LBA PROPERTIES INC, S-11, 1997-10-17

LBA PROPERTIES INC
S-11, 1997-10-17

Previous: TIERS ASSET BACKED SECURITIES SER CHAMT TR 1997-7, 8-K, 1997-10-17

Next: AMERICAN SKANDIA LIFE ASSURANCE CORP SEPARATE ACCOUNT F, N-8A, 1997-10-17

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997

REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

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

LBA PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)

4440 VON KARMAN AVENUE
SUITE 150
NEWPORT BEACH, CALIFORNIA 92660
(714) 833-0400
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

PHIL A. BELLING, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
STEVEN R. LAYTON, PRESIDENT AND CHIEF OPERATING OFFICER
LBA PROPERTIES, INC.
4440 VON KARMAN AVENUE
SUITE 150
NEWPORT BEACH, CALIFORNIA 92660
(714) 833-0400
(NAME AND ADDRESS OF AGENTS FOR SERVICE)

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

COPIES TO:

GILBERT G. MENNA, P.C. KENNETH M. DORAN, ESQ.
ETTORE A. SANTUCCI, P.C. GIBSON, DUNN & CRUTCHER LLP
GOODWIN, PROCTER & HOAR LLP 333 SOUTH GRAND AVENUE
EXCHANGE PLACE LOS ANGELES, CALIFORNIA 90071
BOSTON, MASSACHUSETTS 02109 (213) 229-7000
(617) 570-1000

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par
value................... $378,496,650 $114,696
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act of 1933, as amended.

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

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.

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion dated October 17, 1997
PROSPECTUS
SHARES

LBA PROPERTIES, INC.

COMMON STOCK

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

LBA Properties, Inc. (the "Company") has been formed to continue and expand
the real estate business of LBA, Inc. and certain affiliated entities founded
by Phil A. Belling, Steven R. Layton and certain other members of the Company's
management.

The Company is engaged in owning, acquiring, managing, leasing and developing
office and industrial properties throughout Southern California. Upon
completion of the offering (the "Offering"), the Company will own 47 office and
industrial properties containing approximately 4.9 million square feet, and one
retail property containing 144,225 square feet (collectively, the
"Properties"), which it manages from its headquarters office in Orange County
and its three regional offices in San Diego, Los Angeles and Inland Empire. The
Company will be a fully integrated, self-administered and self-managed real
estate company and expects to qualify as a real estate investment trust
("REIT") for federal income tax purposes.

All of the shares of the Company's common stock (the "Common Stock")
offered hereby are being sold by the Company and will represent approximately
% of all outstanding shares of the Company's Common Stock (or interests
exchangeable for Common Stock). The remaining approximately % of the equity
will be held by officers and directors of the Company and certain other parties
in the form of Common Stock and membership interests ("Units") of LBA
Properties, LLC, a California limited liability company (the "Operating
Company"). To assist the Company in complying with certain qualification
requirements applicable to REITs, the Company's Charter provides that no
stockholder or group of affiliated stockholders may actually or constructively
own more than 9.9% of the outstanding Common Stock, subject to certain
specified exceptions. See "Description of the Capital Stock of the Company--
Restrictions on Transfer."

Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price.
The Company intends to apply for listing of the Common Stock on the New York
Stock Exchange under the symbol "LBP."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:
------------

. The possibility that the consideration paid by the Company for the Properties
and other assets contributed to the Company in its formation may exceed fair
market value; no third-party appraisals were obtained by the Company
regarding these Properties and other assets;
. The possibility that the Company may not be able to refinance outstanding
debt (initially expected to be approximately $ million) upon maturity, that
indebtedness might be refinanced on less favorable terms, and that interest
rates might increase on variable rate indebtedness (including amounts drawn
under the Company's proposed $150 million Credit Facility); and the lack of
limitations in the Company's organizational documents on the amount of
indebtedness which the Company may incur;
. Real estate investment and property management risks such as the need to
renew leases or relet space upon lease expirations, the instability of cash
flows and changes in the value of office and industrial properties owned by
the Company due to economic and other conditions;
. Concentration of the Properties in Southern California which increases the
risk of the Company being adversely affected by a downturn in the Southern
California economy or office or industrial property markets;
. Conflicts of interest in connection with the transactions relating to the
formation of the Company and material benefits to officers and Directors of
the Company, and their affiliates, including receipt of approximately $ in
cash, an aggregate of shares of Common Stock, Units, stock options to
purchase an aggregate of , shares of Common Stock and repayment of
approximately $ million of indebtedness;
. Limited operating history of the Properties under the management of the
Company; a majority of the Properties have been owned by the Company for less
than one year;
. The possibility that the Board of Directors of the Company may in the future
amend or revise the distribution, investment, disposition, financing and
conflict of interest policies of the Company, without a vote of the Company's
stockholders; and
. Taxation of the Company as a regular corporation if it fails to qualify as a
REIT, taxation of the Operating Company as a corporation if it fails to
qualify as a partnership and the resulting decrease, in either case, in cash
available for distribution.
------------

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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock on the same terms and conditions as
set forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

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

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1997.

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

Joint Lead Managers
LEHMAN BROTHERS SMITH BARNEY INC.

, 1997
<PAGE>

[This page contains a map of Southern California, indicating major highways
and the relative location of each of the Company's Properties, broken down by
office, industrial/R&D and retail.]

[Chart of Historical Occupancy by Quarter, showing the aggregate square feet
vacant and leased for all of the Properties for each quarter, from the first
quarter of 1995 through the third quarter of 1997, and the information in the
table below.]

<TABLE>
<CAPTION>
YEAR & QUARTER NUMBER OF PROPERTIES OCCUPANCY
-------------- -------------------- --------
<S> <C> <C>
1995
First Quarter.................................. 11 71%
Second Quarter................................. 11 77%
Third Quarter.................................. 11 79%
Fourth Quarter................................. 12 79%
1996
First Quarter.................................. 14 70%
Second Quarter................................. 19 64%
Third Quarter.................................. 20 67%
Fourth Quarter................................. 29 75%
1997
First Quarter.................................. 36 71%
Second Quarter................................. 41 78%
Third Quarter.................................. 48 89%
</TABLE>

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>

[ARTWORK]

[PHOTOGRAPH OF 600 CORPORATE POINTE]

[PHOTOGRAPH OF SAVI TECH CENTER]

[PHOTOGRAPH OF GOVERNOR PARK]
<PAGE>

[ARTWORK]

[PHOTOGRAPH OF CENTRELAKE PLAZA]

[PHOTOGRAPH OF SORRENTO VALLEY SCIENCE PARK]

[PHOTOGRAPH OF ORANGE FINANCIAL CENTER]
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company............................................................. 1
Recent Developments..................................................... 3
Risk Factors............................................................ 3
Business and Growth Strategies.......................................... 5
The Properties.......................................................... 7
Structure and Formation of the Company.................................. 10
Structure of the Company................................................ 12
Financing Policies...................................................... 14
The Credit Facility..................................................... 14
The Offering............................................................ 15
Distributions........................................................... 15
Tax Status of the Company............................................... 15
Summary Selected Combined Financial Data................................ 16
RISK FACTORS.............................................................. 19
Price to be Paid for Properties; Common Stock and Other Assets May
Exceed Their Fair Market Value......................................... 19
Real Estate Financing Risks............................................. 19
No Limitation on Debt................................................... 20
Real Estate Investment Risks............................................ 20
Conflicts of Interest in the Formation Transactions and the Business of
the Company............................................................ 22
Risks Associated with the Recent Acquisition of Many of the Properties;
Lack of Operating History.............................................. 24
Changes in Policies Without Stockholder Approval........................ 24
Risk of Acquisition, Renovation and Development Activities.............. 24
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................ 25
Failure of the Operating Company to Qualify as a Partnership for Federal
Income Tax Purposes.................................................... 26
Insurance; Risk of Uninsured Losses..................................... 26
Dependence on Key Personnel............................................. 27
Limits on Changes in Control............................................ 27
Possible Environmental Liabilities...................................... 28
Effect on Common Stock Price of Shares Available for Future Sale........ 29
Immediate and Substantial Dilution...................................... 29
Absence of Prior Public Market for Common Stock......................... 29
Influence of Executive Officers, Directors and Principal Stockholders... 30
Risks of Fee Management Business........................................ 30
Lack of Control over Management Company................................. 30
Effect of Market Interest Rates on Price of Common Stock................ 30
THE COMPANY............................................................... 31
History................................................................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS AND GROWTH STRATEGIES............................................ 34
External Growth......................................................... 34
Internal Growth......................................................... 36
USE OF PROCEEDS........................................................... 40
DISTRIBUTIONS............................................................. 42
CAPITALIZATION............................................................ 43
DILUTION.................................................................. 44
SELECTED COMBINED FINANCIAL DATA.......................................... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 48
Overview................................................................ 48
Results of Operations................................................... 49
Pro Forma Operating Results............................................. 51
Debt Financing.......................................................... 52
Analysis of Liquidity and Capital Resources............................. 52
Cash Flows.............................................................. 53
Inflation............................................................... 53
SOUTHERN CALIFORNIA ECONOMY AND PROPERTY MARKETS.......................... 54
Southern California Employment Trends................................... 55
Southern California Office and Industrial Markets....................... 57
Orange County Area...................................................... 61
San Diego Area.......................................................... 64
Los Angeles Area........................................................ 68
Inland Empire Area Market............................................... 70
BUSINESS AND PROPERTIES................................................... 74
General................................................................. 74
Properties.............................................................. 74
The Option Properties and the Development Parcel........................ 77
The Build-to-Suit Projects.............................................. 79
Tenant Diversification.................................................. 79
Lease Distribution...................................................... 80
Historical Leasing Activity............................................. 80
Lease Expirations--Property by Property................................. 81
Historical Tenant Improvements and Leasing Commissions--Office
Properties............................................................. 90
Historical Tenant Improvements and Leasing Commissions--Industrial and
R&D Properties......................................................... 91
Historical Tenant Improvements and Leasing Commissions--Retail Property. 92
Historical Capital Expenditures......................................... 93
Competition............................................................. 93
Insurance............................................................... 93
Environmental Regulations............................................... 94
Legal Proceedings....................................................... 95
Employees............................................................... 95
THE CREDIT FACILITY....................................................... 95
</TABLE>

(i)
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT................................................................ 96
Directors and Executive Officers........................................ 96
Committees of the Board of Directors.................................... 98
Compensation of Directors............................................... 98
Executive Compensation.................................................. 99
Employment Agreements................................................... 99
Equity Incentive Plan................................................... 100
401(k) Plan............................................................. 103
Limitation of Liability and Indemnification 104
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 105
Investment Policies..................................................... 105
Dispositions............................................................ 106
Financing Policies...................................................... 106
Conflict of Interest Policies........................................... 107
Policies with Respect to Other Activities............................... 107
STRUCTURE AND FORMATION OF THE COMPANY.................................... 108
Formation Transactions.................................................. 108
Consequences of the Offering and the Formation Transactions............. 108
Determination and Valuation of Ownership Interests...................... 109
Benefits to Related Parties............................................. 109
Restrictions on Transfer................................................ 110
Restrictions on Ownership of Common Stock............................... 110
CERTAIN TRANSACTIONS...................................................... 111
PRINCIPAL AND MANAGEMENT STOCKHOLDERS..................................... 112
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................... 113
General................................................................. 113
Common Stock............................................................ 113
Preferred Stock......................................................... 114
Restrictions on Transfer................................................ 114
OPERATING AGREEMENT....................................................... 116
Management.............................................................. 116
Removal of the Managing Member; Transfer of the Managing Member's
Interest............................................................... 116
Amendments of the Operating Agreement................................... 116
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfer of Units; Substitute
Members................................................................ 117
Redemption of Units..................................................... 117
Issuance of Additional Units............................................ 117
Tax Protection Provisions............................................... 117
Exculpation and Indemnification of the Managing Member.................. 118
Tax Matters............................................................. 118
Term.................................................................... 118
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS... 119
The Board of Directors.................................................. 119
Opt Out of Business Combination and Control Share Acquisition
Statutes............................................................... 119
Amendment of Charter and Bylaws......................................... 119
Dissolution of the Company.............................................. 119
Meetings of Stockholders................................................ 119
Limitation of Liability and Indemnification............................. 120
Indemnification Agreements.............................................. 121
SHARES AVAILABLE FOR FUTURE SALE.......................................... 122
General................................................................. 122
Registration Rights..................................................... 123
FEDERAL INCOME TAX CONSEQUENCES........................................... 124
Federal Income Taxation of the Company.................................. 124
Opinion of Tax Counsel.................................................. 124
Requirements for Qualification.......................................... 125
Failure to Qualify...................................................... 129
Taxation of U.S. Stockholders........................................... 129
Special Tax Considerations for Foreign Stockholders..................... 131
Information Reporting Requirements and Backup Withholding Tax........... 132
Other Tax Considerations................................................ 133
State and Local Tax..................................................... 133
UNDERWRITING.............................................................. 134
EXPERTS................................................................... 136
LEGAL MATTERS............................................................. 136
ADDITIONAL INFORMATION.................................................... 136
GLOSSARY.................................................................. 137
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
CAUTIONARY STATEMENT

CERTAIN STATEMENTS CONTAINED UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "THE
COMPANY," "BUSINESS AND GROWTH STRATEGIES," "DISTRIBUTIONS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS AND PROPERTIES" CONTAIN "FORWARD-LOOKING STATEMENTS" RELATING TO,
WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE AND OTHER FINANCIAL
ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE
IN THE PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-
LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS.

(ii)
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. The offering of shares
of common stock of LBA Properties, Inc., par value $.01 per share (the "Common
Stock"), pursuant to this Prospectus is referred to herein as the "Offering."
LBA Properties, LLC, a California limited liability company that will own
substantially all of the assets of the Company on a consolidated basis upon
completion of the Offering and of which LBA Properties, Inc. will be the sole
managing member, is referred to herein as the "Operating Company." Unless
otherwise indicated, the information contained in this Prospectus assumes that
(i) the Underwriters' overallotment option is not exercised, (ii) the
transactions described under "Structure and Formation of the Company" are
consummated, (iii) none of the membership interests of the Operating Company
("Units"), some of which are exchangeable for Common Stock and some of which
are redeemable for cash or Common Stock at the election of the Company, are so
redeemed or exchanged and (iv) the Common Stock to be sold in the Offering is
sold at the midpoint of the price range specified on the cover of this
Prospectus. Although the Company and the Operating Company are separate
entities, for ease of reference and unless the context requires otherwise, all
references in this Prospectus to the "Company" refer collectively to LBA
Properties, Inc. and its subsidiaries, including the Operating Company. The
Company's predecessor, LBA, Inc., and its affiliates are referred to herein as
"Layton-Belling & Associates," and the entities that currently own the
Properties are referred to herein as the "Predecessor Entities." All references
in this Prospectus to the historical activities of the Company refer to the
activities of Layton-Belling & Associates and the Predecessor Entities. See
"Glossary" for the definitions of certain terms used in this Prospectus.

THE COMPANY

LBA Properties, Inc. (the "Company") was formed to continue and expand the
real estate business of LBA, Inc. and certain affiliated entities founded by
Steven R. Layton, Phil A. Belling and certain other members of the Company's
management (collectively, "Layton-Belling & Associates"). The Company is
engaged in owning, acquiring, managing, leasing, developing and redeveloping
office and industrial properties throughout Southern California. Upon
consummation of the Offering, the Company will own a diversified portfolio of
48 office, industrial and retail properties (the "Properties") containing
approximately 5.0 million square feet. The Properties consist of (i) 32 office
properties (the "Office Properties") containing approximately 3.4 million
square feet, (ii) 15 industrial properties (the "Industrial Properties")
containing approximately 1.4 million square feet and (iii) one retail center
containing 144,225 square feet (the "Retail Property"). See "Business and
Properties--Properties." The Properties are located throughout Southern
California as shown in the table below:

<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF TOTAL
AREA PROPERTIES SQUARE FEET SQUARE FEET
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
ORANGE COUNTY............................... 16 1,947,430 38.8%
SAN DIEGO (San Diego County and the City of
Temecula).................................. 19 1,564,823 31.2
LOS ANGELES (Los Angeles and Ventura
Counties).................................. 7 841,391 16.8
INLAND EMPIRE (Riverside and San Bernardino
Counties).................................. 6 662,889 13.2
--- --------- -----
Total..................................... 48 5,016,533 100.0%
=== ========= =====
</TABLE>

Upon consummation of the Offering, the Company will also own two sites
suitable for the development of additional office properties (the "Build-to-
Suit Projects"). The Company estimates that, when completed, the Build-to-Suit
Projects will contain approximately 130,000 square feet. Additionally, the
Company will have a 25% interest in, and an option to acquire the remaining
interest in, an additional 118,800 square foot office property (the "Joint
Venture Property") and will have options to purchase two additional office
properties containing 425,500 square feet (the "Option Properties"), as well as
a parcel of approximately 7.4 acres of undeveloped land that may present future
development opportunities (the "Development Parcel"). See

1
<PAGE>

"Business and Properties--The Option Properties and the Development Parcel" and
"--The Build-to-Suit Projects."

The Company operates from its Newport Beach, California headquarters and its
three regional offices in Los Angeles, San Diego and the Inland Empire. The
Company is a full service real estate company with in-house expertise in
acquisitions, development, redevelopment, asset management, property
management, leasing, construction and disposition services. Phil A. Belling and
Steven R. Layton founded Layton-Belling & Associates in October 1991 after
gaining extensive experience in the Southern California commercial real estate
market as senior executives of the Koll Company overseeing certain of the
Company's Southern California development activities. The Company's five senior
executives, Phil A. Belling, Steven R. Layton, David C. Thomas, Steven R.
Briggs and Perry S. Schonfeld, have an average of 13.2 years experience in the
real estate industry, almost exclusively within the Southern California region.
The Company's senior management team gained its experience through a number of
real estate cycles, including the development cycle of the 1980s and the deep
recession of the early 1990s, and the Company believes its experience gives it
a competitive advantage in identifying and capitalizing on opportunities
created by changing real estate markets. The Company's senior management has
been responsible for the development of more than eight million square feet of
build-to-suit and other commercial real estate projects, the completion of more
than 200 receivership and consulting assignments on behalf of financial
institutions during the recessionary period of the early 1990s and, since 1993,
the acquisition and/or disposition of more than 80 office, industrial and
retail properties.

The Company believes that current and anticipated trends in the Southern
California economy provide an attractive environment for owning, operating and
acquiring office and industrial properties. Southern California is in the midst
of an ongoing economic recovery from a severe recession that extended into the
early 1990s. The combined six-county Southern California area experienced a 31%
decrease in the unemployment rate from December 1992 to June 1997. In addition,
according to a study prepared by Cognetics, Inc., an economic consulting firm,
metropolitan Los Angeles (which includes Los Angeles County and Orange County)
is projected to be the number one market in the United States for primary
office employment growth during the period from 1995 to 2006, and five of the
six counties that comprise Southern California are on the U.S. Department of
Commerce's 1996 list of the 20 Fastest Growing U.S. Metropolitan Areas, 1993--
2005. The ongoing economic recovery in Southern California, including the
submarkets in which the Properties are located, has resulted in increasing
demand for office and industrial space, declining vacancy rates, rising rental
rates and increasing property values. See "Southern California Economy and
Property Markets."

Southern California is a large and diverse geographic area comprised of 31
distinct markets and 136 separate submarkets. According to a study prepared by
Cushman & Wakefield of California, Inc. (the "C&W Study"), these markets and
submarkets, which contain approximately 289.4 million square feet of office
space and 1.3 billion square feet of industrial space, are in various stages of
recovery. While the economic recovery is strong in certain markets, the pattern
of recovery is not uniform throughout all of the markets. According to the C&W
Study, approximately 195.0 million square feet of office space (approximately
67% of the Southern California office market) are in markets that have not yet
experienced a full recovery. Approximately 136.0 million square feet of office
space (approximately 47% of the Southern California office market) are in
markets which still have vacancy rates in excess of 15%. The Company believes
that the size and diversity of the Southern California real estate market and
the varying stages of recovery among its submarkets will continue to offer
acquisition and development opportunities as the real estate recovery extends
into additional markets.

2
<PAGE>

disciplined investment process which allows the Company to source, analyze and
close acquisitions quickly while maintaining institutional-quality due
diligence and underwriting standards; (v) experience in acquiring and
redeveloping under performing office and industrial properties; (vi)
development expertise gained through Management's prior experience in
developing over eight million square feet of commercial real estate and
(vii) access to capital, including the Company's proposed $150 million
unsecured revolving line of credit (the "Credit Facility") and the ability to
acquire portfolios of assets or individual properties in exchange for Units.

The Company is a Maryland corporation and expects to qualify as a REIT for
federal income tax purposes. The Company's principal executive offices are
located at 4440 Von Karman Avenue, Suite 150, Newport Beach, California 92660,
and its telephone number is (714) 833-0400.

RECENT DEVELOPMENTS

In October 1997, the Company entered into a letter of intent to acquire a
four-building office property located in San Diego (the "Pending Acquisition").
The property contains approximately 248,000 square feet and is 100% leased to
two tenants. The Company expects to close the acquisition of this property in
the fourth quarter of 1997, although there can be no assurance that this
property will be acquired on a timely basis, or at all.

RISK FACTORS

An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:

. the possibility that the consideration to be paid by the Company for the
Properties and the other assets contributed to the Company in its
formation may exceed their fair market value; no third-party appraisals
were obtained by the Company regarding the Properties and other assets;

. the possibility that the Company may not be able to refinance
outstanding indebtedness (including the proposed $150 million Credit
Facility) upon maturity, that interest rates might increase on variable
rate indebtedness, including any amounts outstanding under the Credit
Facility, that such indebtedness might be refinanced at higher interest
rates or otherwise on terms less favorable to the Company than existing
indebtedness, which could adversely affect the Company's ability to make
expected distributions to stockholders and its ability to qualify as a
REIT, the lack of limitations in the Company's organizational documents
on the amount of indebtedness the Company may incur and the Company's
dependence on external sources of capital for future growth;

. real estate investment and property management risks such as the need to
renew leases or relet space upon the expiration of leases and, at times,
to pay renovation and reletting costs in connection therewith, the
effect of economic and other conditions on office and industrial
property cash flows and values, the ability of tenants to make lease
payments, the ability of a property to generate revenue sufficient to
meet operating expenses, including future debt service, and the
illiquidity of real estate investments, all of which may adversely
affect the Company's ability to make expected distributions to
stockholders;

. concentration of all of the Properties in Southern California and the
dependence of the Properties on the conditions of the economy and the
office and industrial real estate markets of Southern California, which
increases the risk of the Company being adversely affected by a downturn
in the Southern California economy or real estate markets;

. conflicts of interest in connection with the transactions related to the
formation of the Company and the acquisition of the Properties,
including conflicts relating to the receipt of material benefits by

3
<PAGE>

officers, Directors and other affiliates of the Company, which include
receipt of an aggregate of approximately $ in cash, shares of
Common Stock and Units, stock options to purchase an aggregate of
shares of Common Stock and repayment of approximately $ million
of indebtedness;

. conflicts of interest involving management of the Company and certain
members of the Board of Directors in business decisions regarding the
Company, including conflicts associated with any prepayment of debt
secured by the Properties that may arise due to the more adverse tax
consequences of such prepayment to certain members of management and of
the Board of Directors as holders of Units;

. the risks that, given the Company's recent acquisition of many of the
Properties and the lack of operating history of such Properties under
the Company's management (2.7 years or less for all Properties and less
than one year for a majority of the Properties), the Properties may have
characteristics or deficiencies unknown to the Company affecting their
value or revenue potential, may fail to perform as expected, or may be
difficult to integrate into the Company's existing management
operations;

. the possibility that the Board of Directors of the Company may in the
future amend or revise the distribution, investment, disposition,
financing and conflict of interest policies of the Company without a
vote of the Company's stockholders;

. taxation of the Company as a corporation if it fails to qualify as a
REIT for federal income tax purposes, treatment of the Operating Company
as an association taxable as a corporation if it fails to qualify as a
partnership for federal income tax purposes (and the resulting failure
of the Company to qualify as a REIT), the Company's liability for
certain federal, state and local income taxes in such event and the
resulting decrease in cash available for distribution;

. risks that certain types of losses, such as from earthquakes, could
exceed the Company's insurance coverage which currently includes
earthquake coverage for all of the Properties;

. dependence on certain key personnel;

. anti-takeover effect of limiting actual or constructive ownership of
Common Stock of the Company by a single person or group to 9.9% of the
outstanding capital stock, subject to certain specified exceptions, and
of certain other provisions contained in the organizational documents of
the Company and the Operating Company, which may have the effect of
delaying, deferring or preventing a transaction or change in control of
the Company that might involve a premium price for the Common Stock or
otherwise be in the best interests of the Company's stockholders;

. possible environmental liabilities in connection with the Company's
ownership and/or operation of the Properties;

. effect of shares available for future sale on the price of the Common
Stock;

. immediate and substantial dilution in the net tangible book value per
share of the shares of Common Stock purchased in the Offering; and

. absence of a prior public market for the Common Stock.

4
<PAGE>

BUSINESS AND GROWTH STRATEGIES

The Company's principal objective is to maximize stockholder value by
increasing cash flow per share. The Company intends to achieve this objective
through a combination of external and internal growth strategies. The Company's
external growth strategies include (i) acquiring additional stabilized
properties with attractive initial yields at discounts to replacement cost,
(ii) acquiring value-added properties that are under performing, distressed or
otherwise offer an opportunity for the Company to apply its property management
and redevelopment/repositioning expertise to significantly increase cash flow
and asset value, (iii) pursuing selective development opportunities, primarily
on a build-to-suit basis and (iv) expanding, on a selective basis, the
Company's third-party management business.

Property Acquisitions. The Company will seek to acquire office and
industrial properties in select Southern California markets with strong
economic fundamentals. Such opportunities could include capitalizing on
management's local market knowledge, strong presence and extensive contacts
throughout the region. The Company will seek to acquire properties at a
discount to replacement cost, including a balance of stabilized properties,
and value-added properties that may offer a higher risk-adjusted return.
The Company will also seek to acquire a significant market share in
selected submarkets so that it can accommodate its tenants' occupancy
requirements, realize economies of scale and exert influence on trends in
market rents. The Company believes it has several competitive advantages
which enhance its ability to identify and acquire properties, including (i)
senior management's broad-based real estate experience within Southern
California and extensive knowledge of the varied Southern California
submarkets, (ii) the Company's ability to acquire properties on a
negotiated basis rather than through competitive bids, including the use of
non-traditional methods, such as purchasing and foreclosing on mortgage
notes or pre-negotiated foreclosures, (iii) the Company's strong working
relationships with institutional owners of property, developed principally
through its receivership, consulting and third-party management businesses,
and (iv) the Company's access to capital, in particular the Credit Facility
and the Company's ability to offer tax-deferred transaction structures to
sellers by offering Units in consideration for properties.

Value-Added Acquisitions. The Company will continue to pursue
opportunities to acquire office or industrial properties that are under
performing, distressed or otherwise present significant repositioning
potential. Such opportunities could include properties that have high
vacancy rates or high near-term tenant roll-over, properties with
undercapitalized owners, or facilities identified as excess by the current
owners as a result of corporate consolidation or reorganization. Such
"value-added" acquisitions are expected to generate attractive yields upon
stabilization and represent an important component of the Company's
external growth strategy.

Development and Build-to-Suit Projects. The Company intends to continue
to develop office and industrial properties, primarily on a build-to-suit
basis, capitalizing on management's development and build-to-suit
experience. The Company expects to commence construction of one of the
Build-to-Suit Projects in the fourth quarter of 1997 and is currently
negotiating a lease with a prospective tenant with respect to the other
Build-to-Suit Project. The Company expects that its two Build-to-Suit
Projects will contain an aggregate of approximately 130,000 square feet and
require a total investment of approximately $11.7 million. The Company is
also seeking a tenant for an office build-to-suit opportunity on a 7.4 acre
parcel of land in Mission Viejo, California which the Company has an option
to acquire. The site, located within a 78-acre master planned business
park, is planned for 180,000 square feet of office space or two 90,000
square foot office/R&D facilities.

Third Party Management Services. The Company intends to expand, on a
selective basis, its existing third party management operations for
institutional clients, which may include providing fee-based development
management, consulting and property management services to third parties.
The Company believes that providing these services will continue to foster
relationships with major institutions and corporate tenants, enhance the
Company's reputation in its core markets and provide an additional source
of acquisition opportunities.

5
<PAGE>

The Company's internal growth strategies include (i) increasing rental rates
by structuring leases with scheduled contractual base rent increases and by
renewing expiring leases or re-leasing vacant spaces at higher rental rates,
(ii) improving occupancy rates through proactive leasing and active management,
(iii) maximizing tenant satisfaction and retention, (iv) reducing operating
expenses through the Company's established procedures for cost management and
(v) selectively disposing of properties when management believes it can
redeploy the capital invested in such properties more effectively.

Over the next several years, the Company expects that its ability to increase
cash flow from its existing portfolio will be enhanced by the continued decline
of vacancy rates and increase in rental rates throughout most of its markets.
The Company believes these market trends will allow it to renew existing leases
or re-lease vacant spaces at higher rental rates. There can be no assurance,
however, that these trends will continue in the future, or that if they
continue, the Company's operating results will improve significantly, or at
all.

Increasing Rental Rates. The Company expects to achieve internal growth
in cash flow through (i) leases which contain provisions for fixed
contractual rental increases (including increases which are tied to indices
such as the Consumer Price Index) and (ii) by renewing expiring leases or
re-leasing vacant space at increasing market rates. During the period
between July 1, 1997 and June 30, 1998, the contractual base rents under
leases in the Company's portfolio are scheduled to increase by an aggregate
of approximately on an annual basis due to fixed contractual rent
increases (not including increases from free or partial rent to full rent).
During this same period, leases representing a total of square feet
are expected to expire. Based on estimates of rents for comparable office
and industrial buildings included in the C&W Study, the Company believes
that % of this space is subject to leases which contain below market
rents. In addition the Company believes that the current trends in most of
its markets of increasing employment and declining vacancy rates will
result in future increases in market rental rates. Accordingly, the Company
believes that it will have opportunities to increase cash flow by renewing
expiring leases or re-leasing vacated spaces at market rents.

Proactive Leasing. The Company will continue its aggressive leasing
programs, capitalizing on its relationship with an extensive network of
corporate tenants and real estate brokers. The Company has an existing
tenant base of more than 560 tenants, including a number of major
corporations such as Walt Disney Pictures and Television, Inc., Qualcomm
Incorporated and Sony Pictures Entertainment, Inc. The Company has an
experienced in-house leasing staff and also uses third-party brokerage
firms in submarkets where such firms are able to attract tenants to the
Properties more effectively. The Company believes that the strength of its
leasing program is demonstrated by leasing activity on the Properties since
1995, when the first Properties were acquired. As of September 30, 1997,
the Properties that have been owned by the Company for more than one year
had a weighted average occupancy rate of 85.9% as compared to a weighted
average occupancy rate of 57.2% at the time of their acquisition. During
the 12 months ended September 30, 1997, the Company leased or renewed 114
leases for an aggregate of approximately 1.1 million square feet of office
and industrial space.

Maximizing Tenant Satisfaction and Retention. The Company believes that
an important component of its internal growth strategy is its focus on
tenant satisfaction and retention. The Company will continue to focus on
tenant satisfaction at all levels, starting with lease negotiations, where
an emphasis is made to commit to lease terms quickly and ensure timely
lease execution and build-out of space by the Company's tenant services
coordinator. Management continually strives to be responsive to tenant
needs, including providing building amenities, upgraded facilities
(including lobbies, elevators and other common areas), on-site property
management personnel whenever possible, and providing prompt, creative,
cost-effective solutions to tenant requests and expansion requirements,
including by providing tenants with alternative space within the Company's
portfolio to accommodate their changing space requirements.

Pursuing Cost Control and Operating Efficiencies. The Company will seek
to minimize operating costs through a variety of cost-reduction programs.
The Company believes that as the size and geographic scope of its portfolio
further expands it will benefit from economies of scale and other operating
efficiencies.

6
<PAGE>

Disposition Strategy. The Company will consider the selective disposition
of properties from time to time in order to enhance stockholder value where
management believes the sale and redeployment of capital will maximize
returns to the Company. Since the commencement of its acquisition program
in 1995, the Company has sold seven properties for a total of $34.7
million, generating an average return on investment of 55.6% per annum. No
assurances can be given, however, that the Company will continue to achieve
such results in the future.

THE PROPERTIES

Upon completion of the Offering, the Company will own 32 Office Properties
containing approximately 3.4 million square feet, 15 Industrial Properties
containing approximately 1.4 million square feet and one Retail Property
containing 144,225 square feet. All of the Properties are located within four
regions of Southern California: Orange County, San Diego, Los Angeles and the
Inland Empire. The Office Properties consist generally of class A and class B
multi-tenant office buildings. The Industrial Properties consist generally of
multi-tenant business parks, mid-size warehouse/distribution facilities and R&D
facilities. The Company believes that of the Properties have desirable
locations within established business communities and are well-maintained. Of
the Company's 48 Properties, 43 Properties have been built since 1980 and 15
Properties, including all four built prior to 1980, have been substantially
renovated within the last three years. All of the Properties offer customary
building amenities, including security and parking, and certain of the
Properties provide additional features, such as conference facilities, on-site
management, food services and health clubs. As of September 30, 1997, the
Properties had a weighted average occupancy rate of approximately 88.5% and
were leased to over 560 tenants. No one tenant represented more than
approximately 4.3% of the aggregate Annualized Base Rent of the Company's
portfolio and the Company's 20 largest tenants, in the aggregate, represented
39.1% of such rent.

7
<PAGE>

The following table sets forth certain information about each of the
Properties as of September 30, 1997:

<TABLE>
<CAPTION>
ANNUALIZED
YEAR ANNUALIZED BASE % OF NET EFFECTIVE
BUILT/ PERCENT RENT PER LEASED TOTAL RENT PER LEASED
SQUARE FEET RENOVATED LEASED SQUARE FOOT(1) BASE RENT SQUARE FOOT(2)
----------- --------- ------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES(3)
Orange County Area
Orange Financial
Center................ 305,439 1985/1995 85.6% $21.08 10.0% $18.63
Von Karman Corporate
Center................ 451,477 1981/1984 91.2 12.96 9.8 14.16
Newport-Irvine
Office................ 74,224 1981/1997 94.0 16.21 2.1 15.86
South Coast Executive
Park.................. 60,605 1979/1997 79.8 14.09 1.2 14.14
One Venture............ 43,324 1990 24.0 18.10 0.3 17.13
4440 Von Karman........ 42,904 1975/1996 97.0 17.46 1.3 16.00
1800 Lambert........... 32,807 1986 99.8 17.14 1.0 17.25
City Centre I.......... 139,806 1985 85.0 18.23 3.9 17.70
The Plaza.............. 107,252 1982 87.2 15.07 2.6 18.41
Huntington Beach Plaza
I & II................ 52,186 1984 87.9 14.15 1.2 12.47
San Diego Area
Skypark Office Plaza... 202,164 1986 94.2 13.96 4.8 16.81
Sorrento Valley
Science Park.......... 181,207 1984 91.5 13.41 4.0 14.02
Governor Park Plaza.... 104,065 1986 92.4 14.14 2.5 14.06
Torreyanna Science
Park.................. 81,204 1980 100.0 8.45 1.2 18.52
Vista Sorrento
Office................ 69,386 1981/1995 100.0 14.40 1.8 12.82
Shoreham Building(4)... 37,759 1984 84.5 14.52 0.8 14.52
Uniden Building........ 28,119 1990 100.0 11.40 0.6 11.67
Carlsbad Corporate
Center(5)............. 125,000 1996 100.0 -- -- --
Tower Plaza Office..... 72,350 1988 88.8 14.40 1.7 17.56
Tower Plaza
Professional Center... 19,301 1983 77.6 10.00 0.3 9.32
Tower Plaza Business
Center................ 12,483 1983 71.4 9.24 0.1 9.38
Los Angeles Area
5161 Lankershim........ 178,317 1985/1997 72.3 22.73 5.3 19.73
150 East Colorado...... 61,168 1979 75.3 16.35 1.4 17.83
1501 Hughes Way........ 77,060 1983 51.7 12.93 1.1 12.01
3901 Via Oro........... 53,195 1986 9.9 13.44 0.1 14.25
600 Corporate Pointe... 273,339 1989 88.9 17.83 7.9 17.02
1919 Santa Monica...... 44,096 1991 100.0 22.15 1.8 21.17
Camarillo Business
Center................ 154,216 1984/1997 79.0 13.49 3.0 13.79
Inland Empire Area
Centrelake Plaza....... 110,763 1989 63.3 16.65 2.1 17.58
Chicago Avenue
Business Park......... 47,482 1986 76.3 13.42 0.9 12.04
HDS Plaza.............. 104,178 1987 82.2 15.96 2.5 15.41
Havengate.............. 80,557 1985 92.7 15.10 2.1 15.51
Total Office
Properties.......... 3,427,433 1985 84.9 15.18 79.4 15.89
INDUSTRIAL/R&D
PROPERTIES(6)
Orange County Area
Savi Tech Center....... 341,446 1989 100.0 7.38 4.6 9.06
Yorba Linda Business
Center................ 167,142 1988 94.7 7.05 2.0 6.39
Huntington Commerce
Center................ 67,551 1987 94.2 6.49 0.8 6.53
Huntington Beach R & D
I..................... 27,731 1987/1997 100.0 6.81 0.3 4.71
Huntington Beach R & D
II.................... 11,968 1987 100.0 6.24 0.1 7.72
Huntington Beach R & D
III................... 21,568 1987 100.0 7.20 0.3 7.51
San Diego Area
Cymer Technology
Center................ 137,164 1986 100.0 12.36 3.1 13.97
Poway Industrial....... 112,000 1991/1996 100.0 5.40 1.1 4.80
Via Frontera........... 77,920 1982/1997 89.4 7.59 1.0 7.11
Scripps Ranch(7)....... 43,560 1978/1996 100.0 -- -- 7.71
Westridge.............. 48,850 1984/1996 100.0 7.87 0.7 11.14
Highlands I............ 26,856 1988 94.7 8.50 0.4 8.27
Highlands II........... 41,210 1990 88.8 10.85 0.7 9.26
Inland Empire Area
Airport Commerce
Center................ 213,127 1987 99.7 5.68 2.2 5.71
Hunter Business
Center................ 106,782 1990 84.0 5.86 1.0 6.07
Total Industrial/R&D
Properties.......... 1,444,875 1987 97.0 7.16 18.3 7.85
RETAIL PROPERTY
San Diego Area
Tower Plaza
Retail(8)............. 144,225 1970/1997 90.9 9.18 2.3 12.83
--------- --------- ----- ------ ----- ------
Total/Weighted
Average............. 5,016,533 1985 88.5% $12.70 100.0% $13.49
========= ========= ===== ====== ===== ======
</TABLE>

8
<PAGE>

- --------
(1) Annualized Base Rent is the annualized monthly contractual base rent under
existing leases as of September 30, 1997, excluding tenant pass-throughs of
operating and other expenses.
(2) Annualized Net Effective Rent is calculated for each lease in effect at
September 30, 1997. For leases in effect at the time the relevant Property
was acquired, Annualized Net Effective Rent is the annualized monthly rent
during the remaining term of the lease presented on a straight-line basis,
plus tenant pass-throughs of operating and other expenses in effect at
September 30, 1997, and minus monthly amortization of tenant improvements
and leasing commissions. For leases entered into after the relevant
Property was acquired, Annualized Net Effective Rent is the annualized
monthly rent during the entire term of the lease presented on a straight-
line basis, plus tenant pass-throughs of operating and other expenses in
effect at September 30, 1997, and minus monthly amortization of tenant
improvements and leasing commissions. The amounts in this column that
exceed the counterpart amounts under the column headed "Annualized Base
Rent Per Leased Square Foot" do so primarily because the amounts in this
column reflect future scheduled rent increases.
(3) Leases for the Office Properties are full service gross leases except for
those for Torreyanna Science Park, which are triple net, those for Sorrento
Valley Science Park, which are 50% triple net and those for Carlsbad
Corporate Center, which are triple net.
(4) As of September 30, 1997, the property is under contract with the
acquisition date expected to be October 25, 1997. The above information is
shown as if the property was owned by the Company as of September 30, 1997.
(5) As of September 30, 1997, the property was 100% leased to Pacific Southwest
Bank. In accordance with the terms of the lease, payment of rent commences
on March 1, 1998. Upon commencement of rental payments, the above
information would appear as follows: Annualized Base Rent Per Leased Square
Foot--$6.55; Percent of Total Base Rent--1.5%; Annualized Net Effective
Rent Per Leased Square Foot--$17.95.
(6) Leases for the Industrial Properties are triple net leases except for the
following properties which have modified gross leases: Yorba Linda Business
Center, Highlands I, Highlands II, Airport Commerce Center and Hunter
Business Center. In these industrial parks, the tenants pay their own
utilities and janitorial expenses.
(7) As of September 30, 1997, the property is 100% leased to Inova Diagnostics.
In accordance with the terms of the lease, payment of rent commences on
November 1, 1997. Upon commencement of rental payments, the above
information would appear as follows: Annualized Base Rent Per Leased Square
Foot--$8.40; Percent of Total Base Rent--0.7%; Annualized Net Effective
Rent Per Leased Square Foot--$7.71.
(8) Includes three land parcels consisting of 4.14 acres.

9
<PAGE>

STRUCTURE AND FORMATION OF THE COMPANY

FORMATION TRANSACTIONS

Prior to or simultaneously with consummation of the Offering, the Company,
together with the Predecessor Entities and the individuals and entities that
hold direct or indirect interests in the Company or the Predecessor Entities
(collectively, the "Participants"), will engage in certain formation
transactions summarized below (the "Formation Transactions"). The Formation
Transactions have been designed to (i) consolidate the ownership of the
Properties and the commercial real estate business of the Company in the
Operating Company, (ii) facilitate the Offering, (iii) provide a vehicle for
future acquisitions, (iv) enable the Company to comply with certain
requirements under the federal income tax laws and regulations relating to
REITs and (v) preserve certain tax advantages for the Predecessor Entities and
the Participants. See "Structure and Formation of the Company."

. The Company is a newly-formed Maryland corporation that was incorporated
on October 6, 1997.

. One of the Predecessor Entities, AEW/LBA Acquisition Co. II, L.L.C., a
California limited liability company and the owner of 25 of the
Properties and the Build-to-Suit Projects ("AEW/LBA II"), will change
its name to LBA Properties, LLC and will serve as the Operating Company.

. Immediately prior to consummation of the Offering, LBA, Inc., a
California corporation owned by Messrs. Layton, Belling, Briggs and
Thomas (the "Principals"), and LBA Fund I, Inc., a California
corporation owned by Messrs. Belling and Layton, will be merged with and
into the Company with Messrs. Layton, Belling, Briggs and Thomas
receiving , , and shares of Common Stock, respectively, in
connection with such mergers.

. AEW/LBA II will distribute the Excluded Property, the Development Parcel
and two of the Option Properties to an entity owned jointly by an
affiliate of AEW Capital Management, L.P. ("AEW") and the Principals.
The third Option Property will be distributed by AEW/LBA II to a new
entity which will be owned 75% by such affiliate of AEW an 25% by the
Operating Company. The Company will retain options to purchase the three
Option Properties as well as the Development Parcel and will enter into
management agreements to manage the Option Properties and the Excluded
Property.

. The Company will sell shares of Common Stock in the Offering and will
purchase Units from AEW for $ in cash. The Company will then
contribute the remaining $ of the net proceeds from the Offering to
the Operating Company in exchange for Units.

. Pursuant to one or more option, contribution or merger agreements, (i)
certain persons, both affiliated and not affiliated with the Company,
will contribute their direct and indirect interests in certain
Predecessor Entities to the Operating Company in exchange for Units, or
such Predecessor Entities will merge with and into the Operating Company
with the members of such Predecessor Entities receiving Units as merger
consideration and (ii) the Company will acquire the interest of an
affiliate of CIGNA Corporation ("CIGNA") in one of the Predecessor
Entities for approximately $ in cash.

. The acquisition by the Company of its indirect interest in the
Properties pursuant to the Formation Transactions is subject to all of
the terms and conditions of the related option, contribution or merger
agreements among the Company, the Operating Company, the Predecessor
Entities and the Participants. These agreements contain customary
representations and warranties with respect to the ownership of the
interests of the Participants and the historical operation of the
Properties.

. Prior to consummation of the Offering, the Company will contribute its
third-party property management and development business to LBA
Management, Inc. (the "Management Company"), a newly formed subsidiary
of the Operating Company. In order to retain qualification as a REIT,
the Operating Company will hold non-voting preferred stock of the
Management Company (representing 95% of its economic value) and officers
of the Management Company will hold the common stock of the Management
Company (representing 5% of its economic value).

10
<PAGE>

. The Company, through the Operating Company, expects to enter into the
proposed $150 million Credit Facility prior to or concurrently with the
completion of the foregoing Formation Transactions.

. Approximately $ million of the net proceeds of the Offering will be
used by the Operating Company to repay certain mortgage debt secured by
the Properties.

Upon completion of the Formation Transactions, (i) the Company will own
Units, which will represent an approximately % economic interest in the
Operating Company, and the Participants will own Units, which will
represent the remaining approximately % economic interest in the Operating
Company and (ii) the Operating Company will own a fee interest in all of the
Properties. If the Underwriters' overallotment option is exercised in full, the
Company will hold an approximately % economic interest in the Operating
Company and the Participants will hold an approximately % economic interest
in the Operating Company. At the completion of the Formation Transactions, in
addition to owning Units, the Principals will own an aggregate of shares
of Common Stock.

CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS

The aggregate value of the cash and estimated value of the Common Stock and
Units to be paid by the Company and the Operating Company for the Properties or
for interests in the Predecessor Entities is approximately $ million. The
aggregate book value of the interests and assets to be transferred to the
Company and the Operating Company is approximately $ million, of which
approximately $ constitutes the aggregate book value of the interests and
assets to be transferred to the Operating Company by the Principals.

No independent third-party appraisals, valuations or fairness opinions have
been obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the Common Stock,
Units and cash received by the Participants in the Formation Transactions is
equivalent to the fair market value of the interests and assets acquired by the
Company and contributed to the Operating Company. See "Risk Factors--Price to
be Paid for Properties; Common Stock and Other Assets May Exceed Their Fair
Market Value."

11
<PAGE>

STRUCTURE OF THE COMPANY

The Company will be the sole managing member of the Operating Company. The
Company will conduct substantially all of its business through the Operating
Company, which will hold all of the Company's interests in the Properties. As
the sole managing member of the Operating Company, the Company will have
exclusive power to manage and conduct the business of the Operating Company,
subject to certain limited exceptions. See "Operating Agreement--Management."

The following diagram depicts the ownership structure of the Company and the
Operating Company upon completion of the Offering and the Formation
Transactions:

[Diagram of LBA Properties depicting ownership of the Company]

12
<PAGE>

DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS

The Company's percentage interest in the Operating Company will be determined
based upon the percentage of estimated cash available for distribution required
to pay expected cash distributions on the shares of Common Stock to be issued
in the Offering resulting in an annual distribution rate, assuming one annual
distribution period, equal to % of the initial public offering price of the
Common Stock. The remaining interest in the Operating Company will be allocated
to the Principals and the other individuals and entities receiving Units in the
Formation Transactions. The parameters and assumptions used in deriving the
estimated cash available for distribution are described under "Distributions."

BENEFITS TO RELATED PARTIES

Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions, including the following:

. Upon completion of the Formation Transactions, the Principals will
become beneficial owners of an aggregate of shares of Common Stock
and Units with a total value of approximately $ million based on
the assumed initial public offering price of the Common Stock. Other
Participants who will be officers of the Company upon completion of the
Offering will receive Units, with a total value of approximately $
million based on the assumed initial public offering price of the Common
Stock, in exchange for their interests in the Predecessor Entities. The
book value of the interests transferred to the Company by the Principals
and other officers of the Company is approximately $ million.

. Upon completion of the Formation Transactions, AEW will (i) become the
beneficial owner of an aggregate of Units, with a total value of
approximately $ million based on the assumed initial public offering
price of the Common Stock and (ii) receive approximately $ million in
cash. The book value of the interests transferred to the Company by AEW
is approximately $ million.

. The shares of Common Stock and Units that the Participants will own will
be more liquid after restrictions on transfer expire than the
Participants' current interests in the Predecessor Entities.

. Approximately $ million of indebtedness secured by the Properties,
and the related additional and accrued interest thereon, to be assumed
by the Operating Company will be repaid in the Formation Transactions.

. The Principals will serve as directors and officers of the Company and
will enter into employment agreements providing for annual salaries,
bonuses, severance packages, participation in the Company's Equity
Incentive Plan and other benefits for their services.

. Mr. Davidson, an officer of AEW, will serve as a director of the
Company.

. The Principals and others receiving shares of Common Stock and Units in
connection with the Formation Transactions will have registration rights
with respect to such shares and the Common Stock which may be issued in
exchange for Units.

RESTRICTIONS ON TRANSFER

Under the Operating Agreement, the Participants are prohibited from
transferring their Units, except under certain limited circumstances, for a
period of one year. In addition, the Principals and the other senior officers
of the Company who will receive Units and/or shares of Common Stock in
connection with the Formation Transactions have agreed not to sell any shares
of Common Stock, owned at the consummation of the Offering or acquired upon
exchange of Units, for a period of two years after the consummation of the
Offering without the consent of Lehman Brothers, and AEW has agreed not to sell
any shares of Common Stock, owned at the consummation of the Offering or
acquired upon exchange of Units, for a period of one year after the
consummation of the Offering without the consent of Lehman Brothers. See
"Operating Agreement--Transfer of Units; Substitute Members" and
"Underwriting."

13
<PAGE>

RESTRICTIONS ON OWNERSHIP OF COMMON STOCK

Due to limitations on the concentration of ownership of stock of a REIT
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), and to
otherwise address concerns relating to concentration of capital stock
ownership, the amended and restated articles of incorporation of the Company
(the "Charter") prohibit any stockholder or group of stockholders from actually
or beneficially owning more than 9.9% of the outstanding shares of Common Stock
(the "Ownership Limit"), except that certain "Look-Through Entities" (as
defined in "Description of Capital Stock--Restrictions on Transfer") may
actually and beneficially own up to 15.0% of the outstanding shares of Common
Stock (the "Look-Through Ownership Limit"). See "Risk Factors--Limits on
Changes in Control" and "Description of Capital Stock of the Company--
Restrictions on Transfer."

FINANCING POLICIES

As a general policy, the Company intends, but is not obligated, to limit its
debt-to-total market capitalization ratio to no more than 50%. Since such ratio
is based upon market values of equity, it will fluctuate with changes in the
price of the Common Stock. The Company's debt-to-total market capitalization
ratio at the time of the Offering will be approximately % ( % if the
Underwriters' overallotment option is exercised in full). See "Policies With
Respect to Certain Activities--Financing Policies."

THE CREDIT FACILITY

The Company is currently negotiating the terms of the Credit Facility with a
commercial bank. The Credit Facility will be used, among other things, to
finance the acquisition of properties, provide funds for tenant improvements
and capital expenditures and provide for working capital and other corporate
purposes. The Company intends to enter into the Credit Facility
contemporaneously with the Offering or shortly thereafter, although there can
be no assurance that the Company will enter into the Credit Facility.

14
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered...............
Common Stock Outstanding After the
Offering(1).......................
Use of Proceeds.................... To reduce indebtedness, to pay a portion of
the consideration for the Properties in the
Formation Transactions and for general
corporate and working capital purposes. See
"Use of Proceeds."
Proposed NYSE Symbol............... "LBP"
</TABLE>
- --------
(1) Includes shares of Common Stock that may be issued upon redemption of
Units (some of which are redeemable by the holders for cash and some of
which are redeemable for cash or exchangeable for shares of Common Stock on
a one-for-one basis, at the election of the Company). Excludes (i)
shares of Common Stock subject to options to be granted to officers,
Directors and employees of the Company in connection with the Offering and
(ii) additional shares of Common Stock reserved for issuance pursuant
to the Equity Incentive Plan.

