or
disposition of real property and capital assets, and that none of the
Partnerships will be described as an investment company if it were a domestic
corporation.

If for any reason any of the Partnerships were taxable as a corporation
rather than as a partnership for federal income tax purposes, the character of
the Company's assets and items of gross income would change, and, as a result,
the Company would most likely be unable to satisfy the income and asset tests,
which would thus prevent the Company from qualifying as a REIT. In addition,
any change in the status for tax purposes of any of the Partnerships might be
treated as a taxable event, in which case the Company could incur a tax
liability without any related cash distribution. Further, if any of the
Partnerships were to be treated as an association taxable as a corporation,
items of income, gain, loss, deduction and credit of such Partnership would
not pass through to its partners; instead, the Partnership would be taxable as
a corporation, subject to entity-level taxation on its net income at regular
corporate tax rates. The partners of any such Partnership would be treated for
federal income tax purposes as stockholders, with distributions to such
partners being treated as dividends. See "--Requirements for Qualification--
Income Tests" and "--Asset Tests."

INCOME TAXATION OF THE PARTNERSHIPS AND THEIR PARTNERS

Partners, Not Partnerships, Subject to Tax

A partnership (that is not a publicly traded partnership) is not a separate
taxable entity for federal income tax purposes. Rather, partners are allocated
their proportionate share of the items of income, gain, loss, deduction and
credit of the partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive any distributions from the partnership.
The Company will be required to take into account its allocable share of the
foregoing items of the Partnerships for purposes of the various REIT income
tests and in the computation of its "REIT taxable income." See "--Requirements
for Qualification--Income Tests."

Partnership Allocations

Although a partnership agreement will generally determine the allocation of
a partnership's income and losses among the partners, such allocations will be
disregarded for tax purposes under Section 704(b) of the Code if they do not
comply with the provisions of Section 704(b) and the Treasury Regulations
promulgated thereunder. If an allocation is not recognized for federal income
tax purposes, the item subject to the allocation will be reallocated in
accordance with the partners' interests in the partnership, which will be
determined by taking into account all of the facts and circumstances relating
to the economic arrangement of the partners with respect to such item. The
Company believes that the allocations of taxable income and loss contained in
the partnership agreements for each of the Partnerships complies with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.

Tax Allocations With Respect to the Properties

Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership (such as interests in the Property Partnerships that own

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the Properties) in exchange for an interest in the partnership must be
allocated for federal income tax purposes in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners.

The Operating Partnership was formed by way of contributions, including
contributions of appreciated property (including interests in the Property
Partnerships that own the Properties), by certain Limited Partners.
Consequently the Partnership Agreement requires allocations of income, gain,
loss and deduction attributable to such contributed property to be made in a
manner that is consistent with Section 704(c) of the Code.

In general, these allocations tend to eliminate the Book-Tax Differences over
the life of the Partnerships by allocating to the Limited Partners of the
Operating Partnership, solely for tax purposes, lower amounts of depreciation
deductions and increased taxable income and gain on the sale by the Property
Partnerships of the Properties than would ordinarily be the case for economic
or book purposes. The Operating Partnership and the Company will elect to use
the traditional method under Treasury Regulation section 1.704-3(c) as the
method of accounting for the Book-Tax Differences with respect to properties
contributed to the Partnerships. However, this allocation method may not always
entirely rectify a Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Moreover, the application of
Section 704(c) principles in tiered partnership arrangements is not entirely
clear. Accordingly, the IRS may assert that a different allocation should be
used to eliminate any such Book-Tax Difference.

With respect to any property purchased by any of the Property Partnerships
subsequent to the formation of the Company, such property will initially have a
tax basis equal to its fair market value and Section 704(c) of the Code will
not apply.

Depreciation Deductions Available to the Operating Partnership

Certain assets owned by the Operating Partnership and the Property
Partnerships consist of property contributed by their partners. In general,
when property is contributed in a tax-free transaction under section 721 of the
Code, the transferee partnership is treated in the same manner as the
contributing partner for purposes of computing depreciation. The effect of this
rule is to continue the historic basis, placed in service dates and
depreciation methods with respect to property contributed to a partnership. In
general, this will result in the Operating Partnership and the Property
Partnerships claiming less depreciation than if they had purchased the
contributed properties in a taxable transaction and could result in the Company
being allocated less depreciation than if the contributed properties were
purchased in a taxable transaction.

Basis in Partnership Interest

The Company's adjusted tax basis in its partnership interest in the Operating
Partnership is generally (i) equal to the amount of cash and the basis of any
other property contributed to the Operating Partnership by the Company, (ii)
increased by (A) the Company's allocable share of the Operating Partnership's
income and (B) the Company's allocable share of indebtedness of the Operating
Partnership, and (iii) reduced, but not below zero, by (A) the Company's
allocable share of the Operating Partnership's losses and (B) the amount of
cash and the basis of any other property distributed by the Operating
Partnership to the Company, including any constructive cash distributions
resulting from a reduction in the Company's allocable share of indebtedness of
the Operating Partnership.

If the allocation to the Company of its distributive share of any loss of the
Operating Partnership would reduce the adjusted tax basis in its partnership
interest in the Operating Partnership below zero, the recognition of such
excess loss will be deferred until such time and to the extent that the Company
has sufficient tax basis in

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its partnership interest so that the recognition of such loss would not reduce
the amount of such tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (each such decrease being considered
a constructive cash distribution to the Company), would reduce the Company's
adjusted tax basis in its partnership interest below zero, such excess
distributions (including such constructive distributions) would constitute
taxable income to the Company. Such distributions and constructive
distributions will normally be characterized as a capital gain, and if the
Company has held its partnership interest in the Operating Partnership for
longer than the long-term capital gain holding period (currently one year), the
distributions and constructive distributions will constitute long-term capital
gains.

The rules described above with respect to basis apply equally to the
Operating Partnership in its capacity as a partner in any Property Partnership,
as well as to the Company in its capacity as a partner in any Property
Partnership.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

As used herein, the term "U.S. Shareholder" means a holder of Common Shares
who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) is a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust or (iv) is an estate subject to taxation
in the United States, regardless of its source of income.

As long as the Company continues to qualify as a REIT, distributions made by
the Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
U.S. Shareholders as ordinary income. Such distributions will not be eligible
for the dividends-received deduction in the case of U.S. Shareholders that are
corporations.

Dividends paid to U.S. Shareholders will be treated as portfolio income. Such
income, therefore, will not be subject to reduction by losses from passive
activities (i.e., any interest in a rental activity or in a trade or business
in which the holder does not materially participate, such as certain interests
held as a limited partner) of any holder who is subject to the passive activity
loss rules. Such distributions will, however, be considered investment income
which may be offset by certain investment expense deductions.

Distributions made by the Company that are properly designated by the Company
as capital gain dividends will be taxable to U.S. Shareholders as long-term
capital gains (to the extent that they do not exceed the Company's actual net
capital gain for the taxable year) without regard to the period for which a
U.S. Shareholder has held his/her Common Shares. U.S. Shareholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. Pursuant to the 1997 Tax Act, the Company
may elect to retain amounts representing long-term capital gain income on which
the Company will be taxed at regular corporate capital gains tax rates. In that
case, each shareholder will be taxed on a proportionate share of the total
long-term capital gains retained by the Company and will also receive a credit
for a proportionate share of the tax paid by the Company. Finally, each
shareholder would increase the adjusted basis in his/her shares by the amount
of the allocable long-term capital gain. If the Company should elect to retain
long-term capital gains, it will notify each shareholder of the relevant tax
information within 60 days after the close of the taxable year.

To the extent that the Company makes distributions (not designated as capital
gain dividends) in excess of its current and accumulated earnings and profits,
such distributions will be treated first as a tax-free return of capital to
each U.S. Shareholder, reducing the adjusted basis which such U.S. Shareholder
has in his/her Common Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in his/her shares taxable as capital gains
(provided that the shares have been held as a capital asset). Dividends
declared by the Company in October, November or December of

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any year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company on or before January 31 of the following calendar year.
Shareholders may not include in their own income tax returns any net operating
losses or capital losses of the Company.

Upon any sale or other disposition of Common Shares, the holder will
generally recognize gain or loss for federal income tax purposes in an amount
equal to the difference between (i) the amount of cash and the fair market
value of any property received on such sale or other disposition and (ii) the
holder's adjusted basis in the shares. Such gain or loss will generally be
capital gain or loss and will be long-term gain or loss if such shares have
been held for more than one year. In general, any loss recognized by a U.S.
Shareholder upon the sale or other disposition of Common Shares that have been
held for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss, to the extent of distributions received
by such U.S. Shareholder from the Company which were required to be treated as
long-term capital gains.

TAXATION OF TAX-EXEMPT SHAREHOLDERS

The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employees' pension trust do not constitute "unrelated
business taxable income," even though the REIT may have financed certain of its
activities with acquisition indebtedness. Although revenue rulings are
interpretive in nature and are subject to revocation or modification by the
IRS, based upon the revenue ruling and the analysis therein, distributions made
by the Company to a U.S. Shareholder that is a tax-exempt entity (such as an
individual retirement account ("IRA") or a 401(k) plan) should not constitute
unrelated business taxable income unless such tax-exempt U.S. Shareholder has
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code, or the shares are otherwise used in an unrelated trade
or business conducted by such U.S. Shareholder.

Special rules apply to certain tax-exempt pension funds (including 401(k)
plans but excluding IRAs or government pension plans) that own more than 10%
(measured by value) of a "pension-held REIT" at any time during a taxable year
beginning after December 31, 1993. Such a pension fund may be required to treat
a certain percentage of all dividends received from the REIT during the year as
unrelated business taxable income. The percentage is equal to the ratio of the
REIT's gross income (less direct expenses related thereto) derived from the
conduct of unrelated trades or businesses determined as if the REIT were a tax-
exempt pension fund, to the REIT's gross income (less direct expenses related
thereto) from all sources. The special rules will not apply to require a
pension fund to recharacterize a portion of its dividends as unrelated business
taxable income unless the percentage computed is at least 5%.

A REIT will be treated as a "pension-held REIT" if the REIT is predominantly
held by tax-exempt pension funds and if the REIT would otherwise fail to
satisfy the "five or fewer" ownership requirements discussed above, see "--
Requirements for Qualification--Organizational Requirements," if the stock or
beneficial interests of the REIT held by such tax-exempt pension funds were not
treated as held directly by their respective beneficiaries. A REIT is
predominantly held by tax-exempt pension funds if at least one tax-exempt
pension fund holds more than 25% (measured by value) of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension funds (each of which
owns more than 10% (measured by value) of the REIT's stock or beneficial
interests) own in the aggregate more than 50% (measured by value) of the REIT's
stock or beneficial interests. The Company believes that it will not be treated
as a pension-held REIT. However, because the shares of the Company will be
publicly traded, no assurance can be given that the Company is not or will not
become a pension-held REIT.

TAXATION OF NON-U.S. SHAREHOLDERS

The rules governing United States federal income taxation of any person other
than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created in the United States or under the laws of the United States
or of any state thereof, (iii) an estate whose income is includable in income
for U.S. federal income tax

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purposes regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust (collectively, "Non-U.S. Shareholders")
are highly complex, and the following discussion is intended only as a summary
of such rules. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine the impact of United States federal, state, and local
income tax laws on an investment in Common Shares, including any reporting
requirements.

In general, Non-U.S. Shareholders are subject to regular United States income
tax with respect to their investment in Common Shares in the same manner as a
U.S. Shareholder if such investment is "effectively connected" with the Non-
U.S. Shareholder's conduct of a trade or business in the United States. A
corporate Non-U.S. Shareholder that receives income with respect to its
investment in Common Shares that is (or is treated as) effectively connected
with the conduct of a trade or business in the United States also may be
subject to the 30% branch profits tax imposed by the Code, which is payable in
addition to regular United States corporate income tax. The following
discussion addresses only the United States taxation of Non-U.S. Shareholders
whose investment in Common Shares is not effectively connected with the conduct
of a trade or business in the United States.

Ordinary Dividends

Distributions made by the Company that are not attributable to gain from the
sale or exchange by the Company of United States real property interests and
that are not designated by the Company as capital gain dividends will be
treated as ordinary income dividends to the extent made out of current or
accumulated earnings and profits of the Company. Generally, such ordinary
income dividends will be subject to United States withholding tax at the rate
of 30% on the gross amount of the dividend paid unless reduced or eliminated by
an applicable United States income tax treaty. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless a lower treaty rate applies and
the Non-U.S. Shareholder has filed an IRS Form 1001 with the Company,
certifying the Non-U.S. Shareholder's entitlement to treaty benefits.

Non-Dividend Distributions

Distributions made by the Company in excess of its current and accumulated
earnings and profits to a Non-U.S. Shareholder who holds 5.0% or less of the
Common Shares (after application of certain ownership rules) will not be
subject to U.S. income or withholding tax. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of the Company's current and accumulated earnings and profits, the distribution
will be subject to withholding at the rate applicable to a dividend
distribution. However, the Non-U.S. Shareholder may seek a refund from the IRS
of any amount withheld if it is subsequently determined that such distribution
was, in fact, in excess of the Company's then current and accumulated earnings
and profits.

Capital Gains Dividends

As long as the Company continues to qualify as a REIT, distributions made by
the Company that are attributable to gain from the sale or exchange by the
Company of any United States real property interests ("USRPI") will be taxed to
a Non-U.S. Shareholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Shareholder as if such distributions were gains "effectively connected" with
the conduct of a trade or business in the United States. Accordingly, a Non-
U.S. Shareholder will be taxed on such distributions at the same capital gain
rates applicable to U.S. Shareholders (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). Distributions subject to FIRPTA also may be subject to the
30% branch profits tax in the case of a corporate Non-U.S. Shareholder that is
not entitled to treaty relief or exemption. The Company will be required to
withhold tax from any distribution to a Non-U.S. Shareholder that could be
designated by the Company as a USRPI capital gain dividend in an amount equal
to 35% of the gross

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distribution. The amount of tax withheld is fully creditable against the Non-
U.S. Shareholder's FIRPTA tax liability, and if such amount exceeds the Non-
U.S. Shareholder's federal income tax liability for the applicable taxable
year, the Non-U.S. Shareholder may seek a refund of the excess from the IRS. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding.

Disposition of Shares of Beneficial Interest of the Company

Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of Common
Shares generally will not be subject to United States taxation unless the
Common Shares constitute a USRPI within the meaning of FIRPTA. The Common
Shares will not constitute a USRPI so long as the Company is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock or
beneficial interests are held directly or indirectly by Non-U.S. Shareholders.
The Company believes that it will be a "domestically controlled REIT," and
therefore that the sale of Common Shares will not be subject to taxation under
FIRPTA. However, because the Common Shares will be publicly traded, no
assurance can be given that the Company is or will continue to be a
"domestically-controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of Common Shares not otherwise subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States. In such
case, the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.

If the Company did not constitute a "domestically-controlled REIT," gain
arising from the sale or exchange by a Non-U.S. Shareholder of Common Shares
would be subject to United States taxation under FIRPTA as a sale of a USRPI
unless (i) the Common Shares are "regularly traded" (as defined in the
applicable Treasury regulations) and (ii) the selling Non-U.S. Shareholder's
interest (after application of certain constructive ownership rules) in the
Company is 5.0% or less at all times during the five years preceding the sale
or exchange. If gain on the sale or exchange of the Common Shares were subject
to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States income tax with respect to such gain in the same manner as a U.S.
Shareholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the Common Shares (including the Company)
would be required to withhold and remit to the IRS 10% of the purchase price.
Additionally, in such case, distributions on the Common Shares to the extent
they represent a return of capital or capital gain from the sale of the Common
Shares, rather than dividends, would be subject to a 10% withholding tax.

Capital gains not subject to FIRPTA will nonetheless be taxable in the United
States to a Non-U.S. Shareholder in two cases; (i) if the Non-U.S.
Shareholder's investment in the Common Shares of the Company is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Shareholder,
the Non-U.S. Shareholder will be subject to the same treatment as a U.S.
shareholder with respect to such gain, or (ii) if the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.

Estate Tax

Common Shares of the Company owned or treated as owned by an individual who
is not a citizen or resident (as specially defined for U.S. federal estate tax
purposes) of the United States at the time of death will be includable in the
individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. federal estate tax on the property includable in the estate
for U.S. federal estate tax purposes.

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INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company will report to its U.S. Shareholders and to the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a U.S.
Shareholder may be subject to backup withholding at the rate of 31% on
dividends paid unless such U.S. Shareholder (i) is a corporation or falls
within certain other exempt categories and, when required, can demonstrate this
fact, or (ii) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A U.S. Shareholder who
does not provide the Company with his correct taxpayer identification number
also may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the U.S. Shareholder's federal income
tax liability. In addition, the Company may be required to withhold a portion
of any capital gain distributions made to U.S. Shareholders who fail to certify
their non-foreign status to the Company. See "--Taxation of Non-U.S.
Shareholders."

Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Shareholders, and Non-U.S. Shareholders
should consult their tax advisors with respect to any such information
reporting and backup withholding requirements.

OTHER TAX CONSIDERATIONS

Possible Legislative or Other Actions Affecting Tax Consequences

Prospective holders should recognize that the present federal income tax
treatment of the Company may be modified by future legislative, judicial or
administrative actions or decisions at any time, which may be retroactive in
effect, and, as a result, any such action or decision may affect investments
and commitments previously made. The rules dealing with federal income taxation
are constantly under review by persons involved in the legislative process and
by the IRS and the Treasury Department, resulting in statutory changes as well
as promulgation of new, or revisions to existing, regulations and revised
interpretations of established concepts. No prediction can be made as to the
likelihood of passage of any new tax legislation or other provisions either
directly or indirectly affecting the Company or its shareholders. Revisions in
federal income tax laws and interpretations thereof could adversely affect the
tax consequences of an investment in the Common Shares.

