PRIME GROUP REALTY TRUST, S-11, 1998-09-30

PRIME GROUP REALTY TRUST
S-11, 1998-09-30
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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) 917-1300
(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) 917-1300
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------

COPIES TO:

WAYNE D. BOBERG, ESQ.
BRIAN T. BLACK, ESQ.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
Any time and from time to time after the effective date of this Registration
Statement.
---------------------

If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. /X/

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 number of the earlier effective registration statement for the same
offering. / /
- ------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Series A Cumulative Convertible Preferred
Shares of Beneficial Interest, $.01 par
value per share........................... 2,000,000 $20.00 $40,000,000 $11,800(2)
Common Shares of Beneficial Interest, $.01
par value per share....................... 11,711,075 $16.66 $161,786,510 $47,728(3)
Total..................................... N/A N/A $201,786,510 $59,528
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Pursuant to Rule 457(a) and (i) under the Securities Act of 1933, the
registration fee has been calculated on the basis of a bona fide estimate of
the maximum offering price of the Series A Cumulative Convertible Preferred
Shares.

(3) Calculated pursuant to Rule 457(c) and (i) 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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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.
<PAGE>
SUBJECT TO COMPLETION -- DATED SEPTEMBER 30, 1998
PROSPECTUS
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PRIME GROUP REALTY TRUST
2,000,000 Series A Cumulative Convertible Preferred

[LOGO]
Shares of Beneficial Interest
11,711,075 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 completed its initial public offering on November 17, 1997
(the "IPO"). The Company, through its subsidiaries, will own 24 office
properties (the "Office Properties"), 47 industrial properties (the "Industrial
Properties"), one parking facility and one retail center (collectively, the
"Properties"), including one industrial property (the "Pending Property
Acquisition") the Company expects to acquire.
This Prospectus relates to the offer and sale from time to time (the "Offering")
by certain holders of (i) up to 2,000,000 Series A Cumulative Convertible
Preferred Shares of Beneficial Interest, par value $0.01 per share (the
"Convertible Preferred Shares"), and up to 2,000,000 shares (the "Conversion
Shares") of Common Shares of Beneficial Interest, par value $0.01 per share
("Common Shares"), of the Company, which Security Capital Preferred Growth
Incorporated ("SCPG") and/or its permitted transferees may offer for sale from
time to time, (ii) up to 9,067,210 Common Shares that certain persons named
herein (the "Formation Holders") may offer for sale from time to time and (iii)
up to 643,865 Common Shares (together with the 9,067,210 Common Shares being
registered hereby for the account of the Formation Holders, the "Exchange
Shares") that H Group LLC (together with SCPG, the Formation Holders and/or
their respective permitted transferees, collectively, the "Selling
Shareholders") may offer for sale from time to time. The Company may issue the
Conversion Shares from time to time upon conversion of the Convertible Preferred
Shares, which SCPG purchased from the Company in a private transaction completed
in November 1997. The Company may issue the Exchange Shares from time to time
upon the exchange of common units of limited partnership interest ("LP Common
Units") in Prime Group Realty, L.P., a Delaware limited partnership (the
"Operating Partnership"), of which the Company is the Managing General Partner.
The LP Common Units held by the Formation Holders as of the date of this
Prospectus were issued by the Operating Partnership in connection with the
formation of the Company in November 1997. The 303,865 LP Common Units held by H
Group LLC as of the date of this Prospectus were acquired by H Group LLC in
connection with the Company's acquisition of certain interests in the office
property located at 180 N. LaSalle Street in Chicago, Illinois. The Company
estimates that H Group LLC may acquire up to 340,000 additional LP Common Units
to the extent the Company elects to maintain its option to purchase H Group
LLC's second mortgage on such office property. The Conversion Shares and the
Exchange Shares are sometimes referred to herein collectively as the "Offered
Common Shares" and the Convertible Preferred Shares and Offered Common Shares
are sometimes referred to collectively herein as the "Offered Shares." The
Company is registering the Offered Shares as required under the terms of certain
agreements between the Company and the Selling Shareholders. The registration of
the Offered Shares does not necessarily mean that any of the Offered Shares will
be offered or sold by the Selling Shareholders.
The Selling Shareholders may from time to time offer and sell all or a portion
of the Offered Common Shares in transactions on the New York Stock Exchange (the
"NYSE"), in the over-the-counter market, or on any other national securities
exchange on which the Common Shares are listed or traded. The Selling
Shareholders may from time to time offer and sell all or a portion of the
Convertible Preferred Shares or the Offered Common Shares in negotiated
transactions or otherwise, at prices then prevailing or related to the
then-current market price or at negotiated prices. The Offered Shares may be
sold directly or through agents or broker-dealers acting as principal or agent,
or in block trades or pursuant to a distribution by one or more underwriters on
a firm commitment or best-efforts basis. To the extent required, the names of
any agents or broker-dealers and applicable commissions or discounts and any
other required information with respect to any particular offer will be set
forth in this Prospectus under the caption "Plan of Distribution" or any
accompanying Prospectus Supplement. Each of the Selling Shareholders reserves
the right to accept or reject, in whole or in part, any proposed purchase of the
Offered Shares made directly or through agents. The Selling Shareholders and any
agents or broker-dealers participating in the distribution of the Offered Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any profit on the sale of Offered
Shares by the Selling Shareholders and any commissions received by any such
agents or broker-dealers may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Common Shares are listed on the NYSE under the symbol "PGE." The closing
sale price of the Common Shares as reported by the NYSE on September 25, 1998
was $18 1/16 per share. The Convertible Preferred Shares are not listed or
qualified for trading on any exchange or on the Nasdaq National Market.
In order to maintain the Company's qualifications as a REIT for federal income
tax purposes, ownership by any person of more than 9.9% (by number or value,
whichever is more restrictive) of the Company's outstanding shares of beneficial
interest is restricted in the Company's Declaration of Trust.
SEE "RISK FACTORS" ON PAGES 21 TO 34 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON SHARES OFFERED HEREBY, INCLUDING:
- - 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 their ability of tenants to pay rent;
- - Conflicts of interest in the operations of the Company, including conflicts
between the Limited Partners, the NAC General Partner and their respective
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;
- - Real estate debt financing risks, including the potential inability to
refinance the Company's debt upon maturity or violation of other loan
covenants that could result in the loss of properties secured by such debt;
- - Taxation of the Company as a regular corporation if it fails to qualify as a
real estate investment trust for federal income tax purposes; and
- - The Company has incurred net losses on a historical basis and may incur net
losses in the future.
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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.
The Company will not receive any proceeds from sales of the Offered Shares by
the Selling Shareholders. The Company has agreed to pay all expenses of
effecting the registration under the Securities Act of the Offered Shares (other
than underwriting discounts, sales and commissions, fees and disbursements of
counsel, and transfer taxes, if any) pursuant to the Registration Statement that
contains this Prospectus. See "Selling Shareholders" and "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS ____________, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUMMARY.............................. 3
The Company................................... 3
Recent Developments........................... 6
Risk Factors.................................. 9
Business Objective and Growth Strategies...... 11
The Company's Markets......................... 14
Structure of the Company and the Operating
Partnership................................. 16
The Offering.................................. 17
Tax Status of the Company..................... 17
Summary Financial Data........................ 18

RISK FACTORS.................................... 21
Geographic Concentration of the Properties in
the Chicago Metropolitan Area, Nashville,
Knoxville, Milwaukee and Columbus; Local
Economic Conditions......................... 21
Conflicts of Interest......................... 21
Real Estate Financing Risks................... 23
Certain Anti-Takeover Provisions May Inhibit a
Change in Control of the Company............ 24
Adverse Consequences of Failure to Qualify as
a REIT; Other Tax Liabilities............... 26
Distributions to Shareholders Affected by Many
Factors..................................... 27
Historical Losses; Possibility of Future
Losses...................................... 28
Acquisition and Development Risks............. 28
Company's Performance and Value are Subject to
Real Estate Investment Risks................ 28
Consequences of Failure to Qualify as
Partnerships................................ 31
Changes in Policy and Investment Activity
without Shareholder Approval................ 31
Dependence on Key Personnel................... 31
Dependence on Significant Tenants............. 31
Managed Property Business and Non-REIT
Services.................................... 32
Liabilities for Environmental Matters Could
Adversely Affect the Company's Financial
Condition................................... 32

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PAGE
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<S> <C>
Possible Adverse Effects on Share Price
Arising from Shares Eligible for Future
Sale........................................ 33
Market Interest Rates Could Adversely Impact
the Market Price of the Common Shares....... 34

THE COMPANY..................................... 35
Services Company.............................. 37

BUSINESS OBJECTIVE AND GROWTH STRATEGIES........ 39
Business Objective............................ 39
Operating Strategy............................ 39
Acquisition Strategy.......................... 41
Development Strategy.......................... 42
Financing Strategy............................ 42

USE OF PROCEEDS................................. 43

PRICE RANGE OF COMMON SHARES AND
DISTRIBUTIONS................................. 44

CAPITALIZATION.................................. 46

SELECTED FINANCIAL DATA......................... 47

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 50
Cautionary Statements......................... 51
Results of Operations......................... 51
Liquidity and Capital Resources............... 54
Historical Cash Flows......................... 57
Funds from Operations......................... 59
Impact of Year 2000........................... 59
Inflation..................................... 60

BUSINESS AND PROPERTIES......................... 61
General....................................... 61
The Office and Industrial Properties.......... 64
Summary Land Parcel Information............... 69
Occupancy and Rental Information.............. 70
Lease Expirations............................. 71
Tenant Information............................ 85
Office Properties............................. 85
Industrial Properties......................... 86
Development, Leasing and Management
Activities.................................. 87
</TABLE>

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PAGE
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The Company's Markets......................... 87
The Company's Office Submarkets............... 93
The Company's Industrial Submarkets........... 111
Land for Development and Option Properties.... 121
Competition................................... 123
Tax-Exempt Bonds.............................. 124
Insurance..................................... 124
Government Regulations........................ 124
Management and Employees...................... 127
Legal Proceedings............................. 127

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES..... 128
Investment Objectives and Policies............ 128
Financing Strategy............................ 128
Conflicts of Interest Policies................ 130
Working Capital Reserves...................... 131
Policies with Respect to Other Activities..... 131

MANAGEMENT...................................... 132
Trustees, Executive Officers and Key
Employees................................... 132
Committees of the Board of Trustees........... 136
Compensation Committee Interlocks and Insider
Participation............................... 137
Compensation of Trustees...................... 137
Executive Compensation........................ 138
Employment Agreements......................... 138
Share Incentive Plan.......................... 139
Option Exercises and Holdings................. 142
Indemnification of Trustees and Officers...... 142

STRUCTURE AND FORMATION OF THE COMPANY.......... 143
Formation Transactions........................ 143
Reasons for the Organization of the Company... 145
Comparison of Common Shares and Common
Units....................................... 146
Advantages and Disadvantages of the Formation
Transactions to Unaffiliated Shareholders... 146
Formation of the Services Company............. 147

CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................. 148
Formation Agreement........................... 148
Partnership Agreement......................... 148
Exchange Rights and Registration Rights....... 148
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PAGE
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The Primestone Joint Venture.................. 148
IBD Contribution Agreement.................... 149
NAC Contribution Agreement; Put Option
Agreement................................... 149
Tax Indemnification Agreements................ 150
Non-Compete Agreement Among the Company, PGI
and Michael W. Reschke...................... 150
Consulting Agreement with Stephen J. Nardi.... 151
Option to Purchase and Right of First Offer... 151
Patterson Contribution Agreement.............. 151
Leases with PGI Affiliates.................... 151
Sale of Common Shares to Mr. Reschke.......... 151
Other Transactions............................ 152

PARTNERSHIP AGREEMENT........................... 153
Management.................................... 153
Indemnification............................... 153
Transferability of Interests.................. 153
Extraordinary Transactions.................... 154
Issuance of Additional Common Units........... 154
Capital Contributions......................... 154
Awards Under Share Incentive Plan............. 155
Distributions................................. 155
Operations.................................... 155
Limited Partner Exchange Rights and
Registration Rights......................... 155
Tax Matters................................... 156
Duties and Conflicts.......................... 156
Term.......................................... 156

PRINCIPAL SHAREHOLDERS OF THE COMPANY........... 157
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DISTRIBUTIONS................. 160

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST.... 161
Authorized Shares............................. 161
Redeemable Preferred Shares................... 162
Convertible Preferred Shares.................. 167
Common Shares................................. 176
Additional Preferred Shares................... 177
Restrictions on Ownership and Transfer........ 177
</TABLE>

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<TABLE>
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S DECLARATION OF TRUST AND BYLAWS..... 180
Classification of the Board of Trustees....... 180
Removal of Trustees........................... 180
Business Combinations......................... 181
Control Share Acquisitions.................... 181
Amendment to the Declaration of Trust......... 182
Advance Notice of Trustee Nominations and New
Business.................................... 182
Maryland Asset Requirements................... 183
Meetings of Shareholders...................... 183

SHARES ELIGIBLE FOR FUTURE SALE................. 184

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....... 186
General....................................... 186
Taxation of the Company....................... 187
Requirements for Qualification................ 188
Failure to Qualify............................ 193
Tax Aspects of the Company's Investments in
Partnerships................................ 193
Income Taxation of the Partnerships and Their
Partners.................................... 195
Taxation of Taxable U.S. Shareholders......... 196
Election to Retain Net Long-Term Capital
Gain........................................ 197
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Taxation Consequences Upon Conversion of
Convertible Preferred Shares into Common
Shares...................................... 198
Deemed Dividends on Convertible Preferred
Shares...................................... 198
Redemption of Convertible Preferred Shares.... 198
Taxation of Tax-Exempt Shareholders........... 199
Taxation of Non-U.S. Shareholders............. 199
Information Reporting Requirements and Backup
Withholding Tax............................. 202
Other Tax Considerations...................... 202

ERISA CONSIDERATIONS............................ 204
Employee Benefit Plans, Tax-qualified
Retirement Plans and IRAs................... 204
Status of the Company under ERISA............. 204

SELLING SHAREHOLDERS............................ 206

PLAN OF DISTRIBUTION............................ 208

LEGAL MATTERS................................... 209

EXPERTS......................................... 209

ADDITIONAL INFORMATION.......................... 210

GLOSSARY........................................ G-1

INDEX TO FINANCIAL STATEMENTS................... F-1
</TABLE>

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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 THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS INCLUDE PRIME GROUP
REALTY TRUST, ITS SUBSIDIARIES (INCLUDING PRIME GROUP REALTY, L.P. (THE
"OPERATING PARTNERSHIP")), AND 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 completed its initial public offering on November 17, 1997
(the "IPO"). The Company was formed to continue and expand the office and
industrial real estate business of The Prime Group, Inc. and certain of its
affiliates (collectively, "PGI"). The Company expects to qualify as a real
estate investment trust ("REIT") for federal income tax purposes beginning with
its taxable period ended December 31, 1997. Including the Pending Property
Acquisition (as defined below), the Company will own 24 office properties (the
"Office Properties") containing an aggregate of approximately 5.8 million net
rentable square feet, 47 industrial properties (the "Industrial Properties")
containing an aggregate of approximately 6.0 million net rentable square feet,
one parking facility and one retail center (collectively, the "Properties"). The
Properties are located primarily in the Chicago, Illinois metropolitan area (the
"Chicago Metropolitan Area"). As of March 31, 1998, on a pro forma basis, the
Office Properties and the Industrial Properties generated 78.1% and 21.9%,
respectively, of the Company's Annualized Net Rent (as defined herein). In
addition, the Company owns a mortgage on an office property located in the
Chicago central business district ("Chicago CBD") containing 728,406 net
rentable square feet. Including two land parcels which are subject to purchase
contracts with third parties (the "Pending Parcel Acquisitions"), the Company
will also own approximately 246.5 acres (including a development site containing
approximately 67,000 square feet located in the Chicago CBD held by a joint
venture with a third party) and has rights to acquire approximately 302.8 acres
of developable land (including rights to acquire two development sites located
in the Chicago CBD containing approximately 119,000 square feet), which
management believes could be developed with approximately 5.6 million square
feet of additional office space and over 7.6 million square feet of additional
industrial space.

In terms of net rentable area, approximately 90.1% of the Office Properties
and 87.8% 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
92.6% of the annualized net rent of the Properties ("Annualized Net Rent"). The
remaining Office Properties are located in the Nashville, Tennessee; Knoxville,
Tennessee; and Milwaukee, Wisconsin metropolitan areas, and the remaining
Industrial Properties are located in the Columbus, Ohio metropolitan area. The
Company intends to continue to invest in the acquisition, development and
redevelopment of office and industrial properties primarily located in the
Chicago Metropolitan Area. The Company believes that it is the only
publicly-traded REIT primarily focusing on both the office and industrial
markets in the Chicago Metropolitan Area.

The Company believes that the Properties are well-located, have excellent
highway access, attract high-quality tenants and are well-maintained and
professionally managed. Approximately 59.1% 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 balance of the Office Properties consist of Class B office
buildings where the Company believes significant potential exists to improve the
operating income of such assets by redeveloping or repositioning them to a
higher level of operating standard. The Company considers Class B office
buildings to be properties which are generally more than 20 years old, in good

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physical condition, occupied by quality tenants and situated in desirable
locations, but which may lack the latest functional and technological advances
and amenities. The Industrial Properties, in terms of Annualized Net Rent,
consist of 62.7% warehouse/distribution properties and 37.3% overhead
crane/manufacturing properties. As of March 31, 1998, the Office Properties were
89.0% leased to more than 610 tenants and the Industrial Properties were 87.4%
leased to more than 60 tenants.

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 March 31, 1998, approximately 64.7% of the leases
for the Properties, in terms of Annualized Net Rent, had contractual rent
increases, of which approximately 53.5% of the Annualized Net Rent was
attributable to leases with specified contractual rent increases and
approximately 11.2% of the Annualized Net Rent was attributable to leases with
contractual rent increases tied to the annual change in the Consumer Price Index
(the "CPI"), subject to certain limitations. Over the next three years, the
Company expects to receive contractual rent increases which will average
approximately $2.1 million per year (exclusive of contractual rent increases
related to the CPI or rent increases attributable to the transition from free or
partial rent to full rent). 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").
As of March 31, 1998, 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 5.8 and 4.5 years, respectively, and accounted for
34.0% and 10.8%, respectively, of Annualized Net Rent.

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 approximately 17 years. In 1994, PGI
contributed its retail development business and its multi-family housing
business to separate publicly-traded real estate investment trusts--Prime
Retail, Inc. (NYSE: PRT) and Ambassador Apartments, Inc. (which on May 8, 1998,
merged with and into Apartment Investment and Managing Company). In May 1997,
PGI 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. PGI has contributed separate operating divisions in
connection with the formation of the above-described companies and contributed
its office and industrial division to the Company in the IPO in order to
capitalize on the growth in the markets in which the Properties are located.

The Company engages in property management, leasing, acquisition,
development, redevelopment, construction, marketing, finance and other related
activities. The senior management of the Company includes certain former
executives of PGI who were responsible for the strategic direction, management
and day-to-day operations of PGI's office and industrial real estate business
prior to the IPO. The Company's management has substantial experience in the
full range of real estate activities undertaken by the Company. The top ten
senior executives of the Company have an average of more than 20 years
experience in the real estate industry in the Chicago Metropolitan Area.

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and develop properties that underutilize their sites or where there is excess
land for future development, (d) acquire properties or portfolios of properties
from tax-sensitive owners where the properties can be acquired on a tax-deferred
basis using Common Units of the Operating Partnership as purchase consideration
and (e) 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 1997, the Chicago Metropolitan
Area's industrial market's overall vacancy rate was 7.9%, below the national
average vacancy rate of 8.4%. In addition, 30.9% (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 at below replacement cost, renovation (where
necessary) and repositioning of additional office and industrial properties; 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. On a pro forma basis, the Company's ratio
of debt to total market capitalization (defined as the total debt of the
Company, as of June 30, 1998, as a percentage of the sum of the market value of
issued and outstanding Equity Shares and the Common Units exchangeable for
Common Shares (using the June 30, 1998 market prices of $23.88 per Series B
Cumulative Redeemable Preferred Share, $20.00 per Series A Cumulative
Convertible Preferred Share and $17.125 per Common Share) plus total debt) will
be approximately 45.3%. See "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) 917-1300.

5
<PAGE>
RECENT DEVELOPMENTS

Since completion of the IPO, the Company has implemented its growth strategy
through the following activities:

ACQUISITIONS. The Company has acquired 10 office properties containing an
aggregate of approximately 3.5 million net rentable square feet for
approximately $351.9 million. Such acquisitions have increased the Company's
aggregate net rentable square feet of office space since the date of the IPO by
approximately 150.4%. The following table sets forth certain data regarding such
Office Properties:

<TABLE>
<CAPTION>
NET ACQUISITION
RENTABLE COST (IN
PROPERTY CITY SQUARE FEET MILLIONS) MONTH ACQUIRED
- ------------------------------------- ----------------------------- ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Continental Towers, Rolling Meadows, Illinois 916,000 $ 108.9 December 1997
1701 Golf Road(1)
2675 North Mayfair Road(1) Wauwatosa, Wisconsin 102,660 8.0 December 1997
33 North Dearborn(2) Chicago, Illinois 302,818 34.4 January 1998
Commerce Point Business Park, Arlington Heights, Illinois 235,269 29.2 February 1998
3800 North Wilke Road(2)
208 South LaSalle Street(2) Chicago, Illinois 827,494 61.2 March 1998
122 South Michigan Avenue(2) Chicago, Illinois 512,660 29.6 April 1998
2100 Swift Drive(2) Oak Brook, Illinois 58,000 7.4 April 1998
6400 Shafer Court(2) Rosemont, Illinois 167,495 21.3 May 1998
Two Century Centre, Schaumburg, Illinois 217,960 35.7 June 1998
1700 East Golf Road(2)
Oak Brook Business Center, Oak Brook, Illinois 199,245 16.2 June 1998
2000 York Road(2)
----------- ------
3,539,601 $ 351.9
----------- ------
----------- ------
</TABLE>

- ---------

(1) Collectively referred to as the "December Acquisitions."

(2) Collectively referred to as the "1998 Acquisitions."

During the period of June to September 1998, the Company acquired the
following parcels of land under four purchase contracts:

<TABLE>
<CAPTION>
ACQUISITION
COST
PROPERTY LOCATION ACRES (IN MILLIONS)
- ------------------------------ --------------------------- --------- -------------
<S> <C> <C> <C>
Aurora Land--I Aurora, Illinois 37.3 $ 3.1
Aurora Land--II Aurora, Illinois 17.4 1.4
DeKalb Land--I(1) DeKalb, Illinois 104.5 1.6
Libertyville Industrial Land Libertyville, Illinois 12.8 2.0
Libertyville Office Land Libertyville, Illinois 21.6 3.3
--------- -----
193.6 $ 11.4
--------- -----
--------- -----
</TABLE>

- ---------

(1) Simultaneously with the purchase of this property, the Company sold
approximately 54.12 of those acres for a sales price of approximately $1.5
million.

The Aurora Land contracts require purchase of an additional 132.7 acres over
a three to five year period for additional consideration of approximately $10.4
million. Certain minimum installment payments are required; however, the timing
of purchases is at the Company's discretion.

6
<PAGE>
In addition, the Company acquired a mortgage note in December 1997 for
approximately $56.3 million. Such mortgage note is secured by an office property
located at 180 North LaSalle Street in Chicago, Illinois which contains
approximately 728,406 net rentable square feet.

On March 30, 1998, the Company entered into a joint venture (the "Venture")
that acquired an approximately 67,000 square foot vacant parcel of land located
in the Chicago CBD. The parcel was acquired for the potential development of a
Class A multi-purpose facility, with up to approximately 1.2 million square feet
of office space, approximately 115,000 square feet of retail space and a parking
garage with a capacity for approximately 250 cars. The Company has economic
control of the Venture and, therefore, the Company has consolidated the
operations of the Venture from the date of inception. The Venture obtained a
bank loan in the amount of $13.5 million to acquire the land. Interest is
payable monthly at a rate of LIBOR plus 200 basis points or at the lender's
prime rate. The note matures in May 1999, not including a six-month extension
option.

PENDING ACQUISITIONS. The Company is party to a contract to acquire an
industrial property at 300 Craig Place (the "Pending Property Acquisition")
located in Hillside, Illinois containing 163,000 net rentable square feet and
the Pending Parcel Acquisitions (together with the Pending Property Acquisition,
the "Pending Acquisitions") for aggregate consideration of approximately $86.2
million. The Company has made escrow and other deposits of $10.0 million related
to these contracts. The Company expects to complete the Pending Property
Acquisition by the end of 1998, however, the purchase of the Pending Property
Acquisition is subject to the satisfaction of customary closing conditions and
there can be no assurance that the Pending Property Acquisition will be
completed. In addition, the Company continues its active negotiations, which are
presently in various stages, with third parties regarding potential acquisitions
of office and industrial properties that are consistent with the Company's
acquisition strategy. There can be no assurance that any of such negotiations
will result in the execution of definitive purchase documentation or the
successful acquisition of any such properties.

LEASING. In calendar year 1998 to date, the Company entered into or renewed
several leases for approximately 86,870 net rentable square feet of office space
with various tenants at the 77 West Wacker Drive Building. The majority of such
net rentable square footage was previously leased by Keck, Mahin & Cate
("Keck"), a law firm that vacated its leased space in the 77 West Wacker Drive
Building in November 1997. In addition, in April 1998, the Company entered into
a lease with Kreher Steel Company, L.L.C. for approximately 63,000 rentable
square feet of industrial space at the Hammond Enterprise Center.

DEBT FINANCING. Concurrently with the closing of the IPO, the Company
obtained a $225.0 million secured revolving credit facility from BankBoston,
N.A. and Prudential Securities Credit Corporation ("PSCC"), an affiliate of
Prudential Securities Incorporated (the "Credit Facility"). In December 1997,
the Credit Facility was amended to increase the commitment thereunder to $235.0
million to facilitate the Company's acquisition of mortgage notes encumbering
the office property known as Continental Towers and the office property located
at 180 North LaSalle Street. In March 1998, the Credit Facility was amended to
provide that the commitments under the Credit Facility be reduced to $200.0
million. On May 15, 1998, the commitments under the Credit Facility were reduced
to $190.0 million. On June 5, 1998, the outstanding borrowings under the Credit
Facility were reduced by $32.5 million using a portion of the proceeds from the
Redeemable Preferred Share Offering, as defined below. In January 1998, the
Company obtained a $15.0 million line of credit from LaSalle National Bank (the
"Line of Credit") and borrowed $12.0 million under such line to fund the
acquisition of the office building known as 33 North Dearborn. On June 5, 1998,
the outstanding $15.0 million principal balance of the Line of Credit was repaid
using a portion of the proceeds of the Redeemable Preferred Share Offering.

On May 15, 1998, the Company obtained a 7.22% note payable with a principal
balance of $75.0 million, collateralized by a mortgage on the suburban office
building known as Continental Towers. The note matures in 2013, with a
prepayment option in 2005, and has monthly payments of principal and

7
<PAGE>
interest, using a 25-year principal amortization payment schedule. The Company
used $70.0 million of the proceeds to repay a portion of the Credit Facility,
defined below.

In January 1998, the Company obtained a $15.0 million revolving line of
credit with LaSalle National Bank (the "Line of Credit"). The Line of Credit,
which matures in January 1999 and is subject to a one-year extension at the
Company's option, is collateralized by an industrial property known as 475
Superior Avenue. Outstanding balances under the Line of Credit bear interest at
a rate equal to LIBOR plus 195 basis points or 0.50% plus the greater of the
lender's U.S. prime rate or the federal funds rate. Generally, the covenants
contained in the Line of Credit are identical to the covenants contained in the
Credit Facility.

Concurrently with the closing of the IPO, the Company borrowed $83.5 million
in financing on a short-term basis evidenced by two separate notes (the "New
Mortgage Notes") which were collateralized by first mortgages on certain office
and industrial properties. On March 23, 1998, the Company refinanced one of the
New Mortgage Notes (which had an original principal balance of $27.5 million)
with a loan of $29.4 million which will mature on April 1, 2008. Interest on
this loan is fixed for 10 years at a rate of 6.85% and is payable monthly. The
remaining New Mortgage Note (which had an original principal balance of $56.0
million) was refinanced on May 1, 1998 with two loans, the first of which is a
$47.0 million loan which has principal and interest payable monthly, using a
30-year amortization period, with interest fixed at 7.17% and will mature on May
1, 2008. The second loan is a $14.6 million loan which has interest only payable
at 150 basis points over LIBOR or .50% plus the greater of (a) the lender's U.S.
prime rate or (b) the Federal Funds Rate plus 1.0% and will mature on May 1,
2000, not including a six-month extension option. The refinanced notes are
collateralized by first mortgages on certain office and industrial properties.
As a result of the above refinancing, the Company recognized an extraordinary
loss in its financial statements for the quarter ended June 30, 1998 of
$525,000, net of minority interest of $375,000, representing the write-off of
previously unamortized deferred financing fees.

In addition, the Company has obtained an aggregate of $94.1 million of new,
long-term fixed rate mortgage indebtedness and $18.0 million of variable rate
mortgage indebtedness in connection with acquisitions completed since the IPO.

LETTERS OF CREDIT. In May 1998, the Company refinanced $48.8 million of
letters of credit that provided credit enhancements on certain of the Company's
bonds payable from the Credit Facility to a separate financing facility provided
by a financial institution (the "New LOC's"). The New LOC's have a quarterly fee
of 1.4% of the face amount and are collateralized by mortgages on certain
industrial and office properties and a $5.0 million cash collateral account.

PRIVATE PLACEMENT OF COMMON SHARES. On March 25, 1998, the Company
completed a private placement of 2,579,994 Common Shares to institutional
investors (the "Private Placement"). The Company received net proceeds of
approximately $47.4 million from the Private Placement, which were used to fund
the acquisition of the office properties located at 208 South LaSalle Street and
122 South Michigan Avenue.

REDEEMABLE PREFERRED SHARE OFFERING. On June 5, 1998, the Company completed
an underwritten public offering (the "Redeemable Preferred Share Offering") of
4,000,000 of its 9% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, $0.01 par value per share ("Redeemable Preferred Shares").
On and after June 5, 2003, the Redeemable Preferred Shares may be redeemed at
the option of the Company at a redemption price of $25.00 per share plus accrued
and unpaid distributions. The redemption price is payable solely out of the sale
of proceeds of other capital shares of beneficial interest of the Company. The
net proceeds from the Redeemable Preferred Share Offering, after the deduction
of underwriting discounts, commissions and offering costs were approximately
$92.7 million. Approximately $34.6 million of such net proceeds were used to
acquire Two Century Centre, $15.0 million of the net proceeds were used to repay
the outstanding principal balance of the Line of Credit and approximately

8
<PAGE>
$32.5 million of the net proceeds were used to reduce the outstanding borrowings
under the Credit Facility to approximately $73.0 million.

COMMON SHARE REPURCHASE PROGRAM. On September 14, 1998, the Company
established a program to repurchase up to 1.55 million of its Common Shares in
open market and privately negotiated transactions. As of September 25, 1998, the
Company had repurchased 259,400 Common Shares for an aggregate purchase price of
approximately $4.0 million.

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. These risks include:

- 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 total revenue, which render 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; Milwaukee, Wisconsin; and Columbus, Ohio metropolitan areas
also will affect the Company due to the location of certain of its
Properties in such areas.

- Certain conflicts of interest exist between the Company and (a) the
Limited Partners (including PGI) and the NAC General Partner and (b)
certain of its officers and trustees (including Michael W. Reschke,
Richard S. Curto, Edward S. Hadesman and Stephen J. Nardi, who are
affiliates of certain of the Limited Partners and, in the case of Mr.
Nardi, the NAC General Partner). In addition, such Limited Partners and
the NAC General Partner or their affiliates have significant influence
over the affairs of the Company, which, together with the foregoing
conflicts of interest, 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) operation of the Company's
ongoing businesses, including conflicts associated with the tax
consequences to Limited Partners and the NAC General Partner 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, (ii) 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 and the NAC
General Partner or their affiliates and (iii) enforcement of agreements
with affiliates of the Company.

- Real estate debt financing risks, including the potential inability to
refinance existing 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
the Credit Facility and the Company's floating rate tax-exempt bond debt
($74.5 million outstanding at June 30, 1998).

- The potential anti-takeover effects of provisions in the Company's
Declaration of Trust (the "Declaration of Trust") and Amended and Restated
Bylaws (the "Bylaws"), including, among other things, provisions generally
limiting the actual or constructive ownership of shares of beneficial
interest in the Company, including the Redeemable Preferred Shares, the
Convertible Preferred Shares and the Common Shares (collectively, the
"Equity Shares") by any one person or entity to 9.9% of the number or
value of outstanding Equity 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

9
<PAGE>
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 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
distributions to shareholders.

- 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.

- Real estate ownership risks, 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 Company's dependence on certain significant tenants.

- Development, leasing and management business risks, 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.

10
<PAGE>
BUSINESS OBJECTIVE AND GROWTH STRATEGIES

BUSINESS OBJECTIVE

The Company intends to continue to engage in the acquisition, development
and redevelopment of office and industrial properties located in the midwestern
region of the United States, with a primary focus being 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 or redeveloping office and industrial properties for the
benefit of the Company where such activity 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; and (c) the quality and location of the
Properties.

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. On a
pro forma basis, the Company's ratio of debt to total market capitalization will
be approximately 45.3%. See "Business Objective and Growth Strategies--Business
Objective" and "--Financing Strategy."

OPERATING STRATEGY

The Company focuses on increasing 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

11
<PAGE>
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 $627,150 per year over the next ten years. As of
March 31, 1998, approximately 64.7% of the leases for the Properties, in terms
of Annualized Net Rent, had contractual rent increases, of which approximately
53.5% of the Annualized Net Rent was attributable to leases with specified
contractual rent increases and approximately 11.2% of the Annualized Net Rent
was attributable to leases with contractual rent increases related to the CPI.
Over the next three years, the Company expects to receive contractual rent
increases which will average approximately $2.1 million per year (exclusive of
contractual rent increases related to the CPI or rent increases attributable to
the transition from free or partial rent to full rent). The Company believes
that reporting rental revenues on a cash basis (i.e., based on contractual lease
terms) will result in a more accurate presentation of its actual operating
activities than if rental revenues were reported on a straight-line basis and,
accordingly, expects to continue to report Funds from Operations with rental
revenues recorded based on cash rents. As a result, contractual rent increases
will cause reported Funds from Operations to increase.

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 95.0% of its net rentable office area.
In 1995, the Company restructured its lease with Keck, a significant tenant at
the 77 West Wacker Drive Building, to decrease the space subject to the lease
and to reduce the rent on Keck's remaining space. In June 1997, Keck stopped
paying rent and, in connection with a settlement of the resulting litigation,
vacated its remaining space in November 1997. See "Business and
Properties--Legal Proceedings." In calendar year 1998 to date, 86,870 net
rentable square feet of the 113,000 net rentable square feet at the 77 West
Wacker Drive Building formerly leased to Keck have been re-leased to other
tenants. The Company believes it will be able to increase cash flow per share by
continuing to lease the existing vacant space in the Properties. As of March 31,
1998, the Company had 639,105 net rentable square feet of vacant space in the
Office Properties. As of March 31, 1998, the Company also had 754,187 net
rentable square feet of vacant space in the Industrial Properties.

LONG-TERM LEASES; TENANT RETENTION

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 47.7% of the
Company's Annualized Net Rent is attributable to leases expiring in 2003 or
beyond. With regard to the Office Properties, as of March 31, 1998, 49.3% 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
10.1% per annum. With regard to the Industrial Properties, as of March 31, 1998,
41.9% 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 11.6% per annum. From January 1, 1995 through March 31, 1998,
the Prime Properties have achieved a tenant retention rate, based on renewals of
leases with scheduled expirations, of approximately 61.6% in terms of net
rentable square feet. The Company

12
<PAGE>
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 seeks 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 concentrates 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 is 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. See "Business Objective and Growth
Strategies--Acquisition Strategy."

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 experience of its management in the
development of office and industrial properties 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.

Based on ongoing marketing activities and discussions with prospective
tenants, 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. Including the
Pending Parcel Acquisitions, the Company will own approximately 246.5 acres
(including a development site containing approximately 67,000 square feet
located in the Chicago CBD held by a joint venture with a third party) and has
rights to acquire approximately 302.8 acres of developable land, which
management believes could be developed with approximately 5.6 million square
feet of additional office space and over 7.6 million square feet of additional
industrial space. 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

13
<PAGE>
commitments for such a project and acquire certain adjacent land, the Company
believes it could develop as a mixed-use project containing up to approximately
3.0 million 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 strategy and objectives are determined by the Board
of Trustees. Such objectives may be altered without the consent of the Company's
shareholders, and, subject to certain limitations in the Company's Declaration
of Trust with regard to the Convertible Preferred Shares, the Company's
organizational documents do not limit the amount or type of indebtedness that
the Company may incur. On a pro forma basis, after giving effect to the Pending
Acquisitions, the Company's ratio of debt to total market capitalization will be
approximately 45.3%. Although the Company's policy has been to operate with a
ratio of debt to total market capitalization at a level below 50.0%, the
Company's Board of Trustees is currently evaluating a number of alternative
measurements of debt capacity in order to determine which measurement is the
appropriate measure of the Company's debt capacity.

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 including the
Company's Credit Facility. There can be no assurance that the Company will be
able to obtain capital for any such acquisitions or developments on terms
favorable to the Company. See "Business and Properties--Development, Leasing and
Management Activities" and "Business Objective and Growth Strategies--Financing
Strategy."

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 over
7.7 million. The Company has relied, with permission, on information concerning
the economies of the Chicago Metropolitan Area, Nashville, Tennessee; Knoxville,
Tennessee; Milwaukee, Wisconsin; 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.

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 three

14
<PAGE>
out of the seven major employment sectors (wholesale and retail trade;
transportation, communications and utilities; and construction);

- 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 (with the exception of one owner-occupied build-to-suit
property), and only a slight increase in the inventory of Suburban Chicago
office space.

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 8.1% at December 31, 1997. The Chicago Metropolitan Area also has
experienced a very active market in industrial space in the 1990s. The Chicago
Metropolitan Area's industrial market overall vacancy rate was 7.9% as of the
end of 1997, which was below the national average vacancy rate of 8.4%. In
addition, 30.9% (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 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."

15
<PAGE>
STRUCTURE OF THE COMPANY AND THE OPERATING PARTNERSHIP

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 entities (the "Property Partnerships") that are owned, directly
or indirectly, 100.0% by the Operating Partnership.

The structure of the Company and the ownership of the equity in the Company
as of September 25, 1998, is shown in the following chart:

------------------------------ ------------------------------
Public Security Capital
Shareholders Preferred Growth

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

Common Redeemable Convertible
Shares Preferred Shares Preferred Shares
(99.9%)(1) (100.0%) (100.0%)

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

PRIME GROUP REALTY TRUST
(THE "COMPANY")(2)

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

------ --------- ------ ---------
General
Partner NAC Primestone Other
Interests General Joint Limited
(59.8%) Partner Venture PGI Partners
------ --------- ------ ---------
General Limited Limited Limited
Partner Partner Partner Partner
Interests Interests Interests Interests
(3.6%) (31.0%) (0.2%) (5.4%)

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

PRIME GROUP REALTY, L.P.
(THE "OPERATING PARTNERSHIP")(3)

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

Messrs.
Reschke
100.0% of and Curto
Non-voting 100.0% of
Participating Voting Common
Preferred Stock Stock
(Economic Interest of (Economic Interest of
95.0%) 5.0%)

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

PRIME GROUP REALTY
SERVICES, INC.
(THE "SERVICES COMPANY")

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

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

(1) On March 31, 1998, the Company issued (i) 10,000 Common Shares to William M.
Karnes pursuant to the terms of Mr. Karnes' employment agreement with the
Company and (ii) 2,500 Common Shares to Stephen J. Nardi pursuant to the
terms of Mr. Nardi's consulting agreement with the Company. Such 12,500
Common Shares are restricted securities and represent less than one-tenth of
one percent of the outstanding Common Shares.

(2) The Company also owns 2,000,000 Preferred Units in the Operating
Partnership, the terms and conditions of which correspond to the Convertible
Preferred Shares, and 4,000,000 Series B Preferred Units in the Operating
Partnership, the terms and conditions of which correspond to the Redeemable
Preferred Shares. The Company is the managing general partner of the
Operating Partnership.

16
<PAGE>
(3) The Operating Partnership also owns a promissory note issued by the Services
Company (the "Note") with a principal balance of approximately $4.8 million.
As a result of the Operating Partnership's ownership of non-voting
participating preferred stock of the Services Company and the Note, 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."

THE OFFERING

<TABLE>
<S> <C>
CONVERTIBLE PREFERRED SHARES
Convertible Preferred Shares
Offered Hereby........................ 2,000,000 Convertible Preferred Shares which are held by SCPG
as of the date of this Prospectus. The Convertible Preferred
Shares may be offered and sold from time to time by the
applicable Selling Shareholders in negotiated transactions or
otherwise, at prices then prevailing or related to the
then-current market price or at negotiated prices.
Convertible Preferred
Shares Outstanding.................... As of September 25, 1998, 2,000,000 Convertible Preferred
Shares were outstanding.
Use of Proceeds....................... The Company will not receive any proceeds from sales of the
Convertible Preferred Shares by the applicable Selling
Shareholders.
Listing............................... The Convertible Preferred Shares are not listed or qualified
for trading on any exchange or on the Nasdaq National Market.
COMMON SHARES
Common Shares Offered Hereby.......... 11,711,075 Common Shares which are being registered for the
account of the Selling Shareholders named herein, who may
receive such Common Shares either upon the conversion of the
Convertible Preferred Shares or upon the exchange of LP Common
Units held by certain of the Selling Shareholders. The Offered
Common Shares may be offered and sold from time to time by the
Selling Shareholders in transactions on the NYSE, in the
over-the-counter market, or on any other national securities
exchange on which the Common Shares are listed or traded, in
negotiated transactions or otherwise, at prices then
prevailing or related to the then-current market price or at
negotiated prices.
Common Shares Outstanding............. As of September 25, 1998, 15,313,094 Common Shares were
outstanding (excluding the 11,711,075 Offered Common Shares,
none of which Offered Common Shares has been issued as of the
date of this Prospectus).
Use of Proceeds....................... The Company will not receive any proceeds from sales of the
Offered Common Shares by the Selling Shareholders.
NYSE Symbol........................... PGE.
</TABLE>

TAX STATUS OF THE COMPANY

The Company expects 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 period ended December 31, 1997. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95.0% 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.

17
<PAGE>
SUMMARY FINANCIAL DATA

The following table presents certain financial and operating data on a
consolidated historical and pro forma basis for the Company, and on a combined
historical basis for the Predecessor Properties which were contributed to the
Company in connection with the IPO. The financial and operating data should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Prospectus. The consolidated historical and combined
historical data as of June 30, 1998 and for the six months ended June 30, 1998
and 1997 have been derived from the unaudited consolidated and combined
financial statements of the Company and Predecessor Properties included
elsewhere in this Prospectus. The consolidated historical and combined
historical financial data as of December 31, 1997 and 1996 and for the period
from November 17, 1997 through December 31, 1997, for the period from January 1,
1997 through November 16, 1997 and for the years ended December 31, 1996 and
1995 have been derived from the audited consolidated and combined financial
statements of the Company and the Predecessor Properties included elsewhere in
this Prospectus. The combined historical financial data as of December 31, 1995,
1994 and 1993 and for the years ended December 31, 1994 and 1993 have been
derived from the combined financial statements of the Predecessor Properties not
included in this Prospectus. The pro forma data assume all acquisitions
(consisting of the IPO Acquisitions, December Acquisitions, 1998 Acquisitions
and Pending Acquisitions), the IPO, the Formation Transactions, the Private
Placement and the Redeemable Preferred Share Offering, and use of the aggregate
net proceeds therefrom had occurred as of the beginning of the period 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.

18
<PAGE>
SUMMARY FINANCIAL DATA
THE COMPANY (CONSOLIDATED HISTORICAL AND PRO FORMA) AND PREDECESSOR PROPERTIES
(COMBINED HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY--CONSOLIDATED PROPERTIES--COMBINED
------------------------------------------------------ HISTORICAL
HISTORICAL-- -------------------------
PERIOD FROM PERIOD FROM
PRO FORMA-- HISTORICAL-- PRO FORMA-- NOVEMBER 17, JANUARY 1,
SIX MONTHS SIX MONTHS YEAR ENDED 1997 THROUGH SIX MONTHS 1997 THROUGH
ENDED JUNE ENDED JUNE DECEMBER 31, DECEMBER 31, ENDED JUNE NOVEMBER 16,
30, 1998 30, 1998 1997 1997 30, 1997 1997
------------ ----------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental.................................... $ 48,776 $ 41,476 $ 95,560 $ 7,293 $ 16,131 $ 27,947
Tenant reimbursements..................... 21,208 18,401 37,454 2,041 7,769 12,490
Mortgage note interest.................... 3,014 3,014 6,027 248 -- --
Insurance settlement...................... -- -- -- -- -- --
Other..................................... 2,924 2,783 1,909 248 689 1,515
------------ ----------- ------------ ------ ----------- ------------
Total revenue........................... 75,922 65,674 140,950 9,830 24,589 41,952
------------ ----------- ------------ ------ ----------- ------------
EXPENSES:
Property operations....................... 15,528 11,941 33,493 2,213 4,318 8,622
Real estate taxes......................... 14,083 12,232 25,066 1,765 5,590 8,575
Depreciation and amortization............. 12,888 11,575 24,669 2,478 6,492 11,241
Interest.................................. 16,300 14,476 28,212 1,680 13,587 24,613
Interest--affiliate....................... -- -- -- -- 5,649 9,804
Property management fee--affiliate........ -- -- -- -- 640 1,348
Financing fees............................ -- -- -- -- 801 1,180
General and administrative................ 3,044 3,044 4,524 267 1,886 2,414
Provision for environmental remediation
costs................................... -- -- 3,205 -- 3,205 3,205
Write-off of deferred tenant
costs................................... -- -- -- -- -- --
------------ ----------- ------------ ------ ----------- ------------
Total expenses.......................... 61,843 53,268 119,169 8,403 42,168 71,002
------------ ----------- ------------ ------ ----------- ------------
Income (loss) before minority interest and
extraordinary item...................... 14,079 12,406 21,781 1,427 (17,579) (29,050)
Minority interest......................... (5,599) (5,167) (8,662) (635) 368 666
------------ ----------- ------------ ------ ----------- ------------
Net income (loss) before extraordinary
item.................................... 8,480 7,239 13,119 792 (17,211) (28,384)
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share in the amount of $(375)
in 1998 and $1,127 in 1997.............. -- (525) -- -- -- 65,990
------------ ----------- ------------ ------ ----------- ------------
Net income (loss)......................... 8,480 6,714 13,119 792 $ (17,211) $ 37,606
----------- ------------
----------- ------------
Net income allocated to preferred
shareholders............................ (5,900) (2,041) (11,800) (345)
------------ ----------- ------------ ------
Net income available to common
shareholders............................ $ 2,580 $ 4,673 $ 1,319 $ 447
------------ ----------- ------------ ------
------------ ----------- ------------ ------
Net income available per weighted average
Common Share--basic and diluted(1)(2)... $ 0.17 $ 0.32 $ 0.08 $ 0.04
------------ ----------- ------------ ------
------------ ----------- ------------ ------
OTHER OPERATING DATA:
Ratio of earnings before minority interest
and extraordinary item to combined fixed
charges and preferred share
dividends(3)............................ 1.33 1.56 1.23 1.50 -- --
Excess (deficit) of combined fixed charges
and preferred share dividends over
earnings before minority interest and
extraordinary item...................... $ 7,715 $ 9,901 $ 9,517 $ 1,082 $ (17,579) $ (29,050)
Ratio of funds from operations to combined
fixed charges and preferred share
dividends(4)............................ 1.85 2.18 1.92 2.85 -- --
Excess (deficit) of combined fixed charges
and preferred share dividends over funds
from operations......................... $ 19,921 $ 20,794 $ 37,832 $ 3,964 $ (8,180) $ (14,461)

YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental.................................... $ 30,538 $ 33,251 $ 30,352 $ 28,177
Tenant reimbursements..................... 14,225 14,382 12,451 10,750
Mortgage note interest.................... -- -- -- --
Insurance settlement...................... -- 7,257 -- --
Other..................................... 3,397 2,715 3,170 1,527
--------- --------- --------- ---------
Total revenue........................... 48,160 57,605 45,973 40,454
--------- --------- --------- ---------
EXPENSES:
Property operations....................... 9,767 9,479 8,852 8,452
Real estate taxes......................... 9,383 9,445 9,057 7,167
Depreciation and amortization............. 12,409 12,646 11,624 11,739
Interest.................................. 27,080 27,671 25,985 22,827
Interest--affiliate....................... 10,137 8,563 7,402 6,335
Property management fee--affiliate........ 1,561 1,496 1,388 1,106
Financing fees............................ 1,232 -- -- --
General and administrative................ 4,927 4,508 3,727 3,657
Provision for environmental remediation
costs................................... -- -- -- --
Write-off of deferred tenant
costs................................... 3,081 13,373 -- --
--------- --------- --------- ---------
Total expenses.......................... 79,577 87,181 68,035 61,283
--------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary item...................... (31,417) (29,576) (22,062) (20,829)
Minority interest......................... 894 3,281 5,393 10,531
--------- --------- --------- ---------
Net income (loss) before extraordinary
item.................................... (30,523) (26,295) (16,669) (10,298)
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share in the amount of $(375)
in 1998 and $1,127 in 1997.............. -- -- -- --
--------- --------- --------- ---------
Net income (loss)......................... $ (30,523) $ (26,295) $ (16,669) $ (10,298)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income allocated to preferred
shareholders............................

Net income available to common
shareholders............................

Net income available per weighted average
Common Share--basic and diluted(1)(2)...

OTHER OPERATING DATA:
Ratio of earnings before minority interest
and extraordinary item to combined fixed
charges and preferred share
dividends(3)............................ -- -- -- --
Excess (deficit) of combined fixed charges
and preferred share dividends over
earnings before minority interest and
extraordinary item...................... $ (31,417) $ (29,576) $ (22,062) $ (20,829)
Ratio of funds from operations to combined
fixed charges and preferred share
dividends(4)............................ -- -- -- --
Excess (deficit) of combined fixed charges
and preferred share dividends over funds
from operations......................... $ (17,367) $ (12,733) $ (12,930) $ (9,345)
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED PREDECESSOR PROPERTIES--COMBINED
------------------------------------ ---------------------------------------
HISTORICAL
PRO FORMA ------------------------ HISTORICAL DECEMBER 31,
JUNE 30, JUNE 30, DECEMBER 31, ---------------------------------------
1998 1998 1997 1996 1995 1994 1993
---------- ---------- ------------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets, before accumulated
depreciation............................. $ 862,170 $ 846,398 $589,279 $ 291,757 $289,558 $285,687 $281,316
Total assets............................... 1,048,500 1,022,728 741,468 325,230 343,641 356,421 357,158
Mortgages notes and bonds payable.......... 478,723 452,951 328,044 421,983 405,562 388,309 361,832
Total liabilities.......................... 540,959 515,187 370,192 447,927 434,993 421,257 397,539
Minority interest.......................... 149,121 149,121 147,207 (6,905) (6,047) 886 (11,527)
Shareholders' equity (partners' deficit)... 358,420 358,420 224,069 (115,792) (85,305) (65,722) (28,854)
</TABLE>

<TABLE>
<CAPTION>
COMPANY--
CONSOLIDATED HISTORICAL
------------------------- PREDECESSOR PROPERTIES--COMBINED HISTORICAL
PERIOD FROM -------------------------------------------------------------
NOVEMBER PERIOD FROM
17, 1997 JANUARY 1,
SIX MONTHS THROUGH SIX MONTHS 1997 THROUGH YEAR ENDED DECEMBER 31,
ENDED JUNE DECEMBER ENDED JUNE NOVEMBER 16, ----------------------------------
30, 1998 31, 1997 30, 1997 1997 1996 1995 1994
---------- ----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(5).... $ 21,258 $ 3,964 $ (8,180) $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by (used
in):
Operating activities...... 19,788 6,658 (3,058) (5,700) (3,165) (1,259) (13,875)
Investing activities...... (267,336) (353,816) (133) (2,467) 1,126 (9,176) (6,495)
Financing activities...... 248,746 335,390 1,327 6,331 5,733 10,873 15,422
Office Properties:
Square footage............ 5,814,510(6) 3,372,621 1,414,897 1,414,897 1,414,897 1,414,897 1,414,897
Occupancy (%)............. 89.0(6) 92.6 92.5 92.7 92.5 95.8 93.7
Industrial Properties:
Square footage............ 5,839,179(6) 5,765,964 2,462,430 2,462,430 2,462,430 2,551,624 2,547,388
Occupancy (%)............. 87.1(6) 87.4 72.5 73.1 73.5 72.9 62.3
</TABLE>

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

(1) Pro forma net income per share equals pro forma net income divided by the
15.57 million Common Shares.

(2) Net income (loss) available per weighted average Common Share--basic and
diluted equals net income divided by 14.38 million and 14.40 million Common
Shares, respectively, for the six months ended June 30, 1998 and 12.59
million Common Shares (basic and diluted) for the period from November 17,
1997 through December 31, 1997. See Note 10 to the Company's consolidated
financial statements for further information.

(3) For purposes of these computations, earnings before minority interests
consist of income (loss) before minority interest, plus combined fixed
charges and Preferred Share dividends. Combined fixed charges and Preferred
Share dividends consist of interest costs, whether expensed or capitalized,
and amortization of debt issuance costs and Preferred Share dividends.

(4) For purposes of these computations, Funds from Operations consist of Funds
from Operations (as defined in note 5 below) plus combined fixed charges and
Preferred Share dividends (as defined in note 3 above).

(5) 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 pro forma 1997, and for the period from January 1, 1997
through November 16, 1997, provision for environmental remediation cost, for
pro forma 1997, and for the period from January 1, 1997 through November 16,
1997, and for the years ended December 31, 1996, 1995, 1994, 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 reports rental revenues on a cash basis (i.e., based on
contractual lease terms) rather than a straight-line GAAP basis, which the
Company believes results in a more accurate presentation of its actual
operating activities), which may differ from the methodology for calculating
Funds from Operations used by certain 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
repayment obligations, or other commitments and uncertainties. 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations."

(6) Square footage and occupancy percentages as of March 31, 1998.

20
<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 "believe," "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, 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.

GEOGRAPHIC CONCENTRATION OF THE PROPERTIES IN THE CHICAGO METROPOLITAN AREA,
NASHVILLE, KNOXVILLE, MILWAUKEE AND COLUMBUS; LOCAL ECONOMIC CONDITIONS. The
Company's revenues and the values 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,
19 of the Office Properties and 40 of the Industrial Properties, comprising an
aggregate of approximately 5.2 million and 5.3 million rentable square feet,
respectively (representing approximately 90.1% of the aggregate net rentable
square feet of the Company's office space and 87.8% of the aggregate net
rentable square feet of the Company's industrial space, and approximately 92.6%
of the Annualized Net Rent of all of the Properties), are located in the Chicago
Metropolitan Area. Moreover, the 77 West Wacker Drive Building, which represents
24.0% 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; Milwaukee, Wisconsin; 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

ABILITY OF LIMITED PARTNERS, OFFICERS AND TRUSTEES TO INFLUENCE OPERATING
PARTNERSHIP. PGI directly owns a 0.2% interest in the Operating Partnership,
and the Primestone Joint Venture (in which PGI owns a 60.0% interest) owns a
31.0% interest in the Operating Partnership. Because of PGI's ownership interest
in the Operating Partnership and (i) Mr. Reschke being a trustee of the Company
and also an owner of PGI and (ii) Mr. Curto having a right to receive a
substantial, but not a controlling interest in PGI, PGI may be in a position to
exercise significant influence over the affairs of the Company. In addition, Mr.
Patterson, an executive officer of the Company, owns a 0.4% interest in the
Operating Partnership. 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 PGI. Blackstone, as the 40.0% owner of the Primestone
Joint Venture, designated Mr. Saylak to be elected a trustee of the Company. In
addition, the Contributors own, in the aggregate, a 7.2% interest in the
Operating Partnership. Edward S. Hadesman, an affiliate of the IBD Contributors,
is an officer of the Company and Stephen J. Nardi, an affiliate of the NAC
General Partner, is a trustee and a consultant of the Company. As Limited
Partners, PGI, the Primestone Joint Venture, the IBD Contributors and Mr.
Patterson and, as a General Partner, the NAC General Partner, may suffer
different and more adverse tax consequences than the Company upon the sale or
refinancing of

21
<PAGE>
certain of the Properties. In addition, PGI 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 NAC General Partner may have different objectives than the
Company regarding the appropriate pricing and timing of any sale or refinancing
of such Properties. While the Company, as the managing general partner of the
Operating Partnership, has the ability 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, Patterson, Hadesman and Nardi, 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."

MR. RESCHKE CONTINUES TO ENGAGE IN ACTIVITIES OUTSIDE OF THE COMPANY,
INCLUDING REAL ESTATE ACTIVITIES. Under the terms of his employment agreement as
Chairman of the Board of the Company, Mr. Reschke is 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 continues to serve as Chairman of the Board of Prime Retail, Inc. (NYSE:
PRT), Chairman of the Board of Brookdale Living Communities, Inc. (Nasdaq:
BLCI), Chairman of the Board and CEO of The Prime Group, Inc., a director of
Horizon Group Properties, Inc. (Nasdaq: HGPI) and to serve on various other
boards and civic organizations. See "Management" and "Principal Shareholders of
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. PGI 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 Related Transactions--Non-Compete Agreement Among the Company,
PGI and Michael W. Reschke."

CERTAIN PARTNER APPROVAL RIGHTS LIMIT THE COMPANY'S ABILITY TO TAKE CERTAIN
ACTIONS WITH RESPECT TO THE OPERATING PARTNERSHIP. While the Company is the
managing general partner of the Operating Partnership, and generally has the
ability to exercise 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. For example, the Company cannot withdraw
as a general partner of the Operating Partnership or admit another general
partner to the Operating Partnership without the consent of the NAC General
Partner, in its capacity as general partner of the Operating Partnership. In
addition, 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 LP Common Units to dissolve the
Operating Partnership. Furthermore, the Partnership Agreement provides that,
except in connection with certain transactions, and in addition to the required
consent of the NAC General Partner, the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership, unless it obtains the consent of the holders of at least
50.0% of the Common Units (including Common Units held by the Company) and meets
certain other criteria with respect to the consideration to be received by the
Limited Partners. Further, in connection with certain extraordinary transactions
where the Limited Partners are treated differently than the holders of Common
Shares, the consent of the Limited Partners holding more than 50.0% of the LP
Common Units will be required. See "Partnership Agreement--Transferability of
Interests" and "--Extraordinary Transactions."

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REAL ESTATE FINANCING RISKS

REQUIRED REPAYMENT OF DEBT OR OF INTEREST THEREON COULD ADVERSELY AFFECT THE
COMPANY. The Company is generally 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.

COMPANY'S ABILITY TO INCREASE ITS DEBT COULD ADVERSELY AFFECT THE COMPANY'S
CASH FLOW. Subject to certain limitations in the Declaration of Trust with
regard to the Convertible Preferred Shares, the Company's organizational
documents do not limit the level or amount of debt that it may incur and may be
altered without the consent of the Company's shareholders. Although the
Company's policy has been to operate with a ratio of debt to total market
capitalization at a level below 50.0%, on a pro forma basis at June 30, 1998,
the Company would have outstanding debt of approximately $478.7 million, which
is equal to approximately 45.3% of the total market capitalization of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Policies with
Respect to Certain Activities--Financing Policies." If the Company were to incur
additional indebtedness and operate at a higher degree of leverage, 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.

In determining an appropriate level of leverage, the Company utilizes its
total market capitalization rather than the aggregate book value of its assets.
The Company has chosen to use total 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 total market capitalization 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 considers factors other than total 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 Company's
cash flow and the amounts available for distributions to shareholders. The
Company's Board of Trustees is currently evaluating a number of alternative
measurements of debt capacity in order to determine which measurement is the
appropriate measure of the Company's debt capacity.

COMPANY'S ABILITY TO OBTAIN PERMANENT FINANCING CANNOT BE ASSURED. The
Company has financed certain acquisitions and will finance certain development
activities in part with proceeds from the Credit Facility. Certain of such
acquisition and development financing have been, and are expected to continue to
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
market interest rates were to increase at a time when amounts are outstanding
under the Credit Facility or under the Company's floating rate tax-exempt bond
debt ($74.5 million outstanding at June 30, 1998) 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.

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

GENERAL. Certain provisions contained in the Declaration of Trust, as
amended and restated (the "Declaration of Trust"), and Bylaws, as amended and
restated (the "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 even if a
change of control or the removal of existing management was in the shareholders'
interest. 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, among other things, 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
(e.g., the Company has waived the Ownership Limit for SCPG with respect to the
Common Shares issuable upon the conversion of the Convertible Preferred Shares),
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 Equity Shares. The Board of Trustees
may, but in no event will be required to, waive the 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 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).

POTENTIAL EFFECTS OF THE ISSUANCE OF ADDITIONAL PREFERRED SHARES. The
Declaration of Trust permits the Board of Trustees to cause the Company to issue
up to 30.0 million Preferred Shares, par value $0.01 per share (of which 2.0
million have been designated and issued as Convertible Preferred Shares and 4.0
million have been designated and issued as Redeemable Preferred Shares), 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."

POTENTIAL EFFECTS OF A STAGGERED BOARD. The Board of Trustees has three
classes of trustees. Trustees for each class will be chosen for a three-year
term upon the expiration of the current class term, beginning in 1998. The term
of the first class expired May 22, 1998, and the two trustees comprising such
class were each re-elected to a new three-year term on May 22, 1998 at the
Company's initial annual shareholders' meeting. The terms of the second and
third classes will expire in 1999 and 2000, respectively. Subject to the rights
of the holders of the Convertible Preferred Shares, the Redeemable Preferred
Shares and holders of any future series of Preferred Shares to elect and/or
remove trustees in certain circumstances, a trustee may be removed only for
cause and upon the affirmative vote of two-thirds of the outstanding Common
Shares. The staggered terms of trustees may reduce the possibility of a tender
offer or an attempt to change control of the Company, even though a tender offer
or a change in control might be in the best interest of shareholders. See
"Certain Provisions of Maryland Law and of the Company's Declaration of Trust
and Bylaws--Classification of the Board of Trustees."

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CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT COULD INHIBIT ACQUISITIONS
AND CHANGES IN CONTROL. The 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 LP 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 LP 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 holding more than 50.0% of the LP Common Units vote to
approve the Business Combination. In addition, as provided in the Partnership
Agreement, the Company will not consummate a Business Combination with respect
to which the Company conducted a vote of the shareholders unless the matter
would have been approved had holders of LP Common Units been able to vote
together with the shareholders on the transaction. The foregoing provision of
the 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 managing general partner first conducts a vote of holders of Common
Units (including the Company and the NAC General Partner) 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 Partnership Agreement, 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.

POSSIBLE LIMITATIONS ON CHANGE OF CONTROL PURSUANT TO 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 or associate 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% or more of the voting power of the
trust (an "Interested Shareholder"), or between a Maryland REIT and an affiliate
of 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 the
board of trustees and a super-majority shareholder vote 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 Board of Trustees of the Company has opted
out of the business combinations provisions of the MGCL with respect to any
business combination involving PGI, the Primestone Joint Venture or any of the
Contributors or any of their respective affiliates (including Mr. Reschke).
Accordingly, the five-year prohibition and the super-majority shareholder vote
requirement will not apply to any "business combinations" between PGI, the
Primestone Joint Venture or any of the Contributors or their respective
affiliates and the Company. As a result, PGI, the Primestone Joint Venture 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. Further, the business combinations statute could have the effect of
discouraging offers from third parties to acquire the Company and increasing the
difficulty of consummating any such offer. See "Certain Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws--Business
Combinations."

POSSIBLE LIMITATIONS ON CHANGE OF CONTROL PURSUANT TO MARYLAND CONTROL SHARE
ACQUISITION STATUTE. Maryland law provides that "control shares" of a Maryland
REIT acquired in a "control share acquisition"

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<PAGE>
have no voting rights except to the extent approved by a vote of two-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 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. See "Certain Provisions of Maryland
Law and of 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 period ended December 31, 1997. Although
management believes that the Company is organized and operates in such a manner,
no assurance can be given that the Company will continue to 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 95.0% 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 95.0% 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

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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. In rendering its opinion as to
the qualifications of the Company as a REIT, Winston & Strawn relied 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 100.0% 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 are 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 are also 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. See "Business
Objective and Growth Strategies."

To obtain the favorable tax treatment associated with REITs, the Company
generally is 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 Company is 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 is also 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.

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The Company intends to continue to make distributions to its shareholders 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.

HISTORICAL LOSSES; 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.

ACQUISITION AND DEVELOPMENT RISKS

GENERAL. The Company intends to continue 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 continue 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 FLOWS ARE 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.

COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO 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 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."

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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 COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL
CONDITION. 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 COULD ADVERSELY AFFECT THE COMPANY. The Company plans to
continue 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 EXPENSES COULD ADVERSELY AFFECT THE
COMPANY'S CASH FLOW. 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. From April 1, 1998 through March 31, 2001, the Company will have
expiring Office Property leases covering approximately 2.0 million net rentable
square feet (which represent 31.6% of the Annualized Net Rent of the Office
Properties) and Industrial Property leases covering approximately 2.6 million
net rentable square feet (which represent 45.8% of the Annualized Net Rent of
the Industrial Properties). These lease expirations represent, in the aggregate,
approximately 34.7% of the Annualized Net Rent of the Company. As of March 31,
1998, such expiring leases had a weighted average annual net rent per net
rentable square foot of approximately $10.57 for Office Property leases and
$3.30 for Industrial Property leases. If the Company is unable to promptly relet
or renew the leases for all or a substantial portion of this space or if the
rental rates upon such renewal or reletting is significantly lower than expected
rates, then the Company's cash flow and ability to make expected distributions
to shareholders would be adversely affected. See "Business and
Properties--General" and "--Lease Expirations."

CAPITAL IMPROVEMENT REQUIREMENTS COULD ADVERSELY AFFECT THE COMPANY'S CASH
FLOW. 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 LOSSES COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW. Management
believes that the Properties are covered by adequate comprehensive liability,
fire, flood, extended coverage, rental loss and

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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 COULD ADVERSELY AFFECT THE
COMPANY'S CASH FLOW. 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. See "Business and Properties--Legal Proceedings."

RISKS OF 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 operates its business in a manner that does 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 COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION. 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 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.

COSTS OF COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT COULD ADVERSELY
AFFECT THE COMPANY'S CASH FLOW. 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

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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 or limited liability companies and will be treated as
partnerships for federal income tax purposes. If the Operating Partnership or
any of the Property Partnerships fails to qualify as a partnership for federal
income tax purposes and instead is taxable as a corporation, the Company could
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.

CHANGES IN POLICY AND INVESTMENT ACTIVITY WITHOUT SHAREHOLDER APPROVAL

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 are 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 are not 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
replacements 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
as of March 31, 1998 represented approximately 34.0% of the Annualized Net Rent,
and its ten largest industrial tenants as of March 31, 1998 represented
approximately 10.8% of the Annualized Net Rent. 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 Office Properties,
representing approximately 18.6% of the Annualized Net Rent. The Company's
revenues and cash available for distribution 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.

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MANAGED PROPERTY BUSINESS AND NON-REIT SERVICES

LACK OF CONTROL OVER THE SERVICES COMPANY. To comply with the REIT asset
tests that restrict ownership of shares of other corporations, the Operating
Partnership owns 100.0% of the Preferred Stock of the Services Company and
Messrs. Reschke and Curto of the Company hold 100.0% of the voting stock of the
Services Company. 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,
retain the ability to elect the board of directors of the Services Company after
the terms of the initial directors expire. Although the Company receives
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 is not able to elect
directors or officers of the Services Company. Therefore, the Company does 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 is 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."

LIABILITIES FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION. 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 have been subject to recent Phase I or similar
environmental assessments by independent environmental consultants within
approximately the last two years. 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 of the Industrial Properties,
which are already in remediation programs sponsored by the state in which they
are located. PGI has sued a former environmental consultant and a former tenant
of one of these Properties for damages. PGI has contractually agreed to retain
liability, and

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indemnify the Company, for environmental remediation with regard to certain of
these Industrial Properties, which environmental consultants have estimated will
cost, in the aggregate, approximately $3.2 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 and is
involved in other litigation. 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 COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL
CONDITION. 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 Common Shares issued upon the exercise of options, the Offered Common
Shares issued upon exchange of LP Common Units and the Offered Common Shares
issued upon the conversion of Convertible Preferred Shares), or the perception
that such sales could occur, may adversely affect prevailing market prices for
the Common Shares.

In connection with the Formation Transactions, 9,067,210 LP Common Units in
the aggregate were issued. None of the applicable Limited Partners can exchange
such LP Common Units for Common Shares until the first anniversary of the
completion of the Offering. Further, each of the Limited Partners that received
LP Common Units in connection with the Formation Transactions has agreed not to
directly or indirectly offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose of (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition of) any LP Common Units or Common Shares
or other shares of beneficial interest of the Company, or any securities
convertible or exercisable or exchangeable for any LP Common Units or Common
Shares or other shares of beneficial interest of the Company for the applicable
Holding Periods, in each case without the prior written consent of Prudential
Securities Incorporated, on behalf of the IPO 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 a Limited Partner upon exchange of
their respective LP Common Units may be sold in the public market pursuant to
the registration statement of the Company that contains this Prospectus which
the

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<PAGE>
Company was obligated to file pursuant to the exercise of registration rights
that were granted by the Company or available exemptions from registration. See
"Shares Eligible for Future Sale."

As of September 25, 1998, the Company had 15,313,094 Common Shares
outstanding, of which 12,720,600 Common Shares are freely tradeable in the
public market by persons other than "affiliates" of the Company without
restriction or registration under the Securities Act. The balance of the
Company's outstanding Common Shares, composed of the 2,579,994 Common Shares,
when sold pursuant to an effective Registration Statement (Registration No.
333-51935) previously filed by the Company, will be freely tradeable in the
public market without restriction or registration under the Securities Act
except for any shares purchased by an existing "affiliate" of the Company, which
will be subject to certain resale limitations in the absence of registration
under the Securities Act unless an exemption from registration is available. All
Common Shares that are issuable upon the exchange of Common Units or the
conversion of the Convertible Preferred Shares 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 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.

The Company has provided registration rights to the Limited Partners which
received LP Common Units in connection with the Formation Transactions, and to
an additional Limited Partner that has received 303,865 LP Common Units since
the IPO, with respect to the Common Shares to be acquired by them upon exchange
of LP Common Units for Common Shares. In addition, the Company has granted
certain registration rights to SCPG with respect to the Common Shares which may
be acquired by it upon the conversion of the Convertible Preferred Shares into
Common Shares. In accordance with such registration rights, SCPG has requested
that the Company prepare and file a shelf registration statement covering the
resale of the Convertible Preferred Shares and the underlying Common Shares. See
"Shares Eligible for Future Sale--Exchange Rights and Registration Rights."

Upon completion of the IPO, the Company granted options to purchase an
aggregate of 1,090,500 Common Shares at the initial public offering price to
certain trustees, executive officers and other employees of the Company (100,000
of which have been subsequently terminated), and an additional 759,500 Common
Shares were reserved for issuance upon the exercise of options granted under the
Share Incentive Plan. Since the IPO, the Company has granted additional options
to purchase up to 112,000 Common Shares under the Share Incentive Plan to
certain employees of the Company of which 7,500 have subsequently been
terminated. 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 anticipates that it will file a
registration statement with respect to the Common Shares issuable under the
Share Incentive Plan prior to November 17, 1998. Such registration statement and
any subsequent registration statements filed pursuant to the foregoing
registration rights generally will allow Common Shares covered thereby,
including Common Shares issuable upon the exchange of Common Units, the
conversion of the Convertible Preferred Shares or the exercise of options, to be
transferred or resold without restriction under the Securities Act.

MARKET INTEREST RATES COULD ADVERSELY IMPACT THE MARKET PRICE OF THE 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.

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THE COMPANY

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 expects to qualify
as a REIT for federal income tax purposes beginning with its taxable period
ended December 31, 1997. Including the Pending Property Acquisition, the Company
will own 24 Office Properties containing an aggregate of approximately 5.8
million net rentable square feet, 47 Industrial Properties containing an
aggregate of approximately 6.0 million net rentable square feet, one retail
center, one parking facility and two land parcels. The Properties are located
primarily in the Chicago Metropolitan Area. As of March 31, 1998, the Office
Properties and the Industrial Properties generated 78.1% and 21.9%,
respectively, of the Company's Annualized Net Rent. In addition, the Company
owns a mortgage on an office property containing 728,406 net rentable square
feet. Including the Pending Parcel Acquisitions, the Company will also own
approximately 246.5 acres (including a development site containing approximately
67,000 square feet located in the Chicago CBD held by a joint venture with a
third party) and has rights to acquire approximately 302.8 acres of developable
land (including rights to acquire two development sites located in the Chicago
CBD containing approximately 119,000 square feet), which management believes
could be developed with approximately 5.6 million square feet of additional
office space and over 7.6 million square feet of additional industrial space.

In terms of net rentable square feet, approximately 90.1% of the Office
Properties and 87.8% 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 92.6% of the Company's Annualized Net Rent. The remaining Office
Properties are located in the Nashville, Tennessee; Knoxville, Tennessee; and
Milwaukee, Wisconsin metropolitan areas, and the remaining Industrial Properties
are located in the Columbus, Ohio metropolitan area. The Company intends to
continue to invest in the acquisition, development and redevelopment of office
and industrial properties primarily located in the Chicago Metropolitan Area.
The Company believes that it is the only publicly-traded REIT primarily focusing
on both the office and industrial markets in the Chicago Metropolitan Area.

The Company believes that the Properties are well-located, have excellent
highway access, attract high-quality tenants, are well-maintained and
professionally managed. Approximately 59.1% 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 balance of the Office Properties consist of Class B office
buildings where the Company believes significant potential exists to improve the
operating income of such assets by redeveloping or repositioning them to a
higher level of operating standard. The Company considers Class B office
buildings to be properties which are generally more than 20 years old, in good
physical condition, occupied by quality tenants and are situated in desirable
locations, but which may lack the latest functional and technological advances
and amenities. The Industrial Properties, in terms of Annualized Net Rent,
consist of 62.7% warehouse/distribution properties and 37.3% overhead
crane/manufacturing properties. As of March 31, 1998, the Office Properties were
89.0% leased to more than 610 tenants, and the Industrial Properties were 87.4%
leased to more than 60 tenants.

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next three years, the Company expects to receive contractual rent increases
which will average approximately $2.1 million per year (exclusive of contractual
rent increases related to the CPI or rent increases attributable to the
transition from free or partial rent to full rent). Furthermore, as of March 31,
1998, less than 55.3% of the Annualized Net Rent is derived from leases
scheduled to expire during the next five years. The three largest tenants in the
Properties, in terms of Annualized Net Rent, are Donnelley, Everen and Jones
Day. As of March 31, 1998, 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 5.8 and 4.5 years, respectively, and accounted for
34.0% and 10.8%, respectively, of Annualized Net Rent.

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 approximately 17 years. In 1994, PGI
contributed its retail development business and its multi-family housing
business to separate publicly-traded real estate investment trusts--Prime
Retail, Inc. (NYSE: PRT) and Ambassador Apartments, Inc. (which on May 8, 1998,
merged with and into Apartment Investment and Management Company). In May 1997,
PGI 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.

PGI has been involved in the office and industrial real estate business
since 1985. During this time, PGI 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, PGI successfully developed and leased the 77 West Wacker Drive
Building, a 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 95.0% of the net rentable office area in the building.

The Company has approximately 352 employees, 44 of whom are located at the
Company's executive offices in Chicago. The senior management of the Company
includes certain former executives of PGI who were responsible for the strategic
direction, management and day-to-day operations of PGI's office and industrial
real estate business prior to the IPO. The Company's management has substantial
experience in the full range of real estate activities undertaken by the
Company. The top ten senior executives of the Company have an average of more
than 20 years experience in the real estate industry in the Chicago Metropolitan
Area.

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 continue to (a) own, acquire, develop, redevelop, lease,
manage and operate Class A office properties that have below market rents and,
therefore, provide the opportunity to enhance returns as leases expire or are
renewed, (b) acquire distressed, underperforming and undermanaged Class B 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, (c) acquire and develop
properties that underutilize their sites or where there is excess land for
future development, (d) acquire properties or portfolios of properties from
tax-sensitive owners where the properties can be acquired on a tax-deferred
basis using Common Units of the Operating Partnership as purchase consideration
and (e) 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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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 8.1% at December 31, 1997.

The Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of the end of 1997, the Chicago Metropolitan
Area's industrial market's overall vacancy rate was 7.9%, below the national
average vacancy rate of 8.4%. In addition, 30.9% (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 at below replacement cost; and, where appropriate,
the renovation or repositioning of additional office and industrial properties;
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. On a pro forma basis, after giving effect
to the Pending Acquisitions, the Company's ratio of debt to total market
capitalization will be approximately 45.3%.

SERVICES COMPANY

THE SERVICES COMPANY. The Services Company was formed in March 1997 under
the laws of the state of Maryland to provide industrial property management,
leasing, construction, architectural and corporate advisory services business.
The Services Company also operates health club facilities located in the 77 West
Wacker Drive Building and Continental Towers. Mr. Reschke and Mr. Curto together
own 100.0% of the voting common stock of the Services Company, representing 5.0%
of its economic value, for which they are obligated to contribute an aggregate
of $50,000. The Operating Partnership owns 100.0% of the nonvoting Preferred
Stock of the Services Company, representing 95.0% of its economic value. The
Preferred Stock of the Services Company has an annual dividend rate of 8.5%,
pays dividends on a cumulative and participating basis, and is not redeemable by
the Services Company or convertible into other securities of the Services
Company. The Operating Partnership holds the Note issued by the Services
Company. The Note has a term of ten years, bears interest at a rate of 11.0% per
annum and requires 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 receives 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 Preferred Stock and (ii) interest payments on
the Note held by the Operating Partnership, the Company does not elect the
Services Company's officers or directors and, consequently, does not have the
ability to control the operations of the Services Company or

37
<PAGE>
require the declaration of dividends. See "Risk Factors--Managed Property
Business and Non-REIT Services--Lack of Control Over the Services Company."

