PRIME GROUP REALTY TRUST, S-11/A, 1998-05-20

PRIME GROUP REALTY TRUST
S-11/A, 1998-05-20
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998

REGISTRATION NO. 333-51599

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 2

TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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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)

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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)

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COPIES TO:
WAYNE D. BOBERG, ESQ. J. GREGORY MILMOE, ESQ.
BRIAN T. BLACK, ESQ. SKADDEN, ARPS, SLATE,
WINSTON & STRAWN MEAGHER & FLOM LLP
35 WEST WACKER DRIVE 919 THIRD AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 558-5600 (212) 735-3000

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

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

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

If 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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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
SUCH STATE.

SUBJECT TO COMPLETION--DATED MAY 20, 1998

PROSPECTUS
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5,000,000 Cumulative Redeemable Preferred Shares

[LOGO OF PRIME GROUP REALTY TRUST]

% Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest
(Liquidation Preference $25.00 per Share)
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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 25 office
properties (the "Office Properties"), 45 industrial properties (the "Industrial
Properties"), one parking facility and one retail center (collectively, the
"Properties"), including two office properties (the "Pending Acquisitions") the
Company anticipates acquiring with a portion of the net proceeds of the
Offering.

All of the % Series B Cumulative Redeemable Preferred Shares of beneficial
interest of the Company, $0.01 par value per share (the "Redeemable Preferred
Shares"), offered hereby (the "Offering") are being sold by the Company. The
liquidation preference of each Redeemable Preferred Share is $25.00 plus
accrued and unpaid distributions (whether or not earned or declared).
Distributions on the Redeemable Preferred Shares offered hereby will be
cumulative from the date of original issue and will be payable quarterly on or
about the last day of January, April, July and October of each year, commencing
on July 31, 1998, at the rate of % of the liquidation preference per annum
(equivalent to $ per annum per Redeemable Preferred Share). See
"Description of Shares of Beneficial Interest--Redeemable Preferred Shares."

The Redeemable Preferred Shares are not redeemable prior to , 2003. On
and after , 2003, the Redeemable Preferred Shares may be redeemed at the
option of the Company, in whole or in part, at a redemption price of $25.00 per
share plus accrued and unpaid distributions (whether or not earned or
declared), if any, thereon. The redemption price (other than the portion
thereof consisting of accrued and unpaid distributions) for the Redeemable
Preferred Shares is payable solely out of the sale of proceeds of other capital
shares of beneficial interest of the Company, which may include other classes
or
(continued on carryover page)

SEE "RISK FACTORS" ON PAGES 20 TO 32 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
REDEEMABLE PREFERRED SHARES OFFERED HEREBY, INCLUDING:

. Risk that the Pending Acquisitions will not close;
. 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
REIT 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.

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Redeemable Preferred Share........ $25.00 $ $
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Total(3).............................. $125,000,000 $ $
</TABLE>
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(1) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $ .
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 750,000 additional Redeemable Preferred Shares on the same
terms and conditions as set forth above. If all such additional shares are
purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."

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The Redeemable Preferred Shares are offered by the several Underwriters,
subject to delivery by the Company and acceptance by the Underwriters, to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. Delivery of the shares to the Underwriters is expected to be made at
the office of Prudential Securities Incorporated, One New York Plaza, New York,
New York, on or about , 1998.
PRUDENTIAL SECURITIES INCORPORATED

BEAR, STEARNS & CO. INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

LEGG MASON WOOD WALKER

INCORPORATED

MORGAN KEEGAN & COMPANY, INC.

, 1998
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(continued from previous page)

series of preferred shares of beneficial interest, and from no other source.
See "Description of Shares of Beneficial Interest--Redeemable Preferred
Shares--Redemption." The Redeemable Preferred Shares have no stated maturity
and will not be subject to any sinking fund or mandatory redemption provisions
(except pursuant to the ownership restrictions referred to below) and will not
be convertible into any other securities of the Company except into Excess
Shares in connection with maintaining the Company's REIT status. See
"Description of Shares of Beneficial Interest."

Prior to the Offering, there has been no public market for the Redeemable
Preferred Shares. See "Underwriting" for a discussion of the factors
considered in determining the public offering price of the Redeemable
Preferred Shares. The Company has applied for listing of the Redeemable
Preferred Shares on the New York Stock Exchange (the "NYSE"), under the symbol
"PGE PrB." Trading of the Redeemable Preferred Shares on the NYSE is expected
to commence within a 30-day period after the date of initial delivery of the
Redeemable Preferred Shares. While the Underwriters have advised the Company
that they intend to make a market in the Redeemable Preferred Shares prior to
commencement of trading on the NYSE, they are under no obligation to do so and
no assurance can be given that a market for the Redeemable Preferred Shares
will exist prior to commencement of trading. See "Underwriting."

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. The
Redeemable Preferred Shares would be taken into account in determining whether
a holder of the Company's shares of beneficial interest violated the ownership
limitations.

Certain persons participating in this Offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of the Redeemable Preferred
Shares, including purchases of the Redeemable Preferred Shares to stabilize
the market price thereof, purchases of the Redeemable Preferred Shares to
cover some or all of a short position in the Redeemable Preferred Shares
maintained by the Underwriters and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
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TABLE OF CONTENTS

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PAGE
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PROSPECTUS SUMMARY........................................................ 3
The Company............................................................. 3
Recent Developments..................................................... 6
Risk Factors............................................................ 7
Business Objective and Growth Strategies................................ 8
The Company's Markets................................................... 12
Structure of the Company and the Operating Partnership.................. 13
The Offering............................................................ 14
Tax Status of the Company............................................... 16
Summary Financial Data.................................................. 17
RISK FACTORS.............................................................. 20
Risk that Pending Acquisitions Will Not Close........................... 20
Geographic Concentration of the Properties in the Chicago Metropolitan
Area, Nashville, Knoxville, Milwaukee and Columbus; Local Economic
Conditions............................................................. 20
Conflicts of Interest................................................... 20
Real Estate Financing Risks............................................. 22
Certain Anti-Takeover Provisions May Inhibit a Change in Control of the
Company................................................................ 23
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................ 25
Distributions to Shareholders Affected by Many Factors.................. 26
Historical Losses; Possibility of Future Losses......................... 27
Acquisition and Development Risks....................................... 27
Company's Performance and Value are Subject to Real Estate Investment
Risks.................................................................. 27
Consequences of Failure to Qualify as Partnerships...................... 29
Changes in Policy and Investment Activity without Shareholder Approval.. 30
Dependence on Key Personnel............................................. 30
Dependence on Significant Tenants....................................... 30
Managed Property Business and Non-REIT Services......................... 30
Liabilities for Environmental Matters Could Adversely Affect the
Company's Financial Condition.......................................... 31
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THE COMPANY............................................................... 33
Services Company........................................................ 35
BUSINESS OBJECTIVE AND GROWTH STRATEGIES.................................. 37
Business Objective...................................................... 37
Operating Strategy...................................................... 37
Acquisition Strategy.................................................... 39
Development Strategy.................................................... 39
Financing Strategy...................................................... 40
USE OF PROCEEDS........................................................... 41
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS............................ 42
CAPITALIZATION............................................................ 43
SELECTED FINANCIAL DATA................................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 47
Cautionary Statements................................................... 48
Results of Operations................................................... 48
Liquidity and Capital Resources......................................... 51
Historical Cash Flows................................................... 53
Funds from Operations................................................... 55
Impact of Year 2000..................................................... 55
Inflation............................................................... 55
BUSINESS AND PROPERTIES................................................... 56
General................................................................. 56
The Office and Industrial Properties.................................... 59
Summary Land Parcel Information......................................... 64
Occupancy and Rental Information........................................ 64
Lease Expirations....................................................... 65
Tenant Information...................................................... 79
Office Properties....................................................... 79
Industrial Properties................................................... 80
Development, Leasing and Management Activities.......................... 80
The Company's Markets................................................... 81
The Company's Office Submarkets......................................... 86
The Company's Industrial Submarkets..................................... 104
Land for Development and Option
Properties............................................................. 114
Competition............................................................. 116
Tax-Exempt Bonds........................................................ 116
Insurance............................................................... 116
Government Regulations.................................................. 117
Management and Employees................................................ 119
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PAGE
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Legal Proceedings....................................................... 119
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 120
Investment Objectives and Policies...................................... 120
Financing Strategy...................................................... 120
Conflicts of Interest Policies.......................................... 121
Working Capital Reserves................................................ 122
Policies with Respect to Other
Activities............................................................. 122
MANAGEMENT................................................................ 123
Trustees, Executive Officers and Key
Employees.............................................................. 123
Committees of the Board of Trustees..................................... 127
Compensation Committee Interlocks and Insider Participation............. 127
Compensation of Trustees................................................ 128
Executive Compensation.................................................. 128
Employment Agreements................................................... 128
Share Incentive Plan.................................................... 129
Option Exercises and Holdings........................................... 131
Indemnification of Trustees and Officers................................ 132
STRUCTURE AND FORMATION OF THE COMPANY.................................... 132
Formation Transactions.................................................. 132
Reasons for the Organization of the Company............................. 134
Comparison of Common Shares and Common Units............................ 135
Advantages and Disadvantages of the Formation Transactions to
Unaffiliated Shareholders.............................................. 136
Formation of the Services Company....................................... 136
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 137
Formation Agreement..................................................... 137
Partnership Agreement................................................... 137
Exchange Rights and Registration Rights................................. 137
The Primestone Joint Venture............................................ 137
IBD Contribution Agreement.............................................. 138
NAC Contribution Agreement; Put Option Agreement........................ 138
Tax Indemnification Agreements.......................................... 139
Non-Compete Agreement Among the Company, PGI and Michael W. Reschke..... 139
Consulting Agreement with Stephen J. Nardi.............................. 139
</TABLE>
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Option to Purchase and Right of First Offer............................. 140
Patterson Contribution Agreement........................................ 140
Leases with PGI Affiliates.............................................. 140
Sale of Common Shares to Mr. Reschke.................................... 140
Other Transactions...................................................... 140
PARTNERSHIP AGREEMENT..................................................... 142
Management.............................................................. 142
Indemnification......................................................... 142
Transferability of Interests............................................ 142
Extraordinary Transactions.............................................. 143
Issuance of Additional Common Units..................................... 143
Capital Contributions................................................... 143
Awards Under Share Incentive Plan....................................... 144
Distributions........................................................... 144
Operations.............................................................. 144
Limited Partner Exchange Rights and Registration Rights................. 144
Tax Matters............................................................. 145
Duties and Conflicts.................................................... 145
Term.................................................................... 145
PRINCIPAL SHAREHOLDERS OF THE COMPANY..................................... 146
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DISTRIBUTIONS............................................................ 149
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST.............................. 150
Authorized Shares....................................................... 150
Redeemable Preferred Shares............................................. 150
Convertible Preferred Shares............................................ 156
Common Shares........................................................... 165
Additional Preferred Shares............................................. 166
Restrictions on Ownership and Transfer.................................. 166
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF
TRUST AND BYLAWS......................................................... 169
Classification of the Board of Trustees................................. 169
Removal of Trustees..................................................... 169
Business Combinations................................................... 170
Control Share Acquisitions.............................................. 170
Amendment to the Declaration of Trust................................... 171
Advance Notice of Trustee Nominations and New Business.................. 171
Maryland Asset Requirements............................................. 171
</TABLE>

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Meetings of Shareholders................................................. 172
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. 173
General.................................................................. 173
Taxation of the Company.................................................. 174
Requirements for Qualification........................................... 175
Failure to Qualify....................................................... 180
Tax Aspects of the Company's Investments in Partnerships................. 180
Income Taxation of the Partnerships and Their Partners................... 181
Taxation of Taxable U.S. Shareholders.................................... 183
Taxation of Tax-Exempt Shareholders...................................... 185
Taxation of Non-U.S. Shareholders........................................ 186
Information Reporting Requirements and Backup Withholding Tax............ 188
Other Tax Considerations................................................. 189
ERISA CONSIDERATIONS....................................................... 190
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs.......... 190
Status of the Company under ERISA........................................ 190
UNDERWRITING............................................................... 192
LEGAL MATTERS.............................................................. 193
EXPERTS.................................................................... 194
ADDITIONAL INFORMATION..................................................... 194
GLOSSARY................................................................... G-1
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
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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 otherwise indicated,
the information contained in this Prospectus assumes that the Underwriters'
over-allotment option with respect to the Redeemable Preferred Shares will not
be exercised. 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 two Pending
Acquisitions, the Company will own 25 office properties (the "Office
Properties") containing an aggregate of approximately 5.7 million net rentable
square feet, 45 industrial properties (the "Industrial Properties") containing
an aggregate of approximately 5.8 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, the Office Properties and the
Industrial Properties generated 79.1% and 20.9%, 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. The Company also
owns approximately 85.0 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 157.2 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 3.0 million square feet of
additional office space and over 4.4 million square feet of additional
industrial properties primarily in the Chicago Metropolitan Area.

In terms of net rentable area, approximately 91.7% of the Office Properties
and 87.3% 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
93.6% 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 60.2% 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

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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 Industrial Properties, in terms of
Annualized Net Rent, consist of 59.7% warehouse/distribution properties and
40.3% overhead crane/manufacturing properties. As of March 31, 1998, the Office
Properties were 89.1% leased to more than 590 tenants and the Industrial
Properties were 86.9% 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 63.7% of the leases
for the Properties, in terms of Annualized Net Rent, had contractual rent
increases, of which approximately 52.4% of the Annualized Net Rent was
attributable to leases with specified contractual rent increases and
approximately 11.3% 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 $1.9 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 5.9 and 8.7 years, respectively, and accounted for
35.1% and 10.9%, 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 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 approximately 20 years
experience in the real estate industry in the Chicago Metropolitan Area.

4
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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.

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, 32.2% (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 March 31, 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 (assuming a market price of $20.50 per Common Share) plus total
debt) will be approximately 36.3%. 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:

Completed Acquisitions. The Company has acquired seven office properties
containing an aggregate of approximately 3.0 million net rentable square feet
for approximately $276.3 million. Such acquisitions have increased the
Company's aggregate net rentable square feet of office space since the date of
the IPO by approximately 126.0%. The following table sets forth certain data
regarding such Office Properties:

<TABLE>
<CAPTION>
NET ACQUISITION
RENTABLE COST MONTH
PROPERTY LOCATION SQUARE FEET (IN MILLIONS) ACQUIRED
-------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C>
Continental Towers, Rolling Meadows, Illinois 916,000 $109.2 December 1997
1701 Golf Road
2675 North Mayfair Road Wauwatosa, Wisconsin 102,660 8.1 December 1997
33 North Dearborn Chicago, Illinois 302,818 32.7 January 1998
Commerce Point Business Park, Arlington Heights, Illinois 235,269 28.4 February 1998
3800 North Wilke Road
208 South LaSalle Street Chicago, Illinois 827,494 60.8 March 1998
122 South Michigan Avenue Chicago, Illinois 512,660 29.7 April 1998
2100 Swift Drive Oak Brook, Illinois 58,000 7.4 April 1998
--------- ------
2,954,901 $276.3
========= ======

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 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 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.

Pending Acquisitions. As of May 19, 1998, the Company was party to contracts
to acquire two office buildings containing an aggregate of 385,455 net rentable
square feet (the "Pending Acquisitions") for aggregate consideration of
approximately $56.0 million. The following table sets forth certain data
regarding the Pending Acquisitions:

<CAPTION>
ESTIMATED
NET ACQUISITION ANTICIPATED
RENTABLE COST ACQUISITION
PROPERTY LOCATION SQUARE FEET (IN MILLIONS) DATE
-------- -------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
6400 Shafer Court Rosemont, Illinois 167,495 $21.4 May 1998
Two Century Centre, Schaumburg, Illinois 217,960 34.6 June 1998
1700 East Golf Road
--------- ------
385,455 $56.0
========= ======
</TABLE>

The Company expects to complete the Pending Acquisitions within 60 days from
the completion of the Offering, 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 both or either of the Pending Acquisitions 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

6
<PAGE>

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. Since the IPO, the Company entered into or renewed several leases
for approximately 64,000 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 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 located at 33 North Dearborn. 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.

In addition, the Company has obtained an aggregate of $145.8 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.

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 $47.2
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.

RISK FACTORS

An investment in the Redeemable Preferred 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 Pending Acquisitions are subject to customary closing conditions and
there can be no assurance that the Company will complete both or either
of the Pending Acquisitions.

. 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

7
<PAGE>

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 March 31, 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 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.

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

8
<PAGE>

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 36.3%. 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 goals; and (e)
continuing to emphasize value-added capital improvements to enhance the
Properties' competitive advantages in their submarkets.

Contractual Increases in Rent

9
<PAGE>

which will average approximately $1.9 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." 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 618,448 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 46.8% 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, 49.4% 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, 37.2% 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 12.6% 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 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

10
<PAGE>

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. The
Company owns approximately 85.0 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 157.2 acres
of developable land, which management believes could be developed with
approximately 3.0 million square feet of additional office space and over 4.4
million square feet of additional industrial properties primarily in the
Chicago Metropolitan Area. The Company's option rights include an option to
acquire a development site containing approximately 58,000 square feet known as
300 North LaSalle in downtown Chicago which, to the extent the Company is able
to obtain significant preleasing commitments for such a project, the Company
believes it could develop as an office project containing up to approximately
1.2 million net rentable square feet.

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

FINANCING STRATEGY

The Company's financing strategy and objectives are determined by the Board
of Trustees. The Company presently intends to operate with a ratio of debt to
total market capitalization at a level below 50.0%. However, such objectives
may be altered without the consent of the Company's shareholders, and the
Company's organizational documents do not limit the amount or type of
indebtedness that the Company may incur. On a pro forma basis, the Company's
ratio of debt to total market capitalization will be approximately 36.3%.

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

11
<PAGE>

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 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, 32.2% (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."

12
<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
after giving effect to the Offering is shown in the following chart:

[CHART APPEARS HERE]

Public Shareholders Security Capital Preferred Growth

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

Prime Group Realty Trust
(the "Company")/(2)/

General NAC Primestone Other
Partner General Joint Mr. PGI Limited
Interests Partner Venture Patterson Partners
(60.3%)
General Limited Limited Limited Limited
Partner Partner Partner Partner Partner
Interests Interests Interests Interests Interests
(3.6%) (30.8%) (0.4%) (0.4%) (4.5%)

Prime Group Realty, L.P.
(the "Operating Partnership")/(3)/

Messrs.
100.0% of Reschke
Non-voting and Curto
Participating
Preferred Stock 100.0% of
(Economic Interests of Voting Common
95.0%) Stock
(Economic Interest of
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 5,000,000 Series B Preferred Units in the
Operating Partnership (5,750,000 Series B Preferred Units if the
Underwriters' over-allotment option is exercised in full), the terms and
conditions of which correspond to the Redeemable Preferred Shares. The
Company is the managing general partner of the Operating Partnership.

(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."

13
<PAGE>

THE OFFERING

Redeemable Preferred Shares Offered
Hereby............................... 5,000,000 shares (assuming the
Underwriters' over-allotment option to
purchase up to 750,000 Redeemable
Preferred Shares is not exercised--see
"Underwriting"). For a more detailed
description of the terms of the
Redeemable Preferred Shares, see
"Description of Shares of Beneficial
Interest--Redeemable Preferred Shares."

Distributions......................... Cumulative from the date of original
issuance and are payable quarterly on
or about the last day of January,
April, July and October of each year,
commencing on July 31, 1998, at the
rate of % of the liquidation
preference per annum (equivalent to
$ per annum per Redeemable
Preferred Share when, as and if
declared by the Board of Trustees of
the Company, out of funds legally
available therefor). Distributions on
the Redeemable Preferred Shares will
accrue whether or not the Company has
earnings, whether or not there are any
funds legally available for the payment
of such distributions and whether or
not such distributions are declared by
the Board of Trustees.

Ranking............................... The Redeemable Preferred Shares will
rank senior to the Convertible
Preferred Shares and the Common Shares
and pari passu with any class or series
of beneficial interest of the Company
if the holders of such class or series
shall be entitled to the payment
of distributions and amounts upon
liquidation, dissolution or winding up
of the Company without preference or
priority over the Redeemable
Preferred Shares. See "Description of
Shares of Beneficial Interest--
Redeemable Preferred Shares,"
"--Convertible Preferred Shares" and
"--Common Shares."

Liquidation Preference................ $25.00 per Redeemable Preferred Share,
plus accrued and unpaid distributions
(whether or not earned or declared), if
any, to the redemption date. See
"Descriptions of Shares of Beneficial
Interest--Redeemable Preferred Shares--
Liquidation Preference."

Redemption............................ The Redeemable Preferred Shares will
not be redeemable by the Company prior
to , 2003, except in certain
circumstances relating to the Company's
maintenance of its ability to qualify
as a REIT, as described below under
"Description of Shares of Beneficial
Interest--Restrictions on Ownership and
Transfer." On and after , 2003,
the Redeemable Preferred Shares will be

14
<PAGE>

redeemable for cash at the option of
the Company, in whole or in part, at
$25.00 per share, plus distributions
accrued and unpaid (whether or not
earned or declared) to the redemption
date. The redemption price (other than
the portion thereof consisting of
accrued and unpaid distributions) is
payable solely out of the sale of
proceeds of other capital shares of
beneficial interest of the Company,
which may include other classes or
series of preferred shares of
beneficial interest, and from no other
source. See "Description of Shares of
Beneficial Interest--Redeemable
Preferred Shares--Redemption."

Conversion............................ The Redeemable Preferred Shares are not
convertible into or exchangeable for
any other property or securities of the
Company, except into Excess Shares in
connection with maintaining the
Company's REIT Status. See "Description
of Shares of Beneficial Interest--Re-
strictions on Ownership and Transfer."

Voting Rights......................... The holders of the Redeemable Preferred
Shares will not be entitled to vote ex-
cept as required by law and except that
if distributions on the Redeemable Pre-
ferred Shares are in arrears for six or
more consecutive quarterly periods,
holders of the Redeemable Preferred
Shares (voting separately as a class
with all other series of preferred
shares upon which like voting rights
have been conferred and are exercis-
able) will be entitled to vote for the
election of two additional Trustees to
serve on the Board of Trustees of the
Company until all distribution arrear-
ages are eliminated. See "Description
of Shares of Beneficial Interest--Re-
deemable Preferred Shares--Voting
Rights."

NYSE Listing..........................
The Company has applied for listing of
the Redeemable Preferred Shares on the
NYSE, under the symbol PGE PrB, with
trading expected to commence within a
30-day period after the initial deliv-
ery of the Redeemable Preferred Shares.

Use of Proceeds....................... The net proceeds from the Offering will
be used to fund the Pending Acquisi-
tions and to repay indebtedness under
the Credit Facility. Any remaining pro-
ceeds will be used for working capital
and general corporate purposes. See
"Use of Proceeds."

15
<PAGE>

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 year 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.

16
<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 and pro forma financial statements and
notes thereto included elsewhere in this Prospectus. The consolidated
historical and combined historical data as of March 31, 1998 and for the three
months ended March 31, 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 completion of the
Offering, and use of the aggregate net proceeds therefrom as described under
"Use of Proceeds" 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.

17
<PAGE>

SUMMARY 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--
THREE HISTORICAL-- PERIOD FROM
MONTHS THREE MONTHS PRO FORMA-- NOVEMBER 17,
ENDED ENDED YEAR ENDED 1997 THROUGH
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental............ $24,839 $18,085 $ 92,954 $ 7,293
Tenant reimburse-
ments............ 10,821 8,375 36,713 2,041
Mortgage note in-
terest........... 1,507 1,507 6,027 248
Insurance settle-
ment............. -- -- -- --
Other............. 1,042 784 1,900 248
------- ------- -------- -------
Total revenue... 38,209 28,751 137,594 9,830
------- ------- -------- -------
EXPENSES:
Property opera-
tions............ 8,669 5,056 32,807 2,213
Real estate tax-
es............... 7,542 5,358 24,809 1,765
Depreciation and
amortization..... 6,193 5,335 24,050 2,478
Interest.......... 6,497 6,415 24,383 1,680
Interest--affili-
ate.............. -- -- -- --
Property manage-
ment fee--affili-
ate.............. -- -- -- --
Financing fees.... -- -- -- --
General and admin-
istrative........ 1,396 1,396 4,524 267
Provision for en-
vironmental
remediation
costs............ -- -- 3,205 --
Write-off of de-
ferred tenant
costs............ -- -- -- --
------- ------- -------- -------
Total expenses.. 30,297 23,560 113,778 8,403
------- ------- -------- -------
Income (loss) be-
fore minority in-
terest and ex-
traordinary
item............. 7,912 5,191 23,816 1,427
Minority inter-
est.............. (3,141) (2,271) (9,455) (635)
------- ------- -------- -------
Net income (loss)
before extraordi-
nary item........ 4,771 2,920 14,361 792
Extraordinary gain
on early extin-
guishment of
debt, net of mi-
nority interests'
share in the
amount of $1,127. -- -- -- --
------- ------- -------- -------
Net income
(loss)........... 4,771 2,920 14,361 792
Net income
allocated to
preferred
shareholders..... (3,473) (700) (13,894) (345)
------- ------- -------- -------
Net income avail-
able to common
shareholders..... $ 1,298 $ 2,220 $ 467 $ 447
======= ======= ======== =======
Net income
available per
weighted average
Common Share--
basic and diluted
(1)(2)........... $ 0.08 $ 0.17 $ 0.03 $ 0.04
======= ======= ======== =======
OTHER OPERATING DA-
TA:
Ratio of earnings
before minority
interest and
extraordinary
item to combined
fixed charges and
preferred share
dividends(3)..... 1.77 1.70 1.61 1.66
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
earnings before
minority interest
and extraordinary
item............. $ 7,912 $ 5,191 $ 23,816 $ 1,427
Ratio of funds
from operations
to combined fixed
charges and
preferred share
dividends(4)..... 2.03 2.32 1.96 2.85
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
funds from
operations....... $10,575 $ 9,770 $ 37,552 $3,964
<CAPTION>
PREDECESSOR PROPERTIES--COMBINED HISTORICAL
--------------------------------------------------------------
THREE PERIOD FROM
MONTHS JANUARY 1,
ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, NOVEMBER 16, ---------------------------------------
1997 1997 1996 1995 1994 1993
--------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental............ $ 7,986 $ 27,947 $ 30,538 $ 33,251 $ 30,352 $ 28,177
Tenant reimburse-
ments............ 4,206 12,490 14,225 14,382 12,451 10,750
Mortgage note in-
terest........... -- -- -- -- -- --
Insurance settle-
ment............. -- -- -- 7,257 -- --
Other............. 426 1,515 3,397 2,715 3,170 1,527
--------- ------------ --------- --------- --------- ---------
Total revenue... 12,618 41,952 48,160 57,605 45,973 40,454
--------- ------------ --------- --------- --------- ---------
EXPENSES:
Property opera-
tions............ 2,357 8,622 9,767 9,479 8,852 8,452
Real estate tax-
es............... 2,823 8,575 9,383 9,445 9,057 7,167
Depreciation and
amortization..... 3,079 11,241 12,409 12,646 11,624 11,739
Interest.......... 6,568 24,613 27,080 27,671 25,985 22,827
Interest--affili-
ate.............. 2,930 9,804 10,137 8,563 7,402 6,335
Property manage-
ment fee--affili-
ate.............. 389 1,348 1,561 1,496 1,388 1,106
Financing fees.... 368 1,180 1,232 -- -- --
General and admin-
istrative........ 979 2,414 4,927 4,508 3,727 3,657
Provision for en-
vironmental
remediation
costs............ -- 3,205 -- -- -- --
Write-off of de-
ferred tenant
costs............ -- -- 3,081 13,373 -- --
--------- ------------ --------- --------- --------- ---------
Total expenses.. 19,493 71,002 79,577 87,181 68,035 61,283
--------- ------------ --------- --------- --------- ---------
Income (loss) be-
fore minority in-
terest and ex-
traordinary
item............. (6,875) (29,050) (31,417) (29,576) (22,062) (20,829)
Minority inter-
est.............. 259 666 894 3,281 5,393 10,531
--------- ------------ --------- --------- --------- ---------
Net income (loss)
before extraordi-
nary item........ (6,616) (28,384) (30,523) (26,295) (16,669) (10,298)
Extraordinary gain
on early extin-
guishment of
debt, net of mi-
nority interests'
share in the
amount of $1,127. -- 65,990 -- -- -- --
--------- ------------ --------- --------- --------- ---------
Net income
(loss)........... $(6,616) $ 37,606 $(30,523) $(26,295) $(16,669) $(10,298)
========= ============ ========= ========= ========= =========
Net income
allocated to
preferred
shareholders.....
Net income avail-
able to common
shareholders.....
Net income
available per
weighted average
Common Share--
basic and diluted
(1)(2)...........
OTHER OPERATING DA-
TA:
Ratio of earnings
before minority
interest and
extraordinary
item to combined
fixed charges and
preferred share
dividends(3)..... 0.29 0.17 0.17 0.21 0.35 0.31
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
earnings before
minority interest
and extraordinary
item............. $(6,875) $(29,050) $(31,417) $(29,576) $(22,062) $(20,829)
Ratio of funds
from operations
to combined fixed
charges and
preferred share
dividends(4)..... 0.59 0.59 0.54 0.66 0.62 0.69
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
funds from
operations....... $(3,945) $(14,461) $(17,367) $(12,733) $(12,930) $(9,345)
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED PREDECESSOR PROPERTIES--COMBINED
-------------------------------- --------------------------------------
HISTORICAL
HISTORICAL DECEMBER 31,
PRO FORMA ---------------------- --------------------------------------
MARCH 31, MARCH 31, 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.......... $829,148 $736,097 $589,279 $291,757 $289,558 $285,687 $281,316
Total assets........... 983,145 918,243 741,468 325,230 343,641 356,421 357,158
Mortgages notes and
bonds payable......... 395,828 451,063 328,044 421,983 405,562 388,309 361,832
Total liabilities...... 444,761 499,996 370,192 447,927 434,993 421,257 397,539
Minority interest...... 149,770 149,770 147,207 (6,905) (6,047) 886 (11,527)
Shareholders' equity
(partners' deficit)... 388,614 268,477 224,069 (115,792) (85,305) (65,722) (28,854)
</TABLE>

<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED
HISTORICAL PREDECESSOR PROPERTIES--COMBINED HISTORICAL
----------------------- -------------------------------------------------------
THREE PERIOD FROM THREE PERIOD FROM
MONTHS NOVEMBER 17, MONTHS JANUARY 1,
ENDED 1997 THROUGH ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, MARCH 31, NOVEMBER 16, -------------------------------
1998 1997 1997 1997 1996 1995 1994
--------- ------------ --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Opera-
tions(5).............. $ 9,769 $ 3,964 $ 3,945 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by
(used in):
Operating activi-
ties............... 8,002 6,658 (3,058) (5,700) (3,165) (1,259) (13,875)
Investing activi-
ties............... (175,691) (353,816) (133) (2,467) 1,126 (9,176) (6,495)
Financing activi-
ties............... 165,307 335,390 1,327 6,331 5,733 10,873 15,422
Office Properties:
Square footage...... 4,737,999 3,372,621 1,414,897 1,414,897 1,414,897 1,414,897 1,414,897
Occupancy (%)....... 92.3 92.6 92.5 92.7 92.5 95.8 93.7
Industrial Properties:
Square footage...... 5,765,964 5,765,964 2,462,430 2,462,430 2,462,430 2,551,624 2,547,388
Occupancy (%)....... 86.9 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 outstanding after the IPO and the Private
Placement.

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

19
<PAGE>

RISK FACTORS

In addition to the other information presented in this Prospectus,
prospective investors should carefully consider the following matters before
purchasing Redeemable Preferred 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.

RISK THAT PENDING ACQUISITIONS WILL NOT CLOSE. The closings of the Pending
Acquisitions are scheduled to occur within 60 days after the completion of the
Offering. The Pending Acquisitions are subject to customary closing
conditions. Therefore, there can be no assurance that the Company will
complete both or either of the Pending Acquisitions. If the Company does not
complete the acquisition of any of the Pending Acquisitions following the
completion of the Offering, the net proceeds from the Offering designated for
the purchase of such Pending Acquisition or Pending Acquisitions will be used
to repay borrowings under the Credit Facility. If the Company is unable to
close the acquisition of a significant percentage of the Pending Acquisitions
and to identify additional available acquisitions after the Offering, the
Company's ability to increase distributable cash flow per share could be
adversely affected.

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, 20 of the Office Properties and 38 of the Industrial
Properties, comprising an aggregate of approximately 5.2 million and 5.0
million rentable square feet, respectively (representing approximately 91.7%
of the aggregate net rentable square feet of the Company's office space and
87.3% of the aggregate net rentable square feet of the Company's industrial
space, and approximately 93.6% 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 24.7% 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 0.4% interest in the Operating Partnership,
and the Primestone Joint Venture (in which PGI owns a 60.0% interest) owns a
30.3% 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)

20
<PAGE>

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 6.7% 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 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 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. and a
member of the board of Ambassador Apartments, Inc. (which on May 8, 1998,
merged with and into Apartment Investment and Management Company) 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

21
<PAGE>

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."

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. On a pro forma basis at March 31, 1998, the Company would have
outstanding debt of approximately $395.8 million which is equal to
approximately 36.3% 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." 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. The Company intends to operate with a ratio of debt to
total market capitalization at a level below 50.0%, although this strategy is
subject to reevaluation and modification by the Board of Trustees. See
"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.

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

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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 March 31, 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.

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 Security Capital
Preferred Growth 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 issue up to 30.0 million
shares of Preferred Shares, par value $0.01 per share, of which 2.0 million
are designated as Convertible Preferred Shares and 5.0 million will be
designated 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. The terms of the first, second and third classes will
expire in 1998, 1999 and 2000, respectively. Trustees for each class will be
chosen for a three-year term upon the expiration of the current class' term,
beginning in 1998. Subject to the 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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<PAGE>

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" 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

24
<PAGE>

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 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

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<PAGE>

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.

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.

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<PAGE>

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."

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.

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<PAGE>

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 1.9 million
net rentable square feet (which represent 31.3% of the Annualized Net Rent of
the Office Properties) and Industrial Property leases covering approximately
2.6 million net rentable square feet (which represent 49.5% of the Annualized
Net Rent of the Industrial Properties). These lease expirations represent, in
the aggregate, approximately 35.1% 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 $10.61 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 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

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<PAGE>

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 fines by the federal
government or an award of damages to private litigants. Although the Company
believes that the Properties are substantially in compliance with these
requirements, the Company may incur additional costs to comply with the ADA.
Although the Company believes that such costs will not have a material adverse
effect on the Company, if required changes involve a greater expenditure than
the Company currently anticipates, the Company's ability to make expected
distributions to shareholders could be adversely affected.

CONSEQUENCES OF FAILURE TO QUALIFY AS PARTNERSHIPS. The Company expects that
the Operating Partnership and each of the Property Partnerships will be
organized as partnerships and will be treated as partnerships for federal
income tax purposes. If the Operating Partnership or any of the Property
Partnerships 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

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(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 35.1% of the Annualized Net
Rent, and its ten largest industrial tenants as of March 31, 1998 represented
approximately 10.9% 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 77 West
Wacker Drive Building, representing approximately 19.2% 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.

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

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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 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. 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

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<PAGE>

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.

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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. As part of the Pending Acquisitions, the
Company will acquire certain additional office properties from third parties.
Including the two Pending Acquisitions, the Company will own 25 Office
Properties containing an aggregate of approximately 5.7 million net rentable
square feet, 45 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 March 31, 1998, the Office Properties and the Industrial
Properties generated 79.1% and 20.9%, 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. The Company also owns
approximately 85.0 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 157.2
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 3.0 million square
feet of additional office space and over 4.4 million square feet of additional
industrial properties primarily in the Chicago Metropolitan Area.

In terms of net rentable square feet, approximately 91.7% of the Office
Properties and 87.3% 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 93.6% 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 60.2% 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 59.7% warehouse/distribution properties and 40.3% overhead
crane/manufacturing properties. As of March 31, 1998, the Office Properties
were 89.1% leased to more than 590 tenants, and the Industrial Properties were
86.9% 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 63.7% of the
leases for the Properties, in terms of Annualized Net Rent, had contractual
rent increases, of which approximately 52.4% of the Annualized Net Rent was
attributable to leases with specified contractual rent increases and
approximately 11.3% 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 $1.9 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
55.1% 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

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<PAGE>

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 5.9 and 8.7 years, respectively, and accounted for 35.1% and 10.9%,
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 and the Services Company have approximately 291 employees, 32 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 approximately 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 Chicago Metropolitan Area also has experienced a very active market in
industrial space in the 1990s. As of the end of the first quarter of 1997, the
Chicago Metropolitan Area's industrial market's overall vacancy rate was 7.9%,
below the national average vacancy rate of 8.4%. In addition, 32.2% (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, the Company's ratio of debt to total market capitalization
will be approximately 36.3%.

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 and corporate advisory services business. The Services
Company also operates a health club facility located in the 77 West Wacker
Drive Building. 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 be 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
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

35
<PAGE>

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 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 Services 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.

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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.

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 goals; and (e) continuing to emphasize value-added capital
improvements to enhance the Properties' competitive advantages in their
submarkets.

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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 $535,000 per year over the next
ten years. As of March 31, 1998, approximately 63.7% of the leases for the
Properties, in terms of Annualized Net Rent, had contractual rent increases,
of which approximately 52.4% of the Annualized Net Rent was attributable to
leases with specified contractual rent increases and approximately 11.3% 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 $1.9
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. As of March
31, 1998, the Office Properties were approximately 89.1% leased, and the
Industrial Properties were approximately 86.9% 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 618,448 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 46.8% 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, 49.4% 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, 37.2% 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 12.6% per annum. From January 1, 1995 through March
31, 1998, the Prime Properties have achieved a tenant

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<PAGE>

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

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.

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.

DEVELOPMENT STRATEGY

39
<PAGE>

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. The
Company owns approximately 85.0 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 157.2
acres of developable land, which management believes could be developed with
approximately 3.0 million square feet of additional office space and over 4.4
million square feet of additional industrial properties primarily in the
Chicago Metropolitan Area. The Company's option rights include an option to
acquire a development site containing approximately 58,000 square feet known
as 300 North LaSalle in downtown Chicago which, to the extent the Company is
able to obtain significant preleasing commitments for such a project, the
Company believes it could develop as an office or mixed-use project containing
up to approximately 1.2 million net rentable square feet.

FINANCING STRATEGY

The Company's financing strategy and objectives are determined by the
Company's Board of Trustees. The Company presently intends to operate with a
ratio of debt to total market capitalization at a level below 50.0%. The
Company also 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 the Company's
organizational documents do not limit the amount or type of indebtedness that
the Company may incur. On a pro forma basis, the Company's ratio of debt to
total market capitalization will be approximately 36.3%.

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.

40
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering after the deduction of
underwriting discounts, commissions and offering costs applicable to the
Redeemable Preferred Shares offered hereby are approximately $120.1 million
($138.3 million if the Underwriters' over-allotment option with respect to the
Redeemable Preferred Shares is exercised in full). The Company will use the
net proceeds of the Offering to acquire 5,000,000 Series B Preferred Units of
the Operating Partnership, the economic terms of which will be substantially
identical to the Redeemable Preferred Shares. The Operating Partnership will
be required to make all required distributions on the Series B Preferred Units
(which will mirror the payments of distributions, including accrued and unpaid
distributions upon redemption, and the liquidation preference amount on the
Series B Preferred Units) prior to any distribution of cash or assets to the
holders of Common Units, or Preferred Units or to the holders of any other
equity interests in the Operating Partnership, except for any other series of
Preferred Units ranking on a parity with the Series B Preferred Units as to
distributions and/or liquidation rights and except for distributions required
to enable the Company to maintain its qualification as a REIT under the Code.

The Operating Partnership will use approximately $56.0 million of the funds
it receives from the sale of Series B Preferred Units to the Company to
acquire from third parties certain properties in connection with the Pending
Acquisitions and $64.1 million of such net proceeds to repay amounts
outstanding under the Credit Facility ($102.5 million was outstanding under
the Credit Facility as of May 15, 1998, not including outstanding letters of
credit). For a description of the Credit Facility, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--The Credit Facility."

If the Underwriters' over-allotment option with respect to the Redeemable
Preferred Shares is exercised, the Company will use the proceeds from the
exercise of the option to acquire additional Series B Preferred Units of the
Operating Partnership, and the Operating Partnership will use the funds it
receives from the Company for working capital and general corporate purposes,
including future acquisitions and development and repayment of amounts
outstanding under the Credit Facility. See the Pro Forma Condensed
Consolidated Balance Sheet and the Pro Forma Condensed Consolidated Statements
of Operations included elsewhere in this Prospectus for the pro forma effects
of the foregoing transactions.

41
<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
April 1, 1998 to May 19, 1998........................ $21 $20
FISCAL YEAR 1997:
November 12, 1997 to December 31, 1997............... $20 7/16 $19 1/2
</TABLE>

On May 19, 1998, the last reported price for the Common Shares was $20 5/8
per share. As of May 19, 1998, the Company's 15,572,494 Common Shares were
held by 31 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. 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.

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."

42
<PAGE>

CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of March 31, 1998 and on a pro forma basis for the Company after giving
effect to the 1998 Acquisitions, the Pending Acquisitions, the Offering and
the use of the net proceeds from the Offering as described under "Use of
Proceeds." See the historical and pro forma financial information relating to
the Company set forth elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
HISTORICAL PRO FORMA
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Credit Facility.................................. $ 172,500 $ 112,065(1)
Line of Credit................................... 15,000 15,000
Mortgage notes payable........................... 189,113 194,313
Tax-exempt and taxable bonds payable............. 74,450 74,450
----------- -----------
Total debt......................................... 451,063 395,828
Minority interest.................................. 149,770 149,770
Shareholders' equity:
Preferred Shares, $.01 par value; 30.0 million
shares authorized:
Series A Cumulative Convertible Preferred
Shares, 2.0 million shares
issued and outstanding......................... 20 20
Series B Cumulative Redeemable Preferred Shares,
5.0 million shares
issued and outstanding......................... -- 50
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....................... 273,050 393,137
Distributions in excess of earnings.............. (4,749) (4,749)
----------- -----------
Total shareholders' equity......................... 268,477 388,614
----------- -----------
Total capitalization............................... $ 863,310 $ 934,212
=========== ===========
</TABLE>
- --------

(1) Reflects the net effect of the historical balance as adjusted for
borrowings subsequent to March 31, 1998 of $3,702 to fund the 1998
Acquisitions, less the repayment of $64,137 under the Credit Facility with
a portion of the net proceeds of the Offering.