State and Local Taxes

The Company and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective holders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Common Shares.

ERISA CONSIDERATIONS

The following is a summary of material considerations arising under ERISA and
the prohibited transaction provisions of Section 4975 of the Code that may be
relevant to a prospective purchaser (including, with respect to the discussion
contained in "--Status of the Company, the Operating Partnership and the
Services Company under ERISA," to a prospective purchaser that is not an
employee benefit plan, another tax-qualified retirement plan or an individual
retirement account ("IRA")). This discussion does not propose to deal with all
aspects of ERISA or Section 4975 of the Code or, to the extent not pre-empted,
state law that may be relevant to particular employee benefit plan shareholders
(including plans subject to Title I of ERISA, other employee benefit plans and
IRAs subject to the prohibited transaction provisions of Section 4975 of the
Code, and governmental plans and church plans that are exempt from ERISA and
Section 4975 of the Code but that may be subject to state law requirements) in
light of their particular circumstances.

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A FIDUCIARY MAKING THE DECISION TO INVEST IN COMMON SHARES ON BEHALF OF A
PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT PLAN,
AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP OR SALE OF COMMON SHARES BY SUCH PLAN OR IRA. Plans should
also consider the entire discussion under the heading "Certain Federal Income
Tax Considerations," as material contained therein is relevant to any decision
by an employee benefit plan, tax-qualified retirement plan or IRA to purchase
the Common Shares.

EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS

Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in Common Shares
is consistent with its fiduciary responsibilities under ERISA. In particular,
the fiduciary requirements of Part 4 of Title I of ERISA require (i) an ERISA
Plan's investments to be prudent and in the best interests of the ERISA Plan,
its participants and beneficiaries, (ii) an ERISA Plan's investments to be
diversified in order to reduce the risk of large losses, unless it is clearly
prudent not to do so, (iii) an ERISA Plan's investments to be authorized under
ERISA and the terms of the governing documents of the ERISA Plan and (iv) that
the fiduciary not cause the ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA. In determining whether an investment in Common
Shares is prudent for purposes of ERISA, the appropriate fiduciary of an ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of
the ERISA Plan, taking into consideration the risk of loss and opportunity for
gain (or other return) from the investment, the diversification, cash flow and
funding requirements of the ERISA Plan and the liquidity and current return of
the ERISA Plan's portfolio. A fiduciary should also take into account the
nature of the Company's business, the length of the Company's operating history
and other matters described under "Risk Factors."

The fiduciary of an IRA or of an employee benefit plan not subject to Title I
of ERISA because it is a governmental or church plan or because it does not
cover common law employee (a "Non-ERISA Plan") should consider that such an IRA
or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.

STATUS OF THE COMPANY, THE OPERATING PARTNERSHIP AND THE SERVICES COMPANY UNDER
ERISA

A prohibited transaction may occur if the assets of the Company are deemed to
be assets of the investing Plans and "parties in interest" or "disqualified
persons" as defined in ERISA and Section 4975 of the Code, respectively deal
with such assets. In certain circumstances where a Plan holds an interest in an
entity, the assets of the entity are deemed to be Plan assets (the "look-
through rule"). Under such circumstances, any person that exercises authority
or control with respect to the management or disposition of such assets is a
Plan fiduciary. Plan assets are not defined in ERISA or the Code, but the
United States Department of Labor has issued regulations, effective March 13,
1987 (the "Regulations"), that outline the circumstances under which a Plan's
interest in an entity will be subject to the look-through rule.

The Regulations apply only to the purchase by a Plan of an "equity interest"
in an entity, such as common stock or common shares of beneficial interest of a
REIT. However, the Regulations provide an exception to the look-through rule
for equity interests that are "publicly-offered securities."

Under the Regulations, a "publicly-offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), or (b) sold to a Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and the class of securities of which such security is a part
is registered under the Exchange Act

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within 120 days (or such longer period allowed by the Securities and Exchange
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of each
case. Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against any
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax purposes
will not of itself prevent the security from being considered freely
transferable. A class of securities is considered "widely-held" if it is a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another.

The Company anticipates that the Common Shares will meet the criteria of the
publicly-offered securities exception to the look-through rule. First, the
Company anticipates that the Common Shares will be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under federal tax laws to
maintain the Company's status as a REIT. Second, the Company believes that the
Common Shares will be held by 100 or more investors and that at least 100 or
more of these investors will be independent of the Company and of one another.
Third, the Common Shares will be part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act
and will be registered under the Exchange Act within 120 days after the end of
the fiscal year of the Company during which the offering of such securities to
the public occurs. Accordingly, the Company believes that if a Plan purchases
Common Shares, the Company's assets should not be deemed to be Plan assets and,
therefore, that any person who exercises authority or control with respect to
the Company's assets should not be treated as a Plan fiduciary for purposes of
the prohibited transaction rules of ERISA and Section 4975 of the Code.

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UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Friedman, Billings, Ramsey & Co., Inc. are acting
as representatives (the "Representatives"), have severally agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
from the Company the number of Common Shares set forth below opposite their
respective names:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Prudential Securities Incorporated...............................
Friedman, Billings, Ramsey & Co., Inc............................
----------
Total.......................................................... 14,250,000
==========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Common Shares offered hereby if any are purchased.

The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Common Shares to the public initially at the public
offering price set forth on the cover page of this Prospectus, that the
Underwriters may allow to selected dealers a concession of $ per share and
that such dealers may reallow a concession of $ per share to certain other
dealers. After completion of the Offering, the offering price and the
concessions may be changed by the Representatives.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 2,137,500 additional
Common Shares at the initial public offering price, less the underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of Common Shares offered hereby. To the
extent such option to purchase is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional Common Shares as the number set forth next to
such Underwriter's name in the preceding table bears to .

The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

Each of the Limited Partners has agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or
disposition) of any Common Units or Common Shares or other shares of
beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Common Units or Common Shares or other
shares of beneficial interest of the Company for a certain period from the
date of this Prospectus (two years in the case of Prime; one year in the case
of the Contributors), and the Company has agreed not to offer, sell, offer to
sell, contract to sell, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, grant
of any option to purchase or other sale or disposition) of any Common Shares
or other shares of beneficial interest of the Company, or any securities
convertible or exercisable or exchangeable for any Common Units or Common
Shares or other shares of beneficial interest of the Company (other than
pursuant to the Share Incentive Plan), for a period of 180 days from the date
of this Prospectus, in each case without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, subject to
certain limited exceptions. Prudential Securities Incorporated, at any time
and without notice, may release all or any portion of the Common Shares
subject to the foregoing lock-up agreements. See "Structure and Formation of
the Company."

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<PAGE>

Application has been made to have the Common Shares approved for listing on
the NYSE. In order to meet one of the requirements for listing the Common
Shares on the NYSE, the Underwriters have undertaken to sell (i) lots of 100
or more shares to a minimum of 2,000 beneficial holders, (ii) a minimum of 1.1
million shares and (iii) shares with a minimum aggregate market value of $40.0
million.

Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined through
negotiations among the Company, Prime and the Representatives. Among the
factors to be considered in such determination will be prevailing market
conditions, dividend yields and financial characteristics of publicly traded
REITs that the Company and the Representatives believe to be comparable to the
Company, the present state of the Company's financial and business operations,
the Company's management, estimates of the business and earnings potential of
the Company and the prospects for the industry in which the Company operates.

In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions
that stablilize, maintain or otherwise affect the market price of the Common
Shares. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M promulgated by the Securities and
Exchange Commission (the "Commission") pursuant to which such persons may bid
for or purchase Common Shares for the purpose of stabilizing its market price.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Common Shares in connection with the Offering
than they are committed to purchase from the Company, and in such case may
purchase Common Shares in the open market following completion of the Offering
to cover all or a portion of such short position.The Underwriters may also
cover all or a portion of such short position, up to 2,137,500 Common Shares,
by exercising the Underwriters' over-allotment option referred to above. In
addition, Prudential Securities Incorporated, on behalf of the Underwriters,
may impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or any selling group member
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Shares that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Shares at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph are required and, if they are undertaken, they may be
discontinued at any time.

LEGAL MATTERS

Certain legal matters in connection with the Offering will be passed upon
for the Company by Winston & Strawn, Chicago, Illinois. Legal matters relating
to Maryland law, including the validity of the issuance of the Common Shares
offered hereby, will be passed upon for the Company by Miles & Stockbridge, a
Professional Corporation, Baltimore, Maryland. Certain legal matters will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York. In addition, the description of federal income tax
consequences contained in this Prospectus under "Certain Federal Income Tax
Considerations" is, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, the opinion of Winston &
Strawn, special tax counsel to the Company as to the material federal income
tax consequences of the Offering.

170
<PAGE>

EXPERTS

The balance sheet of Prime Group Realty Trust as of July 21, 1997, the
combined financial statements of the Prime Properties (Predecessor Affiliates)
as of March 31, 1997 and December 31, 1996 and 1995, and for the three months
ended March 31, 1997 and for each of the three years in the period ended
December 31, 1996, the combined statements of revenue and certain expenses of
the Prime Industrial Contribution Properties for the period from January 1,
1997 to March 31, 1997 and for the period from March 1, 1996 to December 31,
1996, the combined statements of revenue and certain expenses of the
Contribution Properties for the period from January 1, 1997 to March 31, 1997
and for the year ended December 31, 1996, the statements of revenue and certain
expenses of Citibank Office Plaza for the period from January 1, 1997 to March
31, 1997 and for the year ended December 31, 1996, and the combined statements
of revenue and certain expenses of Salt Creek Office Center for the period from
January 1, 1997 to March 31, 1997 and for the year ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

In addition, certain statistical and other information appearing in this
Prospectus and the Registration Statement has been prepared by the Rosen
Consulting Group and is included herein in reliance upon the authority of such
firm as an expert in, among other things, real estate consulting and urban
economics and with respect to the Chicago Metropolitan Area and its submarkets.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street N.W., Washington, D.C. 20549, a Registration
Statement (of which this Prospectus is a part) on Form S-11 under the
Securities Act and the rules and regulations promulgated thereunder with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
financial statements thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Shares offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, copies of
which may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, or by way of the Commission's
Internet address, http://www.sec.gov.

Following the completion of the Offering, the Company will be required to
file reports and other information with the Commission pursuant to the Exchange
Act. In addition to applicable legal or New York Stock Exchange requirements,
if any, the Company intends to furnish its shareholders with annual reports
containing consolidated audited financial statements with a report thereon by
the Company's independent certified public accountants and with quarterly
reports containing unaudited condensed consolidated financial statements for
each of the first three quarters of each fiscal year.

171
<PAGE>

GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:

"1997 Tax Act" means the Taxpayer Relief Act of 1997, as amended.

"Acquisition Properties" means the two Office Properties and related assets
that comprise 1990 Algonquin Road and 2000-2060 Algonquin Road (also known as
the Salt Creek Office Center) that are expected to be acquired by the Company
concurrently with the completion of the Offering.

"ADA" means the Americans with Disabilities Act of 1990, as amended, and the
regulations promulgated under the authority conferred thereby.

"AEA" means the American Electronics Association.

"AHEC" means the Industrial Property known as 425 East Algonquin Road.

"AIREB" means the Association of Industrial Real Estate Brokers.

"Annualized Net Rent" means, with respect to a lease, the monthly net rent
due under the lease as determined in accordance with GAAP, annualized for all
leases in effect on March 31, 1997.

"Annualized Effective Net Rent" means the total net rent to be received over
the respective terms from all leases in effect at March 31, 1997 minus all
Tenant Expenditures for all such leases, divided by the terms in months for
such leases, multiplied by 12.

"Assessment" means the Natural Resources Damage Assessment of the Grand
Calumet River and the Indiana Harbor Canal System which IDEM has requested the
owner of the ECEC, along with numerous other property owners, to develop.

"Audit Committee" means the audit committee of the Board of Trustees of the
Company.

"Base Year" means, with respect to a lease, the tenant's proportionate share
of real estate taxes, insurance, utility and operating expense paid by the
tenant during the tenant's first year of occupancy under such lease.

"Beneficiary" means the qualified charitable organization selected by the
Company which would receive the automatic transfer of any Excess Shares.

"Board of Trustees" means the board of trustees of the Company.

"BOMA" means the Building Owners and Managers Association.

"Book-Tax Difference" means, with respect to appreciated or depreciated
property that is contributed to a partnership, the amount of unrealized gain
or unrealized loss associated with the property of the time of contribution,
which is generally equal to the difference between the fair market value of
the contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution.

"Business Combination" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, recapitalization or change of outstanding Common
Shares.

"Bylaws" means the bylaws of the Company, as amended.

"Chicago CBD" means the Chicago central business district.

"Chicago Metropolitan Area" means the area defined by the United States
Department of Commerce as the Chicago Metropolitan Statistical Area,
comprising Lake, Cook, DuPage, Kane, McHenry, Grundy, Kendall and Will
Counties in Illinois, Kenosha County in Wisconsin and Lake and Porter Counties
in Indiana.

"Class A" means, with regard to buildings, buildings that are centrally
located, professionally managed and maintained, attract high-quality tenants
and command upper-tier rental rates and are modern structures or have been
modernized to compete with newer buildings.

"Class B" means, with regard to buildings, buildings that have good
location, construction and tenancy and are sometimes considered to be
competitive with the lower spectrum of Class A buildings.

G-1
<PAGE>

"Class C" means, with regard to buildings, buildings that are generally
older buildings with progressing functional and/or economic obsolescence.

"Code" means the Internal Revenue Code of 1986, as amended.

"Combined Financial Statements" means the combined financial statements of
the Prime Properties and various affiliated entities related to certain of the
Properties or other assets being contributed to the Company.

"Commission" means the United States Securities and Exchange Commission.

"Common Shares" means common shares of beneficial interest, par value $.01
per share, of the Company.

"Common Units" means partnership interests representing the equity in the
Operating Partnership.

"Company" means Prime Group Realty Trust, a Maryland real estate investment
trust, and its subsidiaries.

"Continental Management Business" means all of the operations and business
of Continental Offices, Ltd. and Continental Offices, Ltd. Realty, including a
construction business and the property management and/or leasing operations at
five of the Properties, excluding certain assets.

"Contribution Properties" means collectively, the Office Property and
related assets that comprise 555 Huehl Road together with the six Industrial
Properties and related assets that comprise 1001 Technology Way, 3818
Grandville/1200 Northwestern, 306-310 Era Drive, 1301 Ridgeview Drive, 515
Huehl Road/500 Lindberg and 455 Academy Drive.

"Contributors" means LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated June 15, 1982 and known as Trust
No. 10-40113-09, LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated September 7, 1994 and known as Trust No.
11-9051, LaSalle National Trust, N.A., not personally, but solely as Trustee
under Trust Agreement dated March 30, 1984 and known as Trust No. 11-107825,
LaSalle National Trust, N.A., not personally, but solely as Trustee under
Trust Agreement dated August 1, 1986 and known as Trust No. 11-1358, LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated August 1, 1986 and known as Trust No. 11-1357, LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated January 17, 1974 and known as Trust No. 286-34, LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated October 15, 1995 and known as Trust No. 11-9869, LaSalle
National Trust, N.A., not personally, but solely as Trustee under Trust
Agreement dated December 1, 1987 and known as Trust No. 11-2868, 310 ERA
Limited Partnership, MacArthur Drive Properties, CLE Limited Partnership, 500
Lindberg Limited Partnership, 515 Huehl Limited Partnership, 555 Huehl Limited
Partnership, Sky Harbor Associates, 1001 Technology Way, LLC, The Grandville
Road Limited Partnership and Industrial Building and Development Company.

"Control Shares" means voting shares of beneficial interest of a Maryland
real estate investment trust which, if aggregated with all other such shares
of beneficial interest previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by revocable proxy) would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one third; (ii) one-third or more
but less than a majority, or (iii) a majority of all voting power. Control
Shares do not include shares the acquiror is then entitled to vote as a result
of having previously obtained shareholder approval.

"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.

"CPI" means the Consumer Price Index, the economic index issued by the U.S.
Department of Labor indicating price increases or decreases for the U.S.
economy.

G-2
<PAGE>

"Credit Facility" means, collectively, a credit facility or facilities which
the Company expects to obtain in the principal amount of at least $100.0
million to provide capital for new acquisitions.

"Declaration of Trust" means the Amended and Restated Declaration of Trust
of the Company.

"Donnelley" means R.R. Donnelley and Sons Company.

"ECEC" means the East Chicago Enterprise Center.

"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.

"ERISA Plan" means an employee benefit plan subject to Title I of ERISA.

"Everen" means Everen Securities, Inc.

"Excess Shares" means the 65.0 million authorized shares of excess shares of
beneficial interest, $.01 par value per share, of the Company.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Executive Committee" means the executive committee of the Board of Trustees
of the Company.

"Executive Compensation Committee" means the executive compensation
committee of the Board of Trustees of the Company.

"Expense Stop" means, with respect to a lease, a negotiated amount
approximating the tenant's pro rata share of real estate taxes, insurance, and
operating expense.

"FIRE" means, collectively, with respect to an economy, that sector of such
economy comprised of the businesses of finance, insurance, and real estate.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.

"five or fewer requirement" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of beneficial
interest may be owned directly or indirectly by five or fewer individuals (as
defined in the Code) during the last half of the taxable year (other than the
first year).

"Formation Agreement" means the agreement between the Operating Partnership
and Prime regarding the interests the Operating Partnership will acquire in
the Properties or interests therein owned by Prime and the third-party office
and industrial development, leasing and property management business of Prime.