The Services Company provides 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 provides leasing services to certain
of the Properties and other property owners for fees that are paid as leases are
executed and as the space is occupied. 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 provides construction management
services for tenant improvements, renovations and other construction to the
properties managed by the Company.

The Services Company has three directors: Messrs. Reschke, Curto and
Derderian. Mr. Curto serves as the Services Company's Chairman of the Board, Mr.
Derderian serves as the Services Company's Chief Executive Officer, and John O.
Wilson serves 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.

38
<PAGE>
BUSINESS OBJECTIVE AND GROWTH STRATEGIES

BUSINESS OBJECTIVE

The Company intends to continue to engage in the acquisition, development
and redevelopment of commercial real estate properties located in the midwestern
region of the United States, with a primary focus being 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. 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 or redeveloping office and industrial properties for the
benefit of the Company where such activity 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; and (c) the quality and location of
the Properties.

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. On a
pro forma basis, after giving effect to the Pending Acquisitions, the Company's
ratio of debt to total market capitalization will be approximately 45.3%.

OPERATING STRATEGY

39
<PAGE>
CONTRACTUAL INCREASES IN RENT

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,
1998, the Office Properties were approximately 89.0% leased, and the Industrial
Properties were approximately 87.4% leased. Such occupancy rates compare to
average occupancy rates at March 31, 1998 of 87.3% for the Chicago CBD office
market, 90.5% for the Suburban Chicago office market and 92.0% for the Chicago
industrial market. 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 95.0% of its net rentable office area.
In 1995, the Company restructured its lease with Keck, a significant tenant at
the 77 West Wacker Drive Building, to decrease the Keck Space and to reduce the
rent on Keck's remaining space. In June 1997, Keck stopped paying rent and, in
connection with a settlement of the resulting litigation, Keck vacated its
remaining space in November 1997. See "Business and Properties--Legal
Proceedings." Through March 31, 1998, 85,000 net rentable square feet of the
113,000 net rentable square feet at the 77 West Wacker Drive Building formerly
leased to Keck has been re-leased to other tenants. The Company believes it will
be able to increase cash flow per share by continuing to lease the existing
vacant space in the Properties. As of March 31, 1998, the Company had 639,105
net rentable square feet of vacant space in the Office Properties. As of March
31, 1998, the Company also had 754,187 net rentable square feet of vacant space
in the Industrial Properties.

LONG-TERM LEASES; TENANT RETENTION

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 47.7% of the
Company's Annualized Net Rent is attributable to leases expiring in 2003 or
beyond. With regard to the Office Properties, as of March 31, 1998, 49.3% 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
10.1% per annum. With regard to the Industrial Properties, as of March 31, 1998,
41.9% 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 11.6% per annum. From January 1, 1995 through

40
<PAGE>
March 31, 1998, the Prime Properties have achieved a tenant retention rate,
based on renewals of leases with scheduled expirations, of approximately 61.6%
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

ACQUISITION STRATEGY

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 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.

41
<PAGE>
DEVELOPMENT STRATEGY

Based on ongoing marketing activities and discussions with prospective
tenants, 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 246.5 acres (including a development site containing approximately
67,000 square feet located in the Chicago CBD held by a joint venture with a
third party) and has rights to acquire approximately 302.8 acres of developable
land, which management believes could be developed with approximately 5.6
million square feet of additional office space and over 7.6 million square feet
of additional industrial space. 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 strategy and objectives are determined by the
Company's Board of Trustees. The Company intends to take advantage of currently
attractive long-term interest rates by fixing the rate on a large portion of its
debt thus mitigating interest rate exposure. However, such objectives may be
altered without the consent of the Company's shareholders, and, subject to
certain limitations in the Declaration of Trust with regard to the Convertible
Preferred Shares, the Company's organizational documents do not limit the amount
or type of indebtedness that the Company may incur. On a pro forma basis, after
giving effect to the Pending Acquisitions, the Company's ratio of debt to total
market capitalization will be approximately 45.3%. Although the Company's policy
has been to operate with a ratio of debt to total market capitalization at a
level below 50.0%, the Company's Board of Trustees is currently evaluating a
number of alternative measurements of debt capacity in order to determine which
measurement is the appropriate measure of the Company's debt capacity.

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, including the
Company's Credit Facility. There can be no assurance that the Company will be
able to obtain capital for any such acquisitions or developments on terms
favorable to the Company.

42
<PAGE>
USE OF PROCEEDS

The Company will not receive any proceeds from sales of the Offered Shares
by the Selling Shareholders. The Company has agreed to pay all expenses of
effecting the registration of the Common Shares offered (other than underwriting
discounts, sales and commissions, fees and disbursements of counsel, and
transfer taxes, if any) pursuant to the Registration Statement under the
Securities Act that contains this Prospectus.

43
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS

The Common Shares have been traded on the NYSE since November 12, 1997 under
the symbol "PGE." Set forth below (rounded to the nearest $.01) are the high and
low closing prices for the Common Shares since November 12, 1997, as reported by
the NYSE.

<TABLE>
<CAPTION>
HIGH LOW
---------------- ---------------
<S> <C> <C>
FISCAL YEAR 1998:
First Quarter......................... $ 20 7/8 $ 19 3/16
Second Quarter........................ $ 21 1/8 $ 17 1/8
July 1, 1998 to September 25, 1998.... $ 19 15/16 $ 13 1/8

FISCAL YEAR 1997:
November 12, 1997 to December 31,
1997................................ $ 20 7/16 $ 19 15/16
</TABLE>

On September 25, 1998, the last reported price for the Common Shares was
$18 1/16 per share. As of September 25, 1998, the Company's 15,313,094 Common
Shares were held by 35 shareholders of record.

The Company currently pays quarterly distributions to holders of Common
Shares and Common Units. Distributions in respect of the Common Shares and
Common Units are not permitted unless all current and any accumulated
distributions in respect of the Convertible Preferred Shares and the Redeemable
Preferred Shares and related Preferred Units, have been paid in full. The first
distribution, for the period from the closing of the IPO through December 31,
1997, was $.16644 per Common Share and per Common Unit, which is equivalent to a
quarterly distribution of $.3375 per Common Share and per Common Unit. On April
21, 1998, the Company paid a distribution of $.3375 per Common Share and per
Common Unit for the first quarter of 1998 to holders of record on March 31,
1998. On July 20, 1998, the Company paid a distribution of $.3375 per Common
Share and Common Unit for the second quarter of 1998 to holders of record on
June 30, 1998. On September 17, 1998, the Company declared a dividend of $.3375
per Common Share and Common Unit for the third quarter of 1998 to holders of
record on September 30, 1998. The payment date for this dividend is October 20,
1998. Future distributions by the Company will be at the direction of the Board
of Trustees of the Company and will depend on the actual cash available for
distribution, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code (see "Certain
Federal Income Tax Considerations-- Requirements for Qualification"), and such
other factors as the Board of Trustees deems relevant. See "Risk
Factors--Changes in Policy and Investment Activity without Shareholder
Approval."

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 5.5% (or $0.07 per Common Share) of the distributions anticipated
to be paid by the Company for the first 12 months subsequent to the IPO 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 Company has determined that, for federal income
tax purposes, none of the $.16644 per Common Share distribution paid for the
partial fourth quarter of 1997 represented a return of capital to shareholders.
The percentage of shareholder distributions that represents a nontaxable return
of capital may vary substantially from year to year.

44
<PAGE>
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 status based on pro forma taxable income of the
Operating Partnership for the 12 months ended December 31, 1997, as adjusted for
certain items in the following table, would have been approximately $14.8
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. See "Risk Factors--Adverse Consequences of Failure to Qualify as a
REIT; Other Adverse Consequences." For a discussion of the tax treatment of
distributions to holders of Common Shares, see "Certain Federal Income Tax
Considerations."

45
<PAGE>
CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of June 30, 1998 and on a pro forma basis for the Company after giving effect
to the Pending Acquisitions to be completed after June 30, 1998. See the
historical financial information relating to the Company set forth elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------
HISTORICAL PRO FORMA
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Credit Facility....................................................................... $ 80,700 $ 106,472(1)
Line of Credit........................................................................ -- --
Mortgage notes payable................................................................ 297,801 297,801
Tax-exempt and taxable bonds payable.................................................. 74,450 74,450
---------- ------------
Total debt.............................................................................. 452,951 478,723
Minority interest....................................................................... 149,121 149,121
Shareholders' equity:
Preferred Shares, $0.01 par value; 30.0 million authorized:
Series B Cumulative Redeemable Preferred Shares, 4.6 million shares designated; 4.0
million shares issued and outstanding............................................. 40 40
Series A Cumulative Convertible Preferred Shares, 2.0 million shares designated,
issued and outstanding............................................................ 20 20
Common Shares, $.01 par value; 100.0 million shares authorized, 15.57 million shares
issued and outstanding(2)(3)........................................................ 156 156
Additional paid-in capital............................................................ 365,756 365,756
Distributions in excess of earnings................................................... (7,552) (7,552)
---------- ------------
Total shareholders' equity.............................................................. 358,420 358,420
---------- ------------
Total capitalization.................................................................... $ 960,492 $ 986,264
---------- ------------
---------- ------------
</TABLE>

- ---------

(1) Reflects the net effect of the historical balance as adjusted for borrowings
subsequent to June 30, 1998 of $25,772 to fund the Pending Acquisitions.

(2) Assumes no exchange of Common Units issued to the Limited Partners. If all
of the Common Units (including the GP Common Units of the NAC General
Partner, which are not, by their terms, exchangeable into Common Shares but
which represent common equity interests in the Operating Partnership) were
exchanged, 25,853,378 Common Shares would be outstanding.

(3) Excludes 737,000 shares of the 1,850,000 Common Shares reserved for issuance
pursuant to the Share Incentive Plan. See "Management--Share Incentive
Plan."

46
<PAGE>
SELECTED FINANCIAL DATA

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

The unaudited Pro Forma Balance Sheet is presented as if, at June 30, 1998
the Company completed the Pending Acquisitions. The unaudited Pro Forma
Consolidated Statements of Operations for the six months ended June 30, 1998 and
for the year ended December 31, 1997 are presented as if the above and the
following transactions occurred as of January 1, 1997, (i) in connection with
the IPO, PGI had contributed the properties, business and operations of the
Predecessor Properties and other properties to the Operating Partnership, (ii)
the Operating Partnership had sold 4.57 million Common Units to the Primestone
Joint Venture, (iii) certain individuals contributed their office and industrial
properties to the Operating Partnership, (iv) the Operating Partnership had
acquired various office properties in the December Acquisitions, a mortgage note
receivable and two construction/property management companies from third
parties, (v) the Operating Partnership had repaid debt on certain of the
Predecessor Properties and other properties, (vi) the Company sold 2.58 million
shares of its Common Shares at $19.38 per share in the Private Placement and
used the net proceeds to acquire 2.58 million Common Units of the Operating
Partnership, (vii) the Company completed the 1998 Acquisitions and (viii) the
Company sold 4.0 million shares of its Redeemable Preferred Shares at $25.00 per
share in the Redeemable Preferred Share Offering and used the net proceeds to
acquire 4.0 million Series B Preferred Units of the Operating Partnership.

The unaudited Pro Forma 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 above transactions have been made.

The unaudited Pro Forma 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 Redeemable
Preferred Share 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.

47
<PAGE>
SELECTED FINANCIAL DATA
THE COMPANY (CONSOLIDATED HISTORICAL AND PRO FORMA) AND PREDECESSOR PROPERTIES
(COMBINED HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED
------------------------------------------------------
PRO FORMA-- HISTORICAL-- HISTORICAL--
SIX SIX PERIOD FROM
MONTHS MONTHS PRO FORMA-- NOVEMBER 17,
ENDED ENDED YEAR ENDED 1997 THROUGH
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1997
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental........................................ $ 48,776 $ 41,476 $ 95,560 $ 7,293
Tenant reimbursements......................... 21,208 18,401 37,454 2,041
Mortgage note interest........................ 3,014 3,014 6,027 248
Insurance settlement.......................... -- -- -- --
Other......................................... 2,924 2,783 1,909 248
------------ ----------- ------------ ------
Total revenue............................... 75,922 65,674 140,950 9,830
------------ ----------- ------------ ------
EXPENSES:
Property operations........................... 15,528 11,941 33,493 2,213
Real estate taxes............................. 14,083 12,232 25,066 1,765
Depreciation and amortization................. 12,888 11,575 24,669 2,478
Interest...................................... 16,300 14,476 28,212 1,680
Interest--affiliate........................... -- -- -- --
Property management fee--affiliate............ -- -- -- --
Financing fees................................ -- -- -- --
General and administrative.................... 3,044 3,044 4,524 267
Provision for environmental remediation
costs....................................... -- -- 3,205 --
Write-off of deferred tenant costs............ -- -- -- --
------------ ----------- ------------ ------
Total expenses.............................. 61,843 53,268 119,169 8,403
------------ ----------- ------------ ------
Income (loss) before minority interest and
extraordinary item.......................... 14,079 12,406 21,781 1,427
Minority interest............................. (5,599) (5,167) (8,662) (635)
------------ ----------- ------------ ------
Net income (loss) before extraordinary item... 8.480 7,239 13,119 792
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share in the amount of ($375) in
1998 and $1,127 in 1997..................... -- (525) -- --
------------ ----------- ------------ ------
Net income (loss)............................. 8,480 6,714 13,119 792
Net income allocated to preferred
shareholders................................ (5,900) (2,041) (11,800) (345)
------------ ----------- ------------ ------
Net income available to common shareholders... $ 2,580 $ 4,673 $ 1,319 $ 447
------------ ----------- ------------ ------
------------ ----------- ------------ ------
Net income available per weighted average
Common Share of beneficial interest-- basic
and diluted(1)(2)........................... $ 0.17 $ 0.32 $ 0.08 $ 0.04
------------ ----------- ------------ ------
------------ ----------- ------------ ------
OTHER OPERATING DATA:
Ratio of earnings before minority interest and
extraordinary item to combined fixed charges
and preferred share dividends(3)............ 1.33 1.56 1.23 1.50
Excess (deficit) of combined fixed charges and
preferred share dividends over earnings
before minority interest and extraordinary
item........................................ $ 7,715 $ 9,901 $ 9,517 $ 1,082
Ratio of Funds from Operations to combined
fixed charges and preferred share
dividends(4)................................ 1.85 2.18 1.92 2.85
Excess (deficit) of combined fixed charges and
preferred share dividends over funds from
operations.................................. $ 19,921 $ 20,794 $ 37,832 $ 3,964

PREDECESSOR PROPERTIES--COMBINED HISTORICAL
---------------------------------------------------------------------
SIX PERIOD FROM
MONTHS JANUARY 1,
ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
JUNE 30, NOVEMBER 16, ------------------------------------------
1997 1997 1996 1995 1994 1993
---------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental........................................ $ 16,131 $ 27,947 $ 30,538 $ 33,251 $ 30,352 $ 28,177
Tenant reimbursements......................... 7,769 12,490 14,225 14,382 12,451 10,750
Mortgage note interest........................ -- -- -- -- -- --
Insurance settlement.......................... -- -- -- 7,257 -- --
Other......................................... 689 1,515 3,397 2,715 3,170 1,527
---------- ------------ --------- --------- --------- ---------
Total revenue............................... 24,589 41,952 48,160 57,605 45,973 40,454
---------- ------------ --------- --------- --------- ---------
EXPENSES:
Property operations........................... 4,318 8,622 9,767 9,479 8,852 8,452
Real estate taxes............................. 5,590 8,575 9,383 9,445 9,057 7,167
Depreciation and amortization................. 6,492 11,241 12,409 12,646 11,624 11,739
Interest...................................... 13,587 24,613 27,080 27,671 25,985 22,827
Interest--affiliate........................... 5,649 9,804 10,137 8,563 7,402 6,335
Property management fee--affiliate............ 640 1,348 1,561 1,496 1,388 1,106
Financing fees................................ 801 1,180 1,232 -- -- --
General and administrative.................... 1,886 2,414 4,927 4,508 3,727 3,657
Provision for environmental remediation
costs....................................... 3,205 3,205 -- -- -- --
Write-off of deferred tenant costs............ -- -- 3,081 13,373 -- --
---------- ------------ --------- --------- --------- ---------
Total expenses.............................. 42,168 71,002 79,577 87,181 68,035 61,283
---------- ------------ --------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary item.......................... (17,579) (29,050) (31,417) (29,576) (22,062) (20,829)
Minority interest............................. 368 666 894 3,281 5,393 10,531
---------- ------------ --------- --------- --------- ---------
Net income (loss) before extraordinary item... (17,211) (28,384) (30,523) (26,295) (16,669) (10,298)
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share in the amount of ($375) in
1998 and $1,127 in 1997..................... -- 65,990 -- -- -- --
---------- ------------ --------- --------- --------- ---------
Net income (loss)............................. $ (17,211) $ 37,606 $ (30,523) $ (26,295) $ (16,669) $ (10,298)
---------- ------------ --------- --------- --------- ---------
Net income allocated to preferred
shareholders................................

Net income available to common shareholders...

Net income available per weighted average
Common Share of beneficial interest-- basic
and diluted(1)(2)...........................

OTHER OPERATING DATA:
Ratio of earnings before minority interest and
extraordinary item to combined fixed charges
and preferred share dividends(3)............ -- -- -- -- -- --
Excess (deficit) of combined fixed charges and
preferred share dividends over earnings
before minority interest and extraordinary
item........................................ $ (17,579) $ (29,050) $ (31,417) $ (29,576) $ (22,062) $ (20,829)
Ratio of Funds from Operations to combined
fixed charges and preferred share
dividends(4)................................ -- -- -- -- -- --
Excess (deficit) of combined fixed charges and
preferred share dividends over funds from
operations.................................. $ (8,180) $ (14,461) $ (17,367) $ (12,733) $ (12,930) $ (9,345)
</TABLE>

48
<PAGE>
<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED
--------------------------------------
HISTORICAL
PRO FORMA -------------------------
JUNE 30, JUNE 30, DECEMBER 31,
1998 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets, before accumulated depreciation........... $ 862,170 $ 846,398 $ 589,279
Total assets.................................................. 1,048,500 1,022,728 741,468
Mortgages notes and bonds payable............................. 478,723 452,951 328,044
Total liabilities............................................. 540,959 515,187 370,192
Minority interest............................................. 149,121 149,121 147,207
Shareholders' equity (partners' deficit)...................... 358,420 358,420 224,069

<CAPTION>
PREDECESSOR PROPERTIES--COMBINED
--------------------------------------------

HISTORICAL DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets, before accumulated depreciation........... $ 291,757 $ 289,558 $ 285,687 $ 281,316
Total assets.................................................. 325,230 343,641 356,421 357,158
Mortgages notes and bonds payable............................. 421,983 405,562 388,309 361,832
Total liabilities............................................. 447,927 434,993 421,257 397,539
Minority interest............................................. (6,905) (6,047) 886 (11,527)
Shareholders' equity (partners' deficit)...................... (115,792) (85,305) (65,722) (28,854)
</TABLE>
<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED
-------------------------------------------------------
PRO FORMA-- HISTORICAL-- PRO HISTORICAL
SIX SIX FORMA-- PERIOD FROM
MONTHS MONTHS YEAR ENDED NOVEMBER 17,
ENDED ENDED DECEMBER 1997 THROUGH
JUNE 30, JUNE 30, 31, DECEMBER 31,
1998 1998 1997 1997
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(5)............. $ 20,385 $ 21,258 $ 38,296 $ 3,964
Cash flows provided by (used in):
Operating activities............... -- 19,788 -- 6,658
Investing activities............... -- (267,336) -- (353,816)
Financing activities............... -- 248,746 -- 335,390
Office Properties:
Square footage..................... 5,814,510(6) 5,814,510(6) -- 3,372,621
Occupancy (%)...................... 89.0(6) 89.0(6) -- 92.6
Industrial Properties:
Square footage..................... 6,002,249(6) 5,839,179(6) -- 5,765,964
Occupancy (%)...................... 87.4(6) 87.1(6) -- 87.4

PREDECESSOR PROPERTIES--COMBINED HISTORICAL
----------------------------------------------------------------
SIX PERIOD FROM
MONTHS JANUARY 1,
ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
JUNE 30, NOVEMBER 16, -------------------------------------
1997 1997 1996 1995 1994
---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(5)............. $ (8,180) $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by (used in):
Operating activities............... (3,058) (5,700) (3,165) (1,259) (13,875)
Investing activities............... (133) (2,467) 1,126 (9,176) (6,495)
Financing activities............... 1,327 6,331 5,733 10,873 15,422
Office Properties:
Square footage..................... 1,414,897 1,414,897 1,414,897 1,414,897 1,414,897
Occupancy (%)...................... 92.5 92.7 92.5 95.8 93.7
Industrial Properties:
Square footage..................... 2,462,430 2,462,430 2,462,430 2,551,624 2,547,388
Occupancy (%)...................... 72.5 73.1 73.5 72.9 62.3
</TABLE>

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

(1) Pro forma net income per share equals pro forma net income divided by the
15.57 million Common Shares.

(2) Net income (loss) available per weighted average Common Share--basic and
diluted equals net income divided by 14.38 million and 14.40 million Common
Shares, respectively, for the six months ended June 30, 1998 and 12.59
million Common Shares (basic and diluted) for the period from November 17,
1997 through December 31, 1997, respectively. See Note 10 to the Company's
consolidated financial statements for further information.

(5) 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 pro forma 1997, and for the period from January 1, 1997
through November 16, 1997, provision for environmental remediation cost, for
pro forma 1997, and for the period from January 1, 1997 through November 16,
1997, and for the years ended December 31, 1996, 1995, 1994, 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 reports rental revenues on a cash basis (i.e., based on
contractual lease terms) rather than a straight-line GAAP basis, which the
Company believes results in a more accurate presentation of its actual
operating activities), which may differ from the methodology for calculating
Funds from Operations used by certain 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
repayment obligations, or other commitments and uncertainties. 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Funds from Operations."

(6) Square footage and occupancy percentages as of March 31, 1998.

49
<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," the Consolidated Financial Statements of the Company and the
Combined Financial Statements for the Predecessor Properties and notes thereto
appearing elsewhere in this Prospectus. The Consolidated Financial Statements of
the Company and the Combined Financial Statements of the Predecessor Properties
are comprised of the operations, assets and liabilities of the properties
described in Note 1 of the Notes to the Consolidated and Combined Financial
Statements of the Company and the Predecessor Properties.

PGI, through the PGI Partnerships which own the Predecessor Properties,
engaged in the ownership, management, development, redevelopment, operation, and
leasing of commercial office and industrial properties located primarily in the
Chicago Metropolitan Area. On November 17, 1997, following completion of the IPO
and the consummation of the Formation Transactions, the Company owned 63
properties and succeeded to the office and industrial real estate business of
PGI and certain of its affiliates. During the period from November 17, 1997
through December 31, 1997, the Company acquired two office properties in the
December Acquisitions containing approximately 1.0 million net rentable square
feet and one first mortgage note relating to an office property containing
approximately 728,406 net rentable square feet. During the period from January
1, 1998 to June 30, 1998, the Company acquired eight office properties. As of
June 30, 1998, the Company (through the Operating Partnership) owned 24 office
properties ("Owned Office Properties") containing an aggregate of approximately
5.8 million net rentable square feet, 46 Industrial Properties containing an
aggregate of approximately 5.8 million net rentable square feet, one retail
center and one parking facility. The properties are located primarily in the
Chicago Metropolitan Area. As of June 30, 1998, the Owned Office Properties and
the Industrial Properties generated 78.9% and 21.1%, respectively, of the
Company's Annualized Net Rent. In addition, the Company owns a mortgage on an
office property containing 728,406 net rentable square feet. The Company also
owns approximately 139.6 acres (including a development site containing
approximately 67,000 square feet located in the Chicago CBD held by a joint
venture with a third party) and has rights to acquire approximately 386.2 acres
of developable land (including rights to acquire a development site located in
the Chicago CBD containing approximately 58,000 square feet), which management
believes could be developed with approximately 3.03 million square feet of
additional office space and over 9.4 million square feet of additional
industrial space.

In terms of net rentable square feet, approximately 90.1% of the Owned
Office Properties and 87.5% 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 92.6% of the Company's Annualized Net Rent. The
remaining Owned Office Properties are located in Nashville, Tennessee;
Knoxville, Tennessee; and the Milwaukee, Wisconsin metropolitan areas, and the
remaining Owned Industrial Properties are located in the Columbus, Ohio
metropolitan area. The Company intends to continue to invest in the acquisition,
development and redevelopment of office and industrial properties primarily
located in the Chicago metropolitan area.

The Company intends to access multiple sources of capital to fund future
acquisition 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, joint venture
arrangements and other debt or equity securities and other bank and/or
institutional borrowings. There can be no assurance that any such financing will
be obtained.

Income is derived primarily from rental revenue (including tenant
reimbursements) from owned properties supplemented by interest income on
mortgage notes owned. The Company expects that revenue growth over the next
several years will come from a combination of additional acquisitions,
development and revenue generated through increased rental and occupancy rates
in the current portfolio.

50
<PAGE>
CAUTIONARY STATEMENTS

The following discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which reflect management's current views with respect to future events and
financial performance. Such forward-looking statements are subject to certain
risks and uncertainties; including, but not limited to, effects of future events
on the Company's financial performance; the risk that the Company may be unable
to finance its planned acquisition and development activities; risks related to
the industrial and office industry in which the Company's properties compete,
including the potential adverse impact of external factors such as inflation,
consumer confidence, unemployment rates and consumer tastes and preferences;
risks associated with the Company's development activities, such as the
potential for cost overruns, delays and lack of predictability with respect to
the financial returns associated with these development activities; the risk of
potential increase in market interest rates from current rates; and risks
associated with real estate ownership, such as the potential adverse impact of
changes in the local economic climate on the revenues and the value of the
Company's properties.

RESULTS OF OPERATIONS

The following analysis provides a comparison of the property operations for
the six month periods ended June 30, 1998 and June 30, 1997 and for the years
ended December 31, 1997 and 1996. The periods from January 1, 1998 through June
30, 1998 and from November 17, 1997 through December 31, 1997 records the
activity of the Company and the periods from January 1, 1997 through June 30,
1997 and from January 1, 1997 through November 17, 1997 records the activity of
the Predecessor Properties.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 OF THE COMPANY TO THE SIX
MONTHS ENDED JUNE 30, 1997 OF THE PREDECESSOR PROPERTIES

In analyzing the operating results for the six months ended June 30, 1998,
the changes in rental and reimbursable income, property operating expenses, real
estate taxes and depreciation and amortization from 1997 are due principally to
the addition of operating results from properties contributed and acquired as
part of the Company's IPO as well as properties acquired after the IPO through
June 30, 1998.

For the six months ended June 30, 1998, rental revenue increased $25.3
million, or 157.1%, to $41.5 million, tenant reimbursement income increased
$10.6 million, or 136.8%, to $18.4 million, property operating expenses
increased $7.6 million, or 176.5%, to $11.9 million, real estate tax expense
increased $6.6 million, or 118.8%, to $12.2 million and depreciation and
amortization increased $5.1 million, or 78%, to $11.6 million as compared to the
six months ended June 30, 1997. The additional office and industrial properties
resulted in total revenue of $24.8 million, tenant reimbursements income of $9.3
million, property operating expenses of $8.3 million, real estate tax expense of
$7.0 million and depreciation and amortization of $4.9 million for the six
months ended June 30, 1998. Rental revenue and tenant reimbursement income for
the Predecessor Properties (decreased) increased $(0.8) million and $0.8
million, respectively, for the six months ended June 30, 1998 compared to the
same period in 1997, due to a major tenant of the 77 West Wacker Drive building
defaulting on its lease in the second quarter of 1997. Property operating
expenses, real estate tax expense and depreciation and amortization for the
Predecessor Properties for the six months ended June 30, 1998 remained
consistent with the same period in 1997.

Mortgage note interest income increased by $3.0 million to $3.0 million due
to the acquisition of the first mortgage note encumbering the property known as
180 North LaSalle in December 1997.

Interest expense had a net decrease of $4.8 million, or 24.7%, to $14.5
million during the six months ended June 30, 1998. The decrease was due to an
$17.9 million decrease as a result of the repayment of debt with proceeds from
the Company's IPO, offset by an increase of $13.1 million due to mortgages
obtained on certain of the properties which were contributed or acquired after
the IPO, as well as Credit Facility and Line of Credit borrowings used to fund
property acquisitions.

51
<PAGE>
General and administrative expense increased $1.2 million during the six
months ended June 30, 1998, reflecting costs related to the Company's new public
status and its increased size.

The decrease in financing fees and property and asset management fees is due
to these fees being incurred by the Predecessor Properties under their previous
ownership and the costs are no longer incurred by the Company.

In 1997, the Predecessor Properties recorded a provision for environmental
remediation costs of $3.2 million as an estimate of costs to be incurred for
environmental clean-up of certain properties. In management's opinion, no
additional provision is necessary.

Income allocated to minority interest increased $5.5 million, or 106%, to
$5.2 million for the six months ended June 30, 1998 compared to the same period
in 1997 due to an increase in income before minority interest of $30.0 million,
or 170.6%, to $12.4 million and a change in the ownership structure. The
increase in income before minority interest is due to additional properties
being either contributed or acquired and the effects they had on revenue and
expenses described above. The change in ownership structure is due to the
certain ownership percentages changing during the IPO.

Net income increased $23.9 million, or 170.6%, to $6.7 million for the six
months ended June 30, 1998 compared to the same period in 1997 due to the
changes in revenue, expenses and minority interest described above.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Total revenue increased $3.6 million, or 7.5%, to $51.8 million for the year
ended December 31, 1997 compared to $48.2 million for the year ended December
31, 1996 primarily due to the addition of the activity of the IPO Properties and
December Acquisitions. Rental revenue increased $4.7 million, or 15.4%, to $35.2
million in 1997 from $30.5 million in 1996. In 1997, rental revenue from the
Owned Office Properties increased $3.2 million, or 13.0%, to $27.9 million from
$24.7 million in 1996. In 1997, rental revenue from the Industrial Properties
increased $1.5 million, or 25.9%, to $7.3 million from $5.8 million in 1996.
Tenant reimbursements increased $0.3 million, or 2.1%, to $14.5 million in 1997
from $14.2 million in 1996. Tenant reimbursements from the Owned Office
Properties were $12.1 million for both 1997 and 1996. During 1996, Keck paid no
tenant reimbursements until a final restructuring agreement was reached in late
1996. During 1997, Keck paid $0.6 million of tenant reimbursements. Tenant
reimbursements from the Industrial Properties increased $0.3 million, or 14.3%,
to $2.4 million in 1997 from $2.1 million in 1996. Other nonrecurring items
recorded in 1996 resulted in a net decrease of $1.4 million, or 41.2%, in all
other revenue to $2.0 million in 1997 from $3.4 million in 1996. Included in the
historical financials of the Company, related to the period from November 17,
1997 to December 31, 1997, are rental revenues of $3.5 million, tenant
reimbursements of $0.8 million, and $0.4 million of other revenue related to the
IPO Properties and December Acquisitions.

Total expenses decreased $0.2 million, or 0.3%, to $79.4 million for the
year ended December 31, 1997 compared to $79.6 million for the year ended
December 31, 1996. Property operating expenses increased $1.0 million, or 10.2%,
to $10.8 million in 1997 from $9.8 million in 1996. In 1997, property operating
expenses from the Owned Office Properties increased $1.6 million, or 19.5%, to
$9.8 million for the year ended December 31, 1997 compared to $8.2 million for
the year ended December 31, 1996. The property operating expenses from the
Industrial Properties decreased $0.6 million, or 37.5%, to $1.0 million for the
year ended December 31, 1997 compared to $1.6 million for the year ended
December 31, 1996. In 1997, real estate tax expenses increased $1.0 million, or
10.6%, to $10.4 million from $9.4 million in 1996 primarily due to higher
property assessments in 1997. In 1997, total interest expense decreased $1.1
million, or 3.0%, to $36.1 million from $37.2 million in 1996 primarily due to
the paydown of the 77 West Wacker mortgage note agreement. In 1997, general and
administrative expenses decreased $2.2 million, or 44.9%, to $2.7 million from
$4.9 million in 1996 primarily due to the nonrecurring expenses recorded in the
last six months of 1996. In 1997, the Industrial Properties recorded a provision
for environmental remediation costs of $3.2 million, which represents the

52
<PAGE>
probable costs to be incurred for the clean-up of environmental contamination at
the properties. PGI has contractually agreed to indemnify the Company from any
environmental liabilities the Prime Partnerships may incur. Other expenses
decreased $2.1 million on a net basis in 1997 from $18.3 million in 1996
compared to $16.2 million in 1997 primarily due to the write-off of deferred
tenant costs in 1996. Included in the historical financials of the Company,
related to the period from November 17, 1997 to December 31, 1997, are property
operating expenses of $0.6 million, real estate tax expense of $0.6 million,
interest expense of $1.3 million and general and administrative expense of $0.7
million related to the IPO Properties and December Acquisitions.

In 1997, net income allocated to minority interest increased $2.0 million,
or 222.2%, to $1.1 million from ($0.9) million of net loss in 1996, primarily
due to an extraordinary gain resulting from early extinguishment of debt.

In 1997, net income of $38.4 million was reported compared to a loss of
$30.5 million in 1996, primarily due to the changes described above and the
extraordinary gain on early extinguishment of debt of $65,990, net of minority
interest, recorded in 1997.

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 Owned 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
Keck's lease. 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 Owned 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 Keck's lease. 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 $1.6 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
$3.0 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 Keck lease.
Property operating expenses increased $0.3 million, or 3.2%, to $9.8 million in
1996 from $9.5 million in 1995. Property operating expenses from Owned Office
Properties remained constant at $8.2 million in both 1996 and 1995. Although
there was a decline in Owned 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 7.7%, 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 Keck's lease, 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

53
<PAGE>
$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 Keck
recorded in 1996. All other expenses remained comparable between 1996 and 1995.

In 1996, loss allocated to minority interest decreased $2.4 million, or
72.7%, 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.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, on a pro forma basis, after giving effect to the Pending
Acquisitions, $106.5 million would have been outstanding under the Credit
Facility and no borrowings would have been outstanding under the Line of Credit.
In addition to the Credit Facility, the Company's pro forma indebtedness
includes Mortgage Debt consisting of twelve mortgage notes payable totaling
$297.8 million and 14 issues of Tax-Exempt Bonds totaling $74.5 million. See
"--Pro Forma Indebtedness." On a pro forma basis, the Company's ratio of debt to
total market capitalization will be approximately 45.3%.

PRO FORMA INDEBTEDNESS. As of June 30, 1998, on a pro forma basis, after
giving effect to the Pending Acquisitions, the Company had outstanding
approximately $478.7 million of secured indebtedness as listed below:

<TABLE>
<CAPTION>
ESTIMATED
INTEREST RATE ANNUAL DEBT MATURITY BALANCE AT
(%)(1) PRINCIPAL SERVICE DATE MATURITY
------------------- ------------- ------------- ----------- -------------
(IN
(IN MILLIONS) THOUSANDS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Credit Facility(2) 7.13 $ 106.5 $ 7,591 11/00 $ 106.5
Line of Credit(3) 7.55 -- -- 1/99 --
Mortgage Notes:
Various properties(4) 7.17 47.0 3,370 5/00 41.2
Various properties(4) 7.15 14.6 1,044 4/00 14.6
Various industrial properties(5) 6.85 29.3 2,007 3/08 25.2
33 North Dearborn(5) 7.25 18.0 1,305 1/00 18.0
Commerce Point(5) 7.07 20.0 1,608 2/08 17.2
208 S. LaSalle Street(5) 7.79 45.8 3,951 4/13 39.9
2100 Swift Drive(5) 7.19 5.2 423 5/09 4.5
1699 E. Woodfield(5) 7.18 8.7 625 5/08 7.5
1701 Golf Road(5) 7.22 75.0 5,415 5/13 45.6
1001 Technology Way(6) 8.30 6.3 618 10/11 4.2
Dearborn Center(7) 7.65 13.5 1,032 4/99 13.5
6400 Shafer Court(8) 7.09 14.3 1,160 6/08 12.4
Tax-Exempt Bonds:
201 4th Avenue N.(9) 4.05 4.8 194 12/14 4.8
620 Market Street(9) 4.05 9.0 364 12/14 9.0
625 Gay Street(9) 4.05 9.0 364 12/14 9.0
4823 Old Kingston Pike(9) 4.05 3.5 142 12/14 3.5
Chicago Enterprise Center(9) 3.93 23.3 916 6/22 23.3
East Chicago Enterprise Center(9) 3.93 15.0 590 6/22 15.0
Hammond Enterprise Center(9) 3.93 9.9 389 6/22 9.9
------ ------------- ------
Total $ 478.7 $ 33,108 $ 424.8
------ ------------- ------
------ ------------- ------
</TABLE>

54
<PAGE>
- ----------

(1) Represents the interest rate on such indebtedness as of the later of June
30, 1998 or the date such indebtedness was incurred.

(2) Represents the outstanding balance on the Credit Facility. The Credit
Facility is currently collateralized by the 77 West Wacker Building and all
of the Properties located in Tennessee. Annual debt service represents
interest only. See Note 6 to the Notes to the Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus.

(3) The interest rate on the Line of Credit is 195 basis points over LIBOR or
0.50% plus the lender's "US prime rate" or the federal funds rate. Annual
debt service represents interest only. The Line of Credit is collateralized
by 475 Superior Avenue. See "--The Line of Credit."

(4) Represents the outstanding balance on a mortgage note that is
collateralized by various office and industrial properties. The note was
refinanced in May 1998 with two mortgage notes, as a result of which the
principal increased to $61.6 million and the maturity was extended to May
2001 ($14.6 million--interest only, payable monthly at 150 basis points
over LIBOR or the higher of .05% plus the lender's "US prime rate" or 1.0%
plus federal funds rate) and April 2008 ($47.0 million--principal and
interest payable monthly, using a 30 year amortization period, with
interest fixed at 7.17%). Annual debt service represents the refinanced
notes. See "-- New Mortgage Notes" below and Note 6 to the Notes to the
Consolidated Financial Statements of the Company contained elsewhere in
this Prospectus.

(5) Represents individual mortgage notes obtained at the time of the
properties' purchase or mortgage notes recently refinanced.

(6) Annual debt service represents principal and interest. See Note 6 to the
Notes to the Consolidated Financial Statements of the Company contained
elsewhere in this Prospectus.

(7) Represents borrowings under a bank loan obtained by the Venture. The
interest rate on such bank loan is, at the election of Venture, 200 basis
points over LIBOR or the lender's prime rate. Annual debt service
represents interest only. See Notes 3 and 6 to the Notes to the
Consolidated Financial Statements of the Company contained elsewhere in
this Prospectus.

(8) Annual debt service represents principal and interest, bearing interest at
a fixed rate.

(9) Annual debt service represents interest only. See Note 6 to the Notes to
the Consolidated Financial Statements of the Company contained elsewhere in
this Prospectus.

THE CREDIT FACILITY. The Company has a Credit Facility with a maximum
borrowing availability of $190.0 million from BankBoston, N.A. and Prudential
Securities Credit Corporation ("PSCC"), an affiliate of Prudential Securities
Incorporated. Borrowings under the Credit Facility are available to fund
acquisitions and development activities and to provide letters of credit in
amounts up to $50.0 million. Currently, $26.0 million of letters of credit are
outstanding under the Credit Facility to credit enhance the Tax-Exempt Bonds
related to the Tennessee properties. The Credit Facility, which matures on
November 17, 2000, is collateralized by the 77 West Wacker Building and all of
the Properties located in Tennessee.

The Credit Facility, at the Company's election, bears interest on Eurodollar
loans at a floating rate based on a spread over the Eurodollar rate equal to 120
to 150 basis points, depending upon the Company's applicable leverage ratio, or
the higher of BankBoston's prime rate or the federal funds rate plus 50 basis
points. Notwithstanding the foregoing, the Credit Facility was amended to
provide that for the period from December 15, 1997 through February 14, 1998,
the spread over the Eurodollar rate applicable to Eurodollar loans was equal to
175 basis points and for the period from February 15, 1998 through May 15, 1998,
such spread was equal to 200 basis points. Borrowings under the Credit Facility
may be repaid at any time, without penalty, except for the costs related to the
breakage of the Eurodollar rate loan, if any. The Credit Facility requires
monthly payments of interest only on prime rate and Eurodollar rate loans.
Eurodollar rate loans may be for periods of between 30 and 180 days. At June 30,
1998 borrowings under the Credit Facility bore interest at a weighted-average
rate equal to 7.13%.

55
<PAGE>
The Company's ability to borrow under the Credit Facility is subject to the
Company's ongoing compliance with a number of financial and other covenants. The
Credit Facility, except under certain circumstances, limits the Company's
ability to make distributions in excess of 90% of its annual Funds from
Operations.

Since the IPO, the Credit Facility has been amended from time to time to,
among other things, modify the loan commitments and the interest rate payable
thereunder, and the Company has obtained several limited waivers from the
lenders under the Credit Facility in connection with certain acquisitions.

THE LINE OF CREDIT. The Company has a $15.0 million revolving line of
credit with LaSalle National Bank (the "Line of Credit"). The Line of Credit,
which matures in January 1999 and is subject to a one-year extension at the
Company's option, is secured by 475 Superior Avenue. Outstanding balances under
the Line of Credit bear interest at a rate equal to LIBOR plus 195 basis points
or 0.50% plus the greater of the lender's "U.S. prime rate" or the federal funds
rate. Generally, the covenants contained in the Line of Credit are identical to
the covenants contained in the Credit Facility. A portion of the net proceeds
from the Redeemable Preferred Share Offering were used to repay the $15.0
million outstanding principal balance under the Line of Credit.

NEW MORTGAGE NOTES. The Company borrowed $83.5 million aggregate principal
amount under the New Mortgage Notes. PSCC provided the original New Mortgage
Notes financing on a short-term basis. The New Mortgage Notes consist of two
separate notes secured, respectively, by first mortgages on certain office and
industrial properties. Prior to their refinancing, interest on the New Mortgage
Notes was fixed to 7.19% (a rate equal to seven-year U.S. Treasury Notes, plus
1.27%). On March 23, 1998, the Company refinanced one of the notes (original
principal balance of $27.5 million) with a loan of $29.4 million, which matures
on April 1, 2008. Interest on this loan accrues at a rate of 6.85% and is
payable monthly. The remaining New Mortgage Note (which had an original
principal balance of $56.0 million) was refinanced on May 1, 1998 with two
loans, the first of which is a $47.0 million loan which has principal and
interest payable monthly, using a 30-year amortization period, with interest
fixed at 7.17% and will mature on May 1, 2008. The second loan is a $14.6
million loan which has interest only payable monthly at 150 basis points over
LIBOR or 0.50% plus the greater of (a) the lender's U.S. prime rate or (b) the
Federal Funds rate plus 1.0% and will mature on May 1, 2000, not including a 6
month extension option. The refinanced notes are collateralized by first
mortgages on certain office and industrial properties.

1998 MORTGAGE NOTES. During 1998, the Company has acquired five of its
eight new Office Properties with proceeds from property mortgage loans. The
following is a summary of those loans:

<TABLE>
<CAPTION>
INITIAL
PRINCIPAL
PROPERTY (IN MILLIONS) INTEREST RATE(%) MATURITY
- ---------------------- ------------- -------------------------------- -----------
<S> <C> <C> <C>
33 North Dearborn $ 18.0 LIBOR plus 165 basis points 1/2000
Commerce Point 20.0 7.07 2/2008
208 South LaSalle 45.8 7.785 4/2013
2100 Swift Drive 5.2 7.19 5/2009
6400 Shafer Court 14.4 7.09 6/2008
------
$ 103.4
------
------
</TABLE>

Except for the loan relating to 33 North Dearborn, all of the loans require
monthly payments of principal and interest. The 33 North Dearborn loan requires
monthly payments of interest only.

On May 15, 1998, the Company obtained a 7.22% note payable, collateralized
by a mortgage on the suburban office building known as Continental Towers, with
a principal balance of $75.0 million. The note matures in 2013, with a
prepayment option in 2005, and has monthly payments of principal and interest,

56
<PAGE>
using a 25-year principal amortization payment schedule. The Company used $70.0
million of the proceeds to repay a portion of the Credit Facility.

LETTERS OF CREDIT. The Company has refinanced $48.8 million of letters of
credit that provided credit enhancements on certain of the Company's bonds
payable from the Credit Facility to the New LOC's. The New LOC's have a
quarterly fee of 1.4% of the face amount and are collateralized by mortgages on
certain industrial and office properties and a $5.0 million cash collateral
account.

ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES.

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. Over the past three years,
the Company's recurring tenant improvements and leasing commissions for the
Prime Properties averaged $4.47 per square foot of leased office space and $0.40
per square foot of leased industrial space per year. The Company expects that
the average annual cost of recurring tenant improvements and leasing commissions
will be approximately $3.7 million based upon an average annual square feet for
which leases expire during the next three years. The Company expects the cost of
general capital improvements to the Properties to average approximately $1.5
million annually based upon an estimated blended rate for the Office Properties
and Industrial Properties of $0.10 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), joint venture agreements and the issuance of
additional equity securities from the Company. The terms of the Credit Facility,
the Convertible Preferred Shares, and the Redeemable Preferred Shares impose
restrictions on the Company's ability to incur indebtedness and issue additional
preferred shares.

HISTORICAL CASH FLOWS

Historically, the Predecessor Properties' principal sources of funding for
operations and capital expenditures were from debt financings. PGI incurred net
losses before extraordinary items in each of the last five years. However, after
adding back depreciation and amortization, the Properties have generated
positive net operating cash flows for each of the last four years.

The Company and the Predecessor Properties had net cash provided by (used
in) operating activities of $17.2 million and ($2.7 million) for the six months
ended June 30, 1998 and 1997, respectively. The $19.9 million increase is
primarily due to a $23.9 million increase in net income, a $5.1 million increase
in depreciation and amortization expense, a $5.5 million increase in income
allocated to minority interest, a $0.5 million increase in accrued interest, a
$6.5 million increase in accrued real estate taxes, a $3.0 million increase in
accounts payable and accrued expenses, and a $1.2 million increase in other
liabilities, offset by a $5.6 million decrease in interest expense and fees
added to principal on mortgage note payable-affiliate, a $2.1 million increase
in tenant receivables, and a $18.5 million increase in other assets.

The Company and the Predecessor Properties had net cash provided by
investing activities of $267.3 million and $0.8 million for the six months ended
June 30, 1998 and 1997, respectively. The $266.5 million increase in net cash
used in investing activities from the period ended June 30, 1997 as compared to
the period ended June 30, 1998 was primarily due to an $253.5 million increase
in expenditures for real estate and equipment, principally related to the
acquisition of five properties during the six months ended June 30, 1998, $7.3
million in escrow deposits made during the six months ended June 30, 1998, a
$3.9 million net increase in advances to affiliates and $1.8 million increase in
leasing costs.

The Company and the Predecessor Properties had net cash provided by
financing activities of $251.3 million and $2.4 million for the six months ended
June 30, 1998 and 1997, respectively. The

57
<PAGE>
$248.9 million increase in net cash provided by financing activities from the
period ended June 30, 1997 as compared to the period ended June 30, 1998 was due
to net proceeds of $95.3 and $47.2 million from the Redeemable Preferred Share
Offering and the Private Placement, respectively, net proceeds from mortgage
notes payable of $125.6 million and additional minority interest contributions
of $1.0 million, offset by distributions to preferred shareholders, common
shareholders and minority interest of $13.6 million and the payment of $4.1
million in financing costs.

The Company and the Predecessor Properties had combined net cash provided by
operating activities of $1.0 million for the year ended December 31, 1997 and
the Predecessor Properties had net cash used in operating activities of $3.2
million and $1.3 million for the years ended December 31, 1996 and 1995,
respectively. The $4.2 million increase in net cash provided by operating
activities for the year ended December 31, 1997 from the year ended December 31,
1996 was primarily due to a $68.9 million increase in net income, a $1.3 million
decrease in tenant receivables from straight-lining rent, a $0.6 million
decrease in gain on sale of real estate, a $1.3 million increase in depreciation
and amortization expense, a $0.9 million decrease in loss allocated to minority
interest, a $7.7 million increase in accrued real estate taxes and a $9.3
million increase in accounts payable and accrued expenses, offset by a $0.2
million decrease in interest added to principal, a $3.1 million decrease in the
write-off of deferred tenant costs, a $66.0 million increase in extraordinary
item, a $2.9 million increase in tenant receivables, a $0.8 million increase in
deferred costs, a $10.1 million increase in other assets, a $1.6 million
decrease in accrued interest and a $1.1 million increase in other liabilities.
The $1.9 million increase in net cash used in operating activities for the year
ended December 31, 1996 from the year ended December 31, 1995 is primarily due
to a $12.1 million increase in loss before minority interest (exclusive of the
write-off of deferred tenant costs in 1995 and 1996), 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 Company and the Predecessor Properties had combined net cash used in
investing activities of ($356.3 million) for the year ended December 31, 1997
and the Predecessor Properties had net cash provided by (used in) investing
activities of $1.1 million and ($9.2 million) for the years ended December 31,
1996 and 1995, respectively. The $357.4 million increase in net cash used in
investing activities for the year ended December 31, 1997 from the year ended
December 31, 1996 was primarily due to a $1.8 million decrease in proceeds from
the sale of real estate, a $298.8 million increase in real estate expenditures,
a $51.2 million purchase of a mortgage note receivable, a $5.2 million increase
in amounts due from affiliates and a $0.4 million cash contribution to the
Services Company. The $10.3 million increase in net cash provided by investing
activities for the year ended December 31, 1996 from the year ended December 31,
1995 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
$10.0 million decrease in real estate expenditures.

The Company and the Predecessor Properties had combined net cash provided by
financing activities of $361.7 million for the year ended December 31, 1997 and
the Predecessor Properties had net cash provided by financing activities of $5.7
million and $10.9 million for the years ended December 31, 1996 and 1995,
respectively. The $356.0 million increase in net cash provided by financing
activities for the year ended December 31, 1997 from the year ended December 31,
1996 was primarily due to $272.0 million in net proceeds from the IPO, the
Private Placement, $85.0 million from the sale of Common Units, a $242.4 million
increase in proceeds from mortgage notes payable, and a $44.3 million increase
in contributions from partners, offset by a $235.7 increase in the repayment of
mortgage notes payable, a $46.1 million increase in the repayment of mortgage
notes payable affiliates, the payment of $5.0 million of deferred financing
costs and debt termination fees and a $0.5 million decrease in due to
affiliates. The $5.2 million decrease in net cash provided by financing
activities from the year ended December 31, 1996 from the year ended December
31, 1995 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.

58
<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 reports rental revenues on a cash basis
(i.e., based on contractual lease terms), rather than a straight-line GAAP
basis, which the Company believes results in a more accurate presentation of its
actual operating activities), which may differ from the methodology for
calculating Funds from Operations used by other certain office and/or industrial
REITs and, accordingly, may not be comparable to such other REITs. As a result
of the Company's reporting rental revenues on a contractual basis, scheduled
rent increases will cause reported Funds from Operations to increase. Further,
Funds from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
repayment obligations, or other commitments and uncertainties. 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.

IMPACT OF YEAR 2000

In the year 2000, many existing computer programs that use only two digits
(rather than four) to identify a year in the date filed could fail or create
erroneous results if not corrected. This computer flaw is expected to affect
virtually all companies and organizations. The Company cannot quantify the
potential costs and uncertainties associated with this computer program flaw at
this time, but does not anticipate that the effect of this computer program flaw
on the operations of the Company will be significant. However, the Company may
be required to spend time and monetary resources addressing any necessary
computer program changes.

The Company is currently evaluating the nature and extent of the work
required to make its systems and infrastructure Year 2000 compliant. Based on a
recent assessment, the Company will have to modify or replace significant
portions of its hardware and software so that its systems will function properly
with respect to the Year 2000 and beyond. Certain of these systems are currently
in the process of being modified and/or replaced. The Company believes that with
modifications to certain existing software and conversions to new software
applications, in addition to hardware upgrades on certain mechanical systems,
the Year 2000 issue will not pose significant operational problems. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have a material impact on the
operations of the Company.

The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems that
are not in compliance with the Year 2000. The Company anticipates completing the
project in mid-1999. The cost to complete the project has not yet been
determined.

The project completion date is based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
ability of third parties to modify the Company's systems on timely basis. There
can be no guarantee that the project will be completed in a timely manner.

59
<PAGE>
Specific factors that might delay completion of the project include, but are not
limited to, the availabilty of qualified personnel, the ability to locate and
correct relevant computer codes, and similar uncertainties.

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.
As of June 30, 1998, approximately $201.3 million in principal amount of the
Company's indebtedness bore interest at floating rates and future indebtedness
may bear floating rate interest. Inflation, and its impact on floating interest
rates, could affect the amount of interest payments due on such indebtedness.

60
<PAGE>
BUSINESS AND PROPERTIES

Unless indicated otherwise, information contained herein concerning the
economies of the Chicago Metropolitan Area; Nashville and Knoxville, Tennessee;
Milwaukee, Wisconsin; and Columbus, Ohio 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

Including the Pending Property Acquisition, the Company (through the
Operating Partnership) will own 24 Office Properties encompassing an aggregate
of approximately 5.8 million net rentable square feet, 47 industrial properties
containing an aggregate of approximately 6.0 million net rentable square feet,
one parking facility with 398 parking spaces and one retail center. The
Properties are owned in fee simple (except for 1701 Golf Road in Schaumburg,
Illinois with respect to which the Company holds mortgage) by the respective
Property Partnerships. Nineteen of the 24 Office Properties and 40 of the 47
Industrial Properties are located in the Chicago Metropolitan Area. The Company
also owns a mortgage on an office property located in the Chicago CBD containing
728,406 net rentable square feet. Three office properties are located in
Knoxville, Tennessee; one office property is located in downtown Nashville,
Tennessee; one office property is located in Milwaukee, Wisconsin; six
industrial properties are located in the Columbus, Ohio metropolitan area; the
parking facility is located in Knoxville, Tennessee; and the retail center is
located in Suburban Chicago.

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. As of March 31, 1998, the Office Properties were approximately 89.0%
leased to more than 610 tenants, and the Industrial Properties were
approximately 87.4% leased to more than 60 tenants.

The Company has acquired experience across a broad range of development and
redevelopment projects. For example, the Company has developed 10 office
properties, including the 77 West Wacker Drive Building, and 21 of the
Industrial 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.

In addition to its interests in the Office Properties and Industrial
Properties, and including the Pending Parcel Acquisitions, the Company will own
approximately 246.5 acres (including a development site containing approximately
67,000 square feet located in the Chicago CBD held by a joint venture with a
third party) and has the rights to acquire approximately 302.8 acres of
developable land (including rights to acquire two development sites located in
the Chicago CBD containing approximately 119,000 square feet). Management
believes that the developable land and development site could be developed with
approximately 5.6 million square feet of additional office space and over 7.6
million square feet of additional industrial space. See "--Land for Development
and Option Properties." The Company also has a 15-year right of first offer to
develop (or develop and acquire an ownership interest in) all or any portion of
approximately 360 acres of undeveloped office and industrial land in Huntley,
Illinois currently owned and controlled by an affiliate of PGI, 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 PGI 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 PGI or held by PGI for sale to a third
party. See "--Land for Development and Option Properties."

61
<PAGE>
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 gross 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 landlord's pro rata share of real estate
taxes, insurance and operating expenses ("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,
utilities and operating expenses.

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 1995 (based upon an average of
all renovations and renewal lease transactions during the respective periods):

PRIME PROPERTIES-OFFICE PROPERTIES(1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTH
------------------------------- PERIOD ENDED
1995 1996 1997 MARCH 31, 1998
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Number of lease transactions during period(2)....................... 22 15 19 5
Rentable square feet during period(2)............................... 77,359 30,513 77,987 16,479
Net Rent (in dollars per square foot)(3)............................ 15.72 13.14 17.67 13.43
Tenant Improvements (in dollars per square foot).................... 3.90 6.16 2.96 --
Leasing Commissions (in dollars per square foot)(4)................. 2.19 1.92 1.12 0.05
Effective Net Rent (in dollars per square foot)(5).................. 14.94 12.04 16.42 13.42
Occupancy rate at end of period(%)(6)............................... 96% 93% 93% 93%
</TABLE>

- ---------

(1) Comparative historical information for other properties owned is not
available.

(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 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.

(6) This table includes Keck's occupancy for the year ended December 31, 1995
and, under the restructured lease, for the year ended December 31, 1996.

62
<PAGE>
The following table sets forth certain information (on a per net rentable
square foot basis) regarding leasing activity at the Prime Properties which are
industrial properties which have been managed by the Company since 1995 (based
upon an average of all lease transactions during the respective periods):

PRIME PROPERTIES-INDUSTRIAL PROPERTIES(1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTH
------------------------------- PERIOD ENDED
1995 1996 1997 MARCH 31, 1998
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Number of lease transactions during period(2)..................... 5 2 5 --
Rentable square feet during period(2)............................. 236,027 41,440 383,010 --
Net Rent (in dollars per square foot)(3).......................... 2.60 1.82 3.64 --
Tenant Improvements (in dollars per square foot).................. 0.28 0.16 -- --
Leasing Commissions (in dollars per square foot)(4)............... 0.45 0.53 0.17 --
Effective Net Rent (in dollars per square foot)(5)................ 2.45 1.72 3.62 --
Overall occupancy rate at end of period(%)........................ 75% 73% 73% 73%
</TABLE>

- ---------

(1) Comparative historical information for other properties owned is not
available.

(2) Includes only industrial tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.

(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.

63
<PAGE>
THE OFFICE AND INDUSTRIAL PROPERTIES

The following table sets forth certain information relating to each of the
Properties as of March 31, 1998, unless indicated otherwise. After completion of
the Pending Acquisitions, the Company (through the Operating Partnership and its
affiliates) will own a 100% interest in all of the Office Properties and the
Industrial Properties.
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE LEASED ANNUALIZED ANNUALIZED NET
YEAR SQUARE AS OF NET RENT RENT PER
PROPERTY LOCATION BUILT/RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2)
- ------------------------- ------------- ------------------- ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:

77 West Wacker
Drive(5)............... Chicago, IL 1992 944,556 95.7 20,308 22.48

1990 Algonquin Road/
2000-2060 Algonquin
Road
(Salt Creek Office Schaumburg,
Center)(7)(8).......... IL 1979/1986 125,922 96.2 1,228 10.13

1699 E. Woodfield Road
(Citibank Office Schaumburg,
Plaza)(9).............. IL 1979 105,400 98.9 987 9.47

201 4th Avenue N......... Nashville, TN 1968/1985 250,566 83.2 1,794 8.60

620 Market Street........ Knoxville, TN 1988 93,711 91.8 894 10.40

625 Gay Street........... Knoxville, TN 1988 91,426 83.2 625 8.22

4823 Old Kingston Pike... Knoxville, TN 1988 34,638 100.0 306 8.83

941-961 Weigel
Drive(10).............. Elmhurst, IL 1989/1994 123,077 100.0 1,571 12.76

4100 Madison
Street(10)............. Hillside, IL 1978 24,536 60.1 57 3.87

1600-1700 167th Calumet City,
Street(10)............. IL 1981 65,394 56.9 459 12.35

4343 Commerce
Court(10).............. Lisle, IL 1989 170,708 67.2 1,871 16.31

1301 East Tower Schaumburg,
Road(10)............... IL 1992 50,400 100.0 524 10.41

<CAPTION>
ANNUALIZED
EFFECTIVE TENANTS LEASING 10%
ANNUALIZED NET RENT PER OR MORE OF NET RENTABLE
EFFECTIVE NET SQ. SQUARE FEET PER
PROPERTY RENT ($000)(3) FT.($)(4) PROPERTY AS OF 3/31/98
- ------------------------- --------------- ------------ ---------------------------------
<S> <C> <C> <C>
OFFICE PROPERTIES:
77 West Wacker
Drive(5)............... 17,651 19.54(6) Donnelley (25.6%)
Everen (25.5%)
Jones Day (11.8%)
1990 Algonquin Road/
2000-2060 Algonquin
Road
(Salt Creek Office
Center)(7)(8).......... 1,216 10.03 Silicon Graphics
(14.3%)
1699 E. Woodfield Road
(Citibank Office
Plaza)(9).............. 976 9.37 McGladrey &
Pullen (47.5%)
Merrill Lynch (14.6%)
201 4th Avenue N......... 1,670 8.01(6) SunTrust Bank (49.0%)
620 Market Street........ 801 9.31(6) Morton, Lewis, King &
Kreig (31.7%)
FNB Financial (20.7%)
625 Gay Street........... 514 6.75(6) Healthsource (21.5%)
4823 Old Kingston Pike... 259 7.47(6) Talbots (68.1%)
941-961 Weigel
Drive(10).............. 1,559 12.66 Household Financial
Corporation (100.0%)(11)
4100 Madison
Street(10)............. 56 3.77 Nardi Group (27.3%)
Narco Construction (20.9%)
1600-1700 167th
Street(10)............. 456 12.25 Unger-Sirovatka (11.1%)
4343 Commerce
Court(10).............. 1,860 16.21 EquiFax (17.2%)
Hinshaw, Culbertson (47.9%)
1301 East Tower
Road(10)............... 519 10.31 Household Credit
Services (100.0%)(12)
</TABLE>

64
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE LEASED ANNUALIZED ANNUALIZED
YEAR BUILT/ SQUARE AS OF NET RENT NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2)
- ------------------------- --------------------- ------------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
280 Shuman Blvd.(7)...... Naperville, IL 1979 65,001 90.8 593 10.05

2205-2255 Enterprise
Drive(7)............... Westchester, IL 1987 129,574 94.9 1,249 10.16

33 North Dearborn(13).... Chicago, IL 1967/1986 302,818 87.6 2,358 8.89

2675 North Mayfair
Road(14)............... Wauwatosa, WI 1979 102,660 90.4 953 10.26

3800 North Wilke
Road(13)............... Arlington Heights, IL 1987/1989 235,269 96.1 3,168 14.01

1701 Golf Road(14)(15)... Rolling Meadows, IL 1977/1979/1981 916,000 97.4 8,114 9.10

122 South Michigan(13)... Chicago, IL 1910 512,660 53.5 3,001 10.95

208 South LaSalle(13).... Chicago, IL 1914/1956/1982/1991 827,494 93.1 7,332 9.52

1700 East Golf
Road(13)(16)........... Schaumburg, IL 1989 217,960 96.7 3,838 18.21

6400 Shafer Court(13).... Rosemont, IL 1980/1990 167,495 93.5 2,088 13.33

2100 Swift Drive(13)..... Oak Brook, IL 1985/1991 58,000 100.0 1,065 18.35

2000 York Road(13) Oak Brook, IL 1960/1986 199,245 87.2 1,819 10.47
---------- ----------

Office Properties
Subtotals 5,814,510 89.0 66,202 12.79
---------- ----------

INDUSTRIAL PROPERTIES:

WAREHOUSE/
DISTRIBUTION
FACILITIES:

425 East Algonquin
Road................... Arlington Heights, IL 1978 304,506 100.0 946 3.11

801 Technology Way....... Libertyville, IL 1997 68,824 63.4 303 6.96

1001 Technology
Way(10)................ Libertyville, IL 1996 212,831 100.0 906 4.26

3818 Grandville/
1200
Northwestern(10)....... Gurnee, IL 1961/1990 345,232 100.0 1,041 3.02

306-310 Era
Drive(10)(17).......... Northbrook, IL 1984 36,495 100.0 295 8.09

555 Huehl Road(10)....... Northbrook, IL 1987 74,000 100.0 529 7.15

2160 McGaw Road(9)....... Obetz, OH 1974 310,100 100.0 487 1.57

<CAPTION>
ANNUALIZED TENANTS LEASING 10%
ANNUALIZED EFFECTIVE NET OR MORE OF NET RENTABLE
EFFECTIVE NET RENT PER SQUARE FEET PER
PROPERTY RENT ($000)(3) SQ. FT.($)(4) PROPERTY AS OF 3/31/98
- ------------------------- -------------- ------------- --------------------------------
<S> <C> <C> <C>
280 Shuman Blvd.(7)...... 587 9.95 EBY-Brown (35.4%)
Devtech Associates (14.3%)
General Electric (10.1%)
Nexgen Software Tech (14.9%)
2205-2255 Enterprise
Drive(7)............... 1,237 10.06 Census Bureau (14.5%)
National Restaurant
Enterprise (12.6%)
Cherry Communications (12.3%)
33 North Dearborn(13).... 2,332 8.79 None
2675 North Mayfair
Road(14)............... 943 10.16 Aetna (46.0%)
3800 North Wilke
Road(13)............... 3,146 13.91 CITGO Petroleum (34.8%)
1701 Golf Road(14)(15)... 8,025 9.00 Motorola, Inc. (21.6%)
AT&T (16.3%)
122 South Michigan(13)... 2,973 10.85 None
208 South LaSalle(13).... 7,255 9.42 The Chicago Corp. (29.5%)
1700 East Golf
Road(13)(16)........... 3,817 18.11 Santa Fe Pacific Corp. (75.0%)
6400 Shafer Court(13).... 2,072 13.23 AHI International Corp. (10.7%)
2100 Swift Drive(13)..... 1,059 18.25 OSN Communications (100.0%)
2000 York Road(13) 1,801 10.37 Tribune Programming (43.6%)
------
Office Properties
Subtotals 62,784 12.13
------
INDUSTRIAL PROPERTIES:
WAREHOUSE/
DISTRIBUTION
FACILITIES:
425 East Algonquin
Road................... 836 2.75(6) Berlin Packaging (34.2%)
AM International (26.1%)
International Components (20.8%)
Barnes & Reineke (18.9%)
801 Technology Way....... 299 6.86 Moore USA (63.4%)
1001 Technology
Way(10)................ 885 4.16 Rank Video (76.1%)
Arlington Industries (23.9%)
3818 Grandville/
1200
Northwestern(10)....... 1,007 2.92 Rank Video (100.0%)
306-310 Era
Drive(10)(17).......... 292 7.99 Roche/NICL (62.3%)
SLJ/Lionstone (37.7%)
555 Huehl Road(10)....... 522 7.05 Rank Video (100.0%)
2160 McGaw Road(9)....... 456 1.47 Spartan Warehouse (100.0%)
</TABLE>

65
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE LEASED ANNUALIZED ANNUALIZED NET
YEAR SQUARE AS OF NET RENT RENT PER
PROPERTY LOCATION BUILT/RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2)
- ------------------------- ------------- ------------------- ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
4849 Groveport Road(9)... Obetz, OH 1968 132,100 100.0 288 2.18

2400 McGaw Road(9)....... Obetz, OH 1972 86,400 100.0 191 2.21

5160 Blazer Memorial
Parkway(9)(18)......... Dublin, OH 1983 85,962 66.8 342 5.96

600 London Road(9)....... Delaware, OH 1981 52,441 100.0 134 2.55

1401 South
Jefferson(10).......... Chicago, IL 1965/1985 17,265 100.0 89 5.15

1051 North Kirk
Road(10)(19)........... Batavia, IL 1990 120,004 100.0 474 3.95

4211 Madison
Street(10)............. Hillside, IL 1977/1992 90,334 100.0 349 3.87

200 East Fullerton Carol Stream,
Avenue(10)............. IL 1968/1995 66,254 100.0 248 3.75

350 Randy Road(10)....... Carol Stream,
IL 1974 25,200 100.0 145 5.77

4248, 4250 and 4300
Madison Street(10)..... Hillside, IL 1980 127,129 87.7 545 4.89

370 Carol Lane(10)....... Elmhurst, IL 1977/1994 60,290 100.0 256 4.25

388 Carol Lane(10)....... Elmhurst, IL 1979 40,920 88.4 180 4.97

342-346 Carol Lane(10)... Elmhurst, IL 1989 67,935 100.0 310 4.56

343 Carol Lane(10)....... Elmhurst, IL 1989 30,084 100.0 202 6.71

4160-4190 Madison
Street(10)............. Hillside, IL 1974/1992 79,532 100.0 314 3.95

11039 Gage Avenue(10).... Franklin
Park, IL 1965/1993 21,935 100.0 107 4.90

11045 Gage Avenue(10).... Franklin
Park, IL 1970/1992 140,815 97.0 535 3.91

550 Kehoe Blvd(10)....... Carol Stream,
IL 1997 44,575 100.0 292 6.55

475 Superior Avenue(7)... Munster, IN 1989 450,000 100.0 1,258 2.80

300 Craig Place(28) Hillside, IL 1997 163,070 100.0 849 5.21

<CAPTION>
ANNUALIZED
EFFECTIVE TENANTS LEASING 10%
ANNUALIZED NET RENT PER OR MORE OF NET RENTABLE
EFFECTIVE NET SQ. SQUARE FEET PER
PROPERTY RENT ($000)(3) FT.($)(4) PROPERTY AS OF 3/31/98
- ------------------------- --------------- ------------ ---------------------------------
<S> <C> <C> <C>
4849 Groveport Road(9)... 274 2.08 Premier Auto Glass Corp (100.0%)
2400 McGaw Road(9)....... 183 2.11 S.P. Richards (100.0%)
5160 Blazer Memorial
Parkway(9)(18)......... 336 5.86 Cross Medical (32.2%)
Alkon (32.3%)
600 London Road(9)....... 129 2.45 Schneider National, Inc. (100.0%)
1401 South
Jefferson(10).......... 87 5.05 Federal Express Corp (100.0%)
1051 North Kirk
Road(10)(19)........... 462 3.85 Master Lease
4211 Madison
Street(10)............. 340 3.77 Dynamic Manufacturing Co. (71.2%)
Aratex Services, Inc. (28.8%)
200 East Fullerton
Avenue(10)............. 242 3.65 Spraying Systems (100.0%)(21)
350 Randy Road(10).......
143 5.67 Data Instruments (37.5%)
Micro Energy (12.5%)
Miller Pharmaceutical Group
(12.5%)
Mar-Cole Music Center (12.5%)
Installation Services (12.5%)
David Wetzler (12.5%)
4248, 4250 and 4300
Madison Street(10)..... 533 4.79 Best Buy Co., Inc. (40.1%)
Micron Industries (28.9%)
370 Carol Lane(10)....... 250 4.15 Semblex Corp (100.0%)
388 Carol Lane(10)....... 176 4.87 Ameritech (88.4%)
342-346 Carol Lane(10)... 303 4.46 3-D Exhibits (70.5%)
Old Kent Financial Corp. (29.5%)
343 Carol Lane(10)....... 199 6.61 Matsushita Industrial Equipment
(100.0%)
4160-4190 Madison
Street(10)............. 306 3.85 Evans, Inc. (46.0%)
Dynamic Manufacturing (53.9%)
11039 Gage Avenue(10)....
105 4.80 Boston Coach Illinois Corp.
(100.0%)
11045 Gage Avenue(10)....
521 3.81 Echlin, Inc. (100.0%)(22)
550 Kehoe Blvd(10).......
288 6.45 Associated Material (100.0%)
475 Superior Avenue(7)... 1,213 2.70 General Electric (100.0%)
300 Craig Place(28) 833 5.11 Federal Express Corp. (73.5%)
Storopack Inc. (26.5%)
</TABLE>

66
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE LEASED ANNUALIZED ANNUALIZED NET ANNUALIZED
YEAR BUILT/ SQUARE AS OF NET RENT RENT PER EFFECTIVE NET
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3)
- ------------------------- ------------- ------------------ --------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
OVERHEAD CRANE/MANUFACTURING FACILITIES:

1301 Ridgeview McHenry, IL 1995 217,600 100.00 1,031 4.74 1,009
Drive(10)(22)..........

515 Huehl Road/500 Northbrook, 1988 201,244 100.00 822 4.08 801
Lindberg(10)........... IL

455 Academy Northbrook, 1976 105,444 100.0 406 3.85 395
Drive(10)(23).......... IL

4411 Marketing Groveport, OH 1984 65,804 100.0 227 3.45 220
Place(9)...............

Chicago Enterprise Chicago, IL 1916/1991-1996
Center.................

13535-A S. Torrence 384,806 37.9 321 2.20 321
Avenue.................

13535-B S. Torrence 239,752 100.0 649 2.71 432
Avenue.................

13535-C S. Torrence 99,333 100.0 250 2.51 72
Avenue.................

13535-D S. Torrence 77,325 100.0 236 3.05 213
Avenue.................

13535-E S. Torrence 57,453 15.3 30 3.42 25
Avenue.................

13535-F S. Torrence 44,800 100.0 146 3.25 129
Avenue.................

13535-G S. Torrence 54,743 -- -- -- --
Avenue.................

13535-H S. Torrence 73,612 56.3 76 1.83 72
Avenue.................

East Chicago Enterprise East Chicago, 1917/1991-1997
Center................. IN

Building 2 (4407 169,435 -- -- -- --
Railroad Avenue).....

Building 3 (4407 291,550 100.0 1,423 4.88 1,248
Railroad Avenue).....

Building 4 (4407 87,483 98.1 286 3.33 277
Railroad Avenue).....

4440 Railroad 40,000 -- -- -- --
Avenue(24)...........

4635 Railroad Avenue... 14,070 -- -- -- --

Hammond Enterprise Hammond, IN 1920-1952
Center.................

4507 Columbia 256,595 98.8 686 2.71 633
Avenue(25)...........

4527 Columbia 16,701 49.3 50 6.02 15
Avenue(26)...........

4531 Columbia Avenue... 250,266 74.1 274 1.48 251
--------- ----------- -------

Industrial Properties 6,002,249 87.4 18,528 3.53 17,333
Subtotal...............
--------- ----------- -------

Portfolio Total.......... 11,816,759 88.2 84,729 8.13 80,117
--------- ----------- -------
--------- ----------- -------

<CAPTION>
ANNUALIZED
EFFECTIVE TENANTS LEASING 10%
NET RENT PER OR MORE OF NET RENTABLE
SQ. SQUARE FEET PER
PROPERTY FT.($)(4) PROPERTY AS OF 3/31/98
- ------------------------- ------------ -------------------------------
<S> <C> <C>
OVERHEAD CRANE/MANUFACTUR
1301 Ridgeview 4.64 Motorola (100.0%)
Drive(10)(22)..........
515 Huehl Road/500 3.98
Lindberg(10)........... Rank Video (100.0%)
455 Academy 3.75
Drive(10)(23).......... National Service Industries
(100.0%)
4411 Marketing 3.35 Wes-Tran Corp. (100.0%)
Place(9)...............
Chicago Enterprise
Center.................
13535-A S. Torrence 2.20
Avenue................. Co-Steel Lasco (37.9%)
13535-B S. Torrence 1.80
Avenue................. Welded Tube Company (100.0%)
13535-C S. Torrence 0.72
Avenue................. Sterling Steel (81.9%)
13535-D S. Torrence 2.75
Avenue................. Alpha Processing (100.0%)
13535-E S. Torrence 2.85
Avenue................. Signode (13.9%)
13535-F S. Torrence 2.87
Avenue................. Signode (100.0%)
13535-G S. Torrence --
Avenue................. Vacant
13535-H S. Torrence 1.74
Avenue................. Performance Minerals (42.4%)
Jet Vac (13.9%)
East Chicago Enterprise
Center.................
Building 2 (4407 --
Railroad Avenue)..... Vacant
Building 3 (4407 4.28(6)
Railroad Avenue)..... Acutus-Gladwin (47.1%)
Metro Metals (52.9%)
Building 4 (4407 3.23
Railroad Avenue)..... Illiana Steel (98.1%)
4440 Railroad --
Avenue(24)........... Vacant
4635 Railroad Avenue... -- Vacant
Hammond Enterprise
Center.................
4507 Columbia 2.50(6)
Avenue(25)........... A.M. Castle (85.2%)
HECO (12.7%)
4527 Columbia 1.85
Avenue(26)........... The Prime Group, Inc. (24.2%)
Great Lakes Engineering LLC
(16.6%)
4531 Columbia Avenue... 1.35 HECO (41.6%)
Bar Processing (32.5%)
Industrial Properties 3.30
Subtotal...............
Portfolio Total.......... 7.69
</TABLE>

67
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE LEASED ANNUALIZED ANNUALIZED NET
YEAR SQUARE AS OF NET RENT RENT PER
PROPERTY LOCATION BUILT/RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2)
- ------------------------- ------------- ------------------- ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE PROPERTY
180 North LaSalle........ Chicago, IL 1972 728,406

OTHER PROPERTIES
398 Unit Parking
Facility............... Knoxville, TN 1981
371-385 North Gary Carol Stream,
Avenue(10)(27)......... IL 1978 11,276

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

(1) Annualized Net Rent is the monthly net rent due under the lease as
determined in accordance with GAAP, annualized for all leases in effect on
March 31, 1998. 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 per square foot represents Annualized Net Rent divided
by net rentable square feet for leases in effect at March 31, 1998.

(3) Annualized Effective Net Rent represents total net rent to be received over
their respective terms from all leases in effect at March 31, 1998 minus
all 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 $0.10 per square foot for
leases in effect at March 31, 1998. The Company estimated the $.10 per
square foot cost for the Acquisition Properties and Contribution Properties
by taking the available total costs of the tenants divided by the total
square footage of such Properties.

(4) Annualized Effective Net Rent per square foot represents Annualized
Effective Net Rent at March 31, 1998 divided by net rentable square feet
leased at March 31, 1998.

(5) Keck vacated the Keck Space in November 1997 pursuant to a settlement
agreement. Through March 31, 1998, 85,000 net rentable square feet of the
113,000 net rentable square feet of Keck Space has been re-leased.

(6) For the purpose of this table, the historical Tenant Expenditures for these
Properties developed by PGI 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--$5.12 per
leased square foot and Industrial Properties--$4.20 per leased square
foot). The Company has deducted from historical Tenant Expenditures its
estimated cost of certain non-recurring building improvements such as:
ceilings and lights, building standard blinds, HVAC distribution systems,
interior partitioning and sprinkler system distribution.

(7) These Properties are IPO Acquisitions.

(8) This property complex is comprised of 1990 Algonquin Road (a two-story
office building) and 2000-2060 Algonquin Road (seven single-story office
buildings), but is treated as one office property.

(9) These Properties are Prime Contribution Properties.

(10) These Properties are Contribution Properties.

(11) Household Financial Corporation has a right of first refusal to purchase
941-961 Weigel Drive.

(12) Household Credit Services has both a right of first refusal to purchase
1301 E. Tower Road and a purchase option exercisable prior to December 30,
2001 at fair market value.

(13) This Property is a 1998 Acquisition Property.

(14) This Property is a December Acquisition Property.

(15) The Company owns a mortgage loan collateralized by this Property whose
terms effectively provide all the economic benefits of ownership to the
Company.

(16) Excluded from this property is a sublet lease effective February 1, 2001
through December 31, 2007.

(17) Roche/NICL Ltd. has a right of first refusal to purchase 306 Era Drive.

(18) This property is a mixed use Industrial/Office Property that has been
classified as an Industrial Property.