(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, 25,825,876 (25,835,876 on a pro forma basis, which
includes the Common Units and 10,000 Common Units issued subsequent to
March 31, 1998 to a third party as purchase price consideration for an
option to purchase such third party's second mortgage encumbering the
office building located at 180 North LaSalle Street in Chicago, Illinois)
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."

43
<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 March 31, 1998,
the Company had (i) sold 5.0 million shares of its Redeemable Preferred Shares
at $25.00 per share in the Offering and used the net proceeds to acquire 5.0
million Series B Preferred Units of the Operating Partnership, (ii) completed
the Pending Acquisitions, (iii) repaid borrowings from the Credit Facility as
described under "Use of Proceeds," and (iv) completed the acquisition of 122
South Michigan and 2100 Swift Drive (two of the 1998 Acquisitions). The
unaudited Pro Forma Consolidated Statements of Operations for the three months
ended March 31, 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, and (vii)
the Company completed the acquisition of 33 North Dearborn, Commerce Point
Business Park and 208 South LaSalle Street (three of the 1998 Acquisitions).

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 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.

44
<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--
THREE HISTORICAL-- PERIOD FROM
MONTHS THREE MONTHS PRO FORMA-- NOVEMBER 17,
ENDED ENDED YEAR ENDED 1997 THROUGH
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1997
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental............ $24,839 $18,085 $ 92,954 $ 7,293
Tenant
reimbursements... 10,821 8,375 36,713 2,041
Mortgage note
interest......... 1,507 1,507 6,027 248
Insurance
settlement....... -- -- -- --
Other............. 1,042 784 1,900 248
------- ------- -------- -------
Total revenue... 38,209 28,751 137,594 9,830
------- ------- -------- -------
EXPENSES:
Property
operations....... 8,669 5,056 32,807 2,213
Real estate
taxes............ 7,542 5,358 24,809 1,765
Depreciation and
amortization..... 6,193 5,335 24,050 2,478
Interest.......... 6,497 6,415 24,383 1,680
Interest--
affiliate........ -- -- -- --
Property
management fee--
affiliate........ -- -- -- --
Financing fees.... -- -- -- --
General and
administrative... 1,396 1,396 4,524 267
Provision for
environmental
remediation
costs............ -- -- 3,205 --
Write-off of
deferred tenant
costs............ -- -- -- --
------- ------- -------- -------
Total expenses.. 30,297 23,560 113,778 8,403
------- ------- -------- -------
Income (loss)
before minority
interest and
extraordinary
item............. 7,912 5,191 23,816 1,427
Minority
interest......... (3,141) (2,271) (9,455) (635)
------- ------- -------- -------
Net income (loss)
before
extraordinary
item............. 4,771 2,920 14,361 792
Extraordinary
(loss) gain on
early extinguish-
ment of debt, net
of minority in-
terests' share in
the amount of
$1,127........... -- -- -- --
------- ------- -------- -------
Net income
(loss)........... 4,771 2,920 14,361 792
Net income
allocated to
preferred
shareholders..... (3,473) (700) (13,894) (345)
------- ------- -------- -------
Net income
available to
common
shareholders..... $ 1,298 $ 2,220 $ 467 $ 447
======= ======= ======== =======
Net income
available per
weighted average
Common Share of
beneficial
interest--basic
and diluted
(1)(2)........... $ 0.08 $ 0.17 $ 0.03 $ 0.04
======= ======= ======== =======
OTHER OPERATING DA-
TA:
Ratio of earnings
before
minority interest
and extraordinary
item to combined
fixed charges and
preferred share
dividends(3)..... 1.77 1.70 1.61 1.66
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
earnings before
minority interest
and extraordinary
item............. $ 7,912 $ 5,191 $ 23,816 $ 1,427
Ratio of Funds
from Operations
to combined fixed
charges and
preferred share
dividends(4)..... 2.03 2.32 1.96 2.85
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
funds from
operations....... $10,575 $ 9,770 $ 37,552 $3,964
<CAPTION>
PREDECESSOR PROPERTIES--COMBINED HISTORICAL
--------------------------------------------------------------
THREE PERIOD FROM
MONTHS JANUARY 1,
ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, NOVEMBER 16, ---------------------------------------
1997 1997 1996 1995 1994 1993
--------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental............ $ 7,986 $ 27,947 $ 30,538 $ 33,251 $ 30,352 $ 28,177
Tenant
reimbursements... 4,206 12,490 14,225 14,382 12,451 10,750
Mortgage note
interest......... -- -- -- -- -- --
Insurance
settlement....... -- -- -- 7,257 -- --
Other............. 426 1,515 3,397 2,715 3,170 1,527
--------- ------------ --------- --------- --------- ---------
Total revenue... 12,618 41,952 48,160 57,605 45,973 40,454
--------- ------------ --------- --------- --------- ---------
EXPENSES:
Property
operations....... 2,357 8,622 9,767 9,479 8,852 8,452
Real estate
taxes............ 2,823 8,575 9,383 9,445 9,057 7,167
Depreciation and
amortization..... 3,079 11,241 12,409 12,646 11,624 11,739
Interest.......... 6,568 24,613 27,080 27,671 25,985 22,827
Interest--
affiliate........ 2,930 9,804 10,137 8,563 7,402 6,335
Property
management fee--
affiliate........ 389 1,348 1,561 1,496 1,388 1,106
Financing fees.... 368 1,180 1,232 -- -- --
General and
administrative... 979 2,414 4,927 4,508 3,727 3,657
Provision for
environmental
remediation
costs............ -- 3,205 -- -- -- --
Write-off of
deferred tenant
costs............ -- -- 3,081 13,373 -- --
--------- ------------ --------- --------- --------- ---------
Total expenses.. 19,493 71,002 79,577 87,181 68,035 61,283
--------- ------------ --------- --------- --------- ---------
Income (loss)
before minority
interest and
extraordinary
item............. (6,875) (29,050) (31,417) (29,576) (22,062) (20,829)
Minority
interest......... 259 666 894 3,281 5,393 10,531
--------- ------------ --------- --------- --------- ---------
Net income (loss)
before
extraordinary
item............. (6,616) (28,384) (30,523) (26,295) (16,669) (10,298)
Extraordinary
(loss) gain on
early extinguish-
ment of debt, net
of minority in-
terests' share in
the amount of
$1,127........... -- 65,990 -- -- -- --
--------- ------------ --------- --------- --------- ---------
Net income
(loss)........... $(6,616) $ 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 DA-
TA:
Ratio of earnings
before
minority interest
and extraordinary
item to combined
fixed charges and
preferred share
dividends(3)..... 0.29 0.17 0.17 0.21 0.35 0.31
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
earnings before
minority interest
and extraordinary
item............. $(6,875) $(29,050) $(31,417) $(29,576) $(22,062) $(20,829)
Ratio of Funds
from Operations
to combined fixed
charges and
preferred share
dividends(4)..... 0.59 0.59 0.54 0.66 0.62 0.69
Excess (deficit)
of combined fixed
charges and
preferred share
dividends over
funds from
operations....... $(3,945) $(14,461) $(17,367) $(12,733) $(12,930) $ (9,345)
</TABLE>

45
<PAGE>

<TABLE>
<CAPTION>
COMPANY--CONSOLIDATED PREDECESSOR PROPERTIES--COMBINED HISTORICAL
----------------------------------------------- -------------------------------------------------------
PRO FORMA HISTORICAL HISTORICAL
THREE THREE PERIOD FROM THREE PERIOD FROM
MONTHS MONTHS PRO FORMA NOVEMBER 17, MONTHS JANUARY 1,
ENDED ENDED YEAR ENDED 1997 THROUGH ENDED 1997 THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, NOVEMBER 16, -------------------------------
1998 1998 1997 1997 1997 1997 1996 1995 1994
--------- ---------- ------------ ------------ --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Opera-
tions(5)........ $ 10,575 $ 9,769 $37,552 $ 3,964 $ 3,945 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows pro-
vided by
(used in):
Operating
activities..... -- 8,002 -- 6,658 (3,058) (5,700) (3,165) (1,259) (13,875)
Investing
activities..... -- (175,691) -- (353,816) (133) (2,467) 1,126 (9,176) (6,495)
Financing
activities..... -- 165,307 -- 335,390 1,327 6,331 5,733 10,873 15,422
Office Proper-
ties:
Square footage.. 5,694,115 4,737,999 -- 3,372,621 1,414,897 1,414,897 1,414,897 1,414,897 1,414,897
Occupancy (%)... 89.1 92.3 -- 92.6 92.5 92.7 92.5 95.8 93.7
Industrial Prop-
erties:
Square footage.. 5,765,179 5,765,964 -- 5,765,964 2,462,430 2,462,430 2,462,430 2,551,624 2,547,388
Occupancy (%)... 86.9 86.9 -- 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 outstanding after the IPO and the Private
Placement.

(2) Net income (loss) available per weighted average Common Share--basic and
diluted equals net income divided by the 13.18 million and 12.59 million
Common Shares for the three months ended March 31, 1998 and 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.
(3) For purposes of these computations, earnings before minority interests
consist of income (loss) before minority interest, plus combined fixed
charges and Convertible Preferred Share dividend. Combined fixed charges
and Convertible Preferred Share dividend consist of interest costs,
whether expensed or capitalized, and amortization of debt issuance costs
and Convertible Preferred Share dividend.
(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 Convertible Preferred Share dividend (as defined in note 3 above).

(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."

46
<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 March 31, 1998, the Company acquired three office
properties. As of March 31, 1998, the Company (through the Operating
Partnership) owned 21 office properties ("Owned Office Properties") containing
an aggregate of approximately 4.7 million net rentable square feet, 45
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 March
31, 1998, the Owned Office Properties and the Industrial Properties generated
76.2% and 23.8%, 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 85.0 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 157.2 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 3.0 million square feet of additional office
space and over 4.4 million square feet of additional industrial space
primarily in the Chicago Metropolitan Area.

In terms of net rentable square feet, approximately 91.7% of the Owned
Office Properties and 87.4% 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 93.7% 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.

47
<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 three month periods ended March 31, 1998 and March 31, 1997 and for the
years ended December 31, 1997 and 1996. The periods from January 1, 1998
through March 31, 1998 and from November 17, 1997 through December 31, 1997
record the activity of the Company and the periods from January 1, 1997
through March 31, 1997 and from January 1, 1997 through November 17, 1997
records the activity of the Predecessor Properties.

Three Months Ended March 31, 1998 for the Company Compared to Three Months
Ended March 31, 1997 for the Predecessor Properties

In analyzing the operating results for the quarter ended March 31, 1998, the
changes in rental and tenant reimbursments 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 March 31, 1998.

The Predecessor Properties consisted of five office properties, 17
industrial properties, as well as a parking garage facility. At the time of
the IPO, 11 additional office properties, 28 additional industrial properties
and one retail center were contributed or acquired. After the date of the IPO
and through March 31, 1998, the Company acquired five additional office
properties and the first mortgage note encumbering one office property.

For the three months ended March 31, 1998, rental revenue increased $10.1
million, or 126.3%, to $18.1 million, tenant reimbursement income increased
$4.2 million, or 100.0%, to $8.4 million, property operating expenses
increased $2.7 million, or 112.5%, to $5.1 million, real estate tax expense
increased $2.5 million, or 89.3%, to $5.4 million and depreciation and
amortization increased $2.3 million, or 74.2%, to $5.3 million as compared to
the three months ended March 31, 1997. The additional office and industrial
properties resulted in increased rental revenue of $10.6 million, tenant
reimbursements income of $4.3 million, property operating expenses of $2.5
million, real estate tax expense of $2.5 million and depreciation and
amortization of $2.3 million for the three months ended March 31, 1998. Rental
revenue and tenant reimbursement income for the Predecessor Properties
decreased $0.5 million and $0.1 million, respectively, for the three months
ended March 31, 1998, due to a major tenant of the 77 West Wacker Drive
building defaulting on their lease in the second quarter of 1997. Property
operating expenses, real estate tax expense and depreciation and amortization
for the Predecessor Properties for the three months ended March 31, 1998
remained consistent with the same period in 1997.

Mortgage note interest income increased by $1.5 million due to the
acquisition of the first mortgage note encumbering the property known as 180
North LaSalle.

Interest expense had a net decrease of $3.1 million, or 32.6%, to $6.4
million during the three months ended March 31, 1998. The decrease was due to
an $8.8 million decrease as a result of the repayment of debt with proceeds
from the Company's IPO, offset by an increase of $5.7 million due to mortgages
obtained on certain of

48
<PAGE>

the properties which were contributed or acquired after the IPO, as well as a
Credit Facility and Line of Credit borrowings used to fund property
acquisitions.

General and administrative expense increased $0.4 million, or 40.0%, to $1.4
million during the three months ended March 31, 1998, representing the
expenses associated with the corporate functions of the Company.

Income allocated to minority interest increased $2.5 million to $2.3 million
for the three months ended March 31, 1998 due to an increase in income before
minority interest of $12.1 million, or 175.4%, to $5.2 million and a change in
the ownership structure from the three months ended March 31, 1997. The
increase in income before minority interest is due to the additional
properties either contributed or acquired and the effects they had on revenue
and expenses described above. The change in ownership structure is due to the
effects of the IPO.

Net income increased $9.5 million to $2.9 million for the three months ended
March 31, 1998 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 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

49
<PAGE>

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 $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.

50
<PAGE>

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

The Company expects to use approximately $64.1 million of the net proceeds
of the Offering to repay indebtedness under the Credit Facility. At March 31,
1998 on a pro forma basis after giving effect to the 1998 Acquisitions, the
Pending Acquisitions, the Offering and the application of the net proceeds
therefrom, $112.1 million would have been outstanding under the Credit
Facility and $15.0 million 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 nine mortgage notes payable
totaling $194.2 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 36.3%.
(35.7% if the Underwriters' over-allotment option is exercised in full.)

Pro Forma Indebtedness. As of March 31, 1998 on a pro forma basis after
giving effect to the 1998 Acquisitions, the Pending Acquisitions, the Offering
and the application of the net proceeds therefrom as described under "Use of
Proceeds", the Company had outstanding approximately $395.8 million of secured
indebtedness as listed below:

<TABLE>
<CAPTION>
ESTIMATED
ANNUAL DEBT MATURITY BALANCE AT
INTEREST RATE (%)(1) PRINCIPAL SERVICE DATE MATURITY
-------------------- ------------- -------------- -------- -------------
(IN MILLIONS) (IN THOUSANDS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Credit Facility(2) 7.63 $112.1 $ 8,550 11/00 $112.1
Line of Credit(3) 7.55 15.0 906 1/99 10.0
Mortgage Notes:
Various properties(4) 7.19 56.0 4,026 4/98 56.0
Various industrial properties(5) 6.85 29.3 2,314 3/08 25.2
33 North Dearborn(5) 7.25 18.0 1,305 1/00 18.0
Commerce Point(5) 7.25 20.0 1,637 2/08 17.3
208 S. LaSalle Street(5) 7.79 45.8 3,951 3/08 34.9
2100 Swift Drive(5) 7.25 5.2 426 4/08 4.5
1001 Technology Way(6) 8.30 6.4 618 10/11 4.2
Dearborn Center(7) 7.60 13.5 1,026 4/99 13.5
Tax-Exempt Bonds:
201 4th Avenue N.(8) 3.85 4.8 185 12/14 4.8
620 Market Street(8) 3.85 9.0 347 12/14 9.0
625 Gay Street(8) 3.85 9.0 347 12/14 9.0
4823 Old Kingston Pike(8) 3.85 3.5 135 12/14 3.5
Chicago Enterprise Center(8) 4.40 23.3 1,025 6/22 23.3
East Chicago Enterprise
Center(8) 4.40 15.0 660 6/22 15.0
Hammond Enterprise Center(8) 4.40 9.9 436 6/22 9.9
------ ------- ------
Total $395.8 $27,894 $370.2
====== ======= ======
</TABLE>
- --------

(1) Represents the interest rate on such indebtedness as of the later of March
31, 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

51
<PAGE>

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.
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
April 2001 ($14.6 million--interest only, payable monthly at 150 basis
points over LIBOR) and April 2008 ($47.0 million--principal and interest
payable monthly, using a 30 year amortization period, with interest fixed
at 7.15%). Annual debt service represents the refinanced notes. See "--New
Mortgage Notes" below and Notes 6, 17 and 18 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 entered by a joint venture with a
third party. The interest rate on such bank loan is 200 basis points over
LIBOR. 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 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 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 for the $74.5 million of Tax-Exempt Bonds. The
Credit Facility, which matures on November 17, 2000, is secured 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 14 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
thirty and 180 days. At March 31, 1998, borrowings under the Credit Facility
bore interest at a weighted-average rate equal to 7.6%.

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. Generally, the covenants contained in the Line of

52
<PAGE>

Credit are identical to the covenants contained in the Credit Facility. At
March 31, 1998, borrowings under the Line of Credit bore interest at a rate
equal to 7.57%.

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 accrued at 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 March 23, 2008. Interest on this loan accrues at a rate of 6.85% and is
payable monthly. The second note (original principal balance of $56.0 million)
was refinanced on May 1, 1998 with a $47.0 million loan which has principal
and interest payable monthly, using a 30 year amortization period, interest
fixed at 7.15% and will mature on April 30, 2008, and a $14.6 million loan
which has interest only payable monthly at 150 basis points over LIBOR and
will mature on April 30, 2001.

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 $3.6 million based upon an average annual
square feet for which leases expire during the April 1, 1998 through March 31,
2001. The Company expects the cost of general capital improvements to the
Properties to average approximately $0.9 million annually based upon an
estimate of $0.08 per square foot.

The Company expects to meet its long-term liquidity requirements for the
funding of property development, property acquisitions and other non-recurring
capital improvements through long-term secured and unsecured indebtedness
(including the Credit Facility) and the issuance of additional equity
securities from the Company. The terms of the Credit Facility and the
Convertible Preferred Shares impose, and the terms of the Redeemable Preferred
Shares will 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 $8.0 million and ($3.1 million) for the three
months ended March 31, 1998 and 1997, respectively. The $11.1 million increase
is primarily due to a $9.5 million increase in net income, a $2.3 million
increase in depreciation and amortization expense, a $2.5 million increase in
income allocated to minority interest, a $0.8 million increase in accrued
interest, a $3.3 million increase in accounts payable and accrued expenses,
and a $2.3 million increase in other liabilities, offset by a $2.9 million
decrease in interest expense and fees added to principal on mortgage note
payable-affiliate and a $6.4 million increase in other assets.

The Company and the Predecessor Properties had net cash provided by (used
in) investing activities of ($175.7 million) and $0.1 million for the three
months ended March 31, 1998 and 1997, respectively. The $175.8 million
increase in net cash used in investing activities from the period ended March
31, 1997 through the period ended March 31, 1998 was primarily due to an
$145.5 million increase in expenditures for real estate and

53
<PAGE>

equipment, principally related to the acquisition of five properties during
the three months ended March 31, 1998, $26.8 million in escrow deposits made
during the three months ended March 31, 1998 for future acquisitions, a $2.2
million net increase in advances to affiliates and $1.2 million in leasing
costs.

The Company and the Predecessor Properties had net cash provided by
financing activities of $165.3 million and $1.3 million for the three months
ended March 31, 1998 and 1997, respectively. The $164.0 million increase in
net cash provided by financing activities from the period ended March 31, 1997
through the period ended March 31, 1998 was due to net proceeds of $47.2
million from the Private Placement, net proceeds from mortgage notes payable
of $123.7 million and additional minority interest contributions of $1.0
million, offset by distributions to preferred shareholders, common
shareholders and minority interest of $4.2 million.

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.

54
<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 cash 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.

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.

55
<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 two Pending Acquisitions, the Company (through the Operating
Partnership) will own 25 Office Properties encompassing an aggregate of
approximately 5.7 million net rentable square feet, 45 industrial properties
containing an aggregate of approximately 5.8 million net rentable square feet,
one parking facility with 398 parking spaces and one retail center. The
Company anticipates acquiring two office properties with a portion of the net
proceeds from the Offering. The Properties are owned, or to the extent not yet
acquired, will be owned, in fee simple (except for 1701 Golf Road in
Schaumburg, Illinois with respect to which the Company holds a first mortgage)
by the respective Property Partnerships. Twenty of the 25 Office Properties
and 39 of the 45 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 89.1% leased to more than 590 tenants, and the Industrial
Properties were approximately 86.9% 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, the Company owns approximately 85.0 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 157.2 acres of developable land (including rights to acquire a
development site located in the Chicago CBD containing approximately 58,000
square feet). Management believes that the developable land and development
site could be developed with approximately 3.0 million square feet of
additional office space and over 4.4 million square feet of additional
industrial properties, primarily in the Chicago Metropolitan Area. 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."

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

56
<PAGE>

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 peri-
od(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.

57
<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 peri-
od(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 pe-
riod (%)............................. 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.
(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.

58
<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 Offering and closing 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 ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- ----------- -------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPER-
TIES:
77 West Wacker Chicago, IL 1992 944,556 95.7 20,308 22.48 17,651 19.54(6)
Drive(5)........
1990 Algonquin
Road/
2000-2060 Algon-
quin Road
(Salt Creek Of-
fice
Center)(7)(8)... Schaumburg, IL 1979/1986 125,922 96.2 1,228 10.13 1,216 10.03
1699 E.
Woodfield Road
(Citibank Office
Plaza)(9)....... Schaumburg, IL 1979 105,400 98.9 987 9.47 976 9.37
555 Huehl Northbrook, IL 1987 74,000 100.0 529 7.15 522 7.05
Road(10)........
201 4th Avenue Nashville, TN 1968/1985 250,566 83.2 1,794 8.60 1,670 8.01(6)
N...............
620 Market Knoxville, TN 1988 93,711 91.8 894 10.40 801 9.31(6)
Street..........
625 Gay Street.. Knoxville, TN 1988 91,426 83.2 625 8.22 514 6.75(6)
4823 Old Knoxville, TN 1988 34,638 100.0 306 8.83 259 7.47(6)
Kingston Pike...
941-961 Weigel Elmhurst, IL 1989/1994 123,077 100.0 1,571 12.76 1,559 12.66
Drive(10).......
4100 Madison Hillside, IL 1978 24,536 60.1 57 3.87 56 3.77
Street(10)......
350 North Mann- Hillside, IL 1977/1987 4,850 -- -- -- -- --
heim Road(10)...
1600-1700 167th Calumet City, IL 1981 65,394 56.9 459 12.35 456 12.25
Street(10)......
4343 Commerce Lisle, IL 1989 170,708 67.2 1,871 16.31 1,860 16.21
Court(10).......
1301 East Tower Schaumburg, IL 1992 50,400 100.0 524 10.41 519 10.31
Road(10)........
280 Shuman Naperville, IL 1979 65,001 90.8 593 10.05 587 9.95
Blvd.(7)........
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/98
- -------- ------------------------
<S> <C>
OFFICE PROPER-
TIES:
77 West Wacker Donnelley (25.6%)
Drive(5)........ Everen (25.5%)
Jones Day (11.8%)
1990 Algonquin
Road/
2000-2060 Algon-
quin Road
(Salt Creek Of-
fice
Center)(7)(8)... Silicon Graphics
(14.3%)
1699 E.
Woodfield Road
(Citibank Office
Plaza)(9)....... McGladrey &
Pullen (47.5%)
Merrill Lynch (14.6%)
555 Huehl
Road(10)........ Rank Video (100.0%)
201 4th Avenue
N............... SunTrust Bank (49.0%)
620 Market Morton, Lewis, King &
Street.......... Kreig (31.7%)
FNB Financial (20.7%)
625 Gay Street.. Healthsource (21.5%)
4823 Old
Kingston Pike... Talbots (68.1%)
941-961 Weigel Household Financial
Drive(10)....... Corporation (100.0%)(11)
4100 Madison Nardi Group (27.3%)
Street(10)...... Narco Construction
(20.9%)
350 North Mann-
heim Road(10)... Vacant
1600-1700 167th
Street(10)...... Unger-Sirovatka (11.1%)
4343 Commerce EquiFax (17.2%)
Court(10)....... Hinshaw, Culbertson
(47.9%)
1301 East Tower Household Credit
Road(10)........ Services (100.0%)(12)
280 Shuman EBY-Brown (35.4%)
Blvd.(7)........ Devtech Associates
(14.3%)
General Electric (10.1%)
Nexgen Software Tech
(14.9%)
</TABLE>

59
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3)
- -------- -------- ------------------- --------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
2205-2255 Enter- Westchester,
prise Drive(7).... IL 1987 129,574 94.9 1,249 10.16 1,237
33 North Dear-
born(13).......... Chicago, IL 1967/1986 302,818 87.6 2,358 8.89 2,332
2675 North Mayfair
Road(14).......... Wauwatosa, WI 1979 102,660 90.4 953 10.26 943
3800 North Wilke Arlington
Road(13).......... Heights, IL 1987/1989 235,269 96.1 3,168 14.01 3,146
1701 Golf Rolling 1977/1979/1981 916,000 97.4 8,114 9.10 8,025
Road(14)(15)...... Meadows, IL
122 South Michi-
gan(13)........... Chicago, IL 1910 512,660 53.5 3,001 10.95 2,973
208 South
LaSalle(13)....... Chicago, IL 1914/1956/1982/1991 827,494 93.1 7,332 9.52 7,255
1700 East Golf
Road(16)(17)...... Schaumburg, IL 1989 217,960 96.7 3,838 18.21 3,817
6400 Shafer
Court(16)......... Rosemont, IL 1980/1990 167,495 93.5 2,088 13.33 2,072
2100 Swift 58,000 1,064 1,059
Drive(13)......... Oak Brook, IL 1985/1991 --------- 100.0 ------ 18.35 ------
Office Properties 5,694,115 64,911 61,506
Subtotal --------- 89.1 ------ 12.79 ------
INDUSTRIAL PROPER-
TIES:
Warehouse/
Distribution
Facilities:
425 East Algonquin
Road.............. Arlington 1978 304,506 100.0 946 3.11 836
Heights, IL
801 Technology Libertyville,
Way............... IL 1997 68,824 63.4 303 6.96 299
1001 Technology Libertyville,
Way(10)........... IL 1996 212,831 100.0 906 4.26 885
3818 Grandville/
1200 Northwestern(10).. Gurnee, IL 1961/1990 345,232 100.0 1,041 3.02 1,007
306-310 Era
Drive(10)(18)..... Northbrook, IL 1984 36,495 100.0 295 8.09 292
<CAPTION>
TENANTS LEASING
10% OR MORE OF
ANNUALIZED NET RENTABLE
EFFECTIVE NET SQUARE
RENT PER FEET PER PROPERTY
PROPERTY SQ. FT.($)(4) AS OF 3/31/98
- -------- ------------- ----------------------------
<S> <C> <C>
2205-2255 Enter-
prise Drive(7).... 10.06 Census Bureau (14.5%)
National Restaurant
Enterprise (12.6%)
Cherry Communications
(12.3%)
33 North Dear-
born(13).......... 8.79 None
2675 North Mayfair
Road(14).......... 10.16 Aetna (46.0%)
3800 North Wilke
Road(13).......... 13.91 CITGO Petroleum (34.8%)
1701 Golf 9.00 Motorola, Inc. (21.6%)
Road(14)(15)...... AT&T (16.3%)
122 South Michi-
gan(13)........... 10.85 None
208 South
LaSalle(13)....... 9.42 The Chicago Corp. (29.5%)
1700 East Golf Santa Fe Pacific Corp.
Road(16)(17)...... 18.11 (75.0%)
6400 Shafer AHI International Corp.
Court(16)......... 13.23 (10.7%)
2100 Swift
Drive(13)......... 18.25 OSN Communications (100.0%)
Office Properties
Subtotal 12.12
INDUSTRIAL PROPER-
TIES:
Warehouse/
Distribution
Facilities:
425 East Algonquin
Road.............. 2.75(6) Berlin Packaging (34.2%)
AM International (26.1%)
International Components
(20.8%)
Barnes & Reineke (18.9%)
801 Technology
Way............... 6.86 Moore USA (63.4%)
1001 Technology
Way(10)........... 4.16 Rank Video (76.1%)
Arlington Industries (23.9%)
3818 Grandville/
1200 Northwestern(10).. 2.92 Rank Video (100.0%)
306-310 Era
Drive(10)(18)..... 7.99 Roche/NICL (62.3%)
SLJ/Lionstone (37.7%)
</TABLE>

60
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- ------------- -------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2160 McGaw
Road(9)........... Obetz, OH 1974 310,100 100.0 487 1.57 456 1.47
4849 Groveport
Road(9)........... Obetz, OH 1968 132,100 100.0 288 2.18 274 2.08
2400 McGaw
Road(9)........... Obetz, OH 1972 86,400 100.0 191 2.21 183 2.11
5160 Blazer Memo-
rial
Parkway (9)(19)... Dublin, OH 1983 85,962 66.8 342 5.96 336 5.86
600 London Delaware, OH 1981 52,441 100.0 134 2.55 129 2.45
Road(9)...........
1401 South Jeffer- Chicago, IL 1965/1985 17,265 100.0 89 5.15 87 5.05
son(10)...........
1051 North Kirk
Road(10)(20)...... Batavia, IL 1990 120,004 100.0 474 3.95 462 3.85
4211 Madison Hillside, IL 1977/1992 90,334 100.0 349 3.87 340 3.77
Street(10)........
200 East Fullerton Carol Stream,
Avenue(10)........ IL 1968/1995 66,254 100.0 248 3.75 242 3.65
350 Randy Carol Stream, 1974 25,200 100.0 145 5.77 143 5.67
Road(10).......... IL
4248, 4250 and 4300
Madison
Street(10)........ Hillside, IL 1980 127,129 87.7 545 4.89 533 4.79
370 Carol Elmhurst, IL 1977/1994 60,290 100.0 256 4.25 250 4.15
Lane(10)..........
388 Carol Elmhurst, IL 1979 40,920 88.4 180 4.97 176 4.87
Lane(10)..........
342-346 Carol Elmhurst, IL 1989 67,935 100.0 310 4.56 303 4.46
Lane(10)..........
343 Carol
Lane(10).......... Elmhurst, IL 1989 30,084 100.0 202 6.71 199 6.61
4160-4190 Madison
Street(10)........ Hillside, IL 1974/1992 79,532 100.0 314 3.95 306 3.85
11039 Gage Ave- Franklin Park,
nue(10)........... IL 1965/1993 21,935 100.0 107 4.90 105 4.80
11045 Gage Ave- Franklin Park,
nue(10)........... IL 1970/1992 140,815 97.0 535 3.91 521 3.81
550 Kehoe Carol Stream,
Blvd(10).......... IL 1997 44,575 100.0 292 6.55 288 6.45
475 Superior Ave-
nue(7)............ Munster, IN 1989 450,000 100.0 1,258 2.80 1,213 2.70
Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(23)..... McHenry, IL 1995 217,600 100.00 1,031 4.74 1,009 4.64
515 Huehl Road/
500
Lindberg(10)...... Northbrook, IL 1988 201,244 100.00 822 4.08 801 3.98
<CAPTION>
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/98
- -------- ----------------------------
<S> <C>
2160 McGaw
Road(9)........... Spartan Warehouse (100.0%)
4849 Groveport Premier Auto Glass Corp
Road(9)........... (100.0%)
2400 McGaw
Road(9)........... S.P. Richards (100.0%)
5160 Blazer Memo-
rial
Parkway (9)(19)... Cross Medical (32.2%)
Alkon (32.3%)
600 London Schneider National, Inc.
Road(9)........... (100.0%)
1401 South Jeffer- Federal Express Corp
son(10)........... (100.0%)
1051 North Kirk
Road(10)(20)...... Master Lease
4211 Madison Dynamic Manufacturing Co.
Street(10)........ (71.2%)
Aratex Services, Inc.
(28.8%)
200 East Fullerton Spraying Systems
Avenue(10)........ (100.0%)(21)
350 Randy Data Instruments (37.5%)
Road(10).......... 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)........ Best Buy Co., Inc. (40.1%)
Micron Industries (28.9%)
370 Carol
Lane(10).......... Semblex Corp (100.0%)
388 Carol
Lane(10).......... Ameritech (88.4%)
342-346 Carol 3-D Exhibits (70.5%)
Lane(10).......... Old Kent Financial Corp.
(29.5%)
343 Carol Matsushita Industrial
Lane(10).......... Equipment (100.0%)
4160-4190 Madison
Street(10)........ Evans, Inc. (46.0%)
Dynamic Manufacturing
(53.9%)
11039 Gage Ave- Boston Coach Illinois Corp.
nue(10)........... (100.0%)
11045 Gage Ave-
nue(10)........... Echlin, Inc. (100.0%)(22)
550 Kehoe
Blvd(10).......... Associated Material (100.0%)
475 Superior Ave-
nue(7)............ General Electric (100.0%)
Overhead
Crane/Manufacturing
Facilities:
1301 Ridgeview
Drive(10)(23)..... Motorola (100.0%)
515 Huehl Road/
500
Lindberg(10)...... Rank Video (100.0%)
</TABLE>

61
<PAGE>

<TABLE>
<CAPTION>
NET PERCENTAGE ANNUALIZED ANNUALIZED ANNUALIZED
RENTABLE LEASED NET NET ANNUALIZED EFFECTIVE NET
YEAR BUILT/ SQUARE AS OF RENT RENT PER EFFECTIVE NET RENT PER
PROPERTY LOCATION RENOVATED FEET 3/31/98(%) ($000)(1) SQ. FT.($)(2) RENT ($000)(3) SQ. FT.($)(4)
- -------- -------- ------------- -------- ---------- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
455 Academy
Drive(10)(24)..... Northbrook, IL 1976 105,444 100.0 406 3.85 395 3.75
4411 Marketing
Place(9).......... Groveport, OH 1984 65,804 100.0 227 3.45 220 3.35
Chicago Enterprise 1916/1991-
Center............ Chicago, IL 1996
13535-A S.
Torrence
Avenue........... 384,806 37.9 321 2.20 321 2.20
13535-B S.
Torrence
Avenue........... 239,752 100.0 649 2.71 432 1.80
13535-C S.
Torrence
Avenue........... 99,333 100.0 250 2.51 72 0.72
13535-D S.
Torrence
Avenue........... 77,325 100.0 236 3.05 213 2.75
13535-E S.
Torrence
<CAPTION>Avenue........... 57,453 15.3 30 3.42 25 2.85
TENANTS LEASING
10% OR MORE OF
NET RENTABLE
SQUARE
FEET PER PROPERTY
PROPERTY AS OF 3/31/98
- -------- ----------------------------
<S> <C>
455 Academy National Service Industries
Drive(10)(24)..... (100.0%)
4411 Marketing
Place(9).......... Wes-Tran Corp. (100.0%)
Chicago Enterprise
Center............
13535-A S.
Torrence
Avenue........... Co-Steel Lasco (37.9%)
13535-B S.
Torrence
Avenue........... Welded Tube Company (100.0%)
13535-C S.
Torrence
Avenue........... Sterling Steel (81.9%)
13535-D S.
Torrence
Avenue........... Alpha Processing (100.0%)
13535-E S.
Torrence
Avenue........... Signode (13.9%)
13535-F S.
Torrence
Avenue........... 44,800 100.0 146 3.25 129 2.87
13535-G S.
Torrence
Avenue........... 54,743 -- -- -- -- --
13535-H S.
Torrence
Avenue........... 73,612 56.3 76 1.83 72 1.74
East Chicago
Enterprise East Chicago, 1917/1991-
Center............ IN 1997
Building 2 (4407
Railroad
Avenue).......... 169,435 -- -- -- -- --
Building 3 (4407
Railroad
Avenue).......... 291,550 100.0 1,423 4.88 1,248 4.28(6)
Building 4 (4407
Railroad
Avenue).......... 87,483 98.1 286 3.33 277 3.23
4440 Railroad
Avenue(25)....... 40,000 -- -- -- -- --
4635 Railroad
Avenue........... 14,070 -- -- -- -- --
Hammond Enterprise
Center............ Hammond, IN 1920-1952
4507 Columbia
Avenue(26)....... 256,595 98.8 686 2.71 633 2.50(6)
4527 Columbia
Avenue(27)....... 16,701 49.3 50 6.02 15 1.85
13535-F S.
Torrence
Avenue........... Signode (100.0%)
13535-G S.
Torrence
Avenue........... Vacant
13535-H S.
Torrence
Avenue........... Performance Minerals (42.4%)
Jet Vac (13.9%)
East Chicago
Enterprise
Center............
Building 2 (4407
Railroad
Avenue).......... Vacant
Building 3 (4407
Railroad
Avenue).......... Acutus-Gladwin (47.1%)
Metro Metals (52.9%)
Building 4 (4407
Railroad
Avenue).......... Illiana Steel (98.1%)
4440 Railroad
Avenue(25)....... Vacant
4635 Railroad
Avenue........... Vacant
Hammond Enterprise
Center............
4507 Columbia
Avenue(26)....... A.M. Castle (85.2%)
HECO (12.7%)
4527 Columbia The Prime Group, Inc.
Avenue(27)....... (24.2%)
Great Lakes Engineering LLC
(16.6%)
</TABLE>

62
<PAGE>

- ----
(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) This property is a Pending Acquisition Property.
(17) Excluded from this property is a sublet lease effective February 1, 2001
through December 31, 2007.
(18) Roche/NICL Ltd. has a right of first refusal to purchase 306 Era Drive.
(19) This property is a mixed use Industrial/Office Property that has been
classified as an Industrial Property.
(20) Includes a master lease with the NAC General Partner.
(21) Spraying Systems has a right of first refusal for 200 E. Fullerton
Avenue.
(22) Echlin, Inc. has a right of first refusal to purchase 11045 Gage Avenue.
(23) 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.
(24) National Service Industries, Inc., has a right of first refusal to
purchase the industrial building at 455 Academy Drive, and the land
adjacent thereto.
(25) This property is an office building adjacent to the East Chicago
Enterprise Center.
(26) 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.
(27) This property is an office building within the Hammond Enterprise Center.
(28) This is a retail center.

63
<PAGE>

SUMMARY LAND PARCEL INFORMATION

The Company owns approximately 85.0 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
157.2 acres of developable land (including rights to acquire one development
site located in the Chicago CBD containing approximately 58,000 square feet)
which management believes could be developed with approximately 3.0 million
square feet of additional office space and over 4.4 million square feet of
additional industrial properties primarily in the Chicago Metropolitan Area.
The following table provides additional information with respect to these
undeveloped parcels:

<TABLE>
<CAPTION>
OWNERSHIP
DESCRIPTION LOCATION SIZE STATUS
- ----------- -------- ---- ---------
<S> <C> <C> <C>
425 E. Algonquin Road... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise Cen-
ter.................... Chicago, IL 51.2 Acres Own
East Chicago Enterprise
Center................. East Chicago, IN 9.1 Acres Own
Hammond Enterprise Cen-
ter.................... Hammond, IN 8.2 Acres Own
455 Academy Drive(1).... Northbrook, IL 2.5 Acres Own
Libertyville Business
Park(2)................ Libertyville, IL 48.5 Acres Under Contract
1301 Ridgeview
Drive(3)............... McHenry, IL 13.0 Acres Second Option
4849 Groveport Road..... Obetz, OH 4.2 Acres Own
600 London Road......... Delaware, OH 4.5 Acres Own
300 North LaSalle(4).... Chicago, IL 58,025 Sq. Ft. Option
NAC Properties(5)....... Carol Stream, IL/Batavia, IL 94.4 Acres Under Contract
Dearborn Center(6)...... Chicago, IL 66,768 Sq. Ft. Own
</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 $7.4 million (subject
to certain purchase price adjustments) by November 17, 2000.
(3) Motorola has an option to lease or purchase this land, exercisable on or
before August 1, 1998.
(4) The Company has a ten-year 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.
(5) 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) 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.

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............................ 90.4 15.84
December 31, 1997......................... 92.7 12.57
December 31, 1996(3)...................... 94.1 18.71
December 31, 1995(3)...................... 94.7 21.40
Industrial:
March 31, 1998............................ 87.1 3.41
December 31, 1997......................... 83.6 2.11
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.