"Formation Transactions" means those transactions relating to the
organization of the Company and its subsidiaries, including the transfer of
the Properties and other assets to the Company, formation of the Operating
Partnership, consolidation of the ownership interests in certain of the
Properties, the Offering and qualification of the Company as a REIT for
federal income tax purposes for the taxable year beginning January 1, 1997,
all as described under "Structure and Formation of the Company--Formation
Transactions."

"Funds from Operations" means funds from operations computed in accordance
with the resolution adopted by the Board of Governors of NAREIT in its March
1995 White Paper (with the exception that the Company expects to report base
rents on a cash basis, rather than a straight-line GAAP basis, which the
Company believes will result in a more accurate presentation of its actual
operating activities), as follows: net income (loss) (computed in accordance
with GAAP with the exception that base rents are reported on a cash basis as
described above), excluding gains (or losses) from debt restructuring and
sales of real property, plus real estate related depreciation and amortization
(excluding amortization of deferred financing costs), and after adjustments
for unconsolidated partnerships and joint ventures.

G-3
<PAGE>

"GAAP" means generally accepted accounting principles in the United States.

"GMP" means gross metropolitan product.

"HEC" means the Hammond Enterprise Center.

"Huntley Business Park" means that certain industrial and office park located
in the Village of Huntley, Illinois.

"IBD" means Industrial Building and Development Company.

"IDEM" means the Indiana Department of Environmental Management.

"IEPA" means the Illinois Environmental Protection Agency.

"Indemnitors" means certain Limited Partners who have agreed to make certain
representations and warranties concerning the Properties and have also agreed
to indemnify the Company against breaches of such representations and
warranties.

"Indemnified Contributor" means those Contributors with whom the Company has
entered into a Tax Indemnification Agreement whereby the Company agrees to
indemnify such Contributors for, among other things, certain tax liabilities
based on income or gain which they might realize upon the sale by the Company
of the Properties Contributed by such Contributors.

"Industrial Properties" means the industrial properties the Company, through
its subsidiaries, will own upon completion of the Offering consisting of bulk
warehouse distribution facilities, light-assembly and manufacturing facilities
and heavy-industrial/overhead crane buildings.

"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or an affiliate of the trust which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of beneficial
interest of the trust.

"IRA" means an individual retirement account as defined by the Code and the
applicable Treasury Regulations.

"IRS" means the United States Internal Revenue Service.

"Jones Day" means the law firm of Jones, Day, Reavis & Pogue.

"LC" means leasing commission.

"Letter of Credit Facility" means a facility which the Company expects to
obtain to be used to promote letters of credit as replacement credit
enhancement for $74.5 million of outstanding Tax-Exempt Bonds relating to
certain of the Properties.

"Libertyville Business Park" means that certain office and industrial park
located in the Village of Libertyville, Illinois.

"Limited Partner" initially means, any of Prime and the Contributors, each of
which are limited partners of the Operating Partnership.

"Look-Through Entities" means pension plans described in Section 401(a) of
the Code and having 100 or more participants and mutual funds registered under
the Investment Company Act of 1940, as amended, which entities are subject to a
Look-Through Ownership Limit of 15% as provided by the Declaration of Trust.

G-4
<PAGE>

"Look-Through Ownership Limit" means the prohibition in the Declaration of
Trust on beneficial ownership of more than 15% of the outstanding Common Shares
by certain pension plans and mutual funds.

"Management Contracts" means the contracts between the Operating Partnership
and the Services Company pursuant to which the Services Company will render
development, leasing and property management services for the Company.

"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.

"MGCL" means the Maryland General Corporation Law, as amended.

"Mortgage Debt" means the loans secured by certain of the Contribution
Properties.

"Motorola" means Motorola, Inc.

"MSA" means consolidated metropolitan statistical area.

"NAREIT" means the National Association of Real Estate Investment Trusts,
Inc.

"National Service Industries" or "NSI, Inc." means National Service
Industries, Inc.

"Net rent" means, with respect to a lease, the amount due from the tenant
under the lease without including operating expenses, taxes and other similar
reimbursements due from the tenant.

"Non-Compete Agreement" means the agreement Prime and Michael W. Reschke have
entered with the Company which contains restrictions on their ability to
compete with the Company.

"Non-ERISA Plan" means an employee benefit plan which is not subject to Title
I of ERISA because it is a governmental or church plan or because it does not
cover common law employees.

"Non-U.S. Shareholder" means a holder of Common Shares who is a nonresident
alien individual, foreign corporation, foreign partnership, foreign trust or
estate or other foreign shareholder.

"Note" means that certain promissory note to be issued by the Services
Company to the Operating Partnership with an initial principal amount of
approximately $4.2 million.

"NYSE" means the New York Stock Exchange, Inc.

"Offering" means the offering of Common Shares of the Company pursuant to and
as described in this Prospectus.

"Office Properties" means the office properties in which the Company, through
its subsidiaries, will have an interest or will own upon completion of the
Offering.

"Operating Partnership" means Prime Group Realty, L.P., a Delaware limited
partnership having its principal offices at 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601.

"outparcels" means parcels of vacant land which are located adjacent to, or
near, particular Properties that are not necessarily required for use in
connection with the office building or industrial center located at a
particular property.

"Ownership Limit" means the prohibition in the Declaration of Trust on (i)
beneficial ownership of more than 9.9% of the Common Shares by one person and
(ii) ownership of more than 9.9% of the fully diluted Common Shares (assuming
no exchange of Common Units for Common Shares by one person).

G-5
<PAGE>

"Partnership Agreement" means the Amended and Restated Limited Partnership
Agreement of the Operating Partnership.

"Plan" means an ERISA Plan or a non-ERISA Plan.

"preferential dividend" means a dividend which is not pro rata within a
class of shares of beneficial interest or stock entitled to a dividend or
which is not consistent with the rights to distribution between classes of
shares of beneficial interest or stock.

"Preferred Stock" means the non-voting participating preferred stock of the
Services Company.

"Prime" means The Prime Group, Inc., an Illinois corporation, and certain of
its affiliates.

"Prime Contribution Properties" means, collectively, the Office Property and
related assets that comprise 1699 East Woodfield Road (Citibank Office Plaza)
together with the six Industrial Properties and related assets that comprise
2160 McGaw Road, 4849 Groveport Road, 2400 McGaw Road, 5160 Blazer Memorial
Parkway, 4411 Marketing Place and 600 London Road.

"Prime Partnerships" means those corporations, general and limited
partnerships and trusts affiliated with the Prime Properties which are being
acquired by the Operating Partnership.

"Prime Properties" means, collectively, the five Office Properties and
related assets known as the 77 West Wacker Drive Building, 201 4th Avenue N.,
620 Market Street, 625 Gay Street, and 4823 Old Kingston Pike, together with
the 16 Industrial Properties and related assets that comprise 425 East
Algonquin Road, the Chicago Enterprise Center, the East Chicago Enterprise
Center and the Hammond Enterprise Center.

"Prohibited Owner" means any purported owner of Common Shares who would
otherwise violate the Ownership Limit or the Look-Through Ownership Limit or
such other limit as provided in the Declaration of Trust.

"Prohibited Transferee" means any purported transferee of Common Shares who
would otherwise violate the Ownership Limit or the Look-Through Ownership
limit or such other limit as provided in the Declaration of Trust.

"Properties" means the Office Properties and the Industrial Properties,
which collectively include the Prime Properties, the Prime Contribution
Properties, the Contribution Properties and the Acquisition Properties and a
parking facility in which the Company, through its subsidiaries, will have an
interest or which the Company will own upon the completion of the Offering.

"Property Partnerships" means those corporations, general and limited
partnerships and trusts that own the Properties.

"Prospectus" means the prospectus used in connection with the Offering.

"PPE" is the proposed trading symbol of the Company on the NYSE.

"Rank Video" means Rank Video Services America, Inc.

"RCG" means the Rosen Consulting Group.

"Recognition Period" means the ten-year period beginning on the date a
"built-in gain asset" is acquired by the Company.

"Registrable Shares" means any Common Shares acquired by the Limited
Partners upon the exchange by the Limited Partners of Common Units received by
them in connection with the Formation Transactions.

G-6
<PAGE>

"Registration Rights" means those certain registration rights granted to the
Limited Partners in connection with the Formation Transactions.

"Registration Statement" means the registration statement on Form S-11 filed
with the Commission in connection with the Offering.

"Regulations" means the regulations issued by the United States Department of
Labor that outline the circumstances under which an ERISA Plan's interest in an
entity will be subject to the look through rule.

"REIT" means a self-managed real estate investment trust as defined by the
Code and the applicable Treasury Regulations.

"REIT Requirements" means the requirements for qualifying as a REIT.

"Related Party Tenant" means a tenant directly or constructively owned 10% or
more by the Company or by an owner of 10% or more of the Company.

"Rentable square feet" mean a building's usable area plus common areas and
penetrations, expressed collectively in square feet which are allocated pro
rata to tenants.

"Representatives" means Prudential Securities Incorporated and Friedman,
Billings, Ramsey & Co., Inc.

"RFA" means Regional Financial Associates.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Services Company" means Prime Group Realty Services, Inc., a Maryland
corporation having its principal offices at 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601.

"Share Incentive Plan" means the share incentive plan established by the
Company, as further described in this Prospectus under the caption entitled
"Management--Share Incentive Plan."

"Share Options" means share options which the Company is authorized to grant
pursuant to the Share Incentive Plan.

"Share Trust" means a trust which holds Common or Preferred Shares of
beneficial interest of the Company which have been designated as Shares-in-
Trust.

"Shares-in-Trust" means Common or Preferred Shares of beneficial interest of
the Company which are automatically converted into an equal number of Excess
Shares and transferred automatically to the Share Trust upon a purported
transfer of such Common or Preferred Shares which is violative of the
applicable restrictions on transfer.

"SIOR" means the Society of Industrial and Office Realtors.

"Suburban Chicago" means all areas of the Chicago Metropolitan Area, except
for the City of Chicago.

"Surviving Partnership" means a surviving entity in which substantially all
of the surviving partnership's assets are directly or indirectly owned by the
Operating Partnership or another limited partnership or limited liability
company which is the survivor of a merger, consolidation or combination of
assets with the Operating Partnership.

"Tax Counsel" means the law firm of Winston & Strawn, which has acted as a
special tax counsel to the Company in connection with the Offering and the
preparation of the Prospectus.

G-7
<PAGE>

"Tax-Exempt Bonds" means the tax-exempt bond financing encumbering certain of
the Properties.

"Tenant Expenditures" means tenant improvements, leasing commissions and
other concessions.

"Termination Transaction" means any merger, consolidation or other
combination with or into another person, sale of all or substantially all of
the Company's assets or any reclassification, recapitalization or change of its
outstanding equity interest.

"TI" means tenant improvement.

"Total market capitalization" means the sum of the aggregate market value of
the outstanding Common Shares, assuming the full exchange of all Common Units
for Common Shares, plus the Company's total outstanding debt.

"Treasury Regulations" means the rules and regulations promulgated by the
United States Department of the Treasury under the Code, as such rules and
regulations are amended from time to time.

"Triple net basis lease" means a lease pursuant to which a tenant is
responsible for the base rent in addition to the costs and expenses in
connection with and related to property taxes, insurance and repairs and
maintenance applicable to the leased space.

"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United States,
(ii) is a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof, or
(iii) is an estate or trust which is subject to taxation in the United States
regardless of the source of its income or which is under the primary
supervision or authority of a United States court or a United States fiduciary.

"United States" or "U.S." means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.

G-8
<PAGE>

PRIME GROUP REALTY TRUST

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prime Group Realty Trust:
Pro Forma (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997.... F-3
Notes to Pro Forma Condensed Consolidated Balance Sheet................ F-4
Pro Forma Condensed Consolidated Statements of Operations for the three
months ended March 31, 1997 and the year ended December 31, 1996...... F-8-9
Notes to Pro Forma Condensed Consolidated Statements of Operations..... F-10
Historical:
Report of Independent Auditors.......................................... F-14
Balance Sheet as of July 21, 1997....................................... F-15
Notes to Balance Sheet.................................................. F-16
Prime Properties:
Report of Independent Auditors.......................................... F-17
Combined Balance Sheets as of March 31, 1997 and December 31, 1996 and
1995................................................................... F-18
Combined Statements of Operations for the three months ended March 31,
1997 and 1996 (unaudited) and the three years ended December 31, 1996,
1995, and 1994......................................................... F-19
Combined Statements of Changes in Partners' Deficit for the three months
ended March 31, 1997 and for the three years ended December 31, 1996,
1995, and 1994......................................................... F-20
Combined Statements of Cash Flows for the three months ended March 31,
1997 and 1996 (unaudited) and the three years ended December 31, 1996,
1995, and 1994......................................................... F-21
Notes to Combined Financial Statements.................................. F-22
Schedule III--Real Estate and Accumulated Depreciation as of December
31, 1996............................................................... F-32
Prime Industrial Contribution Properties:
Report of Independent Auditors.......................................... F-34
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to March 31, 1997 and for the period from March 1, 1996
to December 31, 1996................................................... F-35
Notes to Combined Statements of Revenue and Certain Expenses............ F-36
Contribution Properties:
Report of Independent Auditors.......................................... F-37
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to March 31, 1997 and for the year ended December 31,
1996................................................................... F-38
Notes to Combined Statements of Revenue and Certain Expenses............ F-39
Citibank Office Plaza:
Report of Independent Auditors.......................................... F-40
Statements of Revenue and Certain Expenses for the period from January
1, 1997 to March 31, 1997 and for the year ended December 31, 1996..... F-41
Notes to Statements of Revenue and Certain Expenses..................... F-42
Salt Creek Office Center:
Report of Independent Auditors.......................................... F-43
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to March 31, 1997 and for the year ended December 31,
1996................................................................... F-44
Notes to Combined Statements of Revenue and Certain Expenses............ F-45
</TABLE>

F-1
<PAGE>

PRIME GROUP REALTY TRUST

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
is presented as if, at March 31, 1997, the Company (i) had sold 14.25 million
shares of its common shares of beneficial interest at a sales price of $20.00
per share and contributed the net proceeds to the Operating Partnership, (ii)
The Prime Group, Inc. (Prime) contributed the properties, business and
operations of the Prime Properties and the Prime Contribution Properties
(Prime Industrial Contribution Properties and Citibank Office Plaza--recently
acquired by Prime from third parties) to the Operating Partnership, (iii) the
current owner (Contributor) of the Contribution Properties contributed the
properties and their operations to the Operating Partnership, (iv) the
Operating Partnership acquired the Acquisition Properties, (v) the Operating
Partnership acquired Continental Office, Ltd. and Continental Offices, Ltd.
Realty (Continental), a construction/property management company, from a third
party and (vi) the Operating Partnership repaid debt on certain of the Prime
Properties and Prime Contribution Properties described under "Use of
Proceeds." The unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1997 and for the year ended
December 31, 1997 are presented as if the above transactions occurred as of
January 1, 1996. The unaudited Pro Forma Condensed Consolidated financial
statements should be read in conjunction with all of the financial statements
contained elsewhere in the Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the Formation and Offering
have been made.

The unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements
of Operations of the Company are not necessarily indicative of what the actual
financial position or results operations would have been assuming the
Formation and Offering had occurred at the dates indicated above, nor do they
purport to represent the future financial position or results of operations of
the Company.

F-2
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1997
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
PRIME PRE-
CONTRIBUTION, OFFERING
PRIME CONTRIBUTION CONSOLIDATION PRIME GROUP OFFERING
GROUP AND ACQUISITION PRO FORMA REALTY PRO FORMA
REALTY PRIME PROPERTIES AND ADJUST- TRUST PRO ADJUST- PRO
TRUST PROPERTIES(A) CONTINENTAL(B) MENTS(C) FORMA MENTS(D) FORMA
------ ------------- --------------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate, net........ $ -- $ 246,063 $ 89,370 $ 1,269 (E) $336,702 $ 1,705 (E) $338,407
Cash.................... 1 3,709 (40,793) (165)(F) (37,248) 40,948 (F) 3,700
Restricted escrows...... -- -- -- -- -- 9,187 (G) 9,187
Tenant receivables...... -- 41,102 -- -- 41,102 -- 41,102
Investment in
subsidiary............. -- -- 5,950 70(H) 6,020 -- 6,020
Deferred costs, net..... -- 26,766 -- (475)(I) 26,291 700 (I) 26,991
Other................... 2,340 1,777 -- (2,340)(J) 1,777 -- 1,777
------ --------- -------- -------- -------- --------- --------
Total assets............ $2,341 $ 319,417 $ 54,527 $ (1,641) $374,644 $ 52,540 $427,184
====== ========= ======== ======== ======== ========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes payable.. $ -- $ 339,777 $ 35,125 $(99,316)(K) $275,586 $(205,261)(K) $ 70,325
Bonds payable........... -- 86,450 -- (12,000)(L) 74,450 -- 74,450
Accounts payable and
accrued expenses....... -- 12,519 -- (687)(M) 11,832 (480)(M) 11,352
Liabilities for leases
assumed................ -- 6,894 -- -- 6,894 -- 6,894
Other................... 2,340 3,352 -- (2,340)(J) 3,352 -- 3,352
------ --------- -------- -------- -------- --------- --------
Total liabilities.... 2,340 448,992 35,125 (114,343) 372,114 (205,741) 166,373
Partners'
deficit/minority
Interest............... -- (129,575) 19,402 112,702(N) 2,529 57,510 (N) 60,039
Shareholders' equity:
Common shares of
beneficial interests... -- -- -- -- -- 143 (O) 143
Additional paid-in
capital................ 1 -- -- -- 1 200,628 (P) 200,629
------ --------- -------- -------- -------- --------- --------
Total shareholders'
equity.............. 1 -- -- -- 1 200,771 200,772
------ --------- -------- -------- -------- --------- --------
Total liabilities and
shareholders' equity... $2,341 $ 319,417 $ 54,527 $ (1,641) $374,644 $ 52,540 $427,184
====== ========= ======== ======== ======== ========= ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

BASIS OF PRESENTATION

The following pro forma adjustments reflect the Offering and Formation
transactions, including the contribution of the net proceeds of the Offering
by the Company to the Operating Partnership, the contribution of the Prime
Properties and the Prime Contribution Properties [one office building
(Citibank Office Plaza) and six industrial properties (Prime Industrial
Contribution Properties)] by Prime to the Operating Partnership, the
contribution of the Contribution Properties by the Contributor to the
Operating Partnership, the purchase of the Acquisition Properties and
Continental Offices Ltd. and Continental Offices, Ltd. Realty (Continental) by
the Operating Partnership, the repayment and forgiveness of debt on certain of
the Prime Properties and the Prime Contribution Properties by the Operating
Partnership and the use of the proceeds thereof. The Operating Partnership
will contribute Continental and other assets to a newly formed service company
(Services Company) in exchange for a non-voting, 95% economic ownership
interest. The Operating Partnership will reflect its investment in Services
Company using the equity method (See Note H).