DISTRIBUTIONS

The Company intends to make regular quarterly distributions to its
stockholders. The Company intends to pay a pro rata distribution with respect
to the period commencing on the closing of the Offering and ending on ,
based upon $ per share for a full quarter. On an annualized basis, such
amount would be $ per share (of which $ may represent a return of capital
for tax purposes), or an annual dividend rate of %, based on the assumed
initial public offering price per share of $ . The Company intends initially
to distribute annually approximately % of estimated cash available for
distribution. The Company established this distribution rate based upon an
estimate of cash available for distribution after the Offering. See
"Distributions" for information as to how this estimate was derived. The
Company intends to maintain its initial distribution rate for the twelve-month
period following consummation of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. Distributions by the Company will be
determined by the Board of Directors and will be dependent upon a number of
factors. The Company believes that its estimate of cash available for
distribution constitutes a reasonable basis for setting the initial
distribution; however, no assurance can be given that the estimate will prove
accurate, and actual distributions may therefore be significantly different
from the expected distributions. In addition, in order to maintain its
qualification as a REIT under the Code, the Company is required to distribute
currently 95% of its taxable income. See "Distributions." The Company does not
intend to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised.

TAX STATUS OF THE COMPANY

The Company intends to elect to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with its taxable year ending December 31, 1997. The
Company believes, and has obtained an opinion of tax counsel to the effect
that, its organization and proposed method of operation will enable it to meet
the requirements for qualification as a REIT. To maintain REIT status, the
Company must meet a number of organizational and operational requirements,
including a requirement that it currently distribute at least 95% of its
taxable income to its stockholders. As a REIT, the Company generally will not
be subject to federal income tax on net income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax at regular corporate rates. See "Federal
Income Tax Consequences--Failure to Qualify" and "Risk Factors--Adverse
Consequences of Failure to Qualify as a REIT; Other Tax Liabilities." Even if
the Company qualifies for taxation as a REIT, the Company may be subject to
certain federal, state and local taxes on its income and property.

15
<PAGE>

SUMMARY SELECTED COMBINED FINANCIAL DATA

The following table sets forth unaudited pro forma financial and other
information for the Company and combined historical financial information for
the LBA Predecessors. The following summary selected combined financial
information should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus.

The combined historical balance sheets as of December 31, 1996 and 1995 and
the combined statements of operations for the years ended December 31, 1996,
1995 and 1994 of the LBA Predecessors have been derived from the historical
combined financial statements audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus.

The selected financial data at June 30, 1997 and for the six months ended
June 30, 1997 and June 30, 1996 are derived from unaudited financial
statements. The unaudited financial information includes all adjustments
(consisting of normal recurring adjustments) that management considers
necessary for fair presentation of the combined financial position and results
of operations for these periods. Combined operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results to be
expected for the entire year ended December 31, 1997.

The unaudited pro forma financial and operating information for the six
months ended June 30, 1997 and the year ended December 31, 1996 is presented as
if the Offering, the Formation Transactions, the acquisition of properties
acquired or under contract to be acquired after June 30, 1997, with the
exception of the Pending Acquisition (the "Acquisition Properties"), the
acquisition of Properties acquired during 1997 prior to June 30, 1997 (the
"1997 Acquired Properties") and the acquisition of Properties acquired during
1996 (the "1996 Acquired Properties") all had occurred by the date of the June
30, 1997 combined balance sheet and at the beginning of the period presented
for the combined statements of operations. The pro forma June 30, 1997 balance
sheet information also gives effect to the recording of minority interests for
Units as if these transactions occurred on June 30, 1997.

The pro forma financial statements are not necessarily indicative of what the
Company's financial position or results of operations would have been assuming
the completion of the acquisitions described above, the Formation Transactions
and the Offering on such date or at the beginning of the period indicated, nor
does it purport to project the Company's financial position or results of
operations at any future date or for any future period.

16
<PAGE>

THE COMPANY (PRO FORMA) AND
LBA PREDECESSORS (COMBINED HISTORICAL)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------------
PRO COMBINED PRO
FORMA HISTORICAL FORMA COMBINED HISTORICAL
------- -------------- ------- ---------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------- ------ ------- ------ ------ ------ ------ -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental................. $25,694 $10,853 $4,069 $45,261 $9,819 $3,860 $ -- $ -- $ --
Tenant recoveries...... 1,721 1,020 450 3,677 1,023 510 -- -- --
Management and
consulting............ 956 1,021 1,109 2,184 2,203 2,153 2,145 1,453 492
Parking and other...... 652 583 428 1,079 697 241 -- -- --
Interest............... 287 204 70 227 227 35 -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Total revenue......... 29,310 13,681 6,126 52,428 13,969 6,799 2,145 1,453 492
------- ------- ------ ------- ------ ------ ------ ------ -----
Expenses:
Rental property
operating............. 8,827 3,762 1,870 15,965 4,759 1,168 -- -- --
Real estate taxes and
insurance............. 3,202 1,522 661 6,405 1,593 522 -- -- --
Depreciation and
amortization.......... 5,695 2,902 933 10,329 2,722 629 25 24 11
Interest............... 5,635 2,894 892 11,269 2,007 40 5 2 --
General and
administrative........ 1,557 1,461 748 3,113 2,295 1,771 1,575 765 460
------- ------- ------ ------- ------ ------ ------ ------ -----
Total expenses........ 24,916 12,541 5,104 47,081 13,376 4,130 1,605 791 471
------- ------- ------ ------- ------ ------ ------ ------ -----
Equity in net income
(loss) of noncombined
entities............... (50) 708 (100) 242 -- -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Income before minority
interests.............. 4,344 1,848 1,022 5,247 835 2,669 540 662 21
Minority interests...... -- -- -- -- -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Net income.............. $ $ 1,848 $1,022 $ $ 835 $2,669 $ 540 $ 662 $ 21
======= ======= ====== ======= ====== ====== ====== ====== =====
Pro forma net income per
common share........... $ (1) $ (1)
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
JUNE 30, 1997 COMBINED HISTORICAL
-------------------- ------------------------------------
COMBINED
PRO FORMA HISTORICAL 1996 1995 1994 1993 1992
--------- ---------- --------- -------- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Commercial real estate
properties--net of
accumulated
depreciation........... $ 390,973 $ 221,102 $ 105,073 $ 27,296 $ -- $ -- $ --
Total assets............ 430,919 269,805 137,065 30,313 431 400 72
Mortgage loans and lines
of credit.............. 154,025 131,993 27,902 863 126 3 --
Total liabilities....... 159,471 136,790 33,411 1,646 186 80 42
Minority interests...... -- -- -- -- -- --
Total owners' and
stockholders' equity... 271,448 133,015 103,654 28,667 245 320 30
</TABLE>

17
<PAGE>

THE COMPANY (PRO FORMA) AND
LBA PREDECESSORS (COMBINED HISTORICAL)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------------------------------------------
PRO COMBINED PRO
FORMA HISTORICAL FORMA COMBINED HISTORICAL
------------------------------- --------- -------------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------------------- ---------- --------- ---------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(2):
Income before minority
interests............. $ 4,344 $ 1,848 $ 1,022 $ 5,247 $ 835 $ 2,669 $ 540 $ 662 $ 21
Real estate related
depreciation and
amortization.......... 5,605 2,812 898 10,185 2,578 566 -- -- --
------- ---------- ---------- -------- ---------- --------- ------- ------- -------
Funds from
Operations.......... 9,949 4,660 1,920 15,432 3,413 3,235 540 662 21
Company's share
percentage............ % 100.00% 100.00% % 100.00% 100.00% 100.00% 100.00% 100.00%
Company's share of
Funds from
Operations............ $ $ 4,660 $ 1,920 $ $ 3,413 $ 3,235 $ 540 $ 662 $ 21
------- ---------- ---------- -------- ---------- --------- ------- ------- -------
Cash flows from
operating
activities............ $ (15,962) $ (3,620) $ 157 $ 3,047 $ 502 $ 358 $ 2
Cash flows from
investing
activities............ (118,828) (51,917) (95,965) (27,862) -- -- --
Cash flows from
financing
activities............ 131,604 55,769 101,191 26,490 (492) (368) 9
Property Data:
Total number of
Properties owned at
period end............ 41 19 29 11 -- -- --
Gross rentable square
feet of Properties
owned at period end... 4,213,884 1,328,489 2,536,584 542,168 -- -- --
Occupancy at period
end of Properties
owned at period end... 78% 64% 75% 79% -- -- --
Number of Office
Properties owned at
period end............ 25 10 17 6 -- -- --
Gross rentable square
feet of Office
Properties owned at
period end............ 2,624,784 850,521 1,676,390 268,610 -- -- --
Occupancy at period
end of Office
Properties owned at
period end............ 72% 52% 74% 81% -- -- --
Number of Industrial
Properties owned at
period end............ 15 8 11 5 -- -- --
Gross rentable square
feet of Industrial
Properties owned at
period end............ 1,444,875 333,743 715,969 129,333 -- -- --
Occupancy at period
end of Industrial
Properties owned at
period end............ 88% 31% 41% 72% -- -- --
</TABLE>
- --------
(1) Pro forma net income per common share equals the pro forma net income
divided by shares.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Management considers Funds
from Operations an appropriate measure of performance of an equity REIT
because it is predicated on cash flow analyses. The Company computes Funds
from Operations in accordance with standards established by the White
Paper, which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Funds from Operations should not be
considered as an alternative to net income (determined in accordance with
generally accepted accounting principles), as an indicator of the Company's
financial performance or cash flows from operating activities (determined
in accordance with generally accepted accounting principles), as a measure
of the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions.

18
<PAGE>

RISK FACTORS

An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before purchasing
Common Stock in the Offering.

PRICE TO BE PAID FOR PROPERTIES; COMMON STOCK AND OTHER ASSETS MAY EXCEED
THEIR FAIR MARKET VALUE

No independent third-party valuations, appraisals or fairness opinions were
obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the prices to be paid by the
Company will not exceed the fair market value of the interests in the
Predecessor Entities, the Properties and the other assets to be acquired by
the Company in the Formation Transactions. In addition, the initial public
offering price will be determined by the Company and the Underwriters based
upon the factors discussed under "Structure and Formation of the Company--The
Formation Transactions--Determination and Valuation of Ownership Interests"
and "Underwriting," rather than an asset-by-asset valuation based on
historical cost or current market value. In determining the initial public
offering price of the Common Stock, certain assumptions will be made
concerning the estimate of revenue to be derived from the Properties. See
"Distributions." This methodology has been used because management believes it
is appropriate to value the Company as an ongoing business, rather than with a
view to values that could be obtained from a liquidation of the Company or of
individual assets owned by the Company. There can be no assurance that there
will not be discrepancies between assumed results and actual results which
could lead to a reduction in actual distributions compared to assumed
distributions. It is possible that the initial public offering price per share
of Common Stock may exceed the per share fair market value of the Company's
assets.

REAL ESTATE FINANCING RISKS

Inability to Repay or Refinance Indebtedness at Maturity. The Company
intends to enter into and, over time, make borrowings under the Credit
Facility. The Company will be subject to risks normally 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 any indebtedness will not be able to be refinanced or that the terms of
any such refinancing will not be as favorable as the terms of such
indebtedness.

Potential Effect of Rising Interest Rates on Company's Variable Rate
Debt. Advances under the Credit Facility will bear interest at a variable
rate. In addition, the Company may incur other variable rate indebtedness in
the future. See "Policies With Respect to Certain Activities--Financing
Policies." Increases in interest rates on such indebtedness would increase the
Company's interest expense (e.g., assuming the entire $150 million available
under the Credit Facility is outstanding, the Company would incur an
additional $187,500 in annual interest expense for each 1/8% increase in
interest rates), which could adversely affect the Company's cash flow and its
ability to pay expected distributions to stockholders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

Dependence on External Sources of Capital. In order to qualify as a REIT
under the Code, the Company generally is required each year to distribute to
its stockholders at least 95% of its net taxable income (excluding any net
capital gain). See "Federal Income Tax Considerations--Requirements for
Qualification--Annual Distribution Requirements." Because of these
distribution requirements, it is unlikely that the Company will be able to
fund all future capital needs, including capital needs in connection with
acquisitions, from cash retained from operations. As a result, the Company
likely will have to rely on third-party sources of capital to fund future
capital needs, including public capital markets, which may or may not be
available on favorable terms or at all. The Company's access to third-party
sources of capital will depend upon a number of factors, including: (i) the
market's perception of the Company's growth potential; (ii) its current and
potential future earnings and cash distributions and (iii) the market price of
the Common Stock. Moreover, additional equity offerings may result in
substantial dilution of stockholders' interests in the Company, and additional
debt financing may substantially increase the Company's leverage. See
"Policies with Respect to Certain Activities--Financing Policies."

19
<PAGE>

NO LIMITATION ON DEBT

Upon completion of the Offering and the Formation Transactions, the
Company's debt-to-total market capitalization ratio will be approximately %
( % if the Underwriters' overallotment option is exercised in full). The
Company currently has a policy of incurring debt only if upon such incurrence
the debt-to-total market capitalization ratio would be 50% or less, but the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter or eliminate this policy without a vote of the
stockholders. If this policy were changed, the Company could become more
highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's cash flow and, consequently, the amount
available for distribution to stockholders and could increase the risk of
default on the Company's indebtedness. See "Policies With Respect to Certain
Activities--Financing Policies."

The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets because it believes that the book value of its assets (which to a large
extent is the depreciated original cost of real property, the Company's
primary tangible assets) does not accurately reflect its ability to borrow and
to meet debt service requirements. The 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.
The Company also will consider factors other than market capitalization in
making decisions regarding the incurrence of indebtedness, such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of its properties upon refinancing and the ability of particular
properties and the Company as a whole to generate cash flow to cover expected
debt service. See "Policies With Respect to Certain Activities--Financing
Policies."

REAL ESTATE INVESTMENT RISKS

Real Estate Ownership Risks. Real property investments are subject to
varying degrees of risk. The yields available from equity investments in real
estate depend in large part on the amount of income generated and expenses
incurred. If the Properties do not generate revenue sufficient to meet
operating expenses, including debt service, tenant improvements, leasing
commissions and other capital expenditures, the Company may have to borrow
additional amounts to cover fixed costs and the Company's cash flow and
ability to make distributions to its stockholders will be adversely affected.

The Company's revenue and the value of its properties may be adversely
affected by a number of factors, including the national and local economic
climate; local real estate conditions; the perceptions of prospective tenants
of the attractiveness of its properties; the ability of the Company to manage
and maintain its properties and secure adequate insurance; and variances in
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws (including tax laws), interest rate levels and the
availability of financing.

Risk that Company may be Unable to Retain Tenants or Rent Space Upon Lease
Expirations. The Company will be subject to the risk that upon expiration,
leases may not be renewed, the space may not be relet or the terms of renewal
or reletting (including the cost of required renovations) may be less
favorable than current lease terms. Leases on approximately 66.9% of the
leased space in the Properties will expire through the end of 2002. During
that period, the re-leasing of the Company's expiring leases may result in a
net decrease in cash flow from the leases due to the number of leases expected
to expire during such period which are above current market rents. If the
Company is unable to promptly relet or renew leases for all or a substantial
portion of such space or if the rental rates upon such renewal or reletting
are significantly lower than expected, the Company's cash flow and ability to
make expected distributions to stockholders could be adversely affected.

Concentration of Properties in Southern California. All of the Properties
are located in Southern California, with 16 of the 48 Properties located in
the Orange County Area, 19 of the Properties located in the San Diego Area,
seven of the Properties located in the Los Angeles Area and six of the
Properties located in the Inland Empire Area. The Company's revenue and the
value of its Properties may be affected by a number of factors, including the
local economic climate (which may be adversely impacted by business layoffs or

20
<PAGE>

downsizing, industry slowdowns, changing demographics and other factors) and
local real estate conditions (such as oversupply of or reduced demand for
office and other competing commercial properties). Therefore, the Company's
performance and its ability to make distributions to stockholders will likely
be dependent, to a large extent, on the economic conditions in Southern
California.

Restraints on Company's Flexibility to Liquidate Real Estate. Equity real
estate investments are relatively illiquid. Such illiquidity will tend to
limit the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions. In addition, the Code limits a REIT's
ability to sell properties held for fewer than four years, which may affect
the Company's ability to sell properties without adversely affecting returns
to holders of Common Stock.

Impact of Competition on Occupancy Levels and Rents Charged. Numerous office
and industrial properties compete with the Properties in attracting tenants.
Some of the competing properties are newer, better located or owned by parties
with greater capital resources than the Company. The number of competitive
commercial properties in a particular area could have a material adverse
effect on (i) the ability to lease space in the Properties (or at newly
acquired or developed properties) and (ii) the rents charged.

Potential Increases in Certain Taxes and Regulatory Compliance
Costs. Because increases in income, service or transfer taxes are generally
not passed through to tenants under leases, such increases may adversely
affect the Company's cash flow and its ability to make distributions to
stockholders. The Properties are also subject to various federal, state and
local regulatory requirements and 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 substantial 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 cash flow and
expected distributions.

Risk of Reassessment. Certain local real property tax assessors may seek to
reassess certain of the Properties as a result of the Formation Transactions
and the transfer of interests to occur in connection therewith. In
jurisdictions such as California, where state law limits the assessor's
ability to reassess real property as long as there is no change in ownership
or material construction activity, the assessed value of such Properties could
increase by as much as the full value of any appreciation that has occurred
since the acquisition of such Properties by the Predecessor Entities. Subject
to market conditions, the Company's leases may permit the Company to pass
through to tenants a portion of any increases in real estate taxes resulting
from any such reassessment. Such increases could, however, adversely affect
the Company's competitive position and consequently have a negative impact on
its financial condition.

Operating Risks. The Properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in
operating expenses such as cleaning; electricity; heating, ventilation and air
conditioning ("HVAC"); elevator repair and maintenance; insurance and
administrative costs; and other general costs associated with security,
landscaping, repairs and maintenance. While the Company's tenants generally
are obligated to pay a portion of these escalating costs, there can be no
assurance that tenants will agree to pay such costs upon renewal or that new
tenants will agree to pay such costs. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to
meet increased expenses without decreasing occupancy rates. While the Company
implements cost-saving incentive measures at each of its Properties, the
Company's ability to make distributions to stockholders could be adversely
affected if operating expenses increase without a corresponding increase in
revenues.

Impact of Financial Condition and Solvency of Tenants on Company's Cash
Flow. A significant portion of the Company's income will be derived from
rental income on the Properties and, consequently, the Company's distributable
cash flow and ability to make expected distributions to stockholders would be
adversely

21
<PAGE>

affected if a significant number of tenants of the Properties failed to meet
their lease obligations. At any time, a tenant of the Properties may seek the
protection of bankruptcy laws, which could result in rejection and termination
of such tenant's lease and thereby cause a reduction in cash flow available
for distribution by the Company. No assurance can be given that 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. If tenant leases are not affirmed
following bankruptcy or if a tenant's financial condition weakens, the
Company's income may be adversely affected.

Americans with Disabilities Act Compliance Costs. Under the Americans with
Disabilities Act (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 U.S. 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. If required
costs are greater than the Company currently anticipates, the Company's
ability to make expected distributions could be adversely affected.

Financial Dependency and Management Conflicts Associated with Partnership
and Joint Venture Property Ownership Structures. The Company will own its
interests in the Properties through the Operating Company. In addition, the
Company may also participate with other entities in property ownership through
joint ventures or partnerships in the future. Partnership or joint venture
investments may, under certain circumstances, involve risks not otherwise
present, including the possibility that the Company's partners or co-venturers
might become bankrupt, that such partners or co-venturers might at any time
have economic or other business interests or goals which are inconsistent with
the business interests or goals of the Company and that such partners or co-
venturers may be in a position to take action contrary to the Company's
instructions or requests or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification
as a REIT. The Company, however, will seek to maintain sufficient control of
such partnerships or joint ventures to permit the Company's business
objectives to be achieved. There is no limitation under the Company's
organizational documents as to the amount of available funds that may be
invested in partnerships or joint ventures.

Reliance on Major Tenants. As of September 30, 1997, the Company's largest
tenant, Walt Disney Pictures and Television, Inc. ("Disney"), accounted for
approximately 4.0% of the Company's total Annualized Base Rent on the
Properties. The Company's lease with Disney expires in 2003. See "Business and
Properties--Lease Expirations." In addition, 19 other tenants collectively
accounted for approximately 33.72% of the Company's total Annualized Base
Rent. See "Business and Properties--Tenant Diversification."

Risks Associated With the Operating Company. The Operating Company,
including the Predecessor Entities which will merge with and into the
Operating Company in connection with the Formation Transactions, have been in
existence for varying lengths of time up to six years. See "The Company--
History." As a result, the Operating Company is subject to all of the
potential liabilities of an existing company. Although AEW and LBA, Inc.
formed the Operating Company and an affiliate of AEW has served as its manager
since inception, there may be current or future liabilities arising from prior
activities that are unknown and, therefore, not disclosed in this Prospectus.

CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY

Formation Transactions Not at Arm's-Length. The Formation Transactions are
not the result of arm's-length negotiations. The Participants (including
Messrs. Layton and Belling, who are the founders of Layton-Belling &
Associates and executive officers and members of the Board of Directors of the
Company, and Mr. Davidson, who is an officer of AEW and a member of the Board
of Directors of the Company) have preexisting

22
<PAGE>

ownership interests either directly, or indirectly through their affiliations,
in the Predecessor Entities. The ownership interests of such individuals
differ in proportion and amount. Messrs. Layton, Belling and Davidson have
negotiated the purchase price for the assets to be acquired by the Company in
the Formation Transactions and each of these individuals will receive either
direct or indirect economic benefits as a result of such transactions. There
can be no assurance that the fair market value of the Properties and the other
assets to be acquired by the Company will equal or exceed the sum of the value
of the shares of Common Stock and Units issued and the amount of cash paid to
the Participants in the Formation Transactions. See "Structure and Formation
of the Company--Formation Transactions" and "Benefits to Related Parties."

Failure to Enforce Terms of Formation Agreements and Other Agreements. As
partners and members in the Predecessor Entities (which have owned the
Properties), and recipients of Common Stock, Units and cash in the Formation
Transactions, the Principals and AEW (through Mr. Davidson, its representative
on the Company's Board of Directors) will have a conflict of interest with
respect to their obligations as Directors or executive officers of the Company
in enforcing the terms (including customary representations and warranties as
to ownership and operation) of the agreements relating to the transfer to the
Company of their interests in the Properties and the Predecessor Entities. The
failure to enforce the material terms of those agreements, particularly the
indemnification provisions for breaches of representations and warranties,
could result in a monetary loss to the Company, which loss could have a
material adverse effect on the Company's financial condition or results of
operations. In addition, the aggregate liability of the Principals and AEW
under those agreements is limited to approximately $ million (50% of the
initial value of the Units and Common Stock received by them in the Formation
Transactions based on the assumed initial offering price of the Common Stock
offered hereby), and each such party is severally liable, up to the initial
value of the Units and Common Stock received by such party, only for breaches
of such party's respective representations and warranties. The Company,
therefore, will have no right of recovery as to any damage in excess of such
aggregate or individual amounts that may result from breaches of such
representations and warranties. The Principals have entered into employment
and/or noncompetition agreements with the Company pursuant to which they have
agreed not to engage in certain business activities in competition with the
Company. See "Management--Employment Agreements." To the extent that the
Company chooses to enforce its rights under any of these contribution or
employment and/or noncompetition agreements, it may determine to pursue
available remedies, such as actions for damages or injunctive relief, less
vigorously than it might otherwise because of its desire to maintain its
ongoing relationship with the individual involved.

Risk of Differing Objectives Between the Principals and Company Upon Sale,
Refinancing or Prepayment of Indebtedness of Properties. As holders of Units,
the Principals and the other Participants may have unrealized taxable gain
associated with their interests in certain Properties contributed to the
Operating Company. Because the Principals and the other Participants may
suffer different and more adverse tax consequences than the Company upon the
sale or refinancing of those Properties, they and the Company may have
different objectives regarding the appropriate pricing and timing of any sale
or refinancing of such Properties. While the Company (as sole managing member
of the Operating Company) has the exclusive authority as to whether and on
what terms to sell or refinance an individual Property, the Principals,
through their status as senior executives and/or Directors of the Company may
influence the Company not to sell, or refinance or prepay the indebtedness
associated with, the Properties even though such event might otherwise be
financially advantageous to the Company, or may influence the Company to
refinance Properties with a high level of debt. See "Policies With Respect to
Certain Activities--Conflict of Interest Policies."

Risks That Policies with Respect to Conflicts of Interest May Not Eliminate
Influence of Conflicts. The Company has adopted certain policies relating to
conflicts of interest. These policies include a bylaw provision requiring all
transactions in which executive officers or directors have a conflicting
interest to that of the Company to be approved by a majority of the
independent directors or by the holders of a majority of the Common Stock held
by disinterested stockholders. There can be no assurance that the Company's
policies will be successful in eliminating the influence of such conflicts,
and if they are not successful, decisions could be made that might not fully
reflect the interests of all stockholders. The Company's Charter includes a
provision permitting each individual Director, including each independent
director, to engage in the type of business

23
<PAGE>

activities conducted by the Company without first presenting any investment
opportunities to the Company, even thought such investment opportunities may
be within the scope of the Company's investment policies. See "Policies with
Respect to Certain Activities--Conflict of Interest Policies."

Tax Consequences Upon Any Prepayment of Mortgaged Properties. The Principals
may incur adverse tax consequences upon the repayment of mortgage indebtedness
relating to mortgaged Properties which are different from the tax consequences
to the Company and persons who purchase shares of Common Stock in the
Offering. Consequently, the Principals may have different objectives regarding
the appropriate timing of any such repayment. While the Company will have the
exclusive authority under the Operating Agreement to determine whether, when,
and on what terms to repay such mortgage indebtedness, any such decision would
require the approval of the Board of Directors. The Principals (including
Messrs. Layton and Belling, who are Directors of the Company) will have
substantial influence with respect to any such decision, and such influence
could be exercised in a manner not consistent with the interests of some, or a
majority, of the Company's stockholders, including in a manner which could
prevent repayment of such mortgage indebtedness.

Other Real Estate Interests. The Principals and AEW hold certain real estate
interests in Southern California that are not being contributed to the Company
as part of the Formation Transactions. These interests include the Excluded
Property, the Option Properties and the Development Parcel. The Company is
retaining options to purchase the Option Properties and the Development Parcel
from the Principals and AEW. See "Business and Properties--The Option
Properties and the Development Parcel."

RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE PROPERTIES; LACK
OF OPERATING HISTORY

After giving effect to the Formation Transactions, the Company will own 48
Properties, containing approximately 5.0 million square feet. All of the
Properties have been under the Company's management for less than three years.
Consequently, the Properties may have characteristics or deficiencies unknown
to the Company affecting their valuation or revenue potential, and it is also
possible that the operating performance of the most recently acquired
Properties may decline under the Company's management. In addition, if the
Company acquires any of the Option Properties in the future, it will face
similar risks with respect to those properties.

The Company is currently growing rapidly. As the Company acquires additional
properties, the Company will be subject to risks associated with managing new
properties, including lease-up and tenant retention. In addition, the
Company's ability to manage its growth effectively will require it to
successfully integrate its new acquisitions into its existing management
structure. No assurances can be given that the Company will be able to succeed
with such integration or effectively manage additional properties or that
newly acquired properties will perform as expected.

CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL

The distribution, investment, disposition and financing policies of the
Company and its policies with respect to all other matters, including growth,
debt, capitalization and operations, will be determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without the vote of the stockholders
of the Company. In addition, the Board of Directors may change the Company's
policies with respect to conflicts of interest provided that such changes are
consistent with applicable legal requirements. A change in these policies
could adversely affect the Company's financial condition, results of
operations or the market price of, or distributions payable to holders of, the
Common Stock. See "Policies with Respect to Certain Activities."

RISK OF ACQUISITION, RENOVATION AND DEVELOPMENT ACTIVITIES

The Company intends to continue acquiring office and industrial properties
to the extent they meet the Company's investment criteria and can be acquired
on advantageous terms. See "The Company" and "Business

24
<PAGE>

and Growth Strategies." Acquisitions of office and industrial properties
entail risks that investments will fail to perform in accordance with
expectations. Estimates of renovation costs and costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are
general investment risks associated with any new real estate investment.

The Company intends to expand and/or renovate its Properties from time to
time. Expansion and renovation projects generally require expenditure of
capital as well as various government and other approvals, the receipt of
which cannot be assured. While policies with respect to expansion and
renovation activities are intended to limit some of the risks otherwise
associated with such activities, the Company will nevertheless incur certain
risks, including expenditures of funds on, and devotion of management's time
to, projects which may not be completed.

The Company anticipates that future acquisitions and development activity
will be financed through a combination of advances under the Credit Facility
and other forms of secured or unsecured financing, the Company's access to
capital markets and the use of Units as consideration for properties. 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.

While the Company has limited its acquisition, development, management and
leasing businesses to the Southern California market, it is possible that the
Company will in the future expand its business to new geographic markets,
including other markets in California. The Company will not initially possess
the same level of familiarity with new markets outside of Southern California,
which could adversely affect its ability to acquire, develop, manage or lease
properties in any new localities.

Changing market conditions, including competition from other purchasers of
office and industrial properties, may diminish the Company's opportunities for
attractive additional acquisitions.

In addition to the two Build-to-Suit Projects, the Company intends to review
from time to time the possibility of developing and constructing other office
and industrial buildings in accordance with the Company's development and
underwriting policies. See "The Company" and "Business and Growth Strategies."
Risks associated with the Company's development and construction activities
may include: abandonment of development opportunities; construction costs of a
property exceeding original estimates, possibly making the completion and/or
operation of the property uneconomical; occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of a
property; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. In
addition, new development activities, regardless of whether they would
ultimately be successful, typically require a substantial portion of
management's time and attention. Development activities would also be subject
to risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations.

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 so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1997. Although management
believes that the Company will be organized and will operate in such a manner,
no assurance can be given that the Company will be organized or will be able
to operate in a manner so as to qualify or remain so qualified. Qualification
as a REIT involves the satisfaction of numerous requirements (some on an
annual and quarterly basis) established under highly technical and complex
Code provisions for which there are only limited judicial and administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within the Company's control. For example, in order
to qualify as a REIT, at least 95% of the Company's gross income in any year
must be derived from qualifying sources and the Company

25
<PAGE>

must pay distributions to stockholders aggregating annually at least 95% of
its REIT taxable income (excluding 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 a limited liability company. No assurance can be given that
legislation, new 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 is relying on the opinion of Goodwin, Procter &
Hoar llp, counsel to the Company, regarding various issues affecting the
Company's ability to qualify, and continue to qualify, as a REIT. See "Federal
Income Tax Consequences--Federal Income Taxation of the Company." 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. Counsel will not review the Company's
compliance with these requirements on a continuing basis. Opinions of counsel
are not binding on the Internal Revenue Service (the "IRS") or any court.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, 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 was lost. This
treatment would significantly reduce the net earnings of the Company available
for investment or distribution to stockholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
stockholders would no longer be required to be made. See "Federal Income Tax
Consequences--Federal Income Taxation of the Company" and "--Requirements for
Qualification."

Other Tax Liabilities. Even if the Company qualifies for and maintains its
REIT status, it will be subject to certain federal, state and local taxes on
its income and property. If the Company has net income from a prohibited
transaction, that income will be subject to a 100% tax. See "Federal Income
Tax Consequences."

FAILURE OF THE OPERATING COMPANY TO QUALIFY AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES

The Company will receive an opinion of Goodwin, Procter & Hoar llp, counsel
to the Company, at the closing of the Formation Transactions to the effect
that the Operating Company is properly treated as a partnership for federal
income tax purposes. Such opinion is not binding on the IRS or the courts. If
the IRS were to successfully challenge the tax status of the Operating Company
as a partnership for federal income tax purposes, the Operating Company would
be treated as an association taxable as a corporation. In that event, the
Company would be unable to qualify as a REIT. The imposition of a corporate
tax on the Operating Company would also reduce the amount of Cash Available
for Distribution to the Company and its stockholders. See "Federal Income Tax
Consequences."

INSURANCE; RISK OF UNINSURED LOSSES

The Operating Company carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. The Operating Company also carries
earthquake insurance on all of the Properties, although there can be no
assurance that such insurance will continue to be available on terms that are
commercially reasonable. There are, however, certain types of losses that are
not generally insured because it is not economically feasible to insure
against such losses. Should an uninsured loss or a loss in excess of insured
limits occur, the Operating Company could lose its capital invested in the
property, as well as the anticipated future revenue from the property and, in
the case of debt which is with recourse to the Operating Company, would remain
obligated for any mortgage debt or other financial obligations related to the
property. Any such loss would adversely affect the Company. In addition, in
light of the California earthquake risk, California building codes since the
early 1970s have established construction standards for all newly built and
renovated buildings, including office buildings, the current and strictest
construction standards having been adopted in 1984. Of the 90 buildings
located on the 48 Properties, 47 buildings have been built since January 1,

26
<PAGE>

1985 and the Company believes that all of the Properties were constructed in
full compliance with the applicable standards existing at the time of
construction. No assurance can be given that material losses in excess of
insurance proceeds will not occur in the future.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive officers,
particularly the Principals. The loss of their services could have a material
adverse effect on the operations of the Company. Prior to the consummation of
the Offering, each of the Principals will enter into an employment agreement
with the Company. See "Management--Employment Agreements."

LIMITS ON CHANGES IN CONTROL

Certain provisions of the Charter and the amended and restated bylaws of the
Company (the "Bylaws") may have the effect of delaying, deferring or
preventing a third party from making an acquisition proposal for the Company
and may thereby inhibit a change in control of the Company. For example, such
provisions may (i) deter tender offers for the Common Stock, which offers may
be attractive to the stockholders, or (ii) deter purchases of large blocks of
Common Stock, thereby limiting the opportunity for stockholders to receive a
premium for their Common Stock over then-prevailing market prices. See
"Description of Capital Stock of the Company" and "Certain Provisions of
Maryland Law and of the Company's Charter and Bylaws." These provisions
including the following:

Limits on Ownership of Common Stock. In order for the Company to maintain
its qualification as a REIT, not more than 50% in value of the outstanding
shares of Common Stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year for which the election to be treated as a REIT has been made).
In addition, if the Company, or an owner of 10% or more of the Company,
actually or constructively owns 10% 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. See "Federal Income Taxes Consequences--Federal
Income Taxation of the Company." In order to protect the Company against the
risk of losing REIT status due to the concentration of ownership among its
stockholders, the Company's Charter limits actual or constructive ownership of
the outstanding shares of Common Stock by any single stockholder or group of
stockholders to 9.9% of the total of the then outstanding shares of Common
Stock (the "Ownership Limit"), except that AEW, its transferees and certain
"Look-Through Entities" (as defined in "Description of Capital Stock of the
Company--Restrictions on Transfer") are not subject to the Ownership Limit.
Look-Through Entities will be subject to a separate limit, so they may
actually and beneficially own up to 15% of the total outstanding shares of
Common Stock (the "Look-Through Ownership Limit"). See "Description of Capital
Stock of the Company--Restrictions on Transfer." Although the Board of
Directors presently has no intention of doing so, the Board of Directors could
waive the Ownership Limit with respect to a particular stockholder if it were
satisfied, based upon a ruling from the IRS or an opinion of tax counsel, that
ownership by such stockholder in excess of the Ownership Limit would not
jeopardize the Company's status as a REIT and the Board of Directors otherwise
decided such action would be in the best interests of the Company. Actual or
constructive ownership of shares of Common Stock in excess of the Ownership
Limit, the Look-Through Ownership Limit or the AEW Limit, as the case may be,
will cause the violative transfer or ownership to be void with respect to the
transferee or owner as to that number of shares in excess of the Ownership
Limit and such shares will be automatically transferred to a trust of the
benefit of a qualified charitable organization. Such transferee or owner shall
have no right to vote such shares or be entitled to dividends or other
distributions with respect to such shares. See "Description of Capital Stock
of the Company--Restrictions on Transfer" for additional information regarding
the Ownership Limit.

Preferred Stock. The Charter authorizes the Board of Directors to cause the
Company to issue authorized but unissued shares of Preferred Stock and to
classify or reclassify any unissued shares of Preferred Stock and to

27
<PAGE>

set the preferences, rights and other terms of such classified or unclassified
shares. See "Description of Capital Stock of the Company--Preferred Stock."
Although the Board of Directors has no such intention at the present time, it
could establish a series of Preferred Stock that could, depending on the terms
of such series, delay, defer or prevent a transaction or a change in control
of the Company that might involve a premium price for the Common Stock or
otherwise be in the best interest of the stockholders.

Staggered Board. The Company's Board of Directors is divided into three
classes of Directors. The initial terms of the first, second and third classes
will expire in 1998, 1999 and 2000, respectively. Beginning in 1998, Directors
of each class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of Directors will be elected by the
stockholders. The staggered terms of Directors may reduce the possibility of a
tender offer or an attempt to change control of the Company even though a
tender offer or change in control might be in the best interest of the
stockholders. See "Certain Provisions of Maryland Law and of the Company's
Charter and Bylaws--The Board of Directors."

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or releases
of petroleum products at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with
the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure properly to remediate the contamination on
such property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs incurred in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site.

Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACM")
when such materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. Such laws may impose
liability for release of ACM and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACM. In connection with its ownership and operation of the
Properties, the Company may be potentially liable for such costs.

In connection with the acquisition of each property, independent
environmental consultants conducted or updated Phase I Environmental
Assessments ("Phase I Assessments") at the Properties. Moreover, within the
past 12 months, independent environmental consultants were retained to conduct
or update (i) the Phase I Assessments (which generally do not involve invasive
techniques such as soil or ground water sampling) and (ii) the asbestos
surveys on all of the Properties. These environmental assessments have not
revealed any environmental conditions that the Company believes will have a
material adverse effect on its business, assets or results of operations, and
the Company is not aware of any other environmental condition with respect to
any of the Properties which the Company believes would have such a material
adverse effect.

No assurance can be given that the Phase I Assessments and updates
identified all potential environmental liabilities, that no prior owner
created any material environmental condition not known to the Company or the
independent consultants preparing the assessments, that no environmental
liabilities may have developed since

28
<PAGE>

such environmental assessments were prepared, or that future uses or
conditions (including, without limitation, changes in applicable environmental
laws and regulations) will not result in imposition of environmental
liability.

The Company believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products, except as noted
above. 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 or petroleum products in connection
with any of its present Properties, other than as noted above.

EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
of the Common Stock. In connection with the formation of the Company,
Units, in addition to Common Stock sold by the Company in the Offering, will
be issued. See "Structure and Formation of the Company." The Operating
Agreement provides that the Units (other than Units held by AEW) will not be
exchangeable into shares of Common Stock for a period of 14 months following
the completion of the Offering. In addition, AEW has agreed not to sell any
shares of Common Stock owned by it or issued upon exchange of Units held by it
for one year following the completion of the Offering, and the Principals have
agreed not to sell any shares of Common Stock owned by them or issued upon
exchange of Units held by them for a period of two years following the
Offering. See "Shares Available for Future Sale." When such restrictions
lapse, Common Stock issued upon the exchange of Units may be sold in the
public market pursuant to registration rights that the Company has granted to
the Participants or available exemptions from registration. In addition,
shares of Common Stock will be reserved for issuance pursuant to the Company's
Equity Incentive Plan, and these shares will be available for sale in the
public markets from time to time pursuant to exemptions from registration
requirements or upon registration. Options to purchase a total of shares
of Common Stock will be granted to certain executive officers, employees and
directors upon the closing of the Offering. See "Management--Compensation of
Directors," "--Executive Compensation" and "--Equity Incentive Plan." No
prediction can be made about the effect that future sales of Common Stock will
have on the market price of shares.

IMMEDIATE AND SUBSTANTIAL DILUTION

As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the assumed initial public offering price per share in
the Offering. Accordingly, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $ per share in the net
tangible book value of the Common Stock from the assumed initial public
offering price. See "Dilution."

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained or that shares of Common Stock will be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock will be determined by agreement among the Company and the Underwriters
and may not be indicative of the market price for the Common Stock after the
Offering. See "Underwriting." The market value of the Common Stock could be
substantially affected by general market conditions, including changes in
interest rates. Moreover, numerous other factors, such as governmental
regulatory action and changes in tax laws, could have a significant impact on
the future market price of the Common Stock. There also can be no assurance
that, upon listing, the Company will continue to meet the criteria for
continued listing of the Common Stock on the New York Stock Exchange (the
"NYSE").

29
<PAGE>

INFLUENCE OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS

None of the Directors or officers of the Company is selling any Common Stock
in the Offering. Upon completion of the Offering, all Directors and executive
officers of the Company as a group will beneficially own approximately % of
the outstanding Common Stock and Units ( %, counting all Units owned by AEW as
beneficially owned by Mr. Davidson, a Director of the Company). Commencing 14
months after consummation of the Offering, such Units held by all Directors
and executive officers (except for the Units held by AEW, whose Units shall be
exchangeable into shares of Common Stock upon completion of the Offering),
will be redeemable by the holder for cash or, at the option of the Company,
exchangeable for shares of Common Stock on a one-for-one basis. Mr. Layton
currently serves as President and Chief Operating Officer and will be, along
with Mr. Belling, who currently serves as Chief Executive Officer, and Mr.
Davidson on the initial Board of Directors of the Company. Accordingly, such
persons will have substantial influence on the Company, which influence might
not be consistent with the interests of other stockholders, and may in the
future have a substantial influence on the outcome of any matters submitted to
the Company's stockholders for approval if all of their Units, or the Units of
their affiliates are exchanged for Common Stock. In addition, although there
is no current agreement, understanding or arrangement for those Participants
who received Units to act together on any matter, the Participants could be in
a position to exercise significant influence over the affairs of the Company
if they were to act together in the future. See "Principal and Management
Stockholders."

RISKS OF FEE MANAGEMENT BUSINESS

The Company, through the Operating Company's interest in the Management
Company, intends to pursue selectively the management of properties owned by
third parties. Risks associated with the management and leasing of properties
owned by third parties include the risk that the management and leasing
contracts (which are typically cancelable upon 15 to 60 days' notice or upon
certain events, including sale of the property) will be terminated by the
property owner or will be lost in connection with a sale of such property,
that contracts may not be renewed upon expiration or may not be renewed on
terms consistent with current terms and that the rental revenues upon which
management and leasing fees are based will decline as a result of general real
estate market conditions or specific market factors affecting properties
managed or leased by the Management Company, resulting in decreased management
or leasing fee income.

LACK OF CONTROL OVER MANAGEMENT COMPANY

To facilitate maintenance of the Company's qualification as a REIT for
federal income tax purposes, management of any properties that are not wholly
owned by the Operating Company will be conducted through the Management
Company. The Operating Company will own all of the non-voting stock
(representing a 95% equity interest) and the officers of the Management
Company will own all of the voting stock (representing a 5% equity interest)
of the Management Company. The initial board of directors of the Management
Company will consist of Phil A. Belling and Steven R. Layton. The officers of
the Management Company will retain the ability to elect the directors of the
Management Company. The Company will not control the timing or amount of
dividends paid by the Management Company nor will the Company have the
authority to control the management and operation of the Management Company.
As a result, decisions relating to the declaration and payment of dividends
and the business policies and operations of the Management Company could be
adverse to the interests of the Company or could lead to adverse financial
results, which could adversely affect the Company's financial condition and
results of operations.

EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK

One of the factors that will influence the market price of the Common Stock
in public markets will be the annual distribution rate on the shares.
Increasing market interest rates may lead prospective purchasers of the Common
Stock to demand a higher annual distribution rate from future distributions.
Such an increase in the required distribution rate may adversely affect the
market price of the Common Stock.

30
<PAGE>

THE COMPANY

LBA Properties, Inc. (the "Company") was formed to continue and expand the
real estate business of LBA, Inc. and certain affiliated entities founded by
Steven R. Layton, Phil A. Belling and certain other members of the Company's
management (collectively, "Layton-Belling & Associates"). The Company is
engaged in owning, acquiring, managing, leasing, developing and redeveloping
office and industrial properties throughout Southern California. Upon
consummation of the Offering, the Company will own a diversified portfolio of
48 office, industrial and retail properties (the "Properties") containing
approximately 5.0 million square feet. The Properties consist of (i) 32 office
properties (the "Office Properties") containing approximately 3.4 million
square feet, (ii) 15 industrial properties (the "Industrial Properties")
containing approximately 1.4 million square feet and (iii) one retail center
containing 144,225 square feet (the "Retail Property"). The Properties are
located throughout Southern California as shown in the table below:

Upon consummation of the Offering, the Company will also own two sites
suitable for the development of additional office properties (the "Build-to-
Suit Projects"). The Company expects to commence construction of one of the
Build-to-Suit Projects in late 1997 and is currently negotiating a lease with
a prospective tenant with respect to the other Build-to-Suit Project. The
Company estimates that the Build-To-Suit Projects will, when completed,
contain approximately 130,000 square feet. Additionally, the Company will have
a 25% interest in, and an option to acquire the remaining interest in, an
additional 118,800 square foot office property (the "Joint Venture Property")
and will have options to purchase two additional office properties containing
approximately 425,500 square feet (the "Option Properties"), and a parcel of
approximately 7.4 acres of undeveloped land that may present future
development opportunities (the "Development Parcel"). See "Business and
Properties--The Option Properties and The Development Parcel" and "--The
Build-to-Suit Projects."

The Company operates from its Newport Beach, California headquarters and its
three regional offices in Los Angeles, San Diego and the Inland Empire. The
Company is a full service real estate company with in-house expertise in
acquisitions, development, redevelopment, asset management, property
management, leasing, construction and disposition services. The Company's five
senior executives, Phil A. Belling, Steven R. Layton, David C. Thomas, Steven
R. Briggs and Perry Schonfeld, have an average of 13.2 years experience in the
real estate industry, almost exclusively within the Southern California
region. The Company's senior management team developed its experience during a
variety of real estate cycles and the Company believes its experience gives it
a competitive advantage in identifying and capitalizing on opportunities
created by changing real estate markets. The Company's senior management has
been responsible for the development of more than eight million square feet of
commercial development and build-to-suit projects, the completion of more than
200 receivership and consulting assignments on behalf of financial
institutions during the recessionary period of the early 1990s, and, since
1993, the acquisition and/or disposition of more than 80 office, industrial
and retail properties.

31
<PAGE>

is projected to be the number one market in the United States for primary
office employment growth during the period from 1995 to 2006, and five of the
six counties that comprise Southern California are on the U.S. Department of
Commerce's 1996 list of the 20 Fastest Growing U.S. Metropolitan Areas, 1993-
2005. The on-going economic recovery in Southern California, including the
markets in which the Properties are located, has resulted in increasing demand
for office and industrial space, declining vacancy rates, rising rental rates
and increasing property values. See "Southern California Economy and Property
Markets."

Southern California is a large and diverse geographic area encompassing 31
distinct markets and 136 separate submarkets. According to a study prepared by
Cushman & Wakefield of California, Inc. (the "C&W Study"), these markets and
submarkets, which contain approximately 289.4 million square feet of multi-
tenant office space and 1.3 billion square feet of industrial space, are in
various stages of recovery. While the economic recovery is strong in certain
markets, the pattern of recovery is not uniform throughout all of the markets.
According to the C&W Study, approximately 195.0 million square feet of office
space (approximately 67% of the Southern California office market) are in
markets that have not yet experienced a full recovery. Approximately 136.0
million square feet of office space (approximately 47% of the Southern
California office market) are in markets which still have vacancy rates in
excess of 15%. The Company believes that the size and diversity of the
Southern California real estate market and the varying stages of recovery
among its submarkets will continue to offer acquisition and development
opportunities as the real estate recovery extends into additional markets.

The Company believes it has the following competitive advantages in
identifying and competing for acquisition and development opportunities
throughout Southern California: (i) local market expertise developed through
its ownership and management of the Properties in 18 different Southern
California markets and the strong local presence provided through the
Company's four Southern California offices; (ii) working relationships with a
diversified base of over 560 existing tenants and knowledge of those tenants'
space requirements; (iii) long-term working relationships with financial
institutions, real estate brokers and other real estate professionals through
its receivership, consulting and asset and property management operations;
(iv) a disciplined investment process which allows the Company to source,
analyze and close acquisitions quickly while maintaining institutional-quality
due diligence and underwriting standards; (v) experience in acquiring and
redeveloping under performing office and industrial properties; (vi)
development expertise and (vii) access to capital, including the Credit
Facility, and the ability to acquire portfolios of assets or individual
properties in exchange for Units.

HISTORY

Layton-Belling & Associates was founded in 1991. The firm's initial focus
was the needs of the many financial institutions who had become owners of real
estate through foreclosures and bankruptcies during the real estate recession
of the early 1990s. During the ensuing years, the Company expanded into a
full-service real estate company, providing property and asset management and
real estate brokerage services. In 1995, the Company obtained financing from
AEW and launched its acquisition program. To date, the Company has acquired
the 48 Properties, as well as seven other properties which have subsequently
been sold. The Principals have substantial experience in all segments of the
commercial real estate industry, including (i) construction and development,
(ii) receivership and consulting, (iii) asset management, property management
and real estate brokerage and (iv) real estate acquisitions.

Construction and Development. The Principals have extensive experience in
the construction and development of commercial properties throughout Southern
California. Prior to founding Layton-Belling & Associates, Messrs. Layton and
Belling were each Senior Vice Presidents of The Koll Company responsible for
development and build-to-suit operations in Orange, San Diego and Riverside
counties. During their respective tenures with The Koll Company of six and ten
years, Messrs. Layton and Belling gained extensive construction and
development experience through the development of more than 25 office,
industrial and retail properties encompassing, in the aggregate, over 8.0
million square feet. Specific projects constructed include Koll Center Irvine,
a 2.0 million square foot mixed-use (office, hotel and retail) master planned
development, and Koll

32
<PAGE>

Anaheim Center, which includes Anaheim City Hall and a 200,000 square foot
regional headquarters for Pacific Bell. Additionally, Mr. Briggs, as Vice
President of a Southern California development company, was responsible for
directing the development and construction of more than 15 industrial business
parks and build-to-suit projects, totaling more than 2.0 million square feet.

Real Estate Acquisitions. In early 1995, the Company recognized a recovery
in the Southern California real estate market and commenced an acquisition
program to capitalize on its market knowledge, access to investment
opportunities, tenant relationships and real estate management expertise. The
Company's initial acquisition program was financed principally by AEW, and
through that program the Company acquired 38 of the 48 Properties, a 50%
interest in a six-property joint venture with CIGNA for a 904,000 square foot
Southern California portfolio (all of which properties are being contributed
to the Company in the Formation Transactions) and seven additional properties
which have subsequently been sold. The Company established an additional
acquisition fund financed principally by the Gerson Bakar 1984 Trust and the
Principals through which it acquired the remaining four of the 48 Properties.
Through its acquisition program, and drawing on the expertise it gained during
its receivership and consulting engagements, the Company has established
comprehensive budgeting, planning and reporting systems, in part to satisfy
the institutional-level reporting requirements of AEW and CIGNA. The Company
believes that these skills will be an important factor in maximizing the
operating efficiency and value of its portfolio.

Receivership and Consulting. Since its founding in 1991, Layton-Belling &
Associates has completed over 200 receivership and consulting assignments
throughout Southern California for major financial institutions, including
Bank of America, Equitable Life Assurance Society of the United States, Union
Bank of California and CIGNA. For each assignment, Layton-Belling & Associates
completed a thorough analysis of the property, including its physical
condition, tenant delinquencies, and relevant leasing and market information,
then developed a strategic action plan for taking over, transitioning and
stabilizing each property. Throughout this process, Layton-Belling &
Associates provided the court, the lender and the borrower with detailed,
thorough and timely financial and operational reporting which was required to
meet their respective needs.

These assignments ranged from small, free-standing industrial buildings and
retail strip centers to large mixed-use office properties. The following are
specific examples of Layton-Belling & Associates' receivership and consulting
engagements:

. Plaza La Jolla Village, Five-Building, 630,000 Square Foot Mixed-Use
Complex, San Diego. Layton-Belling & Associates was appointed on behalf
of the U.S. Bankruptcy court, a major financial institution, and the
borrower to administer the day-to-day operations and bankruptcy
disposition of this office complex in San Diego, California. The Company
transitioned all of the management operations of the borrower and
implemented expense reduction and leasing programs in an effort to
increase cash flow for the property. The Company also managed the court-
ordered bankruptcy sale for the five-building complex.

The transitioning of this property and implementation of expense
reduction, leasing, and disposition programs has provided valuable
experience for LBA's property takeover and operational strategies.