(19) Includes a master lease with the NAC General Partner.

(20) Spraying Systems has a right of first refusal for 200 E. Fullerton Avenue.

(21) Echlin, Inc. has a right of first refusal to purchase 11045 Gage Avenue.

(22) Motorola has an option to purchase 1301 Ridgeview Drive for $10,375,000 on
May 31, 2000, the end of the initial lease term, $11,620,040 on May 31,
2003, the end of the first option period, $13,014,488 on May 31, 2006, the
end of the second option period and $14,576,297 on May 31, 2009, the end
of the third option period.

(23) National Service Industries, Inc., has a right of first refusal to
purchase the industrial building at 455 Academy Drive, and the land
adjacent thereto.

(24) This property is an office building adjacent to the East Chicago
Enterprise Center.

(25) 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.

(26) This property is an office building within the Hammond Enterprise Center.

(27) This is a retail center.

(28) This Property is a Pending Acquisition.

68
<PAGE>
SUMMARY LAND PARCEL INFORMATION

Including the Pending Parcel Acquisitions, the Company will own
approximately 246.5 acres (including a development site containing approximately
67,000 square feet located in the Chicago CBD held by a joint venture with a
third party) and has rights to acquire approximately 302.8 acres of developable
land (including rights to acquire two development sites located in the Chicago
CBD containing approximately 119,000 square feet) which management believes
could be developed with approximately 5.6 million square feet of additional
office space and over 7.6 million square feet of additional industrial space.
The following table provides additional information with respect to these
undeveloped parcels:

<TABLE>
<CAPTION>
DESCRIPTION LOCATION SIZE OWNERSHIP STATUS
- ------------------------------------------ -------------------------------- --------------- ------------------
<S> <C> <C> <C>
425 E. Algonquin Road..................... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Center................. Chicago, IL 51.2 Acres Own
East Chicago Enterprise Center............ East Chicago, IN 9.1 Acres Own
Hammond Enterprise Center................. Hammond, IN 8.2 Acres Own
455 Academy Drive(1)...................... Northbrook, IL 2.5 Acres Own
Libertyville Business Park(2)............. Libertyville, IL 34.4 Acres Own
14.1 Acres Under Contract
1301 Ridgeview Drive...................... 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(3)...................... Chicago, IL 58,025 Sq. Ft. Option
NAC Properties(4)......................... Carol Stream, IL/Batavia, IL 94.4 Acres Under Contract
Dearborn Center(5)........................ Chicago, IL 66,768 Sq. Ft. Own
Prime Aurora(6)........................... Aurora, IL 54.7 Acres Own
132.8 Acres Under Contract
DeKalb I.................................. DeKalb County, IL 50.4 Acres Own
DeKalb II(7).............................. DeKalb County, IL 45.8 Acres Under Contract
Monroe/Wacker(8).......................... Chicago, IL 61,302 Sq. Ft. Under Contract
Rolling Meadows Land(9)................... Rolling Meadows, IL 22.0 Acres Under Contract
</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 this
land.

(2) The Company is obligated to purchase this land for $2.9 million (subject to
certain purchase price adjustments) by November 17, 2000.

(3) The Company has a ten-year option to purchase this Chicago CBD development
site at 95.0% of the fair market value at the time of the exercise of the
option.

(4) The Company is obligated to purchase 20.0 acres of this property per year,
starting on November 17, 1998, for $3.00 per square foot, or approximately
$2.5 million for each 20.0 acres.

(5) This property is a mixed-use development site in downtown Chicago and is
owned by a joint venture consisting of the Company and a third party. The
Company owns a majority interest in this joint venture.

(6) The Company is obligated to purchase this land over a three to five year
period beginning in June, 1998 under two separate contracts for an aggregate
purchase price totaling $10.4 million.

(7) The Company is obligated to purchase this land no later than October 31,
1998, under a contract for an aggregate purchase price totaling $825,000.

(8) The Company is obligated to buy this land by January 12, 1999.

69
<PAGE>
(9) The purchase of this property is scheduled to occur in January 1999.

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

OCCUPANCY AND RENTAL INFORMATION

The following table sets forth the average percentage leased and average
annual base rent per leased square foot for the Properties for the three months
ended March 31, 1998 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, 1998.......................................... 90.2 16.10
December 31, 1997....................................... 92.6 12.78
December 31, 1996(3).................................... 94.1 18.71
December 31, 1995(3).................................... 94.7 21.40
Industrial:
March 31, 1998.......................................... 87.5 3.58
December 31, 1997....................................... 83.8 2.09
December 31, 1996(3).................................... 73.2 3.18
December 31, 1995(3).................................... 67.6 2.77
</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.

(3) Includes only Prime Properties.

70
<PAGE>
LEASE EXPIRATIONS

The following table sets out a schedule of the lease expirations for the
Office Properties for each of the ten years beginning with April 1, 1998,
assuming that none of the tenants exercises renewal options or termination
rights:

<TABLE>
<CAPTION>
AVERAGE ANNUAL
NET PERCENTAGE OF RENT PER
RENTABLE TOTAL LEASED ANNUAL BASE NET RENTABLE
AREA SUBJECT SQUARE FEET RENT UNDER SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES BY EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($)
- ----------------------------------------- ------------- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
4/1/98-12/31/98.......................... 112 442,181 8.54 4,230 9.57
1999..................................... 134 644,963 12.46 6,892 10.69
2000..................................... 151 651,987 12.60 5,999 9.20
2001..................................... 103 730,925 14.13 8,994 12.30
2002..................................... 98 576,327 11.14 7,588 13.17
2003..................................... 53 401,794 7.76 4,734 11.78
2004..................................... 22 199,316 3.85 1,918 9.63
2005..................................... 26 368,125 7.11 3,992 10.84
2006..................................... 8 67,094 1.30 631 9.40
2007..................................... 14 732,519 14.15 17,399 23.75
2008+.................................... 13 360,174 6.96 3,825 10.62
--- -------------- ------ -----------
734 5,175,405 100.00 66,202 12.79
--- -------------- ------ -----------
--- -------------- ------ -----------
</TABLE>

The following table sets out a schedule of the lease expirations for the
Industrial Properties for each of the ten years beginning with April 1, 1998,
assuming that none of the tenants exercises renewal options or termination
rights:

<TABLE>
<CAPTION>
AVERAGE ANNUAL
PERCENTAGE OF ANNUAL RENT PER NET
NET RENTABLE TOTAL LEASED BASE RENT RENTABLE SQUARE
AREA SUBJECT SQUARE FEET UNDER FOOT
NUMBER OF TO EXPIRING REPRESENTED EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES BY EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES(%) ($000) LEASES($)
- ------------------------------------------- ------------- ------------ ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
4/1/98-12/31/98............................ 6 330,588 6.30 585 1.77
1999....................................... 15 1,062,983 20.25 3,286 3.09
2000....................................... 13 827,424 15.77 3,154 3.81
2001....................................... 15 1,011,393 19.27 3,731 3.69
2002....................................... 1 2,766 0.06 13 4.57
2003....................................... 6 667,918 12.73 2,661 3.98
2004....................................... 1 60,290 1.15 256 4.25
2005....................................... 7 333,502 6.35 971 2.91
2006....................................... 3 97,750 1.86 457 4.68
2007....................................... 3 91,402 1.74 441 4.82
2008+...................................... 6 762,046 14.52 2,971 3.90
--- ------------ ------ -----------
76 5,248,062 100.00 18,526 3.53
--- ------------ ------ -----------
--- ------------ ------ -----------
</TABLE>

71
<PAGE>
The following table set forth detailed lease expiration information for each
of the Properties for leases in place as of April 1, 1998, 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
-----------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004
--------- --------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
77 West Wacker Drive
Square Footage of Expiring Leases.......... 7,723 1,424 29,267 12,844 84,060 63,715 22,576
Percentage of Total Leased Sq. Ft. (%)..... 0.9 0.2 3.2 1.4 9.3 7.1 2.5
Annualized Net Rent of Expiring Leases
($)...................................... 15,936 17,871 240,939 166,053 1,296,817 1,007,479 208,530
Annualized Net Rent per Square Foot ($).... 2.06 12.55 8.23 12.93 15.43 15.81 9.24
Percentage of Total Annualized Net Rent
(%)...................................... 0.1 0.1 1.2 0.8 6.4 5.0 1.0
Number of Leases Expiring.................. 1 1 3 2 7 6 1
1990, 2000-2060 Algonquin Road (Salt Creek
Office Center)
Square Footage of Expiring Leases.......... 14,838 14,512 36,811 21,411 27,458 6,110 --
Percentage of Total Leased Sq. Ft. (%)..... 12.2 12.0 30.4 17.7 22.7 5.0 --
Annualized Net Rent of Expiring Leases
($)...................................... 133,457 143,213 410,431 201,369 274,350 64,882 --
Annualized Net Rent per Square Foot ($).... 8.99 9.87 11.15 9.40 9.99 10.62 --
Percentage of Total Annualized Net Rent
(%)...................................... 10.9 11.7 33.4 16.4 22.3 5.3 --
Number of Leases Expiring.................. 9 8 10 6 6 1 --
1699 East Woodfield Road (Citibank Office
Plaza)
Square Footage of Expiring Leases.......... 965 6,417 8,987 8,196 64,267 15,374 --
Percentage of Total Leased Sq. Ft. (%)..... 0.9 6.2 8.6 7.9 61.7 14.8 --
Annualized Net Rent of Expiring Leases
($)...................................... 4,534 66,070 43,616 62,713 645,333 164,459 --
Annualized Net Rent per Square Foot ($).... 4.70 10.30 4.85 7.65 10.04 10.70 --
Percentage of Total Annualized Net Rent
(%)...................................... 0.5 6.7 4.4 6.4 65.4 16.7 --
Number of Leases Expiring.................. 1 3 4 4 12 4 --
201 4th Avenue N.
Square Footage of Expiring Leases.......... 17,023 5,307 25,056 21,415 6,303 -- --
Percentage of Total Leased Sq. Ft. (%)..... 8.1 2.5 12.0 10.3 3.0 -- --
Annualized Net Rent of Expiring Leases
($)...................................... 208,366 45,245 219,659 162,828 56,023 -- --
Annualized Net Rent per Square Foot ($).... 12.24 8.53 8.77 7.60 8.89 -- --
Percentage of Total Annualized Net Rent
(%)...................................... 11.6 2.5 12.2 9.1 3.1 -- --
Number of Leases Expiring.................. 7 5 6 6 1 -- --
620 Market Street
Square Footage of Expiring Leases.......... 15,925 9,972 1,820 9,308 10,359 8,871 29,735
Percentage of Total Leased Sq. Ft. (%)..... 18.5 11.6 2.1 10.8 12.0 10.3 34.6
Annualized Net Rent of Expiring Leases
($)...................................... 130,355 84,483 16,380 79,048 79,134 114,979 390,051
Annualized Net Rent per Square Foot ($).... 8.19 8.47 9.00 8.49 7.64 12.96 13.12
Percentage of Total Annualized Net Rent
(%)...................................... 14.6 9.4 1.8 8.8 8.8 12.9 43.6
Number of Leases Expiring.................. 5 4 1 4 4 1 3

2005 2006 2007 2008+ TOTAL
--------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
77 West Wacker Drive
Square Footage of Expiring Leases.......... 22,617 4,485 648,531 6,234 903,476
Percentage of Total Leased Sq. Ft. (%)..... 2.5 0.5 71.8 0.7 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... 469,303 46,147 16,722,759 116,033 $ 20,307,868
Annualized Net Rent per Square Foot ($).... 20.75 10.29 25.79 18.61 $ 22.48
Percentage of Total Annualized Net Rent
(%)...................................... 2.3 0.2 82.3 0.6 100.00%
Number of Leases Expiring.................. 1 1 6 1 30
1990, 2000-2060 Algonquin Road (Salt Creek
Office Center)
Square Footage of Expiring Leases.......... -- -- -- -- 121,140
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 1,227,702
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 10.13
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 40
1699 East Woodfield Road (Citibank Office
Plaza)
Square Footage of Expiring Leases.......... -- -- -- -- 104,206
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 986,724
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 9.47
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 28
201 4th Avenue N.
Square Footage of Expiring Leases.......... 12,520 -- -- 120,901 208,525
Percentage of Total Leased Sq. Ft. (%)..... 5.9 -- -- 57.4 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... 131,683 -- -- 969,903 $ 1,793,708
Annualized Net Rent per Square Foot ($).... 10.52 -- -- 8.02 $ 8.60
Percentage of Total Annualized Net Rent
(%)...................................... 7.3 -- -- 54.1 100.00%
Number of Leases Expiring.................. 2 -- -- 1 28
620 Market Street
Square Footage of Expiring Leases.......... -- -- -- -- 85,990
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 894,431
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 10.40
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 22
</TABLE>

72
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-----------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
625 Gay Street
Square Footage of Expiring Leases.......... 26,805 13,382 18,605 2,314 8,321 -- 6,670
Percentage of Total Leased Sq. Ft. (%)..... 35.2 17.6 24.4 3.0 10.9 -- 8.8
Annualized Net Rent of Expiring Leases
($)...................................... 213,967 137,189 152,472 17,335 46,178 -- 58,048
Annualized Net Rent per Square Foot ($).... 7.98 10.25 8.20 7.49 5.55 -- 8.70
Percentage of Total Annualized Net Rent
(%)...................................... 34.2 21.9 24.4 2.8 7.4 -- 9.3
Number of Leases Expiring.................. 6 4 3 1 2 -- 1
4823 Old Kingston Pike
Square Footage of Expiring Leases.......... 1,873 25,398 -- 4,964 1,100 1,303 --
Percentage of Total Leased Sq. Ft. (%)..... 5.4 73.3 -- 14.3 3.2 3.8 --
Annualized Net Rent of Expiring Leases
($)...................................... 10,977 238,680 -- 34,121 7,178 14,740 --
Annualized Net Rent per Square Foot ($).... 5.86 9.40 -- 6.87 6.53 11.31 --
Percentage of Total Annualized Net Rent
(%)...................................... 3.6 78.1 -- 11.2 2.3 4.8 --
Number of Leases Expiring.................. 2 3 -- 3 1 1 --
941-961 Weigel Drive
Square Footage of Expiring Leases.......... -- 123,077 -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%)..... -- 100.0 -- -- -- -- --
Annualized Net Rent of Expiring Leases
($)...................................... -- 1,571,076 -- -- -- -- --
Annualized Net Rent per Square Foot ($).... -- 12.76 -- -- -- -- --
Percentage of Total Annualized Net Rent
(%)...................................... -- 100.0 -- -- -- -- --
Number of Leases Expiring.................. -- 1 -- -- -- -- --
4100 Madison Street
Square Footage of Expiring Leases.......... -- 739 939 13,067 -- -- --
Percentage of Total Leased Sq. Ft. (%)..... -- 5.0 6.4 88.6 -- -- --
Annualized Net Rent of Expiring Leases
($)...................................... -- 3,981 1,402 51,671 -- -- --
Annualized Net Rent per Square Foot ($).... -- 5.39 1.49 3.95 -- -- --
Percentage of Total Annualized Net Rent
(%)...................................... 7.0 2.5 90.6 -- -- --
Number of Leases Expiring.................. -- 1 1 3 -- -- --
1600-1700 167th Street
Square Footage of Expiring Leases.......... 6,299 4,996 5,944 4,922 9,632 -- --
Percentage of Total Leased Sq. Ft. (%)..... 16.9 13.4 16.0 13.2 25.9 -- --
Annualized Net Rent of Expiring Leases
($)...................................... 77,358 41,821 62,160 48,840 115,492 -- --
Annualized Net Rent per Square Foot ($).... 12.28 8.37 10.46 9.92 11.99 -- --
Percentage of Total Annualized Net Rent
(%)...................................... 16.8 9.1 13.5 10.6 25.1 -- --
Number of Leases Expiring.................. 4 2 4 1 2 -- --
4343 Commerce Court
Square Footage of Expiring Leases.......... 40,338 25,943 12,549 429 23,351 12,094 --
Percentage of Total Leased Sq. Ft. (%)..... 35.2 22.6 10.9 0.4 20.4 10.5 --
Annualized Net Rent of Expiring Leases
($)...................................... 620,221 410,124 208,200 1,512 419,615 211,579 --
Annualized Net Rent per Square Foot ($).... 15.38 15.81 16.59 3.52 17.97 17.49 --
Percentage of Total Annualized Net Rent
(%)...................................... 33.1 21.9 11.1 0.1 22.4 11.3 --
Number of Leases Expiring.................. 5 4 3 1 5 1 --

2005 2006 2007 2008+ TOTAL
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
625 Gay Street
Square Footage of Expiring Leases.......... -- -- -- -- 76,097
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 625,189
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 8.22
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 17
4823 Old Kingston Pike
Square Footage of Expiring Leases.......... -- -- -- -- 34,638
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 305,695
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 8.83
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 10
941-961 Weigel Drive
Square Footage of Expiring Leases.......... -- -- -- -- 123,077
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 1,571,076
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 12.76
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 1
4100 Madison Street
Square Footage of Expiring Leases.......... -- -- -- -- 14,745
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 57,054
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 3.87
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 5
1600-1700 167th Street
Square Footage of Expiring Leases.......... 5,400 -- -- -- 37,193
Percentage of Total Leased Sq. Ft. (%)..... 14.5 -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... 113,670 -- -- -- $ 459,341
Annualized Net Rent per Square Foot ($).... 21.05 -- -- -- $ 12.35
Percentage of Total Annualized Net Rent
(%)...................................... 24.7 -- -- -- 100.00%
Number of Leases Expiring.................. 1 -- -- -- 14
4343 Commerce Court
Square Footage of Expiring Leases.......... -- -- -- -- 114,704
Percentage of Total Leased Sq. Ft. (%)..... -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases
($)...................................... -- -- -- -- $ 1,871,251
Annualized Net Rent per Square Foot ($).... -- -- -- -- $ 16.31
Percentage of Total Annualized Net Rent
(%)...................................... -- -- -- -- 100.00%
Number of Leases Expiring.................. -- -- -- -- 19
</TABLE>

73
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1301 East Tower Road
Square Footage of Expiring Leases......................... -- -- -- 50,400 -- --
Percentage of Total Leased Sq. Ft (%)..................... -- -- -- 100.0 -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 524,412 -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- 10.41 -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- 100.0 -- --
Number of Leases Expiring................................. -- -- -- 1 -- --
280 Shuman Boulevard
Square Footage of Expiring Leases......................... -- 6,533 18,208 1,586 9,674 --
Percentage of Total Leased Sq. Ft (%)..................... -- 11.1 30.9 2.7 16.4 --
Annualized Net Rent of Expiring Leases ($)................ -- 75,388 210,785 15,819 119,110 --
Annualized Net Rent per Square Foot ($)................... -- 11.54 11.58 9.97 12.31 --
Percentage of Total Annualized Net Rent (%)............... -- 12.7 35.5 2.7 20.1 --
Number of Leases Expiring................................. -- 1 6 1 1 --
2205-2255 Enterprise Drive
Square Footage of Expiring Leases......................... 6,966 16,881 27,144 14,721 2,726 37,908
Percentage of Total Leased Sq. Ft (%)..................... 5.7 13.7 22.1 12.0 2.2 30.8
Annualized Net Rent of Expiring Leases ($)................ 73,990 145,044 265,123 133,416 34,080 432,528
Annualized Net Rent per Square Foot ($)................... 10.62 8.59 9.77 9.06 12.50 11.41
Percentage of Total Annualized Net Rent (%)............... 5.9 11.6 21.2 10.7 2.7 34.6
Number of Leases Expiring................................. 3 4 6 2 1 1
33 North Dearborn Street
Square Footage of Expiring Leases......................... 21,864 9,000 46,821 21,532 41,244 50,346
Percentage of Total Leased Sq. Ft (%)..................... 8.2 3.4 17.5 8.0 15.4 18.8
Annualized Net Rent of Expiring Leases ($)................ 252,191 43,707 397,433 199,996 253,938 474,138
Annualized Net Rent per Square Foot ($)................... 11.53 4.86 8.49 9.29 6.16 9.42
Percentage of Total Annualized Net Rent (%)............... 10.7 1.9 16.9 8.5 10.8 20.1
Number of Leases Expiring................................. 8 4 12 6 9 7
2675 North Mayfair Road
Square Footage of Expiring Leases......................... 11,967 60,156 1,750 1,810 -- 3,217
Percentage of Total Leased Sq. Ft (%)..................... 12.9 64.8 1.9 1.9 -- 3.5
Annualized Net Rent of Expiring Leases ($)................ 178,280 652,750 19,508 7,755 -- 48,072
Annualized Net Rent per Square Foot ($)................... 14.90 10.85 11.15 4.28 -- 14.94
Percentage of Total Annualized Net Rent (%)............... 18.7 68.5 2.0 0.8 -- 5.0
Number of Leases Expiring................................. 5 6 1 1 -- 1
3800 North Wilke Road
Square Footage of Expiring Leases......................... 12,650 5,608 30,227 40,129 114,349 --
Percentage of Total Leased Sq. Ft (%)..................... 5.6 2.5 13.4 17.7 50.6 --
Annualized Net Rent of Expiring Leases ($)................ 79,736 57,568 242,562 411,624 2,004,798 --
Annualized Net Rent per Square Foot ($)................... 6.30 10.27 8.02 10.26 17.53 --
Percentage of Total Annualized Net Rent (%)............... 2.5 1.8 7.7 13.0 63.3 --
Number of Leases Expiring................................. 3 2 6 5 6 --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1301 East Tower Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 50,400
Percentage of Total Leased Sq. Ft (%)..................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 524,412
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 10.41
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
280 Shuman Boulevard
Square Footage of Expiring Leases......................... 22,988 -- -- -- -- 58,989
Percentage of Total Leased Sq. Ft (%)..................... 39.0 -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ 171,925 -- -- -- -- $ 593,027
Annualized Net Rent per Square Foot ($)................... 7.48 -- -- -- -- $ 10.05
Percentage of Total Annualized Net Rent (%)............... 29.0 -- -- -- -- 100.00%
Number of Leases Expiring................................. 1 -- -- -- -- 10
2205-2255 Enterprise Drive
Square Footage of Expiring Leases......................... 16,618 -- -- -- -- 122,964
Percentage of Total Leased Sq. Ft (%)..................... 13.5 -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ 164,682 -- -- -- -- $1,248,864
Annualized Net Rent per Square Foot ($)................... 9.91 -- -- -- -- $ 10.16
Percentage of Total Annualized Net Rent (%)............... 13.2 -- -- -- -- 100.00%
Number of Leases Expiring................................. 1 -- -- -- -- 18
33 North Dearborn Street
Square Footage of Expiring Leases......................... 29,326 13,928 26,558 2,634 1,986 265,239
Percentage of Total Leased Sq. Ft (%)..................... 10.9 5.2 9.9 1.0 0.7 100.00%
Annualized Net Rent of Expiring Leases ($)................ 232,978 207,006 215,036 28,068 53,877 $2,358,367
Annualized Net Rent per Square Foot ($)................... 7.94 14.86 8.10 10.66 27.13 $ 8.89
Percentage of Total Annualized Net Rent (%)............... 9.9 8.8 9.1 1.2 2.3 100.00%
Number of Leases Expiring................................. 3 3 2 1 1 56
2675 North Mayfair Road
Square Footage of Expiring Leases......................... 3,106 -- -- 10,835 -- 92,841
Percentage of Total Leased Sq. Ft (%)..................... 3.3 -- -- 11.7 -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ 40,040 -- -- 6,226 -- $ 952,630
Annualized Net Rent per Square Foot ($)................... 12.89 -- -- 0.57 -- $ 10.26
Percentage of Total Annualized Net Rent (%)............... 4.2 -- -- 0.7 -- 100.00%
Number of Leases Expiring................................. 1 -- -- 2 -- 17
3800 North Wilke Road
Square Footage of Expiring Leases......................... -- 23,194 -- -- -- 226,157
Percentage of Total Leased Sq. Ft (%)..................... -- 10.3 -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- 372,063 -- -- -- $3,168,351
Annualized Net Rent per Square Foot ($)................... -- 16.04 -- -- -- $ 14.01
Percentage of Total Annualized Net Rent (%)............... -- 11.7 -- -- -- 100.00%
Number of Leases Expiring................................. -- 1 -- -- -- 23
</TABLE>

74
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
----------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1701 Golf Road
Square Footage of Expiring Leases............... 177,298 185,548 272,350 151,692 26,281 28,235
Percentage of Total Leased Sq. Ft (%)........... 19.9 20.8 30.5 17.0 2.9 3.2
Annualized Net Rent of Expiring Leases ($)...... 1,570,366 1,951,913 2,193,166 1,479,326 281,957 187,891
Annualized Net Rent per Square Foot ($)......... 8.86 10.52 8.05 9.75 10.73 6.65
Percentage of Total Annualized Net Rent (%)..... 19.4 24.1 27.0 18.2 3.5 2.3
Number of Leases Expiring....................... 23 23 39 19 6 10
122 South Michigan Avenue
Square Footage of Expiring Leases............... 7,914 25,827 13,345 15,091 42,871 4,339
Percentage of Total Leased Sq. Ft (%)........... 2.9 9.4 4.9 5.5 15.6 1.6
Annualized Net Rent of Expiring Leases ($)...... 59,106 143,622 181,238 338,983 555,775 57,953
Annualized Net Rent per Square Foot ($)......... 7.47 5.56 13.58 22.46 12.96 13.36
Percentage of Total Annualized Net Rent (%)..... 2.0 4.8 6.0 11.3 18.5 1.9
Number of Leases Expiring....................... 5 9 8 6 9 2
208 South LaSalle Street
Square Footage of Expiring Leases............... 57,352 70,098 52,373 98,129 67,315 24,951
Percentage of Total Leased Sq. Ft (%)........... 7.4 9.2 6.8 12.7 8.7 3.2
Annualized Net Rent of Expiring Leases ($)...... 486,720 684,327 473,866 1,000,834 948,193 243,370
Annualized Net Rent per Square Foot ($)......... 8.49 9.65 9.05 10.20 14.09 9.75
Percentage of Total Annualized Net Rent (%)..... 6.6 9.3 6.5 13.6 12.9 3.3
Number of Leases Expiring....................... 23 42 30 17 19 9
1700 East Golf Road
Square Footage of Expiring Leases............... -- 3,334 23,740 167,012 16,683 --
Percentage of Total Leased Sq. Ft (%)........... -- 1.6 11.3 79.2 7.9 --
Annualized Net Rent of Expiring Leases ($)...... -- 38,959 435,132 3,157,119 207,192 --
Annualized Net Rent per Square Foot ($)......... -- 11.69 18.33 18.90 12.42 --
Percentage of Total Annualized Net Rent (%)..... -- 1.0 11.3 82.3 5.4 --
Number of Leases Expiring....................... -- 2 2 5 3 --
6400 Schafer Court
Square Footage of Expiring Leases............... 5,341 15,254 2,694 40,304 20,333 48,386
Percentage of Total Leased Sq. Ft (%)........... 3.4 9.7 1.7 25.7 13.0 30.8
Annualized Net Rent of Expiring Leases ($)...... 65,805 145,834 32,673 604,332 242,992 621,852
Annualized Net Rent per Square Foot ($)......... 12.32 9.56 12.13 14.99 11.95 12.85
Percentage of Total Annualized Net Rent (%)..... 3.1 7.0 1.6 28.8 11.6 29.8
Number of Leases Expiring....................... 1 2 1 6 4 6
2000 York Road
Square Footage of Expiring Leases............... 9,040 14,747 23,357 29,649 -- 96,945
Percentage of Total Leased Sq. Ft (%)........... 5.2 8.5 13.4 17.1 -- 55.8
Annualized Net Rent of Expiring Leases ($)...... 48,513 192,679 192,514 294,894 -- 1,090,266
Annualized Net Rent per Square Foot ($)......... 5.37 13.07 8.24 9.95 -- 11.25
Percentage of Total Annualized Net Rent (%)..... 2.7 10.6 10.6 16.2 -- 59.9
Number of Leases Expiring....................... 1 3 5 3 -- 3

2004 2005 2006 2007 2008+ TOTAL
--------- ---------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1701 Golf Road
Square Footage of Expiring Leases............... 27,633 21,027 1,582 100 -- 891,746
Percentage of Total Leased Sq. Ft (%)........... 3.1 2.4 0.2 0.0 -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... 202,983 208,590 37,968 -- -- $ 8,114,161
Annualized Net Rent per Square Foot ($)......... 7.35 9.92 24.00 -- -- $ 9.10
Percentage of Total Annualized Net Rent (%)..... 2.5 2.6 0.5 0.0 -- 100.00%
Number of Leases Expiring....................... 4 4 1 1 -- 130
122 South Michigan Avenue
Square Footage of Expiring Leases............... -- 22,507 19,420 36,594 86,148 274,056
Percentage of Total Leased Sq. Ft (%)........... -- 8.2 7.1 13.4 31.4 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- 245,322 184,573 394,395 839,680 $ 3,000,648
Annualized Net Rent per Square Foot ($)......... -- 10.90 9.50 10.78 9.75 $ 10.95
Percentage of Total Annualized Net Rent (%)..... -- 8.2 6.2 13.1 28.0 100.00%
Number of Leases Expiring....................... -- 3 2 1 5 50
208 South LaSalle Street
Square Footage of Expiring Leases............... 34,210 229,058 15,049 33,825 86,905 770,075
Percentage of Total Leased Sq. Ft (%)........... 4.4 29.7 2.0 4.4 11.3 100.00%
Annualized Net Rent of Expiring Leases ($)...... 308,433 2,010,744 146,857 247,507 781,494 $ 7,332,345
Annualized Net Rent per Square Foot ($)......... 9.02 8.78 9.76 7.32 8.99 $ 9.52
Percentage of Total Annualized Net Rent (%)..... 4.2 27.4 2.0 3.4 10.7 100.00%
Number of Leases Expiring....................... 6 10 2 3 4 165
1700 East Golf Road
Square Footage of Expiring Leases............... -- -- -- -- -- 210,769
Percentage of Total Leased Sq. Ft (%)........... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- $ 3,838,402
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- $ 18.21
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- 100.00%
Number of Leases Expiring....................... -- -- -- -- -- 12
6400 Schafer Court
Square Footage of Expiring Leases............... 6,454 17,874 -- -- -- 156,640
Percentage of Total Leased Sq. Ft (%)........... 4.1 11.4 -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... 140,772 233,806 -- -- -- $ 2,088,065
Annualized Net Rent per Square Foot ($)......... 21.81 13.08 -- -- -- $ 13.33
Percentage of Total Annualized Net Rent (%)..... 6.7 11.2 -- -- -- 100.00%
Number of Leases Expiring....................... 1 1 -- -- -- 22
2000 York Road
Square Footage of Expiring Leases............... -- -- -- -- -- 173,738
Percentage of Total Leased Sq. Ft (%)........... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- $ 1,818,866
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- $ 10.47
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- 100.00%
Number of Leases Expiring....................... -- -- -- -- -- 15
</TABLE>

75
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
2100 Swift Drive
Square Footage of Expiring Leases................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft (%)............... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($).......... -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)............. -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)......... -- -- -- -- -- --
Number of Leases Expiring........................... -- -- -- -- -- --
OFFICE SUBTOTALS
Square Footage of Expiring Leases................... 442,181 644,963 651,987 730,925 576,327 401,794
Percentage of Aggregate Leased Sq. Ft (%)........... 8.5 12.5 12.6 14.1 11.1 7.8
Annualized Net Rent of Expiring Leases ($).......... 4,229,879 6,891,542 5,999,260 8,994,000 7,588,155 4,734,189
Annualized Net Rent per Square Foot ($)............. 9.57 10.69 9.20 12.30 13.17 11.78
Percentage of Total Annualized Net Rent (%)......... 6.4 10.4 9.0 13.6 11.5 7.2
Number of Leases Expiring........................... 112 134 151 103 98 53

INDUSTRIAL PROPERTIES

Warehouse/Distribution Facilities:
425 East Algonquin Road
Square Footage of Expiring Leases................... -- 57,404 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).............. -- 18.9 -- -- -- --
Annualized Net Rent of Expiring Leases ($).......... -- 166,657 -- -- -- --
Annualized Net Rent per Square Foot ($)............. -- 2.90 -- -- -- --
Percentage of Total Annualized Net Rent (%)......... -- 17.6 -- -- -- --
Number of Leases Expiring........................... -- 1 -- -- -- --
801 Technology Way
Square Footage of Expiring Leases................... -- -- 43,614 -- -- --
Percentage of Total Leased Sq. Ft. (%).............. -- -- 100.0 -- -- --
Annualized Net Rent of Expiring Leases ($).......... -- -- 303,409 -- -- --
Annualized Net Rent per Square Foot ($)............. -- -- 6.96 -- -- --
Percentage of Total Annualized Net Rent (%)......... -- -- 100.0 -- -- --
Number of Leases Expiring........................... -- -- 1 -- -- --

2004 2005 2006 2007 2008+
----------- ----------- ----------- ----------- -----------
<S> <C>
2100 Swift Drive
Square Footage of Expiring Leases................... -- -- -- -- 58,000
Percentage of Total Leased Sq. Ft (%)............... -- -- -- -- 100.0
Annualized Net Rent of Expiring Leases ($).......... -- -- -- -- 1,064,300
Annualized Net Rent per Square Foot ($)............. -- -- -- -- 18.35
Percentage of Total Annualized Net Rent (%)......... -- -- -- -- 100.0%
Number of Leases Expiring........................... -- -- -- -- 1
OFFICE SUBTOTALS
Square Footage of Expiring Leases................... 199,316 368,125 67,094 732,519 360,174
Percentage of Aggregate Leased Sq. Ft (%)........... 3.9 7.1 1.3 14.2 6.9
Annualized Net Rent of Expiring Leases ($).......... 1,918,444 3,992,186 630,581 17,398,954 3,825,287
Annualized Net Rent per Square Foot ($)............. 9.63 10.84 9.40 23.75 10.62
Percentage of Total Annualized Net Rent (%)......... 2.9 6.0 1.0 26.3 5.7
Number of Leases Expiring........................... 22 26 8 14 13
INDUSTRIAL PROPERTIES
Warehouse/Distribution Facilities:
425 East Algonquin Road
Square Footage of Expiring Leases................... -- 247,102 -- -- --
Percentage of Total Leased Sq. Ft. (%).............. -- 81.1 -- -- --
Annualized Net Rent of Expiring Leases ($).......... -- 779,610 -- -- --
Annualized Net Rent per Square Foot ($)............. -- 3.16 -- -- --
Percentage of Total Annualized Net Rent (%)......... -- 82.39 -- -- --
Number of Leases Expiring........................... -- 6 -- -- --
801 Technology Way
Square Footage of Expiring Leases................... -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).............. -- -- -- -- --
Annualized Net Rent of Expiring Leases ($).......... -- -- -- -- --
Annualized Net Rent per Square Foot ($)............. -- -- -- -- --
Percentage of Total Annualized Net Rent (%)......... -- -- -- -- --
Number of Leases Expiring........................... -- -- -- -- --

TOTAL
------------
2100 Swift Drive
Square Footage of Expiring Leases................... 58,000
Percentage of Total Leased Sq. Ft (%)............... 100.00%
Annualized Net Rent of Expiring Leases ($).......... $ 1,064,300
Annualized Net Rent per Square Foot ($)............. $ 18.35
Percentage of Total Annualized Net Rent (%)......... 100.00%
Number of Leases Expiring........................... 1
OFFICE SUBTOTALS
Square Footage of Expiring Leases................... 5,175,405
Percentage of Aggregate Leased Sq. Ft (%)........... 100.0%
Annualized Net Rent of Expiring Leases ($).......... $ 66,202,475
Annualized Net Rent per Square Foot ($)............. $ 12.79
Percentage of Total Annualized Net Rent (%)......... 100.0%
Number of Leases Expiring........................... 734
INDUSTRIAL PROPERTIES
Warehouse/Distribution Facilities:
425 East Algonquin Road
Square Footage of Expiring Leases................... 304,506
Percentage of Total Leased Sq. Ft. (%).............. 100.00%
Annualized Net Rent of Expiring Leases ($).......... $ 946,266
Annualized Net Rent per Square Foot ($)............. $ 3.11
Percentage of Total Annualized Net Rent (%)......... 100.00%
Number of Leases Expiring........................... 7
801 Technology Way
Square Footage of Expiring Leases................... 43,614
Percentage of Total Leased Sq. Ft. (%).............. 100.00%
Annualized Net Rent of Expiring Leases ($).......... $ 303,409
Annualized Net Rent per Square Foot ($)............. $ 6.96
Percentage of Total Annualized Net Rent (%)......... 100.00%
Number of Leases Expiring........................... 1
</TABLE>

76
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-----------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1001 Technology Way
Square Footage of Expiring Leases............. -- -- -- 212,831 -- -- --
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- 100.0 -- -- --
Annualized Net Rent of Expiring Leases ($).... -- -- -- 906,277 -- -- --
Annualized Net Rent per Square Foot ($)....... -- -- -- 4.26 -- -- --
Percentage of Total Annualized Net Rent (%)... -- -- -- 100.0 -- -- --
Number of Leases Expiring..................... -- -- -- 2 -- -- --
3818 Grandville
Square Footage of Expiring Leases............. -- -- -- 155,332 -- -- --
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($).... -- -- -- 551,429 -- -- --
Annualized Net Rent per Square Foot ($)....... -- -- -- 3.55 -- -- --
Percentage of Total Annualized Net Rent (%)... -- -- -- 100.00 -- -- --
Number of Leases Expiring..................... -- -- -- 1 -- -- --
1200 Northwestern
Square Footage of Expiring Leases............. -- -- -- 189,900 -- -- --
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($).... -- -- -- 489,942 -- -- --
Annualized Net Rent per Square Foot ($)....... -- -- -- 2.58 -- -- --
Percentage of Total Annualized Net Rent (%)... -- -- -- 100.00 -- -- --
Number of Leases Expiring..................... -- -- -- 1 -- -- --
306-310 Era Drive
Square Footage................................ -- 36,495 -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%)........ -- 100.00 -- -- -- -- --
Annualized Net Rent of Expiring Leases ($).... -- 295,341 -- -- -- -- --
Annualized Net Rent per Square Foot ($)....... -- 8.09 -- -- -- -- --
Percentage of Total Annualized Net Rent (%)... -- 100.00 -- -- -- -- --
Number of Leases Expiring..................... -- 2 -- -- -- -- --
555 Huehl Road
Square Footage of Expiring Leases............. -- -- -- -- -- 74,000 --
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- -- 100.00 --
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- -- 528,956 --
Annualized Net Rent per Square Foot ($)....... -- -- -- -- -- 7.15 --
Percentage of Total Annualized Net Rent (%)... -- -- -- -- -- 100.00 --
Number of Leases Expiring..................... -- -- -- -- -- 1 --

2005 2006 2007 2008+ TOTAL
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
1001 Technology Way
Square Footage of Expiring Leases............. -- -- -- -- 212,831
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- $ 906,277
Annualized Net Rent per Square Foot ($)....... -- -- -- -- $ 4.26
Percentage of Total Annualized Net Rent (%)... -- -- -- -- 100.00%
Number of Leases Expiring..................... -- -- -- -- 2
3818 Grandville
Square Footage of Expiring Leases............. -- -- -- -- 155,332
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- $ 551,429
Annualized Net Rent per Square Foot ($)....... -- -- -- -- $ 3.55
Percentage of Total Annualized Net Rent (%)... -- -- -- -- 100.00%
Number of Leases Expiring..................... -- -- -- -- 1
1200 Northwestern
Square Footage of Expiring Leases............. -- -- -- -- 189,900
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- $ 489,942
Annualized Net Rent per Square Foot ($)....... -- -- -- -- $ 2.58
Percentage of Total Annualized Net Rent (%)... -- -- -- -- 100.00%
Number of Leases Expiring..................... -- -- -- -- 1
306-310 Era Drive
Square Footage................................ -- -- -- -- 36,495
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- $ 295,341
Annualized Net Rent per Square Foot ($)....... -- -- -- -- $ 8.09
Percentage of Total Annualized Net Rent (%)... -- -- -- -- 100.00%
Number of Leases Expiring..................... -- -- -- -- 2
555 Huehl Road
Square Footage of Expiring Leases............. -- -- -- -- 74,000
Percentage of Total Leased Sq. Ft. (%)........ -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($).... -- -- -- -- $ 528,956
Annualized Net Rent per Square Foot ($)....... -- -- -- -- $ 7.15
Percentage of Total Annualized Net Rent (%)... -- -- -- -- 100.00%
Number of Leases Expiring..................... -- -- -- -- 1
</TABLE>

77
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2160 McGaw Road
Square Footage of Expiring Leases......................... 310,100 -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... 100.00 -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ 486,852 -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... 1.57 -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... 100.00 -- -- -- -- --
Number of Leases Expiring................................. 1 -- -- -- -- --
4849 Groveport Road
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --
2400 McGaw Road
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --
5160 Blazer Memorial Parkway
Square Footage of Expiring Leases......................... -- -- -- 27,680 -- 29,768
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 48.2 -- 51.8
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 188,112 -- 154,092
Annualized Net Rent per Square Foot ($)................... -- -- -- 6.80 -- 5.18
Percentage of Total Annualized Net Rent (%)............... -- -- -- 55.0 -- 45.0
Number of Leases Expiring................................. -- -- -- 1 -- 1
600 London Road
Square Footage of Expiring Leases......................... -- -- 52,441 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.0 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 113,860 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 2.55 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 100.0 -- -- --
Number of Leases Expiring................................. -- -- 1 -- -- --
1401 South Jefferson Street
Square Footage of Expiring Leases......................... -- 17,265 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 100.00 -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- 88,944 -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- 5.15 -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- 100.00 -- -- -- --
Number of Leases Expiring................................. -- 1 -- -- -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
2160 McGaw Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 310,100
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 486,852
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 1.57
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.0%
Number of Leases Expiring................................. -- -- -- -- -- 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
Annualized Net Rent per Square Foot ($)................... -- -- -- -- 2.18 $ 2.18
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- 100.0 100.0%
Number of Leases Expiring................................. -- -- -- -- 1 1
2400 McGaw Road
Square Footage of Expiring Leases......................... -- 86,400 -- -- -- 86,400
Percentage of Total Leased Sq. Ft. (%).................... -- 100.0 -- -- -- 100%
Annualized Net Rent of Expiring Leases ($)................ -- 191,352 -- -- -- $ 191,352
Annualized Net Rent per Square Foot ($)................... -- 2.21 -- -- -- $ 2.21
Percentage of Total Annualized Net Rent (%)............... -- 100.0 -- -- -- 100.0%
Number of Leases Expiring................................. -- 1 -- -- -- 1
5160 Blazer Memorial Parkway
Square Footage of Expiring Leases......................... -- -- -- -- -- 57,448
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 342,204
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 5.96
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.0%
Number of Leases Expiring................................. -- -- -- -- -- 2
600 London Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 52,441
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 133,860
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 2.55
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.0%
Number of Leases Expiring................................. -- -- -- -- -- 1
1401 South Jefferson Street
Square Footage of Expiring Leases......................... -- -- -- -- -- 17,265
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 88,944
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 5.15
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
</TABLE>

78
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1051 North Kirk Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 120,004
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- 474,012
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- 3.95
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00
Number of Leases Expiring................................. -- -- -- -- -- 1
4211 Madison Street
Square Footage of Expiring Leases......................... -- 26,035 -- 64,299 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 28.8 -- 71.2 -- --
Annualized Net Rent of Expiring Leases ($)................ -- 108,084 -- 241,116 -- --
Annualized Net Rent per Square Foot ($)................... -- 4.15 -- 3.75 -- --
Percentage of Total Annualized Net Rent (%)............... -- 31.0 -- 69.0 -- --
Number of Leases Expiring................................. -- 1 -- 1 -- --
200 East Fullerton Avenue
Square Footage of Expiring Leases......................... -- 66,254 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 100.00 -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- 248,448 -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- 3.75 -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- 100.00 -- -- -- --
Number of Leases Expiring................................. -- 1 -- -- -- --
350 Randy Road
Square Footage of Expiring Leases......................... 3,150 3,150 3,150 12,600 -- 3,150
Percentage of Total Leased Sq. Ft. (%).................... 12.5 12.5 12.5 50. 0 -- 12.5
Annualized Net Rent of Expiring Leases ($)................ 13,944 21,720 13,512 62,973 -- 33,332
Annualized Net Rent per Square Foot ($)................... 4.43 6.90 4.29 5.00 -- 10.58
Percentage of Total Annualized Net Rent (%)............... 9.60 14.9 9.3 43.3 -- 22.9
Number of Leases Expiring................................. 1 1 1 2 -- 1
4248, 4250 and 4300 Madison Street
Square Footage of Expiring Leases......................... 11,872 62,847 36,730 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... 10.7 56.4 33.0 -- -- --
Annualized Net Rent of Expiring Leases ($)................ 47,484 323,818 173,280 -- -- --
Annualized Net Rent per Square Foot ($)................... 4.00 5.15 4.72 -- -- --
Percentage of Total Annualized Net Rent (%)............... 8.7 59.5 31.8 -- -- --
Number of Leases Expiring................................. 1 2 1 -- -- --
370 Carol Lane
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
1051 North Kirk Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 120,004
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 474,012
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.95
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
4211 Madison Street
Square Footage of Expiring Leases......................... -- -- -- -- -- 90,334
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 349,200
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.87
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 2
200 East Fullerton Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 66,254
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 248,448
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.75
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
350 Randy Road
Square Footage of Expiring Leases......................... -- -- -- -- -- 25,200
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 145,481
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 5.77
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 6
4248, 4250 and 4300 Madison Street
Square Footage of Expiring Leases......................... -- -- -- -- -- 111,449
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 544,582
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 4.89
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 4
370 Carol Lane
Square Footage of Expiring Leases......................... 60,290 -- -- -- -- 60,290
Percentage of Total Leased Sq. Ft. (%).................... 100.00 -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ 256,224 -- -- -- -- $ 256,224
Annualized Net Rent per Square Foot ($)................... 4.25 -- -- -- -- $ 4.25
Percentage of Total Annualized Net Rent (%)............... 100.00 -- -- -- -- 100.00%
Number of Leases Expiring................................. 1 -- -- -- -- 1
</TABLE>

79
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
388 Carol Lane
Square Footage of Expiring Leases......................... -- -- 36,184 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 179,760 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 4.97 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- --
Number of Leases Expiring................................. -- -- 1 -- -- --
342-346 Carol Lane
Square Footage of Expiring Leases......................... -- -- 67,935 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 309,504 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 4.56 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- --
Number of Leases Expiring................................. -- -- 2 -- -- --
343 Carol Lane
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --
4160-4190 Madison Street
Square Footage of Expiring Leases......................... -- 36,625 -- 42,907 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 46.1 -- 53.9 -- --
Annualized Net Rent of Expiring Leases ($)................ -- 157,412 -- 157,001 -- --
Annualized Net Rent per Square Foot ($)................... -- 4.30 -- 3.66 -- --
Percentage of Total Annualized Net Rent (%)............... -- 50.1 -- 49.9 -- --
Number of Leases Expiring................................. -- 1 -- 2 -- --
11039 Gage Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --
11045 Gage Avenue
Square Footage of Expiring Leases......................... -- -- -- 136,600 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 100.00 -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 534,612 -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- 3.91 -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- 100.00 -- --
Number of Leases Expiring................................. -- -- -- 1 -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
388 Carol Lane
Square Footage of Expiring Leases......................... -- -- -- -- -- 36,184
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 179,760
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 4.97
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
342-346 Carol Lane
Square Footage of Expiring Leases......................... -- -- -- -- -- 67,935
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 309,504
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 4.56
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 2
343 Carol Lane
Square Footage of Expiring Leases......................... -- -- -- 30,084 -- 30,084
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 100.00 -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 201,744 -- $ 201,744
Annualized Net Rent per Square Foot ($)................... -- -- -- 6.71 -- $ 6.71
Percentage of Total Annualized Net Rent (%)............... -- -- -- 100.00 -- 100.00%
Number of Leases Expiring................................. -- -- -- 1 -- 1
4160-4190 Madison Street
Square Footage of Expiring Leases......................... -- -- -- -- -- 79,532
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 314,413
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.95
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 3
11039 Gage Avenue
Square Footage of Expiring Leases......................... -- -- 21,935 -- -- 21,935
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- 107,376 -- -- $ 107,376
Annualized Net Rent per Square Foot ($)................... -- -- 4.90 -- -- $ 4.90
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- 100.00%
Number of Leases Expiring................................. -- -- 1 -- -- 1
11045 Gage Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 136,600
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 534,612
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.91
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
</TABLE>

80
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
550 Kehoe Boulevard
Square Footage of Expiring Leases......................... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- --
Number of Leases Expiring................................. -- -- -- -- -- --
475 Superior Avenue
Square Footage of Expiring Leases......................... -- 450,000 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 100.00 -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- 1,258,200 -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- 2.80 -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- 100.00 -- -- -- --
Number of Leases Expiring................................. -- 1 -- -- -- --
1301 Ridgeview Drive
Square Footage of Expiring Leases......................... -- -- 217,600 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 1,030,568 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 4.74 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- --
Number of Leases Expiring................................. -- -- 1 -- -- --
515 Huehl Road/500 Lindberg
Square Footage of Expiring Leases......................... -- -- -- -- -- 201,244
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- 821,580
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- 4.08
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00
Number of Leases Expiring................................. -- -- -- -- -- 1
455 Academy Drive
Square Footage of Expiring Leases......................... -- -- -- 105,444 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 100.00 -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 405,648 -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- 3.85 -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- 100.00 -- --
Number of Leases Expiring................................. -- -- -- 1 -- --
4411 Marketing Place
Square Footage of Expiring Leases......................... -- -- 65,804 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 226,800 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 3.45 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- --
Number of Leases Expiring................................. -- -- 1 -- -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
550 Kehoe Boulevard
Square Footage of Expiring Leases......................... -- -- 44,575 -- -- 44,575
Percentage of Total Leased Sq. Ft. (%).................... -- -- 100.00 -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- 291,972 -- -- $ 291,972
Annualized Net Rent per Square Foot ($)................... -- -- 6.55 -- -- $ 6.55
Percentage of Total Annualized Net Rent (%)............... -- -- 100.00 -- -- 100.00%
Number of Leases Expiring................................. -- -- 1 -- -- 1
475 Superior Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 450,000
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $1,258,200
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 2.80
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
1301 Ridgeview Drive
Square Footage of Expiring Leases......................... -- -- -- -- -- 217,600
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $1,030,568
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 4.74
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
515 Huehl Road/500 Lindberg
Square Footage of Expiring Leases......................... -- -- -- -- -- 201,244
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 821,580
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 4.08
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
455 Academy Drive
Square Footage of Expiring Leases......................... -- -- -- -- -- 105,444
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 405,648
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.85
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
4411 Marketing Place
Square Footage of Expiring Leases......................... -- -- -- -- -- 65,804
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 226,800
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.45
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
</TABLE>

81
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
--------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Chicago Enterprise Center(2)
13535-A S. Torrence Avenue
Square Footage of Expiring Leases......................... -- 145,941 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 100.00 -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- 321,070 -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- 2.20 -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- 100.00 -- -- -- --
Number of Leases Expiring................................. -- 1 -- -- -- --
13535-B S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 239,752
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- 648,634
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- 2.71
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00
Number of Leases Expiring................................. -- -- -- -- -- 1
13535-C S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- 81,328 -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- 81.8 -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- 200,634 -- -- --
Annualized Net Rent per Square Foot ($)................... -- -- 2.47 -- -- --
Percentage of Total Annualized Net Rent (%)............... -- -- 80.4 -- -- --
Number of Leases Expiring................................. -- -- 1 -- -- --
13535-D S. Torrence Avenue
Square Footage of Expiring Leases......................... -- 77,325 -- -- -- --
Percentage of Total Leased Sq. Ft. (%).................... -- 100.00 -- -- -- --
Annualized Net Rent of Expiring Leases ($)................ -- 235,532 -- -- -- --
Annualized Net Rent per Square Foot ($)................... -- 3.05 -- -- -- --
Percentage of Total Annualized Net Rent (%)............... -- 100.00 -- -- -- --
Number of Leases Expiring................................. -- 1 -- -- -- --
13535-E/13535-F S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- 53,600 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 100.00 -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 175,667 -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- 3.28 -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- 100.00 -- --
Number of Leases Expiring................................. -- -- -- 2 -- --
13535-H S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- 10,200 -- --
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 24.6 -- --
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 17,856 -- --
Annualized Net Rent per Square Foot ($)................... -- -- -- 1.75 -- --
Percentage of Total Annualized Net Rent (%)............... -- -- -- 23.5 -- --
Number of Leases Expiring................................. -- -- -- 1 -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Chicago Enterprise Center(2)
13535-A S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 145,941
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 321,072
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 2.20
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
13535-B S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 239,752
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 648,634
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 2.71
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
13535-C S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- 18,055 -- 99,383
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- 18.2 -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- 48,902 -- $ 249,536
Annualized Net Rent per Square Foot ($)................... -- -- -- 2.71 -- $ 2.51
Percentage of Total Annualized Net Rent (%)............... -- -- -- 19.6 -- 100.00%
Number of Leases Expiring................................. -- -- -- 1 -- 2
13535-D S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 77,325
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 235,532
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.05
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 1
13535-E/13535-F S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- -- -- -- 53,600
Percentage of Total Leased Sq. Ft. (%).................... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- -- -- -- $ 175,667
Annualized Net Rent per Square Foot ($)................... -- -- -- -- -- $ 3.28
Percentage of Total Annualized Net Rent (%)............... -- -- -- -- -- 100.00%
Number of Leases Expiring................................. -- -- -- -- -- 2
13535-H S. Torrence Avenue
Square Footage of Expiring Leases......................... -- -- 31,240 -- -- 41,440
Percentage of Total Leased Sq. Ft. (%).................... -- -- 75.4 -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)................ -- -- 58,046 -- -- $ 75,902
Annualized Net Rent per Square Foot ($)................... -- -- 1.86 -- -- $ 1.83
Percentage of Total Annualized Net Rent (%)............... -- -- 76.5 -- -- 100.00%
Number of Leases Expiring................................. -- -- 1 -- -- 2
</TABLE>

82
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
---------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Building 3 (4407 Railroad Avenue)
Square Footage of Expiring Leases............... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%).......... -- -- -- -- -- --
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- --
Number of Leases Expiring....................... -- -- -- -- -- --
Building 4 (4407 Railroad Avenue)
Square Footage of Expiring Leases............... -- -- 85,799 -- -- --
Percentage of Total Leases Sq. Ft. (%).......... -- -- 100.00 -- -- --
Annualized Net Rent of Expiring Leases ($)...... -- -- 285,653 -- -- --
Annualized Net Rent per Square Foot ($)......... -- -- 3.33 -- -- --
Percentage of Total Annualized Net Rent (%)..... -- -- 100.00 -- -- --
Number of Leases Expiring....................... -- -- 1 -- -- --
Hammond Enterprise Center
4507 Columbia Avenue
Square Footage of Expiring Leases............... -- 2,280 32,657 -- -- --
Percentage of Total Leased Sq. Ft. (%).......... -- 0.9 12.88 -- -- --
Annualized Net Rent of Expiring Leases ($)...... -- 4,970 78,681 -- -- --
Annualized Net Rent per Square Foot ($)......... -- 2.18 2.41 -- -- --
Percentage of Total Annualized Net Rent (%)..... -- 0.7 11.5 -- -- --
Number of Leases Expiring....................... -- 1 1 -- -- --
4527 Columbia Avenue
Square Footage of Expiring Leases............... 5,466 -- -- -- 2,766 --
Percentage of Total Leased Sq. Ft. (%).......... 66.4 -- -- -- 33.6 --
Annualized Net Rent of Expiring Leases ($)...... 36,941 -- -- -- 12,641 --
Annualized Net Rent per Square Foot ($)......... 6.76 -- -- -- 4.57 --
Percentage of Total Annualized Net Rent (%)..... 74.5 -- -- -- 25.5 --
Number of Leases Expiring....................... 3 -- -- -- 1 --
4531 Columbia Avenue
Square Footage of Expiring Leases............... -- 81,362 104,182 -- -- --
Percentage of Total Leased Sq. Ft. (%).......... -- 43.9 56.1 -- -- --
Annualized Net Rent of Expiring Lease ($)....... -- 55,651 218,030 -- -- --
Annualized Net Rent per Square Foot ($)......... -- .68 2.09 -- -- --
Percentage of Total Annualized Net Rent (%)..... -- 20.3 79.7 -- -- --
Number of Leases Expiring....................... -- 1 1 -- -- --
300 Craig Place
Square Footage of Expiring Leases............... -- -- -- -- -- --
Percentage of Total Leased Sq. Ft. (%)..........
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- --
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- --
Percentage of Total Annualized Net Rent (%).....
Number of Leases Expiring....................... -- -- -- -- -- --

2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Building 3 (4407 Railroad Avenue)
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
Annualized Net Rent per Square Foot ($)......... -- -- -- -- 4.88 $ 4.88
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- 100.00 100.00%
Number of Leases Expiring....................... -- -- -- -- 2 2
Building 4 (4407 Railroad Avenue)
Square Footage of Expiring Leases............... -- -- -- -- -- 85,799
Percentage of Total Leases Sq. Ft. (%).......... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- $ 285,653
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- $ 3.33
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- 100.00%
Number of Leases Expiring....................... -- -- -- -- -- 1
Hammond Enterprise Center
4507 Columbia Avenue
Square Footage of Expiring Leases............... -- -- -- -- 218,589 253,526
Percentage of Total Leased Sq. Ft. (%).......... -- -- -- -- 86.2 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- 602,213 $ 685,864
Annualized Net Rent per Square Foot ($)......... -- -- -- -- 2.76 $ 2.71
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- 87.8 100.00%
Number of Leases Expiring....................... -- -- -- -- 2 4
4527 Columbia Avenue
Square Footage of Expiring Leases............... -- -- -- -- -- 8,232
Percentage of Total Leased Sq. Ft. (%).......... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- -- -- $ 49,582
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- $ 6.02
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- 100.00%
Number of Leases Expiring....................... -- -- -- -- -- 4
4531 Columbia Avenue
Square Footage of Expiring Leases............... -- -- -- -- -- 185,544
Percentage of Total Leased Sq. Ft. (%).......... -- -- -- -- -- 100.00%
Annualized Net Rent of Expiring Lease ($)....... -- -- -- -- -- $ 273,681
Annualized Net Rent per Square Foot ($)......... -- -- -- -- -- $ 1.48
Percentage of Total Annualized Net Rent (%)..... -- -- -- -- -- 100.00%
Number of Leases Expiring....................... -- -- -- -- -- 2
300 Craig Place
Square Footage of Expiring Leases............... -- -- -- 43,263 119,807 163,070
Percentage of Total Leased Sq. Ft. (%).......... 26.5 73.5 100.00%
Annualized Net Rent of Expiring Leases ($)...... -- -- -- 190,356 658,932 $ 849,288
Annualized Net Rent per Square Foot ($)......... -- -- -- 4.40 5.50 $ 5.21
Percentage of Total Annualized Net Rent (%)..... 22.4 77.6 100.00%
Number of Leases Expiring....................... -- -- -- 1 1 2
</TABLE>

83
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003
---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL SUBTOTAL
Square Footage of Expiring Leases.............. 330,588 1,062,983 827,424 1,011,393 2,766 667,918
Percent of Total Leased Sq. Ft. (%)............ 6.3 20.2 15.8 19.3 0.1 12.7
Annualized Net Rent of Expiring Leases ($)..... 585,221 3,285,847 3,153,690 3,730,633 12,641 2,660,605
Annualized Net Rent per Square Foot ($)........ 1.77 3.09 3.81 3.69 4.57 3.98
Percentage of Total Annualized Net Rent (%).... 3.2 17.7 17.0 20.1 0.1 14.4
Number of Leases Expiring...................... 6 15 13 15 1 6
OFFICE SUBTOTAL
Square Footage of Expiring Leases.............. 442,181 644,963 651,987 730,925 576,327 401,794
Percent of Total Leased Sq. Ft. (%)............ 8.5 12.5 12.6 14.1 11.1 7.8
Annualized Net Rent of Expiring Leases ($)..... 4,229,879 6,891,542 5,999,260 8,994,000 7,588.155 4,734,189
Annualized Net Rent per Square Foot ($)........ 9.57 10.69 9.20 12.30 13.17 11.78
Percentage of Total Annualized Net Rent (%).... 6.4 10.4 9.0 13.6 11.5 7.2
Number of Leases Expiring...................... 112 134 151 103 98 53
PORTFOLIO TOTAL
Square Footage of Expiring Leases.............. 772,769 1,707,946 1,479,411 1,742,318 579,093 1,069,712
Percent of Total Leased Sq. Ft. (%)............ 7.4 16.4 14.2 16.7 5.6 10.3
Annualized Net Rent of Expiring Leases ($)..... 4,815,100 10,177,389 9,152,951 12,724,634 7,600,796 7,394,794
Annualized Net Rent per Square Foot ($)........ 6.23 5.96 6.19 7.30 13.13 6.91
Percentage of Total Annualized Net Rent (%).... 5.7 12.0 10.7 15.0 9.0 8.7
Number of Leases Expiring...................... 118 149 164 118 99 59

2004 2005 2006 2007 2008+ TOTAL
--------- --------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL SUBTOTAL
Square Footage of Expiring Leases.............. 60,290 333,502 97,750 91,402 762,046 5,248,062
Percent of Total Leased Sq. Ft. (%)............ 1.1 6.4 1.9 1.7 14.5 100%
Annualized Net Rent of Expiring Leases ($)..... 256,224 970,962 457,394 441,002 2,971,469 $ 18,525,688
Annualized Net Rent per Square Foot ($)........ 4.25 2.91 4.68 4.82 3.90 $ 3.53
Percentage of Total Annualized Net Rent (%).... 1.4 5.2 2.5 2.4 16.0 100.0%
Number of Leases Expiring...................... 1 7 3 3 6 76
OFFICE SUBTOTAL
Square Footage of Expiring Leases.............. 199,316 368,125 67,904 732,519 360,174 5,175,405
Percent of Total Leased Sq. Ft. (%)............ 3.9 7.1 1.3 14.2 6.9 100.0%
Annualized Net Rent of Expiring Leases ($)..... 1,918,444 3,992,186 630,581 17,398,954 3,825,287 $ 66,202,475
Annualized Net Rent per Square Foot ($)........ 9.63 10.84 9.40 23.75 10.62 $ 12.79
Percentage of Total Annualized Net Rent (%).... 2.9 6.0 1.0 26.3 5.7 100.0%
Number of Leases Expiring...................... 22 26 8 14 13 734
PORTFOLIO TOTAL
Square Footage of Expiring Leases.............. 259,606 701,627 164,844 823,921 1,122,220 10,423,467
Percent of Total Leased Sq. Ft. (%)............ 2.5 6.7 1.6 7.9 10.7 100.0%
Annualized Net Rent of Expiring Leases ($)..... 2,174,668 4,963,148 1,087,975 17,839,956 6,796,756 $ 84,728,162
Annualized Net Rent per Square Foot ($)........ 8.38 7.07 6.60 21.65 6.06 $ 8.13
Percentage of Total Annualized Net Rent (%).... 2.6 5.9 1.3 21.1 8.0 100.0%
Number of Leases Expiring...................... 23 33 11 17 19 810
</TABLE>

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

(1) Represents lease expirations data from April 1, 1998 to December 31, 1998.

84
<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 annual net rental revenue for the twelve months ended March
31, 1998:

<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY'S
TENANT 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 7.27 July 1, 1992 June 30, 2007
EVEREN............................. 6,009,902 7.09 June 1, 1992 May 31, 2007
Jones, Day......................... 3,559,291 4.20 July 6, 1992 June 30, 2007
Santa Fe Pacific Corp.............. 3,157,119 3.73 July 13, 1990 January 31, 2001
The Chicago Corp................... 2,228,635 2.63 October 1, 1992 December 31, 2005
Motorola 1,822,999 2.15 April 1, 1995 September 30, 2000
Citgo.............................. 1,706,121 2.02 December 1, 1990 November 30, 2002
Household International............ 1,571,076 1.85 September 1, 1989 August 31, 1999
AT&T Lease Administration.......... 1,483,696 1.75 October 1, 1989 December 31, 1999
USN Communications................. 1,064,300 1.26 April 7, 1998 March 1, 2008
------------- -----
Total............................ $ 28,761,415 33.95
------------- -----
------------- -----
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY'S
TENANT ANNUAL TOTAL
NET RENTAL NET RENTAL INITIAL LEASE LEASE EXPIRATION
REVENUE($)(1) REVENUES(%) DATE DATE
------------- --------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Industrial Tenants
Rank Video........................ $ 2,521,823 2.98 December 1, 1989 March 31, 2005
General Electric.................. 1,258,200 1.48 February 21, 1989 February 20, 1999
Motorola.......................... 1,030,568 1.22 July 1, 1995 June 30, 2000
Metro Metals...................... 887,263 1.05 November 15, 1995 November 30, 2015
Federal Express Corp.............. 658,932 0.78 March 17, 1998 August 1, 2008
Welded Tube Company of America.... 648,634 0.77 July 1, 1993 June 30, 2003
AM Castle & Co.................... 602,213 0.71 November 1, 1993 October 31, 2013
A.B. Industries d/b/a/Acutus-
Gladwin......................... 535,373 0.63 March 1, 1997 February 28, 2017
Echlin, Inc....................... 534,612 0.63 April 1, 1991 March 31, 2001
Spartan Warehouse & Distribution
Inc............................. 486,852 0.57 January 1, 1993 August 30, 1998
------------- -----
Total........................... $ 9,164,470 10.82
------------- -----
------------- -----
</TABLE>

- ---------

(1) Determined in accordance with GAAP.

OFFICE PROPERTIES

Approximately 59.1% of the Office Properties (based on Annualized Net Rent)
are Class A office properties. The Company considers Class A office buildings to
be buildings that are centrally located,

85
<PAGE>
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 balance of the Office Properties consist of
Class B office buildings which the Company believes are located in desirable
locations where significant potential exists to improve the operating income of
such assets by redeveloping or repositioning them to a higher level of operating
standard. The Company considers Class B office buildings to be properties which
are generally more than 20 years old, in good physical condition, occupied by
quality tenants and situated in desirable locations, but which may lack the
latest functional and technological advances and amenities. The Office
Properties contain an aggregate of approximately 5.8 million net rentable square
feet in 24 Properties. Nineteen of the Office Properties are located in the
Chicago Metropolitan Area; one in Nashville, Tennessee; three in Knoxville,
Tennessee; and one in Milwaukee, Wisconsin. As of March 31, 1998, the Office
Properties had an occupancy rate of 89.0%. 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 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 49.3% of the Company's Annualized Net Rent from the Office
Properties is attributable to leases expiring in the year 2003 or beyond and
approximately 5.9% of such income is attributable to leases expiring in the year
2008 or beyond. In terms of square footage and Annualized Net Rent, the average
annual turnover for the next five years is only 12.4% and 10.8% 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 450,000 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 41.9% of the Company's Annualized Net
Rent from the Industrial Properties is attributable to leases expiring in the
year 2003 or beyond and approximately 16.0% of such income is attributable to
leases expiring in the year 2008 or beyond. In terms of square footage and
Annualized Net Rent, the average annual turnover for the next five years is
12.8% and 12.2% per annum, respectively. The leases generally provide for rent
increases based on specific contractual rent escalations. 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 over 9.4 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.

86
<PAGE>
See "Risk Factors--Real Estate Financing Risks--Ability to Obtain Permanent
Financing" and "--No Limitation on Debt."

DEVELOPMENT, LEASING AND MANAGEMENT ACTIVITIES

Since 1981, PGI 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. In connection with the IPO, the
Company succeeded to PGI's rights in and to PGI's office and industrial
development, leasing and management business. 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-adjusted return on investment.

Including the Pending Parcel Acquisitions, the Company will also own
approximately 246.5 acres (including a development site containing approximately
67,000 square feet located in the Chicago CBD held by a joint venture with a
third party) and has rights to acquire approximately 302.8 acres of developable
land (including rights to acquire two development sites located in the Chicago
CBD containing approximately 119,000 square feet) which management believes
could be developed with approximately 5.6 million square feet of additional
office space and over 7.6 million square feet of additional industrial space.
The Company expects to initiate development on a portion of this land in 1998
and expects that over time development activities will contribute significantly
to its growth.

The Company provides its own development, leasing and property management
services for the Properties. The Company's staff of approximately 352 employees
provides these services from the Company's headquarters in Chicago, Illinois and
through on-site staff at the Properties. The Services Company provides 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
provides third-party development services for third parties at market rates.

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; Milwaukee,
Wisconsin; 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; Milwaukee, Wisconsin; 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,

87
<PAGE>
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 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;

- 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
4.1 million jobs as of December 1997, which ranks it as the nation's largest
metropolitan economy. In addition, during the last five years, from 1992 through
1997, Chicago ranked second nationwide in terms of total jobs added. The Chicago
Metropolitan Area economy grew by 409,200 jobs over the last five years compared
to first-ranked Atlanta, which added 425,400 jobs and third-ranked Phoenix,
which added 397,700 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.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL EMPLOYMENT AS OF DECEMBER 1997
<S> <C>
Top Five MSAs
Jobs (000s)
Chicago 4,114.0
New York 4,006.5
LA 3,958.9
Washington 2,524.9
Philadelphia 2,303.1
Source: Bureau of Labor Statistics
</TABLE>

88
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FASTEST GROWING MSAS, 1992 TO 1997
<S> <C>
in Absolute Terms (000 jobs)
Jobs (000s)
Atlanta 425.4
Chicago 409.2
Phoenix 397.7
Dallas 365.6
Houston 283.1
Source: Bureau of Labor Statistics
</TABLE>

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, Texas and New York, according to a recent survey 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 1997 was $65,648, 35.3%
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, Baxter International, McDonald's, Abbott Laboratories,
Walgreen's, Sara Lee, Donnelley, Arthur Andersen, Amoco and First Chicago NBD.
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 through 1998. 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
8.1% by the end of 1997.

The Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of year-end 1997, the Chicago Metropolitan
Area's industrial market overall vacancy rate was 7.9%, below the national
average vacancy rate of 8.4%. In addition, 30.9% (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 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.

89
<PAGE>
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. During 1997, the Chicago Metropolitan
Area experienced a net increase in employment of approximately 67,000 jobs,
representing an approximately 1.7% increase for the year. Of the total,
approximately 37,600 jobs (approximately 56.1% of the total) were created in the
services sector. Total employment was approximately 4.1 million during 1997,
according to the Bureau of Labor Statistics. RCG expects an average increase of
nearly 65,000 jobs annually during the next three years, representing an annual
growth rate of approximately 1.3% to 2.0% (or 1.6% annual average).

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 for 1997 was approximately 4.9% versus
approximately 4.5% in the Chicago Metropolitan Area. By comparison, the 1992
unemployment rates for the United States and Chicago 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.

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 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 3.4% compared to a rate of 3.5% nationally. The
following graph illustrates the growing diversification of Chicago's economic
base.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CHICAGO'S CHANGING ECONOMIC BASE

<S> <C>
1987
Construction 4%
Trade 25%
Manufacturing 19%
TCPU 6%
FIRE 8%
Services 25%
Government 13%
1997
Construction 4%
Trade 23%
Manufacturing 16%
TCPU 6%
FIRE 8%
Services 31%
Government 12%
Sources: Bureau of Labor Statistics, RCG for
1997
</TABLE>

90
<PAGE>
Growth was particularly strong in 1997 in the following knowledge-based
services employment subsectors: engineering and management (3.0%) and business
services (6.3%). RCG expects that the recent $675.0 million expansion of the
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 futures and
options (open interest represents the 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, 1997, the CBOE's options trades accounted for more
than 42.5% of equity options trading, 92.0% of index options trading and 55.3%
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 1997. During 1997, employment in the security and commodity brokers
industry increased 4.6%, and employment in the security brokers and dealers
industry increased 5.1%. 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 largest
manufacturing employment base nationwide. Much of the growth in manufacturing
employment 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 0.9% during the last five
years, compared to national growth of 0.5% over the same period. Similarly,
during 1997, Chicago's manufacturing employment increased 0.5% compared to a
national rate of 0.4%. As of the year ended February 1998, growth in the
manufacturing sector accelerated to 1.1%. As of the year ended February 1998,
the fastest growing manufacturing subsectors have all been high-technology
subsectors such as electronics and other electric equipment (2.0%) 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 third-largest tenant of the Company's Industrial Properties.

91
<PAGE>
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 1997, trade employment was up 1.1%, compared
to 2.4% nationwide. Growth in the wholesale sector has been particularly strong,
increasing 1.8% during the last year. Sears, a 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 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 3.3% and 3.8%, respectively, during 1997.

The Company believes that all three 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 1.3% to 2.0%
per year during the next three years, with an absolute growth of approximately
65,000 jobs per year on average. RCG believes that the strongest job growth will
continue to occur in services, finance and high-technology manufacturing. The
following graph illustrates the employment trends and forecasts for the Chicago
Metropolitan Area and the United States.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CHICAGO METROPOLITAN AREA VS. U.S.
<S> <C> <C>
Total Non-Agricultural Employment
United States Chicago
1979 3.81% 2.37%
1980 0.65% 0.20%
1981 0.83% -1.30%
1982 -1.76% -3.09%
1983 0.68% -0.38%
1984 4.72% 5.40%
1985 3.16% 4.17%
1986 2.01% 0.80%
1987 2.63% 2.53%
1988 3.19% 2.72%
1989 2.55% 2.63%
1990 1.41% 1.03%
1991 -1.06% -1.57%
1992 1.00% -2.06%
1993 2.10% 2.09%
1994 3.10% 2.29%
1995 2.70% 2.58%
1996 2.00% 1.57%
1997 2.30% 1.70%
1998f 2.20% 2.00%
Sources: Bureau of Labor Statistics,
RCG
</TABLE>

92
<PAGE>
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 as of year-end
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.

The Chicago Metropolitan Area office market has improved significantly over
the last five years; the overall vacancy rate has declined from 19.3% in 1992 to
a low of 11.7% as of year-end 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
between 1992 and 1997, office employment (defined as employment in FIRE and
business services) grew by 114,000, 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 107.6
million net rentable square feet, in the aggregate, and the Suburban Chicago
office market consists of 80.2 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
1992 to a low of 11.7% as of year-end 1997. The greatest gains in the Chicago
Metropolitan Area have occurred in the Class A office market, where the vacancy
rate has fallen from a high of 20.5% in 1992 to 7.5% in 1997. The Class A office
market, which represents 40% of the overall office market, has had strong net
absorption of approximately 2.0 million square feet per year since 1992. The
total office market has averaged net absorption of only 2.7 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.

CHICAGO TOTAL METROPOLITAN AREA OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998F 1999F 2000F
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 189,054 189,259 189,215 188,624 187,574 187,864 189,139 191,511 194,801
New Construction 3,893 205 230 0 216 797 2,275 3,122 4,040
Conversion/Demolition 0 0 274 591 1,266 507 1,000 750 750
Net Absorption -- 1,257 3,490 2,709 1,303 4,611 4,150 3,400 2,850
Occupied Stock 152,567 153,824 157,314 160,022 161,325 165,937 170,087 173,487 176,337
Vacancy Rate 19.3% 18.7% 16.9% 15.2% 14.0% 11.7% 10.1% 9.4% 9.5%
Source: RCG
</TABLE>

CHICAGO METROPOLITAN AREA CLASS A OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998F 1999F 2000F
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 73,116 73,321 73,551 73,551 73,767 74,564 76,839 79,961 84,001
New Construction 3,893 205 230 0 216 797 2,275 3,122 4,040
Net Absorption 1,892 2,106 2,666 2,412 1,636 2,079 2,550 2,600 2,800
Occupied Stock 58,095 60,201 62,867 65,279 66,915 68,995 71,545 74,145 76,945
Vacancy Rate 20.5% 17.9% 14.5% 11.2% 9.3% 7.5% 6.9% 7.3% 8.4%
Source: RCG
</TABLE>

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<PAGE>
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 CBD submarket, including Donnelley, Leo Burnett, Helene Curtis, Wrigley,
Everen, Morton International, Aon, Blue Cross/Blue Shield, Quaker Oats, Amoco
and First Chicago NBD.

The Chicago CBD office market has improved since 1993, when the office
vacancy rate peaked at 19.6%. As of year-end 1997, the overall Chicago CBD
office vacancy rate fell to 13.7%.

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 8.1% as of year-end 1997.

RCG forecasts a further decline in vacancy rates in the Chicago CBD office
market in 1998 and 1999, 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. Two new office buildings are expected during the next
two years, and RCG believes, based on a three-year construction cycle for large
office buildings in the Chicago CBD, that approximately 2.0 million square feet
of new office space will be recovered in the Chicago CBD before the year 2001.

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CHICAGO CBD OFFICE VACANCY RATE
<S> <C> <C>
Total vs Class A
Percent
Total Class A
1992 19.3% 23.1%
1993 19.6% 20.3%
1994 18.2% 16.5%
1995 17.6% 13.1%
1996 15.9% 10.3%
1997 13.7% 8.1%
1998f 11.3% 6.5%
1999f 9.5% 5.8%
2000f 9.1% 6.9%
Source: Bureau of Labor Statistics,
RCG
</TABLE>

An additional factor contributing to tightening in the Class B downtown
office market is the renovation and redevelopment of older Class B and Class C
space. Many Class B and C buildings in the downtown market have already been
sold for single user or non-office conversion. In total, since 1994,
approximately 2.6 million square feet of space have been removed from the
downtown inventory due to conversions and demolitions. Currently, the Marina
City Office Building and the Silversmith Building are being converted into the
House of Blues and a 143-room Crowne Plaza, respectively. Several office
buildings have been or are being renovated for hotel use and at least six
downtown buildings have been or

94
<PAGE>
are in the process of being converted to residential use. In addition, the
enlargement of the West Loop Tax Increment Financing District in February of
1997 made available $300 million for redevelopment subsidies and infrastructure
improvements. RCG expects an additional 2.5 million square feet of Class B and
Class C space will be removed from the downtown office inventory over the next
three years, although as office vacancy rates fall, this process should slow. In
fact, several Class B office buildings have been or are in the process of being
upgraded to Class A, due to the scarcity of Class A space. For instance, One
Illinois Center just underwent a $12 million renovation. 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)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Stock 110,244 110,244 109,970 109,379 108,113 107,606 106,721 106,291 107,141
New Construction 3,893 0 0 0 0 0 115 320 1,600
Conversion/
Demolition 0 0 274 591 1,266 507 1,000 750 750
Net Absorption -- (331) 1,319 173 795 1,995 1,700 1,500 1,200
Occupied Stock 88,967 88,636 89,955 90,128 90,923 92,918 94,668 96,168 97,368
Vacancy Rate 19.3% 19.6% 18.2% 17.6% 15.9% 13.7% 11.3% 9.5% 9.1%
Source: RCG
</TABLE>

CHICAGO CBD CLASS A OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 43,915 43,915 43,915 43,915 43,915 43,915 44,030 44,350 45,950
New Construction 3,893 0 0 0 0 0 115 320 1,600
Net Absorption 759 1,230 1,669 1,493 1,230 971 800 600 1,000
Occupied Stock 33,771 35,000 36,669 38,162 39,392 40,362 41,162 41,762 42,762
Vacancy Rate 23.1% 20.3% 16.5% 13.1% 10.3% 8.1% 6.5% 5.8% 6.9%
Source: RCG
</TABLE>

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,
208 South LaSalle, 33 North Dearborn and 180 North LaSalle are located within
the Central Loop.