(A) Reflects the Prime Properties balance sheet as of March 31, 1997 (See
Note 1 to the Prime Properties Notes to the Combined Financial Statements for
a listing of the entities included in the Prime Properties.) which includes 77
West Wacker Limited Partnership (77 West Wacker) and 77 Fitness Center Ltd.
(77 Fitness). The Operating Partnership will contribute 77 Fitness to the
Services Company (See Notes E, F, H, M and N).

(B) Adjustments to reflect the contribution of the Prime Contribution
Properties and the Contribution Properties and the purchase of the Acquisition
Properties and Continental as of March 31, 1997:

<TABLE>
<CAPTION>
PROPERTY PROPERTY TYPE
-------- -----------------
<S> <C> <C>
Prime Contribution Properties (i).............. Office/Industrial $24,568
Contribution Properties (ii)................... Industrial 54,402
Acquisition Properties (iii)................... Office 10,400
-------
$89,370
=======
<CAPTION>
INVESTMENT IN SUBSIDIARY
------------------------
<S> <C> <C>
Continental (iv)............................... $ 5,950
=======
</TABLE>
- --------
(i) Prime recently acquired the Prime Contribution Properties from third
parties with proceeds of mortgage notes payable and cash. The Operating
Partnership will repay the mortgage notes payable of $23,501, reimburse
Prime $942 for certain acquisition costs and issue Prime Operating
Partnership units valued at $125.
(ii) The basis of the real estate contributed is the summation of assumed debt
totaling $35,125 and the issuance of Operating Partnership units valued
at $19,277.
(iii) The purchase price consists of cash of $10,400.
(iv) The purchase price consists of cash of $5,950.

To record the consolidation of the assumed contribution of the Prime
Properties and Prime Contribution Properties by Prime, contribution of the
Contribution Properties by the Contributor and the purchase of the Acquisition
Properties and Continental by the Operating Partnership (the Consolidation).
Prime and the Contributor (collectively the Limited Partners) will receive
units representing an % ownership interest in the Operating
Partnership.

(D) Offering Pro Forma Adjustments (Offering Adjustment):

To record the Offering based upon the assumed issuance of 14.25 million
Common Shares, at $20 per share and the contribution of the net proceeds by
the Company to the Operating Partnership in exchange for units representing
an % ownership interest in the Operating Partnership.

F-4
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(E) Real Estate, Net:

Consolidation Adjustment:
<TABLE>
<S> <C>
Increase in basis resulting from the elimination of the non-
Prime third party's partners' deficit in certain of the
Prime Properties (See Note N)............................... $ 1,351
Elimination of 77 Fitness (See Notes A and H)................ (82)
--------
$ 1,269
========

Offering Adjustment:
Purchase of the non-Prime third party owners' interest in
certain of the Prime Properties (See Note F)................ $ 1,705
========
</TABLE>
(F) Cash:

Consolidation Adjustment:

<TABLE>
<S> <C>
Elimination of 77 Fitness (See Notes A and H)................. $ (165)
========
Offering Adjustment:
Gross proceeds from the sale of 14.25 million common shares of
beneficial interest, at $20 per share........................ $285,000
Less: underwriters discount and issuance costs................ (23,650)
--------
Net proceeds (See Note P).................................... 261,350
Proceeds from borrowings on new line of credit (Credit Facili-
ty) to repay current mortgage note payable on 77 West Wacker
(See Note K)................................................. 35,200
Repayment of current mortgage note payable on 77 West Wacker,
including accrued interest (See Notes K and M)............... (229,841)
Payment of transfer tax and legal costs related to the contri-
bution of Prime's interest in 77 West Wacker (See Note N).... (2,155)
Payment of swap breakage fee related to the repayment of cur-
rent mortgage note payable on 77 West Wacker (See Note N).... (914)
Restricted escrow accounts for 77 West Wacker's accrued real
estate taxes and liabilities for leases assumed (See Note
G)........................................................... (9,187)
Repayment of mortgage notes payable on certain of the Prime
Properties (See Note K)...................................... (11,100)
Payment of Credit Facility fees (See Note I).................. (700)
Purchase of the non-Prime third party owners' interest in cer-
tain of the Prime Properties (See Note E).................... (1,705)
--------
$ 40,948
========
(G) Restricted Escrows:

Offering Adjustment:

Restricted escrow accounts for 77 West Wacker's accrued real
estate taxes and liabilities for leases assumed (See Note
F)........................................................... $ 9,187
========

(H) Investment in Subsidiary:

Consolidation Adjustment:

Contribution of net assets of 77 Fitness to the Services Com-
pany (See
Note A)...................................................... $ 70
========
</TABLE>

F-5
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(I) Deferred Costs, net:

Consolidation Adjustment:
<TABLE>
<S> <C>
Elimination of net deferred financing fees on current mort-
gage notes payable on 77 West Wacker and certain other Prime
Properties being forgiven or repaid (See Note N)............ $ (475)
=========

Offering Adjustment:
Payment of Credit Facility fees (3 year term) (See Note F)... $ 700
=========

(J) Other Assets/Other Liabilities:

Consolidation Adjustment:
Elimination of deferred offering costs, incurred by an
affiliate to be paid as part of the estimated issuance costs
(See Notes F and P)......................................... $ (2,340)
=========

(K) Mortgage Notes Payable:

Consolidation Adjustment:
Forgiveness of unpaid mortgage note payable to non-Prime af-
filiate on
77 West Wacker (See Note N)................................. $ (99,316)
=========

Offering Adjustment:
Proceeds from borrowings on Credit Facility to repay current
mortgage note payable on 77 West Wacker (See Note F)........ $ 35,200
Repayment of current mortgage note payable on 77 West Wacker
(See Note F)................................................ (229,361)
Repayment of mortgage notes payable on certain of the Prime
Properties (See Note F)..................................... (11,100)
---------
$(205,261)
=========

(L) Bonds Payable:

Consolidation Adjustment:
Forgiveness of bonds payable to Prime affiliate (See Note
N).......................................................... $ (12,000)
=========

(M) Accounts Payable and Accrued Expenses:

Consolidation Adjustment:
Elimination of 77 Fitness (See Notes A and H)................ $ (687)
=========

Offering Adjustment:
Payment of accrued interest related to 77 West Wacker's cur-
rent mortgage note payable (See Note F)..................... $ (480)
=========
</TABLE>

F-6
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(N) Partner's Capital (Deficit)/ Minority Interest:

<TABLE>
Consolidation Adjustment:
<S> <C> <C>
Forgiveness of mortgage note payable to non-Prime
affiliate ($99,316) on 77 West Wacker and bonds
payable to Prime affiliate ($12,000) (See Notes K
and L)............................................ $ 111,316
Elimination of net deferred financing fees on cur-
rent mortgage notes payable on 77 West Wacker and
certain other Prime Properties being forgiven or
repaid (See Note I)............................... (475)
Elimination of non-Prime third party's partners'
deficit in certain of the Prime Properties (See
Note E)........................................... 1,351
Elimination of 77 Fitness (See Notes A and H)...... 510
---------
$ 112,702
=========

Offering Adjustment:
Payment of transfer tax and legal costs related to
the contribution of Prime's interest in 77 West
Wacker (See Note F)............................... $ (2,155)
Payment of swap breakage fee related to the
repayment on current mortgage note payable on 77
West Wacker (See
Note F)........................................... (914)
Adjustment to reflect estimated minority interest
of the Limited Partners in the Operating
Partnership computed as follows:.................. 60,579
--------
$ 57,510
========
Pro forma total assets............................. $ 427,184
Pro forma total liabilities........................ (166,373)
---------
Pro forma net book value of Operating
Partnership....................................... $ 260,811
=========
Minority interest of the Limited Partners in the
Operating Partnership %...................... $ 60,039
Less: Pro forma partners' deficit/minority interest
before this adjustment............................ 540
---------
$ 60,579
=========

(O) Common Shares of Beneficial Interest:

Offering Adjustment:
Issuance of 14.25 million common shares of benefi-
cial interest with $0.01 par value (See Note P)... $ 143
========

(P) Additional Paid-In Capital:

Offering Adjustment:
Net proceeds from the sale of 14.25 million common
shares of beneficial interest, at $20 per share,
less underwriters discount and issuances costs
(See Note F)...................................... $261,350
Less: par value of common shares of beneficial in-
terest on
14.25 million shares at $0.01 per share (See Note
O)................................................ (143)
Adjustment to reflect estimated minority interest
of Limited Partners in the Operating Partnership
(See Note N)...................................... (60,579)
--------
$200,628
========
</TABLE>

F-7
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PRIME
CONTRIBUTION,
CONTRIBUTION CONSOLIDATION PRE OFFERING OFFERING
PRIME AND ACQUISITION PRO FORMA PRIME GROUP REALTY PRO FORMA
PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS (C) TRUST PRO FORMA ADJUSTMENTS (D) PRO FORMA
-------------- --------------- --------------- ------------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental.................. $ 7,986 $2,435 $ -- $10,421 $ -- $10,421
Tenant reimbursements... 4,206 492 -- 4,698 -- 4,698
Other................... 426 -- (163)(E) 263 -- 263
------- ------ ------ ------- ------ -------
Total revenue........... 12,618 2,927 (163) 15,382 -- 15,382
EXPENSES:
Property operations..... 2,357 329 (258)(F) 2,428 -- 2,428
Real estate taxes....... 2,823 453 -- 3,276 -- 3,276
Depreciation and
amortization........... 3,079 -- 351 (G) 3,430 58 (G) 3,488
Interest................ 9,498 -- (2,283)(H) 7,215 (5,224)(H) 1,991
Financing fees.......... 368 -- -- 368 -- 368
General and administra-
tive................... 1,368 -- (434)(I) 934 370 (I) 1,304
------- ------ ------ ------- ------ -------
Total expenses.......... 19,493 782 (2,624) 17,651 (4,796) 12,855
------- ------ ------ ------- ------ -------
Income (loss) from
operations before share
of income of investment
subsidiary and minority
interest............... (6,875) 2,145 2,461 (2,269) 4,796 2,527
Share of income of
investment subsidiary.. -- -- 143 (J) 143 -- 143
------- ------ ------ ------- ------ -------
Income (loss) before
minority interest...... (6,875) 2,145 2,604 (2,126) 4,796 2,670
Minority interest....... -- -- -- -- (615)(K) (615)
------- ------ ------ ------- ------ -------
Net income (loss)....... $(6,875) $2,145 $2,604 $(2,126) $4,181 $ 2,055
======= ====== ====== ======= ====== =======
Average number of common
shares of beneficial
interest outstanding... 14,250
=======
Net income per common
share of beneficial
interest (L)........... $ 0.14
=======
</TABLE>
See accompanying notes.

F-8
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PRIME
CONTRIBUTION,
CONTRIBUTION CONSOLIDATION PRE OFFERING OFFERING
PRIME AND ACQUISITION PRO FORMA PRIME GROUP REALTY PRO FORMA
PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS (C) TRUST PRO FORMA ADJUSTMENTS (D) PRO FORMA
-------------- --------------- --------------- ------------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental.................. $ 30,538 $9,331 $ -- $ 39,869 $ -- $39,869
Tenant reimbursements... 14,225 1,565 -- 15,790 -- 15,790
Other................... 3,397 -- (619)(E) 2,778 -- 2,778
-------- ------ -------- -------- -------- -------
Total revenue........... 48,160 10,896 (619) 58,437 -- 58,437
EXPENSES:
Property operations..... 9,767 1,265 (1,031)(F) 10,001 -- 10,001
Real estate taxes....... 9,383 1,602 -- 10,985 10,985
Depreciation and
amortization........... 12,409 -- 1,403 (G) 13,812 233 (G) 14,045
Interest................ 37,217 -- (8,207)(H) 29,010 (21,293)(H) 7,717
Financing fees.......... 1,232 -- -- 1,232 -- 1,232
General and
administrative......... 6,488 -- (2,610)(I) 3,878 987 (I) 4,865
Write-off of deferred
tenant costs........... 3,081 -- (3,081)(F) -- -- --
-------- ------ -------- -------- -------- -------
Total expenses.......... 79,577 2,867 (13,526) 68,918 (20,073) 48,845
-------- ------ -------- -------- -------- -------
Income (loss) from
operations before share
of income of investment
subsidiary and minority
interest............... (31,417) 8,029 12,907 (10,481) 20,073 9,592
Share of income of
investment subsidiary.. -- -- 407(J) 407 -- 407
-------- ------ -------- -------- -------- -------
Income (loss) before
minority interest...... (31,417) 8,029 13,314 (10,074) 20,073 9,999
Minority interest....... -- -- -- -- (2,302)(K) (2,302)
-------- ------ -------- -------- -------- -------
Net income (loss)....... $(31,417) $8,029 $ 13,314 $(10,074) $ 17,771 $ 7,697
======== ====== ======== ======== ======== =======
Average number of common
shares of beneficial
interest outstanding... 14,250
=======
Net income per common
share of beneficial
interest (L)........... $ 0.54
=======
</TABLE>

See accompanying notes.

F-9
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31,
1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)

BASIS OF PRESENTATION

The following pro forma adjustments reflect the Offering and Formation
transactions, including the contribution of the net proceeds of the Offering
by the Company to the Operating Partnership, the contribution of the Prime
Properties and the Prime Contribution Properties by Prime to the Operating
Partnership, the contribution of the Contribution Properties by the
Contributor to the Operating Partnership, the purchase of the Acquisition
Properties and Continental by the Operating Partnership, repayment and
forgiveness of debt on certain of the Prime Properties and the Prime
Contribution Properties by the Operating Partnership and the use of the
proceeds thereof. The Operating Partnership will contribute Continental and
other assets to the Services Operating Partnership and will reflect its
investment using the equity method (See Notes J and M).

(A) Reflects the operations of the Prime Properties, which includes 77 West
Wacker and 77 Fitness. The Operating Partnership will contribute 77 Fitness to
the Services Company (See Notes E, F and M).

(B) Reflects the operations of the Prime Contribution Properties, the
Contribution Properties and the Acquisition Properties being either
contributed to or acquired by the Operating Partnership.

To record the consolidation of the assumed contribution of the Prime
Properties and the Prime Contribution Properties by Prime, contribution of the
Contribution Properties by the Contributor, the purchase of the Acquisition
Properties and Continental by the Operating Partnership (the Consolidation).
The Limited Partners will receive units representing a % ownership
interest in the Operating Partnership.

(D) Offering Pro Forma Adjustments (Offering Adjustment):

To record the Offering based upon the assumed issuance of 14.25 million
Common Shares, at $20 per share and the contribution of the net proceeds by
the Company to the Operating Partnership in exchange for units
representing a % ownership interest in the Operating Partnership.

(E) Other Revenue:
Consolidation Adjustment:
<TABLE>
<S> <C> <C>
Elimination of 77 Fitness revenue (See Notes A and M).
</TABLE>

(F) Property Operations Expense/Write-off of Deferred Tenant Costs:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
Consolidation Adjustment--Property Operations Expense:
<S> <C> <C>
Elimination of non-recurring property op-
erations expenses for non-recurring ex-
penses associated with a major tenant of
77 West Wacker whose lease was renegoti-
ated..................................... $ (96) $ (322)
Elimination of 77 Fitness property opera-
tion expenses (See Notes A and M)........ (162) (709)
----- -------
$(258) $(1,031)
===== =======
Consolidation Adjustment--Write-off of Deferred Tenant Costs:
Elimination of non-recurring write-off of
deferred costs associated with a major
tenant of 77 West Wacker whose lease was
renegotiated............................. $ -- $(3,081)
===== =======
</TABLE>

F-10
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

(G) Depreciation and Amortization:

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
Consolidation Adjustment:
<S> <C> <C>
Depreciation expense on the Contribution
and Acquisition Properties................ $447 $1,787
Depreciation expense on the increase in
basis resulting from the elimination of
Partners' deficit and the purchase of the
non-Prime third party owners' interest in
certain of the Prime Properties........... 28 112
Elimination of amortization expenses of
deferred financing costs related mortgage
loan payable on 77 West Wacker being
repaid or forgiven........................ (124) (496)
---- ------
$351 $1,403
==== ======
Offering Adjustment:
Amortization of Credit Facility fees (3
year term)................................ $ 58 $ 233
==== ======
</TABLE>

(H) Interest Expense:

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
Consolidation Adjustment:
<S> <C> <C>
Elimination of interest expense on mortgage
notes payable to non-Prime affiliate on 77
West Wacker being forgiven................. $(2,765) $(10,137)
Elimination of interest expense on bonds
payable to Prime affiliate being forgiven.. (165) (658)
Interest expense on new and assumed mortgage
notes payable on the Contribution
Properties................................. 647 2,588
------- --------
$(2,283) $ (8,207)
======= ========

Offering Adjustment:
Elimination of interest expense on current
mortgage notes payable on 77 West Wacker
and on certain other Prime Properties being
repaid..................................... $(5,853) $(23,810)
Interest expense on borrowings on Credit
Facility used to repay 77 West Wacker's
current mortgage note payable.............. 629 2,517
------- --------
$(5,224) $(21,293)
======= ========
</TABLE>

(I) General and Administrative:

Historical general and administrative expenses (G&A) have consisted of
property level costs. Corporate level G&A was allocated to the
property level through property management and asset management fees,
administration fees and other reimbursables (Prime Fees: See Note 6 to
the Notes to the Combined Financial Statements of the Prime
Properties). Upon the completion of the Offering

F-11
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

and Formation transactions, certain employees previously employed by
Prime (costs associated with the Prime Fees) will become employees of
the Company. The following pro forma adjustments reflect management's
estimate of the additional corporate G&A the Company will incur as a
public company. In addition, G&A has been adjusted for non-recurring
expenses.