64
<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
PERCENTAGE OF RENT PER NET
TOTAL LEASED ANNUAL RENTABLE SQUARE
NET RENTABLE SQUARE FEET NET RENT FOOT
NUMBER OF AREA SUBJECT TO REPRESENTED UNDER EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING EXPIRING BY EXPIRING LEASES EXPIRING
EXPIRATION LEASES LEASES(SQ. FT.) LEASES(%) ($000) LEASES($)
------------- --------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
4/1/98-12/31/98......... 111 433,141 8.53 4,181 9.65
1999.................... 131 630,216 12.42 6,699 10.63
2000.................... 146 628,630 12.39 5,807 9.24
2001.................... 100 701,276 13.82 8,699 12.40
2002.................... 99 583,142 11.49 7,685 13.18
2003.................... 50 372,034 7.33 4,083 10.97
2004.................... 22 199,316 3.93 1,918 9.63
2005.................... 26 368,125 7.25 3,992 10.84
2006.................... 8 67,094 1.32 631 9.40
2007.................... 14 732,519 14.43 17,399 23.75
2008+................... 13 360,174 7.10 3,825 10.62
--- --------- ------ ------
720 5,075,667 100.00% 64,920 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
NET PERCENTAGE OF RENT PER
RENTABLE TOTAL LEASED ANNUAL NET NET RENTABLE
AREA SUBJECT SQUARE FEET RENT UNDER SQUARE FOOT
NUMBER OF TO EXPIRING REPRESENTED BY EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRING LEASES EXPIRING LEASES EXPIRING
EXPIRATION LEASES (SQ. FT.) LEASES(%) ($000) LEASES($)
------------- --------- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
4/1/98-12/31/98......... 6 330,588 6.60 585 1.77
1999.................... 15 1,062,983 21.21 3,286 3.09
2000.................... 13 827,424 16.51 3,154 3.81
2001.................... 15 1,011,393 20.18 3,731 3.69
2002.................... 1 2,766 0.06 12 4.57
2003.................... 5 593,918 11.85 2,132 3.59
2004.................... 1 60,290 1.20 256 4.25
2005.................... 7 333,502 6.66 971 2.91
2006.................... 3 97,750 1.95 457 4.68
2007.................... 2 48,139 0.96 251 5.21
2008+................... 5 642,239 12.82 2,312 3.60
--- --------- ------ ------
73 5,010,992 100.00% 17,147 3.42
=== ========= ====== ======
</TABLE>

65
<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 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- --------- --------- ------- ------- ------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <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 22,617 4,485 648,531 6,234 903,476
Percentage of
Total Leased
Sq. Ft. (%)..... 0.9 0.2 3.2 1.4 9.3 7.1 2.5 2.5 0.5 71.8 0.7 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... 15,936 17,871 240,939 166,053 1,296,817 1,007,479 208,530 469,303 46,147 16,722,759 116,033 $20,307,868
Annualized Net
Rent per Square
Foot ($)........ 2.06 12.55 8.23 12.93 15.43 15.81 9.24 20.75 10.29 25.79 18.61 $ 22.48
Percentage of
Total Annualized
Net Rent (%).... 0.1 0.1 1.2 0.8 6.4 5.0 1.0 2.3 0.2 82.3 0.6 100.00%
Number of Leases
Expiring........ 1 1 3 2 7 6 1 1 1 6 1 30
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 -- -- -- -- -- 121,140
Percentage of
Total Leased
Sq. Ft. (%)..... 12.2 12.0 30.4 17.7 22.7 5.0 -- -- -- -- -- 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... 133,457 143,213 410,431 201,369 274,350 64,882 -- -- -- -- -- $ 1,227,702
Annualized Net
Rent per Square
Foot ($)........ 8.99 9.87 11.15 9.40 9.99 10.62 -- -- -- -- -- $ 10.13
Percentage of
Total Annualized
Net Rent (%).... 10.9 11.7 33.4 16.4 22.3 5.3 -- -- -- -- -- 100.00%
Number of Leases
Expiring........ 9 8 10 6 6 1 -- -- -- -- -- 40
1699 East
Woodfield Road
(Citibank Office
Plaza)
Square Footage
of Expiring
Leases.......... 965 6,417 8,987 8,196 64,267 15,374 -- -- -- -- -- 104,206
Percentage of
Total Leased
Sq. Ft. (%)..... 0.9 6.2 8.6 7.9 61.7 14.8 -- -- -- -- -- 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... 4,534 66,070 43,616 62,713 645,333 164,459 -- -- -- -- -- $ 986,724
Annualized Net
Rent per Square
Foot ($)........ 4.70 10.30 4.85 7.65 10.04 10.70 -- -- -- -- -- $ 9.47
Percentage of
Total Annualized
Net Rent (%).... 0.5 6.7 4.4 6.4 65.4 16.7 -- -- -- -- -- 100.00%
Number of Leases
Expiring........ 1 3 4 4 12 4 -- -- -- -- -- 28
555 Huehl Road
Square Footage
of Expiring
Leases.......... -- -- -- -- -- 74,000 -- -- -- -- -- 74,000
Percentage of
Total Leased
Sq. Ft. (%)..... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Annualized Net
Rent of Expiring
Leases ($)...... -- -- -- -- -- 528,956 -- -- -- -- -- $ 528,956
Annualized Net
Rent per Square
Foot ($)........ -- -- -- -- -- 7.15 -- -- -- -- -- $ 7.15
Percentage of
Total Annualized
Net Rent (%).... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Number of Leases
Expiring........ -- -- -- -- -- 1 -- -- -- -- -- 1
</TABLE>

66
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+
--------- --------- --------- --------- --------- --------- ------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
201 4th Avenue N.
Square Footage
of Expiring
Leases......... 17,023 5,307 25,056 21,415 6,303 -- -- 12,520 -- -- 120,901
Percentage of
Total Leased
Sq. Ft. (%).... 8.1 2.5 12.0 10.3 3.0 -- -- 5.9 -- -- 57.4
Annualized Net
Rent of Expir-
ing Leases
($)............ 208,366 45,245 219,659 162,828 56,023 -- -- 131,683 -- -- 969,903
Annualized Net
Rent per Square
Foot ($)....... 12.24 8.53 8.77 7.60 8.89 -- -- 10.52 -- -- 8.02
Percentage of
Total
Annualized Net
Rent (%)....... 11.6 2.5 12.2 9.1 3.1 -- -- 7.3 -- -- 54.1
Number of Leases
Expiring....... 7 5 6 6 1 -- -- 2 -- -- 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 -- -- -- --
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 -- -- -- -- -- -- --
<CAPTION>
TOTAL
-----------
<S> <C> <C>
201 4th Avenue N.
Square Footage
of Expiring
Leases......... 208,525
Percentage of
Total Leased
Sq. Ft. (%).... 100.00%
Annualized Net
Rent of Expir-
ing Leases
($)............ $1,793,708
Annualized Net
Rent per Square
Foot ($)....... $ 8.60
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 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
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
</TABLE>

67
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+
--------- --------- --------- --------- --------- --------- ------- ------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1600-1700 167th
Street
Square Footage
of Expiring
Leases......... 6,299 4,996 5,944 4,922 9,632 -- -- 5,400 -- -- --
Percentage of
Total Leased
Sq. Ft. (%).... 16.9 13.4 16.0 13.2 25.9 -- -- 14.5 -- -- --
Annualized Net
Rent of
Expiring Leases
($)............ 77,358 41,821 62,160 48,840 115,492 -- -- 113,670 -- -- --
Annualized Net
Rent per Square
Foot ($)....... 12.28 8.37 10.46 9.92 11.99 -- -- 21.05 -- -- --
Percentage of
Total
Annualized Net
Rent (%)....... 16.8 9.1 13.5 10.6 25.1 -- -- 24.7 -- -- --
Number of Leases
Expiring....... 4 2 4 1 2 -- -- 1 -- -- --
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 -- -- -- -- --
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 Boule-
vard
Square Footage
of Expiring
Leases......... -- 6,533 18,208 1,586 9,674 -- 22,988 -- -- -- --
Percentage of
Total Leased
Sq. Ft (%)..... -- 11.1 30.9 2.7 16.4 -- 39.0 -- -- -- --
Annualized Net
Rent of
Expiring Leases
($)............ -- 75,388 210,785 15,819 119,110 -- 171,925 -- -- -- --
Annualized Net
Rent per Square
Foot ($)....... -- 11.54 11.58 9.97 12.31 -- 7.48 -- -- -- --
Percentage of
Total
Annualized Net
Rent (%)....... -- 12.7 35.5 2.7 20.1 -- 29.0 -- -- -- --
Number of Leases
Expiring....... -- 1 6 1 1 -- 1 -- -- -- --
2205-2255 Enter-
prise Drive
Square Footage
of Expiring
Leases......... 6,966 16,881 27,144 14,721 2,726 37,908 16,618 -- -- -- --
Percentage of
Total Leased
Sq. Ft (%)..... 5.7 13.7 22.1 12.0 2.2 30.8 13.5 -- -- -- --
Annualized Net
Rent of
Expiring Leases
($)............ 73,990 145,044 265,123 133,416 34,080 432,528 164,682 -- -- -- --
Annualized Net
Rent per Square
Foot ($)....... 10.62 8.59 9.77 9.06 12.50 11.41 9.91 -- -- -- --
Percentage of
Total
Annualized Net
Rent (%)....... 5.9 11.6 21.2 10.7 2.7 34.6 13.2 -- -- -- --
Number of Leases
<CAPTION>Expiring....... 3 4 6 2 1 1 1 -- -- -- --
TOTAL
-----------
<S> <C> <C>
1600-1700 167th
Street
Square Footage
of Expiring
Leases......... 37,193
Percentage of
Total Leased
Sq. Ft. (%).... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 459,341
Annualized Net
Rent per Square
Foot ($)....... $ 12.35
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 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
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 Boule-
vard
Square Footage
of Expiring
Leases......... 58,989
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 593,027
Annualized Net
Rent per Square
Foot ($)....... $ 10.05
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 10
2205-2255 Enter-
prise Drive
Square Footage
of Expiring
Leases......... 122,964
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $1,248,864
Annualized Net
Rent per Square
Foot ($)....... $ 10.16
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 18
</TABLE>

68
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-----------------------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+
--------- --------- --------- --------- --------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
33 North Dearborn
Street
Square Footage
of Expiring
Leases......... 21,864 9,000 46,821 21,532 41,244 50,346 29,326 13,928 26,558 2,634 1,986
Percentage of
Total Leased
Sq. Ft (%)..... 8.2 3.4 17.5 8.0 15.4 18.8 10.9 5.2 9.9 1.0 0.7
Annualized Net
Rent of
Expiring Leases
($)............ 252,191 43,707 397,433 199,996 253,938 474,138 232,978 207,006 215,036 28,068 53,877
Annualized Net
Rent per Square
Foot ($)....... 11.53 4.86 8.49 9.29 6.16 9.42 7.94 14.86 8.10 10.66 27.13
Percentage of
Total
Annualized Net
Rent (%)....... 10.7 1.9 16.9 8.5 10.8 20.1 9.9 8.8 9.1 1.2 2.3
Number of Leases
Expiring....... 8 4 12 6 9 7 3 3 2 1 1
2675 North May-
fair Road
Square Footage
of Expiring
Leases......... 11,967 60,156 1,750 1,810 -- 3,217 3,106 -- -- 10,835 --
Percentage of
Total Leased
Sq. Ft (%)..... 12.9 64.8 1.9 1.9 -- 3.5 3.3 -- -- 11.7 --
Annualized Net
Rent of
Expiring Leases
($)............ 178,280 652,750 19,508 7,755 -- 48,072 40,040 -- -- 6,226 --
Annualized Net
Rent per Square
Foot ($)....... 14.90 10.85 11.15 4.28 -- 14.94 12.89 -- -- 0.57 --
Percentage of
Total
Annualized Net
Rent (%)....... 18.7 68.5 2.0 0.8 -- 5.0 4.2 -- -- 0.7 --
Number of Leases
Expiring....... 5 6 1 1 -- 1 1 -- -- 2 --
3800 North Wilke
Road
Square Footage
of Expiring
Leases......... 12,650 5,608 30,227 40,129 114,349 -- -- 23,194 -- -- --
Percentage of
Total Leased
Sq. Ft (%)..... 5.6 2.5 13.4 17.7 50.6 -- -- 10.3 -- -- --
Annualized Net
Rent of
Expiring Leases
($)............ 79,736 57,568 242,562 411,624 2,004,798 -- -- 372,063 -- -- --
Annualized Net
Rent per Square
Foot ($)....... 6.30 10.27 8.02 10.26 17.53 -- -- 16.04 -- -- --
Percentage of
Total
Annualized Net
Rent (%)....... 2.5 1.8 7.7 13.0 63.3 -- -- 11.7 -- -- --
Number of Leases
Expiring....... 3 2 6 5 6 -- -- 1 -- -- --
1701 Golf Road
Square Footage
of Expiring
Leases......... 177,298 185,548 272,350 151,692 26,281 28,235 27,633 21,027 1,582 100 --
Percentage of
Total Leased
Sq. Ft (%)..... 19.9 20.8 30.5 17.0 2.9 3.2 3.1 2.4 0.2 0.0 --
Annualized Net
Rent of
Expiring Leases
($)............ 1,570,366 1,951,913 2,193,166 1,479,326 281,957 187,891 202,983 208,590 37,968 -- --
Annualized Net
Rent per Square
Foot ($)....... 8.86 10.52 8.05 9.75 10.73 6.65 7.35 9.92 24.00 -- --
Percentage of
Total
Annualized Net
Rent (%)....... 19.4 24.1 27.0 18.2 3.5 2.3 2.5 2.6 0.5 0.0 --
Number of Leases
Expiring....... 23 23 39 19 6 10 4 4 1 1 --
122 South Michi-
gan Avenue
Square Footage
of Expiring
Leases......... 7,914 25,827 13,345 15,091 42,871 4,339 -- 22,507 19,420 36,594 86,148
Percentage of
Total Leased
Sq. Ft (%)..... 2.9 9.4 4.9 5.5 15.6 1.6 -- 8.2 7.1 13.4 31.4
Annualized Net
Rent of
Expiring Leases
($)............ 59,106 143,622 181,238 338,983 555,775 57,953 -- 245,322 184,573 394,395 839,680
Annualized Net
Rent per Square
Foot ($)....... 7.47 5.56 13.58 22.46 12.96 13.36 -- 10.90 9.50 10.78 9.75
Percentage of
Total
Annualized Net
Rent (%)....... 2.0 4.8 6.0 11.3 18.5 1.9 -- 8.2 6.2 13.1 28.0
Number of Leases
<CAPTION>Expiring....... 5 9 8 6 9 2 -- 3 2 1 5
TOTAL
------------
<S> <C>
33 North Dearborn
Street
Square Footage
of Expiring
Leases......... 265,239
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 2,358,367
Annualized Net
Rent per Square
Foot ($)....... $ 8.89
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 56
2675 North May-
fair Road
Square Footage
of Expiring
Leases......... 92,841
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 952,630
Annualized Net
Rent per Square
Foot ($)....... $ 10.26
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 17
3800 North Wilke
Road
Square Footage
of Expiring
Leases......... 226,157
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 3,168,351
Annualized Net
Rent per Square
Foot ($)....... $ 14.01
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 23
1701 Golf Road
Square Footage
of Expiring
Leases......... 891,746
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 8,114,161
Annualized Net
Rent per Square
Foot ($)....... $ 9.10
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 130
122 South Michi-
gan Avenue
Square Footage
of Expiring
Leases......... 274,056
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 3,000,648
Annualized Net
Rent per Square
Foot ($)....... $ 10.95
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 50
</TABLE>

69
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+
--------- --------- --------- --------- --------- --------- --------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
208 South LaSalle
Street
Square Footage
of Expiring
Leases......... 57,352 70,098 52,373 98,129 67,315 24,951 34,210 229,058 15,049 33,825 86,905
Percentage of
Total Leased
Sq. Ft (%)..... 7.4 9.2 6.8 12.7 8.7 3.2 4.4 29.7 2.0 4.4 11.3
Annualized Net
Rent of
Expiring Leases
($)............ 486,720 684,327 473,866 1,000,834 948,193 243,370 308,433 2,010,744 146,857 247,507 781,494
Annualized Net
Rent per Square
Foot ($)....... 8.49 9.65 9.05 10.20 14.09 9.75 9.02 8.78 9.76 7.32 8.99
Percentage of
Total
Annualized Net
Rent (%)....... 6.6 9.3 6.5 13.6 12.9 3.3 4.2 27.4 2.0 3.4 10.7
Number of Leases
Expiring....... 23 42 30 17 19 9 6 10 2 3 4
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 6,454 17,874 -- -- --
Percentage of
Total Leased
Sq. Ft (%)..... 3.4 9.7 1.7 25.7 13.0 30.8 4.1 11.4 -- -- --
Annualized Net
Rent of
Expiring Leases
($)............ 65,805 145,834 32,673 604,332 242,992 621,852 140,772 233,806 -- -- --
Annualized Net
Rent per Square
Foot ($)....... 12.32 9.56 12.13 14.99 11.95 12.85 21.81 13.08 -- -- --
Percentage of
Total
Annualized Net
Rent (%)....... 3.1 7.0 1.6 28.8 11.6 29.8 6.7 11.2 -- -- --
Number of Leases
Expiring....... 1 2 1 6 4 6 1 1 -- -- --
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......... 433,141 630,216 628,630 701,276 576,327 378,849 199,316 368,125 67,094 732,519 360,174
Percentage of
Aggregate
Leased Sq. Ft
(%)............ 8.53 12.42 12.39 13.82 11.35 7.46 3.93 7.25 1.32 14.43 7.10
Annualized Net
Rent of
Expiring Leases
($)............ 4,181,366 6,698,863 5,806,746 8,699,106 7,588,155 4,172,879 1,918,444 3,992,186 630,581 17,398,954 3,825,287
Annualized Net
Rent per Square
Foot ($)....... 9.65 10.63 9.24 12.40 13.17 11.01 9.63 10.84 9.40 23.75 10.62
Percentage of
Total
Annualized Net
Rent (%)....... 6.4 10.3 8.9 13.4 11.7 6.4 3.0 6.1 1.0 26.8 5.9
Number of Leases
Expiring....... 111 131 146 100 98 51 22 26 8 14 13
<CAPTION>
TOTAL
------------
<S> <C>
208 South LaSalle
Street
Square Footage
of Expiring
Leases......... 770,075
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 7,332,345
Annualized Net
Rent per Square
Foot ($)....... $ 9.52
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 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......... 156,640
Percentage of
Total Leased
Sq. Ft (%)..... 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $ 2,088,065
Annualized Net
Rent per Square
Foot ($)....... $ 13.33
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 22
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......... 5,075,667
Percentage of
Aggregate
Leased Sq. Ft
(%)............ 100.00%
Annualized Net
Rent of
Expiring Leases
($)............ $64,912,567
Annualized Net
Rent per Square
Foot ($)....... $ 12.79
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 720
</TABLE>

70
<PAGE>

INDUSTRIAL PROPERTIES

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
----------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ---- ---- ---- ------- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Warehouse/Distribution
Facilities:
425 East Algonquin Road
Square Footage of
Expiring Leases....... -- 57,404 -- -- -- -- -- 247,102 -- -- -- 304,506
Percentage of Total
Leased Sq. Ft. (%).... -- 18.9 -- -- -- -- -- 81.1 -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 166,657 -- -- -- -- -- 779,610 -- -- -- $ 946,266
Annualized Net Rent per
Square Foot ($)....... -- 2.90 -- -- -- -- -- 3.16 -- -- -- $ 3.11
Percentage of Total
Annualized Net Rent
(%)................... -- 17.6 -- -- -- -- -- 82.39 -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- 6 -- -- -- 7
801 Technology Way
Square Footage of
Expiring Leases....... -- -- 43,614 -- -- -- -- -- -- -- -- 43,614
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.0 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 303,409 -- -- -- -- -- -- -- -- $ 303,409
Annualized Net Rent per
Square Foot ($)....... -- -- 6.96 -- -- -- -- -- -- -- -- $ 6.96
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.0 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 1 -- -- -- -- -- -- -- -- 1
1001 Technology Way
Square Footage of
Expiring Leases ...... -- -- -- 212,831 -- -- -- -- -- -- -- 212,831
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.0 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 906,277 -- -- -- -- -- -- -- $ 906,277
Annualized Net Rent per
Square Foot ($)....... -- -- -- 4.26 -- -- -- -- -- -- -- $ 4.26
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.0 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 2 -- -- -- -- -- -- -- 2
3818 Grandville
Square Footage of
Expiring Leases ...... -- -- -- 155,332 -- -- -- -- -- -- -- 155,332
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 551,429 -- -- -- -- -- -- -- $ 551,429
Annualized Net Rent per
Square Foot ($)....... -- -- -- 3.55 -- -- -- -- -- -- -- $ 3.55
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
1200 Northwestern
Square Footage of
Expiring Leases ...... -- -- -- 189,900 -- -- -- -- -- -- -- 189,900
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 489,942 -- -- -- -- -- -- -- $ 489,942
Annualized Net Rent per
Square Foot ($)....... -- -- -- 2.58 -- -- -- -- -- -- -- $ 2.58
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
</TABLE>

71
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
---------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ---- ------- ---- ------- ---- ---- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
306-310 Era Drive
Square Footage......... -- 36,495 -- -- -- -- -- -- -- -- -- 36,495
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 295,341 -- -- -- -- -- -- -- -- -- $ 295,341
Annualized Net Rent per
Square Foot ($)....... -- 8.09 -- -- -- -- -- -- -- -- -- $ 8.09
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 2 -- -- -- -- -- -- -- -- -- 2
2160 McGaw Road
Square Footage of
Expiring Leases....... 310,100 -- -- -- -- -- -- -- -- -- -- 310,100
Percentage of Total
Leased Sq. Ft. (%).... 100.00 -- -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... 486,852 -- -- -- -- -- -- -- -- -- -- $ 486,852
Annualized Net Rent per
Square Foot ($)....... 1.57 -- -- -- -- -- -- -- -- -- -- $ 1.57
Percentage of Total
Annualized Net Rent
(%)................... 100.00 -- -- -- -- -- -- -- -- -- -- 100.0%
Number of Leases
Expiring.............. 1 -- -- -- -- -- -- -- -- -- -- 1
4849 Groveport Road
Square Footage of
Expiring Leases....... -- -- -- -- -- -- -- -- -- -- 132,100 132,100
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- -- -- -- -- -- 100.00 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- -- -- -- -- -- 287,688 $ 287,688
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....... -- -- -- 27,680 -- 29,768 -- -- -- -- -- 57,448
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 48.2 -- 51.8 -- -- -- -- -- 100%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 188,112 -- 154,092 -- -- -- -- -- $ 342,204
Annualized Net Rent per
Square Foot ($)....... -- -- -- 6.80 -- 5.18 -- -- -- -- -- $ 5.96
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 55.0 -- 45.0 -- -- -- -- -- 100.0%
Number of Leases
Expiring.............. -- -- -- 1 -- 1 -- -- -- -- -- 2
600 London Road
Square Footage of
Expiring Leases....... -- -- 52,441 -- -- -- -- -- -- -- -- 52,441
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.0 -- -- -- -- -- -- -- -- 100%
Annualized Net Rent of
Expiring Leases ($)... -- -- 113,860 -- -- -- -- -- -- -- -- $ 133,860
Annualized Net Rent per
Square Foot ($)....... -- -- 2.55 -- -- -- -- -- -- -- -- $ 2.55
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.0 -- -- -- -- -- -- -- -- 100.0%
Number of Leases
Expiring.............. -- -- 1 -- -- -- -- -- -- -- -- 1
</TABLE>

72
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
----------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ---- ------- ---- ---- ---- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1401 South Jefferson
Street
Square Footage of
Expiring Leases....... -- 17,265 -- -- -- -- -- -- -- -- -- 17,265
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 88,944 -- -- -- -- -- -- -- -- -- $ 88,944
Annualized Net Rent per
Square Foot ($)....... -- 5.15 -- -- -- -- -- -- -- -- -- $ 5.15
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- -- -- -- -- 1
1051 North Kirk Road
Square Footage of
Expiring Leases....... -- -- -- -- -- 120,004 -- -- -- -- -- 120,004
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- 474,012 -- -- -- -- -- $ 474,012
Annualized Net Rent per
Square Foot ($)....... -- -- -- -- -- 3.95 -- -- -- -- -- $ 3.95
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- 1 -- -- -- -- -- 1
4211 Madison Street
Square Footage of
Expiring Leases....... -- 26,035 -- 64,299 -- -- -- -- -- -- -- 90,334
Percentage of Total
Leased Sq. Ft. (%).... -- 28.8 -- 71.2 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 108,084 -- 241,116 -- -- -- -- -- -- -- $ 349,200
Annualized Net Rent per
Square Foot ($)....... -- 4.15 -- 3.75 -- -- -- -- -- -- -- $ 3.87
Percentage of Total
Annualized Net Rent
(%)................... -- 31.0 -- 69.0 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- 1 -- -- -- -- -- -- -- 2
200 East Fullerton Ave-
nue
Square Footage of
Expiring Leases....... -- 66,254 -- -- -- -- -- -- -- -- -- 66,254
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 248,448 -- -- -- -- -- -- -- -- -- $ 248,448
Annualized Net Rent per
Square Foot ($)....... -- 3.75 -- -- -- -- -- -- -- -- -- $ 3.75
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- -- -- -- -- 1
350 Randy Road
Square Footage of
Expiring Leases....... 3,150 3,150 3,150 12,600 -- 3,150 -- -- -- -- -- 25,200
Percentage of Total
Leased Sq. Ft. (%).... 12.5 12.5 12.5 50. 0 -- 12.5 -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... 13,944 21,720 13,512 62,973 -- 33,332 -- -- -- -- -- $ 145,481
Annualized Net Rent per
Square Foot ($)....... 4.43 6.90 4.29 5.00 -- 10.58 -- -- -- -- -- $ 5.77
Percentage of Total
Annualized Net Rent
(%)................... 9.60 14.9 9.3 43.3 -- 22.9 -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. 1 1 1 2 -- 1 -- -- -- -- -- 6
4248, 4250 and 4300 Mad-
ison Street
Square Footage of
Expiring Leases....... 11,872 62,847 36,730 -- -- -- -- -- -- -- -- 111,449
Percentage of Total
Leased Sq. Ft. (%).... 10.7 56.4 33.0 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... 47,484 323,818 173,280 -- -- -- -- -- -- -- -- $ 544,582
Annualized Net Rent per
Square Foot ($)....... 4.00 5.15 4.72 -- -- -- -- -- -- -- -- $ 4.89
Percentage of Total
Annualized Net Rent
(%)................... 8.7 59.5 31.8 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. 1 2 1 -- -- -- -- -- -- -- -- 4
</TABLE>

73
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
----------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ---- ---- ------- ---- ------- ------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
388 Carol Lane
Square Footage of
Expiring Leases....... -- -- 36,184 -- -- -- -- -- -- -- -- 36,184
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 179,760 -- -- -- -- -- -- -- -- $ 179,760
Annualized Net Rent per
Square Foot ($)....... -- -- 4.97 -- -- -- -- -- -- -- -- $ 4.97
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 1 -- -- -- -- -- -- -- -- 1
342-346 Carol Lane
Square Footage of
Expiring Leases....... -- -- 67,935 -- -- -- -- -- -- -- -- 67,935
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 309,504 -- -- -- -- -- -- -- -- $ 309,504
Annualized Net Rent per
Square Foot ($)....... -- -- 4.56 -- -- -- -- -- -- -- -- $ 4.56
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 2 -- -- -- -- -- -- -- -- 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....... -- 36,625 -- 42,907 -- -- -- -- -- -- -- 79,532
Percentage of Total
Leased Sq. Ft. (%).... -- 46.1 -- 53.9 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 157,412 -- 157,001 -- -- -- -- -- -- -- $ 314,413
Annualized Net Rent per
Square Foot ($)....... -- 4.30 -- 3.66 -- -- -- -- -- -- -- $ 3.95
Percentage of Total
Annualized Net Rent
(%)................... -- 50.1 -- 49.9 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- 2 -- -- -- -- -- -- -- 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
</TABLE>

74
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
----------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- --------- --------- ------- ---- ------- ---- ---- ------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11045 Gage Avenue
Square Footage of
Expiring Leases....... -- -- -- 136,600 -- -- -- -- -- -- -- 136,600
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 534,612 -- -- -- -- -- -- -- $ 534,612
Annualized Net Rent per
Square Foot ($)....... -- -- -- 3.91 -- -- -- -- -- -- -- $ 3.91
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
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 -- -- -- -- -- -- -- -- -- 450,000
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 1,258,200 -- -- -- -- -- -- -- -- -- $1,258,200
Annualized Net Rent per
Square Foot ($)....... -- 2.80 -- -- -- -- -- -- -- -- -- $ 2.80
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- -- -- -- -- 1
1301 Ridgeview Drive
Square Footage of
Expiring Leases ...... -- -- 217,600 -- -- -- -- -- -- -- -- 217,600
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 1,030,568 -- -- -- -- -- -- -- -- $1,030,568
Annualized Net Rent per
Square Foot ($)....... -- -- 4.74 -- -- -- -- -- -- -- -- $ 4.74
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 1 -- -- -- -- -- -- -- -- 1
515 Huehl Road/500
Lindberg
Square Footage of
Expiring Leases ...... -- -- -- -- -- 201,244 -- -- -- -- -- 201,244
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- 821,580 -- -- -- -- -- $ 821,580
Annualized Net Rent per
Square Foot ($)....... -- -- -- -- -- 4.08 -- -- -- -- -- $ 4.08
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- 1 -- -- -- -- -- 1
455 Academy Drive
Square Footage of
Expiring Leases....... -- -- -- 105,444 -- -- -- -- -- -- -- 105,444
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- 405,648 -- -- -- -- -- -- -- $ 405,648
Annualized Net Rent per
Square Foot ($)....... -- -- -- 3.85 -- -- -- -- -- -- -- $ 3.85
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- 1 -- -- -- -- -- -- -- 1
</TABLE>

75
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------- ------- ------- ---- ------- ---- ---- ---- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4411 Marketing Place
Square Footage of
Expiring Leases....... -- -- 65,804 -- -- -- -- -- -- -- -- 65,804
Percentage of Total
Leased Sq. Ft. (%).... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 226,800 -- -- -- -- -- -- -- -- $ 226,800
Annualized Net Rent
per Square Foot ($)... -- -- 3.45 -- -- -- -- -- -- -- -- $ 3.45
Percentage of Total
Annualized Net Rent
(%)................... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- 1 -- -- -- -- -- -- -- -- 1
Chicago Enterprise
Center(2)
13535-A S. Torrence
Avenue
Square Footage of
Expiring Leases....... -- 145,941 -- -- -- -- -- -- -- -- -- 145,941
Percentage of Total
Leased Sq. Ft. (%) ... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 321,070 -- -- -- -- -- -- -- -- -- $ 321,072
Annualized Net Rent
per Square Foot ($)... -- 2.20 -- -- -- -- -- -- -- -- -- $ 2.20
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- 1 -- -- -- -- -- -- -- -- -- 1
13535-B S. Torrence
Avenue
Square Footage of
Expiring Leases....... -- -- -- -- -- 239,752 -- -- -- -- -- 239,752
Percentage of Total
Leased Sq. Ft. (%).... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- -- -- -- 648,634 -- -- -- -- -- $ 648,634
Annualized Net Rent
per Square Foot ($)... -- -- -- -- -- 2.71 -- -- -- -- -- $ 2.71
Percentage of Total
Annualized Net Rent
(%)................... -- -- -- -- -- 100.00 -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. -- -- -- -- -- 1 -- -- -- -- -- 1
13535-C S. Torrence
Avenue
Square Footage of Ex-
piring Leases......... -- -- 81,328 -- -- -- -- -- -- 18,055 -- 99,383
Percentage of Total
Leased Sq. Ft. (%).... -- -- 81.8 -- -- -- -- -- -- 18.2 -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- -- 200,634 -- -- -- -- -- -- 48,902 -- $ 249,536
Annualized Net Rent
per Square Foot ($)... -- -- 2.47 -- -- -- -- -- -- 2.71 -- $ 2.51
Percentage of Total
Annualized Net Rent
(%)................... -- -- 80.4 -- -- -- -- -- -- 19.6 -- 100.00%
Number of Leases Ex-
piring................ -- -- 1 -- -- -- -- -- -- 1 -- 2
13535-D S. Torrence
Avenue
Square Footage of
Expiring Leases....... -- 77,325 -- -- -- -- -- -- -- -- -- 77,325
Percentage of Total
Leased Sq. Ft. (%).... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... -- 235,532 -- -- -- -- -- -- -- -- -- $ 235,532
Annualized Net Rent
per Square Foot ($)... -- 3.05 -- -- -- -- -- -- -- -- -- $ 3.05
Percentage of Total
Annualized Net Rent
(%)................... -- 100.00 -- -- -- -- -- -- -- -- -- 100.00%
Number of Leases Ex-
piring................ -- 1 -- -- -- -- -- -- -- -- -- 1
13535-E/13535-F S.
Torrence Avenue
Square Footage of
Expiring Leases...... -- -- -- 53,600 -- -- -- -- -- -- -- 53,600
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- 175,667 -- -- -- -- -- -- -- $ 175,667
Annualized Net Rent
per Square Foot ($).. -- -- -- 3.28 -- -- -- -- -- -- -- $ 3.28
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- 100.00 -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring............. -- -- -- 2 -- -- -- -- -- -- -- 2
</TABLE>

76
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
-------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+ TOTAL
------- ------ ------- ------ ------ ---- ---- ---- ------ ---- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
13535--H S. Torrence
Avenue
Square Footage of
Expiring Leases...... -- -- -- 10,200 -- -- -- -- 31,240 -- -- 41,440
Percentage of Total
Leased Sq. Ft. (%)... -- -- -- 24.6 -- -- -- -- 75.4 -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- -- 17,856 -- -- -- -- 58,046 -- -- $ 75,902
Annualized Net Rent
per Square Foot ($).. -- -- -- 1.75 -- -- -- -- 1.86 -- -- $ 1.83
Percentage of Total
Annualized Net Rent
(%).................. -- -- -- 23.5 -- -- -- -- 76.5 -- -- 100.00%
Number of Leases
Expiring............. -- -- -- 1 -- -- -- -- 1 -- -- 2
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 -- -- -- -- -- -- -- -- 85,799
Percentage of Total
Leases Sq. Ft. (%)... -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- -- 285,653 -- -- -- -- -- -- -- -- $ 285,653
Annualized Net Rent
per Square Foot ($).. -- -- 3.33 -- -- -- -- -- -- -- -- $ 3.33
Percentage of Total
Annualized Net Rent
(%).................. -- -- 100.00 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring............. -- -- 1 -- -- -- -- -- -- -- -- 1
Hammond Enterprise Cen-
ter
4507 Columbia Avenue
Square Footage of
Expiring Leases...... -- 2,280 32,657 -- -- -- -- -- -- -- 218,589 253,526
Percentage of Total
Leased Sq. Ft. (%)... -- 0.9 12.88 -- -- -- -- -- -- -- 86.2 100.00%
Annualized Net Rent of
Expiring Leases ($).. -- 4,970 78,681 -- -- -- -- -- -- -- 602,213 $ 685,864
Annualized Net Rent
per Square Foot ($).. -- 2.18 2.41 -- -- -- -- -- -- -- 2.76 $ 2.71
Percentage of Total
Annualized Net Rent
(%).................. -- 0.7 11.5 -- -- -- -- -- -- -- 87.8 100.00%
Number of Leases
Expiring............. -- 1 1 -- -- -- -- -- -- -- 2 4
4527 Columbia Avenue
Square Footage of
Expiring Leases....... 5,466 -- -- -- 2,766 -- -- -- -- -- -- 8,232
Percentage of Total
Leased Sq. Ft. (%).... 66.4 -- -- -- 33.6 -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Leases ($)... 36,941 -- -- -- 12,641 -- -- -- -- -- -- $ 49,582
Annualized Net Rent
per Square Foot ($)... 6.76 -- -- -- 4.57 -- -- -- -- -- -- $ 6.02
Percentage of Total
Annualized Net Rent
(%)................... 74.5 -- -- -- 25.5 -- -- -- -- -- -- 100.00%
Number of Leases
Expiring.............. 3 -- -- -- 1 -- -- -- -- -- -- 4
4531 Columbia Avenue
Square Footage of
Expiring Leases...... -- 81,362 104,182 -- -- -- -- -- -- -- -- 185,544
Percentage of Total
Leased Sq. Ft. (%)... -- 43.9 56.1 -- -- -- -- -- -- -- -- 100.00%
Annualized Net Rent of
Expiring Lease ($)... -- 55,651 218,030 -- -- -- -- -- -- -- -- $ 273,681
Annualized Net Rent
per Square Foot ($).. -- .68 2.09 -- -- -- -- -- -- -- -- $ 1.48
Percentage of Total
Annualized Net
Rent (%)............. -- 20.3 79.7 -- -- -- -- -- -- -- -- 100.00%
Number of Leases
Expiring............. -- 1 1 -- -- -- -- -- -- -- -- 2
</TABLE>

77
<PAGE>

<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION
---------------------------------------------------------------------------------------------------------------
1998(1) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008+
--------- --------- --------- ---------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
SUBTOTALS
Square Footage
of Expiring
Leases......... 330,588 1,062,983 827,424 1,011,393 2,766 593,918 60,290 333,502 97,750 48,139 642,239
Percent of Total
Leased Sq. Ft.
(%)............ 6.60 21.21 16.51 20.18 0.06 11.85 1.20 6.66 1.95 0.96 12.82
Annualized Net
Rent of
Expiring
Leases ($)..... 585,221 3,285,847 3,153,690 3,730,633 12,641 2,131,649 256,224 970,962 457,394 250,646 2,312,537
Annualized Net
Rent per Square
Foot ($)....... 1.77 3.09 3.81 3.69 4.57 3.59 4.25 2.91 4.68 5.21 3.60
Percentage of
Total
Annualized Net
Rent (%)....... 3.4 19.2 18.4 21.8 0.1 12.4 1.5 5.7 2.7 1.5 13.5
Number of Leases
Expiring....... 6 15 13 15 1 5 1 7 3 2 5
OFFICE SUBTOTALS
Square Footage
of Expiring
Leases......... 433,141 630,216 628,630 701,276 576,327 378,849 199,316 368,125 67,094 732,519 360,174
Percentage of
Total Leased
Sq. Ft. (%).... 8.53 12.42 12.39 13.82 11.35 7.46 3.93 7.25 1.32 14.43 7.10
Annualized Net
Rent of
Expiring
Leases ($)..... 4,181,366 6,698,863 5,806,746 8,699,106 7,588,155 4,172,879 1,918,444 3,992,186 630,581 17,398,954 3,825,287
Annualized Net
Rent per Square
Foot ($)....... 9.65 10.63 9.24 12.40 13.17 11.01 9.63 10.84 9.40 23.75 10.62
Percentage of
Total
Annualized Net
Rent (%)....... 6.4 10.3 8.9 13.4 11.7 6.4 3.0 6.1 1.0 26.8 5.9
Number of Leases
Expiring....... 111 131 146 100 98 51 22 26 8 14 13
PORTFOLIO TOTAL
Square Footage
of Expiring
Leases......... 763,729 1,693,199 1,456,054 1,712,669 579,093 972,767 259,606 701,627 164,844 780,658 1,002,413
Percentage of
Total Leased
Sq. Ft. (%).... 7.57 16.79 14.44 16.98 5.74 9.64 2.57 6.96 1.63 7.74 9.94
Annualized Net
Rent of
Expiring
Leases ($)..... 4,766,587 9,984,710 8,960,437 12,429,739 7,600,796 6,304,528 2,174,668 4,963,148 1,087,975 17,649,600 6,137,824
Annualized Net
Rent per Square
Foot ($)....... 6.24 5.90 6.15 7.26 13.13 6.48 8.38 7.07 6.60 22.61 6.12
Percentage of
Total
Annualized Net
Rent (%)....... 5.8 12.2 10.9 15.1 9.3 7.7 2.6 6.0 1.3 21.5 7.5
Number of Leases
Expiring....... 117 146 159 115 99 56 23 33 11 16 18
<CAPTION>
TOTAL
------------
<S> <C> <C>
INDUSTRIAL
SUBTOTALS
Square Footage
of Expiring
Leases......... 5,010,992
Percent of Total
Leased Sq. Ft.
(%)............ 100.00%
Annualized Net
Rent of
Expiring
Leases ($)..... $17,147,444
Annualized Net
Rent per Square
Foot ($)....... $ 3.42
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 73
OFFICE SUBTOTALS
Square Footage
of Expiring
Leases......... 5,075,667
Percentage of
Total Leased
Sq. Ft. (%).... 100.00%
Annualized Net
Rent of
Expiring
Leases ($)..... $64,912,567
Annualized Net
Rent per Square
Foot ($)....... $ 12.79
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 720
PORTFOLIO TOTAL
Square Footage
of Expiring
Leases......... 10,086,659
Percentage of
Total Leased
Sq. Ft. (%).... 100.00%
Annualized Net
Rent of
Expiring
Leases ($)..... $82,060,011
Annualized Net
Rent per Square
Foot ($)....... $ 8.14
Percentage of
Total
Annualized Net
Rent (%)....... 100.00%
Number of Leases
Expiring....... 793
</TABLE>
- ------
(1) Represents lease expirations data from April 1, 1998 to December 31, 1998.

78
<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
TENANT COMPANY'S
ANNUAL TOTAL
NET RENTAL NET RENTAL INITIAL LEASE LEASE EXPIRATION
REVENUE($)(1) REVENUES(%) DATE DATE
------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Office Tenants
Donnelley.............. $ 6,158,276 7.50 July 1, 1992 June 30, 2007
Everen................. 6,009,902 7.32 June 1, 1992 May 31, 2007
Jones, Day............. 3,559,291 4.34 July 6, 1992 June 30, 2007
Santa Fe Pacific Corp.. 3,157,119 3.85 July 13, 1990 January 31, 2001
The Chicago Corp....... 2,228,635 2.72 October 1, 1992 December 31, 2005
Motorola............... 1,822,999 2.22 April 1, 1995 September 30, 2000
Citgo.................. 1,706,121 2.08 December 1, 1990 November 30, 2002
Household
International......... 1,571,076 1.91 September 1, 1989 August 31, 1999
AT&T Lease
Administration........ 1,483,696 1.81 October 1, 1989 December 31, 1999
USN Communications..... 1,064,300 1.30 April 7, 1998 March 1, 2008
----------- -----
Total............... $28,761,415 35.05
=========== =====
<CAPTION>
PERCENTAGE OF
TENANT COMPANY'S
ANNUAL TOTAL
NET RENTAL NET RENTAL INITIAL LEASE LEASE EXPIRATION
REVENUE($)(1) REVENUES(%) DATE DATE
------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Industrial Tenants
Rank Video Services
America............... $ 2,521,823 3.07 December 1, 1989 March 31, 2001
General Electric Co.... 1,258,200 1.53 February 21, 1989 February 20, 1999
Motorola............... 1,030,568 1.26 July 1, 1995 June 30, 2000
Metro Metals Corp...... 887,263 1.08 November 15, 1995 November 30, 2015
Welded Tube Company of
America............... 648,634 0.79 July 1, 1993 June 30, 2003
A.M. Castle & Co....... 602,213 0.73 November 1, 1993 October 31, 2013
A.B. Industries d/b/a
Acutus-Gladwin........ 535,373 0.65 March 1, 1997 February 28, 2017
Echlin, Inc............ 534,612 0.65 April 1, 1991 March 31, 2001
Spartan Warehouse &
Distribution Inc...... 486,852 0.59 January 1, 1993 August 30, 1998
NSI Enterprises, Inc... 436,583 0.53 March 1, 1996 February 28, 2006
----------- -----
Total............... $ 8,942,121 10.90
=========== =====
</TABLE>
- --------
(1) Determined in accordance with GAAP.

OFFICE PROPERTIES

Approximately 60.2% 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, 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 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

79
<PAGE>

which may lack the latest functional and technological advances and amenities.
The Office Properties contain an aggregate of approximately 5.7 million net
rentable square feet in 25 buildings. Twenty 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 89.1%. The Office Properties
range in size from one to 50 stories and are easily accessible from major
highways and major airports. Management believes that the location, quality of
construction and amenities at the 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 49.4% of the Company's Annualized Net Rent from the Office
Properties is attributable to leases expiring in the year 2003 or beyond and
approximately 6.0% 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 only 10.1% and 18.8% 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 37.2% of the Company's
Annualized Net Rent from the Industrial Properties is attributable to leases
expiring in the year 2003 or beyond and approximately 13.5% 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 12.6% and 17.3% 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 4.4 million
additional square feet. The Company anticipates that any such development
would be funded at least partially with amounts available under the Credit
Facility. There can be no assurance, however, that the Company will be able to
successfully develop any of the Industrial Properties or obtain financing for
any such development on terms favorable to the Company. See "Risk Factors--
Real Estate Financing Risks--Ability to Obtain Permanent Financing" and "--No
Limitation on Debt."

DEVELOPMENT, LEASING AND MANAGEMENT ACTIVITIES

Since 1981, 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,

80
<PAGE>

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.