. ABC Entertainment Center, Two-Building, 585,000 Square Foot Mixed-Use
Office/Entertainment Complex, Century City. In early 1994, LBA was
retained by a major financial institution to transition from bankruptcy
a premier, 585,000 mixed-use office/entertainment complex in Los
Angeles, California. The Company was responsible for overseeing an
aggressive management takeover program to resolve capital deferred
maintenance, tenant delinquency and complex tenant legal issues. The
problems were compounded by major damage to the property incurred by the
Northridge earthquake.

The experience of transitioning the property and resolving legal,
financial, and accelerated capital enhancement programs has enhanced
the Company's operations.

. Retail Portfolio Transition. In 1993, LBA was retained by a major
financial institution to assist with transitioning the ownership from
Borrower to Lender of four Southern California retail centers. LBA's

33
<PAGE>

role was to represent the institution with transitioning all of the day-
to-day operations and related documents, identify property and
operational issues, and assist with implementing an ongoing operation
and disposition strategy for the properties.

The experience of transitioning these properties and assisting the
institution with resolving property and tenant issues has been a strong
supplement to LBA's ability to take over portfolios of properties and
transition operations in a timely, smooth and productive process for the
property and tenants.

Through these types of engagements, Layton-Belling & Associates established
a reputation as hands-on managers with a focused approach to stabilizing and
repositioning troubled assets and maximizing property values. The Company
believes that the operating expertise gained through its receivership program
will continue to be one of its primary competitive advantages in identifying
acquisition opportunities, in taking over and transitioning acquired
properties, and in implementing its strategy for maximizing the profitability
of its properties.

Management and Brokerage Services. As an extension of its receivership
services, in 1992 Layton-Belling & Associates began to provide asset and
property management, commercial leasing and brokerage services to a wide range
of institutional clients. From 1992 to 1997, Layton-Belling & Associates was
responsible for managing as many as 300 different properties totaling more
than 8.0 million rentable square feet. These properties included small, single
tenant industrial properties, large regional malls and large, mixed-use
properties. Through its commercial brokerage services, Layton-Belling &
Associates has been involved in leasing over 500,000 square feet of office and
industrial space on behalf of third-party clients, and has directed the
disposition of more than 40 commercial properties totaling more than 4.0
million square feet (and more than $325 million) on behalf of its
institutional clients.

BUSINESS AND GROWTH STRATEGIES

The Company's principal objective is to maximize stockholder value by
increasing cash flow per share. The Company believes it can achieve this
objective by pursuing a combination of internal and external growth
strategies.

EXTERNAL GROWTH

The Company believes it is well positioned to realize significant external
growth through the following strategies: (i) acquiring additional stabilized
properties with attractive initial yields at discounts to replacement cost;
(ii) acquiring value-added properties that are under performing, distressed or
otherwise offer an opportunity for the Company to apply its property
management and redevelopment/repositioning expertise to significantly increase
cash flow and asset value; (iii) pursuing selective development opportunities,
primarily on a build-to-suit basis and (iv) expanding, on a selective basis,
the Company's third-party management business.

Property Acquisitions. The Company will seek to acquire office and
industrial properties in Southern California capitalizing on favorable market
conditions, management's local market knowledge, expertise and strong
presence, and its extensive contacts throughout the region. The Company will
evaluate the following factors when considering future acquisitions: (i) the
property's location in its submarket; (ii) its strategic fit within the
Company's portfolio; (iii) current economic and demographic trends in the
property's submarket; (iv) projected occupancy and rental rates; (v) the
purchase price versus replacement cost; (vi) the opportunity to modify and/or
upgrade the property to increase returns; (vii) the quality of construction
and presence of existing and/or deferred maintenance problems and (viii) the
creditworthiness of the property's existing tenants and the terms of their
leases. The Company will continue to target select recovery markets where
strong market fundamentals exist and the Company can acquire properties at
discounts to replacement cost. Where possible, the Company will also seek to
acquire significant market share in certain submarkets so that it can
accommodate its tenants' occupancy requirements, realize economies of scale
and exert influence on trends in market rents.

34
<PAGE>

The Company believes it has several competitive advantages which enhance its
ability to identify and acquire properties, including the following:

. Southern California Market Expertise and Local Market Presence. The
Company's senior management has broad-based real estate experience
within Southern California, including (i) over 200 receivership and
consulting engagements, (ii) the acquisition and/or disposition of more
than 80 office, industrial and retail properties, (iii) management of
over 300 office, industrial and retail properties containing more than
8.0 million square feet and (iv) the development of more than eight
million square feet of office, industrial and retail properties. Through
this diverse experience, management has accumulated extensive knowledge
of the varied Southern California submarkets and has developed a
substantial base of information regarding tenants and real estate
brokers, property values, rental rates and renovation costs as well as
other factors relevant to sourcing and evaluating acquisition
opportunities. The Company believes it also benefits from a significant
local presence throughout Southern California through its ownership and
management of the Properties in 18 separate markets directed by its four
Southern California offices.

. Creative Ability to Source Acquisitions. The Company has acquired 31 of
the 48 Properties on a negotiated basis rather than through competitive
bids. The Company has also acquired four Properties by purchasing and
foreclosing on mortgage notes or through pre-negotiated foreclosures,
including 600 Corporate Pointe, a 273,339 square foot class A office
building in Culver City, California.

. Institutional Relationships. Through its operating history, the Company
has established strong working relationships with a number of financial
institutions. In particular, the Company's receivership, consulting and
third-party management businesses afforded the Company access to
numerous institutional owners of property who may in the future seek to
divest their property holdings. As a result, in part, of its existing
relationships, the Company acquired a number of the Properties including
a 14-property office portfolio from an affiliate of Kemper Real Estate
Management Services containing approximately 582,300 square feet, and a
50% interest in a six-property portfolio owned by CIGNA containing
approximately 901,400 square feet.

. Financing Flexibility. Management believes that the Company's access to
capital, in particular the Credit Facility and the Company's ability to
offer tax-deferred transaction structures to sellers by offering Units
in consideration for properties, enhances its ability to consummate
transactions quickly and to structure more competitive acquisitions than
other real estate companies that lack access to capital. The ability to
acquire properties with Units offers tax advantages to the sellers and
may provide the Company with acquisition opportunities not otherwise
available.

Value-Added Acquisitions. The Company will continue to pursue opportunities
to acquire office or industrial properties that are under performing,
distressed or otherwise present significant repositioning potential. Such
opportunities could include properties that have high vacancy rates or high
near-term tenant roll-over, properties with undercapitalized owners, or
facilities identified as excess by the current owners as a result of corporate
consolidation or reorganization. Such "value-added" acquisitions are expected
to generate attractive yields upon stabilization of the acquired property and
represent an important component of the Company's external growth strategy.
The following are specific examples of the Company's value-added acquisition
strategy:

. 5161 Lankershim. 5161 Lankershim is a 178,317 square foot office
facility located in North Hollywood that was originally built as the
regional headquarters for a major technology company. The property was
acquired by the Company in March 1996 for $54 per square foot, a price
the Company believes was substantially below replacement cost. The
facility was 12.2% leased at acquisition, and the Company developed a
strategic plan to reposition this property through a major renovation
program that included the building exterior, lobby, HVAC and security
systems. The Company was also able to increase the potential return from
this Property through a remeasurement of the building that resulted in
an additional 8,000 square feet of rentable area. The Company has
executed a lease for 98,802 square feet with Walt Disney Pictures and
Television, Inc. As of September 30, 1997, the property was 72.3% leased
and generating an 11.2% Annual Yield (as defined in the "Glossary").

35
<PAGE>

. Skypark Office Plaza. The property is a 202,164 square foot office
facility located in the Kearny Mesa area of San Diego, CA. The property
was acquired by the Company in 1997 for $93.49 per square foot, a price
the Company believes is well below replacement cost. Within 90 days of
closing the Company (i) negotiated a significant payment from the major
tenant as consideration for terminating its lease of over 40% of the
building (ii) implemented a leasing program for the property that
involved executing 59,071 square feet of new leases increasing the
building occupancy to 94.2% leased, which exceeded the Company's
projections.

Development and Build-to-Suit Projects. The Company intends to develop
office and industrial properties, primarily on a build-to-suit basis,
capitalizing on management's development and build-to-suit experience. The
Company expects to commence construction of one of the Build-to-Suit Projects
in late 1997 and is currently negotiating a lease with a prospective tenant
with respect to the other Build-to-Suit Project. The Company expects that its
two Build-to-Suit Projects will contain an aggregate of approximately 130,000
square feet and require a total investment of approximately $11.7 million. The
Company is also seeking a tenant for an office build-to-suit opportunity on
the Development Parcel, a 7.4-acre parcel of land in Mission Viejo, California
which the Company has an option to acquire. The site, located within a 78-acre
master planned business park, is planned for 180,000 square feet of office
space or two 90,000 square foot office/R&D facilities. See "Business and
Properties--The Build-to-Suit Projects."

Third Party Management Services. The Company intends to expand, on a
selective basis, its existing third party management operations for
institutional clients, which may include providing fee-based development,
consulting and property management services to third parties. The Company
believes that providing these services will help foster relationships with
major institutions and corporate tenants, enhance the Company's reputation in
its core markets and provide additional sources of acquisition opportunities.

INTERNAL GROWTH

The Company's internal growth strategies include (i) increasing rental rates
by structuring leases with scheduled contractual base rent increases and
renewing expiring leases or re-leasing vacant spaces at higher rental rates,
(ii) improving occupancy rates through proactive leasing and active
management, (iii) maximizing tenant satisfaction and retention, (iv) reducing
operating expenses through the Company's established procedures for cost
management and (v) selectively disposing of properties when management
believes it can redeploy the capital invested in such properties more
effectively. The Company believes that its leasing program is the most
critical component of its internal growth strategy and that the historical
success of its leasing initiatives is demonstrated by the increase in the
weighted average occupancy rate of the Properties from 57.2% at the time of
acquisition of each Property to 85.9% as of September 30, 1997. No assurance
can be given, however, that such occupancy or leasing rates will be maintained
in the future.

Over the next several years, the Company expects that its ability to
increase cash flow from its existing portfolio will be enhanced by the
continued decline of vacancy rates and increase in rental rates throughout
most of its markets. The Company believes these market trends will allow it to
renew existing leases or re-lease vacant spaces at higher rental rates. There
can be no assurance, however, that these trends will continue in the future,
or that if they continue, the Company's operating results will improve
significantly, or at all.

Increasing Rental Rates. The Company expects to achieve internal growth in
cash flow through (i) leases which contain provisions for fixed contractual
rental increases (including increases which are tied to indices such as the
Consumer Price Index) and (ii) by renewing expiring leases or re-leasing
vacated space at increasing market rates. During the period between July 1,
1997 and June 30, 1998, the contractual base rents under leases in the
Company's portfolio are scheduled to increase by an aggregate of approximately
$ on an annual basis due to fixed contractual rent increases (not
including increases from free or partial rent to full rent). During this same
period, leases representing a total of square feet are expected to
expire. Based on estimates of rents for comparable office and industrial
buildings included in the C&W Study, the Company believes that % of this
space is subject to leases which contain below market rents. In addition, the
Company

36
<PAGE>

believes that the current trends in most of its markets of increasing
employment and declining vacancy rates will result in future increases in
market rental rates. Accordingly, the Company believes that it will have
significant opportunities to increase cash flow by renewing expiring leases or
re-leasing vacated space at market rents.

The Company's leasing program is its primary internal growth strategy, and
is also a major focus of its operations. In particular, the Company believes
that its historical success in leasing vacant space, including large blocks of
space, has allowed it to execute its value-added acquisition strategy of
purchasing, at a discount, properties with high vacancies at the time of
acquisition. For example, from the fourth quarter of 1995 through the second
quarter of 1996, the Company acquired a significant number of properties with
large amounts of vacant space at the time of their acquisition, reducing the
weighted average occupancy of the Company's portfolio from 79% to 64%. From
that time through September 30, 1997, however, the Company executed 117 leases
covering an aggregate of 1.2 million square feet, increasing the weighted
average occupancy of the Company's portfolio from 64% to 89%. At the same
time, the Company increased the size of its portfolio 278%, from 1.3 million
square feet to 5.0 million square feet. The following diagram illustrates the
Company's leasing activity since the first Property was acquired in March
1995.

[CHART OF HISTORICAL OCCUPANCY BY QUARTER]

37
<PAGE>

The Company believes that a significant component of its historical leasing
success has been its ability to lease large blocks of space to regional and
national corporate tenants and to utilize its portfolio creatively in order to
meet those tenants' needs. The following table lists the 15 largest leases
negotiated and executed by the Company.

<TABLE>
<CAPTION>
SQUARE
RANK TENANT PROPERTY FEET
- ---- ------ -------- -------
<S> <C> <C> <C>
1 Cymer, Inc. Cymer Technology Center 137,164
2 Pacific Southwest Bank Carlsbad Corporate Center 125,000
3 Executone Information Systems Poway Industrial 112,000
4 Walt Disney Pictures and Television, Inc. 5161 Lankershim 98,802
5 Aurora Biosciences Corp. Torreyanna Science Park 81,204
6 Foundation Health Corporation Orange Financial Center 71,946
7 Qualcomm Incorporated Vista Sorrento Office 69,386
8 Karl Stortz Endoscopy 600 Corporate Pointe 56,324
9 IDRC Corporation Sorrento Valley Science Park 44,672
10 Inova Diagnostics, Inc. Scripps Ranch 43,560
11 Comcast Cable Comcast Ontario (Build-to-Suit) 40,000
12 Sedgwick James Orange Financial Center 37,818
13 Maxwell Technologies, Inc. Skypark Office Plaza 24,942
14 Custom Copy Services, Inc. Huntington Beach R&D III 21,568
15 Sony Pictures Entertainment 600 Corporate Pointe 20,299
</TABLE>

The following table sets forth a summary schedule of the leasing activity
for the Properties since their acquisition by the Company.

<TABLE>
<CAPTION>
NUMBER OF
YEAR LEASES SQUARE FEET
---- --------- -----------
<S> <C> <C>
1995(1) 15 59,225
1996(2) 54 320,752
1997(3) 129 989,179
--- ---------
Total/Weighted Average 198 1,369,156
</TABLE>
- --------
(1) Data is for the period March 22, 1995 through December 31, 1996.
(2) Data is for the year ended December 31, 1997.
(3) Data is for the nine months ended September 30, 1997.

Maximizing Tenant Satisfaction and Retention. The Company believes that an
important component of its internal growth strategy is its focus on tenant
satisfaction and retention. The Company will continue to focus on tenant
satisfaction at all levels, starting with lease negotiations, where an
emphasis is made to commit to lease terms quickly and ensure timely lease
execution and build-out of space by the Company's tenant services coordinator.
Management continually strives to be responsive to tenant needs, including
providing building amenities, upgraded facilities (including lobbies,
elevators and other common areas), on-site property management personnel
whenever possible, and providing prompt, creative, cost-effective solutions to
tenant requests and expansion requirements, including by providing tenants
with alternative space within the Company's portfolio to accommodate their
changing space requirements. The Company's in-house construction team helps
ensure management is able to respond to tenant requirements on a timely basis.

Pursuing Cost Control and Operating Efficiencies. The Company will seek to
minimize operating costs through a variety of cost-reduction programs. At the
consummation of the Offering, the Company will already have in place various
initiatives for realizing cost efficiencies and will be in the process of
implementing further cost control strategies. Examples of cost-reduction
programs already in place include a comprehensive preventive

38
<PAGE>

maintenance program and centralized purchase order and approval procedures for
each regional office of the Company. The Company also maintains a centralized
state of the art accounting system for cost control at each of the Properties
and seeks to minimize overhead by, among other things, assigning
responsibility for multiple submarkets to its regional offices and controlling
corporate general and administrative expenses. In the near future, the Company
expects to realize cost savings and efficiencies through energy management and
capitalizing on the deregulation of energy providers. Also, the Company has
recently implemented a strategy of negotiating, on a Company wide basis,
service contracts for items such as such as on-site security, janitorial, lot
sweeping, insurance, landscaping, paper goods and other third-party vendor
services. The Company believes that as the size and geographic scope of its
portfolio further expands it will benefit from economies of scale and other
operating efficiencies providing additional cost reduction.

Disposition Strategy. The Company will consider the selective disposition of
properties from time to time in order to enhance stockholder value where
management believes the sale and redeployment of capital will maximize returns
to the Company. Since commencement of its acquisition program, the Company has
sold seven properties for a total of $34.7 million, which has generated an
average return on investment of 55.6% per annum. No assurance can be given,
however, that the Company will continue to achieve such results in the future.

39
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and estimated expenses of the
Offering, are approximately $ million (approximately $ million if the
Underwriters' overallotment option is exercised in full), based on the
estimated initial public offering price of $ per share. The net cash
proceeds of the Offering will be used by the Company as follows: (i)
approximately $ million for repayment of mortgage debt on the Properties
(which was incurred to acquire the Properties), unsecured lines of credit and
notes payable and the related accrued interest thereon, (ii) approximately $
million for the purchase from AEW and CIGNA of their interests in the
Predecessor Entities (or a portion thereof in the case of AEW) and (iii) the
remaining net proceeds will be used to fund future acquisitions, tenant
improvements, capital expenditure reserves and working capital purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Pending application of net proceeds, the Company will invest such portion of
the net proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's intention to qualify for
taxation as a REIT.

The following table sets forth certain information regarding the debt to be
repaid upon completion of the Offering, which consists primarily of mortgage
debt encumbering certain of the Properties. The mortgages and other
indebtedness to be repaid upon completion of the Offering had a weighted
average interest rate of approximately % and a weighted average remaining
term to maturity of approximately years as of September 30, 1997.

MORTGAGE DEBT TO BE REPAID

<TABLE>
<CAPTION>
PRINCIPAL BALANCE OF
DEBT TO BE REPAID
UPON CONSUMMATION
PROPERTY OF THE OFFERING(1)
- -------- --------------------
<S> <C>
Orange Financial Center.................................... $
Von Karman Corporate Center................................
Newport-Irvine Office......................................
South Coast Executive Park.................................
One Venture................................................
4440 Von Karman............................................
1800 Lambert...............................................
City Centre I..............................................
The Plaza..................................................
Huntington Beach Plaza I & II..............................
Skypark Office Plaza.......................................
Sorrento Valley Science Park...............................
Governor Park Plaza........................................
Torreyanna Science Park....................................
Vista Sorrento Office......................................
Shoreham Building..........................................
Uniden Building............................................
Carlsbad Corporate Center..................................
Tower Plaza Office.........................................
Tower Plaza Professional Center............................
Tower Plaza Business Center................................
5161 Lankershim............................................
150 East Colorado..........................................
1501 Hughes Way ...........................................
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL BALANCE OF
DEBT TO BE REPAID
UPON CONSUMMATION
PROPERTY OF THE OFFERING(1)
- -------- --------------------
<S> <C>
3901 Via Oro............................................... $
600 Corporate Pointe.......................................
1919 Santa Monica..........................................
Camarillo Business Center..................................
Centrelake Plaza...........................................
Chicago Avenue Business Park...............................
HDS Plaza..................................................
Havengate..................................................
Savi Tech Center...........................................
Yorba Linda Business Center................................
Huntington Commerce Center.................................
Huntington Beach R&D I.....................................
Huntington Beach R&D II....................................
Huntington Beach R&D III...................................
Cymer Technology Center....................................
Poway Industrial...........................................
Via Frontera...............................................
Scripps Ranch..............................................
Westridge..................................................
Highlands I................................................
Highlands II...............................................
Airport Commerce Center....................................
Hunter Business Center.....................................
Tower Plaza Retail.........................................
-----------
-----------
TOTAL.................................................... $
===========
</TABLE>
- --------
(1) Exact repayment amounts may differ due to amortization. These figures are
estimated as of September 30, 1997 and exclude (a) accrued interest
estimated to be approximately $ million in the aggregate and (b) $
million under the lines of credit and notes payable to be assumed by the
Operating Company.

41
<PAGE>

DISTRIBUTIONS

Subsequent to the Offering, the Company intends to make regular quarterly
distributions to the holders of its Common Stock. The Company intends to cause
the Operating Company initially to distribute annually approximately % of
estimated cash available for distribution. The Company intends to pay a pro
rata distribution with respect to the period commencing on the closing of the
Offering and ending on , 1997 based upon $ per share for a full
quarter. On an annualized basis, this would be $ per share (of which $
may represent a return of capital for tax purposes), or an annual distribution
rate of approximately % or estimated cash available for distribution based
on the assumed initial public offering price per share of $ . The Company
does not intend to reduce the expected distribution per share if the
Underwriters' overallotment option is exercised. Future distributions by the
Company will be at the discretion of the Board of Directors. There can be no
assurance that any distributions will be made or that the estimated level of
distributions will be maintained by the Company. The following discussion and
the information set forth in the table and footnotes below should be read in
connection with the financial statements and notes thereto, the pro forma
financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" included elsewhere in this Prospectus.

The Company anticipates that its distributions will exceed earnings and
profits from income tax reporting purposes due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company. Therefore,
approximately % (or $ per share) of the distributions anticipated to be
paid by the Company for the first 12 months subsequent to the Offering are
expected to represent a return of capital for federal income taxes 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 stockholder's basis in his or
her Common Stock. The nontaxable distributions will reduce the stockholder's
tax basis in the Common Stock and, therefore, the gain (or loss) recognized on
the sale of such Common Stock or upon liquidation of the Company will be
increased (or decreased) accordingly. The percentage of stockholder
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%
of its REIT taxable income. See "Federal Income Tax Consequences--Federal
Income Taxation of the Company." 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 Company for the 12 months ended , 1997 as
adjusted for certain items would have been approximately $ million. The
estimated cash available for distribution is anticipated to be in excess of
the annual distribution requirements applicable to REITs. Under certain
circumstances, the Company may be required to make distributions in excess of
cash available for distribution in order to meet such distribution
requirements. For a discussion of the tax treatment of distributions to
holders of Common Stock, see "Federal Income Tax Consequences."

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

42
<PAGE>

CAPITALIZATION

The following table sets forth the combined historical capitalization of the
LBA Predecessors (as defined in the "Glossary") and the pro forma combined
capitalization of the Company as of June 30, 1997, as adjusted to give effect
to the Formation Transactions, the Offering and use of the net proceeds from
the Offering as set forth under "Use of Proceeds." The information set forth
in the table should be read in connection with the financial statements and
notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
COMBINED PRO FORMA
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage loans and lines of credit (1)................ $131,993 $152,900
Line of credit........................................ -- 1,125
Minority interests in Operating Company................. --
Owners' and stockholders' equity
Preferred stock, $.01 par value, shares authorized;
none issued and outstanding.......................... -- --
Common stock, $.01 par value; shares
authorized; issued and outstanding (2)............... --
Additional paid-in capital............................ -- 271,448
Owners' equity........................................ 133,015 --
-------- --------
Total owners' and stockholders' equity.............. 133,015 213,944
-------- --------
Total capitalization.............................. $265,008 $425,473
======== ========
</TABLE>
- --------
(1) See Note 5 of the notes to the combined financial statements of the LBA
Predecessors for information relating to the indebtedness. See "Use of
Proceeds."
(2) Pro forma as adjusted includes shares of Common Stock to be issued in the
Offering. Does not include (i) shares of Common Stock that may be
issued upon the exchange of Units issued in connection with the
Formation Transactions, (ii) shares of Common Stock subject to the
Underwriters' overallotment option, (iii) shares of Common Stock
subject to options to be granted to officers, Directors and employees of
the Company in connection with the Offering and (iv) additional shares
of Common Stock reserved for issuance pursuant to the Equity Incentive
Plan.

43
<PAGE>

DILUTION

At June 30, 1997, the Company had a net tangible book value of approximately
$ million. After giving effect to (i) the sale of the shares of Common Stock
offered hereby (at an assumed initial public offering price of $ per share)
and the receipt by the Company of approximately $ million in net proceeds
from the Offering, after deducting underwriting discounts and commissions and
estimated Offering expenses, (ii) the repayment of approximately $ million
of indebtedness under mortgage loans and lines of credit (including
approximately $ million of accrued interest, of which approximately $
million was not accrued as of June 30, 1997 on the combined balance sheet of
the LBA Predecessors), the pro forma net tangible book value at June 30, 1997
would have been $ million, or $ per share of Common Stock. This amount
represents an immediate increase in net tangible book value of $ per share
to the existing holders of Units and an immediate dilution in pro forma net
tangible book value of $ per share of Common Stock to new investors. The
following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $--
Net tangible book value per share prior to the Offering(1)......... $--
Increase in net tangible book value per share attributable to the
Offering(2)....................................................... $--
Pro forma net tangible book value after the Offering(3).............. $--
----
Dilution in net tangible book value per share of Common Stock to new
investors(4)........................................................ $--
====
</TABLE>
- --------
(1) Net tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Company (based on the June 30,
1997 net book value of the assets less net book value of prepaid
financing and leasing costs to be contributed in connection with the
Formation Transactions, net of liabilities to be assumed) by the number
of shares of Common Stock issuable upon the exchange of all Units to be
issued to the Participants in connection with the Formation Transactions.
(2) Based on the assumed initial public offering price of $ per share of
Common Stock and after deducting Underwriters' discounts and commissions
and estimated Offering expenses.
(3) Based on total pro forma net tangible book value of $ million divided
by the total number of shares of Common Stock. There is no impact on
dilution attributable to the issuance of Common Stocks in exchange for
Units to be issued to the Participants since such Units would be
exchanged for Common Stock on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per share
of Common Stock after the Offering from the assumed initial public
offering price of $ per share of Common Stock.

The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock
to be sold by the Company in the Offering and the number of Units to be issued
to the Participants in connection with the Formation Transactions, the net
tangible book value as of June 30, 1997 of the assets contributed in the
Formation Transactions and the net tangible book value of the average
contribution per share based on total contributions.

<TABLE>
<CAPTION>
COMMON STOCK/ BOOK VALUE OF BOOK VALUE OF
UNITS ISSUED CONTRIBUTIONS(1) AVERAGE
-------------- -------------------- CONTRIBUTION
SHARES PERCENT $ PERCENT PER SHARE/UNIT(2)
------ ------- -------- ----------- -----------------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
New investors in the Of-
fering................... -- --% $ -- --% --
Units and Common Stock is-
sued to Participants..... -- --% $ -- --% $--
--- --- -------- --------
Total................... -- --% $ -- --%
=== === ======== ========
</TABLE>
- --------
(1) Based on the June 30, 1997 net book value of the assets less net book
value of prepaid financing and leasing costs to be contributed in
connection with the Formation Transactions, net of liabilities to be
assumed.
(2) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering.

44
<PAGE>

SELECTED COMBINED FINANCIAL DATA

The following table sets forth unaudited pro forma financial and other
information for the Company and combined historical financial information for
the LBA Predecessors. The following selected combined financial information
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus.

The unaudited pro forma financial and operating information for the six
months ended June 30, 1997 and the year ended December 31, 1996 is presented
as if the Offering, the Formation Transactions, the acquisition of properties
acquired or under contract to be acquired after June 30, 1997, with the
exception of the Pending Acquisition, the acquisition of Properties acquired
during 1997 prior to June 30, 1997 (the "1997 Acquired Properties") and the
acquisition of Properties acquired during 1996 (the "1996 Acquired
Properties") all had occurred by the date of the June 30, 1997 combined
balance sheet and at the beginning of the period presented for the combined
statements of operations. The pro forma June 30, 1997 balance sheet
information also gives effect to the recording of minority interests for Units
as if these transactions occurred on June 30, 1997.

The pro forma financial statements are not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the acquisitions described above, the Formation
Transactions and the Offering on such date or at the beginning of the period
indicated, nor does it purport to project the Company's financial position or
results of operations at any future date or for any future period.

45
<PAGE>

THE COMPANY (PRO FORMA) AND
LBA PREDECESSORS (COMBINED HISTORICAL)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------------
PRO COMBINED PRO
FORMA HISTORICAL FORMA COMBINED HISTORICAL
------- -------------- ------- ---------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------- ------ ------- ------ ------ ------ ------ -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental................. $25,694 $10,853 $4,069 $45,261 $9,819 $3,860 $ -- $ -- $ --
Tenant recoveries...... 1,721 1,020 450 3,677 1,023 510 -- -- --
Management and
consulting............ 956 1,021 1,109 2,184 2,203 2,153 2,145 1,453 492
Parking and other...... 652 583 428 1,079 697 241 -- -- --
Interest............... 287 204 70 227 227 35 -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Total revenue......... 29,310 13,681 6,126 52,428 13,969 6,799 2,145 1,453 492
------- ------- ------ ------- ------ ------ ------ ------ -----
Expenses:
Rental property
operating............. 8,827 3,762 1,870 15,965 4,759 1,168 -- -- --
Real estate taxes and
insurance............. 3,202 1,522 661 6,405 1,593 522 -- -- --
Depreciation and
amortization.......... 5,695 2,902 933 10,329 2,722 629 25 24 11
Interest............... 5,635 2,894 892 11,269 2,007 40 5 2 --
General and
administrative........ 1,557 1,461 748 3,113 2,295 1,771 1,575 765 460
------- ------- ------ ------- ------ ------ ------ ------ -----
Total expenses........ 24,916 12,541 5,104 47,081 13,376 4,130 1,605 791 471
------- ------- ------ ------- ------ ------ ------ ------ -----
Equity in net income
(loss) of noncombined
entities............... (50) 708 -- (100) 242 -- -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Income before minority
interests.............. 4,344 1,848 1,022 5,247 835 2,669 540 662 21
Minority interests...... -- -- -- -- -- -- --
------- ------- ------ ------- ------ ------ ------ ------ -----
Net income.............. $ $ 1,848 $1,022 $ $ 835 $2,669 $ 540 $ 662 $ 21
======= ======= ====== ======= ====== ====== ====== ====== =====
Pro forma net income per
common share........... $ (1) $ (1)
======= =======
</TABLE>

46
<PAGE>

THE COMPANY (PRO FORMA) AND
LBA PREDECESSORS (COMBINED HISTORICAL)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ----------------------------------------------------------
PRO COMBINED PRO
FORMA HISTORICAL FORMA COMBINED HISTORICAL
------------------------------- ----------------------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------------------- ---------- ------------------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
Operations(2):
Income before minority
interests............. $ 4,344 $ 1,848 $ 1,022 $ 5,247 $ 835 $ 2,669 $ 540 $ 662 $ 21
Real estate related
depreciation and
amortization.......... 5,605 2,812 898 10,185 2,578 566 -- -- --
------- ---------- ---------- ------- ---------- --------- ------- ------- -------
Funds from
Operations.......... 9,949 4,660 1,920 15,432 3,413 3,235 540 662 21
Company's share
Percentage............ % 100.00% 100.00% % 100.00% 100.00% 100.00% 100.00% 100.00%
Company's share of
Funds from
Operations............ $ $ 4,660 $ 1,920 $ $ 3,413 $ 3,235 $ 540 $ 662 $ 21
------- ---------- ---------- ------- ---------- --------- ------- ------- -------
Cash flows from
operating
activities............ $ (15,962) $ (3,620) $ 157 $ 3,047 $ 502 $ 358 $ 2
Cash flows from
investing
activities............ (118,828) (51,917) (95,965) (27,862) -- -- --
Cash flows from
financing
activities............ 131,604 55,769 101,191 26,490 (492) (368) 9
Property Data:
Number of Properties
owned at period end... 41 19 29 12 -- -- --
Gross rentable square
feet of Properties
owned at period end... 4,213,884 1,328,489 2,536,584 542,168 -- -- --
Occupancy at period
end of Properties
owned at period end... 78% 64% 75% 79% -- -- --
Number of Office
Properties owned at
period end............ 25 10 17 6 -- -- --
Gross rentable square
feet of Office
Properties owned at
period end............ 2,674,784 850,521 1,676,390 268,610 -- -- --
Occupancy at period
end of Office
Properties owned at
period end............ 72% 52% 74% 81% -- -- --
Number of Industrial
Properties owned at
period end............ 15 8 11 5 -- -- --
Gross rentable square
feet of Industrial
Properties owned at
period end............ 1,444,875 333,743 715,969 129,333 -- -- --
Occupancy at period
end of Industrial
Properties owned at
period end............ 88% 31% 41% 72% -- -- --
</TABLE>
- --------
(1) Pro forma net income per common share equals the pro forma net income
divided by shares.
(2) The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 (the "White Paper") defines Funds from Operations
as net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Management considers Funds
from Operations an appropriate measure of performance of an equity REIT
because it is predicated on cash flow analyses. The Company computes Funds
from Operations in accordance with standards established by the White
Paper, which may differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, accordingly, may not be
comparable to such other REITs. Funds from Operations should not be
considered as an alternative to net income (determined in accordance with
generally accepted accounting principles), as an indicator of the
Company's financial performance or cash flows from operating activities
(determined in accordance with generally accepted accounting principles),
as a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
distributions.

47
<PAGE>

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

OVERVIEW

The following discussion should be read in conjunction with the Selected
Combined Financial Data and the financial statements appearing elsewhere in
this Prospectus. Where appropriate, the following discussion includes analysis
of the effects of the Formation Transactions and the Offering, including the
Debt Financing. These effects are reflected in the pro forma condensed
combined financial statements located elsewhere in this Prospectus.

The Company receives income primarily from rental revenue and tenant
recoveries from commercial office and industrial properties, and to a lesser
extent, from management services related to certain properties owned by third
parties. The Company acquired its current portfolio over the last three years,
with (i) approximately 11% of the Properties (as a percentage of pro forma
rental revenue for the six months ended June 30, 1997) acquired during 1995
(the "1995 Acquired Properties"), (ii) approximately 20% of the Properties
acquired during 1996 and combined in the historical financial statements (the
"1996 Combined Properties") and approximately 25% of the Properties acquired
during 1996 and not combined in the historical financial statements (the "1996
Noncombined Properties," collectively with the 1996 Combined Properties, the
"1996 Acquired Properties"), (iii) approximately 25% of the Properties
acquired during the six months ended June 30, 1997 and combined in the
historical financial statements (the "1997 Combined Properties") and
approximately 1% of the Properties acquired during the six months ended June
30, 1997 and not combined in the historical financial statements (the "1997
Noncombined Property," collectively with the 1997 Combined Properties, the
"1997 Acquired Properties") and (iv) the balance of approximately 18% acquired
subsequent to June 30, 1997 or currently under contract to be acquired in
conjunction with the Offering (the "Acquisition Properties"). As a result of
the Company's aggressive acquisition program, the financial data show
significant increases in total revenue and certain expenses from year to year,
largely attributable to the acquisitions during each such year and the
inclusion of full periods of effective rental revenue and certain expenses for
properties acquired in preceding years. Accordingly, the Company does not
believe its year-to-year and quarter-to-quarter financial data are comparable.

The Company has achieved significant growth in its portfolio over the last
three years. The Company's portfolio has increased in size from 542,168 square
feet at December 31, 1995 to 4.2 million square feet at June 30, 1997. The
following table details the size of the portfolio as of each of the dates
presented.

<TABLE>
<CAPTION>
NUMBER OF
DATE PROPERTIES SQUARE FEET
---- ---------- -------------
(IN MILLIONS)
<S> <C> <C>
June 30, 1997.................................... 42 4.2
December 31, 1996................................ 30 2.5
June 30, 1996.................................... 20 1.3
December 31, 1995................................ 13 0.5
</TABLE>

The following table sets forth historical information relating to the
occupancy rates of the Properties as of each of the dates presented.

<TABLE>
<CAPTION>
OFFICE INDUSTRIAL
DATE OCCUPANCY OCCUPANCY
---- --------- ----------
<S> <C> <C>
June 30, 1997........................................ 72% 88%
December 31, 1996.................................... 74% 41%
June 30, 1996........................................ 52% 31%
December 31, 1995.................................... 81% 72%
</TABLE>

48
<PAGE>

RESULTS OF OPERATIONS

Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30,
1996. During the six months ended June 30, 1996, the LBA Predecessors
purchased seven properties for approximately $50.8 million. During the second
half of 1996, the LBA Predecessors purchased three properties (or interests
therein) for approximately $22.5 million. During the six months ended June 30,
1997, the LBA Predecessors purchased 11 properties (or interests therein) for
approximately $113.2 million.

Rental revenue increased $6.8 million, or 167%, primarily due to the
inclusion of a full six months of rental revenue from the 1996 Combined
Properties, six of which were acquired after June 30, 1996, and rental revenue
from the 1997 Combined Properties. Of this increase, $3.7 million was
attributable to rental revenue from the 1996 Combined Properties and $2.8
million was attributable to rental revenue from the 1997 Combined Properties.

Tenant recoveries increased $570,000, or 126%, primarily due to the
inclusion of a full six months of tenant recoveries from the 1996 Combined
Properties and tenant recoveries from the 1997 Combined Properties. Of this
increase, $432,000 was attributable to tenant recoveries from the 1996
Combined Properties and $181,000 was attributable to tenant recoveries from
the 1997 Combined Properties.

Management and consulting revenue, primarily representing management and
receivership fees from third-party owned properties, decreased $88,000, or 8%,
as the Company continued to focus its efforts primarily on properties which it
owns.

Parking and other revenue increased $155,000, or 36%, primarily due to the
inclusion of a full six months of parking and other revenue from the 1996
Combined Properties and parking and other revenue from the 1997 Combined
Properties. Substantially all of this increase ($247,000) was attributable to
parking and other revenue from the 1996 Combined Properties.

Interest income increased $134,000, or 194%, due to an increase in the
Company's average cash balance.

The following is a comparison of the Company's total real estate-related
expenses, comprising rental property operating expense and real estate taxes
and insurance expense:

<TABLE>
<CAPTION>
JUNE 30, JUNE 30, PERCENT
1997 1996 CHANGE
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate-related expenses
Rental property operating.................... $3,762 $1,870 101%
Real estate taxes and insurance.............. 1,522 661 130%
------ ------ ----
Total real estate-related expenses............. $5,284 $2,531 109%
====== ====== ====
</TABLE>

Total real estate-related expenses increased $2.8 million, or 109%,
primarily due to the inclusion of a full six months of real estate-related
expenses associated with (i) the 1996 Combined Properties, (ii) the 1997
Combined Properties and (iii) the absorption of vacant space in the Company's
portfolio. As a percentage of rental revenue and tenant recoveries, total real
estate-related expenses decreased from 56% to 45% primarily due to the fact
that during the six months ended June 30, 1996 the Company added several
vacant and non-stabilized properties to its portfolio, which made a minimal
contribution to rental revenue.

Depreciation and amortization expense increased $2.0 million, or 211%,
primarily due to the acquisitions of the 1996 and 1997 Combined Properties.

Interest expense includes interest at the contractual current pay rate of
the mortgage loans and lines of credit and amortization of the loan fees paid
at origination. Interest expense increased $2.0 million, or 224%, primarily

49
<PAGE>

as a result of the increase in mortgage loans payable to fund the acquisitions
of the 1996 and 1997 Combined Properties. Of this increase, $1.2 million was
attributable to interest on mortgage loans originated during 1996 (and
refinanced during 1997) and $1.6 million was attributable to interest on
mortgage loans originated during the six months ended June 30, 1997.

General and administrative expenses increased $713,000, or 95%. However, due
to economies of scale associated with adding additional properties, general
and administrative expenses decreased as a percentage of total revenue from
12% to 11%.

Equity in net income of noncombined entities was $708,000 as a result of the
acquisition of the seven 1996 Noncombined Properties and the one 1997
Noncombined Property subsequent to June 30, 1996.

As a result of the foregoing, net income increased $800,000.

Comparison of Year Ended December 31, 1996 to Year Ended December 31,
1995. During the year ended December 31, 1996, the LBA Predecessors purchased
ten properties for approximately $73.3 million. During the year ended December
31, 1995, the LBA Predecessors purchased 12 properties for approximately $27.3
million.

Rental revenue increased $6.0 million, or 155%, primarily due to the
inclusion of a full year of rental revenue from the 1995 Combined Properties
and partial year rental revenue from the 1996 Combined Properties. Of this
increase, $500,000 was attributable to rental revenue from the 1995 Acquired
Properties and $5.4 million was attributable to rental revenue from the 1996
Combined Properties.

Tenant recoveries increased $513,000, or 101%, primarily due to the
inclusion of a full year of tenant recoveries from the 1995 Acquired
Properties and partial year tenant recoveries from 1996 Combined Properties.
Of this increase, $176,000 was attributable to tenant recoveries from the 1995
Acquired Properties and $337,000 was attributable to tenant recoveries from
the 1996 Combined Properties.

Management and consulting revenue, primarily representing management and
receivership fees from third-party owned properties, increased $50,000, or 2%.
Included in this increase is $219,000 of fee income associated with the 1996
Noncombined Properties. Excluding the income related to the 1996 Noncombined
Properties, management and consulting revenue decreased $169,000 due to the
Company continuing to focus its efforts primarily on properties which it owns.

Parking and other revenue increased $456,000, or 189%, primarily due to the
inclusion of a full year of parking and other revenue from the 1995 Acquired
Properties and partial year parking and other revenue from the 1996 Combined
Properties. Of this increase, $117,000 was attributable to parking and other
revenue from the 1995 Acquired Properties and $339,000 was attributable to
parking and other revenue from the 1996 Combined Properties.

Interest income increased $192,000, or 549%, due to an increase in the
Company's average cash balance.

The following is a comparison of the Company's total real estate-related
expenses, comprising rental property operating expense and real estate taxes
and insurance expense:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, PERCENT
1996 1995 CHANGE
------------ ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate-related expenses
Rental property operating............ $4,759 $1,168 307%
Real estate taxes and insurance...... 1,593 522 205%
------ ------ ---
Total real estate-related expenses..... $6,352 $1,690 276%
====== ====== ===
</TABLE>

50
<PAGE>

Total real estate-related expenses increased $4.7 million, or 276%,
primarily due to the inclusion of a full year of real estate-related expenses
associated with (i) the 1995 Acquired Properties, (ii) a partial year of
operations for the 1996 Combined Properties and (iii) the absorption of vacant
space in the Company's portfolio. As a percentage of rental revenue and tenant
recoveries, total real estate-related expenses increased from 39% to 59%
primarily due to the fact that during the year ended December 31, 1996 the
Company added several vacant and non-stabilized properties to its portfolio,
which made a minimal contribution to rental revenue.

Depreciation and amortization expense increased by $2.1 million, or 333%,
primarily due to the 1996 Combined Properties and the full year effect of the
1995 Acquired Properties.

Interest expense was $2.0 million, primarily as a result of the origination
of mortgage loans during 1996.

General and administrative expenses increased $524,000, or 30%, primarily
due to the hiring of additional employees required to manage the increase in
the Company's portfolio of properties during 1996, in particular the second
half of 1996. General and administrative expenses as a percentage of total
revenue decreased from 26% to 16% primarily due to the Company's shift away
from third party management work (included in general and administrative
expenses) to management of its existing owned portfolio (included in rental
property operating expenses).

Equity in net income of noncombined entities was $242,000 as a result of the
acquisition of the seven 1996 Noncombined Properties during 1996.

As a result of the foregoing, net income decreased $1.8 million.

Comparison of Year Ended December 31, 1995 to Year Ended December 31,
1994. During the year ended December 31, 1995, the LBA Predecessors purchased
12 Properties for approximately $27.3 million.

Rental revenue, tenant recoveries, parking and other revenue, rental
property operating expenses, real estate taxes and insurance, and depreciation
and amortization increased compared to the prior year as a result of the LBA
Predecessors not owning any real estate properties during 1994.

Management and consulting revenue, representing primarily management and
receivership fees from third-party owned properties, was essentially
unchanged.

PRO FORMA OPERATING RESULTS

Six Months Ended June 30, 1997. On a pro forma basis, combined net income
(before deduction of minority interests) would have been $4.2 million, and
combined net income of the Company (after deduction of minority interests)
would have been $ million, comparing positively to the historical net
income of $1.8 million. This positive comparison results from a significant
increase in total revenue due to the benefit of a pro forma full six months of
revenue from the 1996 Noncombined Properties, 1997 Acquired Properties and the
Acquisition Properties.

Pro forma rental revenue is $25.7 million, a $14.8 million increase over
historical 1997, resulting primarily from $6.5 million in rental revenue
associated with the 1996 Noncombined Properties and the 1997 Noncombined
Property and an increase of $8.3 million in rental revenue associated with the
1997 Combined Properties and the Acquisition Properties. Pro forma revenue
from tenant recoveries, parking and other is $2.4 million, a $770,000 increase
over historical results.

The historical 1997 interest expense of $2.9 million increased to $5.6
million on a pro forma basis. The increase is attributable to $1.6 million of
interest expense associated with the 1996 Noncombined Properties. Interest
expense as a percentage of total revenue dropped from 21% of total revenue in
historical 1997 to 19% of total revenue on a pro forma basis.

51
<PAGE>

Year Ended December 31, 1996. On a pro forma basis, combined net income
(before deduction of minority interests) would have been $4.9 million, and
combined net income of the Company (after deduction of minority interests)
would have been $ million, comparing positively to the historical net income
of $835,000. This positive comparison results from a significant increase in
total revenue, due to the benefit of a pro forma full year of revenue from the
1996 Acquired Properties, and pro forma revenue from the 1997 Acquired
Properties and the Acquisition Properties.

Pro forma rental revenue is $45.3 million, a $35.4 million increase over
historical 1996, resulting primarily from $3.0 million in rental revenue
associated with the 1996 Noncombined Properties and 1997 Noncombined Property
and $21.5 million in rental revenue associated with the 1997 Combined
Properties and the Acquisition Properties, combined with an increase for a
full year of rental revenue from the 1996 Combined Properties totaling $10.9
million. Revenue from tenant recoveries, parking and other also increased on a
pro forma basis over historical 1996 primarily due to $55,000 of such revenue
associated with the 1996 Noncombined Properties and 1997 Noncombined Property
and $3.0 million of such revenue generated from the Preacquisition Period for
1996 Acquired Properties, the 1997 Combined Properties and the Acquisition
Properties.

The historical 1996 interest expense of $2.0 million increased to $11.3
million on a pro forma basis. Interest expense as a percentage of total
revenue increased from 14% of total revenue in historical 1996 to 21% of total
revenue on a pro forma basis.

DEBT FINANCING

The Credit Facility. The Company expects to enter into the Credit Facility
concurrently with the consummation of the Offering. The Company intends to use
the Credit Facility principally to fund growth opportunities and for working
capital purposes. At the closing of the Offering, the Company expects to draw
down approximately $ million under this line of credit.

ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES

The Company believes the Offering and the Formation Transactions will
improve its financial performance through changes to its capital structure,
principally the substantial reduction in its overall debt and its debt-to-
equity ratio. In connection with the Formation Transactions, the Company will
repay all of its existing mortgage loans and replace them with secured fixed
rate debt in the principal amount of $152.9 million pursuant to the Mortgage
Financing. Thus, total secured debt after the Formation Transactions will be
reduced by approximately $ million in principal. Thus, cash from operations
required to fund interest expense will decrease substantially, although such
reduction will be offset by the use of cash from operations to meet annual
REIT distribution requirements. In addition, the Offering and Formation
Transactions, together with the Mortgage Financing and the Credit Facility,
will produce a lower leveraged capital structure. The market capitalization of
the Company, based on the assumed initial public offering price of the issued
and outstanding shares of Common Stock and Units (assuming all Units are
exchanged for shares of Common Stock) and the debt outstanding at the
completion of the Offering, is expected to be approximately $ million,
with a total debt (exclusive of accounts payable and accrued expenses) of
approximately $ million. As a result, the Company's debt-to-total-market
capitalization ratio will be approximately % ( % if the Underwriters'
overallotment option is exercised in full). The Credit Facility combined with
this lower leveraged capital structure should enhance the Company's ability to
take advantage of acquisition opportunities as well as provide, if necessary,
working capital for funding commitments to construct tenant leasehold
improvements and payment of leasing commissions associated with new leasing
activity.

After the Offering, the Company expects to have approximately $ million
available under the Credit Facility. The Company anticipates that the Credit
Facility will be used primarily to acquire additional properties and for
general working capital needs.

52
<PAGE>

The Company expects to make distributions from cash available for
distribution, which the Company believes will exceed cash available for
distribution historically available as a result of the reduction in debt
service expected to result from the repayment of indebtedness described above.
Amounts accumulated for distribution will be invested by the Company primarily
in short-term investments that are collateralized by securities of the United
States government or any of its agencies, high-grade commercial paper and bank
deposits. See "Distributions."

The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient
to allow the Company to make any distributions necessary to enable the Company
to continue to qualify as a REIT. The Company also believes that the foregoing
sources of liquidity will be sufficient to fund its short-term liquidity needs
for the foreseeable future, including recurring non revenue-enhancing capital
expenditures, tenant improvements and leasing commissions.

The Company expects to meet certain long-term liquidity requirements such as
property acquisitions, scheduled debt maturities, renovations, expansions and
other nonrecurring capital improvements through long-term secured and
unsecured indebtedness and the issuance of additional equity securities. The
Company also expects to use funds available under the Credit Facility to fund
acquisitions, development activities and capital improvements on an interim
basis.

CASH FLOWS

Comparison of the Six Months Ended June 30, 1997 to the Six Months ended
June 30, 1996. The increase in cash and cash equivalents of $2.0 million is
due to the excess of cash provided by financing activities over cash used in
operating and investing activities. Net cash used in operating activities
increased by $7.4 million from $3.6 million to $11.0 million primarily due to
higher interest expense offset by an increase in rental revenue. Net cash used
in investing activities increased by $66.9 million from $51.9 million to
$118.8 million mainly due to an increase in the amount of real estate
properties acquired during the six months ended June 30, 1997. Net cash
provided by financing activities increased by $75.8 million from $55.8 million
to $131.6 million due primarily to proceeds received on the origination and
refinancing of mortgage loans and additional owners' contribution to acquire
the Properties.

Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995. The increase in cash and cash equivalents of $5.4 million is due to
the excess of cash provided by financing activities over cash used in
operating and investing activities. Net cash provided by operating activities
decreased by $2.8 million from $3.0 million to $157,000 primarily due to
higher interest expense offset by an increase in rental revenue. Net cash used
in investing activities increased by $68.1 million from $27.9 million to $96.0
million mainly due to an increase in the amount of real estate properties
acquired during the year ended December 31, 1996. Net cash provided by
financing activities increased by $74.7 million from $26.5 million to $101.2
million due primarily to proceeds received on mortgage loans related to the
1995 and 1996 Acquired Properties and additional owners' contribution to
acquire the Properties.

Comparison for the Year Ended December 31, 1995 to the Year Ended December
31, 1994. The increase in cash and cash equivalents of $1.7 million is due to
the excess cash provided by operating activities due to increased rental
revenue. The increase in cash used in investing activities to acquire the 1995
Acquired Properties was offset by the increase in cash provided by financing
activities due to owners' contributions.

INFLATION

Substantially all of the leases provide for separate escalations of real
estate taxes and operating expenses over a base amount. In addition, many of
the leases provide for fixed base rent increases or indexed escalations (based
on the CPI or other measures). The Company believes that inflationary
increases in expenses will be offset by the expense reimbursements and
contractual rent increases described above.

53
<PAGE>

SOUTHERN CALIFORNIA ECONOMY AND PROPERTY MARKETS

The Company's Properties are located in the six counties that compose the
larger Southern California Region: Los Angeles, Orange, San Diego, Ventura,
Riverside, and San Bernardino. This region is currently experiencing an
impressive period of economic growth that began in 1995 and accelerated during
1996 and the first half of 1997. The improving economy has been fueled by new
employment growth in a number of sectors, including entertainment, high-
technology, trade, telecommunications and biotechnology. The growth in these
sectors has led directly to increased demand for office and industrial space.
Moreover, this economic growth has coincided with an extended period of
limited or no new construction in these markets. The Company believes that
current and forecasted economic trends, particularly with respect to growth in
employment in the sectors of the economy most directly related to demand for
office and industrial/R&D real estate, will continue to contribute toward
declining vacancy rates and increasing real estate values for Southern
California properties.

Southern California has a population of 18.2 million, which is greater than
the population of 47 states in the United States. Five of the six counties in
Southern California are on the U.S. Department of Commerce's 1996 list of the
20 Fastest Growing U.S. Metropolitan Statistical Areas ("MSAs"), 1993-2005.
These MSAs include Riverside/San Bernardino (1st), Los Angeles (2nd), San
Diego (8th) and Orange County (9th). According to the Department of Commerce,
the population of Southern California is projected to grow by approximately
2.1 million, or 17.4%, from 1993 to 2005.