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
Consolidation Adjustment:
<S> <C> <C>
Elimination of non-recurring general and
administrative expenses. These costs
consist mainly of (1) loan fees on 77
West Wacker that will no longer be
incurred by the Company, (2) legal and
consulting costs associated with
environmental liability studies on
certain of the Prime industrial
properties (See Note 9 to the Notes to
Combined Financial Statements of the
Prime Properties) and (3) non-recurring
crane maintenance costs of a previous
tenant that are now the responsibility of
a new tenant............................. $ (434) $(2,610)
====== =======
Offering Adjustment:
Estimated incremental increases in G&A to
be incurred as a public company.......... $ 370 $ 987
====== =======
</TABLE>

(J) Share of income of investment subsidiary:

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
Consolidation Adjustment:
<S> <C> <C>
Share of income of Services Company (See
Note M).................................. $143 $407
==== ====
</TABLE>

(K) Minority Interest:

Offering Adjustment:
Represents income allocated to the Limited Partners ( %)

(L) Net Income per Common Share of Beneficial Interest:

Represents pro forma net income divided by 14.25 million common shares of
beneficial interest.

F-12
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

(M) Services Company

The Services Company operations consist of employees previously employed by
Prime, Continental and 77 Fitness.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------- -------------------------------------------------
77 PRO FORMA PRO 77 PRO FORMA PRO
CONTINENTAL (1) FITNESS (1) ADJUSTMENTS FORMA CONTINENTAL (1) FITNESS (1) ADJUSTMENTS FORMA
--------------- ----------- ----------- ------ --------------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Construction and manage-
ment fees.............. $4,652 $ -- $ -- $4,652 $14,134 $ -- $ -- $14,134
Other................... -- 163 224 (2) 387 -- 619 898 (2) 1,517
------ ----- ----- ------ ------- ----- ------- -------
Total revenue........... 4,652 163 224 5,039 14,134 619 898 15,651
EXPENSES:
Operating expenses...... 4,163 162 393 (2) 4,718 12,381 709 1,567 (2) 14,657
Interest expense........ -- -- 115 (3) 115 -- -- 459 (3) 459
Depreciation and
amortization........... 27 -- 130 (4) 157 70 -- 556 (4) 626
------ ----- ----- ------ ------- ----- ------- -------
Total expenses.......... 4,190 162 638 4,990 12,451 709 2,582 15,742
------ ----- ----- ------ ------- ----- ------- -------
Income (loss) before in-
come taxes............. 462 1 (414) 49 1,683 (90) (1,684) (91)
Income tax (expense)
benefit ............... -- -- (20)(5) (20) -- -- 36 (5) 36
------ ----- ----- ------ ------- ----- ------- -------
Net income (loss)....... $ 462 $ 1 $(434) $ 29 $ 1,683 $ (90) $(1,648) $ (55)
====== ===== ===== ====== ======= ===== ======= =======
Company's share of net
income
(loss) (6)............. $ 28 $ (52)
Interest income recog-
nized by Com-
pany (7)............... 115 459
------ -------
Company's share of the
net earnings of the
Services Company....... $ 143 $ 407
====== =======
</TABLE>
- --------
(1) Represents the historical operations of Continental and 77 Fitness.
(2) Represents the revenue derived by and expenses of certain employees
previously employed by Prime who will become employees of the Services
Company.
(3) Represents interest expense on a $4,170 promissory note issued by the
Services Company to the Operating Partnership at an interest rate of 11%
per annum (See Note 7).
(4) Adjustment to reflect estimated depreciation and amortization of the
Services Company:

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996
--------------- ------------
<S> <C> <C>
Depreciation expense on Continental and 77
Fitness fixed assets (5 years)........... $ 12 $ 48
Amortization of $5,780 of goodwill relat-
ing to
the acquisition of Continental (10
years)................................... 145 578
Less: Historical depreciation............. (27) (70)
---- ----
$130 $556
==== ====
</TABLE>
(5) Estimated income tax benefit (expense) of the Services Company at
statutory income tax rates (40%)
(6) The Operating Partnership will have a non-voting, 95% economic ownership
interest of the Services Company.
(7) The Operating Partnership will recognize interest income from the
promissory note issued by the Services Company (See Note 3) as part of its
share of income (loss) from the Services Company.

F-13
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying balance sheet of Prime Group Realty Trust,
a Maryland trust, as of July 21, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Prime Group Realty Trust as of
July 21, 1997, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Chicago, Illinois
July 21, 1997

F-14
<PAGE>

PRIME GROUP REALTY TRUST

BALANCE SHEET

JULY 21, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<S> <C>
ASSETS
Cash................................................................... $ 1
Deferred offering costs................................................ 2,340
------
Total assets........................................................... $2,341
======
LIABILITIES AND SHAREHOLDER'S EQUITY
Due to affiliate....................................................... $2,340
------
Total liabilities...................................................... 2,340
Shareholder's equity:
Common shares of beneficial interest, $.01 par value per share, 100
shares authorized, issued and outstanding............................. --
Additional paid-in capital............................................. 1
------
Total shareholder's equity............................................. 1
------
Total liabilities and shareholder's equity............................. $2,341
======
</TABLE>

See notes to balance sheet.

F-15
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO BALANCE SHEET

JULY 21, 1997

1. FORMATION OF THE COMPANY

Prime Group Realty Trust (the Company), was incorporated in Maryland on July
21, 1997. The Company will file a Registration Statement on Form S-11 with the
Securities and Exchange Commission with respect to a proposed public offering
(the Offering) of 14.25 million shares of common shares of beneficial
interest. The Company has been formed to succeed to the business of The Prime
Group, Inc. (Prime) consisting of a portfolio of eight office, fourteen
industrial properties and a parking garage facility (the Prime Properties) and
the real estate ownership, acquisition, development, leasing and management
businesses historically conducted by Prime. The Company's assets will be owned
and controlled by, and all of its operations will be conducted through Prime
Group Realty, L.P. (the Operating Partnership) and other subsidiaries.

2. INCOME TAXES

It is the intent of the Company to qualify as a real estate investment trust
(REIT) under the Internal Revenue Code of 1986, as amended. As a REIT, the
Company generally will not be subject to federal income tax to the extent that
it distributes at least 95% of its REIT taxable income to its Shareholders.
REITs are subject to a number of organizational and operational requirements.
If the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate tax rates.

3. DEFERRED OFFERING COSTS

In connection with the Offering, affiliates have or will incur legal,
accounting and related costs which will be reimbursed by the Company upon the
consummation of the Offering. These costs will be deducted from the gross
proceeds of the Offering.

4. USE OF ESTIMATES

The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts in the balance sheet and accompanying notes.
Actual results could differ from these estimates.

F-16
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees Prime Group Realty Trust

We have audited the accompanying combined balance sheets of the Prime
Properties as of March 31, 1997, and December 31, 1996, and 1995, and the
related combined statements of operations, changes in partners' deficit, and
cash flows for the three months ended March 31, 1997, and for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule III, Real Estate and Accumulated
Depreciation. These financial statements and schedule are the responsibility
of the Prime Properties management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Prime
Properties at March 31, 1997, and December 31, 1996 and 1995, and the combined
results of their operations and their cash flows for the three months ended
March 31, 1997, and for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

Ernst & Young LLP

Chicago, Illinois
June 9, 1997

F-17
<PAGE>

PRIME PROPERTIES

COMBINED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
MARCH 31
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
ASSETS
Real estate at cost:
Land............................................ $ 23,500 $ 23,530 $ 23,505
Building and Improvements....................... 269,570 268,227 266,053
--------- --------- --------
293,070 291,757 289,558
Accumulated depreciation........................ (47,007) (44,411) (34,501)
--------- --------- --------
246,063 247,346 255,057
Cash............................................ 3,709 5,573 1,879
Tenant receivables.............................. 41,102 41,384 43,669
Deferred costs--net............................. 26,766 26,883 35,568
Due from affiliates............................. 1,037 2,894 5,752
Other........................................... 740 1,150 1,716
--------- --------- --------
Total assets.................................... $ 319,417 $ 325,230 $343,641
========= ========= ========
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable.......................... $ 235,858 $ 235,886 $234,730
Mortgage notes payable--affiliates.............. 103,919 99,647 84,382
Bonds payable................................... 74,450 74,450 54,600
Bonds payable--affiliates....................... 12,000 12,000 31,850
Accrued interest payable........................ 2,353 2,538 2,222
Accrued real estate taxes....................... 8,795 9,944 9,693
Accounts payable and accrued expenses........... 1,371 4,213 2,833
Liabilities for leases assumed.................. 6,894 7,157 12,582
Due to affiliates............................... 682 708 934
Other........................................... 2,670 1,384 1,167
--------- --------- --------
Total liabilities............................... 448,992 447,927 434,993
Minority interest............................... (7,164) (6,905) (6,047)
Partners' deficit............................... (122,411) (115,792) (85,305)
--------- --------- --------
Total liabilities and partners' deficit......... $ 319,417 $ 325,230 $343,641
========= ========= ========
</TABLE>

See accompanying notes.

F-18
<PAGE>

PRIME PROPERTIES

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- ----------------------------
1997 1996 1996 1995 1994
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Rental.................... $ 7,986 $ 7,400 $ 30,538 $ 33,251 $ 30,352
Tenant reimbursements..... 4,206 3,520 14,225 14,382 12,451
Parking................... 76 75 320 345 343
Gain on sale of assets.... -- -- 846 771 47
Insurance settlement...... -- -- -- 7,257 --
Other..................... 350 511 2,231 1,599 2,780
--------- --------- -------- -------- --------
Total revenue............. 12,618 11,506 48,160 57,605 45,973
EXPENSES
Property operations....... 2,357 2,201 9,767 9,479 8,852
Real estate taxes......... 2,823 2,511 9,383 9,445 9,057
Depreciation and amortiza-
tion..................... 3,079 3,155 12,409 12,646 11,624
Interest.................. 6,568 6,600 26,422 27,671 25,985
Interest--affiliates...... 2,930 2,564 10,795 8,563 7,402
Financing fees............ 368 -- 1,232 -- --
Property and asset manage-
ment fees--affiliates.... 389 366 1,561 1,496 1,388
General and administra-
tive..................... 979 980 4,927 4,508 3,727
Write off deferred tenant
costs.................... -- -- 3,081 13,373 --
--------- --------- -------- -------- --------
Total expenses............ 19,493 18,377 79,577 87,181 68,035
--------- --------- -------- -------- --------
Loss before minority in-
terest................... (6,875) (6,871) (31,417) (29,576) (22,062)
Loss allocated to minority
interest................. 259 275 894 3,281 5,393
--------- --------- -------- -------- --------
Net loss.................. $ (6,616) $ (6,596) $(30,523) $(26,295) $(16,669)
========= ========= ======== ======== ========
</TABLE>

See accompanying notes.

F-19
<PAGE>

PRIME PROPERTIES

COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTALS
---------
<S> <C>
Partners' deficit at January 1, 1994................................ $ (28,854)
Contributions....................................................... 349
Distributions....................................................... (178)
Assignment of minority interest..................................... (20,580)
Net forgiveness of amounts due to affiliates........................ 210
Net loss............................................................ (16,669)
---------
Partners' deficit at December 31, 1994.............................. (65,722)
Contributions....................................................... 732
Distributions....................................................... (179)
Assignment of minority interest..................................... 3,243
Forgiveness of notes payable to minority interest................... 2,916
Net loss............................................................ (26,295)
---------
Partners' deficit at December 31, 1995.............................. (85,305)
Contributions....................................................... 40
Distributions....................................................... (4)
Net loss............................................................ (30,523)
---------
Partners' deficit at December 31, 1996.............................. (115,792)
Distributions....................................................... (3)
Net loss............................................................ (6,616)
---------
Partners' deficit at March 31, 1997................................. $(122,411)
=========
</TABLE>

See accompanying notes.

F-20
<PAGE>

PRIME PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- ----------------------------
1997 1996 1996 1995 1994
------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................... $(6,616) $(6,596) $(30,493) $(26,295) $(16,669)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of costs for
leases assumed (included
in rental revenue)....... 311 309 1,244 1,539 1,008
Decrease (increase) in
tenant receivables from
straight-lining rent..... 115 (1,165) (645) (8,779) (13,537)
Gain on sale of real
estate................... -- -- (846) (771) (47)
Depreciation and
amortization............. 3,079 3,155 12,409 12,646 11,624
Interest added to
principal on mortgage
note payable affiliate... 2,758 2,448 10,002 8,427 7,263
Standby loan fee-affiliate
added to principal on
mortgage note payable
affiliate................ 130 130 522 498 399
Write-off of deferred
tenant costs............. -- -- 3,081 13,373 --
Minority interest......... (259) (275) (924) (3,281) (5,393)
Changes in operating
assets and liabilities:
Decrease (increase) in
tenant receivables..... 167 848 1,990 2,326 (2,864)
(Increase) decrease in
deferred costs......... (676) 439 (703) (907) 560
Decrease in other
assets................. 410 259 566 2,937 5,657
(Decrease) increase in
accrued interest
payable................ (185) 280 316 (1,221) 132
(Decrease) increase in
accrued real estate
taxes.................. (1,149) (1,386) 251 5 547
(Decrease) increase in
accounts payable and
accrued expenses....... (2,842) (422) 1,380 (34) 484
Decrease in liabilities
for assumed leases..... (263) (712) (1,532) (1,985) (3,160)
Increase (decrease) in
other liabilities...... 1,286 (250) 217 263 121
------- ------- -------- -------- --------
Net cash used in operating
activities................. (3,734) (2,938) (3,165) (1,259) (13,875)
</TABLE>

See accompanying notes.

F-21
<PAGE>

PRIME PROPERTIES

COMBINED STATEMENTS OF CASH FLOWS--(CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- -------------------------
1997 1996 1996 1995 1994
------- ----------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds from sale of real es-
tate......................... $ -- $ -- $ 2,110 $ 921 $ 61
Expenditures for real estate.. (1,314) (265) (3,842) (4,842) (6,191)
Decrease (increase) in due
from affiliates.............. 1,857 643 2,858 (5,255) (365)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities......... 543 378 1,126 (9,176) (6,495)
FINANCING ACTIVITIES
Additions to deferred financ-
ing costs.................... -- -- (10) (225) (112)
Proceeds from mortgage notes
payable...................... -- 73 1,239 9,815 14,859
Proceeds from mortgage notes
payable--affiliates.......... 1,384 2,435 5,891 2,693 1,378
Repayment of mortgage notes
payable...................... (28) -- (83) (384) (73)
Repayment of mortgage notes
payable--affiliates.......... -- -- (1,150) (1,079) (64)
(Decrease) increase in due to
affiliates................... (26) 92 (226) (347) (882)
Contributions from partners... -- 80 80 872 671
Distributions to partners..... (3) -- (8) (357) (355)
Acquisition of partnership in-
terest....................... -- -- -- (115) --
------- ------- ------- ------- -------
Net cash provided by financing
activities................... 1,327 2,680 5,733 10,873 15,422
------- ------- ------- ------- -------
Net (decrease) increase in
cash......................... (1,864) 120 3,694 438 (4,948)
Cash at beginning of period... 5,573 1,879 1,879 1,441 6,389
------- ------- ------- ------- -------
Cash at end of period......... $ 3,709 $ 1,999 $ 5,573 $ 1,879 $ 1,441
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-22
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Prime Properties represent a combination of 23 partnerships described
below (Partnerships) that own, operate, and manage office and industrial
properties (Properties) in the greater Chicagoland area and Tennessee. The
Properties are under common management and ownership of The Prime Group, Inc.
and its affiliates (Prime) as either the managing general partner (responsible
for the operations of the Properties) or 100% owner. As of March 31, 1997, six
of the Partnerships have third party owners (Third Party), whose ownership
interests have been reflected as a minority interest in the combined financial
statements. Pursuant to the formation transactions more fully described
elsewhere in this Registration Statement and Prospectus, Prime Properties will
be owned and operated by a newly formed corporation, Prime Group Realty Trust
(the Company), whose shares are being registered pursuant to this Registration
Statement.