The Company also owns approximately 85.0 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
157.2 acres of developable land (including rights to acquire one development
site located in the Chicago CBD containing approximately 58,000 square feet),
which management believes could be developed with approximately 3.0 million
square feet of additional office space and over 4.4 million square feet of
additional industrial properties primarily in the Chicago Metropolitan Area.
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 291
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, 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;

81
<PAGE>

. 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 (wholesale trade and
retail trade; transportation, communications and utilities; and
construction) out of the seven major employment sectors;

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

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

Chicago is the nation's largest and one of its fastest-growing economies in
terms of absolute job growth. The Chicago Metropolitan Area had approximately
4.1 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.

[BAR CHART APPEARS HERE]

Total Employment as of December 1997
Top Five MSAs

Jobs (000)s
-----------
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

[BAR CHART APPEARS HERE]

Fastest Growing MSA's 1992 to 1997
in Absolute Terms (000 jobs)

Jobs (000)s
-----------
Atlanta 425.4
Chicago 409.2
Phoenix 397.7
Dallas 365.6
Houston 283.1

Source: Bureau of Labor Statistics

82
<PAGE>

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 and Texas, 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, 32.2% (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.

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.

83
<PAGE>

Growing Service Economy. Chicago's economy is highly diversified.
Traditionally strong industries such as manufacturing and transportation
continue to be vibrant sectors of the economy, and increasingly, knowledge-
based industries are growing at a rapid pace. The dynamic growth of knowledge-
based industries is evident in the strong growth in subsectors within the
services and finance, insurance and real estate ("FIRE") sectors. During 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.

Chicago's Changing Economic Base
--------------------------------
1987 1997
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]

4% 4%
25% 22%
19% 17%
6% 6%
8% 8%
25% 31%
13% 12%
Construction
Trade
Manufacturing
TCPU
FIRE
Services
Government

Source: Bureau of Labor Statistics for 1987, RCG for 1997

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, 1996, the
CBOE's options trades accounted for more than 47.0% of equity options trading,
95.0% of index options trading and 65.0% of all options trading nationwide.

84
<PAGE>

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%. During 1997,
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.

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.

85
<PAGE>

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.

[GRAPH APPEARS HERE]

Chicago Metropolitan Area vs. U.S.
Total Non-Agricultural Employment Growth

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
---- ---- ----- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Chicago 2.37% 0.20% -1.30% -3.09% -0.38% 5.40% 4.17% 0.80% 2.53% 2.72%

U.S. 3.81% 0.65% 0.83% -1.76% 0.68% 4.72% 3.16% 2.01% 2.63% 3.19%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998f
---- ---- ----- ----- ---- ---- ---- ---- ---- -----
Chicago 2.63% 1.03% -1.57% -2.06% 2.09% 2.29% 2.58% 1.57% 1.70% 2.00%

U.S. 2.55% 1.41% -1.06% 1.00% 2.10% 3.10% 2.7% 2% 2.3% 2.2%

Sources: Bureau of Labor Statistics, RCG
</TABLE>

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.

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<PAGE>

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.

TOTAL CHICAGO 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 0 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

CHICAGO METROPOLITAN AREA CLASS A OFFICE MARKET (000SF)

<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%
</TABLE>
Source: RCG

Chicago Central Business District Office Submarket

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

The Chicago CBD submarket encompasses Chicago's downtown area. The Chicago
CBD submarket is the primary location within the city for financial
institutions, business services companies, law firms and government agencies.
In addition, a number of major corporations have a significant presence in the
Chicago 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

87
<PAGE>

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.

[GRAPH APPEARS HERE]

Chicago CBD Office Vacancy Rate
Total vs. Class A
<TABLE>
<CAPTION>
Label A B
Label Percent Total Class A
<S> <C> <C> <C>
1 1992 19.3 23.1
2 1993 19.6 20.3
3 1994 18.2 16.5
4 1995 17.6 13.1
5 1996 15.9 10.3
6 1997 13.7 8.1
7 1998f 11.3 6.5
8 1999f 9.5 5.8
9 2000f 9.1 6.9

Sources: 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 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)

<TABLE>
<CAPTION>
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%
</TABLE>
Source: RCG

88
<PAGE>

CHICAGO CBD 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 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

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.

CENTRAL LOOP CLASS A OFFICE SUBMARKET (000SF)

<CAPTION>
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%
</TABLE>
Source: RCG

CENTRAL LOOP CLASS B 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 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%
</TABLE>
Source: RCG

89
<PAGE>

[GRAPH APPEARS HERE]

Central Loop Office Market
Construction and Net Absorption Trends
<TABLE>
<CAPTION>
Construction Absorption
(Square Feet (000s)) (Square Feet (000s)) Vacancy Rate
<S> <C> <C> <C>
92 2841 3901 20.7%
93 114 20.1%
94 931 15.2%
95 665 11.7%
96 323 10.0%
97 458 7.6%
98f 300 6.0%
99f 200 5.0%
00f 50 4.7%
</TABLE>

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.

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

The building is comprised of 50 floors, encompassing an aggregate of
approximately 944,600 net rentable square feet, of which 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.

90
<PAGE>

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
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.

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<PAGE>

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

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

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 St. and Adams St. 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 St. and Washington St. 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.

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<PAGE>

180 North LaSalle. 180 North LaSalle, commonly known as Heitman Centre, is a
thirty-eight story office building at the Southwest corner of LaSalle St. and
Lake St. 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 1.0 percentage points in the fourth quarter to
end the year at 19.5%, a slight worsening 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. The overall asking rent in the East Loop rose to $19.16 in the fourth
quarter from $18.92 in the third. Class A rents dropped $0.73 to end the year
at $23.02. The Class B rental rate rose $0.92 to end the year at $21.14, and
the Class C rental rate declined $0.52 to $14.57. 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.

CHICAGO EAST LOOP CLASS B OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
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 16 Office Properties in the Suburban
Chicago office submarket, with approximately 2.5 million aggregate net
rentable square feet.

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<PAGE>

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

94
<PAGE>

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
9.0% to 10.0% range, 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.

[GRAPH APPEARS HERE]

Suburban Chicago Office Vacancy Rate
Total vs Class A

<TABLE>
<CAPTION>
Percent Total Class A
<S> <C> <C> <C>
1992 19.3 16.7
1993 17.5 14.3
1994 15 11.6
1995 11.8 8.5
1996 11.4 7.8
1997 9 6.6
1998f 8.5 7.4
1999f 9.3 9.1
2000f 9.9 10.2

Sources: Bureau of Labor Statistics, RCG
</TABLE>

SUBURBAN CHICAGO 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 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%
</TABLE>
Source: RCG

SUBURBAN CHICAGO 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 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%
</TABLE>
Source: RCG

95
<PAGE>

SUBURBAN CHICAGO OFFICE SUBMARKETS: RECENT VACANCY RATE STATISTICS

<TABLE>
<CAPTION>
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% 7.8% -1.0%
Suburban Total 80,488,404 9.5% 9.0% 10.1% -0.6%
</TABLE>
Source: RCG

Northwest Suburbs Office Submarket

The Company will own and operate six Office Properties in the Northwest
Suburbs submarket, one of which is a Pending Acquisition. 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.

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.

96
<PAGE>

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)

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,175 10,175 10,175 10,230 10,285 10,285 10,285 10,600 11,600 12,600
New Construction 0 0 55 55 0 0 149 315 1,000 1,000
Net Absorption -- (51) 265 536 439 206 49 300 750 700
Occupied Stock 8,181 8,130 8,394 8,931 9,370 9,575 9,625 9,925 10,675 11,375
Vacancy Rate 19.6% 20.1% 17.5% 12.7% 8.9% 6.9% 6.4% 6.4% 8.0% 9.7%
</TABLE>
Source: RCG

NORTHWEST SUBURBS SUBMARKET CLASS B OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <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 8,624
New Construction 0 0 0 0 0 0 0 0 0 0
Net Absorption -- 60 276 207 405 (336) 794 75 (200) (400)
Occupied Stock 6,477 6,537 6,813 7,020 7,425 7,089 7,883 7,958 7,758 7,358
Vacancy Rate 24.9% 24.2% 21.0% 18.6% 13.9% 17.8% 8.6% 7.7% 10.0% 14.7%
</TABLE>
Source: RCG

[GRAPH APPEARS HERE]

Northwest Suburbs Office Market
Construction and Net Absorption Trends

<TABLE>
<CAPTION>
Construction Absorption
(Square Feet) (Square Feet) Vacancy Rate
<S> <C> <C> <C>
92 0.2375
93 502,000 0.2100
94 850,000 0.1675
95 950,000 0.1300
96 150,000 0.1250
97 175,000 1,090,000 0.0800
98f 300,000 450,000 0.0750
99f 1,000,000 600,000 0.0900
00f 1,000,000 390,000 0.1100
</TABLE>

Description of Northwest Suburbs Properties

The Company will own 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.

97
<PAGE>

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.

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 net rent represented by such leases and (v) the
average annual net rent per net rentable square foot represented by such
leases.

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

The Company's tax basis in 1701 Golf Road for federal income tax purposes as
of December 31, 1997 was approximately $110 million. For the year ended
December 31, 1997, the Company was assessed property taxes on this property 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.

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.

98
<PAGE>

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 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. 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.

99
<PAGE>

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

O'HARE CLASS B OFFICE MARKET (000SF)

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 3,892 3,892 4,085 4,085 4,085 4,085 4,085 4,085 4,085 4,085
New Construction 75 0 193 0 0 0 0 00 0 0
Net Absorption -- 140 197 (212) 135 0 199 200 150 (50)
Occupied Stock 3,005 3,145 3,342 3,129 3,264 3,264 3,463 3,663 3,813 3,763
Vacancy Rate 22.8% 19.2% 18.2% 23.4% 20.1% 20.1% 15.2% 10.3% 6.7% 7.9%
</TABLE>
Source: RCG

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.

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.

100
<PAGE>

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

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 9,303 9,550 9,550 9,915 9,915 10,159 10,635 11,862 12,892 13,892
New Construction 0 247 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 7,601 7,917 8,452 9,231 9,261 9,397 9,702 10,702 11,602 12,452
Vacancy Rate 18.3% 17.1% 11.5% 6.9% 6.6% 7.5% 8.8% 9.8% 10.0% 10.4%
Source: RCG

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

<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,566 10,566 10,759 10,759 10,759 10,759 10,759 10,759 10,759 10,759
New Construction 75 0 193 0 0 0 0 0 0 0
Net Absorption -- (190) 235 430 43 215 255 (50) (50) (100)
Occupied Stock 8,907 8,717 8,951 9,382 9,425 9,640 9,895 9,845 9,795 9,695
Vacancy Rate 15.7% 17.5% 16.8% 12.8% 12.4% 10.4% 8.0% 8.5% 9.0% 9.9%
</TABLE>
Source: RCG

[GRAPH APPEARS HERE]

East-West Tollway Office Market
Construction and Net Absorption Trends

<TABLE>
<CAPTION>
Construction Absorption
(Square Feet) (Square Feet) Vacancy Rate
<S> <C> <C> <C>
92 245,000 350,000 17.2%
93 200,000 583,284 15.62%
94 375,000 1,124,830 11.81%
95 0 420,927 10.61%
96 290,000 718,530 9.41%
97 460,000 537,247 8.99%
98f 1,210,000 450,000 8.76%
99f 1,020,000 830,000 10%
00f 1,000,000 750,000 10.25%
</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 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

101
<PAGE>

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.

350 North Mannheim Road. 350 North Mannheim Road is a single-story Class B
office building located in Hillside, Illinois. The building is situated on a
0.7-acre parcel of land and includes 51 spaces for surface parking. It was
built in 1977 and renovated in 1988. It has approximately 4,900 net rentable
square feet of office space and was vacant as of March 31, 1998. The building
is five miles from O'Hare International Airport.

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.

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

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 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.

102
<PAGE>

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 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

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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 38 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; 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 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.

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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.

TOTAL CHICAGO METROPOLITAN AREA INDUSTRIAL MARKET (000SF)

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock -- -- 866,659 878,658 896,545 909,611 922,861 933,861 942,861
Construction -- -- -- 11,999 17,887 16,902 13,250 11,000 9,000
Net Absorption -- -- -- 26,313 9,304 9,407 10,000 9,250 7,500
Occupied Stock -- -- 796,286 822,600 831,904 837,752 847,752 857,002 864,502
Vacancy Rate 8.5% 8.4% 8.1% 6.4% 7.2% 7.9% 8.1% 8.2% 8.3%
</TABLE>
Source: RCG

[GRAPH APPEARS HERE]

Industrial Market
Chicago Metropolitan Area
-------------------------------------------------------------------------

Vacancy Rate Additions Net Absorption
Square Feet (000s) Square Feet (000s)
95 6.4% 11,999 26,169
96 7.2% 17,887 9,373
97 7.9% 16,902 9,407
98 8.1% 13,250 10,000
99 8.2% 11,000 9,250
00 8.3% 9,000 7,590

Source: RCG

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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.

Industrial Market Gross Leasing Volume
Chicago Metropolitan Area
--------------------------------------

[GRAPH APPEARS HERE]

Manufacturing Warehouse Total
Square Feet (000s) Square Feet (000s) Square Feet (000s)

1992 7,330 13,745 21,075
1993 27,865 15,690 43,555
1994 11,609 18,478 30,087
1995 15,498 29,587 45,085
1996 10,529 13,164 23,693
1997 7,864 16,616 24,480

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."

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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 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 19 warehouse/distribution Industrial Properties located in
Suburban Chicago, which contain an aggregate of approximately 2.3 million
rentable square feet. At March 31, 1998, 15 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.

Warehouse/Distribution Submarket
Chicago Metropolitan Area
--------------------------------

[GRAPH APPEARS HERE]

Addition
Vacancy Rate Square Feet (000s)

1992 13.9% 1,496
1993 11.3% 1,329
1994 11.4% 4,124
1995 8.8% 5,089
1996 10.1% 6,193
1997 15.2% 13,975

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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 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.

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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.

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.

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.

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.

[GRAPH APPEARS HERE]

Manufacturing Submarket
Chicago Metropolitan Area
-------------------------

Additions
Vacancy Rate Square Feet (000s)

1992 7.3% 839
1993 8.5% 657
1994 8.1% 1,195
1995 6.0% 1,805
1996 7.9% 1,311
1997 11.9% 2,927

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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.

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

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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 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.

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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.

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.

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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. The Company owns
approximately 85.0 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 157.2
acres of developable land (including rights to acquire one development site
located in the Chicago CBD containing approximately 58,000 square feet), which
management believes could be developed with approximately 3.0 million square
feet of additional office space and over 4.4 million square feet of additional
industrial properties primarily in the Chicago Metropolitan Area. The
following table provides additional information with respect to these
undeveloped parcels:

<TABLE>
<CAPTION>
OWNERSHIP
DESCRIPTION LOCATION SIZE STATUS
----------- -------- ---- --------------
<S> <C> <C> <C>
425 East Algonquin
Road................... Arlington Heights, IL 3.7 Acres Own
Chicago Enterprise
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 48.5 Acres Under Contract
1301 Ridgeview
Drive(3)............... McHenry, IL 13.0 Acres Second Option
4849 Groveport Road..... Obetz, OH 4.2 Acres Own
600 London Road......... Delaware, OH 4.5 Acres Own
300 North LaSalle(4).... Chicago, IL 58,025 Sq. Ft. Option
NAC Properties(5)....... Carol Stream, IL/Batavia, IL 94.4 Acres Under Contract
Dearborn Center(6)...... Chicago, IL 66,768 Sq. Ft. Own
</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 $7.4 million (subject
to certain purchase price adjustments) by November 17, 2000.
(3) Motorola has an option to lease or purchase this land, exercisable on or
before August 1, 1998.
(4) The Company has a ten-year 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.
(5) 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) 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.

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.

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

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

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 for the development of a major office or mixed-use project containing
up to 1.2 million rentable square feet of space.

Huntley Property. The Company has a 15-year right of first offer to develop
(or develop and acquire an ownership interest in) all or any portion of
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.

The following are properties which the Company had an obligation to purchase
under certain circumstances.

300 Craig Place. 300 Craig Place is a distribution facility located in
Hillside, Illinois. The building is situated on a 9.2-acre parcel of land near
Interstate highways 88, 290 and 294. The facility is five miles south of
O'Hare International Airport and was built in 1997. It has approximately
163,000 net rentable square feet of space, of which 100.0% was leased as of
March 31, 1998. The building's tenants include Storopak, Inc. This property is
currently owned by an affiliate of the NAC General Partner. The Company was
obligated to purchase this property for approximately $7.5 million if this
property had been leased on certain terms within 180 days following the
consummation of the Formation Transactions and the completion of the IPO. This
obligation expired on May 17, 1998.

2050 Hammond Drive. 2050 Hammond Drive is a distribution facility located in
Schaumburg, Illinois. The building is situated on a 3.2-acre parcel of land,
12 miles northwest of O'Hare International Airport, near Interstate highways
90 and 290. The facility was built in 1985 and has approximately 66,600 net
rentable square feet of space, of which 100.0% was leased as of March 31,
1998. Autotype USA leases the entire facility. This property is currently
owned by an affiliate of the NAC General Partner and a third party partner.
The Company was obligated to purchase this property for approximately $3.1
million if the consent of a third party partner had

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been obtained within 180 days following the consummation of the Formation
Transactions and the completion of the IPO. This obligation expired on May 17,
1998.

5600 Proviso Drive. 5600 Proviso Drive is a distribution facility located in
Berkeley, Illinois. The building is situated on a 9.4-acre parcel of land,
near Interstate highway 290 and was built in 1985 and renovated in 1994. It
has approximately 219,000 net rentable square feet, of which 100.0% was leased
as of March 31, 1998. Banta Corp. leases the entire facility. This property is
currently owned by an affiliate of the NAC General Partner and a third party
partner. The Company was obligated to purchase this property for approximately
$8.0 million if the consent of the third party partner had been obtained
within 180 days following the consummation of the Formation Transactions and
the completion of the IPO. This obligation expired on May 17, 1998.

130 East Rawls Road. 130 East Rawls Road is a distribution facility located
in Des Plaines, Illinois. The facility is situated on a 3.5-acre parcel of
land, near Interstate highway 90 and was expanded and remodeled in 1988. The
facility has approximately 71,400 net rentable square feet, of which 100.0%
was leased as of March 31, 1998. Reynolds Fasteners, Inc. leases the entire
facility. This property is currently owned by an affiliate of the NAC General
Partner. The Company was obligated to purchase this property for approximately
$2.5 million if this property had been leased on certain terms within 180 days
following the consummation of the Formation Transactions and the completion of
the IPO. This obligation expired on May 17, 1998.

COMPETITION

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

TAX-EXEMPT BONDS

The development or redevelopment of 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 March 31, 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

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

GOVERNMENT REGULATIONS

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

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

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

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

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(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.

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 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 estimate that the remedial action will
cost approximately $200,000.

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

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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."

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 291 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

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 one of its Industrial Properties. See "--
Government Regulations--Environmental Matters."

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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

On a pro forma basis, the Company's ratio of debt to total market
capitalization will be approximately 36.3%. The Company expects to operate
with a debt to total market capitalization ratio at a level below 50.0%. The
Company has based its debt policy on the relationship between its debt and its
total market capitalization, rather than the book value of its assets or other
historical measures that typically have been employed by publicly traded
REITs, because management believes that market capitalization more accurately
reflects the Company's 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

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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. Although the organizational documents
of the Company do not limit the amount or percentage of indebtedness that the
Company may incur, the Company may from time to time modify its debt policy in
light of then current economic conditions, relative costs of debt and equity
capital, the market values of its properties, general conditions in the market
for debt and equity securities, fluctuations in the fair market prices of the
Common Shares, growth and acquisition opportunities and other factors.
Accordingly, the Company may increase or decrease its debt-to-total market
capitalization ratio above or below the limit described above. See "Risk
Factors--Real Estate Financing Risks--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.

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."

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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.

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...... 65 President--Industrial Division
John O. Wilson.......... 38 President--Prime Group Realty Services, Inc.
Donald H. Faloon........ 51 Executive Vice President--Development
Murray J. Alscher....... 41 Senior Vice President--Acquisitions
Steven R. Baron......... 49 Senior Vice President--Marketing and Leasing/CBD Office
Philip A. Hoffer........ 48 Senior Vice President--Real Estate Operations
James F. Hoffman........ 35 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)................. 37 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 1998.
(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
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.

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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.
Mr. Derderian is the husband of Ms. Rolanda Derderian, the Vice President--
Real Estate Tax Specialist of the Company.

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 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.

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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.

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.

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

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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.

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 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,

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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.

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."

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<PAGE>

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 has 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."

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).

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<PAGE>

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 (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.

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<PAGE>

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 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 also made a grant of options
to purchase 22,500 Common Shares to Roy P. Rendino and grants of options to
purchase an aggregate of 5,000 Common Shares to another employee (the "April
Grants"). The March, April and Initial Grants are collectively referred to as
the "Grants."

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 and April 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 $20.00, the closing price of the Common Shares
on the NYSE on March 5, 1998, and the exercise price of the options issued
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 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
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

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<PAGE>

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
NUMBER OF PERCENT OF REALIZABLE VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF
OPTIONS EMPLOYEES IN OR BASE SHARE PRICE
GRANTED FISCAL YEAR PRICE EXPIRATION APPRECIATION
(#)(1) 1997% PER SHARE DATE FOR OPTION TERM(2)
---------- ------------- --------- ---------- -------------------
(IN THOUSANDS)
5% 10%
--------- ---------
<S> <C> <C> <C> <C> <C> <C>
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.

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>

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<PAGE>

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.

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 Security Capital Preferred Growth
pursuant to the Convertible Preferred Share Offering. The Company

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<PAGE>

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 for 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.

. 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

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<PAGE>

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 (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 be sold in the
Offering and possible future issuances of debt or equity through public
offerings or private placements. The financial strength of the Company
should enable it to obtain financing at better rates and on better terms
than would otherwise be available to the Property Partnerships, some of
which are single asset entities.

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. 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 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

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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 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

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Venture, which loan is secured by all of the Common Units held by the
Primestone Joint Venture. In connection with the 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.

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

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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.

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
$0.6 million, $2.1 million, $2.3 million and $2.7 million for the three months
ended March 31, 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.

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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 60.3% 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 60.3% of the total partner interests as of March 31, 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 assumes all obligations of the transferor Limited

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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

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additional partnership interests 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 the 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
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

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<PAGE>

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 Security Capital Preferred Growth
with respect to the Common Shares acquired by it upon the conversion of the
Convertible Preferred Shares into Common 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 such Common 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 April 15, 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 April 15, 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 ALL
COMMON UNITS PERCENTAGE OF ALL COMMON SHARES/
NAME BENEFICIALLY OWNED(1) COMMON SHARES(2) COMMON UNITS(3)
---- ------------------------ ----------------- -----------------
<S> <C> <C> <C>
The Primestone Joint
Venture(4)............. 7,944,893 33.8% 30.7%
The Prime Group,
Inc.(5)................ 4,814,461 23.6 18.6
Michael W.
Reschke(6)(7).......... 4,814,461 23.6 18.6
Cohen & Steers Capital
Management, Inc.(8).... 2,650,000 17.0 10.3
Southeastern Asset
Management, Inc.(9).... 1,850,000 11.9 7.2
Morgan Stanley, Dean
Witter, Discover &
Co.(10)................ 1,462,300 9.4 5.7
Capital Growth
Management Limited
Partnership(11)........ 1,217,500 7.8 4.7
Morgan Stanley Asset
Management Inc.(10).... 1,004,600 6.5 3.9
AMVESCAP PLC(12)........ 785,100 5.0 3.0
Stephen J.
Nardi(7)(13)(14)....... 927,100 5.6 3.6
Edward S.
Hadesman(7)(13)(15).... 860,161 5.2 3.3
Jeffrey A.
Patterson(7)(13)....... 110,000 * *
William M. Karnes(7).... 20,000 * *
Kevork M. Derderian(7).. 6,000 -- --
Richard S.
Curto(7)(16)........... 5,000 -- --
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 (21
persons)............... 6,743,722 30.2 26.1
</TABLE>
- --------
*Less than one percent.
(1) The ownership of Common Shares reported herein is based upon filings with
the Commission and is subject to confirmation by the Company that such
ownership did not violate the ownership restrictions in the Company's
Declaration of Trust. Information presented does not include 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 also 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 April 15, 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.

146
<PAGE>

(2) Information presented assumes exchange only of Common Units owned by such
beneficial owner for Common Shares.
(3) Information presented assumes exchange of all outstanding Common Units
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
April 15, 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 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 Capital Management, Inc. ("Cohen & Steers")
is 757 Third Avenue, New York, NY 10017. Information presented is based
on a Schedule 13G filed with the Commission on February 12, 1998, as
amended on April 9, 1998 by Cohen & Steers. The Schedule 13G indicates
that Cohen & Steers has sole voting power over 2,602,000 Common Shares
and sole dispositive power over 2,650,000 Common Shares held as agent for
accounts managed by Cohen & Steers.
(9) Information presented is based on a Schedule 13G filed with the
Commission on February 12, 1998 by Southeastern Asset Management, Inc.
("Southeastern"), Longleaf Partners Realty Fund ("Longleaf") and O. Mason
Hawkins. The Schedule 13G indicates that Southeastern and Longleaf have
shared voting and dispositive power for all 1,850,000 Common Shares and
each beneficially owns the Common Shares. The Schedule 13G indicates that
O. Mason Hawkins filed the Schedule 13G in the event he could be deemed a
controlling person of Southeastern. Mr. Hawkins disclaims such control
and the Schedule 13G indicates

147
<PAGE>

that he does not directly or indirectly own any Common Shares or share in
any voting or dispositive powers. The address for all three filers is 6410
Poplar Ave., Suite 900, Memphis, TN 38119.
(10) Information presented is based on a Schedule 13G filed with the
Commission on January 14, 1998 by Morgan Stanley, Dean Witter, Discover &
Co. ("MSDW") and Morgan Stanley Asset Management Inc. ("Morgan Stanley").
The Schedule 13G indicates that MSDW beneficially owns 1,462,300 Common
Shares, has shared voting power over 1,296,100 Common Shares and has
shared dispositive power over 1,462,300 Common Shares. The Schedule 13G
further indicates that Morgan Stanley beneficially owns 1,004,600 Common
Shares, has shared voting power over 166,200 Common Shares and has shared
dispositive power over 1,004,600 Common Shares. The Schedule 13G
indicates that both MSDW and Morgan Stanley are investment advisors and
that 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) The address of Capital Growth Management Limited Partnership ("Capital
Growth") is One International Place, Boston, MA 02110. Information
presented is based on a Schedule 13G filed with the Commission 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.
(12) 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.
(13) 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
beneficial ownership resulting from an exchange of Common Units for
Common Shares by such person after such prohibition expires.
(14) 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.
(15) 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.
(16) 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 April 15, 1998, Security Capital Preferred Growth Incorporated owned
2,000,000 shares of the Company's Convertible Preferred Shares, representing
100% of the outstanding shares of such class. On or after September 17, 1998,
holders of Convertible Preferred Shares will 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 a described above, no Trustee or officer of the Company owns any
shares of any other class of the Company's equity securities.

148
<PAGE>

RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DISTRIBUTIONS

The following table sets forth the consolidated pro forma and historical
ratios of earnings to combined fixed charges and preferred share dividends for
the Company for three months ended March 31, 1998, the year ended December 31,
1997 and for the period from November 17, 1997 to December 31, 1997 and for
the Predecessor Properties (The Predecessor to the Company), for the three
months ended March 31, 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
- ----------------------- ---------------------- ------------------------------------------
THREE THREE PERIOD FROM THREE PERIOD FROM
MONTHS MONTHS NOVEMBER 17, MONTHS JANUARY 1, YEAR ENDED
ENDED YEAR ENDED ENDED 1997 TO ENDED 1997 TO DECEMBER 31,
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, NOVEMBER 16, -------------------
1998 1997 1998 1997 1997 1997 1996 1995 1994 1993
- --------- ------------ --------- ------------ --------- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.77 1.61 1.70 1.66 0.29 0.17 0.17 0.21 0.35 0.31
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</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 $6.9 million, $29.1
million, $31.4 million, $29.6 million, $22.1 million and $20.8 million for the
three months ended March 31, 1997, the period from January 1, 1997 through
November 16, 1997 and for the years ended December 31, 1996, 1995, 1994 and
1993, respectively.

149
<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 Offering,
the Company will amend 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
Offering, the filing of Articles Supplementary to the Declaration of Trust
classifying up to 5,750,000 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." Upon completion of the Offering, there will be
15,572,494 Common Shares issued and outstanding, 2,000,000 Convertible
Preferred Shares outstanding and 5,000,000 Redeemable Preferred Shares
outstanding, excluding the 750,000 Redeemable Preferred Shares which are
subject to the Underwriters' over-allotment option.

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

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 % of the per share liquidation preference of the
Redeemable Preferred Shares (equivalent to $ per Redeemable Preferred
Share).

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<PAGE>

"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 will include a partial dividend for the
period from the date on which the Redeemable Preferred Shares are issued (the
"Issue Date") until the last day of the calendar quarter immediately following
such Issue Date. The aggregate amount of dividends payable for such period, or
any other 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., %) 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 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

151
<PAGE>

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 current Dividend Period with respect to the Redeemable Preferred
Shares and the 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 nor 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

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, 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 Redeemable Preferred 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.

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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 , 2003. On and after , 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
distributions) shall be paid solely from the sale proceeds 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.

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

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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
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 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.

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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 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 Redeemable 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 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, 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 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 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 Company has applied for listing of the Redeemable Preferred Shares on
the NYSE under the symbol "PGE PrB." If approved for listing, trading of the
Shares on the NYSE is expected to commence within a 30-day period after the
date of initial delivery of the Redeemable Preferred Shares. See
"Underwriting."

The Redeemable Preferred Shares will, when issued, be duly authorized, fully
paid and nonassessable and will have no preemptive rights.

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

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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 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
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 thirtieth
calendar day after the end of the applicable Dividend Period.

"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 initial Dividend Period
for the Convertible Preferred Shares included a partial dividend for the
period from November 17, 1997 until December 31, 1997. The amount of dividends
payable for such period, were computed, and 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

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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) 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 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 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").

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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
will rank junior to and be 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 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 shall not be 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

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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.

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 Convertible Preferred Shares at a premium (the
"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 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 Special Redemption Price.

Notice of the special redemption of any Convertible Preferred Shares 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
Special Redemption Call Date. Neither the failure to mail any notice required
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: (1) the Special Redemption Call Date; (2) the
Special Redemption Price (including the amount of the Special Redemption Price
consisting of cash and the amount of the Special Redemption Price consisting
of Common Shares, together with calculations supporting the determination of
the number of Common Shares constituting a portion of the Special Redemption
Price); (3) the place or places at which certificates for such shares are to
be surrendered; and (4) that dividends on the shares to be redeemed shall
cease to accrue on such redemption date except as otherwise provided herein.
Notice having been mailed as aforesaid, from and after the Special Redemption
Call Date (unless the Company shall fail to make available an amount of cash
necessary to effect such redemption), (i) except as otherwise provided herein,
dividends on the Convertible Preferred Shares so called for redemption shall
cease to accrue, (ii) such shares shall no longer be deemed to be outstanding
and (iii) all rights of the holders thereof as holders of Convertible
Preferred Shares shall cease (except the right to receive the Special
Redemption Price, without interest thereon, upon surrender and endorsement of
their certificates if so required).

"Weighted Average Trading Price" shall mean, for any period, the number
obtained by dividing (i) the sum of the products, for each sale of Common
Shares on each trading day in such period, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold during such period.

"Fair Market Value" shall mean the Weighted Average Trading Price for the
Common Shares for the 20 trading days preceding the date of the special
redemption (the "Special Redemption Call Date").

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Conversion

A holder of Convertible Preferred Shares shall have the right, at his or her
option, upon 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 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
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.

"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 trustee designated, appointed or elected by the holders of the Convertible
Preferred Shares (each a "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.

"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.

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

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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;

(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 (excluding those rights,
options and warrants issued to all holders of Common Shares entitling them
for a period expiring within 45 days after the record date referred to in
clause (ii) above to

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subscribe for or purchase Common Shares, which rights, options and warrants
are referred to in and treated under clause (ii) above)); or

(iv) In case a tender or exchange offer (which term 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 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 shall be required unless such adjustment
would require a cumulative increase or decrease of at least 1.0% in such
price; provided, however, that any adjustments that by reason of the
immediately preceding clause 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 would be
reasonably expected to not satisfy one or both of the following ratios:

(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

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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):

(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).

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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 will
include 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, 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 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

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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
holders of the Convertible Preferred Shares have consented to the issuance of
the Redeemable Preferred Shares being offered hereby.

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.

Registration Rights

The Company has granted Security Capital Preferred Growth 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.

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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
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

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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
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 Security Capital Preferred
Growth 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 the
Ownership Limit to permit Longleaf Partners Realty Fund to purchase 2,200,000
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

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

The classified board provision could have the effect of making the removal
of incumbent trustees more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Board of Trustees. Thus, the classified board provision
could increase the likelihood that incumbent trustees will retain their
positions. Holders of Common Shares 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 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.

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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 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

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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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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of Redeemable Preferred Shares
who purchases such shares in the Offering. 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 Redeemable Preferred 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 Redeemable Preferred
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 REDEEMABLE PREFERRED 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 ending 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 continuing
basis the actual operating results, distribution levels, diversity of

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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 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

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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 Redeemable Preferred 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.

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

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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 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 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

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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.

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

The Services Company, pursuant to contractual arrangements, 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.

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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, 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

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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
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

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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 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.

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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."

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

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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.

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

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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 Redeemable
Preferred Shares who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) is a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust or (iv) is an
estate subject to taxation in the United States, regardless of its source of
income.

As long as the Company continues to qualify as a REIT, distributions made by
the Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
U.S. Shareholders as ordinary income. Such distributions will not be eligible
for the dividends-received deduction in the case of U.S. Shareholders that are
corporations.

Dividends paid to U.S. Shareholders will be treated as portfolio income.
Such income, therefore, will not be subject to reduction by losses from
passive activities (i.e., any interest in a rental activity or in a trade or
business in which the holder does not materially participate, such as certain
interests held as a limited partner) of any holder who is subject to the
passive activity loss rules. Such distributions will, however, be considered
investment income which may be offset by certain investment expense
deductions.

Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to U.S. Shareholders as
long-term capital gains (to the extent that they do not exceed the Company's
actual net capital gain of the taxable year) without regard to the period for
which a U.S. Shareholder has held his/her Redeemable Preferred Shares. The
highest marginal individual income tax rate (which applies to ordinary income
and gain from the sale or exchange of capital assets held for one year or
less) currently is 39.6%. The maximum tax rate on mid-term capital gains
applicable to noncorporate taxpayers is 28.0% for sales and exchange of assets
held for more than one year but not more than 18 months and the maximum tax
rate on long-term capital gains applicable to noncorporate taxpayers is 20.0%
for sales and exchange of assets held for more than 18 months. The maximum tax
rate applicable to noncorporate taxpayers on long-term capital gain from the
sale or exchange of "section 1250 property" (i.e., depreciable real property)
is 25.0% to the extent that such

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gain would have been treated as ordinary income if the property were "'section
1245 property." 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. Thus, the tax rate differential between capital gain and
ordinary income for noncorporate taxpayers may be significant. 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. U.S.
Shareholders that are corporations may, however, be required to treat up to
20.0% of certain capital gain dividends as ordinary income.

The Company may elect to retain amounts representing long-term capital gain
income on which the Company will be taxed at regular corporate rates. In that
case, each shareholder will be taxed on a proportionate share of the total
long-term capital gains retained by the Company and will also receive a credit
for a proportionate share of the tax paid by the Company. Finally, each
shareholder shall increase the adjusted basis in his/her shares by the
difference between the allocable amount of long-term capital gain and the tax
deemed paid by the shareholder. If the Company should elect to retain long-
term capital gains, it will notify each shareholder of the relevant tax
information within 60 days after the close of the taxable year.

To the extent that the Company makes distributions (not designated as
capital gain dividends or retained capital gains) in excess of its current and
accumulated earnings and profits, such distributions will be treated first as
a tax-free return of capital to each U.S. Shareholder, reducing the adjusted
basis which such U.S. Shareholder has in his/her Redeemable Preferred Shares
for tax purposes by the amount of such distribution (but not below zero), with
distributions in excess of a U.S. Shareholder's adjusted basis in his/her
shares taxable as capital gains (provided that the shares have been held as a
capital asset). Dividends declared by the Company in October, November, or
December of any year and payable to a stockholder of record on a specified
date in any such month shall be treated as both paid by the Company and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company on or before January 31 of the
following calendar year. Shareholders may not include in their own income tax
returns any net operating losses or capital losses of the Company.

Upon any sale or other disposition of Redeemable Preferred 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 28.0% if
such shares have been held for more than one year but not more than 18 months
or 20.0% if such shares have been held for more than eighteen months. In
general, any loss recognized by a U.S. Shareholder upon the sale or other
disposition of Redeemable Preferred Shares that have been held for six months
or less (after applying certain holding period rules) will be treated as a
long-term capital loss, to the extent of distributions received by such U.S.
Shareholder from the Company which were required to be treated as long-term
capital gains.

A redemption of Redeemable Preferred Shares will be treated under Section
302 of the Code as a distribution taxable as a dividend (to the extent of the
Company's current and accumulated earnings and profits) at ordinary income
rates unless the redemption satisfies one of the tests set forth in Section
302(b) of the Code and is therefore treated as a sale or exchange of the
redeemed shares. The redemption will be treated as a sale or exchange under
Section 302(b) if it (i) is "substantially disproportionate" with respect to
the holder, (ii) results in a "complete termination" of the holder's stock
interest in the Company, or (iii) is "not essentially equivalent to a
dividend" with respect to the holder within the meaning of Section 302(b)(2)
of the Code. In determining whether any of these tests have been met, Common
Shares (and other equity interests in the Company) considered to be owned by
the holder by reason of certain constructive ownership rules set forth in
Section 318

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of the Code, as well as Common Shares actually owned by the holder, 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 holder of Redeemable Preferred Shares depends upon
the facts and circumstances at the time that the determination must be made,
holders of Redeemable Preferred Shares are advised to consult their own tax
advisors to determine such treatment.

If a redemption of Redeemable Preferred Shares is not treated as a
distribution taxable as a dividend to a particular holder, it will be treated,
as to that holder, as a taxable sale or exchange. As a result, such holder
will 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 (less any portion thereof attributed to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the
extent of the Company's current and accumulated earnings and profits), and
(ii) the holder's adjusted basis in the Redeemable Preferred Shares for tax
purposes. Generally, such gain or loss will be capital gain or loss if the
Redeemable Preferred Shares have been held as a capital asset, and will be
mid-term gain or loss if such shares have been held for more than one year but
not more than eighteen months and long-term gain or loss if such shares have
been held for more than eighteen months.

If a redemption of Redeemable Preferred Shares is treated as a distribution
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and the fair market value of any property received by the
holder. The holder's adjusted basis in the redeemed Redeemable Preferred
Shares for tax purposes will be transferred to the holder's remaining shares
of beneficial interest of the Company, if any. If the holder owns no other
shares of beneficial interest of the Company, such basis may under certain
circumstances, be transferred to a related person or it may be lost entirely.

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

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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 REDEEMABLE PREFERRED 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 Redeemable Preferred Shares in
the same manner as a U.S. Shareholder if such investment is "effectively
connected" with the Non-U.S. Shareholder's conduct of a trade or business in
the United States. A corporate Non-U.S. Shareholder that receives income with
respect to its investment in Redeemable Preferred 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 Redeemable Preferred Shares is
not effectively connected with the conduct of a trade or business in the
United States.

Ordinary Dividends

Distributions made by the Company that are not attributable to gain from the
sale or exchange by the Company of United States real property interests and
that are not designated by the Company as capital gain dividends will be
treated as ordinary income dividends to the extent made out of current or
accumulated earnings and profits of the Company. Generally, such ordinary
income dividends will be subject to United States withholding tax at the rate
of 30% on the gross amount of the dividend paid unless reduced or eliminated
by an applicable United States income tax treaty. The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of
any such dividends paid to a Non-U.S. Shareholder unless a lower treaty rate
applies and the Non-U.S. Shareholder has filed an IRS Form 1001 with the
Company, certifying the Non-U.S. Shareholder's entitlement to treaty benefits.
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 Redeemable Preferred 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 Redeemable Preferred 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

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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 Redeemable Preferred 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 Redeemable
Preferred Shares. The Redeemable Preferred 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 Redeemable
Preferred Shares will not be treated as USRPIs under FIRPTA. However, because
the Redeemable Preferred 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
Redeemable Preferred Shares would be treated as USRPIs subject to United
States taxation under FIRPTA unless (i) the Redeemable Preferred 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.

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.

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Disposition of Shares of Beneficial Interest of the Company

Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
Redeemable Preferred Shares generally will not be subject to United States
taxation unless the Redeemable Preferred Shares constitute a USRPI within the
meaning of FIRPTA (as described above).

If the Redeemable Preferred Shares were treated as USRPI so that gain on the
sale or exchange of the Redeemable Preferred 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 Redeemable Preferred 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 Redeemable
Preferred Shares to the extent they represent a return of capital or capital
gain from the sale of the Redeemable Preferred 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 Redeemable Preferred 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.

Estate Tax

Redeemable Preferred 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.

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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
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 Redeemable
Preferred 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 Redeemable Preferred 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 REDEEMABLE PREFERRED 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 REDEEMABLE PREFERRED 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 Redeemable Preferred 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 Redeemable
Preferred 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 Redeemable Preferred 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 entity, the assets of the entity are deemed to be Plan assets (the "look-
through rule"). Under such circumstances, any person that

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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 preferred stock or preferred 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 Redeemable Preferred Shares will meet the
criteria of the publicly-offered securities exception to the look-through
rule. First, the Company anticipates that the Redeemable Preferred 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 Redeemable Preferred 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 Redeemable
Preferred 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
Redeemable Preferred 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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UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Bear, Stearns & Co. Inc., Friedman, Billings, Ramsey
& Co., Inc. Legg Mason Wood Walker, Incorporated and Morgan Keegan & Company,
Inc. are acting as representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions contained in the Underwriting
Agreement, to purchase from the Company the number of Redeemable Preferred
Shares set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER OF
REDEEMABLE
UNDERWRITER PREFERRED SHARES
----------- ----------------
<S> <C>
Prudential Securities Incorporated...............................
Bear, Stearns & Co. Inc..........................................
Friedman, Billings, Ramsey & Co., Inc............................
Legg Mason Wood Walker, Incorporated.............................
Morgan Keegan & Company, Inc.....................................

---------
Total.......................................................... 5,000,000
=========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Redeemable Preferred Shares offered hereby if any are
purchased.