<TABLE>
<CAPTION>
FASTEST GROWING U.S. METROPOLITAN AREAS, 1993--2005 (POPULATION)
- ---------------------------------------------------------------------------
RANK METROPOLITAN AREA 1993 2005 CHANGE % CHANGE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 RIVERSIDE/SAN BERNARDINO, CA 2,867,000 3,795,000 928,000 32.4%
2 LOS ANGELES, CA 9,134,000 10,060,000 926,000 10.1%

3 Washington, DC 4,416,000 5,159,000 743,000 16.8%
4 Atlanta, GA 3,229,000 3,960,000 731,000 22.6%
5 Chicago, IL 7,612,000 8,328,000 716,000 9.4%
6 Houston, TX 3,589,000 4,262,000 673,000 18.8%
7 Phoenix, AZ 2,392,000 3,009,000 617,000 25.8%
8 SAN DIEGO, CA 2,612,000 3,207,000 595,000 22.8%
9 ORANGE COUNTY, CA 2,515,000 3,046,000 531,000 21.1%

10 Boston, MA 5,700,000 6,218,000 518,000 9.1%
</TABLE>

Source: U.S. Department of Commerce, 1996

54
<PAGE>

SOUTHERN CALIFORNIA EMPLOYMENT TRENDS

According to the U.S. Bureau of Labor Statistics, the combined six-county
Southern California area experienced a 5.5% increase in employment from
December 1992 to June 1997. The following graph shows the trend in unemployment
for Southern California compared to the United States as a whole between 1992
and 1997:

[Chart illustrating annual unemployment trends from 1992 to 1997, showing
annual unemployment for Southern California and the United States as a whole
for each such year.]

- --------
Source: U.S. Bureau of Labor Statistics

55
<PAGE>

Since the depth of the recession in December 1992, employment in Southern
California has increased by 430,000 jobs to a total of 8.3 million as of June
1997. Increases in employment generally translate into increased demand for
commercial real estate. The current economic expansion, in particular, differs
from previous Southern California expansions in that the defense industry is
no longer the driving force for growth. Instead, employment growth has been
driven primarily by the service sectors of the economy in each of the six
counties in Southern California. According to Cognetics, Inc., an economics
consulting firm, metropolitan Los Angeles (Los Angeles and Orange Counties) is
projected to be the top market for primary office employment growth in the
United States through 2006. The following chart summarizes the historical and
projected employment growth for Southern California:

[Graph showing Southern California Employment for each of the following
sectors: Services, Manufacturing, Retail Trade, Wholesale Trade and Finance,
Insurance and Real Estate. Employment levels are shown for 1980, 1982, 1984,
1986, 1988, 1990, 1992, 1994, 1996 and projections for 1998 and 2000.]

- --------
Source: C&W Study

56
<PAGE>

SOUTHERN CALIFORNIA OFFICE AND INDUSTRIAL MARKETS

The Southern California real estate market is currently experiencing a
significant recovery from a severe recession. This recovery has been
characterized by declining vacancy rates, positive absorption and little new
construction, resulting in rising rents. Because the Southern California
market is so large and diverse, however, the recovery is in distinctly
different stages in the various submarkets in the region.

Employment Increases Lead to Declining Vacancy Rates

Job growth in Southern California slowed during the recession from 1990 to
1994, but has been accelerating since 1994 due to the improving economic
climate. The C&W report projects continued growth in most sectors of the
economy through 2000. The growth in employment thus far has expanded demand
for office and industrial real estate in Southern California markets in
general, though certain submarkets have not yet recovered. The expansion of
the service sector, in particular, a primary component of demand for office
space, has had a direct correlation with the decline in vacancy rates in
Southern California office markets. The total employment level in the six
Southern California counties increased 5.5% from December 1992 to June 1997,
and the corresponding aggregate office vacancy rate in these counties declined
from 17.8% to 15.4%. The relationship between employment and vacancy rates in
these counties is illustrated by the following graph:

[Chart illustrating Southern California Employment and Office Vacancy as of
December 1992, 1993, 1994, 1995 and 1996 and June 1997.]
- --------
Source: U.S. Bureau of Labor Statistics; C&W Study

The Company believes that projected employment growth in the service sector
in Southern California through 2000 will continue to create additional demand
for office space. Although employment growth in manufacturing has become less
significant in Los Angeles and Orange Counties, the other four Southern
California counties have experienced growth in this sector since 1994, and the
C&W report projects that such growth will continue through 2000. The Company
believes that the growth in manufacturing and trade will

57
<PAGE>

continue to fuel demand for industrial space in the Inland Empire and San
Diego area markets. The Company also believes that the expansion of the bio-
technology, computer software, and telecommunications sectors in San Diego
County are strong positive factors for the future of R&D properties in this
market.

The office market in Southern California as a whole has benefited from
steadily increasing absorption of vacant space since 1994. In each of 1995 and
1996, net office absorption has more than doubled in the region, and in the
first two quarters of 1997 net office absorption was greater than the average
annual absorption for the last five years. With virtually no new office
construction in the region between 1994 and 1997, an influx of new companies
and growth of existing companies has lead directly to lower vacancy rates and
higher rental rates. The following chart illustrates absorption and vacancy
rates in the Southern California office market between 1992 and June 1997:

[Chart illustrating absorption and vacancy rates in the Southern California
office markets between 1992 and June 1997]

- --------
Source: C&W Study

58
<PAGE>

The current trend of net absorption and declining vacancy rates followed a
period during the late 1980s which was characterized by excess supply of
commercial real estate due, in part, to over-building. A variety of factors,
including the real estate recession and new federal banking regulations that
caused a reduction in available capital for real estate development, virtually
halted new office construction in Southern California for nearly five years.
The following chart illustrates the total office construction in Southern
California between 1987 and 1996:

[Graph Illustrating the total office construction in Southern California
between 1987 and 1996.]

- --------
Source: C&W Study

New Construction Costs and Replacement Cost Rental Rates

Although current rental rates vary considerably by market and asset category
in the various submarkets within Southern California, the Company believes
that significant rental increases will be required before new construction
will occur in the submarkets where a majority of the Company's properties are
located. For example, in the Culver City submarket of Los Angeles County,
where the Company owns a class A high-rise office building, C&W estimates that
market rental rates for such properties would have to rise from the current
asking rate of $17.64 per square foot to $35.00 per square foot to justify new
development. In other submarkets, however, rental rates now justify new
industrial and warehouse development, and there are currently a number of such
buildings under construction in Southern California. Additionally in some Los
Angeles submarkets, rental rates have reached levels that justify new office
development and there are a small number of such projects currently under
development.

Future Opportunities

With 289.4 million square feet of office space and 1.3 billion square feet
of industrial/R&D space, the Southern California region is among the largest
commercial real estate markets in the United States.

59
<PAGE>

This region can be divided into 31 distinct markets and 136 submarkets.
Although the expansion of the Southern California economy has resulted in
increasing demand for commercial real estate, that growth has not been evenly
distributed. The pattern of recovery, generally, has commenced with prime
markets situated in or near the most desirable areas and then spread to the
next most desirable areas. For example, submarkets such as Burbank and
Universal City/Studio City, which have attracted entertainment-oriented
companies, have achieved single digit vacancy rates and rising rental rates.
The same pattern of growth has held true in submarkets in North San Diego that
attract bio-technology, software and telecommunications companies. This
pattern portends a significant improvement for the tertiary submarkets that
currently have higher vacancy rates and much lower rental rates. C&W estimates
that approximately 195.0 million square feet of space, 67% of the Southern
California office market, are in markets that have not yet experienced a full
real estate recovery. The following chart illustrates the range of vacancy
rates among the region's submarkets and the broad trend toward recovery across
the region as a whole in the last two and one-half years:

[Chart illustrating the range of vacancy rates among the region's submarkets
and the broad trend toward recovery across the region as a whole in the last
two and one-half years.]

- --------
Source: C&W Study

The Company expects to rely on its expertise in build-to-suit development
and aggressive real estate management to pursue opportunities in submarkets in
a more advanced stage of recovery, while relying on its acquisition expertise
and value added-strategy to pursue opportunities in submarkets that have not
yet fully recovered. The Company believes that there are currently ample
opportunities to acquire buildings at a discount from replacement costs. The
Company believes it has been successful in exploiting these opportunities by
anticipating the pattern of recovery and buying properties in advance of
market tightening and rising rents.

The following sections present an overview of each area and market in which
the Properties are located, including detailed information with respect to
inventory, availability, vacancy rates, net absorption and asking rents,
together with a description of the largest Properties in the Company's
principal markets.

60
<PAGE>

ORANGE COUNTY AREA

The following map indicates the location of the Properties in the Orange
County Area.

[Map of Orange County area indicating locations of the properties]

Key Industries in Orange County

The Orange County Area has historically been an attractive location for
major corporations due to its perceived quality of life and proximity to other
major metropolitan markets. The ten largest employers in the Orange County
Area represent a diverse range of industries, including aerospace/defense,
entertainment, communications and medical instruments. Orange County has
historically experienced lower unemployment levels than other areas of
Southern California. As of June 1997, the unemployment rate for Orange County
was 3.4% compared to 6.0% for Southern California as a whole. The service
sector has experienced the fastest growth since 1980, and C&W projects that
this sector will continue to grow rapidly in Orange County through 2000. The
manufacturing sector also continues to be a significant component of the
Orange County employment base, but its relative importance in the overall
economy has declined somewhat since 1980, and employment in manufacturing is
forecasted to remain generally stable through 2000.

Orange County Area Office Markets and Properties

The Orange County Area can be divided into six separate office markets: the
Greater Airport Area, Tri-Freeway Area, Central County, South County, North
County and West County. These six markets can be further divided into 30
submarkets. The Company owns 10 Office Properties in the Orange County Area
that collectively contain 1,310,024 square feet (approximately 26% of the
total square footage of the Properties). These Properties are located in the
following Orange County Area markets: Greater Airport Area (four Properties),
Tri-Freeway (one Property), Central County (one Property), South County (one
Property), North County (two Properties) and West County (two Properties).

The Orange County Area office markets are generally in the midst of a
recovery from the recent Southern California real estate recession. Direct
vacancy levels, which were in excess of 19% in 1992, have declined to

61
<PAGE>

12.5% as of June 30, 1997. The Greater Airport Area market, which composes
approximately 46% of the office space inventory in the Orange County Area, has
a vacancy rate of 8.1% as of June 30, 1997. Set forth below is detailed
information regarding the Orange County Area office markets and the number of
Properties located in each market:

ORANGE COUNTY AREA
OFFICE MARKET STATISTICS
AT JUNE 30, 1997
<TABLE>
<CAPTION>
NET WEIGHTED AVG.
DIRECT* ABSORPTION ASKING
INVENTORY VACANCY YTD 1997 RENTAL RATE
MARKET (SQ. FT.) RATE (SQ. FT.) (PER SQ. FT.)
- ------ ---------- ------- ---------- -------------
<S> <C> <C> <C> <C>
Greater Airport Area............... 24,266,753 8.1% 798,909 $21.37
Tri-Freeway Area................... 9,428,124 19.1 201,086 16.32
Central County..................... 5,598,674 18.7 245,388 14.61
South County....................... 5,054,321 7.7 111,900 20.64
North County....................... 4,012,972 14.7 93,476 16.13
West County........................ 3,902,912 19.1 (38,450) 15.71
---------- ---- --------- ------
Total/Weighted Average........... 52,263,756 12.5% 1,412,309 $17.74
========== ==== ========= ======
</TABLE>
- --------
Source: C&W Study

*Does not include currently leased but available sublease space.

The Company's largest office Property in the Orange County Area is Von
Karman Corporate Center, a suburban office park consisting of nine two-story
buildings with an aggregate of 451,477 square feet. The property is located in
the Irvine submarket of the Greater Airport Area. The Greater Airport Area
market is the primary business district of Orange County and is experiencing
lower vacancies and rising rents, with particularly strong demand for suburban
low-rise office space. Average vacancy rates in the Irvine submarket are
currently 8.3%, compared to 8.1% in the Greater Airport Area market and 12.5%
in the Orange County Area as a whole. The area benefits from its proximity to
John Wayne Airport, three major freeways and a vast supply of nearby executive
housing.

Von Karman Corporate Center was developed between 1981 and 1985. The nine
low-rise buildings are constructed of concrete tilt-up and glass. The center
has excellent surface parking (four spaces per 1,000 square feet) and
extensive landscaping. The buildings are situated at the corner of Von Karman
Avenue and Alton Parkway at the northern end of the Irvine Business Complex.
Both Von Karman and Alton are major thoroughfares within the complex. Directly
north of the property is the Cafe Court Shopping Center, which includes a
Sam's Club, HomeBase and a food court. The property is within two miles of the
San Diego (I-405) Freeway, John Wayne Airport and several retail centers,
restaurants and hotels. The Property was 91.2% leased as of September 30,
1997. The principal tenants are Interplay (101,325 square feet), Chicago Title
Company (46,446 square feet) and University Copy Systems (44,392 square feet).
The average base rent is $12.79. The aggregate square footage of leases
expiring in 1997 (after September 30), 1998 and 1999 represents 2.9%, 16.7%
and 8.0% of this property's square footage, respectively.

The Company's second largest Property in Orange County is Orange Financial
Center, a class A office park totaling 305,439 square feet which accounts for
approximately 10.0% of the Company's total Annualized Base Rent. The Property
is located in the Main Place submarket of the Tri-Freeway Area. The Tri-
Freeway Area is a secondary market to the Greater Airport Area and generally
lags behind the Greater Airport Area in market cycles. The Tri-Freeway area
benefits from its excellent access to the Garden Grove Freeway (Route 22), the
Santa Ana Freeway (I-5) and the Orange Freeway (Route 57) and is favored by
high technology firms, particularly in the communications and computer
industries. As of June 30, 1997 average vacancy rates were 21.3% in the Main
Place submarket, compared to 19.1% in the Tri-Freeway Area as a whole.

Orange Financial Center was developed in 1985 and consists of two three-
story, 72,000 square-foot office buildings, an eight-story, 161,000 square
foot office building and an adjacent four-level, 167,000 square-foot parking
structure containing 720 parking spaces. All three office buildings feature
landscaped pedestrian

62
<PAGE>

walkways leading to a central plaza with a water feature. The Property is
located in a general business area directly south of the Garden Grove Freeway
(Route 22) and is adjacent to the Main Place Regional Mall. Access to I-5 is
within two miles of the site. The principal tenants of the Property are
Donnelly Info Publishing (approximately 72,000 square feet), Sedgwick James
(approximately 34,000 square feet) and Woodruff, Spradin & Smart
(approximately 14,000 square feet). The lease with Donnelley Info Publishing
(approximately 72,000 square feet) expires in September 1998, but the Company
has already negotiated and signed a lease with California Compensation
Insurance Company to occupy the space. As of September 30, 1997, the Property
was 85.6% leased, and the average base rent was $21.08 per square foot. The
aggregate square footage of leases expiring in 1997 (after September 30), 1998
and 1999 represents 2.2%, 36.4% and 11.5% of the Property's square footage,
respectively.

Orange County Industrial/R&D Market and Properties

The Orange County Area contains four separate industrial/R&D markets: North
County, West County, Airport Area and South County. These markets can be
further divided into 30 submarkets. The Company owns six Properties located in
the Orange County Area industrial and R&D markets that collectively contain
637,406 square feet (approximately 12.7% of the total square footage of the
Properties). These six Properties are located in the North County (two
Properties) and West County (four Properties) markets.

The Orange County Area industrial/R&D markets are generally in the midst of
a recovery from the recent real estate recession. Direct vacancy levels, which
were in excess of 11.6% in 1993, have declined to 6.4% as of June 30, 1997.
The North County industrial/R&D market is the largest industrial/R&D market in
the county, containing approximately 41% of the inventory of industrial/R&D
properties in the Orange County Area. Set forth below is detailed market
information regarding the Orange County Area industrial/R&D market:

ORANGE COUNTY AREA
INDUSTRIAL/R&D MARKET STATISTICS
AT JUNE 30, 1997
<TABLE>
<CAPTION>
GROSS
DIRECT* ABSORPTION
INVENTORY VACANCY YTD 1997
MARKET (SQ. FT.) RATE (SQ. FT.)
- ------ ----------- ------- ----------
<S> <C> <C> <C>
North County..................................... 112,167,676 5.8% 1,687,723
Airport Area..................................... 91,605,120 6.1 1,583,781
West County...................................... 37,388,073 5.7 1,508,548
South County..................................... 33,788,743 9.6 1,093,737
----------- --- ---------
Total/Weighted Average......................... 274,949,612 6.4% 5,873,789
=========== === =========
</TABLE>
- -------
Source: C&W Study

*Does not include currently leased but available sublease space.

The Company's largest industrial/R&D Property in the Orange County Area is
Savi Tech Center, a class A R&D park consisting of four two-story buildings
totaling 341,446 square feet. The property is located in the Savi Ranch
submarket of the North County market and is visible from the Riverside (91)
Freeway. Savi Ranch is the largest industrial submarket in Orange County and
is situated near Los Angeles County and Riverside County. The broader North
County market is characterized by buildings older than Savi Ranch, which was
developed in 1989. The vacancy rate in the North County market was 5.8% as of
June 30, 1997, compared to 6.4% in the Orange County Area industrial/R&D
market as a whole. The North County market has averaged 7.0 million square
feet of gross absorption per year in the last five years.

Savi Tech Center, a master planned business park, contains four concrete
tilt-up buildings, which range from 51,213 square feet to 119,966 square feet.
Each building contains approximately 30% office space, approximately half of
which is on the mezzanine level. The Company believes that there is sufficient
parking to allow for the conversion of approximately 51,000 square feet of
warehouse space to office space, which typically commands higher rental rates
than industrial/R&D space. As of September 30, 1997, the Property was 100%
leased to four large corporations: Pacific Scientific (71,148 square feet);
Fisher Scientific (99,119 square feet); Sensormedics (119,966 square feet) and
John H. Harland (51,213 square feet). The average base rent per square foot is
$7.38. There are no leases expiring in 1997 (after September 30) or 1998 and
the aggregate square footage of leases expiring in 1999 represents 64.9% of
this property's square footage.

63
<PAGE>

SAN DIEGO AREA

The following map indicates the location of the Properties in the San Diego
Area (including San Diego County and the City of Temecula).

[Map of San Diego Area Indicating the Locations of the Properties]

Key Industries in the San Diego Area

For purposes of the following discussion, the San Diego Area includes San
Diego County and the City of Temecula. The Company believes that the growth in
several important sectors of the San Diego economy, including services, trade
and manufacturing, has created a diverse economy that favors both office and
industrial/R&D properties. As a result of the contraction of the defense
industry and the recession in the early 1990s, the San Diego economy has been
restructured. Employment growth in San Diego has been fueled primarily by the
service sector, with substantial growth also in the technology sector. San
Diego has emerged as a focal point of the telecommunications and biotechnology
industries, and has also recently experienced significant growth in the
"knowledge-based" industries of computer software development and electronics.
Major employers in Temecula include Guidant (cardiovascular systems), Hudson
Respiratory (oxygen therapy equipment) and Rectifier (semi-conductors). These
three companies employ approximately 2,150 people.

San Diego Area Office Market and Properties

The San Diego Area can be divided into eight distinct office markets,
including Central City, North City (which includes the University Towne
Center), Mission Valley/Kearny Mesa, North Coast, the I-15 Corridor, La
Jolla/Morena, South Bay and East County. These eight markets can be further
divided into 40 submarkets. The City of Temecula is situated in the extreme
southwesterly section of Riverside County, just north of the San Diego County
border. Temecula is relatively isolated from the remainder of the Riverside
County business centers, and is by location more oriented toward north San
Diego development. The Company owns 11 properties located in the San Diego
Area office market that collectively contain 933,038 square feet
(approximately 18.6% of the total square footage of the Properties). The
Company owns eight Properties in San Diego County, six of which are located in
the North City office market, one of which is located in the North Coast
market and one of which is located in the Mission Valley/Kearny Mesa office
market. The Company owns three Properties in Temecula.

64
<PAGE>

The San Diego Area office markets are recovering from a recession, having
experienced five straight years of positive absorption and increasing
occupancy. University Towne Center is the most significant submarket of the
North City office market, with predominantly low-rise office buildings in
business parks. According to the C&W Study, as of June 30, 1997, the North
City office market had the lowest vacancy rate of any office market in the San
Diego Area (4.1%). The Mission Valley/Kearny Mesa office market includes two
submarkets located generally northeast of downtown San Diego, along the
Interstate 8 Corridor. Set forth below is detailed market information
regarding the San Diego Area office markets:

SAN DIEGO AREA
(SAN DIEGO COUNTY AND CITY OF TEMECULA)
OFFICE MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
NET
DIRECT* ABSORPTION
INVENTORY VACANCY YTD 1997
MARKET (SQ. FT.) RATE (SQ. FT.)
- ------ ---------- ------- ----------
<S> <C> <C> <C>
Central City...................................... 15,877,592 16.3% 78,040
North City........................................ 13,325,426 4.1 225,629
Mission Valley/Kearny Mesa........................ 12,291,580 12.6 322,918
North Coast....................................... 5,480,828 6.6 130,788
I-15 Corridor..................................... 4,788,026 9.4 143,755
La Jolla/Morena................................... 2,363,625 6.9 21,625
South Bay......................................... 2,274,927 5.2 52,832
East County....................................... 2,237,143 12.0 18,318
---------- ---- -------
Total/Weighted Average San Diego County......... 58,639,147 10.3% 993,905
Temecula.......................................... 1,132,295 18.2 (2,273)
---------- ---- -------
Total/Weighted Average San Diego Area........... 59,771,442 10.5% 991,632
========== ==== =======
</TABLE>
- --------
Source: C&W Study
* Does not include currently leased but available sublease space.

The Company's largest office Property in the San Diego Area is Skypark
Office Plaza. The property is located in the Kearny Mesa submarket of the
Mission Valley/Kearny market. Kearny Mesa is San Diego's most geographically
central submarket. Nestled between University City to the west, Mission Valley
to the south, Scripps Ranch to the east and Sorrento Mesa to the north, Kearny
Mesa has outstanding access to all San Diego freeways. As of June 30, 1997,
average vacancy rates were 11.5% in the Kearny Mesa area, compared to 12.6% in
the Mission Valley/Kearny market and 10.3% in San Diego as a whole. The area
is favored by high technology firms, particularly in the communications and
computer industries and back office functions of financial services firms.

Skypark Office Plaza is a class A office park consisting of one four-story
building and one three-story building, which total 202,164 square feet and
were 94.2% leased as of September 30, 1997. The buildings are steel frame
construction with blue reflective glass and concrete spandrels and are served
by a two-level parking structure. The property is attractively landscaped and
includes marble lobby areas, a computerized energy conservation system, and
men's and women's showers and lockers in one of the buildings. The property is
located on the southwest corner of Sky Park Court and Ruffin Road, a major
north-south thoroughfare through eastern Kearny Mesa. Major freeways near the
property are I-15 to the east, Highway 52 to the north and Highway 163, I-805
and I-5 to the west. The immediate neighborhood is characterized by office,
R&D and light industrial use, with ancillary retail and hospitality services.
The principal tenants are ITT Computer & Equipment (63,604 square feet),
Homecomings Financial Network/GMAC (34,129 square feet) and the corporate
headquarters for Maxwell Technologies, Inc. (24,942 square feet). The other
tenants are generally in the insurance and financial services industries. The
average base rent is $13.96. No leases expire in 1997 after September 30, and
the aggregate square footage of leases expiring in 1998 and 1999 represents
12.6% and 6.5% of this property's square footage, respectively.

65
<PAGE>

San Diego Area Industrial Market and Properties

The San Diego Area industrial market can be divided into the same eight
markets as the San Diego Area office market, but there are fewer industrial
submarkets within the North City market. As is the case with the San Diego
County office market, the industrial markets have experienced five straight
years of positive absorption, with the direct vacancy rate decreasing 5.6%
over this period from 11.3% in 1992 to 5.7% as of June 30, 1997. The Company
owns three Properties in the San Diego Area industrial market that
collectively contain 180,066 square feet (approximately 3.6% of the total
rentable square footage of the Properties). One of these Properties is located
in the I-15 Corridor submarket of San Diego County and two are in Temecula.

Set forth below is detailed information regarding the San Diego Area
industrial markets:

SAN DIEGO AREA
(SAN DIEGO COUNTY AND CITY OF TEMECULA)
INDUSTRIAL MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
NET
DIRECT ABSORPTION
INVENTORY VACANCY YTD 1997
MARKET (SQ. FT.) RATE(1) (SQ. FT.)
- ------ ----------- ------- ----------
<S> <C> <C> <C>
North Coast...................................... 22,594,396 7.6% 558,088
I-15 Corridor.................................... 17,581,211 4.4 152,950
South Bay........................................ 16,403,540 6.8 164,075
Central City..................................... 11,781,742 4.7 93,447
North City....................................... 11,372,523 4.9 380,830
East County...................................... 10,155,257 4.3 33,581
Mission Valley/Kearny Mesa....................... 9,839,815 5.4 156,405
La Jolla/Morena.................................. 2,986,161 3.9 47,883
----------- --- ---------
Total/Weighted Average San Diego County........ 102,714,645 5.7% 1,587,259
Temecula(2)...................................... 7,494,472 4.8 362,161
----------- --- ---------
Total/Weighted Average San Diego Area.......... 110,209,117 5.6% 1,949,420
=========== === =========
</TABLE>
- --------
Source: C&W Study

(1) Does not include currently leased but available sublease space.
(2) Market information for the City of Temecula includes R&D properties as
well as Industrial properties.

San Diego Area R&D Market and Properties

The San Diego Area R&D market consists of five markets: South Bay, Mission
Valley/Kearny Mesa, North City, I-15 Corridor and North Coast. As of June 30,
1997, the collective R&D markets within the San Diego Area had an overall
vacancy rate of 5.7%, down from 7.7% at December 31, 1996 and 8.1% at December
31, 1995. The Company owns four R&D Properties in the San Diego Area that
collectively contain 307,494 square feet (approximately 6.1% of the total
square footage of the Properties). Two of these Properties are located in the
I-15 Corridor markets, and two are located in the North City market.

66
<PAGE>

Set forth below is detailed information regarding the San Diego Area R&D
markets:

SAN DIEGO AREA
R&D MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
NET
DIRECT ABSORPTION
INVENTORY VACANCY YTD 1997
MARKET (SQ. FT.) RATE(1) (SQ. FT.)
- ------ ---------- ------- ----------
<S> <C> <C> <C>
North City........................................ 12,911,302 4.6% 548,210
I-15 Corridor..................................... 5,064,942 12.3 29,775
Mission Valley/Kearny Mesa........................ 4,872,022 3.7 153,685
North Coast....................................... 3,201,748 0.8 125,056
South Bay......................................... 431,336 20.9 --
---------- ---- -------
Total/Weighted Average(2)....................... 26,481,350 5.7% 856,726
========== ==== =======
</TABLE>
- --------
Source: C&W Study

(1) Does not include currently leased but available sublease space.
(2) R&D market information for the City of Temecula is included in the
previous chart of Industrial Market Statistics. Separate data for R&D
Market Statistics in Temecula is unavailable.

The Company's largest R&D Property in the San Diego Area is Cymer Technology
Center, a corporate campus located in the heart of the Rancho Bernardo
submarket in the I-15 Corridor of San Diego. The Rancho Bernardo submarket is
dominated by large enterprises in the television, computer and related
electronic fields. The vacancy rate in Rancho Bernardo is currently 10.9%,
compared to 12.3% in the I-15 Corridor market and 5.7% in the San Diego Area
R&D market as a whole. The current shortage of large-scale space in Rancho
Bernardo leaves little room for expansion or location to existing buildings,
as illustrated by declining absorption over the past two years.

Developed in 1989, Cymer Technology Center is comprised of two two-story
buildings: a 100,205 square foot R&D facility and a 36,959 square foot office
building. Both buildings are 100% leased and are served by surface parking
facilities. The buildings are located at the end of Via Del Campo Court, a
cul-de-sac off Via Del Campo 1.5 miles east of the I-15 Freeway. Via Del Campo
is one of the main arteries in the Rancho Bernardo submarket. The property is
within minutes from the major inland residential communities of Rancho
Bernardo, Escondido, Carmel Mountain Ranch and Poway and is easily accessible
from I-15. The only tenant of the property is Cymer, Inc., under a lease
expiring in 2010 with an average base rent of $12.36.

67
<PAGE>

LOS ANGELES AREA

The following map indicates the location of the Properties in the Los
Angeles Area (including Los Angeles and Ventura Counties).

[Map of Los Angeles Area Indicating the Locations of the Properties]

Key Industries in the Los Angeles Area

For purposes of the following discussion, the Los Angeles Area includes Los
Angeles County and Ventura County. According to the C&W Study, the service
sector is the largest and fastest growing employment sector in the region,
both in terms of absolute number of jobs and growth percentages. The
increasing number of distribution channels for entertainment programming and
the growing demand for interactive media have created new marketing
opportunities for the television, motion picture, and computer software
industries. Within the Los Angeles Area, the entertainment industry has
experienced the most rapid growth. Approximately 95% of the total employment
in the California motion picture industry is located in Los Angeles County.
Employment in the production services sector of the motion picture industry,
in particular, has risen from approximately 81,000 jobs in 1980 to 240,000
jobs in 1996, for an average annual compound rate of growth of 7.0%.

Another principal economic sector in the Los Angeles Area is international
trade. The port of Los Angeles/Long Beach is the busiest port in the United
States in terms of the value of annual cargo volume. According to the
Department of Commerce, in 1996, $170.1 billion of goods passed through the
Los Angeles Customs District compared to $155.8 billion for New York. Other
important sectors of the Los Angeles Area economy include tourism, health care
services and aerospace design and manufacturing.

Los Angeles Area Office Market and Properties

According to the C&W Study, the Los Angeles Area office market contained
office space inventory of approximately 171.0 million square feet as of June
30, 1997 which had a direct vacancy rate of 17.6%. The Los Angeles Area office
market can be divided into the following five markets: Los Angeles West, Los
Angeles

68
<PAGE>

North, Los Angeles South, Los Angeles Central/Downtown and Ventura County.
These markets can be further divided into 15 submarkets and 61 micromarkets.
The Company owns seven Office Properties in the Los Angeles Area that
collectively contain 841,391 square feet (approximately 16.8% of the total
square footage of the Properties). These Properties are located in the
following Los Angeles Area markets: Los Angeles North (two Properties), Los
Angeles South (two Properties), Los Angeles West (two Properties) and
Ventura/Oxnard (one Property).

During 1996, 1.53 million square feet of office space was absorbed on a net
basis in the five Los Angeles Area markets. In the first half of 1997, Los
Angeles County had negative absorption of 322,309 square feet, reflecting
negative absorption of 519,647 in Los Angeles Central/Downtown and positive
absorption of 197,338 square feet in the other three sectors. The direct
vacancy rate for Los Angeles County excluding the Los Angeles Central/Downtown
sector was 15.3% as of December 31, 1996, as compared to 17.0% as of December
31, 1995. As of June 30, 1997, the direct vacancy rate excluding the Los
Angeles Central/Downtown sector was 14.9%. Set forth below is detailed
information regarding the Los Angeles Area office markets:

LOS ANGELES AREA
(LOS ANGELES AND VENTURA COUNTIES)
OFFICE MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
NET WEIGHTED AVG.
DIRECT* ABSORPTION ASKING
INVENTORY VACANCY YTD 1997 RENTAL RATE
MARKET (SQ. FT.) RATE (SQ. FT.) (PER SQ. FT.)
- ------ ----------- ------- ---------- -------------
<S> <C> <C> <C> <C>
Los Angeles Central............... 57,573,485 22.9% (519,647) $17.46
Los Angeles North................. 40,999,055 13.9 (61,415) 20.35
Los Angeles West.................. 40,290,682 12.8 175,044 23.53
Los Angeles South................. 30,347,125 19.1 83,709 17.12
----------- ---- -------- ------
Total/Weighted Average Los
Angeles County................. 169,210,347 17.6% (322,309) 19.00
Ventura County.................... 1,745,066 19.6 7,230 17.49
----------- ---- -------- ------
Total/Weighted Average Los
Angeles Area................... 170,955,413 17.6% (315,079) $19.00
=========== ==== ======== ======
</TABLE>
- --------
Source: C&W Study

* Does not include currently leased but available sublease space.

The Company's largest Property in the Los Angeles Area office market is 600
Corporate Pointe, a 12-story class A office building containing 273,339 square
feet. The property is located in the Culver City/Westchester micromarket of
the Marina/Culver City submarket of Los Angeles West. Average vacancy rates
are currently 11.9% in Culver City/Westchester, compared to 10.7% in the
Marina/Culver City submarket and 14.3% in Los Angeles West. The Los Angeles
West office market is among the most desirable in the Los Angeles Area and as
such was the first to enter the recovery phase.

600 Corporate Pointe was developed in 1989 and is a typical class A suburban
high-rise office building, constructed of structural steel frame with pre-cast
concrete panels and semi-reflective vision and spandrel glass. The Property
includes an eight-level parking structure. The building is visible from a wide
radius and there are very good views from most floors. The property has
excellent access to the San Diego (I-405) and Marina (90) Freeways and is
located near the Fox Hills Mall. The Property was approximately 88.9% leased
as of September 30, 1997. The average base rent is $17.83. The principal
tenants are Sony Pictures Entertainment (45,847 square feet), Karl Storz
Endoscopy (56,324 square feet) and the California State Controller's Office
(13,912 square feet). The aggregate square footage of leases expiring in 1997
(after September 30), 1998 and 1999 represent 7.7%, 5.1% and 30.0% of this
property's square footage, respectively.

69
<PAGE>

INLAND EMPIRE AREA MARKET

The following map indicates the location of the Properties in the Inland
Empire Area. (western San Bernardino and Riverside Counties, excluding the
City of Temecula)

[Map of Inland Empire Area Indicating the Locations of the Properties]

Key Industries in the Inland Empire Area

The Riverside-San Bernardino Standard Metropolitan Statistical Area, which
encompasses Riverside County and San Bernardino County, is commonly referred
to as the "Inland Empire." For purposes of the following discussion, the
Inland Empire Area includes western San Bernardino and Riverside Counties but
excludes the City of Temecula. The economy of the Inland Empire Area has
historically been driven by its proximity to major employment centers in Los
Angeles and Orange Counties. Between 1990 and July 1996, employment in this
area grew by approximately 26.4%. Basic non-defense related manufacturing
employment grew by approximately 27.6% over the same period. The Inland Empire
Area is attractive for distribution and manufacturing companies due to the
availability of labor and an excellent regional transportation network. The
Company believes that the foregoing will result, in the short-term, in demand
for quality industrial and manufacturing space in these markets exceeding
supply.

Inland Empire Area Office Market and Properties

The Inland Empire office market can be divided into the following six
markets: Ontario, Rancho Cucamonga, Riverside, San Bernardino, Colton/Cooley
Ranch and Redlands/Loma Linda. The Company owns four Properties in the Inland
Empire Area office market, one in each of Ontario, Rancho Cucamonga, Riverside
and San Bernardino. Collectively, these Properties contain 342,980 square feet
(approximately 6.8% of the total square footage of the Properties).

The class A office market in the Inland Empire Area is in an earlier stage
of recovery than the class B office market in the Inland Empire Area. As of
June 30, 1997, the vacancy rate for class A buildings was 19.5% compared to
27.0% for class B and 23.6% for the Inland Empire Area office markets as a
whole. The Ontario

70
<PAGE>

office market is located in western San Bernardino County and benefits in
comparison to other Inland Empire Area office markets because of its proximity
to the Ontario International Airport, which is the "hub" of the Inland Empire
Area commercial market. San Bernardino is the county seat of San Bernardino
County and the inventory of office buildings is concentrated in the downtown
area and along Hospitality Lane in the southern portion of the city. Set forth
below is detailed information regarding the Inland Empire Area office markets:

INLAND EMPIRE AREA
(RIVERSIDE AND SAN BERNARDINO COUNTIES, EXCLUDING THE CITY OF TEMECULA)
OFFICE MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
NET WEIGHTED AVG.
DIRECT* ABSORPTION ASKING
INVENTORY VACANCY YTD 1997 RENTAL RATE
MARKET (SQ. FT.) RATE (SQ. FT.) (PER SQ. FT.)
- ------ --------- ------- ---------- -------------
<S> <C> <C> <C> <C>
San Bernardino....................... 1,687,866 19.4% 47,503 $15.36
Riverside............................ 1,670,869 21.4 (20,876) 17.40
Ontario.............................. 1,445,499 20.0 (10,235) 17.76
Rancho Cucamonga..................... 1,027,247 45.0 (17,460) 15.60
Redlands/Loma Linda.................. 361,068 13.8 (7,093) 13.68
Colton/Cooley Ranch.................. 192,234 38.5 (3,216) 15.24
--------- ---- ------- ------
Total/Weighted Average............. 6,384,783 23.6% (11,377) $16.31
========= ==== ======= ======
</TABLE>
- --------
Source: C&W Study

* Does not include currently leased but available sublease space.

The Company's largest Property in the Inland Empire Area office market is
Centrelake Plaza, a six-story class A office building totaling 110,763 square
feet. The property is located in the Ontario market. Since the early 1980s,
Ontario has been recognized as a desirable location for affordable housing, as
well as industrial and distribution facilities.

Centrelake Plaza, which was developed in 1989, features a dramatic two-story
marble lobby and an entryway water feature and is served by four elevators.
The attached parking structure contains an exercise facility for the exclusive
use of the tenants. The building is the cornerstone development within
Ontario's Centrelake Business Park, a premiere business community with three
class A office buildings which constitute more than half of the competitive
class A office space in Ontario. Nearby amenities include the Ontario
International Airport, which is expanding its passenger terminal, several
restaurants and a Fairfield Inn. As of September 30, 1997, the Property was
63.3% leased. The principal tenants are Grubb & Ellis Company (10,359 square
feet), MCI Telecommunications Corp. (8,230 square feet) and Sun Microsystems
(3,477 square feet). Other tenants consist of law firms and financial services
firms. The average base rent is $16.65. The aggregate square footage of leases
expiring in 1997 (after September 30), 1998 and 1999 represents 4.2%, 18.6%
and 32.1% of this property's square footage, respectively.

Inland Empire Area Industrial Market and Properties

The Inland Empire Area industrial market area includes five industrial
markets: Ontario, Rancho Cucamonga, Fontana, Chino and Mira Loma. These
markets cover the most significant industrial markets in San Bernardino County
and the western portion of Riverside County. The Company owns two Properties
in the Inland Empire Area industrial market, one in Ontario and one in
Riverside, containing 319,909 square feet (approximately 6.4% of the total
square footage of the Properties).

71
<PAGE>

Set forth below is detailed information regarding the Inland Empire Area
industrial markets:

INLAND EMPIRE AREA
(RIVERSIDE AND SAN BERNARDINO COUNTIES, EXCLUDING THE CITY OF TEMECULA)
INDUSTRIAL MARKET STATISTICS
AT JUNE 30, 1997

<TABLE>
<CAPTION>
WTD. AVG.
TOTAL ASKING
DIRECT* ABSORPTION RENTAL RATE
INVENTORY VACANCY YTD 1997 (PER SQ.
MARKET (SQ. FT.) RATE (SQ. FT.) FT.)
- ------ ---------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Ontario............................... 43,193,743 10.9% 3,755,499 $3.72
Rancho Cucamonga...................... 17,484,110 12.9 1,401,123 3.72
Chino................................. 15,683,497 10.8 893,167 3.96
Fontana............................... 11,036,299 7.6 657,791 3.48
Mira Loma............................. 7,184,856 11.0 893,834 3.72
---------- ---- --------- -----
Total/Weighted Average.............. 94,582,505 10.9% 7,601,414 $3.74
========== ==== ========= =====
</TABLE>
- --------
Source: C&W Study

* Does not include currently leased but available sublease space.

The Company's largest Property in the Inland Empire Area industrial market
is Airport Commerce Center, a class A industrial park consisting of three one-
story, multi-tenant buildings totaling 213,127 square feet. The property is
located on a major thoroughfare (Archibald Avenue) one mile south of Ontario
International Airport in the Ontario industrial market of the Inland Empire
Area. Despite new construction of more than 10.7 million square feet since
1993, the overall vacancy rate in the Inland Empire Area industrial market has
declined by 1.3%. Most new construction has been focused on "big box"
distribution buildings from 100,000 to 1,000,000 square feet. In 1997 to date,
there has been no new construction of multi-tenant industrial parks.

Airport Commerce Center was developed in 1987. The Property consists of one
135,360 square foot warehouse that is divided into 14 units. The warehouse has
a 24-foot clear height and each unit includes one dock-high loading door.
These units command a rental premium over similarly sized units without a
dock-high door. Two multi-tenant commercial buildings (18,240 and 59,527
square feet, respectively) are divided into a total of 40 units. Twelve units,
totaling 29,951 square feet, are used exclusively for offices and between 19%
and 90% of the square footage in the remaining 28 units is used for offices.
As of September 30, 1997, the Property was 99.7% leased. The property's major
tenants are Costco (24,883 square feet of warehouse space) and the California
Department of Agriculture (8,528 square feet of office space). Other tenants
consist primarily of small industrial and warehouse users, with some local
office and commercial users that desire frontage on Archibald Avenue. The
average base rent per square foot is $5.68. The aggregate square footage of
leases expiring in 1997 (after September 30), 1998 and 1999 represents 10.0%,
48.8% and 27.6% of this property's square footage, respectively.

THE C&W STUDY AND PEER GROUP ANALYSES

The Company retained Cushman & Wakefield of California, Inc., a nationally
recognized real estate valuation and consulting firm, to prepare a study of
the economy and the real estate markets and submarkets in the six Southern
California counties in which the Properties are located. The following
discussion of past performance and future prospects of the economy and real
estate markets in Southern California is based on the C&W Study. The Company
believes that the findings and projections in the C&W Study are reasonable,
but there can be no assurances as to the actual future performance of the
economy or real estate markets of Southern California. The information in the
C&W Study reflects data available at June 30, 1997.

72
<PAGE>

The historical information compiled for and referenced in the C&W Study was
collected by C&W from a variety of sources, including (but not limited to) the
Cushman & Wakefield Research Services Group, which conducts quarterly surveys
of competitive office buildings within numerous submarkets on a national
basis, telephone interviews with landlords and leasing agents representing the
competitive office properties and periodic surveys conducted on a building-by-
building basis for the markets analyzed. The scope of the work conducted for
the Peer Group Analyses included a brief physical inspection of each Property
by C&W personnel, a review of the competitive market, and identification of
primary competitive properties for inclusion within the Peer Group based on
market criteria such as physical and locational characteristics, and an
inspection of the competitive properties within the specific submarket. The
physical information, current occupancy levels, and asking rental rates for
available space in the identified Peer Group buildings were compiled from
direct interviews with the landlords or their leasing agents by C&W personnel.
The information contained in the C&W Study has been gathered by C&W from
sources assumed to be reliable, including publicly available records. Because
records of all transactions are not readily available, the information
contained in the C&W Study may not reflect all transactions occurring in the
geographic area discussed. In addition, transactions that are reported may not
be described accurately or completely in the publicly available records.

In connection with the C&W Study, C&W made numerous assumptions with respect
to industry performance, general business and economic conditions, and other
matters. Any estimates or approximations contained therein could reasonably be
subject to different interpretations by other parties. Because predictions of
future events are inherently subject to uncertainty, none of C&W, the Company
or any other person can assure that such predicted rental rates, absorption,
or other events will occur as outlined or predicted in the C&W Study. Reported
asking rental rates of properties, replacement cost rents or estimated
replacement costs do not purport to necessarily reflect the rental rates at
which properties may actually be rented, actual rents required to support new
development or the actual cost of replacement. In many instances, asking rents
and actual rent rates differ significantly.

Changes in local, national and international economic conditions will affect
the markets described in the C&W Study. Therefore, C&W can give no assurance
that occupancy and absorption levels and rental rates as of the date of the
C&W Study will continue or that such occupancy levels and rental rates will be
attained at any time in the future. Forecasts of absorption rates, rental
activity, replacement cost rents and replacement costs are C&W's estimates as
of the date of the C&W Study. Actual future market conditions may differ
materially from the forecasts and projections contained therein.

C&W is a part of a national network of affiliated companies providing real
estate services. As such, from time to time, C&W and its affiliates have
provided and in the future may provide real estate related services, including
brokerage and leasing agent services, to the Company or its affiliates, or may
represent the Company, its affiliates or others doing business with the
Company. C&W received compensation of approximately $70,000 from the Company
in connection with the preparation of the C&W Study.

73
<PAGE>

BUSINESS AND PROPERTIES

GENERAL

<TABLE>
<CAPTION>
NUMBER OF PROPERTIES SQUARE FOOTAGE
------------------------------ --------------------------------------
AREA OFFICE INDUSTRIAL RETAIL TOTAL OFFICE INDUSTRIAL RETAIL TOTAL
- ---- ------ ---------- ------ ----- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ORANGE COUNTY........... 10 6 -- 16 1,310,024 637,406 -- 1,947,430
SAN DIEGO (San Diego
County and City of
Temecula).............. 11 7 1 19 933,038 487,560 144,225 1,564,823
LOS ANGELES (Los Angeles
and Ventura Counties).. 7 -- -- 7 841,391 -- -- 841,391
INLAND EMPIRE (Riverside
and San Bernadino
Counties).............. 4 2 -- 6 342,980 319,909 -- 662,889
--- --- --- --- --------- --------- ------- ---------
Total.................. 32 15 1 48 3,427,433 1,444,875 144,225 5,016,533
=== === === === ========= ========= ======= =========
</TABLE>

The Office Properties consist generally of class A and class B multi-tenant
office buildings. The Industrial Properties consist generally of multi-tenant
business parks, mid-size warehouse/distribution facilities and R&D facilities.
The Company believes that all of the Properties have desirable locations
within established business communities and are well-maintained. Of the
Company's 48 Properties, 43 Properties have been built since 1980 and 15
Properties, including four built prior to 1980, have been substantially
renovated within the last three years. All of the Properties offer customary
building amenities, including security and parking, and certain of the
Properties provide additional features, such as conference facilities, on-site
management, food services and health clubs. As of September 30, 1997, the
Properties had a weighted average occupancy rate of approximately 88.5% and
were leased to over 560 tenants. No one tenant represented more than
approximately 4.3% of the aggregate Annualized Base Rent of the Company's
portfolio and the Company's 20 largest tenants, in the aggregate, represented
37.8% of such rent. See "--Tenant Diversification."

The Properties are leased to a variety of local, national and foreign
businesses. Leases are typically structured for terms of three, five or ten
years. Most of the leases on the Office Properties are full service gross
leases under which tenants typically pay for all real estate taxes and
operating expenses above those for an established base year or expense stop.
Tenants with full service gross leases also generally pay directly (without
regard to a base year or expense stop) for excess use of utilities and
building services. The leases on the Industrial Properties are a mix of
modified gross and triple net leases. In general, triple net leases require
the tenants to pay all real property taxes, insurance and expenses of
maintaining the leased space or Property (other than structural repairs).
Under both full service gross and triple net leases, the landlord is generally
responsible for structural repairs. All of the leases typically contain
provisions permitting tenants to renew at prevailing market rates.

The Company's regional offices in San Diego, Los Angeles and the Inland
Empire provide day-to-day management services for the Properties within their
region. These services include collecting rent, responding to service calls,
providing accounting support and managing the various vendor contracts for
each building. All administration, leasing, capital expenditures and
construction decisions are centrally administered at the Company's corporate
office. The Company's San Diego regional office, which is run by Mr. Thomas, a
Principal, also evaluates acquisition candidates and supervises property
acquisitions within the San Diego Area. Asset managers in the regional offices
communicate daily with the Company's corporate offices to implement the
Company's policies and procedures.