The Partnerships and Properties owned and operated by the Prime Properties at
March 31, 1997, are as follows:

<TABLE>
<CAPTION>
OWNERSHIP INTEREST
-----------------------------------
PGI 3RD PARTY
----------------- -----------------
GENERAL LIMITED GENERAL LIMITED
PARTNERSHIP PROPERTY PARTNERS PARTNERS PARTNERS PARTNERS
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OFFICE
77 West Wacker Limited
Partnership (77 West
Wacker)................ 77 West Wacker Building 5.00% 89.45% 5.00% 0.55%
Nashville Office
Building I, Ltd........ Nashville Office Building 24.50 51.00 24.50 --
Professional Plaza,
Ltd.................... Professional Plaza 24.50 51.00 24.50 --
Old Kingston Properties,
Ltd.................... Old Kingston 24.50 51.00 24.50 --
Hammond Enterprise
Center Limited
Partnership (HEC)...... Hammond Enterprise Center 22.50 77.50 -- --
East Chicago Enterprise
Center Limited
Partnership (ECEC)..... East Chicago Enterprise Center 22.50 77.50 -- --
Two Centre Square,
Ltd.................... Two Centre Square 24.50 51.00 24.50 --
Triad Parking Company,
Ltd.................... Triad Parking Facility 0.50 49.50 0.50 49.50
77 Fitness Center,
Ltd.................... Executive Sports and Fitness Center 10.00 90.00 -- --
INDUSTRIAL
Kemper/Prime Industrial
Partners (KP).......... Chicago Enterprise Center 100.00 -- -- --
Enterprise Center I,
L.P. (ECI)............. Enterprise Center I 50.00 50.00 -- --
Enterprise Center II,
L.P.................... Enterprise Center II 50.00 50.00 -- --
Enterprise Center III,
L.P.................... Enterprise Center III 50.00 50.00 -- --
Enterprise Center IV,
L.P.................... Enterprise Center IV 50.00 50.00 -- --
Enterprise Center V,
L.P.................... Enterprise Center V 50.00 50.00 -- --
Enterprise Center VI,
L.P.................... Enterprise Center VI 50.00 50.00 -- --
Enterprise Center VII,
L.P.................... Enterprise Center VII 50.00 50.00 -- --
Enterprise Center VIII,
L.P.................... Enterprise Center VIII 50.00 50.00 -- --
Enterprise Center IX,
L.P.................... Enterprise Center IX 50.00 50.00 -- --
Enterprise Center X,
L.P.................... Enterprise Center X 50.00 50.00 -- --
Arlington Heights I,
L.P.................... Arlington Heights I 50.00 50.00 -- --
Arlington Heights II,
L.P.................... Arlington Heights II 50.00 50.00 -- --
Arlington Heights III,
L.P.................... Arlington Heights III 50.00 50.00 -- --
</TABLE>

F-23
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Certain Third Party owners assigned their limited partner interests in 77
West Wacker ($18,357 deficit in 1994), HEC ($439 deficit in 1995), ECEC ($751
capital in 1995) and KP ($2931 capital in 1995) to Prime. In addition, in
1994, HEC and ECEC acquired their Third Party ownership interest in exchange
for mortgage notes payable totaling $2,716 (collectively, HEC's and ECEC's
Third Party owners had a deficit balance of $2,223, including the notes
payable, at the acquisition date), which, along with accrued interest, were
forgiven in 1995 (see Note 4). During 1995, HEC acquired the remaining Third
Party ownership interest for cash of $115. All acquired Third Party ownership
interests were assigned to Prime.

All significant intercompany accounts and transactions have been eliminated
in combination.

The combined financial statements for the three months ended March 31, 1996
are unaudited. In the opinion of management, such financial statements reflect
all adjustments necessary for a fair presentation. All such adjustments are of
a normal and reoccurring nature.

REAL ESTATE

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of, under which the Partnerships are required to recognize
impairment losses for the Properties when indicators of impairment are present
and the Properties' expected undiscounted cash flows are not sufficient to
recover the Properties' carrying value. The Partnerships adopted Statement No.
121 effective January 1, 1995. No impairment losses have been recognized in
the accompanying combined financial statements. Interest and other direct
costs incurred during construction periods are capitalized as a component of
the building costs. Expenditures for ordinary maintenance and repairs are
expensed to operations as incurred. Significant renovations and improvements
which improve and/or extend the useful life of the asset are capitalized and
depreciated over their estimated useful life. Depreciation is calculated on
the straight-line method over the estimated useful lives of assets, which are
as follows:

<TABLE>
<S> <C>
Building and improvements Primarily 50 years
Tenant improvements Term of related leases
</TABLE>

DEFERRED COSTS

Deferred financing costs are amortized on the straight-line method over the
terms of the loans. Deferred leasing costs are amortized on the straight-line
method over the terms of the related lease agreements.

LEASES ASSUMED

In connection with obtaining certain tenant leases 77 West Wacker assumed
liability for the remaining terms of the tenants' existing leases. 77 West
Wacker has recorded a liability for the difference between total remaining
costs for leases assumed and the expected benefits from subleases of the
assumed lease properties. The related incentive to lessee has been capitalized
as a deferred charge and is being amortized to rental revenue over the life of
the respective lease. The deferred charge and related liability are adjusted
for changes in the expected benefits from subleases. During 1996, 77 West
Wacker wrote off $3,893 of deferred charges and reduced the related liability
due to changes in the estimated benefits from subleases.

RENTAL REVENUE

Rental revenue is recorded on the straight-line method over the terms of the
related lease agreements. As a result, $115 of cash was received in excess of
recorded rental revenue during the three months ended March 31, 1997 and
$1,165 (unaudited), $645, $8,779 and $13,537 of noncash rent was recorded as
rental revenue during

F-24
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the three months ended March 31, 1996 and the years ended December 31, 1996,
1995, and 1994, respectively, and are included in accounts receivable. As of
March 31, 1997, December 31, 1996 and 1995, the balance of the accounts
receivable relating to the straight-lining of rental revenue is $38,336,
$38,451 and $38,746 respectively.

INTEREST RATE SWAP AGREEMENT

77 West Wacker has entered into an interest rate swap agreement to
effectively convert its variable-rate borrowing into a fixed-rate obligation
(see Note 3). The interest rate differential paid or received is included as an
adjustment to interest expense in the accompanying combined financial
statements.

INCOME TAXES

The Partnerships pay no income taxes, and the income or loss from the
Partnerships is includable on the respective income tax returns of the
Partners.

USE OF ESTIMATES

The preparation of the combined financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.

2. DEFERRED COSTS

Deferred costs consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31
------------------
MARCH 31
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Financing costs................................ $ 6,756 $ 6,757 $ 6,879
Leasing costs.................................. 36,063 35,386 41,971
-------- -------- --------
42,819 42,143 48,850
Less: Accumulated amortization................. (16,053) (15,260) (13,282)
-------- -------- --------
$ 26,766 $ 26,883 $ 35,568
======== ======== ========
</TABLE>

3. MORTGAGE NOTES AND BONDS PAYABLE

<TABLE>
<CAPTION>
DECEMBER 31
-----------------
MARCH 31
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Mortgage notes payable to various commercial
lenders (A).................................... $229,361 $229,361 $229,361
Mortgage notes payable to various financial in-
stitutions, interest at a variable rate of
prime plus 1/2% per annum and a fixed rate of
7.375% per annum with principal and interest
payable monthly through October 1998........... 6,497 6,525 5,369
-------- -------- --------
$235,858 $235,886 $234,730
======== ======== ========
Bonds Payable:
Variable rate taxable and tax-exempt bonds is-
sued by various state and local government au-
thorities (B), (C)............................. $ 74,450 $ 74,450 $ 54,600
======== ======== ========
</TABLE>

(A) 77 West Wacker has entered into a mortgage note agreement (Agreement)
with a consortium of commercial lenders providing a maximum loan of $230,000.
The loan, which is collateralized by a first mortgage on the 77 West Wacker
Building, is due on March 14, 1998. Under the terms of the Agreement, 77 West
Wacker is to make monthly interest-only payments. Interest is calculated using
certain variable rate indices, as defined

F-25
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

3. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)

(6.27% at March 31, 1997). To reduce the impact of increases in interest
rates, 77 West Wacker also entered into an interest rate swap agreement with
affiliates of one of 77 West Wacker's Third Party owner (Counterparties) for
the outstanding principal balance on the Agreement up to a maximum principal
amount of $230,000. Under the terms of the interest rate swap agreement, 77
West Wacker is to pay the Counterparties interest monthly at a fixed rate of
10% per annum. 77 West Wacker is to receive monthly interest payments from the
Counterparties at the variable rate and is then responsible for making the
monthly interest payments required under the terms of the Agreement. The
interest rate swap agreement matures at the time the related Agreement
matures. 77 West Wacker is exposed to credit loss in the event of
nonperformance by the Counterparties to the interest rate swap agreement.
However, 77 West Wacker does not anticipate such nonperformance by the
Counterparties. The amount of the exposure is generally limited to the amount
of any payments due but not yet received from the Counterparties. In addition,
77 West Wacker is subject to market risk as a result of potential future
decreases in the variable rate indices specified by the Agreement.

(B) Permanent financing for the development of certain Industrial Properties
has been provided by $48,150 of tax exempt industrial development revenue
bonds (Bonds) (See Note 4--on December 13, 1995 and on May 20, 1996, the Bonds
were acquired by independent third party financial institutions from an
affiliate of Prime). The Bonds mature on June 1, 2022.

Under the terms of the Bond loan agreements, the borrowing Partnerships are
to make interest-only payments monthly, calculated using a floating rate
determined by the Remarketing Agent of the Bonds. The rates ranged from 3.35%
to 3.75% during the three months ended March 31, 1997 and 2.85% to 4.40%
during 1996. The rate at March 31, 1997 was 3.65%, at December 31, 1996 was
4.40% and at December 31, 1995, ranged from 5.25% to 5.51%.

The maximum annual interest rate on the Bonds is 13%. Under certain
conditions, the interest rate on the Bonds may be converted to a fixed rate at
the request of the borrowing Partnership.

Beginning in May of 1996, the Bonds were collateralized by letters of credit
totaling $48,918 from a financial institution that expire May 19, 1999. In
connection with the letters of credit, the borrowing Partnerships pay letter
of credit financing fees of 1.75% per annum of the face amount, payable
quarterly in advance. The letters of credit are collateralized by a first
mortgage on the related properties.

The bondholders may tender bonds on any business day during the variable
interest rate period discussed above and receive principal, plus accrued
interest through the tender date. Upon tender, the remarketing agent shall
immediately remarket the Bonds. In the event the remarketing agent fails to
remarket any Bonds, the borrowing Partnerships are obligated to purchase those
Bonds. The remarketing agent receives a fee of .11% per annum of the
outstanding Bonds balance, payable quarterly in advance.

(C) Permanent financing for the development of certain office Properties has
been provided by $26,300 of tax exempt industrial revenue bonds (IRBs). The
IRB's mature on December 1, 2014. Under the terms of the IRB agreements, the
borrowing Partnerships are to make interest-only payments monthly, calculated
using a floating rate determined by the remarketing agent of the IRBs. The
rates ranged from 3.35% to 3.70% during the three months ended March 31, 1997,
3.40% to 4.05% during 1996, 3.40% to 4.50% during 1995, and 2.20% to 3.65%
during 1994. The rates at March 31, 1997 were 3.35%, December 31, 1996 were
3.50% and December 31, 1995 were 4.05%.

Under certain conditions, the interest rates on the IRBs may be converted to
a fixed rate at the request of the borrowing Partnerships.

F-26
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

3. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)

The IRBs are collateralized by letters of credit totaling $26,930 from a
financial institution which expires December 31, 1997 (unless extended as
provided for by the letter of credit agreement). Affiliates of the borrowing
Partnerships' Third Party owner have agreed to purchase from the financial
institutions any amounts drawn on the letters of credit. One of these
affiliates has also agreed to provide or arrange for credit enhancements
(including purchasing the IRBs) as may be required by the IRBs agreements
through March 22, 1999. The above affiliate agreements are collateralized by a
junior collateral interest in the borrowing Partnerships' properties.

Under the terms of the IRB agreements, the bondholders have the option to
require the borrowing Partnerships to purchase any of its IRBs on the 15th day
of any month while the IRBs are outstanding. Upon the exercise of the
bondholders' option to purchase the IRBs, the remarketing agent shall
immediately remarket the IRBs. In the event the remarketing agent fails to
remarket the IRBs, the borrowing Partnerships are obligated to purchase those
IRBs.

Total interest paid on the mortgage notes payable and bonds payable was
$6,596 and $5,635 (unaudited) for the three months ended March 31, 1997 and
1996, respectively, and $25,643, $25,490, and $22,599 for the years ended
December 31, 1996, 1995, and 1994, respectively.

4. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES

<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Mortgage notes payable--Affiliate (A).............. $103,629 $99,357 $82,942
Mortgage note payable--Affiliate; interest at 9.5%
per annum with interest payable quarterly and
principal and accrued interest due on maturity
date of March 7, 1998............................. 290 290 1,440
-------- ------- -------
$103,919 $99,647 $84,382
======== ======= =======
Bonds Payable--Affiliate:
Variable rate taxable and tax-exempt bonds issued
by state and local government authorities (B)..... $ 12,000 $12,000 $31,850
======== ======= =======
</TABLE>

(A) 77 West Wacker has entered into a subordinate loan agreement with
affiliates of its Third Party owner for a maximum disbursement amount of
$60,000. As of March 31, 1997, December 31, 1996 and 1995, $58,171, $56,787
and $50,896 respectively, has been funded under this agreement, and $43,631,
$40,873 and $30,871 respectively, of accrued interest and $1,827, $1,697 and
$1,175 respectively, of standby loan fees, have been added to the principal
balance in accordance with the terms of the agreement. The loan bears interest
at a fixed rate of 11% through the maturity date of March 14, 1998. The Third
Party owner has provided a guarantee of 77 West Wacker's first mortgage note
payable and charges 77 West Wacker a standby loan fee, as defined. Standby
loan fees incurred were $130 and $130 (unaudited) for the three months ended
March 31, 1997 and 1996, respectively, and $522, $498 and $399 for the years
ended December 31, 1996, 1995, and 1994, respectively (included in general and
administrative expenses in the combined statements of operations). Under the
terms of the subordinate loan agreement, 77 West Wacker is not required to
make any periodic principal or interest payments prior to the date of
stabilization, as defined; unpaid interest is added to the principal balance
monthly. Subsequent to the date of stabilization, as defined, monthly payments
of interest only are payable to the extent of available cash flow, as defined,
during the operating period, with the entire outstanding balance due upon
maturity. In the opinion of management, no payments will be due under the
subordinate loan agreement during 1997. The subordinated loan is
collateralized by a second mortgage on the 77 West Wacker Building.

F-27
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

4. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES (CONTINUED)

(B) Permanent financing for the development of certain industrial Properties
has been provided by $12,000 of tax exempt which was converted to taxable debt
industrial development revenue bonds (IDBs). The Bonds mature on June 1, 2022.
On December 13, 1995, $60,150 of IDBs were acquired by an affiliate of Prime
from the Third Party. On December 13, 1995, $28,300 and on May 20, 1996,
$19,850 of the IDBs were sold to independent third party financial
institutions by the affiliate of Prime.

Under the terms of the IDB loan agreement, the borrowing Partnerships are to
make interest-only payments semi-annually, calculated using a floating rate
determined by the Remarketing Agent of the IDBs. The rates were 5.501% during
the three months ended March 31, 1997, 3.90% to 5.501% during 1996, 5.25% to
5.51% during 1995, and 5.00% to 5.50% during 1994. The rates at March 31, 1997
were 5.501%, at December 31, 1996 were 5.501% and December 31, 1995 ranged
from 5.25% to 5.501%.

The maximum annual interest rate on the IDBs is 13%. Under certain
conditions, the interest rate on the IDBs may be converted to a fixed rate at
the request of the respective borrowing Partnership.

The bondholders may tender bonds on any business day during the variable
interest rate period discussed above and receive principal, plus accrued
interest through the tender date. Upon tender, the remarketing agent shall
immediately remarket the IDBs. In the event the remarketing agent fails to
remarket any IDBs, the borrowing Partnership is obligated to purchase those
IDBs. The remarketing agent receives a fee of .11% per annum of the
outstanding IDB balance, payable quarterly in advance.

In 1995, mortgage notes payable to the Third Party totaling $2,716 and
accrued interest of $200 were forgiven by the Third Party. The notes bore
interest at 8.5%, payable quarterly from available cash flow.

Total interest paid on the mortgage notes payable and bonds payable to
affiliates was $328 and $930 (unaudited) for the three months ended March 31,
1997 and 1996, respectively, and $1,256, $3,538, and $3,393 for the years
ended December 31, 1996, 1995, and 1994, respectively.

5. FUTURE MINIMUM LEASE INCOME AND PAYMENTS

The Partnerships have entered into lease agreements with lease terms ranging
from one year to twenty years. The leases generally provide for tenants to
share in increases in operating expenses and real estate taxes in excess of
specified base amounts.

Approximately 57% and 62% (unaudited), 60%, 65%, and 72% of the rental
revenue for the three months ended March 31, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994, respectively, was received from four
tenants.

The total future minimum rentals to be received under such noncancelable
operating leases executed through March 31, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- --------
<S> <C>
1997............................................................ $ 24,367
1998............................................................ 31,238
1999............................................................ 29,759
2000............................................................ 28,793
2001............................................................ 27,924
Thereafter...................................................... 179,222
--------
$321,303
========
</TABLE>

Future minimum rentals include amounts to be received from Prime totaling
$3,085.