The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Redeemable Preferred Shares to the public initially
at the public offering price set forth on the cover page of this Prospectus,
that the Underwriters may allow to selected dealers a concession of $ per
share and that such dealers may reallow a concession of $ per share to
certain other dealers. After completion of the Offering, the offering price
and the concessions may be changed by the Representatives.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 750,000 additional
Redeemable Preferred Shares at the initial public offering price, less the
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose
of covering over-allotments incurred in the sale of Redeemable Preferred
Shares offered hereby. To the extent such option to purchase is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional Redeemable
Preferred Shares as the number set forth next to such Underwriter's name in
the preceding table bears to 5,000,000.

The Company and the Operating Partnership have agreed to indemnify the
several Underwriters against or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The Company has applied for listing of the Redeemable Preferred Shares on
the NYSE. If such listing is approved, trading of the Redeemable Preferred
Shares on the NYSE is expected to commence within a 30-day period after the
initial delivery of the Redeemable Preferred Shares. The Representatives have
advised the Company that they intend to make a market in the Redeemable
Preferred Shares prior to the commencement of trading on the NYSE. The
Representatives will have no obligation to make a market in the Redeemable
Preferred Shares, however, and may cease market making activities if commenced
at any time.

Prudential Securities Incorporated, as one of the Representatives of the
Underwriters, has undertaken that the Underwriters will sell (i) Redeemable
Preferred Shares to at least 100 beneficial holders, (ii) a minimum of 100,000
Redeemable Preferred Shares and (iii) Redeemable Preferred Shares with a
minimum aggregate market value of $2.0 million.

The Company and each of its executive officers and trustees have agreed not
to offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (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 Redeemable Preferred Shares or any securities
convertible or exercisable or exchangeable for any Redeemable Preferred Shares
or other securities of the Company which are substantially similar to the
Redeemable Preferred

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<PAGE>

Shares, for a period of 90 days from the date of this Prospectus, in each case
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, subject to certain limited exceptions. Prudential
Securities Incorporated may, at any time and without notice, release all or
any portion of the Redeemable Preferred Shares subject to the foregoing lock-
up agreements.

Prior to the Offering, there has been no public market for the Redeemable
Preferred Shares. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in such determination will be prevailing market conditions,
dividend yields and financial characteristics of publicly traded REITs that
the Company and the Representatives believe to be comparable to the Company,
the present state of the Company's financial and business operations, the
Company's management, estimates of the business and earnings potential of the
Company and the prospects for the industry in which the Company operates.

PSCC, an affiliate of Prudential Securities Incorporated, is a lender under
the Credit Facility and has provided approximately 33.75% of the total
commitments thereunder. Approximately $64.1 million of the net proceeds from
the Offering ($82.3 million if the Underwriters' over-allotment option is
exercised in full) will be used to repay borrowings under the Credit Facility.
See "Use of Proceeds." PSCC was the original mortgagee under the New Mortgage
Notes and made a $40.0 million loan to the Primestone Joint Venture. The New
Mortgage Notes are secured by all of the Contribution Properties and certain
of the IPO Acquisition Properties. The loan to the Primestone Joint Venture is
secured by all of the LP Common Units held by the Primestone Joint Venture,
representing a 34.2% interest in the Operating Partnership as of December 31,
1997. PSCC receives customary fees for services rendered in connection with
the Credit Facility, the New Mortgage Notes and such loan to the Primestone
Joint Venture.

In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Redeemable
Preferred Shares. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M promulgated by the
Securities and Exchange Commission (the "Commission") pursuant to which such
persons may bid for or purchase Redeemable Preferred Shares for the purpose of
stabilizing its market price. The Underwriters also may create a short
position for the account of the Underwriters by selling more Redeemable
Preferred Shares in connection with the Offering than they are committed to
purchase from the Company, and in such case may purchase Redeemable Preferred
Shares in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position, up to 750,000 Redeemable Preferred Shares, by
exercising the Underwriters' over-allotment option referred to above. In
addition, Prudential Securities Incorporated, on behalf of the Underwriters,
may impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or any selling group member
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Redeemable Preferred Shares that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Redeemable
Preferred Shares at a level above that which might otherwise prevail in the
open market. None of the transactions described in this paragraph are required
and, if they are undertaken, they may be discontinued at any time.

LEGAL MATTERS

Certain legal matters in connection with the Offering will be passed upon
for the Company by Winston & Strawn, Chicago, Illinois. Legal matters relating
to Maryland law, including the validity of the issuance of the Redeemable
Preferred Shares offered hereby, will be passed upon for the Company by Miles
& Stockbridge P.C., Baltimore, Maryland. Certain legal matters will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. In addition, the description of federal income tax
consequences contained in this Prospectus under "Certain Federal Income Tax
Considerations" is, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, the opinion of Winston &
Strawn, special tax counsel to the Company as to the material federal income
tax consequences of the Offering. Governor James R. Thompson, Chairman of
Winston & Strawn, is a trustee of the Company.

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<PAGE>

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,
and the statement of revenue and certain expenses of Two Century Centre 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.

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

194
<PAGE>

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 Redeemable Preferred Shares offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules.

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<PAGE>

GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:

"1997 Tax Act" means the Taxpayer Relief Act of 1997, as amended.

"1998 Acquisitions" means, collectively, the five 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 and
2100 Swift Drive.

"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 June 30, 1997 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.

G-2
<PAGE>

"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.

"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.

(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.

"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

G-3
<PAGE>

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 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 Security Capital Preferred Growth
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 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).

"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

G-4
<PAGE>

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.

"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.

"Fair Market Value" means the Weighted Average Trading Price for the Common
Shares for the 20 trading days preceding the Special Redemption Call Date.

"FIRE" means, collectively, with respect to an economy, that sector of such
economy comprised of the businesses of finance, insurance, and real estate.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.

"five or fewer requirement" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of beneficial
interest may be owned directly or indirectly by five or fewer individuals (as
defined in the Code) during the last half of the taxable year (other than the
first year).

"Formation Agreement" means the agreement 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."

G-5
<PAGE>

"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, 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.

"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.

G-6
<PAGE>

"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 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.

"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

G-7
<PAGE>

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 average 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.

"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

G-8
<PAGE>

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.

"Offering" means the offering of Redeemable Preferred Shares of the Company
pursuant to and as described in this Prospectus.

"Office Properties" means the office properties in which the Company,
through its subsidiaries, will have an interest or will own upon completion of
the Offering and upon completion of the Pending Acquisitions. No assurance can
be given that the Company will complete all of the Pending Acquisitions.

"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,

G-9
<PAGE>

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 two Office Properties and
related assets that comprise Two Century Centre and 6400 Shafer Court.

"PGE PrB" is the proposed 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 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 Trustee" means a trustee designated, appointed or elected by the
holders of the Convertible Preferred Shares.

"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.

G-10
<PAGE>

"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, 1998 Acquisitions and the Pending
Acquisitions, in which the Company, through its subsidiaries, will have an
interest or which the Company will own upon the completion of the Offering and
upon completion of the Pending Acquisitions. No assurance can be given that
the Company will complete all of the Pending Acquisitions.

"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.

"Redeemable Preferred Shares" means the % 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 being offered hereby.

"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.

G-11
<PAGE>

"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."

"RFA" means Regional Financial Associates.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended.

"Security Capital Preferred Growth" means Security Capital Preferred Growth
Incorporated.

"Series B Preferred Units" means partnership interests representing the
preferred equity in the Operating Partnership relating to the Redeemable
Preferred Shares.

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<PAGE>

"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.

"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.

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<PAGE>

"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.

"Underwriters" shall mean the underwriters of the Offering for whom
Prudential Securities Incorporated, Bear, Stearns & Co. Inc., Friedman,
Billings, Ramsey & Co., Inc., Legg Mason Wood Walker, Incorporated and Morgan
Keegan & Company, Inc. are acting as Representatives.

"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."

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prime Group Realty Trust:
Pro Forma (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998..... F-5
Notes to Pro Forma Condensed Consolidated Balance Sheet................. F-6
Pro Forma Condensed Consolidated Statements of Operations for the three
months March 31, 1998 and for the year ended December 31, 1997......... F-8
Notes to Pro Forma Condensed Consolidated Statements of Operations...... F-10
Prime Group Realty Trust (the Company) and Predecessor Properties:
Report of Independent Auditors........................................... F-15
Consolidated Balance Sheets of the Company as of March 31, 1998
(unaudited) and December 31, 1997 and Combined Balance Sheet of the
Predecessor Properties as of December 31, 1996.......................... F-16
Consolidated Statements of Operations of the Company for the three months
ended March 31, 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 three months ended March 31, 1997
(unaudited), for the period from January 1, 1997 to November 16, 1997
and for the years ended December 31, 1996 and 1995...................... F-17
Consolidated Statements of Changes in Shareholders' Equity for the three
months ended March 31, 1998 (unaudited) and for the period from November
17, 1997 to December 31, 1997........................................... F-18
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-19
Consolidated Statements of Cash Flows of the Company for the three months
ended March 31, 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 three months ended March 31, 1997
(unaudited), for the period from January 1, 1997 to November 16, 1997
and for the years ended December 31, 1996 and 1995...................... F-20
Notes to Consolidated and Combined Financial Statements.................. F-23
Prime Industrial Contribution Properties:
Report of Independent Auditors........................................... F-47
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-48
Notes to Combined Statements of Revenue and Certain Expenses............. F-49
IBD Properties:
Report of Independent Auditors........................................... F-50
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-51
Notes to Combined Statements of Revenue and Certain Expenses............. F-52
NAC Properties:
Report of Independent Auditors........................................... F-53
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-54
Notes to Combined Statements of Revenue and Certain Expenses............. F-55
</TABLE>

F-1
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Citibank Office Plaza:
Report of Independent Auditors........................................... F-56
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 Statements of Revenue and Certain Expenses...................... F-58
Salt Creek Office Center:
Report of Independent Auditors........................................... F-59
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-60
Notes to Combined Statements of Revenue and Certain Expenses............. F-61
280 Shuman Boulevard:
Report of Independent Auditors........................................... F-62
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-63
Notes to Statements of Revenue and Certain Expenses...................... F-64
475 Superior Avenue:
Report of Independent Auditors........................................... F-65
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-66
Notes to Statements of Revenue and Certain Expenses...................... F-67
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-71
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-72
Notes to Statements of Revenue and Certain Expenses...................... F-73
2675 Mayfair:
Report of Independent Auditors........................................... F-75
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997.............................................. F-76
Notes to Statement of Revenue and Certain Expenses....................... F-77
33 North Dearborn:
Report of Independent Auditors........................................... F-78
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997.............................................. F-79
Notes to Statement of Revenue and Certain Expenses....................... F-80
</TABLE>

F-2
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Commerce Point:
Report of Independent Auditors........................................... F-81
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997.............................................. F-82
Notes to Statement of Revenue and Certain Expenses....................... F-83
208 South LaSalle Street:
Report of Independent Auditors........................................... F-84
Statement of Revenue and Certain Expenses for the year ended December 31,
1997.................................................................... F-85
Notes to Statement of Revenue and Certain Expenses....................... F-86
122 South Michigan Avenue:
Report of Independent Auditors........................................... F-87
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-88
Notes to Statements of Revenue and Certain Expenses...................... F-89
6400 Shafer Court:
Report of Independent Auditors........................................... F-90
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-91
Notes to Statements of Revenue and Certain Expenses...................... F-92
Two Century Centre:
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
</TABLE>

F-3
<PAGE>

PRIME GROUP REALTY TRUST

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
is presented as if, at March 31, 1998 (i) the Company had sold 5.0 million
shares of its Series B--Cumulative Redeemable Preferred Shares of beneficial
interest at $25.00 per share (the "Offering") and used the net proceeds to
acquire 5.0 million Series B Preferred Units of the Operating Partnership,
(ii) the Operating Partnership completed the proposed acquisitions of two
office properties (the "Pending Acquisitions"--see Note B to the Pro Forma
Condensed Consolidated Balance Sheet for a listing of the properties), (iii)
the repayment of borrowings on the Company's line-of-credit ("Credit
Facility"), described under "Use of Proceeds", and (iv) the Operating
Partnership had acquired two office properties in April 1998 ("1998
Acquisitions"--See Note B to the Pro Forma Condensed Consolidated Balance
Sheet for a listing of the properties) had occurred.

The unaudited Pro Forma Condensed Consolidated Statements of Operations for
the three months ended March 31, 1998 and for the year ended December 31, 1997
are presented as if the above transactions occurred on January 1, 1997 and (i)
the Company had sold 12.98 million shares of its Common Shares of beneficial
interest at a sales price of $20.00 per share from its initial public offering
("IPO") and used the net proceeds to acquire 12.98 million Common Units of the
Operating Partnership, (ii) the Company had sold 2.0 million shares of its
Series A-Cumulative Convertible Preferred Shares of beneficial interest at a
sales price of $20.00 per share in a private placement and used the net
proceeds to acquire 2.0 million Series A Preferred Units of the Operating
Partnership, (iii) the contribution by The Prime Group, Inc. (PGI) of the
properties, business and operations of the Predecessor Properties and the
Prime Contribution Properties (Prime Industrial Contribution Properties and
Citibank Office Plaza--recently acquired by PGI from third parties) to the
Operating Partnership, (iv) the sale of 4.57 million limited partner units by
the Operating Partnership for $85.0 million to Primestone Joint Venture (a
joint venture in which PGI is a partner), (v) the contribution by other
individuals of their respective office and industrial properties (collectively
the "Contribution Properties") and operations to the Operating Partnership,
(vi) the acquisition of various office and industrial properties ("IPO
Acquisitions") and two construction/property management companies by the
Operating Partnership, (vii) the repayment by the Operating Partnership of
debt on certain of the Predecessor Properties, Prime Contribution Properties
and the Contribution Properties, (viii) the acquisition of two office
properties, one of which the Operating Partnership acquired the mortgage note
receivable encumbering the property and the property operations have been
consolidated by the Company (the "December Acquisitions"), and a mortgage note
receivable encumbering on office property by the Operating Partnership and
(ix) the Company had sold 2.58 million shares of its Common Shares of
beneficial interest at a sales price of $19.38 per share in a private
placement on March 25, 1998 (the "Private Placement") and used the net
proceeds to acquire 2.58 million Common Units of the Operating Partnership,
which in turn used substantially all of such funds to acquire three office
properties included in the 1998 Acquisitions (Items ii through ix are
collectively referred to as the "Formation" transaction) as of January 1,
1997. The Prime Contribution Properties, the Contribution Properties, IPO
Acquisitions and December Acquisitions are collectively referred to as the
"New Properties"--see Note 1 to the Notes to the Consolidated Financial
Statements of the Company for a listing of the properties.

The unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with all of the financial statements contained
elsewhere in the Prospectus. In management's opinion, all adjustments
necessary to reflect the effects of the above transactions have been made.

The unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements
of Operations of the Company are not necessarily indicative of what the actual
financial position or results operations would have been assuming the
Offering, Private Placement, IPO and Formation transactions had occurred at
the dates indicated above, nor do they purport to represent the future
financial position or results of operations of the Company.

F-4
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
PRE-
OFFERING
1998 PRIME GROUP OFFERING
PRIME GROUP ACQUISITIONS REALTY PRO FORMA
REALTY AND PENDING TRUST PRO ADJUST- PRO
TRUST(A) ACQUISITIONS(B) FORMA MENTS(C) FORMA
----------- --------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net........ $729,115 $ 93,051 $822,166 $ -- $822,166
Mortgage note
receivable............. 56,749 -- 56,749 -- 56,749
Cash and cash
equivalents............ 9,587 (56,000) (46,413) 56,000 (D) 9,587
Receivables............. 41,865 -- 41,865 -- 41,865
Restricted cash--
escrows................ 29,928 (28,149) 1,779 -- 1,779
Deferred costs, net..... 32,203 -- 32,203 -- 32,203
Other................... 18,796 -- 18,796 -- 18,796
-------- -------- -------- -------- --------
Total assets............ $918,243 $ 8,902 $927,145 $ 56,000 $983,145
======== ======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes payable.. $376,613 $ 8,902 $385,515 $(64,137)(E) $321,378
Bonds payable........... 74,450 -- 74,450 -- 74,450
Accounts payable and
accrued expenses....... 33,128 -- 33,128 -- 33,128
Liabilities for leases
assumed................ 5,398 -- 5,398 -- 5,398
Other................... 10,407 -- 10,407 -- 10,407
-------- -------- -------- -------- --------
Total liabilities.... 499,996 8,902 508,898 (64,137) 444,761
Minority interests...... 149,770 -- 149,770 -- 149,770
Shareholders' equity:
Series A--cumulative
convertible preferred
shares................ 20 -- 20 -- 20
Series B--cumulative
redeemable preferred
shares................ -- -- -- 50 (F) 50
Common shares.......... 156 -- 156 -- 156
Additional paid-in
capital............... 273,050 -- 273,050 120,087 (G) 393,137
Distributions in
excess of earnings.... (4,749) -- (4,749) -- (4,749)
-------- -------- -------- -------- --------
Total shareholders'
equity.............. 268,477 -- 268,477 120,137 388,614
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $918,243 $ 8,902 $927,145 $ 56,000 $983,145
======== ======== ======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

BASIS OF PRESENTATION

The following pro forma adjustments reflect the Offering, including the use
of the net proceeds of the Offering by the Company to acquire Series B
Preferred Units of the Operating Partnership, the acquisition of the 1998
Acquisitions acquired in April, 1998 and the Pending Acquisitions and the
repayment of borrowings on the Credit Facility as of March 31, 1998.

After giving effect to the Offering described above, the following
represents the common ownership interests in the Company/Operating Partnership
at March 31, 1998:

<TABLE>
<CAPTION>
COMMON COMMON
SHARES/UNITS OWNERSHIP
(IN THOUSANDS) INTEREST
-------------- ---------
<S> <C> <C>
Company.......................................... 15,573 60.3%
Minority interest (*)............................ 10,271 39.7%
------ ------
25,844 100.0%
====== ======
</TABLE>
- --------

(*) See Notes 1 and 3 to the Notes to the Consolidated Financial Statements of
the Company for a description of the Minority Interest holders.

(A) Reflects the unaudited historical Company balance sheet as of March 31,
1998 (See Notes 1 and 3 to the Company's Notes to the Consolidated Financial
Statements for a listing of the entities included.)

(B) Adjustments to reflect the acquisition of the 1998 Acquisitions acquired
in April, 1998 and the Pending Acquisitions as of March 31, 1998:

<TABLE>
<CAPTION>
PURCHASE
PROPERTY CASH DEBT PRICE
-------- ------- ------- --------
<S> <C> <C> <C>
1998 Acquisitions
Acquired as of March 31, 1998:
33 North Dearborn(b)
Commerce Center(b)
208 S. LaSalle Street(b)
Acquired after March 31, 1998:
122 S. Michigan Avenue(+)........................ $29,651 $ -- $29,651
2100 Swift Drive(+).............................. 2,200 5,200 7,400
------- ------- -------
31,851 5,200 37,051
------- ------- -------
Pending Acquisitions
Two Century Centre............................... 34,600 -- 34,600
6400 Shafer Court................................ 21,400 -- 21,400
------- ------- -------
56,000 -- 56,000
------- ------- -------
Total........................................ $87,851 $ 5,200 $93,051
======= ======= =======
</TABLE>
- --------

(b) These properties were acquired by the Company during the three months
ended March 31, 1998.

(+) Included in historical restricted cash--escrows as of March 31, 1998, are
deposits of $28,149 related to the acquisition of 122 S. Michigan Avenue
and 2100 Swift Drive. The 1998 Acquisitions columns also include $3,702 of
assumed borrowings under the Credit Facility to fund the difference
between the above purchase prices and the restricted cash--escrows and new
debt.

F-6
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED)

To record the Offering based upon the assumed issuance of 5.0 million Series
B--Cumulative Redeemable Preferred Shares at $25.00 per share, the Company's
use of the net proceeds to acquire 5.0 million Series B Preferred Units and
the Operating Partnership's repayment of borrowings on the Credit Facility.

(D) Cash:

Offering Adjustment:
<TABLE>
<S> <C> <C>
Gross proceeds from the sale of 5.0 million Series B--
Cumulative Redeemable Preferred Shares at $25.00 per
share................................................ $125,000
Less: underwriters discount ($3,938), and issuance
costs ($925)......................................... (4,863)
--------
Net proceeds (See Note G)............................ 120,137
Repayment of borrowings from the Credit Facility (See
Note E).............................................. (64,137)
--------
$ 56,000
========

(E) Mortgage Notes Payable:

Offering Adjustment:
Repayment of borrowings from the Credit Facility (See
Note D).............................................. $(64,137)
========

(F) Preferred Shares:

Offering Adjustment:
Issuance of 5.0 million Series B--Cumulative
Redeemable Preferred Shares with $0.01 par value (See
Note G).............................................. $ 50
========

(G) Additional Paid-In Capital:

Offering Adjustment:
Net proceeds from the sale of 5.0 million shares of
Series B--Cumulative Redeemable Preferred Shares at
$25.00 per share, less underwriters discount and is-
suances costs (See Note D)........................... $120,137
Less: par value of Series B--Cumulative Redeemable
Preferred Shares on 5.0 million shares at $0.01 per
share (See Note F)................................... (50)
--------
$120,087
========
</TABLE>

F-7
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

<TABLE>
<CAPTION>
PRE-
1998 CONSOLIDATION OFFERING OFFERING
ACQUISITIONS PRO FORMA COMPANY PRO FORMA
AND PENDING ADJUSTMENTS PRO ADJUSTMENTS PRO
COMPANY(A) ACQUISITIONS(C) (D) FORMA (E) FORMA
---------- --------------- ------------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rental.................. $18,085 $6,754 $ -- $24,839 $ -- $24,839
Tenant reimbursements... 8,375 2,446 -- 10,821 -- 10,821
Mortgage note interest.. 1,507 -- -- 1,507 -- 1,507
Other................... 784 258 -- 1,042 -- 1,042
------- ------ ------- ------- ------- -------
Total revenue........... 28,751 9,458 -- 38,209 -- 38,209
EXPENSES
Property operations..... 5,056 3,613 -- 8,669 -- 8,669
Real estate taxes....... 5,358 2,184 -- 7,542 -- 7,542
Depreciation and
amortization........... 5,335 -- 858(I) 6,193 -- 6,193
Interest................ 6,415 -- 1,283(J) 7,698 (1,201)(J) 6,497
General and
administrative......... 1,396 -- -- 1,396 -- 1,396
------- ------ ------- ------- ------- -------
Total expenses.......... 23,560 5,797 2,141 31,498 (1,201) 30,297
------- ------ ------- ------- ------- -------
Income (loss) before
minority interest...... 5,191 3,661 (2,141) 6,711 1,201 7,912
Minority interest....... (2,271) -- (870) (3,141) -- (3,141)
------- ------ ------- ------- ------- -------
Net income (loss)....... 2,920 $3,661 $(3,011) 3,570 1,201 4,771
====== =======
Net income allocated to
preferred
shareholders(M)........ (700) (700) (2,773) (3,473)
------- ------- ------- -------
Net income available to
common shareholders(N). $ 2,220 $ 2,870 $(1,572) $ 1,298
======= ======= ======= =======
Net income available per
weighted-average common
share of beneficial
interest--Basic and
diluted(O)............. $ 0.17 $ 0.08
======= =======
</TABLE>

See accompanying notes.

F-8
<PAGE>

PRIME GROUP REALTY TRUST

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
1998 CONSOL- OFFERING
ACQUISITIONS IDATION PRE PRO
NEW AND PENDING PRO FORMA OFFERING FORMA
COMPANY PREDECESSOR PROPERTIES ACQUISITIONS ADJUST- COMPANY ADJUST- PRO
(A) PROPERTIES(A) (B) (C) MENTS(D) PRO FORMA MENTS(E) FORMA
------- ------------- ---------- ------------ --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental.................. $ 7,293 $ 27,947 $ 30,969 $ 26,745 $ -- $ 92,954 $ -- $ 92,954
Tenant reimbursements... 2,041 12,490 12,393 9,789 -- 36,713 -- 36,713
Mortgage note interest.. 248 -- -- -- 5,779 (F) 6,027 -- 6,027
Other................... 248 1,515 -- 595 (458)(G) 1,900 -- 1,900
------- -------- -------- -------- ------- -------- ------- --------
Total revenue........... 9,830 41,952 43,362 37,129 5,321 137,594 -- 137,594
EXPENSES:
Property operations..... 2,213 8,622 9,193 14,501 (1,722)(H) 32,807 -- 32,807
Real estate taxes....... 1,765 8,575 6,798 7,671 -- 24,809 -- 24,809
Depreciation and
amortization........... 2,478 11,241 -- -- 10,331 (I) 24,050 -- 24,050
Interest................ 1,680 34,417 -- -- (7,077)(J) 29,020 (4,637)(J) 24,383
Financing fees.......... -- 1,180 -- -- (1,180)(K) -- -- --
General and
administrative......... 267 3,762 -- -- 495 (L) 4,524 -- 4,524
Provision for
environmental
remediation costs...... -- 3,205 -- -- -- 3,205 -- 3,205
------- -------- -------- -------- ------- -------- ------- --------
Total expenses.......... 8,403 71,002 15,991 22,172 847 118,415 (4,637) 113,778
------- -------- -------- -------- ------- -------- ------- --------
Income (loss) before
minority interest...... 1,427 (29,050) 27,371 14,957 4,474 19,179 4,637 23,816
Minority interest(M).... (635) 666 -- -- (9,486) (9,455) -- (9,455)
------- -------- -------- -------- ------- -------- ------- --------
Net income (loss)....... 792 (28,384) 27,371 14,957 (5,012) 9,724 4,637 14,361
Net income allocated to
preferred
shareholders(N)........ (345) -- -- -- (2,455) (2,800) (11,094) (13,894)
------- -------- -------- -------- ------- -------- ------- --------
Net income (loss)
available to common
shareholders........... $ 447 $(28,384) $ 27,371 $ 14,957 $(7,467) $ 6,924 $(6,457) $ 467
======= ======== ======== ======== ======= ======== ======= ========
Common shares of
beneficial interest
outstanding............ 12,593 15,573
======= ========
Net income per common
share of beneficial
interest(O)............ $ 0.04 $ 0.03
======= ========
</TABLE>

See accompanying notes.

F-9
<PAGE>

PRIME GROUP REALTY TRUST

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31,
1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

BASIS OF PRESENTATION

The following pro forma adjustments reflect the Offering, Private Placement,
IPO and Formation transactions described on F-4.

(A) Reflects the historical operations of the Company and the Predecessor
Properties (includes an executive fitness center ("77 Fitness")). On November
17, 1997, the Operating Partnership contributed 77 Fitness to the Service
Company--See Notes G, H and P) for the periods noted.

(B) Reflects the historical operations of the New Properties for the period
during the year ended December 31, 1997 prior to the properties either being
contributed to or acquired by the Operating Partnership.

(C) Reflects the historical operations of the 1998 Acquisitions and the
Pending Acquisitions for either the three months ended March 31, 1998 or for
the period during the three months ended March 31, 1998 prior to the
properties being acquired by the Operating Partnership and for the year ended
December 31, 1997.

(D) Consolidation Pro Forma Adjustments (Consolidated Adjustment):

To record the effect of the IPO and Formation Transactions prior to the
formation date of the Company and the effect of the Private Placement, the
acquisition of the 1998 Acquisitions and the Pending Acquisitions by the
Operating Partnership (collectively referred to as the "Consolidation
Adjustment").

(E) Offering Pro Forma Adjustments (Offering Adjustment):

To record the effect of the Offering based upon the assumed issuance of 5.0
million Series B--Cumulative Redeemable Preferred Shares at $25.00 per share
and the use of the net proceeds by the Company to acquire 5.0 million Series
B--Preferred Units of the Operating Partnership and the repayment of
borrowings on the Credit Facility.

(F) Mortgage note interest:

<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Consolidation Adjustment:
<S> <C> <C>
Interest income on 180 North LaSalle note re-
ceivable...................................... $-- $5,779
==== ======
</TABLE>

(G) Other Revenue:

<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Consolidation Adjustment:
<S> <C> <C>
Elimination of 77 Fitness revenue (See Notes A
and P)........................................ $-- $(568)
Share of income of the Service Company (See
Note P)....................................... -- 110
---- -----
$-- $(458)
==== =====
</TABLE>

F-10
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE
MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(H) Property Operations Expense:

Consolidation Adjustment:
<S> <C> <C>
Elimination of 77 Fitness property operation
expenses
(See Notes A and P).............................. $ -- $ (621)
Elimination of historical costs associated with
property management fees reimbursed by tenants on
certain of the Contribution Properties........... -- (1,101)
------- -------
$ -- $(1,722)
======= =======
(I) Depreciation and Amortization:

Consolidation Adjustment:
Depreciation expense on the New Properties........ $ -- $ 5,727
Depreciation expense on the increase in basis
resulting from the elimination of Partners'
deficit and the purchase of the non-PGI third
party owners' interest in certain of the
Predecessor Properties........................... -- 97
Elimination of amortization expenses of deferred
financing costs related to mortgage notes and
bonds payable of the Predecessor Properties that
were either repaid or forgiven................... -- (500)
Depreciation expense for the Operating
Partnership's fixed assets....................... -- 41
Amortization of fees for mortgage notes payable on
the New Properties (10 year term) and Credit
Facility fees (3 year term)...................... -- 664
Depreciation expense on the 1998 Acquisitions and
Pending Acquisitions............................. 858 4,302
------- -------
$ 858 $10,331
======= =======

(J) Interest Expense:
Consolidation Adjustment:
Interest expense on borrowings from Credit
Facility......................................... $ -- $10,125
Elimination of interest expense on mortgage notes
and bonds payable of the Predecessor Properties
that were either repaid or forgiven.............. -- (31,309)
Interest expense on new and assumed mortgage notes
payable on the New Properties.................... -- 5,823
Interest expense on mortgage notes payable on the
1998 Acquisitions................................ 1,182 6,573
Interest expense on the Credit Facility and Line-
of-Credit borrowings used to fund 1998
Acquisitions purchase costs...................... 101 1,711
------- -------
$ 1,283 $(7,077)
======= =======

Offering Adjustment:
Elimination of interest expense due to repayment
of Credit Facility borrowings using the weighted
average interest rate for the periods............ $(1,201) $(4,637)
======= =======
</TABLE>

F-11
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(K) Financing Fees:
<S> <C> <C>
Elimination of financing fees for credit
enhancements on bonds payable related to the
Predecessor Properties that have been
replaced...................................... $-- $(1,180)
==== =======

(L) General and Administrative:

Historical general and administrative expenses (G&A) for the
Predecessor Properties had consisted of property level costs. Corporate
level G&A was allocated to the property level through property
management and asset management fees, administration fees and other
reimbursables (PGI Fees: See Note 12 to the Notes to the Combined
Financial Statements of the Company and the predecessor to the
Company). Upon the completion of the IPO and Formation transactions,
certain employees previously employed by PGI (costs associated with the
PGI Fees) are now employed by the Company. The following pro forma
adjustments reflect management's estimate of the additional corporate
G&A the Company will incur as a public company. In addition, G&A has
been adjusted for non-recurring expenses as a result of IPO and
Formation transactions.

<CAPTION>
THREE MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Consolidation Adjustment:
Estimated incremental increases in G&A to be
incurred as a public company.................. $-- $ 1,121
Elimination of loan fees on mortgage notes
payable of the Predecessor Properties that
were either repaid or forgiven................ -- (626)
---- -------
$-- $ 495
==== =======
</TABLE>

(M) Minority Interest:

Offering Adjustment:
Represents historical income allocated to the Limited Partners (44.5%)
and pro forma income allocated to the Limited Partners after giving
effect to the Offering and Private Placement (39.7%)

(N) Preferred Share Dividends:
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Consolidation Adjustment:
1997 Adjustments:
<S> <C> <C>
Series A--cumulative convertible preferred
share dividend with a 7.0% yield............. $ -- $ 2,455
====== =======
Offering Adjustment:
Series B--cumulative redeemable preferred
share dividend with a % yield............. $2,773 $11,094
====== =======
</TABLE>

(O) Net Income per Common Share:

Represents historical net income for the Company divided by 13,181 and
12,590 weighted average common shares outstanding for the three months ended
March 31, 1998 and for the year ended December 31, 1997, respectively (See
Note 10 to the Notes to the Consolidated Financial Statements of the Company),
and "Pro Forma" net income for the Company divided by 15,573 Common Shares
outstanding as of March 31, 1997 being outstanding for the full periods
presented.

F-12
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

(P) Service Company (Year Ended December 31, 1997 only)

The Service Company's (See Note 1 to the Notes to the Consolidated Financial
Statements of the Company and the Predecessor Properties for a description of
the Service Company) operations consist of employees previously employed by
PGI, Continental Office Management and 77 Fitness.

<TABLE>
<CAPTION>
CONTINENTAL
OFFICE 77 PRO FORMA PRO
MANAGEMENT (1) FITNESS (1) ADJUSTMENTS FORMA
-------------- ----------- ----------- -------
<S> <C> <C> <C> <C>
REVENUE:
Construction and management
fees........................ $11,793 $ -- $ -- $11,793
Other........................ -- 568 508 (2) 1,076
------- ----- ------- -------
Total revenue................ 11,793 568 508 12,869
EXPENSES:
Operating expenses........... 10,715 621 1,211 (3) 12,547
Interest expense............. -- -- 463 (4) 463
Depreciation and
amortization................ 116 -- 362 (5) 478
------- ----- ------- -------
Total expenses............... 10,831 621 2,036 13,488
------- ----- ------- -------
Income (loss) before income
taxes....................... 962 (53) (1,528) (619)
Income tax benefit .......... -- -- 248 (6) 248
------- ----- ------- -------
Net income (loss)............ $ 962 $ (53) $(1,280) $ (371)
======= ===== ======= =======
Company's share of net income
(loss) (7).................. $ (353)
Interest income recognized by
Company (8)................. 463
-------
Company's share of the net
earnings of the Service
Company..................... $ 110
=======
</TABLE>
- --------
(1) Represents the historical operations of Continental Office Management and
77 Fitness for the period from January 1, 1997 to November 16, 1997.
(2) Revenue adjustments:

<TABLE>
<S> <C>
Revenue derived by certain employees previously employed by PGI who
are now employed by the Service Company........................... $508
====
</TABLE>
(3) Operating expense adjustment:

<TABLE>
<S> <C>
Expenses related to certain employees previously employed by PGI
who are now employed by the Service Company.................... $ 1,211
=======
</TABLE>
(4) Represents interest expense on a $4,800 promissory note issued by the
Services Company to the Operating Partnership at an interest rate of 11%
per annum (See Note 8).

F-13
<PAGE>

PRIME GROUP REALTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

(5) Adjustment to reflect estimated depreciation and amortization of the
Service Company:

<TABLE>
<S> <C>
Depreciation expense on Continental and 77 Fitness fixed assets (5
years)........................................................... $ 42
Amortization of $4,928 of goodwill relating to the acquisition of
Continental
(10 years)....................................................... 436
Less: Historical depreciation..................................... (116)
-----
$ 362
=====
</TABLE>
(6) Estimated income tax benefit of the Service Company at statutory income
tax rates (40%)
(7) The Operating Partnership has a non-voting, 95% economic ownership
interest of the Service Company.
(8) The Operating Partnership recognizes interest income from the promissory
note issued by the Service Company (See Note 4) as part of its share of
income (loss) from the Service Company.

F-14
<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-15
<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>
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
------------------------ -----------
MARCH 31 DECEMBER 31 DECEMBER 31
1998 1997 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate at cost:
Land...................................... $136,974 $ 92,440 $ 23,530
Building and Improvements................. 599,123 496,839 268,227
-------- -------- ---------
736,097 589,279 291,757
Accumulated depreciation.................. (6,982) (2,338) (44,411)
-------- -------- ---------
729,115 586,941 247,346
Mortgage note receivable.................. 56,749 56,363 --
Cash and cash equivalents................. 9,587 11,969 5,573
Tenant receivables........................ 3,978 3,897 2,933
Restricted cash--escrows.................. 29,928 3,175 --
Deferred rent receivable.................. 37,887 37,751 38,451
Deferred costs--net....................... 32,203 28,472 26,883
Due from affiliates....................... 5,503 5,258 2,894
Other..................................... 13,293 7,642 1,150
-------- -------- ---------
Total assets.............................. $918,243 $741,468 $ 325,230
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable.................... $376,613 $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.................. 1,884 1,245 2,538
Accrued real estate taxes................. 16,920 17,915 9,944
Accounts payable and accrued expenses..... 14,324 13,903 4,213
Liabilities for leases assumed............ 5,398 5,758 7,157
Dividends declared........................ 5,956 2,505 --
Due to affiliates......................... -- -- 708
Other..................................... 4,451 822 1,384
-------- -------- ---------
Total liabilities......................... 499,996 370,192 447,927
Minority interests:
Operating Partnership................... 148,770 147,207 --
Other................................... 1,000 -- (6,905)
Predecessors' net deficit................. -- -- (115,792)
Shareholders' equity:
Preferred Shares, $.01 par value;
30,000,000 shares authorized, 2,000,000
Series A--Cumulative Convertible
Preferred Shares 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 March 31, 1998 and
December 31, 1997, respectively........ 156 130 --
Additional paid-in capital.............. 273,050 225,632 --
Distributions in excess of earnings..... (4,749) (1,713) --
-------- -------- ---------
Total shareholders' equity................ 268,477 224,069 --
-------- -------- ---------
Total liabilities and shareholders' equi-
ty....................................... $918,243 $741,468 $ 325,230
======== ======== =========
</TABLE>

See accompanying notes.

F-16
<PAGE>

PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRIME GROUP REALTY TRUST PREDECESSOR PROPERTIES
------------------------- --------------------------------------------
PERIOD FROM PERIOD FROM
THREE MONTHS NOVEMBER 17, THREE MONTHS JANUARY 1, YEAR ENDED
ENDED 1997 TO ENDED 1997 TO DECEMBER 31
MARCH 31, DECEMBER 31, MARCH 31, NOVEMBER 16, ------------------
1998 1997 1997 1997 1996 1995
------------ ------------ ------------ ------------ -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rental.................. $18,085 $ 7,293 $ 7,986 $ 27,947 $ 30,538 $ 33,251
Tenant reimbursements... 8,375 2,041 4,206 12,490 14,225 14,382
Parking................. 145 60 76 264 320 345
Mortgage note interest.. 1,507 248 -- -- -- --
Gain on sale of assets.. -- -- -- 286 846 771
Insurance settlement.... -- -- -- -- -- 7,257
Other................... 639 188 350 965 2,231 1,599
------- ------- ------- -------- -------- --------
Total revenue........... 28,751 9,830 12,618 41,952 48,160 57,605
EXPENSES
Property operations..... 5,056 2,213 2,357 8,622 9,767 9,479
Real estate taxes....... 5,358 1,765 2,823 8,575 9,383 9,445
Depreciation and
amortization........... 5,335 2,478 3,079 11,241 12,409 12,646
Interest................ 6,415 1,680 6,568 24,613 26,422 27,671
Interest--affiliates.... -- -- 2,930 9,804 10,795 8,563
Financing fees.......... -- -- 368 1,180 1,232 --
Property and asset man-
agement fees--
affiliates............. -- -- 389 1,348 1,561 1,496
General and administra-
tive................... 1,396 267 979 2,414 4,927 4,508
Provision for environ-
mental remediation
costs.................. -- -- -- 3,205 -- --
Write-off deferred ten-
ant costs.............. -- -- -- -- 3,081 13,373
------- ------- ------- -------- -------- --------
Total expenses.......... 23,560 8,403 19,493 71,002 79,577 87,181
------- ------- ------- -------- -------- --------
Income (loss) before mi-
nority interest and ex-
traordinary item....... 5,191 1,427 (6,875) (29,050) (31,417) (29,576)
Minority interest....... (2,271) (635) 259 666 894 3,281
------- ------- ------- -------- -------- --------
Income (loss) before ex-
traordinary gain....... 2,920 792 (6,616) (28,384) (30,523) (26,295)
Extraordinary item; gain
on extinguishment of
debt, net of minority
interest in the amount
of $1,127.............. -- -- -- 65,990 -- --
------- ------- ------- -------- -------- --------
Net income (loss)....... 2,920 792 $(6,616) $ 37,606 $(30,523) $(26,295)
======= ======== ======== ========
Net income allocated to
preferred shareholders. (700) (345)
------- -------
Net income available to
common shareholders.... $ 2,220 $ 447
======= =======
Net income available per
weighted-average common
share of beneficial in-
terest--Basic and di-
luted.................. $ 0.17 $ 0.04
======= =======
</TABLE>

See accompanying notes.

F-17
<PAGE>

PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 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
PREFERRED COMMON PAID-IN IN EXCESS OF
STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
Issuance of 2,000,000
shares of 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
Net income................. -- -- -- 2,920 2,920
Preferred share dividends
declared ($0.35 per
share).................... -- -- -- (700) (700)
Common share dividends
declared ($0.3375 per
share).................... -- -- -- (5,256) (5,256)
--- ---- -------- ------- --------
Balance at March 31, 1998.. $20 $156 $273,050 $(4,749) $268,477
=== ==== ======== ======= ========
</TABLE>

See accompanying notes.