PROPERTIES

The following table sets forth certain information regarding each of the
Properties as of September 30, 1997:

74
<PAGE>

PROPERTY DATA

<TABLE>
<CAPTION>
ANNUALIZED
ANNUALIZED NET
BASE EFFECTIVE
RENT RENT % % OFFICE
YEAR ANNUALIZED PER PER TOTAL (FOR
SQUARE BUILT/ PERCENT BASE SQUARE SQUARE BASE INDUSTRIAL
PROPERTY NAME MARKET # BUILDINGS FEET RENOVATED LEASED RENT (1) FOOT FOOT (2) RENT PROPERTIES)
- ------------- -------------------- ----------- ------- --------- ------- ---------- ---------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
PROPERTIES: (4)
Orange County
Area
Orange Financial
Center......... Central County 3 305,439 1985/1995 85.6% $5,513,182 $21.08 $18.63 10.0% --
Von Karman
Corporate
Center......... Greater Airport Area 9 451,477 1981/1984 91.2 5,364,746 12.96 14.16 9.8 --
Newport-Irvine
Office......... Greater Airport Area 1 74,224 1981/1997 94.0 1,130,367 16.21 15.86 2.1 --
South Coast
Executive
Park........... Greater Airport Area 1 60,605 1979/1997 79.8 681,180 14.09 14.14 1.2 --
One Venture..... Greater Airport Area 1 43,324 1990 24.0 188,309 18.10 17.13 0.3 --
4440 Von
Karman......... Greater Airport Area 1 42,904 1975/1996 97.0 726,077 17.46 16.00 1.3 --
1800 Lambert.... North County 1 32,807 1986 99.8 560,961 17.14 17.25 1.0 --
City Centre I... Tri-Freeway Area 1 139,806 1985 85.0 2,165,871 18.23 17.70 3.9 --
The Plaza....... West County 2 107,252 1982 87.2 1,408,667 15.07 18.41 2.6 --
Huntington Beach
Plaza I & II... West County 2 52,186 1984 87.9 648,774 14.15 12.47 1.2 --
San Diego Area
Skypark Office
Plaza.......... Mission/Kearny Mesa 2 202,164 1986 94.2 2,658,415 13.96 16.81 4.8 --
Sorrento Valley
Science Park... North City 3 181,207 1984 91.5 2,223,530 13.41 14.02 4.0 --
Governor Park
Plaza.......... North City 2 104,065 1986 92.4 1,358,902 14.14 14.06 2.5 --
Torreyanna
Science Park... North City 1 81,204 1980 100.0 686,400 8.45 18.52 1.2 --
Vista Sorrento
Office......... North City 1 69,386 1981/1995 100.0 999,158 14.40 12.82 1.8 --
Shoreham
Building (5)... North City 1 37,759 1984 84.5 463,290 14.52 14.52 0.8 --
Uniden
Building....... North City 2 28,119 1990 100.0 320,557 11.40 11.67 0.6 --
Carlsbad
Corporate
Center (6)..... North Coast 1 125,000 1996 100.0 -- -- -- -- --
Tower Plaza
Office......... Temecula 1 72,350 1988 88.8 925,004 14.40 17.56 1.7 --
Tower Plaza
Professional
Center......... Temecula 1 19,301 1983 77.6 151,075 10.00 9.32 0.3 --
Tower Plaza
Business
Center......... Temecula 1 12,483 1983 71.4 82,290 9.24 9.38 0.1 --
Los Angeles Area
5161
Lankershim..... Los Angeles North 1 178,317 1985/1997 72.3 2,932,931 22.73 19.73 5.3 --
150 East
Colorado....... Los Angeles North 1 61,168 1979 75.3 752,651 16.35 17.83 1.4 --
1501 Hughes
Way............ Los Angeles South 1 77,060 1983 51.7 596,496 12.93 12.01 1.1 --
3901 Via Oro.... Los Angeles South 1 53,195 1986 9.9 70,950 13.44 14.25 0.1 --
600 Corporate
Pointe......... Los Angeles West 1 273,339 1989 88.9 4,337,780 17.83 17.02 7.9 --
1919 Santa
Monica......... Los Angeles West 1 44,096 1991 100.0 976,542 22.15 21.17 1.8 --
Camarillo
Business
Center......... Ventura/Oxnard 2 154,216 1984/1997 79.0 1,642,466 13.49 13.79 3.0 --
<CAPTION>
C&W
PEER
GROUP
RENT
PER
SQUARE
PROPERTY NAME FOOT (3)
- ------------- --------
<S> <C>
OFFICE
PROPERTIES: (4)
Orange County
Area
Orange Financial
Center......... $19.13
Von Karman
Corporate
Center......... 19.10
Newport-Irvine
Office......... 19.29
South Coast
Executive
Park........... 12.30
One Venture..... 25.72
4440 Von
Karman......... 19.44
1800 Lambert.... 14.76
City Centre I... 19.35
The Plaza....... 17.74
Huntington Beach
Plaza I & II... 17.01
San Diego Area
Skypark Office
Plaza.......... 15.88
Sorrento Valley
Science Park... 10.14
Governor Park
Plaza.......... 21.43
Torreyanna
Science Park... 15.59
Vista Sorrento
Office......... 11.40
Shoreham
Building (5)... 21.43
Uniden
Building....... 12.95
Carlsbad
Corporate
Center (6)..... 6.67
Tower Plaza
Office......... 13.12
Tower Plaza
Professional
Center......... 13.24
Tower Plaza
Business
Center......... 13.26
Los Angeles Area
5161
Lankershim..... 22.84
150 East
Colorado....... 21.64
1501 Hughes
Way............ 24.89
3901 Via Oro.... 16.57
600 Corporate
Pointe......... 17.78
1919 Santa
Monica......... 22.78
Camarillo
Business
Center......... 18.67
</TABLE>

75
<PAGE>

<TABLE>
<CAPTION>
ANNUALIZED
ANNUALIZED NET
BASE EFFECTIVE
RENT RENT % % OFFICE
YEAR ANNUALIZED PER PER TOTAL (FOR
SQUARE BUILT/ PERCENT BASE SQUARE SQUARE BASE INDUSTRIAL
PROPERTY NAME MARKET # BUILDINGS FEET RENOVATED LEASED RENT (1) FOOT FOOT (2) RENT PROPERTIES)
- ------------- -------------- ----------- --------- --------- ------- ----------- ---------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inland Empire
Area
Centrelake
Plaza.......... Ontario 1 110,763 1989 63.3 1,166,581 16.65 17.58 2.1 --
Chicago Avenue
Business Park.. Riverside 1 47,482 1986 76.3 485,999 13.42 12.04 0.9 --
HDS Plaza....... San Bernardino 1 104,178 1987 82.2 1,367,155 15.96 15.41 2.5 --
Havengate....... San Bernardino 1 80,557 1985 92.7 1,127,839 15.10 15.51 2.1 --
--- --------- --------- ----- ----------- ------ ------ -----
TOTAL OFFICE PROPERTIES....... 50 3,427,433 1985 84.9 43,714,145 15.18 15.89 79.4
INDUSTRIAL/R&D
PROPERTIES: (7)
Orange County
Area
Savi Tech
Center......... North County 4 341,446 1989 100.0 2,521,364 7.38 9.06 4.6 30
Yorba Linda
Business Center
............... North County 5 167,142 1988 94.7 1,115,801 7.05 6.39 2.0 18
Huntington
Commerce
Center......... West County 2 67,551 1987 94.2 412,493 6.49 6.53 0.8 20
Huntington Beach
R & D I........ West County 1 27,731 1987/1997 100.0 188,832 6.81 4.71 0.3 90
Huntington Beach
R & D II....... West County 1 11,968 1987 100.0 74,640 6.24 7.72 0.1 90
Huntington Beach
R & D III...... West County 1 21,568 1987 100.0 155,290 7.20 7.51 0.3 71
San Diego Area
Cymer Technology
Center ........ I-15 Corridor 2 137,164 1986 100.0 1,695,908 12.36 13.97 3.1 27
Poway
Industrial..... I-15 Corridor 1 112,000 1991/1996 100.0 604,800 5.40 4.80 1.1 11
Via Frontera.... I-15 Corridor 2 77,920 1982/1997 89.4 529,020 7.59 7.11 1.0 59
Scripps Ranch... I-15 Corridor 1 43,560 1978/1996 100.0 -- -- 7.71 -- 40
Westridge ...... North City 2 48,850 1984/1996 100.0 384,574 7.87 11.14 0.7 88
Highlands I..... Temecula 1 26,856 1988 94.7 216,244 8.50 8.27 0.4 68
Highlands II.... Temecula 1 41,210 1990 88.8 397,034 10.85 9.26 0.7 77
Inland Empire
Area
Airport Commerce
Center......... Ontario 3 213,127 1987 99.7 1,206,614 5.68 5.71 2.2 28
Hunter Business
Center......... Riverside 3 106,782 1990 84.0 525,480 5.86 6.07 1.0 32
--- --------- --------- ----- ----------- ------ ------ ----- ---
TOTAL INDUSTRIAL/R&D
PROPERTIES................... 30 1,444,875 1987 97.0 10,028,094 7.16 7.85 18.3 34
RETAIL PROPERTY:
San Diego Area
Tower Plaza
Retail (9)..... Temecula 10 144,225 1970/1997 90.9 1,246,947 9.18 12.83 2.3 --
-------------- --- --------- --------- ----- ----------- ------ ------ ----- ---
PORTFOLIO TOTAL/WEIGHTED
AVERAGE...................... 90 5,016,533 1985 88.5% $54,989,186 $12.70 $13.49 100.0% 50%
=== ========= ========= ===== =========== ====== ====== ===== ===
<CAPTION>
C&W
PEER
GROUP
RENT
PER
SQUARE
PROPERTY NAME FOOT (3)
- ------------- --------
<S> <C>
Inland Empire
Area
Centrelake
Plaza.......... 21.21
Chicago Avenue
Business Park.. 9.37
HDS Plaza....... 17.41
Havengate....... 14.13
--------
TOTAL OFFICE
PROPERTIES... 17.49
INDUSTRIAL/R&D
PROPERTIES: (7)
Orange County
Area
Savi Tech
Center......... 6.41
Yorba Linda
Business Center
............... 8.31
Huntington
Commerce
Center......... 6.90
Huntington Beach
R & D I........ 7.16
Huntington Beach
R & D II....... 7.16
Huntington Beach
R & D III...... 7.16
San Diego Area
Cymer Technology
Center ........ 7.47
Poway
Industrial..... 5.95
Via Frontera.... 6.90
Scripps Ranch... 8.53
Westridge ...... 8.81
Highlands I..... 5.80
Highlands II.... 5.80
Inland Empire
Area
Airport Commerce
Center......... 6.38
Hunter Business
Center......... 5.39
--------
TOTAL
INDUSTRIAL/
R&D
PROPERTIES... 6.81
RETAIL PROPERTY:
San Diego Area
Tower Plaza
Retail (9)..... 13.84
--------
PORTFOLIO
TOTAL/
WEIGHTED
AVERAGE..... $14.31
========
</TABLE>

76
<PAGE>

- -------
* Includes month-to-month leases
(1) Annualized Base Rent is the annualized monthly contractual base rent
under existing leases as of September 30, 1997, including month-to-month
tenants, excluding tenant pass-throughs of operating and other expenses.
(2) Annualized Net Effective Rent is calculated for each lease in effect at
September 30, 1997. For leases in effect at the time the relevant
Property was acquired, Annualized Net Effective Rent is the annualized
monthly rent during the remaining term of the lease presented on a
straight-line basis, plus tenant pass-throughs of operating and other
expenses in effect at September 30, 1997, and minus monthly amortization
of tenant improvements and leasing commissions. For leases entered into
after the relevant Property was acquired, Annualized Net Effective Rent
is the annualized monthly rent during the entire term of the lease
presented on a straight-line basis, plus tenant pass-throughs of
operating and other expenses in effect at September 30, 1997, and minus
monthly amortization of tenant improvements and leasing commissions. The
amounts in this column that exceed the counterpart amounts under the
column headed Annualized Base Rent Per Leased Square Foot do so
primarily because the amounts in this column reflect future scheduled
rent increases.
(3) Source: C&W Study
(4) Leases for the Office Properties are full service gross leases except for
those for Torreyanna Science Park, which are triple net, those for
Sorrento Valley Science Park, which are 50% triple net and those for
Carlsbad Corporate Center, which are triple net.
(5) As of September 30, 1997, the property is under contract with the
acquisition expected to close in October 1997. The above information is
shown as if the property was owned by the Company as of September 30,
1997.
(6) As of September 30, 1997 the property was 100% leased to Pacific
Southwest Bank. In accordance with the terms of the lease, payment of
rent commences on March 1, 1998. Upon commencement of rental payments,
the above information would appear as follows: Annualized Base Rent Per
Leased Square Foot--$6.55; Percent of Total Base Rent--1.5%; Annualized
Net Effective Rent Per Leased Square Foot--$17.95.
(7) Leases for the Industrial Properties are triple net leases except for the
following properties which have modified gross leases: Yorba Linda
Business Center, Highlands I, Highlands II, Airport Commerce Center and
Hunter Business Center. In these industrial parks, the tenants pay their
own utilities and janitorial expenses.
(8) As of September 30, 1997, the property is 100% leased to Inova
Diagnostics. In accordance with the terms of the lease, payment of rent
commences on November 1, 1997. Upon commencement of rental payments, the
above information would appear as follows: Annualized Base Rent Per
Square Foot--$8.40; Percent of Total Base Rent--0.7%; Annualized Net
Effective Rent Per Leased Square Foot--$7.71.
(9) Includes three land parcels consisting of 4.14 acres.

THE OPTION PROPERTIES AND THE DEVELOPMENT PARCEL

In connection with the Offering, the Company will retain options to purchase
three properties, two of which are located in Orange County and one of which
is located in Los Angeles County, and a development parcel located in Mission
Viejo (the "Development Parcel"). Two of such properties (the "Option
Properties") will be owned jointly by an affiliate of AEW and the Principals.
The third such property, Brea Tech Center (the "Joint Venture Property"), will
be distributed by AEW/LBA II to a new entity which will be owned 75% by such
affiliate of AEW and 25% by the Operating Company. See "Structure and
Formation of the Company--Formation Transactions," "--Benefits to Related
Parties," "Risk Factors--Conflicts of Interest in the Formation Transactions
and the Business of the Company" and "Certain Transactions." The following
table sets forth the location, number of buildings, square feet and occupancy
(as of September 30, 1997) for each Option Property. The decision to exercise
the options is subject to approval by the disinterested members of the Board
of Directors of the Company.

<TABLE>
<CAPTION>
NUMBER
PROPERTY OF SQUARE PERCENT
PROPERTY AREA TYPE BUILDINGS FEET LEASED
-------- ---- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Brea Tech Center Orange County Office 1 118,800 --
2181 Dupont Orange County R&D 1 81,000 100%
201 North Douglas Los Angeles Office 1 344,500 --
--- -------
Total................................... 3 544,300
=== =======
</TABLE>

77
<PAGE>

Brea Tech Center is a 118,800 square foot, two-story office building located
in the City of Brea in north Orange County. The property includes a parking
structure and surface parking on-site that provide four parking spaces for
every 1,000 square feet of office space. It also includes a non-contiguous
2.85-acre parcel of land that is currently improved as a parking lot, but
could, in the future, be developed as a separate office building. The facility
was formerly occupied by Bank of America as a regional loan processing center
but is now vacant as a result of a major corporate consolidation. The Company
believes that the property will appeal to other large "back office" users.

2181 Dupont is a mixed-used corporate headquarters which contains a portion
of R&D space with one 81,000 square foot building situated on a 5.8-acre
parcel in the city of Irvine, approximately one-third of a mile south of John
Wayne Airport. Approximately 60% of the building is currently finished office
space with the balance consisting of a 21 foot clear, fully air conditioned
warehouse/assembly space. The property contains 321 parking spaces (four per
every 1,000 square feet). There is land available on the property for
additional parking. As of September 30, 1997, the property was 100% leased to
Procom Technology under a lease that expires in July 1998. The Company
believes that the current rent is below the current market rate for R&D
properties in the Airport Area. The Company believes that when the current
tenant vacates, there may be an opportunity to convert the building to an
office building resulting in an increase in rental rates.

201 North Douglas is a 344,500 square foot, four-story office building
recently purchased from Rockwell Corporation. The property is located in the
city of El Segundo one-half mile south of the Los Angeles International
Airport, an area historically favored by the aerospace and defense industries.
The property is currently undergoing a major renovation including the
following improvements: complete demolition of obsolete tenant improvements,
new lobby improvements, hallway and bathroom renovations and new landscaping.
Additionally, a new exterior curtain wall surface will be applied to the
building, resulting in an entirely new appearance for the property. The
building is currently vacant while the renovations take place. The Company
believes that there are currently few availabilities for tenants requiring
large blocks of office space in the area and the renovated building will
present an attractive option for such tenants.

At the completion of the Offering, the Management Company will enter into
management agreements for the Option Properties. The management agreements for
2181 Dupont and 201 North Douglas will be on customary terms. The management
agreement for Brea Tech Center, however, will also provide for certain
incentive compensation based on the returns generated by the property. There
can be no assurances that the Company will receive any material financial
benefits from the incentive compensation provisions in the management
agreement for Brea Tech Center.

The options to purchase the Option Properties do not become exercisable
until such properties achieve "stabilization." For the purpose of the options,
an Option Property is stabilized when it is 95% occupied by tenants with
leases having more than one year remaining. At the time an Option Property
becomes stabilized, the Company will have the right for 90 days to purchase
each Option Property for 95% of such property's fair market value (determined
by the parties or, if they do not agree, by an arbitration procedure). The
Company must consummate the acquisition of each Option Property within 60 days
of its exercise of an option. During the period beginning six months following
the Offering and ending upon stabilization of each Option Property, AEW may
accelerate the Company's option and, if the Company chooses not to exercise
its option at that time, sell the Option Property to a third party. Such a
sale by AEW must be consummated within 60 days after the Company notifies AEW
that the Company is not exercising its option, or such option is thereafter
renewed. Following the 90-day period after each Option Property achieves %
occupancy, the Company will have a right of first refusal with respect to any
proposed sale of such Option Property.

The Company will have an option to purchase the Development Parcel for 12
months following the Offering for approximately $4.2 million. The Company
believes that this price represents a 7% discount from the current fair market
value of the Development Parcel. Following such 12-month period, the Company
will have a right of first refusal with respect to any proposed sale of the
Development Parcel.

78
<PAGE>

THE BUILD-TO-SUIT PROJECTS

The following are descriptions of the Build-to-Suit Projects. No assurance
can be given that the Build-to-Suit Projects will be completed on schedule or
within budget or that, if completed, they will provide the Company with an
adequate financial return.

. Comcast Cable. The Company has executed a 15-year, triple net lease with
Comcast Cable for a 40,000 square foot build-to-suit facility in Ontario,
California. Comcast Cable is a subsidiary of Comcast Corporation, a
Philadelphia-based telecommunications company with $6.3 billion in sales.
Construction of the two-story state-of-the-art office/warehouse facility
is scheduled to begin in the fourth quarter of 1997, with an anticipated
completion date in the third quarter of 1998. The project is located on a
4.6-acre parcel in the California Commerce Center, a 1,500-acre master
planned business park. Based on the contractual rent for the first year
of the lease and the Company's budgeted cost for this project of
approximately $3.8 million, the Company believes this project will
provide an initial yield of approximately 10.4%.

. The Company is negotiating a lease with a potential tenant for a 90,000
square foot office/R&D facility to be developed and constructed by the
Company on an approximately 3.5-acre parcel. The Property is located in
the Rancho Bernardo submarket of San Diego, which, according to the C&W
Study, is one of the strongest R&D markets in Southern California with a
vacancy rate below 6%. Construction is expected to commence in the first
quarter of 1998.

TENANT DIVERSIFICATION

The Properties are leased to over 560 tenants which are engaged in a variety
of businesses, including financial services, entertainment, health care
services, accounting, law, computer technology, education and publishing. The
following table sets forth information regarding the Company's leases with its
20 largest tenants based upon Annualized Base Rent as of September 30, 1997.

<TABLE>
<CAPTION>
TOTAL PERCENTAGE
LEASED ANNUAL BASE OF ANNUALIZED MONTHS
TENANT SQUARE FEET RENT BASE RENT REMAINING
- ------ ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Walt Disney Pictures & Televi-
sion, Inc..................... 98,802 $ 2,240,832 4.05% 70
Donnelly Info Publishing....... 71,946 1,856,208 3.36 12
Sony Pictures Entertainment.... 88,916 1,618,202 2.93 79
Cymer, Inc..................... 137,164 1,563,670 2.83 147
Aurora Biosciences Corp........ 81,204 1,287,000 2.33 132
ITT Computer & Equipment Leas-
ing........................... 63,604 1,249,517 2.26 30
Interplay...................... 101,325 1,215,900 2.20 105
Qualcomm Incorporated.......... 69,386 999,158 1.81 65
Karl Storz Endoscopy........... 56,324 945,168 1.71 18
Sensormedics Corp.............. 119,966 850,156 1.54 87
University of Phoenix.......... 53,298 837,845 1.51 75
Ogden Environmental & Energy... 52,630 831,600 1.50 39
Curtain Matheson Scientific.... 99,119 827,701 1.50 17
HDS Corporation................ 50,554 791,665 1.43 86
Chicago Title Company.......... 46,446 763,572 1.38 80
Sedgwick James................. 37,818 718,604 1.30 118
Executone Information Systems.. 112,000 604,800 1.09 97
IDRC........................... 44,672 589,670 1.07 96
Ikon Office Solutions.......... 53,132 582,731 1.05 30
TIG Insurance Company.......... 34,842 518,558 0.94 54
--------- ----------- ----- ---
Total/Weighted Average....... 1,473,148 $20,892,557 37.77% 77
========= =========== ===== ===
</TABLE>

79
<PAGE>

LEASE DISTRIBUTION

The following table sets forth information relating to the size of the
Company's leases as of September 30, 1997:

<TABLE>
<CAPTION>
PERCENT OF PERCENTAGE OF
AGGREGATE AGGREGATE
PORTFOLIO PORTFOLIO
SQUARE FEET NUMBER OF TOTAL LEASED LEASED ANNUALIZED ANNUALIZED
UNDER LEASE LEASES SQUARE FEET SQUARE FEET BASE RENT BASE RENT
- ----------- --------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1,000 or less........... 89 40,011 0.9% $ 685,624 1.3%
1,001 to 2,500.......... 209 346,761 7.8 4,119,206 7.5
2,501-5,000............. 107 368,989 8.3 5,121,479 9.3
5,001-7,500............. 54 337,870 7.6 4,622,060 8.4
7,501-10,000............ 47 409,000 9.2 5,425,223 9.9
10,001-20,000........... 43 577,935 13.0 8,169,995 14.8
20,001-40,000........... 26 733,533 16.5 8,373,739 15.2
40,001 or larger........ 23 1,631,553 36.7 18,471,860 33.6
--- --------- ----- ----------- -----
Total................. 598 4,445,652 100.0% $54,989,186 100.0%
=== ========= ===== =========== =====
</TABLE>

HISTORICAL LEASING ACTIVITY

The following table sets forth a summary of the leasing activity for the
Properties since their acquisition by the Company.

<TABLE>
<CAPTION>
NUMBER OF
PERIOD LEASES SQUARE FEET
------ --------- -----------
<S> <C> <C>
1995(1)................................................. 15 59,225
1996(2)................................................. 54 320,752
1997(3)................................................. 129 989,179
--- ---------
Total/Weighted-average................................ 198 1,369,156
=== =========
</TABLE>
- --------
(1) Data is for the period March 22, 1995 through December 31, 1996.
(2) Data is for the year ended December 31, 1997.
(3) Data is for the nine months ended September 30, 1997.

80
<PAGE>

LEASE EXPIRATIONS--PROPERTY-BY-PROPERTY

The following table sets forth detailed lease expiration information for
each of the Properties for leases in place as of September 30, 1997, assuming
that none of the tenants exercises renewal options or termination rights, if
any, at or prior to the scheduled expirations.

OFFICE PROPERTIES
<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
--------------------------------------------------------------------------------------------------
1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006
-------- ---------- -------- ---------- -------- -------- ------- -------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY
- --------
ORANGE COUNTY
AREA
ORANGE FINANCIAL
CENTER
Square Footage
of Leases
Expiring........ 5,680 94,925 29,906 32,255 33,178 22,078 2,508 -- -- --
Percentage of
Total Leased
Square Feet..... 2.18% 36.43% 11.48% 12.38% 12.73% 8.47% 0.96% -- -- --
Annualized Base
Rent of Expiring
Leases.......... $166,837 $2,218,779 $508,719 $650,014 $667,978 $456,359 $46,649 -- -- --
Percentage of
Total Annualized
Base Rent....... 3.04% 40.38% 9.26% 11.83% 12.16% 8.31% 0.85% -- -- --
Average
Annualized Rent
PSF Expiring.... $29.37 $23.83 $16.83 $23.26 $21.78 $22.01 $19.80 -- -- --
Number of Leases
Expiring........ 3 8 9 4 6 6 1 -- -- --
VON KARMAN
CORPORATE CENTER
Square Footage
of Leases
Expiring........ 11,678 67,905 32,519 103,859 11,238 32,811 -- 46,446 -- 101,325
Percentage of
Total Leased
Square Feet..... 2.86% 16.65% 7.97% 25.47% 2.76% 8.05% -- 11.39% -- 24.85%
Annualized Base
Rent of Expiring
Leases.......... $ 76,572 $936,520 $321,516 $1,273,168 $180,314 $505,915 -- $763,572 -- $1,215,900
Percentage of
Total Annualized
Base Rent....... 1.45% 17.76% 6.10% 24.14% 3.42% 9.59% -- 14.48% -- 23.06%
Average
Annualized Rent
PSF Expiring.... $6.56 $13.84 $9.89 $13.34 $16.29 $15.71 -- $16.44 -- $18.00
Number of Leases
Expiring........ 1 5 2 6 2 2 -- 1 -- 3
NEWPORT-IRVINE
OFFICE
Square Footage
of Leases
Expiring........ 2,625 25,582 8,277 11,335 11,811 3,297 -- -- -- --
Percentage of
Total Leased
Square Feet..... 4.17% 40.65% 13.15% 18.01% 18.77% 5.24% -- -- -- --
Annualized Base
Rent of Expiring
Leases.......... $37,800 $448,441 $136,753 $189,979 $165,856 $59,346 -- -- -- --
Percentage of
Total Annualized
Base Rent....... 3.64% 43.20% 13.17% 18.30% 15.98% 5.72% -- -- -- --
Average
Annualized Rent
PSF Expiring.... $14.40 $17.76 $16.60 $17.22 $15.37 $18.60 -- -- -- --
Number of Leases
Expiring........ 1 10 2 4 3 1 -- -- -- --
SOUTH COAST
EXECUTIVE PARK --
Square Footage
of Leases
Expiring........ -- 13,418 1,598 5,549 11,336 16,452 -- -- -- --
Percentage of
Total Leased
Square Feet..... -- 27.75% 3.30% 11.48% 23.44% 34.02% -- -- -- --
Annualized Base
Rent of Expiring
Leases.......... -- $185,767 $26,829 $72,202 $148,927 $250,414 -- -- -- --
Percentage of
Total Annualized
Base Rent....... -- 27.15% 3.92% 10.55% 21.77% 36.60% -- -- -- --
Average
Annualized Rent
PSF Expiring.... -- $13.91 $17.04 $14.21 $13.94 $17.50 -- -- -- --
Number of Leases
Expiring........ -- 8 2 3 4 3 -- -- -- --
ONE VENTURE
Square Footage
of Leases Expir-
ing............. -- 1,127 -- 2,843 1,226 3,439 -- -- -- --
Percentage of
Total Leased
Square Feet..... -- 13.05% -- 32.92% 14.20% 39.83% -- -- -- --
Annualized Base
Rent of Expiring
Leases.......... -- $16,229 -- $41,558 $28,735 $78,409 -- -- -- --
Percentage of
Total Annualized
Base Rent....... -- 9.84% -- 25.20% 17.42% 47.54% -- -- -- --
Average
Annualized Rent
PSF Expiring.... -- $14.40 -- $14.62 $26.92 $26.31 -- -- -- --
Number of Leases
Expiring........ -- 1 -- 1 1 1 -- -- -- --
<CAPTION>

---------------------
AFTER
2006 TOTAL
--------- -----------
<S> <C> <C>
PROPERTY
- --------
ORANGE COUNTY
AREA
ORANGE FINANCIAL
CENTER
Square Footage
of Leases
Expiring........ 40,052 260,582
Percentage of
Total Leased
Square Feet..... 15.37% 100%
Annualized Base
Rent of Expiring
Leases.......... $779,175 $5,494,510
Percentage of
Total Annualized
Base Rent....... 14.18% 100%
Average
Annualized Rent
PSF Expiring.... $22.81 $22.47
Number of Leases
Expiring........ 4 41
VON KARMAN
CORPORATE CENTER
Square Footage
of Leases
Expiring........ -- 407,781
Percentage of
Total Leased
Square Feet..... -- 100%
Annualized Base
Rent of Expiring
Leases.......... -- $5,273,477
Percentage of
Total Annualized
Base Rent....... -- 100%
Average
Annualized Rent
PSF Expiring.... -- $14.74
Number of Leases
Expiring........ -- 22
NEWPORT-IRVINE
OFFICE
Square Footage
of Leases
Expiring........ -- 62,927
Percentage of
Total Leased
Square Feet..... -- 100%
Annualized Base
Rent of Expiring
Leases.......... -- $1,038,175
Percentage of
Total Annualized
Base Rent....... -- 100%
Average
Annualized Rent
PSF Expiring.... -- $16.97
Number of Leases
Expiring........ -- 21
SOUTH COAST
EXECUTIVE PARK
Square Footage
of Leases
Expiring........ -- 48,353
Percentage of
Total Leased
Square Feet..... -- 100%
Annualized Base
Rent of Expiring
Leases.......... -- $684,139
Percentage of
Total Annualized
Base Rent....... -- 100%
Average
Annualized Rent
PSF Expiring.... -- $15.28
Number of Leases
Expiring........ -- 20
ONE VENTURE
Square Footage
of Leases Expir-
ing............. -- 8,635
Percentage of
Total Leased
Square Feet..... -- 100%
Annualized Base
Rent of Expiring
Leases.......... -- $164,931
Percentage of
Total Annualized
Base Rent....... -- 100%
Average
Annualized Rent
PSF Expiring.... -- $20.99
Number of Leases
Expiring........ -- 4
</TABLE>

81
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
------------------------------------------------------------------------------------------------------------
AFTER
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006 TOTAL
- -------- -------- -------- -------- ---------- -------- -------- -------- -------- ---- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4440 VON KARMAN
Square Footage
of Leases Ex-
piring......... -- 12,357 -- 10,468 3,150 15,619 -- -- -- -- -- 41,594
Percentage of
Total Leased
Square Feet.... -- 29.71% -- 25.17% 7.57% 37.55% -- -- -- -- -- 100%
Annualized Base
Rent of Expir-
ing Leases..... -- $179,978 -- $192,828 $26,082 $290,900 -- -- -- -- -- $689,788
Percentage of
Total
Annualized Base
Rent........... -- 26.09% -- 27.95% 3.78% 42.17% -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- $14.56 -- $19.50 $21.60 $19.82 -- -- -- -- -- $18.31
Number of Leases
Expiring....... -- 2 -- 3 1 2 -- -- -- -- -- 8
1800 LAMBERT
Square Footage
of Leases Ex-
piring......... 8,345 4,412 1,036 10,835 6,476 -- -- -- -- -- -- 31,104
Percentage of
Total Leased
Square Feet.... 26.83% 14.18% 3.33% 34.83% 20.82% -- -- -- -- -- -- 100%
Annualized Base
Rent of Expir-
ing Leases..... $174,614 $74,122 $15,540 $169,032 $100,387 -- -- -- -- -- -- $533,695
Percentage of
Total
Annualized Base
Rent........... 32.72% 13.89% 2.91% 31.67% 18.81% -- -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... $20.92 $16.80 $15.00 $16.20 $15.50 -- -- -- -- -- -- $17.37
Number of Leases
Expiring....... 2 1 1 1 2 -- -- -- -- -- -- 7
CITY CENTRE I
Square Footage
of Leases Ex-
piring......... 1,774 25,515 32,278 7,664 24,126 18,472 -- -- -- -- -- 109,829
Percentage of
Total Leased
Square Feet.... 1.62% 23.23% 29.39% 6.98% 21.97% 16.82% -- -- -- -- -- 100%
Annualized Base
Rent of Expir-
ing Leases..... $32,347 $532,430 $623,689 $133,876 $365,645 $332,213 -- -- -- -- -- $2,020,200
Percentage of
Total
Annualized Base
Rent........... 1.60% 26.36% 30.87% 6.63% 18.10% 16.44% -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... $18.23 $20.87 $19.67 $18.51 $17.15 $19.14 -- -- -- -- -- $19.20
Number of Leases
Expiring....... 1 5 8 5 4 3 -- -- -- -- -- 26
THE PLAZA
Square Footage
of Leases Ex-
piring......... -- 6,413 7,087 26,690 -- -- 53,298 -- -- -- -- 93,488
Percentage of
Total Leased
Square Feet.... -- 6.86% 7.58% 28.55% -- -- 57.01% -- -- -- -- 100%
Annualized Base
Rent of Expir-
ing Leases..... -- $96,195 $106,305 $368,322 -- -- $837,845 -- -- -- -- $1,408,667
Percentage of
Total
Annualized Base
Rent........... -- 6.83% 7.55% 26.15% -- -- 59.48% -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- $15.00 $16.20 $13.80 -- -- $23.49 -- -- -- -- $19.59
Number of Leases
Expiring....... -- 1 1 1 -- -- 1 -- -- -- -- 4
HUNTINGTON BEACH
PLAZA I & II
Square Footage
of Leases
Expiring....... 3,614 12,268 14,540 1,640 6,307 4,455 -- -- -- -- -- 42,824
Percentage of
Total Leased
Square Feet.... 8.44% 28.65% 33.95% 3.83% 14.73% 10.40% -- -- -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... $63,936 $169,518 $199,927 $20,664 $94,605 $58,800 -- -- -- -- -- $607,450
Percentage of
Total
Annualized Base
Rent........... 10.53% 27.91% 32.91% 3.40% 15.57% 9.68% -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... $17.69 $13.82 $13.91 $13.32 $16.20 $13.74 -- -- -- -- -- $14.50
Number of Leases
Expiring....... 1 6 3 1 1 1 -- -- -- -- -- 13
SAN DIEGO AREA
SKYPARK OFFICE
PLAZA
Square Footage
of Leases
Expiring....... -- 24,063 12,313 63,604 20,842 3,001 32,489 34,129 -- -- -- 190,441
Percentage of
Total Leased
Square Feet.... -- 12.64% 6.47% 33.40% 10.94% 1.58% 17.06% 17.92% -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $379,744 $176,595 $1,249,517 $275,053 $48,616 $174,221 $354,669 -- -- -- $2,658,415
Percentage of
Total
Annualized Base
Rent........... -- 14.28% 6.64% 47.00% 10.35% 1.83% 6.55% 13.34% -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- $15.78 $14.92 $19.65 $15.60 $16.20 $25.16 $14.76 -- -- -- $18.42
Number of Leases
Expiring....... -- 2 2 1 2 1 2 1 -- -- -- 11
</TABLE>

82
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
-----------------------------------------------------------------------------------------------------------------
AFTER
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006 TOTAL
- -------- ------- -------- -------- -------- -------- -------- -------- -------- -------- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SORRENTO VALLEY
SCIENCE PARK
Square Footage
of Leases
Expiring....... -- -- 3,361 52,630 25,244 39,906 -- -- 44,672 -- -- 165,813
Percentage of
Total Leased
Square Feet.... -- -- 2.03% 31.74% 15.22% 24.07% -- -- 26.94% -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- -- $51,594 $831,600 $359,597 $391,068 -- -- $589,670 -- -- $2,223,529
Percentage of
Total
Annualized Base
Rent........... -- -- 2.32% 37.40% 16.17% 17.59% -- -- 26.52% -- -- 100%
Average
Annualized Rent
PSF Expiring... -- -- $16.20 $16.59 $18.06 $11.37 -- -- $17.37 -- -- $15.76
Number of Leases
Expiring....... -- -- 2 1 1 3 -- -- 1 -- -- 8
GOVERNOR PARK
PLAZA
Square Footage
of Leases
Expiring....... -- 10,977 6,629 -- 17,822 35,653 1,930 10,338 -- -- -- 83,349
Percentage of
Total Leased
Square Feet.... -- 13.17% 7.95% -- 21.38% 42.78% 2.32% 12.40% -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $165,018 $102,031 -- $281,142 $462,897 $27,792 $126,537 -- -- -- $1,165,417
Percentage of
Total
Annualized Base
Rent........... -- 14.16% 8.75% -- 24.12% 39.72% 2.38% 10.86% -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- $15.03 $16.02 -- $16.30 $15.19 $17.40 $15.49 -- -- -- $15.58
Number of Leases
Expiring....... -- 4 3 -- 2 2 1 1 -- -- -- 13
TORREYANNA
SCIENCE PARK
(2)
Square Footage
of Leases
Expiring....... -- -- -- -- -- -- -- -- -- -- 81,204 81,204
Percentage of
Total Leased
Square Feet.... -- -- -- -- -- -- -- -- -- -- 100% 100%
Annualized Base
Rent of
Expiring
Leases......... -- -- -- -- -- -- -- -- -- -- $686,400 $686,400
Percentage of
Total
Annualized Base
Rent........... -- -- -- -- -- -- -- -- -- -- 100% 100%
Average
Annualized Rent
PSF Expiring... -- -- -- -- -- -- -- -- -- -- $27.03 $27.03
Number of Leases
Expiring....... -- -- -- -- -- -- -- -- -- -- 1 1
VISTA SORRENTO
OFFICE
Square Footage
of Leases
Expiring....... -- -- -- -- -- -- 69,386 -- -- -- -- 69,386
Percentage of
Total Leased
Square Feet.... -- -- -- -- -- -- 100% -- -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- -- -- -- -- -- $999,158 -- -- -- -- $999,158
Percentage of
Total
Annualized Base
Rent........... -- -- -- -- -- -- 100% -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- -- -- -- -- -- $17.20 -- -- -- -- $17.20
Number of Leases
Expiring....... -- -- -- -- -- -- 1 -- -- -- -- 1
SHOREHAM
BUILDING
Square Footage
of Leases
Expiring....... -- 31,907 -- -- -- -- -- -- -- -- -- 31,907
Percentage of
Total Leased
Square Feet.... -- 100% -- -- -- -- -- -- -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $463,290 -- -- -- -- -- -- -- -- -- $463,290
Percentage of
Total
Annualized Base
Rent........... -- 100% -- -- -- -- -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- $14.52 -- -- -- -- -- -- -- -- -- $14.52
Number of Leases
Expiring....... -- 1 -- -- -- -- -- -- -- -- -- 1
UNIDEN BUILDING
Square Footage
of Leases
Expiring....... -- -- 28,119 -- -- -- -- -- -- -- -- 28,119
Percentage of
Total Leased
Square Feet.... -- -- 100% -- -- -- -- -- -- -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- -- $320,557 -- -- -- -- -- -- -- -- $320,557
Percentage of
Total
Annualized Base
Rent........... -- -- 100% -- -- -- -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring... -- -- $11.74 -- -- -- -- -- -- -- -- $11.74
Number of Leases
Expiring....... -- -- 2 -- -- -- -- -- -- -- -- 2
</TABLE>

83
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
----------------------------------------------------------------------------------------------------------
AFTER
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006 TOTAL
- -------- -------- -------- ------- -------- -------- -------- ---------- ---- ---- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARLSBAD
CORPORATE CENTER
Square Footage of
Leases
Expiring........ -- -- -- -- -- -- -- -- -- -- 125,000 125,000
Percentage of
Total Leased
Square Feet..... -- -- -- -- -- -- -- -- -- -- 100% 100%
Annualized Base
Rent of Expiring
Leases.......... -- -- -- -- -- -- -- -- -- -- $819,000 $819,000
Percentage of
Total Annualized
Base Rent....... -- -- -- -- -- -- -- -- -- -- 100% 100%
Average
Annualized Rent
PSF Expiring.... -- -- -- -- -- -- -- -- -- -- $15.91 $15.91
Number of Leases
Expiring........ -- -- -- -- -- -- -- -- -- -- 1 1
TOWER PLAZA
OFFICE
Square Footage of
Leases
Expiring........ 10,267 5,437 4,022 15,130 22,062 -- 6,703 -- -- -- -- 63,621
Percentage of
Total Leased
Square Feet..... 16.14% 8.55% 6.32% 23.78% 34.68% -- 10.54% -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases.......... $143,584 $87,636 $62,542 $224,193 $308,493 -- $92,556 -- -- -- -- $919,004
Percentage of
Total Annualized
Base Rent....... 15.62% 9.54% 6.81% 24.40% 33.57% -- 10.07% -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring.... $13.99 $16.26 $16.15 $16.05 $15.73 -- $16.78 -- -- -- -- $15.71
Number of Leases
Expiring........ 3 3 1 4 2 -- 1 -- -- -- -- 14
TOWER PLAZA PROFESSIONAL
CENTER
Square Footage of
Leases
Expiring........ 2,175 5,500 1,156 2,946 878 -- -- -- -- -- -- 12,655
Percentage of
Total Leased
Square Feet..... 17.19% 43.46% 9.13% 23.28% 6.94% -- -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases.......... $24,881 $53,076 $12,204 $28,569 $9,377 -- -- -- -- -- -- $128,107
Percentage of
Total Annualized
Base Rent....... 19.42% 41.43% 9.53% 22.30% 7.32% -- -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring.... $11.44 $9.65 $11.52 $10.50 $12.36 -- -- -- -- -- -- $10.51
Number of Leases
Expiring........ 2 8 1 3 1 -- -- -- -- -- -- 15
TOWER PLAZA
BUSINESS CENTER
Square Footage of
Leases
Expiring........ 588 7,139 -- -- -- -- -- -- -- -- -- 7,727
Percentage of
Total Leased
Square Feet..... 7.61% 92.39% -- -- -- -- -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases.......... $5,640 $64,695 -- -- -- -- -- -- -- -- -- $70,335
Percentage of
Total Annualized
Base Rent....... 8.02% 91.98% -- -- -- -- -- -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring.... $9.59 $10.49 -- -- -- -- -- -- -- -- -- $10.42
Number of Leases
Expiring........ 2 15 -- -- -- -- -- -- -- -- -- 17
LOS ANGELES AREA
5161 LANKERSHIM
Square Footage of
Leases
Expiring........ -- 15,800 -- 2,669 -- 11,768 98,802 -- -- -- -- 129,039
Percentage of
Total Leased
Square Feet..... -- 12.24% -- 2.07% -- 9.12% 76.57% -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases.......... -- $365,688 -- $68,469 -- $257,942 $2,240,832 -- -- -- -- $2,932,931
Percentage of
Total Annualized
Base Rent....... -- 12.47% -- 2.33% -- 8.79% 76.40% -- -- -- -- 100%
Average
Annualized Rent
PSF Expiring.... -- $23.14 -- $25.65 -- $21.92 $22.68 -- -- -- -- $22.73
Number of Leases
Expiring........ -- 1 -- 1 -- 1 1 -- -- -- -- 4
</TABLE>

84
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
------------------------------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006
- -------- -------- -------- ---------- -------- -------- -------- ------- ---------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
150 EAST
COLORADO
Square Footage
of Leases
Expiring....... -- 732 3,000 7,596 9,265 12,054 2,603 8,385 994 --
Percentage of
Total Leased
Square Feet.... -- 1.64% 6.72% 17.02% 20.76% 27.01% 5.83% 18.79% 2.23% --
Annualized Base
Rent of
Expiring
Leases......... -- $13,615 $45,000 $125,196 $115,000 $230,195 $48,416 $133,925 $17,304 --
Percentage of
Total
Annualized Base
Rent........... -- 1.87% 6.18% 17.18% 15.78% 31.59% 6.64% 18.38% 2.37% --
Average
Annualized Rent
PSF Expiring... -- $18.60 $15.00 $17.58 $18.38 $19.51 $19.20 $17.57 $17.41 --
Number of Leases
Expiring....... -- 1 1 4 3 2 1 1 1 --
1501 HUGHES WAY
Square Footage
of Leases
Expiring....... 300 -- -- -- 39,506 6,340 -- -- -- --
Percentage of
Total Leased
Square Feet.... 0.65% -- -- -- 85.61% 13.74% -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... $4,500 -- -- -- $474,072 $117,924 -- -- -- --
Percentage of
Total
Annualized Base
Rent........... 0.75% -- -- -- 79.48% 19.77% -- -- -- --
Average
Annualized Rent
PSF Expiring... $15.00 -- -- -- $12.00 $18.60 -- -- -- --
Number of Leases
Expiring....... 1 -- -- -- 1 1 -- -- -- --
3901 VIA ORO
Square Footage
of Leases
Expiring....... -- -- -- -- 5,279 -- -- -- -- --
Percentage of
Total Leased
Square Feet.... -- -- -- -- 100% -- -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... -- -- -- -- $70,950 -- -- -- -- --
Percentage of
Total
Annualized Base
Rent........... -- -- -- -- 100% -- -- -- -- --
Average
Annualized Rent
PSF Expiring... -- -- -- -- $15.24 -- -- -- -- --
Number of Leases
Expiring....... -- -- -- -- 1 -- -- -- -- --
600 CORPORATE
POINTE
Square Footage
of Leases
Expiring....... 18,624 12,372 72,855 5,052 7,929 23,233 -- 88,916 -- --
Percentage of
Total Leased
Square Feet.... 7.67% 5.09% 29.99% 2.08% 3.26% 9.57% -- 36.61% -- --
Annualized Base
Rent of
Expiring
Leases......... $352,732 $300,546 $1,192,988 $103,050 $141,859 $385,884 -- $1,618,201 -- --
Percentage of
Total
Annualized Base
Rent........... 8.13% 6.93% 27.50% 2.38% 3.27% 8.90% -- 37.30% -- --
Average
Annualized Rent
PSF Expiring... $18.94 $24.29 $16.63 $20.40 $17.89 $18.00 -- $20.89 -- --
Number of Leases
Expiring....... 2 2 5 2 2 5 -- 3 -- --
1919 SANTA
MONICA
Square Footage
of Leases
Expiring....... -- 23,127 3,664 -- 11,282 4,410 -- -- -- --
Percentage of
Total Leased
Square Feet.... -- 54.44% 8.62% -- 26.56% 10.38% -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... -- $424,612 $80,736 -- $284,306 $148,176 -- -- -- --
Percentage of
Total
Annualized Base
Rent........... -- 45.28% 8.61% -- 30.32% 15.80% -- -- -- --
Average
Annualized Rent
PSF Expiring... -- $18.36 $22.03 -- $26.40 $33.60 -- -- -- --
Number of Leases
Expiring....... -- 3 2 -- 1 1 -- -- -- --
CAMARILLO
BUSINESS CENTER
Square Footage
of Leases
Expiring....... 17,558 -- 16,420 28,062 5,405 54,305 -- -- -- --
Percentage of
Total Leased
Square Feet.... 14.42% -- 13.49% 23.05% 4.44% 44.60% -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... $259,156 -- $243,929 $375,900 $78,027 $685,454 -- -- -- --
Percentage of
Total
Annualized Base
Rent........... 15.78% -- 14.85% 22.89% 4.75% 41.73% -- -- -- --
Average
Annualized Rent
PSF Expiring... $14.76 -- $14.86 $14.63 $14.44 $17.62 -- -- -- --
Number of Leases
Expiring....... 1 -- 4 4 1 6 -- -- -- --
<CAPTION>

---------------------
AFTER
PROPERTY 2006 TOTAL
- -------- --------- -----------
<S> <C> <C>
150 EAST
COLORADO
Square Footage
of Leases
Expiring....... -- 44,629
Percentage of
Total Leased
Square Feet.... -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $728,651
Percentage of
Total
Annualized Base
Rent........... -- 100%
Average
Annualized Rent
PSF Expiring... -- $18.20
Number of Leases
Expiring....... -- 14
1501 HUGHES WAY
Square Footage
of Leases
Expiring....... -- 46,146
Percentage of
Total Leased
Square Feet.... -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $596,496
Percentage of
Total
Annualized Base
Rent........... -- 100%
Average
Annualized Rent
PSF Expiring... -- $12.93
Number of Leases
Expiring....... -- 3
3901 VIA ORO
Square Footage
of Leases
Expiring....... -- 5,279
Percentage of
Total Leased
Square Feet.... -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $70,950
Percentage of
Total
Annualized Base
Rent........... -- 100%
Average
Annualized Rent
PSF Expiring... -- $15.24
Number of Leases
Expiring....... -- 1
600 CORPORATE
POINTE
Square Footage
of Leases
Expiring....... 13,912 242,893
Percentage of
Total Leased
Square Feet.... 5.73% 100%
Annualized Base
Rent of
Expiring
Leases......... $242,520 $4,337,780
Percentage of
Total
Annualized Base
Rent........... 5.59% 100%
Average
Annualized Rent
PSF Expiring... $23.89 $19.42
Number of Leases
Expiring....... 1 22
1919 SANTA
MONICA
Square Footage
of Leases
Expiring....... -- 42,483
Percentage of
Total Leased
Square Feet.... -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $937,830
Percentage of
Total
Annualized Base
Rent........... -- 100%
Average
Annualized Rent
PSF Expiring... -- $22.39
Number of Leases
Expiring....... -- 7
CAMARILLO
BUSINESS CENTER
Square Footage
of Leases
Expiring....... -- 121,750
Percentage of
Total Leased
Square Feet.... -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- $1,642,466
Percentage of
Total
Annualized Base
Rent........... -- 100%
Average
Annualized Rent
PSF Expiring... -- $16.00
Number of Leases
Expiring....... -- 16
</TABLE>

85
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
---------------------------------------------------------------------------------------------------------------------
AFTER
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006 TOTAL
- -------- ------- -------- ---------- -------- -------- -------- -------- -------- -------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INLAND EMPIRE
AREA
CENTRELAKE
PLAZA Square
Footage
of Leases
Expiring..... 2,736 12,250 21,161 1,564 21,962 -- -- -- -- 6,227 -- 65,900
Percentage of
Total Leased
Square Feet.. 4.15% 18.59% 32.11% 2.37% 33.33% -- -- -- -- 9.45% -- 100%
Annualized
Base Rent
of Expiring
Leases....... $48,920 $204,761 $349,032 $30,029 $365,684 -- -- -- -- $100,877 -- $1,099,303
Percentage of
Total
Annualized
Base Rent.... 4.45% 18.63% 31.75% 2.73% 33.27% -- -- -- -- 9.18% -- 100%
Average
Annualized
Rent PSF
Expiring..... $17.88 $16.72 $16.49 $19.20 $16.65 -- -- -- -- $16.20 -- $16.68
Number of
Leases
Expiring..... 1 4 3 1 3 -- -- -- -- 1 -- 13
CHICAGO AVENUE
BUSINESS PARK
Square Footage
of Leases
Expiring..... -- 3,185 -- 8,810 8,501 3,603 12,123 -- -- -- -- 36,222
Percentage of
Total Leased
Square Feet.. -- 8.79% -- 24.32% 23.47% 9.95% 33.47% -- -- -- -- 100%
Annualized
Base Rent
of Expiring
Leases....... -- $38,220 -- $104,901 $96,911 $41,074 $204,893 -- -- -- -- $485,999
Percentage of
Total
Annualized
Base Rent.... -- 7.86% -- 21.58% 19.94% 8.45% 42.16% -- -- -- -- 100%
Average
Annualized
Rent PSF
Expiring..... -- $12.19 -- $13.13 $11.40 $12.83 $16.90 -- -- -- -- $13.87
Number of
Leases
Expiring..... -- 2 -- 1 1 1 1 -- -- -- -- 6
HDS PLAZA
Square
Footage of
Leases
Expiring..... -- 20,043 4,130 -- -- 10,939 -- 50,554 -- -- -- 85,666
Percentage
of Total
Leased
Square Feet.. -- 23.40% 4.82% -- -- 12.77% -- 59.01% -- -- -- 100%
Annualized
Base Rent
of Expiring
Leases....... -- $316,197 $65,016 -- -- $194,277 -- $791,665 -- -- -- $1,367,155
Percentage
of Total
Annualized
Base Rent.... -- 23.13% 4.76% -- -- 14.21% -- 57.91% -- -- -- 100%
Average
Annualized
Rent PSF
Expiring..... -- $15.78 $15.74 -- -- $17.76 -- $15.66 -- -- -- $15.96
Number of
Leases
Expiring..... -- 9 2 -- -- 1 -- 1 -- -- -- 13
HAVENGATE
Square
Footage of
Leases
Expiring..... 3,269 22,358 30.376 6,732 -- -- -- -- 11,962 -- -- 74,697
Percentage
of Total
Leased
Square Feet.. 4.38% 29.93% 40.67% 9.01% -- -- -- -- 16.01% -- -- 100%
Annualized
Base Rent
of Expiring
Leases....... $46,466 $343,075 $462,872 $98,547 -- -- -- -- $176,880 -- -- $1,127,840
Percentage
of Total
Annualized
Base Rent.... 4.12% 30.42% 41.04% 8.74% -- -- -- -- 15.68% -- -- 100%
Average
Annualized
Rent PSF
Expiring..... $14.21 $15.38 $16.25 $15.75 -- -- -- -- $18.11 -- -- $16.15
Number of
Leases
Expiring..... 2 4 3 2 -- -- -- -- 1 -- -- 12
INDUSTRIAL
PROPERTIES
ORANGE COUNTY
AREA
SAVI TECH
CENTER
Square
Footage of
Leases
Expiring..... -- -- 221,480 -- -- -- -- 119,966 -- -- -- 341,446
Percentage
of Total
Leased
Square Feet.. -- -- 64.87% -- -- -- -- 35.13% -- -- -- 100%
Annualized
Base Rent
of Expiring
Leases....... -- -- $1,671,208 -- -- -- -- $850,156 -- -- -- $2,521,364
Percentage
of Total
Annualized
Base Rent.... -- -- 66.28% -- -- -- -- 33.72% -- -- -- 100%
Average
Annualized
Rent PSF
Expiring..... -- -- $7.55 -- -- -- -- $9.33 -- -- -- $8.17
Number of
Leases
Expiring..... -- -- 3 -- -- -- -- 1 -- -- -- 4
</TABLE>

86
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
----------------------------------------------------------------------------------------------------
AFTER
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006 TOTAL
- -------- -------- -------- -------- -------- -------- -------- ------- ---- ---- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YORBA LINDA BUSINESS
CENTER
Square Footage of
Leases Expiring...... 23,496 81,337 23,376 21,602 1,060 -- -- -- -- -- -- 150,871
Percentage of Total
Leased Square Feet... 15.57% 53.91% 15.49% 14.32% 0.70% -- -- -- -- -- -- 100%
Annualized Base Rent
of Expiring Leases... $170,961 $562,314 $173,926 $143,251 $11,196 -- -- -- -- -- -- $1,061,648
Percentage of Total
Annualized Base
Rent................. 16.10% 52.97% 16.38% 13.49% 1.05% -- -- -- -- -- -- 100%
Average Annualized
Rent PSF Expiring.... $7.28 $6.72 $7.70 $7.02 $11.40 -- -- -- -- -- -- $7.00
Number of Leases
Expiring............. 7 23 15 9 1 -- -- -- -- -- -- 55
HUNTINGTON COMMERCE
CENTER
Square Footage of
Leases Expiring...... 2,527 29,496 13,613 7,176 2,527 8,260 -- -- -- -- -- 63,599
Percentage of Total
Leased Square Feet... 3.97% 46.38% 21.40% 11.28% 3.97% 12.99% -- -- -- -- -- 100%
Annualized Base Rent
of Expiring Leases... $19,711 $190,418 $88,011 $49,059 $16,678 $48,616 -- -- -- -- -- $412,493
Percentage of Total
Annualized Base
Rent................. 4.78% 46.16% 21.34% 11.89% 4.04% 11.79% -- -- -- -- -- 100%
Average Annualized
Rent PSF Expiring.... $7.80 $6.46 $6.52 $7.27 $7.08 $6.62 -- -- -- -- -- $6.66
Number of Leases
Expiring............. 1 9 5 2 1 1 -- -- -- -- -- 19
HUNTINGTON BEACH R & D
I
Square Footage of
Leases Expiring...... -- -- -- -- 17,400 -- 10,331 -- -- -- -- 27,731
Percentage of Total
Leased Square Feet... -- -- -- -- 62.75% -- 37.25% -- -- -- -- 100%
Annualized Base Rent
of Expiring Leases... -- -- -- -- $116,928 -- $71,904 -- -- -- -- $188,832
Percentage of Total
Annualized Base
Rent................. -- -- -- -- 61.92% -- 38.08% -- -- -- -- 100%
Average Annualized
Rent PSF Expiring.... -- -- -- -- $7.08 -- $6.96 -- -- -- -- $7.04
Number of Leases
Expiring............. -- -- -- -- 1 -- 1 -- -- -- -- 2
HUNTINGTON BEACH R & D
II
Square Footage of
Leases Expiring...... -- -- 11,968 -- -- -- -- -- -- -- -- 11,968
Percentage of Total
Leased Square Feet... -- -- 100% -- -- -- -- -- -- -- -- 100%
Annualized Base Rent
of Expiring Leases... -- -- $74,640 -- -- -- -- -- -- -- -- $74,640
Percentage of Total
Annualized Base
Rent................. -- -- 100% -- -- -- -- -- -- -- -- 100%
Average Annualized
Rent PSF Expiring.... -- -- $6.24 -- -- -- -- -- -- -- -- $6.24
Number of Leases
Expiring............. -- -- 1 -- -- -- -- -- -- -- -- 1
HUNTINGTON BEACH R & D
III
Square Footage of
Leases Expiring...... -- -- -- -- -- 21,568 -- -- -- -- -- 21,568
Percentage of Total
Leased Square Feet... -- -- -- -- -- 100% -- -- -- -- -- 100%
Annualized Base Rent
of Expiring Leases... -- -- -- -- -- $155,290 -- -- -- -- -- $155,290
Percentage of Total
Annualized Base
Rent................. -- -- -- -- -- 100% -- -- -- -- -- 100%
Average Annualized
Rent PSF Expiring.... -- -- -- -- -- $7.20 -- -- -- -- -- $7.20
Number of Leases
Expiring............. -- -- -- -- -- 1 -- -- -- -- -- 1
</TABLE>