The Central Loop office vacancy rate declined from a high of 18.2% in 1993
to 13.0% as of year-end 1997. The Central Loop Class A vacancy rate was 7.6% as
of year-end 1997, lower than the overall Chicago CBD Class A vacancy rate of
8.1%. The Central Loop had a high amount of net absorption in 1997, due in large
part to large leases by Commonwealth Edison, Andersen Consulting and the law
firm of O'Donnell, Wicklun, Pigozzi and Peterson.

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 tables and graph illustrate
historical and forecasted conditions in the Central Loop office markets.

95
<PAGE>

CENTRAL LOOP CLASS A OFFICE SUBMARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<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 3,901 114 931 665 323 458 300 200 50
Occupied Stock 15,066 15,180 16,111 16,776 17,099 17,557 17,857 18,057 18,107
Vacancy Rate 20.7% 20.1% 15.2% 11.7% 10.0% 7.6% 6.0% 5.0% 4.7%
Source: RCG
</TABLE>

CENTRAL LOOP CLASS B OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 15,645 15,645 15,645 15,645 15,645 15,645 15,645 15,645 15,645
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 2,894 (375) (47) (63) 166 1,003 300 50 25
Occupied Stock 13,705 13,330 13,283 13,220 13,386 14,389 14,689 14,739 14,764
Vacancy Rate 12.4% 14.8% 15.1% 15.5% 14.4% 8.0% 6.1% 5.8% 5.6%
Source: RCG
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CENTRAL LOOP OFFICE MARKET
<S> <C> <C> <C>
Construction and Net Absorption
Trends
Square Feet (000s)
Absorption Vac. Rate
Construction (left) (right)
1992 2,841 3,901 20.7%
1993 0 114 20.1%
1994 0 931 15.2%
1995 0 665 11.7%
1996 0 323 10.0%
1997 0 458 7.6%
1998f 0 300 6.0%
1999f 0 200 5.0%
2000f 0 50 4.7%
</TABLE>

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 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,

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<PAGE>
views from the building and close proximity to hotels, restaurants and other
attractions of downtown Chicago.

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, 1997 were in excess
of 10.0% of the Company's aggregate gross revenues, additional information
regarding this Property is presented hereafter.

The building is comprised of 50 floors, encompassing an aggregate of
approximately 944,600 net rentable square feet, of which 95.7% was leased as of
March 31, 1998. 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 Jones Day,
a law firm. These tenants have been tenants in the building since its opening.
Certain legal action was taken against Keck, another significant tenant in the
77 West Wacker Drive Building, to obtain possession of the Keck Space. Keck
vacated the Keck Space in November 1997 pursuant to a settlement agreement.

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, 1993, 1994, 1995,
1996 and 1997 was $20.79, $21.19, $21.56, $20.39 and $20.53, respectively.

The 77 West Wacker Drive Building had a percentage leased rate of 95.3%,
97.0%, 99.6%, 93.6% and 93.6% for each of the five years ended December 31, 1993
through 1997. As of March 31, 1998, 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 $7.2 million. The current lease term is subject to two ten-year options to
renew at 95% of fair market value basis. As of March 31, 1998, 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 200% of the change in the CPI
but not to exceed 2.5% per annum on a cumulative compounded basis through June
30, 2007), for an aggregate of $7.1 million. The current lease term is subject
to two five-year options to renew at 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 $37.9 million. As of March 31, 1998, 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

97
<PAGE>
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 $3.1
million. 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
13.7% for 1997 as compared to approximately 4.3% for the 77 West Wacker Drive
Building for 1997. The average net rental rate in the Chicago CBD submarket
during 1997 was approximately $12.00 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 March 31,
1998. 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.

The following table sets forth for the 77 West Wacker Drive Building for
each of the following ten years: (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 base rent represented by such leases, (v) the average
annual rent per net rentable square foot represented by such leases and (vi) the
percentage of gross annual rental represented by such leases.

<TABLE>
<CAPTION>
NET PERCENTAGE OF AVERAGE ANNUAL
RENTABLE TOTAL LEASED ANNUAL BASE RENT PER NET PERCENTAGE OF GROSS
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT ANNUAL RENTAL
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY REPRESENTED
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING BY EXPIRING LEASES
EXPIRATION LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($) (%)
- ------------------ ------------- ------------ --------------- ------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
4/1/98-12/31/98... 1 7,723 0.85 16 2.06 0.08
1999.............. 1 1,424 0.16 18 12.55 0.09
2000.............. 3 29,267 3.24 241 8.23 1.18
2001.............. 2 12,844 1.42 166 12.93 0.82
2002.............. 7 84,060 9.30 1,297 15.43 6.38
2003.............. 6 63,715 7.05 1,007 15.81 4.96
2004.............. 1 22,576 2.50 209 9.24 1.03
2005.............. 1 22,617 2.50 469 20.75 2.31
2006.............. 1 4,485 0.50 46 10.29 0.23
2007.............. 6 648,531 71.78 16,723 25.79 82.35
2008+............. 1 6,234 0.70 116 18.61 0.57
--- ------------ ------ ------ ------
30 903,476 100.00 20,308 22.48 100.00
--- ------------ ------ ------ ------
--- ------------ ------ ------ ------
</TABLE>

The Company's tax basis in the 77 West Wacker Drive Building for federal
income tax purposes as of December 31, 1997 was approximately $163.0 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, 1997, the estimated average
depreciation rate for this Property under the modified accelerated cost recovery
system was 3.3%. For the year ended December 31, 1997, the Company was assessed
property taxes on this Property at an effective annual rate of approximately
9.5%. Property taxes on this Property for the year ended December 31, 1997
totaled approximately $7.2 million, which represents 1996 taxes paid in 1997.
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.

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<PAGE>
208 SOUTH LASALLE. 208 South LaSalle is a twenty-two story, multi-tenant
Class B office building situated on 1.23 acres of land at the Southwest corner
of LaSalle Street and Adams Street. The property contains 827,494 of net
rentable square feet (including 48,519 of net rentable square feet of retail
space), of which 93.1% was leased as of March 31, 1998. It was built in 1914 and
renovated in 1956, 1982, and 1991. The property is within a mile of several
interstate and state highways that connect to the North, South and West suburbs.
In addition, it is located within close proximity to regional train stations and
the Chicago Transit Authority subway and bus lines. Larger tenants include
Chicago Corp., CT Corporation, American Heart Association, and the Community and
Economic Development Association of Cook County ("CEDA").

33 NORTH DEARBORN. 33 North Dearborn is a twenty-four story, multi-tenant
Class B office building that is situated on 0.5 acres of land at the Southeast
corner of Dearborn Street and Washington Street. The property contains 302,818
of net rentable square feet (including 11,589 of net rentable square feet of
retail space, of which 87.6% was leased as of March 31, 1998. In addition, it
contains a three-story attached annex. The main building was constructed in
1967, while the annex was built in 1986. The property is within a mile of
several interstate and state highways that connect to the North, South and West
suburbs. In addition, it is located within close proximity to regional train
stations and the Chicago Transit Authority subway and bus lines. Larger tenants
include Attorney's Title Guaranty, Corboy & Demetrio, Ecology & Environment, and
French, Kezelis & Kominiarek.

180 NORTH LASALLE. 180 North LaSalle, commonly known as Heitman Centre, is
a thirty-eight story office building at the Southwest corner of LaSalle Street
and Lake Street. The Company owns a mortgage loan collateralized by the property
whose terms effectively provide all the economic benefits of ownership to the
Company. The property contains 728,406 net rentable square feet, of which 81.6%
was leased as of March 31, 1998. The property was completed in 1973. The
property is within a mile of several interstate and state highways that connect
to the North, South and West suburbs of Chicago. In addition, it is located
within close proximity to regional train stations and the Chicago Transit
Authority subway and bus lines. Larger Tenants include Heitman Financial
Services, Schwartz, Cooper, Greenberger & Krauss, and Robert Morris College.

EAST LOOP SUBMARKET

The East Loop submarket is dominated by the Illinois Center Complex,
Prudential Plaza, and the Amoco building. Unlike other parts of Chicago, the
East Loop has very high vacancy rates. The overall office vacancy rate in the
East Loop submarket decreased 0.5 percentage points in the fourth quarter to end
the year at 18.6%, an improvement from the year-end 1996 vacancy rate of 19.1%.
However, Class A vacancy rates are very low in this submarket. At the end of
1997, the Class A vacancy rate was 8.7%. Class B and C vacancy rates were 21.8%
and 25.4%, respectively. Contributing to the high Class B vacancy rate in the
East Loop was the return of 895,000 square feet of Blue Cross Blue Shield of
Illinois space at Two Illinois Center. Helping the market late in the year were
Andersen Consulting's 282,000 square-foot lease at 225 North Michigan Avenue.
KPMG's 230,000 square-foot lease at Three Illinois Center, and D'Acona &
Pflaum's 83,000 square-foot lease at One Illinois Center. In recent sales
activity, Hines Interests acquired the 803,000 square-foot Three Illinois Center
at 303 East Wacker from Metropolitan Life Insurance for an estimated $92
million.

99
<PAGE>

CHICAGO EAST LOOP CLASS B OFFICE MARKET (000SF)

1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stock 9,356 9,356 9,356 9,356 9,356 9,356
New Construction 0 0 0 0 0 0
Net Absorption -- (26) (437) 300 240 150
Occupied Stock 7,776 7,750 7,313 7,613 7,853 8,003
Vacancy Rate 16.9% 17.2% 21.8% 18.6% 16.1% 14.5%
Source: RCG
</TABLE>

122 SOUTH MICHIGAN. 122 South Michigan is a twenty-one story, multi-tenant
Class B office building at the northwest corner of Adams St. and Michigan
Avenue. It is located directly across the street from the Art Institute of
Chicago. The property contains 512,660 net rentable square feet (including
21,692 net rentable square feet of retail space), of which 53.5% was leased as
of March 31, 1998. The property was constructed in 1910 by People's Gas Light
and Coke Company, but has undergone several renovations over the last three
decades. The property is within a mile of several interstate and state highways
that connect to the North, South and West suburbs. In addition, it is located
within close proximity to regional train stations and the Chicago Transit
Authority subway and bus lines. Larger tenants include American Planning
Association, Tony Stone Images, and the Institute for Psychoanalysis.

CHICAGO METROPOLITAN AREA SUBURBAN OFFICE SUBMARKET

The Company will own and operate 15 Office Properties in the Suburban
Chicago office submarket, with approximately 2.7 million 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 west and northwest suburbs of
Chicago.

The west 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 9.0% as of year-end 1997.
The Suburban Chicago Class A office market vacancy rate of 6.6% as of year-end
1997 is lower than that of the suburban office 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 five years,
Suburban Chicago Class A net absorption has averaged over 860,000 square feet
per year, compared to a total net absorption of 1.88 million square feet per
year in the overall Suburban Chicago office market. However, during 1997, as
Class A space became more scarce, net absorption of Class B and Class C space
accelerated.

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 11 new office buildings, with an aggregate of 1.54 million net rentable
square feet (representing approximately 1.9% of the existing net rentable square
feet in the Suburban Chicago office market) are scheduled to be completed during
1998. Fourteen new office buildings with an aggregate of 2.58 million net
rentable square feet are scheduled to

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<PAGE>
be completed in 1999. Approximately 27 other office buildings are being planned,
but are not scheduled to be completed before 2000.

RCG believes that the outlook for the Suburban Chicago office market is
good. RCG believes that, because office employment growth is expected to remain
in the 2.5% to 3.0% range, overall vacancy rates in the Suburban Chicago office
market may rise slightly but will remain relatively low in the 8.5% to 9.9%
range through the year 2000, despite the addition of new office space. 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.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
SUBURBAN OFFICE VACANCY RATE
<S> <C> <C>
Total vs Class A
Total Class A
1992 19.3% 16.7%
1993 17.5% 14.3%
1994 15.0% 11.6%
1995 11.8% 8.5%
1996 11.4% 7.8%
1997 9.0% 6.6%
1998f 8.5% 7.4%
1999f 9.3% 9.1%
2000f 9.9% 10.2%
Source: Bureau of Labor Statistics,
RCG
</TABLE>

SUBURBAN CHICAGO OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 78,810 79,015 79,245 79,245 79,461 80,258 82,418 85,220 87,660
New Construction 0 205 230 0 216 797 2,160 2,802 2,440
Net Absorption 0 1,588 2,171 2,536 508 2,616 2,400 1,900 1,650
Occupied Stock 63,600 65,187 67,358 69,894 70,402 73,019 75,419 77,319 78,969
Vacancy Rate 19.3% 17.5% 15.0% 11.8% 11.4% 9.0% 8.5% 9.3% 9.9%
Source: RCG
</TABLE>

SUBURBAN CHICAGO CLASS A OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 29,201 29,406 29,636 29,636 29,852 30,649 32,809 35,611 38,051
New Construction 0 205 230 0 216 797 2,160 2,802 2,440
Net Absorption 1,133 877 997 919 407 1,109 1,750 2,000 1,800
Occupied Stock 24,324 25,201 26,198 27,117 27,524 28,632 30,382 32,382 34,182
Vacancy Rate 16.7% 14.3% 11.6% 8.5% 7.8% 6.6% 7.4% 9.1% 10.2%
Source: RCG
</TABLE>

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<PAGE>

SUBURBAN CHICAGO OFFICE SUBMARKETS: RECENT VACANCY RATE STATISTICS

Change
N.R.A. % Vacant 3Q97-
Submarket 1Q98 1Q98 4Q97 3Q97 1Q98
- ------------------------------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Lake Shore 4,156,145 13.6% 12.7% 13.4% 0.2%
North Suburbs 5,088,414 7.7% 5.1% 5.7% 2.0%
NORTHWEST SUBURBS 21,595,422 9.4% 8.0% 10.0% -0.6%
O'Hare 13,046,055 10.4% 10.3% 12.5% -2.1%
EAST-WEST TOLLWAY 26,642,822 8.8% 9.0% 9.3% -0.5%
West Cook 1,276,779 17.2% 17.0% 14.1% 3.1%
South Suburbs 2,440,264 13.6% 13.6% 13.5% 0.1%
Lake County 6,242,503 6.8% 7.2% 8.0% -1.2%
Suburban Total 80,488,404 9.5% 9.0% 10.1% -0.6%
Source: RCG
</TABLE>

NORTHWEST SUBURBS OFFICE SUBMARKET

The Company owns and operates six Office Properties in the Northwest Suburbs
submarket. The Northwest Suburbs 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 Northwest Suburbs 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 Northwest Suburbs submarket, including Ameritech, U.S.
Robotics (now 3Com) and Siemens.

The Northwest Suburbs office submarket has the second highest concentration
of office space in the Suburban Chicago office market. During the 1980s, the
Northwest Suburbs 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 Northwest Suburbs
Class A office submarket has experienced the largest decline in vacancy rates of
any office submarket in the Chicago metropolitan area; the Northwest Suburbs
Class A office vacancy rate declined from a high of 20.1% in 1992 to 6.4% as of
year-end 1997. During 1996, the Northwest Suburbs submarket recorded the largest
amount of leasing activity of any suburban submarket. Ameritech and U.S.
Robotics (now 3Com) leased large spaces in 1996. Net absorption slowed in 1997
so several companies vacated space in favor of build-to-suit projects and
purchases. Examples of this trend include GE Capital, which is vacating 150,000
square feet in favor of the former Recon Headquarters and TransAmerica
Distribution Finance, which is vacating another 150,000 square feet in favor of
a build-to-suit at Prairie Stone in Hoffman Estates. As of year end 1997, the
Northwest Suburbs submarket's overall office vacancy rate declined to 8.0%,
approximately one-third of its 1992 vacancy rate of 23.9%. The low vacancy rates
in the Northwest Suburbs Class A office market have contributed to pushing
vacancy rates lower in the Class B market. As of year-end 1997, the Class B
vacancy rate was down to 8.6% from 17.8% a year earlier.

Absorption of Class A office space in the Northwest Suburbs was extremely
strong between 1992 and 1996, averaging 500,000 square feet per year. However,
the combination of strong demand and little new construction demand contributed
to a scarcity of available Class A space. So, during 1997, net absorption of
Class B space spiked, reaching nearly 800,000 square feet. A dozen other
buildings are likely to be completed in 2000 or thereafter.

102
<PAGE>
RCG believes that the outlook for the Northwest Suburbs office market is
strong. Demand for office space is expected to remain strong, but will continue
to be constrained by the lack of new supply of Class A office space through
1998. RCG forecasts that Class A vacancy rates will remain low through 1998.
Starting in 1999, with the delivery of up to nine new buildings totaling almost
1.25 million square feet, pent-up demand will be unleashed, resulting in a spike
in net absorption, similar to what occurred in the Class B submarket in 1997.
These trends will persist through 2000, coinciding with a gradual easing of
tight market conditions. The following table and graph illustrate historical and
forecasted conditions in the Northwest Suburbs office markets.

NORTHWEST SUBURBS SUBMARKET CLASS A OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,026 10,026 10,081 10,136 10,136 10,285 10,600 11,600 12,600
New Construction 0 55 55 0 0 149 315 1,000 1,000
Net Absorption (50) 261 529 433 203 188 300 750 700
Occupied Stock 8,011 8,271 8,801 9,234 9,437 9,625 9,925 10,675 11,375
Vacancy Rate 20.1% 17.5% 12.7% 8.9% 6.9% 6.4% 6.4% 8.0% 9.7%
Source: RCG
</TABLE>

NORTHWEST SUBURBS SUBMARKET CLASS B OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 8,624 8,624 8,624 8,624 8,624 8,624 8,624 8,624 8,624
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 60 276 207 405 (336) 794 75 (200) (400)
Occupied Stock 6,537 6,813 7,020 7,425 7,089 7,883 7,958 7,758 7,358
Vacancy Rate 24.2% 21.0% 18.6% 13.9% 17.8% 8.6% 7.7% 10.0% 14.7%
Source: RCG
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
NORTHWEST SUBURBS OFFICE MARKET
<S> <C> <C> <C>
Construction and Net Absorption
Trends
Square Feet (000s)
Absorption Vac. Rate
Construction (left) (right)
1992 0 23.9%
1993 0 515 21.5%
1994 0 858 17.5%
1995 0 944 13.1%
1996 0 129 12.5%
1997 149 1,096 8.0%
1998f 315 450 7.3%
1999f 1,000 600 8.7%
2000f 1,000 400 10.9%
</TABLE>

103
<PAGE>
DESCRIPTION OF NORTHWEST SUBURBS PROPERTIES

The Company has six Office Properties in the Northwest Suburbs 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.

1701 GOLF ROAD, ROLLING MEADOWS. 1701 Golf Road consists of three, 12
story, Class A, high-rise, multi-tenant office buildings that were built in
1977, 1979, and 1981, respectively. The Company owns a mortgage loan
collateralized by this property whose terms effectively provide all the economic
benefits of ownership to the Company.

Because the book value of the 1701 Golf Road Property will be in excess of
10.0% of the Company's total assets, additional information regarding this
Property is presented below.

The buildings are comprised of approximately 916,000 net rentable square
feet of which 97.4% was leased as of March 31, 1998. Major tenants include
Motorola, AT&T, IBM, and American Express. The Annualized Net Rent per leased
square foot as of March 31, 1998 is $9.10. Information as to the occupancy rate
for each of the last five years and the average effective annual rental per
square foot for each of the last five years is not available to the Company.

As of March 31, 1998, Motorola occupied 21.4% of the net rentable square
feet of the Property. The six leases for this space commenced on April 1, August
1 and November 1, 1995 and January 1, March 1 and June 1, 1997, for a total
occupancy of 196,152 square feet, and each such lease, except the June 1, 1997
lease (which expires on March 31, 2000), expires on September 30, 2000. Pursuant
to three of these leases, Motorola is obligated to pay net rent per square foot
of $8.50, $7.00 (increasing to $7.25 in April 1999) and $7.50, respectively.
Each of such three leases provide Motorola with a three-year option to renew at
a net rent per square foot of $12.00. Pursuant to two of the remaining Motorola
leases, Motorola is obligated to pay net rent per square foot of $13.25
(increasing by $0.25 in April 1999 and April 2000). Pursuant to the last lease,
Motorola is obligated to pay net rent per square foot of $13.00 (increasing by
$0.25 in April 1999). Motorola has a three-year option to renew the last three
leases at 100.0% of fair market value. Motorola's Annualized Net Rent under the
current leases is approximately $1.5 million

As of March 31, 1998, AT&T occupied 16.1% of the net rentable square feet of
the Property. Two leases for this space commenced on January 1, 1995 and one
lease commenced on each of October 1, 1995, November 1, 1996 and January 1,
1997, for a total occupancy of 147,272 square feet. All five leases expire on
December 31, 1999. AT&T is obligated to pay net rent per square foot of $9.50
pursuant to two of the leases, $11.50 per square foot pursuant to two other
leases and $12.50 per square foot pursuant to the last lease, for an Annualized
Net Rent of approximately $1.5 million. Each lease provides AT&T with one five-
year renewal option for net rent per square foot of $11.50.

104
<PAGE>
The following table sets forth for the 1701 Golf Road Property for each of
the following ten years: (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 base rent represented by such leases, (v) the average annual
rent per net rentable square foot represented by such leases and (vi) the
percentage of gross annual rental represented by such leases.

<TABLE>
<CAPTION>
NET PERCENTAGE OF AVERAGE ANNUAL
RENTABLE TOTAL LEASED ANNUAL BASE RENT PER NET PERCENTAGE OF
AREA SUBJECT SQUARE FEET RENT UNDER RENTABLE SQUARE FOOT GROSS ANNUAL
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY RENTAL REPRESENTED
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING BY EXPIRING LEASES
EXPIRATION LEASES (SQ. FT.) LEASES (%) ($000) LEASES ($) (%)
- ------------- ------------- ------------ --------------- ------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
4/1/98-12/31/98.. 23 177,298 19.88 1,570 8.86 19.35
1999......... 23 185,548 20.81 1,952 10.52 24.06
2000......... 39 272,350 30.54 2,193 8.05 27.03
2001......... 19 151,692 17.01 1,479 9.75 18.23
2002......... 6 26,281 2.95 282 10.73 3.48
2003......... 10 28,235 3.17 188 6.65 2.32
2004......... 4 27,633 3.10 203 7.35 2.50
2005......... 4 21,027 2.36 209 9.92 2.58
2006......... 1 1,582 0.18 38 24.00 0.47
2007......... 1 100 0.01 -- -- --
2008+........ -- -- 0.00 -- -- 0.00
--- ------------ ------ ----- ------
130 891,746 100.00 8,114 9.10 100.00
--- ------------ ------ ----- ------
--- ------------ ------ ----- ------
</TABLE>

The Company's tax basis in the note receivable related to 1701 Golf Road for
federal income tax purposes as of December 31, 1997 was approximately $110
million. For the year ended December 31, 1997, this Property was assessed
property taxes at an effective annual rate of approximately 8.11%. Property
taxes for this property for the year ended December 31, 1997, totaled
approximately $2.6 million. Because the Company owns the mortgage loan for this
property, it does not take depreciation on it for federal income tax purposes.

3800 NORTH WILKE ROAD, ARLINGTON HEIGHTS. 3800 North Wilke Road, also known
as Commerce Point Business Park, is a complex of two four-story office buildings
and one single-story office/technology center. The property was completed in
1987 and contains 235,269 net rentable square feet of office space. As of March
31, 1998, the complex is 96.1% leased and the major tenants are Citgo, Quantum
Executive and Administrative Management Group.

1700 EAST GOLF ROAD, SCHAUMBURG. 1700 East Golf Road, also known as Two
Century Centre, is an eleven-story, multi-tenant, Class A office building
situated on 8.25 acres of land in Schaumburg. The property, which was
constructed in 1989, contains 217,960 of net rentable square feet, of which
96.7% was leased as of March 31, 1998. The Property contains 636 surface parking
spaces and 50 covered parking spaces that are linked to the building through an
underground tunnel. It is located 8 miles from O'Hare International Airport.
Larger tenants include Sante Fe Pacific Corp., Fidelity Investments, Decision
Consultants, Inc. and CKD-Createc Corporation.

1699 EAST WOODFIELD ROAD, SCHAUMBURG. 1699 East Woodfield Road, also known
as the Citibank Office Plaza, is a five-story Class A office building located
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 98.9%
was leased as of March 31, 1998. The building's exterior is clad in pebbled
white quartz set in precast concrete, with bronze-tinted thermopaned windows.
The building's

105
<PAGE>
tenants include Citibank, Merrill Lynch and McGladrey & Pullen, the nation's
seventh largest accounting firm.

1990 ALGONQUIN ROAD and 2000-2060 ALGONQUIN ROAD, SCHAUMBURG. 1990
Algonquin Road and 2000-2060 Algonquin Road constitute a complex of office
buildings 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 96.2% was leased as of March 31, 1998. The buildings are
close to, and visible from, Interstate 355 and a ten-minute drive from O'Hare
International Airport. Tenants include Silicon Graphics and Ticor Title
Insurance.

1301 EAST TOWER ROAD, SCHAUMBURG. 1301 East Tower Road is a single-story
Class B office building. The building is situated on a 6.0-acre parcel of land
and includes 23 spaces for surface parking. It was built in 1992. It has
approximately 50,000 net rentable square feet of office space, of which 100.0%
was leased as of March 31, 1998. The building has three docks and is located
near Interstate highways 90 and 290. Household Credit Services leases the entire
building. Household Credit Services has both a right of first refusal to
purchase 1301 East Tower Road and a purchase option exercisable prior to
December 30, 2001 at fair market value. The Company is aware of certain
environmental contamination at this facility and is involved in certain
litigation relating to such contamination. See "--Governmental
Regulations--Environmental Matters."

O'HARE OFFICE SUBMARKET

The overall vacancy rate of 10.3% in the O'Hare submarket reflects a Class A
vacancy rate of 4.0%. According to RCG, the overall vacancy rate understates the
health of the O'Hare submarket because many large blocks of available space in
older, obsolete buildings have prevented improvement in the vacancy rate. The
Class B market registered relatively strong net absorption of almost 200,000
square feet, the strongest demand growth registered in six years. The low Class
A rate of 4.0% contributed to the strong Class B net absorption. Two of the
larger leases of the fourth quarter were Galileo International's 24,000
square-foot lease at the Orchard Point Office Center and AT&T's 19,000
square-foot lease at President's Plaza II. The lack of space has resulted in a
Class A rental rate of $26.64, the highest of all the suburban markets.

The outlook for the O'Hare office submarket is strong. No new construction
is expected to be completed in 1998 or 1999 and only one new Class A office
building totaling 280,000 square feet is expected to be completed in 2000 or
2001. As a result, vacancy rates will continue to decline in both the Class A
and B markets through 1999.

106
<PAGE>
The following table illustrates historical and forecasted conditions in the
O'Hare submarket Class B office market.

O'HARE SUBMARKET CLASS B OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 4,085 4,085 4,085 4,085 4,085 4,085 4,085 4,085 4,085
New Construction 0 0 0 0 0 0 00 0 0
Net Absorption 147 41 (212) 135 0 199 200 150 (50)
Occupied Stock 3,301 3,342 3,129 3,264 3,264 3,463 3,663 3,813 3,763
Vacancy Rate 19.2% 18.2% 23.4% 20.1% 20.1% 15.2% 10.3% 6.7% 7.9%
Source: RCG
</TABLE>

DESCRIPTION OF O'HARE PROPERTY

6400 SHAFER COURT, ROSEMONT. 6400 Shafer Court is a Class B, eight-story
building that was constructed in 1980. The property has 167,495 net rentable
square feet and a lower level of 13,937 square feet which includes 22 enclosed
parking spaces. The property is located on 4.5 acres of land including 495
surface parking spaces (2.96 surface per 1,000 square feet and 3.09 total per
1,000 square feet). The property has a reinforced concrete foundation, floor
structure, and framing; and a polished granite exterior facade with bronze
reflective glass windows. The building is located one mile from O'Hare
International Airport and has access to Interstate 294. The building is
presently 93.5% occupied with the largest tenants being AHI International,
Miller and Company, and Anixter Inc.

EAST-WEST TOLLWAY OFFICE SUBMARKET

The Company owns and operates six Office Properties in the East-West Tollway
submarket. The East-West Tollway office submarket encompasses the communities of
Oak Brook, Lombard, Downers Grove and Elmhurst in eastern DuPage County. The
East-West Tollway submarket was the first suburban office market developed
outside of downtown Chicago that attracted large firms and corporate
headquarters in large numbers. Some of the East-West Tollway submarket's largest
employers are WMX Technologies, McDonalds and Spiegel.

The East-West Tollway office submarket has the largest concentration of
office space in the Suburban Chicago office market. The East-West Tollway Class
A vacancy rate declined from 17.1% in 1992 to a low of 6.6% in 1995.
Subsequently, in 1996 and 1997, with the delivery of four new office buildings,
the submarket's tight conditions eased slightly, with vacancy rates rising to
8.8% as of year-end 1997. During 1997, several major tenants, including Alliance
of America, Ameritech, Wausau Insurance, Deutsche Financial, Raytheon Engineers
and Constructors, Rockwell International and Donnelley, leased large amounts of
office space. By year-end 1997, the East-West Tollway submarket's overall office
vacancy rate declined to 9.0%, compared to a vacancy rate of 17.3% in 1992 and
well below the peak vacancy rate of 24.7% in 1986. Unlike some other submarkets,
Class B and Class C buildings within the East-West Tollway office submarket are
also experiencing strong leasing activity; the office vacancy rates for Class B
and Class C office buildings as of year-end 1997 were 8.0% and 11.4%,
respectively.

As the largest and one of the most popular of the suburban office markets,
the East-West Tollway market has experienced and continues to experience a high
volume of new construction relative to other suburban submarkets. During 1997,
four buildings totaling approximately 476,000 square feet were completed.
Another nine buildings totaling approximately 1,227,000 square feet and six
buildings totaling approximately 1,030,000 square feet are expected to be
completed during 1998 and 1999, respectively.

107
<PAGE>
RCG believes that the trends will continue, with strong net absorption
offset by office deliveries in 1998 and 1999. By 2000, the Class A vacancy rate
will be at a level of 10% or above. The delivery of significant Class A space in
1998, 1999 and 2000 will draw some tenants out of Class B and C buildings,
contributing to a slight rise in Class B vacancy. The following tables and graph
illustrate historical and forecasted conditions in the East-West Tollway overall
and Class A and Class B office markets.

EAST-WEST TOLLWAY MARKET CLASS A OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 9,550 9,550 9,915 9,915 10,159 10,635 11,862 12,892 13,892
New Construction 247 0 365 0 244 476 1,227 1,030 1,000
Net Absorption 316 535 779 30 136 305 1,000 900 850
Occupied Stock 7,917 8,452 9,231 9,261 9,397 9,702 10,702 11,602 12,452
Vacancy Rate 17.1% 11.5% 6.9% 6.6% 7.5% 8.8% 9.8% 10.0% 10.4%
Source: RCG
</TABLE>

EAST-WEST TOLLWAY MARKET CLASS B OFFICE MARKET (000SF)

1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,566 10,759 10,759 10,759 10,759 10,759 10,759 10,759 10,759
New Construction 0 193 0 0 0 0 0 0 0
Net Absorption (190) 235 430 43 215 255 (50) (50) (100)
Occupied Stock 8,717 8,951 9,382 9,425 9,640 9,895 9,845 9,795 9,695
Vacancy Rate 17.5% 16.8% 12.8% 12.4% 10.4% 8.0% 8.5% 9.0% 9.9%
Source: RCG
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
EAST-WEST TOLLWAY OFFICE MARKET
<S> <C> <C> <C>
Construction and Net Absorption
Trends
Square Feet (000s)
Absorption Vac. Rate
Construction (left) (right)
92 247 354 17.3%
93 193 592 15.6%
94 365 1,289 11.8%
95 0 310 10.6%
96 244 531 9.4%
97 476 540 9.0%
98f 1,227 950 9.6%
99f 1,030 850 9.9%
00f 1,000 750 10.4%
</TABLE>

DESCRIPTION OF EAST-WEST TOLLWAY PROPERTIES

2100 SWIFT DRIVE, OAK BROOK. 2100 Swift Road is a three-story Class B
office building situated on a 3.1-acre parcel of land. The parcel includes 223
spaces for surface parking. It was built in 1985 and completely renovated in
1991. The Property has approximately 58,000 net rentable square feet, of which
100.0% was leased as of March 31, 1998. The building is located near the
confluence of the Tri-State

108
<PAGE>
Tollway, East-West Tollway and the Eisenhower Expressway and is leased entirely
by USN Communications, Inc.

941-961 WEIGEL DRIVE. 941-961 Weigel Drive is a single-story Class B office
building located in Elmhurst, Illinois. The building is situated on a 10.6-acre
parcel of land. It was built in 1989. It has approximately 123,000 net rentable
square feet of office space, of which 100.0% was leased as of March 31, 1998.
The building is six miles southwest of O'Hare International Airport, near
Interstate Highways 88, 290 and 294. The building is leased entirely by
Household Finance Corp., which has a right of first refusal to purchase the
building under certain circumstances.

280 SHUMAN BOULEVARD. 280 Shuman Boulevard is a two-story Class B office
building located in Naperville, Illinois. The building is situated on a 5.5-acre
parcel of land and includes 218 spaces for surface parking. It was built in
1979. It has approximately 65,000 net rentable square feet of office space, of
which 90.8% was leased as of March 31, 1998. The building has a masonry exterior
with a 6,000 square foot two-story, sky-lit atrium. The building is
approximately one mile from Interstate highway 88. The building's tenants
include General Electric and Nexgen Software.

4343 COMMERCE COURT. 4343 Commerce Court is a seven-story Class A office
building located in Lisle, Illinois. The building is situated on a 7.4-acre
parcel of land and includes 559 spaces for surface parking. It was built in 1989
and renovated in 1995. It has approximately 171,000 net rentable square feet of
office space, of which 67.2% was leased as of March 31, 1998. The building has
bronze-tinted ribbon windows and features a striking ten-story glass atrium. The
building's tenants include the Federal Bureau of Investigation and Hinshaw &
Culbertson, a large Chicago law firm.

4100 MADISON STREET. 4100 Madison Street is a two-story Class B office
building located in Hillside, Illinois. The building is situated on a 2.3-acre
parcel of land and includes 86 spaces for surface parking. It was completely
renovated from 1978 to 1994. It has approximately 25,000 net rentable square
feet of office space, of which 60.1% was leased as of March 31, 1998. The
building's tenants include the Nardi Group and Narco Construction.

2000 YORK ROAD, OAK BROOK. 2000 York Road, also known as Oak Brook Business
Center, is a one-story, Class B, multi-tenant office/service building with a
two-story office section. The steel frame building with masonry wall and glass
exterior was built in 1960 and extensively renovated in 1986. The building
contains an aggregate of 199,245 net rentable square feet of office space as
well as a fitness center of 2,086 net rentable square feet and storage space of
500 net rentable square feet. The property provides an expansive 26,780 square
foot interior loading dock with a twenty-two foot ceiling height. The property
is situated on an eleven and a half-acre site that include 497 parking spaces.
An additional 100 parking spaces are available through a lease with an adjacent
building. The property was 87.2% leased as of March 31, 1998. Major tenants
include Cable Land TV Regional Programming/Chicago Tribune, Nationwide NOVA
Cellular and SDI Consultants, Inc.

OTHER CHICAGO METROPOLITAN AREA OFFICE PROPERTIES

2205-2255 ENTERPRISE DRIVE. 2205-2255 Enterprise Drive is a complex of six
single-story Class B office buildings located in Westchester, Illinois. The
complex is situated on a 9.7-acre parcel of land and includes 518 spaces for
surface parking. It was built in 1987. It has approximately 130,000 net rentable
square feet of office space, of which 94.9% was leased as of March 31, 1998. The
buildings' tenants include the regional office for the U.S. Census Bureau and
National Restaurant Enterprise, the owner and operator of over 200 Burger King
restaurants in the Midwest and Southeast. The complex is located less than two
miles from each of Interstate Highways 88, 290 and 294.

1600-1700 167TH STREET. 1600-1700 167th Street is a complex of two
single-story Class B office buildings located in Calumet City, Illinois. The
building is situated on a 5.2-acre parcel of land. It was built in 1981 and
remodeled in 1982. It has approximately 65,000 net rentable square feet of
office space, of

109
<PAGE>
which 56.9% was leased as of March 31, 1998. The building has a masonry and
brick exterior and ceiling skylights. The building's tenants include Conrail
Corp., IBM and the General Services Administration.

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, Gaylord Entertainment and Kroger. According to RCG,
during the five years between 1992 and 1997, employment growth in Nashville
averaged 4.0% per year compared to a 2.4% average annual rate for the nation as
a whole. During 1997, total employment growth in Nashville accelerated to 2.9%
compared with the national growth rate of 2.3%. Office employment in Nashville
grew at an average annual rate of 5.4% between 1992 and 1997, compared to a 4.3%
average annual rate for the nation as a whole. As of year-end 1997, office
employment grew 4.2%, compared with the national growth rate of 4.0%.

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 PGI in 1993 and further redeveloped. It has approximately 250,600 net
rentable square feet of office space, of which 83.2% was leased as of March 31,
1998. 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 PGI 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, the
Tennessee Valley Authority and several large apparel manufacturers, as well as
the proximity of the U.S. Department of Energy's Oak Ridge facility. However, in
early November 1997, one large apparel manufacturer announced plans to shut down
two of its factories in the Knoxville area. Knoxville's economy has grown
rapidly and steadily during the 1990s. Between 1992 and 1997, employment growth
in Knoxville averaged 2.1% per year compared with an average national employment
growth rate of 2.4%. As of year-end 1997, Knoxville employment rose 1.0% and
office employment increased 2.9%. RCG believes that these positive trends will
continue through the year 2000.

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. PGI 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 91.8% was leased as of March 31, 1998. 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

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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. PGI 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 83.2%
was leased as of March 31, 1998. 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. PGI 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, 1998. 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 PGI in 1987. It services the One Centre Square and Two Centre Square
buildings.

THE MILWAUKEE OFFICE MARKET

The Company owns and operators one property in the Mayfair submarket of
Milwaukee. According to RCG, Mayfair is the most popular submarket of Milwaukee,
and has a vacancy rate of 10.6% at year-end 1997 as compared to 15.4% for
Milwaukee overall. With the exception of one 43,700 square foot building in
1997, no new construction has been delivered in the Mayfair submarket during the
last six years. Total employment in Milwaukee was up 1.8% in 1997, with the
service sector nearly doubling that with a 3.4% employment increase. RCG expects
overall Milwaukee employment to grow between 1.4% and 2.2% over the next three
years.

DESCRIPTION OF MILWAUKEE PROPERTY

2675 NORTH MAYFAIR RD. 2675 North Mayfair Rd. is a six-story multi-tenant
office building located in Wauwatosa, in the Mayfair submarket. It was built in
1979 and has a total of 380 parking spaces, including 224 covered underground
spaces. The Class B property has 102,660 rentable square feet, and was 90.4%
leased as of March 31, 1998. Larger tenants include Aetna, General Services
Administration, and Norwest.

THE COMPANY'S INDUSTRIAL SUBMARKETS

CHICAGO METROPOLITAN AREA INDUSTRIAL SUBMARKETS--GENERAL OVERVIEW

The Company owns and operates 39 Industrial Properties in the Chicago
Metropolitan Area. Seventeen Industrial Properties are Prime Properties located
in four industrial parks which were acquired by PGI between 1988 and 1992 and
subsequently substantially renovated, and six Industrial Properties are
Contribution Properties. The industrial parks acquired from PGI are located in
East Chicago, Indiana; Hammond, Indiana; the city of Chicago; Hillside,
Illinois; and Arlington Heights, Illinois.

The Chicago Metropolitan Area's manufacturing sector is the second largest
of any metropolitan area in the nation, measured by total jobs. According to
RCG, Chicago's manufacturing employment base has expanded at an average rate of
0.9% during the last five years, compared to national growth of 0.4% over the
same period. Similarly, during 1997, Chicago's manufacturing employment
increased 0.5%, compared

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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 7.9% as of
year-end 1997 (which reflects conditions in both overhead crane/manufacturing
facilities and warehouse/distribution facilities) was lower than the national
average industrial vacancy rate of 8.4%.

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, both the Chicago Metropolitan Area's central
location and its highly efficient and extensive, well-integrated transportation
system 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 table and graph 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.

<TABLE>
<CAPTION>
CHICAGO TOTAL METROPOLITAN AREA INDUSTRIAL MARKET (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock -- -- 862,823 874,822 892,709 909,611 922,861 933,861 942,861
Construction -- -- -- 11,999 17,887 16,902 13,250 11,000 9,000
Net Absorption -- -- -- 26,247 9,336 9,407 10,000 9,250 7,500
Occupied Stock -- -- 792,762 819,008 828,345 837,752 847,752 857,002 864,502
Vacancy Rate 8.5% 8.4% 8.1% 6.4% 7.2% 7.9% 8.1% 8.2% 8.3%

Source: RCG
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
INDUSTRIAL MARKET
<S> <C> <C> <C>
Chicago Metropolitan Area
Square Feet (000s)
Additions Net Absorption Vacancy Rate
1995 11,999 26,247 6.4%
1996 17,887 9,336 7.2%
1997 16,902 9,407 7.9%
1998f 13,250 10,000 8.1%
1999f 11,000 9,250 8.2%
2000f 9,000 7,500 8.3%
Source: RCG
</TABLE>

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The Chicago Metropolitan Area industrial market comprises almost 910 million
square feet of space. Demand for industrial space has been strong over the last
three years, with net absorption averaging approximately 15 million square feet
per year. Gross leasing activity, which RCG considers a good measure of demand,
has also been robust. During 1997, gross leasing activity in the Chicago
Metropolitan Area was slightly higher than 1996's level at approximately 24.5
million square feet. Although the vacancy rate increased to 7.9% as of year-end
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.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
INDUSTRIAL MARKET GROSS LEASING VOLUME
<S> <C> <C>
Chicago Metropolitan Area
Square Feet (000s)
Manufacturing Warehouse
1992 7,330 13,745
1993 27,865 15,690
1994 11,609 18,478
1995 15,498 29,587
1996 10,529 13,164
1997 7,864 16,616
</TABLE>

THE INDUSTRIAL PARKS. The industrial parks acquired from PGI 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 PGI between 1988 and 1992, and all
four had previously been utilized as single tenant sites. Upon acquiring the
Properties, PGI redeveloped the parks to reposition them as multi-tenant
facilities. Among the improvements PGI 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. 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

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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 21 warehouse/distribution Industrial Properties located in
Suburban Chicago, which contain an aggregate of approximately 2.5 million
rentable square feet. At March 31, 1998, 17 of the Company's
warehouse/distribution Industrial Properties were 100.0% leased.

The strength of trade in the industrial market is reflected in the growth of
transportation services at 5.4% 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 3.3%
to 11.0% per year since 1992.

RCG believes that the warehouse/distribution submarket is strong. The
vacancy rate in this submarket increased to 15.2% at year-end 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 17.8 million square feet per year for the
last six 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.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
WAREHOUSE/DISTRIBUTION SUBMARKET
<S> <C> <C>
Chicago Metropolitan Area
Square Feet (000s)
Addition Vacancy Rate
1992 1,496 13.9%
1993 1,329 11.3%
1994 4,124 11.4%
1995 5,089 8.8%
1996 6,193 10.1%
1997 13,975 15.2%
</TABLE>

DESCRIPTION OF CHICAGO METROPOLITAN AREA WAREHOUSE/DISTRIBUTION PROPERTIES

475 SUPERIOR AVENUE. 475 Superior Avenue is a distribution facility located
in Munster, Indiana. The building is situated on an approximately 31-acre parcel
of land. It was built in 1989. It has approximately 450,000 net rentable square
feet of space, of which 100.0% was leased as of March 31, 1998. The facility is
served by 58 truck docks and three rail spurs which connect to the CSX railroad.
The facility is approximately two miles from Interstate 80. The facility is 100%
leased by GE Appliances, which has located one of its eight national
distribution centers in the facility. GE Appliances' lease expires on March 31,
1999; certain tax abatements for local property taxes also expire in 1999. The
facility includes approximately 11 acres of vacant land.

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

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square feet of space, of which 100.0% was leased as of March 31, 1998, located
on an approximately 15.0 acre parcel of land. The building has ten exterior
docks. Rank Video leases the entire facility.

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 PGI in 1992. PGI 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, 1998, 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, 1998. Located on an approximately 13.1 acre parcel of
land, the building has 15 exterior docks. Major tenants include Rank Video.

11045 GAGE AVENUE. 11045 Gage Avenue is a distribution facility located in
Franklin Park, Illinois. The building is situated on a 7.0-acre parcel of land
and includes 211 spaces for surface parking. It was built in 1970 and renovated
in 1992. It has approximately 141,000 net rentable square feet of space, of
which 97.0% was leased as of March 31, 1998. The building has nine docks and is
near Interstate Highway 294. Echlin Inc., which leases the entire facility, has
a right of first refusal to purchase the building.

4248, 4250 AND 4300 MADISON STREET. 4248, 4250 and 4300 Madison Street is a
distribution facility located in Hillside, Illinois. The building is situated on
a 4.7-acre parcel of land and includes 105 spaces for surface parking. It was
built in 1980 and renovated in 1994. It has approximately 127,000 net rentable
square feet of office space, of which 87.7% was leased as of March 31, 1998. The
building has eleven docks and is located five miles from O'Hare International
Airport, near Interstate Highways 88, 290 and 294. The building's tenants
include Micron Industries and Hussey Copper.

1051 NORTH KIRK ROAD. 1051 North Kirk Road is a distribution facility
located in Batavia, Illinois. The building is situated on a 8.9-acre parcel of
land and includes 52 spaces for surface parking. It was built in 1990. It has
approximately 120,000 net rentable square feet of space which is master leased
by the NAC General Partner. The building has 12 docks.

4211 MADISON STREET. 4211 Madison Street is a distribution facility located
in Hillside, Illinois. The building is situated on a 3.4-acre parcel of land and
includes 120 spaces for surface parking. It was built in 1977 and renovated in
1992. It has approximately 90,000 net rentable square feet of space, of which
100.0% was leased as of March 31, 1998. The building has nine docks and is
located five miles from O'Hare International Airport, near Interstate Highways
88, 290 and 294. The building's tenants are Dynamic Manufacturing Co. and Aratex
Services, Inc.

4160-4190 MADISON STREET. 4160-4190 Madison Street is a distribution
facility located in Hillside, Illinois. The building is situated on a 3.9-acre
parcel of land and includes 86 spaces for surface parking. It was built in 1974
and renovated in 1992. It has approximately 80,000 net rentable square feet of
space, of which 100.0% was leased as of March 31, 1998. The building has eight
docks and is five miles from O'Hare International Airport. The building's
tenants include Dynamic Manufacturing Co. and Evans, Inc.

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342-346 CAROL LANE. 342-346 Carol Lane is a distribution facility located
in Elmhurst, Illinois. The building is situated on a 3.6-acre parcel of land and
includes 151 spaces for surface parking. It was built in 1989 and remodeled in
1995. It has approximately 68,000 net rentable square feet of space, of which
100.0% was leased as of March 31, 1998. The building has six docks and is six
miles southwest of O'Hare International Airport, near Interstate Highways 88,
290 and 294. The building's tenants include Old Kent Financial Corporation and
3-D Exhibits Inc.

200 EAST FULLERTON AVENUE. 200 East Fullerton Avenue is a distribution
facility located in Carol Stream, Illinois. The building is situated on a
4.5-acre parcel of land and includes 122 spaces for surface parking. It was
built in 1968 and renovated in 1995. It has approximately 66,000 net rentable
square feet of space, of which 100.0% was leased as of March 31, 1998. Spraying
Systems Co., which has a right of first refusal to purchase the facility, leases
the entire facility.

370 CAROL LANE. 370 Carol Lane is a distribution facility located in
Elmhurst, Illinois. The building is situated on a 2.8-acre parcel of land and
includes 39 spaces for surface parking. It was built in 1977 and renovated in
1994. It has approximately 60,000 net rentable square feet of distribution and
office space, of which 100.0% was leased as of March 31, 1998. The building has
four docks and is six miles southwest of O'Hare International Airport, near
Interstate Highways 88, 290 and 294. Semblex Corp. leases the entire facility.

550 KEHOE BOULEVARD. 550 Kehoe Boulevard is a distribution facility located
in Carol Stream, Illinois. The building is situated on a 3.4-acre parcel of land
and includes 102 spaces for surface parking. It was built in 1997. It has
approximately 45,000 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1998. Associated Material leases the entire facility.

388 CAROL LANE. 388 Carol Lane is a distribution facility located in
Elmhurst, Illinois. The building is situated on a 2.0-acre parcel of land and
includes 24 spaces for surface parking. It was built in 1979 and remodeled in
1982. It has approximately 41,000 net rentable square feet of space, of which
88.4% was leased as of March 31, 1998. The building has two docks and is six
miles southwest of O'Hare International Airport, near Interstate Highways 88,
290 and 294. Ameritech leases substantially all of the 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, 1998. 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. Roche/NICL Ltd. has a right of first refusal to purchase such
facility.

555 HUEHL ROAD. 555 Huehl Road is a two-story Class A flex-industrial
building located in Northbrook, Illinois. It was built in 1987 and has
approximately 74,000 net rentable square feet of space, of which 100% was leased
as of March 31, 1998 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.

343 CAROL LANE. 343 Carol Lane is a distribution facility located in
Elmhurst, Illinois. The building is situated on a 2.1-acre parcel of land and
includes 57 spaces for surface parking. It was built in 1989. It has
approximately 30,000 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1998. The building is six miles southwest of O'Hare
International Airport, near Interstate Highways 88, 290 and 294. Matsushita
Industrial Equipment leases the entire facility.

350 RANDY ROAD. 350 Randy Road is a distribution facility located in Carol
Stream, Illinois. The building is situated on a 1.9-acre parcel of land and
includes 55 spaces for surface parking. It was built in 1974. It has
approximately 25,000 net rentable square feet of space, of which 100.0% was
leased as of March 31, 1998. The building's tenants include Micro Energy Inc.
and Miller Pharmacal Group, Inc.

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11039 GAGE AVENUE. 11039 Gage Avenue is a distribution facility located in
Franklin Park, Illinois. The building is situated on a 1.6-acre parcel of land
and includes 18 spaces for surface parking. It was built in 1965 and renovated
in 1993. It has approximately 22,000 net rentable square feet of space, of which
100.0% was leased as of March 31, 1998. The building is located near Interstate
Highway 294. Boston Coach Illinois Corp. leases the entire facility.

1401 SOUTH JEFFERSON STREET. 1401 South Jefferson Street is a distribution
facility located in Chicago. The building is situated on a 0.6-arce parcel of
land. It was built in 1965 and renovated in 1985. It has approximately 17,300
net rentable square feet of space, of which 100.0% was leased as of March 31,
1998. The building has two docks. Federal Express Corp. leases the entire
facility.

801 TECHNOLOGY WAY. 801 Technology Way is a distribution facility located
in the Libertyville Business Park in Libertyville, Illinois. It is a
single-story building scheduled to be completed in the fourth quarter of 1997.
The exterior is pre-cast concrete with tinted glass windows with blue aluminum
accents. The building has approximately 68,800 net rentable square feet. Moore
USA, which recently signed a lease to rent approximately 43,600 square feet of
the facility, will be the building's first tenant; the remaining space is being
actively marketed to other prospective tenants.

371-385 NORTH GARY AVENUE. 371-385 North Gary Avenue is a retail facility
located in Carol Stream, Illinois. The building is situated on a 1.3-acre parcel
of land and includes 48 spaces for surface parking. It was built in 1978 and
remodeled in 1992. It has approximately 11,000 net rentable square feet of
space, of which 67.5% was leased as of March 31, 1998. The building's tenants
include American General Finance.

300 CRAIG PLACE, HILLSIDE. 300 Craig Place is a single-story distribution
facility situated on a 9.2 acre site in Hillside. The steel frame building with
precast concrete panels and 28-foot clear ceiling highlights, was built in 1997.
The property contains 333 parking spaces. It has an aggregate of 163,070 net
rentable square feet, of which 100% was leased to two tenants as of March 31,
1998. The two tenants are Federal Express Corporation and Storopak, Inc.

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, 1998, the Company's
overhead crane/manufacturing Industrial Properties were 74.8% leased to more
than 20 tenants. RCG believes that the manufacturing submarket is strong. As of
year-end 1997, the manufacturing vacancy rate was 11.9%. Gross leasing activity,
which RCG considers a good measure of demand, has averaged approximately 13.5
million square feet between December 1991 and December 1997. 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.

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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
MANUFACTURING SUBMARKET
<S> <C> <C>
Chicago Metropolitan Area
Square Feet (000s)
Additions Vacany Rate
1992 839 7.3%
1993 657 8.5%
1994 1,195 8.1%
1995 1,805 6.0%
1996 1,311 7.9%
1997 2,927 11.9%
</TABLE>

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 (which includes the South Side of Chicago, East
Chicago and Northern Indiana), the nation's largest, which produces nearly 30.0%
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. According to RCG, as of March 31, 1998, demand was
greatest for larger overhead crane buildings of 100,000 square feet or more.

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.

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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, 1998.
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 Cellular Infrastructure Group, a division of
Motorola, which has installed a high-tech manufacturing and assembly facility.
Motorola 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, 1998. 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,
1998. 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. National Service
Industries 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 PGI in 1990. The facility has approximately 1.0 million net
rentable square feet of space, of which 63.7% was leased as of March 31, 1998.
The existing facility may be expanded by an additional 670,000 square feet of
manufacturing and distribution space to approximately 1.7 million square feet.
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 PGI in
1988. PGI 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 562,538 net rentable
square feet of industrial space, of which 67.1% was leased as of March 31, 1998.
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

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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 PGI in 1989. The HEC (excluding the office building) has
approximately 506,900 net rentable square feet of industrial space, of which
86.6% was leased as of March 31, 1998. 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, which was vacant as of March 31, 1998.

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 49.3% was leased as of March 31,
1998. Tenants of the building include the Company, Town & Country and Great
Lakes Engineering LLC.

THE COLUMBUS METROPOLITAN AREA INDUSTRIAL MARKET

The Company owns and operates six Industrial Properties in the Columbus
industrial market. 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 The Ohio State University, Banc One, Worthington Industries,
CompuServe and The Limited, and to a large manufacturing facility of Lucent
Technologies.

Columbus' employment base has expanded at an average rate of 2.7% during the
last five years, compared to national growth of 2.4% over the same period.
Furthermore, during 1997, Columbus' non-agricultural employment grew 2.4%
compared to 2.3% for the nation as a whole.

The Columbus industrial market, which is comprised of approximately 94.0
million square feet of industrial space, had a vacancy rate of 8.3% as of
year-end 1997, which was slightly lower than the national average industrial
vacancy rate of 8.4%. RCG believes that the Columbus industrial vacancy rate
will increase slightly over the next three years, ranging up to 8.8%.

Employment in the transportation, communications and public utilities sector
increased by 3.6% annually between 1992 and 1997, reflecting, in part, expansion
in cargo shipping operations at Rickenbacker International Airport and Port
Columbus International Airport. Manufacturing employment was up 0.9% in 1997.
According to RCG, 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 either recently
completed or 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 moderate rate of 1.5% to 2.1%
per year during the next three years, with growth in the services sector
accelerating in the next year.

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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, 1998,
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, 1998, 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, 1998,
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 66.8% was leased as of March 31, 1998, located on
an approximately 10.0 acre parcel of land. Major tenants include Alkon
Corporation and Cross 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, 1998, 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 1981 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, 1998,
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. Including the Pending Parcel Acquisitions, the
Company will own approximately 246.5 acres (including a development site
containing approximately 67,000 square feet located in the Chicago CBD held by a
joint venture with a third party) and has rights to acquire approximately 302.8
acres of developable land (including rights to acquire two development sites
located in the Chicago CBD containing approximately 119,000 square feet), which
management believes could be developed with approximately 5.6 million square
feet of additional office space and over 7.6 million square feet of additional

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industrial space. The following table provides additional information with
respect to these undeveloped parcels:

<TABLE>
<CAPTION>
DESCRIPTION LOCATION SIZE OWNERSHIP STATUS
- ------------------------------------------ -------------------------------- --------------- ------------------
<S> <C> <C> <C>
425 East Algonquin Road................... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Center................. Chicago, IL 51.2 Acres Own
East Chicago Enterprise Center............ East Chicago, IN 9.1 Acres Own
Hammond Enterprise Center................. Hammond, IN 8.2 Acres Own
455 Academy Drive(1)...................... Northbrook, IL 2.5 Acres Own
Libertyville Business Park(2)............. Libertyville, IL 34.4 Acres Owned
14.1 Acres Under Contract
1301 Ridgeview Drive...................... 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(3)...................... Chicago, IL 58,025 Sq. Ft. Option
NAC Properties(4)......................... Carol Stream, IL/Batavia, IL 94.4 Acres Under Contract
Dearborn Center(5)........................ Chicago, IL 66,768 Sq. Ft. Own
Prime Aurora(6)........................... Aurora, IL 54.7 Acres Own
132.8 Acres Under Contract
DeKalb I.................................. DeKalb County, IL 50.4 Acres Own
DeKalb II(7).............................. DeKalb County, IL 45.8 Acres Under Contract
Monroe/Wacker(8).......................... Chicago, IL 61,302 Sq. Ft. Under Contract
Rolling Meadows Land(9)................... Rolling Meadows, IL 22.0 Acres Under Contract
</TABLE>

- ---------

(1) National Service Industries, the current tenant of the industrial building
at 455 Academy Drive, has a right of first refusal to purchase such building
which includes this land.

(2) The Company is obligated to purchase this land for $2.9 million (subject to
certain purchase price adjustments) by November 17, 2000.

(3) The Company has a ten-year option to purchase this Chicago CBD development
site at 95.0% of the fair market value at the time of the exercise of the
option.

(4) The Company is obligated to purchase 20.0 acres of this property per year,
starting on November 17, 1998, for $3.00 per square foot, or approximately
$2.5 million for each 20.0 acres.

(6) The Company is obligated to purchase this land over a three to five year
period beginning in June, 1998 under two separate contracts for an aggregate
purchase price totaling $10.4 million.

(7) The Company is obligated to purchase this land no later than October 31,
1998 under a contract for an aggregate purchase price totaling $825,000.

(8) The Company is obligated to buy this land by January 12, 1999.

(9) The purchase of this property is scheduled to occur in January 1999.

The Company has successfully developed land both for its own portfolio and
for other parties. For example, in 1991, PGI 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.

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LIBERTYVILLE BUSINESS PARK. Libertyville Business Park is a site located in
the north suburb of Libertyville, Illinois. The Company 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 and has recently acquired 34.4
acres of the site. 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.

901 TECHNOLOGY WAY. 901 Technology Way is an industrial building located in
the Libertyville Business Park in Libertyville, Illinois. It is a single-story
building developed by certain members of management and completed in early 1997.
The building is pre-cast concrete and has tinted glass windows with blue
aluminum accents. The building has approximately 68,800 net rentable square
feet. The building is being actively marketed by the owner to prospective
tenants. The Company has an option to purchase the building, which is currently
owned by one of the Contributors. The option on the property is exercisable for
three years or until 16 days after the leasing of substantially all of the
property to a non-affiliate of the 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 120.0% of such cost.

300 NORTH LASALLE. 300 North LaSalle is a site located in the Chicago CBD
and currently contains a parking facility. PGI owns the site. Upon the
consummation of the Formation Transactions, PGI granted the Company a ten-year
option to purchase this site consisting of approximately 58,000 square feet for
a purchase price equal to 95.0% 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, with
the acquisition of certain adjacent land, for the development of a major office
or mixed-use project containing up to 3.0 million 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
approximately 360 acres of undeveloped office and industrial land in Huntley,
Illinois currently owned and controlled by an affiliate of PGI 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 PGI determines that such parcel
shall be utilized for the construction of an office or industrial facility to be
owned and leased to third parties by PGI or held by PGI 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 Redeemable Preferred Share 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.

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TAX-EXEMPT BONDS

The development or redevelopment of certain of the Industrial Properties and
the Office Properties in Tennessee were financed in part by proceeds from the
issuance of the Tax-Exempt Bonds. The Tax-Exempt Bonds are credit enhanced by
letters of credit. Subject to compliance by the Company with the applicable loan
covenants, the Credit Facility has been and may be used to provide funds for
acquisitions and development activities and to provide the replacement letters
of credit for varying amounts of Tax-Exempt Bonds the value of which were $26.3
million as of June 30, 1998. Also, the Company has $48.2 million of Tax-Exempt
Bonds outstanding which are credit enhanced by certain other financial
institutions. The Company expects that the interest rate with respect to such
Tax-Exempt Bonds will fluctuate with changes in market interest rates.

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
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

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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 within approximately the
last two years. 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 environmental contamination at certain of the older
Industrial Properties, which are already in remediation programs sponsored by
the appropriate state environmental agencies. PGI 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 $3.2 million. Based on such
estimates, the Company has recorded a provision for environmental remediation
costs of $3.2 million. Investigation of the CEC by PGI and its environmental
consultants revealed contamination from petroleum underground storage tanks
located on the Property. In August 1996, PGI 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 basis for a remedial action plan, as required by the IEPA.
They estimate that the remedial action will cost approximately $2.5 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 which suit was later expanded to also include a current tenant at the
CEC. The suit has since been settled with the former tenant but remains pending
with respect to the current tenant. In June 1997, PGI 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 defendant
has filed a motion for summary judgment. The ruling on the motion has yet to be
decided.

Investigation of the ECEC by PGI and its environmental consultants revealed
contamination on the Property. In March 1997, PGI 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. The Company is pursuing a prior owner for some or all of
these remediation costs. However, the Company cannot predict the outcome of such
efforts.

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 PGI and its environmental consultants revealed
contamination on the Property. In March 1997, the HEC was submitted by PGI into
the IDEM Voluntary Remediation Program and has since been accepted in such
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 is pursuing a prior owner for some or all of
these remediation costs. However, the Company cannot predict the outcome of such
efforts.

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The Company also is aware of contamination at 455 Academy Drive, one of the
Contribution Properties, and this Property has been submitted into the Illinois
Environmental Protection Agency voluntary remediation program. 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. Clean-up on the Property has begun, but is not yet completed.

The Company also is aware of contamination at 1301 East Tower Road, one of
the NAC Properties. The Property has been submitted into the voluntary
remediation program sponsored by the Illinois Environmental Protection Agency.
The Company's environmental consultants are currently quantifying the
remediation costs. On or about July 7, 1998, 1301 Tower Road, L.L.C., an
affiliate of the Company and the owner of 1301 East Tower Road, joined existing
litigation as a plaintiff along with LaSalle National Trust, N.A. Land Trust
11655, the prior owner of 1301 East Tower Road, and Tower Road Associates, the
owner of the beneficial interest in such trust and an affiliate of the NAC
General Partner, against defendants ECM Motor Co., Environmental Risk
Consultants, Inc., Braun Intertec Environmental, Inc. and Hygienetics, Inc.
seeking to recover the costs of the clean-up of the contamination at 1301 East
Tower Road and damages.

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. 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."

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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) has approximately 352 employees. The Company, the Operating Partnership
and the Services Company will employ substantially all of the professional
employees of PGI 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

Except as discussed in the following paragraph, 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, much of which is
expected to be covered by liability insurance. Keck vacated the Keck Space in
November 1997 pursuant to a settlement agreement. The Company has sued various
parties in connection with environmental remediation at certain of its
Industrial Properties. See "--Government Regulations--Environmental Matters."

On July 22, 1998, the Company entered into a purchase agreement with certain
affiliates of Blackstone to purchase from such sellers the office properties
known as IBM Plaza in Chicago, Illinois and National City Center in Cleveland,
Ohio for an aggregate purchase price of approximately $355.8 million. On
September 15, 1998, the Company terminated the purchase agreement for these
properties, in accordance with the terms of the agreement, because the sellers
were unable to satisfy a material condition precedent to the closing of these
acquisitions. On September 21, 1998, the sellers notified the Company in writing
that they believed they were entitled to the $20 million earnest money provided
for by the agreement, and instructed the earnest money escrow agent to draw an
aggregate of $20 million under two earnest money letters of credit provided by
the Company under the terms of the purchase agreement. In accordance with such
instructions, the earnest money escrow agent drew down $20 million under the
earnest money letters of credit and deposited the funds in an escrow account.
Pursuant to the terms of the purchase agreement, such $20 million earnest money
funds will remain deposited in the escrow account until the escrow agent
receives a joint disbursement direction from the Company and the sellers or
until a court of competent jurisdiction directs the disbursement of the escrow
funds in a final order. The escrow agent's draw on the earnest money letters of
credit, which were issued under the Credit Facility, increased the Company's
outstanding indebtedness under the Credit Facility by $20 million. The Company
believes that the sellers are not entitled to the earnest money and intends to
vigorously pursue available remedies to obtain a return of the $20 million drawn
on the earnest money letters of credit. On September 21, 1998, the sellers filed
a complaint against the Company in the Supreme Court of the State of New York
alleging that the Company breached the contract and seeking, among other things,
the $20 million in earnest money now held in the escrow account. Although the
Company intends to vigorously defend this lawsuit, the Company is unable to
predict the outcome of this dispute.

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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 other 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 seeks 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 is that they offer the
opportunity for growth in Funds from Operations per Common Share. All of the
Company's investment activities are 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 does 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, limited
liability companies or other types of co-ownership arrangements.

While the Company emphasizes equity real estate investments, it may in its
discretion invest in mortgages, stock or other ownership interests in other
REITs or entities 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
ownership interests in special purpose entities 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 STRATEGY

The Company's financing strategy and objectives are determined by the
Company's Board of Trustees. 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

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employed by publicly traded REITs, because management believes that market
capitalization more accurately reflects the Company's ability to borrow money
and meet its debt service requirements. In this regard, the Company believes
that most industry analysts relate share prices of real estate companies
directly to the cash flow generated by the assets of these companies, and that
lenders to real estate companies generally utilize cash flow related measures,
as opposed to book values, in establishing collateral values, loan to value
ratios and estimated debt capacities. 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. On a
pro forma basis, after giving effect to the Pending Acquisitions, the Company's
ratio of debt to total market capitalization will be approximately 45.3%.
Although the Company's policy has been to operate with a ratio of debt to total
market capitalization at a level below 50.0%, the Company's Board of Trustees is
currently evaluating a number of alternative measurements of debt capacity in
order to determine which measurement is the appropriate measure of the Company's
debt capacity. Because, subject to certain limitations in the Declaration of
Trust with regard to the Convertible Preferred Shares, 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 level described above. See "Risk
Factors--Real Estate Financing Risks--Company's Ability to Increase Its Debt
Could Adversely Affect the Company's Cash Flows." 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 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 entities;
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 entities 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 entities. 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 entity, 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 entity 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.

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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."

Michael W. Reschke, the Chairman of the Board of the Company and the
principal stockholder of PGI, continues to devote a considerable portion of his
time to the management of PGI's continuing commercial real estate operations.
Pursuant to the Non-Compete Agreement, Mr. Reschke and PGI have agreed that, so
long as PGI 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 PGI (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 PGI had an interest prior to the Formation Transactions and PGI'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 Related Transactions--Non-Compete Agreement."

In addition, Stephen J. Nardi, an affiliate of the NAC General Partner, is a
trustee of the Company. Neither the Company nor the NAC General Partner may
(other than in accordance with the Put Option Agreement) withdraw from the
Operating Partnership or transfer its general partner interest, nor may another
general partner be admitted to the Operating Partnership without the consent of
the other general partner.

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 and the NAC General Partner
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
NAC General Partner, on the one hand, and the Company, on the other hand, 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 or the NAC General Partner, including tax
consequences to the Limited Partners or the NAC General Partner, in deciding
whether to sell a property. However, the Company has entered into tax
indemnification agreements with the NAC General Partner and the IBD
Contributors. So long as the tax indemnity continues for either the NAC General
Partner or the IBD Contributors and PGI is responsible to the Company for such
indemnity, the Company will use its best efforts to not create such tax
liability due to a refinancing or debt repayment with regard to the relevant
Properties and to utilize Section 1031 tax-free exchanges to the extent any of
the relevant Properties is sold. See "Risk Factors--Conflicts of Interest" and
"Certain Relationships and Related Transactions--Tax Indemnification
Agreements."

The Declaration of Trust provides that 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. The
Declaration of Trust also provides that 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.

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WORKING CAPITAL RESERVES

The Company maintains 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 PGI or any other officer or trustee of the
Company will be made with the approval of the independent trustees. 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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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 AGE POSITION
- ----------------------------------- ----------- -----------------------------------------------------------------------
<S> <C> <C>
Michael W. Reschke(1)(2)........... 42 Chairman of the Board, Trustee
Richard S. Curto(1)(3)............. 46 President and Chief Executive Officer, Trustee
William M. Karnes.................. 52 Executive Vice President and Chief Financial Officer
Jeffrey A. Patterson............... 39 Executive Vice President and Chief Investment Officer
Kevork M. Derderian................ 47 President--Office Division
Edward S. Hadesman................. 66 President--Industrial Division
John O. Wilson..................... 39 President--Prime Group Realty Services, Inc.
Donald H. Faloon................... 52 Executive Vice President--Development
Murray J. Alscher.................. 42 Senior Vice President--Acquisitions
Steven R. Baron.................... 49 Senior Vice President--Marketing and Leasing/CBD Office
Louis G. Conforti.................. 33 Senior Vice President--Capital Markets
Philip A. Hoffer................... 48 Senior Vice President--Real Estate Operations
James F. Hoffman................... 36 Senior Vice President--General Counsel and Secretary
Tucker B. Magid.................... 32 Senior Vice President--Industrial Development
S. Craig Nardi..................... 34 Senior Vice President--Industrial Marketing and Leasing
Faye I. Oomen...................... 49 Senior Vice President--Development and Leasing--Suburban Office
Roy P. Rendino..................... 42 Senior Vice President--Finance and Chief Accounting Officer
Christopher "Kit" J. Sultz......... 32 Senior Vice President--Industrial Operations
Stephen J. Nardi(1)(4)............. 68 Trustee
Jacque M. Ducharme(1)(2)........... 49 Independent Trustee
Christopher J. Nassetta(1)(3)...... 35 Independent Trustee
Thomas J. Saylak(1)(4)............. 38 Independent Trustee
James R. Thompson(1)(4)............ 62 Independent Trustee
</TABLE>

- ---------
(1) All trustees have served as trustee since November 17, 1997.

(2) This trustee's term of office expires in 2001.

(3) This trustee's term of office expires in 1999.

(4) This trustee's term of office expires in 2000.

MICHAEL W. RESCHKE. Michael W. Reschke serves as the Chairman of the Board
of Trustees of the Company. Mr. Reschke founded PGI in 1981 and, since that
time, has acted as PGI's Chairman and Chief Executive Officer. Mr. Reschke is
also Chairman of the Executive Committee of PGI and is Chairman of the Board of
Prime Retail, Inc. and Brookdale Living Communities, Inc. and was a member of
the Board of Directors of Ambassador Apartments, Inc. (which merged with and
into Apartment Investment and Management Company on May 8, 1998). For the last
17 years, Mr. Reschke has directed and managed the acquisition, development,
finance, construction, leasing, marketing, renovation and property management
activities of PGI. 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

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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 served as Executive Vice President
of PGI from May 1994 to November 1997. After joining PGI, Mr. Curto was
responsible for the capital markets transactions and other project-related
financings of PGI. 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.

WILLIAM M. KARNES. William M. Karnes serves as Executive Vice President and
Chief Financial Officer of the Company. From July 1997 to immediately prior to
the IPO, Mr. Karnes was employed by PGI 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-Beitler, Inc., a private
real estate development, management and leasing firm.

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 IPO, Mr. Patterson was Executive Vice President of PGI, with
primary responsibility for the acquisition, financing and redevelopment of
office and mixed-use properties. Mr. Patterson also was asset manager for PGI's
office properties and has provided real estate advisory services for several
major institutional investors related to office buildings. Prior to joining PGI,
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. From 1989 to immediately prior to the IPO, Mr.
Derderian was employed by Continental Offices Ltd. ("Continental"), most
recently serving as its President and Chief Executive Officer. At Continental,
he oversaw all business operations, including office property management,
leasing and construction. 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.

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 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
IPO, Mr. Wilson served as President of PGI's Corporate Real Estate Services
department. Over a 15-year period prior to joining PGI, Mr. Wilson served as
President and Chief Executive Officer of Realsource, Inc., a regional real
estate service firm, which he

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co-founded in 1981. 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 IPO, Mr. Faloon was employed by PGI in its commercial development
activities. Previous responsibilities for PGI included overseeing PGI's Diagonal
Mar project in Barcelona, Spain and serving as Executive Project Manager for the
77 West Wacker Drive Building. Prior to joining PGI, Mr. Faloon had 17 years of
experience in the management of real estate development at Homart Development
Co. and Urban Investment and Development Co.

MURRAY J. ALSCHER. Murray J. Alscher serves as Senior Vice
President--Acquisitions for the Company. From April 1997 to immediately prior to
the IPO, Mr. Alscher acted as a consultant to PGI in its acquisition efforts.
From November 1996 to April 1997, Mr. Alscher was a self-employed real estate
consultant. From May 1983 through November 1996, Mr. Alscher was employed (most
recently as Senior Vice President) by Metropolitan Structures, a private real
estate investment, development and management company, where he was responsible
for investment, development and asset management matters.

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 IPO, Mr. Baron was employed by PGI 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 PGI 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.

LOUIS G. CONFORTI. Louis G. Conforti serves as Senior Vice
President--Capital Markets of the Company. In such capacity, Mr. Conforti is
responsible for the capital markets activities of the Company. From September,
1997 to May, 1998, Mr. Conforti was an Executive Director of Real Estate
Investment Banking for CIBC Oppenheimer Corp. in New York City, and prior to his
affiliation with CIBC Oppenheimer, was a Vice President for Alex. Brown & Sons
in Baltimore, Maryland from July, 1993 to August, 1997. During his career, Mr.
Conforti has been responsible for the business development and underwriting of
several billion dollars of privately-placed and publicly-traded real estate
transactions. Mr. Conforti is a member of the National Association of Real
Estate Investment Trusts and the Urban Land Institute.

PHILIP A. HOFFER. Philip A. Hoffer serves as Senior Vice President--Real
Estate Operations of the Company. From February 1996 to immediately prior to the
IPO, Mr. Hoffer was Vice President and Chief Operating Officer of Continental,
where he was responsible for all real estate operations including asset
management, construction and leasing for the owned and third party portfolio.
From 1989 to 1996, Mr. Hoffer served as Chief Operating Officer for
Insignia/Frain Camins & Swartchild, where he oversaw third party institutional
property management and leasing for 13 million square feet of office, industrial
and retail space located in Chicago and Los Angeles. He has over 15 years of
experience in real estate development, management, construction and brokerage in
Chicago, California and New York. Past responsibilities also include serving as
project manager for the 676 North Michigan Avenue Building in Chicago.

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JAMES F. HOFFMAN. James F. Hoffman serves as Senior Vice President, General
Counsel and Secretary of the Company. From January 1991 to immediately prior to
the IPO, Mr. Hoffman served as Assistant General Counsel of PGI. Prior to his
employment with PGI, Mr. Hoffman was an associate with the law firm of Mayer,
Brown & Platt from September 1987 to December 1990.

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 IPO, 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").

S. CRAIG NARDI. S. Craig Nardi serves as Senior Vice President--Industrial
Marketing and Leasing of the Company. From 1989 to immediately prior to the IPO,
Mr. Nardi served as Vice President of Operations of The Nardi Group Ltd., a
corporate real estate development firm, and as Executive Vice President of Nardi
Asset Management, the property management arm of The Nardi Group Ltd. Prior to
joining The Nardi Group Ltd. and Nardi Asset Management, Mr. Nardi worked as a
real estate broker in New York City. Mr. Nardi is a member of the International
Association of Corporate Real Estate Executives ("NACORE"), the National
Association of Industrial and Office Parks ("NAIOP") and the Elmhurst Economic
Development Corporation ("EEDC"). Mr. Nardi is the son of Stephen J. Nardi, the
Vice Chairman of the Board and a Trustee of the Company.

FAYE I. OOMEN. Faye I. Oomen serves as Senior Vice President--Development
and Leasing-- Suburban Office of the Company. From 1978 to immediately prior to
the IPO, Ms. Oomen was employed by Continental, most recently serving as Vice
President of Leasing and Construction. 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.

ROY P. RENDINO. Roy P. Rendino serves as Senior Vice President--Finance and
Chief Accounting Officer of the Company. Mr. Rendino joined the Company in April
1998. From January 1998 to April 1998, Mr. Rendino was Executive Vice
President--Finance of Ambassador Apartments, Inc., a publicly-traded apartment
REIT. From 1986 through December 1997, Mr. Rendino was associated with Deloitte
& Touche LLP, where he held positions including Partner and Midwest Director of
Real Estate. Mr. Rendino began his career with Coopers and Lybrand in 1978 where
he served as a manager in the real estate and construction practices. Mr.
Rendino is a certified public accountant and is a member of the Board of
Directors of the National Association of Real Estate Companies and the Real
Estate Investment Association and is a member of the Real Estate Committee of
the American Institute of Certified Public Accountants.

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 IPO, Mr. Sultz was employed by PGI in its Industrial Division as
Vice President--Asset Management. Prior to joining PGI, 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.

STEPHEN J. NARDI. Stephen J. Nardi serves as Trustee and Vice Chairman of
the Board. For the past thirty-five years Mr. Nardi has served as President and
Chief Executive Officer of The Nardi Group Ltd., a corporate real estate
development firm which has designed, built and managed millions of square feet
of properties throughout the Chicago Metropolitan Area and other parts of the
country. Mr. Nardi is a

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member of the Chicago Real Estate Board, the National Association of Realtors,
the Society of Industrial and Office Realtors ("SIOR"), NAIOP and the Urban Land
Institute. Mr. Nardi is the father of S. Craig Nardi, the Senior Vice
President--Industrial Marketing and Leasing of the Company.