F-28
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

5. FUTURE MINIMUM LEASE INCOME AND PAYMENTS (CONTINUED)

In addition, as a part of lease agreements entered into with certain tenants
of 77 West Wacker Building,77 West Wacker assumed the tenants' leases at other
properties and subsequently executed subleases for certain of the assumed
lease space. Net future minimum rental payments due under leases assumed and
subleases executed through March 31, 1997, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1997.............................................................. $ 906
1998.............................................................. 1,279
1999.............................................................. 1,306
2000.............................................................. 1,336
2001.............................................................. 1,367
Thereafter........................................................ 700
------
$6,894
======
</TABLE>

During 1995, a tenant of the 77 West Wacker Building experienced financial
difficulties and began negotiations with 77 West Wacker to reduce its leased
space, resulting in an amendment to the tenant's lease agreement. As a result
of the lease amendment, 77 West Wacker wrote-off $13,373 of deferred tenant
costs, representing $10,296 of tenant receivables related to straight-lining
of the tenant's rental revenue, $2,257 of deferred leasing costs, and $820 of
tenant improvements. The same tenant continued to experience financial
difficulty and in 1997 defaulted on certain 1997 rental payments. As a result
of the default, as of December 31, 1996, 77 West Wacker wrote-off $3,081 of
deferred tenant costs, representing $940 of tenant receivables related to
straight-lining of the tenant's rental revenue and $2,141 of deferred leasing
costs. During the three months ended March 31, 1997, 77 West Wacker recognized
revenue from this tenant only to the extent cash was received. Future minimal
rentals include $49,713 related to this tenant.

6. RELATED PARTY TRANSACTIONS

In connection with the leasing and management of the Properties, Prime is
entitled to payments and fees for services performed. Such amounts incurred
during the three months ended March 31, 1997, and 1996, and for the years
ended December 31, 1996, 1995, and 1994 are summarized as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31
---------------- -----------------------
1997 1996 1996 1995 1994
---- ----------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Property management fee (a)........... $356 $333 $ 1,429 $ 1,364 $ 1,256
Administration fees (b)............... 41 117 468 730 779
Construction management (c)........... 35 5 102 115 102
Legal fees (d)........................ 97 27 127 77 92
Leasing fees (e)...................... 9 1 19 280 172
Reimbursables (f)..................... 236 42 184 352 569
Asset management fee (g).............. 33 33 132 132 132
</TABLE>
- --------
(a) Prime is entitled to a property management fee ranging from 2.5% to 4% of
gross receipts, payable monthly in arrears. Amounts are included in
property and asset management fees to affiliates.
(b) Prime is entitled to an annual administration fee as defined in the
Partnership agreement. Amounts are included in general and administrative
expenses.
(c) Prime is entitled to a construction management fee equal to 3% of
construction costs.

F-29
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

6. RELATED PARTY TRANSACTIONS (CONTINUED)

(d) Prime is reimbursed for reasonable legal and accounting expenses incurred
in connection with the operations of the Partnerships. Amounts are included
in general and administrative expenses.
(e) Prime is entitled to leasing commissions for all leases signed. The
commissions are equal to 1.5% to 3% of rent, exclusive of tenant
reimbursements, during the base term of the lease; commissions are payable
upon commencement of the respective leases.
(f) Prime is entitled to reimbursement for expenses paid for the benefit of the
Partnerships. Amounts are included in general and administrative expenses.
(g) Prime is entitled to an annual fee from providing asset management services
to the Partnership which is payable from available cash flows. Amounts are
included in property and asset management fees to affiliates.

Amounts due to affiliates are for amounts due for advances made by
affiliates. Amounts due from affiliates are for advances made by the
Partnership to affiliates. Amounts due from and due to affiliates bear interest
at prime plus 2% and are payable upon demand.

Average balances of amounts due form and due to affiliates for the three
months ended March 31, 1997 and 1996 and for the years ended December 31 1996,
1995, and 1994 are summarized as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEAR ENDED DECEMBER 31
------------------ -----------------------
1997 1996 1996 1995 1994
------ ----------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Due from affiliates............... $1,965 $5,430 $ 4,323 $ 3,251 $ 565
Due to affiliates................. 695 981 821 1,107 1,722
</TABLE>

7. INSURANCE SETTLEMENT

On July 16, 1994, the Enterprise Center I property was destroyed by a fire.
During 1995, ECI received a final insurance settlement of $10,871 related to
the fire. The proceeds settled an insurance receivable of $1,755 recorded at
December 31, 1994, and additional costs of $1,859 incurred in 1995 related to
the cleanup of the property. ECI believes that all material costs of the fire
were incurred prior to December 31, 1995. The remaining proceeds of $7,257 have
been recorded as revenue in the 1995 combined statements of operations.

8. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statements of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (SFAS No. 107) and No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments
requires disclosures of the fair value of certain on-and off-balance sheet
financial instruments for which it is practicable to estimate. Value is defined
by SFAS No. 107 as the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale.

The following methods and assumptions were used by the Partnerships in
estimating its fair value disclosures for financial instruments:

Cash

The carrying amount of cash reported in the balance sheet approximates its
fair value.

F-30
<PAGE>

PRIME PROPERTIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

8. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

Mortgage Notes and Bonds Payable

The carrying amount of the Partnerships' variable rate borrowing approximates
fair value based on the current borrowing rate for similar types of borrowing
arrangements.

The fair value for the Partnerships' fixed-rate borrowing is estimated using
discounted cash flow analysis based upon the incremental borrowing rate for
similar types of borrowing arrangements. The fair value of the Partnerships'
fixed-rate borrowing at March 31, 1997, is the amount recognized in the balance
sheet, as the Partnerships' current incremental borrowing rate approximates the
stated rate on its fixed-rate borrowings.

The carrying amount of accrued interest approximates fair value.

Off-Balance Sheet Financial Instrument

The fair value of 77 West Wacker's off-balance sheet instrument (interest
rate swap agreement) is a liability of approximately $10,300. Such amount is
based on discounted cash flow analyses using current assumptions and taking
into account the remaining term of the agreement.

9. COMMITMENTS AND CONTINGENCIES

The Partnerships are defendants in legal actions arising during the normal
course of business. Management believes that the ultimate outcome of those
actions will not materially affect the Partnerships' combined financial
position.

All of the Properties were subject to Phase I or similar environmental
assessments by independent environmental consultants which were intended to
discover information regarding, and to evaluate the environmental condition of,
the surveyed property and surrounding properties. Management is aware of
contamination at certain of the Industrial Properties, which are already in
remediation programs sponsored by the state in which they are located. The
Phase I assessments estimate that remedial action plans will have a maximum
cost of approximately $3.3 million. Prime has recently initiated lawsuits
against a former environmental consultant and a former tenant of one of these
Properties for damages to cover the cost of the remedial action plans. However,
the outcome of the lawsuits cannot yet be determined and the actual cost to be
incurred by the Partnerships cannot yet be determined. Therefore, no liability
has been recorded in the combined financial statements. Prime has contractually
agreed to indemnify the Partnerships from any environmental liabilities the
Partnerships may incur and has pledged $1 million and approximately 485,000
partnership units in an operating partnership that can be converted to common
shares of a publicly traded real estate investment trust to cover these costs.

F-31
<PAGE>

PRIME PROPERTIES

SCHEDULE III REAL ESTATES AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNT
COSTS CAPITALIZED CARRIED
INITIAL COST TO SUBSEQUENT TO AT DECEMBER 31,
DECEMBER 31, 1996 COMPANY ACQUISITION 1996
----------------- -------------------- --------------------- --------------------
BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- --------------------------- ----------------- ------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office:
77 West Wacker
Building....... Chicago, Illinois $328,718 $17,340 $ -- $ -- $189,042 $17,340 $189,042
Nashville Office
Building....... Nashville, Tennessee 10,175 1,530 -- -- 8,198 1,530 8,198
Professional
Plaza.......... Knoxville, Tennessee 9,000 -- -- -- 10,642 -- 10,642
Old Kingston.... Knoxville, Tennessee 3,500 378 -- -- 4,068 378 4,068
Two Centre
Square......... Knoxville, Tennessee 9,000 -- -- -- 10,542 -- 10,542
Triad Parking
Facility....... Knoxville, Tennessee 1,440 507 -- -- 1,324 507 1,324
Executive Sports
and Fitness
Center . Chicago, Illinois -- -- -- -- 75 -- 75
Hammond
Enterprise
Center(2)...... Hammond, Indiana -- 213 4,899 (188) (3,937) 25 962
Chicago
Enterprise
Center(2)...... Chicago, Illinois -- 2,069 8,795 (1,309) (7,271) 760 1,524
Industrial:
East Chicago
Enterprise
Center(2)...... East Chicago, Indiana -- 94 7,804 (67) (6,916) 27 888
Enterprise
Center I....... East Chicago, Indiana 2,900 18 1,368 -- (768) 18 600
Enterprise
Center II...... East Chicago, Indiana 5,000 18 2,099 -- 463 18 2,562
Enterprise
Center III..... East Chicago, Indiana 4,500 20 2,567 -- 2,798 20 5,365
Enterprise
Center IV...... East Chicago, Indiana 2,600 11 791 -- 232 11 1,023
Enterprise
Center V....... Hammond, Indiana 5,000 81 3,729 -- 755 81 4,484
Enterprise
Center VI...... Hammond, Indiana 4,900 101 3,151 -- 665 101 3,816
Enterprise
Center VII..... Chicago, Illinois 7,200 517 5,632 31 801 548 6,433
Enterprise
Center VIII.... Chicago, Illinois 7,000 124 3,687 -- 94 124 3,781
Enterprise
Center IX...... Chicago, Illinois 4,750 269 925 -- 504 269 1,429
Enterprise
Center X....... Chicago, Illinois 4,300 248 2,173 -- 1,142 248 3,315
Arlington
Heights I...... Arlington Heights, Illinois 4,000 626 2,401 (9) 1,034 617 3,435
Arlington
Heights II..... Arlington Heights, Illinois 4,000 460 1,768 (4) 647 456 2,415
Arlington
Heights III.... Arlington Heights, Illinois 4,000 452 1,738 -- 566 452 2,304
-------- ------- ------- ------- -------- ------- --------
Total........... $421,983 $25,076 $53,527 $(1,546) $214,700 $23,530 $268,227
======== ======= ======= ======= ======== ======= ========
<CAPTION>
DECEMBER 31, 1996
----------------- DATE OF
ACCUMULATED ACQUISITION (A)
DESCRIPTION TOTAL DEPRECIATION (1) CONSTRUCTION (C)
- ----------- -------- ----------------- ----------------
<S> <C> <C> <C>
Office:
77 West Wacker
Building....... $206,382 $26,851 1992(C)
Nashville Office
Building....... 9,728 808 1991(C)
Professional
Plaza.......... 10,642 3,195 1989(C)
Old Kingston.... 4,446 1,136 1989(C)
Two Centre
Square......... 10,542 2,791 1989(C)
Triad Parking
Facility....... 1,831 256 1987(A)
Executive Sports
and Fitness
Center . 75 3 1992(C)
Hammond
Enterprise
Center(2)...... 987 347 1989(A)
Chicago
Enterprise
Center(2)...... 2,284 598 1990(A)
Industrial:
East Chicago
Enterprise
Center(2)...... 915 332 1988(A)
Enterprise
Center I....... 618 44 1993(A)
Enterprise
Center II...... 2,580 617 1993(A)
Enterprise
Center III..... 5,385 651 1993(A)
Enterprise
Center IV...... 1,034 191 1993(A)
Enterprise
Center V....... 4,565 1,583 1993(A)
Enterprise
Center VI...... 3,917 718 1993(A)
Enterprise
Center VII..... 6,981 1,242 1993(A)
Enterprise
Center VIII.... 3,905 978 1993(A)
Enterprise
Center IX...... 1,698 238 1993(A)
Enterprise
Center X....... 3,563 639 1993(A)
Arlington
Heights I...... 4,052 623 1993(A)
Arlington
Heights II..... 2,871 277 1993(A)
Arlington
Heights III.... 2,756 293 1993(A)
-------- -----------------
Total........... $291,757 $44,411
======== =================
</TABLE>
(1) Depreciable lives range from 50 years for building and improvements, to
the term of related leases for tenant improvements.
(2) In 1993 a portion of these properties were sold to Enterprise Center I
through Enterprise Center X.

F-32
<PAGE>

PRIME PROPERTIES

SCHEDULE III--(CONTINUED)

(IN THOUSANDS)

The aggregate gross cost of the property included above, for federal income
tax purposes, approximated $328,220 as of December 31, 1996.

The following table reconciles the historical cost of the Prime Properties
from January 1, 1994 to December 31, 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year................... $289,558 $285,687 $281,316
Additions during year--Acquisition, im-
provements, etc........................... 3,842 4,842 6,191
Deductions during year--Write-off of tenant
improvements.............................. (1,643) (971) (1,820)
-------- -------- --------
Balance, close of year....................... $291,757 $289,558 $285,687
======== ======== ========
</TABLE>

The following table reconciles the accumulated depreciation from January 1,
1994 to December 31, 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year...................... $34,501 $24,499 $15,348
Additions during year--Depreciation and
amortization for the year.................... 10,288 10,005 9,562
Deductions during year--Accumulated
depreciation of written-off tenant
improvements................................. (378) (3) (411)
------- ------- -------
Balance, close of year.......................... $44,411 $34,501 $24,499
======= ======= =======
</TABLE>

F-33
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statements of Revenue and Certain
Expenses of Prime Industrial Contribution Properties (the Properties) for the
period from January 1, 1997 to March 31, 1997 and for the period from March 31,
1996 to December 31, 1996. The Combined Statements of Revenue and Certain
Expenses are the responsibility of the Properties' management. Our
responsibility is to express an opinion on the Combined Statements of Revenue
and Certain Expenses based on our audits.

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

In our opinion, the Combined Statements of Revenue and Certain Expenses
referred to above present fairly, in all material respects, the combined
revenue and certain expenses of the Properties described in Note 2 for the
period from January 1, 1997 to March 31, 1997 and for the period from March 31,
1996 to December 31, 1996 in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Chicago, Illinois
June 9, 1997

F-34
<PAGE>

PRIME INDUSTRIAL CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM MARCH
JANUARY 1, 1997 TO 1, 1996 TO
MARCH 31, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Revenue
Rental.................................... $397 $1,608
Tenant reimbursements..................... 49 138
---- ------
Total revenue............................. 446 1,746
Expenses
Property operating........................ 52 158
Real estate taxes......................... 71 219
---- ------
Total expenses............................ 123 377
---- ------
Revenue in excess of certain expenses..... $323 $1,369
==== ======
</TABLE>

See accompanying notes.

F-35
<PAGE>

PRIME INDUSTRIAL CONTRIBUTION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Combined Statements of Revenue and Certain Expenses relates
to the operations of six industrial buildings located in the Columbus, Ohio
metropolitan area referred to as the Prime Industrial Contribution Properties
(the Properties). As of March 31, 1997 the Properties had seven tenants, three
of which accounted for approximately 46% of rental revenue for the period from
January 1, 1997 to March 31, 1997. The same three tenants, along with a tenant
that terminated its lease during 1996, accounted for approximately 61% of
rental revenue for the period from March 1, 1996 to December 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the registration statement
on Form S-11 of Prime Group Realty Trust. The combined statements are not
representative of the actual operations of the Properties for the periods
presented nor indicative of future operations as certain expenses, primarily
depreciation and amortization, which may not be comparable to the expenses
expected to be incurred by Prime Group Realty Trust in future operations of
the Properties, have been excluded.

Revenue and Expense Recognition

Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period incurred.

Use of Estimates

The preparation of the combined statements of revenue and certain expenses
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of revenue and certain expenses during the reporting period. Actual results
could differ from these estimates.

3. RENTALS

The Properties have lease agreements with lease terms ranging from three
years to fifteen years. The leases generally provide for tenants to share in
increases in operating expenses and real estate taxes in excess of specified
base amounts. The total future minimum rentals to be received under such
noncancelable operating leases executed through March 31, 1997, exclusive of
tenant reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- -------
<S> <C>
1997............................................................. $ 1,329
1998............................................................. 1,395
1999............................................................. 1,203
2000............................................................. 1,025
2001............................................................. 844
Thereafter....................................................... 3,696
-------
$ 9,492
=======
</TABLE>

F-36
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statements of Revenue and Certain
Expenses of Contribution Properties (the Properties) for the period from
January 1, 1997 to March 31, 1997 and for the year ended December 31, 1996.
The Combined Statements of Revenue and Certain Expenses are the responsibility
of the Properties' management. Our responsibility is to express an opinion on
the Combined Statements of Revenue and Certain Expenses based on our audits.

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

In our opinion, the Combined Statements of Revenue and Certain Expenses
referred to above present fairly, in all material respects, the combined
revenue and certain expenses of the Properties described in Note 2 for the
period from January 1, 1997 to March 31, 1997 and for the year ended December
31, 1996 in conformity with generally accepted accounting principles.

Ernst & Young LLP

Chicago, Illinois
June 9, 1997

F-37
<PAGE>

CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------ ------------------
<S> <C> <C>
Revenue
Rental................................... $1,338 $5,131
Tenant reimbursements.................... 103 227
------ ------
Total revenue............................ 1,441 5,358
Expenses
Property operating....................... 10 39
Real estate taxes........................ 149 461
------ ------
Total expenses........................... 159 500
------ ------
Revenue in excess of certain expenses.... $1,282 $4,858
====== ======
</TABLE>

See accompanying notes.

F-38
<PAGE>

CONTRIBUTION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Combined Statements of Revenue and Certain Expenses relates
to the operations of seven industrial buildings located in the Chicago
metropolitan area referred to as the Contribution Properties (the Properties).
As of March 31, 1997, the Properties had six tenants, two of which accounted
for approximately 83% of rental revenue for the period from January 1, 1997 to
March 31, 1997, and for the year ended December 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Revenue and Expense Recognition

Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period incurred.