87
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
--------------------------------------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005 2006 AFTER 2006 TOTAL
- -------- ------- -------- ------- -------- ------- -------- ---- ---- -------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAN DIEGO AREA
CYMER TECHNOLOGY CENTER
Square Footage of
Leases Expiring... -- -- -- -- -- -- -- -- -- -- 137,164 137,164
Percentage of Total
Leased Square
Feet.............. -- -- -- -- -- -- -- -- -- -- 100% 100%
Annualized Base
Rent of Expiring
Leases............ -- -- -- -- -- -- -- -- -- -- $1,695,908 $1,695,908
Percentage of Total
Annualized Base
Rent.............. -- -- -- -- -- -- -- -- -- -- 100% 100%
Average Annualized
Rent PSF
Expiring.......... -- -- -- -- -- -- -- -- -- -- $17.22 $17.22
Number of Leases
Expiring.......... -- -- -- -- -- -- -- -- -- -- 3 3
POWAY INDUSTRIAL
Square Footage of
Leases Expiring... -- -- -- -- -- -- -- -- 112,000 -- -- 112,000
Percentage of Total
Leased Square
Feet.............. -- -- -- -- -- -- -- -- 100% -- -- 100%
Annualized Base
Rent of Expiring
Leases............ -- -- -- -- -- -- -- -- $604,800 -- -- $604,800
Percentage of Total
Annualized Base
Rent.............. -- -- -- -- -- -- -- -- 100% -- -- 100%
Average Annualized
Rent PSF
Expiring.......... -- -- -- -- -- -- -- -- $6.00 -- -- $6.00
Number of Leases
Expiring.......... -- -- -- -- -- -- -- -- 1 -- -- 1
VIA FRONTERA
Square Footage of
Leases Expiring... -- 47,324 7,240 -- -- 15,120 -- -- -- -- -- 69,684
Percentage of Total
Leased Square
Feet.............. -- 67.91% 10.39% -- -- 21.70% -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases............ -- $364,920 $62,460 -- -- $101,640 -- -- -- -- -- $529,020
Percentage of Total
Annualized Base
Rent.............. -- 68.98% 11.81% -- -- 19.21% -- -- -- -- -- 100%
Average Annualized
Rent PSF
Expiring.......... -- $7.71 $8.79 -- -- $8.02 -- -- -- -- -- $7.89
Number of Leases
Expiring.......... -- 2 1 -- -- 1 -- -- -- -- -- 4
SCRIPPS RANCH
Square Footage of
Leases Expiring... -- -- -- -- 43,560 -- -- -- -- -- -- 43,560
Percentage of Total
Leased Square
Feet.............. -- -- -- -- 100% -- -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases............ -- -- -- -- 365,904 -- -- -- -- -- -- $365,904
Percentage of Total
Annualized Base
Rent.............. -- -- -- -- 100% -- -- -- -- -- -- 100%
Average Annualized
Rent PSF
Expiring.......... -- -- -- -- $8.40 -- -- -- -- -- -- $8.40
Number of Leases
Expiring.......... -- -- -- -- 1 -- -- -- -- -- -- 1
WESTRIDGE
Square Footage of
Leases Expiring... -- -- -- -- 8,795 40,055 -- -- -- -- -- 48,850
Percentage of Total
Leased Square
Feet.............. -- -- -- -- 18.00% 82.00% -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases............ -- -- -- -- $94,986 $289,588 -- -- -- -- -- $384,574
Percentage of Total
Annualized Base
Rent.............. -- -- -- -- 24.70% 75.30% -- -- -- -- -- 100%
Average Annualized
Rent PSF
Expiring.......... -- -- -- -- $12.12 $12.89 -- -- -- -- -- $12.75
Number of Leases
Expiring.......... -- -- -- -- 1 3 -- -- -- -- -- 4
HIGHLANDS I
Square Footage of
Leases Expiring... 1,694 7,880 3,197 12,664 -- -- -- -- -- -- -- 25,435
Percentage of Total
Leased Square
Feet.............. 6.66% 30.98% 12.57% 49.79% -- -- -- -- -- -- -- 100%
Annualized Base
Rent of Expiring
Leases............ $10,571 $63,300 $25,902 $116,472 -- -- -- -- -- -- -- $216,245
Percentage of Total
Annualized Base
Rent.............. 4.89% 29.27% 11.98% 53.86% -- -- -- -- -- -- -- 100%
Average Annualized
Rent PSF
Expiring.......... $6.24 $8.19 $8.67 $10.21 -- -- -- -- -- -- -- $9.13
Number of Leases
Expiring.......... 1 2 2 3 -- -- -- -- -- -- -- 8
</TABLE>

88
<PAGE>

<TABLE>
<CAPTION>
YEAR OF SCHEDULED LEASE EXPIRATION
-----------------------------------------------------------------------------------------------------------
PROPERTY 1997(1) 1998 1999 2000 2001 2002 2003 2004 2005
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGHLANDS II
Square Footage
of Leases
Expiring....... -- 5,076 7,640 6,059 3,789 -- -- -- --
Percentage of
Total Leased
Square Feet.... -- 15.45% 23.25% 18.44% 11.53% -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... -- $34,499 $45,038 $39,918 $35,376 -- -- -- --
Percentage of
Total
Annualized Base
Rent........... -- 9.38% 12.24% 10.85% 9.62% -- -- -- --
Average
Annualized Rent
PSF Expiring... -- $7.08 $6.30 $7.17 $10.92 -- -- -- --
Number of Leases
Expiring....... -- 3 3 3 1 -- -- -- --
INLAND EMPIRE
AREA
AIRPORT COMMERCE
CENTER
Square Footage
of Leases
Expiring....... 19,248 93,625 52,952 6.819 19,284 -- -- -- --
Percentage of
Total Leased
Square Feet.... 10.03% 48.78% 27.59% 3.55% 10.05% -- -- -- --
Annualized Base
Rent of
Expiring
Leases......... $94,125 $466,777 $250,562 $76,314 $188,223 -- -- -- --
Percentage of
Total
Annualized Base
Rent........... 8.75% 43.38% 23.29% 7.09% 17.49% -- -- -- --
Average
Annualized Rent
PSF Expiring... $4.89 $4.99 $4.83 $11.91 $10.46 -- -- -- --
Number of Leases
Expiring....... 5 19 11 2 4 -- -- -- --
HUNTER BUSINESS
CENTER
Square Footage
of Leases
Expiring....... -- 10,115 12,374 35,384 6,100 9,400 -- -- --
Percentage of
Total Leased
Square Feet.... -- 12.36% 15.13% 43.25% 7.46% 11.49% -- -- --
Annualized Base
Rent of
Expiring
Leases......... -- $46,964 $54,280 $186,842 $58,560 $92,096 -- -- --
Percentage of
Total
Annualized Base
Rent........... -- 9.94% 11.49% 39.55% 12.40% 19.49% -- -- --
Average
Annualized Rent
PSF Expiring... -- $4.64 $4.51 $5.81 $9.60 $11.24 -- -- --
Number of Leases
Expiring....... -- 2 1 5 1 1 -- -- --
RETAIL PROPERTY
SAN DIEGO AREA
TOWER PLAZA
RETAIL
Square Footage
of Leases
Expiring....... 1,777 8,725 6,590 9,751 -- 1,423 -- -- --
Percentage of
Total Leased
Square Feet.... 1.45% 7.11% 5.37% 7.95% -- 1.16% -- -- --
Annualized Base
Rent of
Expiring
Leases......... $18,099 $129,804 $68,916 $83,481 -- $18,524 -- -- --
Percentage of
Total
Annualized Base
Rent........... 1.61% 11.52% 6.12% 7.41% -- 1.64% -- -- --
Average
Annualized Rent
PSF Expiring... $10.19 $15.73 $11.03 $16.10 -- $20.04 -- -- --
Number of Leases
Expiring....... 2 7 3 4 -- 1 -- -- --
TOTALS/WEIGHTED AVERAGE
Square Footage
of Leases
Expiring....... 137,975 742,390 694,877 507,388 407,340 417,661 290,173 358,734 169,628
Percentage of
Total Leased
Square Feet.... 3.18% 17.09% 16.00% 11.68% 9.38% 9.61% 6.68% 8.26% 3.90%
Annualized Base
Rent of
Expiring
Leases......... $1,751,452 $9,937,148 $7,619,317 $7,046,951 $5,526,851 $5,701,617 $4,744,266 $4,638,725 $1,388,654
Percentage of
Total
Annualized Base
Rent........... 3.19% 18.08% 13.87% 12.82% 10.06% 10.38% 8.63% 8.44% 2.53%
Average
Annualized Rent
PSF Expiring... $12.69 $13.39 $10.96 $13.89 $13.57 $13.65 $16.35 $12.93 $8.19
Number of Leases
Expiring....... 40 173 104 81 56 51 11 9 4
<CAPTION>

------------------------
AFTER
PROPERTY 2006 2006 TOTAL
- -------- ----------- ----------- ------------
<S> <C> <C> <C>
HIGHLANDS II
Square Footage
of Leases
Expiring....... -- 10,299 32,863
Percentage of
Total Leased
Square Feet.... -- 31.34% 100%
Annualized Base
Rent of
Expiring
Leases......... -- $213,000 $367,831
Percentage of
Total
Annualized Base
Rent........... -- 57.91% 100%
Average
Annualized Rent
PSF Expiring... -- $17.13 $10.51
Number of Leases
Expiring....... -- 1 11
INLAND EMPIRE
AREA
AIRPORT COMMERCE
CENTER
Square Footage
of Leases
Expiring....... -- -- 191,928
Percentage of
Total Leased
Square Feet.... -- -- 100%
Annualized Base
Rent of
Expiring
Leases......... -- -- $1,076,001
Percentage of
Total
Annualized Base
Rent........... -- -- 100%
Average
Annualized Rent
PSF Expiring... -- -- $5.73
Number of Leases
Expiring....... -- -- 41
HUNTER BUSINESS
CENTER
Square Footage
of Leases
Expiring....... 8,432 -- 81,805
Percentage of
Total Leased
Square Feet.... 10.31% -- 100%
Annualized Base
Rent of
Expiring
Leases......... $33,671 -- $472,413
Percentage of
Total
Annualized Base
Rent........... 7.13% -- 100%
Average
Annualized Rent
PSF Expiring... $5.47 -- $6.34
Number of Leases
Expiring....... 1 -- 11
RETAIL PROPERTY
SAN DIEGO AREA
TOWER PLAZA
RETAIL
Square Footage
of Leases
Expiring....... 23,144 71,276 122,686
Percentage of
Total Leased
Square Feet.... 18.86% 58.10% 100%
Annualized Base
Rent of
Expiring
Leases......... $181,200 $626,423 $1,126,447
Percentage of
Total
Annualized Base
Rent........... 16.09% 55.61% 100%
Average
Annualized Rent
PSF Expiring... $11.61 $9.82 $11.27
Number of Leases
Expiring....... 3 4 24
TOTALS/WEIGHTED AVERAGE
Square Footage
of Leases
Expiring....... 139,128 478,907 4,344,201
Percentage of
Total Leased
Square Feet.... 3.20% 11.02% 100%
Annualized Base
Rent of
Expiring
Leases......... $1,531,648 $5,062,426 $54,949,055
Percentage of
Total
Annualized Base
Rent........... 2.79% 9.21% 100%
Average
Annualized Rent
PSF Expiring... $11.01 $10.57 $12.65
Number of Leases
Expiring....... 8 15 552
</TABLE>
- ------
(1) Includes expiration from September 30, 1997 through December 31, 1997.
(2) Contains two buildings, one of which is vacant.

89
<PAGE>

HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS--OFFICE PROPERTIES

The following table sets forth certain historical information regarding
Tenant Improvement ("TI") and Leasing Commission ("LC") costs incurred by the
Company at the Office Properties.

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS TOTAL/
ENDED YEAR ENDED ENDED WEIGHTED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997 AVERAGE
----------------- ----------------- ------------------ --------
<S> <C> <C> <C> <C>
RENEWALS
Number of Leases...... 3 10 12 25
Square Feet of
Renewals............. 10,532 19,425 46,169 76,126
TI per square foot.... $ 4.96 $ 6.36 $ 3.14 $ 4.21
LC per square foot.... $ 1.07 $ 3.21 $ 1.29 $ 1.75
------- -------- -------- --------
Total TI and LC per
square foot........ $ 6.03 $ 9.57 $ 4.43 $ 5.96
======= ======== ======== ========
RE-TENANTED SPACE
Number of Leases...... -- 6 14 20
Square Feet of Re-
tenanted Space....... -- 64,899 63,138 128,037
TI per square foot.... $ -- $ 5.13 $ 6.77 $ 5.94
LC per square foot.... $ -- $ 4.63 $ 3.90 $ 4.27
------- -------- -------- --------
Total TI and LC per
square foot........ $ -- $ 9.76 $ 10.67 $ 10.21
======= ======== ======== ========
INCREMENTAL SPACE
Number of Leases...... 17 19 42 78
Square Feet of
Incremental Space.... 42,144 164,863 234,590 441,597
TI per square foot.... $ 5.16 $ 21.03 $ 22.58 $ 20.34
LC per square foot.... $ 0.14 $ 6.56 $ 5.28 $ 5.27
------- -------- -------- --------
Total TI and LC per
square foot........ $ 5.30 $ 27.59 $ 27.86 $ 25.61
======= ======== ======== ========
TOTAL
Number of Leases...... 20 35 68 123
Square Feet........... 52,676 249,187 343,897 645,760
TI per square foot.... $ 5.12 $ 15.74 $ 17.07 $ 15.58
LC per square foot.... $ 0.33 $ 5.79 $ 4.49 $ 4.65
------- -------- -------- --------
Total TI and LC per
square foot........ $ 5.45 $ 21.53 $ 21.56 $ 20.23
======= ======== ======== ========
</TABLE>

90
<PAGE>

HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS--INDUSTRIAL AND R&D
PROPERTIES

The following table sets forth certain historical information regarding TI
and LC costs incurred by the Company at the Industrial and R&D Properties.

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS TOTAL/
ENDED YEAR ENDED ENDED WEIGHTED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997 AVERAGE
----------------- ----------------- ------------------ --------
<S> <C> <C> <C> <C>
RENEWALS
Number of Leases...... -- 6 4 10
Square Feet of
Renewals............. -- 20,184 6,159 26,343
TI per square foot.... $ -- $ 0.49 $ 0.15 $ 0.41
LC per square foot.... $ -- $ 0.55 $ 0.26 $ 0.49
------ ------- -------- --------
Total TI and LC per
square foot........ $ -- $ 1.04 $ 0.41 $ 0.90
====== ======= ======== ========
RE-TENANTED SPACE
Number of Leases...... -- 3 17 20
Square Feet of Re-
tenanted Space....... -- 5,048 66,604 71,652
TI per square foot.... $ -- $ 0.75 $ 3.50 $ 3.30
LC per square foot.... $ -- $ 0.93 $ 1.25 $ 1.23
------ ------- -------- --------
Total TI and LC per
square foot........ $ -- $ 1.68 $ 4.75 $ 4.53
====== ======= ======== ========
INCREMENTAL SPACE
Number of Leases...... 2 4 16 22
Square Feet of
Incremental Space.... 6,408 34,479 339,416 380,303
TI per square foot.... $ 1.23 $ 2.97 $ 6.78 $ 6.34
LC per square foot.... $ 0.94 $ 2.87 $ 3.94 $ 3.79
------ ------- -------- --------
Total TI and LC per
square foot........ $ 2.17 $ 5.84 $ 10.72 $ 10.13
====== ======= ======== ========
TOTAL
Number of Leases...... 2 13 37 52
Square Feet........... 6,408 59,711 412,179 478,298
TI per square foot.... $ 1.23 $ 1.95 $ 6.15 $ 5.56
LC per square foot.... $ 0.94 $ 1.92 $ 3.45 $ 3.23
------ ------- -------- --------
Total TI and LC per
square foot........ $ 2.17 $ 3.87 $ 9.60 $ 8.79
====== ======= ======== ========
</TABLE>

91
<PAGE>

HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS--RETAIL PROPERTY

The following table sets forth certain historical information regarding TI
and LC costs incurred by the Company at the Retail Property.

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS TOTAL/
ENDED YEAR ENDED ENDED WEIGHTED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997 AVERAGE
----------------- ----------------- ------------------ --------
<S> <C> <C> <C> <C>
RENEWALS
Number of Leases...... 1 1 3 5
Square Feet of
Renewals............. 3,170 600 31,597 35,367
TI per square foot.... $ -- $ -- $ 0.81 $ 0.73
LC per square foot.... $ -- $ 0.38 $ 1.58 $ 1.42
----- ------ ------ ------
Total TI and LC per
square foot........ $ -- $ 0.38 $ 2.39 $ 2.15
===== ====== ====== ======
RE-TENANTED SPACE
Number of Leases...... -- 2 1 3
Square Feet of Re-
tenanted Space....... -- 17,100 1,320 18,420
TI per square foot.... $ -- $ 1.69 $20.00 $ 3.00
LC per square foot.... $ -- $ 3.47 $10.50 $ 3.97
----- ------ ------ ------
Total TI and LC per
square foot........ $ -- $ 5.16 $30.50 $ 6.97
===== ====== ====== ======
INCREMENTAL SPACE
Number of Leases...... 2 2 -- 4
Square Feet of
Incremental Space.... 1,680 6,044 -- 7,724
TI per square foot.... $ -- $ 8.48 $ -- $ 6.64
LC per square foot.... $ -- $ -- $ -- $ 4.34
----- ------ ------ ------
Total TI and LC per
square foot........ $ -- $ 8.48 $ -- $10.98
===== ====== ====== ======
TOTAL
Number of Leases...... 3 5 4 12
Square Feet........... 4,850 23,744 32,917 61,511
TI per square foot.... $ -- $ 3.37 $ 1.58 $ 2.15
LC per square foot.... $ -- $ 3.92 $ 1.94 $ 2.55
----- ------ ------ ------
Total TI and LC per
square foot........ $ -- $ 7.29 $ 3.52 $ 4.70
===== ====== ====== ======
</TABLE>

92
<PAGE>

HISTORICAL CAPITAL EXPENDITURES

As set forth on the chart below, on an annualized basis, the Company spent
$13,440, $74,817 and $203,881 on capital expenditures in 1995, 1996 and 1997,
respectively, which on a per square foot basis over the entire portfolio of
Properties equals $0.02, $0.03 and $0.04, respectively. These historical
capital expenditures, however, were spent only on certain of the Properties,
and therefore, actual capital expenditures per square foot on properties where
the capital expenditures were incurred equaled $0.16, $0.12 and $0.17,
respectively. The following table summarizes information regarding the
Company's historical capital expenditures on properties where the capital
expenditures were incurred and for the entire portfolio:

<TABLE>
<CAPTION>
1995 1996 1997(1)
------- --------- ---------
<S> <C> <C> <C>
Capital Expenditures Incurred(2)................... $10,420 $55,153 $122,905
Annualized Capital Expenditures Incurred........... $13,440 $74,817 $203,881
Number of Properties where Capital Expenditures
Incurred.......................................... 3 7 12
Number of Square Feet where Capital Expenditures
Incurred.......................................... 83,970 615,965 1,184,698
Weighted Average Capital Expenditures per square
foot(3)........................................... $ 0.16 $ 0.12 $ 0.17
Three Year Weighted Average per square foot........ $ 0.16
Number of Properties--entire portfolio............. 13 29 48
Number of Square Feet--entire portfolio............ 542,168 2,536,583 5,016,533
Weighted Average Capital Expenditures per square
foot--entire portfolio(3)......................... $ 0.02 $ 0.03 $ 0.04
Three Year Weighted Average per square foot--entire
portfolio......................................... $ 0.04
</TABLE>
- --------
(1) Data is for the nine months ended September 30, 1997.
(2) Excludes revenue enhancing capital expenditures of $325,599, $994,655, and
$1,359,483 for 1995, 1996, and 1997, respectively.
(3) For those Properties owned less than a full year, the per square foot
amount is computed by annualizing the capital expenditures amount to a pro
forma full year cost.

COMPETITION

The Company will be competing with other owners and developers that have
greater resources and more experience than the Company. Additionally, the
number of competitive properties in any particular market in which the
Company's 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 access to the capital markets that
will be afforded to the Company as a public company to raise funds during
periods when conventional sources of financing may be unavailable or
prohibitively expensive will provide the Company with substantial competitive
advantages over private competitors. Further, the Company believes that 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 have resulted in a decrease in
the number of real estate development firms that are active in Southern
California.

INSURANCE

93
<PAGE>

Any such loss would adversely affect the Company. In addition, in light of the
California earthquake risk, California building codes since the early 1970s
established strict construction standards for all newly built and renovated
buildings, including office buildings. The current building code was adopted
in 1984. Of the 90 buildings contained on the 48 Properties, 47 buildings have
been built since January 1, 1985 and the Company believes that all of the
Properties were constructed in full compliance with the applicable standards
existing at the time of construction. No assurance can be given that material
losses in excess of insurance proceeds will not occur in the future.

ENVIRONMENTAL REGULATIONS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate property
may be required to investigate and clean up hazardous or toxic substances or
releases of petroleum products at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with
the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The costs of investigation,
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to properly remediate the contamination on
such property, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances at a disposal
or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs incurred in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site.

Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of ACM when such materials are in poor
condition or in the event of construction, remodeling, renovation or
demolition of a building. Such laws may impose liability for release of ACM
and may provide for third parties to seek recovery from owners or operators of
real properties for personal injury associated with ACM. In connection with
its ownership and operation of the Properties, the Company may be potentially
liable for such costs.

In connection with the acquisition of each property, independent
environmental consultants conducted or updated Phase I Environmental
Assessments ("Phase I Assessments") at the Properties. Moreover, within the
past 12 months, independent environmental consultants were retained to conduct
or update a majority of (i) the Phase I Assessments (which generally do not
involve invasive techniques such as soil or ground water sampling) and (ii)
the asbestos surveys on all of the Properties. In addition, some of the
Properties have been subject to a limited subsurface investigation. These
environmental assessments have not revealed any environmental conditions that
the Company believes will have a material adverse effect on its business,
assets or results of operations, and the Company is not aware of any other
environmental condition with respect to any of the Properties which the
Company believes would have such a material adverse effect.

No assurance can be given that the Phase I Assessments, the limited
subsurface investigations and updates identified all potential environmental
liabilities, that no prior owner created any material environmental condition
not known to the Company or the independent consultants preparing the
assessments, that no environmental liabilities may have developed since such
environmental assessments were prepared, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.

94
<PAGE>

as noted above. 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 or petroleum
products in connection with any of its present Properties, other than as noted
above.

LEGAL PROCEEDINGS

As a result of its acquisition of the Properties, the Company will become a
successor party-in-interest to certain legal proceedings arising in the
ordinary course of business of the Predecessor Entities. The Company does not
expect that these proceedings, in the aggregate, will have a material adverse
effect on the Company.

EMPLOYEES

Upon consummation of the Offering and the Formation Transactions, the
Company will employ approximately 50 persons.

THE CREDIT FACILITY

The Company is currently negotiating the terms of a $150 million unsecured
line of credit (the "Credit Facility"). The Company expects to enter into the
Credit Facility concurrently with the completion of the Offering. The Company
expects that the Credit Facility will be a recourse obligation of the
Operating Company and will be guaranteed by the Company. The Company intends
to use the Credit Facility principally to fund growth opportunities and for
working capital purposes.

95
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors of the Company will be expanded immediately following
consummation of the Offering to include the Director nominees named below,
each of whom has been nominated for election and consented to serve. Upon
election of the Director nominees, there will be a majority of Directors who
are not employees or affiliates of the Company. Pursuant to the Charter, the
Board of Directors is divided into three classes of Directors. The initial
terms of the first, second and third classes will expire in 1999, 2000 and
2001, respectively. Beginning in 1998, Directors of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of directors will be elected by the stockholders. The Company
believes that classification of the Board of Directors will help to assure the
continuity and stability of the Company's business strategies and policies as
determined by the Board of Directors. Holders of shares of Common Stock will
have no right to cumulative voting in the election of Directors. Consequently,
at each annual meeting of stockholders, the holders of a majority of the
shares of Common Stock will be able to elect all of the successors of the
class of Directors whose terms expire at that meeting.

The following table sets forth certain information with respect to the
Directors, Director nominees and executive officers of the Company immediately
following the consummation of the Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION TERM
- ---- --- -------- ----
<S> <C> <C> <C>
Phil A. Belling....... 38 Chairman and Chief Executive Officer
Steven R. Layton...... 38 President, Chief Operating Officer and Director
David C. Thomas....... 37 Executive Vice President, Director of Leasing
Steven R. Briggs...... 34 Executive Vice President, Portfolio Manager
Perry S. Schonfeld.... 39 Chief Financial Officer, Senior Vice President
and Operations Director
Thomas C. Rutherford.. 37 Controller
Marc L. Davidson...... 38 Director
Director Nominee
Director Nominee
Director Nominee
Director Nominee
</TABLE>

The following is a biographical summary of the experience of the directors,
director nominees and executive officers of the Company:

PHIL A. BELLING. Mr. Belling, co-founder of Layton-Belling & Associates, has
served as Chief Executive Officer and Chairman of the Board of the Company
since October 1997. From Layton-Belling & Associates' founding in 1991 to
October 1997, Mr. Belling has been responsible for overseeing the Company's
strategic business direction, including directing the Company's acquisition
and development activities. Mr. Belling has over 15 years of experience in
real estate acquisitions, dispositions, management, leasing and construction.
Prior to joining Layton-Belling & Associates, Mr. Belling was Senior Vice
President for the Southern California Division of The Koll Company where he
oversaw the company's development and entitlement activities in select
regions, as well as coordinated the marketing, master planning and development
strategies of various office properties. Mr. Belling holds finance and real
estate degrees from San Diego State University and is a member of the
Executive Committee of the U.C. Berkeley Fisher Center for Real Estate Policy
and Advisory Board, the National Association of Industrial and Office Parks,
and the Urban Land Institute.

STEVEN R. LAYTON. Mr. Layton, co-founder of Layton-Belling & Associates, has
served as President and Chief Operating Officer of the Company since October
1997. From Layton-Belling & Associates' founding in 1991 to October 1997, Mr.
Layton served as a Principal of Layton-Belling & Associates. In that capacity
he was responsible for overseeing the operations of all of Layton-Belling &
Associates' services and personnel as well as negotiating major investment and
lease transactions on behalf of Layton-Belling & Associates clients.

96
<PAGE>

Mr. Layton has been involved in the real estate industry for over 15 years,
specializing in all phases of the ownership and management process, including
asset management, receivership, disposition and financial reporting. Mr.
Layton has managed over 8.0 million square feet of office, industrial and
retail properties in connection with over 200 receivership and asset
management assignments for the Company. Prior to 1991, Mr. Layton was Senior
Vice President for the Southern California Division of The Koll Company where
he oversaw and coordinated 4.0 million square feet of development activity in
Orange and San Diego counties. Mr. Layton holds a B.A. degree in Economics and
Sociology from the University of California, Los Angeles and is a licensed
real estate broker, a former board member of the National Association of
Industrial and Office Parks and a member of the Urban Land Institute.

DAVID C. THOMAS. Mr. Thomas has served as an Executive Vice President,
Director of Leasing of the Company since October 1997. From October 1993 to
October 1997, Mr. Thomas served as a Principal of Layton-Belling & Associates.
In that capacity he was responsible for overseeing all operations in Layton-
Belling & Associates' San Diego office, including overseeing all acquisition
and disposition activities and all asset management and real estate brokerage
services. Mr. Thomas has been involved in the real estate industry for over 14
years, with experience in investment sales, tenant representation and
development and management services. Prior to October 1993, Mr. Thomas was
involved in the sale of office, industrial and retail properties and the
representation of numerous national tenants in major facility negotiations and
relocations in the San Diego area. Mr. Thomas holds a B.S. degree in Resource
Economics from the University of California at Berkeley, and is a licensed
real estate broker.

STEVEN R. BRIGGS. Mr. Briggs has served as an Executive Vice President,
Portfolio Manager of the Company since October 1997. From February 1992 to
October 1997, Mr. Briggs served as a Principal of Layton-Belling & Associates.
In that capacity he was actively involved in the coordination of day-to-day
asset management of Layton-Belling & Associates' investment and institutional
workout properties. Mr. Briggs has been involved in the real estate industry
for over 10 years, with experience in the development and management of
commercial and industrial properties throughout Southern California. Mr.
Briggs has been involved with asset management, leasing, stabilization, and
sales for the Company. Prior to February 1992, Mr. Briggs was Vice President
of Briggs Investment Properties in Irvine, where he directed development and
construction of numerous industrial, business park, and build-to-suit
projects. Mr. Briggs holds a degree from Arizona State University.

PERRY S. SCHONFELD. Mr. Schonfeld has served as Chief Financial Officer,
Senior Vice President and Operations Director of the Company since October
1997. From February to October 1997, Mr. Schonfeld served as Senior Vice
President of Finance/Operations of Layton-Belling & Associates. In that
capacity he was responsible for overseeing Layton-Belling & Associates'
property management services and operations for the entire Southern California
region. Mr. Schonfeld has been involved in the financial and real estate
industries for over 16 years. Prior to 1997, Mr. Schonfeld was an Associate
Director for Cushman & Wakefield of California, Inc., handling both portfolio
management and the coordination of overall operations for the company's
Pacific Southwest region. He also served as Director of Finance, Asset
Manager, and Senior Portfolio Manager during his tenure at Cushman &
Wakefield. Prior to joining Cushman & Wakefield, Mr. Schonfeld served as Chief
Financial Officer for a financial services firm and as an Audit Supervisor
with Coopers & Lybrand. Mr. Schonfeld holds a Masters in Business
Administration from University of California, Los Angeles, a B.S. degree in
Accounting from State University of New York at Buffalo, and is a Certified
Public Accountant.

THOMAS C. RUTHERFORD. Mr. Rutherford has served as Controller of the Company
since October 1997. From February 1993 to September 1997, Mr. Rutherford
served as Controller of Layton-Belling & Associates. In that capacity he was
responsible for the financial reporting and analysis of all Layton-Belling &
Associates properties. Mr. Rutherford has been involved in the real estate
industry for over 9 years, with experience in real estate accounting and
finance. Prior to February 1993, Mr. Rutherford served as Project Accountant
for The Koll Company and was responsible for financial accounting and analysis
for a number of office, retail and mixed-use properties. Mr. Rutherford has
also been associated with IDM corporation and Obayashi America

97
<PAGE>

Corporation where he was responsible for financial accounting and reporting
for commercial properties. Mr. Rutherford holds a B.A. degree in Accounting
from California State University, Long Beach.

MARC L. DAVIDSON. Mr. Davidson has served as a Director of the Company since
October 1997. Since 1995, Mr. Davidson has been employed as a Vice President
of AEW Capital Management, L.P., a real estate investment management firm. At
AEW, Mr. Davidson is responsible for assisting in the management for two of
AEW's high-yield investment partnerships, with responsibility for the
management of over $1 billion in client capital. Prior to joining AEW, Mr.
Davidson worked for five years at Coopers & Lybrand as a Senior Manager in the
Real Estate and Reorganization Groups, where his areas of expertise included
financial and feasibility analysis, systems and internal control development,
deal structuring and restructuring, investment analysis and evaluation. For
the previous ten years, he served as a financial officer at Winthrop
Management, The Linpro Company and Charter Development. A Certified Public
Accountant, Mr. Davidson is a graduate of Bentley College.

DIRECTOR NOMINEE.

DIRECTOR NOMINEE

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. Promptly following the consummation of the Offering, the
Board of Directors will establish an Audit Committee. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the scope and
results of the audit engagement, approve professional services 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. The Audit
Committee will initially consist of two or more non-employee directors.

Compensation Committee. Promptly following the consummation of the Offering,
the Board of Directors will establish a Compensation Committee to establish
remuneration levels for executive officers of the Company and implement the
Company's Equity Incentive Plan and any other incentive programs. The
Compensation Committee will initially consist of two or more non-employee
directors.

The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.

COMPENSATION OF DIRECTORS

The Company intends to pay its non-employee directors annual compensation of
$ for their services. In addition, non-employee directors will receive a
fee of $ for each Board of Directors meeting attended. Non-employee
directors attending any committee meetings will receive an additional fee of
$ for each committee meeting attended, unless the committee meeting is held
on the day of a meeting of the Board of Directors. Non-employee directors will
also be reimbursed for reasonable expenses incurred to attend director and
committee meetings. Officers of the Company who are directors will not be paid
any directors' fees. Non-employee directors will receive, upon initial
election to the Board of Directors, an option to purchase shares of Common
Stock which will vest over years.

98
<PAGE>

EXECUTIVE COMPENSATION

Prior to the Offering, the Company did not pay any compensation to its
officers. The following table sets forth the annual base salary rates and
other compensation expected to be paid in 1998 to the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers whose 1998 salary is expected to exceed $100,000 (the
"Named Executive Officers").

<TABLE>
<CAPTION>
1998 BASE OPTIONS
NAME TITLE SALARY RATE(1)(2) ALLOCATED(3)
- ---- ----- ----------------- ------------
<S> <C> <C> <C>
Phil A. Belling Chief Executive Officer and Chairman of the Board $ --
Steven R. Layton President and Chief Operating Officer --
David C. Thomas Executive Vice President, Director of Leasing --
Steven R. Briggs Executive Vice President, Portfolio Manager --
Perry S. Schonfeld Chief Financial Officer, Senior Vice President and
Operations Director --
</TABLE>
- --------
(1) Does not include non-cash compensation of $ , in the form of .
(2) For the week period in 1997 following the consummation of the Offering,
the Company paid compensation to the named Executive Officers at the same
rate as is expected to be paid in 1998.
(3) One [third] of these options will be exercisable on each of the [third,
fourth and fifth] anniversary of the date of grant.

EMPLOYMENT AGREEMENTS

Each of Messrs. Belling and Layton will enter into an employment and
noncompetition agreement with the Company (the "Employment Agreements").
Pursuant to the Employment Agreements, until the anniversary of the
Offering, Messrs. Belling and Layton will devote substantially all of their
business time to the business and affairs of the Company. Mr. Belling and Mr.
Layton will both receive an annual base salary of $ , and will be eligible
for bonus compensation, including stock options, to be determined in the
discretion of the Board of Directors. Mr. Belling's or Mr. Layton's employment
with the Company may be terminated for "cause" by the Company for: (i) gross
negligence or willful misconduct; (ii) an uncured breach of any of his
material duties under his Employment Agreement; (iii) fraud or other conduct
against the material best interests of the Company; or (iv) a conviction of a
felony if such conviction has a material adverse effect on the Company. Mr.
Belling or Mr. Layton may terminate his employment for "good reason," which
includes: (i) a substantial adverse change in the nature or scope of his
responsibilities and authority under his Employment Agreement or (ii) an
uncured breach by the Company of any of its material obligations under his
Employment Agreement. If Mr. Belling's or Mr. Layton's employment is
terminated by the Company "without cause" or by Mr. Belling or Mr. Layton for
"good reason," then Mr. Belling or Mr. Layton will be entitled to a severance
amount equal to the product of (x) his base salary plus prior year's bonus
multiplied by (y) the number of full and fractional years that the
noncompetition agreement described below is in effect (but in any event at
least one year's base salary plus prior year's bonus).

The Employment Agreements prohibit Messrs. Belling and Layton while they are
Directors or officers of the Company and for one year thereafter, but in any
event until the anniversary of the Offering, from (i) engaging, directly or
indirectly, in the acquisition, development, construction, operation,
management, or leasing of any commercial real estate property in Southern
California (except with respect to the Option Properties), (ii) intentionally
interfering with the Company's relationships with its tenants, suppliers,
contractors, lenders or employees or with any governmental agency or (iii)
soliciting the Company's tenants or employees. See "Business and Properties--
The Option Properties and the Development Parcel." Pursuant to the Employment
Agreements, however, Messrs. Belling and Layton may engage in minority
interest passive investments which include the acquisition, holding and
exercise of voting rights associated with investments made through (i) the
purchase of securities that represent a non-controlling, minority interest in
an entity or (ii) the lending of money, but without management of the property
or business to which such investment directly or indirectly relates and
without any business or strategic consultation with such entity. In addition,
Messrs. Belling and Layton may participate as officers or directors of any
charitable organization. The period

99
<PAGE>

that this noncompetition agreement is in effect may be terminated prematurely
by the Company which will reduce the severance amount payable to Messrs.
Belling and Layton. In addition, the agreement provides that the
noncompetition provision shall not apply if Mr. Belling's or Mr. Layton's
employment is terminated following certain changes of control of the Company;
in such event, the severance amount payable to Mr. Belling or Mr. Layton will
be determined by reference to the period of time that the noncompetition
provision would have been in effect in the absence of such a change of
control. See "Policies with Respect to Certain Activities--Conflict of
Interest Policies."

Messrs. Thomas, Briggs and Schonfeld will enter into employment agreements
similar to those of the Employment Agreements.

EQUITY INCENTIVE PLAN

Prior to the completion of the Offering, the Company will adopt the LBA
Properties, Inc. 1997 Equity Incentive Plan (the "Equity Incentive Plan") to
provide incentives to attract and retain executive officers, Directors,
employees and other key personnel. The Equity Incentive Plan will be
administered by the Compensation Committee. The maximum number of shares of
Common Stock available for issuance under the Equity Incentive Plan will be
.

Stock Options

The Equity Incentive Plan permits the granting of (i) options to purchase
Common Stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Code and (ii) options that do not so
qualify ("Non-Qualified Options"). The option exercise price of each option
will be determined by the Compensation Committee but may not be less than 100%
of the fair market value of the Common Stock on the date of grant. Plan
participants may elect, with the consent of the Committee, to receive
discounted Non-Qualified Options in lieu of cash compensation.

The term of each option will be fixed by the Committee and may not exceed
ten years from date of grant in the case of an Incentive Option. The Committee
will determine at what time or times each option may be exercised and, subject
to the provisions of the Plan, the period of time, if any, after retirement,
death, disability or termination of employment during which options may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.

Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of shares of Common
Stock already owned by the optionee or delivery of a promissory note. The
exercise price may also be delivered to the Company by a broker pursuant to
irrevocable instructions to the broker from the optionee.

At the discretion of the Committee, stock options granted under the Equity
Incentive Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock
equal to the number delivered to exercise the original stock option. The
purpose of this feature is to enable participants to maintain an equity
interest in the Company without dilution.

To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.

100
<PAGE>

Stock Options Granted to Non-employee Directors

The Plan provides for the automatic grant of Non-Qualified Options to non-
employee Directors. Each non-employee Director will receive, upon initial
election to the Board of Directors, a Non-Qualified Option to acquire
shares of Common Stock. Each non- employee Director who is serving as a
Director of the Company on the fifth business day after each annual meeting of
stockholders, beginning with the 1998 annual meeting, will automatically be
granted on such day a Non-Qualified Option to acquire shares of Common
Stock. The exercise price of each such Non-Qualified Option is the fair market
value of the Common Stock on the date of grant. The Committee may also grant
additional Non-Qualified Options to non- employee Directors.

Restricted Stock

The Committee may also award shares of Common Stock to participants, subject
to such conditions and restrictions as the Committee may determine. These
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with the Company through a specified
restricted period. If the performance goals and other restrictions are not
attained, the participants will forfeit their shares of restricted stock. The
purchase price of shares of restricted stock will be determined by the
Committee.

Unrestricted Stock

The Committee may also grant shares (at no cost or for a purchase price
determined by the Committee) which are free from any restrictions under the
Equity Incentive Plan. Shares of unrestricted stock may be issued to
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such participants.

Deferred Stock Units

The Committee may also award deferred stock units which are ultimately
payable in the form of shares of Unrestricted Stock. The deferred stock units
may be subject to such conditions and restrictions as the Committee may
determine. These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through
a specified restricted period. If the performance goals and other restrictions
are not attained, the participants will forfeit their shares of deferred stock
units. During the deferral period, subject to terms and conditions imposed by
the Committee, the deferred stock units may be credited with dividend
equivalent rights.

Performance Share Awards

The Committee may also grant performance share awards to participants
entitling the participants to receive shares of Common Stock upon the
achievement of individual or Company performance goals and such other
conditions as the Committee will determine.

Dividend Equivalent Rights

The Committee may grant dividend equivalent rights, which entitle the
recipient to receive credits for dividends that would be paid if the recipient
had held specified shares of Common Stock. Dividend equivalent rights may be
granted as a component of another award or as a freestanding award. Dividend
equivalent rights credited under the Equity Incentive Plan may be paid
currently or be deemed to be reinvested in additional shares of Common Stock,
which may thereafter accrue additional dividend equivalent rights at fair
market value at the time of deemed reinvestment. Dividend equivalent rights
may be settled in cash, shares, or a combination thereof, in a single
installment or installments, as specified in the award. Awards payable in cash
on a deferred basis may provide for crediting and payment of interest
equivalents.

Other Stock-Based Awards

The Committee may also grant awards of capital stock other than Common Stock
and other awards that are valued in whole or in part by reference to or are
otherwise based on, Common Stock, including, without

101
<PAGE>

limitation, convertible preferred stock, convertible debentures, exchangeable
securities, awards or options valued by reference to book value or subsidiary
performance. These awards may be subject to such conditions and restrictions
as the Committee may determine. These conditions and restrictions may include
the achievement of certain performance goals and/or continued employment with
the Company through a specified restricted period. If the performance goals
and other restrictions are not attained, the participants will forfeit their
awards.

Adjustments for Stock Dividends, Mergers, Etc.

The Committee will make appropriate adjustments in outstanding awards to
reflect stock dividends, stock splits and similar events. In the event of a
merger, liquidation, sale of the Company or similar event, the Committee, in
its discretion, may provide for substitution or adjustments of outstanding
awards, or may terminate all awards with payment of cash or in kind
consideration.

Change of Control

The Committee may provide in each award agreement that the award becomes
fully vested and non-forfeitable if, after a Change of Control of the Company
(as defined in the Equity Incentive Plan), the participant's employment is
terminated by the Company (or its successor) without cause, or if the
participant voluntarily resigns for "good reason" (as defined in the Equity
Incentive Plan).

Amendments and Termination

The Board of Directors may at any time amend or discontinue the Equity
Incentive Plan and the Committee may at any time amend or cancel outstanding
awards for the purpose of satisfying changes in the law or for any other
lawful purpose. However, no such action may be taken which adversely affects
any rights under outstanding awards without the holder's consent. Further,
Plan amendments shall be subject to approval by the Company's stockholders if
and to the extent required by the Code to preserve the qualified status of
Incentive Options or to preserve tax deductibility of compensation earned
under stock options.

New Plan Benefits

Approximately employees and non-employee Directors will be eligible to
participate in the Equity Incentive Plan upon completion of the Offering. The
table below shows the options that will be granted to employees and non-
employee Directors in connection with the Offering.

1997 EQUITY INCENTIVE PLAN

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
NAME AND POSITION STOCK OPTION(1)
----------------- ----------------
<S> <C>
Phil A. Belling.............................................
Chairman and Chief Executive Officer
Steven R. Layton............................................
President, Chief Operating Officer and Director
Other Employees.............................................
</TABLE>
- --------
(1) All options will be granted to the employees and the non-employee
Directors at the initial public offering price of $ . In general, one-
third of the options granted to officers and will be exercisable on each
of the third, fourth and fifth anniversary of the date of grant,
respectively. One-third of the options granted to employees who are not
officers will be exercisable on each of the first, second and third
anniversary of the date of grant, respectively. Other than the options
granted to Mr. as described above, one-half of the options granted
to non-employee directors will be exercisable on each of the first and
second anniversary date of grant, respectively.

102
<PAGE>

Tax Aspects Under the U.S. Internal Revenue Code

The following is a summary of the principal Federal income tax consequences
of option grants under the Equity Incentive Plan. It does not describe all
federal tax consequences under the Equity Incentive Plan, nor does it describe
state or local tax consequences.

Incentive Options

Under the Code, an employee will not realize taxable income by reason of the
grant or the exercise of an Incentive Option. If an employee exercises an
Incentive Option and does not dispose of the shares until the later of (a) two
years from the date the option was granted or (b) one year from the date the
shares were transferred to the employee, the entire gain, if any, realized
upon disposition of such shares will be taxable to the employee as long-term
capital gain, and the Company will not be entitled to any deduction. If an
employee disposes of the shares within such one-year or two-year period in a
manner so as to violate the holding period requirements (a "disqualifying
disposition"), the employee generally will realize ordinary income in the year
of disposition, and the Company generally will receive a corresponding
deduction, in an amount equal to the excess of (1) the lesser of (x) the
amount, if any, realized on the disposition and (y) the fair market value of
the shares on the date the option was exercised over (2) the option price. Any
additional gain realized on the disposition of the shares acquired upon
exercise of the option will be long-term or short-term capital gain and any
loss will be long-term or short-term capital loss depending upon the holding
period for such shares. The employee will be considered to have disposed of
his shares if he sells, exchanges, makes a gift of or transfers legal title to
the shares (except by pledge or by transfer on death). If the disposition of
shares is by gift and violates the holding period requirements, the amount of
the employee's ordinary income (and the Company's deduction) is equal to the
fair market value of the shares on the date of exercise less the option price.
If the disposition is by sale or exchange, the employee's tax basis will equal
the amount paid for the shares plus any ordinary income realized as a result
of the disqualifying distribution. The exercise of an Incentive Option may
subject the employee to the alternative minimum tax.

Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of his Incentive Option.

An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.

Non-Qualified Options

There are no federal income tax consequences to either the optionee or the
Company on the grant of a Non-Qualified Option. On the exercise of a Non-
Qualified Option, the optionee has taxable ordinary income equal to the excess
of the fair market value of the Common Stock received on the exercise date
over the option price of the shares. The optionee's tax basis for the shares
acquired upon exercise of a Non-Qualified Option is increased by the amount of
such taxable income. The Company will be entitled to a federal income tax
deduction in an amount equal to such excess. Upon the sale of the shares
acquired by exercise of a Non-Qualified Option, the optionee will realize
long-term or short-term capital gain or loss depending upon his or her holding
period for such shares.

Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.

401(K) PLAN

The Company intends to continue the LBA, Inc. 401(k) retirement plan, which
covers substantially all officers and employees of the Company. Under the
plan, participants are able to defer up to a maximum of 15% of their
compensation. The Company currently intends to continue the policy of making
contributions to the 401(k) plan, but such policy is subject to change at the
discretion of the Board of Directors.

103
<PAGE>

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's officers and Directors are and will be indemnified against
certain liabilities under Maryland law, the Charter and Bylaws and the
Operating Agreement. In addition, the Company expects to obtain director's and
officer's insurance on customary industry terms.

The Charter requires the Company to indemnify its directors and officers to
the fullest extent permitted from time to time under Maryland law. The Bylaws
require the Company to indemnify (a) any present or former director or officer
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his service in that
capacity, against reasonable expenses incurred by him in connection with the
proceeding and (b) any present or former director or officer against any claim
or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable
cause to believe that his act or omission was unlawful.

In addition, the Bylaws require the Company to pay or reimburse, in advance
of final disposition of a proceeding, reasonable expenses incurred by a
present or former director or officer made a party to a proceeding by reason
of his service as a director or officer provided that the Company shall have
received (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws and (b) a written
understanding by or on his behalf to repay the amount paid or reimbursed by
the Company if it shall ultimately be determined that the standard of conduct
was not met.

The Bylaws also (a) permit the Company to provide indemnification and
advance expenses to a present or former director or officer who served a
predecessor of the Company in such capacity, (b) provide that any
indemnification or payment or reimbursement of the expenses permitted by the
Bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418
of the Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations and (c) permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
Section 2-418 of the MGCL for directors of Maryland corporations.

The Operating Agreement also provides for indemnification of the Company and
its officers and Directors to the same extent indemnification is provided to
officers and Directors of the Company in the Charter and limits the liability
of the Company and its officers and Directors, and the Operating Company and
its members, to the same extent that the liability of officers and Directors
of the Company to the Company and its stockholders is limited under their
organizational documents.

104
<PAGE>

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the
Board of Directors without a vote of the stockholders, except that (i) the
Company cannot change its policy of holding its assets and conducting its
business only through the Operating Company and its affiliates without the
consent of the holders of [ ]% Units as provided in the Operating Agreement
and (ii) changes in certain policies with respect to conflicts of interest
must be consistent with legal requirements.

INVESTMENT POLICIES

Investment in Real Estate or Interests in Real Estate. The Company will
conduct all of its investment activities through the Operating Company and its
affiliates. The Company's investment objectives are to provide quarterly cash
distributions and achieve long-term capital appreciation through increases in
the value of the Company. For a discussion of the Properties and the Company's
acquisition and other strategic objectives, see "Business and Properties" and
"The Company--Business and Growth Strategies."

The Company expects to pursue its investment objectives primarily through
the direct ownership by the Operating Company of the Properties and other
acquired office and industrial properties. The Company currently intends to
invest in both existing improved properties and development projects. The
Company currently intends to invest in or develop commercial properties in
Southern California, but future investment or development activities will not
be limited to any geographic area or product type or to a specified percentage
of the Company's assets. While the Company intends to diversify in terms of
property locations, size and market, the Company does not have any limit on
the amount or percentage of its assets that may be invested in any one
property or any one geographic area. The Company intends to engage in such
future investment or development activities in a manner which is consistent
with the maintenance of its status as a REIT for federal income tax purposes.
In addition, the Company may purchase or lease income-producing commercial and
other types of properties for long-term investment, expand and improve the
real estate presently owned or other properties purchased, or sell such real
estate properties, in whole or in part, when circumstances warrant.

The Company may also participate with third parties in property ownership,
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly
restricting diversification and, therefore, add flexibility in structuring its
portfolio. The Company will not, however, enter into a joint venture or
partnership to make an investment that would not otherwise meet its investment
policies.

Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in
connection with acquiring or refinancing these investments. Debt service on
such financing or indebtedness will have a priority over any distributions
with respect to the Common Stock. Investments are also subject to the
Company's policy not to be treated as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act").

Investments in Real Estate Mortgages. While the Company's current portfolio
consists of, and the Company's business objectives emphasize, equity
investments in commercial real estate, the Company may, in the discretion of
the Board of Directors, invest in mortgages and other types of real estate
interests consistent with the Company's qualification as a REIT. The Company
does not presently intend to invest in mortgages or deeds of trust, but may
invest in participating or convertible mortgages if the Company concludes that
it may benefit from the cash flow or any appreciation in value of the
property. Investments in real estate mortgages run the risk that one or more
borrowers may default under such mortgages and that the collateral securing
such mortgages may not be sufficient to enable the Company to recoup its full
investment.