JACQUE M. DUCHARME. Jacque M. Ducharme serves as a Trustee of the Company.
Since 1972, Mr. Ducharme has been employed by Julien J. Studley, Inc., a real
estate corporate and tenant services firm, where he currently serves as Senior
Executive Vice President and is the Chicago and Midwest Regional Manager. His
clients include some of the largest companies in the Chicago Metropolitan Area,
including Quaker Oats, Arthur Andersen and First Chicago. Mr. Ducharme is a past
president of the Chicago Office Leasing Brokers Association.

CHRISTOPHER J. NASSETTA. Christopher J. Nassetta serves as a Trustee of the
Company. From October 1995 to the present, Mr. Nassetta has acted as the
Executive Vice President and Chief Operating Officer of Host Marriott
Corporation, where he is responsible for acquisitions, real estate operations,
asset management, lodging partnerships and administration and serves on its
Executive Committee. From October 1991 through October 1995, Mr. Nassetta served
as President of Bailey Capital Corporation, a real estate investment and
advisory firm that he co-founded, where he oversaw all operations. Prior to
founding Bailey Capital Corporation, Mr. Nassetta was employed by The Oliver
Carr Company, a commercial real estate company, for seven years, where he served
as Development Director, Vice President and Regional Partner and ultimately
Chief Development Officer, as well as serving on its management committee. Mr.
Nassetta serves on the McIntire School of Commerce Advisory Board for the
University of Virginia.

THOMAS J. SAYLAK. Thomas J. Saylak serves as a Trustee of the Company. Mr.
Saylak is presently a Senior Managing Director of The Blackstone Group and of
Blackstone Real Estate Advisors. Since joining Blackstone Real Estate Advisors
in 1993, Mr. Saylak's major accomplishments include creating the Interstone
Hotel acquisitions joint venture, as well as leading the multi-billion dollar
restructurings of two large regional mall owners, Edward J. DeBartolo Corp. and
Cadillac Fairview, Inc. Prior to joining Blackstone Real Estate Advisors, from
1987 to 1993, Mr. Saylak was a principal in Trammell Crow Ventures, the
investment advisory arm of Trammell Crow Company, a real estate development and
management firm, where he completed over $3.0 billion of real estate
acquisitions and financings and led the firm's Distressed Portfolio Initiative.
Mr. Saylak currently serves as a director of Interstate Hotel Corporation and
Cadillac Fairview, Inc. Mr. Saylak also serves on the Executive Committee of the
National Realty Committee and is a charter member of The Columbia Real Estate
Forum.

GOVERNOR JAMES R. THOMPSON. James R. Thompson serves as a Trustee of the
Company. Governor Thompson is the Chairman of the law firm of Winston & Strawn
and has been a partner with the firm since 1991. Prior to joining Winston &
Strawn, Governor Thompson served as the Governor of Illinois from 1977 to 1991.
Governor Thompson serves on the board of directors of FMC Corporation, the
Chicago Board of Trade, Jefferson Smurfit Group (Dublin), International Advisory
Council of the Bank of Montreal, Pechiney International, Prime Retail, Inc.,
Union Pacific Resources Company, Hollinger International, Inc. and American
National Can Co. Governor Thompson received his Juris Doctorate degree from the
Northwestern University Law School.

COMMITTEES OF THE BOARD OF TRUSTEES

AUDIT COMMITTEE. The Board of Trustees of the Company has established an
Audit Committee consisting of Messrs. Ducharme, Nassetta and Saylak. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, review with the independent accountants the plans and results of
the audit engagement, approve professional service provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.

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<PAGE>
EXECUTIVE COMMITTEE. The Board of Trustees of the Company has established
an Executive Committee consisting of Messrs. Reschke, Curto and Nardi. The
Executive Committee has been granted certain authority to acquire and dispose of
real property and 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.

EXECUTIVE COMPENSATION COMMITTEE. The Board of Trustees of the Company has
established an Executive Compensation Committee consisting of Messrs. Ducharme,
Nassetta and Saylak to determine compensation for the Company's executive
officers and to implement and administer the Company's Share Incentive Plan.

COMMITTEE OF INDEPENDENT TRUSTEES. The Committee of Independent Trustees
consists of Messrs. Ducharme, Nassetta, Saylak and Thompson. The Committee of
Independent Trustees was established to consider and approve or reject, on
behalf of the full Board of Trustees, any proposed transactions between the
Company and any of its shareholders, trustees, officers or employees.

In the period from the Company's IPO through December 31, 1997, no meetings
were held by the Audit Committee, Executive Committee, Executive Compensation
Committee, or the Committee of Independent Trustees. The Board of Trustees held
one meeting during this period on December 10, 1997. All Trustees of the Company
attended or participated telephonically in the meeting, except Thomas J. Saylak.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer of the Company served as a Trustee or member of (i) the
compensation committee of another entity in which one of the executive officers
of such entity served on the Company's Executive Compensation Committee, (ii)
the Board of Trustees of another entity in which one of the executive officers
of such entity served on the Company's Executive Compensation Committee, or
(iii) the compensation committee of any other entity in which one of the
executive officers of such entity served as a member of the Company's Board of
Trustees, during the year ended December 31, 1997. Mr. Reschke is Chairman of
the Board of Trustees of the Company. See "Certain Relationships and Related
Transactions."

COMPENSATION OF TRUSTEES

The Company pays its trustees who are not employees of the Company or
affiliated with PGI or the Company a fee for their services as trustees. The
trustees' annual compensation is $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 the trustees receive reimbursement of all travel and lodging
expenses related to their attendance at both board and committee meetings. Each
non-employee trustee has also received 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." Further, the Company entered a consulting agreement
with Mr. Nardi, pursuant to which he was granted options for an aggregate of
75,000 Common Shares upon completion of the IPO. Such options 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. See "Certain
Relationships and Related Transactions--Consulting Agreement with Stephen J.
Nardi."

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EXECUTIVE COMPENSATION

Prior to November 17, 1997, the Company did not pay any compensation to its
executive officers. The following table sets forth the compensation earned for
the period from November 17, 1997 to December 31, 1997 with respect to the
Chairman of the Board, the Chief Executive Officer and the four other persons
who are the most highly compensated executive officers of the Company.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
COMPENSATION AWARDS
------------------------ -----------------
NAME TITLE SALARY(1) BONUS OPTIONS/SAR(S)(2)
- ----------------------- -------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Michael W. Reschke..... Chairman of the Board of Trustees $ 15,625 -- 175,000

Richard S. Curto....... President and Chief Executive Officer $ 28,645 -- 175,000

William M. Karnes...... Executive Vice President and Chief $ 20,833 -- 70,000
Financial Officer

Jeffrey A. Patterson... Executive Vice President and Chief $ 20,833 -- 85,000
Investment Officer

Kevork M. Derderian.... President--Office Division $ 20,833 -- 70,000

Edward S. Hadesman..... President--Industrial Division $ 20,833 -- 70,000
</TABLE>

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

(1) Annual compensation for each of the six executive officers had the Company
been in existence for a full year: Mr. Reschke-- $150,000; Mr.
Curto--$275,000; Mr. Karnes--$200,000; Mr. Patterson--$200,000; Mr.
Derderian--$200,000; and Mr. Hadesman--$200,000.

(2) Granted pursuant to the Share Incentive Plan. See "--Share Incentive Plan."

EMPLOYMENT AGREEMENTS

The Company has entered into 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 three
years, which, in the case of Messrs. Reschke's, Curto's and Hadesman's
agreements only, are automatically extended for an additional year after
expiration of the initial term and any extension period unless either the
Company provides the applicable officer with at least six months prior written
notice or the applicable officer provides the Company with at least thirty days
prior written notice, that such term shall not be extended. The agreements also
contain (i) an agreement not to solicit, attempt to hire or hire any employee or
client of the Company or solicit or attempt to lease space to or lease space to
any tenant of the Company for two years following termination of employment and
(ii) with the exception of Mr. Derderian's agreement, non-compete provisions
restricting the executive officers from developing, acquiring or operating
office or industrial properties (within a ten mile radius of any facility of the
Company) for two years following termination of employment if the employment is
terminated either by the Company for cause or by the executive officer
voluntarily (with certain limited exceptions in the case of Mr. Hadesman's
agreement).

The agreements also set forth the potential bonuses to which the executive
officers are entitled. In the case of Messrs. Reschke, Curto, Karnes, Patterson
and Hadesman, they are each entitled to receive a discretionary bonus based on
achievement of such corporate and individual goals and objectives as may be
established by the Board of Trustees or its Compensation Committee. In the case
of Mr. Derderian, he is entitled to receive a bonus in an amount of up to 100%
of his base salary determined pursuant to the following formula: (i) up to 75%
of his base salary based upon the extent to which actual Funds from Operations
(as defined in his agreement) exceed the projected budget for Funds from
Operations and

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(ii) up to 25% of his base salary based on achievement of such corporate and
individual goals and objectives as may be established by the Board of Trustees
or its Compensation Committee.

If any agreement is terminated by the Company (i) without cause (as defined
in the agreements), (ii) by the executive following the occurrence of a "change
of control" and a resulting "diminution event" (as defined in the agreements) or
(iii)(a) in the case of Mr. Reschke's agreement, by Mr. Reschke if he is removed
as a director of the Company or (b) in the case of Mr. Curto's agreement, by the
Company the event of Mr. Curto's disability (as defined in the agreement), the
applicable executive shall be entitled to a lump sum termination payment. With
respect to Messrs. Reschke and Curto, such payment will be (x) an amount equal
to two times their then current annual base salary, if the termination is by the
Company without cause or following Mr. Reschke's or Mr. Curto's disability or
(y) an amount equal to two times the applicable average base salary and bonus
for the two prior years, if the termination is by Mr. Reschke or Mr. Curto, as
the case may be, due to the occurrence of a change of control and diminution
event. With respect to each of Mr. Karnes and Mr. Patterson, such payment will
be an amount equal to the greater of 100.0% of his then current base salary and
100.0% of his aggregate base salary for the remainder of the term of his
employment agreement, if the termination is either by the Company without cause
or by the executive due to the occurrence of a change of control and resulting
diminution event (or in the case of Mr. Karnes only, a relocation of his office
outside the Chicago metropolitan area). With respect to each of Mr. Derderian
and Mr. Hadesman, such payment will be (xx) an amount equal to the product of
(A) his then current base salary plus his last annualized bonus multiplied by
(B) a fraction, the numerator of which is the number of days remaining in the
term of his employment agreement at the time of termination (but in no event
less than 365 in the case of Mr. Derderian's agreement) and the denominator of
which is 365, if the termination is by the Company without cause or (yy) an
amount equal to the product of two times the sum of his then current base salary
plus his last annualized bonus, if the termination is by the executive due to
the occurrence of a change of control and resulting diminution event. See
"Certain Relationships and Related Transactions." In addition, Mr. Karnes was
granted 10,000 Common Shares pursuant to his employment agreement.

SHARE INCENTIVE PLAN

The Company 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
may be designated at the time of grant as either an "incentive share option" or
as a "non-qualified share option." The Share Incentive Plan is administered by
the Executive Compensation Committee and permits the grant of stock options,
stock appreciation rights, restricted stock, restricted units and performance
units to officers and other key employees of the Company, its subsidiaries, the
Operating Partnership, the Services Company and Company-owned partnerships. The
Share Incentive Plan also permits the grant of stock options to nonemployee
trustees. Although the Share Incentive Plan permits the Executive Compensation
Committee to grant a wide variety of awards, it does not obligate the Executive
Compensation Committee to do so. The variety of awards authorized under the
Share Incentive Plan is intended to give the Executive Compensation Committee
flexibility to adapt the Company's compensation structure to changes in the
business and regulatory environment.

Under the Share Incentive Plan, up to 1.85 million Common Shares may be
issued or transferred to Participants. The maximum aggregate number of Common
Shares and Share equivalent units that may be subject to awards granted during
any calendar year to any one participant under the Share Incentive Plan,
regardless of the type of awards, will be 200,000. This limit will apply
regardless of whether such compensation is paid in Common Shares or in cash.

If any award is canceled, terminates, expires or lapses for any reason, any
Common Shares subject to such award will again be available for grant under the
Share Incentive Plan, except that such Common Shares will still be counted for
purposes of the annual individual award limit described above. In the event of
any change in capitalization of the Company, such as a share split, or a
corporate transaction, such as a

139
<PAGE>
merger or consolidation or any reorganization, or any partial or complete
liquidation of the Company, an adjustment may be made in the number and class of
Common Shares that may be delivered under the Share Incentive Plan, in the
number and class of and/or price of Common Shares subject to outstanding awards,
and in the annual individual award limit set forth above, as may be determined
to be appropriate and equitable by the Executive Compensation Committee to
prevent dilution or enlargement of rights.

The Executive Compensation Committee has been authorized to grant options
under the Share Incentive Plan to purchase Common Shares. The Executive
Compensation Committee may grant "incentive stock options" (within the meaning
of Section 422 of the Code) and/or nonqualified stock options to employees of
the Company and its corporate subsidiaries. Other employees, including employees
of the Operating Partnership and the Services Company, and nonemployee trustees,
may only receive nonqualified stock options. The exercise price of any option
will be at least equal to 100% of the fair market value of a Common Share on the
date the option is granted. Each option expires no later than the tenth
anniversary of the date of grant.

Immediately following the IPO, the Executive Compensation Committee granted
options to purchase Common Shares (the "Initial Grants") to the following key
officers and employees of the Company: Michael W. Reschke (175,000); Richard S.
Curto (175,000); William M. Karnes (70,000); Jeffrey A. Patterson (85,000);
Kevork M. Derderian (70,000); Edward S. Hadesman (70,000); John O. Wilson
(30,000); Donald H. Faloon (40,000); Murray J. Alscher (10,000); Philip A.
Hoffer (30,000); Steven R. Baron (30,000); Faye I. Oomen (30,000); Tucker B.
Magid (22,500); Christopher J. Sultz (22,500); S. Craig Nardi (20,000); James F.
Hoffman (18,000); and certain other employees (167,500, of which 100,000 have
been subsequently terminated).

In addition, on March 6, 1998, the Company made additional grants of options
to purchase 12,000 Common Shares to James F. Hoffman and grants of options to
purchase an aggregate of 17,500 Common Shares to certain other employees ("March
Grants"). On April 23, 1998, the Company made a grant of options to purchase
22,500 Common Shares to Roy P. Rendino, 50,000 to Louis G. Conforti (such grant
effective upon commencement of his employment on June 1, 1998), and grants of
options to purchase an aggregate of 5,000 Common Shares to another employee (the
"April Grants"). On May 22, 1998, the Company made a grant of options to
purchase an aggregate of 5,000 Common Shares to two employees (the "May
Grants"). The March, April, May and Initial Grants are collectively referred to
as the "Grants." 5,000 of the March Grants and 2,500 of the May Grants have been
terminated.

The Initial Grants will vest, subject to certain conditions being met, at a
rate of 33.3% per year on November 17, 1998, November 17, 1999 and November 17,
2000 and will have terms of ten years. The exercise price of the options issued
pursuant to the Initial Grants is $20.00, which represents the initial public
offering price of the Common Shares. The March, April and May Grants will vest
at a rate of 33.3% per year on each annual anniversary of their grant and will
have terms of ten years. The exercise price of the options issued pursuant to
the March Grants is $20.125, the closing price of the Common Shares on the NYSE
on March 5, 1998; the exercise price of the options issued to Roy P. Rendino
pursuant to the April Grants is $21.00, the closing price of the Common Shares
on the NYSE on April 22, 1998; the exercise price of the options issued to Louis
G. Conforti pursuant to the April Grants is $20.50, the closing price of the
Common Shares on the NYSE on May 29, 1998; the exercise price of the options
issued to another employee pursuant to the April Grants is $20.63, the closing
price of the Common Shares on April 28, 1998; and the exercise price of the
options issued pursuant to the May Grants is $20.44, the closing price of the
Common Shares on the NYSE on May 21, 1998. The exercise price for any option is
generally payable in cash or, in certain circumstances, by the surrender, at the
fair market value on the date on which the option is exercised, of Common
Shares.

All unvested Options held by an optionee will automatically be forfeited if
the optionee leaves employment for any reason other than the optionee's death or
disability on or after the first anniversary of their date of grant. Upon a
"change in control" (as defined in the Share Incentive Plan), all unvested

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<PAGE>
Options will vest. The rights of any participants to exercise an option may not
be transferred in any way other than by will or applicable laws of descent and
distribution.

The Share Incentive Plan terminates ten years from the date the plan was
adopted by the Board of Trustees (November 17, 2007).

The Executive Compensation Committee has also granted options for an
aggregate of 5,000 Common Shares to each of its Independent Trustees, and 75,000
Common Shares to Mr. Nardi pursuant to his consulting agreement, 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 options is $20.00, the initial public offering price of
the Common Shares. The exercise price for any of these 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 option is exercised, of Common Shares.

The following table contains information concerning options granted during
the 1997 fiscal year to the Chairman of the Board and each of the named
executive officers under the Company's Share Incentive Plan. The table also
lists potential realizable values of such options if the Common Shares
appreciate at compounded annual rates of 5.0% and 10.0% over the life of the
options. The 5.0% and 10.0% rates of appreciation based on the grant date price
of $20.00 per share (based on the IPO) are required to be disclosed by the rules
of the Commission and are not intended to forecast potential future
appreciation, if any, in the price of the Common Shares. The Company did not use
an alternative present value formula permitted by the Commission because, in the
Company's view, potential future unknown or volatile factors result in there
being no such formula that can determine with reasonable accuracy the present
value of such option grants.

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS SHARE PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN OR BASE OPTION TERM(2)
GRANTED FISCAL YEAR PRICE EXPIRATION --------------------
(#)(1) 1997% PER SHARE DATE 5% 10%
----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Michael W. Reschke......................... 175,000 15.7 $ 20.00 11/17/07 $ 2,202 $ 5,577
Richard S. Curto........................... 175,000 15.7 20.00 11/17/07 2,202 5,577
William M. Karnes.......................... 70,000 6.3 20.00 11/17/07 881 2,231
Jeffrey A. Patterson....................... 85,000 7.6 20.00 11/17/07 1,069 2,709
Kevork M. Derderian........................ 70,000 6.3 20.00 11/17/07 881 2,231
Edward S. Hadesman......................... 70,000 6.3 20.00 11/17/07 881 2,231
</TABLE>

- ---------

(1) The options granted will vest in three equal installments on November 17,
1998, November 17, 1999 and November 17, 2000.

(2) 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.

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<PAGE>
OPTION EXERCISES AND HOLDINGS

The following table sets forth information with respect to the Company's
named executive officers concerning options held as of December 31, 1997. No
options were exercisable by the named executive officers during 1997.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/97 OPTIONS AT 12/31/97
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael W. Reschke........................................ -- 175,000 -- $ 0
Richard S. Curto.......................................... -- 175,000 -- 0
William M. Karnes......................................... -- 70,000 -- 0
Jeffrey A. Patterson...................................... -- 85,000 -- 0
Kevork M. Derderian....................................... -- 70,000 -- 0
Edward S. Hadesman........................................ -- 70,000 -- 0
</TABLE>

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 has entered into indemnification agreements with each of the
Company's trustees and certain of its executive officers. The indemnification
agreements 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 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.

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<PAGE>
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 IPO, the Company, the
Operating Partnership, the Services Company, the NAC General Partner and the
Limited Partners engaged in the Formation Transactions which were designed to
enable the Company to continue and expand the office and industrial real estate
operations of PGI, consolidate the ownership interests in the Properties and the
office and industrial development, leasing and property management business of
PGI, facilitate the IPO, enable the Company to qualify as a REIT for federal
income tax purposes commencing with its taxable period ending December 31, 1997,
and preserve certain tax advantages for the existing owners of the Properties.

The Formation Transactions included the following, which occurred in
connection with the IPO:

- Concurrently with the IPO, the Company issued and sold 2.0 million
Convertible Preferred Shares to SCPG pursuant to the Convertible Preferred
Share Offering. The Company contributed the $39.6 million of net proceeds
from the Convertible Preferred Share Offering (after the deduction of the
related transaction costs and expenses.) The Company used $272.0 million
of aggregate net proceeds from the IPO and the Convertible Preferred Share
Offering (after the deduction of underwriting discounts and commissions
and costs and expenses incurred in connection with the Formation
Transactions, the IPO and the Convertible Preferred Share Offering) to
acquire 12,980,000 GP Common Units and 2,000,000 Preferred Units of the
Operating Partnership. The Company is the managing general partner of the
Operating Partnership. See "Partnership Agreement--Distributions" and
"Description of Shares of Beneficial Interest--Convertible Preferred
Shares" and "--Common Shares."

- PGI contributed to the Operating Partnership (i) its ownership interests
in the Property Partnerships that own the Predecessor 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 Predecessor Properties and (iii) substantially all of its
assets and liabilities relating to its office and industrial development,
leasing and management business. The foregoing assets had an aggregate
deficit book value of approximately $34.0 million (as determined at
November 16, 1997 in accordance with GAAP). In exchange, PGI received
3,465,000 Common Units (with an aggregate value of $69.3 million). As
described below, PGI contributed 3,375,000 of such Common Units to the
Primestone Joint Venture, resulting in the direct ownership by PGI of a
then 0.4% limited partnership interest in the Operating Partnership as of
December 31, 1997. The Operating Partnership reimbursed PGI for,
approximately $6.5 million of expenses incurred by it in connection with
the Formation Transactions and the IPO. In addition, Mr. Patterson
contributed his interest in the assets of the office and industrial
division of PGI. In exchange, Mr. Patterson received 110,000 Common Units,
then representing approximately a 0.5% limited partnership interest in the
Operating Partnership as of December 31, 1997.

- The NAC Contributors contributed the NAC Properties to the Operating
Partnership. In exchange, the NAC Contributors received 927,100 GP Common
Units, then representing a 3.9% general partnership interest in the
Operating Partnership as of December 31, 1997 (with an aggregate value of
$18.5 million). In addition, the Operating Partnership paid the NAC
Contributors approximately $14.9 million in cash.

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<PAGE>
- The IBD Contributors contributed to the Operating Partnership their
ownership interests in the IBD Properties in exchange for 922,317 Common
Units then representing a 3.9% limited partnership interest in the
Operating Partnership as of December 31, 1997 (with an aggregate value of
$18.4 million). In addition, the Operating Partnership paid the IBD
Contributors approximately $0.9 million in cash and assumed approximately
$10.4 million in debt ($4.0 million payable to one of the IBD
Contributors).

- PGI, BRE/Primestone Investment L.L.C., a Delaware limited liability
company, and BRE/Primestone Management Investment L.L.C., a Delaware
limited liability company (each of which is an affiliate of Blackstone),
formed the Primestone Joint Venture to invest in LP Common Units. To
capitalize the Primestone Joint Venture, PGI contributed to the Primestone
Joint Venture 3,375,000 of the Common Units it received in exchange for
its contributions to the Operating Partnership. Blackstone contributed
$45.0 million in cash to the Primestone Joint Venture. In exchange for
such capital contributions, PGI received a 60.0% interest and Blackstone
received a 40.0% interest. Simultaneously with the other Formation
Transactions, the Primestone Joint Venture also borrowed $40.0 million and
used the proceeds of such loan and the cash contributed by Blackstone to
purchase 4,569,893 LP Common Units from the Operating Partnership, at
$18.60 per Common Unit, representing the per share IPO price of the Common
Shares, net of an amount equal to the underwriting discount and certain
other fees applicable to the Common Shares offered in the IPO. As a
result, the Primestone Joint Venture owns, in the aggregate, 7,944,893
Common Units, representing a 34.2% limited partnership interest in the
Operating Partnership as of December 31, 1997. In connection with the
purchase of the LP Common Units, Blackstone designated Mr. Saylak to be
elected as one of the Company's trustees. See "Certain Relationships and
Related Transactions--The Primestone Joint Venture."

- The Operating Partnership borrowed $83.5 million under the New Mortgage
Notes that are secured by all of the Contribution Properties and certain
of the IPO Properties. The Company executed a definitive loan agreement
with PSCC, an affiliate of Prudential Securities Incorporated, to provide
a New Mortgage Note financing for a 90-day term, convertible at the option
of the Company into a seven-year term, subject to certain conditions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--New Mortgage Notes."

- The Operating Partnership repaid third-party lenders approximately $242.1
million (including prepayment fees) of obligations of the Property
Partnerships or indebtedness encumbering the Properties.

- The Operating Partnership utilized the Credit Facility to replace the
outstanding letters of credit which secure the payment of principal and
interest on the $74.5 million of certain Tax-Exempt Bonds. Upon such
replacement of the outstanding letters of credit, PGI received the return
of approximately $15.0 million of cash and $7.2 million of certain
securities previously pledged by PGI as additional collateral to secure
certain of its guarantee obligations in connection with the existing
letters of credit.

- The Operating Partnership paid approximately $40.4 million to acquire the
Acquisition Properties and approximately $5.2 million to acquire the
Continental Management Business from third parties. The purchase price for
the Acquisition Properties and the Continental Management Business were in
each case negotiated in arm's-length transactions with third parties based
on a multiple of the net operating income of each of the Acquisition
Properties and the Continental Management Business, respectively.

- The Operating Partnership contributed 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 PGI to the Services Company in exchange for

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(i) 100% of the Preferred Stock of the Services Company and (ii) the Note.
Messrs. Reschke and Curto contributed an aggregate of $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.

As a result of the foregoing transactions, the Company acquired 12,980,000
Common Units and 2.0 million Preferred Units. The NAC General Partner owns
927,100 Common Units, the Primestone Joint Venture owns 7,944,893 Common Units,
the IBD Contributors own 922,317 Common Units, Mr. Patterson owns 110,000 Common
Units and PGI owns 90,000 Common Units. The Company is the managing general
partner and retains 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 PGI 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."

The Limited Partners have agreed not to exchange their Common Units for
Common Shares if, upon such exchange, the Operating Partnership will cease to
qualify as a partnership for federal income tax purposes or the Company will not
continue to qualify as a REIT.

REASONS FOR THE ORGANIZATION OF THE COMPANY

The Company believes that the benefits of the Formation Transactions
outweighed 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, in the Company's judgment,
provides it with greater access to capital for refinancing and growth.
Sources of capital include the Common Shares sold in the IPO and the
Private Placement, the Redeemable Preferred Shares sold in the Redeemable
Preferred Share 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 allows 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 that was
contributed by the Company to the Services Company.

- 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 LP Common Unit held by the Limited Partners 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, the Limited Partners have agreed not to exchange any LP
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, the Limited Partners have agreed not to,
among other things, sell or exchange any Common Units, without the consent
of Prudential

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Securities Incorporated, on behalf of the underwriters for the IPO, for
their respective Holding Periods.

- TAX DEFERRAL. The Formation Transactions provided to the Limited Partners
and the NAC General Partner 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.

COMPARISON OF COMMON SHARES AND COMMON UNITS

Conducting the Company's operations through the Operating Partnership allows
the Limited Partners and the NAC General Partner to defer certain tax
consequences by contributing their interests in Properties to the Operating
Partnership and also offers favorable methods of accessing capital markets and
acquiring additional properties. Common Units in the Operating Partnership will
be held by the Limited Partners, the NAC General Partner 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). Distributions in respect of the Common Shares and Common Units are
not permitted unless all current and any accumulated distributions in respect of
the Convertible Preferred Shares and Preferred Units, respectively, have been
paid in full. Pursuant to the Partnership Agreement and subject to certain
conditions, each Common Unit held by the Limited Partners 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, the Limited Partners may not 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." The
Limited Partners have agreed not to, among other things, sell or exchange any
Common Units, without the consent of Prudential Securities Incorporated, on
behalf of the underwriters for the IPO, for the applicable Holding Periods.

There are, however, certain differences between the ownership of Common
Shares and Common Units, including:

- VOTING RIGHTS. Holders of Common Shares 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 IPO are 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 partners to the admission of any new
limited partner. See "Shares Eligible 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 included 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

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disadvantages of such transactions to unaffiliated shareholders of the Company
may be several, including the impact of shares available for future sale.

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 PGI. Messrs. Reschke and Curto
together own 100% of the voting common stock of the Services Company, for which
they are obligated to contribute an aggregate of $50,000. The Operating
Partnership owns 100.0% of the Preferred Stock of the Services Company and the
Note issued by the Services Company in the principal amount of approximately
$4.8 million. The Preferred Stock of the Services Company has a dividend rate of
8.5%, pays dividends on a cumulative and participating basis, and is not
redeemable by the Services Company or convertible into other securities of the
Services Company. 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 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 entered 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--Managed Property Business and Non-REIT Services--Lack of Control
Over the Services Company," "The Company" and "Certain Relationships and Related
Transactions."

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

FORMATION AGREEMENT

Concurrently with the completion of the IPO on November 17, 1997 and
pursuant to the Formation Agreement, PGI contributed 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 3,465,000 Common
Units, then representing a 15.5% limited partnership interest in the Operating
Partnership (with an aggregate value of approximately $69.3 million). 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 by PGI under the Formation Agreement can be made
by the Company for two years from the completion of the IPO. In the event of any
such breach by PGI, the Company's recovery will be limited to the value of the
Common Units received by PGI in the Formation Transactions. See "Risk
Factors--Conflicts of Interest."

PARTNERSHIP AGREEMENT

On November 17, 1997, the Company, the NAC General Partner and the Limited
Partners entered into the Partnership Agreement which sets forth the terms of
such partnership and established the Company as the managing general partner of
the Operating Partnership with primary 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 "Partnership Agreement--Limited Partner Exchange Rights
and Registration Rights."

THE PRIMESTONE JOINT VENTURE

On November 17, 1997, pursuant to a contribution agreement relating to the
Primestone Joint Venture and immediately following the IPO, PGI contributed to
the Primestone Joint Venture 3,375,000 of the Common Units it received in
exchange for its contributions to the Operating Partnership. Blackstone
contributed $45.0 million in cash to the Primestone Joint Venture. In exchange,
PGI received a 60.0% interest, and Blackstone received a 40.0% interest in the
Primestone Joint Venture. Simultaneously with the other Formation Transactions,
the Primestone Joint Venture also borrowed $40.0 million from a financial
institution and used such loan proceeds together with the $45.0 million
contributed by Blackstone to purchase 4,569,893 Common Units from the Operating
Partnership, at a price per Common Unit equal to $18.60, representing the per
share IPO price of the Common Shares, net of an amount equal to the underwriting
discounts and certain other fees applicable to the Common Shares. As a result,
the Primestone Joint Venture owns, in the aggregate, 7,944,893 Common Units.
PSCC, an affiliate of Prudential Securities Incorporated, made the $40.0 million
loan to the Primestone Joint Venture, which loan is secured by all of the Common
Units held by the Primestone Joint Venture. In connection with the

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purchase of the Common Units, Blackstone designated Mr. Saylak to be elected one
of the Company's trustees. Blackstone has the right after 30 months following
the completion of the IPO, or earlier under certain circumstances, to require
PGI or the Primestone Joint Venture to purchase or redeem Blackstone's interest
in the Primestone Joint Venture. After 30 months following the completion of the
IPO, or earlier upon the occurrence of certain events, PGI may require
Blackstone to sell its interests in the Primestone Joint Venture to PGI or the
Primestone Joint Venture. Up to 50.0% of the price payable upon the exercise of
PGI's call right may, under certain circumstances, be made by the delivery of
Common Units or Common Shares. After three years following the completion of the
IPO or a Change in Control Event (as defined in the agreement forming the
Primestone Joint Venture), either PGI or Blackstone may withdraw from Primestone
and require a pro rata distribution of such party's respective interest.

The Company has granted the Primestone Joint Venture registration rights for
the Common Shares it receives from exchanging Common Units. Blackstone, and PGI
with the consent of Blackstone, were permitted, under the agreement forming the
Primestone Joint Venture, to pledge their interests in the Primestone Joint
Venture to PSCC, an affiliate of Prudential Securities Incorporated and the
third-party lender to the Primestone Joint Venture, may become a partner in the
Primestone Joint Venture, in the event of a default under the respective loan
documents and upon the foreclosure of such pledge and assumption of certain
obligations, with all the rights of the party to whose interest it has
succeeded.

IBD CONTRIBUTION AGREEMENT

The IBD Contributors and PGI entered the IBD Contribution Agreement pursuant
to which the IBD Contributors contributed to the Operating Partnership their
interests in the IBD Contribution Properties. In exchange, the IBD Contributors
received an aggregate of 922,317 Common Units of limited partnership interest
and cash of approximately $0.9 million and a mortgage note receivable of
approximately $4.0 million. Pursuant to the IBD Contribution Agreement, certain
of the IBD Contributors elected to have a portion of the Common Units they
received in the foregoing exchange subject to an arrangement pursuant to which
upon the earlier of (i) the exchange of the subject Common Units for Common
Shares and sale thereof by the holder not earlier than two years following the
completion of the IPO or (ii) the third anniversary date of the completion of
the IPO, either (x) PGI shall transfer to such holder an amount in cash or
Common Units (based on the then current market price) equal to the excess, if
any, of an annual pre-tax return of 16.8% on the subject Common Units to the
date of transfer over the actual return on such Common Units during such period
or (y) such holder shall transfer to PGI an amount in cash or Common Units
(based on the then current market price) equal to the excess, if any, of the
actual return on such Common Units over an annual pre-tax return of 19.8% on
such Common Units.

NAC CONTRIBUTION AGREEMENT; PUT OPTION AGREEMENT

The NAC Contributors, PGI, the Company and the Operating Partnership entered
the NAC Contribution Agreement pursuant to which the NAC Contributors
contributed to the Operating Partnership their interests in the NAC Contribution
Properties. In exchange, the NAC Contributors received 927,100 GP Common Units
and cash of $14.9 million. All of the GP Common Units are held by the NAC
General Partner.

On or after August 17, 1999 pursuant to a certain Put Option Agreement, the
NAC General Partner will have the right to cause the Operating Partnership and
the Company to purchase for cash at least 50.0% of the NAC General Partner's GP
Common Units at a price per Common Unit equal to 95.0% of the then current per
share market value of the Common Shares. Further, on or after July 17, 2000 the
NAC General Partner shall have the right to cause the Operating Partnership and
the Company to purchase for cash all, but not less than all, of the NAC General
Partner's then-remaining GP Common Units at a price per Common Unit equal to
95.0% of the then current per share market value of the Common Shares.

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TAX INDEMNIFICATION AGREEMENTS

The Operating Partnership entered a tax indemnification agreement with
certain principals of the IBD Contributors pursuant to which the Operating
Partnership is required to indemnify such principals of the IBD Contributors
for, among other things, income or gain which they might realize upon the
refinancing or sale by the Operating Partnership of the Properties they
contributed. Under the terms of such agreement, the Operating Partnership will
indemnify such principals of the IBD Contributors for certain tax liabilities
based on income or gain which such a principal is required to include in its
gross income for federal or state income tax purposes. The percentage of the tax
liabilities which the Operating Partnership 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 Operating Partnership is not
required to indemnify the IBD Contributors for income or gain realized by them
after the taxable year ended December 31, 2007. PGI has entered an agreement
with the Operating Partnership pursuant to which PGI has agreed to indemnify the
Operating Partnership for any amounts paid by the Operating Partnership to the
IBD Contributors pursuant to such agreement; provided, that PGI shall be liable
to the Operating Partnership for such amounts only to the extent that the
Operating Partnership 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 such
agreement).

The Operating Partnership has also entered a tax indemnification agreement
with certain principals of the NAC Contributors, pursuant to which the Operating
Partnership is required to indemnify such principals of the NAC Contributors
for, among other things, income or gain which they might realize upon the
refinancing or sale by the Operating Partnership of the NAC Properties. Under
the terms of such agreement, the Operating Partnership will indemnify such
principals of the NAC Contributors for certain tax liabilities based on income
or gain which such a principal is required to include in its gross income for
federal, applicable state and certain local income tax purposes. The Operating
Partnership is not required to indemnify the NAC Contributors for income or gain
realized by them for any taxable year beginning after the tenth anniversary of
the date upon which the NAC General Partner is no longer a general partner in
the Operating Partnership. PGI has also entered an agreement with the Operating
Partnership pursuant to which PGI has agreed to indemnify the Operating
Partnership for any amounts paid by the Operating Partnership to such principals
of the NAC Contributors pursuant to such agreement; provided, that PGI shall be
liable to the Operating Partnership for such amounts only to the extent that the
Operating Partnership 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 such
agreement).

NON-COMPETE AGREEMENT AMONG THE COMPANY, PGI AND MICHAEL W. RESCHKE

On November 17, 1997, the Company, PGI and Michael W. Reschke, Chairman of
the Board and a Trustee of the Company, entered a Non-Compete Agreement that
provides that, so long as PGI 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 PGI (including its affiliates) will own,
acquire or manage office or industrial properties (except any ownership
resulting from foreclosure of indebtedness). Excluded from the foregoing
restrictions are (i) any interest in the Company or the Operating Partnership,
(ii) all properties in which PGI had an interest prior to the Formation
Transactions and (iii) PGI'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. In addition, PGI and Mr. Reschke are not be prohibited from
providing debt or lease financing for properties similar to the properties owned
or managed by the Company or from acquiring any preferred equity position in any
owner or lessee of any such type of properties.

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CONSULTING AGREEMENT WITH STEPHEN J. NARDI

On November 17, 1997, the Company also entered into a consulting agreement
with Stephen J. Nardi, a Trustee of the Company. The consulting agreement has a
term of two years and requires Mr. Nardi to devote substantially all of his time
and energy to performing consulting services on behalf of the Company. In
addition to the initial base fee of $200,000 per annum, Mr. Nardi is entitled to
receive additional incentive compensation in an amount up to 100% of his base
fee based on achievement of such corporate and individual goals and objectives
as may be established by the Board of Trustees or its Compensation Committee.
The consulting agreement contains non-compete provisions restricting Mr. Nardi
from developing, acquiring or operating office or industrial properties for two
years following termination of the consulting agreement. In addition, Pursuant
to the consulting agreement, the Compensation Committee has granted Mr. Nardi
75,000 options to purchase Common Shares.

OPTION TO PURCHASE AND RIGHT OF FIRST OFFER

Following the consummation of the Formation Transactions and the completion
of the IPO, the Company obtained a ten-year option to purchase a property at 300
North LaSalle in the Chicago CBD from PGI. 300 North LaSalle contains
approximately 58,000 square feet suitable for development. In addition, the
Company has an option to purchase the property at 95.0% of the then fair market
value of the property.

The Company also obtained a 15-year right of first offer to develop (or
develop and acquire an ownership interest in) all or any portion of
approximately 360 acres of undeveloped office and industrial land in Huntley,
Illinois. The right of first offer applies to the extent that PGI determines
that such parcel shall be utilized for the construction of an office or
industrial facility to be owned and leased to third parties by PGI or held by
PGI for sale to a third party. The site is subject to a participation interest
held by an unaffiliated third-party lender.

The foregoing option and right of first offer may be exercised only with the
approval of the Company's independent trustees.

PATTERSON CONTRIBUTION AGREEMENT

Jeffrey A. Patterson, Executive Vice President and Chief Investment Officer
of the Company, and PGI entered a contribution agreement pursuant to which Mr.
Patterson agreed to contribute his interests in the assets of the office and
industrial division of PGI to the Operating Partnership in exchange for 110,000
Common Units, which contribution and exchange was completed on November 17,
1997.

LEASES WITH PGI AFFILIATES

Certain entities in which PGI has a controlling ownership interest have
leased space in the 77 West Wacker Drive Building. These entities include (i)
Brookdale Living Communities, Inc., which is leasing approximately 22,600 square
feet for five years, pursuant to a lease which commenced October 1, 1997 and
(ii) The Prime Group, Inc., which is leasing approximately 22,600 square feet
for five years, pursuant to a lease which commenced on November 1, 1997. These
leases each contain standard market rental terms.

SALE OF COMMON SHARES TO MR. RESCHKE

Prior to the IPO, 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 IPO, all of the shares so
acquired by Mr. Reschke were redeemed by the Company for an aggregate redemption
price of $1,000.

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OTHER TRANSACTIONS

PGI 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. PGI received fees relating to these services in the amounts of $1.4
million, $2.1 million, $2.3 million and $2.7 million for the six months ended
June 30, 1997, for the period from January 1, 1997 through November 16, 1997 and
for the years ended December 31, 1996 and 1995, respectively. Following the IPO,
all such services with respect to the Properties will be performed by personnel
of the Company.

The Operating Partnership paid on behalf of PGI, or reimbursed PGI, for
approximately $6.5 million of expenses incurred in connection with the Formation
Transactions and the IPO.

The Company is aware of contamination at certain of the Industrial
Properties. PGI has contractually agreed to retain liability for, and indemnify
the Company for, environmental costs with regard to these Properties. See
"Business and Properties--Government Regulations--Environmental Matters."

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PARTNERSHIP AGREEMENT

The following summary of the Amended and Restated Agreement of Limited
Partnership of Prime Group Realty, L.P. (as amended, 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 incorporated by reference 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 is the managing
general partner of, and currently holds approximately 59.8% of the economic
interests in, the Operating Partnership after giving effect to the Private
Placement. The Company conducts substantially all of its business through the
Operating Partnership, except for office and industrial development, leasing and
property management services, which is conducted through the Services Company in
order to preserve the Company's REIT status. The Operating Partnership owns 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 managing general partner of the
Operating Partnership, has 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 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 or, to institute any
proceeding for bankruptcy or make a general assignment for the benefit of
creditors generally requires the consent of a majority in interest of the Common
Units (including the interests of the Company, which represent approximately
59.8% of the total partner interests as of September 25, 1998). Further, the
Operating Partnership may not be dissolved prior to December 31, 2050 (which is
the expiration of the Operating Partnership's term) without the consent of a
majority in interest of the LP Common Units so long as the Limited Partners hold
more than 10.0% of the Common Units. The Limited Partners have no right to
remove the Company or the NAC General Partner from their respective capacities
as general partners of the Operating Partnership.

INDEMNIFICATION

To the extent permitted by law, the Partnership Agreement provides for
indemnification of the Company, as managing general partner, the NAC General
Partner, their respective directors, 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 neither the Company nor the NAC General
Partner (other than in accordance with the Put Option Agreement) may withdraw
from the Operating Partnership or transfer or assign its general partner
interest in the Operating Partnership, nor may another general partner be
admitted to the Operating Partnership, without the consent of the other general
partner. A Limited Partner may transfer its interests in the Operating
Partnership to a transferee subject to certain conditions, including that such
transferee

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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.
Notwithstanding the foregoing, the Limited Partners have agreed not to transfer,
assign, sell, encumber or otherwise dispose of the Common Units evidencing their
Common Units, or any Common Shares issued upon exchange of such Common Units,
for the applicable Holding Periods without the consent of Prudential Securities
Incorporated, as representative of the IPO Underwriters.

EXTRAORDINARY TRANSACTIONS

The 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 LP 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 LP
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 holding more than 50.0% of the LP Common Units vote to approve
the Business Combination. In addition, as provided in the Operating Partnership
Agreement, 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 LP Common Units been able to vote together with the
shareholders on the transaction. The foregoing provision of the 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 managing general partner first conducts a vote of holders of Common
Units (including the Company and the NAC General Partner) 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 managing 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 comparable 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. 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

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<PAGE>
with preferences and rights corresponding to the beneficial interests so issued.
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."

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, subject to certain adjustments.

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 Preferred Units and the Common Units. Pursuant to the Partnership
Agreement, each Preferred Unit and Series B Preferred Unit will entitle the
Company, as holder, to receive, prior to the payment by the Operating
Partnership of distributions with respect to the Common Units, a cash
distribution in an amount equal to the dividend declared or paid in respect of a
Convertible Preferred Share or a Redeemable Preferred Share, as the case may be.
Each Series B Preferred Unit will entitle the Company, as holder, to receive,
prior to payment by the Operating Partnership of distributions with respect to
the Preferred Units, a cash distribution in an amount equal to the dividend
declared or paid in respect of a Redeemable Preferred Share. The Partnership
Agreement further provides that net cash revenues available after the
declaration or payment of distributions with respect to the Preferred Units will
be distributed ratably to the holders of the Common Units from time to time (but
not less frequently than quarterly) in an aggregate amount determined by the
Company.

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 AND REGISTRATION RIGHTS

Subject to certain conditions, beginning on November 17, 1998, each LP
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. In addition, the
Limited Partners have agreed not to sell, pledge or otherwise transfer their LP
Common Units for the applicable Holding Period without the consent of Prudential
Securities Incorporated, on behalf of the IPO Underwriters. In order to protect
the Company's status as a REIT, each holder of LP Common Units is prohibited
from exchanging such LP 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 Equity Shares, except to the extent
such holder has been granted an exception to the

155
<PAGE>
Ownership Limit. See "Description of Shares of Beneficial Interest--Convertible
Preferred Shares-- Certain Registration Rights."

The Company has granted the Limited Partners that received Common Units upon
completion of the IPO 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. Subject to
certain conditions, the demand registration rights permit the Limited Partners
to request up to two demand registrations per year. Subject to certain
conditions, the piggyback registration rights permit the Limited Partners to
include their Common Shares in the registration by the Company of its Common
Shares or other similar equity securities issued by the Company other than in
connection with the registration by the Company under the Securities Act of any
of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, share options or other employee benefit plans. The Limited
Partners may exercise their demand registration rights after November 16, 1998.
The Limited Partners are classified by investor groups and may each require up
to two registrations per calendar year per group. 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. In
addition, the Company has granted registration rights to SCPG with respect to
the Convertible Preferred Shares and the Common Shares which may be acquired by
it upon the conversion of the Convertible Preferred Shares into Common Shares.
In accordance with such registration rights and the registration rights relating
to the LP Common Units, the Company has prepared and filed the shelf
registration statement that contains this Prospectus and covers the Offered
Shares. See "Description of Shares of Beneficial Interest--Convertible Preferred
Shares--Registration Rights." The Company will bear expenses arising from
exercise of all of the foregoing registration rights, except that the Company
shall not pay any underwriting discounts or commissions, transfer taxes,
Commission or Blue Sky registration fees relating to registration of the Offered
Shares.

TAX MATTERS

Pursuant to the Partnership Agreement, the Company is the "tax matters
partner" of the Operating Partnership and, as such, has 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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<PAGE>
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 August 31, 1998, 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) the Chief Executive
Officer and the four most highly paid executive officers 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
Common Shares represents the number of Common Shares or Common Units the person
holds or the number of Common Shares into which Common Units held by such person
are exchangeable (if, as discussed below, the Company elects to issue Common
Shares rather than pay cash upon exchange). Information presented does not
include Common Shares issuable upon exercise of options granted to the Company's
executive officers and trustees because none of such outstanding options are
exercisable within 60 days of August 31, 1998. 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 LP Common Units may
be exchanged, subject to certain limitations and only after the November 17,
1998, for 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.

<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES/ PERCENTAGE OF PERCENTAGE OF ALL
COMMON UNITS ALL COMMON COMMON SHARES/
NAME BENEFICIALLY OWNED(1) SHARES(2) COMMON UNITS(3)
- ----------------------------------------------------- -------------------------- --------------- -------------------
<S> <C> <C> <C>
The Primestone Joint Venture(4)...................... 7,944,893 33.8% 28.5%
The Prime Group, Inc.(5)............................. 4,814,461 23.6 17.3
Michael W. Reschke(6)(7)............................. 4,864,461 23.8 17.5
Cohen & Steers Capital Management, Inc.(8)........... 2,230,200 14.3 8.0
Southeastern Asset Management, Inc.(9)............... 2,443,300 15.7 8.8
Longleaf Partners Realty Fund(9)..................... 2,443,300 15.7 8.8
Morgan Stanley, Dean Witter & Co.(10)................ 2,650,969 17.0 9.5
Morgan Stanley Asset Management Inc.(10)............. 2,125,669 13.7 7.6
Security Capital Preferred Growth Incorporated(11)... 2,000,000 11.4 7.7
Capital Growth Management Limited Partnership(12).... 1,217,500 7.8 4.4
AMVESCAP PLC(13)..................................... 785,100 5.0 2.8
Stephen J. Nardi(7)(14)(15).......................... 927,100 5.6 3.3
Edward S. Hadesman(7)(14)(16)........................ 860,161 5.2 3.1
Jeffrey A. Patterson(7)(14).......................... 110,000 * *
William M. Karnes(7)................................. 20,900 * *
Kevork M. Derderian(7)............................... 6,000 -- --
Richard S. Curto(7)(17).............................. 10,000 -- --
Jacque M. Ducharme(7)................................ -- -- --
Christopher J. Nassetta(7)........................... -- -- --
Thomas J. Saylak(7).................................. -- -- --
James R. Thompson(7)................................. -- -- --
Trustees and Executive Officers of the Company as a
group (23 persons)................................. 6,799,622 30.5 24.4
</TABLE>

- ---------

* Less than one percent.

(1) The ownership of Common Shares reported herein is based upon filings with
the Commission and upon information obtained from representatives of Cohen
& Steers, Southeastern, Longleaf Partners Realty Fund ("Longleaf"), Morgan
Stanley, Dean Witter & Co. ("MSDW") and Morgan Stanley with respect to
their beneficial ownership of Common Shares and is subject to confirmation
by the

157
<PAGE>
Company that such ownership did not violate the ownership restrictions in
the Company's Declaration of Trust. Information presented includes Common
Shares that may be acquired upon Conversion of the Convertible Preferred
Shares. For a description of conversion rights see "Description of Shares
of Beneficial Interest--Convertible Preferred Shares--Conversion".
Information presented does not include Common Shares issuable upon exercise
of options granted to the Company's executive officers and Trustees because
none of such outstanding options are exercisable within 60 days of August
31, 1998. The ownership of Common Units reported herein is derived from the
transfer records maintained by the Operating Partnership based on
information provided by the Limited Partners.

(2) Information presented assumes exchange only of Common Units or Convertible
Preferred Shares owned by such beneficial owner for Common Shares.

(3) Information presented assumes exchange of all outstanding Common Units and
Convertible Preferred Shares for Common Shares and does not include Common
Shares issuable upon exercise of options granted to the Company's executive
officers and trustees because none of such options are exercisable within
60 days of August 31, 1998. Each of the Limited Partners has agreed not to
sell or exchange any LP Common Units, without the consent of the IPO
Underwriters and the Company for the applicable Holding Periods. See
"Partnership Agreement--Limited Partner Exchange Rights and Registration
Rights." In addition, to protect the Company's REIT status, each holder of
Common Units may not exchange such Common Units for Common Shares to the
extent that such exchange would result in such holder's owning or being
deemed to own, actively or constructively, more than the Ownership Limit,
unless such holder has been granted an exception to the Ownership Limit.

(4) The address of Primestone Joint Venture is 77 West Wacker Drive, Suite
3900, Chicago, Illinois 60601. The Common Shares shown for this entity are
not beneficially owned because the Common Units held by such entity may not
be exchanged for Common Shares until November 17, 1998 and are disclaimed
for beneficial ownership purposes. In addition, certain of such Common
Shares are also reflected in the number of Common Shares listed in this
table as beneficially owned by (i) The Prime Group, Inc., which is a
general partner of Primestone Joint Venture, and (ii) Michael W. Reschke,
who is the President and Chief Executive Officer of The Prime Group, Inc.
Such Common Shares are shown to illustrate the beneficial ownership that
would result from an exchange of Common Units for Common Shares by such
person after such prohibition expires.

(5) The address of The Prime Group, Inc. is 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601. The Common Shares shown for this entity are not
beneficially owned because the Common Units attributable to such entity may
not be exchanged for Common Shares until November 17, 1998 and are
disclaimed for beneficial ownership purposes. In addition, such Common
Shares are also reflected in the number of Common Shares listed in this
table as beneficially owned by (i) the Primestone Joint Venture, which is
the nominal owner of the Common Units and of which The Prime Group, Inc. is
a general partner, and (ii) Michael W. Reschke, who is the Chairman and
Chief Executive Officer of The Prime Group, Inc. Such Common Shares are
shown to illustrate the beneficial ownership that would result from an
exchange of Common Units for Common Shares by such person after such
prohibition expires.

(6) The address of Mr. Reschke is 77 West Wacker Drive, Suite 3900, Chicago,
Illinois 60601. The Common Shares shown for Mr. Reschke are not
beneficially owned because the Common Units attributable to him may not be
exchanged for Common Shares until November 17, 1998 and are disclaimed for
beneficial ownership purposes. In addition, such Common Shares are also
reflected in the number of Common Shares listed in this table as
beneficially owned by (i) the Primestone Joint Venture, which is the
nominal owner of the Common Units and of which The Prime Group, Inc. is a
general partner, and (ii) The Prime Group, Inc., of which Mr. Reschke is
the Chairman and Chief Executive Officer. In addition, Mr. Reschke owns a
controlling interest in the Prime Group, Inc., and

158
<PAGE>
therefore may be deemed to beneficially own the Common Units that are
beneficially owned by the Prime Group, Inc. Such Common Shares are shown to
illustrate the beneficial ownership that would result from an exchange of
Common Units for Common Shares by such person after such prohibition
expires.

(7) This person has also received certain options pursuant to the Share
Incentive Plan which options begin vesting in installments beginning
November 17, 1998 and as a result are excluded from this table. See
"Management--Share Incentive Plan."

(8) The address of Cohen & Steers is 757 Third Avenue, New York, NY 10017.
Information presented was obtained from Cohen & Steers. According to Cohen
& Steers, Cohen & Steers has sole voting power over 2,182,200 Common Shares
and sole dispositive power over 2,230,200 Common Shares held as agent for
accounts managed by Cohen & Steers.

(9) Information presented was obtained from Southeastern and Longleaf.
According to Southeastern and Longleaf, Southeastern and Longleaf have
shared voting and dispositive power for all 2,443,300 Common Shares and
each beneficially owns the Common Shares. The address for each of
Southeastern and Longleaf is 6410 Poplar Ave., Suite 900, Memphis, TN
38119.

(10) Information presented was obtained from Morgan Stanley. According to
Morgan Stanley, MSDW beneficially owns 2,650,969 Common Shares, has shared
voting power over 2,404,669 Common Shares and has shared dispositive power
over 2,650,969 Common Shares and Morgan Stanley beneficially owns and has
shared dispositive power over 2,125,669 Common Shares. According to Morgan
Stanley, both MSDW and Morgan Stanley are investment advisors and Morgan
Stanley is a wholly-owned subsidiary of MSDW. The address of MSDW is 1585
Broadway, New York, NY 10036. The address of Morgan Stanley is 1221 Avenue
of the Americas, New York, NY 10020.

(11) Information presented is based on a Schedule 13G filed with the Commission
on July 29, 1998 by SCPG. The Schedule 13G indicates that SCPG
beneficially owns and has sole voting and dispositive power over 2,000,000
Common Shares. Such Common Shares reflect the number of Common Shares that
SCPG has the right to acquire upon conversion of the Convertible Preferred
Shares. The address of SCPG is 11 South LaSalle Street, Chicago, Illinois,
60603.

(12) The address of Capital Growth is One International Place, Boston, MA
02110. Information presented is based on a Schedule 13G filed with the
Commission on February 6, 1998, as amended on February 12, 1998 by Capital
Growth. The Schedule 13G indicates that Capital Growth has sole voting
power and shared dispositive power over 1,217,500 Common Shares. The
Schedule 13G further indicates that Capital Growth is an investment
company and is of the view that it, and the clients whose accounts it
manages, should not be required to attribute to each other their
beneficially owned securities. Thus, while disclaiming any beneficial
interest in the Common Shares, Capital Growth filed the 13G voluntarily.

(13) Information presented is based on a Schedule 13G filed with the Commission
on February 11, 1998 by AMVESCAP PLC, AVZ, Inc., AIM Management Group,
Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO North American
Holdings, Inc., INVESCO Capital Management, Inc., INVESCO Funds Group,
Inc., INVESCO Management and Research, Inc., and INVESCO Realty Advisors,
Inc. The Schedule 13G indicates that AMVESCAP PLC is a parent holding
company of the other filers and that all filers beneficially own 785,100
Common Shares and have shared voting and dispositive power over the same.
The address of all filers is 11 Devonshire Square, London EC2M 4YR,
England.

(14) The Common Shares shown for this person are not beneficially owned because
the Common Units held by such person may not be exchanged for Common
Shares until November 17, 1998 and are disclaimed for beneficial ownership
purposes. Such Common Shares are shown to illustrate the

159
<PAGE>
beneficial ownership resulting from an exchange of Common Units for Common
Shares by such person after such prohibition expires.

(15) The GP Common Units beneficially owned by Mr. Nardi, an affiliate of the
NAC General Partner, are not exchangeable for Common Shares; however, this
amount illustrates the common equity of the Operating Partnership
beneficially owned by Mr. Nardi.

(16) The Common Units shown for Mr. Hadesman include an aggregate of 397,118
Common Units which are held in separate trusts for his spouse and
children. Mr. Hadesman disclaims beneficial ownership of such Common
Units.

(17) These shares are owned by Mr. Curto under the Illinois Uniform Gift to
Minors Act (2,500 Common Shares for each of his two sons). This person
also has a right to receive a substantial, but not a controlling, interest
in The Prime Group, Inc., and therefore will not be deemed to beneficially
own the Common Units that are beneficially owned by The Prime Group, Inc.

As of August 31, 1998, SCPG owned 2,000,000 shares of the Company's
Convertible Preferred Shares, representing 100% of the outstanding shares of
such class. Commencing on September 17, 1998, holders of Convertible Preferred
Shares have had, and will continue to have, the right, subject to ownership and
transfer restrictions in the Company's Declaration of Trust, intended to allow
the Company to maintain its status as a REIT, to convert all or any of their
Convertible Preferred Shares into Common Shares, initially at the conversion
price of $20.00 per Common Share, subject to certain adjustments.

Except as described above, no Trustee or officer of the Company owns any
shares of any other class of the Company's equity securities.

RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DISTRIBUTIONS

The following table sets forth the consolidated pro forma ratios of earnings
to combined fixed charges and preferred share dividends for the Company for the
six months ended June 30, 1998 and the year ended December 31, 1997 and
consolidated historical ratios of earnings to combined fixed charges and
preferred share dividends for the Company for the six months ended June 30, 1998
and for the period from November 17, 1997 to December 31, 1997 and for the
Predecessor Properties (the Predecessor to the Company) for the six months ended
June 30, 1997, the period January 1, 1997 to November 16, 1997 and for the years
ended December 31, 1996, 1995, 1994 and 1993.

<TABLE>
<CAPTION>
COMPANY--PRO FORMA COMPANY--HISTORICAL PREDECESSOR--HISTORICAL
- ------------------------- ---------------------------- ------------------------------------------------------------------------
SIX SIX PERIOD FROM SIX PERIOD FROM
MONTHS YEAR MONTHS NOVEMBER 17, MONTHS JANUARY 1,
ENDED ENDED ENDED 1997 TO ENDED 1997 TO YEAR ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, NOVEMBER 16, ------------------------------------------
1998 1997 1998 1997 1997 1997 1996 1995 1994 1993
- -------- --------------- ----------- --------------- ----------- --------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.33 1.23 1.56 1.50 -- -- -- -- -- --
</TABLE>

The ratios of earnings to combined fixed charges and preferred share
dividends were computed by dividing earnings by combined fixed charges and
preferred share dividends. For this purpose, earnings consist of income (loss)
before minority interest, plus combined fixed charges. Combined fixed charges
consist of interest expense, amortization of debt issuance costs, and preferred
share dividends. The Predecessor's historical earnings were insufficient to
cover fixed charges by approximately $17.6 million, $29.1 million, $31.4
million, $29.6 million, $22.1 million and $20.8 million for the six months ended
June 30, 1997, the period from January 1, 1997 through November 16, 1997 and for
the years ended December 31, 1996, 1995, 1994 and 1993, respectively.

160
<PAGE>
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 Article, Annotated Code of Maryland (the "Maryland
REIT Law") and certain provisions of the MGCL 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, the Articles
Supplementary to the Declaration of Trust relating to the Redeemable Preferred
Shares and the Bylaws, forms of which are filed or incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part.
Immediately prior to the closing of the Redeemable Preferred Share Offering, the
Company amended its Declaration of Trust to authorize the Redeemable Preferred
Shares described below.

AUTHORIZED SHARES

The Declaration of Trust provides that the Company may issue up to 100.0
million Common Shares, par value $0.01 per share, 65.0 million shares of Excess
Shares, par value $0.01 per share ("Excess Shares"), and 30.0 million Preferred
Shares, par value $0.01 per share (the "Preferred Shares"). The Declaration of
Trust designated 2.0 million Preferred Shares as the Convertible Preferred
Shares. On April 23, 1998, the Board of Trustees approved the preparation and,
in connection with the consummation of the Redeemable Preferred Share Offering,
the filing of Articles Supplementary to the Declaration of Trust designating up
to 4,600,000 of the Preferred Shares as Redeemable Preferred Shares (the
"Articles Supplementary") and setting forth the rights, voting powers,
limitations as the dividends and redemption and the qualifications therefor.
Excess Shares are to be issued automatically upon any automatic conversion of
Common Shares or Preferred Shares which are purported to be held, transferred or
acquired by any person in violation of the ownership limitations contained in
the Declaration of Trust. See "--Restrictions on Ownership and Transfer." As of
September 25, 1998, there were 15,313,094 Common Shares issued and outstanding,
2,000,000 Convertible Preferred Shares outstanding and 4,000,000 Redeemable
Preferred Shares outstanding. Upon completion of the Offering of the Offered
Common Shares covered by the Prospectus and assuming that all LP Common Units
held by the Formation Holders and by H Group LLC are exchanged for Common
Shares, the Company will have outstanding 4,000,000 Redeemable Preferred Shares,
2,000,000 Convertible Preferred Shares (none if all of the Convertible Preferred
Shares are converted into Common Shares) and 25,024,169 Common Shares
(27,024,169 if all of the Convertible Preferred Shares are converted into Common
Shares).

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 not be sufficient to satisfy
the claims against the Company and its shareholders.

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<PAGE>
REDEEMABLE PREFERRED SHARES

DIVIDENDS

Subject to the preferential rights of the holders of any Preferred Shares
that rank senior in the payment of dividends to the Redeemable Preferred Shares,
the holders of the Redeemable Preferred Shares shall be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available for the payment of dividends, cumulative preferential dividends
payable in cash in an amount per Redeemable Preferred Share equal to an annual
rate of 9% of the per share liquidation preference of the Redeemable Preferred
Shares (equivalent to $2.25 per Redeemable Preferred Share).

"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
with respect to any Redeemable Preferred Shares (other than the initial Dividend
Period, which shall commence on the Issue Date for such Redeemable Preferred
Shares and end on and include the last day of the calendar quarter immediately
following such Issue Date, and other than the Dividend Period during which any
Redeemable Preferred Shares shall be redeemed as described below, which shall
end on and include the redemption date with respect to the Redeemable Preferred
Shares being redeemed).

"Dividend Payment Date" shall mean on or about (i) the thirty-first day of
each January with respect to the Dividend Period commencing on October 1 of the
then immediately preceding year, (ii) the thirtieth day of each April with
respect to the Dividend Period commencing on January 1 of such year, (iii) the
thirty-first day of July with respect to the Dividend Period commencing on April
1 of such year and (iv) the thirty-first day of October with respect to the
Dividend Period commencing on July 1 of such year.

Dividends with respect to the Redeemable Preferred Shares shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends, and
shall be payable quarterly, when, as and if declared by the Board of Trustees,
in arrears on Dividend Payment Dates. The initial Dividend Period for the
Redeemable Preferred Shares included a partial dividend for the period from the
date on which the Redeemable Preferred Shares were issued (June 5, 1998) (the
"Issue Date") until the last day of the calendar quarter immediately following
the Issue Date, or June 30, 1998. The aggregate amount of dividends payable for
any period shorter than a full Dividend Period, on the Redeemable Preferred
Shares shall be computed by dividing the number of days in such period by 365
and multiplying the result by the product of the annual dividend rate i.e., 9%
multiplied by the liquidation preference of the Redeemable Preferred Shares
(i.e., $25.00 per Redeemable Preferred Share). The aggregate amount of dividends
payable in respect of the Redeemable Preferred Shares for each full Dividend
Period shall be computed by dividing the product of the annual dividend rate
multiplied by the liquidation preference of the Redeemable Preferred Shares by
four. Dividends shall be payable in arrears to the holders of record of the
Redeemable Preferred Shares as they appear in the records of the Company at the
close of business on such record dates, not less than 10 nor more than 50 days
preceding such Dividend Payment Dates thereof, as shall be fixed by the Board of
Trustees.

Any dividend payment made on the Redeemable Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Redeemable Preferred Shares which remains payable. Holders of Redeemable
Preferred Shares shall not be entitled to any dividends, whether payable in
cash, property or shares, in excess of cumulative dividends on the Redeemable
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Redeemable
Preferred Shares which may be in arrears.

So long as any Redeemable Preferred Shares are outstanding, no dividends,
except as described in the immediately following sentence, shall be declared or
paid or set apart for payment on any class or series of

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Parity Shares (as defined below) for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Redeemable
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, all
dividends declared upon the Redeemable Preferred Shares and all dividends
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of dividends accumulated and
unpaid on the Redeemable Preferred Shares and accumulated and unpaid on such
Parity Shares.

So long as any Redeemable Preferred Shares are outstanding, no dividends
(other than dividends or distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Fully Junior Shares)
shall be declared or paid or set apart for payment or other distribution shall
be declared or made or set apart for payment upon Junior Shares, nor shall any
Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for purposes of
any employee incentive or benefit plan of the Company or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any Junior Shares) by the Company, directly or indirectly
(except by conversion into or exchange for Fully Junior Shares), unless in each
case (i) the full cumulative dividends on all outstanding Redeemable Preferred
Shares and any other Parity Shares of the Company shall have been or
contemporaneously are declared and paid or declared and set apart for payment
for all past Dividend Periods with respect to the Redeemable Preferred Shares
and all past dividend periods with respect to such Parity Shares and (ii)
sufficient funds shall have been or contemporaneously are declared and paid or
declared and set apart for the payment of the dividend for the then current
Dividend Period with respect to the Redeemable Preferred Shares and the then
current Dividend Period with respect to such Parity Shares.

"Fully Junior Shares" shall mean the Convertible Preferred Shares, the
Common Shares and any other class or series of shares of beneficial interest of
the Company now or hereafter issued and outstanding over which the Redeemable
Preferred Shares have preference or priority in both (i) the payments of
dividends and (ii) the distribution of assets on any liquidation, dissolution or
winding up of the Company.

"Junior Shares" shall mean the Convertible Preferred Shares, the Common
Shares and any other class or series of shares of beneficial interest of the
Company now or hereafter issued and outstanding over which the Redeemable
Preferred Shares have preference or priority in the payment of dividends or in
the distribution of assets on any liquidation, dissolution or winding up of the
Company.

No dividends on the Redeemable Preferred Shares shall be declared by the
Board of Trustees or paid or set apart for payment by the Company at such time
as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.

Notwithstanding the foregoing, dividends on the Redeemable Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are authorized.

LIQUIDATION PREFERENCE

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Shares shall be entitled to receive twenty-five dollars ($25.00) (the
"Liquidation Preference") per Redeemable Preferred Share, plus an amount equal
to all dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to such holders (the "Liquidation Preference
Amount").

If, upon any liquidation, dissolution or winding up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
the Redeemable Preferred Shares shall be insufficient to pay in full the
Liquidation Preference Amount and liquidating payments on any other shares of
any class or series of Parity Shares, then such assets, or the proceeds thereof,
shall be distributed among the holders of the Redeemable Preferred Shares and
any such other Parity Shares ratably in accordance with the respective amounts
that would be payable on such Redeemable Preferred Shares and any such other
Parity Shares if all amounts payable thereon were paid in full.

A consolidation or merger of the Company with one or more corporations, real
estate investment trusts or other entities, a sale, lease or conveyance of all
or substantially all of the Company's property or business or a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Company. The Redeemable Preferred Shares will
rank senior to and have preference over the Convertible Preferred Shares as to
priority for receiving liquidating distributions upon the liquidation,
dissolution or winding up of the Company.

Subject to the rights of the holders of shares of any series or class or
classes of shares of beneficial interest ranking on a parity with or prior to
the Redeemable Preferred Shares upon liquidation, dissolution or winding up,
upon any liquidation, dissolution or winding up of the Company, after payment
shall have been made in full to the holders of the Redeemable Preferred Shares,
the holders of the Redeemable Preferred Shares shall have no other claim to the
remaining assets of the Company and any other series or class or classes of
Junior Shares shall, subject to the respective terms and provisions (if any)
applying thereof, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the Redeemable Preferred Shares shall not be
entitled to share therein.

REDEMPTION

The Redeemable Preferred Shares shall not be redeemable by the Company prior
to June 5, 2003. On and after June 5, 2003, the Company, at its option, may
redeem the Redeemable Preferred Shares, in whole at any time or from time to
time in part out of funds legally available therefor at a redemption price
payable in cash equal to 100.0% of the Liquidation Preference per Redeemable
Preferred Share (plus all accumulated, accrued and unpaid dividends as described
below). The redemption price of the Redeemable Preferred Shares (other than any
portion thereof consisting of accrued and unpaid dividends) shall be paid solely
from the proceeds from the issuance and sale by the Company of other capital
shares of beneficial interest of the Company and not from any other source. For
purposes of the preceding sentence, "capital shares of beneficial interest"
means any equity securities (including Common Shares and Preferred Shares),
shares, interests, participations, or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the foregoing.

Upon any redemption of Redeemable Preferred Shares, the Company shall pay
all accrued and unpaid dividends, if any, thereon to the redemption date,
without interest. If the redemption date falls after a dividend payment record
date and prior to the corresponding Dividend Payment Date, then each holder of
Redeemable Preferred Shares at the close of business on such divided payment
record date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding any redemption of such
shares before such Dividend Payment Date. Except as provided above, the Company
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on Redeemable Preferred Shares called for redemption.

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If full cumulative dividends on the Redeemable Preferred Shares and any
other class or series of Parity Shares of the Company have not been declared and
paid or declared and set apart for payment, the Redeemable Preferred Shares may
not be redeemed in part and the Company may not purchase or acquire Redeemable
Preferred Shares, otherwise than pursuant to a purchase or exchange offer made
on the same terms to all holders of Redeemable Preferred Shares.

Notice of the redemption of any Redeemable Preferred Shares (other than as
described below) shall be mailed by first-class mail to each holder of record of
Redeemable Preferred Shares to be redeemed at the address of each such holder as
shown on the Company's records, not less than 30 nor more than 90 days prior to
the redemption date. Neither the failure to mail any required notice nor any
defect therein or in the mailing thereof, to any particular holder, shall affect
the sufficiency of the notice or the validity of the proceedings for redemption
with respect to the other holders. Each such mailed notice shall state, as
appropriate: (i) the redemption date; (ii) the number of Redeemable Preferred
Shares to be redeemed; (iii) the redemption price; (iv) the place or places at
which certificates for such Redeemable Preferred Shares are to be surrendered;
and (v) that dividends on the shares to be redeemed shall cease to accrue on
such redemption date except as otherwise provided below. If fewer than all the
Redeemable Preferred Shares held by any holder are to be redeemed, the notice
mailed to such holder shall also specify the number of Redeemable Preferred
Shares to be redeemed from such holder. If notice of redemption of any
Redeemable Preferred Shares has been properly given, from and after the
redemption date (unless the Company shall fail to make available an amount of
cash necessary to effect such redemption), except as otherwise described below,
dividends on the Redeemable Preferred Shares so called for redemption shall
cease to accrue, such shares shall no longer be deemed to be outstanding and all
rights of the holders thereof as holders of Redeemable Preferred Shares shall
cease (except the right to receive the cash payable upon such redemption,
without interest thereon, upon surrender and endorsement of their certificates
if so required and to receive any dividends payable thereon).

If fewer than all the outstanding Redeemable Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Company from
outstanding Redeemable Preferred Shares not previously called for redemption pro
rata (as nearly as may be), by lot or by any other method determined by the
Company in its sole discretion to be equitable. If fewer than all the Redeemable
Preferred Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed shares shall be issued without cost to
the holder thereof.

The Redeemable Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions (except as
described below under "--Restrictions on Ownership and Transfer").

CONVERSION RIGHTS

Except as otherwise described in "--Restrictions on Ownership and Transfer,"
the Redeemable Preferred Shares are not convertible into or exchangeable for any
other property or securities of the Company.

RANKING

Any class or series of shares of beneficial interest of the Company shall be
deemed to rank: (i) prior to the Redeemable Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Redeemable Preferred Shares (see "--Voting Rights"); (ii) on a parity with the
Redeemable Preferred Shares, as to the payment of dividends and as to
distribution of assets upon liquidation, dissolution or winding up, whether or
not the dividend rates, dividend payment

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dates or redemption or liquidation prices per share thereof shall be different
from those of the Redeemable Preferred Shares, if the holders of such class or
series and the Redeemable Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority one over the
other ("Parity Shares"); (iii) junior to the Redeemable Preferred Shares, as to
the payment of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series (which includes the
Convertible Preferred Shares) shall be Junior Shares; and (iv) junior to the
Redeemable Preferred Shares, as to the payment of dividends and as to the
distribution of assets upon liquidation, dissolution or winding up, if such
class or series (which includes the Convertible Preferred Shares) shall be Fully
Junior Shares. The Redeemable Preferred Shares will rank senior to the
outstanding Convertible Preferred Shares as to the payment of dividends and as
the distribution of assets upon liquidation, dissolution or winding up.

VOTING RIGHTS

If and whenever six consecutive quarterly dividends payable on the
Redeemable Preferred Shares or any series or class of Parity Shares having
similar voting rights shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of trustees then constituting the
Board of Trustees shall be increased by two and the holders of Redeemable
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
a single class regardless of series, shall be entitled to elect the two
additional trustees to serve on the Board of Trustees at any annual meeting of
shareholders of special meeting held in place thereof, or at a special meeting
of the holders of the Redeemable Preferred Shares and the Voting Preferred
Shares called as described below.

Whenever all arrears in dividends on the Redeemable Preferred Shares and the
Voting Preferred Shares then outstanding shall have been paid and dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, then the right of the holders of the
Redeemable Preferred Shares and the Voting Preferred Shares to elect such
additional trustees shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends), and the terms of office of all persons elected as trustees
by the holders of the Redeemable Preferred Shares and the Voting Preferred
Shares shall, notwithstanding the assignment of such trustees to any class
pursuant to the Declaration of Trust, forthwith terminate and the number of the
Board of Trustees shall be reduced accordingly.

So long as any Redeemable Preferred Shares are outstanding, in addition to
any other vote or consent of shareholders required by law or by the Declaration
of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be
cast by the holders of the Redeemable Preferred Shares given in person or by
proxy, shall be necessary for effecting or validating: (i) any amendment,
alteration or repeal of any of the provisions of the Declaration of Trust that
materially and adversely affects the voting powers, rights or preferences of the
holders of the Redeemable Preferred Shares; PROVIDED, HOWEVER, that the
amendment of the provisions of the Declaration of Trust so as to authorize or
create or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Redeemable Preferred Shares or
any Parity Shares shall not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Redeemable Preferred Shares; or
(ii) a share exchange that affects the Redeemable Preferred Shares, a
consolidation with or merger of the Company into another entity, or a
consolidation with or merger of another entity into the Company, unless in each
such case each Redeemable Preferred Share (A) shall remain outstanding without a
material and adverse change to its terms and rights or (B) shall be converted
into or exchanged for cumulative redeemable preferred shares of the surviving
entity having preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption thereof identical to that of a

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Redeemable Preferred Share (except for changes that do not materially and
adversely affect the holders of the Redeemable Preferred Shares);

PROVIDED, HOWEVER, that no such vote of the holders of Redeemable Preferred
Shares shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such prior
shares or convertible security is to be made, as the case may be, provision is
made for the redemption of all Redeemable Preferred Shares at the time
outstanding to the extent such redemption is authorized. See "--Redemption."
Accordingly, the affirmative vote of the holders of at least 66 2/3% of the
Redeemable Preferred Shares will be required to permit the Company to issue any
class or series of Preferred Shares having rights senior to the Redeemable
Preferred Shares as to the payment of dividends or as to distribution of assets
upon liquidation, dissolution or winding up.

Each Redeemable Preferred Share shall have one vote per share, except that
when any other series of Preferred Shares shall have the right to vote with the
Redeemable Preferred Shares as a single class on any matter, then the Redeemable
Preferred Shares and such other series shall have with respect to such matters
one vote per $25.00 of stated liquidation preference.

GENERAL

The Redeemable Preferred Shares have traded on the NYSE since June 23, 1998
under the symbol "PGE PrB."

CONVERTIBLE PREFERRED SHARES

DIVIDENDS

Subject to the preferential rights of the holders of any Preferred Shares
(including the Redeemable Preferred Shares) that rank senior in the payment of
dividends to the Convertible Preferred Shares, the holders of the Convertible
Preferred Shares are entitled to receive, when, as and if declared by the Board
of Trustees, out of funds legally available for the payment of dividends,
cumulative preferential dividends payable in cash in an amount per Convertible
Preferred Share equal to the greater of (i) (x) an annual rate equal to the
product of the Issue Price multiplied by 0.07 for Dividend Periods ending before
November 17, 1998 and (y) an annual rate equal to the product of the Issue Price
multiplied by 0.075 for Dividend Periods ending after November 17, 1998 or (ii)
the regular cash dividends (determined on each Dividend Payment Date) on the
Common Shares, or portion thereof, into which a Convertible Preferred Share is
convertible. The amount of dividends referred to in clause (i) above payable for
each full Dividend Period on the Convertible Preferred Shares, other than the
Dividend Period commencing October 1, 1998, shall be computed by dividing the
annual dividend rate by four. For the Dividend Period commencing October 1,
1998, the amount of dividends through November 17, 1998 on the Convertible
Preferred Shares shall be computed by dividing the product of the Issue Price
times 0.07 by 365 and multiplying the result by number of days from October 1,
1998 through November 17, 1998 and dividends from November 18, 1998 through
December 31, 1998 on the Convertible Preferred Shares shall be computed by
dividing the product of the Issue Price times .075 by 365 and multiplying the
result by the number of days from November 18, 1998 through December 31, 1998.
The amount of dividends referred to in clause (ii) above shall equal the number
of Common Shares, or portion thereof, into which a Convertible Preferred Share
will be convertible on or after the Conversion Date (as defined below),
multiplied by the most current quarterly dividend on a Common Share on or before
the applicable Dividend Payment Date.

"Dividend Payment Date" shall mean (i) for any Dividend Period with respect
to which the Company pays a dividend on the Common Shares, the date on which
such dividend is paid, or (ii) for any Dividend Period with respect to which the
Company does not pay a dividend on the Common Shares, a date to be set by the
Board of Trustees, which date shall not be later than the forty-fifth calendar
day after the end of the applicable Dividend Period.