F-18
<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>
<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-19
<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
THREE MONTHS NOVEMBER 17, THREE MONTHS JANUARY 1, YEAR ENDED
ENDED 1997 TO ENDED 1997 TO DECEMBER 31
MARCH 31, DECEMBER 31, MARCH 31, NOVEMBER 16, ------------------
1998 1997 1997 1997 1996 1995
------------ ------------ ------------ ------------ -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $2,920 $ 792 $(6,616) $ 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).............. 291 142 311 1,022 1,244 1,539
Gain on sale of real
estate................ -- -- -- (286) (846) (771)
Depreciation and
amortization.......... 5,335 2,478 3,079 11,241 12,409 12,646
Interest added to
principal on mortgage
note payable--
affiliate............. -- -- 2,758 9,772 10,002 8,427
Standby loan fee-
affiliate added to
principal on mortgage
note payable--
affiliate............. -- -- 130 460 522 498
Write-off of deferred
tenant costs.......... -- -- -- -- 3,081 13,373
Minority interest...... 2,271 635 (259) (666) (894) (3,281)
Extraordinary item..... -- -- -- (65,990) -- --
Changes in operating
assets and
liabilities:
(Increase) decrease
in tenant
receivables......... (81) (15) 167 (916) 1,990 2,326
(Increase) decrease
in tenant
receivables from
straight-lining
rent................ (136) 180 115 487 (645) (8,779)
Increase (decrease)
in deferred costs... -- (48) -- (1,459) (703) (907)
Increase (decrease)
in other assets..... (5,987) (9,932) 410 506 566 2,937
Increase (decrease)
in accrued interest
payable............. 639 (175) (185) (1,118) 316 (1,221)
(Decrease) increase
in accrued real
estate taxes........ (995) 7,556 (1,149) 415 251 5
Increase (decrease)
in accounts payable
and accrued
expenses............ 181 7,202 (2,842) 3,498 1,380 (34)
Decrease in
liabilities for
assumed leases...... (65) (350) (263) (1,049) (1,532) (1,985)
Increase (decrease)
in other
liabilities......... 3,629 (1,707) 1,286 777 217 263
------ -------- ------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. 8,002 6,758 (3,058) (5,700) (3,165) (1,259)
</TABLE>

F-20
<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
THREE MONTHS NOVEMBER 17, THREE MONTHS JANUARY 1, YEAR ENDED
ENDED 1997 TO ENDED 1997 TO DECEMBER 31
MARCH 31, DECEMBER 31, MARCH 31, NOVEMBER 16, ---------------------
1998 1997 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds from sale of
real estate............ $ -- $ -- $ -- $ 298 $ 2,110 $ 921
Expenditures for real
estate................. (146,818) (297,019) (1,314) (5,659) (3,842) (4,842)
Leasing costs........... (1,789) -- (676) -- -- --
Additions to mortgage
note receivable........ (86) (51,263) -- -- -- --
Cash contributed to
service company........ -- (376) -- -- -- --
Increase in escrow
deposits for property
acquisitions........... (26,753) -- -- -- -- --
(Increase) decrease in
due from affiliates.... (245) (5,258) 1,857 2,894 2,858 (5,255)
--------- --------- ------- -------- ------- -------
Net cash (used in)
provided by investing
activities............. (175,691) (353,916) (133) (2,467) 1,126 (9,176)
FINANCING ACTIVITIES
Proceeds from the sale
of preferred shares.... -- 39,600 -- -- -- --
Proceeds from the sale
of common shares....... 47,194 232,352 -- -- -- --
Proceeds from sale of
operating partnership
units.................. -- 85,000 -- -- -- --
Additions to deferred
financing costs........ -- (3,328) -- -- (10) (225)
Proceeds from mortgage
notes payable.......... 155,230 243,198 -- 480 1,239 9,815
Proceeds from mortgage
notes payable--
affiliates............. -- -- 1,384 5,647 5,891 2,693
Repayment of mortgage
notes payable.......... (27,529) (236,537) (28) (119) (83) (384)
Repayment of mortgage
notes payable--
affiliates............. (3,984) (4,895) -- (41,367) (1,150) (1,079)
Financing costs......... (2,393) -- -- -- -- --
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.. (1,706) -- -- -- -- --
Distributions to
partners............... -- -- (3) (120) (8) (357)
Distributions to
minority interest...... -- -- -- (120) -- --
Dividends paid to
preferred shareholders. (345) -- -- -- -- --
Dividends paid to common
shareholders........... (2,160) -- -- -- -- --
Debt termination fees... -- -- -- (1,692) -- --
Acquisition of
partnership interest... -- -- -- -- -- (115)
--------- --------- ------- -------- ------- -------
Net cash provided by
financing activities... 165,307 355,390 1,327 6,331 5,733 10,873
--------- --------- ------- -------- ------- -------
Net (decrease) increase
in cash and cash
equivalents............ (2,382) 8,232 (1,864) (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................. $ 9,587 $ 11,969 $ 3,709 $ 3,737 $ 5,573 $ 1,879
========= ========= ======= ======== ======= =======
</TABLE>

See accompanying notes.

F-21
<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>
<S> <C>
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:
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)
========

The following represents non-cash activity for the Company during the period
from November 17, 1997 to December 31, 1997:

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-22
<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
("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 Private Placement, the Company
contributed the initial net proceeds from the Offering and 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 30.8% limited
partner ownership interest in the Operating Partnership at March 31, 1998).
The Operating Partnership used such proceeds primarily to repay certain
mortgages and other indebtedness, acquire interests in certain of the
properties ("Prime 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 60.3% and 55.9% of the Common Units issued
at March 31, 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 March 31,
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 March 31, 1998). In addition, the Operating Partnership was
required to acquire a 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 March 31, 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.

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)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)

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.

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-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)

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
</TABLE>

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)

1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)

<TABLE>
<CAPTION>
ENTITY PROPERTY
------ --------
<S> <C>
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
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
$157,161 at March 31, 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 March 31, 1998 and
for the three months ended March 31, 1998 and 1997 and the related footnotes
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.

REAL ESTATE

Depreciation is calculated on the straight-line method over the estimated
useful lives of assets, which are as follows:

F-26
<PAGE>

PRIME GROUP REALTY (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)

<TABLE>
<S> <C>
Building and improvements.. 40-50 years
Tenant improvements........ Term of related 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, $136, $115, $180 and $487 of cash was
received in excess of recorded rental revenue during the three months ended
March 31, 1998 and 1997, the period from November 17, 1997 to December 31,
1997 and the period from January 1, 1997 to November 16, 1997, respectively,
and $645 and $8,779 of noncash rent was recorded as rental revenue during 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).

F-27
<PAGE>

PRIME GROUP REALTY (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)

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.

3. RECENT DEVELOPMENTS

During the period from January 1, 1998 through March 31, 1998, the Company
acquired the following three 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 $ 34,300 $18,000 January
Commerce Point.......... Arlington Hts., IL 235,269 29,200 20,000 February
208 South LaSalle
Street................. Chicago, IL 827,494 61,100 45,800 March
--------- -------- -------
1,365,581 $124,600 $83,800
========= ======== =======
</TABLE>

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)

3. RECENT DEVELOPMENTS (CONTINUED)

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 (see Note 18).

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 March 23, 2008. Interest on
this loan is fixed at a rate of 6.85% and is payable monthly. The 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 7.15% and will mature on April 30, 2008. 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 April 30,
2000, not including a 6-month extension option. The refinanced notes are
collateralized by first mortgages on certain office and industrial properties.

On March 25, 1998, the Company completed a private placement of 2,579,994
common shares to institutional investor (the "Private Placement"). The Company
received net proceeds of approximately $47,194 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 (acquired in April 1998
acquisition).

During the three months ended March 31, 1998, the Company issued 12,500
Common Shares (valued at $20.00 per share) granted to an officer and a board
member of the Company, pursuant to their employment and a consulting
agreements.

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 March 31, 1998.

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)

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 March 31, 1998. The first mortgage note,
which has a face value of $56,749 and $63,329 at March 31, 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 March 31, 1998, the Company has issued 271,572
Common Units (a 0.9% limited partner interest of the Operating Partnership at
March 31, 1998), including 15,000 Common Units issued during the three months
ended March 31, 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,
MARCH 31, -----------------
1998 1997 1996
--------- ------- --------
<S> <C> <C> <C>
Financing costs................................. $ 7,965 $ 5,572 $ 6,757
Leasing costs................................... 24,971 23,182 35,386
------- ------- --------
32,936 28,754 42,143
Less: Accumulated amortization.................. (733) (282) (15,260)
------- ------- --------
$32,203 $28,472 $ 26,883
======= ======= ========
</TABLE>

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)

6. MORTGAGE NOTES AND BONDS PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
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
$200,000, 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 (7.65% and 7.23% at March
31, 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 $26,430 and $75,848
as of March 31, 1998 and December 31, 1997,
respectively, on bonds payable described
below......................................... $172,500 $159,000 $ --
Line of Credit ("Line of Credit") with a bank,
bearing interest at a rate of LIBOR plus
1.95%, with principal due in January, 1999.... 15,000 -- --
Mortgage notes payable to various commercial
lenders (A)................................... 126,730 -- --
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. 6,383 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
due April 30, 1998 (See Notes 17 and 18)...... 56,000 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 in-
stitutions, interest at a variable rate of
prime plus 1/2% per annum and a fixed rate of
7.375% per annum with principal and interest
payable monthly through October 1998.......... -- -- 6,525
-------- -------- --------
$376,613 $249,610 $235,886
======== ======== ========
Bonds Payable:
Variable rate taxable and tax-exempt bonds is-
sued by various state and local government au-
thorities (C), (D)............................ $ 74,450 $ 74,450 $ 74,450
======== ======== ========
</TABLE>

(A) During the three months ended March 31, 1998, the Company completed four
new financings and one re-financing of mortgage notes payable with four
separate financial institutions at rates of interest ranging from 6.85% to
LIBOR plus 2.0% (7.65% at March 31, 1998). The notes are collateralized by
various office and industrial properties.

(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

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)

6. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)

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 3.15%
to 4.20% during the three months ended March 31, 1998, 3.35% to 4.75% during
1997 and 2.85% to 4.40% during 1996, and 5.25% to 5.51% during 1995. The rate
at March 31, 1998 was 3.95% 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 3.40% to 4.00% for the three months ended March 31, 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 March 31, 1998 were 3.40% 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.

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)

6. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)

Under the terms of the IRB agreements, the bondholders have the option to
require the borrowing Partnerships to purchase any of its IRBs on the 15th day
of any month while the IRBs are outstanding. Upon the exercise of the
bondholders' option to purchase the IRBs, the remarketing agent shall
immediately remarket the IRBs. In the event the remarketing agent fails to
remarket the IRBs, the borrowing Partnerships are obligated to purchase those
IRBs.

Total interest paid on the mortgage notes payable and bonds payable was
$6,356 and $6,596 for the three months ended March 31, 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.

7 . MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31, --------------
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 was
repaid January 2, 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 due on maturity
date of March 7, 1998............................ -- -- 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 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

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)

7. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES (CONTINUED)

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 three months ended March 31, 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.

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 24%, 57%, 39%, 57%, 60%, and 65%, of the rental revenue for
the three months ended March 31, 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 March 31, 1998).

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)

8. FUTURE MINIMUM LEASE INCOME AND PAYMENTS (CONTINUED)

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 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. At March 31, 1998 and
December 31, 1997, 2,000,000 Cumulative Convertible Preferred Shares of
Beneficial Interest with a $0.01 par value were outstanding. The Preferred
Shares have a liquidation

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)

9. PREFERRED SHARES (CONTINUED)

preference equivalent to $20.00 per share plus the amount equal to any accrued
and unpaid dividends thereon ("Liquidation Preference").

Dividends on the Preferred Shares are payable quarterly at the greater of:
(i)(x) an annual rate equal to the product of the Issue Price ($20.00)
multiplied by 0.07% for Dividend Periods ending before November 17, 1998 (The
Company declared a dividend of $0.173 per 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 Preferred Share is convertible. The amount of dividends referred to in
clause (i) above payable for each full dividend period on the 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 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 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 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 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
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 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 Company has the right to redeem the Preferred Shares beginning on and
after November 17, 2007, in cash equal to 100% of the 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 "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 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 Special Redemption Price.

The holders of the 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-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)

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
THREE MONTHS ENDED DECEMBER
MARCH 31, 1998 31, 1997
--------------------- (BASIC AND
BASIC DILUTED DILUTED)
---------- ---------- -----------
<S> <C> <C> <C>
Numerator:
Net income available to common
shareholders.............................. $ 2,220 $ 2,220 $ 447
========== ========== ===========
Denominator:
Weighted-average common shares of
beneficial interest....................... 13,180,667 13,180,667 12,593,000
Employee stock options..................... -- 40,243 --
---------- ---------- -----------
13,180,667 13,220,910 12,593,000
========== ========== ===========
Net income available per weighted-average
common share of beneficial interest--basic
and diluted................................. $ 0.17 $ 0.17 $ 0.04
========== ========== ===========
</TABLE>

Options to purchase 1,160,500 Common Shares at $20.00 per share were
outstanding during the period from January 1, 1998 through March 31, 1998 and
options to purchase 29,500 Common Shares at $20.1875 per share were
outstanding during the period from March 6, 1998 through March 31, 1998. These
options were included in the computation of diluted earnings per share because
the options' exercise price was lower than the average market price of the
common shares and, therefore, the effect would be dilutive.

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 10,265,882 and 10,250,882 Common Units outstanding during
the period from January 1, 1998 through March 31, 1998 and the period from
November 17, 1997 to December 31, 1997, respectively, of which 9,338,782 and
9,323,782, respectively may be converted into Common Shares, after 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 Preferred Shares outstanding during the period
from January 1, 1998 through March 31, 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.

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)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)

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 three months ended March 31, 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 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 three months ended March 31, 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 three months ended March 31, 1998 and for
the period from November 17, 1997 to December 31, 1997, respectively.

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)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)

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 three months ended March 31, 1998 and for the period from November 17,
1997 through December 31, 1997 is as follows:

<TABLE>
<CAPTION>
SHARES WEIGHTED
SUBJECT AVERAGE EXERCISE
TO OPTION PRICE 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.................................. -- --
Options granted................................... 29,500 20.19
--------- ------
Balance at March 31, 1998......................... 1,190,000 $20.01
========= ======
</TABLE>

At March 31, 1998 and December 31, 1997, no options were exercised and
options on 597,500 and 627,000 shares were available for future grant,
respectively. Exercise prices for options outstanding at March 31, 1998 and
December 31, 1997 were $20.19 and $20.00 per share, respectively. The
remaining weighted-average contractual life of these options was approximately
9.88 years. The weighted-average grant date fair value of all options granted
is $1.98 and $1.39 for the three months ended March 31, 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 March 31, 1998 and December 31, 1997). The loan bears interest at 11% per
annum, with interest payable monthly and principal due November 2007. During
the three months ended March 31, 1998 and the period from November 17, 1997 to
December 31, 1997, the Company recorded interest income of $130 and $66
(included in due from affiliates) related to the loan and $27 and $(19),
representing the Company's share of the Service Company's income (loss) from
operations for each period, respectively. (The net of $157 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 $1,481 and $392 is outstanding at
March 31, 1998 and December 31, 1997 and included in due from affiliates.

F-39
<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)

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 three months ended March 31, 1997, 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>
THREE PERIOD FROM
MONTHS JANUARY 1, YEAR ENDED
ENDED 1997 TO DECEMBER 31
MARCH 31, NOVEMBER 16, -------------
1997 1997 1996 1995
--------- ------------ ------ ------
<S> <C> <C> <C> <C>
Property management fee (a)............... $356 $1,238 $1,429 $1,364
Administration fees (b)................... 41 463 468 730
Construction management (c)............... 35 -- 102 115
Legal fees (d)............................ 97 271 127 77
Leasing fees (e).......................... 9 2 19 280
Reimbursables (f)......................... 236 252 184 352
Asset management fee (g).................. 33 110 132 132
</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.
(c) PGI was entitled to a construction management fee equal to 3% of
construction costs.
(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.

F-40
<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)

Average balances of amounts due from and due to affiliates for the three
months ended March 31, 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>
THREE
MONTHS PERIOD FROM YEAR ENDED
ENDED JANUARY 1, 1997 DECEMBER 31
MARCH 31, TO -------------
1997 NOVEMBER 16, 1997 1996 1995
--------- ----------------- ------ ------
<S> <C> <C> <C> <C>
Due from affiliates................ $1,965 $1,447 $4,323 $3,251
Due to affiliates.................. 695 354 821 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.

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.

F-41
<PAGE>

PRIME GROUP REALTY (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

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
March 31, 1998 and December 31, 1997). PGI has 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 and the Private Placement 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>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ----------------
1998 1997 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Total revenue.............................. $33,194 $30,534 $100,465 $98,515
======= ======= ======== =======
Net income................................. $ 3,291 $ 3,677 $ 9,328 $ 7,797
======= ======= ======== =======
Earnings per common share.................. $ 0.17 $ 0.19 $ 0.50 $ 0.38
======= ======= ======== =======
</TABLE>

F-42
<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)

16. REAL ESTATE AND ACCUMULATED DEPRECIATION

Real estate and accumulated depreciation, by property, consists of the
following:

<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT CARRIED
DECEMBER 31, 1997 COMPANY ACQUISITION AT DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- -------------------- ----------------- ----------------------------- -----------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------- ----------------- ------- ------------ ---- ------------ ------- ------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office:
77 West Wacker
Building....... $159,000 $17,637 $162,755 $-- $-- $17,637 $162,755 $180,392 $(835)
Nashville Office
Building....... 4,800 1,530 7,072 -- -- 1,530 7,072 8,602 (29)
Professional
Plaza.......... 9,000 -- 7,090 -- -- -- 7,090 7,090 (71)
Old Kingston.... 3,500 378 2,808 -- -- 378 2,808 3,186 (25)
Two Centre
Square......... 9,000 -- 7,379 -- -- -- 7,379 7,379 (74)
Triad Parking
Facility....... -- 507 1,046 -- -- 507 1,046 1,553 (5)
Hammond
Enterprise
Center......... -- 26 614 -- -- 26 614 640 (4)
Chicago
Enterprise
Center......... -- 775 975 -- -- 775 975 1,750 (162)
1990 Algonquin
Road(1)........ -- 1,554 6,393 -- -- 1,554 6,393 7,947 (19)
2010 Algonquin
Road(1)........ -- 509 2,044 -- -- 509 2,044 2,553 (6)
555 Huehl
Road(1)........ -- 1,291 5,164 -- -- 1,291 5,164 6,455 (27)
1669 Woodfield
Road(1)........ -- 1,962 7,853 -- -- 1,962 7,853 9,815 (24)
475 Superior
Avenue......... -- 2,700 10,801 -- -- 2,700 10,801 13,501 (29)
2205-2255
Enterprise
Drive(1)....... -- 2,304 9,259 -- -- 2,304 9,259 11,563 (27)
280 Shuman
Blvd........... -- 1,264 5,056 -- -- 1,264 5,056 6,320 (16)
Continental
Towers......... 698 21,831 87,324 -- -- 21,831 87,324 109,155 (126)
2675 Mayfair.... -- 1,613 6,450 -- -- 1,613 6,450 8,063 (1)
Industrial:
East Chicago
Enterprise
Center......... -- 27 533 -- -- 27 533 560 (4)
Enterprise
Center I....... 2,900 595 -- -- -- 595 -- 595 (4)
Enterprise
Center II...... 5,000 18 2,360 -- -- 18 2,360 2,378 (14)
Enterprise
Center III..... 4,500 20 7,038 -- -- 20 7,038 7,058 (41)
Enterprise
Center IV...... 2,600 11 1,217 -- -- 11 1,217 1,228 (16)
Enterprise
Center V....... 5,000 81 2,883 -- -- 81 2,883 2,964 22
Enterprise
Center VI...... 4,900 101 2,936 -- -- 101 2,936 3,037 (20)
Enterprise
Center VII..... 7,200 548 4,968 -- -- 548 4,968 5,516 (51)
Enterprise
Center VIII.... 7,000 151 2,493 -- -- 151 2,493 2,644 --
Enterprise
Center IX...... 4,750 269 1,127 -- -- 269 1,127 1,396 (13)
Enterprise
Center X....... 4,300 275 2,836 -- -- 275 2,836 3,111 (44)
Arlington
Heights I...... -- 617 2,638 -- -- 617 2,638 3,255 (28)
Arlington
Heights II..... -- 456 2,062 -- -- 456 2,062 2,518 (19)
Arlington
Heights III.... -- 452 1,938 -- -- 452 1,938 2,390 (18)
2160 McGraw Rd.. -- 904 3,617 -- -- 904 3,617 4,521 (47)
<CAPTION>
DATE OF
ACQUISITION (A)
DESCRIPTION CONTRIBUTION (C)
- ----------- ----------------
<S> <C>
Office:
77 West Wacker
Building....... 1997(C)
Nashville Office
Building....... 1997(C)
Professional
Plaza.......... 1997(C)
Old Kingston.... 1997(C)
Two Centre
Square......... 1997(C)
Triad Parking
Facility....... 1997(C)
Hammond
Enterprise
Center......... 1997(C)
Chicago
Enterprise
Center......... 1997(C)
1990 Algonquin
Road(1)........ 1997(A)
2010 Algonquin
Road(1)........ 1997(A)
555 Huehl
Road(1)........ 1997(A)
1669 Woodfield
Road(1)........ 1997(A)
475 Superior
Avenue......... 1997(A)
2205-2255
Enterprise
Drive(1)....... 1997(A)
280 Shuman
Blvd........... 1997(A)
Continental
Towers......... 1997(A)
2675 Mayfair.... 1997(A)
Industrial:
East Chicago
Enterprise
Center......... 1997(C)
Enterprise
Center I....... 1997(C)
Enterprise
Center II...... 1997(C)
Enterprise
Center III..... 1997(C)
Enterprise
Center IV...... 1997(C)
Enterprise
Center V....... 1997(C)
Enterprise
Center VI...... 1997(C)
Enterprise
Center VII..... 1997(C)
Enterprise
Center VIII.... 1997(C)
Enterprise
Center IX...... 1997(C)
Enterprise
Center X....... 1997(C)
Arlington
Heights I...... 1997(C)
Arlington
Heights II..... 1997(C)
Arlington
Heights III.... 1997(C)
2160 McGraw Rd.. 1997(A)
</TABLE>

F-43
<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)

16. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

<TABLE>
<CAPTION>
GROSS AMOUNT
COSTS CAPITALIZED CARRIED
INITIAL COST TO SUBSEQUENT TO AT DECEMBER 31,
DECEMBER 31, 1997 COMPANY ACQUISITION 1997 DECEMBER 31, 1997
----------------- -------------------- ----------------- --------------------- -----------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------- ----------------- ------- ------------ ---- ------------ ------- ------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4849 Groveport.. $ $ 507 $ 2,030 $-- $-- $ 507 $ 2,030 $ 2,537 $ (26)
2400 McGraw Rd.. -- 348 1,392 -- -- 348 1,392 1,740 (18)
5160 Blazer
Memorial Pkwy.. -- 470 1,880 -- -- 470 1,880 2,350 (24)
600 London Rd... -- 223 890 -- -- 223 890 1,113 (11)
4411 Marketing
Place.......... -- 445 1,780 -- -- 445 1,780 2,225 (23)
1001 Technology
Way............ 6,412 1,909 7,637 -- -- 1,909 7,637 9,546 (40)
801 Technology
Way............ 3,984 813 3,253 -- -- 813 3,253 4,066 (17)
3818
Grandville/1200
Northwestern(1). -- 2,125 8,505 -- -- 2,125 8,505 10,630 (42)
306-310 Era
Drive(1)....... -- 719 2,878 -- -- 719 2,878 3,597 (15)
1301 Ridgeview
Drive(1)....... -- 2,287 9,148 -- -- 2,287 9,148 11,435 (48)
515 Huehl
Road/500
Lindburg(1).... -- 1,775 7,100 -- -- 1,775 7,100 8,875 (37)
455 Academy
Drive(1)....... -- 754 3,018 -- -- 754 3,018 3,772 (16)
1051 N. Kirk
Road(1)........ -- 911 3,645 -- -- 911 3,645 4,556 (11)
4211 Madison
Street(1)...... -- 690 2,759 -- -- 690 2,759 3,449 (9)
200 E.
Fullerton(1)... -- 525 2,100 -- -- 525 2,100 2,625 (7)
350 Randy
Road(1)........ -- 267 1,063 -- -- 267 1,063 1,330 (3)
4300, 4248, 4250
Madison
Street(1)...... -- 1,147 4,588 -- -- 1,147 4,588 5,735 (14)
370 Carol
Lane(1)........ -- 527 2,107 -- -- 527 2,107 2,634 (7)
388 Carol
Lane(1)........ -- 332 1,329 -- -- 332 1,329 1,661 (4)
941-961 Wiegel
Drive(1)....... -- 3,268 13,060 -- -- 3,268 13,060 16,328 (41)
342-346 Carol
Lane(1)........ -- 600 2,398 -- -- 600 2,398 2,998 (7)
343 Carol
Lane(1)........ -- 350 1,398 -- -- 350 1,398 1,748 (4)
371-385 N. Gary
Avenue(1)...... -- 218 871 -- -- 218 871 1,089 (3)
350 N. Mannheim
Road(1)........ -- 81 325 -- -- 81 325 406 (1)
1600-1700 167th
Street(1)...... -- 1,073 4,291 -- -- 1,073 4,291 5,364 (13)
1301 E. Tower
Road(1)........ -- 1,005 4,020 -- -- 1,005 4,020 5,025 (13)
4343 Commerce
Court(1)....... -- 5,370 21,480 -- -- 5,370 21,480 26,850 (63)
11039 Gage
Avenue(1)...... -- 191 767 -- -- 191 767 958 (2)
11045 Gage
Avenue(1)...... -- 1,274 5,092 -- -- 1,274 5,092 6,366 (16)
1401 S.
Jefferson(1)... -- 171 685 -- -- 171 685 856 (2)
4100 Madison
Street(1)...... -- 42 169 -- -- 42 169 211 (4)
4160-4190
Madison
Street(1)...... -- 931 3,708 -- -- 931 3,708 4,639 (11)
550 Kehoe
Blvd.(1)....... -- 686 2,744 -- -- 686 2,744 3,430 (9)
-------- ------- -------- ---- ---- ------- -------- -------- -------
Total........... $244,544 $92,440 $496,839 $-- $-- $92,440 $496,839 $589,279 $(2,338)
======== ======= ======== ==== ==== ======= ======== ======== =======
<CAPTION>
DATE OF
ACQUISITION (A)
DESCRIPTION CONTRIBUTION (C)
- ----------- ----------------
<S> <C>
4849 Groveport.. 1997(A)
2400 McGraw Rd.. 1997(A)
5160 Blazer
Memorial Pkwy.. 1997(A)
600 London Rd... 1997(A)
4411 Marketing
Place.......... 1997(A)
1001 Technology
Way............ 1997(A)
801 Technology
Way............ 1997(A)
3818
Grandville/1200
Northwestern(1). 1997(A)
306-310 Era
Drive(1)....... 1997(A)
1301 Ridgeview
Drive(1)....... 1997(A)
515 Huehl
Road/500
Lindburg(1).... 1997(A)
455 Academy
Drive(1)....... 1997(A)
1051 N. Kirk
Road(1)........ 1997(A)
4211 Madison
Street(1)...... 1997(A)
200 E.
Fullerton(1)... 1997(A)
350 Randy
Road(1)........ 1997(A)
4300, 4248, 4250
Madison
Street(1)...... 1997(A)
370 Carol
Lane(1)........ 1997(A)
388 Carol
Lane(1)........ 1997(A)
941-961 Wiegel
Drive(1)....... 1997(A)
342-346 Carol
Lane(1)........ 1997(A)
343 Carol
Lane(1)........ 1997(A)
371-385 N. Gary
Avenue(1)...... 1997(A)
350 N. Mannheim
Road(1)........ 1997(A)
1600-1700 167th
Street(1)...... 1997(A)
1301 E. Tower
Road(1)........ 1997(A)
4343 Commerce
Court(1)....... 1997(A)
11039 Gage
Avenue(1)...... 1997(A)
11045 Gage
Avenue(1)...... 1997(A)
1401 S.
Jefferson(1)... 1997(A)
4100 Madison
Street(1)...... 1997(A)
4160-4190
Madison
Street(1)...... 1997(A)
550 Kehoe
Blvd.(1)....... 1997(A)
Total...........
</TABLE>
- -----
(1) These properties are collateral for $83,500 in mortgage notes payable. See
Note 5.

F-44
<PAGE>

PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONCLUDED)

(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, improve-
ments, 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

In April 1998, the Company acquired the following two office properties:

<TABLE>
<CAPTION>
NET
RENTABLE ACQUISITION MORTGAGE
PROPERTY LOCATION SQUARE FEET COST DEBT
-------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
122 South Michigan.............. Chicago, IL 512,660 $29,651 $ --
2100 Swift Drive................ Oak Brook, IL 58,000 7,400 5,200
------- ------- ------
570,660 $37,051 $5,200
======= ======= ======
</TABLE>

On May 15, 1998, the Company obtained a 7.22% note payable, collateralized
by the Company's mortgage note receivable encumbering a suburban office
building known as Continental Towers, with a principal balance of $75,000. 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 approximately $70,000 of the proceeds to
repay a portion of the Credit Facility.

F-45
<PAGE>

PRIME GROUP REALTY (THE COMPANY)

AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS)

As of May 15, 1998 the Company was party to contracts to acquire the
following two office buildings (the "Pending Acquisitions"):

<TABLE>
<CAPTION>
NET ESTIMATED
RENTABLE ACQUISITION
PROPERTY LOCATION SQUARE FEET COST
-------- -------------- ----------- -----------
<S> <C> <C> <C>
Two Century Centre...................... Schaumburg, IL 217,960 $34,600
6400 Shafer Court....................... Rosemont, IL 167,495 21,400
------- -------
385,455 $56,000
======= =======
</TABLE>

The Company expects to complete either or both the Pending Acquisitions by
mid-1998. 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.

F-46
<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-47
<PAGE>

PRIME INDUSTRIAL CONTRIBUTION PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO PERIOD FROM MARCH
SEPTEMBER 30, 1997 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-48
<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 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-49
<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-50
<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-51
<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 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............................................................. $ 1,257
1998............................................................. 5,095
1999............................................................. 5,256
2000............................................................. 5,164
2001............................................................. 5,298
Thereafter....................................................... 16,304
-------
$38,374
=======
</TABLE>

F-52
<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-53
<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-54
<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

<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-55
<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-56
<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-57
<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 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-58
<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-59
<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-60
<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 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-61
<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-62
<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-63
<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
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-64
<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-65
<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-66
<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 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:

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31 AMOUNT
------------------------ ------
<S> <C>
1997............................................................ $ 341
1998............................................................ 1,362
1999............................................................ 340
------
$2,043
======
</TABLE>

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.

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-70
<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-71
<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-72
<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

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases 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>

F-73
<PAGE>

180 NORTH LASALLE STREET

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES--(CONTINUED)
(IN THOUSANDS)

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-74
<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-75
<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-76
<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

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
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............................................................... $ 376
1998............................................................... 1,399
1999............................................................... 864
2000............................................................... 275
2001............................................................... 257
Thereafter......................................................... 1,289
------
$4,460
======
</TABLE>

F-77
<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-78
<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-79
<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

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases 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.............................................................. $ 1,122
1998.............................................................. 4,464
1999.............................................................. 4,230
2000.............................................................. 3,863
2001.............................................................. 3,271
Thereafter........................................................ 7,125
-------
$24,075
=======
</TABLE>

F-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases 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-86
<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-87
<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-88
<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

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases 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-89
<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-90
<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-91
<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

The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases
in operating expenses and real estate taxes in excess of specified base
amounts. The total future minimum rentals to be received under such
noncancelable operating leases 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............................................. $1,465
1999............................................. 1,659
2000............................................. 1,567
2001............................................. 1,213
2002............................................. 858
Thereafter....................................... 800
------
$7,562
======
</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 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-93
<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-94
<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

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. 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............................. $2,830
1999............................. 3,835
2000............................. 3,878
2001............................. 1,664
2002............................. 1,013
Thereafter....................... 5,228
-------
$18,448
=======
</TABLE>

F-95
<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 UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE REDEEMABLE PREFERRED SHARES OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE REDEEMABLE PREFERRED 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.............................................................. 20
The Company............................................................... 33
Business Objective and Growth Strategies.................................. 37
Use of Proceeds........................................................... 41
Price Range of Common Shares and Distributions............................ 42
Capitalization............................................................ 43
Selected Financial Data................................................... 44
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 47
Business and Properties................................................... 56
Policies with Respect to Certain Activities............................... 120
Management................................................................ 123
Structure and Formation of the Company.................................... 132
Certain Relationships and Related Transactions............................ 137
Partnership Agreement..................................................... 142
Principal Shareholders of the Company..................................... 146
Ratios of Earnings to Combined Fixed Charges and
Preferred Share Distributions............................................ 149
Description of Shares of Beneficial Interest.............................. 150
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws......................................................... 169
Certain Federal Income Tax Considerations................................. 173
ERISA Considerations...................................................... 190
Underwriting.............................................................. 192
Legal Matters............................................................. 193
Experts................................................................... 194
Additional Information.................................................... 194
Glossary.................................................................. G-1
Index to Financial Statements............................................. F-1
</TABLE>

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

5,000,000 Shares

[LOGO OF PRIME GROUP REALTY TRUST]

PRIME GROUP REALTY TRUST

% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest
(Liquidation Preference $25.00 Per Share)

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

PROSPECTUS

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

PRUDENTIAL SECURITIES INCORPORATED

BEAR, STEARNS & CO. INC.

FRIEDMAN, BILLINGS, RAMSEY & CO. INC.

LEGG MASON WOOD WALKER

INCORPORATED

MORGAN KEEGAN & COMPANY, INC.

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
SEC registration fee................................................... $42,407
NASD fee............................................................... 14,875
NYSE listing fee....................................................... 50,425
Blue Sky fees and expenses............................................. 5,000
Printing and engraving expenses........................................ *
Legal fees and expenses................................................ *
Accounting and due diligence fees and expenses......................... *
Miscellaneous.......................................................... *
-------
Total.............................................................. $ *
=======
</TABLE>
- --------
*To be completed by amendment.

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 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 rights to acquire the first mortgage loan
encumbering the office building located at 180 N. LaSalle Street in Chicago,
Illinois. In addition, on each of December 15, 1997 and January 15, February
13, March 13, April 15 and May 15, 1998, the Company caused the Operating
Partnership to issue 5,000 Common Units, having an aggregate value of
approximately $600,000, to such third party to maintain an option to purchase
such third party's second mortgage encumbering the building located at 180
North LaSalle Street.

II-1
<PAGE>

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 STATEMENT AND EXHIBITS.

(a) Financial Statements

Prime Group Realty Trust

Pro Forma Condensed Consolidated Financial Information (unaudited):

Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998

Pro Forma Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998 and for the year ended December 31, 1997

Prime Group Realty Trust (the Company) and Predecessor Properties:

Report of Independent Auditors

Consolidated Balance Sheets of the Company as of March 31, 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 three months
ended March 31, 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 three months ended March 31, 1997
(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 three
months ended March 31, 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

II-2
<PAGE>

Consolidated Statements of Cash Flows of the Company for the three months
ended March 31, 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 three months ended March 31, 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

II-3
<PAGE>

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

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

All other schedules are omitted because the required information is not
applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
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
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2* Form of Articles Supplementary to the Articles of Amendment and
Restatement of Declaration of Trust of Prime Group Realty Trust
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
3.6+ Amendment No. 2 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998
3.7+ Amendment No. 3 to the Amended and Restated Agreement of Limited
Partnership dated as of January 15, 1998
3.8+ Amendment No. 4 to the Amended and Restated Agreement of Limited
Partnership dated as of February 13, 1998
3.9+ Amendment No. 5 to the Amended and Restated Agreement of Limited
Partnership dated as of March 13, 1998
3.10+ Amendment No. 6 to the Amended and Restated Agreement of Limited
Partnership dated as of March 25, 1998
3.11+ Amendment No. 7 to the Amended and Restated Agreement of Limited
Partnership dated as of April 15, 1998
3.12 Amendment No. 8 to the Amended and Restated Agreement of Limited
Partnership dated as of May 15, 1998
4.1+ Form of Redeemable Preferred Share certificate
5.1+ Opinion of Miles & Stockbridge regarding the validity of the
Redeemable Preferred 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
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 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 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
10.11 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
10.12 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
10.13 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
10.14 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
10.15 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
10.16 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
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 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.
10.18 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
10.19 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
10.20 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
10.21 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
10.22 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
10.23 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
10.24 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
10.25 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
10.26 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
10.27 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
10.28 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
10.29 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
10.30+ Amendment No. 1 to the Credit Facility dated as of December 15, 1998
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.31+ Amendment No. 2 to the Credit Facility dated as of March 16, 1998
10.32+ Amendment No. 3 to the Credit Facility dated as of March 30, 1998
10.33+ Amendment No. 4 to the Credit Facility dated as of April 24, 1998
10.34 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
10.35+ Purchase Agreement dated as of March 25, 1998 between Prime Group
Realty Trust and the purchasers thereto
10.36+ Registration Rights Agreement dated as of March 25, 1998 between
Prime Group Realty Trust and the other parties thereto
10.37 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
10.38 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
10.39 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
10.40 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
10.41+ 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.
10.42* Mortgage and Security Agreement dated as of May 1, 1998 between
certain subsidiaries of Prime Group Realty Trust and CIBC, Inc.
10.43* Mortgage and Security Agreement dated as of March 23, 1998 between
certain subsidiaries of Prime Group Realty Trust and State Farm Life
Insurance Company.
10.44* Subordination and Intercreditor Agreement dated as of May 14, 1998
between Prime Group Realty, L.P. and Connecticut General Life
Insurance Company.
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
1997 Annual Report on Form 10-K 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
</TABLE>

II-8
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24.1+ Powers of Attorney (included on signature page in Part II of the
initial filing)
99.1* Report of Rosen Consulting Group
</TABLE>
- --------
* To be filed by amendment.

+Previously filed.

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 that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-9
<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
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on May 20, 1998.

Prime Group Realty Trust

/s/ Richard S. Curto
By: __________________________________
Richard S. Curto
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to registration statement has been signed below on May 20, 1998 by
the following persons in the capacities indicated.

SIGNATURE TITLE

Chairman of the Board,
Michael W. Reschke* Trustee
- -------------------------------------
Michael W. Reschke

/s/ Richard S. Curto President and Chief Executive
- ------------------------------------- Officer (principal executive
Richard S. Curto officer), Trustee

Executive Vice President
William M. Karnes* andChief Financial
- ------------------------------------- Officer(principal financial
William M. Karnes officer)

Senior Vice President--
Roy P. Rendino* Finance and Chief Accounting
- ------------------------------------- Officer (principal
Roy P. Rendino accounting officer)

II-10
<PAGE>

SIGNATURE TITLE

Trustee
Jacque M. Ducharme*
- -------------------------------------
Jacque M. Ducharme

Trustee
Stephen J. Nardi*
- -------------------------------------
Stephen J. Nardi

Trustee
Christopher J. Nassetta*
- -------------------------------------
Christopher J. Nassetta

Trustee
Thomas J. Saylak*
- -------------------------------------
Thomas J. Saylak

Trustee
James R. Thompson*
- -------------------------------------
James R. Thompson

/s/ Richard S. Curto

*By: ___________________________

Richard S. Curto, Attorney-in-Fact

II-11

<PAGE>

Exhibit 1.1

PRIME GROUP REALTY TRUST

5,000,000 SERIES B REDEEMABLE PREFERRED SHARES/1/
OF BENEFICIAL INTEREST

UNDERWRITING AGREEMENT
----------------------

May [ ], 1998

PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
LEGG MASON WOOD WALKER, INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292

Ladies and Gentlemen:

Prime Group Realty Trust, a Maryland real estate investment trust (the
"Company"), and Prime Group Realty, L.P., a Delaware limited partnership (the
"Operating Partnership"), each hereby confirms its agreement with the several
underwriters named in Schedule 1 hereto (the "Underwriters"), for whom the
Company understands you have been duly authorized to act as representatives (in
such capacities, the "Representatives"), as set forth below. If you are the
only Underwriters, all references herein to the Representatives shall be deemed
to be to the Underwriters.

1. Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the several Underwriters an aggregate
of 5,000,000 shares of ___% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest (the "Firm Securities"), par value $.01 per share, of the
Company (the "Preferred Shares"). The Company also proposes to issue and sell to
the several Underwriters not more than 750,000 additional Preferred Shares if
requested by the Representatives as provided in Section 3 of this Agreement. Any
and all Preferred Shares to

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

/1/ Plus an option to purchase from Prime Group Realty Trust up to 750,000
additional shares to cover over-allotments.
<PAGE>

be purchased by the Underwriters pursuant to such option are referred to herein
as the "Option Securities," and the Firm Securities and any Option Securities
are collectively referred to herein as the "Securities."

2. Representations and Warranties of the Company and the Operating
Partnership. The Company and the Operating Partnership, jointly and severally,
represent and warrant to, and agree with, each of the several Underwriters that:

(a) A registration statement on Form S-11 (File No. 333-51599)
with respect to the Securities, including a prospectus subject to completion,
has been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and one
or more amendments to such registration statement may have been so filed. After
the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representatives prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement (as
hereinafter defined) and any Preliminary Prospectus or Prospectus incorporated
therein at the time such Registration Statement becomes effective); the term
"Registration Statement" includes both the Original Registration Statement and
any Rule 462(b) Registration Statement; the term "Preliminary Prospectus" means
each prospectus subject to

2
<PAGE>

completion filed with such Registration Statement and any amendment or
supplement thereto (including the prospectus subject to completion, if any,
included in the Registration Statement or any amendment thereto at the time it
was or is declared effective); the term "Prospectus" means:

(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein
that such Term Sheet supplements;

(B) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act; or

(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act,
the prospectus included in the Registration Statement;

and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.

(b) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary Prospectus
was filed with the Commission it (i) contained all statements required to be
stated therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or supplement is not required to be
so filed, when the Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not

3
<PAGE>

or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.

(c) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared effective (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with, and
that is effective upon filing with the Commission pursuant to, Rule 462(b) and
has received confirmation of the Commission's receipt and (ii) the Company has
given irrevocable instructions for transmission of the applicable filing fee in
connection with the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 promulgated under the Act or the Commission has
received payment of such filing fee.

(d) The Company has been duly organized and is validly existing
as a real estate investment trust in good standing under the laws of Maryland
and is duly qualified to transact business as a foreign trust and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified does not amount to a
material liability or disability to the Company and its subsidiaries, taken as a
whole. Each of the Company's subsidiaries which are corporations have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company and its subsidiaries, taken
as a whole. Each of the Company's subsidiaries which are partnerships, including
the Property Partnerships that are partnerships (as defined in the Prospectus
or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) have been duly organized and are validly existing as partnerships in
good standing under the laws of their respective jurisdictions of organization
and are duly qualified to transact business as foreign partnerships and are in
good standing under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company
and its subsidiaries, taken as a whole. Each of the Company's subsidiaries which
are limited liability companies, including the Property Partnerships that are
limited liability companies have been duly organized and are validly existing as
limited liability companies in good standing under the laws of their respective
jurisdictions of

4
<PAGE>

organization and are duly qualified to transact business as foreign limited
liability companies and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective properties or
the conduct of their respective businesses requires such qualification, except
where the failure to be so qualified does not amount to a material liability or
disability to the Company and its subsidiaries, taken as a whole.

(e) The Company and each of its subsidiaries have full power
(corporate or other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and each of the Company and the Operating Partnership
has full power (corporate or other) to enter into this Agreement and to carry
out all the terms and provisions hereof to be carried out by it.