Use of Estimates

3. RENTALS

The Properties have lease agreements with lease terms ranging from one year
to twenty years. The leases generally provide for tenants to share in
increases in operating expenses and real estate taxes in excess of specified
base amounts. The total future minimum rentals to be received under such
noncancelable operating leases executed through March 31, 1997, exclusive of
tenant reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- -------
<S> <C>
1997............................................................. $ 3,771
1998............................................................. 5,095
1999............................................................. 5,256
2000............................................................. 5,164
2001............................................................. 5,298
Thereafter....................................................... 16,304
-------
$40,888
=======
</TABLE>

F-39
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statements of Revenue and Certain Expenses
of Citibank Office Plaza (the Property) for the three months ended March 31,
1997 and for the year ended December 31, 1996. The Statements of Revenue and
Certain Expenses are the responsibility of the Property's management. Our
responsibility is to express an opinion on the Statements of Revenue and
Certain Expenses 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 Statements of Revenue and
Certain Expenses are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
made in the Statements of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Statements
of Revenue and Certain Expenses. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the Statements of Revenue and Certain Expenses referred to
above present fairly, in all material respects, the revenue and certain
expenses of the Property described in Note 2 for the three months ended March
31, 1997 and for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Chicago, Illinois
June 9, 1997

F-40
<PAGE>

CITIBANK OFFICE PLAZA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental................................... $397 $1,506
Tenant reimbursements.................... 142 479
---- ------
Total revenue............................ 539 1,985
---- ------
Expenses
Cleaning................................. 27 111
Utilities................................ 65 211
Other property operating................. 78 264
Real estate taxes........................ 108 456
---- ------
Total expenses........................... 278 1042
---- ------
Revenue in excess of certain expenses.... $261 $ 943
==== ======
</TABLE>

See accompanying notes.

F-41
<PAGE>

CITIBANK OFFICE PLAZA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relates to the
operations of Citibank Office Plaza, an office building located in Schaumburg,
Illinois (the Property). As of March 31, 1997, the Property had eighteen
tenants, two of which accounted for approximately 53% of rental revenue for
the period from January 1, 1997 to March 31, 1997, and for the year ended
December 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Statements of Revenue and Certain Expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the registration statement on Form S-
11 of Prime Group Realty Trust. The statements are not representative of the
actual operations of the Property for the periods presented nor indicative of
future operations as certain expenses, primarily depreciation and
amortization, which may not be comparable to the expenses expected to be
incurred by Prime Group Realty Trust in future operations of the Property,
have been excluded.

Revenue and Expense Recognition

Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.

Use of Estimates

The preparation of the statements of revenue and certain expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenue
and certain expenses during the reporting period. Actual results could differ
from these estimates.

3. RENTALS

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases executed through March 31, 1997, exclusive of
tenant reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1997.............................................................. $1,065
1998.............................................................. 1,382
1999.............................................................. 1,264
2000.............................................................. 820
2001.............................................................. 542
Thereafter........................................................ 456
------
$5,529
======
</TABLE>

F-42
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statements of Revenue and Certain
Expenses of Salt Creek Office Center (the Property) for the period from
January 1, 1997 to March 31, 1997 and for the year ended December 31, 1996.
The Combined Statements of Revenue and Certain Expenses are the responsibility
of the Property's management. Our responsibility is to express an opinion on
the Combined Statements of Revenue and Certain Expenses 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 Combined Statements of Revenue
and Certain Expenses are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
made in the Combined Statements of Revenue and Certain Expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Combined Statements of Revenue and Certain Expenses. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the Combined Statements of Revenue and Certain Expenses
referred to above present fairly, in all material respects, the combined
revenue and certain expenses of the Property described in Note 2 for the
period from January 1, 1997 to March 31, 1997 and for the year ended December
31, 1996 in conformity with generally accepted accounting principles.

Ernst & Young LLP

Chicago, Illinois
June 9, 1997

F-43
<PAGE>

SALT CREEK OFFICE CENTER

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental................................... $303 $1,086
Tenant reimbursements.................... 198 721
---- ------
Total revenue............................ 501 1,807
---- ------
Expenses
Cleaning................................. 3 9
Utilities................................ 10 36
Other property operating................. 85 437
Real estate taxes........................ 125 475
---- ------
Total expenses........................... 223 957
---- ------
Revenue in excess of certain expenses.... $278 $ 850
==== ======
</TABLE>

See accompanying notes.

F-44
<PAGE>

SALT CREEK OFFICE CENTER

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Combined Statements of Revenue and Certain Expenses relate
to the operations of two office buildings, Salt Creek Office Complex, located
in Schaumburg, Illinois (collectively, the "Property"). As of March 31, 1997
the Property had thirty-eight tenants, one of which accounted for
approximately 20% of rental revenue for the period from January 1, 1997 to
March 31, 1997 and 22% of rental revenue for the year ended December 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the registration statement
on Form S-11 of Prime Group Realty Trust. The combined statements are not
representative of the actual operations of the Property for the period
presented, nor indicative of future operations as certain expenses, primarily
depreciation and management fees, which may not be comparable to the expenses
expected to be incurred by Prime Group Realty Trust in future operations of
the Property, have been excluded.

Revenue and Expense Recognition

Rental income is recognized as income in the period earned. Expenses are
recognized in the period incurred.

Use of Estimates

The preparation of the combined statements of revenue and certain expenses
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of revenues and certain expenses during the reporting period. Actual results
could differ from these estimates.

3. RENTALS

The Property has lease agreements with lease terms ranging from one to
fifteen years. The leases generally provide for tenants either to share in
increases in operating expenses in excess of specified base amounts or pay a
pro rata share of recoverable expenses as defined. The total future minimum
rentals to be received under such noncancelable operating leases executed
through March 31, 1997, exclusive of tenant reimbursements, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1997.............................................................. $ 931
1998.............................................................. 1,054
1999.............................................................. 870
2000.............................................................. 609
2001.............................................................. 289
Thereafter........................................................ 109
------
$3,862
======
</TABLE>

F-45
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COM-
MON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1997 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Summary Financial Data................................................... 25
Risk Factors............................................................. 28
The Company.............................................................. 42
Business Objective and Growth Strategies................................. 46
Use of Proceeds.......................................................... 50
Distribution Policy...................................................... 51
Dilution................................................................. 56
Capitalization........................................................... 57
Selected Financial Data.................................................. 58
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 60
Business and Properties.................................................. 66
Policies with Respect to Certain Activities.............................. 117
Management............................................................... 120
Structure and Formation of the Company................................... 127
Certain Relationships and Transactions................................... 134
Partnership Agreement.................................................... 136
Principal Shareholders of the Company.................................... 140
Description of Shares of Beneficial Interest............................. 141
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 146
Shares Eligible for Future Sale.......................................... 150
Certain Federal Income Tax Consequences.................................. 152
ERISA Considerations..................................................... 166
Underwriting............................................................. 169
Legal Matters............................................................ 170
Experts.................................................................. 171
Additional Information................................................... 171
Glossary................................................................. G-1
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

14,250,000 Common Shares

[LOGO]

PRIME GROUP
REALTY TRUST

Common Shares of
Beneficial Interest

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

PROSPECTUS

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

PRUDENTIAL SECURITIES INCORPORATED

FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.

, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
SEC registration fee................................................... $99,319
NASD fee............................................................... 30,500
NYSE listing fee....................................................... *
Blue Sky fees and expenses............................................. *
Printing and engraving expenses........................................ *
Legal fees and expenses................................................ *
Accounting fees and expenses........................................... *
Miscellaneous.......................................................... *
-------
Total................................................................ $ *
=======
</TABLE>
- --------
* To be completed by amendment.

ITEM 31. SALES TO SPECIAL PARTIES

See response to Item 32.

ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities
Act.

On July 21, 1997, the Company issued 100 Common Shares of beneficial
interest to Mr. Reschke for $10 per share, or an aggregate consideration of
$1,000. Such Common Shares were purchased solely for investment purposes to
facilitate the organization of the Company. Upon completion of the Offering,
all of the shares so acquired by Mr. Reschke will be redeemed by the Company
for an aggregate redemption price of $1,000.

Simultaneously with the completion of the Offering, the Company will cause
the Operating Partnership to issue Common Units to the Limited Partners in
exchange for their respective interests in the Properties and the office and
industrial development, leasing and property management business to be
contributed to the Company. Simultaneously with the completion of the
Offering, the Company will grant options to purchase a total of Common
Shares under its Share Incentive Plan to key executives and the Company's
independent trustees.

ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust and Bylaws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The MGCL, as
applicable to Maryland REITs, currently provides that indemnification of a
person who is a party, or threatened to be made a party, to legal proceedings
by reason of the fact that such a person is or was a trustee, officer,
employee or agent of a corporation, or is or was serving as a trustee,
officer, employee or agent of a corporation or other firm at the request of a
corporation, against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, is mandatory in certain circumstances and permissive
in others, subject to authorization by the board of trustees, a committee of
the board of trustees consisting of two or more trustees not parties to the
proceeding (if there does not exist a majority vote quorum of the board of
trustees consisting of trustees not parties to the proceeding), special legal
counsel appointed by the board of trustees or such committee of the board of
trustees, or by the shareholders, so long as it is not established that the
act or omission of such person was material to the matter giving rise to the
proceedings and was committed in bad faith, was the result of active and
deliberate

II-1
<PAGE>

dishonesty, involved such person receiving an improper personal benefit in
money, property or services, or, in the case of criminal proceedings, such
person had reason to believe that his or her act or omission was unlawful.

The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.

The Company intends to purchase an insurance policy which purports to insure
the officers and trustees of the Company against certain liabilities incurred
by them in the discharge of their functions as such officers and trustees,
except for liabilities resulting from their own malfeasance.

ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED

Not Applicable

ITEM 35. FINANCIAL STATEMENT AND EXHIBITS.

(a) Financial Statements

Prime Group Realty Trust

Pro Forma Condensed Consolidated Financial Information:

Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997

Pro Forma Condensed Consolidated Statements of Operations for the three
months ended March 31, 1997 and for the year ended December 31, 1996

Financial Statements:

Report of Independent Auditors

Balance Sheet as of July 21, 1997 and Notes to Balance Sheet

Prime Properties

<TABLE>
<S> <C>
Report of Independent Auditors
Combined Balance Sheets as of March 31, 1997 and December 31, 1996 and
1995
Combined Statements of Operations for the three months ended March 31,
1997 and 1996 (unaudited) and the three years ended December 31, 1996,
1995, and 1994
Combined Statements of Changes in Partners' Deficit for the three months
ended March 31, 1997 and for the three years ended December 31, 1996,
1995, and 1994
Combined Statements of Cash Flows for the three months ended March 31,
1997 and 1996 (unaudited) and the three years ended December 31, 1996,
1995, and 1994
Notes to Combined Financial Statements
Schedule III--Real Estate and Accumulated Depreciation as of December 31,
1996
</TABLE>

Prime Industrial Contribution Properties

<TABLE>
<S> <C>
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to March 31, 1997 and for the period from March 1, 1996
to December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
Contribution Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to March 31, 1997 and for the year ended December
31,1996
Notes to Combined Statements of Revenue and Certain Expenses
Citibank Office Plaza
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to March 31, 1997 and for the year ended December 31, 1996
Notes to Statements of Revenue and Certain Expenses
</TABLE>

II-2
<PAGE>

Salt Creek Office Center
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from Janu-
ary 1, 1997 to March 31, 1997 and for the year ended December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses

All other schedules are omitted because the required information is not
applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1* Amended and Restated Declaration of Trust of Prime Group Realty
Trust
3.2* Form of Amended and Restated Bylaws of Prime Group Realty Trust
4.1* Specimen Common Share certificate
5.1* Opinion of Miles & Stockbridge regarding the validity of the Common
Shares being registered
8.1* Opinion of Winston & Strawn regarding tax matters
10.1* Agreement of Limited Partnership of Prime Group Realty, L.P.
10.2* Form of Indemnification Agreement
10.3* Form of Share Incentive Plan
10.4* Form of Employment Agreement by and between the Company and Michael
W. Reschke
10.5* Form of Employment Agreement by and between the Company and Richard
S. Curto
10.6* Form of Employment Agreement by and between the Company and W.
Michael Karnes
10.7* Form of Employment Agreement by and between the Company and Robert
J. Rudnik
10.8* Form of Employment Agreement by and between the Company and Jeffrey
A. Patterson
10.9* Form of Employment Agreement by and between the Company and Kevork
M. Derderian
10.10* Form of Employment Agreement by and between the Company and Edward
S. Hadesman
10.11* Form of Employment Agreement by and between the Company and Tucker
B. Magid
10.12* Form of Option Agreement
10.13* Form of Exchange Rights Agreement
10.14* Form of Registration Rights Agreement
10.15* Contribution Agreement dated as of July 8, 1997 by and between
LaSalle National Trust, N.A., not personally, but solely as Trustee
under Trust Agreement dated June 15, 1982 and known as Trust No. 10-
40113-09, LaSalle National Trust, N.A., not personally, but solely
as Trustee under Trust Agreement dated September 7, 1994 and known
as Trust No. 11-9051, LaSalle National Trust, N.A., not personally,
but solely as Trustee under Trust Agreement dated March 30, 1984 and
known as Trust No. 11-107825, LaSalle National Trust, N.A., not
personally, but solely as Trustee under Trust Agreement dated August
1, 1986 and known as Trust No. 11-1358, LaSalle National Trust,
N.A., not personally, but solely as Trustee under Trust Agreement
dated August 1, 1986 and known as Trust No. 11-1357, LaSalle
National Trust, N.A., not personally, but solely as Trustee under
Trust Agreement dated January 17, 1974 and known as Trust No. 286-
34, LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated October 15, 1995 and known as
Trust No. 11-9869, LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated December 1, 1987 and
known as Trust No. 11-2868, 310 ERA Limited Partnership, MacArthur
Drive Properties, CLE Limited Partnership, 500 Lindberg Limited
Partnership, 515 Huehl Limited Partnership, 555 Huehl Limited
Partnership, Sky Harbor Associates, 1001 Technology Way, LLC, The
Grandville Road Limited Partnership, Industrial Building and
Development Company and The Prime Group, Inc.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16* Form of Management Contract
10.17* Form of Formation Agreement
11.1* Statement re computation of per share earnings
12.1* Statements re computation of ratios
15.1* Letter regarding unaudited interim financial information
21.1* Subsidiaries of the Company
23.1* Consent of Miles & Stockbridge
23.2* Consent of Winston & Strawn
23.3 Consent of Ernst & Young LLP
23.4 Consent of Rosen Consulting Group
24.1 Powers of Attorney (included on signature page to this Part II)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.

ITEM 36. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the provisions described under Item 34 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois, on
August 13, 1997.

Prime Group Realty Trust

/s/ Richard S. Curto
By: __________________________________
Richard S. Curto
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Richard S. Curto and W. Michael Karnes,
or any of them, his attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments or post-effective
amendments to this registration statement or a registration statement filed
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file
the same, with exhibits thereto and other documents in connection therewith or
in connection with the registration of the Common Shares under the Securities
and Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premise, as fully as to all intents and
purposes as he might or could do in person, and hereby ratifying and
confirming all that each of such attorneys-in-fact and agents or his
substitute or substitutes may trustfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below on August 13, 1997 by the
following persons in the capacities indicated.

SIGNATURE TITLE

/s/ Michael W. Reschke Chairman of the Board,
- ------------------------------------- Trustee
Michael W. Reschke

/s/ Richard S. Curto President and Chief Executive
- ------------------------------------- Officer (principal executive
Richard S. Curto officer), Trustee

/s/ W. Michael Karnes Executive Vice President and
- ------------------------------------- Chief Financial Officer
W. Michael Karnes (principal financial and
accounting officer)

II-5

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 21, 1997 with respect to the balance sheet
of Prime Group Realty Trust, and dated June 9, 1997 with respect to the
combined financial statements of the Prime Properties, the combined statements
of revenue and certain expenses of the Prime Industrial Contribution
Properties, the combined statements of revenue and certain expenses of the
Contribution Properties, the combined statements of revenue and certain
expenses of the Salt Creek Office Center, and the statements of revenue and
certain expenses of Citibank Office Plaza in the Registration Statement (Form
S-11) and related Prospectus of Prime Group Realty Trust for the registration
of 16,387,500 of its common shares of beneficial interest.

Ernst & Young LLP

Chicago, Illinois
August 13, 1997

<PAGE>

EXHIBIT 23.4

CONSENT OF ROSEN CONSULTING GROUP

To Prime Group Realty Trust:

In connection with Prime Group Realty Trust's initial public offering
of Common Shares of beneficial interest, we hereby consent (i) to the use of
our report, Economic, Office and Industrial Market Trends in Chicago, Nashville,
Knoxville and Columbus, dated August 12, 1997, in this Registration Statement
on Form S-11 (this "Registration Statement"), (ii) to all references to our firm
included in or made a part of this Registration Statement and (iii) to the
reference to our firm as experts in the section under the caption "Experts" in
the Registration Statement.

Sincerely,

ROSEN CONSULTING GROUP

/s/ Kenneth T. Rosen
----------------------------
By: Kenneth T. Rosen
Its: President

Berkeley, California
August 12, 1997

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-21-1997
<PERIOD-END> JUL-21-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,340,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,341,000
<CURRENT-LIABILITIES> 2,340,000<F2>
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 999<F3>
<TOTAL-LIABILITY-AND-EQUITY> 2,341,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>

<F1> Amount consists of $2,340,000 in deferred costs related to offering.

<F2> Amount consists of $2,340,000 due to an affiliate of Prime Group Realty
Trust

<F3> Amount represents additional paid-in capital on common stock
</FN>

</TABLE>