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"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
with respect to any Convertible Preferred Shares (other than the initial
Dividend Period, which shall commence on the Issue Date for such Convertible
Preferred Shares and end on and include the last day of the calendar quarter
immediately following such Issue Date, and other than the Dividend Period during
which any Convertible Preferred Shares shall be redeemed or converted as
described below, which shall end on and include the redemption date with respect
to the Convertible Preferred Shares being redeemed).

Dividends with respect to the Convertible Preferred Shares shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends, and
shall be payable quarterly, when, as and if declared by the Board of Trustees,
in arrears on Dividend Payment Dates. The amount of dividends payable for any
other period shorter than a full Dividend Period on the Convertible Preferred
Shares, shall be computed by dividing the number of days in such period by 365
and multiplying the result by the product of the annual dividend rate multiplied
by the Issue Price. Dividends shall be payable in arrears to the holders of
record of the Convertible Preferred Shares as they appear in the records of the
Company at the close of business on such record dates, not less than 10 nor more
than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Trustees.

Any dividend payment made on the Convertible Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Convertible Preferred Shares which remains payable. Holders of Convertible
Preferred Shares shall not be entitled to any dividends, whether payable in
cash, property or shares, in excess of cumulative dividends on the Convertible
Preferred Shares. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Convertible
Preferred Shares which may be in arrears.

So long as any Convertible Preferred Shares are outstanding, no dividends,
except as described in the immediately following sentence, shall be declared or
paid or set apart for payment on any class or series of Parity Shares (as
defined below) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Convertible Preferred Shares
for all Dividend Periods terminating on or prior to the dividend payment date on
such class or series of Parity Shares. When dividends are not paid in full or a
sum sufficient for such payment is not set apart, all dividends declared upon
the Convertible Preferred Shares and all dividends declared upon any other class
or series of Parity Shares shall be declared ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the Convertible
Preferred Shares and accumulated and unpaid on such Parity Shares.

So long as any Convertible Preferred Shares are outstanding, no dividends
(other than dividends or distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Fully Junior Shares
(as defined below)) shall be declared or paid or set apart for payment or other
distribution shall be declared or made or set apart for payment upon Junior
Shares (as defined below), nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
Common Shares made for purposes of an employee incentive or benefit plan of the
Company or any subsidiary) for any consideration (or any moneys be paid to or
made available for a sinking fund for the redemption of any Junior Shares) by
the Company, directly or indirectly (except by conversion into or exchange for
Fully Junior Shares), unless in each case (i) the full cumulative dividends on
all outstanding Convertible Preferred Shares and any other Parity Shares of the
Company shall have been or contemporaneously are declared and paid or declared
and set apart for payment for all past Dividend Periods with respect to the
Convertible Preferred Shares and all past dividend periods with respect to such
Parity Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the dividend for
the current Dividend Period with

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respect to the Convertible Preferred Shares and the current Dividend Period with
respect to such Parity Shares.

"Fully Junior Shares" shall mean the Common Shares and any other class or
series of shares of beneficial interest of the Company now or hereafter issued
and outstanding over which the Convertible Preferred Shares have preference or
priority in both (i) the payment of dividends and (ii) the distribution of
assets on any liquidation, dissolution or winding up of the Company.

"Junior Shares" shall mean the Common Shares and any other class or series
of shares of beneficial interest of the Company now or hereafter issued and
outstanding over which the Convertible Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Company.

No dividends on the Convertible Preferred Shares shall be declared by the
Board of Trustees or paid or set apart for payment by the Company at such time
as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.

LIQUIDATION PREFERENCE

In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, subject to the prior preferences and other
rights of any series of shares of beneficial interest ranking senior to the
Convertible Preferred Shares upon liquidation, distribution or winding up of the
Company (such as the Redeemable Preferred Shares), before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Junior Shares, the holders of the
Convertible Preferred Shares shall be entitled to receive twenty dollars
($20.00) (the "Liquidation Preference") per Convertible Preferred Share plus an
amount equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders (the
"Liquidation Preference Amount").

If, upon any liquidation, dissolution or winding up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
the Convertible Preferred Shares shall be insufficient to pay in full the
Liquidation Preference Amount and liquidating payments on any other shares of
any class or series of Parity Shares, then such assets, or the proceeds thereof,
shall be distributed among the holders of the Convertible Preferred Shares and
any such other Parity Shares ratably in accordance with the respective amounts
that would be payable on such Convertible Preferred Shares and any such other
Parity Shares if all amounts payable thereon were paid in full.

A consolidation or merger of the Company with one or more corporations, real
estate investment trusts or other entities, a sale, lease or conveyance of all
or substantially all of the Company's property or business or a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Company. The Convertible Preferred Shares rank
junior to and are subordinate to the Redeemable Preferred Shares as to priority
for receiving liquidating distributions upon the liquidation, dissolution or
winding up of the Company.

Subject to the rights of the holders of shares of any series or class or
classes of shares of beneficial interest ranking on a parity with or prior to
the Convertible Preferred Shares upon liquidation, dissolution or winding up,
upon any liquidation, dissolution or winding up of the Company, after payment
shall have been made in full to the holders of the Convertible Preferred Shares,
the holders of the Convertible Preferred Shares shall have no other claim to the
remaining assets of the Company and any other series or class or classes of
Junior Shares shall, subject to the respective terms and provisions (if any)
applying

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thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Convertible Preferred Shares shall not be
entitled to share therein.

REDEMPTION

The Convertible Preferred Shares are not redeemable by the Company prior to
November 17, 2007 except under certain limited circumstances described below. On
and after November 17, 2007, the Company, at its option, may redeem the
Convertible Preferred Shares, in whole at any time or from time to time in part
out of funds legally available therefor at a redemption price payable in cash
equal to 100.0% of the Liquidation Preference per Convertible Preferred Share
(plus all accumulated, accrued and unpaid dividends as described below).

Upon any redemption of Convertible Preferred Shares, the Company shall pay
all accrued and unpaid dividends, if any, thereon to the redemption date,
without interest. If the redemption date falls after a dividend payment record
date and prior to the corresponding Dividend Payment Date, then each holder of
Convertible Preferred Shares at the close of business on such dividend payment
record date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding any redemption of such
shares before such Dividend Payment Date. Except as provided above, the Company
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on Convertible Preferred Shares called for redemption.

If full cumulative dividends on the Convertible Preferred Shares and any
other class or series of Parity Shares of the Company have not been declared and
paid or declared and set apart for payment, the Convertible Preferred Shares may
not be redeemed in part and the Company may not purchase or acquire Convertible
Preferred Shares, otherwise than pursuant to a purchase or exchange offer made
on the same terms to all holders of Convertible Preferred Shares.

Notice of the redemption of any Convertible Preferred Shares (other than as
described below) shall be mailed by first-class mail to each holder of record of
Convertible Preferred Shares to be redeemed at the address of each such holder
as shown on the Company's records, not less than 30 nor more than 90 days prior
to the redemption date. Neither the failure to mail any required notice nor any
defect therein or in the mailing thereof, to any particular holder, shall affect
the sufficiency of the notice or the validity of the proceedings for redemption
with respect to the other holders. Each such mailed notice shall state, as
appropriate: (i) the redemption date; (ii) the number of Convertible Preferred
Shares to be redeemed; (iii) the redemption price; (iv) the place or places at
which certificates for such Convertible Preferred Shares are to be surrendered;
(v) the then-current conversion price; and (vi) that dividends on the shares to
be redeemed shall cease to accrue on such redemption date except as otherwise
provided below. If fewer than all the Convertible Preferred Shares held by any
holder are to be redeemed, the notice mailed to such holder shall also specify
the number of Convertible Preferred Shares to be redeemed from such holder. If
notice of redemption of any Convertible Preferred Shares has been properly
given, from and after the redemption date (unless the Company shall fail to make
available an amount of cash necessary to effect such redemption), except as
otherwise described below, dividends on the Convertible Preferred Shares so
called for redemption shall cease to accrue, such shares shall no longer be
deemed to be outstanding and all rights of the holders thereof as holders of
Convertible Preferred Shares shall cease (except the rights to convert and to
receive the cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to receive
any dividends payable thereon).

If fewer than all the outstanding Convertible Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Company from
outstanding Convertible Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by the
Company in its sole discretion to be equitable. If fewer than all the
Convertible Preferred Shares represented by any certificate are redeemed, then
new certificates representing the unredeemed shares shall be issued without cost
to the holder thereof.

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CONVERSION

Commencing on September 17, 1998, a holder of Convertible Preferred Shares
has the right, at his or her option, to convert all or any portion of such
shares into the number of fully paid and non-assessable Common Shares obtained
by dividing the aggregate Liquidation Preference Amount of such shares by the
conversion price by surrendering such shares to be converted. In the case of
Convertible Preferred Shares called for redemption, conversion rights shall
expire at the close of business on the fifth business day prior to the
redemption date fixed for such redemption.

Holders of Convertible Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such dividend payment record date and prior to such
Dividend Payment Date. However, Convertible Preferred Shares surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding Dividend
Payment Date (except shares converted after the issuance of notice of redemption
with respect to a redemption date during such period, such Convertible Preferred
Shares being entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such Dividend Payment Date. A holder of Convertible Preferred Shares on a
dividend payment record date who (or whose transferee) tenders any such shares
for conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Company on such Convertible Preferred
Shares on such date, and the converting holder need not include payment of the
amount of such dividend upon surrender of Convertible Preferred Shares for
conversion. Except as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the Common Shares issued upon such conversion.

Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for Convertible
Preferred Shares shall have been surrendered and such notice shall have been
received by the Company (and if applicable, payment of an amount equal to the
dividend payable on such shares shall have been received by the Company as
described above), and the person or persons in whose name or names any
certificate or certificates for Common Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such conversion shall
be at the conversion price in effect at such time on such date unless the share
transfer books of the Company shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such share
transfer books are open, but such conversion shall be at the conversion price in
effect on the date on which such shares shall have been surrendered and such
notice received by the Company.

No fractional shares or scrip representing fractions of Common Shares shall
be issued upon conversion of the Convertible Preferred Shares. Instead of any
fractional interest in a Common Share that would otherwise be deliverable upon
the conversion of a Convertible Preferred Share, the Company shall pay to the
holder of such share an amount in cash based upon the current market price of
the Common Shares on the trading day immediately preceding the date of
conversion. If more than one share shall be surrendered for conversion at one
time by the same holder, the number of full Common Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
Convertible Preferred Shares so surrendered.

The conversion price is subject to adjustments upon the occurrence of any of
the following events:

(i) If the Company shall after the Issue Date (A) pay a dividend or make
a distribution on its capital shares in Common Shares, (B) subdivide its
outstanding Common Shares into a greater number of shares, (C) combine its
outstanding Common Shares into a smaller number of shares or (D) issue any
shares of beneficial interest by reclassification of its Common Shares;

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(ii) If the Company shall issue after the Issue Date rights, options or
warrants to all holders of Common Shares entitling them (for a period
expiring within 45 days after the record date mentioned below) to subscribe
for or purchase Common Shares at a price per share less than 94.0% (100.0%
if a stand-by underwriter is used and charges the Company a commission) of
the fair market value per Common Share on the record date for the
determination of shareholders entitled to receive such rights, options or
warrants;

(iii) If the Company shall distribute to all holders of its Common Shares
any securities of the Company (other than Common Shares) or evidence of its
indebtedness or assets (excluding cumulative cash dividends or distributions
paid with respect to the Common Shares after December 31, 1996 which are not
in excess of the following: the sum of (A) the Company's cumulative
undistributed Funds from Operations at December 31, 1996, plus (B) the
cumulative amount of Funds from Operations, as determined by the Board of
Trustees, after December 31, 1996, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Convertible Preferred Shares or
any other class or series of preferred shares of beneficial interest of the
Company after the Issue Date) or rights, options or warrants to subscribe
for or purchase any of its securities (other than those described in clause
(ii) above); or

(iv) In case a tender or exchange offer (which term does not include
open market repurchases by the Company) made by the Company or any
subsidiary of the Company for all or any portion of the Common Shares shall
expire and such tender or exchange offer shall involve the payment by the
Company or such subsidiary of consideration per Common Share having a fair
market value (as determined in good faith by the Board of Trustees, whose
determination shall be conclusive and described in a resolution of the Board
of Trustees), at the last time (the "Expiration Time") tenders or exchanges
may be made pursuant to such tender or exchange offer, that exceeds the
current market price per Common Share on the trading day next succeeding the
Expiration Time.

No adjustment in the conversion price is required unless such adjustment
would require a cumulative increase or decrease of at least 1.0% in such price.
However, any adjustments that by reason of the immediately preceding sentence
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment until made. The adjustments to be made in each such
event are set forth in the Declaration of Trust.

If the Company shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender offer
for all or substantially all of its Common Shares, sale of all or substantially
all of the Company's assets or recapitalization of the Common Shares) (each of
the foregoing being referred to herein as a "Transaction"), in each case as a
result of which all or substantially all of the Company's Common Shares are
converted into the right to receive shares, securities or other property
(including cash or any combination thereof), each Convertible Preferred Share
which is not redeemed or converted into the right to receive shares, securities
or other property prior to such Transaction shall thereafter be convertible into
the kind and amount of shares, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such Transaction by
a holder of that number of Common Shares into which one Convertible Preferred
Share was convertible immediately prior to such Transaction.

LIMITATION ON ISSUANCE OF ADDITIONAL PREFERRED SHARES AND INDEBTEDNESS

Without the written consent of the holders of two-thirds of the issued and
outstanding Convertible Preferred Shares, none of the Company, the Operating
Partnership or any of their subsidiaries may issue any additional preferred
securities of any such entity or incur any indebtedness (other than trade
payables or accrued expenses incurred in the ordinary course of business) if,
immediately following such issuance and after giving effect to such issuance and
the application of the net proceeds therefrom, such entity

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would be reasonably expected to not satisfy one or both of the following ratios
for the fiscal quarter immediately preceding such issuance:

(i) Total Debt and liquidation value of non-convertible preferred shares
of beneficial interest to Total Market Capitalization of less than .65 to
1.0; or

(ii) Consolidated EBITDA to Consolidated Fixed Charges of at least 1.4
to 1.0.

In the event that the Company fails to satisfy one or both of the tests in
clause (i) or (ii) above for two consecutive quarters, the holders of
Convertible Preferred Shares shall have the right to require that the Company,
to the extent that the Company shall have funds legally available therefor,
repurchase any or all of each holder's Convertible Preferred Shares at a
repurchase price payable in cash in an amount equal to 100% of the liquidation
preference thereof, plus accrued and unpaid dividends whether or not declared,
if any (the "Repurchase Payment"), to the date of repurchase or the date payment
is made available (the "Repurchase Date"), pursuant to the offer described below
(the "Repurchase Offer").

Within 15 days following the second consecutive quarter that the Company
fails to satisfy one or both of the tests in clause (i) or (ii) above, the
Company shall mail by first class mail or overnight courier a notice to all
holders of Convertible Preferred Shares stating (i) that the Company failed to
satisfy one or both of the tests (naming the test(s) failed), (ii) that the
holders of Convertible Preferred Shares have the right to require the Company to
repurchase any or all Convertible Preferred Shares then held by such holder in
cash, (iii) the date of repurchase (which shall be a business day, no earlier
than 120 days and no later than 150 days from the date such notice is mailed, or
such later date as may be necessary to comply with the requirements of the
Exchange Act), (iv) the repurchase price for the repurchase and (v) the
instructions determined by the Company that the holder must follow in order to
have its Convertible Preferred Shares repurchased.

On the Repurchase Date, the Company will, to the extent lawful, accept for
payment Convertible Preferred Shares or portions thereof tendered pursuant to
the Repurchase Offer and promptly mail by first class mail or overnight courier
or by wire transfer of immediately available funds to the holder of Convertible
Preferred Shares, as directed by such holder, payment in an amount equal to the
Repurchase Payment in respect of all Convertible Preferred Shares or portions
thereof so tendered.

"Total Debt" means the sum of (without duplication) any indebtedness,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures, or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent such indebtedness would appear as a liability upon a balance
sheet of such entity prepared on a consolidated basis in accordance with
Generally Accepted Accounting Principles ("GAAP"), and also includes, to the
extent not otherwise included, the guarantee of items which would be included
within this definition.

"Total Market Capitalization" means the sum of: (a) the fair market value of
the outstanding Common Shares, assuming (i) the full exchange of outstanding
Common Units (in each case not held by the Company) of the Operating Partnership
for Common Shares and (ii) the conversion of the outstanding shares of
Convertible Preferred Shares into Common Shares; (b) the aggregate liquidation
preference of any outstanding preferred shares of beneficial interest other than
the Convertible Preferred Shares; and (c) the Total Debt of the Company.

"Consolidated EBITDA" for any period means the consolidated net income of
the Company (before extraordinary income or gains) as reported in the Company's
financial statements filed with the Securities and Exchange Commission increased
by the sum of the following (without duplication):

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(i) all income and state franchise taxes paid or accrued according to
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or non-recurring gains or losses except to the extent that such
gains were not included in Consolidated EBITDA);

(ii) all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of deferred financing
fees and amortization of original issue discount);

(iii) depreciation and depletion reflected in such reported net income;

(iv) amortization reflected in such reported net income, including,
without limitation, amortization of capitalized debt issuance costs (only to
the extent that such amounts have not been previously included in the amount
of Consolidated EBITDA pursuant to clause (ii) above), goodwill, other
intangibles and management fees; and

(v) any other non-cash charges or discretionary prepayment penalties, to
the extent deducted from consolidated net income (including, but not limited
to, income allocated to minority interests).

"Consolidated Fixed Charges" for any period means the sum of:

(i) all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of deferred financing
fees and amortization of original issue discount);

(ii) preferred shares of beneficial interest dividend requirements for
such period, whether or not declared or paid; and

(iii) regularly scheduled amortization of principal during such period
(other than any balloon payments at maturity).

RANKING

Any class or series of shares of beneficial interest of the Company shall be
deemed to rank: (i) prior to the Convertible Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series (which includes the
Redeemable Preferred Shares) shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of Convertible Preferred
Shares; (ii) on a parity with the Convertible Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof shall be different
from those of the Convertible Preferred Shares, if the holders of such class or
series and the Convertible Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority one over the
other ("Parity Shares"); (iii) junior to the Convertible Preferred Shares, as to
the payment of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior Shares; and
(iv) junior to the Convertible Preferred Shares, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding
up, if such class or series shall be Fully Junior Shares.

VOTING RIGHTS

If and whenever (i) two consecutive quarterly dividends payable on the
Convertible Preferred Shares or any series or class of Parity Shares shall be in
arrears (which shall, with respect to any such quarterly dividend, means that
any such dividend has not been paid in full), whether or not earned or declared,
or (ii) for two consecutive quarterly dividend periods the Company fails to pay
dividends on the Common Shares in an amount per share at least equal to $0.3375
(subject to adjustment if the conversion price of

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the Convertible Preferred Shares is adjusted), the number of trustees then
constituting the Board of Trustees shall be increased by one (unless the then
current Board of Trustees consists of more than 10 trustees in which case the
Board of Trustees shall be increased by two) and the holders of Convertible
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
a single class regardless of series, shall be entitled to elect the one or two
additional trustees to serve on the Board of Trustees at any annual meeting of
shareholders or special meeting held in place thereof, or at a special meeting
of the holders of the Convertible Preferred Shares and the Voting Preferred
Shares called as described below.

Whenever all arrears in dividends on the Convertible Preferred Shares and
the Voting Preferred Shares then outstanding shall have been paid and dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, or the Company has paid dividends on the
Common Shares in an amount per share at least equal to $0.3375 (subject to
adjustment if the conversion price of the Convertible Preferred Shares is
adjusted) for two consecutive quarters, then the right of the holders of the
Convertible Preferred Shares and the Voting Preferred Shares to elect such
additional trustee(s) shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends), and the terms of office of all persons elected as trustees
by the holders of the Convertible Preferred Shares and the Voting Preferred
Shares shall forthwith terminate and the number of the Board of Trustees shall
be reduced accordingly.

So long as any Convertible Preferred Shares are outstanding, in addition to
any other vote or consent of shareholders required by law or by the Declaration
of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be
cast by the holders of the Convertible Preferred Shares given in person or by
proxy, either in writing without a meeting or by vote at any meeting called for
the purpose, shall be necessary for effecting or validating: (i) any amendment,
alteration or repeal of any of the provisions of the Declaration of Trust that
materially and adversely affects the voting powers, rights or preferences of the
holders of the Convertible Preferred Shares; PROVIDED, HOWEVER, that the
amendment of the provisions of the Declaration of Trust so as to authorize or
create, or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Convertible Preferred Shares or
any Parity Shares shall not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Convertible Preferred Shares; or
(ii) a share exchange that affects the Convertible Preferred Shares, a
consolidation with or merger of the Company into another entity, or a
consolidation with or merger of another entity into the Company, unless in each
such case each Convertible Preferred Share (A) shall remain outstanding without
a material and adverse change to its terms and rights or (B) shall be converted
into or exchanged for convertible preferred shares of the surviving entity
having preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption thereof identical to that of a Convertible Preferred Share (except
for changes that do not materially and adversely affect the holders of the
Convertible Preferred Shares); provided, however, that no such vote of the
holders of Convertible Preferred Shares shall be required if, at or prior to the
time when such amendment, alteration or repeal is to take effect, or when the
issuance of any such prior shares or convertible security is to be made, as the
case may be, provision is made for the redemption of all Convertible Preferred
Shares at the time outstanding to the extent such redemption is authorized. See
"--Redemption." Accordingly, the affirmative vote of the holders of at least
66 2/3% of the Convertible Preferred Shares will be required to permit the
Company to issue any class or series of Preferred Shares having rights senior to
the Convertible Preferred Shares as to the payment of dividends or as to
distribution of assets upon liquidation, dissolution or winding up. The sole
holder of the Convertible Preferred Shares has consented to the issuance of the
Redeemable Preferred Shares pursuant to the Redeemable Preferred Share Offering.

Each Convertible Preferred Share shall have one vote per share, except that
when any other series of Preferred Shares shall have the right to vote with the
Convertible Preferred Shares as a single class on any matter, then the
Convertible Preferred Shares and such other series shall have with respect to
such matters one vote per $20.00 of stated liquidation preference.

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REGISTRATION RIGHTS

The Company has granted SCPG certain "demand" and "piggyback" registration
rights with respect to the Common Shares acquired by it upon conversion of the
Convertible Preferred Shares into Common Shares. Subject to certain conditions,
such demand registration rights permit holders of such shares to request one
demand registration. Subject to certain conditions, such piggyback registration
rights permit the holders of such Shares to include their Common Shares in the
registration by the Company of its equity securities other than in connection
with the registration by the Company under the Securities Act of any of its
securities (i) pursuant to a shelf registration statement, (ii) in connection
with mergers or acquisitions or (iii) in connection with an employee benefit,
share dividend, share ownership or dividend reinvestment plan.

GENERAL

The Convertible Preferred Shares are not listed or qualified for trading on
any exchange or on the Nasdaq National Market.

COMMON SHARES

Subject to the preferential rights of the Convertible Preferred Shares and
any other class or series of shares of beneficial interest and to the provisions
of the Declaration of Trust regarding the Excess Shares and Convertible
Preferred 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 currently pays quarterly distributions
on the Common Shares, which quarterly distributions commenced with the partial
quarter ending December 31, 1997 and intends to continue to pay quarterly
distributions. See "Price Range of Common Shares and Distributions."

The Convertible Preferred Shares are entitled to payment of distributions at
the rate declared on the Common Shares if such rate is greater than the stated
distribution rate on the Convertible Preferred Shares, Accordingly, at such time
as the distribution rate on the Common Shares is greater than the stated rate on
the Convertible Preferred Shares, holders of Convertible Preferred Shares will
be entitled to participate in any further growth of Funds from Operations
together with the holders of Common Shares.

Subject to the provisions of the Declaration of Trust regarding Excess
Shares, the Convertible Preferred Shares and the Redeemable Preferred 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.

Holders of the 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

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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 Common Shares have traded on the NYSE since November 12, 1997 under the
trading symbol "PGE."

ADDITIONAL PREFERRED SHARES

Additional Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees. Other than the Convertible
Preferred Shares and the Redeemable Preferred Shares offered hereby, 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 additional series 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 shareholders or otherwise be in their best interest.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

For the Company to qualify as a REIT under the Code, among other things, no
more than 50.0% 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 Equity 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 exceptions, no person or entity 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
Equity Shares. The constructive ownership rules of the Code are complex, and may
cause Equity 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
Equity Shares (or the acquisition of an interest in an entity that owns,
actually or

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constructively, Equity 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 Equity 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. 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 or such other limit as provided in the Declaration of Trust 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 must obtain a ruling from the
IRS or an opinion of counsel satisfactory to it with respect to preserving the
REIT status of the Company.

The Company has waived the Ownership Limit set forth in the Declaration of
Trust with respect to the Equity Shares to permit SCPG to own, at any one time,
up to 16 percent, in value or number, of the total outstanding Equity Shares.
Additionally, the Company has waived Ownership Limit to permit Long Leaf
Partners Realty Fund to purchase 2,600,000 Common Shares.

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.

If any purported transfer of Equity Shares of the Company or any other event
would otherwise result in any person violating the Ownership Limit or such other
limit as provided in the Declaration of Trust 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 or such other limit as provided in the Declaration of Trust and
the Prohibited Transferee shall acquire no right or interest in such excess
shares. Any such excess shares described above will be converted automatically
into an equal number 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 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. At any time
after the expiration of a 90-day period which commences upon the receipt of
notice from the Company of the transfer of Shares-in-Trust to the Share Trust
and during which the Company shall have the right to purchase such Shares-in-
Trust, the trustee of the Share Trust (who shall be designated by the Company
and be unaffiliated with the Company or any Prohibited Transferee) shall have
the right 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 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 Transferee 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 will be distributed to the

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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, (i) any
vote cast by a Prohibited Transferee prior to the discovery by the Company that
such Shares-in-Trust have been transferred to the Share Trust will be void and
of no force or effect and (ii) the trustee shall have the authority to recast
such vote in accordance with the desires of the trustee acting for the benefit
of the Beneficiary. Any dividend or other distribution paid to the Prohibited
Transferee (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 for distribution to the Beneficiary.

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 for a period of 90 days.

If any purported transfer of Equity 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
Equity 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.
Subject to certain limited exceptions, amendments to the Declaration of Trust
require the affirmative vote of holders owning at least two-thirds of the shares
of beneficial interest of the Company outstanding and entitled to vote thereon.

All certificates representing Equity Shares of the Company currently 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
Equity Shares must file, within 30 days after January 1 of each year, a written
notice with the Company containing information regarding their ownership of such
shares. 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 Equity 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, the
Articles Supplementary to the Declaration of Trust relating to the Redeemable
Preferred Shares and the Bylaws, forms of which are incorporated by reference as
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 seven (subject to the rights of the holders of Convertible Preferred
Shares and the Redeemable Preferred Shares to elect additional trustees upon the
occurrence of certain events), which number may be increased or decreased
pursuant to the Bylaws, but shall not be fewer than three. The Bylaws currently
provide that the Board of Trustees will consist of not fewer than three nor more
than thirteen trustees. Any vacancy will be filled, at any regular meeting or at
any special meeting called for that purpose, by the affirmative vote of a
majority of the remaining trustees, even though less than a quorum of the Board
of Trustees may exist.

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
held office initially for a term expiring at the annual meeting of shareholders
held on May 22, 1998, at which meeting the two trustees comprising such class
were each re-elected to a new three-year term expiring in 2001. A second class
of the Board of Trustees will hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1999 and a third 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 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. See "Risk Factors."

REMOVAL OF TRUSTEES

While the Declaration of Trust empowers its 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.

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BUSINESS COMBINATIONS

Under the MGCL, as applicable to Maryland real estate investment trusts,
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 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. As permitted by the MGCL, the Board of Trustees of the Company has
opted out of the business combinations provisions of the MGCL with respect to
any business combination involving PGI, the Primestone Joint Venture or any of
the Contributors, or any of their respective affiliates (including Mr. Reschke).
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 real estate investment trusts, 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

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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 Company is a party to the
transaction or to acquisitions approved or exempted by the trust's declaration
of trust or bylaws.

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 or decrease 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 without
shareholder approval.

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 Bylaws 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 Bylaws.

The provisions in the Declaration of Trust on classification of the Board of
Trustees, amendments to the Declaration of Trust and removal of trustees and, if
the applicable provision in the Bylaws is rescinded, the control share
acquisition provisions of the MGCL, and the advance notice provisions of the
Bylaws

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could have the effect of discouraging a takeover or other transaction which
shareholders 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.

MEETINGS OF SHAREHOLDERS

The Declaration of Trust and the Bylaws provide for annual meetings of
shareholders 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

Upon the completion of the Offering of the Offered Shares covered by this
Prospectus and assuming that all LP Common Units held by the Formation Holders
and by H Group LLC are exchanged for Common Shares, the Company will have
outstanding 4,000,000 Redeemable Preferred Shares, 2,000,000 Convertible
Preferred Shares (none if all of the Convertible Preferred Shares are converted
into Common Shares) and 25,024,169 Common Shares (27,024,169 if all of the
Convertible Preferred Shares are converted into Common Shares). In addition, the
Company has reserved an aggregate of 11,371,075 Common Shares for issuance upon
the exchange of LP Common Units held by Limited Partners or conversion of the
Convertible Preferred Shares, and has reserved 1.85 million Common Shares for
issuance upon exercise of options issued pursuant to the Company's Share
Incentive Plan. All of the Offered Shares offered hereby when sold pursuant to
the Registration Statement that contains this Prospectus will be freely
tradeable in the public market without restriction or registration under the
Securities Act except for any shares purchased by an existing "affiliate" of the
Company, which will be subject to the resale limitations of Rule 144 under the
Securities Act as more fully described below.

Upon completion of the Offering and assuming that all LP Common Units held
by the Formation Holders and by H Group LLC are exchanged for Common Shares, the
Company will have no LP Common Units outstanding. The Limited Partners have
agreed not to, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose of (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) any LP Common Units or Common
Shares or other shares of beneficial interest of the Company, or any securities
convertible or exercisable or exchangeable for any LP Common Units or Common
Shares or other shares of beneficial interest of the Company, for the applicable
Holding Period, in each case without the prior written consent of Prudential
Securities Incorporated, on behalf of the IPO Underwriters, subject to certain
limited exceptions. Prudential Securities Incorporated may, at any time and
without notice, 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 the Limited Partners upon exchange of
their respective LP Common Units may be sold in the public market pursuant to
the registration statement of the Company that contains this Prospectus which
the Company was obligated to file pursuant to the exercise of registration
rights that were granted by the Company or available exemptions from
registration.

The Common Shares owned by "affiliates" of the Company, the 25,000
restricted Common Shares issued to officers of the Company who are not Common
Unit Holders and Common Shares issuable upon exchange of Common Units (other
than those covered by the registration statement that contains this Prospectus),
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

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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 established the Share Incentive Plan for the purpose of
attracting and retaining executive officers, trustees and other key employees.
See "Management--Share Incentive Plan." The Company has issued in the aggregate
options to purchase 1,272,500 (1,165,000 after the termination of certain
options) Common Shares to executive officers, trustees and certain key employees
and has reserved 577,300 (685,000 net of the termination of certain options)
additional Common Shares for future issuance under the Share Incentive Plan.
Prior to November 17, 1998, 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 which
registration statement will become effective automatically upon filing. See
"Management--Share Incentive Plan." Accordingly, (i) Common Shares issued upon
exercise of options registered under such registration statement and (ii) Common
Shares issuable upon the exchange of LP Common Units or the conversion of the
Convertible Preferred Shares that are sold pursuant to the registration
statement that contains this Prospectus, in each case, 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.

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, the exchange of LP Common Units or
conversion of Convertible Preferred Shares) 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 "Description of Shares of Beneficial Interest--Restrictions
on Ownership and Transfer."

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material federal income tax considerations to
the Company and its shareholders resulting from the treatment of the Company as
a REIT. Winston & Strawn has acted as 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 Offered
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 Offered 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 OFFERED 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 expects to elect 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 ended December 31,
1997. The Company believes that it is 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 has actually operated 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 is organized in conformity
with the requirements for qualification as a REIT under the Code, and the
Company's method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code and its method of operation
enables it to continue to meet the requirements for qualification as a REIT. 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

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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 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
"--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 in calculating its taxable income. 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.
However, to the extent the Company elects to retain and pay income tax on net
long-term capital gains it received during the year such amounts will be treated
as having been distributed for purposes of the 4.0% excise tax. 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 C corporation from which the Company acquired the asset will be taxable
on the amount of gain that would have been realized if the C corporation had
liquidated on the last day before the date on which the Company acquired the
asset. Alternatively, the Company may elect, in lieu of the treatment described
above, to be subject to tax at the highest regular corporate tax rate on the
excess, if any, 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"). The Company also will be taxed 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 "--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

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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 uses the calendar year for both federal income tax purposes and
financial reporting purposes.

REQUIREMENTS FOR QUALIFICATION

To qualify as a REIT, the Company must have met 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. A corporation may not elect to become a
REIT unless its taxable year is a calendar year.

The Company has issued sufficient 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").
Although any failure by the Company to comply with the shareholder demand
letters requirement should not jeopardize its REIT status, such failure would
subject the Company to financial penalties. A list of those shareholders failing
or refusing to comply with this demand must be maintained as part of the
Company's records. A shareholder who fails or refuses to comply with the demand
must submit a statement with its tax return disclosing the actual ownership of
the shares and other information.

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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 "5/50
Rule"). Although the Company's Declaration of Trust contains certain
restrictions on the ownership and transfer of the Equity Shares (which include
the Redeemable Preferred 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, for taxable years beginning after August 5, 1997, 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 5/50 Rule was violated, the requirement
that the Company not be closely held will be deemed to be satisfied for the
year. See "Certain Federal Income Tax Considerations--Failure to Qualify."

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 earn such proportionate share of the income of
the partnership. In addition, 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 is owned by the REIT. However,
if an existing corporation is acquired by a REIT and becomes a "qualified REIT
Subsidiary" of such REIT, all of its pre-acquisition earnings and profits must
be 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 such
subsidiary corporation's 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 two 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

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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.

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 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. However, the Company (or its affiliates) are permitted to
directly perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered rendered for the convenience of the occupant of the property. A de
minimis exception allows a REIT to provide non-customary services to its tenants
and 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. For these purposes, the amount the Company receives that is
attributable to impermissible services may not be valued at less than 150% of
the Company's direct cost of providing these services.

Substantially all of the gross income of the Company is attributable to
investments in real property and specifically to rents attributable to and gains
from the disposition of real property. The Company believes that it does not
receive rents based on the net income or profits of a tenant. Moreover, the
Company believes that it does not receive rents in excess of a DE MINIMIS amount
(generally rent from certain office space leased to PGI affiliates) from a
Related Party Tenant. The Company also believes that it does not 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 provides 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 also receives 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.

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

The Services Company, pursuant to contractual arrangements, performs
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) is owned by the Services Company. The
income from such services and the revenues from the health club is 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 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,

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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) owned by the Operating Partnership 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 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. However, to the extent the Company elects to retain and pay income
tax on net long-term capital gains it received during the year such amounts will
be treated as having been distributed for purposes of the 4.0% excise tax.

The Company has and intends to continue 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

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differences occur, in order to meet the 95% distribution requirement, the
Company may find it necessary to cause the Operating Partnership to make
distributions, 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. 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 will include in its income its distributive share of the income
and will deduct its distributive share of the losses, of each of the
Partnerships only if each such Partnership is classified for

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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) 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 for purposes of
Code Section 7704 (or will otherwise fall within one of the other "safe harbors"
for the Partnership to avoid being treated as having interests which are
"readily tradeable on a secondary market (or the substantial equivalent
thereof)"). 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 would 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."

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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 subject to
tax as an 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 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.

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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 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 eighteen months), 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 Offered 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.

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As long as the Company qualifies as a REIT, distributions made to the
Company's U.S. Shareholders with respect to their shares out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken into account by them as ordinary income and will not be eligible
for the dividends received deduction for such shareholders that are
corporations. Dividends that are designated as capital gain dividends generally
will be taxed 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 the shareholder has held its Offered Shares (as defined in
this Prospectus under the section entitled "Plan of Distribution"). However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income.

With respect to distributions designated by the Company as capital gain
dividends and retained capital gains that the Company is deemed to distribute,
the Company may designate (subject to certain limits) whether the distribution
is taxable to its noncorporate shareholders at a 20.0%, 25.0% or 28.0% rate. In
addition, the characterization of income as capital gain or ordinary income may
affect the deductibility of capital losses. Capital losses not offset by capital
gains may be deducted against noncorporate taxpayers' ordinary income only up to
a maximum annual amount of $3,000. Unused capital losses may be carried forward
indefinitely by noncorporate taxpayers. All net capital gain of a corporate
taxpayer is subject to tax at ordinary corporate rates. A corporate taxpayer can
deduct capital losses only to the extent of capital gains, with unused losses
being carried back three years and forward five years.

To the extent that the Company makes distributions in excess of current and
accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the holder of Offered Shares, reducing the tax
basis of such shareholder's securities by the amount of such distribution (but
not below zero), with distributions in excess of the shareholder's tax basis
taxable as capital gains (if the securities are held as a capital asset). There
can be no assurance, however, that the Company will have sufficient earnings and
profits to cover all distributions on any Offered Shares, so that none of the
distributions represent a return of capital. In addition, any dividend declared
by the Company in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month will 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. Holders of Offered Shares may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.

Upon any sale or other disposition of Offered 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 taxable at a rate of 20.0% if such shares have
been held for more than one year. The 20% rate for shares held for more than 12
months is generally effective for tax years ending after December 31, 1997. In
general, any loss upon a sale or other disposition of securities by a
shareholder who has held such securities 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 from the Company received by such shareholder were
required to be treated by such holder of Offered Shares as long-term capital
gains.

ELECTION TO RETAIN NET LONG-TERM CAPITAL GAIN

Pursuant to the Taxpayer Relief Act of 1997 (the "Act"), for taxable years
of the Company that begin on or after January 1, 1998, the Company may elect to
retain and pay income tax on its net long-term capital gain attributable to such
taxable year. If the Company makes this election, its shareholders will be
required to include in their income as long-term capital gain their
proportionate share of such amount so designated by the Company. A shareholder
will be treated as having paid his or her share of the tax paid by the Company
in respect of such amount so designated by the Company, for which such
shareholder will be entitled to a credit. Additionally, each shareholder's
adjusted basis in its shares of the Company will be increased by the excess of
the amount so includible in income over the tax deemed paid on such amount.

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The Company must pay tax on its designated long-term capital gain within 30 days
of the close of any taxable year in which it designates long-term capital gain
pursuant to this rule, and it must mail a written notice containing the relevant
tax information to its shareholders within 60 days of the close of the taxable
year.

TAX CONSEQUENCES UPON CONVERSION OF CONVERTIBLE PREFERRED SHARES INTO COMMON
SHARES

Generally, except with respect to cash received in lieu of fractional
shares, no gain or loss will be recognized upon the conversion of Convertible
Preferred Shares into Common Shares. The tax basis of a holder of Convertible
Preferred Shares (a "Preferred Holder") in the Common Shares received will equal
that holder's tax basis in the Convertible Preferred Shares surrendered in the
conversion reduced by any basis attributable to fractional shares deemed
received and the holding period for the Convertible Preferred Shares will
include the Preferred Holder's holding period for the Convertible Preferred
Shares. Based on the IRS's present advance ruling policy, cash received in lieu
of a fractional Common Shares upon conversion of Convertible Preferred Shares
should be treated as a payment in redemption of the fractional share interest in
those Common Shares. See "--Redemption of Convertible Preferred Shares" below.

DEEMED DIVIDENDS ON CONVERTIBLE PREFERRED SHARES

The conversion price of the Convertible Preferred Shares may be adjusted if
the Company makes certain distributions of shares of beneficial interest, cash,
or other property to its shareholders. While the Company does not presently
contemplate making such a distribution, if the Company makes a distribution of
cash or property resulting in an adjustment to the conversion price, a Preferred
Holder may be viewed as receiving a "deemed distribution" which is taxable as a
dividend under Section 301 and 305 of the Code.

REDEMPTION OF CONVERTIBLE PREFERRED SHARES

The treatment to be accorded to any redemption by the Company of Convertible
Preferred Shares can only be determined on the basis of particular facts as to
each Preferred Holder at the time of redemption. In general a Preferred Holder
will recognize capital gain or loss measured by the difference between the
amount realized by the Preferred Holder upon the redemption and its adjusted tax
basis in the Convertible Preferred Shares redeemed (provided the Convertible
Preferred Shares are held as a capital asset) if that redemption (i) results in
a "complete termination" of the Preferred Holder's share interest in all classes
of shares of beneficial interest of the Company under Section 302(b)(3) of the
Code, (ii) is "substantially disproportionate" with respect to the holder's
interest in the Company under Section 302(b)(2) of the Code (which generally
will not be the case if only Convertible Preferred Shares are redeemed, since
they generally do not have voting rights) or (iii) is "not essentially
equivalent to a dividend" with respect to the Preferred Holder under Section
302(b)(1) of the Code. In determining whether any of these tests have been met,
shares considered to be owned by the Preferred Holder by reason of certain
constructive ownership rules set forth in the Code, as well as shares actually
owned, must generally be taken into account. Because the determination as to
whether any of the alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular Preferred Holder depends on the facts
and circumstances at the time when the determination must be made, prospective
investors are advised to consult their own tax advisors to determine their tax
treatment.

If the redemption does not meet any of the tests under Section 302 of the
Code, then the redemption proceeds received from the Convertible Preferred
Shares will be treated as a distribution on the Convertible Preferred Shares as
described under "Federal Income Tax Considerations--Taxation of Taxable U.S.
Shareholders." If the redemption is taxed as a dividend, the Preferred Holder's
adjusted tax basis in the Convertible Preferred Shares will be transferred to
its other share holdings in the Company. If, however, the Preferred Holder has
no remaining share holdings in the Company, that basis could be transferred to a
related person or it may be lost.

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TAXATION OF TAX-EXEMPT SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income("UBTI"). While many investments in
real estate generate UBTI, 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 UBTI, 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
UBTI 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
UBTI. 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 "5/50 Rule" 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 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 Offered 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

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States. A corporate Non-U.S. Shareholder that receives income with respect to
its investment in the Offered 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 the Offered 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 dividends 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. The IRS has issued final
regulations regarding the backup withholding rules as applied to Non-U.S.
Shareholders. These regulations alter the current system of backup withholding
compliance and are effective for distributions made after December 31, 1999.

NON-DIVIDEND DISTRIBUTIONS

Unless the Offered Shares constitute a United States Real Property Interest
(a "USRPI"), distributions made by the Company in excess of its current and
accumulated earnings and profits will be treated first as a tax-free return of
capital to each Non-U.S. Shareholder, reducing the adjusted basis which such
Non-U.S. Shareholder has in his Offered Shares for U.S. tax purposes by the
amount of such distribution (but not below zero), with distributions in excess
of a Non-U.S. Shareholder's adjusted basis in his shares being treated as gain
from the sale or exchange of such shares, the tax treatment of which is
described below. 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.

If the Offered Shares constitute a USRPI, such distributions will be subject
to 10% withholding and taxed pursuant to the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA") at a rate of 35% to the extent such distributions
exceed a Non-U.S. Shareholder's basis in its Offered Shares. The Offered 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 Offered Shares will not be treated as USRPIs under FIRPTA. However, because
the Offered Shares will be publicly traded, no assurance can be given that the
Company is or will continue to be a "domestically-controlled REIT."

If the Company did not constitute a "domestically-controlled REIT," the
Offered Shares would be treated as USRPIs subject to United States taxation
under FIRPTA unless (i) the Offered Shares are "regularly traded" (as defined in
the applicable Treasury regulations) and (ii) the 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.

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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 USRPI will be taxed to a Non-U.S. Shareholder under 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
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.

Pursuant to Treasury Regulations effective through December 31, 1999,
dividends paid to an address in a country outside the United States are
generally presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding requirements discussed above and
the applicability of any treaty rate. Under revised Treasury Regulations
effective January 1, 2000, different presumptions and procedures apply to
determine whether or not a dividend is subject to withholding and whether a
possibly reduced treaty rate of withholding is available. In addition, new rules
apply to dividends to foreign entities, including partnerships and other
pass-through entities. Distributions in excess of current or accumulated
earnings and profits of the Company to a Non-U.S. Shareholder may, to the extent
they are not subject to 30% withholding or are subject to a lower treaty rate,
may nevertheless be subject to separate withholding at a rate of 10%
nevertheless under the rules of Code Section 1445. Non-U.S. Shareholders should
discuss these new complex withholding rules with their tax advisors.

DISPOSITION OF SHARES OF BENEFICIAL INTEREST OF THE COMPANY

Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
Offered Shares generally will not be subject to United States taxation unless
the Offered Shares constitute a USRPI within the meaning of FIRPTA (as described
above).

If the Offered Shares were treated as USRPI so that gain on the sale or
exchange of the Offered Shares would be 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 Offered 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 Offered Shares to the extent they represent a return of
capital or capital gain from the sale of the Offered 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 Offered 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% withholding tax on the
amount of such individual's capital gain.

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ESTATE TAX

Offered 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.

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." The IRS has
issued final regulations regarding the backup withholding rules as applied to
Non-U.S. Shareholders. These regulations alter the current system of backup
withholding compliance and are effective for distributions made after December
31, 1999.

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

CLINTON REIT PROPOSALS

The Clinton Administration budget proposals for fiscal year 1999 include
various proposed changes with respect to the REIT federal income tax laws. Most
significant to the Company is a proposal that would prohibit a REIT from owning
more than 10% of the value of the outstanding stock of any corporation (other
than a qualified REIT subsidiary). Under current law, a REIT is only prohibited
from owning more than 10% of the voting stock of a corporation. The Company's
ownership of all of the non-voting preferred stock of the Services Company
complies with current REIT qualification rules while allowing the Company to
receive substantially all of the economic benefit (I.E., 95%) of the Services
Company's income-producing activities on an after-tax basis. If enacted, the
administration's proposal would limit the value of the Company's investment in
the Services Company to no more than 10% of such economic benefits. Although it
is possible that transition rules could be enacted which would allow the Company
to maintain its existing ownership of the Services Company preferred stock,
there can be no assurance that any such transition rules will be adopted.
Moreover, even if transition rules are adopted, the future ability of the
Company to receive increased amounts of distributions from the Services Company
of the future ability of the Services Company to increase its level of
operations may be substantially restricted.

The Clinton Administration proposals would also eliminate the ability of an
existing C corporation which elects REIT status to defer recognition of built-in
gain on assets until such assets are disposed of during a 10 year period (under
current law, thereafter no gain is recognized). The proposal would limit the
availability of that built-in gain deferral provision to small C corporations
(I.E., corporations the value of whose stock is $5,000,000 or less). This
proposal, if enacted, could adversely affect the ability of the

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Company to acquire substantially all of the assets of existing C corporations
and thus potentially limit the Company's growth.

No prediction can be made as to the likelihood of passage into law of the
administration's REIT proposals or as to the effective date of any changes.

OTHER 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 Offered 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 Offered Shares.

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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 under ERISA," to a prospective
purchaser that is not an employee benefit plan, another tax-qualified retirement
plan or an 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.

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 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

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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 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 a 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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SELLING SHAREHOLDERS

The table below sets forth certain information concerning the Selling
Shareholders, including the number of Offered Shares beneficially owned by each
Selling Shareholder. Because the Selling Shareholders may sell all or some of
their Offered Shares, no estimate can be made of the number owned, beneficially
or otherwise, by each Selling Shareholder upon completion of the Offering. There
is no assurance that the Selling Shareholders will sell any of the Offered
Shares. If any are sold, each Selling
Shareholder will receive all of the net proceeds from the sale of his, her or
its respective Offered Shares offered hereby. The Offered Shares represent
approximately 43.34% of the total Common Shares (assuming conversion of all
outstanding Convertible Preferred Shares and exchange of all outstanding LP
Common Units for Common Shares) outstanding as of September 25, 1998.

<TABLE>
<CAPTION>
NUMBER OF CONVERTIBLE NUMBER OF COMMON
PREFERRED SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED OWNED AND OFFERED
NAME AND OFFERED HEREBY(1) HEREBY(2)
- ------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
SCPG............................................ 2,000,000 2,000,000
Edward S. Hadesman
Trust dated May 22, 1992(3)(4)................ -- 388,677
Grandville/Northwestern
Management Corporation(3)..................... -- 9,750
Carolyn B. Hadesman
Trust dated May 21, 1992(3)................... -- 54,544
Lisa Hadesman 1991 Trust(3)..................... -- 169,053
Cynthia Hadesman 1991 Trust (3)................. -- 169,053
Tucker B. Magid(3)(5)........................... -- 33,085
Frances S. Shubert(3)........................... -- 28,805
Grandville Road
Property, Inc.(3)............................. -- 7,201
Sky Harbor Associates(3)........................ -- 62,149
Jeffrey A. Patterson(3)(6)...................... -- 110,000
Primestone Investment
Partners, L.P.(3)(7).......................... -- 7,944,893
Prime Group Limited
Partnership(3)(8)............................. -- 47,525
Ray R. Grinvalds(3)(8).......................... -- 5,216
Warren H. John(3)(8)............................ -- 37,259
H Group LLC(9).................................. -- 643,865
---------- -----------
TOTAL....................................... 2,000,000 11,711,075
---------- -----------
---------- -----------
</TABLE>

- ---------

(1) On the date of this Prospectus, SCPG owns all of the outstanding Convertible
Preferred Shares. The 2,000,000 Convertible Preferred Shares were purchased
from the Company in a private transaction in November 1997 and are
convertible into 2,000,000 Common Shares on the date of this Prospectus. If
SCPG and/or its permitted transferees sell all of the Convertible Preferred
Shares and any Common Shares received upon any conversion of the Convertible
Preferred Shares, SCPG and any such transferees will not own any Convertible
Preferred Shares or Common Shares after the completion of the Offering.

(2) The Offered Common Shares are being registered for the account of the
Selling Shareholders who may receive such Common Shares upon (i) any
conversion of the Convertible Preferred Shares in accordance with their
terms or (ii) any exchange of the LP Common Units in accordance with their

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terms and the Partnership Agreement. Commencing on September 17, 1998,
holders of the Convertible Preferred Shares have the right, at their option,
to convert all or any portion of such shares into Common Shares. See
"Description of Shares of Beneficial Interest--Convertible Preferred
Shares-- Conversion." Subject to certain conditions, beginning on November
17, 1998, each LP Common Unit held by a Formation Holder 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 the Exchange. See "Partnership Agreement--Limited Partner Exchange
Rights and Registration Rights." For purposes of this column, the Company
has assumed that (x) all Convertible Preferred Shares will be converted into
Common Shares and (y) all LP Common Units will be tendered for exchange by
the applicable Selling Shareholder and that the Company will exchange Common
Shares, rather than cash, for such tendered LP Common Units.

(3) This person or entity is a Formation Holder that holds LP Common Units that
become exchangeable for Common Shares beginning on November 17, 1998.

(4) Edward S. Hadesman has been an executive officer of the Company since
November 1997.

(5) Tucker B. Magid has been an executive officer of the Company since November
1997.

(6) Jeffrey A. Patterson has been an executive officer of the Company since
November 1997.

(7) Subject to certain exceptions, Primestone Investment Partners, L.P. has
agreed not to sell, offer, offer to sell, contract to sell, pledge, grant
any option to purchase or otherwise sell or dispose of 3,375,000 of its LP
Common Units, without the consent of Prudential Securities Incorporated, on
behalf of the IPO Underwriters, until November 17, 1999.

(8) This Formation Holder has agreed not to sell, offer, offer to sell, contract
to sell, pledge, grant any option to purchase or otherwise sell or dispose
of its or his LP Common Units without the consent of Prudential Securities
Incorporated, on behalf of the IPO Underwriters, until November 17, 1999.

(9) H Group LLC holds 303,865 LP Common Units as of the date of this Prospectus,
and the Company estimates that H Group LLC may acquire up to 340,000
additional LP Common Units from the Company to the extent the Company elects
to maintain its option to purchase H Group LLC's second mortgage on the
office property located at 180 N. LaSalle Street in Chicago, Illinois. Any
such LP Common Units acquired by H Group LLC prior to December 15, 1998
first become exchangeable for Common Shares on December 15, 1998, and any
such LP Common Units acquired by H Group LLC on or after December 15, 1998
will first become exchangeable for Common Shares on December 15, 1999.

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<PAGE>
PLAN OF DISTRIBUTION

The Company will not receive any proceeds from the offering by the Selling
Shareholders. Any of the Selling Shareholders may from time to time, in one or
more transactions, or a series of transactions, offer and sell all or a portion
of the Offered Common Shares on the NYSE, in the over-the-counter market, or on
any other national securities exchange or trading system on which the Common
Shares are listed or traded. The Selling Shareholders may from time to time, in
one or more transactions, or a series of transactions, offer and sell all or a
portion of the Convertible Preferred Shares or the Offered Common Shares in
negotiated transactions, in underwritten transactions or otherwise, at prices
then prevailing or related to the then current market price or at negotiated
prices. The offering price of the Offered Shares from time to time will be
determined by the Selling Shareholders and, in the case of the Offered Common
Shares, at the time of such determination, may be higher or lower than the
market price of the Common Shares on the NYSE or other exchange or trading
system on which the Common Shares are admitted for trading privileges. In
connection with an underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from a Selling
Shareholder or from purchasers of Offered Shares for whom they may act as
agents, and underwriters may sell Offered Shares to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Under agreements that may be entered into by the
Company, underwriters, dealers and agents who participate in the distribution of
Offered Shares may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such underwriters, dealers or agents may be
required to make in respect thereof. The Offered Shares may be sold directly or
through broker-dealers acting as principal or agent, or pursuant to a
distribution by one or more underwriters on a firm commitment or best-efforts
basis. The methods by which the Offered Shares may be sold include (a) a block
trade in which the broker-dealer so engaged will attempt to sell the Offered
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by such broker-dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (d) in the case of the Offered Common Shares, an exchange
distribution in accordance with the rules of the NYSE or other exchange or
trading system on which the Common Shares are admitted for trading privileges;
(e) privately-negotiated transactions; (f) through put or call transactions
relating to the Offered Shares; (g) through short-sales of the Offered Shares;
(h) pursuant to Rule 144 or otherwise; and (i) underwritten transactions. The
Selling Shareholders and any underwriters, dealers, or agents participating in
the distribution of the Offered Shares may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit on the sale of the Offered
Shares by the Selling Shareholders and any commissions received by any such
broker-dealers may be deemed to be underwriting commissions under the Securities
Act.

When a Selling Shareholder elects to make a particular offer of Offered
Shares, a prospectus supplement, if required, will be distributed which will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Shareholder and any
other required information.

In order to comply with the securities laws of certain states, if
applicable, the Offered Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Offered Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.

The Company has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of the Offered Shares, including
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and disbursements of all
independent certified accountants and fees and expenses incurred in connection
with listing the Offered Common Shares on NYSE. The Selling Shareholders will
pay any underwriting discounts, sales and

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commissions, fees and disbursements of counsel for the Selling Shareholders and
transfer taxes, if any. The Company also has agreed to indemnify each of the
Selling Shareholders and their respective officers and directors, and each
person who controls (within the meaning of the Securities Act) such Selling
Shareholder, against certain losses, claims, damages, liabilities and expenses
arising under the securities laws in connection with this Offering. Each of the
Selling Shareholders has agreed to indemnify the Company, its officers,
trustees, employees and each person who controls (within the meaning of the
Securities Act) the Company, against certain losses, claims, damages,
liabilities and expenses arising under the securities laws in connection with
this Offering with respect to certain written information furnished to the
Company by such Selling Shareholder.

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 P.C.,
Baltimore, Maryland. 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. Governor James R. Thompson, Chairman of Winston & Strawn, is a
trustee of the Company.

EXPERTS

The consolidated financial statements of Prime Group Realty Trust as of
December 31, 1997 and for the period from November 17, 1997 to December 31,
1997, the combined financial statements of the Predecessor Properties as of
December 31, 1996 and for the period from January 1, 1997 to November 16, 1997,
and for each of the two years in the period ended December 31, 1996, the
combined statement of revenue and certain expenses of the Prime Industrial
Contribution Properties for the period from March 1, 1996 to December 31, 1996,
the combined statement of revenue and certain expenses of the IBD Properties for
the year ended December 31, 1996, the combined statement of revenue and certain
expenses of the NAC Properties for the year ended December 31, 1996, the
statement of revenue and certain expenses of Citibank Office Plaza for the year
ended December 31, 1996, the combined statement of revenue and certain expenses
of Salt Creek Office Center for the year ended December 31, 1996, the statement
of revenue and certain expenses of 280 Shuman Boulevard for the year ended
December 31, 1996, the statement of revenue and certain expenses of 475 Superior
Avenue for the year ended December 31, 1996, the statement of revenue and
certain expenses of Continental Office Towers for the year ended December 31,
1996, the statement of revenue and certain expenses of 180 North LaSalle Street
for the year ended December 31, 1996, the statement of revenue and certain
expenses of 2675 Mayfair for the period from January 1, 1997 to September 30,
1997, the statement of revenue and certain expenses of 33 North Dearborn for the
period from January 1, 1997 to September 30, 1997, the statement of revenue and
certain expenses of Commerce Point for the period from January 1, 1997 to
September 30, 1997, the statement of revenue and certain expenses of 208 South
LaSalle for the year ended December 31, 1997, the statement of revenue and
certain expenses of 122 South Michigan Avenue for the year ended December 31,
1997, the statement of revenue and certain expenses of 6400 Shafer Court for the
year ended December 31, 1997, the statement of revenue and certain expenses of
Two Century Centre for the year ended December 31, 1997, and the statement of
revenue and certain expenses of Oak Brook Business Center for the year ended
December 31, 1997 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.

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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 is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected without charge and copied upon
payment of the prescribed fee at 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: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Such material can also be obtained
from the Commission's worldwide web site at http://www.sec.gov. The Company's
outstanding Common Shares are listed on the NYSE under the symbol "PGE" and all
such reports, proxy statements and other information filed by the Company with
the NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York,
New York 10005.

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.

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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.

"1998 Acquisitions" means, collectively, the 12 Office Properties and
related assets that comprise 33 North Dearborn, Commerce Point Business Park,
3800 North Wilke Road, 122 South Michigan Avenue, 208 South LaSalle Street, 2100
Swift Drive, Two Century Centre, 6400 Shafer Court, and Oak Brook Business
Center.

"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.

"Amended and Restated Bylaws" means the Amended and Restated Bylaws of the
Company.

"Annualized Effective Net Rent" means the total net rent to be received over
the respective terms from all leases in effect at March 31, 1998 minus all
Tenant Expenditures for all such leases, divided by the terms in months for such
leases, multiplied by 12.

"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, 1998.

"Articles Supplementary" means the Articles Supplementary to the Declaration
of Trust relating to the Redeemable Preferred Shares.

"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.

"Blackstone" means Blackstone Real Estate Advisors, L.P. and certain of its
affiliates.

"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.

G-1
<PAGE>
"Bylaws" means the Amended and Restated Bylaws of the Company, as the same
may be further amended and/or restated.

"CBOE" means the Chicago Board Options Exchange.

"CBOT" means the Chicago Board of Trade.

"CEC" means the Chicago Enterprise Center.

"Central Loop" means the center of Chicago's downtown financial district and
the largest submarket of the Chicago CBD.

"Change of Control" means each occurrence of any of the following: (i) the
acquisition, directly or indirectly, by any individual or entity or group (as
such term is used in Section 13(d)(3) of the Exchange Act) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act, except that such
individual or entity shall be deemed to have beneficial ownership of all shares
that any such individual or entity has the right to acquire, whether such right
is exercisable immediately or only after passage of time) of more than 25.0% of
the Company's outstanding shares of beneficial interest with voting power, under
ordinary circumstances, to elect Trustees of the Company; (ii) other than with
respect to the election, resignation or replacement of any Preferred Trustee
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Trustees of the Company (together with any
new trustees whose election by such Board of Trustees or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the trustees of the Company (excluding Preferred Trustees) then still in office
who were either trustees at the beginning of such period, or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Trustees then in office; and (iii) (A) the
Company consolidating with or merging into another entity or conveying,
transferring or leasing all or substantially all of its assets (including, but
not limited to, real property investments) to any individual or entity or (B)
any corporation consolidating with or merging into the Company, which in either
event (A) or (B) is pursuant to a transaction in which the outstanding voting
shares of beneficial interest of the Company is reclassified or changed into or
exchanged for cash, securities or other property; PROVIDED, HOWEVER, that the
events described in clause (iii) above shall not be deemed to be a Change of
Control (a) if the sole purpose of such event is that the Company is seeking to
change its domicile or to change its form of organization from a trust to a
corporation or (b) if the holders of the exchanged securities of the Company
immediately after such transaction beneficially own at least a majority of the
securities of the merged or consolidated entity normally entitled to vote in
elections of trustees.

"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.

"Class C" means, with regard to buildings, buildings that are generally
older buildings with progressing functional and/or economic obsolescence.

"CME" means the Chicago Mercantile Exchange.

"Code" means the Internal Revenue Code of 1986, as amended.

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"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 $0.01
per share, of the Company including the Offered Shares.

"Common Units" means partnership interests in the common equity in the
Operating Partnership, represented by LP Common Units and GP Common Units,
collectively.

"Company" means Prime Group Realty Trust, a Maryland real estate investment
trust, and its subsidiaries.

"Compensation Committee" means the compensation committee of the Company's
Board of Trustees.

(i) all income and state franchise taxes paid or accrued according to
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or non-recurring gains or losses except to the extent that such
gains were not included in Consolidated EBITDA);

(ii) all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of deferred financing
fees and amortization of original issue discount);

(iii) depreciation and depletion reflected in such reported net income;

(v) any other non-cash charges or discretionary prepayment penalties, to
the extent deducted from consolidated net income (including, but not limited
to, income allocated to minority interests).

"Consolidated Fixed Charges" for any period means the sum of:

(i) all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of deferred financing
fees and amortization of original issue discount);

(ii) preferred shares of beneficial interest dividend requirements for
such period, whether or not declared or paid; and

(iii) regularly scheduled amortization of principal during such period
(other than any balloon payments at maturity).

"Continental" means Continental Offices Ltd.

"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.

"Contributed Common Units" means those Common Units contributed by PGI to
the Primestone Joint Venture.

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"Contribution Properties" means, collectively, the IBD Properties and the
NAC Properties.

"Contributors" means, collectively, the IBD Contributors and the NAC
Contributors.

"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.

"Conversion Date" means the earliest to occur of (i) September 17, 1998,
(ii) the first day on which a Change of Control occurs, (iii) the occurrence of
a REIT Termination Event or (iv) such other date as determined by the Company,
upon which a holder of Convertible Preferred Shares shall have the right, at its
option, to convert all or any portion of such shares (or such shares as
determined by the Company if pursuant to clause (iv) above) into the number of
fully paid and non-assessable Common Shares obtained by dividing the aggregate
Liquidation Preference Amount of such shares by the conversion price by
surrendering such shares to be converted.

"Conversion Shares" means the Common Shares issued by the Company upon the
conversion of any Convertible Preferred Shares in accordance with the terms of
the Convertible Preferred Shares.

"Conversion Transaction" means any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender offer
for all or substantially all of its Common Shares, sale of all or substantially
all of the Company's assets or recapitalization of the Common Shares), in each
case as a result of which all or substantially all of the Company's Common
Shares are converted into the right to receive shares, securities or other
property (including cash or any combination thereof).

"Convertible Preferred Shares" means the cumulative convertible preferred
shares of beneficial interest, par value $0.01 per share, of the Company.

"Convertible Preferred Offering" means the Company's private placement of
2,000,000 Convertible Preferred Shares with SCPG on November 17, 1997
concurrently with the IPO.

"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.

"Credit Facility" means the credit facility entered into by the Company with
BankBoston, N.A. and PSCC on November 17, 1997, as amended.

"December Acquisitions" means, collectively, the two Office Properties and
related assets that comprise Continental Towers, 1701 Golf Road, and 2675 North
Mayfair Road.

"Declaration of Trust" means the Company's Declaration of Trust, as amended
by Articles of Amendment and Restatement.

"Dividend Payment Date" means, with respect to the Convertible Preferred
Shares, (i) for any Dividend Period with respect to which the Company pays a
dividend on the Common Shares, the date on which such dividend is paid, or (ii)
for any Dividend Period with respect to which the Company does not pay a
dividend on the Common Shares, a date to be set by the Board of Trustees, which
date shall not be later than the thirtieth calendar day after the end of the
applicable Dividend Period and, with respect to the Redeemable Preferred Shares,
means on or about (w) the thirty-first day of each January with respect to the
Dividend Period commencing on October 1 of the then immediately preceding year,
(x) the thirtieth day of each April with respect to the Dividend Period
commencing on January 1 of such year, (y) the

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thirty-first day of July with respect to the Dividend Period commencing on April
1 of such year and (z) the thirty-first day of October with respect to the
Dividend Period commencing on July 1 of such year.

"Dividend Periods" means, with respect to the Convertible Preferred Shares
and the Redeemable Preferred Shares, quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on the respective
Issue Dates for such shares and end on and include the last day of the calendar
quarter immediately following such Issue Date, and other than the Dividend
Period during which any Convertible Preferred Shares or Redeemable Preferred
Shares shall be redeemed or, in the case of the Convertible Preferred Shares,
converted, which shall end on and include the redemption date or conversion
date, as applicable, with respect to the shares being redeemed or converted).

"Dividend Reduction" means the dividend paid on a Common Share of the
Company for each of two consecutive fiscal quarters of the Company has been in
an amount less than eighty-five percent (85.0%) of the dividend paid on a common
share of the Company in the first full fiscal quarter of the Company subsequent
to the Offerings.

"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.

"Equity Shares" means any of the Common Shares, the Preferred Shares,
including the Convertible Preferred Shares, the Redeemable Preferred Shares and
any Excess Shares, or any combination thereof, that have been issued and are
outstanding.

"Everen" means Everen Securities, Inc.

"Excess Shares" means the 65.0 million authorized excess shares of
beneficial interest, $0.01 par value per share, of the Company.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Shares" means the Common Shares issued by the Company upon the
exchange of any LP Common Units for Common Shares in accordance with the terms
of such LP Common Units.

"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.

"Expiration Time" means the last time at which tenders or exchanges may be
made pursuant to a tender or exchange offer (which terms shall not include open
market repurchases by the Company) made by the Company or any subsidiary of the
Company for all or any portion of the Common Shares.

"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).

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<PAGE>
"Formation Agreement" means the agreement dated as of November 17, 1997,
between the Operating Partnership and PGI regarding the interests the Operating
Partnership acquired in the Properties or interests therein owned by PGI and the
third-party office and industrial development, leasing and property management
business of PGI.

"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 IPO and qualification of the Company as a REIT for federal
income tax purposes for the taxable period ending December 31, 1997, all as
described under "Structure and Formation of the Company--Formation
Transactions."

"Fully Junior Shares" means, with respect to the Convertible Preferred
Shares, the Common Shares and any other class or series of shares of beneficial
interest of the Company now or hereafter issued and outstanding over which the
Redeemable Preferred Shares have preference or priority in both (i) the payment
of dividends and (ii) the distribution of assets on any liquidation, dissolution
or winding up of the Company and, with respect to the Redeemable Preferred
Shares, means, the Convertible Preferred Shares, the Common Shares and any other
class or series of shares of beneficial interest of the Company now or hereafter
issued and outstanding over which the Redeemable Preferred Shares have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Company.

"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 (i.e., based on contractual lease terms), 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.

"GAAP" means generally accepted accounting principles in the United States.

"GMP" means gross metropolitan product.

"GP Common Units" means general partner interests in the Operating
Partnership held by the Company.

"HEC" means the Hammond Enterprise Center.

"Holding Periods" means, collectively, the periods of time following the
completion of the IPO during which the Limited Partners have agreed not to sell,
offer, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of their Common Units. Such periods are: (i) two years
from the completion of the IPO in the case of PGI, (ii) two years from the
completion of the IPO in the case of the Contributed Common Units of the
Primestone Joint Venture (except in the event of a Dividend Reduction, the
period shall be one year), (iii) one year from the completion of the IPO in the
case of Purchased Common Units of the Primestone Joint Venture and (iv) one year
from the completion of the IPO in the case of each of the IBD Contributors and
Jeffrey A. Patterson.

"Huntley Business Park" means that certain industrial and office park
located in the Village of Huntley, Illinois.

"IBD" means Industrial Building and Development Company.

G-6
<PAGE>
"IBD Contributors" means Edward S. Hadesman Trust dated May 22, 1992,
Grandville/Northwestern Management Corporation, Carolyn B. Hadesman Trust dated
May 21, 1992, Lisa Hadesman 1991 Trust, Cynthia Hadesman 1991 Trust, Tucker B.
Magid, Frances Shubert, Grandville Road Property, Inc., HR Trust, Edward E.
Johnson and Sky Harbor Associates.

"IBD 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.

"IDEM" means the Indiana Department of Environmental Management.

"IEPA" means the Illinois Environmental Protection Agency.

"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.

"Indemnitors" means certain Limited Partners who made certain
representations and warranties concerning the Properties and also agreed to
indemnify the Company against breaches of such representations and warranties.

"Industrial Properties" means the industrial properties the Company, through
its subsidiaries, will own upon completion of the Redeemable Preferred Share
Offering, consisting of bulk warehouse distribution facilities, light-assembly
and manufacturing facilities and heavy-industrial/overhead crane buildings.

"Initial Grants" means options initially granted concurrently with the IPO
to certain key officers and employees of the Company, as described in
"Management--Share Incentive Plan."

"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.

"IPO" means the Company's initial public offering of 12,980,000 Common
Shares which was completed on November 17, 1998.

"IPO Acquisitions" means the two Office Properties and related assets that
comprise 1990 Algonquin Road, 2000-2060 Algonquin Road (also known as the Salt
Creek Office Center), 280 Shuman Boulevard, 475 Superior Avenue and 2205-2255
Enterprise Drive (also known as the Enterprise Centre) that were acquired by the
Company concurrently with the completion of the IPO.

"IPO Properties" means the IPO Acquisitions, the IBD Properties, the NAC
Properties, the Prime Contribution Properties and the Prime Properties.

"IPO Underwriters" means the underwriters of the IPO for whom Prudential
Securities Incorporated, Friedman, Billings, Ramsey & Co., Inc., Smith Barney
Inc. and Morgan Keegan & Company, Inc. acted as representatives.

"Issue Date" means, with respect to Convertible Preferred Shares, the date
on which such Convertible Preferred Shares were issued, and with respect to the
Redeemable Preferred Shares, the date on which such Redeemable Preferred Shares
are issued.

"IRA" means an individual retirement account as defined by the Code and the
applicable Treasury Regulations.

"IRS" means the United States Internal Revenue Service.

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"Jones Day" means the law firm of Jones, Day, Reavis & Pogue.

"Junior Shares" means, with respect to the Convertible Preferred Shares, the
Common Shares and any other class or series of shares of beneficial interest of
the Company now or hereafter issued and outstanding over which the Convertible
Preferred Shares have preference or priority in the payment of dividends or in
the distribution of assets on any liquidation, dissolution or winding up of the
Company and, with respect to the Redeemable Preferred Shares, the Convertible
Preferred Shares, the Common Shares and any other class or series of shares of
beneficial interest of the Company now or hereafter issued and outstanding over
which the Redeemable Preferred Shares have preference or priority in the payment
of dividends or in the distribution of assets on any liquidation, dissolution or
winding up of the Company.

"Keck" means the law firm of Keck, Mahin & Cate.

"Keck Space" means the approximately 113,000 net rentable square feet
formerly leased to Keck at the 77 West Wacker Drive Building. The Property
Partnership that holds such Property reached a settlement pursuant to which Keck
agreed to vacate its space by November 30, 1997. Keck has completely vacated its
former space at the 77 West Wacker Drive Building.

"LC" means leasing commissions.

"Libertyville Business Park" means that certain office and industrial park
located in the Village of Libertyville, Illinois.

"LIBOR" means the British Bankers' Association of Interbank offered rates
for dollar deposits in the London market based on quotations at 16 major banks.

"Limited Partners" means, initially upon the completion of the IPO, any of
PGI and the Contributors, each of which are limited partners of the Operating
Partnership, and thereafter, such limited partners and any other persons or
entities that have become limited partners of the Operating Partnership.

"Line of Credit" means the $15.0 million line of credit entered into by the
Company and LaSalle National Bank.

"Liquidation Preference" means, with respect to the Convertible Preferred
Shares, twenty dollars ($20.00) which the holders of Convertible Preferred
Shares shall be entitled to receive in the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, subject to the
prior preferences and other rights of any series of shares of beneficial
interest ranking senior to the Convertible Preferred Shares upon liquidation,
distribution or winding up of the Company, and before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Junior Shares and, with respect to the
Redeemable Preferred Shares, means twenty-five dollars ($25.00) which the
holders of Redeemable Preferred Shares shall be entitled to receive in the event
of any liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary, subject to the prior preferences and other rights of any series
of shares of beneficial interest ranking senior to the Redeemable Preferred
Shares upon liquidation, distribution or winding up of the Company, and before
any payment or distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Junior Shares.

"Liquidation Preference Amount" means, with respect to the Convertible
Preferred Shares, an amount equal to all dividends (whether or not earned or
declared) accrued and unpaid on the Convertible Preferred Shares to the date of
final distribution to the holders of such Convertible Preferred Shares and, with
respect to the Redeemable Preferred Shares, an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid on the Redeemable
Preferred Shares to the date of final distribution to the holders of such
Redeemable Preferred Shares.

"LP Common Units" means common units representing limited partnership
interests in the common equity of the Operating Partnership.

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"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.

"NAC Contributors" means certain affiliates of the NAC General Partner,
including Narco River Business Center, Narco Tower Road Associates, Olympian
Office Center, Tri-State Industrial Park Joint Venture, Carol Stream Industrial
Park Joint Venture, Narco Enterprises, Inc., The Nardi Group Ltd., Narco
Construction Inc., Nardi & Co., Nardi Asset Managment, Inc. and Nardi
Architectural, Inc.

"NAC General Partner" means a limited liability company controlled by
Stephen J. Nardi.

"NAC Properties" means, collectively, the six Office Properties and related
assets that comprise 941-961 Weigel Drive, 4100 Madison Street, 350 N. Mannheim
Road, 1600-1700 167th Street, 1301 E. Tower Road and 4343 Commerce Court, the 14
Industrial Properties and related assets that comprise 1401 S. Jefferson Street,
1051 N. Kirk Road, 4211 Madison Street, 200 E. Fullerton Avenue, 350 Randy Road,
4248, 4250 and 4300 Madison Street, 370 Carol Lane, 388 Carol Lane, 342-346
Carol Lane, 343 Carol Lane, 4160-4190 Madison Street, 11039 Gage Avenue, 11045
Gage Avenue, and 550 Kehoe Boulevard and one retail center that comprises
371-385 N. Gary Avenue.

"NACORE" means the International Association of Corporate Real Estate
Executives.

"NAIOP" means the National Association of Industrial and Office Parks.

"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 PGI 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 $4.8 million.

"NYSE" means the New York Stock Exchange, Inc.

"Offered Shares" means the Convertible Preferred Shares, the Conversion
Shares and the Exchange Shares pursuant to and as described in the Registration
Statement of which this Prospectus is a part.

"Offering" means the offering of the Convertible Preferred Shares, the
Common Shares consisting of the Conversion Shares and the Common Shares
consisting of the Exchange Shares pursuant to and as described in this
Prospectus.

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"Offered Common Shares" means the Common Shares consisting of the Conversion
Shares and the Exchange Shares.

"Office Properties" means the office properties in which the Company,
through its subsidiaries, has an interest or owns.

"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 Equity 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).

"Parity Shares" means, with respect to the Convertible Preferred Shares,
those classes or series of shares of beneficial interest which rank on a parity
with the Convertible Preferred Shares as to the payment of dividends and as to
distribution of assets upon liquidation, dissolution or winding up (whether or
not the dividend rates, dividend payment dates or redemption or liquidation
prices per share thereof shall be different from those of the Convertible
Preferred Shares) if the holders of such classes or series and the Convertible
Preferred Shares shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other, and with respect
to the Redeemable Preferred Shares, those classes or series of shares of
beneficial interest which rank on a parity with the Redeemable Preferred Shares
as to the payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up (whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share thereof
shall be different from those of the Redeemable Preferred Shares) if the holders
of such classes or series and the Redeemable Preferred Shares shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other.

"Participants" means those eligible employees, and not nonemployee trustees,
who have been selected to participate in the Share Incentive Plan in accordance
with the provisions of the Plan.

"Partnership" means each of the Property Partnerships. "Partnerships" means
the Property Partnerships, collectively.

"Partnership Agreement" means the Amended and Restated Limited Partnership
Agreement of the Operating Partnership, as amended.

"Pending Acquisitions" means, collectively, the Pending Property Acquisition
and the Pending Parcel Acquisitions.

"Pending Property Acquisition" means the industrial property and related
assets that compromise 300 Craig Place.

"Pending Parcel Acquisitions" means, collectively, a certain land parcel
located in Chicago, Illinois and a certain land parcel located in Rolling
Meadows, Illinois.

"PGE PrB" is the trading symbol for the Redeemable Preferred Shares on the
NYSE.

"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 Holder" means a holder of Convertible Preferred Shares.

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"Preferred Shares" means the 30.0 million authorized preferred shares, $0.01
par value per share, of the Company.

"Preferred Stock" means the non-voting participating preferred stock of the
Services Company.

"Preferred Units" means partnership interests representing the preferred
equity in the Operating Partnership relating to the Convertible Preferred
Shares.

"PGI" 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 E. 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 were acquired
by the Operating Partnership in connection with the IPO and the Formation
Transactions.

"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, the
Hammond Enterprise Center and a parking facility.

"Primestone Joint Venture" means that certain joint venture known as
Primestone Investment Partners, L.P. between PGI and certain affiliates of
Blackstone, BRE/Primestone Investment L.L.C., a Delaware limited liability
company, and BRE/Primestone Management Investment L.L.C., a Delaware limited
liability company.

"Private Placement" means the private placement by the Company on March 25,
1998 of 2,579,994 Common Shares with institutional investors for $19.375 per
Common Share.

"Prohibited Owner" means any purported owner of Equity Shares who would
otherwise violate the Ownership Limit or such other limit as provided in the
Declaration of Trust.

"Prohibited Transferee" means any purported transferee of Equity Shares who
would otherwise violate the Ownership Limit or such other limit as provided in
the Declaration of Trust.