105
<PAGE>

Securities or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, the
Company also may invest in securities of other REITs, other entities engaged
in real estate activities or securities of other issuers, including for the
purpose of exercising control over such entities.

DISPOSITIONS

The Company may, from time to time, dispose of certain of the Properties or
other properties acquired by the Company if, based upon management's periodic
review of the Company's portfolio, the Board of Directors determines that
doing so would be in the best interests of the Company. Any decision to
dispose of a property will be made by the Company and approved by a majority
of the Board of Directors. The tax consequences of the disposition of the
Properties may, however, influence the decision of certain directors and
executive officers of the Company who hold Units as to the desirability of a
proposed disposition. See "--Conflict of Interest Policies," "Certain
Transactions" and "Operating Agreement--Tax Protection Provisions."

FINANCING POLICIES

As a general policy, the Company intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, the Company's
debt-to-total market capitalization ratio does not exceed 50%. Upon completion
of the Offering and the Formation Transactions, the debt-to-total market
capitalization ratio of the Company will be approximately % ( % if the
Underwriters' overallotment option is exercised in full). The Charter and
Bylaws do not, however, limit the amount or percentage of indebtedness that
the Company may incur. In addition, the Company may from time to time modify
its debt policy in light of current economic conditions, relative costs of
debt and equity capital, market values of its Properties, general conditions
in the market for debt and equity securities, fluctuations in the market price
of its Common Stock, growth and acquisition opportunities and other factors.
Accordingly, the Company may increase or decrease its debt-to-total market
capitalization ratio beyond the limits described above. If these policies were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on its obligations and a related increase in debt
service requirements that could adversely affect the financial condition and
results of operations of the Company and the Company's ability to make
distributions to stockholders.

The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred,
rather than relative to the book value of such assets, a ratio that is
frequently employed, because it believes that the book value of its assets
(which to a large extent is the depreciated value of real property, the
Company's primary tangible asset) does not accurately reflect its ability to
borrow and to meet debt service requirements. Total market capitalization,
however, is subject to greater fluctuation than book value, and does not
necessarily reflect the fair market value of the underlying assets of the
Company at all times. Moreover, due to fluctuations in the value of the
Company's portfolio of Properties over time, and since any measurement of the
Company's total consolidated indebtedness to total market capitalization is
made only at the time debt is incurred, the debt-to-total market
capitalization ratio could exceed the 50% level.

The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

Although the Company will consider 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 properties upon refinancing, and the ability of
particular properties and the Company as a whole to generate sufficient cash
flow to cover expected debt service), there can be no assurance that the debt-
to-total market capitalization ratio, or any other measure of asset value, at
the time the debt is incurred or at any other time will be consistent with any
particular level of distributions to stockholders. See "Risk Factors--No
Limitation on Debt," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

106
<PAGE>

CONFLICT OF INTEREST POLICIES

The Company has adopted certain policies and entered into agreements with
Messrs. Layton and Belling designed to eliminate or minimize potential
conflicts of interest. See "Management--Employment Agreements." The Company's
Board of Directors is subject to certain provisions of Maryland law, which are
designed to eliminate or minimize certain potential conflicts of interest.
However, there can be no assurance that these policies 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 stockholders.

Policies Applicable to All Directors. The Company has adopted a policy that,
without the approval of a majority of the non-employee Directors, it will not
(i) acquire from or sell to any director, officer or employee of the Company,
or any entity in which a director, officer or employee of the Company
beneficially owns more than a 1% interest, or acquire from or sell to any
affiliate of any of the foregoing, any of the assets or other property of the
Company, (ii) make any loan to or borrow from any of the foregoing persons or
(iii) engage in any other transaction with any of the foregoing persons.

Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities. In addition, under Maryland law,
a contract or other transaction between the Company and a Director or between
the Company and any other corporation or other entity in which a Director is a
director or has a material financial interest is not void or voidable solely
on the grounds of such common directorship or interest, the presence of the
Directors at the meeting at which the contract or transaction is authorized,
approved or ratified or the counting of the Director's vote in favor thereof
if (a) the transaction or contract is authorized, approved or ratified by the
board of directors or a committee of the board, after disclosure of the common
directorship or interest, by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less
than a quorum, or by a majority of the votes cast by disinterested
stockholders or (b) the transaction or contract is fair and reasonable to the
Company.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise
and may engage in such activities in the future. As described under "Operating
Agreement--Redemption of Units," the Company will issue Common Stock in
exchange for the Units held by AEW upon the exercise of its exchange rights,
and the Company expects (but is not obligated) to issue Common Stock to other
holders of Units upon exercise of their redemption rights. Except in
connection with the Formation Transactions, the Company has not issued Common
Stock, Units or any other securities in exchange for property or for any other
purpose, and the Board of Directors has no present intention of causing the
Company to repurchase any Common Stock. The Company may issue Preferred Stock
from time to time, in one or more series, as authorized by the Board of
Directors without the need for stockholder approval. See "Description of
Capital Stock of the Company--Preferred Stock." The Company has not engaged in
trading, underwriting or agency distribution or sale of securities of other
issuers other than the Operating Company, nor has the Company invested in the
securities of other issuers other than the Operating Company for the purposes
of exercising control, and does not intend to do so. At all times, the Company
intends to make investments in such a manner as to qualify as a REIT, unless
because of circumstances or changes in the Code (or the Treasury Regulations),
the Board of Directors determines that it is no longer in the best interest of
the Company to qualify as a REIT and such determination is approved by a two-
thirds vote of the Company's stockholders as required by the Charter. The
Company has not made any loans to third parties, although it may in the future
make loans to third parties, including, without limitation, to joint ventures
in which it participates. The Company intends to make investments in such a
way that it will not be treated as an investment company under the Investment
Company Act. The Company's policies with respect to such activities may be
reviewed and modified or amended from time to time by the Company's Board of
Directors without a vote of the stockholders.

107
<PAGE>

STRUCTURE AND FORMATION OF THE COMPANY

FORMATION TRANSACTIONS

Prior to or simultaneously with the consummation of the Offering, the
Participants will engage in the Formation Transactions described below, which
are designed to (i) consolidate the ownership of the Properties and the
commercial real estate business of the Company in the Operating Company, (ii)
facilitate the Offering, (iii) provide a vehicle for future acquisitions, (iv)
enable the Company to comply with certain requirements under the federal
income tax laws and regulations relating to REITs and (v) preserve certain tax
advantages for certain members of the Predecessor Entities and Participants.

. The Company is a newly-formed Maryland corporation that was incorporated
on October 6, 1997.

. One of the Predecessor Entities, AEW/LBA II, the owner of 25 of the
Properties and the Build-to-Suit Projects, will change its name to LBA
Properties, LLC and will serve as the Operating Company.

. Immediately prior to consummation of the Offering, LBA, Inc., a
California corporation owned by the Principals, will be merged with and
into the Company with Messrs. Layton, Belling, Briggs and Thomas
receiving , , and shares of Common Stock, respectively, in
connection with such merger.

. AEW/LBA II will distribute the Excluded Property, the Development Parcel
and two of the Option Properties to an entity owned jointly by AEW and
the Principals. The third Option Property will be distributed by AEW/LBA
II to a new entity which will be owned 75% by such affiliate of AEW and
25% by the Operating Company. The Company will retain options to
purchase the three Option Properties as well as the Development Parcel
and will enter into management agreements to manage the Option
Properties and the Excluded Property.

. The Company will sell shares of Common Stock in the Offering and
will purchase Units from AEW for $ in cash. The Company
will then contribute the remaining $ of net proceeds from the
Offering to the Operating Company in exchange for Units.

. Pursuant to one or more option, contribution or merger agreements, (i)
certain persons, both affiliated and not affiliated with the Company,
will contribute their direct and indirect interests in certain
Predecessor Entities to the Operating Company in exchange for Units, or
such Predecessor Entities will merge with and into the Operating Company
with the members of such Predecessor Entities receiving Units as merger
consideration and (ii) the Company will acquire the interest of CIGNA in
one of the Predecessor Entities for approximately $ in cash.

. The acquisition by the Operating Company of the Properties pursuant to
the Formation Transactions is subject to all of the terms and conditions
of the related option, contribution or merger agreements among the
Company, the Operating Company, the Predecessor Entities and the
Participants. These agreements contain customary representations and
warranties with respect to the ownership of the interests of the
Participants and the historical operation of the Properties.

. Prior to consummation of the Offering, the Company will contribute its
third-party property management and development business to the
Management Company, a newly-formed subsidiary of the Operating Company.
In order to retain qualification as a REIT, the Operating Company will
hold non-voting preferred stock of the Management Company (representing
95% of its economic value) and officers of the Management Company will
hold the common stock of the Management Company (representing 5% of its
economic value).

. The Company, through the Operating Company, expects to enter into the
proposed $150 million Credit Facility prior to or concurrently with the
completion of the foregoing Formation Transactions.

. Approximately $ million of the net proceeds of the Offering will be
used by the Operating Company to repay certain mortgage debt secured by
the Properties.

CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS

Upon completion of the Formation Transactions, the Company will own an
indirect fee interest in all of the Properties. The Operating Company will
hold substantially all of the assets of the Company. Based on the assumed
initial public offering price of the Common Stock, (i) the purchasers of
Common Stock in the Offering

108
<PAGE>

will own % of the outstanding Common Stock (or % assuming exchange of all
Units for shares of Common Stock), (ii) the Company will be the sole managing
member of the Operating Company and will own % of the interests in the
Operating Company and (iii) the Principals, AEW and the other Participants
will beneficially own, directly or indirectly through affiliates (not
including the Company), Units (representing a % membership interest in the
Operating Company) and % of the outstanding shares of Common Stock. Pursuant
to the operating agreement governing the Operating Company (the "Operating
Agreement"), AEW will have certain rights upon completion of the Offering to
exchange its Units for shares of Common Stock on a one-for-one basis, while
the other Participants receiving Units in the Formation Transactions will have
certain rights, beginning one year after the completion of the Offering, to
cause the Operating Company to redeem their Units for cash, or, at the
election of the Company, to exchange their Units for shares of Common Stock on
a one-for-one basis. See "Underwriting" for certain transfer restrictions
applicable to the Units held by the Principals and to shares of Common Stock
issued in exchange for such Units.

The aggregate estimated value to be paid by the Operating Company for the
Properties or for interests in the Predecessor Entities is approximately
$ million consisting of Units, cash and the assumption of indebtedness. The
aggregate book value of the interests and assets to be transferred to the
Company and the Operating Company is approximately $ million, of which
approximately $ constitutes the aggregate book value of the interests and
assets to be transferred to the Operating Company by .

No independent third-party appraisals, valuations or fairness opinions have
been obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the Units and cash
received by the Participants is equivalent to the fair market value of the
interests and assets acquired by the Company and contributed to the Operating
Company. See "Risk Factors--Price to be Paid for Properties; Common Stock and
Other Assets May Exceed Their Fair Market Value."

DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS

The Company's percentage interest in the Operating Company will be
determined based upon the percentage of estimated cash available for
distribution required to pay expected cash distributions on the shares of
Common Stock to be issued in the Offering resulting in an annual distribution
rate, assuming one annual distribution period, equal to % of the initial
public offering price of the Common Stock. The remaining interest in the
Operating Company will be allocated to the Participants receiving Units in the
Formation Transactions. The parameters and assumptions used in deriving the
estimated cash available for distribution are described under "Distributions."

The Company did not obtain appraisals with respect to the market value of
any of the assets that the Company will own immediately after the consummation
of the Offering and the completion of the Formation Transactions or an opinion
as to the fairness of the allocation of shares to the purchasers in the
Offering. The initial public offering price of the Company has been determined
based primarily upon the estimated cash available for distribution of the
Company and the factors discussed under "Underwriting," rather than a
property-by-property valuation based on historical cost, book value or current
market value. This methodology has been used because management believes it is
appropriate to value the Company as an ongoing business rather than with a
view to values that could be obtained from a liquidation of the Company or of
individual properties owned by the Company. See "Underwriting."

BENEFITS TO RELATED PARTIES

Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions, including the following:

109
<PAGE>

Stock, in exchange for their interests in the Predecessor Entities. The
book value of the interests transferred to the Company by the Principals
and other officers of the Company is approximately $ million.
. Upon completion of the Formation Transactions, AEW will (i) become
beneficial owners of an aggregate of Units, with a total value of
approximately $ million based on the assumed initial public offering
price of the Common Stock and (ii) receive approximately $ million in
cash. The book value of the interests transferred to the Company by AEW
is approximately $ million.
. The shares of Common Stock and Units that the Participants will own will
be more liquid after restrictions on transfer expire than the
Participants' current interests in the Predecessor Entities.
. Approximately $ million of indebtedness secured by the Properties,
and the related additional and accrued interest thereon, to be assumed
by the Operating Company will be repaid in the Formation Transactions.
. The Principals will serve as directors and officers of the Company and
will enter into employment agreements providing for annual salaries,
bonuses, severance packages, participation in the Company's Equity
Incentive Plan and other benefits for their services.
. Mr. Davidson, an officer of AEW, will serve as a Director of the
Company.
. The Principals and others receiving shares of Common Stock and Units in
connection with the Formation Transactions will have registration right
with respect to shares of Common Stock which may be issued in exchange
for Units.

Additional information regarding these and certain other benefits to be
received by affiliates of the Company in connection with the Formation
Transactions is set forth under "Management--Employment Agreements." See "Risk
Factors--Influence of Executive Officers, Directors and Principal
Stockholders" and "Certain Transactions."

RESTRICTIONS ON TRANSFER

Under the Operating Agreement, the Participants are prohibited from
transferring their Units, except under certain limited circumstances, for a
period of one year. In addition, the Principals and the other senior officers
of the Company who will receive Units and/or shares of Common Stock in
connection with the Formation Transactions agreed not to sell any shares of
Common Stock, owned at the consummation of the Offering or acquired upon
exchange of Units, for a period of two years after the consummation of the
Offering without the consent of Lehman Brothers Inc., and AEW has agreed not
to sell any shares of Common Stock, owned by it at the consummation of the
Offering or acquired upon exchange of Units, for a period of one year after
the consummation of the Offering without the consent of Lehman Brothers Inc.
See "Operating Agreement--Transfer of Units; Substitute Members" and
"Underwriting."

RESTRICTIONS ON OWNERSHIP OF COMMON STOCK

Because of limitations on the concentration of ownership of stock of a REIT
imposed by the Code, the Company's Charter imposes the Ownership Limit and the
Look-Through Ownership Limit on all stockholders. See "Description of Capital
Stock of the Company--Restrictions on Transfer." Under the Ownership Limit,
actual or constructive ownership of the outstanding shares of Common Stock by
any single stockholder or group of stockholders is limited to 9.9% of the
total of the then outstanding shares of Common Stock. Certain "Look-Through
Entities" (as defined in "Description of the Capital Stock of the Company--
Restrictions on Transfer") are not subject to the Ownership Limit, however,
and are instead subject to the Look-Through Ownership Limit, pursuant to which
they may actually and beneficially own up to 15% of the total outstanding
shares of Common Stock. See "Risk Factors--Limits on Changes in Control" and
"Description of Capital Stock of the Company--Restrictions on Transfer."

110
<PAGE>

CERTAIN TRANSACTIONS

THE OPTION PROPERTIES

The Principals and an affiliate of AEW will own two of the Option
Properties, the Development Parcel and the Excluded Property following
consummation of the Offering. See "Structure and Formation of the Company" and
"Business and Properties--The Option Properties and the Development Parcel."

THE EXCLUDED PROPERTY

The Principals and an affiliate of AEW will own the Excluded Property
following consummation of the Offering. The Company will have an agreement to
manage the Excluded Property for a period of not less than 12 months, but the
Company will not have an option to acquire the Excluded Property.

111
<PAGE>

PRINCIPAL AND MANAGEMENT STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock (including Common Stock that may be issued in
exchange for Units presented for redemption) by each Director and Director
nominee, by each Named Executive Officer, by all Directors (including Director
nominees) and executive officers of the Company as a group and by each person
who is expected to be the beneficial owner of 5% or more of the outstanding
shares of Common Stock immediately following the completion of the Offering.
Except as indicated below, all of such Common Stock is owned directly, and the
indicated person has sole voting and investment power.

<TABLE>
<CAPTION>
NUMBER OF
SHARES AND
UNITS PERCENTAGE OF PERCENTAGE
BENEFICIALLY ALL COMMON OF ALL
OWNED AFTER STOCK AND COMMON
NAME OF BENEFICIAL OWNER THE OFFERING UNITS STOCK(1)
- ------------------------ ------------ ------------- ----------
<S> <C> <C> <C>
Eastrich No. 162, LLC(2)................. -- --% --%
Phil A. Belling.......................... (3) --% --%
Steven R. Layton......................... (4) --% --%
David C. Thomas.......................... -- --% --%
Steven R. Briggs......................... -- --% --%
Perry S. Schonfeld....................... -- --% --%
Thomas C. Rutherford..................... -- --% --%
Marc L. Davidson(2)...................... -- --% --%
Director Nominee.........................
Director Nominee.........................
Director Nominee.........................
Director Nominee.........................
Director Nominee.........................
--- --- ---
All Directors and executives officers as
a group ( persons)..................... -- --% --%
=== === ===
</TABLE>
- --------
* Less than 1%
(1) Assumes that all Units held by the person are presented to the Operating
Company for redemption and acquired by the Company for shares of Common
Stock. The total number of shares of Common Stock outstanding used in
calculating the percentage assumes that none of the Units held by other
persons are similarly acquired for Common Stock.
(2) Address: c/o AEW/LBA Acquisition Co. II, LLC, 601 S. Figueroa Street, Los
Angeles, CA 90071.
(3) Excludes shares of Common Stock issuable upon the exercise of options to
be granted under the Equity Incentive Plan in connection with the
Offering, which vest in equal installments on each of the first three
anniversaries of the date of the grant.
(4) Excludes shares of Common Stock issuable upon the exercise of options to
be granted under the Equity Incentive Plan in connection with the
Offering, which vest in equal installments on each of the first three
anniversaries of the date of the grant.

112
<PAGE>

DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

The description of the Company's capital stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Charter and Bylaws, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."

GENERAL

Under the Charter, the Company has authority to issue up to million
shares of stock, consisting of million shares of Common Stock, par value
$.0l per share, million shares of excess stock, par value $.01 per share
("Excess Stock") (as described below), and million shares of Preferred
Stock, par value $.0l per share. Under Maryland law, stockholders generally
are not responsible for the corporation's debts or obligations. Upon
completion of the Offering and the Formation Transactions, there will be
shares of Common Stock issued and outstanding ( shares if the Underwriters'
overallotment option is exercised in full), including shares issued in
connection with the Formation Transactions but excluding shares that may be
issued upon the redemption of outstanding Units, and no Preferred Stock will
be issued or outstanding.

The Charter authorizes the Directors to classify or reclassify any unissued
shares of capital stock by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions,
qualifications or terms or conditions of redemption of such stock.

COMMON STOCK

All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other shares
or series of shares and to the provisions of the Company's Charter regarding
Excess Shares, holders of Common Stock will be entitled to receive dividends
on Common Stock if, as and when authorized and declared by the Board of
Directors of the Company out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company intends to pay quarterly dividends beginning with a
dividend for the period ending December 31, 1997. See "Distributions."

Subject to the provisions of the Company's Charter regarding Excess Stock,
each outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares, the holders of Common Stock
will possess exclusive voting power. There is no cumulative voting in the
election of Directors, which means that the holders of a majority of the
outstanding Common Stock can elect all of the Directors then standing for
election, and the holders of the remaining Common Stock will not be able to
elect any Director.

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

The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.

Subject to the provisions of the Company's Charter regarding Excess Stock,
all Common Stock will have equal dividend, distribution, liquidation and other
rights, and will have no preference, appraisal or exchange rights.

Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in simultaneous actions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the

113
<PAGE>

shares entitled to vote on the matter, unless a lesser percentage (but not
less than a majority of all of the votes to be cast on the matter) is set
forth in the corporation's Charter. The Company's Charter does not provide for
a lesser percentage in such situations, except that the Charter may be amended
upon an affirmative vote of a majority of the stockholders after Board
approval of the amendment. See "Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws." In addition, the Operating Agreement provides
that the Operating Company may not sell, transfer or otherwise dispose of all
or substantially all of its assets or engage in any other similar transaction
(regardless of the form of such transaction) without the consent of the
holders of 50% of all outstanding Units (including the Company).

PREFERRED STOCK

Preferred Stock may be issued from time to time, in one or more series, as
authorized by the Board of Directors. Prior to issuance of shares of each
series, the Board of Directors is required by the MGCL and the Company's
Charter to fix for each series, subject to the provisions of the Company's
Charter regarding Excess Stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. Such rights, powers, restrictions and limitations
could include the right to receive specified dividend payments and payments on
liquidation prior to any such payments being made to the holders of some, or a
majority, of the Common Stock. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions that could have the
effect of discouraging a takeover or other transaction that holders of Common
Stock might believe to be in their best interests or in which holders of some,
or a majority, of the Common Stock might receive a premium for their shares
over the then current market price of such shares. As of the date hereof, no
shares of Preferred Stock are outstanding, and the Company has no present
plans to issue any Preferred Stock. See "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws."

RESTRICTIONS ON TRANSFER

In order for the Company to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer Requirement"), and such shares
of capital stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months (other than the first year) or
during a proportionate part of a shorter taxable year (the "100 Stockholder
Requirement"). See "Federal Income Tax Consequences." In order to protect the
Company against the risk of losing its status as a REIT and to otherwise
protect the Company from the consequences of a concentration of ownership
among its stockholders, the Charter, subject to certain exceptions, provides
that no single person (which includes any "group" of persons) (other than
"Look-Through Entities," as defined below), may "beneficially own" more than
9.9% of the aggregate number of the outstanding shares of any class or series
of capital stock. Under the Charter, a person generally "beneficially owns"
shares if (i) such person has direct ownership of such shares or (ii) such
person has indirect ownership of such shares taking into account the
constructive ownership rules of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code or (iii) such person would be deemed to
"beneficially own" such shares pursuant to Rule 13d-3 under the Exchange Act
of 1934, as amended (the "Exchange Act"). The Charter provides that any entity
that is not treated as a holder of stock under the Five or Fewer Requirement
("Look-Through Entities") is subject to a limit of 15.0% of the aggregate
number of the outstanding shares of any class or series of capital stock (the
"Look-Through Ownership Limit").

Any transfer of shares of capital stock or of any security convertible into
shares of capital stock that would create a direct or indirect ownership of
shares of capital stock in excess of the Ownership Limit or the Look-Through
Ownership Limit, as applicable, or that would result in the disqualification
of the Company as a REIT, including any transfer that results in the shares of
capital stock being owned by fewer than 100 persons or results in the Company
being "closely held" within the meaning of Section 856(h) of the Code or
results in the Company constructively owning 10% or more of the ownership
interests in a tenant of the Company within the meaning of Section 318 of the
Code as modified by Section 856(d)(5) of the Code, shall be null and void, and

114
<PAGE>

the intended transferee will acquire no rights to the shares of capital stock.
The foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
The Board of Directors may, in its sole discretion by vote of 75% of the
Directors, waive the Ownership Limit or the Look-Through Ownership Limit if
evidence, in the form of either a ruling from the IRS or an opinion of
counsel, satisfactory to the Board of Directors is presented that the changes
in ownership will not jeopardize the Company's REIT status and the Board of
Directors otherwise decides that such action is in the best interest of the
Company.

If any purported transfer of capital stock of the Company or any other event
would otherwise result in any person violating the Ownership Limit or the
Look-Through Ownership Limit, as applicable, or the Charter, 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 applicable Limit and the Prohibited Transferee shall acquire
no right or interest (or, in the case of any event other than a purported
transfer, the person or entity holding record title to any such shares in
excess of the applicable Limit (the "Prohibited Owner") shall cease to own any
right or interest) in such excess shares. Any such excess shares described
above will be converted automatically into an equal number of shares of Excess
Stock (the "Excess Shares") and transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by the Company (the "Beneficiary"). Such automatic
transfer shall be deemed to be effective as of the close of business on the
Trading Day (as defined in the Charter) prior to the date of such violative
transfer. As soon as practical after the transfer of shares to the trust, the
trustee of the trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner) will be required to sell such Excess Shares to a person or entity who
could own such shares without violating the applicable Limit, and distribute
to the Prohibited Transferee an amount equal to the lesser of the price paid
by the Prohibited Transferee for such Excess Shares or the sales proceeds
received by the trust for such Excess Shares. In the case of any Excess Shares
resulting from 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
Excess Shares to a qualified person or entity and distribute to the Prohibited
Owner an amount equal to the lesser of the fair market value of such Excess
Shares as of the date of such event or the sales proceeds received by the
trust for such Excess Shares. In either case, any proceeds in excess of the
amount distributable to the Prohibited Transferee or Prohibited Owner, as
applicable, will be distributed to the Beneficiary. Prior to a sale of any
such Excess Shares by the 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 Excess Shares.

In addition, shares of stock of the Company held in the 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 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.
Upon such a sale to the Company, the interest of the Beneficiary in the shares
sold shall terminate and the trustee shall distribute the net proceeds of the
sale to the Prohibited Owner.

The above restrictions will not preclude settlement of transactions through
the NYSE.

Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock as the Board of Directors deems necessary to comply
with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine
any such compliance.

The Ownership Limit and the Look-Through Ownership Limit may have the effect
of precluding acquisition of control of the Company. See "Risk Factors--Limits
on Changes in Control--Limits on Ownership of Common Stock."

115
<PAGE>

OPERATING AGREEMENT

The following summary of the Operating Agreement, including the descriptions
of certain provisions thereof set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Operating Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.

MANAGEMENT

One of the Predecessor Entities, AEW/LBA II, a California limited liability
company and the owner of 25 of the Properties will serve as the Operating
Company. The Company will be the sole managing member of, and will hold
approximately % of the outstanding Units of, the Operating Company. The
Company will conduct substantially all of its business through the Operating
Company and its subsidiaries, including the Management Company.

Pursuant to the Operating Agreement, the Company, as the sole managing
member of the Operating Company, will have full, exclusive and complete
responsibility and discretion in the management, operation and control of the
Operating Company, including the ability to cause the Operating Company to
enter into certain major transactions, including acquisitions, developments
and dispositions of properties and refinancings of existing indebtedness. No
other member may take part in the operation, management or control of the
business of the Operating Company by virtue of being a holder of Units.

The Operating Agreement provides that substantially all business activities
of the Company, including all activities pertaining to the acquisition and
operation of properties, must be conducted through the Operating Company, and
that the Operating Company 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 tax liability.

REMOVAL OF THE MANAGING MEMBER; TRANSFER OF THE MANAGING MEMBER'S INTEREST

The Operating Agreement provides that the members other than the Company may
not remove the Company as managing member of the Operating Company. The
Company may not transfer any of its Units except (i) in connection with a
merger or sale of all or substantially all of its assets pursuant to a
transaction for which it has obtained the requisite approval in accordance
with the terms of the Operating Agreement or (ii) to an affiliate of the
Company.

AMENDMENTS OF THE OPERATING AGREEMENT

Amendments to the Operating Agreement may be proposed by the Company or by
any other member owning at least % of the Units.

Generally, the Operating Agreement may be amended with the approval of the
Company, as managing member, and members (including the Company) holding a
majority of the Units. Certain amendments that would, among other things,
convert a member's interest into a managing member's interest, modify the
limited liability of a member, alter the interest of a member in profits or
losses or the right to receive any distributions, alter or modify the
redemption right described above, or cause the termination of the Operating
Company at a time or on terms inconsistent with those set forth in the
Operating Agreement must be approved by the Company and each member that would
be adversely affected by such amendment. Notwithstanding the foregoing, the
Company, as managing member, will have the power, without the consent of the
other members, to amend the Operating Agreement as may be required to (i) add
to the obligations of the Company as managing member or surrender any right or
power granted to the Company as managing member; (ii) reflect the admission,
substitution, termination or withdrawal of partners in accordance with the
terms of the Operating Agreement; (iii) establish the rights, powers, duties
and preferences of any additional membership interests issued in accordance
with the terms of the Operating Agreement; (iv) reflect a change of an
inconsequential nature that does not materially adversely affect the members,
or cure any ambiguity, correct or supplement any provisions of the Operating

116
<PAGE>

Agreement not inconsistent with law or with other provisions of the Operating
Agreement, or make other changes concerning matters under the Operating
Agreement that are not otherwise inconsistent with the Operating Agreement or
law or (v) satisfy any requirements of federal or state law. Certain
provisions affecting the rights and duties of the Company as managing member
(e.g., restrictions on the Company's power to conduct businesses other than
owning Units; restrictions relating to the issuance of securities of the
Company and related capital contributions to the Operating Company and
restrictions relating to certain extraordinary transactions involving the
Company or the Operating Company) may not be amended without the approval of a
majority or, in certain instances, a supermajority of the Units not held by
the Company.

TRANSFER OF UNITS; SUBSTITUTE MEMBERS

The Operating Agreement provides that members generally may transfer their
Units without the consent of any other person, but may substitute a transferee
as a member only with the prior written consent of the Company as the sole
managing member of the Operating Company. In addition, members may not
transfer Units in any event until the one-year anniversary of the Offering or
in violation of certain regulatory and other restrictions set forth in the
Operating Agreement.

REDEMPTION OF UNITS

AEW will have the right, immediately upon consummation of the Offering, to
exchange its Units for shares of Common Stock on a one-for-one basis. After
that date which is 14 months after the completion of the Offering, all other
holders of Units will have the right to require the Operating Company to
redeem such holders' Units for cash equal to the fair market value of one
share of Common Stock at the time of such redemption (as determined in
accordance with the provisions of the Operating Agreement), provided that the
Company may elect to acquire any such Unit presented for redemption for one
share of Common Stock or an amount of cash of the same value. The Company
presently anticipates that it will elect to issue Common Stock in connection
with each such redemption, rather than having the Operating Company pay cash.
With each such exchange or redemption, as applicable, the Company's percentage
ownership interest in the Operating Company will increase. Persons other than
the Company who acquire Units in the Formation Transactions will have certain
rights, pursuant to a separate registration rights agreement, to have the
issuance of shares of Common Stock that may be issued to them in exchange for
their Units, or the resale of such shares by them, registered under the
Securities Act of 1933, as amended (the "Securities Act"). See "Shares
Available for Future Sale."

ISSUANCE OF ADDITIONAL UNITS

The Company is authorized, without the consent of the other members, to
cause the Operating Company to issue additional Units to itself, to the other
members or to other persons for such consideration and on such terms and
conditions as the Company deems appropriate. If additional Units are issued to
the Company, then the Company must (i) issue additional shares of Common Stock
and must contribute to the Operating Company the entire proceeds received by
the Company from such issuance or (ii) issue additional Units to all members
in proportion to their respective interests in the Operating Company. In
addition, the Company may cause the Operating Company to issue to the Company
additional limited liability company interests in different series or classes,
which may be senior to the Units, in conjunction with an offering of
securities of the Company having substantially similar rights, in which the
proceeds thereof are contributed to the Operating Company. Consideration for
additional Units may be cash or other property or assets. No member (other
than the Company) has preemptive, preferential or similar rights with respect
to additional capital contributions to the Operating Company or the issuance
or sale of any Units therein.

TAX PROTECTION PROVISIONS

The Operating Agreement provides that, for a period of seven years following
the Offering, the Operating Company may not sell or otherwise transfer a
Designated Property in a taxable transaction without the prior written consent
of a majority-in-interest of the members of the Operating Company who are
subject to

117
<PAGE>

U.S. Federal income tax (the "Taxable Members"). The Operating Company is not
required to obtain this consent if each of the Taxable Members do not continue
to hold during this period at least 30% of their original Units. Since the
consent of the Taxable Members is required only in connection with a taxable
sale or other disposition of any Designated Property, the Operating Company
will not be required to obtain such consent in connection with a "like-kind"
exchange of any such property under Section 1031 of the Code or in connection
with a number of other nontaxable transactions, such as a nontaxable
reorganization or merger of the Operating Company or the formation of a joint
venture involving a Designated Property pursuant to Section 721 of the Code.

EXCULPATION AND INDEMNIFICATION OF THE MANAGING MEMBER

The Operating Agreement generally provides that the Company, as managing
member of the Operating Company, will incur no liability to the Operating
Company or any member for losses sustained or liabilities incurred as a result
of errors in judgment or of any act or omission if the Company carried out its
duties in good
faith. In addition, the Company is not responsible for any misconduct or
negligence on the part of its agents, provided the Company appointed such
agents in good faith. The Company may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisors, and any action it takes or omits to take in reliance upon the
opinion of such persons, as to matters that the Company reasonably believes to
be within their professional or expert competence, shall be conclusively
presumed to have been done or omitted in good faith and in accordance with
such opinion.

The Operating Agreement also provides for indemnification of the Company,
the Directors and officers of the Company, and such other persons as the
Company may from time to time designate against any judgments, penalties,
fines, settlements and reasonable expenses actually incurred by such person in
connection with the proceeding unless it is established that: (i) the act or
omission of the indemnified person was material to the matter giving rise to
the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty; (ii) the indemnified person actually
received an improper personal benefit in money, property or services or (iii)
in the case of any criminal proceeding, the indemnified person had reasonable
cause to believe that the act or omission was unlawful.

TAX MATTERS

Pursuant to the Operating Agreement, the Company will be tax matters member
of the Operating Company and, as such, will have the authority to make tax
elections under the Code on behalf of the Operating Company.

TERM

The Operating Agreement will continue in full force and effect for years
or until sooner dissolved pursuant to the terms of the Operating Agreement.

118
<PAGE>

CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS

The following summary of certain provisions of Maryland law and the
Company's Charter and Bylaws does not purport to be complete and is qualified
by reference to Maryland law and the Company's Charter and Bylaws.

THE BOARD OF DIRECTORS

The Company's Bylaws provide that, upon consummation of the Offering, the
number of Directors of the Company will be established at seven. Any vacancy
will be filled, at any regular meeting or at any special meeting called for
the purpose, by a majority of the remaining Directors, except that a vacancy
resulting from removal of a Director may be filled by vote of the
stockholders.

Pursuant to the terms of the Charter, the Directors are divided into three
classes. One class will hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1998, another class will hold
office initially for a term expiring at the annual meeting of stockholders to
be held in 1999, and the third class will hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2000. As the term
of each class expires, Directors in that class will be elected for a term of
three years and until their successors are duly elected and qualified. The use
of a staggered board may render more difficult a change in control of the
Company or removal of incumbent management. See "Risk Factors--Limits on
Changes in Control."

OPT OUT OF BUSINESS COMBINATION AND CONTROL SHARE ACQUISITION STATUTES

The Charter provides that the Company is not governed by the "control share
acquisition" provisions of the MGCL (Sections 3-701 through 3-709) or the
"business combination" provision of the MGCL (Sections 3-602), each of which
could have the effect of delaying or preventing a change of control of the
Company. The Bylaws will provide that the Company cannot at a future date
determine to be governed by either such provision without the approval of a
majority of the outstanding shares entitled to vote.

AMENDMENT OF CHARTER AND BYLAWS

The Company's Charter may be amended by the affirmative vote of the holders
of not less than two-thirds (or, if 75% of the Directors then in office
approve the amendment, a majority) of all of the votes entitled to be cast on
the matter. The Board of Directors has the exclusive power to adopt, alter,
repeal or amend the Company's Bylaws.

DISSOLUTION OF THE COMPANY

The MGCL permits the dissolution of the Company by (i) the affirmative vote
of a majority of the entire Board of Directors declaring such dissolution to
be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders and (ii) upon
proper notice, stockholder approval by the affirmative vote of at least two-
thirds of the votes entitled to be cast on the matter.

MEETINGS OF STOCKHOLDERS

The Company's Bylaws provide for annual meetings of stockholders to be held
on the or on any other day as may be established from time to time by
the Board of Directors. Special meetings of stockholders may be called by (i)
the Chairman of the Board or the President, (ii) a majority of the Board of
Directors or (iii) stockholders holding 25% of the outstanding capital stock
of the Company entitled to vote at the meeting.

The Company's Bylaws provide that any stockholder of record wishing to
nominate a director or have a stockholder proposal considered at an annual
meeting (except for stockholder proposals included in the Company

119
<PAGE>

proxy materials pursuant to Rule 14a-8 under the Exchange Act must provide
written notice and certain supporting documentation to the Company relating to
the nomination or proposal not less than 75 days nor more than 120 days prior
to the anniversary date of the prior year's annual meeting or special meeting
in lieu thereof (the "Anniversary Date"). In the event that the annual meeting
is called for a date more than seven calendar days before the Anniversary
Date, stockholders generally must provide written notice within 20 calendar
days after the date on which notice of the meeting is mailed to stockholders.

The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders and
make recommendations about the qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Company's Bylaws do not give the Board of Directors any power to
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election
of directors or the consideration of stockholder proposals if the proper
procedures are not followed, and of discouraging or deterring a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal, without regard to whether consideration of the
nominees or proposals might be harmful or beneficial to the Company and its
stockholders.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Charter limits the liability of the Company's Directors and
officers to the Company to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of Directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the Director or officer
actually received an improper benefit or profit, or (ii) if a judgment or
other final adjudication is entered in a proceeding based on a finding that
the Director's or officer's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding. This provision does not limit the ability of the Company or
its stockholders to obtain other relief, such as an injunction or rescission.

The Company's Bylaws require the Company to indemnify its Directors,
officers and certain other parties to the fullest extent permitted from time
to time by Maryland law. The MGCL permits a corporation to indemnify its
directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the corporation, unless it is
established that the act or omission of the indemnified party was material to
the matter giving rise to the proceeding and (i) the act or omission was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) the indemnified party actually received an improper personal benefit or
(iii) in the case of any criminal proceeding, the indemnified party had
reasonable cause to believe that the act or omission was unlawful.

IT IS THE POSITION OF THE SECURITIES AND EXCHANGE COMMISSION THAT
INDEMNIFICATION OF DIRECTORS AND OFFICERS FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933, AS AMENDED IS AGAINST PUBLIC POLICY AND IS
UNENFORCEABLE PURSUANT TO SECTION 14 OF THE SECURITIES ACT.

120
<PAGE>

INDEMNIFICATION AGREEMENTS

The Company will enter into indemnification agreements with each of its
executive officers and Directors, the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part. See "Available
Information." The indemnification agreements will require, among other
matters, that the Company indemnify its executive officers and directors to
the fullest extent permitted by law and advance to the executive officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, the
Company must also indemnify and advance all expenses incurred by executive
officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors
under the Company's directors' and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by law, it provides greater assurance to directors and
executive officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.

121
<PAGE>

SHARES AVAILABLE FOR FUTURE SALE

GENERAL

Upon the completion of the Offering, the Company will have outstanding
shares of Common Stock ( shares if the Underwriters' overallotment option
is exercised in full). In addition, shares of Common Stock are reserved
for issuance upon exchange of Units and shares of Common Stock are
reserved for issuance under the Company's Equity Incentive Plan. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in the Company's Charter and
Bylaws. See "Description of Capital Stock of the Company--Restrictions on
Transfer." The shares of Common Stock owned by the Participants or acquired by
any Participant in redemption of Units (the "Restricted Shares") will be
"restricted" securities under the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144") and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. As described below under "--
Registration Rights," the Company has granted certain holders registration
rights with respect to their shares of Common Stock.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquirer or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 are also subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of Restricted
Shares from the Company or from any "affiliate" of the Company, and the
acquirer or subsequent holder thereof is deemed not to have been an affiliate
of the Company at any time during the 90 days preceding a sale, such person is
entitled to sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.

In connection with the Offering, the Principals have agreed not to sell any
shares of Common Stock, owned at the consummation of the Offering or acquired
upon exchange of Units, for a period of two years after the consummation of
the Offering without the consent of Lehman Brothers Inc., and AEW has agreed
not to sell any shares of Common Stock, owned at the consummation of the
Offering or acquired upon exchange of Units, for a period of one year after
the consummation of the Offering without the consent of Lehman Brothers Inc.
Such restriction will not apply to any Units or other shares of Common Stock
purchased or otherwise acquired by the Principals following consummation of
the Offering. See "Underwriting."

The Company has established the Equity Incentive Plan for the purpose of
attracting and retaining Directors, executive officers and other key
employees. See "Management--Equity Incentive Plan" and "Management--
Compensation of Directors." The Company intends to issue options to purchase
approximately shares of Common Stock to directors, executive officers and
certain key employees prior to the completion of the Offering and has reserved
additional shares for future issuance under the Equity Incentive Plan.
Prior to the first anniversary of the consummation of the Offering, the
Company expects to file a registration statement on Form S-8 with the SEC with
respect to the shares of Common Stock issuable under the Equity Incentive
Plan, which shares may be resold without restriction, unless held by
affiliates.

Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction
can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of options), or the perception that
such sales occur, could adversely affect prevailing market prices of the
Common Stock. See "Risk Factors--Absence of Prior Public Market for Common
Stock," "Risk Factors--Effect on Common Stock Price of Shares Available for
Future Sale" and "Operating Agreement."

122
<PAGE>

REGISTRATION RIGHTS

The Company has granted the Participants certain registration rights with
respect to the shares of Common Stock owned by them or acquired by them in
exchange for Units. These registration rights require the Company to register
all such shares of Common Stock effective 14 months following the consummation
of the Offering. The Company will bear expenses incident to its registration
requirements under the registration rights, except that such expenses shall
not include any underwriting discounts or commissions or transfer taxes, if
any, relating to such shares. Resales of such shares of registered Common
Stock by affiliates of the Company will remain subject to certain limitations
set forth in Rule 144 under the Securities Act.

123
<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of the material federal income tax
consequences associated with an investment in the Common Stock. The statements
in this discussion, and the opinion of Goodwin, Procter & Hoar LLP discussed
below, are based upon current provisions of the Code, existing, temporary and
final regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change, possibly on a retroactive
basis. The following discussion is included for general information only. It
is not tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to a particular prospective stockholder in light of
his/her personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions, broker-dealers, tax exempt
organizations, non-U.S. stockholders and persons who acquire shares upon the
exercise of employee stock options or otherwise as compensation. Unless the
context requires otherwise, references to the "Company" in this "Federal
Income Tax Consequences" section refer only to LBA Properties, Inc.

PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO THEM OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK IN THE
COMPANY.

FEDERAL INCOME TAXATION OF THE COMPANY

Upon consultation with its advisors, the Company believes that it is in a
position to qualify for treatment as a REIT for the year ending December 31,
1997, upon filing of its election to be taxed as a REIT, and intends to
operate so as to meet the requirements under the Code for qualification as a
REIT, commencing with its taxable year ended December 31, 1997 and thereafter.
The Company also believes, after consultation with its advisors, that it has
been organized, has operated and will operate in such a manner as to qualify
for taxation as a REIT under the Code. No assurance can be given, however,
that such requirements have been or will be met.

OPINION OF TAX COUNSEL

Goodwin, Procter & Hoar LLP ("Goodwin, Procter & Hoar") has acted as counsel
to the Company in connection with the formation of the Company, the Offering
and the Company's election to be taxed as a REIT. In the opinion of Goodwin,
Procter & Hoar, commencing with the taxable year ending December 31, 1997, the
Company will be organized in conformity with the requirements for
qualification and taxation as a REIT under the Code, and the Company's
proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
Investors should be aware, however, that opinions of counsel are not binding
upon the IRS or any court. It must be emphasized that Goodwin, Procter &
Hoar's opinion is based on various assumptions and is conditioned upon certain
representations made by the Company and the Operating Company as to factual
matters, including representations regarding the nature of their properties,
and the future conduct of their business. Moreover, such qualification and
taxation as a REIT depends upon the Company's completion of certain elections
and other procedural steps as well as the Company's ability to meet on a
continuing basis, through actual annual operating results, requirements
regarding its level of distributions, stock ownership, and various other
qualification tests. Goodwin, Procter & Hoar will not review the Company's
compliance with those tests on a continuing basis. Accordingly, no assurance
can be given that the actual results of the Company's operations for any
particular taxable year will satisfy such requirements.

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its stockholders. That treatment substantially eliminates the
"double taxation" of income (i.e., taxation at both the corporate and
stockholder levels) that generally results from investment in a corporation.
However, the Company may be subject to federal income tax under certain
circumstances, including taxes at regular corporate rates on any undistributed
REIT taxable income, the "alternative minimum tax" on its items of tax
preference, and taxes imposed on income and gain generated by certain
extraordinary transactions.

124
<PAGE>

REQUIREMENTS FOR QUALIFICATION

To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to
stockholders.

Organizational Requirements

A domestic corporation may qualify as a REIT if: (i) it is managed by one or
more directors, (ii) the beneficial ownership of the corporation is evidenced
by transferable shares, (iii) the corporation is neither a financial
institution nor an insurance company subject to certain provisions of the
Code, (iv) the beneficial ownership of the corporation is held by 100 or more
persons, and (v) during the last half of each taxable year not more than 50%
in value of the outstanding stock of the corporation is owned, directly or
indirectly through the application of certain attribution rules, by five or
fewer individuals (as defined in the Code to include certain entities). In
addition, certain other tests, described below, regarding the nature of its
income and assets also must be satisfied. The Code provides that conditions
(i) through (iii) must be met during the entire taxable year and that
condition (iv) 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. Conditions (iv) and (v) (the "100 Stockholder Requirement" and the
"Five or Fewer Requirement") will not apply to the Company until its second
taxable year. For purposes of conditions (iv) and (v), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (v). In addition, a
corporation may not elect to become a REIT unless its taxable year is the
calendar year.

Prior to consummation of the Offering, the Company did not satisfy
conditions (iv) and (v) above. The Company's issuance of Common Stock in
connection with the Formation Transactions and the Offering should permit it
to satisfy the 100 Stockholder Requirement and the Five or Fewer Requirement.
In order to protect the Company from a concentration of ownership of its stock
that would cause the Company to fail the Five or Fewer Requirement, the
Company's Certificate provides that stock owned, or deemed to be owned or
transferred to a stockholder in excess of the Ownership Limit or the Look-
Through Ownership Limit will automatically be converted into Excess Stock. See
"Description of Capital Stock--Restrictions on Transfers." There is no
assurance, however, that the operation of the Excess Stock or other provisions
contained in the Certificate will, as a matter of law, be effective to prevent
a concentration of ownership of stock that would cause the Company to violate
the Five or Fewer Requirement. If there were a concentration of ownership that
would cause a violation of the Five or Fewer Requirement, and the operation of
the Excess Stock or other provisions contained in the Certificate were not
held to cure such violation, the Company would be disqualified as a REIT. In
rendering its opinion that the Company is organized in a manner that permits
the Company to qualify as a REIT, Goodwin, Procter & Hoar is relying on the
representation of the Company that the ownership of its stock (without regard
to the Excess Stock provisions) satisfies the Five or Fewer Requirement, and
Goodwin, Procter & Hoar expresses no opinion as to whether, as a matter of
law, the Excess Stock or other provisions contained in the Certificate
preclude the Company from failing the Five or Fewer Requirement.

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share (based on its interest in partnership capital) of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership retain the same character in the hands of the REIT
for purposes of Section 856 of the Code, including satisfying the gross income
tests and asset tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Company (including the
Operating Company's share of the assets and liabilities and items of income
with respect to any partnership in which it holds an interest) will be treated
as assets, liabilities and items of income of the Company for purposes of
applying the applicable REIT requirements.

125
<PAGE>

Income Tests

To maintain qualification as a REIT, two gross income requirements must be
satisfied annually.

. First, at least 75% of the Company's gross income, excluding gross income
from certain dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business ("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 described above and from
dividends, interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing.

Rents received or deemed to be received by the Company 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 generally must not be based in whole or in part
on the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real property,"
however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.

. Second, the Code provides that 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")
or a subtenant of such tenant (in which case only rent attributable to
the subtenant is disqualified).

. 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 the
personal property will not qualify as "rents from real property."

. Finally, for rents to qualify as "rents from real property" the REIT must
not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom the
REIT does not derive any income; provided, however, that a REIT may
provide services with respect to its properties and the income will
qualify as "rents from real property" if the services are "usually or
customarily rendered" in connection with the rental of room or other
space for occupancy only and are not otherwise considered "rendered to
the occupant." In addition, a REIT can operate or manage the property or
furnish or render "non-customary" services to tenants if the amount of
income the REIT derives from such services does not exceed one percent of
all amounts received or accrued with respect to the property.

The Company does not charge rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of receipts or sales consistent with the rule
described above). The Company does not derive, and does not anticipate
deriving, rent attributable to personal property leased in connection with
real property that exceeds 15% of the total rents.

Through the Operating Company, which is not an "independent contractor," the
Company provides certain services with respect to the Properties, but the
Company believes (and has represented to Goodwin, Procter & Hoar) that all
such services are considered "usually or customarily rendered" in connection
with the rental of space for occupancy only or are provided by independent
contractors, so that the provision of such services does not jeopardize the
qualification of rent from the Properties as "rents from real property." In
rendering its opinion on the Company's ability to qualify as a REIT, Goodwin,
Procter & Hoar is relying on such representations.

The Operating Company may receive certain types of income with respect to
the properties it owns that will not qualify under the 75% or 95% gross income
test. In particular, dividends on the Company's stock in the

126
<PAGE>

Management Company will not qualify under the 75% gross income test. The
Company believes, however, that the aggregate amount of such non-qualifying
income in any taxable year will not cause the Company to exceed the limits on
non-qualifying income under the 75% and 95% gross income tests.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that
year if it is eligible for relief under certain provisions of the Code. These
relief provisions generally will be available if (i) the Company's failure to
meet these tests was due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its
Federal income tax return and (iii) any incorrect information on the schedule
is 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 incurs 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. Even if these relief provisions apply, a tax would be imposed with
respect to the excess net income. See "Risk Factors--Adverse Consequences of
Failure to Qualify as a REIT; Other Tax Liabilities."

Asset Tests

At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.

. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government
securities.

. Second, no 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.

The 5% test must generally be met for any quarter in which the Company
acquires securities of an issuer. Thus, this requirement must be satisfied not
only on the date the Company acquires securities of the Management Company,
but also each time the Company increases its ownership of securities of the
Management Company (including as a result of increasing its interest in the
Operating Company as limited partners exercise their redemption rights).

The Operating Company owns 100% of the non-voting preferred stock of the
Management Company, and by virtue of its ownership of Units, the Company is
considered to own its pro rata share of such stock. Neither the Company nor
the Operating Company, however, owns more than 10% of the voting securities of
the Management Company. In addition, the Company and its senior management do
not believe that the Company's pro rata share of the value of the securities
of the Management Company exceeds 5% of the total value of the Company's
assets. The Company's belief is based in part upon its analysis of the value
of the equity [and unsecured debt securities] of the Management Company owned
by the Operating Company relative to the value of the other assets owned by
the Operating Company. No independent appraisals have been obtained to support
this conclusion, however, and Goodwin, Procter and Hoar LLP, in rendering its
opinion as to the ability of the Company to qualify as a REIT, is relying on
the conclusions of the Company and its senior management as to the value of
the securities of the Management Company.

As noted above, the 5% value requirement must be satisfied not only on the
date the Company acquires equity and debt securities of the Management
Company, but also each time the Company increases its ownership of such
securities of the Management Company (including as a result of increasing its
interest in the Operating Company as partners exercise their redemption
rights). Although the Company plans to take steps to ensure that it satisfies
the 5% value test for any quarter with respect to which retesting is to occur,
there can be no assurance that such steps will always be successful or will
not require a reduction in the Company's overall interest in the

127
<PAGE>

Management Company. This limitation may restrict the ability of the Management
Company to increase the size of its business unless the value of the assets of
the Company is increasing at a commensurate rate.

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 the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The Company maintains, and will continue to maintain,
adequate records of the value of its assets to ensure compliance with the
asset tests and will take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance.

Annual Distribution Requirements

In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable
income" (computed without regard to the dividends-paid deduction and the
Company's net capital gain) and (ii) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (b) 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 Federal
income tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Even if the Company satisfies the
foregoing distribution requirements, to the extent that the Company does not
distribute all of its net capital gain or "REIT taxable income" as adjusted,
it will be subject to tax thereon at regular capital gains or ordinary
corporate tax rates. As discussed below under "--Taxation of U.S.
Stockholders," however, stockholders may be credited for all or a portion of
the taxes paid by the Company on its net capital gains.