(f) The issued shares of capital stock of each of the Company's
subsidiaries (which are corporations) have been duly authorized and validly
issued, are fully paid and nonassessable and, except as otherwise set forth in
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, are owned beneficially by the Company free and clear of
any security interests, liens, encumbrances, equities or claims. The
partnership agreements of the Company's subsidiaries (which are partnerships)
have been duly authorized, executed and delivered by the general partners
thereof and constitute the valid and binding obligation of the general partners
thereof. Such partnership agreements, other than the partnership agreement for
the Operating Partnership and for Professional Plaza, Ltd., a Tennessee limited
partnership, one of the Property Partnerships, reflect the Company and the
Operating Partnership, and/or one or more of the Company's subsidiaries as the
sole beneficial owners of the partnership interests in such partnerships.

(g) The Operating Partnership has been duly organized and is
validly existing as a limited partnership in good standing under the laws of its
jurisdiction of organization and is duly qualified to transact business as a
foreign limited partnership and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the Company
and its subsidiaries, taken as a whole. All of the limited and general
partnership interests in the Operating Partnership (the "Common Units") and the
Preferred Units (as defined in the Prospectus, or if the Prospectus is not in
existence, the most recent Preliminary Prospectus) issued by the Operating
Partnership as of the date hereof have been duly authorized for issuance by the
Operating Partnership to the holders or prospective holders thereof, and are
validly issued, fully paid and owned in the amounts set forth on Schedule 2
hereto, and, in the case of the Common Units and the Preferred Units issued to
the Company, free and clear of any security interests, liens, encumbrances,
equities or claims. All of the Series B Preferred Units (as defined in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary

5
<PAGE>

Prospectus) to be issued to the Company in connection with the offering of the
Preferred Shares have been duly authorized for issuance by the Operating
Partnership and, at the Firm Closing Date, against the payment of consideration
therefor in accordance with the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated November 17, 1997 (the "Operating
Partnership Agreement"), will be validly issued, fully paid and owned by the
Company, free and clear of any security interests, liens, encumbrances, equities
or claims. Immediately after the Firm Closing Date, [ ] Common Units
of limited partner interest, [13,307,100] Common Units of general partner
interest, 2,000,000 Preferred Units and 5,000,000 Series B Preferred Units of
the Operating Partnership will be issued and outstanding. The Common Units,
Preferred Units and Series B Preferred Units conform in all material respects to
the description thereof contained in the Prospectus or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus. The Company is the
managing general partner of the Operating Partnership.

(h) The authorized capital stock of the Company is as set forth
in the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus under the caption "Description of Shares of Beneficial
Interest" and the issued and outstanding shares of beneficial interest of the
Company, as of the Firm Closing Date, will be as set forth in the Prospectus or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus,
under the caption "Capitalization." All of the issued shares of beneficial
interest of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. The Firm Securities and the Option Securities have
been duly authorized and at the Firm Closing Date or the related Option Closing
Date (as the case may be), after payment therefor in accordance herewith, will
be validly issued, fully paid and nonassessable. No holders of outstanding
shares of beneficial interest of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities, and no holder
of securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by this
Agreement.

(i) The capitalization of the Company conforms to the
description thereof contained in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus.

(j) All of the issued and outstanding Convertible Preferred
Shares (as defined in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) and Common Shares of the Company have
been offered and sold in compliance with all applicable laws (including, without
limitation, federal and state securities laws). Except as described in the
Registration Statement and the Prospectus (or, if the Prospectus does not exist,
the most recent Preliminary Prospectus), the Company has not issued or sold any
Convertible Preferred Shares or

6
<PAGE>

Common Shares during the six-month period preceding the initial filing date of
the Registration Statement including any sales pursuant to Rule 144A under, or
Regulation D or S of, the Act.

(k) Except as disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities, equity interests or obligations of the Company or
any of its subsidiaries convertible into or exchangeable for any beneficial
interests, capital stock or other equity interests (as the case may be) of the
Company or any such subsidiary, (B) warrants, rights or options to subscribe for
or purchase from the Company or any such subsidiary any such beneficial
interests, capital stock or other equity interests or any such convertible or
exchangeable securities, equity interests or obligations, or (C) obligations of
the Company or any such subsidiary to issue any shares of beneficial interests,
capital stock, other equity interests, any such convertible or exchangeable
securities, equity interests or obligations, or any such warrants, rights or
options.

(l) The offer, issuance and exchange of the Series B Preferred
Units will be exempt from the registration requirements of the Act and
applicable state securities and blue sky laws.

(m) The pro forma condensed consolidated balance sheet and the
pro forma condensed consolidated statements of operations of the Company (in
each case, including the notes thereto) included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company at
the dates therein specified. The combined financial statements (including the
notes thereto) of the Prime Properties (as defined in the notes thereto)
included in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) fairly present the
financial position, the results of operations and cash flows and changes in
financial condition of the Prime Properties, at the date and for the periods
therein specified. The combined statements of revenues and certain expenses
(including the notes thereto) of the Prime Industrial Contribution Properties
(as defined in the notes thereto) included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the combined revenues and certain
expenses of the Prime Industrial Contribution Properties for the periods therein
specified. The combined statements of revenues and certain expenses (including
the notes thereto) of the IBD Contribution Properties (as defined in the notes
thereto) included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present the combined revenues and certain expenses of the IBD Contribution
Properties for the periods therein specified. The combined statements of
revenues and certain expenses (including the notes thereto) of the NAC
Contribution Properties (as defined in the notes thereto) included in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the

7
<PAGE>

combined revenues and certain expenses of the NAC Contribution Properties for
the periods therein specified. The statements of revenues and certain expenses
(including the notes thereto) of Citibank Office Plaza included in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present revenues and
certain expenses of Citibank Office Plaza for the periods therein specified.
The statements of revenues and certain expenses (including the notes thereto) of
Salt Creek Office Center included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present revenues and certain expenses of Salt
Creek Office Center for the periods therein specified. The statements of
revenues and certain expenses (including the notes thereto) of 280 Schuman
Boulevard included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present revenues and certain expenses of 280 Schuman Boulevard for the periods
therein specified. The statements of revenues and certain expenses (including
the notes thereto) of 475 Superior Avenue included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present revenues and certain expenses of 475
Superior Avenue for the periods therein specified. The statements of revenues
and certain expenses (including the notes thereto) of Continental Office Towers
included in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) fairly present
revenues and certain expenses of Continental Office Towers for the periods
therein specified. The statements of revenues and certain expenses (including
the notes thereto) of 180 North LaSalle Street included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present revenues and certain expenses
of 180 North LaSalle Street for the periods therein specified. The statement of
revenues and certain expenses (including the notes thereto) of 2675 Mayfair
included in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) fairly present
revenues and certain expenses of 2675 Mayfair for the period therein specified.
The statement of revenues and certain expenses (including the notes thereto) of
33 North Dearborn included in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present revenues and certain expenses of 33 North Dearborn for the period
therein specified. The statement of revenues and certain expenses (including
the notes thereto) of Commerce Point included in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present revenues and certain expenses of Commerce
Point for the period therein specified. The statement of revenues and certain
expenses (including the notes thereto) of 208 South LaSalle Street included in
the Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present revenues and
certain expenses of 208 South LaSalle Street for the period therein specified.
The statement of revenues and certain expenses (including the notes thereto) of
122 South Michigan Avenue included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present revenues and

8
<PAGE>

certain expenses of 122 South Michigan Avenue for the period therein specified.
The statement of revenues and certain expenses (including the notes thereto) of
6400 Shafer Court included in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present revenues and certain expenses of 6400 Shafer Court for the period
therein specified. The statement of revenues and certain expenses (including
the notes thereto) of Two Century Center included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present revenues and certain expenses of Two
Century Center for the period therein specified. All of the foregoing financial
statements (including the notes thereto) and schedules have been prepared in
accordance with generally accepted accounting principles consistently applied
for each of the periods presented. The selected financial data set forth under
the caption "Selected Financial Data" in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) fairly present, on
the basis stated in the Prospectus (or such Preliminary Prospectus), the
information included therein.

(n) The pro forma condensed consolidated balance sheet and the
pro forma condensed consolidated statements of operations of the Company
included in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) comply in all
material respects with the applicable requirements of Rule 11-02 of Regulation
S-X of the Commission and the pro forma adjustments have been properly applied
to the historical amounts in the compilation of such information and the
assumptions used in the preparation thereof are, in the opinion of the Company,
reasonable. Other than the historical and pro forma financial statements (and
schedules) included therein, no other historical or pro forma financial
statements (or schedules) are required to be included in the Registration
Statement or Prospectus.

(o) Ernst & Young LLP, who have certified certain financial
statements and schedules, and delivered their reports with respect to the
audited financial statements and schedules, included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), are independent public accountants as
required by the Act and the applicable rules and regulations thereunder.

(p) The execution and delivery of this Agreement have been duly
authorized by the Company and the Operating Partnership and this Agreement has
been duly executed and delivered by the Company and the Operating Partnership,
and is the valid and binding agreement of each of the Company and the Operating
Partnership, enforceable against the Company and the Operating Partnership in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization and similar laws relating to
creditors' rights

9
<PAGE>

generally and to the application of equitable principles in any proceeding,
whether at law or in equity.

(q) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the property of
the Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and are not
described therein, and to the best of the Company's knowledge, no such
proceedings have been threatened against the Company or any of its subsidiaries
or with respect to any of their respective properties; and no contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required.

(r) The execution, delivery and performance of this Agreement by
the Company and the Operating Partnership, the consummation of the transactions
contemplated in this Agreement and the Registration Statement (including the
completion of the Pending Acquisitions, the issuance, offering and sale of the
Securities to the Underwriters and the Series B Preferred Units to the Company
and the application of the proceeds from the sale of the Securities and the
Series B Preferred Units as described under the caption "Use of Proceeds" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and compliance by the Company and the Operating
Partnership with their obligations under this Agreement do not (i) require the
consent, approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained, such as may be
required under state securities or blue sky laws and, if the Registration
Statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, material
lease or other material agreement or material instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the charter
documents or by-laws or certificate of limited partnership or partnership
agreement (as the case may be) of the Company or any of its subsidiaries, or any
statute or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any of its
subsidiaries.

(s) the execution, delivery and performance of an amendment to
the Operating Partnership Agreement to be dated the date of the Firm Closing
Date (the "Operating Partnership Agreement Amendment") relating to the issuance
of the Series B Preferred Units has been duly authorized by the Company, as the
holder of a majority of the general partnership interests of the Operating
Partnership, and has been duly executed and delivered by the Company on the Firm

10
<PAGE>

Closing Date; the Operating Partnership Agreement is a valid and binding
agreement of the Operating Partnership, enforceable against the Company and the
Operating Partnership in accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization and
similar laws relating to creditors' rights generally and to the application of
equitable principles in any proceeding, whether at law or in equity; and the
execution and delivery of the Operating Partnership Agreement Amendment by the
Company and the Operating Partnership, the consummation of the transactions
contemplated in the Operating Partnership Agreement (including the issuance,
offering and sale of the Series B Preferred Units to the Company) and compliance
by the Operating Partnership with its obligations under the Operating
Partnership Agreement Amendment do not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, or (B) conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, material lease or other
material agreement or material instrument to which the Operating Partnership is
a party or by which the Operating Partnership or any of its properties are
bound, or the certificate of limited partnership or the Operating Partnership
Agreement of the Operating Partnership, or any provision of any statute, rule or
regulation applicable to the Operating Partnership, or any judgment, decree or
order of any court or other governmental authority or any arbitrator known to
such counsel and applicable to the Operating Partnership;

(t) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), neither the
Company nor any of its subsidiaries has sustained any material loss or
interference with their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding and there has not
been any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise), management,
business prospects, net worth, or results of operations of the Company and its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).

(u) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

11
<PAGE>

(v) The Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or other materials, if any, permitted by the Act.

(w) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (1) the Company
and its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any shares of its
outstanding beneficial interests, nor declared, paid or otherwise made any
dividend or distribution of any kind on its shares of beneficial interests; and
(3) there has not been any material change in the beneficial interests, capital
stock or partnership interests (as the case may be), short-term debt or long-
term debt of the Company and its consolidated subsidiaries, except in each case
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).

(x) The Company or its subsidiaries have obtained title
insurance policies insuring good and marketable title in fee simple to all items
of real property comprising part of the Properties (other than the Pending
Acquisitions) (as such term is defined in the Registration Statement and the
Prospectus, or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and, based upon UCC searches and representations from
the sellers of the Properties, marketable title to all personal property
comprising part of the Properties (other than the Pending Acquisitions), in each
case free and clear of any security interests, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not interfere in any material respect with the
use made or proposed to be made of such property by the Company or such
subsidiary, and any real property and buildings comprising part of the
Properties (other than the Pending Acquisitions) held under lease by the Company
or any such subsidiary are held under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the use made
or proposed to be made of such property and buildings by the Company or such
subsidiary, in each case except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(y) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or, to the best of the Company's
knowledge, imminent that could result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, except as

12
<PAGE>

described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).

(z) The Company and its subsidiaries possess all material
patents, patent applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information currently employed
or proposed to be employed by them in connection with the business now operated
or proposed to be operated by them as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and
neither the Company nor any such subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party with respect
to any of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).

(aa) The Company and each of its subsidiaries own or possess all
contract rights that are material to the businesses now operated or proposed to
be operated by them taken as a whole as such businesses are described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), including all such contract rights referred to in the
Prospectus. The Company has not received any written notices that any of such
contracts are not in full force and effect, and neither the Company nor any such
subsidiary has received written notice of any material breach by any party under
any of such contracts.

(ab) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are or will be engaged as described in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus); and neither the
Company nor any such subsidiary has any reason to believe that it will not be
able to renew such insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).

(ac) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock or partnership
interests, from repaying to the Company any loans or

13
<PAGE>

advances to such subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary of the
Company, except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).

(ad) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any written notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).

(ae) The Company conducts its operations in a manner that will
not subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and the transactions contemplated by this
Agreement will not cause the Company to become an investment company subject to
registration under such act.

(af) Each of the Company and its subsidiaries has filed all
foreign, federal, state and local tax returns that are required to be filed or
has requested extensions thereof (except in any case in which the failure so to
file would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole) and has paid all taxes required to be paid by it
and any other assessment, fine or penalty levied against it, to the extent that
any of the foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).

(ag) Neither the Company nor any of its subsidiaries is in
violation of any applicable federal or state law or regulation relating to
occupational safety and health or to the storage, handling or transportation of
hazardous or toxic materials and the Company and its subsidiaries have received
all permits, licenses or other approvals required of them under applicable
federal and state occupational safety and health and environmental laws and
regulations to conduct their respective businesses or the businesses proposed to
be conducted by them as described in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), and the Company and
each such subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such

14
<PAGE>

permits, licenses or approvals which would not, singly or in the aggregate,
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or the environmental site assessments and engineering
inspection reports listed on Schedule 3 hereto.

(ah) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters on the Firm
Closing Date or on the Option Closing Date shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.

(ai) Except for the shares of capital stock of, or partnership
interests in (as applicable), each of the subsidiaries owned by the Company and
such subsidiaries, neither the Company nor any such subsidiary owns any shares
of stock or any other equity securities of any corporation or has any equity
interest in any firm, partnership, association or other entity, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).

(aj) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to assets
is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(ak) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease, partnership agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party and will
continue to be a party after the Firm Closing Date or by which the Company or
any of its subsidiaries or any of their respective properties is bound and will
continue to be bound after the Firm Closing Date or may be affected in any
material adverse respect with regard to property, business or operations of the
Company and its subsidiaries, taken as a whole.

(al) The Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance.

15
<PAGE>

(am) Except as otherwise disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), since
January 1, 1990 no foreclosures have been instituted and, to the best of the
Company's knowledge, none are currently threatened with respect to any property
or assets directly or indirectly owned (whether now or in the past) by The Prime
Group, Inc. or the Company or any of its subsidiaries. Except for the assets of
The Prime Group, Inc. that were not transferred to the Company in the Formation
Transactions and that are described under the heading "Business and Prospectus -
Prime Assets Not Acquired by the Company" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) (the
"Excluded Properties"), to the best of the Company's knowledge, neither The
Prime Group, Inc. nor any affiliate of The Prime Group, Inc. owns or operates
any office or industrial real property other than through its interests in the
Operating Partnership.

(an) No relationship, direct or indirect, exists between or
among the Company or the Operating Partnership on the one hand, and the
directors, officers, shareholders (in the case of the Company), partners (in the
case of the Operating Partnership), tenants, customers or suppliers of the
Company or the Operating Partnership on the other hand, which is required to be
described in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) which is not so described.

(ao) The Company has been and is organized and operating in
conformity with the requirements for qualification as a real estate investment
trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), and will have no earnings and profits accumulated in a non-REIT year
within the meaning of Section 857(a)(3)(B) of the Code, and the present method
of operation of the Company and its subsidiaries does and will enable the
Company to meet the requirements for taxation as a REIT under the Code in its
taxable year ending December 31, 1998 and for its subsequent taxable years. All
statements in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) regarding the Company's qualification as a
REIT are true, complete and correct in all material respects.

(ap) Except as disclosed in physical inspection reports, leases,
environmental reports and other written materials previously provided by the
Company to the Representatives and their counsel, (i) the Company has not
received any written notice that any of the Properties is not in compliance with
all applicable codes, laws, ordinances and regulations (including, without
limitation, building and zoning codes and laws and regulations relating to
access to the Properties) and deed restrictions or other covenants, except for
such failures to comply that would not materially impair the value of any of the
Properties or would not result in a forfeiture or reversion of title; (ii)
neither the Company nor any of its subsidiaries has knowledge of any pending or
threatened litigation, moratorium, condemnation proceedings, zoning change, or
other similar proceeding or action that could in any manner affect the size of,
use of, improvements on, construction on, access

16
<PAGE>

to or availability of utilities or other necessary services to, the Properties,
except such proceedings or actions which are not reasonably expected to, singly
or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, taken as a whole; (iii) all liens, charges,
encumbrances, claims, or restrictions on or affecting the properties and assets
(including the Properties) of the Company or any of its subsidiaries that are
required to be disclosed in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) are disclosed therein; (iv)
to the best of the Company's knowledge, neither the Company, any of its
subsidiaries nor any tenant of any portion of any of the Properties is in
default under any of the ground leases (as lessor), space leases (as lessor or
lessee, as the case may be) or other occupancy or license agreement relating to,
or under any of the mortgages which will remain in effect after the Firm Closing
Date or other security documents or other agreements encumbering or otherwise
recorded against, the Properties and there is no event which, but for the
passage of time or the giving of notice or both, would constitute a default
under any of such documents or agreements, except such defaults that would not,
singly or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, taken as a whole; and (v) except as
described in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) and except as otherwise provided by law, no
tenant under any lease pursuant to which the Company or any of its subsidiaries
will lease the Properties has an option or right of first refusal to purchase
the premises leased thereunder or the building of which such premises are a
part.

(aq) Except as otherwise disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
mortgages and deeds of trust encumbering the properties and assets described in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) which will remain in effect after the Firm Closing Date
are not convertible and neither the Company, any of its subsidiaries nor any
person affiliated therewith holds a participating interest therein, and such
mortgages and deeds of trust are not cross-defaulted or cross-collateralized to
any property not owned directly or indirectly by the Company or any of its
subsidiaries.

(ar) To the best knowledge of the Company, each of the
Properties is in substantial compliance with all presently applicable provisions
of the Americans with Disabilities Act and no failure of the Company or any of
its subsidiaries to comply with all presently applicable provisions of the
Americans with Disabilities Act would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole.

17
<PAGE>

(as) Except as otherwise disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or the
environmental site assessments and engineering inspection reports listed on
Schedule 3 hereto, and except as would not be reasonably likely to result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, (i) neither the Company nor any of its
subsidiaries nor, to the best knowledge of the Company, any other owners of the
Properties at any time or any other party has at any time, handled, stored,
treated, transported, manufactured, spilled, leaked, or discharged, dumped,
transferred or otherwise disposed of or dealt with, Hazardous Materials (as
hereinafter defined) on, to or from the Properties, other than by any such
action taken in compliance with all applicable Environmental Statutes; (ii)
neither the Company nor any of its subsidiaries intends to use the Properties or
any subsequently acquired properties for the purpose of handling, storing,
treating, transporting, manufacturing, spilling, leaking, discharging, dumping,
transferring or otherwise disposing of or dealing with Hazardous Materials,
except as necessary for the conduct of business and in compliance with
applicable environmental statutes; (iii) neither the Company nor any of its
subsidiaries knows of any seepage, leak, discharge, release, emission, spill, or
dumping of Hazardous Materials into waters on or adjacent to the Properties or
any other real property owned or occupied by any such party, or onto lands from
which Hazardous Materials might seep, flow or drain into such waters; (iv)
neither the Company nor any of its subsidiaries has received written notice of,
or has any knowledge of any occurrence or circumstance which, with notice or
passage of time or both, would give rise to a claim under or pursuant to any
federal, state or local environmental statute or regulation or under common law,
pertaining to Hazardous Materials on or originating from any of the Properties
or any assets described in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or any other real property
owned or occupied by the Company or its subsidiaries or arising out of the
conduct of the Company or its subsidiaries, including without limitation a claim
under or pursuant to any Environmental Statute (as hereinafter defined); (v)
none of the Properties is included or, to the best of the Company's knowledge,
proposed for inclusion on the National Priorities List issued pursuant to CERCLA
(as hereinafter defined) by the United States Environmental Protection Agency
(the "EPA") or, to the best of the Company's knowledge, proposed for inclusion
on any similar list or inventory issued pursuant to any other Environmental
Statute or issued by any other Governmental Authority (as hereinafter defined).

As used herein, "Hazardous Material" shall include, without
limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, toxic substances, asbestos or any hazardous
materials as defined by any federal, state or local environmental law,
ordinance, rule or regulation in effect as of the date hereof and as of the Firm
Closing Date, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. (S)(S)
9601-9675 ("CERCLA"), the Hazardous Materials Transportation Act, as amended, 49
U.S.C. (S)(S) 1801-1819, the Resource Conservation and Recovery

18
<PAGE>

Act, as amended, 42 U.S.C. (S)(S) 6901-6992K, the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. (S)(S) 11001-11050, the Toxic
Substances Control Act, 15 U.S.C. (S)(S) 2601-2671, the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136-136y, the Clean Air Act, 42
U.S.C. (S)(S) 7401-7642, the Clean Water Act (Federal Water Pollution Control
Act), 33 U.S.C. (S)(S) 1251-1387, the Safe Drinking Water Act, 42 U.S.C. (S)(S)
300f-300j-26, and the Occupational Safety and Health Act, 29 U.S.C. (S)(S) 651-
678, and in the regulations promulgated pursuant to each of the foregoing
(individually, an "Environmental Statute") or by any federal, state or local
governmental authority having or claiming jurisdiction over the properties and
assets described in the Prospectus (a "Governmental Authority").

(at) None of the environmental consultants which prepared
environmental and asbestos inspection reports with respect to any of the
Properties, the engineering consultants which prepared engineering inspection
reports with respect to any of the Properties or Rosen Consulting Group, real
estate advisors, which prepared regional economic overviews and market analysis
for The Prime Group, Inc., dated April 23, 1998, were employed for such purpose
on a contingent basis or has any substantial interest in the Company or any of
its subsidiaries and none of them or any of their directors, officers or
employees is connected with the Company or any of its subsidiaries as a
promoter, selling agent, voting trustee, director, officer or employee.

(au) Except as set forth in the environmental site assessments
and engineering inspection reports prepared with respect to the Properties
listed on Schedule 3 hereto, neither the Company nor the Operating Partnership
is aware of any environmental or engineering condition at any of the Properties
that would result in a material adverse change in the condition (financial or
otherwise) or business prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole.

Each reference in this Section 2 to "the condition (financial or
otherwise), management, business prospects, net worth, or results of operations
of the Company and its subsidiaries" means the condition (financial or
otherwise), management, business prospects, net worth, or results of operations
of the Company and its subsidiaries, taken as a whole as of the date hereof.

3. Purchase, Sale and Delivery of the Securities. (a) On the basis
of the representations, warranties, agreements and covenants herein contained
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $[ ] per Preferred Share, the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule 1 hereto. One or more
certificates in definitive form for the Firm Securities that the several
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Representatives
request upon notice to

19
<PAGE>

the Company at least 48 hours prior to the Firm Closing Date, shall be delivered
by or on behalf of the Company to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in same-day funds
(the "Wired Funds") to the account of the Company. Such delivery of and payment
for the Firm Securities shall be made at the offices of [Winston & Strawn, 35
West Wacker Drive, Chicago, Illinois, at 8:30 A.M., Chicago time,] [Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at
9:30 A.M., New York City time] on May [ ], 1998, or at such other place,
time or date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, such time and date
of delivery against payment being herein referred to as the "Firm Closing Date."
The Company will make such certificate or certificates for the Firm Securities
available for checking and packaging by the Representatives at the offices in
New York, New York of the Company's transfer agent or registrar or of Prudential
Securities Incorporated at least 24 hours prior to the Firm Closing Date.

(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as contemplated
by the Prospectus, the Company hereby grants to the several Underwriters an
option to purchase, severally and not jointly, the Option Securities. The
purchase price to be paid for any Option Securities shall be the same price per
share as the price per share for the Firm Securities set forth above in
paragraph (a) of this Section 3, plus, if the purchase and sale of any Option
Securities takes place after the Firm Closing Date and after the Firm Securities
are trading "ex-dividend", an amount equal to the dividends payable on such
Option Securities. The option granted hereby may be exercised as to all or any
part of the Option Securities from time to time within thirty days after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives and Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then

20
<PAGE>

exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section 3,
except that reference therein to the Firm Securities and the Firm Closing Date
shall be deemed, for purposes of this paragraph (b), to refer to such Option
Securities and Option Closing Date, respectively.

(c) The Company hereby acknowledges that the wire transfer by or
on behalf of the Underwriters of the purchase price for any Securities does not
constitute closing of a purchase and sale of the Securities. Only execution and
delivery of a receipt for Securities by the Underwriters indicates completion of
the closing of a purchase of the Securities from the Company. Furthermore, in
the event that the Underwriters wire the Wired Funds to the Company prior to the
completion of the closing of a purchase of Securities, the Company hereby
acknowledges that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company will not be entitled to the
Wired Funds and shall return the Wired Funds to the Underwriters as soon as
practicable (by wire transfer of same-day funds) upon demand. In the event that
the closing of a purchase of Securities is not completed and the Wired Funds are
not returned by the Company to the Underwriters on the same day the Wired Funds
were received by the Company, the Company agrees to pay to the Underwriters in
respect of each day the Wired Funds are not returned by it, in same-day funds,
interest on the amount of such Wired Funds in an amount representing the
Underwriters' cost of financing as reasonably determined by Prudential
Securities Incorporated.

(d) It is understood that any of you, individually and not as
one of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations hereunder.

4. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.

5. Covenants of the Company. Each of the Company and the Operating
Partnership covenants and agrees with each of the Underwriters that:

(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become

21
<PAGE>

effective as promptly as possible. If required, the Company will file the
Prospectus or any Term Sheet that constitutes a part thereof and any amendment
or supplement thereto with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the Act. During any time when a
prospectus relating to the Securities is required to be delivered under the Act,
the Company (i) will comply with all requirements imposed upon it by the Act and
the rules and regulations of the Commission thereunder to the extent necessary
to permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission the Prospectus, Term
Sheet or the amendment referred to in the second sentence of Section 2(a)
hereof, any amendment or supplement to such Prospectus, Term Sheet or any
amendment to the Registration Statement or any Rule 462(b) Registration
Statement of which the Representatives previously have been advised and
furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Representatives shall not have given their
consent. The Company will prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Securities
by the several Underwriters, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representatives of each such
filing or effectiveness.

(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of the Securities for offering or sale
in any jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.

(c) The Company will promptly from time to time take such action
as the Representatives may reasonably request to qualify the Securities for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representatives may reasonably request and

22
<PAGE>

will continue to comply with such laws for as long as may be necessary to
complete the distribution of the Securities, provided, however, that in
connection therewith the Company shall not be required to take any action that
would subject it to income taxation in such jurisdictions, to qualify as a
foreign corporation or to execute a general consent to service of process in any
jurisdiction.

(d) If, at any time prior to the later of (i) the final date
when a prospectus relating to the Securities is required to be delivered under
the Act or (ii) the Option Closing Date, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Representatives thereof and, subject to Section 5(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.

(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 P.M., New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 10:00
A.M., New York City time, on such date or (B) 2:00 P.M., New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City time, on
such date, will deliver to the Underwriters, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date.

(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.

23
<PAGE>

(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.

(h) The Company will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (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 Preferred Shares, or any securities
convertible into, or exchangeable or exercisable for, Preferred Shares or other
securities of the Company which are substantially similar to the Preferred
Shares, for a period of 90 days after the date hereof, except (i) pursuant to
this Agreement, and (ii) in connection with the acquisition by the Company or
the Operating Partnership of real property or interests in entities holding real
property, provided that the recipient or transferee of such securities or
interests agrees in writing to be subject to the lock-up contained in this
Section 5(h) (without giving effect to clauses (i) and (ii)) for a period ending
on the date that is 90 days after the date hereof.

(i) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.

(j) The Company will obtain the lock-up agreements described in
Section 7(f) hereof prior to the Firm Closing Date.

(k) If at any time prior to the later of (i) the final date when
a prospectus relating to the Securities is required to be delivered under the
Act or (ii) the Option Closing Date, any rumor, publication or event relating to
or affecting the Company shall occur as a result of which in your opinion the
market price of the Preferred Shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after notice
from you advising the Company to the effect set forth above, forthwith prepare,
consult with you concerning the substance of, and disseminate a press release or
other public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.

(l) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Act by the earlier of (i) 10:00

24
<PAGE>

P.M. Eastern time on the date of this Agreement and (ii) the time confirmations
are sent or given, as specified by Rule 462(b)(2).

(m) The Company will cause the Securities to be duly authorized
for listing by the New York Stock Exchange prior to the Firm Closing Date,
subject to official notice of issuance.

(n) The Company will use its best efforts to continue to meet
the requirements to qualify as a REIT under the Code.

6. Expenses. The Company will pay all costs and expenses incident to
the performance of its and the Operating Partnership's obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 11 hereof, including all
costs and expenses incident to (i) the printing or other production of documents
with respect to the transactions, including any costs of printing the
registration statement originally filed with respect to the Securities and any
amendment thereto, any Rule 462(b) Registration Statement, any Preliminary
Prospectus and the Prospectus and any amendment or supplement thereto, this
Agreement and any blue sky memoranda, (ii) all arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, (iii) the
fees and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (v) the qualification of the Securities under
state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vi) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Securities, (vii) any listing of the Securities on the New York
Stock Exchange, (viii) any meetings with prospective investors in the Securities
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters) and (ix) advertising relating to the offering
of the Securities (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters). If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 11 hereof or because of
any failure, refusal or inability on the part of the Company or the Operating
Partnership to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all reasonable out-of pocket expenses (including reasonable counsel
fees and disbursements) that shall have been incurred by them in connection with
the proposed purchase and sale of the Securities. The Company shall in no event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.

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<PAGE>

7. Conditions of the Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Operating Partnership
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company and the Operating Partnership of their respective
covenants and agreements hereunder and to the following additional conditions:

(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not later than
the earlier of (i) 11:00 A.M., New York time, on the date on which the amendment
to the registration statement originally filed with respect to the Securities or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been filed
with the Commission and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2), or with respect to the Original Registration
Statement, or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).

(b) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Winston & Strawn, counsel for the Company and its
subsidiaries, to the effect that:

(i) the Company has been duly formed and is validly
existing as a real estate investment trust in good standing under the laws
of the State of Maryland and is duly qualified to transact business as a
foreign business trust and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified does not subject the Company and the
Subsidiaries (as defined below), taken as a whole, to a material liability
or disability. The Operating Partnership has been duly organized and is
validly existing as a limited partnership in good standing under the laws
of the State of Delaware and is duly qualified to transact business as a
foreign limited partnership and is in good standing under the laws of all
other jurisdictions where the ownership or leasing of its

26
<PAGE>

properties or the conduct of its business requires such qualification,
except where the failure to be so qualified does not subject the Company
and the Subsidiaries, taken as a whole, to a material liability or
disability. Each of the subsidiaries of the Company, all of which have been
identified on an exhibit to such opinion (individually a "Subsidiary" and
collectively the "Subsidiaries") has been duly organized and is validly
existing as a corporation, partnership or as a limited liability company,
as appropriate, in good standing under the laws of its respective
jurisdiction of organization and is duly qualified to transact business as
a foreign corporation, partnership or limited liability company, as
appropriate, and is in good standing (to the extent applicable) under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses
requires such qualification, except where the failure to be so qualified
does not subject the Company and the Subsidiaries, taken as a whole, to a
material liability or disability.

(ii) the Company and each of the Subsidiaries have the
requisite real estate investment trust, corporate, partnership or limited
liability company power (as applicable) to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus, and each of the Company and the
Operating Partnership has the requisite real estate investment trust or
partnership power (as applicable) to enter into this Agreement and to
perform its obligations hereunder;

(iii) the issued and outstanding shares of capital stock or
partnership interests, as the case may be, of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable
and, except as otherwise set forth in the Prospectus, are owned
beneficially by the Company free and clear of any perfected security
interests or any other security interests, liens, encumbrances, equities or
claims known to such counsel;

(iv) the authorized, issued and outstanding capitalization
of the Company is as set forth under the caption "Capitalization" in the
Prospectus; all necessary and proper real estate investment trust
proceedings have been taken in order to authorize validly the Preferred
Shares referred to therein; all outstanding shares of beneficial interest
(including the Firm Securities, when issued and paid for by the
Underwriters in accordance with the terms of this Agreement) have been (or,
in the case of the Firm Securities, will be) duly and validly issued, are
fully paid and nonassessable, were not issued in violation of or subject
to, under the Company's charter or Maryland law or any agreement to which
the Company is a party and which is known to such counsel, any preemptive
rights or other rights to subscribe for or purchase any securities, and
conform to the description thereof contained in the Prospectus; no holders
of outstanding shares of beneficial interests of the

27
<PAGE>

Company are entitled under the Company's charter or Maryland law or any
agreement to which the Company is a party and which is known to such
counsel, as such, to any preemptive or other rights to subscribe for any of
the Firm Securities; and no holders of securities of the Company are
entitled to have such securities registered under the Registration
Statement;

(v) the Series B Preferred Units to be issued to the
Company in connection with the offering and issuance of the Securities were
duly authorized for issuance by the Operating Partnership, and upon
contribution of cash in the amount specified in the Operating Partnership
Agreement, as amended, will be validly issued. The terms of the Series B
Preferred Units conform in all material respects to (x) the description
thereof contained in the Prospectus and (y) all statements related thereto
contained in the Prospectus. The issuances of securities described in Item
33 of the Registration Statement were not at the time of issue, and are not
as of the Firm Closing Date, required to be registered under the Act;

(vi) except as disclosed in the Registration Statement and
the Prospectus, to the knowledge of such counsel there are no outstanding
(A) securities, equity interests or obligations of the Company or any of
the Subsidiaries convertible into or exchangeable for any capital stock or
equity interests (as the case may be) of the Company or any such
Subsidiary, (B) warrants, rights or options to subscribe for or purchase
from the Company to any such Subsidiary any such capital stock or equity
interests or any such convertible or exchangeable securities, equity
interests or obligations, or (C) obligations of the Company or any such
Subsidiary to issue an shares of capital stock, equity interests, any such
convertible or exchangeable securities, equity interests or obligations, or
any such warrants, rights or options;

(vii) the statements in the Prospectus set forth under the
headings "Business and Properties-Legal Proceedings," "Description of
Shares of Beneficial Interest," "Structure and Formation of the Company,"
"Certain Relationships and Related Transactions," "Partnership Agreement,"
"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," insofar as such statements
describe statutes, rules or regulations, legal conclusions with respect to
their application or provisions of the organizational documents of the
Company, the Operating Partnership or the Services Company, are accurate in
all material respects and fairly present the information required to be
disclosed therein;

28
<PAGE>

(viii) the execution and delivery of this Agreement have
been duly authorized by all necessary real estate investment trust or
partnership (as applicable) action of the Company and the Operating
Partnership, and this Agreement has been duly executed and delivered by the
Company and the Operating Partnership;

(ix) (A) to such counsel's knowledge and other than as
set forth in the Prospectus, no legal or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party or to
which the property of the Company or any of the Subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not described therein, and to such counsel's knowledge,
no such proceedings have been threatened against the Company or any of the
Subsidiaries or with respect to any of their respective properties and (B)
to such counsel's knowledge, no contract or other document of a character
required to be disclosed in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement is not disclosed
therein or filed as required;

(x) the execution, delivery and performance of this
Agreement by the Company and the Operating Partnership, the consummation of
the transactions contemplated in this Agreement and the Registration
Statement (including the completion of the Pending Acquisitions, the
issuance, offering and sale of the Securities to the Underwriters and the
Series B Preferred Units to the Company and the application of the proceeds
from the sale of the Securities and the Series B Preferred Units as
described under the caption "Use of Proceeds" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
compliance by the Company and the Operating Partnership with their
obligations under this Agreement do not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except the registration under the Act of the Securities and such
as have been obtained and such as may be required under state securities or
blue sky laws, or (B) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, material lease or other material
agreement or material instrument known to such counsel to which the Company
or any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound (the "Material
Agreements"), or the charter documents or by-laws or certificate of limited
partnership or partnership agreement or other organizational document (as
applicable) of the Company or any of the Subsidiaries, or any provision of
any statute, rule or regulation applicable to the Company or the
Subsidiaries, or any judgment, decree or order of any court or other
governmental authority or any arbitrator known to such counsel and
applicable to the Company or the Subsidiaries;

29
<PAGE>

(xi) the execution, delivery and performance of an
amendment to the Operating Partnership Agreement to be dated the date of
the Firm Closing Date (the "Operating Partnership Agreement Amendment")
relating to the issuance of the Series B Preferred Units has been duly
authorized by the Company, as the holder of a majority of the general
partnership interests of the Operating Partnership, and has been duly
executed and delivered by the Company on the Firm Closing Date; the
Operating Partnership Agreement is a valid and binding agreement of the
Operating Partnership, enforceable against the Company and the Operating
Partnership in accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization
and similar laws relating to creditors' rights generally and to the
application of equitable principles in any proceeding, whether at law or in
equity; and the execution and delivery of the Operating Partnership
Agreement Amendment by the Company and the Operating Partnership, the
consummation of the transactions contemplated in the Operating Partnership
Agreement (including the issuance, offering and sale of the Series B
Preferred Units to the Company) and compliance by the Operating Partnership
with its obligations under the Operating Partnership Agreement Amendment do
not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, or (B) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any of
the Material Agreements, or the certificate of limited partnership or the
Operating Partnership Agreement of the Operating Partnership, or any
provision of any statute, rule or regulation applicable to the Operating
Partnership, or any judgment, decree or order of any court or other
governmental authority or any arbitrator known to such counsel and
applicable to the Operating Partnership;

(xii) the Company is not, and (assuming the application by
the Company of the proceeds of the issue and sale of the Securities as
described in the Prospectus under "Use of Proceeds") after giving effect to
the transactions contemplated by this Agreement (including the completion
of the Pending Acquisitions) will not be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;

(xiii) the transfer of interests or other assets pursuant
to the Transfer Documents does not violate the articles or certificate of
incorporation, by-laws, limited liability company agreement, declaration of
trust, certificate of limited partnership, partnership agreement or other
organizational documents, as the case may be, of either of The Prime Group,
Inc. or Prime Group Limited Partnership; each of the Transfer Documents has
been duly authorized, executed and delivered by The Prime Group, Inc. and
Prime Group Limited Partnership and is a valid and binding agreement of The
Prime Group, Inc. and Prime Group Limited Partnership, enforceable in
accordance with its terms, subject to the

30
<PAGE>

effect of bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and similar laws relating to creditors' rights generally and
to the application of equitable principles in any proceeding, whether at
law or in equity;

(xiv) The Articles Supplementary relating to the Preferred
Shares has been filed with the appropriate governmental authority and the
number of Preferred Shares and the title, par value, liquidation
preference, ranking, dividend rate or rates, dividend payment dates,
redemption or sinking fund requirements and other terms of the Preferred
Shares have been set forth therein;

(xv) the Registration Statement has become effective
under the Act; any required filing of the Prospectus pursuant to Rule
424(b) has been made in the manner and within the time period required
thereby; and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceeding for that purpose has been instituted or threatened by the
Commission;

(xvi) the Registration Statement originally filed with
respect to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than the
financial statements and related notes thereto and the other financial,
statistical and accounting data included therein or omitted therefrom, as
to which such counsel need express no opinion) appeared on their face to be
appropriately responsive in all material respects to the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder; and

(xvii) the Company was organized in conformity with the
requirements for qualification as a real estate investment trust under the
Code , and the present method of operation of the Company and the Operating
Partnership as described in the Registration Statement and the Prospectus
and a certificate of a responsible officer of the Company does and will
enable the Company to meet the requirements for taxation as a real estate
investment trust under the Code in the year ended December 31, 1998.

Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Underwriters, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and has not made any independent check
or verification thereof, during the course of such participation (relying as to
the factual matters upon the statements of officers and other representatives of
the Company and public

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<PAGE>

officials) no facts came to the attention of such counsel that caused such
counsel to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date or as
of the Firm Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; it being
understood that such counsel need express no belief with respect to the
financial statements and related notes thereto and the other financial,
statistical and accounting data included in the Registration Statement or the
Prospectus or omitted therefrom.

In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company, the Operating Partnership and public officials and, as
to matters involving the application of laws of any jurisdiction other than the
State of Illinois, the State of New York, the Delaware General Corporation Law
and the Delaware Revised Limited Partnership Act or the United States, to the
extent satisfactory in form, and scope to counsel for the Underwriters, upon the
opinion of Miles and Stockbridge, a Professional Corporation, as to Maryland
law. Copies of such local counsel opinions shall be delivered to the
Representatives and counsel for the Underwriters.

References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.

(c) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
the Underwriters, with respect to the issuance and sale of the Firm Securities,
the Registration Statement and the Prospectus, and such other related matters as
the Representatives may reasonably require, and the Company shall have furnished
to such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.