"Properties" means the Office Properties and the Industrial Properties, one
parking facility and one retail center, which collectively include the IPO
Properties, the December Acquisitions and the 1998 Acquisitions, in which the
Company, through its subsidiaries, has an interest or which the Company owns.

"Property Partnerships" means those corporations, limited liability
companies, general and limited partnerships and trusts that own the Properties.

"Prospectus" means the prospectus used in connection with the Offering.

"PSCC" means Prudential Securities Credit Corporation.

"Purchased Common Units" means those Common Units which were purchased by
the Primestone Joint Venture.

"Put Option Agreement" means that certain Put Option Agreement, by and among
the NAC General Partner, the Company and the Operating Partnership.

"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.

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"Redeemable Preferred Share Offering" means the Company's offering of
4,000,000 9% Series B Redeemable Preferred Shares.

"Redeemable Preferred Shares" means the 9% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $0.01 per share and having a
liquidation value of $25.00 per share, of 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.

"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 real estate investment trust as defined by the Code and the
applicable Treasury Regulations.

"REIT Requirements" means the requirements for qualifying as a REIT.

"REIT Termination Event" shall mean the earliest to occur of:

(i) the filing of a federal income tax return by the Company for any
taxable year on which the Company does not elect to be taxed as a real
estate investment trust;

(ii) the approval by the shareholders of the Company of a proposal for
the Company to cease to qualify as a real estate investment trust;

(iii) a determination by the Board of Trustees, based on the advice of
counsel, that the Company has ceased to qualify as a real estate investment
trust; or

(iv) a "determination" within the meaning of Section 1313(a) of the
Code, that the Company has ceased to qualify as a real estate investment
trust.

"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, Bear, Stearns &
Co. Inc., Friedman, Billings, Ramsey & Co., Inc., Legg Mason Wood Walker,
Incorporated and Morgan Keegan & Company, Inc.

"Repurchase Date" means the date of repurchase or the date the Repurchase
Payment is made available, as described in "Description of Shares of Beneficial
Interest--Convertible Preferred Shares-- Limitation on Issuance of Additional
Preferred Shares and Indebtedness."

"Repurchase Offer" means the method by which the Company shall offer to
repurchase Convertible Preferred Shares from holders of such shares in
accordance with certain conditions, as described in "Description of Shares of
Beneficial Interest--Convertible Preferred Shares--Limitation on Issuance of
Additional Preferred Shares and Indebtedness."

"Repurchase Payment" means the amount at which the holders of Convertible
Preferred Shares shall have the right to require that the Company repurchase any
or all of each holder's Convertible Preferred Shares, upon such conditions as
described in "Description of Shares of Beneficial Interest--Convertible
Preferred Shares--Limitation on Issuance of Additional Preferred Shares and
Indebtedness."

G-12
<PAGE>
"RFA" means Regional Financial Associates.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"SCPG" means Security Capital Preferred Growth Incorporated.

"Securities Act" means the Securities Act of 1933, as amended.

"Selling Shareholders" means the holders of the Offered Shares as more fully
described under "Selling Shareholders."

"Series B Preferred Units" means partnership interests representing the
preferred equity in the Operating Partnership relating to the Redeemable
Preferred Shares.

"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 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" means the Common Shares, the Convertible Preferred Shares and the
Redeemable Preferred Shares, collectively.

"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.

"Special Redemption Call Date" means date of the special redemption.

"Special Redemption Price" means the price at which the Company may, at its
option, redeem all, but not less than all, of the Convertible Preferred Shares,
beginning on June 17, 1998 and ending on September 17, 1998. Such Special
Redemption Price will be calculated to result in a total internal rate of return
to the holder of such Convertible Preferred Shares of 20.0% (including the
receipt of dividends and calculated on an annual compounded basis as if the
holder had owned the Convertible Preferred Shares since the Issue Date).

"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.

"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 improvements.

"Total Base Rent" means, with respect to a lease, the contractual base net
rent pursuant to the lease agreement.

G-13
<PAGE>
"Total Debt" means the sum of (without duplication) any indebtedness,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures, or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent such indebtedness would appear as a liability upon a balance
sheet of such entity prepared on a consolidated basis in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of items
which would be included within this definition.

"Total Market Capitalization" means the sum of the aggregate market value of
the outstanding Common Shares, Convertible Preferred Shares, the Redeemable
Preferred Shares and the liquidation preference of any other then outstanding
preferred 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.

"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.

"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.

"USRPI" means any United States real property interests.

"Voting Preferred Shares" means with respect to the Convertible Preferred
Shares, the series of Parity Shares which are entitled to elect one or more
additional trustees to the Company's Board of Trustees under certain conditions
as described in "Description of Shares of Beneficial Interest--Convertible
Preferred Shares--Voting Rights" and, with respect to the Redeemable Preferred
Shares, means the series of Parity Shares which as entitled to elect one or more
additional trustees to the Company's Board of Trustees under certain conditions
as described in "Description of Shares of Beneficial Interest--Redeemable
Preferred Shares--Voting Rights."

G-14
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prime Group Realty Trust (the Company) and Predecessor Properties:
Report of Independent Auditors......................................................................... F-4
Consolidated Balance Sheets of the Company as of June 30, 1998 (unaudited) and December 31, 1997 and
Combined Balance Sheet of the Predecessor Properties as of December 31, 1996......................... F-5
Consolidated Statements of Operations of the Company for the six months ended June 30, 1998 (unaudited)
and for the period from November 17, 1997 to December 31, 1997 and Combined Statements of Operations
of the Predecessor Properties for the six months ended June 30, 1997 (unaudited), for the period from
January 1, 1997 to November 16, 1997 and for the years ended December 31, 1996 and 1995.............. F-6
Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 1998
(unaudited) and for the period from November 17, 1997 to December 31, 1997........................... F-7
Combined Statements of Changes in Predecessors' Deficit for the period from January 1, 1997 to November
16, 1997 and for the years ended December 31, 1996 and 1995.......................................... F-8
Consolidated Statements of Cash Flows of the Company for the six months ended June 30, 1998 (unaudited)
and for the period from November 17, 1997 to December 31, 1997 and the Combined Statements of Cash
Flows of the Predecessor Properties for the six months ended June 30, 1997 (unaudited), for the
period from January 1, 1997 to November 16, 1997 and for the years ended December 31, 1996 and
1995................................................................................................. F-9
Notes to Consolidated and Combined Financial Statements................................................ F-12

Prime Industrial Contribution Properties:
Report of Independent Auditors......................................................................... F-40
Combined Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September
30, 1997 (unaudited) and for the period from March 1, 1996 to December 31, 1996...................... F-41
Notes to Combined Statements of Revenue and Certain Expenses........................................... F-42

IBD Properties:
Report of Independent Auditors......................................................................... F-44
Combined Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September
30, 1997 (unaudited) and for the year ended December 31, 1996........................................ F-45
Notes to Combined Statements of Revenue and Certain Expenses........................................... F-46

NAC Properties:
Report of Independent Auditors......................................................................... F-48
Combined Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September
30, 1997 (unaudited) and for the year ended December 31, 1996........................................ F-49
Notes to Combined Statements of Revenue and Certain Expenses........................................... F-50

Citibank Office Plaza:
Report of Independent Auditors......................................................................... F-52
Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997
(unaudited) and for the year ended December 31, 1996................................................. F-53
Notes to Statements of Revenue and Certain Expenses.................................................... F-54
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
Salt Creek Office Center:
Report of Independent Auditors......................................................................... F-56
Combined Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September
30, 1997 (unaudited) and for the year ended December 31, 1996........................................ F-57
Notes to Combined Statements of Revenue and Certain Expenses........................................... F-58

280 Shuman Boulevard:
Report of Independent Auditors......................................................................... F-60
Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997
(unaudited) and for the year ended December 31, 1996................................................. F-61
Notes to Statements of Revenue and Certain Expenses.................................................... F-62

475 Superior Avenue:
Report of Independent Auditors......................................................................... F-64
Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997
(unaudited) and for the year ended December 31, 1996................................................. F-65
Notes to Statements of Revenue and Certain Expenses.................................................... F-66

Continental Office Towers:
Report of Independent Auditors......................................................................... F-68
Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997
(unaudited) and for the year ended December 31, 1996................................................. F-69
Notes to Statements of Revenue and Certain Expenses.................................................... F-70

180 North LaSalle Street:
Report of Independent Auditors......................................................................... F-72
Statements of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997
(unaudited) and for the year ended December 31, 1996................................................. F-73
Notes to Statements of Revenue and Certain Expenses.................................................... F-74

2675 Mayfair:
Report of Independent Auditors......................................................................... F-76
Statement of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997.... F-77
Notes to Statement of Revenue and Certain Expenses..................................................... F-78

33 North Dearborn:
Report of Independent Auditors......................................................................... F-79
Statement of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997.... F-80
Notes to Statement of Revenue and Certain Expenses..................................................... F-81

Commerce Point:
Report of Independent Auditors......................................................................... F-82
Statement of Revenue and Certain Expenses for the period from January 1, 1997 to September 30, 1997.... F-83
Notes to Statement of Revenue and Certain Expenses..................................................... F-84

208 South LaSalle Street:
Report of Independent Auditors......................................................................... F-85
Statement of Revenue and Certain Expenses for the year ended December 31, 1997......................... F-86
Notes to Statement of Revenue and Certain Expenses..................................................... F-87
</TABLE>

F-2
<PAGE>
<TABLE>
<S> <C>
122 South Michigan Avenue:
Report of Independent Auditors......................................................................... F-89
Statements of Revenue and Certain Expenses for the period from January 1, 1998 to March 31, 1998
(unaudited) and for the year ended December 31, 1997................................................. F-90
Notes to Statements of Revenue and Certain Expenses.................................................... F-91

6400 Shafer Court:
Report of Independent Auditors......................................................................... F-93
Statements of Revenue and Certain Expenses for the period from January 1, 1998 to March 31, 1998
(unaudited) and for the year ended December 31, 1997................................................. F-94
Notes to Statements of Revenue and Certain Expenses.................................................... F-95

Two Century Centre:
Report of Independent Auditors......................................................................... F-97
Statements of Revenue and Certain Expenses for the period from January 1, 1998 to March 31, 1998
(unaudited) and for the year ended December 31, 1997................................................. F-98
Notes to Statements of Revenue and Certain Expenses.................................................... F-99

Oak Brook Business Center:
Report of Independent Auditors......................................................................... F-101
Statements of Revenue and Certain Expenses for the period from January 1, 1998 to March 31, 1998
(unaudited) and for the year ended December 31, 1997................................................. F-102
Notes to Statements of Revenue and Certain Expenses.................................................... F-103
</TABLE>

F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Consolidated balance sheet of Prime Group
Realty Trust (the Company) as of December 31, 1997 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
period from November 17, 1997 (date of formation) through December 31, 1997. We
have also audited the accompanying combined balance sheet of the Predecessor
Properties (the Predecessor to the Company) as of December 31, 1996, and the
related combined statements of operations, changes in partners' deficit, and
cash flows for the period from January 1, 1997 through November 16, 1997, and
for each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's and the Predecessor's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prime Group
Realty Trust at December 31, 1997, and the consolidated results of its
operations and its cash flows for the period from November 17, 1997 through
December 31, 1997, and the combined financial position of the Predecessor
Properties at December 31, 1996, and the combined results of its operations and
its cash flows for the period from January 1, 1997 through November 16, 1997,
and for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

March 27, 1998

F-4
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND
COMBINED BALANCE SHEET OF THE PREDECESSOR

(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR
PRIME GROUP REALTY TRUST PROPERTIES
------------------------- ------------
JUNE 30 DECEMBER 31 DECEMBER 31
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate at cost:
Land.................................................................... $ 157,913 $ 92,440 $ 23,530
Building and improvements............................................... 688,485 496,839 268,227
----------- ------------ ------------
846,398 589,279 291,757
Accumulated depreciation................................................ (12,424) (2,338) (44,411)
----------- ------------ ------------
833,974 586,941 247,346
Mortgage note receivable................................................ 56,988 56,363 --
Cash and cash equivalents............................................... 13,167 11,969 5,573
Tenant receivables...................................................... 6,185 3,897 2,933
Restricted cash--escrows................................................ 10,484 3,175 --
Deferred rent receivable................................................ 38,492 37,751 38,451
Deferred costs--net..................................................... 32,033 28,472 26,883
Due from affiliates..................................................... 6,352 5,258 2,894
Other................................................................... 25,053 7,642 1,150
----------- ------------ ------------
Total assets............................................................ $1,022,728 $ 741,468 $ 325,230
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable.................................................. $ 378,501 $ 249,610 $ 235,886
Mortgage notes payable--affiliates...................................... -- 3,984 99,647
Bonds payable........................................................... 74,450 74,450 74,450
Bonds payable--affiliates............................................... -- -- 12,000
Accrued interest payable................................................ 1,703 1,245 2,538
Accrued real estate taxes............................................... 25,420 17,915 9,944
Accounts payable and accrued expenses................................... 17,721 13,903 4,213
Liabilities for leases assumed.......................................... 5,083 5,758 7,157
Dividends payable....................................................... 6,597 2,505 --
Due to affiliates....................................................... -- -- 708
Other................................................................... 5,712 822 1,384
----------- ------------ ------------
Total liabilities....................................................... 515,187 370,192 447,927
Minority interests:
Operating Partnership................................................. 148,121 147,207 --
Other................................................................. 1,000 -- (6,905)
Predecessors' net deficit............................................... -- -- (115,792)
Shareholders' equity:
Preferred Shares $0.01 par value; 30,000,000 shares authorized:
Series B Cumulative Redeemable Preferred Shares, 4,600,000 shares
designated, 4,000,000 shares issued and outstanding............... 40 -- --
Series A Cumulative Convertible Preferred Shares, 2,000,000 shares
designated, issued and outstanding................................ 20 20 --
Common Shares, $.01 par value; 100,000,000 shares authorized,
15,572,494 and 12,980,000 shares issued and outstanding at June 30,
1998 and December 31, 1997, respectively............................ 156 130 --
Additional paid-in capital............................................ 365,756 225,632 --
Distributions in excess of earnings................................... (7,552) (1,713) --
----------- ------------ ------------
Total shareholders' equity.............................................. 358,420 224,069 --
----------- ------------ ------------
Total liabilities and shareholders' equity.............................. $1,022,728 $ 741,468 $ 325,230
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

See accompanying notes.

F-5
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR

(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR PROPERTIES
-------------------------- ----------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1, YEAR ENDED DECEMBER
SIX MONTHS 1997 TO SIX MONTHS 1997 TO 31
ENDED JUNE DECEMBER 31, ENDED JUNE NOVEMBER --------------------
30, 1998 1997 30, 1997 16, 1997 1996 1995
----------- ------------- ----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rental.............................. $ 41,476 $ 7,293 $ 16,131 $ 27,947 $ 30,538 $ 33,251
Tenant reimbursements............... 18,401 2,041 7,769 12,490 14,225 14,382
Mortgage note interest.............. 3,014 248 -- -- -- --
Gain on sale of assets.............. -- -- -- 286 846 771
Insurance settlement................ -- -- -- -- -- 7,257
Other............................... 2,783 248 689 1,229 2,551 1,944
----------- ------ ----------- ----------- --------- ---------
Total revenue....................... 65,674 9,830 24,589 41,952 48,160 57,605
EXPENSES
Property operations................. 11,941 2,213 4,318 8,622 9,767 9,479
Real estate taxes................... 12,232 1,765 5,590 8,575 9,383 9,445
Depreciation and amortization....... 11,575 2,478 6,492 11,241 12,409 12,646
Interest............................ 14,476 1,680 13,587 24,613 26,422 27,671
Interest--affiliates................ -- -- 5,649 9,804 10,795 8,563
Financing fees...................... -- -- 640 1,180 1,232 --
Property and asset management fees--
affiliates........................ -- -- 801 1,348 1,561 1,496
General and administrative.......... 3,044 267 1,886 2,414 4,927 4,508
Provision for environmental
remediation costs................. -- -- 3,205 3,205 -- --
Write-off deferred tenant costs..... -- -- -- -- 3,081 13,373
----------- ------ ----------- ----------- --------- ---------
Total expenses...................... 53,268 8,403 42,168 71,002 79,577 87,181
----------- ------ ----------- ----------- --------- ---------
Income (loss) before minority
interest and extraordinary item... 12,406 1,427 (17,579) (29,050) (31,417) (29,576)
Minority interest................... (5,167) (635) 368 666 894 3,281
----------- ------ ----------- ----------- --------- ---------
Income (loss) before extraordinary
gain.............................. 7,239 792 (17,211) (28,384) (30,523) (26,295)
Extraordinary item; (loss) gain on
extinguishment of debt, net of
minority interest in the amount of
$(325) in 1998 and $1,127 in
1997.............................. (525) -- -- 65,990 -- --
----------- ------ ----------- ----------- --------- ---------
Net income (loss)................... 6,714 792 $ (17,211) $ 37,606 $ (30,523) $ (26,295)
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Net income allocated to preferred
shareholders...................... (2,041) (345)
----------- ------
Net income available to common
shareholders...................... $ 4,673 $ 447
----------- ------
----------- ------
Net income available per weighted-
average common share of beneficial
interest--Basic and diluted....... $ 0.32 $ 0.04
----------- ------
----------- ------
</TABLE>

See accompanying notes.

F-6
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
AND FOR THE PERIOD FROM NOVEMBER 17, 1997 TO DECEMBER 31, 1997

(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADDITIONAL DISTRIBUTIONS
COMMON PAID-IN IN EXCESS
PREFERRED STOCK STOCK CAPITAL OF EARNINGS TOTAL
------------------------ ----------- --------- ----------- ---------
SERIES A SERIES B
<S> <C> <C> <C> <C> <C> <C>
Issuance of 2,000,000 shares of Series A
preferred stock....................... $ -- $ 20 $ -- $ 39,580 $ -- $ 39,600
Issuance of 12,980,000 shares of common
stock................................. -- -- 130 232,222 -- 232,352
Step-up in basis from the purchase of
third-party owner's interest in
predecessor........................... -- -- -- 1,430 -- 1,430
Reclassification of predecessor's
minority interest..................... -- -- -- (6,564) -- (6,564)
Reclassification of net deficit of
predecessor........................... -- -- -- (33,976) -- (33,976)
Additional contribution by
predecessor........................... -- -- -- 11,873 -- 11,873
Contribution of net liabilities to
service company....................... -- -- -- 380 -- 380
Additional paid-in capital allocated to
minority interest..................... -- -- -- (19,313) -- (19,313)
Net income.............................. -- -- -- -- 792 792
Preferred share dividends declared
($0.173 per share).................... -- -- -- -- (345) (345)
Common share dividends declared ($0.166
per share)............................ -- -- -- -- (2,160) (2,160)
--- --- ----- --------- ----------- ---------
Balance at December 31, 1997............ -- 20 130 225,632 (1,713) 224,069
Issuance of 2,580,000 shares of common
stock................................. -- -- 26 47,418 -- 47,444
Issuance of 4,000,000 shares of Series B
preferred stock....................... 40 -- -- 92,706 -- 92,746
Net income.............................. -- -- -- -- 6,714 6,714
Series A preferred share dividends
declared and paid ($0.70 per share)... -- -- -- -- (1,400) (1,400)
Series B preferred share dividends
declared ($0.16 per share)............ -- -- -- -- (641) (641)
Common share dividends declared and paid
($0.675 per share).................... -- -- -- -- (10,512) (10,512)
--- --- ----- --------- ----------- ---------
Balance at June 30, 1998................ $ 40 $ 20 $ 156 $ 365,756 $ (7,552) $ 358,420
--- --- ----- --------- ----------- ---------
--- --- ----- --------- ----------- ---------
</TABLE>

See accompanying notes.

F-7
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

COMBINED STATEMENTS OF CHANGES IN PREDECESSORS' DEFICIT

PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 16, 1997
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1995........................................................................... $ (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)
-----------
Balance at December 31, 1995......................................................................... (85,305)
Contributions........................................................................................ 40
Distributions........................................................................................ (4)
Net loss............................................................................................. (30,523)
-----------
Balance at December 31, 1996......................................................................... (115,792)
Contributions........................................................................................ 44,330
Distributions........................................................................................ (120)
Net income........................................................................................... 37,606
-----------
Balance at November 16, 1997......................................................................... $ (33,976)
-----------
-----------
</TABLE>

See accompanying notes.

F-8
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR PROPERTIES
-------------------------- ------------------------------------------------
PERIOD FROM PERIOD FROM
SIX MONTHS NOVEMBER 17, SIX MONTHS JANUARY 1, YEAR ENDED DECEMBER
ENDED 1997 TO ENDED 1997 TO 31
JUNE 30, DECEMBER 31, JUNE 30, NOVEMBER 16, --------------------
1998 1997 1997 1997 1996 1995
----------- ------------- ----------- ------------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................... $ 6,714 $ 792 $ (17,211) $ 37,606 $ (30,523) $ (26,295)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Amortization of costs for leases
assumed (included in rental
revenue)....................... 591 142 622 1,022 1,244 1,539
Gain on sale of real estate...... -- -- -- (286) (846) (771)
Depreciation and amortization.... 11,575 2,478 6,492 11,241 12,409 12,646
Interest added to principal on
mortgage note
payable--affiliate............. -- -- 5,642 9,772 10,002 8,427
Standby loan fee-affiliate added
to principal on mortgage note
payable--affiliate............. -- -- 262 460 522 498
Write-off of deferred tenant
costs.......................... -- -- -- -- 3,081 13,373
Minority interest................ 5,167 635 (368) (666) (894) (3,281)
Extraordinary item............... 525 -- -- (65,990) -- --
Changes in operating assets and
liabilities:
(Increase) decrease in tenant
receivables................ (2,288) (15) (154) (916) 1,990 2,326
(Increase) decrease in tenant
receivables from straight-
lining rent................ (741) 180 149 487 (645) (8,779)
Increase in deferred costs... -- (48) (921) (1,459) (703) (907)
Increase (decrease) in other
assets..................... (18,046) (9,932) 458 506 566 2,937
Increase (decrease) in
accrued interest payable... 458 (175) (53) (1,118) 316 (1,221)
Increase in accrued real
estate taxes............... 7,505 7,556 977 415 251 5
Increase (decrease) in
accounts payable and
accrued expenses........... 1,246 7,202 (1,797) 3,498 1,380 (34)
Decrease in liabilities for
assumed leases............. (380) (350) (542) (1,049) (1,532) (1,985)
Increase (decrease) in other
liabilities................ 4,890 (1,707) 3,717 777 217 263
----------- ------------- ----------- ------------- --------- ---------
Net cash provided by (used in)
operating activities............... 17,216 6,758 (2,727) (5,700) (3,165) (1,259)
</TABLE>

F-9
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR --(CONTINUED)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR PROPERTIES
------------------------- --------------------------------------------------
PERIOD FROM PERIOD FROM
SIX MONTHS NOVEMBER 17, JANUARY 1, YEAR ENDED DECEMBER
ENDED 1997 TO SIX MONTHS 1997 TO 31
JUNE 30, DECEMBER 31, ENDED NOVEMBER 16, --------------------
1998 1997 JUNE 30, 1997 1997 1996 1995
----------- ------------ ------------- ------------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds from sale of real estate...... $ -- $ -- $ -- $ 298 $ 2,110 $ 921
Expenditures for real estate........... (257,119) (297,019) (3,612) (5,659) (3,842) (4,842)
Leasing costs.......................... (1,789) -- -- -- -- --
Additions to mortgage note
receivable........................... (25) (51,263) -- -- -- --
Cash contributed to service company.... -- (376) -- -- -- --
Increase in escrow deposits for
property acquisitions................ (7,309) -- -- -- -- --
(Increase) decrease in due from
affiliates........................... (1,094) (5,258) 2,803 2,894 2,858 (5,255)
----------- ------------ ------------- ------------- --------- ---------
Net cash (used in) provided by
investing activities................. (267,336) (353,916) (809) (2,467) 1,126 (9,176)

FINANCING ACTIVITIES
Proceeds from the sale of preferred
shares............................... 95,318 39,600 -- -- -- --
Proceeds from the sale of common
shares............................... 47,194 232,352 -- -- -- --
Proceeds from sale of operating
partnership units.................... -- 85,000 -- -- -- --
Financing costs........................ (4,161) (3,328) -- -- (10) (225)
Proceeds from mortgage notes payable... 341,856 243,198 480 480 1,239 9,815
Proceeds from mortgage notes payable--
affiliates........................... -- -- 1,980 5,647 5,891 2,693
Repayment of mortgage notes payable.... (212,268) (236,537) (62) (119) (83) (384)
Repayment of mortgage notes payable--
affiliates........................... (3,984) (4,895) -- (41,367) (1,150) (1,079)
Increase (decrease) in due to
affiliates........................... -- -- 26 (708) (226) (347)
Contributions from partners............ -- -- -- 44,330 80 872
Contributions from minority interest--
other................................ 1,000 -- -- -- -- --
Distributions to minority interest--
operating partnership................ (5,176) -- -- -- -- --
Distributions to partner............... -- -- (3) (120) (8) (357)
Distributions to minority interest..... -- -- -- (120) -- --
Dividends paid to preferred
shareholders......................... (1,045) -- -- -- -- --
Dividends paid to common
shareholders......................... (7,416) -- -- -- -- --
Debt termination fees.................. -- -- -- (1,692) -- --
Acquisition of partnership interest.... -- -- -- -- -- (115)
----------- ------------ ------------- ------------- --------- ---------
Net cash provided by financing
activities........................... 251,318 355,390 2,421 6,331 5,733 10,873
----------- ------------ ------------- ------------- --------- ---------
Net increase (decrease) in cash and
cash equivalents..................... 1,198 8,232 (1,115) (1,836) 3,694 438
Cash and cash equivalents at beginning
of period............................ 11,969 3,737 5,573 5,573 1,879 1,441
----------- ------------ ------------- ------------- --------- ---------
Cash and cash equivalents at end of
period............................... $ 13,167 $ 11,969 $ 4,458 $ 3,737 $ 5,573 $ 1,879
----------- ------------ ------------- ------------- --------- ---------
----------- ------------ ------------- ------------- --------- ---------
</TABLE>

See accompanying notes.

F-10
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR --(CONTINUED)

(DOLLARS IN THOUSANDS)

Supplemental disclosure of non-cash investing and financing activities:

The following assets and liabilities (Represents the Predecessor Properties,
$12,000 of bonds receivable, $241 of other assets and $368 of other liabilities
contributed by the Predecessor. The bonds receivable have been netted against
the corresponding bonds payable of the Predecessor Properties.) were contributed
by certain minority interest partners to the Company on November 17, 1997:

<TABLE>
<CAPTION>
<S> <C>
Real estate, net.................................................................. $ 243,637
Cash and cash equivalents......................................................... 3,737
Tenant receivable................................................................. 41,813
Deferred costs, net............................................................... 25,270
Other assets...................................................................... 885
----------
Total assets...................................................................... 315,342
Mortgage notes payable............................................................ 241,432
Bonds payable..................................................................... 74,450
Accrued interest payable.......................................................... 1,420
Accrued real estate taxes......................................................... 10,359
Accounts payable and accrued expenses............................................. 7,711
Liabilities for leases assumed.................................................... 6,108
Other liabilities................................................................. 2,529
Minority interests................................................................ (6,564)
----------
Total liabilities and minority interests.......................................... 337,445
----------
Predecessor owners' net contribution.............................................. $ (22,103)
----------
----------
</TABLE>

The following represents non-cash activity for the Company during the period
from November 17, 1997 to December 31, 1997:

<TABLE>
<CAPTION>
<S> <C>
Mortgage note receivable.......................................................... $ 5,100
Real estate....................................................................... 48,814
----------
$ 53,914
----------
----------
Debt assumed...................................................................... $ 10,396
Partnership units issued to minority interest..................................... 42,088
Step-up in basis from purchase of third-party owner's interest in predecessor..... 1,430
----------
$ 53,914
----------
----------
</TABLE>

See accompanying notes.

F-11
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

1. FORMATION AND ORGANIZATION OF THE COMPANY

Prime Group Realty Trust (together with its consolidated subsidiaries and
unconsolidated investment subsidiary, the "Company") was organized in Maryland
on July 21, 1997. The Company was formed to continue the business of The Prime
Group, Inc. and certain of its affiliates (collectively "PGI"). The Company will
make an election to qualify as a real estate investment trust ("REIT") for the
period ended December 31, 1997, under the Internal Revenue Code of 1986, as
amended, for Federal income tax purposes. On November 17, 1997, the Company
completed an initial public offering (the "Offering") of 12,380,000 Common
Shares of Beneficial Interest ("Common Shares") at $20.00 per share and the
private placement (the "Preferred Share Private Placement") of 2,000,000 Series
A--Cumulative Convertible Preferred Shares of Beneficial Interest ("Convertible
Preferred Shares") at $20.00 per share. Net of underwriting discounts and
expenses, the Company received approximately $260,792 in net proceeds from the
Offering and Private Placement. On December 12, 1997, the underwriters of the
Offering exercised their overallotment option to purchase 600,000 Common Shares
at $20.00 per share ("Overallotment"). The Company received net proceeds of
approximately $11,160 on December 15, 1997, with respect to the Overallotment.

Upon consummation of the Offering and Preferred Share Private Placement, the
Company contributed the initial net proceeds from the Offering and Preferred
Share Private Placement in exchange for 12,380,000 common units of partnership
interest ("Common Units") and 2,000,000 preferred units of partnership interest
("Preferred Units") in Prime Group Realty, L.P. (the "Operating Partnership").
The Operating Partnership also sold 4,569,893 Common Units for $85,000 to
Primestone Joint Venture ("Primestone"--PGI obtained a 60% ownership interest in
Primestone in exchange for the contribution of 3,375,000 of its Common Units
received from the contribution of its interest in the Prime Properties to the
Operating Partnership described below. Primestone has a 30.7% limited partner
ownership interest in the Operating Partnership at June 30, 1998). The Operating
Partnership used such proceeds primarily to repay certain mortgages and other
indebtedness, acquire interests in certain of the properties ("Prime Properties"
or "Predecessor Properties") owned or controlled by PGI (the "Predecessor") and
other contributors (defined below) and purchase various office and industrial
properties from unaffiliated third parties. The Company contributed the net
proceeds from the Overallotment to the Operating Partnership in exchange for
600,000 Common Units. The Operating Partnership, in turn, used such proceeds
primarily for property acquisitions.

The Company is the managing general partner of the Operating Partnership and
owns all of the Preferred Units and 60.2% and 55.9% of the Common Units issued
at June 30, 1998 and at December 31, 1997, respectively. Each Common Unit
entitles the Company to receive distributions from the Operating Partnership.
Distributions declared or paid to holders of Common Stock are based upon such
distributions received by the Company with respect to its Common Units.

Upon consummation of the Offering, PGI contributed its interest in the Prime
Properties to the Operating Partnership in exchange for 3,465,000 Common Units
(after the contribution of 3,375,000 Common Units to Primestone, PGI has a 0.4%
direct limited partner interest in the Operating Partnership at June 30, 1998),
and received approximately $6,487 for the reimbursement of formation costs
advanced by PGI. A senior executive of the Company contributed his interest in
the Prime Properties to the Operating Partnership in exchange for 110,000 Common
Units (a 0.4% limited partner interest of the Operating Partnership at June 30,
1998). In addition, the Operating Partnership was required to acquire a

F-12
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
third-party ownership interest in certain of the Prime Properties for $1,797,
resulting in a step-up in the basis of real estate of $3,227. Certain
individuals (collectively, the "Contributors") contributed their ownership
interests in various office and industrial properties, including the related
debt, to the Operating Partnership in exchange for cash of approximately $15,761
and 1,849,417 Common Units (a 3.6% general partner interest of the Operating
Partnership and a 3.6% limited partner interest of the Operating Partnership at
June 30, 1998), valued at $20.00 per unit (total value of $36,988). These
properties, along with other acquired properties are controlled by the Operating
Partnership (the "New Entities") and are described below. PGI, the senior
executive and the Contributors have been reflected as minority interest in the
consolidated financial statements of the Company.

On November 17, 1997, the Operating Partnership acquired the assets and
business of Continental Offices, Ltd. and Continental Offices, Ltd. Realty
("Continental Office Management") and contributed these entities and certain
other assets to a newly formed corporation, Prime Group Realty Services, Inc.
(the "Service Company"). In exchange for its contribution, the Company received
100% of the non-voting preferred stock of the Service Company and a note
receivable in the amount of $4,800 (see Note 12). Certain members of management
of the Company own 100% of the voting common stock. The Service Company was
formed primarily to operate business lines of the Company that are not directly
associated with the collection of rents. The Service Company is subject to
federal, state and local income taxes.

Unless the context requires otherwise, all references to the Company herein
mean Prime Group Realty Trust and those entities owned or controlled by Prime
Group Realty Trust, including the Operating Partnership.

The Prime Properties represent a combination of 23 partnerships described
below (PGI Partnerships) that own, operate, and manage office and industrial
properties in the greater Chicagoland area and Tennessee. The Prime Properties
are under common management and ownership of PGI as either the managing general
partner (responsible for the operations of the Prime Properties) or 100% owner.
Prior to the contribution of the Properties, six of the Partnerships had third
party owners (Third Party), whose ownership interests have been reflected as a
minority interest in the combined financial statements of the Predecessor.

F-13
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
The Prime Properties consisted of the following at November 16, 1997:

<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY
- ---------------------------------------------------- ----------------------------------------
<S> <C>
77 West Wacker Limited Partnership (77 West
Wacker)........................................... 77 West Wacker Building
Nashville Office Building I, Ltd.................... Nashville Office Building
Professional Plaza, Ltd............................. Professional Plaza
Old Kingston Properties, Ltd........................ Old Kingston
Two Centre Square, Ltd.............................. Two Centre Square
Hammond Enterprise Center Limited Partnership
(HEC)............................................. Hammond Enterprise Center
East Chicago Enterprise Center Limited Partnership
(ECEC)............................................ East Chicago Enterprise Center
Kemper/Prime Industrial Partners (KP)............... Chicago Enterprise Center
Enterprise Center I, L.P. (ECI)..................... Enterprise Center I
Enterprise Center II, L.P........................... Enterprise Center II
Enterprise Center III, L.P.......................... Enterprise Center III
Enterprise Center IV, L.P........................... Enterprise Center IV
Enterprise Center V, L.P............................ Enterprise Center V
Enterprise Center VI, L.P........................... Enterprise Center VI
Enterprise Center VII, L.P.......................... Enterprise Center VII
Enterprise Center VIII, L.P......................... Enterprise Center VIII
Enterprise Center IX, L.P........................... Enterprise Center IX
Enterprise Center X, L.P............................ Enterprise Center X
Arlington Heights I, L.P............................ Arlington Heights I
Arlington Heights II, L.P........................... Arlington Heights II
Arlington Heights III, L.P.......................... Arlington Heights III
Triad Parking Company, Ltd.......................... Triad Parking Facility
77 Fitness Center, Ltd.(1).......................... Executive Sports and Fitness Center
</TABLE>

- ---------

(1) The Operating Partnership contributed this entity to the Service Company on
November 17, 1997, including net equipment of $83, cash of $376 and accounts
payable of $839.

F-14
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
The entity name and related property of the New Properties (the properties
were either contributed or acquired at the Offering date, unless otherwise
noted) operated by the Operating Partnership at December 31, 1997 are as
follows:

<TABLE>
<CAPTION>
ENTITY PROPERTY
- ---------------------------------------- --------------------------------------------------------------
<S> <C>
1990 Algonquin Road, L.L.C. 1990 Algonquin Road
2010 Algonquin Road, L.L.C. 2010 Algonquin Road
555 Huehl Road, L.L.C. 555 Huehl Road
1669 Woodfield Road, L.L.C. 1699 Woodfield Road
475 Superior Avenue, L.L.C. 475 Superior Avenue
Enterprise Drive, L.L.C. 2205-2255 Enterprise Drive
280 Shuman Blvd., L.L.C. 280 Shuman Blvd.
Continental Towers, L.P.(1) Continental Towers
2675 N. Mayfair Road, L.L.C.(2) 2675 N. Mayfair Road
Prime Columbus Industrial, L.L.C. 2160 McGaw Road, 4849 Groveport Road,
2400 McGaw Road, 5160 Blazer Memorial Parkway,
600 London Road and 4411 Marketing Place
Libertyville Tech Way, L.L.C. 1001 Technology Way
801 Technology Way, L.L.C. 801 Technology Way
3818 Grandville, L.L.C. 3818 Grandville/1200 Northwestern
306 Era Drive, L.L.C. 306-310 Era Drive
1301 Ridgeview Drive, L.L.C. 1301 Ridgeview Drive
515 Huehl Road, L.L.C. 515 Huehl Road/500 Lindberg
455 Academy Drive, L.L.C. 455 Academy Drive
1051 N. Kirk Road, L.L.C. 1051 N. Kirk Road
4211 Madison Street, L.L.C. 4211 Madison Street
200 E. Fullerton, L.L.C. 200 E. Fullerton
350 Randy Road, L.L.C. 350 Randy Road
4300 Madison Street, L.L.C. 4300, 4248, 4250 Madison Street
370 Carol Lane, L.L.C. 370 Carol Lane
388 Carol Lane, L.L.C. 388 Carol Lane
941 Weigel Drive, L.L.C. 941-961 Weigel Drive
342 Carol Lane, L.L.C. 342-346 Carol Lane
343 Carol Lane, L.L.C. 343 Carol Lane
371 N. Gary Avenue, L.L.C. 371-385 N. Gary Avenue
350 N. Mannheim Road, L.L.C. 350 N. Mannheim Road
1600 167th Street, L.L.C. 1600-1700 167th Street
1301 E. Tower Road, L.L.C. 1301 E. Tower Road
4343 Commerce Court, L.L.C. 4343 Commerce Court
11039 Gage Avenue, L.L.C. 11039 Gage Avenue
11045 Gage Avenue, L.L.C. 11045 Gage Avenue
1401 S. Jefferson, L.L.C. 1401 S. Jefferson
</TABLE>

F-15
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)

<TABLE>
<CAPTION>
ENTITY PROPERTY
- ---------------------------------------- --------------------------------------------------------------
<S> <C>
4100 Madison Street, L.L.C. 4100 Madison Street
4160 Madison Street, L.L.C. 4160-4190 Madison Street
550 Kehoe Blvd., L.L.C. 550 Kehoe Blvd.
</TABLE>

- ---------

(1) On December 15, 1997, the Company acquired the first mortgage note
encumbering the property for $108,870. The note has a face value of $162,844
at June 30, 1998 and December 31, 1997, a base interest rate of 6.5% per
annum payable monthly, and a contingent interest rate of 6.5% per annum,
payable from available cash flow as defined. All unpaid interest is added to
principal. The note matures January 2013. The Company will receive all of
the economic benefits from its interest in the property and, therefore, the
Company has consolidated the operations of the property from the acquisition
date.

(2) The Company acquired the property on December 30, 1997 for $8,000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements of the Company include the accounts of
the Company, the Operating Partnership and the partnerships in which the Company
has majority interest or control. The combined financial statements of the
Predecessor include the accounts of the PGI Partnerships. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Investments in corporations and partnerships in which the Company does not
have operational control or a majority interest are accounted for on the equity
method of accounting.

Significant intercompany accounts and transactions have been eliminated in
consolidation and combination.

The consolidated and combined financial statements as of June 30, 1998 and
for the six months ended June 30, 1998 and 1997 and the related footnotes,
including the disclosure of the events subsequent June 30, 1998, 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
recurring nature.

Certain prior periods amounts have been reclassified to conform with the
current financial statement presentation.

F-16
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE

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............................. 40-50 years
Term of related
Tenant improvements................................... leases
</TABLE>

Development costs, which include fees and costs incurred in developing new
properties, are capitalized as incurred. Upon completion of construction,
development costs are amortized over the useful lives of the respective
properties on a straight-line basis. Interest and other direct costs incurred
during construction periods are capitalized as a component of the building
costs.

Real estate is carried at depreciated cost. 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.

CASH EQUIVALENTS

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

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 the period from January 1, 1997 to
November 16, 1997 and for the year ended 1996, 77 West Wacker wrote off $1,049
and $3,893, respectively, 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, $149, $180 and $487 of cash was received
in excess of recorded rental revenue during the six months ended June 30, 1997,
the period from November 17, 1997 to December 31, 1997 and the period from
January 1, 1997 to November 16, 1997, respectively, and $741, $645 and $8,779 of
noncash

F-17
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rent was recorded as rental revenue during the six months ended June 30, 1998
and the years ended December 31, 1996 and 1995, respectively, and included in
accounts receivable.

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
(The agreement was terminated November 16, 1997--see Note 6).

EARNINGS PER SHARE

On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" which specifies the method of
computation, presentation, and disclosure for earnings per share ("EPS"). SFAS
No. 128 requires the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing net income available to common shareholders by the
weighted average number of shares outstanding during the period. Diluted EPS
includes the potentially dilutive effect, if any, which would occur if
outstanding (i) Common Stock options were exercised, (ii) Common Units were
converted into shares of Common Stock, and (iii) Preferred Shares were converted
into shares of Common Stock.

STOCK BASED COMPENSATION

The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for the stock
option grants because the exercise price of the options equals the market price
of the underlying stock at the date of grant.

INCOME TAXES

Commencing with the period ended December 31, 1997, 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 is 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.

As of December 31, 1997, for income tax purposes, tenant receivables have a
basis of $3,744, real estate has a gross and net basis of $672,618 and $647,565
respectively, and deferred costs have a gross and net basis of $43,835 and
$28,472, respectively.

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.

F-18
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

3. RECENT DEVELOPMENTS

During the period from January 1, 1998 through June 30, 1998, the Company
acquired the following eight office properties:

<TABLE>
<CAPTION>
NET
RENTABLE ACQUISITION MORTGAGE MONTH
PROPERTY LOCATION SQUARE FEET COST DEBT ACQUIRED
- ---------------------------- ------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
33 North Dearborn........... Chicago, IL 302,818 $ 34,371 $ 18,000 January
Commerce Point.............. Arlington Hts., IL 236,642 29,241 20,000 February
208 South LaSalle Street.... Chicago, IL 827,494 61,168 45,800 March
122 South Michigan.......... Chicago, IL 512,369 29,618 -- April
2100 Swift Drive............ Oak Brook, IL 58,000 7,363 5,200 April
6400 Shafer Court........... Rosemont, IL 161,730 21,322 14,400 May
Two Century Centre.......... Schaumburg, IL 217,960 35,684 -- June
Oak Brook Business Center... Oak Brook, IL 199,245 16,205 -- June
----------- ----------- ---------
2,516,258 $ 234,972 $ 103,400
----------- ----------- ---------
----------- ----------- ---------
</TABLE>

In June 1998, the Company acquired the following parcels of land under two
purchase contracts:

<TABLE>
<CAPTION>
ACQUISITION
PROPERTY LOCATION ACRES COST
- ----------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Aurora Land--I............................................. Aurora, IL 37.3 $ 3,100
Aurora Land--II............................................ Aurora, IL 17.4 1,400
--- ------
54.7 $ 4,500
--- ------
--- ------
</TABLE>

The contracts require purchase of an additional 132.7 acres over a three to
five year period for additional consideration of $10,394. Certain minimum
installment payments are required; however, the timing of purchases is at the
Company's discretion.

Concurrently with the closing of the IPO, the Company obtained a secured
revolving credit facility from a group of financial institutions (the "Credit
Facility"--see Note 6). In March 1998, the Credit Facility was amended to
provide that the commitments under the Credit Facility be reduced from $235,000
to $200,000. On May 15, 1998, the Credit Facility was reduced to $190,000.

In January 1998, the Company obtained a $15,000 revolving line of credit
with LaSalle National Bank (the "Line of Credit"--see Note 6). The Line of
Credit, which matures in January 1999 and is subject to a one-year extension at
the Company's option, is collateralized by an industrial property known as 475
Superior Avenue. Outstanding balances under the Line of Credit bear interest at
a rate equal to LIBOR plus 195 basis points. Generally, the covenants contained
in the Line of Credit are identical to the covenants contained in the Credit
Facility.

Concurrently with the closing of the IPO, the Company borrowed $83,500 in
financing on a short-term basis evidenced by two separate notes (the "New
Mortgage Notes"--see Note 6) which were collateralized by first mortgages on
certain office and industrial properties. On March 23, 1998, the Company
refinanced one of the New Mortgage Notes (original principal balance of $27,500)
with a loan of $29,400 which matures on April 1, 2008. Interest on this loan is
fixed at a rate of 6.85% and is payable monthly. The

F-19
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

3. RECENT DEVELOPMENTS (CONTINUED)
remaining New Mortgage Note (original principal balance of $56,000) was
refinanced on May 1, 1998 with two loans, the first of which is a $47,000 loan
which has principal and interest payable monthly, using a 30-year amortization
period, with interest fixed at 7.17% and will mature on May 1, 2000. The second
loan is a $14,600 loan which has interest only payable monthly at 150 basis
points over LIBOR or 0.50% plus the greater of (a) the lender's U.S. prime rate
or (b) the Federal Funds Rate plus 1.0% and will mature on May 1, 2000, not
including a 6-month extension option. The refinanced notes are collateralized by
first mortgages on certain office and industrial properties. As a result of the
above refinancing, the Company recognized an extraordinary loss of $525, net of
minority interest of $375, representing the write-off of previously unamortized
deferred financing fees.

On March 31, 1998, the Company issued 10,000 and 2,500 Common Shares granted
to an officer and a board member of the Company, respectively, pursuant to an
employment agreement and a consulting agreement.

On March 30, 1998, the Company entered into a joint venture that acquired an
approximately 67,000 square foot vacant parcel of land located in the Chicago,
Illinois central business district ("Chicago CBD"). The parcel was acquired for
the potential development of a Class A multi-purpose facility, with up to
900,000 square feet of office space, 125,000 square feet of retail space and a
parking garage with a capacity for approximately 250 cars. The Company has
economic control of the joint venture and, therefore, the Company has
consolidated the operations of the joint venture from the date of inception. The
venture entered into a bank loan in the amount of $13,500 to acquire the land.
Interest is payable monthly at a rate of LIBOR plus 200 basis points. The note
matures in April 1999, not including a six-month extension option. The other
joint venturer's interest has been reflected as minority interest--other at June
30, 1998.

On May 15, 1998, the Company obtained a 7.22% note payable with a principal
balance of $75,000, collateralized by a mortgage on the suburban office building
known as Continental Towers. The note matures in 2013, with a prepayment option
in 2005, and has monthly payments of principal and interest, using a 25-year
principal amortization payment schedule. The Company used $70.0 million of the
proceeds to repay a portion of the Credit Facility.

In May 1998, the Company refinanced $48,810 of letters of credit that
provided credit enhancements on certain of the Company's bonds payable from the
Credit Facility to a separate financing facility provided by a financial
institution (the "New LOC's"). The New LOC's have a quarterly fee of 1.4% of the
face amount and are collateralized by mortgages on certain industrial and office
properties and a $5,000 cash collateral account.

On June 5, 1998, the Company completed the sale of 4.0 million shares of its
Series B-Cumulative Redeemable Preferred Stock (the "Redeemable Preferred
Shares"). The Company received net proceeds of approximately $92,746, which were
used to fund the acquisition of Two Century Centre and Oak Brook Business Center
and repay borrowings under the Credit Facility and the Line of Credit.
Distributions on the Redeemable Preferred Shares are payable quarterly on or
about the last day of January, April, July and October of each year, at the rate
of 9% (equivalent to $2.25 per annum per Redeemable Preferred Share). The
Redeemable Preferred Shares rank senior to the Common Shares and the Convertible
Preferred Shares as to the payment of dividends and as to the distribution of
assets.

F-20
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

4. MORTGAGE NOTE RECEIVABLE

On December 16, 1997, the Company acquired the first mortgage note
encumbering the office property known as 180 North LaSalle Street, which is a
39-story office building, located in Chicago, Illinois that contains 729,000
square feet of rentable space, including 15,000 square feet of retail space and
is approximately 100% leased at June 30, 1998. The first mortgage note, which
has a face value of $56,988 and $63,329 at June 30, 1998 and December 31, 1997,
respectively, and an interest rate of 8.25%, was purchased for approximately
$51,163 in cash and $5,100 in Common Units. Included in the purchase was an
option, exercisable until July 30, 2000, to acquire the existing $85.0 million
second mortgage on the property for 220,000 Common Units (5,000 Common Units per
month, valued at $20.00 per Common Unit, during the option period which are
non-refundable) of the Operating Partnership (subject to certain adjustments as
defined) and an option to purchase the equity ownership of the property during
the period from January 15, 2004 to February 15, 2004 for a price equal to the
greater of the fair market value of the interest or $2,000. As of June 30, 1998,
the Company has issued 271,572 Common Units (a 1.1% limited partner interest of
the Operating Partnership at June 30, 1998), including 30,000 Common Units
issued during the six months ended June 30, 1998, related to the purchase of the
note and the above mentioned option. The Company will also provide property
management and leasing services for the property pursuant to a 10-year
management and leasing contract.

5. DEFERRED COSTS

Deferred costs consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Financing costs.......................................... $ 9,284 $ 5,572 $ 6,757
Leasing costs............................................ 24,971 23,182 35,386
----------- --------- ---------
34,255 28,754 42,143
Less: Accumulated amortization........................... (2,222) (282) (15,260)
----------- --------- ---------
$ 32,033 $ 28,472 $ 26,883
----------- --------- ---------
----------- --------- ---------
</TABLE>

F-21
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

6. MORTGAGE NOTES AND BONDS PAYABLE

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage Notes Payable:
Line-of-credit ("Credit Facility") with various financial institutions,
collateralized by the 77 West Wacker Building with maximum draw of
$190,000, bearing interest at rates ranging from the higher of prime rate
or federal funds rate plus 1/2%, to Eurodollar rate plus 1.2% to 1.5%, per
annum (7.13% and 7.23% at June 30, 1998 and December 31, 1997,
respectively), as defined, with interest payable monthly and principal due
November 2000. The Credit Facility has also been used to provide
letters-of-credit totaling $26,930 and $75,848 as of June 30, 1998 and
December 31, 1997, respectively, on bonds payable described below.......... $ 80,700 $ 159,000 $ --
Line of Credit ("Line of Credit") with a bank, bearing interest at a rate of
LIBOR plus 1.95% or 0.5% plus the greater of the lender's prime rate or the
federal funds rate, with principal due in January, 1999.................... -- -- --
Mortgage notes payable to various commercial lenders(A)...................... 291,448 -- --
Mortgage note payable to financial institution, collateralized by 1001
Technology Way, interest at 8.3% per annum with principal and interest
payable monthly through October 2011....................................... 6,353 6,412 --
Mortgage notes payable to a financial institution, collateralized by various
of the New Properties, interest at 7.19% per annum with interest payable
monthly and principal paid April 30, 1998.................................. -- 83,500 --
Mortgage note payable to a financial institution collateralized by
Continental Towers, interest at prime rate (8.50% at December 31, 1997) per
annum with principal and interest payable monthly through January 1998..... -- 698 --
Mortgage notes payable to various commercial lenders(B)...................... -- -- 229,361
Mortgage notes payable to various financial institutions, 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 (repaid November 1997)... -- -- 6,525
---------- ---------- ----------
$ 378,501 $ 249,610 $ 235,886
---------- ---------- ----------
---------- ---------- ----------
Bonds Payable:
Variable rate taxable and tax-exempt bonds issued by various state and local
government authorities(C),(D).............................................. $ 74,450 $ 74,450 $ 74,450
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

- ---------

(A) During the six months ended June 30, 1998, the Company completed seven
new financings and three re-financings of mortgage notes payable with five
separate financial institutions at rates of interest ranging from 6.85% to LIBOR
plus 2.0% (7.65% at June 30, 1998). The notes are collateralized by various
office and industrial properties and mature in various dates from January 2000
through April 2013.

F-22
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

6. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)
(B) 77 West Wacker has entered into a mortgage note agreement ("Agreement")
with a consortium of commercial lenders providing a maximum loan of $230,000
("Loan"). The Loan, was collateralized by a first mortgage on the 77 West Wacker
Building. The Loan was repaid with proceeds of the Offering and Preferred Share
Private Placement. Under the terms of the Agreement, 77 West Wacker made monthly
interest-only payments. Interest was calculated using certain variable rate
indices, as defined. 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 owners ("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
paid the Counterparties interest monthly at a fixed rate of 10% per annum. 77
West Wacker was to receive monthly interest payments from the Counterparties at
the variable rate and was then responsible for making the monthly interest
payments required under the terms of the Agreement. 77 West Wacker incurred $692
of fees to terminate the swap agreement, which have been reflected in the
extraordinary item--extinguishment of debt in the period from January 1, 1997 to
November 16, 1997.

(C) 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 7--on December 13, 1995 and on May 20, 1996, the Bonds were
acquired by independent third party financial institutions from an affiliate of
PGI). 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 3.30% to
4.75% during the six months ended June 30, 1998, 3.30% to 4.75% during 1997 and
2.85% to 4.40% during 1996, and 5.25% to 5.51% during 1995. The rate at June 30,
1998 was 3.70% and at both December 31, 1997 and 1996 was 4.40%.

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 November 17, 1997, the Bonds were collateralized by letters of
credit totaling $48,918 from the Credit Facility. From May 1996 to November 16,
1997, the Bonds were collateralized by letters of credit that required the
borrowing PGI Partnerships to pay letter of credit financing fees of 1.75% per
annum of the face amount, payable quarterly in advance.

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. In February 1998, a separate
financing facility with another financial institution was established to
re-issue letters of credit in the amount of $48,509.

(D) 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

F-23
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

6. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)
3.80% to 4.00% for the six months ended June 30, 1998, 3.35% to 3.85% during
1997, 3.40% to 4.05% during 1996 and 3.40% to 4.50% during 1995. The rates at
June 30, 1998 were 3.80% and at December 31, 1997 were 3.85% and at December 31,
1996 were 3.50%.

Under certain conditions, the interest rates on the IRBs may be converted to
a fixed rate at the request of the borrowing Partnerships.

The IRBs are collateralized by letters of credit totaling $26,930 from the
Credit Facility.

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
$14,476 and $13,319 for the six months ended June 30, 1998 and 1997,
respectively, and $1,855 and $25,731 for the period from November 17, 1997 to
December 31, 1997, and the period from January 1, 1997 to November 16, 1997,
respectively, and $25,643 and $25,490 for the years ended December 31, 1996 and
1995, respectively. In addition, during the six months ended June 30, 1998, the
Company capitalized $464 in interest.

7. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Mortgage note payable--Limited partner, collateralized by 801 Technology Way,
interest at 7.0% per annum, with principal and interest repaid January, 1998.... $ -- $ 3,984 $ --
Mortgage notes payable--Affiliate(A).............................................. -- -- 99,357
Mortgage note payable--Affiliate; interest at 9.5% per annum with interest payable
quarterly and principal and accrued interest, were repaid in November 1997...... -- -- 290
----------- --------- ---------
$ -- $ 3,984 $ 99,647
----------- --------- ---------
----------- --------- ---------
Bonds Payable--Affiliate:
Variable rate taxable and tax-exempt bonds issued by state and local government
authorities(B).................................................................. $ -- $ -- $ 12,000
----------- --------- ---------
----------- --------- ---------
</TABLE>

- ---------

(A) 77 West Wacker has entered into a 11% subordinate loan agreement with
affiliates of its Third Party owner for a maximum disbursement amount of
$60,000. A portion of the loan was repaid ($4,895) with proceeds of the Offering
and the Private Placement, and a portion was considered repaid from the swap
agreement between PGI and the Third Party related to the Loan in Note 6 ($42,584
was recorded as a contribution from PGI in the period from January 1, 1997 to
November 17, 1997) and the remainder was forgiven ($67,847), as of November 16,
1997 and included in the extraordinary item--extinguishment of debt in the
period from January 1, 1997 to November 16, 1997. As of December 31, 1996 and
1995, $56,787

F-24
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

7. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES (CONTINUED)
and $50,896 respectively, had been funded under this agreement, and $40,873 and
$30,871 respectively, of accrued interest and $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 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, which is included as a component of interest expense.
Standby loan fees incurred were $460 for the period from January 1, 1997 to
November 16, 1997, and $522 and $498 for the years ended December 31, 1996 and
1995, respectively, (included in general and administrative expenses in the
combined statements of operations of the Predecessor). Under the terms of the
subordinate loan agreement, 77 West Wacker was 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.

(B) Permanent financing for the development of certain industrial properties
has been provided by $12,000 of tax exempt bonds which were converted to taxable
debt industrial development revenue bonds (IDBs). The Bonds mature on June 1,
2022. On November 17, 1997, PGI contributed the related bond receivables held by
an affiliate as part of its contribution to the Operating Partnership. On
December 13, 1995, $60,150 of IDBs were acquired by an affiliate of PGI 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 PGI.

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
1997, 3.90% to 5.501% during 1996 and 5.25% to 5.51% during 1995. The rate at
December 31, 1996 was 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.

Included in the extraordinary item--extinguishment of debt in the period
from January 1, 1997 to November 16, 1997, are $1,000 in loan termination fees
paid to an affiliate of the Third Party and the write-off of unamortized
deferred financing of $165.

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 $59 and $328 for the six months ended June 30, 1998 and 1997,
respectively, $32 for the period from January 1, 1997 to November 16, 1997 and
$1,256 and $3,538 for the years ended December 31, 1996 and 1995, respectively.
No interest was paid for the period from November 17, 1997 to December 31, 1997.

F-25
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

8. FUTURE MINIMUM LEASE INCOME AND PAYMENTS

The Company has 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 19%, 53%, 39%, 57%, 60%, and 65%, of the rental revenue for
the six months ended June 30, 1998 and 1997, for the period from November 17,
1997 to December 31, 1997, the period from January 1, 1997 to November 16, 1997,
and for the years ended December 31, 1996 and 1995, respectively, was received
from four tenants (only three tenants for the period from January 1, 1998 to
June 30, 1998).

The total future minimum rentals to be received under such noncancelable
operating leases executed through December 31, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 56,322
1999.............................................................................. 52,738
2000.............................................................................. 47,232
2001.............................................................................. 40,373
2002.............................................................................. 35,763
Thereafter........................................................................ 145,908
----------
$ 378,336
----------
----------
</TABLE>

Future minimum rentals include amounts to be received from the Company
totaling $2,546 and from PGI totaling $3,710.

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 December 31, 1997, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 1,210
1999................................................................................. 1,235
2000................................................................................. 1,263
2001................................................................................. 1,293
2002................................................................................. 757
---------
$ 5,758
---------
---------
</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

F-26
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

8. FUTURE MINIMUM LEASE INCOME AND PAYMENTS (CONTINUED)
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. In early November 1997, 77 West Wacker reached an
agreement with the tenant to terminate the lease. During the period from January
1, 1997 to November 16, 1997, 77 West Wacker recognized revenue from this tenant
only to the extent cash was received.

9. PREFERRED SHARES

The Company is authorized to issue up to 30,000,000 of non-voting preferred
shares of beneficial interest in one or more series with a $0.01 par value. At
June 30, 1998 4,000,000 Redeemable Preferred Shares and 2,000,000 Convertible
Preferred Shares were outstanding and at December 31, 1997, 2,000,000
Convertible Preferred Shares were outstanding.

Dividends on the Redeemable Preferred Shares are payable quarterly at an
annual rate of 9% of the Liquidation Preference ($25.00 per Redeemable Preferred
Share) and are senior in payment to any distributions to Convertible Preferred
Shares or Common Shares.

Dividends on the Convertible Preferred Shares are payable quarterly at the
greater of: (i)(x) an annual rate equal to the product of the issue price
("Issue Price"--$20.00) multiplied by 0.07% for Convertible dividend periods
ending before November 17, 1998 (The Company declared a dividend of $0.173 per
Convertible Preferred Share on December 31, 1997 which was paid on January 23,
1998.), and (y) an annual rate equal to the product of the Issue Price
multiplied by 0.075% for dividend periods ending after November 17, 1998, or
(ii) the regular cash dividends (determined on each dividend payment date) on
the Common Shares, or portion thereof, into which a Convertible Preferred Share
is convertible. The amount of dividends referred to in clause (i) above payable
for each full dividend period on the Convertible Preferred Shares, other than
the dividend period commencing October 1, 1998, shall be computed by dividing
the annual dividend rate by four. For the dividend period commencing October 1,
1998, the amount of dividends through November 17, 1998, on the Convertible
Preferred Shares shall be computed by dividing the product of the Issue Price
times 0.07% by 365 and multiplying the result by the number of days from October
1, 1998 through November 17, 1998 and dividends from November 18, 1998 through
December 31, 1998, on the Convertible Preferred Shares shall be computed by
dividing the product of the Issue Price times .075% by 365 and multiplying the
result by the number of days from November 18, 1998 through December 31, 1998.
The amount of dividends referred to in clause (ii) above shall equal the number
of Common Shares, or portion thereof, into which a Convertible Preferred Share
will be convertible on or after the conversion date as defined, multiplied by
the most current quarterly dividend on a Common Share on or before the
applicable dividend payment date. The Convertible Preferred Shares are
convertible into shares of Common Shares, at the shareholders' option, upon the
earliest to occur of: (i) September 17, 1998, (ii) the first day on which a
change of control occurs, as

F-27
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

9. PREFERRED SHARES (CONTINUED)
defined, (iii) the occurrence of a REIT termination event, as defined, or (iv)
such date as determined by the Company (the Conversion Date), to convert all or
any portion of such shares (or such shares as determined by the Company if
pursuant to clause (iv) above) into the number of fully paid and non-assessable
Common Shares obtained by dividing the aggregate liquidation preference amount
of such shares by the conversion price by surrendering such shares to be
converted. In the case of Convertible Preference Shares called for redemption,
conversion rights shall expire at the close of business on the fifth business
day prior to the redemption date fixed for such redemption.

The Convertible Preferred Shares have a liquidation preference equivalent to
$20.00 per share plus the amount equal to any accrued and unpaid dividends
thereon ("Convertible Liquidation Preference"). The Company has the right to
redeem the Convertible Preferred Shares beginning on and after November 17,
2007, in cash equal to 100% of the Convertible Liquidation Preference.
Notwithstanding, anything above to the contrary, beginning on June 17, 1998, and
ending on September 17, 1998, the Company, at its option, may redeem all, but
not less than all, of the Preferred Shares at a premium (the "Convertible
Special Redemption Price") calculated to result in a total internal rate of
return to the holder (including the receipt of dividends and calculated on an
annual compounded basis as if the holder had owned the shares since the Issue
Date) of 20.0%. The Convertible Special Redemption Price may be paid, at the
Company's option, in any combination of: (i) cash, and (ii) Common Shares valued
at fair market value; provided, that the cash portion of the Special Redemption
Price shall equal at least 75.0% of the Convertible Special Redemption Price.

The holders of the Convertible Preferred Shares have the right to elect two
additional members to the Company's Board of Directors if the equivalent of two
quarterly dividends are in arrears. Each of such two directors will be elected
to serve until the earlier of: (1) the election and qualification of such
directors' successor, or (2) payment of the dividend average.

F-28
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

10. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net
income available per weighted-average common share of beneficial interest as
follows:

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
1997 TO
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1998 1997
----------------- ------------
<S> <C> <C>
Numerator:
Net income available to Common Shares before extraordinary
item.................................................... $ 5,198 $ 447
Extraordinary item...................................... (525) --
----------------- ------------
Numerator for basic earnings per share--income available
to Common Shares........................................ $ 4,673 $ 447
----------------- ------------
----------------- ------------
Denominator:
Denominator for basic earnings per share-- weighted
average Common Shares................................... 14,383,258 12,593,000
----------------- ------------
Effect of dilutive securities:
Employee stock options................................ 16,545 --
----------------- ------------
Dilutive potential Common Shares.......................... 16,545 --
----------------- ------------
Denominator for diluted earnings per share-- adjusted
weighted-average shares and assumed conversions......... 14,399,803 12,593,000
----------------- ------------
----------------- ------------
Basic and diluted earnings available to Common Shares per
weighted average Common Share:
Net income before extraordinary item.................... $ 0.36 $ 0.04
Extraordinary item...................................... (0.04) --
----------------- ------------
Net income per Common Share............................. $ 0.32 $ 0.04
----------------- ------------
----------------- ------------
</TABLE>

Options to purchase 1,272,500 Common Shares per share were outstanding
during the period from January 1, 1998 through June 30, 1998 with a weighted
average purchase price of $20.05. In addition, options to purchase 105,000
Common Shares at $20.00 per share expired. The above options were not included
in the computation of diluted earnings per share because the conversion would be
antidilutive.

Options to purchase 1,160,500 Common Shares at $20.00 per share were
outstanding during the period from November 17, 1997 to December 31, 1997 but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.

The Company had 10,280,882 and 10,250,882 Common Units outstanding during
the period from January 1, 1998 through June 30, 1998 and the period from
November 17, 1997 to December 31, 1997, respectively, of which 9,353,782 and
9,323,782, respectively may be converted into Common Shares, after

F-29
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

10. EARNINGS PER SHARE (CONTINUED)
one year from the completion of the Offering at the option of the Company. The
Convertible Common Units, on a one for one basis, were not included in the
computation of diluted earnings per share because the conversion would be
antidilutive.

The Company had 2,000,000 Convertible Preferred Shares outstanding during
the period from January 1, 1998 through June 30, 1998 and the period from
November 17, 1997 to December 31, 1997 but were not included in the computation
of diluted earnings per share because the conversion would be antidilutive.

11. EMPLOYEE BENEFIT PLANS

On November 17, 1997 the Company established a Share Incentive Plan (the
"Plan") which permits the grant of stock options, stock appreciation rights,
restricted stock, restricted units and performance units to officers and other
key employees of the Company, its subsidiaries, the Operating Partnership, the
Services Company and Company-owned partnerships. The Plan also permits the grant
of stock options to non-employee Trustees.

Under the Plan, up to 1,850,000 Common Shares may be issued or transferred
to participants. The maximum aggregate number of Common Shares and Share
equivalent units that may be subject to awards granted during any calendar year
to any one participant under the Plan, regardless of the type of awards, will be
200,000. This limit will apply regardless of whether such compensation is paid
in Common Shares or Share equivalent units.

The effects on unaudited pro forma net income and pro forma earnings per
common share for the six months ended June 30, 1998 and for the period from
November 17, 1997 to December 31, 1997 of amortizing to expense the estimated
fair value of stock options are not necessarily representative of the effects on
net income to be reported in future years due to such things as vesting period
of the stock options, and the potential for issuance of additional stock options
in future years. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period.

Under the Plan, each person serving as a Trustee on November 17, 1997,
received options to acquire 5,000 shares. Stock options granted to the Trustees
have a term of 10 years and will vest and be exercisable at the rate of 33.3%
per year over three years commencing on the first anniversary of their date of
grant. On November 17, 1997, each of the seven Trustees received options to
acquire 5,000 shares at $20.00 per share (the closing price on the day of the
grant of the options).

The Board administers the Plan and has the authority to determine, among
other things, the individuals to be granted options, the exercise price at which
shares may be acquired, the number of shares subject to options and the vesting
requirements and the exercise period of each option. The Board is granted
discretion to determine the term of each option granted under the Plan to
employees, executives and Trustees, but in no event will the term exceed ten
years and one day from the date of the grant. On November 17, 1997, the Board
granted options to purchase a total of 1,113,000 shares at an exercise price of
$20.00 per share (the closing price on the day of the grant of the options) to
various executives and employees of the Company. Options for the shares granted
under the Plan to executives and employees have a term of 10 years and will be
exercisable and vest in installments as follows: (i) 33.3% of the number

F-30
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)
of shares commencing in the first anniversary of the date of grant; (ii) an
additional 33.3% for the shares commencing on the second anniversary of the date
of the grant; and (iii) the remainder of the shares commencing on the third
anniversary of the date of grant.

Under a consulting agreement between the Company and an executive of the
Company, the Board granted options to purchase 75,000 shares at an exercise
price of $20.00 per share. Pursuant to the agreement, the options granted have a
term of 10 years and will be exercisable and vest at the rate of 33.3% per year
over three years commencing on the first anniversary of their date of grant.

The unaudited pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its options under the fair value method of that statement. The
fair value for the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following approximated weighted
average assumptions for the six months ended June 30, 1998 and for the period
from November 17, 1997 to December 31, 1997; risk free interest rate of 5.41%,
dividend yield of 6.7%; volatility factor of the expected market price of the
Company's common stock of .156; and a weighted-average expected life of the
options of ten years. The unaudited pro forma expense would be $143 and $69
($0.01 per Common Share) for the six months ended June 30, 1998 and for the
period from November 17, 1997 to December 31, 1997, respectively.

The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion the existing models do
not necessarily provide a reliable single measure of the fair value of the
options granted under the Plan.

A summary of the Company's stock option activity, and related information
for the six months ended June 30, 1998 and for the period from November 17, 1997
through December 31, 1997 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
SUBJECT TO EXERCISE PRICE
OPTION PER SHARE
---------- ---------------
<S> <C> <C>
Initial options granted......................................... 1,160,500 $ 20.00
Options canceled................................................ -- --
---------- ------
Balance at December 31, 1997.................................... 1,160,500 20.00
Options canceled................................................ (105,000) 20.00
Options granted................................................. 112,000 20.41
---------- ------
Balance at June 30, 1998........................................ 1,167,500 $ 20.05
---------- ------
---------- ------
</TABLE>

At June 30, 1998 and December 31, 1997, no options were exercised and
options on 590,500 and 627,000 shares were available for future grant,
respectively. Exercise prices for options outstanding at June 30, 1998 and
December 31, 1997 ranged from $20.00 through $21.00 per share. The remaining
weighted-average contractual life of these options was approximately 9.88 years.
The weighted-average

F-31
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)
grant date fair value of all options granted is $1.98 and $1.39 for the six
months ended June 30, 1998 and for the period from November 17, 1997 through
December 31, 1997, respectively.

12. RELATED PARTY TRANSACTIONS

The Company owns 100% of the nonvoting preferred stock of the Service
Company which has an initial carrying value of $425 and has provided a loan in
the amount of $4,800 to the Service Company (included in due from affiliates at
June 30, 1998 and December 31, 1997). The loan bears interest at 11% per annum,
with interest payable monthly and principal due November 2007. During the six
months ended June 30, 1998 and the period from November 17, 1997 to December 31,
1997, the Company recorded interest income of $260 and $66 (included in due from
affiliates) related to the loan and $(2) and $(19), representing the Company's
share of the Service Company's loss from operations for each period,
respectively. (The net of $258 and $47 is included in other income,
respectively.) No interest income was received during the periods. In addition,
the Company has made non-interest bearing advances to the Service Company, of
which approximately $1226 and $392 is outstanding at June 30, 1998 and December
31, 1997 and included in due from affiliates.

In connection with the leasing and management of the Prime Properties, PGI
was entitled to payments and fees for services performed. Such amounts incurred
during the six months ended June 30, 1998, the period from January 1, 1997 to
November 16, 1997, and for the years ended December 31, 1996 and 1995 are
summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
SIX MONTHS 1997 TO DECEMBER 31
ENDED JUNE NOVEMBER 16, --------------------
30, 1997 1997 1996 1995
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Property management fee(a)...................... $ 735 $ 1,238 $ 1,429 $ 1,364
Administration fees(b).......................... 223 463 468 730
Construction management(c)...................... 89 -- 102 115
Legal fees(d)................................... 134 271 127 77
Leasing fees(e)................................. -- 2 19 280
Reimbursables(f)................................ 138 252 184 352
Asset management fee(g)......................... 66 110 132 132
</TABLE>

- ---------

(a) PGI was 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 in the combined financial statements
of the Predecessor.

(b) PGI was entitled to an annual administration fee as defined in the
Partnership agreement. Amounts are included in general and administrative
expenses in the combined financial statements of the Predecessor.

F-32
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

12. RELATED PARTY TRANSACTIONS (CONTINUED)
(d) PGI was reimbursed for reasonable legal and accounting expenses incurred in
connection with the operations of the Partnerships. Amounts are included in
general and administrative expenses in the combined financial statements of
the Predecessor.

(e) PGI was entitled to leasing commissions for all leases signed. The
commissions were equal to 1.5% to 3% of rent, exclusive of tenant
reimbursements, during the base term of the lease; commissions were payable
upon commencement of the respective leases.

(f) PGI was entitled to reimbursement for expenses paid for the benefit of the
Partnerships. Amounts are included in general and administrative expenses in
the combined financial statements of the Predecessor.

(g) PGI was 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 in the combined
financial statements of the Predecessor.

Amounts due to affiliates in the combined financial statements of the
Predecessor were for amounts due for advances made by affiliates. Amounts due
from affiliates in the combined financial statements of the Predecessor were for
advances made by the PGI Partnership to affiliates. Amounts due from and due to
affiliates were subject to interest at prime plus 2% and were payable upon
demand. Any unpaid amounts due to affiliates or amounts due from affiliates as
of November 16, 1997, have been reflected as distributions to or contributions
from PGI.

Average balances of amounts due from and due to affiliates for the Company
for the six months ended June 30, 1998 and for the period from November 17, 1997
to December 31, 1997 and for the Predecessor Properties for the six months ended
June 30, 1997 and the period from January 1, 1997 to November 16, 1997 and for
the years ended December 31 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
PREDECESSOR PROPERTIES
PRIME GROUP REALTY TRUST ----------------------------------------------------
------------------------------ SIX
PERIOD FROM MONTHS PERIOD FROM YEAR ENDED
SIX MONTHS NOVEMBER 17, 1997 ENDED JANUARY 1, DECEMBER 31
ENDED JUNE TO DECEMBER 31, JUNE 30, 1997 TO NOVEMBER --------------------
30, 1998 1997 1997 16, 1997 1996 1995
----------- ----------------- ----------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Due from affiliates...... $ 5,805 $ 4,076 $ 1,492 $ 1,447 $ 4,323 $ 3,251
Due to affiliates........ -- -- 721 354 821 1,107
</TABLE>

13. 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.

F-33
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

14. 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. Fair 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 Company and PGI
Partnerships in estimating their fair value disclosures for financial
instruments:

CASH AND CASH EQUIVALENTS

The carrying amount of cash and cash equivalents reported in the
consolidated and combined balance sheets approximates its fair value.

The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceed FDIC insurance coverage, and as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management believes that the risk is not significant.

MORTGAGE NOTES AND BONDS PAYABLE

The carrying amount of the Company's and PGI Partnerships' variable and
fixed rate borrowings approximates fair value based on the current borrowing
rate for similar types of borrowing arrangements.

The carrying amount of accrued interest in the consolidated and combined
balance sheets approximates fair value.

15. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in legal actions arising during the normal course
of business. Management believes that the ultimate outcome of those actions will
not materially affect the Company's consolidated financial position.

All of the Prime Properties and New Properties were subject to Phase I or
similar environmental assessment 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
included in the Prime 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 probable cost of approximately
$3,205. During 1997, PGI 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 Company
cannot yet be determined. During 1997, the PGI Partnerships recorded a liability
of $3,205 (included in accounts payable and accrued expenses at June 30, 1998
and December 31, 1997). PGI has

F-34
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contractually agreed to indemnify the Company from any environmental liabilities
the Company may incur.

16. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations of the Company are presented as if, at January 1, 1996, (i) the
Company had completed the Offering, the Preferred Share Private Placement, the
Overallotment, the Private Placement and the Redeemable Preferred Share Offering
and contributed the net proceeds to the Operating Partnership, (ii) PGI and
Contributors had contributed certain of their respective properties and
operations (the Contribution Properties) to the Operating Partnership, (iii) the
Operating Partnership had completed the sale of Common Units to Primestone, (iv)
the Operating Partnership acquired various office and industrial properties (the
Acquisition Properties), and the Continental Management Business from various
third parties, and (v) the Operating Partnership repaid debt on certain of the
Contribution Properties. In management's opinion, all adjustments necessary to
reflect the effects of the Offering, the Preferred Shares Private Placement, the
Overallotment and the Private Placement have been made.

The unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company are not necessarily indicative of what the actual results of
operations would have been assuming the Offering, the Preferred Share Private
Placement, the Overallotment and the Private Placement had occurred at the dates
indicated above, nor do they purport to represent the future results of
operations of the Company.

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ---------------------
1998 1997 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Total revenue........................................................ $ 75,499 $ 70,553 $ 100,465 $ 98,515
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net income........................................................... $ 8,209 $ 4,303 $ 9,328 $ 7,797
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net income (loss) available to common shareholders................... $ 2,309 $ (1,597) $ 6,528 $ 4,997
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Earnings (loss) per common share..................................... $ 0.15 $ (0.10) $ 0.50 $ 0.38
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>

F-35
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

17. REAL ESTATE AND ACCUMULATED DEPRECIATION

Real estate and accumulated depreciation, by property, consists of the
following:
<TABLE>
<CAPTION>
GROSS
AMOUNT
CARRIED
COSTS CAPITALIZED SUBSEQUENT AT
DECEMBER
INITIAL COST TO COMPANY TO ACQUISITION 31, 1997
DECEMBER 31, 1997 ------------------------ ------------------------------ ---------
----------------- BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND
- -------------------------------- ----------------- --------- ------------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Office:
77 West Wacker Building......... $ 159,000 $ 17,637 $ 162,755 $ -- $ -- $ 17,637
Nashville Office Building....... 4,800 1,530 7,072 -- -- 1,530
Professional Plaza.............. 9,000 -- 7,090 -- -- --
Old Kingston.................... 3,500 378 2,808 -- -- 378
Two Centre Square............... 9,000 -- 7,379 -- -- --
Triad Parking Facility.......... -- 507 1,046 -- -- 507
Hammond Enterprise Center....... -- 26 614 -- -- 26
Chicago Enterprise Center....... -- 775 975 -- -- 775
1990 Algonquin Road(1).......... -- 1,554 6,393 -- -- 1,554
2010 Algonquin Road(1).......... -- 509 2,044 -- -- 509
555 Huehl Road(1)............... -- 1,291 5,164 -- -- 1,291
1669 Woodfield Road(1).......... -- 1,962 7,853 -- -- 1,962
475 Superior Avenue............. -- 2,700 10,801 -- -- 2,700
2205-2255 Enterprise Drive(1)... -- 2,304 9,259 -- -- 2,304
280 Shuman Blvd................. -- 1,264 5,056 -- -- 1,264
Continental Towers.............. 698 21,831 87,324 -- -- 21,831
2675 Mayfair.................... -- 1,613 6,450 -- -- 1,613

Industrial:
East Chicago Enterprise
Center........................ -- 27 533 -- -- 27
Enterprise Center I............. 2,900 595 -- -- -- 595
Enterprise Center II............ 5,000 18 2,360 -- -- 18
Enterprise Center III........... 4,500 20 7,038 -- -- 20
Enterprise Center IV............ 2,600 11 1,217 -- -- 11
Enterprise Center V............. 5,000 81 2,883 -- -- 81
Enterprise Center VI............ 4,900 101 2,936 -- -- 101
Enterprise Center VII........... 7,200 548 4,968 -- -- 548
Enterprise Center VIII.......... 7,000 151 2,493 -- -- 151
Enterprise Center IX............ 4,750 269 1,127 -- -- 269
Enterprise Center X............. 4,300 275 2,836 -- -- 275
Arlington Heights I............. -- 617 2,638 -- -- 617
Arlington Heights II............ -- 456 2,062 -- -- 456
Arlington Heights III........... -- 452 1,938 -- -- 452
2160 McGraw Rd.................. -- 904 3,617 -- -- 904

DECEMBER 31, 1997
------------------- DATE OF
BUILDING AND ACCUMULATED ACQUISITION(A)
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONTRIBUTION(C)
- -------------------------------- ------------- --------- ------------------- -------------------
<S> <C> <C> <C> <C>
Office:
77 West Wacker Building......... $ 162,755 $ 180,392 $ (835) 1997(C)
Nashville Office Building....... 7,072 8,602 (29) 1997(C)
Professional Plaza.............. 7,090 7,090 (71) 1997(C)
Old Kingston.................... 2,808 3,186 (25) 1997(C)
Two Centre Square............... 7,379 7,379 (74) 1997(C)
Triad Parking Facility.......... 1,046 1,553 (5) 1997(C)
Hammond Enterprise Center....... 614 640 (4) 1997(C)
Chicago Enterprise Center....... 975 1,750 (162) 1997(C)
1990 Algonquin Road(1).......... 6,393 7,947 (19) 1997(A)
2010 Algonquin Road(1).......... 2,044 2,553 (6) 1997(A)
555 Huehl Road(1)............... 5,164 6,455 (27) 1997(A)
1669 Woodfield Road(1).......... 7,853 9,815 (24) 1997(A)
475 Superior Avenue............. 10,801 13,501 (29) 1997(A)
2205-2255 Enterprise Drive(1)... 9,259 11,563 (27) 1997(A)
280 Shuman Blvd................. 5,056 6,320 (16) 1997(A)
Continental Towers.............. 87,324 109,155 (126) 1997(A)
2675 Mayfair.................... 6,450 8,063 (1) 1997(A)
Industrial:
East Chicago Enterprise
Center........................ 533 560 (4) 1997(C)
Enterprise Center I............. -- 595 (4) 1997(C)
Enterprise Center II............ 2,360 2,378 (14) 1997(C)
Enterprise Center III........... 7,038 7,058 (41) 1997(C)
Enterprise Center IV............ 1,217 1,228 (16) 1997(C)
Enterprise Center V............. 2,883 2,964 22 1997(C)
Enterprise Center VI............ 2,936 3,037 (20) 1997(C)
Enterprise Center VII........... 4,968 5,516 (51) 1997(C)
Enterprise Center VIII.......... 2,493 2,644 -- 1997(C)
Enterprise Center IX............ 1,127 1,396 (13) 1997(C)
Enterprise Center X............. 2,836 3,111 (44) 1997(C)
Arlington Heights I............. 2,638 3,255 (28) 1997(C)
Arlington Heights II............ 2,062 2,518 (19) 1997(C)
Arlington Heights III........... 1,938 2,390 (18) 1997(C)
2160 McGraw Rd.................. 3,617 4,521 (47) 1997(A)
</TABLE>

F-36
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

17. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT CARRIED
DECEMBER 31, COMPANY ACQUISITION AT DECEMBER 31, 1997
1997 --------------------- --------------------- ---------------------
------------ BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- --------------------------------------------- ------------ ------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
4849 Groveport............................... $ $ 507 $ 2,030 $ -- $ -- $ 507 $ 2,030
2400 McGraw Rd............................... -- 348 1,392 -- -- 348 1,392
5160 Blazer Memorial Pkwy.................... -- 470 1,880 -- -- 470 1,880
600 London Rd................................ -- 223 890 -- -- 223 890
4411 Marketing Place......................... -- 445 1,780 -- -- 445 1,780
1001 Technology Way.......................... 6,412 1,909 7,637 -- -- 1,909 7,637
801 Technology Way........................... 3,984 813 3,253 -- -- 813 3,253
3818 Grandville/1200 Northwestern(1)......... -- 2,125 8,505 -- -- 2,125 8,505
306-310 Era Drive(1)......................... -- 719 2,878 -- -- 719 2,878
1301 Ridgeview Drive(1)...................... -- 2,287 9,148 -- -- 2,287 9,148
515 Huehl Road/500 Lindburg(1)............... -- 1,775 7,100 -- -- 1,775 7,100
455 Academy Drive(1)......................... -- 754 3,018 -- -- 754 3,018
1051 N. Kirk Road(1)......................... -- 911 3,645 -- -- 911 3,645
4211 Madison Street(1)....................... -- 690 2,759 -- -- 690 2,759
200 E. Fullerton(1).......................... -- 525 2,100 -- -- 525 2,100
350 Randy Road(1)............................ -- 267 1,063 -- -- 267 1,063
4300, 4248, 4250 Madison Street(1)........... -- 1,147 4,588 -- -- 1,147 4,588
370 Carol Lane(1)............................ -- 527 2,107 -- -- 527 2,107
388 Carol Lane(1)............................ -- 332 1,329 -- -- 332 1,329
941-961 Wiegel Drive(1)...................... -- 3,268 13,060 -- -- 3,268 13,060
342-346 Carol Lane(1)........................ -- 600 2,398 -- -- 600 2,398
343 Carol Lane(1)............................ -- 350 1,398 -- -- 350 1,398
371-385 N. Gary Avenue(1).................... -- 218 871 -- -- 218 871
350 N. Mannheim Road(1)...................... -- 81 325 -- -- 81 325
1600-1700 167th Street(1).................... -- 1,073 4,291 -- -- 1,073 4,291
1301 E. Tower Road(1)........................ -- 1,005 4,020 -- -- 1,005 4,020
4343 Commerce Court(1)....................... -- 5,370 21,480 -- -- 5,370 21,480
11039 Gage Avenue(1)......................... -- 191 767 -- -- 191 767
11045 Gage Avenue(1)......................... -- 1,274 5,092 -- -- 1,274 5,092
1401 S. Jefferson(1)......................... -- 171 685 -- -- 171 685
4100 Madison Street(1)....................... -- 42 169 -- -- 42 169
4160-4190 Madison Street(1).................. -- 931 3,708 -- -- 931 3,708
550 Kehoe Blvd.(1)........................... -- 686 2,744 -- -- 686 2,744
------------ ------- ------------ ------- ----- ------- ------------
Total........................................ $244,544 $92,440 $496,839 $ -- $ -- $92,440 $496,839
------------ ------- ------------ ------- ----- ------- ------------
------------ ------- ------------ ------- ----- ------- ------------

DECEMBER 31, 1997
----------------- DATE OF
ACCUMULATED ACQUISITION(A)
DESCRIPTION TOTAL DEPRECIATION CONTRIBUTION(C)
- --------------------------------------------- -------- ----------------- ---------------
<S> <C> <C> <C>
4849 Groveport............................... $ 2,537 $ (26) 1997(A)
2400 McGraw Rd............................... 1,740 (18) 1997(A)
5160 Blazer Memorial Pkwy.................... 2,350 (24) 1997(A)
600 London Rd................................ 1,113 (11) 1997(A)
4411 Marketing Place......................... 2,225 (23) 1997(A)
1001 Technology Way.......................... 9,546 (40) 1997(A)
801 Technology Way........................... 4,066 (17) 1997(A)
3818 Grandville/1200 Northwestern(1)......... 10,630 (42) 1997(A)
306-310 Era Drive(1)......................... 3,597 (15) 1997(A)
1301 Ridgeview Drive(1)...................... 11,435 (48) 1997(A)
515 Huehl Road/500 Lindburg(1)............... 8,875 (37) 1997(A)
455 Academy Drive(1)......................... 3,772 (16) 1997(A)
1051 N. Kirk Road(1)......................... 4,556 (11) 1997(A)
4211 Madison Street(1)....................... 3,449 (9) 1997(A)
200 E. Fullerton(1).......................... 2,625 (7) 1997(A)
350 Randy Road(1)............................ 1,330 (3) 1997(A)
4300, 4248, 4250 Madison Street(1)........... 5,735 (14) 1997(A)
370 Carol Lane(1)............................ 2,634 (7) 1997(A)
388 Carol Lane(1)............................ 1,661 (4) 1997(A)
941-961 Wiegel Drive(1)...................... 16,328 (41) 1997(A)
342-346 Carol Lane(1)........................ 2,998 (7) 1997(A)
343 Carol Lane(1)............................ 1,748 (4) 1997(A)
371-385 N. Gary Avenue(1).................... 1,089 (3) 1997(A)
350 N. Mannheim Road(1)...................... 406 (1) 1997(A)
1600-1700 167th Street(1).................... 5,364 (13) 1997(A)
1301 E. Tower Road(1)........................ 5,025 (13) 1997(A)
4343 Commerce Court(1)....................... 26,850 (63) 1997(A)
11039 Gage Avenue(1)......................... 958 (2) 1997(A)
11045 Gage Avenue(1)......................... 6,366 (16) 1997(A)
1401 S. Jefferson(1)......................... 856 (2) 1997(A)
4100 Madison Street(1)....................... 211 (4) 1997(A)
4160-4190 Madison Street(1).................. 4,639 (11) 1997(A)
550 Kehoe Blvd.(1)........................... 3,430 (9) 1997(A)
-------- -------
Total........................................ $589,279 $(2,338)
-------- -------
-------- -------
</TABLE>

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

(1) These properties are collateral for $83,500 in mortgage notes payable. See
Note 5.

F-37
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)

AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

17. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

The aggregate gross cost of the properties included above, for federal
income tax purposes, approximated $708,267 as of December 31, 1997.

The following table reconciles the historical cost of the Company from
November 17, 1997 to December 31, 1997.

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Additions during year--Contributions, acquisition, improvements, etc............ $ 589,279
------------
Balance, close of period........................................................ $ 589,279
------------
------------
</TABLE>

The following table reconciles the accumulated depreciation from November
17, 1997 to December 31, 1997.

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
1997 TO
DECEMBER 31,
1997
-------------
<S> <C>
Additions during year--Depreciation and amortization for the year............... $ 2,338
------
Balance, close of period........................................................ $ 2,338
------
------
</TABLE>

18. SUBSEQUENT EVENTS

During the period of July to September 1998, the Company acquired four land
parcels for a total purchase price of approximately $6.9 million.

As of September 25, 1998 the Company was party to contracts to acquire two
office buildings (IBM Plaza and National City Center), one industrial property
(300 Craig Place) and two land parcels located in the Chicago Metropolitan Area
for a total purchase price of approximately $435.9 million (the "Pending
Acquisitions"). The Company expects to complete the remaining Pending
Acquisitions by the first quarter of 1999. However, the purchase of the Pending
Acquisitions is subject to the Company's completion of due diligence and the
satisfaction of other customary closing conditions and there can be no assurance
that any or all of the Pending Acquisitions will be completed.

On September 15, 1998, the Company terminated the purchase agreement for the
two office buildings described above (which had an aggregate purchase price of
approximately $357.0 million), in accordance with the terms of the agreement,
because the sellers were unable to satisfy a material condition precedent to the
closing of these acquisitions. On September 21, 1998, the sellers notified the
Company in writing that they believed they were entitled to the $20.0 million
earnest money provided for by the agreement, and instructed the earnest money
escrow agent to draw an aggregate of $20.0 million under two earnest money
letters of credit provided by the Company under the terms of the purchase
agreement. In

F-38
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)

AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS --(CONTINUED)

(DOLLARS IN THOUSANDS)

18. SUBSEQUENT EVENTS (CONTINUED)
accordance with such instructions, the earnest money escrow agent drew down
$20.0 million under the earnest money letters of credit and deposited the funds
in an escrow account. Pursuant to the terms of the purchase agreement, such
$20.0 million earnest money funds will remain deposited in the escrow account
until the escrow agent receives a joint disbursement direction from the Company
and the sellers or until a court of competent jurisdiction directs the
disbursement of the escrow funds in a final order. The escrow agent's draw on
the earnest money letters of credit, which were issued under the Credit
Facility, increased the Company's outstanding indebtedness under the Credit
Facility by $20.0 million. The Company believes that the sellers are not
entitled to the earnest money and intends to vigorously pursue available
remedies to obtain a return of the $20.0 million drawn on the earnest money
letters of credit. On September 21, 1998, the sellers filed a complaint against
the Company alleging that the Company breached the contract and seeking, among
other things, the $20.0 million in earnest money now held in the escrow account.
Although the Company intends to vigorously defend this lawsuit, the Company is
unable to predict the outcome of this dispute.

On September 14, 1998, the Company established a program to repurchase up to
1.55 million of its Common Shares in open market and privately negotiated
transactions. As of September 25, 1998, the Company had repurchased 259,400
Common Shares for an aggregate purchase price of approximately $4.0 million.

F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Prime Industrial Contribution Properties (the Properties) for the
period from March 1, 1996 to December 31, 1996. The Combined Statement of
Revenue and Certain Expenses is the responsibility of the Properties'
management. Our responsibility is to express an opinion on the Combined
Statement of Revenue and Certain Expenses 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 Combined Statement of Revenue and Certain
Expenses is free from material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the Combined
Statement 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 Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.

The accompanying Combined Statement of Revenue and Certain Expenses was
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 as described in Note 2 and is not
intended to be a complete presentation of the Properties' revenue and expenses.

In our opinion, the Combined Statement of Revenue and Certain Expenses
referred to above presents fairly, in all material respects, the combined
revenue and certain expenses described in Note 2 of the Properties for the
period from March 1, 1996 to December 31, 1996, in conformity with generally
accepted accounting principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
August 20, 1997

F-40
<PAGE>
PRIME INDUSTRIAL CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO PERIOD FROM
SEPTEMBER 30, 1997 MARCH 1, 1996 TO
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 912 $ 1,608
Tenant reimbursements...................................................... 112 138
------ ------
Total revenue.............................................................. 1,024 1,746
Expenses
Property operating......................................................... 105 158
Real estate taxes.......................................................... 166 219
------ ------
Total expenses............................................................. 271 377
------ ------
Revenue in excess of certain expenses...................................... $ 753 $ 1,369
------ ------
------ ------
</TABLE>

See accompanying notes.

F-41
<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 September 30, 1997 the Properties had seven tenants
(unaudited), three of which accounted for approximately 82% (unaudited) of
rental revenue for the period from January 1, 1997 to September 30, 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. INTERIM PERIOD (UNAUDITED)

The unaudited Statement of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997, has been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments of a normal recurring nature
considered necessary for a fair presentation have been included. Operating
results for the period from January 1, 1997 to September 30, 1997, are not
necessarily indicative of future operating results.

4. 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

F-42
<PAGE>
PRIME INDUSTRIAL CONTRIBUTION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
excess of specified base amounts. The total future minimum rentals to be
received under such noncancelable operating leases executed through September
30, 1997, exclusive of tenant reimbursements and contingent rentals, are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................. $ 422
1998................................................................................. 1,395
1999................................................................................. 1,203
2000................................................................................. 1,025
2001................................................................................. 844
Thereafter........................................................................... 3,696
---------
$ 8,585
---------
---------
</TABLE>

F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of IBD Properties (the Properties) for the year ended December 31,
1996. The Combined Statement of Revenue and Certain Expenses is the
responsibility of the Properties' management. Our responsibility is to express
an opinion on the Combined Statement of Revenue and Certain Expenses based on
our audit.

In our opinion, the Combined Statement of Revenue and Certain Expenses
referred to above presents fairly, in all material respects, the combined
revenue and certain expenses described in Note 2 of the Properties for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
August 20, 1997

F-44
<PAGE>
IBD PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 3,787 $ 5,131
Tenant reimbursements...................................................... 309 227
------ ------
Total revenue.............................................................. 4,096 5,358
Expenses
Property operating......................................................... 34 39
Real estate taxes.......................................................... 449 461
------ ------
Total expenses............................................................. 483 500
------ ------
Revenue in excess of certain expenses...................................... $ 3,613 $ 4,858
------ ------
------ ------
</TABLE>

See accompanying notes.

F-45
<PAGE>
IBD 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 IBD Properties (the Properties). As of
September 30, 1997, the Properties had six tenants (unaudited), two of which
accounted for approximately 78% of rental revenue for the period from January 1,
1997 to September 30, 1997 (unaudited), 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. INTERIM PERIOD (UNAUDITED)

4. 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

F-46
<PAGE>
IBD PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 1,257
1998............................................................................... 5,095
1999............................................................................... 5,256
2000............................................................................... 5,164
2001............................................................................... 5,298
Thereafter......................................................................... 16,304
---------
$ 38,374
---------
---------
</TABLE>

F-47
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of NAC Properties (the Properties) for the year ended December 31,
1996. The Combined Statement of Revenue and Certain Expenses is the
responsibility of the Properties' management. Our responsibility is to express
an opinion on the Combined Statement of Revenue and Certain Expenses based on
our audit.

In our opinion, the Combined Statement of Revenue and Certain Expenses
referred to above presents fairly, in all material respects, the combined
revenue and certain expenses described in Note 2 of the Properties for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
October 10, 1997

F-48
<PAGE>
NAC PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 7,619 $ 9,506
Tenant reimbursements...................................................... 1,798 2,171
------ ------
Total revenue.............................................................. 9,417 11,677
Expenses
Property operating......................................................... 1,257 1,687
Real estate taxes.......................................................... 1,195 1,427
------ ------
Total expenses............................................................. 2,452 3,114
------ ------
Revenue in excess of certain expenses...................................... $ 6,965 $ 8,563
------ ------
------ ------
</TABLE>

See accompanying notes.

F-49
<PAGE>
NAC 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 21 office buildings and industrial buildings located in the
Chicago metropolitan area referred to as the NAC Properties (the Properties). As
of September 30, 1997, the Properties had 77 tenants (unaudited), one of which
accounted for approximately 16% of rental revenue for the period from January 1,
1997 to September 30, 1997, (unaudited) 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. INTERIM PERIOD (UNAUDITED)

4. RENTALS

F-50
<PAGE>
NAC PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 2,516
1998............................................................................... 8,447
1999............................................................................... 6,343
2000............................................................................... 3,715
2001............................................................................... 2,396
Thereafter......................................................................... 4,446
---------
$ 27,863
---------
---------
</TABLE>

F-51
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of Citibank Office Plaza (the Property) for the year ended December 31, 1996.
The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 Statement of Revenue and Certain
Expenses. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 of the Property for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
August 20, 1997

F-52
<PAGE>
CITIBANK OFFICE PLAZA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 1,315 $ 1,506
Tenant reimbursements...................................................... 256 479
------ ------
Total revenue.............................................................. 1,571 1,985
------ ------
Expenses
Property operating......................................................... 488 586
Real estate taxes.......................................................... 339 456
------ ------
Total expenses............................................................. 827 1042
------ ------
Revenue in excess of certain expenses...................................... $ 744 $ 943
------ ------
------ ------
</TABLE>

See accompanying notes.

F-53
<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 September 30, 1997, the Property had twenty
tenants (unaudited), two of which accounted for approximately 58% of rental
revenue for the period from January 1, 1997 to September 30, 1997 (unaudited),
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 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. INTERIM PERIOD (UNAUDITED)

4. 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

F-54
<PAGE>
CITIBANK OFFICE PLAZA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
operating leases executed through September 30, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................. $ 412
1998................................................................................. 1,660
1999................................................................................. 1,537
2000................................................................................. 1,096
2001................................................................................. 818
Thereafter........................................................................... 726
---------
$ 6,249
---------
---------
</TABLE>

F-55
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Salt Creek Office Center (the Property) for the year ended December
31, 1996. The Combined Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express an
opinion on the Combined Statement of Revenue and Certain Expenses based on our
audit.

In our opinion, the Combined Statement of Revenue and Certain Expenses
referred to above presents fairly, in all material respects, the combined
revenue and certain expenses described in Note 2 of the Property for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
August 20, 1997

F-56
<PAGE>
SALT CREEK OFFICE CENTER

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 890 $ 1,086
Tenant reimbursements...................................................... 595 721
------ ------
Total revenue.............................................................. 1,485 1,807
------ ------
Expenses
Property operating......................................................... 277 482
Real estate taxes.......................................................... 374 475
------ ------
Total expenses............................................................. 651 957
------ ------
Revenue in excess of certain expenses...................................... $ 834 $ 850
------ ------
------ ------
</TABLE>

See accompanying notes.

F-57
<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 September 30, 1997
the Property had thirty-nine tenants (unaudited), one of which accounted for
approximately 19% of rental revenue for the period from January 1, 1997 to
September 30, 1997 (unaudited) 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 amortization 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. INTERIM PERIOD (UNAUDITED)

4. 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

F-58
<PAGE>
SALT CREEK OFFICE CENTER

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
be received under such noncancelable operating leases executed through September
30, 1997, exclusive of tenant reimbursements, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................. $ 295
1998 1,104
1999................................................................................. 894
2000................................................................................. 614
2001................................................................................. 289
Thereafter........................................................................... 109
---------
$ 3,305
---------
---------
</TABLE>

F-59
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 280 Shuman Boulevard (the Property) for the ended December 31, 1996. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 Statement of Revenue and Certain
Expenses. We believe that our audit provides a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
October 10, 1997

F-60
<PAGE>
280 SHUMAN BOULEVARD

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
--------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 918 $ 1,011
Tenant reimbursements...................................................... 51 20
----- ------
Total revenue.............................................................. 969 1,031
----- ------
Expenses
Property operating......................................................... 222 270
Real estate taxes.......................................................... 97 97
----- ------
Total expenses............................................................. 319 367
----- ------
Revenue in excess of certain expenses...................................... $ 650 $ 664
----- ------
----- ------
</TABLE>

See accompanying notes.

F-61
<PAGE>
280 SHUMAN BOULEVARD

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 280 Schuman Boulevard, an office building located in Naperville,
Illinois (the Property). As of September 30, 1997, the Property had 13 tenants
(unaudited), 4 of which accounted for approximately 66% and 72% of rental
revenue for the period from January 1, 1997 to September 30, 1997 (unaudited),
and for the year ended December 31, 1996, respectively.

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. INTERIM PERIOD (UNAUDITED)

4. RENTALS

The Property has lease agreements with lease terms ranging from one year to
ten 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

F-62
<PAGE>
280 SHUMAN BOULEVARD

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
operating leases executed through September 30, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................. $ 248
1998................................................................................. 956
1999................................................................................. 857
2000................................................................................. 826
2001................................................................................. 522
Thereafter........................................................................... 995
---------
$ 4,404
---------
---------
</TABLE>

F-63
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 475 Superior Avenue (the Property) for the year ended December 31, 1996. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 Statement of Revenue and Certain
Expenses. We believe that our audit provides a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
October 10, 1997

F-64
<PAGE>
475 SUPERIOR AVENUE

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 979 $ 1,250
Tenant reimbursements...................................................... 321 515
------ ------
Total revenue.............................................................. 1,300 1,765
------ ------
Expenses
Property operating......................................................... 33 27
Real estate taxes.......................................................... 315 472
------ ------
Total expenses............................................................. 348 499
------ ------
Revenue in excess of certain expenses...................................... $ 952 $ 1,266
------ ------
------ ------
</TABLE>

See accompanying notes.

F-65
<PAGE>
475 SUPERIOR AVENUE

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 475 Superior Avenue, an industrial building located in Munster,
Indiana (the Property). As of September 30, 1997, the Property had one tenant
(unaudited) which accounted for approximately 100% of rental revenue for the
period from January 1, 1997 to September 30, 1997 (unaudited), 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. INTERIM PERIOD (UNAUDITED)

4. RENTALS

The Property has a lease agreement with a lease term of ten years. The lease
provides for the tenant to share in increases in operating expenses and real
estate taxes in excess of specified base amounts. The

F-66
<PAGE>
475 SUPERIOR AVENUE

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
total future minimum rentals to be received under such noncancelable operating
lease as of September 30, 1997, exclusive of tenant reimbursements and
contingent rentals, are as follows:

F-67
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of Continental Office Towers (the Property) for the year ended December 31,
1996. The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
December 5, 1997

F-68
<PAGE>
CONTINENTAL OFFICE TOWERS

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 6,117 $ 8,302
Tenant reimbursements...................................................... 5,940 7,208
Other income............................................................... 113 153
------- -------
Total revenue.............................................................. 12,170 15,663
------- -------
Expenses
Cleaning................................................................... 714 829
Utilities.................................................................. 796 1,025
Other property operating................................................... 2,820 3,764
Real estate taxes.......................................................... 2,170 2,639
------- -------
Total expenses............................................................. 6,500 8,257
------- -------
Revenue in excess of certain expenses...................................... $ 5,670 $ 7,406
------- -------
------- -------
</TABLE>

See accompanying notes.

F-69
<PAGE>
CONTINENTAL OFFICE TOWERS

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations of Continental Office Towers, a three office building complex located
in Rolling Meadows, Illinois (the Property). As of September 30, 1997, the
Property had fifty-five tenants (unaudited), three of which accounted for
approximately 46% of rental revenue for the period from January 1, 1997 to
September 30, 1997 (unaudited) 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 incurred.

USE OF ESTIMATES

The preparation of the Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles require 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. INTERIM PERIOD (UNAUDITED)

4. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 5% of gross collections or $612 (unaudited) and
$783 for the period from January 1, 1997 to September 30, 1997 and for the year
ended December 31, 1996, respectively, which are included in other property
operating expenses.

F-70
<PAGE>
CONTINENTAL OFFICE TOWERS

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

5. RENTALS

The Property has lease agreements with lease terms ranging from one year 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 as of September 30, 1997, exclusive of tenant reimbursements
and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 2,036
1998............................................................................... 8,270
1999............................................................................... 7,271
2000............................................................................... 4,299
2001............................................................................... 2,265
Thereafter......................................................................... 1,753
---------
$ 25,894
---------
---------
</TABLE>

F-71
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 180 North LaSalle Street (the Property) for the year ended December 31, 1996.
The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
December 2, 1997

F-72
<PAGE>
180 NORTH LASALLE STREET

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Revenue
Rental..................................................................... $ 8,905 $ 11,828
Tenant reimbursements...................................................... 210 221
Other income............................................................... 243 135
------ -------
Total revenue.............................................................. 9,358 12,184
------ -------
Expenses
Cleaning................................................................... 723 996
Utilities.................................................................. 906 1,204
Other property operating................................................... 1,325 1,905
Real estate taxes.......................................................... 3,526 4,474
------ -------
Total expenses............................................................. 6,480 8,579
------ -------
Revenue in excess of certain expenses...................................... $ 2,878 $ 3,605
------ -------
------ -------
</TABLE>

See accompanying notes.

F-73
<PAGE>
180 NORTH LASALLE STREET

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations of 180 North LaSalle Street, an office building located in Chicago,
Illinois (the Property). As of September 30, 1997, the Property had eighty-nine
tenants (unaudited), two of which accounted for approximately 40% of rental
revenue for the period from January 1, 1997 to September 30, 1997 (unaudited),
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 incurred.

USE OF ESTIMATES

The preparation of the Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles require management to
make estimates and assumptions that affect the reported amounts of revenue and
certain expenses during the reporting periods. Actual results could differ from
these estimates.

3. INTERIM PERIOD (UNAUDITED)

4. RENTALS

F-74
<PAGE>
180 NORTH LASALLE STREET

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
operating leases as of September 30, 1997, exclusive of tenant reimbursements
and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 2,872
1998............................................................................... 10,332
1999............................................................................... 7,872
2000............................................................................... 6,004
2001............................................................................... 5,053
---------
Thereafter......................................................................... 7,135
---------
$ 39,268
---------
---------
</TABLE>

5. RELATED PARTY

The Property was managed by an affiliate of the current owner. Management
fees of $282 (unaudited) and $371 were incurred for the period from January 1,
1997 to September 30, 1997 and for the year ended December 31, 1996,
respectively. The management agreement provided for fees of 3% of gross
receipts, as defined. In addition, the management company and its affiliates are
tenants at the Property. The management company and its affiliates paid
approximately $2,013 (unaudited) and $2,650 in lease payments to the Property
for the period from January 1, 1997 to September 30, 1997 and for the year ended
December 31, 1996, respectively. Future minimum rentals in Note 4 include
amounts to be received from the management company and its affiliates totaling
$14,656.

F-75
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees

Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 2675 Mayfair (the Property) for the period from January 1, 1997 to September
30, 1997. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the period from January 1, 1997 to September
30, 1997, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
December 4, 1997

F-76
<PAGE>
2675 MAYFAIR

STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997
-------------------
<S> <C>
Revenue
Rental........................................................................................ $ 1,076
Tenant reimbursements......................................................................... 6
------
Total revenue................................................................................. 1,082
------
Expenses
Cleaning...................................................................................... 80
Utilities..................................................................................... 104
Other property operating...................................................................... 144
Real estate taxes............................................................................. 152
------
Total expenses................................................................................ 480
------
Revenue in excess of certain expenses......................................................... $ 602
------
------
</TABLE>

See accompanying notes.

F-77
<PAGE>
2675 MAYFAIR

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 2675 Mayfair, an office building located in Wauwatosa, Wisconsin
(the Property). As of September 30, 1997, the Property had thirteen tenants
(unaudited), one of which accounted for approximately 55% of rental revenue for
the period from January 1, 1997 to September 30, 1997.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying Statement of Revenue and Certain Expenses was 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 statement is not representative of the actual
operations of the Property for the period 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 incurred.

USE OF ESTIMATES

The preparation of the Statement 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 periods. Actual results could differ from
these estimates.

3. RENTALS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................. $ 376
1998................................................................................. 1,399
1999................................................................................. 864
2000................................................................................. 275
2001................................................................................. 257
Thereafter........................................................................... 1,289
---------
$ 4,460
---------
---------
</TABLE>

F-78
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 33 North Dearborn (the Property) for the period from January 1, 1997 to
September 30, 1997. The Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express an
opinion on the Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the period from January 1, 1997 to September
30, 1997, in conformity with generally accepted accounting principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
November 24, 1997

F-79
<PAGE>
33 NORTH DEARBORN

STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997
-------------------
<S> <C>
Revenue
Rental........................................................................................ $ 3,417
Tenant reimbursements......................................................................... 989
Other income.................................................................................. 51
------
Total revenue................................................................................. 4,457
------
Expenses
Cleaning...................................................................................... 316
Utilities..................................................................................... 458
Other property operating...................................................................... 959
Real estate taxes............................................................................. 1,059
------
Total expenses................................................................................ 2,792
------
Revenue in excess of certain expenses......................................................... $ 1,665
------
------
</TABLE>

See accompanying notes.

F-80
<PAGE>
33 NORTH DEARBORN

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 33 North Dearborn, an office building located in Chicago, Illinois
(the Property). As of September 30, 1997, the Property had sixty tenants
(unaudited).

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

The preparation of the Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles require management to
make estimates and assumptions that affect the reported amounts of revenue and
certain expenses during the reporting periods. Actual results could differ from
these estimates.

3. RENTALS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 1,122
1998............................................................................... 4,464
1999............................................................................... 4,230
2000............................................................................... 3,863
2001............................................................................... 3,271
Thereafter......................................................................... 7,125
---------
$ 24,075
---------
---------
</TABLE>

F-81
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of Commerce Point (the Property) for the period from January 1, 1997 to
September 30, 1997. The Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express an
opinion on the Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses described in Note 2 for the period from January 1, 1997 to September
30, 1997, in conformity with generally accepted accounting principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
December 20, 1997

F-82
<PAGE>
COMMERCE POINT

STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
SEPTEMBER 30, 1997
-------------------
<S> <C>
Revenue
Rental........................................................................................ $ 2,323
Tenant reimbursements......................................................................... 1,687
Other income.................................................................................. 50
------
Total revenue................................................................................. 4,060
------
Expenses
Cleaning...................................................................................... 120
Utilities..................................................................................... 185
Other property operating...................................................................... 434
Real estate taxes............................................................................. 943
------
Total expenses................................................................................ 1,682
------
Revenue in excess of certain expenses......................................................... $ 2,378
------
------
</TABLE>

See accompanying notes.

F-83
<PAGE>
COMMERCE POINT

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statement of Revenue and Certain Expenses relates to the
operations of Commerce Point, an office complex located in Arlington Heights,
Illinois (the Property). As of September 30, 1997, the Property had twenty-seven
tenants (unaudited), one of which accounted for approximately 52% of rental
revenue for the period from January 1, 1997 to September 30, 1997.

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 Property has lease agreements with lease terms ranging from one year to
six 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 as of September 30, 1997, exclusive of tenant reimbursements
and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 680
1998............................................................................... 2,903
1999............................................................................... 2,871
2000............................................................................... 2,822
2001............................................................................... 2,643
Thereafter......................................................................... 2,895
---------
$ 14,814
---------
---------
</TABLE>

F-84
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 208 South LaSalle (the Property) for the year ended December 31, 1997. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
January 30, 1998

F-85
<PAGE>
208 SOUTH LASALLE

STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenue
Rental......................................................................................... $ 9,782
Tenant reimbursements.......................................................................... 2,560
Other revenue.................................................................................. 251
-------
Total revenue.................................................................................. 12,593
-------
Expenses
Cleaning....................................................................................... 1,008
Utilities...................................................................................... 2,177
Other property operating....................................................................... 2,818
Real estate taxes.............................................................................. 1,854
-------
Total expenses................................................................................. 7,857
-------
Revenue in excess of certain expenses.......................................................... $ 4,736
-------
-------
</TABLE>

See accompanying notes.

F-86
<PAGE>
208 SOUTH LASALLE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statement of Revenue and Certain Expenses relates to the
operations 208 South LaSalle, an office building located in Chicago, Illinois
(the Property). As of December 31, 1997, the Property had 158 tenants
(unaudited).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying Statement of Revenue and Certain Expenses was 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 statement is not representative of the actual
operations of the Property for the period 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 incurred.

USE OF ESTIMATES

3. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.25% of gross revenues or $392 which are
included in other property operating expenses.

4. RENTALS

F-87
<PAGE>
208 SOUTH LASALLE

NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

4. RENTALS (CONTINUED)
operating leases as of December 31, 1997, exclusive of tenant reimbursements and
contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 10,572
1999............................................................................... 10,025
2000............................................................................... 8,909
2001............................................................................... 7,846
2002............................................................................... 6,197
Thereafter......................................................................... 20,943
---------
$ 64,492
---------
---------
</TABLE>

F-88
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 122 South Michigan (the Property) for the year ended December 31, 1997. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
January 30, 1998

F-89
<PAGE>
122 SOUTH MICHIGAN

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
TO
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Revenue
Rental...................................................................... $ 1,169 $ 4,741
Tenant reimbursements....................................................... 240 482
Other revenue............................................................... 20 153
------ ------
Total revenue............................................................... 1,429 5,376
------ ------
Expenses
Cleaning.................................................................... 109 465
Utilities................................................................... 222 1,022
Other property operating.................................................... 300 1,423
Real estate taxes........................................................... 296 1,119
------ ------
Total expenses.............................................................. 927 4,029
------ ------
Revenue in excess of certain expenses....................................... $ 502 $ 1,347
------ ------
------ ------
</TABLE>

See accompanying notes.

F-90
<PAGE>
122 SOUTH MICHIGAN

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations 122 South Michigan, an office building located in Chicago, Illinois
(the Property). As of March 31, 1998, the Property had fifty tenants
(unaudited).

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

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 periods. Actual results could differ from
these estimates.

3. INTERIM PERIOD (UNAUDITED)

The unaudited Statement of Revenue and Certain Expenses for the period from
January 1, 1998 to March 31, 1998, has been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments of a normal recurring nature
considered necessary for a fair presentation have been included. Operating
results for the period from January 1, 1998 to March 31, 1998, are not
necessarily indicative of future operating results.

4. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.25% of gross revenues or $44 (unaudited) and
$152 for the period from January 1, 1998 to March 31, 1998 and for the year
ended December 31, 1997, respectively, which are included in other property
operating expenses.

5. RENTALS

F-91
<PAGE>
122 SOUTH MICHIGAN

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

5. RENTALS (CONTINUED)
specified base amounts. The total future minimum rentals to be received under
such noncancelable operating leases as of March 31, 1998, exclusive of tenant
reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 3,488
1999............................................................................... 4,262
2000............................................................................... 4,141
2001............................................................................... 3,881
2002............................................................................... 3,405
Thereafter......................................................................... 17,079
---------
$ 36,256
---------
---------
</TABLE>

F-92
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of 6400 Shafer Court (the Property) for the year ended December 31, 1997. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
April 16, 1998

F-93
<PAGE>
6400 SHAFER COURT

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998 TO
MARCH 31,
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Revenue
Rental........................................................................... $ 483 $ 1,630
Tenant reimbursements............................................................ 369 1,479
Other............................................................................ -- 57
----- ------
Total revenue.................................................................... 852 3,166
----- ------
Expenses
Cleaning......................................................................... 27 98
Utilities........................................................................ 63 210
Other property operating......................................................... 165 783
Real estate taxes................................................................ 194 687
----- ------
Total expenses................................................................... 449 1,778
----- ------
Revenue in excess of certain expenses............................................ $ 403 $ 1,388
----- ------
----- ------
</TABLE>

See accompanying notes.

F-94
<PAGE>
6400 SHAFER COURT

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations of 6400 Shafer Court, an office building located in Chicago, Illinois
(the Property). As of March 31, 1998, the Property had 21 tenants (unaudited).

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

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 periods. Actual results could differ from
these estimates.

3. INTERIM PERIOD (UNAUDITED)

4. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.3% of gross revenues or $35 (unaudited) and
$104 for the period from January 1, 1998 to March 31, 1998 and for the year
ended December 31, 1997, respectively, which are included in other property
operating expenses.

5. RENTALS

F-95
<PAGE>
6400 SHAFER COURT

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 1,465
1999................................................................................. 1,659
2000................................................................................. 1,567
2001................................................................................. 1,213
2002................................................................................. 858
Thereafter........................................................................... 800
---------
$ 7,562
---------
---------
</TABLE>

F-96
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of Two Century Centre (the Property) for the year ended December 31, 1997. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 financial statement presentation of the Statement of
Revenue and Certain Expenses. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.

/S/ ERNST & YOUNG LLP

Chicago, Illinois
April 23, 1998

F-97
<PAGE>
TWO CENTURY CENTRE

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998 TO
MARCH 31,
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------- -----------------
<S> <C> <C>
Revenue
Rental......................................................................... $ 890 $ 2,987
Tenant reimbursements.......................................................... 569 1,717
----------- ------
Total revenue................................................................ 1,459 4,704
----------- ------
Expenses
Cleaning....................................................................... 41 163
Utilities...................................................................... 55 220
Other property operating....................................................... 135 640
Real estate taxes.............................................................. 325 1,185
----------- ------
Total expenses............................................................... 556 2,208
----------- ------
Revenue in excess of certain expenses............................................ $ 903 $ 2,496
----------- ------
----------- ------
</TABLE>

See accompanying notes.

F-98
<PAGE>
TWO CENTURY CENTRE

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations of Two Century Centre, an office building located in Schaumburg,
Illinois (the Property). As of March 31, 1998, the Property had 10 tenants
(unaudited).

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 period 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 incurred.

USE OF ESTIMATES

3. INTERIM PERIOD (UNAUDITED)

4. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to $25 (unaudited) and $100 (the lesser of 2.2% of
gross receipts or $100) for the period from January 1, 1998 to March 31, 1998
and for the year ended December 31, 1997, respectively, which are included in
other property operating expenses.

5. RENTALS

F-99
<PAGE>
TWO CENTURY CENTRE

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

5. RENTALS (CONTINUED)
future minimum rentals to be received under such noncancelable operating leases
as of March 31, 1998, exclusive of tenant reimbursements and contingent rentals,
are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 2,830
1999............................................................................... 3,835
2000............................................................................... 3,878
2001............................................................................... 1,664
2002............................................................................... 1,013
Thereafter......................................................................... 5,228
---------
$ 18,448
---------
---------
</TABLE>

F-100
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

We have audited the accompanying Statement of Revenue and Certain Expenses
of Oak Brook Business Center (the Property) for the year ended December 31,
1997. The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses 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 Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Statement 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 Statement of Revenue and Certain
Expenses. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Chicago, Illinois
May 29, 1998

F-101
<PAGE>
OAK BROOK BUSINESS CENTER

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998
THROUGH
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
--------------- -----------------
<S> <C> <C>
Revenue
Rental........................................................................ $ 446 $ 1,761
Tenant reimbursements......................................................... 155 741
Other......................................................................... 3 9
------ ------
Total revenue................................................................. 604 2,511
------ ------
Expenses
Cleaning...................................................................... 17 120
Utilities..................................................................... 22 107
Other property operating...................................................... 88 458
Real estate taxes............................................................. 63 257
------ ------
Total expenses................................................................ 190 942
------ ------
Revenue in excess of certain expenses......................................... $ 414 $ 1,569
------ ------
------ ------
</TABLE>

See accompanying notes.

F-102
<PAGE>
OAK BROOK BUSINESS CENTER

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

1. BUSINESS

The accompanying Statements of Revenue and Certain Expenses relate to the
operations Oak Brook Business Center, an office building located in Oak Brook,
Illinois (the Property). At March 31, 1998 and December 31, 1997, three tenants
accounted for approximately 75% and 78% of base rents, respectively.

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 period 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 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 periods. Actual results could differ from
these estimates.

3. RELATED PARTY TRANSACTIONS

In connection with the operation of the Property, for the first six months
of 1997, an affiliate of the owner earned management fees equal to 3.5% of gross
revenues or $44 which are included in other property operating expenses.

4. INTERIM PERIOD (UNAUDITED)

5. RENTALS

F-103
<PAGE>
OAK BROOK BUSINESS CENTER

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES --(CONTINUED)

(IN THOUSANDS)

5. RENTALS (CONTINUED)
operating leases executed through June 30, 1998, exclusive of tenant
reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
PERIOD FROM APRIL 1 THROUGH DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------------- ---------
<S> <C>
1998................................................................................. $ 1,230

YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------
<S> <C>
1999................................................................................. 1,541
2000................................................................................. 1,443
2001................................................................................. 1,163
2002................................................................................. 1,096
Thereafter........................................................................... 328
---------
$ 6,801
---------
---------
</TABLE>

F-104
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE 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 SELLING SHAREHOLDERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE CONVERTIBLE PREFERRED SHARES AND THE COMMON SHARES
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE CONVERTIBLE PREFERRED SHARES OR THE COMMON
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.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................. 3
Risk Factors....................................... 21
The Company........................................ 35
Business Objective and Growth Strategies........... 39
Use of Proceeds.................................... 43
Price Range of Common Shares and Distributions..... 44
Capitalization..................................... 46
Selected Financial Data............................ 47
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 50
Business and Properties............................ 61
Policies with Respect to Certain Activities........ 128
Management......................................... 132
Structure and Formation of the Company............. 143
Certain Relationships and Related Transactions..... 148
Partnership Agreement.............................. 153
Principal Shareholders of the Company.............. 157
Ratios of Earnings to Combined Fixed Charges and
Preferred Share Distributions.................... 160
Description of Shares of Beneficial Interest....... 161
Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws........ 180
Shares Eligible for Future Sale.................... 184
Certain Federal Income Tax Considerations.......... 186
ERISA Considerations............................... 204
Selling Shareholders............................... 206
Plan of Distribution............................... 208
Legal Matters...................................... 209
Experts............................................ 209
Additional Information............................. 210
Glossary........................................... G-1
Index to Financial Statements...................... F-1
</TABLE>

[LOGO]

PRIME GROUP
REALTY TRUST

2,000,000 Series A
Cumulative Convertible
Preferred Shares of
Beneficial Interest
11,711,075
Common Shares of
Beneficial Interest

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

P R O S P E C T U S

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

, 1998

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
SEC registration fee............................................ $ 59,528
NYSE listing fee................................................ *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting and due diligence fees and expenses.................. *
Miscellaneous................................................... *
---------
Total....................................................... $ *
---------
---------
</TABLE>

- ---------

* To be completed by amendment.

All expenses of registration incurred in connection with the Offering are being
borne by the Company, but all selling and other expenses incurred by an
individual Selling Shareholder will be borne by such Selling Shareholder.

ITEM 32. SALES TO SPECIAL PARTIES

Not applicable.

ITEM 33. 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. Immediately following the IPO, all
of the shares so acquired by Mr. Reschke were redeemed by the Company for an
aggregate redemption price of $1,000.

Simultaneously with the IPO, the Company caused the Operating Partnership to
issue 4,497,317 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. In addition, the Company caused the Operating Partnership to issue and
sell 4,569,893 Common Units to the Primestone Joint Venture for $85,000,000.
Simultaneously with the IPO, the Company granted options to purchase a total of
1,113,000 Common Shares under its Share Incentive Plan to key executives and the
Company's independent trustees.

On March 25, 1998, the Company issued and sold 2,579,994 Common Shares to
institutional investors for $19.375 per share, or an aggregate consideration of
approximately $50.0 million.

On March 31, 1998, the Company issued (i) 10,000 Common Shares to William M.
Karnes pursuant to the terms of Mr. Karnes' employment agreement with the
Company and (ii) 2,500 Common Shares to Stephen J. Nardi pursuant to the terms
of Mr. Nardi's consulting agreement with the Company. On September 28, 1998, the
Company issued 12,500 Common Shares to Louis G. Conforti pursuant to the terms
of Mr. Conforti's employment agreement with the Company.

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<PAGE>
On December 15, 1997, the Company caused the Operating Partnership to issue
251,572 Common Units, having a value of approximately $5.0 million, to a third
party in exchange for such party's right to acquire the first mortgage loan
encumbering the office building located at 180 N. LaSalle Street in Chicago,
Illinois. In addition, (x) on each of December 15, 1997 and January 15, February
13, March 13, April 15, May 15 and June 15, 1998, the Company caused the
Operating Partnership to issue 5,000 Common Units, having an aggregate value of
approximately $700,000, and (y) on July 15, August 14 and September 15, 1998,
the Company caused the Operating Partnership to issue 5,465, 5,429 and 6,399
Common Units, respectively, having an aggregate value of approximately $300,000,
to such third party, in each case to maintain an option to purchase such third
party's second mortgage encumbering the building located at 180 North LaSalle
Street.

ITEM 34. 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 other firm at the request 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 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 purchased 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 35. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED

Not Applicable

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS

Prime Group Realty Trust (the Company) and Predecessor Properties:

Report of Independent Auditors

Consolidated Balance Sheets of the Company as of June 30, 1998 (unaudited)
and December 31, 1997 and Combined Balance Sheet of the Predecessor
Properties as of December 31, 1996

Consolidated Statements of Operations of the Company for the six months
ended June 30, 1998 (unaudited) and for the period from November 17, 1997
to December 31, 1997 and Combined Statements of Operations of the
Predecessor Properties for the six months ended June 30, 1997

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<PAGE>
(unaudited), for the period from January 1, 1997 to November 16, 1997 and
for the years ended December 31, 1996 and 1995

Consolidated Statements of Changes in Shareholders' Equity for the six
months ended June 30, 1998 (unaudited) and for the period from November
17, 1997 to December 31, 1997

Combined Statements of Changes in Predecessors' Deficit for the period from
January 1, 1997 to November 16, 1997 and for the years ended December 31,
1996 and 1995

Consolidated Statements of Cash Flows of the Company for the six months
ended June 30, 1998 (unaudited) and for the period from November 17, 1997
to December 31, 1997 and the Combined Statements of Cash Flows of the
Predecessor Properties for the six months ended June 30, 1997
(unaudited), for the period from January 1, 1997 to November 16, 1997 and
for the years ended December 31, 1996 and 1995

Notes to Consolidated and Combined Financial Statements

Prime Industrial Contribution Properties

Report of Independent Auditors

Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the period from
March 1, 1996 to December 31, 1996

Notes to Combined Statements of Revenue and Certain Expenses

IBD Properties

Report of Independent Auditors

Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the year ended
December 31, 1996

Notes to Combined Statements of Revenue and Certain Expenses

NAC Properties

Report of Independent Auditors

Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) 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 September 30, 1997 (unaudited) and for the year ended December
31, 1996

Notes to Statements of Revenue and Certain Expenses

Salt Creek Office Center

Report of Independent Auditors

Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the year ended
December 31, 1996

Notes to Combined Statements of Revenue and Certain Expenses

280 Shuman Boulevard

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December
31, 1996

Notes to Statements of Revenue and Certain Expenses

475 Superior Avenue

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December
31, 1996

Notes to Statements of Revenue and Certain Expenses

Continental Office Towers:

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December
31, 1997

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<PAGE>
Notes to Statements of Revenue and Certain Expenses

180 North LaSalle Street:

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December
31, 1996

Notes to Statements of Revenue and Certain Expenses

2675 Mayfair:

Report of Independent Auditors

Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997

Notes to Statement of Revenue and Certain Expenses

33 North Dearborn:

Report of Independent Auditors

Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997

Notes to Statement of Revenue and Certain Expenses

Commerce Point:

Report of Independent Auditors

Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997

Notes to Statement of Revenue and Certain Expenses

208 South LaSalle Street:

Report of Independent Auditors

Statement of Revenue and Certain Expenses for the year ended December 31,
1997

Notes to Statement of Revenue and Certain Expenses

122 South Michigan Avenue:

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997

Notes to Statements of Revenue and Certain Expenses

6400 Shafer Court:

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997

Notes to Statements of Revenue and Certain Expenses

Two Century Centre:

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997

Notes to Statements of Revenue and Certain Expenses

Oak Brook Business Center

Report of Independent Auditors

Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997

Notes to 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.

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<PAGE>
(C) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Amendment and Restatement of Declaration of Trust of Prime Group Realty Trust as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

3.2 Articles Supplementary to the Articles of Amendment and Restatement of Declaration of Trust of Prime
Group Realty Trust as filed as an exhibit to the Company's Quarterly Report on Form 10-Q and
incorporated herein by reference

3.3 Amended and Restated Bylaws of Prime Group Realty Trust as filed as an exhibit to the Company's 1997
Annual Report on Form 10-K and incorporated herein by reference

3.4 Amended and Restated Agreement of Limited Partnership of Prime Group Realty, L.P. (the "Amended and
Restated Agreement of Limited Partnership") as filed as an exhibit to the Company's 1997 Annual Report
on Form 10-K and incorporated herein by reference

3.5 Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership dated as of December 15,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.6 Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership dated as of December 15,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.7 Amendment No. 3 to the Amended and Restated Agreement of Limited Partnership dated as of January 15,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.8 Amendment No. 4 to the Amended and Restated Agreement of Limited Partnership dated as of February 13,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.9 Amendment No. 5 to the Amended and Restated Agreement of Limited Partnership dated as of March 13, 1998
as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.10 Amendment No. 6 to the Amended and Restated Agreement of Limited Partnership dated as of March 25, 1998
as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.11 Amendment No. 7 to the Amended and Restated Agreement of Limited Partnership dated as of April 15, 1998
as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.12 Amendment No. 8 to the Amended and Restated Agreement of Limited Partnership dated as of May 15, 1998 as
filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

3.13 Amendment No. 9 to the Amended and Restated Agreement of Limited Partnership dated as of June 5, 1998 as
filed as an exhibit to Company's Quarterly Report on Form 10-Q and incorporated herein by reference

3.14 Amendment No. 10 to the Amended and Restated Agreement of Limited Partnership dated as of June 15, 1998
as filed as an exhibit to Company's Quarterly Report on Form 10-Q and incorporated herein by reference
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.15 Amendment No. 11 to the Amended and Restated Agreement of Limited Partnership dated as of July 15, 1998
as filed as an exhibit to the Company's Registration Statement or Form S-11 (No. 333-51935) and
incorporated herein by reference

3.16 Amendment No. 12 to the Amended and Restated Agreement of Limited Partnership dated as of August 14,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51935) and
incorporated herein by reference

3.17 Amendment No. 13 to the Amended and Restated Agreement of Limited Partnership dated as of September 15,
1998 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51935) and
incorporated herein by reference

5.1 Opinion of Miles & Stockbridge regarding the validity of the Convertible Preferred Shares and Common
Shares being registered

8.1* Opinion of Winston & Strawn regarding tax matters

10.1 Form of Indemnification Agreement between Prime Group Realty Trust and each of its trustees as filed as
an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.2 Right of First Offer Agreement dated as of November 17, 1997 between Prime Group Realty, L.P. and The
Prime Group, Inc. as filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference

10.3 Share Incentive Plan as filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference

10.4 Employment Agreement dated as of November 17, 1997 by and between the Company and Michael W. Reschke as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.5 Employment Agreement dated as of November 17, 1997 by and between the Company and Richard S. Curto as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.6 Employment Agreement dated as of November 17, 1997 by and between the Company and W. Michael Karnes as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.7 Employment Agreement dated as of November 17, 1997 by and between the Company and Jeffrey A. Patterson
as filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.8 Employment Agreement dated as of November 17, 1997 by and between the Company and Kevork M. Derderian as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.9 Employment Agreement dated as of November 17, 1997 by and between the Company and Edward S. Hadesman as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.10 Employment Agreement dated as of May 6, 1998 by and between the Company and Louis G. Conforti as filed
as an exhibit to the Company's Quarterly Report on Form 10-Q and incorporated herein by reference

10.11 Contribution Agreement dated as of October 20, 1997 by and among the Prime Group, Inc., Prime Group
Realty, L.P., Prime Group Realty Trust, Narco River Business Center, Narco Tower Road Associates,
Olympian Office Center, Tri-State Industrial Park Joint Venture, Carol Stream
</TABLE>

II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
Industrial Park Joint Venture, Narco Enterprises, Inc., The Nardi Group Ltd., Narco Construction Inc.,
Nardi & Co., Nardi Asset Management, Inc. and Nardi Architectural, Inc. as filed as an exhibit to the
Company's Registration Statement on Form S-11 No. (333-33547) and incorporated herein by reference
<C> <S>

10.12 Option to Purchase Partnership Interests dated as of June 17, 1994 by and between KILICO Realty
Corporation, and The Prime Group, Inc.; as amended by that certain First Amendment to Option Purchase
Partnership Interests dated as of January 21, 1997 by and between KILICO Realty Corporation and The
Prime Group, Inc.; as further amended by that certain Second Amendment to Option to Purchase Partnership
Interests dated as of July 15, 1997 by and between KILICO Realty Corporation and The Prime Group, Inc.
as filed as an exhibit to the Company's Registration Statement on Form S-11 No. (333-33547) and
incorporated herein by reference

10.13 Option Agreement by and between Prime Group Realty, L.P. and 300 N. LaSalle, L.L.C. as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.14 Registration Rights Agreement dated as of November 17, 1997 between Prime Group Realty Trust, Prime
Group Realty, L.P., Primestone Investment Partners L.P. and the other investors named therein as filed
as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.15 Contribution Agreement dated as of July 8, 1997 by and among 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.; as amended by the First Amendment to the Contribution
Agreement dated as of August 12, 1997, by and between The Prime Group, Inc., an Illinois corporation,
and LaSalle National Trust, NA, t/u/t 10-40113-09 dated June 15, 1982; LaSalle National Trust, NA, t/u/t
11-9051 dated September 7, 1994; LaSalle National Trust, NA, t/u/t 11-107825 dated March 30, 1984;
LaSalle National Trust, NA, t/u/t 11-1358 dated August 1, 1986; LaSalle National Trust, NA, t/u/t
11-1357 dated August 1, 1986; LaSalle National Trust, NA, t/u/t 286-34 dated January 17, 1974; LaSalle
National Trust, NA, t/u/t 11-9869 dated October 15, 1995; and LaSalle National Trust, NA, t/u/t 11-2868
dated December 1, 1987 as filed as an exhibit to the Company's Registration Statement on Form S-11 (No.
333-33547) and incorporated herein by reference
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Environmental Remediation and Indemnification Agreement dated as of November 17, 1997 by and between
Prime Group Realty, L.P. and The Prime Group, Inc. as filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K and incorporated herein by reference

10.17 Formation Agreement dated as of November 17, 1997 between Prime Group Realty Trust, Prime Group Realty,
L.P., Prime Group Realty Services, Inc., Prime Group Limited Partnership and Jeffrey A. Patterson as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference

10.18 Asset Purchase Agreement dated as of November 17, 1997 by and among Continental Offices, Ltd.,
Continental Offices Ltd. Realty and Prime Group Realty, L.P. as filed as an exhibit to the Company's
Registration Statement on Form S-11 (No. 333-33547) and incorporated herein by reference

10.19 Non-Compete Agreement dated as of November 17, 1997 by and among Prime Group Realty Trust, The Prime
Group, Inc. and Michael W. Reschke as filed as an exhibit to the Company's 1997 Annual Report on Form
10-K and incorporated herein by reference

10.20 Option Agreement dated as of August 4, 1997 by and between Lumbermens Mutual Casualty Company and The
Prime Group, Inc. as filed as an exhibit to the Company's Registration Statement on Form S-11 (No.
333-33547) and incorporated herein by reference

10.21 Amended and Restated Agreement dated as of July 15, 1997 by and among Kemper Investors Life Insurance
Company, Federal Kemper Life Assurance Company, KILICO Realty Corporation, FKLA Realty Corporation, KR
77 Fitness Center, Inc., 77 West Wacker Limited Partnership, K/77 Investors Limited Partnership, The
Prime Group, Inc., Prime Group Limited Partnership and Prime 77 Fitness Center, Inc. as filed as an
exhibit to the Company's Registration Statement on Form S-11 (No. 333-33547) and incorporated herein by
reference

10.22 Agreement dated as of July 18, 1997 by and among The Prime Group, Inc., KILICO Realty Corporation, KFC
Portfolio Corp. and Kemper Investors Life Insurance Company as filed as an exhibit to the Company's
Registration Statement on Form S-11 (No. 333-33547) and incorporated herein by reference

10.23 Series A Convertible Preferred Securities Purchase Agreement dated as of November 11, 1997 by and
between Security Capital Preferred Growth Incorporated and Prime Group Realty Trust as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.24 Tax Indemnification Agreement by and between Prime Group Realty, L.P. and Edward S. Hadesman Trust dated
May 22, 1992, Grandville/Northwestern Management Corporation, Carolyn B. Hadesman Trust dated May 21,
1992, Lisa Hadesman 1991 Trust, Cynthia Hadesman 1991 Trust, Tucker B. Magid, Francis Shubert,
Grandville Road Property, Inc., H R Trust, Edward E. Johnson and Sky Harbor Associates as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.25 Tax Indemnification Agreement dated as of November 17, 1997 by and between Prime Group Realty, L.P.,
Stephen J. Nardi, Narco Enterprises, Inc. and Nardi Group Limited as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by reference

10.26 Indemnification Agreement dated as of November 17, 1997 by and between The Prime Group, Inc. and Prime
Group Realty, L.P. as filed as an exhibit to the Company's 1997 Annual Report on Form 10-K, as amended
by the Company's Form 10-K/A as filed with the Commission on April 27, 1998 and incorporated herein by
reference
</TABLE>

II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.27 Agreement to Contribute dated as of August 12, 1997 by and between Tucker B. Magid and The Prime Group,
Inc. as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-33547) and
incorporated herein by reference

10.28 Agreement to Contribute dated as of August 12, 1997 by and between Frances S. Shubert and The Prime
Group, Inc. as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-33547)
and incorporated herein by reference

10.29 Subscription Agreement by and between Prime Group Realty, L.P. and Primestone as filed as an exhibit to
the Company's Registration Statement on Form S-11 (No. 333-33547) and incorporated herein by reference

10.30 Credit Facility dated as of November 11, 1997 between Prime Group Realty Trust, BankBoston, N.A. and
Prudential Securities Credit Corporation (the "Credit Facility") as filed as an exhibit to the Company's
1997 Annual Report on Form 10-K and incorporated herein by reference

10.31 Amendment No. 1 to the Credit Facility dated as of December 15, 1998 as filed as an exhibit to the
Company's Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.32 Amendment No. 2 to the Credit Facility dated as of March 16, 1998 as filed as an exhibit to the
Company's Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.33 Amendment No. 3 to the Credit Facility dated as of March 30, 1998 as filed as an exhibit to the
Company's Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.34 Amendment No. 4 to the Credit Facility dated as of April 24, 1998 as filed as an exhibit to the
Company's Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.35 Underwriting Agreement dated as of November 11, 1997 between Prime Group Realty Trust, Prudential
Securities Incorporated, Friedman, Billings, Ramsey & Co., Inc., Smith Barney Inc. and Morgan Keegan &
Company, Inc., as representatives of the other underwriters as filed as an exhibit to the Company's 1997
Annual Report on Form 10-K and incorporated herein by reference

10.36 Form of Underwriting Agreement between Prime Group Realty Trust, Prudential Securities Incorporated,
Bear, Stearns & Co. Inc., Friedman, Billings, Ramsey & Co., Inc., Legg Mason Wood Walker, Incorporated
and Morgan Keegan & Company, Inc., as representatives of the other underwriters as filed as an exhibit
to the Company's Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by
reference

10.37 Purchase Agreement dated as of March 25, 1998 between Prime Group Realty Trust and the purchasers
thereto as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599) and
incorporated herein by reference

10.38 Registration Rights Agreement dated as of March 25,1998 between Prime Group Realty Trust and the other
parties thereto as filed as an exhibit to the Company's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference

10.39 Registration Rights Agreement dated as of November 17, 1997 between Prime Group Realty Trust and
Security Capital Preferred Growth Incorporated as filed as an exhibit to the Company's Annual Report on
Form 10-K, as amended by the Company's Form 10-K/A as filed with the Commission on April 27, 1998 and
incorporated herein by reference
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.40 Tag-along Agreement dated as of November 17, 1997 between Prime Financing, L.P., Prime Group Limited
Partnership, Prime Group II, L.P., Prime Group III, L.P., Prime Group IV, L.P., Prime Group V, L.P., The
Prime Group, Inc., PG/Primestone, L.L.C. and Security Capital Preferred Growth Incorporated as filed as
an exhibit to the Company's 1997 Annual Report on Form 10-K, as amended by Company's Form 10-K/A as
filed with the Commission on April 27, 1998 and incorporated herein by reference

10.41 Placement Fee Letter dated as of November 17, 1997 between Prime Group Realty Trust, Prime Group Realty,
L.P., as Placement Agent, and Security Capital Markets Group Incorporated as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K, as amended by Company's Form 10-K/A as filed with the
Commission on April 27, 1998 and incorporated herein by reference

10.42 Registration Rights Agreement dated as of December 15, 1997 between Prime Group Realty Trust and certain
holders of Common Units of Prime Group Realty, L.P. as filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K and incorporated herein by reference

10.43 Limited Liability Company Agreement of Prime/Beitler Development Company, L.L.C. dated as of March 30,
1998 between Penny Beitler L.L.C. and Prime Group Realty, L.P. as filed as an exhibit to the Company's
Registration Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.44 Promissory Note dated as of May 1, 1998 made by certain subsidiaries of Prime Group Realty Trust to
CIBC, Inc. as filed as an exhibit to the Company's Registration Statement on Form S-11 (No. 333-51599)
and incorporated herein by reference

10.45 Promissory Note dated as of March 23, 1998 made by certain subsidiaries of Prime Group Realty Trust to
State Farm Life Insurance Company as filed as an exhibit to the Company's Registration Statement on Form
S-11 (No. 333-51599) and incorporated herein by reference

10.46 Subordination and Intercreditor Agreement dated as of May 14, 1998 between Prime Group Realty, L.P. and
Connecticut General Life Insurance Company as filed as an exhibit to the Company's Registration
Statement on Form S-11 (No. 333-51599) and incorporated herein by reference

10.47 Promissory Note dated as of May 14, 1998 made by American National Bank and Trust Company of Chicago,
not personally but as trustee under trust agreement dated July 26, 1977 and known as Trust No. 40935 and
American National Bank and Trust Company of Chicago, as successor trustee to First Bank, N.A., as
successor trustee to National Boulevard Bank of Chicago, not personally, but solely as trustee under
trust agreement dated September 27, 1976 and known as Trust No. 5602 to Connecticut General Life
Insurance Company as filed as an exhibit to the Company's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference

10.48 Agreement of Purchase and Sale dated as of July 22, 1998 between BRE/Wabash L.L.C. Blackstone Real
Estate Partners II L.P., Blackstone Real Estate Holdings II L.P., Blackstone Real Estate Partners
II.TE.1 L.P., Blackstone Real Estate Partners II.R (City Center), Blackstone Real Estate Partners
II.TE.3 L.P., Blackstone Real Estate Partners II.T.E.4 L.P., Blackstone Real Estate Partners II.TE.5
L.P., Blackstone Real Estate Investors (City Center) Inc., collectively as Sellers ("Sellers"), and
Prime Group Realty, L.P., as Buyer ("Buyer") and joined by BRE/City Center L.L.C. pursuant to Joinder
attached thereto, as amended by that certain First Amendment to Agreement of Purchase and Sale dated as
of July 23, 1998 between Sellers and Buyer as filed as an exhibit to the Company's Registration
Statement on Form S-11 (No. 333-51935) and incorporated herein by reference
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred Share Distributions

21.1 Subsidiaries of Registrant as filed as an exhibit to the Company's Registration Statement on Form S-11
(No. 333-51935) and incorporated herein by reference

23.1 Consent of Miles & Stockbridge (included in Exhibit 5.1)

23.2* Consent of Winston & Strawn (included in Exhibit 8.1)

23.3 Consent of Ernst & Young LLP

23.4 Consent of Rosen Consulting Group

24.1 Powers of Attorney (included on signature page in Part II)

99.1 Report of Rosen Consulting Group as filed as an exhibit to the Company's Registration Statement on Form
S-11 (No. 333-51935) and incorporated herein by reference
</TABLE>

- ---------

* To be filed by amendment.

ITEM 37. UNDERTAKINGS.

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 33 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:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

II-11
<PAGE>
(2) To remove from registration by means of a post-effective amendment
any of the Offered Shares being registered which remain unsold at the
termination of the Offering.

(3) For purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that the shall be deemed to be the initial
bona fide offering thereof.

II-12
<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 September 30,
1998.

<TABLE>
<S> <C> <C>
PRIME GROUP REALTY TRUST

By: /s/ RICHARD S. CURTO
-----------------------------------------
Richard S. Curto
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

KNOWN ALL MEN BY PRESENTS, that each person whose signature appears below,
hereby constitutes and appoints Richard S. Curto and William M. 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, and to file the same, with exhibits thereto and other
documents in connection therewith or in connection with the registration of the
Offered 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 September 30, 1998 by the
following persons in the capacities indicated.

<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ----------------------------------------------

<C> <S>
/s/ MICHAEL W. RESCHKE
- ------------------------------ Chairman of the Board, Truste
Michael W. Reschke

/s/ RICHARD S. CURTO
- ------------------------------ President and Chief Executive Officer
Richard S. Curto (principal executive officer), Trustee

/s/ WILLIAM M. KARNES
- ------------------------------ Executive Vice President and Chief Financial
William M. Karnes Officer (principal financial officer)

/s/ ROY P. RENDINO Senior Vice President--Finance and Chief
- ------------------------------ Accounting Officer (principal accounting
Roy P. Rendino officer)
</TABLE>

II-13
<PAGE>

<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ----------------------------------------------

<C> <S>

/s/ JACQUE M. DUCHARME
- ------------------------------ Trustee
Jacque M. Ducharme

/s/ STEPHEN J. NARDI
- ------------------------------ Trustee
Stephen J. Nardi

- ------------------------------ Trustee
Christopher J. Nassetta

- ------------------------------ Trustee
Thomas J. Saylak

- ------------------------------ Trustee
James R. Thompson
</TABLE>

II-14

<PAGE>
Exhibit 5.1

[MILES & STOCKBRIDGE LETTERHEAD]

September 30, 1998

Prime Group Realty Trust
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601

Ladies and Gentlemen:

In connection with the registration under the Securities Act of 1933
(the "Act") of 2,000,000 Series A Cumulative Convertible Preferred Shares of
Beneficial Interest, $.01 par value per share (the "Convertible Preferred
Shares"), and 11,711,075 Common Shares of Beneficial Interest, $.01 par value
per share (the "Common Shares"), of Prime Group Realty Trust, a Maryland real
estate investment trust (the "Company"), on its Registration Statement on
Form S-11 filed with the Securities and Exchange Commission on September 30,
1998 (the "Registration Statement"), we have examined such trust records,
certificates and documents as we deemed necessary for the purpose of this
opinion. Based on that examination, we advise you that in our opinion:

1. The Convertible Preferred Shares have been duly and validly authorized and
are legally issued, fully paid and non-assessable.

2. The Common Shares have been duly and validly authorized.

3. When up to 2,000,000 of the Common Shares are issued upon the conversion
of the Convertible Preferred Shares in accordance with the Company's charter,
such Common Shares will be legally issued, fully paid and non-assessable.

4. When up to 9,711,075 of the Common Shares are issued upon the exchange of
outstanding units of limited partnership interest (the "L.P. Common Units"),
in Prime Group Realty, L.P., a Delaware limited partnership (the
"Partnership"), in accordance with the terms of the L.P. Common Units and the
Amended and Restated Agreement of Limited Partnership, dated as of November
17, 1997, as amended, such Common Shares will be legally issued, fully paid
and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder. The opinion expressed herein is limited to the matters
set forth in this letter and no other opinions should be inferred beyond the
matters expressly stated.

Very truly yours,

Miles & Stockbridge P.C.

By: /s/ J.W. Thompson Webb
------------------------------------
Principal

<PAGE>

EXHIBIT 12.1
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

STATEMENTS REGARDING COMPUTATION OF RATIOS
(IN $000'S)

<TABLE>
<CAPTION>
COMPANY- COMPANY- COMPANY- COMPANY-
PRO FORMA HISTORICAL PRO FORMA HISTORICAL PREDECESSOR-HISTORICAL
--------- ---------- ----------- ----------- ----------------------
SIX SIX SIX
MONTHS MONTHS MONTHS
ENDED ENDED YEAR ENDED PERIOD FROM ENDED PERIOD FROM
JUNE 30, JUNE 30, DECEMBER 31, 11/17/97 TO JUNE 30, 1/1/97 TO
1998 1998 1997 12/31/97 1997 11/16/97
--------- ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
- --------
Income (loss) before
preferred share dividends
and minority interest per
the consolidated/combined
financial statements...... $14,079 $12,406 $21,781 $1,427 $(17,579) $(29,050)
Interest expense........... 16,300 14,476 28,212 1,680 19,236 34,417
Amortization of debt
issuance costs............ 639 639 619 121 298 630
--------- ---------- ----------- ----------- --------- -----------
Earnings................... $31,018 $27,521 $50,612 $3,228 $ 1,955 $ 5,997
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
FIXED CHARGES
- -------------
Interest expense........... $16,300 $14,476 $28,212 $1,680 $ 19,236 $ 34,417
Capitalized interest
expense................... 464 464 464 -- -- --
Amortization of debt
issuance costs............ 639 639 619 121 298 630
Preferred share dividends.. 5,900 2,041 11,800 345 -- --
--------- ---------- ----------- ----------- --------- -----------
Total fixed charges........ $23,303 $17,620 $41,095 $2,146 $ 19,534 $ 35,047
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
RATIO OF EARNINGS TO
COMBINED FIXED CHARGES
AND PREFERRED SHARE
DIVIDENDS (1)............. 1.33 1.56 1.23 1.50 0.10 0.17
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
EXCESS (DEFICIT) OF
EARNINGS TO COMBINED
FIXED CHARGES AND
PREFERRED SHARE
DIVIDENDS................. $ 7,715 $ 9,901 $ 9,517 $1,082 $(17,579) $(29,050)
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
FUNDS FROM OPERATIONS
- ---------------------
Funds From Operations...... $20,385 $21,258 $38,296 $3,964 $ (8,180) $(14,461)
Interest expense........... 16,300 14,476 28,212 1,680 19,236 34,417
Amortization of debt
issuance costs............ 639 639 619 121 298 630
Preferred share dividends.. 5,900 2,041 11,800 345 -- --
--------- ---------- ----------- ----------- --------- -----------
Adjusted Funds From
Operations................ $43,224 $38,414 $78,927 $6,110 $ 11,354 $ 20,586
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
FIXED CHARGES
- -------------
Interest expense........... $16,300 $14,476 $28,212 $1,680 $ 19,236 $ 34,417
Capitalized interest
expense................... 464 464 464 -- -- --
Amortization of debt
issuance costs............ 639 639 619 121 298 630
Preferred share dividends.. 5,900 2,041 11,800 345 -- --
--------- ---------- ----------- ----------- --------- -----------
Total fixed charges........ $23,303 $17,620 $41,095 $2,146 $ 19,534 $ 35,047
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
RATIO OF FUNDS FROM
OPERATIONS TO COMBINED
FIXED CHARGES AND
PREFERRED SHARE
DIVIDENDS (2)............. 1.85 2.18 1.92 2.85 0.58 0.59
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
EXCESS (DEFICIT) OF FUNDS
FROM OPERATIONS TO
COMBINED FIXED CHARGES
AND PREFERRED SHARE
DIVIDENDS................. $19,921 $20,794 $37,832 $3,964 $ (8,180) $(14,461)
--------- ---------- ----------- ----------- --------- -----------
--------- ---------- ----------- ----------- --------- -----------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
PREDECESSOR--HISTORICAL
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993
-------- -------- -------- --------
EARNINGS
- --------
<S> <C> <C> <C> <C>
Income (loss) before
preferred share dividends
and minority interest per
the consolidated/combined
financial statements...................... $(31,417) $(29,576) $(22,062) $(20,829)
Interest expense............................ 37,217 36,234 33,387 29,162
Amortization of debt issuance cost.......... 594 1,148 714 859
-------- -------- -------- --------
Earnings.................................... $ 6,394 $ 7,806 $ 12,039 $ 9,192
-------- -------- -------- --------
-------- -------- -------- --------

FIXED CHARGES
- -------------
Interest expense............................ $ 37,217 $ 36,234 $ 33,387 $ 29,162
Capitalized interest expense................ -- -- -- --
Amortization of debt issuance costs......... 594 1,148 714 859
Preferred share dividends................... -- -- -- --
-------- -------- -------- --------
Total fixed charges......................... $ 37,811 $ 37,382 $ 34,101 $ 30,021
-------- -------- -------- --------
-------- -------- -------- --------
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS(1).......... 0.17 0.21 0.35 0.31
-------- -------- -------- --------
-------- -------- -------- --------
EXCESS (DEFICIT) OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS................................. $(31,417) $(29,576) $(22,062) $(20,829)
-------- -------- -------- --------
-------- -------- -------- --------
FUNDS FROM OPERATIONS
- ---------------------
Funds From Operations....................... $(17,367) $(12,733) $(12,930) $ (9,345)
Interest expense............................ 37,217 36,234 33,387 29,162
Amortization of debt issuance costs......... 594 1,148 714 859
Preferred share dividend.................... -- -- -- --
-------- -------- -------- --------
Adjusted Funds from Operations.............. $ 20,444 $ 24,649 $ 21,171 $ 20,676
-------- -------- -------- --------
-------- -------- -------- --------
FIXED CHARGES
- -------------
Interest expense............................ $ 37,217 $ 36,234 $ 33,387 $ 29,162
Capitalized interest expense................ -- -- -- --
Amortization of debt issuance costs......... 594 1,148 714 859
Preferred share dividends................... -- -- -- --
-------- -------- -------- --------
Total fixed charges......................... $ 37,811 $ 37,382 $ 34,101 $ 30,021
-------- -------- -------- --------
-------- -------- -------- --------
RATIO OF FUNDS FROM OPERATIONS TO COMBINED
FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS(2).............................. 0.54 0.66 0.62 0.69
-------- -------- -------- --------
-------- -------- -------- --------
EXCESS (DEFICIT) OF FUNDS FROM OPERATIONS
TO COMBINED FIXED CHARGES AND PREFERRED
SHARE DIVIDENDS........................... $(17,367) $(12,733) $(12,930) $ (9,345)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

<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 March 27, 1998 with respect to the
consolidated financial statements of Prime Group Realty Trust and combined
financial statements of the Predecessor Properties, dated August 20, 1997
with respect to the combined statement of revenue and certain expenses of the
Prime Industrial Contribution Properties, the combined statement of revenue
and certain expenses of the IBD Properties, the combined statement of revenue
and certain expenses of the Salt Creek Office Center, and the statement of
revenue and certain expenses of Citibank Office Plaza, dated October 10, 1997
with respect to the combined statement of revenue and certain expenses of KAC
Properties, the statement of revenue and certain expenses of 280 Shuman
Boulevard and the statement of revenue and certain expenses of 475 Superior,
dated December 5, 1997 with respect to the statement of revenue and certain
expenses of Continental Office Towers, dated December 2, 1997 with respect to
the statement of revenue and certain expenses of 180 North LaSalle Street,
dated December 4, 1997 with respect to the statement of revenue and certain
expenses of 2675 Mayfair, dated November 24, 1997 with respect to the
statement of revenue and certain expenses of 33 North Dearborn, dated
December 20, 1997 with respect to the statement of revenue and certain
expenses of Commerce Point, dated January 30, 1998 with respect to the
statement of revenue and certain expenses of 208 South LaSalle Street and the
statement of revenue and certain expenses of 122 South Michigan Avenue, dated
April 18, 1998 with respect to the statement of revenue and certain expenses
of 6400 Shafer Court, dated April 23, 1998 with respect to the statement of
revenue and certain expenses of Two Century Centre and dated May 29, 1998
with respect to the statement of revenue and certain expenses of Oak Brook
Business Center in the Registration Statement (Form S-11) and related
Prospectus of Prime Group Realty Trust for the registration of 2,000,000 of its
Series A Convertible Preferred Shares of Beneficial Interest and 11,711,075
of its Common Shares of Beneficial Interest.

/s/ Ernst & Young LLP

Chicago, Illinois
September 29, 1998

<PAGE>

Exhibit 23.4

[LETTERHEAD OF ROSEN CONSULTING GROUP]

CONSENT OF ROSEN CONSULTING GROUP

To Prime Group Realty Trust:

In connection with the registration of 2,000,000 Series A Cumulative
Convertible Preferred Shares of Beneficial Interest, $.01 par value per
share, and 11,711,075 Common Shares of Beneficial Interest, $.01 par value
per share, by Prime Group Realty Trust, a Maryland real estate investment
trust (the "Company"), on behalf of certain shareholders, we hereby consent
(i) to the use of our report, "Economic, Office, and Industrial Market Trends
in Chicago, Nashville, Knoxville, Milwaukee and Columbus", dated May 26,
1998, in the Company's Registration Statement on Form S-11, (the
"Registration Statement"), (ii) to all references to our firm included in or
made a part of the Registration Statement and (iii) to the reference to our
firm as experts in the Section under the caption "Experts" in the
Registration Statement.

Sincerely,

/s/ Kenneth T. Rosen
------------------------------------
By: Kenneth T. Rosen
Its: President

Berkeley, California
September 29, 1998