(d) The Representatives shall have received from Ernst & Young
LLP, a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that:

(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries and the Prime Properties, the
Prime Contribution Properties and the IBD Properties, the NAC Properties,
Citibank Office Plaza, Salt Creek Office Center, 280 Shuman Boulevard, 475
Superior Avenue, Continental Office Towers, 180 North LaSalle Street, 2675
Mayfair, 33 North Dearborn, Commerce Point, 208 South LaSalle

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<PAGE>

Street, 122 South Michigan Avenue, 6400 Shafer Courtyard and Two Century
Center within the meaning of the Act and the applicable rules and
regulations thereunder;

(ii) in their opinion, the audited consolidated financial
statements and schedules and pro forma financial statements examined by
them and included in the Registration Statement and the Prospectus comply
in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;

(iii) on the basis of a reading of the latest available
interim unaudited consolidated condensed financial statements of the
Company, the Prime Properties, the Prime Contribution Properties and the
IBD Properties, the NAC Properties, Citibank Office Plaza, Salt Creek
Office Center, 280 Shuman Boulevard, 475 Superior Avenue, Continental
Office Towers, 180 North LaSalle Street, 2675 Mayfair, 33 North Dearborn,
Commerce Point, 208 South LaSalle Street, 122 South Michigan Avenue, 6400
Shafer Courtyard and Two Century Center, carrying out certain specified
procedures (which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the
board of trustees and any committees thereof of the Company and inquiries
of certain officials of the Company who have responsibility for financial
and accounting matters, nothing came to their attention that caused them to
believe that:

(A) at a specific date (not more than five business
days prior to the date of such letter), there were any increases in
debt or accumulated deficit of the Prime Properties or any decreases
in total assets of the Prime Properties, in each case as compared with
amounts shown in the December 31, 1997 combined balance sheet included
in the Registration Statement and the Prospectus, or for the period
from January 1, 1998 to March 31, 1998, there were any decreases, as
compared with the corresponding period of the previous year, in rental
income, total revenues or net income (as applicable) of the Prime
Properties, the Prime Contribution Properties and the IBD Properties,
the NAC Properties, Citibank Office Plaza, Salt Creek Office Center,
280 Shuman Boulevard, 475 Superior Avenue, Continental Office Towers,
180 North LaSalle Street, 2675 Mayfair, 33 North Dearborn, Commerce
Point, 208 South LaSalle Street, 122 South Michigan Avenue, 6400
Shafer Courtyard and Two Century Center, except in all instances for
changes, increases or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur; and

33
<PAGE>

(B) at a specific date (not more than five business
days prior to the date of such letter), with respect to the Prime
Properties, there were any increases in borrowings as compared with
amounts shown in the December 31, 1997 balance sheet included in the
Registration Statement and the Prospectus, except in all instances for
changes or increases which the Registration Statement and the
Prospectus disclose have occurred or may occur.

(iv) they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages and
financial information identified by the Representatives that are derived
from the general accounting records of the Company and its consolidated
subsidiaries and are included in the Registration Statement and the
Prospectus and have compared such amounts, percentages and financial
information with such records of the Company and its consolidated
subsidiaries and with information derived from such records and have found
them to be in agreement, excluding any questions of legal interpretation;
and

(v) on the basis of a reading of the unaudited pro forma
condensed consolidated financial statements included in the Registration
Statement and the Prospectus, carrying out certain specified procedures
that would not necessarily reveal matters of significance with respect to
the comments set forth in this paragraph (v), inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters and proving the
arithmetic accuracy of the application of the pro forma adjustments to the
historical amounts in the unaudited pro forma condensed consolidated
financial statements, nothing came to their attention that caused them to
believe that the unaudited pro forma condensed consolidated financial
statements do not comply in form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.

In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters under this Agreement that (A) such letters shall
be accompanied by a written explanation of the Company as to the significance
thereof, unless the Representatives deem such explanation unnecessary, and (B)
such changes, decreases or increases do not, in the sole judgment of the
Representatives, make it impractical or inadvisable to proceed with the purchase
and delivery of the Securities as contemplated by the Registration Statement, as
amended as of the date hereof.

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<PAGE>

References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.

(e) The Representatives shall have received a certificate, dated
the Firm Closing Date, of the chief executive officer and the principal
financial or accounting officer of the Company to the effect that:

(i) the representations and warranties of the Company and
the Operating Partnership in this Agreement are true and correct as if made
on and as of the Firm Closing Date; the Registration Statement, as amended
as of the Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and each of the Company and the
Operating Partnership has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date;

(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
best of the Company's or the Operating Partnership's knowledge, are
contemplated by the Commission; and

(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has sustained any material
loss or interference with their respective businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects, net
worth or results of operations of the Company and its subsidiaries, taken
as a whole, except in each case as described in or contemplated by the
Registration Statement and the Prospectus (exclusive of any amendment or
supplement thereto).

(f) The Representatives shall have received from each executive
officer and trustee an agreement to the effect that such person will not,
directly or indirectly, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, offer, sell, offer

35
<PAGE>

to sell, contract to sell, pledge, grant any option to purchase or otherwise
sell or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of an option to purchase or other sale or disposition) of any
Preferred Shares or any securities convertible into, or exchangeable or
exercisable for, Preferred Shares or other securities of the Company which are
substantially similar to the Preferred Shares, for a period of 90 days after the
date of this Agreement, shall continue to be in effect and shall not be amended
or revoked without the prior written consent of Prudential Securities
Incorporated.

(g) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.

(h) Prior to the commencement of the offering of the Securities,
the Securities shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.

(i) On or prior to the Firm Closing Date, the Company will cause
the Articles Supplementary relating to the Preferred Shares to be filed with the
appropriate governmental authority.

All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.

The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.

8. Indemnification and Contribution. (a) Each of the Company and the
Operating Partnership, jointly and severally, agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934 (the "Exchange Act"), against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:

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<PAGE>

(i) any untrue statement or alleged untrue statement made
by the Company or the Operating Partnership in Section 2 of this Agreement,

(ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other document,
or any amendment or supplement thereto, executed by the Company or based
upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"),

(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to
make the statements therein not misleading or

(iv) any untrue statement or alleged untrue statement of
any material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including, without
limitation, slides, videos, films and tape recordings,

and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that neither the Company nor the
Operating Partnership will be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and provided, further, that neither the Company
nor the Operating Partnership will be liable to any Underwriter or any person
controlling such Underwriter with respect to any such untrue statement or
omission made in any Preliminary Prospectus that is corrected in the Prospectus
(or any amendment or supplement thereto) if the person asserting any such loss,
claim, damage or liability purchased Securities from such Underwriter but was
not sent or given a copy of the Prospectus (as amended or supplemented) at or
prior to the written confirmation of the sale of such Securities to such person
in any case where such delivery of the Prospectus (as amended or supplemented)
is required by the Act, unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of noncompliance by the

37
<PAGE>

Company or the Operating Partnership with Section 5(d) and (e) of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company or the Operating Partnership may otherwise have. Neither the Company
nor the Operating Partnership will, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of all of the Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.

(b) Each Underwriter, severally and not jointly, will indemnify
and hold harmless the Company, each of its trustees (including any person who,
with his or her consent, is named in the Registration Statement as about to
become a trustee of the Company), each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which the Company or any such
trustee, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such trustee, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have. No Underwriter will,
without the prior written consent of the Company, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not the Company, any of its trustees or officers who signed the
Registration Statement or any person who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or

38
<PAGE>

consent includes an unconditional release of the Company, its trustees and
officers who signed the Registration Statement and such controlling persons from
all liability arising out of such claim, action, suit or proceeding.

(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
(i) any liability which it may have to any indemnified party under this Section
8 except to the extent that the indemnifying party has been materially
prejudiced as a result thereof or (ii) any liability which it may have to any
indemnified party otherwise than under this Section 8. In case any such action
is brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.

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<PAGE>

(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 8 is unavailable or
insufficient, for any reason, to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Operating
Partnership on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering of the
Securities (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Operating Partnership and the Underwriters
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to above
in this paragraph (d). Notwithstanding any other provision of this paragraph
(d), no Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities purchased
by such Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise been required to pay in respect of
the same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
the Company and the Operating Partnership shall be deemed one party and jointly
and severally liable for any obligations to contribute hereunder and each
director of the Company,

40
<PAGE>

each officer of the Company who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company and the Operating Partnership.

9. Default of Underwriters. If one or more Underwriters default in
their obligations to purchase Firm Securities or Option Securities hereunder and
the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company or the Operating
Partnership other than as provided in Section 10 hereof. In the event of any
default by one or more Underwriters as described in this Section 9, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary changes
may be made in the arrangements or documents for the purchase and delivery of
the Firm Securities or Option Securities, as the case may be. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 9. Nothing herein shall relieve any defaulting
Underwriter from liability for its default.

10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Operating Partnership and the several Underwriters set forth in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, the Operating
Partnership, any Underwriter or any controlling person referred to in Section 8
hereof and (ii) delivery of and payment for the Securities. The respective
agreements, covenants, indemnities and other statements

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<PAGE>

set forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.

11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company or
the Operating Partnership shall have failed, refused or been unable to perform
all obligations and satisfy all conditions on its part to be performed or
satisfied hereunder at or prior thereto or, if at or prior to the Firm Closing
Date or such Option Closing Date, respectively,

(i) the Company or any of its subsidiaries shall have, in
the sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as whole,
except in each case as described in or contemplated by the Registration
Statement and the Prospectus (exclusive of any amendment or supplement
thereto);

(ii) trading in the Preferred Shares shall have been
suspended by the Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been
suspended or minimum or maximum prices shall have been established on such
exchange;

(iii) a banking moratorium shall have been declared by New
York, Illinois or United States authorities; or

(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or material
adverse change in general economic, political or financial conditions
having an effect on the U.S. financial markets that, in the sole judgment
of the Representatives, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated by
the Registration Statement, as amended as of the date hereof.

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<PAGE>

(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Sections 6 and 10 hereof.

12. Information Supplied by Underwriters. The statements set forth
in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute the only information
furnished by any Underwriter through the Representatives to the Company for the
purposes of Sections 2(b) and 8 hereof. The Underwriters confirm that such
statements (to such extent) are correct.

13. Notices. All communications hereunder shall be in writing and,
if sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention:
[__________________] Group; and if sent to the Company, shall be delivered or
sent by mail, telex or facsimile transmission and confirmed in writing to the
Company at 77 W. Wacker Drive, Suite 3900, Chicago, Illinois 60601, Attention:
Chief Executive Officer, with a copy to the Company at 77 W. Wacker Drive, Suite
3900, Chicago, Illinois 60601, Attention: General Counsel (facsimile number:
(312) 917-1684).

14. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company, the Operating
Partnership and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company and the Operating
Partnership contained in Section 8 of this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons who
control the Company within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.

15. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.

43
<PAGE>

16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, each of the Company and the
Operating Partnership accepts for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non conveniens and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this Agreement.
The Company designates and appoints The Corporation Trust Inc. and the Operating
Partnership designates and appoints The Corporation Trust Company, and such
other persons as may hereafter be selected by each of the Company and the
Operating Partnership irrevocably agreeing in writing to so serve, as its agent
to receive on its behalf service of all process in any such proceedings in any
such court, such service being hereby acknowledged by each of the Company and
the Operating Partnership to be effective and binding service in every respect.
A copy of any such process so served shall be mailed by registered mail to each
of the Company and the Operating Partnership at its address provided in Section
13 hereof; provided, however, that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by the Company or the Operating Partnership
refuses to accept service, each of the Company and the Operating Partnership
hereby agrees that service of process sufficient for personal jurisdiction in
any action against the Company or the Operating Partnership in the State of New
York may be made by registered or certified mail, return receipt requested, to
the Company or the Operating Partnership at its address provided in Section 13
hereof, and each of the Company and the Operating Partnership hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against each of the Company and the Operating Partnership in the
courts of any other jurisdiction.

17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

44
<PAGE>

If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, the
Operating Partnership and each of the several Underwriters.

Very truly yours,

PRIME GROUP REALTY TRUST

By: _____________________________________
Name:
Title:

PRIME GROUP REALTY, L.P.

By: Prime Group Realty Trust,
its managing general partner

By: _____________________________________
Name:
Title:
<PAGE>

The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
LEGG MASON WOOD WALKER, INCORPORATED
MORGAN KEEGAN & COMPANY, INC.

By: PRUDENTIAL SECURITIES INCORPORATED

By:____________________________________
Name:
Title:

For itself and on behalf of the Representatives as
Representatives of the other several Underwriters
named in Schedule 1 hereto
<PAGE>

SCHEDULE 1

UNDERWRITERS
============

<TABLE>
<CAPTION>
Number of
Firm Securities
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Prudential Securities Incorporated............................ [ ]

Bear, Stearns & Co. Inc....................................... [ ]

Friedman, Billlings, Ramsey & Co., Inc........................ [ ]

Legg Mason Wood Walker, Incorporated.......................... [ ]

Morgan Keegan & Company, Inc.................................. [ ]

Total......................................................... 5,000,000
=========
</TABLE>

1-1
<PAGE>

SCHEDULE 2
----------

OWNERSHIP OF OPERATING PARTNERSHIP
----------------------------------
<TABLE>
<CAPTION>

Number of Percentage of
Managing General Partner Common Units All Common Units
- ------------------------ ------------ ----------------
<S> <C> <C>

Prime Group Realty Trust 12,380,000 55.3%

General Partner
- ---------------

The Nardi Group, L.L.C. 927,100 4.1

Limited Partners
- ----------------

Prime Group Limited Partnership 90,000 0.5

Jeffrey A. Patterson 110,000 0.5

Primestone Investment Partners, L.P. 7,944,893 35.5

IBD Contributors/1/ 919,450 4.1
------- -----

Total 22,371,443.00 100.0%
============= =====
</TABLE>

<TABLE>
<CAPTION>
Number of Preferred Percentage of
Units/2/ Preferred Units
-------- ---------------
<S> <C> <C>
Managing General Partner
- ------------------------
Prime Group Realty Trust 2,000,000 100.0%

</TABLE>

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

/1/ The IBD Contributors consist of the following persons or entities: 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 S.
Shubert, Grandville Road Property, Inc. and Sky Harbor Associates.

/2/ Represents preferred units, the terms and conditions of which correspond to
the Convertible Preferred Shares issued by the Company.

2-1
<PAGE>

SCHEDULE 3
==========

ENVIRONMENTAL SITE ASSESSMENTS AND ENGINEERING REPORTS
------------------------------------------------------

A. Environmental Site Assessments:
------------------------------

1. Ogden, Level I Site Assessment, Hilton Parking Garage, 500 Clinch
Ave., Knoxville, June 5, 1997.

2. Ogden, Level I Site Assessment, One Center Square Office Building, 620
Market Street, Knoxville, June 5, 1997.

3. Ogden, Level I Site Assessment, Two Center Square Office Building, 625
Gay Street, Knoxville, June 5, 1997.

4. Ogden, Level I Site Assessment, Suntrust Bank Building, 201 Fourth
Ave, North, Nashville, June 5, 1997. No issues. Also 1993 Ogden Phase
I.

5. Ogden, Level I Site Assessment, The Weston, 4823 Old Kingston Pike,
Knoxville, June 12, 1997.

6. Foth & Van Dyke, Summary Environmental Report, Chicago Enterprise
Center, Nov. 1995.

7. Versar, Phase I, Hammond Enterprise Center, Nov. 1995.

8. Podolsky & Northstar, Underground Tank Removal Report, Citibank Office
Plaza, 1699 E. Woodfield Rd., Schaumburg, IL, Aug. 6, 1996.

9. Certified Engineering & Testing Co., Asbestos Audit Report and
Transformer Survey, Citicorp Office Building, 1900 Spring Road,
Oakbrook, IL, Mar. 17, 1989.

10. Environmental Hazard Control, Closeout Document, Vinyl Asbestos Floor
Tile and Mastic Removal, Citibank Office Plaza, 1699 E. Woodfield Rd.,
Schaumburg, IL, July 26, 1994.

11. Carlson Environmental, Draft Phase I Environmental Assessment, 1699
East Woodfield Rd., Schaumburg, IL., Citicorp Office Plaza, June 22,
1997.

12. Chicago Flameproof, Meta Caulk Fire Stopping Proposal, Mar. 13, 1997.

13. Environmental Remediation and Indemnity Agreement, May 20, 1996.

14. STS, Environmental Reconnaisance and Subsurface Exploration, 77 West
Wacker Drive, Dec. 1989.

15. Carlson Environmental, Revised Phase I Environmental Assessment, 77
West Wacker Drive, Chicago, IL, May 20, 1997.

16. Carlson Environmental, Inc., Phase I of 455 Academy Drive, Northbrook,
IL, May 28, 1997.

3-1
<PAGE>

17. Carlson Environmental, Limited Subsurface Soil Investigation Proposal,
Gurnee, IL, July 9, 1997.

18. Pioneer Environmental, Phase I Environmental Site Assessment, 1001
Technology Way, Libertyville, IL, July 11, 1996.

19. Carlson Environmental, Phase I Assessment Update, 1001 Technology Way,
Libertyville, IL, May 2, 1997.

20. Green Environmental Group, Phase I of vacant property in McHenry, IL,
July 1994.

21. Carlson Environmental, Draft Phase I Environmental Assessment, 1301
Ridgewood Drive, McHenry, IL, May 2, 1997.

22. Heritage, Hammond Enterprise Center Remediation Work Plan, Feb. 28,
1997.

23. Heritage, East Chicago Enterprise Center Remediation Work Plan, Feb.
28, 1997.

24. Burgess & Niple, Phase I Environmental Site Assessments, Columbus
Portfolio Properties, April 1997.

25. Burgess & Niple, Phase 2 Environmental Site Assessment of 4411
Marketing Place, Groveport, OH (Wes-Tran), June 1977.

26. Burgess & Niple, Letter regarding soil testing of AutoGlass site, 4849
Grovepoint, Obetz, OH, July 15, 1997.

27. Carlson Environmental, Draft Phase I Environmental Assessment, 370
Carol Lane, Elmhurst, IL, Oct. 13, 1997.

28. Carlson Environmental, Draft Phase I Environmental Assessment, 11039
Gage Ave, Franklin Park, IL, Oct. 13, 1997.

29. Carlson Environmental, Draft Phase I Environmental Assessment, 388
Carol Lane, Elmhurst, IL, Oct. 13, 1997.

30. Carlson Environmental, Draft Phase I Environmental Assessment, 11045
Gage Ave., Franklin Park, IL, Oct. 13, 1997

31. Jamrok, Environmental Assessment of North Western Proviso Center, 5600
Proviso Drive, Berkely, IL, May 31, 1994.

32. Carlson Environmental, Draft Phase I, 5600 Proviso Drive, Berkely, IL,
Oct. 16, 1997.

33. Boelter, Phase I Environmental Assessment, 342-346 Carol Lane,
Elmhurst, IL, Mar. 25, 1994.

34. Carlson Environmental, Draft Phase I Environmental Report, 342-346
Carol Lane, Elmhurst, IL, Oct. 16, 1997.

3-2
<PAGE>

35. Boelter, Phase I Environmental Assessment, 343 Carol Lane, Elmhurst,
IL, Mar. 25, 1994.

36. Carlson Environmental, Draft Phase I Environmental Assessment, 343
Carol Lane, Elmhurst, IL, Oct. 17, 1997.

37. Jamrok, Phase I of 1600-1700 167th St. Calumet City, IL, 1992.

38. Carlson, Draft Phase I Environmental Assessment, 1600-1700 167th St.,
Calumet City, IL, Oct. 16, 1997.

39. Jamrok, Phase I of 200 E. Fullerton, Carol Stream, IL, Nov. 15, 1993.

40. Carlson Environmental, Draft Phase I Environmental Assessment of 200
E. Fullerton, Carol Stream, IL, Oct. 17, 1997.

41. Jamrok, Environmental Inspection of Narco-Elmhurst Center, 961 Weigel
Dr., Elmhurst, IL, May 31, 1990.

42. Carlson Environmental, Draft Phase I Environmental Assessment, 961
Weigel Drive., Elmhurst, IL, Oct. 16, 1997.

43. Carlson Environmental, Phase I Environmental Assessment of Vacant
Parcel, 300 Craig Place, Hillside, IL. May 21, 1996.

44. Carlson Environmental, Draft Phase I Environmental Site Assessment,
300-320 Craig Place, Hillside, IL, Oct. 17, 1997.

45. Carlson Environmental, Phase I Environmental Assessment of 550 Kehoe
Blvd., Carol Stream. IL, July 10, 1996.

46. Carlson Environmental, Draft Phase I Environmental Assessment, 550
Kehoe Blvd., Carol Stream, IL, Oct. 16, 1997.

47. Jamrok, Environmental Assessment of 4100 Madison, Hillside, IL, June
3, 1992.

48. Carlson, Draft Phase I Environmental Assessment, 4100 Madison St.,
Hillside, IL, Oct. 17, 1997.

49. Carlson, Draft Phase I of Nine Vacant Lots, Carol Stream, IL, Oct. 16,
1997.

50. Jamrok, Environmental Assessment of 4343 Commerce Ct, Lisle, IL, Mar.
29, 1989.

51. Carlson Environmental, Draft Phase I Environmental Assessment, 4343
Commerce Ct., Lisle, IL, Oct. 15, 1997.

52. Jamrok, Environmental Assessment of 4250-4300 Madison, Hillside, IL,
Feb. 29, 1992.

53. Carlson Environmental, Draft Phase I Environmental Assessment, 4300
Madison St., Hillside, IL, Oct. 17, 1997.

3-3
<PAGE>

54. Jamrok, Environmental Assessment of 1051 Kirk Rd, Batavia, IL, Mar. 1,
1990.

55. Carlson, Draft Phase I Environmental Assessment, 1051 Kirk Rd.,
Batavia, IL, Oct. 17, 1997.

56. Jamrok, Phase I Environmental Audit of 350 Randy Road, Carol Stream,
IL. May 31, 1991.

57. Carlson, Draft Phase I Environmental Assessment, 350 Randy Road, Carol
Stream, IL, Oct. 17, 1997.

58. Carlson Environmental, Draft Phase I Environmental Assessment, 130 E.
Rawls Rd., Des Plaines, IL, Oct. 15, 1997.

59. Jamrok, Phase I of 1401 S. Jefferson, Chicago, IL, Nov. 26, 1991.

60. Carlson Environmental, Draft Phase I Environmental Assessment of 1401
S. Jefferson, Chicago, IL, Oct. 16, 1997.

61. Carlson Environmental, Draft Phase I Environmental Assessment, 1303
Tower Rd., Schaumburg, Il, Oct. 16, 1997.

62. Carlson, Draft Phase I Environmental Assessment, 2050 Hammond Drive,
Schaumburg, IL, Oct. 15, 1997.

63. Carlson Environmental, Draft Phase I Environmental Assessment, 371-385
N. Gary Ave., Carol Stream, IL, Oct. 16, 1997.

64. Carlson Environmental, Draft Phase I Environmental Assessment, 1200
Northwestern Ave./3818 Grandville Ave., Gurnee, IL, May 9, 1997.

65. Carlson Environmental, Draft Phase I Environmental Assessment, 555
Heuhl Rd., Northbrook, IL., 5/8/97; and addendum, June 5, 1997.

66. Carlson Environmental, Draft Phase I Environmental Assessment, 306-310
Era Drive, Northbrook, IL, May 2, 1997, addendum, May 28, 1997.

67. Carlson Environmental, Phase I Environmental Assessment, Salt Creek
Office Center, Schaumburg, IL, Aug. 22, 1997.

68. Carlson Environmental, Draft Phase I Environmental Assessment, 4160-
4190 Madison, Hillside, IL, Oct. 17, 1997.

69. Carlson Environmental, Draft Phase I Environmental Assessment, 4211
Madison Street, Hillside, IL, Oct. 17, 1997.

70. Carlson Environmental, Draft Phase I Environmental Site Assessment,
350 North Mannheim Rd., Hillside, IL, Oct. 16, 1997.

71. Carlson Environmental, Draft Phase I Environmental Assessment, Two
Vacant Lots, Batavia, IL, Oct. 17, 1997.

3-4
<PAGE>

72. Carlson Environmental, Draft Phase I Environmental Assessment of 280
Shulman Blvd., Naperville, IL, Oct. 21, 1997.

73. Carlson Environmental, Draft Phase I Environmental Assessment of 475
Superior Ave., Munster, IN, Oct. 21, 1997.

74. Carlson Environmental, Phase I Environmental Assessment Update of 425
East Algonquin Road, Arlington Heights, IL Oct. 21, 1997.

75. Carlson Environmental, Phase I Environmental Assessment, 77 West
Wacker Drive, August 20, 1997, plus correspondence dated November 11,
1997.

76. Carlson Environmental, Draft Phase I Environmental Assessment, 2205-
2255 Enterprise Drive, Westchester, IL.

77. Carlson Environmental, Removal Site Evaluation and Preliminary
Assessment Event and Work Plan (1/97) and Event and Report (4/97),
13535 S. Torrence Ave., Chicago, IL.

78. Carlson Environmental, Inc., Phase I Environmental Assessment, 2100
Swift Drive, Oak Brook, IL., April 3, 1998.

79. Carlson Environmental, Inc., Phase I Environmental Assessment Report,
Commerce Point, Arlington Heights, IL., Feb. 5, 1998.

80. Carlson Environmental, Inc., Phase I Environmental Assessment, Phoenix
Home Life Bldg., Wauwatosa, WI, Dec. 12, 1997. Carlson Environmental,
Inc., Phase I Environmental Assessment Addendum, Feb. 19, 1998.

81. Carlson Environmental, Inc., Phase I Environmental Assessment, Peoples
Gas Bldg, Chicago, IL, Dec. 19, 1997.

82. Carlson Environmental, Inc., Phase I Environmental Assessment, 208
South LaSalle St, Chicago, IL, Mar. 23, 1998.

83. Carlson Environmental, Inc., Phase I Environmental Assessment, 33
North Dearborn Bldg, Chicago, IL, Dec. 12, 1997.

84. Carlson Environmental, Inc., Draft Phase I Environmental Assessment,
180 North LaSalle Street, Chicago, IL., Nov. 18, 1997. Carlson
Environmental Inc., Phase I Environmental Assessment Addendum, Dec.
30, 1997.

85. Carlson Environmental, Inc., Phase I Environmental Assessment,
Continental Towers, Rolling Meadows, IL, Jan. 23, 1998.

86. Carlson Environmental, Inc., Phase I Environmental Assessment, 63-acre
Vacant Parcel - Aurora, IL, Apr. 24, 1998.

3-5
<PAGE>

87. Carlson Environmental, Inc., Phase I Environmental Assessment, 125-
acre Vacant Parcel - Aurora, IL, Apr. 24, 1998.

B. Engineering Reports;
-------------------

1. Wiss, Janney Engineering Report for the following Properties to be
contributed by NAC Contributors:

a. 1401 Jefferson St.
b. 4211 Madison
c. 200 E. Fullerton
d. 350 Randy Rd.
e. 4300 Madison
f. 388 Carol Lane
g. 961 Weigel
h. 4100-4190 Madison
i. 4343 Commerce Ct.
j. 5600 Proviso Dr.
k. 11039 Gage Ave.
l. 11045 Gage Ave.
m. 300-320 Craig Pl.

2. Wiss, Janney, Walkthrough Inspection of Eight Industrial Properties of
the Brazos Industrial Portfolio, 4/17/97, for the following
Properties:

a. 4849 Groveport
b. 2160 McGaw Rd.
c. 2400 McGaw Rd.
d. 2499 McGaw
e. 4411 Marketing
f. 5160 Blazer
g. 341 Enterprise
h. 600 London Rd.

3. Wiss, Janey, Draft 3 Engineering Walkthrough for Citibank Office Plaza
and Salt Creek Office Center, 7/14/97.

4. Wiss, Janey, Draft Engineering Walkthrough for the following IBD
Industrial Properties:

a. 515 Heuhl Rd.
b. 555 Heuhl Rd.
c. 455 Academy Dr.
d. 306-310 Era
e. 1200 Northwest
f. 1001 Technology Way
g. 1301 Ridgeview

3-6

<PAGE>

Exhibit 3.12

AMENDMENT NO. 8 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF PRIME GROUP REALTY, L.P.

This AMENDMENT NO. 8 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF PRIME GROUP REALTY, L.P. (this "Amendment") is made as of May 15,
1998 by Prime Group Realty Trust, a Maryland real estate investment trust
("PGRT"), as the Managing General Partner of Prime Group Realty, L.P., a
Delaware limited partnership (the "Partnership"), and on behalf of the other
Partners (as hereinafter defined). Capitalized terms used but not otherwise
defined herein shall have the meanings given to such terms in the Amended and
Restated Agreement of Limited Partnership of the Partnership, dated as of
November 17, 1997, by and among PGRT and the other parties signatory thereto, as
amended thereafter (as so amended, the "Limited Partnership Agreement").

W I T N E S S E T H:

WHEREAS, pursuant to Section 4.3.C. of the Limited Partnership Agreement,
the Managing General Partner may raise all or any portion of Additional Funds
required by the Partnership for the acquisition of additional properties by
accepting additional Capital Contributions, including the issuance of Common
Units for Capital Contributions that consist of property or interests in
property;

WHEREAS, pursuant to that certain Exchange Agreement dated as of December
15, 1997 by and between H Group LLC, a Delaware limited liability company
("HG"), and the Partnership (the "Exchange Agreement"), HG agreed, among other
things, to grant to the Partnership an option (the "First Option") to exchange
the Underlying Option (as defined in the Exchange Agreement) for 220,000 Common
Units of Limited Partner Interest (subject to adjustment pursuant to the terms
of the Exchange Agreement), which grant of the First Option contemplated the
transfer by the Partnership to HG of 5,000 Common Units of Limited Partner
Interest on the date thereof and, subject to the terms of the First Option,
5,000 Common Units of Limited Partner Interest (subject to adjustment pursuant
to the terms of the Exchange Agreement) on the 15th day of each month thereafter
(each such transfer a "First Option Maintenance Transfer") for such number of
months set forth in the Exchange Agreement;

WHEREAS, the Partnership has agreed to the terms of the grant by HG of the
First Option set forth in the Exchange Agreement and desires to effect the First
Option Maintenance Transfer due on May 15, 1998;

WHEREAS, HG was admitted to the Partnership as an Additional Limited
Partner as of December 15, 1997 pursuant to Amendment No. 2 to the Limited
Partnership Agreement;
<PAGE>

WHEREAS, the Partners desire to amend the Limited Partnership Agreement to
reflect the increase in outstanding Common Units resulting from the issuance of
Common Units to HG in connection with the First Option Maintenance Transfer due
on May 15, 1998;

WHEREAS, on March 31, 1998, (i) 10,000 Common Shares were issued in a grant
to William M. Karnes pursuant to the terms of Mr. Karnes' employment agreement
with PGRT and (ii) 2,500 Common Shares were issued in a grant to Stephen J.
Nardi pursuant to the terms of Mr. Nardi's consulting agreement with PGRT (such
2,500 Common Shares, together with the 10,000 Common Shares referred to in
clause (i) of this sentence, are collectively referred to herein as the "Grant
Shares");

WHEREAS, for purposes of the Grant Shares, PGRT will be deemed to have
compensated Messrs. Karnes and Nardi in cash, that Messrs. Karnes and Nardi in
turn paid cash for the Grant Shares and that PGRT then contributed such cash to
the Partnership in exchange for Common Units corresponding to the Grant Shares;

WHEREAS, the Partners desire to amend the Limited Partnership Agreement to
reflect the increase in outstanding Common Units as a result of the issuance of
12,500 Common Units to PGRT in connection with the issuance and grant by PGRT of
the Grant Shares to the Purchasers; and

WHEREAS, Sections 2.4 and 12.3 of the Limited Partnership Agreement
authorizes, among other things, the Managing General Partner, as true and lawful
agent and attorney-in fact, to execute, swear to, acknowledge, deliver, file and
record this Amendment on behalf of each Partner that has executed the Limited
Partnership Agreement and on behalf of the Partnership.

NOW, THEREFORE, for good and adequate consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

Section 1. Acceptance of Capital Contribution in Exchange for Common
Units. (a) PGRT, as Managing General Partner and on behalf of the Partnership,
hereby accepts the grant of the rights consisting of the First Option during the
sixth month of the term of the First Option from HG as a Capital Contribution
having a value on the date hereof of $100,000, in exchange for 5,000 Common
Units of Limited Partner Interest which are hereby issued by the Partnership to
HG pursuant to Section 4.3.C. of the Limited Partnership Agreement, and which
are evidenced by Common Unit Certificate No. 29 of the Partnership.

(b) Each of the Common Units of Limited Partner Interest issued to HG
pursuant to this Section 1 shall have the same terms and provisions of the
Common Units of Limited Partner Interest issued by the Partnership on November
17, 1997 except that (i) the

-2-
<PAGE>

Exchange Rights relating thereto may be exercised at any time after December 15,
1998 (as opposed to November 17, 1998) and (ii) such Common Units of Limited
Partner Interest will be subject to the Registration Rights Agreement dated as
of December 15, 1997 by and among PGRT, the Partnership and HG as opposed to the
Registration Rights Agreement entered into by PGRT and the Partnership on
November 17, 1997.

Section 2. Issuance of Common Units Corresponding to the Grant Shares. The
Partnership hereby issues, effective as of March 31, 1998, 12,500 Common Units
of General Partner Interest to PGRT, which shall correspond to the Grant Shares.
Such Common Units of General Partner Interest issued pursuant to this Section 2
shall not be evidenced by a Common Unit certificate unless hereafter requested
by PGRT.

Section 3. Amendment of Exhibit A to the Limited Partnership Agreement.
Exhibit A to the Limited Partnership Agreement is hereby amended and restated to
reflect the aforementioned change(s) by deleting Exhibit A attached thereto in
its entirety, and by attaching in lieu thereof a replacement exhibit in the form
of Exhibit A attached hereto. From and after the effectiveness of this
Amendment, the amended and restated Exhibit A attached hereto shall be the only
Exhibit A to the Limited Partnership Agreement, unless and until it is hereafter
further amended.

Section 4. Reference to and Effect on the Limited Partnership Agreement.

A. The Limited Partnership Agreement is hereby deemed to be amended
to the extent necessary to effect the matters contemplated by this Amendment.
Except as specifically provided for hereinabove, the provisions of the Limited
Partnership Agreement shall remain in full force and effect.

B. The execution, delivery and effectiveness of this Amendment shall
not operate (i) as a waiver of any provision, right or obligation of the
Managing General Partner, the other General Partner or any Limited Partner under
the Limited Partnership Agreement except as specifically set forth herein or
(ii) as a waiver or consent to any subsequent action or transaction.

Section 5. Applicable Law. This Amendment shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.

[signature page follows]

-3-
<PAGE>

AMENDMENT NO. 8 TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF PRIME
GROUP REALTY, L.P.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.

MANAGING GENERAL PARTNER:
------------------------

PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust

By: /s/ William M. Karnes
---------------------------------

Name: William M. Karnes

Title: Executive Vice President

LIMITED PARTNERS:
----------------

Each Limited Partner hereby executes
this Amendment to the Limited
Partnership Agreement.

By: PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, as attorney-in fact

By: /s/ William M. Karnes
----------------------------

Name: William M. Karnes

Title: Executive Vice President

326700.1

-4-
<PAGE>

EXHIBIT A/*/

Partners, Number of Units and Capital Contributions

<TABLE>
<CAPTION>
Number of Capital
Managing General Partner Common Units Contribution
- ------------------------ ------------ ------------
<S> <C> <C>
Prime Group Realty Trust 15,572,494 /**/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman

General Partner
- ---------------

The Nardi Group, L.L.C. 972,100 $18,542,000
c/o Stephen J. Nardi
4100 Madison Street
Hillside, IL 60162

Limited Partners
- ----------------

Edward S. Hadesman 388,677 $ 7,773,540
Trust Dated May 22, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614

Grandville/Northwestern 9,750 $ 195,000
Management Corporation
c/o Edward S. Hadesman
2500 North Lakeview, unit 1401
Chicago, IL 60614

Carolyn B. Hadesman 54,544 $ 1,090,880
Trust Dated May 21, 1992
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614
</TABLE>

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

/*/ As amended by Amendment No. 8 to the Amended and Restated Agreement of
Limited Partnership of Prime Group Realty, L.P.

/**/ This amount shall be inserted by the Managing General Partner.
<PAGE>

EXHIBIT A - CONT'D

Partners, Number of Units and Capital Contributions

<TABLE>
<CAPTION>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- ------------ ------------
<S> <C> <C>
Lisa Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614

Cynthia Hadesman 1991 Trust 169,053 $3,381,060
c/o Edward S. Hadesman
2500 North Lakeview, Unit 1401
Chicago, IL 60614

Tucker B. Magid 33,085 $ 661,700
545 Ridge Road
Highland Park, IL 60035

Frances S. Shubert 28,805 $ 576,100
511 Lynn Terrace
Waukegan, IL 60085

Grandville Road Property, Inc. 7,201 $ 144,020
c/o Ms. Frances S. Shubert
511 Lynn Terrace
Waukegan, IL 60085

Sky Harbor Associates 62,149 $1,242,980
c/o Howard I. Bernstein
6541 North Kilbourn
Lincolnwood, IL 60646

Jeffrey A. Patterson 110,000 $2,200,000
c/o Prime Group Realty Trust
77 West Wacker Drive
Suite 3900
Chicago, IL 60601

Primestone Investment Partners, L.P. 7,944,893 /**/
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Paul A. Roehri

- ---------------------------
</TABLE>

/**/ This amount shall be inserted by the Managing General Partner.

<PAGE>

EXHIBIT A - CONT'D

Partners, Number of Units and Capital Contributions

<TABLE>
<CAPTION>
Number of Capital
Limited Partners (Cont'd) Common Units Contribution
- ------------------------- ------------ ------------
<S> <C> <C>
Prime Group Limited Partnership 47,525 $ 950,500
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Michael W. Reshcke
Robert J. Rudnik

H Group LLC 281,572 $5,500,000
c/o Heitman Financial Ltd.
180 N. LaSalle
Suite 3600
Chicago, IL 60601
Attn: Norman Perlmutter

Ray R. Grinvalds 5,216 $ 104,320
217 Deer Valley Drive
Barrington, IL 60010

Warren H. John 37,259 $ 745,180
1730 N. Clark Street
Chicago, IL 60614

</TABLE>
<PAGE>

EXHIBIT A - CONT'D

Partners, Number of Units and Capital Contributions

<TABLE>
<CAPTION>
Number of Convertible Capital
Managing General Partner Preferred Units Contribution
- ------------------------ --------------- ------------
<S> <C> <C>
Prime Group Realty Trust 2,000,000 /**/
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Richard S. Curto
James F. Hoffman
</TABLE>

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

/**/ This amount shall be inserted by the Managing General Partner.

<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
------------ ----------- ------------ ----------- ----------------------
THREE THREE THREE
MONTHS MONTHS MONTHS
ENDED ENDED YEAR ENDED PERIOD FROM ENDED PERIOD FROM
MARCH 31, MARCH 31, DECEMBER 31, 11/17/97 TO MARCH 31, 1/1/97 TO
1998 1998 1997 12/31/97 1997 11/16/97
------------ ----------- ------------ ----------- --------- -----------
EARNINGS
- --------
<S> <C> <C> <C> <C> <C> <C>
Income(loss) before
preferred share
dividends and minority
interest per the
consolidated/combined
financial statements... $ 7,912 $ 5,191 $23,816 $1,427 $(6,875) $(29,050)
Interest expense........ 6,497 6,415 24,383 1,680 9,498 34,417
Amortization of debt
issuance costs......... 281 281 751 121 149 630
Preferred share
dividends.............. 3,474 700 13,894 345 -- --
------- ------- ------- ------ ------- --------
Earnings................ $18,164 $12,587 $62,844 $3,573 $ 2,772 $ 5,997
======= ======= ======= ====== ======= ========

FIXED CHARGES
- -------------
Interest expense........ $ 6,497 $ 6,415 $24,383 $1,680 $ 9,498 $ 34,417
Capitalized interest
expense................ -- -- -- -- -- --
Amortization of debt
issuance costs......... 281 281 751 121 149 630
Preferred share
dividends.............. 3,474 700 13,894 345 -- --
------- ------- ------- ------ ------- --------
Total fixed charges..... $10,252 $ 7,396 $39,028 $2,146 $ 9,647 $ 35,047
======= ======= ======= ====== ======= ========
RATIO OF EARNINGS TO
COMBINED FIXED CHARGES
AND PREFERRED SHARE
DIVIDENDS (1).......... 1.77 1.70 1.61 1.66 0.29 0.17
======= ======= ======= ====== ======= ========
EXCESS(DEFICIT) OF
EARNINGS TO COMBINED
FIXED CHARGES AND
PREFERRED SHARE
DIVIDENDS.............. $ 7,912 $ 5,191 $23,816 $1,427 $(6,875) $(29,050)
======= ======= ======= ====== ======= ========

FUNDS FROM OPERATIONS
- ---------------------
Funds From Operations... $10,575 $ 9,770 $37,552 $3,964 $(3,945) $(14,461)
Interest expense........ 6,497 6,415 24,383 1,680 9,498 34,417
Amortization of debt
issuance costs......... 281 281 751 121 149 630
Preferred share
dividends.............. 3,474 700 13,894 345 -- --
------- ------- ------- ------ ------- --------
Adjusted Funds From
Operations............. $20,827 $17,166 $76,580 $6,110 $ 5,702 $ 20,586
======= ======= ======= ====== ======= ========

FIXED CHARGES
- -------------
Interest expense........ $ 6,497 $ 6,415 $24,383 $1,680 $ 9,498 $ 34,417
Capitalized interest
expense................ -- -- -- -- -- --
Amortization of debt
issuance costs......... 281 281 751 121 149 630
Preferred share
dividends.............. 3,474 700 13,894 345 -- --
------- ------- ------- ------ ------- --------
Total fixed charges..... $10,252 $ 7,396 $39,028 $2,146 $ 9,647 $ 35,047
======= ======= ======= ====== ======= ========
RATIO OF FUNDS FROM
OPERATIONS TO COMBINED
FIXED CHARGES AND
PREFERRED SHARE
DIVIDENDS (2).......... 2.03 2.32 1.96 2.85 0.59 0.59
======= ======= ======= ====== ======= ========
EXCESS(DEFICIT) OF FUNDS
FROM OPERATIONS TO
COMBINED FIXED CHARGES
AND PREFERRED SHARE
DIVIDENDS.............. $10,575 $ 9,770 $37,552 $3,964 $(3,945) $(14,461)
======= ======= ======= ====== ======= ========

<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 costs......... 594 1,148 714 859
Preferred share
dividends.............. -- -- -- --
-------- -------- --------- --------
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
dividends.............. -- -- -- --
-------- -------- --------- --------
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 NAC 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 16, 1998 with respect to the statement of revenue and
certain expenses of 6400 Shafer Court, and dated April 23, 1998 with respect to
the statement of revenue and certain expenses of Two Century Centre in the
Amendment No. 2 to the Registration Statement (Form S-11) and related Prospectus
of Prime Group Realty Trust for the registration of 5,750,000 of its Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest.

/s/ Ernst & Young LLP

Chicago, Illinois
May 19, 1998