Even if the Company satisfies the distribution requirements above, if the
Company should fail to distribute during each calendar year at least the sum
of (a) 85% of its ordinary income for that year, (b) 95% of its capital gain
net income for that year (other than ordinary income and capital gain net
income on which the Company has paid taxes as described above), and (c) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.

The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Operating Agreement
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Company to distribute to its partners an
amount sufficient to permit the Company to meet these distribution
requirements.

It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the 95% distribution requirement. It is possible, however, that the Company,
from time to time, may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement or to distribute such greater amount as may
be necessary to avoid income and excise taxation, as a result of timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or capital expenditures
in excess of noncash deductions. In the event that such timing differences
occur, the Company may find it necessary to arrange for borrowings or, if
possible, pay taxable stock dividends in order to meet the dividend
requirement.

Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid

128
<PAGE>

being taxed on amounts distributed as deficiency dividends. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.

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 stockholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will
they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income, and subject to certain limitations of
the Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the Company is entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief. See "Risk Factors--Adverse Consequences of
Failure to Qualify as a REIT; Other Tax Liabilities."

TAXATION OF U.S. STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes is (i) a citizen or
resident of the United States, (ii) 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) an estate, the income of which is subject
to United States federal income taxation 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
persons have the authority to control all substantial decisions of the trust
and (v) is not an entity that has a special status under the Code (such as a
tax-exempt organization or a dealer in securities).

Distributions Generally

Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. These distributions are not eligible for the
dividends-received deduction for corporations. To the extent that the Company
makes a distribution in excess of its current or accumulated earnings and
profits, the distribution will be treated first as a tax-free return of
capital, reducing the tax basis in the U.S. Stockholder's Common Stock. The
amount of any distribution in excess of a U.S. Stockholder's tax basis in his
or her Common Stock will be taxable as gain realized from the sale of the
Common Stock. Dividends declared by the Company in October, November or
December of any year 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 stockholder on December 31 of the year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Stockholders may not include on their own federal income tax returns any
losses of the Company.

The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
in "--Annual Distribution Requirements" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would
otherwise result in a tax-free return of capital as taxable dividends.

As a result of recent tax legislation, the Company may elect to retain and
pay income tax on its net long-term capital gains received during a taxable
year. If the Company so elects for a taxable year, the Company's stockholders
would include in income as long-term capital gains their proportionate share
of a designated portion of the Company's undistributed long-term capital gains
for the taxable year. A stockholder would be deemed to

129
<PAGE>

have paid his or her share of the tax paid by the Company on such
undistributed capital gains, which would be credited or refunded to the
stockholder under normal tax procedures. The stockholder's basis in his shares
of Common Stock would be increased by the amount of undistributed long-term
capital gains (less the capital gains tax deemed paid by the stockholder)
included in the stockholder's long-term capital gains.

Capital Gain Dividends

Subject to the discussion below regarding changes to the capital gains tax
rates, distributions that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held his or her Common Stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations.

The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of capital
gain income. Under the Act, individuals (as well as estates and certain
trusts) who hold capital assets for more than 18 months may be taxed at a
maximum long-term capital gain rate of 20% on the sale or exchange of those
investments. Gains from capital assets held for more than 12 months but less
than 18 months may be taxed at a maximum mid-term capital gain rate of 28%.
The Act also provides a maximum rate of 25% for "unrecaptured section 1250
gain," special rules for "qualified 5-year gain," and makes other changes to
prior law. The Act allows the IRS to prescribe regulations on how the Act's
new capital gain rates will apply to sales of capital assets by "pass-through
entities," which include REITs such as the Company. To date regulations have
not yet been prescribed, and it remains unclear how the Act's new rates will
apply to capital gain dividends or undistributed capital gains, including for
example the extent, if any, to which capital gain dividends or undistributed
capital gains from the Company will be taxed to individuals at the new rates
for mid-term capital gains and unrecaptured section 1250 gain, rather than the
long-term capital gain rates. Prospective investors are urged to consult their
own tax advisors with respect to the new rules contained in the Act.

The Company will notify stockholders after the close of its taxable year as
to the portions of the distributions attributable to that year that constitute
ordinary income, return of capital and capital gains.

Passive Activity Loss and Investment Interest Limitations

Distributions from the Company and gain from the disposition of Common Stock
will not be treated as passive activity income, and therefore stockholders may
not be able to apply any "passive losses" against such income. Dividends from
the Company (to the extent they do not constitute a return of capital) will
generally be treated as investment income for purposes of the investment
interest limitation. Capital gains from the disposition of shares of Common
Stock (or distributions treated as such) will be treated as investment income
only if the stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates.

Certain Dispositions of Shares

In general, any gain or loss realized upon a taxable disposition of the
shares of Common Stock by a stockholder who is not a dealer in securities will
be treated as long-term capital gain or loss if the shares of Common Stock
have been held for more than 12 months, (or, in the case of individuals,
estates and certain trusts, mid-term capital gain or loss if the shares have
been held for more than 12 months but not more than 18 months and long-term
capital gain or loss if the shares have been held for more than 18 months) and
otherwise as short-term capital gain or loss. However, any loss upon a sale or
exchange of shares of Common Stock by a stockholder who has held such stock
for six months or less (after applying certain holding period rules), will be
treated as a long-term capital loss to the extent of distributions from the
Company or undistributed capital gains required to be treated by such
stockholder as long-term capital gain. All or a portion of any loss realized
upon a taxable disposition of shares of Common Stock may be disallowed if
other shares of Common Stock are purchased within 30 days before or after the
disposition.

130
<PAGE>

Treatment of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. They are, however, subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, amounts distributed by the Company
to Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of Common Stock with debt, a
portion of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. Special provisions of the Code require
a portion of the dividends from a REIT "predominantly held" by qualified
trusts to be treated as UBTI. So long as the Company is able to satisfy the
Five or Fewer Requirement without relying on the "look-through" exception
discussed above, these provisions will not apply.

SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS

The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the
impact of federal, state and local income tax laws on an investment in the
Company, including any reporting requirements.

In general, Non-U.S. Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct
of a trade or business in the United States. A corporate Non-U.S. Stockholder
that receives income that is (or is treated as) effectively connected with a
U.S. trade or business also may be subject to the branch profits tax under
section 884 of the Code, which is payable in addition to regular United States
federal corporate income tax. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.

A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that
is not designated by the Company as a capital gain dividend will be treated as
an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
A distribution in excess of the Company's earnings and profits will be treated
first as a return of capital that will reduce a Non- U.S. Stockholder's basis
in its Common Stock (but not below zero) and then as gain from the disposition
of such shares, the tax treatment of which is described under the rules
discussed above with respect to dispositions of Common Stock.

Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder
(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 a 30% branch profits tax when made to
a foreign corporate stockholder that is not entitled to treaty exemptions.

Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated
capital gain dividends (or, if greater, 35% of the amount of any distributions
that could be designated as capital

131
<PAGE>

gain dividends) and (ii) 30% of ordinary dividends paid out of earnings and
profits. 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. A distribution in excess of the Company's earnings and profits
will be subject to 30% dividend withholding if at the time of the distribution
it cannot be determined whether the distribution will be in an amount in
excess of the Company's current or accumulated earnings and profits. If the
amount of tax withheld by the Company with respect to a distribution to a Non-
U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution, the Non-U.S. Stockholder may file for a refund
of such excess from the IRS.

Unless the Common Stock constitutes a "United States real property interest"
within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S. Stockholder
generally will not be subject to United States federal income taxation. The
Common Stock will not constitute a United States real property interest if 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 shares is held directly or indirectly by Non-U.S.
Stockholders. It is currently anticipated that the Company will be a
domestically controlled REIT and therefore that sales of Common Stock will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to
be a domestically controlled REIT. If the Company were not a domestically
controlled REIT, whether a Non-U.S. Stockholder's sale of Common Stock would
be subject to tax under FIRPTA as a sale of a United States real property
interest would depend on whether the Common Stock were "regularly traded" on
an established securities market (such as the NYSE on which the Common Stock
will be listed) and on the size of the selling stockholder's interest in the
Company. If the gain on the sale of Common Stock were subject to taxation
under FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment
as a U.S. Stockholder with respect to the gain (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident alien individuals). In addition, distributions that are treated
as gain from the disposition of Common Stock and are subject to tax under
FIRPTA also may be subject to a 30% branch profit tax when made to a foreign
corporate stockholder that is not entitled to treaty exemptions. In any event,
a purchaser of Common Stock from a Non-U.S. Stockholder will not be required
to withhold under FIRPTA on the purchase price if the purchased Common Stock
is "regularly traded" on an established securities market (such as the NYSE)
or if the Company is a domestically controlled REIT. Otherwise, under FIRPTA
the purchaser of Common Stock may be required to withhold 10% of the purchase
price and remit this amount to the IRS. Capital gains not subject to FIRPTA
will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is a
non-resident alien individual who is present in the United States for 183 days
or more during the taxable year and certain other conditions apply, in which
case the non-resident alien individual will be subject to a 30% tax on his or
her U.S. source capital gains.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company will report to its U.S. Stockholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld,
if any. Under certain circumstances, U.S. Stockholders may be subject to
backup withholding at a rate of 31% on payments made with respect to, or cash
proceeds of a sale or exchange of, Common Stock. Backup withholding will apply
only if the holder (i) fails to furnish his or her taxpayer identification
number ("TIN") (which, for an individual, would be his or her Social Security
Number), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he
or she has failed properly to report payments of interest and dividends or is
otherwise subject to backup withholding or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that he or she has furnished a
correct TIN and (a) that he or she has not been notified by the IRS that he or
she is subject to backup withholding for failure to report interest and
dividend payments or (b) that he or she has been notified by the IRS that he
or she is no longer subject to backup withholding. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations.

U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional
tax. Rather, the amount of any backup withholding with respect to a payment to
a U.S. Stockholder will be

132
<PAGE>

allowed as a credit against the U.S. Stockholder's United States federal
income tax liability and may entitle the U.S. Stockholder to a refund,
provided that the required information is furnished to the IRS.

Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.

OTHER TAX CONSIDERATIONS

Effect of Tax Status of Operating Company on REIT Qualification

Substantially all of the Company's investments are through the Operating
Company. In addition, the Operating Company may in the future hold interests
in certain properties through subsidiary entities also taxed as partnerships.
The Company's interest in these entities may involve special tax
considerations. Such considerations include (i) the allocations of items of
income and expense, which could affect the computation of taxable income of
the Company, (ii) the status of the Operating Company, and other subsidiary
entities as partnerships (as opposed to associations taxable as corporations)
for federal income tax purposes, and (iii) the taking of actions by the
Operating Company and subsidiary entities that could adversely affect the
Company's qualifications as a REIT. In the opinion of Goodwin, Procter & Hoar,
based on certain representations of the Company, the Operating Company will be
treated for Federal income tax purposes as a partnership (and not as an
association taxable as a corporation). If the Operating Company were treated
as an association taxable as a corporation, the Company would fail to qualify
as a REIT.

Tax Allocations with Respect to the Properties

When property is contributed to a partnership in exchange for an interest in
the partnership, the partnership generally takes a carryover basis in that
property for tax purposes equal to the adjusted basis of the contributing
partner in the property, rather than a basis equal to the fair market value of
the property at the time of contribution. Pursuant to section 704(c) of the
Code, income, gain, loss and deduction attributable to such contributed
property must be allocated 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 Company
was formed by way of contributions of appreciated property (including certain
of the Properties). Consequently, the Operating Agreement requires such
allocations to be made in a manner consistent with section 704(c) of the Code.
Regulations under Section 704(c) of the Code provide partnerships with a
choice of several methods of accounting for Book-Tax Differences for property
contributed to a partnership.

Interests in the Properties purchased for cash by the Operating Company
simultaneously with or subsequent to the admission of the Company to the
Operating Company will initially have a tax basis equal to their fair market
value. Thus, Section 704(c) of the Code will not apply to such interests.

A portion of the amounts to be used to fund distributions to stockholders is
expected to come from the Management Company, through dividends on stock held
by the Operating Company. The Management Company will not qualify as a REIT
and will pay federal, state and local income taxes on its taxable income at
normal corporate rates. The federal, state or local income taxes that the
company is required to pay will reduce the amount of dividends payable by such
company to the Operating Company and cash available for distribution by the
Company.

STATE AND LOCAL TAX

The Company and its operating subsidiaries may be subject to state and local
tax in states and localities in which they do business or own property. The
tax treatment of the Company and its operating subsidiaries and the holders of
Common Stock in such jurisdictions may differ from the federal income tax
treatment described above.

133
<PAGE>

UNDERWRITING

The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., Smith Barney Inc. and are acting as representatives (the
"Representatives"), have severally agreed, subject to the conditions contained
in the Underwriting Agreement (the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part), to purchase
from the Company and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of each
such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc.............................................
Smith Barney Inc................................................
---
Total.........................................................
===
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed
to be purchased by the Underwriters under the Underwriting Agreement must be
so purchased.

The Company has been advised that the Underwriters propose to offer shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain selected
dealers who may include the Underwriters at such public offering price less a
selling concession not in excess of $ per share. The selected dealers may
reallow a concession not in excess of $ per share to certain brokers or
dealers. After the Offering, the public offering price, the concession to
selected dealers, and the reallowance may be changed by the Representatives.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to the payments they may be required to make in respect thereto.

The Company has granted to the Underwriters an option to purchase up to an
additional shares of Common Stock, at the public offering price, less the
aggregate underwriting discounts and commissions, shown on the cover page of
this Prospectus, solely to cover overallotments, if any. Such option may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will
be committed, subject to certain conditions, to purchase a number of the
additional shares of Common Stock proportionate to such Underwriter's initial
commitment as indicated in the preceding table.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined through negotiations
between the Company and the Representatives. Among the factors considered in
such negotiations, in addition to prevailing market conditions, were
distribution rates and financial characteristics of publicly traded REITs that
the Company and the Representatives believe to be comparable to the Company,
the expected results of operations of the Company (which are based on the
results of operations of the Properties and the fee management business in
recent periods), estimates of future business potential and earnings prospects
of the Company as a whole and the current state of the real estate market in
the Company's primary markets and the economy as a whole. The initial price
per share to the public set forth on the cover page of this Prospectus should
not, however, be considered an indication of the actual value of the Common
Stock. Such price is subject to change as a result of market conditions and
other factors.

The Underwriters do not intend to confirm sales of Common Stock to any
account over which they exercise discretionary authority.

134
<PAGE>

If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid may have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of, or any effect that the
transactions described above may have on, the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or,
once commenced, will not be discontinued without notice.

In connection with the Offering, the Principals have agreed not to sell any
shares of Common Stock, owned at the consummation of the Offering or acquired
upon exchange of Units, for a period of two years after the consummation of
the Offering without the consent of Lehman Brothers Inc., and AEW has agreed
not to sell any shares of Common Stock, owned at the consummation of the
Offering or acquired upon exchange of Units, for a period of one year after
the consummation of the Offering without the consent of Lehman Brothers Inc.
Such restrictions will not apply to any Units or other shares of Common Stock
purchased or otherwise acquired by the Principals following consummation of
the Offering.

The Company has agreed for a period of 180 days from the date of this
Prospectus, not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in
the future of) shares of Common Stock (other than the shares offered hereby
and shares issued pursuant to the Equity Incentive Plan existing on the date
hereof and any Units or shares of Common Stock that may be issued in
connection with any acquisition of a property) or sell or grant options,
rights or warrants with respect to any shares of Common Stock (other than the
grant of options pursuant to the Equity Incentive Plan existing on the date
hereof), without the prior written consent of Lehman Brothers Inc.

The Company has agreed to pay Lehman Brothers Inc. and Smith Barney Inc. an
advisory fee equal to 0.75% of the gross proceeds received from the sale of
Common Stock of the Offering for advisory services rendered in connection with
the evaluation, analysis and structuring of the Company's formation and the
Offering.

The Underwriters have reserved for sale at the public offering price up to
shares of Common Stock to directors, officers and employees of the
Company, their business affiliates and related parties who have expressed an
interest in purchasing shares. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.

135
<PAGE>

EXPERTS

The balance sheet of LBA Properties, Inc. as of October 6, 1997, the
combined financial statements of the LBA Predecessors as of December 31, 1996
and 1995 and for the three years ended December 31, 1996, the financial
statements of CAL Portfolio VI, L.L.C. as of December 31, 1996 and for the
period October 30, 1996 through December 31, 1996, and statements of revenue
and certain expenses listed on F-1, F-2 and F-3, all 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.

The C&W Study was prepared for the Company by Cushman & Wakefield of
California, Inc., which is a real estate service firm with significant
experience and expertise relating to the Southern California office and
industrial properties markets and the various submarkets therein. C&W is a
part of a national network of affiliated companies providing real estate
related services. The statistical and other information from the C&W Study
appearing in this Prospectus and Registration Statement has been included
herein in reliance on C&W's expertise as a real estate services firm, with
respect to the Southern California office and industrial properties markets.

LEGAL MATTERS

Certain legal matters, including the validity of the shares of Common Stock
offered hereby, will be passed upon for the Company by Goodwin, Procter & Hoar
llp. In addition, the description of federal income tax consequences contained
in this Prospectus under the heading "Federal Income Tax Consequences" is
based upon the opinion of Goodwin, Procter & Hoar llp. Certain legal matters
will be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-11 (of which this Prospectus is a part) under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of SEC. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference and the exhibits
and schedules hereto. For further information regarding the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be obtained from the SEC
upon payment of the prescribed fees at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and its regional offices at 13th Floor,
7 World Trade Center, New York, NY 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. The SEC maintains a website at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the SEC. In addition, the Common Stock will be listed on
the New York Stock Exchange ("NYSE") and similar information concerning the
Company can be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.

The Company intends to furnish its stockholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.

136
<PAGE>

GLOSSARY

"100 Stockholder Requirement" means the requirement that beneficial
ownership of a corporation must be held by 100 or more persons in order to
qualify as a REIT under the Code.

"ACM" means asbestos-containing materials.

"ADA" means the Americans with Disabilities Act, enacted on July 26, 1990.

"AEW" means AEW Capital Management, L.P., a Delaware limited partnership,
and certain of its affiliates.

"Affiliates" means with respect to any individual or entity, any other
individual or entity directly or indirectly controlling, controlled by or
under common control with such individual or entity.

"Anniversary Date" means the anniversary date of the prior year's annual
meeting or special meeting in lieu thereof, under the Company's Bylaws.

"Annual Yield" means with respect to a Property the percentage calculated by
dividing Annualized Base Rent plus tenant pass-throughs for such Property as
of September 30, 1997, less annualized operating expenses as of August 1997,
by the sum of the original acquisition cost of such Property and all capital
expenditures, tenant improvements and leasing commissions paid with respect to
such Property, adjusted for any amounts received or paid in connection with
early lease terminations.

"Base Rent" means gross rent excluding payments by tenants on account of
real estate tax and operating expense escalation.

"Built-In Gain Rules" means the built-in gain rules promulgated in
guidelines issued by the IRS.

"C&W" means Cushman & Wakefield of California, Inc.

"C&W Peer Group" means the set of comparable properties selected by C&W for
purposes of the C&W Study.

"C&W Study" means the office and industrial market study of Southern
California, prepared for the Company by C&W as of , 1997.

"Charter" means the Articles of Incorporation of the Company, as amended and
restated.

"Code" means the Internal Revenue Code of 1986, as amended, together with
its predecessor.

"Commission" or the "SEC" means the Securities and Exchange Commission.

"Common Stock" means shares of the Company's common stock, $.01 par value
per share.

"Company" means LBA Properties, Inc., a Maryland corporation and, as the
context requires, its subsidiaries.

"Credit Facility" means the Company's proposed $150 million credit facility.

"Equity Incentive Plan" means the Company's Equity Incentive Plan, adopted
by the Board of Directors prior to the date hereof.

"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.

"Excess Stock" means the separate class of shares of stock of the Company
into which shares of stock of the Company owned, or deemed to be owned, or
transferred to a stockholder in excess of the Ownership Limit, the Look-
Through Ownership Limit or the AEW Ownership Limit will automatically be
converted.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

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

137
<PAGE>

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

"Foreclosure Property" means, with limited exceptions, real property
(including interests therein), and any personal property incident to real
property, acquired by a REIT in connection with a default on a lease of such
property or on indebtedness secured by such property.

"Formation Transactions" means the transactions relating to the formation of
the Company and its subsidiaries, including the transfer of certain of the
Properties and the management, construction and design assets or interests
therein from the Property Partnerships and the entities that owned the other
assets acquired by the Company.

"Funds from Operations" means, in accordance with the resolution adopted by
the Board of Governors of NAREIT, net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures.

"HVAC" means heating, ventilation and air conditioning.

"Independent Directors" means the directors of the Company who are neither
officers of the Company nor affiliated with AEW.

"IRS" means the Internal Revenue Service.

"Investment Company Act" means the Investment Company Act of 1940, as
amended.

"Layton-Belling & Associates" means Layton-Belling & Associates, a
California corporation that operated the Company's business prior to the
consummation of the Offering and the Formation Transactions.

"LBA Predecessors" means entities and individuals that own an interest in
the operations and Properties involved in the Formation Transaction including
LBA, Inc., AEW/LBA Acquisition Co., L.L.C., AEW/LBA Acquisition Co. II,
L.L.C., AEW/LBA Acquisition Co. III, L.L.C., Phil A. Belling and Steven R.
Layton, the majority owners of LBA, Inc., and other affiliates.

"LIBOR" means the London Interbank Offered Rate.

"Look-Through Entities" means pension plans described in Section 401(a) of
the Code and mutual funds registered under the Investment Company Act.

"Look-Through Ownership Limit" means the restriction contained in the
Company's Charter providing that Look-Through Entities may not beneficially
own more than 15% of the outstanding shares of Common Stock.

"Management Company" means LBA Management, Inc. a corporation, which
will perform certain of the Company's management and development activities.
The Operating Company will hold 100% of the nonvoting preferred stock of the
Management Company, which stock will represent 95% of the ownership interest
in the Management Company and the officers of the Management Company will
collectively hold 100% of the voting common stock of the Management Company,
which stock will represent 5% of the ownership interest in the Management
Company.

"MGCL" means the Maryland General Corporation Law.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"Net Absorption" means the net increase in square feet of leased space.

138
<PAGE>

"Net Effective Rent" means Base Rent adjusted on a straight-line basis for
contractual rent step-ups and free rent periods, plus tenant payments on
account of real estate tax and operating expense escalation, less total
operating expenses and real estate taxes.

"Non-U.S. Stockholders" means any holder of Common Stock, who (for United
States federal income tax purposes) is a nonresident alien individual, foreign
corporation, foreign partnership or foreign estate or trust.

"NYSE" means the New York Stock Exchange.

"Offering" means the Offering of shares of Common Stock of LBA Properties,
Inc. pursuant to and as described in this Prospectus.

"Units" means the units representing interests in the Operating Company.

"Operating Agreement" means the operating agreement of the Operating
Company.

"Operating Company" means LBA Properties, LLC, a California limited
liability corporation.

"Ownership Limit" means the restriction contained in the Company's Charter
providing that, subject to certain exceptions, no holder may beneficially own
more than 9.9% of the outstanding shares of Common Stock.

"Participants" means the parties participating in the Formation Transactions
including the Company and the Operating Company, together with the partners
and members of the Predecessor Entities and other parties which hold ownership
interests in certain of the Properties.

"Predecessor Entities" means the limited liability companies and the limited
partnerships which, prior to the Formation Transaction, owned or had interests
in the Properties or which now own or have interests in the Properties.

"Principals" means Steven R. Layton, Phil A. Belling, David C. Thomas and
Steven R. Briggs.

"Properties" means the 48 real estate properties and related assets owned by
the Predecessor Entities and contributed to the Company by the Participants in
connection with the Formation Transactions.

"Qualified REIT Subsidiary" means any corporation that is 100% owned by a
REIT at all times during the period the subsidiary is in existence.

"Recognition Period" means the ten-year period beginning on the date on
which the Company acquires an asset from a C corporation in a carry-over basis
transaction.

"REIT" means real estate investment trust, as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.

"REIT Requirements" means the requirements for qualifying as a REIT under
Sections 856 through 860 of the Code and applicable Treasury Regulations.

"Related Party Tenant" means a tenant or subtenant of the Company which is
10% or more constructively or directly owned by the Company or an owner of 10%
or more of the Company under the Code.

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

"Treasury Regulations" means regulations of the U.S. Department of Treasury
under the Code.

"U.S. Stockholder" means a holder of Common Stock, who (for United States
federal income tax purposes) (a) is a citizen or resident of the United
States, (b) 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 (c) is an estate or trust, the income of which is
subject to United States federal income taxation regardless of its source.

139
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LBA PROPERTIES, INC.
Unaudited Pro Forma Condensed Combined Financial Statements: ............. F-4
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30,
1997................................................................... F-5
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Six Months Ended June 30, 1997......................................... F-6
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1996........................................... F-7
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.... F-8
Historical:
Report of Independent Auditors.......................................... F-16
Balance Sheet as of October 6, 1997..................................... F-17
Notes to Balance Sheet.................................................. F-18
LBA PREDECESSORS
Combined Financial Statements:
Report of Independent Auditors.......................................... F-20
Combined Balance Sheets as of June 30, 1997 (Unaudited) and December 31,
1996 and 1995.......................................................... F-21
Combined Statements of Operations for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and the Years Ended December 31, 1996, 1995 and
1994................................................................... F-22
Combined Statements of Owners' Equity for the Six Months Ended June 30,
1997 (Unaudited) and the Years Ended December 31, 1996, 1995 and 1994.. F-23
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and the Years Ended December 31, 1996, 1995 and
1994................................................................... F-24
Notes to Combined Financial Statements.................................. F-25
Schedule III--Commercial Real Estate Properties and Accumulated
Depreciation........................................................... F-36
CAL PORTFOLIO VI, L.L.C.
Financial Statements:
Report of Independent Auditors.......................................... F-38
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996.... F-39
Statements of Operations for the Six Months Ended June 30, 1997
(Unaudited) and the Period October 30, 1996 through December 31, 1996.. F-40
Statements of Members' Capital for the Six Months Ended June 30, 1997
(Unaudited) and the Period October 30, 1996 through December 31, 1996.. F-41
Statements of Cash Flows for the Six Months Ended June 30, 1997
(Unaudited) and the Period October 30, 1996 through December 31, 1996.. F-42
Notes to Financial Statements........................................... F-43
1996 CIGNA ACQUIRED PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-48
Combined Statements of Revenue and Certain Expenses for January 1, 1996
to the Dates of Acquisition and the Years Ended December 31, 1995 and
1994................................................................... F-49
Notes to Combined Statements of Revenue and Certain Expenses............ F-50
CHICAGO AVENUE BUSINESS PARK
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-52
Statements of Revenue and Certain Expenses for January 1, 1996 to
December 20, 1996 (Unaudited) and the Year Ended December 31, 1995..... F-53
Notes to Statements of Revenue and Certain Expenses..................... F-54
</TABLE>

F-1
<PAGE>

INDEX TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VIA FRONTERA
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-55
Statements of Revenue and Certain Expenses for January 1, 1996 to
September 17, 1996 (Unaudited) and the Year Ended December 31, 1995.... F-56
Notes to Statements of Revenue and Certain Expenses..................... F-57
WESTRIDGE
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-58
Statements of Revenue and Certain Expenses for January 1, 1996 to June
18, 1996 (Unaudited) and the Year Ended December 31, 1995.............. F-59
Notes to Statements of Revenue and Certain Expenses..................... F-60
1919 SANTA MONICA
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-61
Statements of Revenue and Certain Expenses for January 1, 1996 to
October 27, 1996 (Unaudited) and the Year Ended December 31, 1995...... F-62
Notes to Statements of Revenue and Certain Expenses..................... F-63
1997 METLIFE ACQUIRED PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-64
Combined Statements of Revenue and Certain Expenses for January 1, 1997
to the Dates of Acquisition (Unaudited) and the Years Ended December
31, 1996 and 1995...................................................... F-65
Notes to Combined Statements of Revenue and Certain Expenses............ F-66
AIRPORT COMMERCE CENTER AND HUNTER BUSINESS CENTER
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-68
Combined Statements of Revenue and Certain Expenses for January 1, 1997
to the Dates of Acquisition (Unaudited) and the Year Ended December 31,
1996................................................................... F-69
Notes to Combined Statements of Revenue and Certain Expenses............ F-70
SORRENTO VALLEY SCIENCE PARK
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-72
Statements of Revenue and Certain Expenses for January 1, 1997 to
February 20, 1997 (Unaudited) and the Year Ended December 31, 1996..... F-73
Notes to Statements of Revenue and Certain Expenses..................... F-74
HDS PLAZA
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-75
Statements of Revenue and Certain Expenses for January 1, 1997 to June
11, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-76
Notes to Statements of Revenue and Certain Expenses..................... F-77
</TABLE>

F-2
<PAGE>

INDEX TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE PLAZA
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-78
Statements of Revenue and Certain Expenses for January 1, 1997 to May
28, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-79
Notes to Statements of Revenue and Certain Expenses..................... F-80
HAVENGATE
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-81
Statements of Revenue and Certain Expenses for the Six Months Ended June
30, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-82
Notes to Statements of Revenue and Certain Expenses..................... F-83
VON KARMAN CORPORATE CENTER
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-84
Statements of Revenue and Certain Expenses for the Six Months Ended June
30, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-85
Notes to Statements of Revenue and Certain Expenses..................... F-86
CENTRELAKE PLAZA
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-87
Statements of Revenue and Certain Expenses for the Six Months Ended June
30, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-88
Notes to Statements of Revenue and Certain Expenses..................... F-89
150 EAST COLORADO
Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................... F-90
Statements of Revenue and Certain Expenses for the Six Months Ended June
30, 1997 (Unaudited) and the Year Ended December 31, 1996.............. F-91
Notes to Statements of Revenue and Certain Expenses..................... F-92
</TABLE>

F-3
<PAGE>

LBA PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS

The unaudited pro forma financial and operating information for the six
months ended June 30, 1997 and the year ended December 31, 1996 is presented
as if the Offering, the Formation Transactions, the acquisition of Properties
acquired or under contract to be acquired after June 30, 1997 (the
"Acquisition Properties"), the acquisition of Properties acquired during 1997
prior to June 30, 1997 (the "1997 Acquired Properties"), the acquisition of
Properties acquired during 1996 (the "1996 Acquired Properties") and an
investment in the Joint Venture Property all had occurred by the date of the
June 30, 1997 combined balance sheet and at the beginning of the period
presented for the combined statements of operations. The pro forma June 30,
1997 balance sheet information also gives effect to the recording of minority
interests for Units as if these transactions occurred on June 30, 1997.

The pro forma financial statements are not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the acquisitions described above, the Formation
Transactions and the Offering on such date or at the beginning of the period
indicated, nor does it purport to project the Company's financial position or
results of operations at any future date or for any future period.

F-4
<PAGE>

LBA PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL INVESTMENTS IN
LBA NONCOMBINED COMBINED LBA THE OFFERING PRO FORMA COMPANY
PREDECESSORS ENTITIES PREDECESSORS ACQUISITIONS (B) ADJUSTMENTS PRO FORMA
------------ -------------- ------------ ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Commercial real estate
properties............. $221,102 $ 74,484 $295,586 $ 73,050 $ -- $ 13,408 (C) $390,973
(200)(G) --
9,129 (I) --
Cash and cash
equivalents............ 3,882 1,818 5,700 (74,488) 332,389 (221,030)(C) 21,126
151,753 (D)
(173,198)(E)
Restricted cash......... 12,416 1,977 14,393 -- -- (14,393)(E) --
Due from affiliates..... 53 88 141 -- -- -- 141
Other assets............ 15,447 2,062 17,509 -- (150) 2,272 (D) 17,241
(2,390)(F)
Investments in
noncombined entities... 16,905 (16,905) -- 1,438 -- -- 1,438
-------- -------- -------- -------- -------- --------- --------
Total assets........... $269,805 $ 63,524 $333,329 $ -- $332,239 $(234,649) $430,919
======== ======== ======== ======== ======== ========= ========
LIABILITIES AND EQUITY
Mortgage loans and lines
of credit.............. $131,993 $ 40,448 $172,441 $ -- $ -- $ 154,025 (D) $154,025
(172,441)(E) --
Accounts payable and
accrued liabilities.... 3,417 652 4,069 -- -- (757)(E) 3,312
Unearned rent........... 528 246 774 -- -- -- 774
Tenant security
deposits............... 852 508 1,360 -- -- -- 1,360
-------- -------- -------- -------- -------- --------- --------
Total liabilities...... 136,790 41,854 178,644 (19,173) 159,471
Minority interests...... -- -- -- -- -- (I)
Owners' equity.......... 133,015 21,670 154,685 -- -- (14,393)(E) --
(200)(G)
(140,092)(H)
Stockholders' equity:
Common stock........... -- -- -- -- --
Additional paid-in
capital............... -- -- -- -- 332,239 (108,615)(C) 271,448
(99,007)(C)
(2,390)(F)
140,092 (H)
9,129 (I)
-------- -------- -------- -------- -------- --------- --------
Total owners' and
stockholders' equity.. 133,015 21,670 154,685 -- 332,239 (215,476) 271,448
-------- -------- -------- -------- -------- --------- --------
Total liabilities and
equity.............. $269,805 $ 63,524 $333,329 $ -- $332,239 $(234,649) $430,919
======== ======== ======== ======== ======== ========= ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

LBA PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION
EQUITY IN NET PRE-ACQUISITION PROPERTIES
HISTORICAL INCOME OF COMBINED PERIOD FOR 1997 AND JOINT
LBA NONCOMBINED LBA ACQUIRED VENTURE PRO FORMA COMPANY
PREDECESSORS ENTITIES PREDECESSORS PROPERTIES(J) PROPERTY(K) ADJUSTMENTS PRO FORMA
------------ ------------- ------------ --------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rental.................. $10,853 $6,517 $17,370 $3,674 $4,629 $ 21 (O) $25,694
Tenant recoveries....... 1,020 119 1,139 201 299 82 (P) 1,721
Management and
consulting............. 1,021 -- 1,021 -- -- (65)(M) 956
Parking and other....... 583 19 602 24 26 -- 652
Interest................ 204 83 287 -- -- -- 287
------- ------ ------- ------ ------ ------ -------
Total revenue.......... 13,681 6,738 20,419 3,899 4,954 38 29,310
------- ------ ------- ------ ------ ------ -------
EXPENSES
Rental property
operating.............. 3,762 2,110 5,872 852 1,399 (65)(M) 8,827
296 (N)
473 (Q)
Real estate taxes and
insurance.............. 1,522 610 2,132 370 442 258 (P) 3,202
Depreciation and
amortization........... 2,902 825 3,727 -- -- 1,968 (T) 5,695
Interest................ 2,894 1,586 4,480 -- -- 1,155 (S) 5,635
General and
administrative......... 1,461 -- 1,461 -- -- (296)(N) 1,557
392 (R)
------- ------ ------- ------ ------ ------ -------
Total expenses......... 12,541 5,131 17,672 1,222 1,841 4,181 24,916
------- ------ ------- ------ ------ ------ -------
Equity in net income
(loss) of noncombined
entities............... 708 (708) -- -- (50) -- (50)
------- ------ ------- ------ ------ ------ -------
Income before minority
interests.............. 1,848 899 2,747 2,677 3,063 (4,143) 4,344
Minority interests...... -- -- -- -- -- (U)
------- ------ ------- ------ ------ ------ -------
Net income.............. $ 1,848 $ 899 $ 2,747 $2,677 $3,063 $ $
======= ====== ======= ====== ====== ====== =======
Pro forma common shares
and common share
equivalents outstanding
before conversion of
Units.................. (V)
=======
Net income common per
share.................. $
=======
</TABLE>

See accompanying notes.

F-6
<PAGE>

LBA PROPERTIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
EQUITY IN PRE-
NET INCOME ACQUISITION ACQUISITION
HISTORICAL OF PERIOD FOR 1996 PROPERTIES AND
LBA NONCOMBINED COMBINED LBA ACQUIRED 1997 ACQUIRED JOINT VENTURE PRO FORMA COMPANY
PREDECESSORS ENTITIES PREDECESSORS PROPERTIES (L) PROPERTIES (J) PROPERTY (K) ADJUSTMENTS PRO FORMA
------------ ----------- ------------ --------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rental........... $ 9,819 $2,081 $11,900 $10,841 $11,856 $9,095 $ 1,569 (O) $45,261
Tenant
recoveries...... 1,023 35 1,058 367 1,418 671 163 (P) 3,677
Management and
consulting...... 2,203 -- 2,203 -- -- -- (19)(M) 2,184
Parking and
other........... 697 20 717 173 95 94 -- 1,079
Interest......... 227 -- 227 -- -- -- -- 227
------- ------ ------- ------- ------- ------ ------- -------
Total revenue... 13,969 2,136 16,105 11,381 13,369 9,860 1,713 52,428
------- ------ ------- ------- ------- ------ ------- -------
EXPENSES
Rental property
operating....... 4,759 671 5,430 3,192 2,716 2,645 (19)(M) 15,965
120 (N)
1,881 (Q)
Real estate taxes
and insurance... 1,593 169 1,762 1,668 1,445 872 658 (P) 6,405
Depreciation and
amortization.... 2,722 248 2,970 -- -- -- 7,359 (T) 10,329
Interest......... 2,007 553 2,560 -- -- -- 8,709 (S) 11,269
General and
administrative.. 2,295 -- 2,295 -- -- -- (120)(N) 3,113
938 (R)
------- ------ ------- ------- ------- ------ ------- -------
Total expenses.. 13,376 1,641 15,017 4,860 4,161 3,517 19,526 47,081
------- ------ ------- ------- ------- ------ ------- -------
Equity in net
income (loss) of
noncombined
entities........ 242 (242) -- -- -- (100) -- (100)
------- ------ ------- ------- ------- ------ ------- -------
Income before
minority
interests....... 835 253 1,088 6,521 9,208 6,243 (17,813) 5,247
Minority
interests....... -- -- -- -- -- -- (U)
------- ------ ------- ------- ------- ------ ------- -------
Net income....... $ 835 $ 253 $ 1,088 $ 6,521 $ 9,208 $6,243 $ $
======= ====== ======= ======= ======= ====== ======= =======
Pro forma common
shares and
common share
equivalents
outstanding
before
conversion of
Units........... (V)
=======
Net income per
common share.... $
=======
</TABLE>

See accompanying notes.

F-7
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE DATA)

1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

The adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1997 are as follows:

(A) Acquisition of seven properties acquired subsequent to June 30, 1997 or
currently under contract for acquisition (the "Acquisition Properties"),
one land parcel and a 25% interest in the Joint Venture Property
consisting of the following:

<TABLE>
<CAPTION>
ACQUISITION
PROPERTY/LAND PARCEL PRICE
-------------------- -----------
<S> <C>
Uniden Building................................................ $ 2,605
150 East Colorado.............................................. 7,040
Centrelake Plaza............................................... 10,650
Von Karman Corporate Center.................................... 38,060
Havengate...................................................... 6,650
1800 Lambert................................................... 3,380
Cymer Land..................................................... 775
Shoreham Building.............................................. 3,890
--------
73,050
Investment in the Joint Venture Property....................... 1,438
--------
$ 74,488
========

(B) Sale of shares of common stock in the Offering

Proceeds from the Offering based on an initial price of $ per
share......................................................... $360,473
Costs associated with the Offering............................. (28,234)
--------
332,239
Offering costs prepaid by the Combined LBA Predecessors prior
to the Offering............................................... 150
--------
Net proceeds................................................. $332,389
========
Par value of common stock to be issued......................... $
Additional paid-in capital from proceeds of sale of common
stock......................................................... 332,239
--------
$332,239
========

Reduction in additional paid-in capital for book value of
interests acquired............................................ $108,615
Reduction in additional paid-in capital for distributions to an
affiliate Financial Partner of cash paid in excess of book
value of interests............................................ 99,007
Purchase price in excess of book value of interests in the
Properties purchased from nonaffiliates....................... 13,408
--------
$221,030
========

(D) Mortgage loan and line of credit commitment fees

Proceeds from new mortgage debt and line of credit............. $154,025
Costs associated with new mortgage debt and line of credit..... (2,272)
--------
$151,753
========
</TABLE>

F-8
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

(E) Repayment of mortgage loans and lines of credit of the Combined LBA
Predecessors and related distribution of restricted cash

<TABLE>
<S> <C>
Repayment of mortgage loans and lines of credit................. $ 172,441
Payment of accrued interest..................................... 757
---------
$ 173,198
=========
Release of restricted cash related to repayment of mortgage
loans ......................................................... $ 14,393
=========
(F)Write-off of unamortized loan fees............................... $ (2,390)
=========
(G)To eliminate intercompany capitalized costs related to
noncombined entities............................................... $ (200)
=========
(H)Elimination of owners' equity.................................... $(140,092)
=========
(I)To establish minority interests in Operating Company based on
Units issued....................................................... $
Excess of fair value over book value related to issuance of Units
to nonaffiliates............................................... (9,129)
---------
$
=========
Total equity before percentage allocable to minority interests.... $ 271,448
Percentage allocable to minority interests........................ %
---------
$
=========
</TABLE>

<TABLE>
<S> <C> <C>
Minority Units........................................... %
Total shares issued......................................
---------- ------
Total.................................................... 100.00%
========== ======
</TABLE>

F-9
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS

The pro forma adjustments reflected in the Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended June 30, 1997 and
the year ended December 31, 1996 are set forth below:

(J) Represents the actual unaudited historical results of the 1997 Acquired
Properties from the beginning of the period through the date of
acquisition.

<TABLE>
<CAPTION>
1997 ACQUIRED PROPERTIES
-------------------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1997 TO THE DATE OF ACQUISITION
-------------------------------------------------------------------
AIRPORT
COMMERCE
1997 CENTER &
METLIFE HUNTER SORRENTO OTHER 1997
ACQUIRED BUSINESS VALLEY HDS THE ACQUIRED
PROPERTIES CENTER SCIENCE PARK PLAZA PLAZA PROPERTIES TOTAL
---------- -------- ------------ -------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of acquisition..... (1) (2) February 20, June 11, May 28, (3)
1997 1997 1997
Revenue:
Rental................ $1,356 $682 $ 270 $ 687 $ 571 $108 $3,674
Tenant recoveries..... 187 3 4 7 -- -- 201
Parking and other..... 3 11 2 5 2 1 24
------ ---- ------------ -------- ------- ---- ------
1,546 696 276 699 573 109 3,899
------ ---- ------------ -------- ------- ---- ------
Certain expenses:
Rental property
operating............ 213 164 46 188 202 39 852
Real estate taxes and
insurance............ 138 63 30 45 50 44 370
------ ---- ------------ -------- ------- ---- ------
351 227 76 233 252 83 1,222
------ ---- ------------ -------- ------- ---- ------
Revenue in excess of
certain expenses..... $1,195 $469 $ 200 $ 466 $ 321 $ 26 $2,677
====== ==== ============ ======== ======= ==== ======
</TABLE>

F-10
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)

(J) (continued)

<TABLE>
<CAPTION>
1997 ACQUIRED PROPERTIES
--------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
AIRPORT
COMMERCE
1997 CENTER &
METLIFE HUNTER SORRENTO OTHER 1997
ACQUIRED BUSINESS VALLEY HDS THE ACQUIRED
PROPERTIES CENTER SCIENCE PARK PLAZA PLAZA PROPERTIES TOTAL
---------- -------- ------------ -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of acquisition..... (1) (2) February 20, June 11, May 28, (3)
1997 1997 1997
Revenue:
Rental................ $5,138 $1,707 $ 1,567 $ 1,410 $ 1,429 $605 $11,856
Tenant recoveries..... 1,345 6 16 50 -- 1 1,418
Parking and other..... 19 25 3 4 36 8 95
------ ------ ------------ -------- ------- ---- -------
6,502 1,738 1,586 1,464 1,465 614 13,369
------ ------ ------------ -------- ------- ---- -------
Certain expenses:
Rental property
operating............ 938 279 261 449 488 301 2,716
Real estate taxes and
insurance............ 529 151 147 103 125 390 1,445
------ ------ ------------ -------- ------- ---- -------
1,467 430 408 552 613 691 4,161
------ ------ ------------ -------- ------- ---- -------
Revenue in excess of
certain expenses..... $5,035 $1,308 $ 1,178 $ 912 $ 852 $(77) $ 9,208
====== ====== ============ ======== ======= ==== =======
</TABLE>
- --------
(1)
<TABLE>
<CAPTION>
PROPERTY NAME ACQUISITION DATE
------------- -----------------
<S> <C>
Savi Tech Center February 27, 1997
Skypark Office Plaza March 12 1997
Governor Park Plaza June 30, 1997

(2)
<CAPTION>
PROPERTY NAME ACQUISITION DATE
------------- -----------------
<S> <C>
Hunter Business Center May 21, 1997
Airport Commerce Center May 29, 1997

(3)
<CAPTION>
PROPERTY NAME ACQUISITION DATE
------------- -----------------
<S> <C>
Carlsbad Corporate Center January 7, 1997
Torreyanna Science Park January 15, 1997
One Venture March 14, 1997
Huntington Commerce Center March 20, 1997
</TABLE>

There was no pro forma adjustment necessary for the 1996 Acquired
Properties for the six months ended June 30, 1997 because the revenue and
expense related to such properties is included in the historical net income
for the period.

F-11
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)

(K) Represents the actual unaudited historical results of the Acquisition
Properties and the investment in the Joint Venture Property from the
beginning of the period through June 30, 1997.

<TABLE>
<CAPTION>
ACQUISITION PROPERTIES
---------------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1997 TO JUNE 30, 1997
---------------------------------------------------------------
VON KARMAN OTHER
150 EAST CENTRELAKE CORPORATE ACQUISITION
COLORADO PLAZA HAVENGATE CENTER PROPERTIES TOTAL
-------- ---------- ---------- ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Date of acquisition..... July 29, July 31, August 28, September 10, (4)
1997 1997 1997 1997
Revenue:
Rental................ $ 377 $ 553 $ 556 $ 2,524 $ 619 $4,629
Tenant recoveries..... 2 61 11 131 94 299
Parking and other..... 5 3 8 9 1 26
-------- -------- ---------- ------------- ------ ------
384 617 575 2,664 714 4,954
-------- -------- ---------- ------------- ------ ------
Certain expenses:
Rental property
operating............ 118 202 128 794 157 1,399
Real estate taxes and
insurance............ 52 73 47 203 67 442
-------- -------- ---------- ------------- ------ ------
170 275 175 997 224 1,841
-------- -------- ---------- ------------- ------ ------
Revenue in excess of
certain expenses..... $ 214 $ 342 $ 400 $ 1,667 $ 490 $3,113
======== ======== ========== ============= ====== ======
<CAPTION>
ACQUISITION PROPERTIES
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
VON KARMAN OTHER
150 EAST CENTRELAKE CORPORATE ACQUISITION
COLORADO PLAZA HAVENGATE CENTER PROPERTIES TOTAL
-------- ---------- ---------- ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Date of acquisition..... July 29, July 31, August 28, September 10, (4)
1997 1997 1997 1997
Revenue:
Rental................ $ 798 $ 1,530 $ 1,070 $ 4,364 $1,333 $9,095
Tenant recoveries..... 4 111 4 345 207 671
Parking and other..... 37 19 2 33 3 94
-------- -------- ---------- ------------- ------ ------
839 1,660 1,076 4,742 1,543 9,860
-------- -------- ---------- ------------- ------ ------
Certain expenses:
Rental property
operating............ 255 365 238 1,443 344 2,645
Real estate taxes and
insurance............ 92 150 90 407 133 872
-------- -------- ---------- ------------- ------ ------
347 515 328 1,850 477 3,517
-------- -------- ---------- ------------- ------ ------
Revenue in excess of
certain expenses..... $ 492 $ 1,145 $ 748 $ 2,892 $1,066 $6,343
======== ======== ========== ============= ====== ======
</TABLE>

- --------
(4)
<TABLE>
<CAPTION>
ACQUISITION
PROPERTY NAME DATE
------------- ---------------
<S> <C>
Uniden Building July 24, 1997
1800 Lambert August 26, 1997
Shoreham Building Under Contract
</TABLE>

F-12
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)

(K) (continued)

<TABLE>
<CAPTION>
SIX MONTHS 12 MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Equity in net loss of noncombined entity................ $ 50 $ 100
===== ======
</TABLE>

(L) Represents the actual historical results for the 1996 Acquired Properties
from the beginning of the period through the date of acquisition.

<TABLE>
<CAPTION>
1996 ACQUIRED PROPERTIES
-------------------------------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1996 TO THE DATE OF ACQUISITION
-------------------------------------------------------------------------------
CHICAGO
1996 CIGNA AVENUE OTHER 1996
ACQUIRED 1919 SANTA BUSINESS ACQUIRED
PROPERTIES WESTRIDGE VIA FRONTERA MONICA PARK PROPERTIES TOTAL
---------- --------- ------------- ----------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Date of acquisition..... (5) June 18, September 17, October 27, December 20, (6)
1996 1996 1996 1996
Revenue:
Rental................. $ 8,809 $ 91 $ 366 $ 748 $ 459 $ 368 $10,841
Tenant recoveries...... 214 7 71 51 21 3 367
Parking and other...... 37 -- 1 81 -- 54 173
--------- -------- ------------- ----------- ------------ --------- -------
9,060 98 438 880 480 425 11,381
--------- -------- ------------- ----------- ------------ --------- -------
Certain expenses:
Rental property
operating............. 2,526 16 40 196 144 270 3,192
Real estate taxes and
insurance............. 1,138 22 27 118 40 323 1,668
--------- -------- ------------- ----------- ------------ --------- -------
3,664 38 67 314 184 593 4,860
--------- -------- ------------- ----------- ------------ --------- -------
Revenue in excess of
certain expenses...... $ 5,396 $ 60 $ 371 $ 566 $ 296 $ (168) $ 6,521
========= ======== ============= =========== ============ ========= =======
</TABLE>
- --------
(5)
<TABLE>
<CAPTION>
PROPERTY NAME ACQUISITION DATE
------------- -----------------
<S> <C>
1501 Hughes Way June 11, 1996
3901 Via Oro June 11, 1996
Camarillo Business Center October 31, 1996
City Centre I October 31, 1996
Newport-Irvine Office October 31, 1996
Orange Financial Center October 31, 1996
South Coast Executive Park October 31, 1996
Yorba Linda Business Center October 31, 1996

(6)
<CAPTION>
PROPERTY NAME ACQUISITION DATE
------------- -----------------
<S> <C>
600 Corporate Pointe January 31, 1996
5161 Lankershim March 29, 1996
Poway Industrial April 16, 1996
Scripps Ranch June 11, 1996
Cymer Technology Center December 20, 1996
</TABLE>

F-13
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 1997 1996
---------- ------------
<S> <C> <C>
(M)To eliminate intercompany fees related to
noncombined entities............................. $ 65 $ 19
======= =======
(N)To reclassify consolidated property operating
expenses associated with noncombined entities.... $ 296 $ 120
======= =======
(O)Increase in rental revenue to adjust the 1996
Acquired Properties, the 1997 Acquired Properties
and the Acquisition Properties to straight-line
rental revenue based on the pro forma acquisition
date of the LBA Predecessors..................... $ 21 $ 1,569
======= =======
(P)Net increase in real estate taxes and insurance due
to reassessment of property values and
renegotiation of insurance premiums related to
the 1996 Acquired Properties, 1997 Acquired
Properties and the Acquisition Properties and
related direct increase in tenant recoveries:
Real estate taxes and insurance.................. $ 258 $ 658
======= =======
Tenant recoveries................................ $ 82 $ 163
======= =======
(Q)Increase in property general and administrative
expense related to additional property payroll
and other administrative costs relating to the
1996 Acquired Properties, the 1997 Acquired
Properties and the Acquisition Properties........ $ 473 $ 1,881
======= =======
(R)Increase in general and administrative expense
related to expected level of operations as a
public real estate investment trust.............. $ 392 $ 938
======= =======
(S)Increase in interest expense
Decrease in interest expense due to repayment of
mortgage loans and lines of credit............... $(4,480) $(2,560)
Increase in interest expense related to the newly
originated nonamortizing mortgage debt in the
amount of $152,900 (interest rate fixed at 7.0%;
due in ten years) and draw on $150,000 unsecured
line of credit in the amount $1,125 (interest
rate of LIBOR plus 1.1875% due in three years)... 5,390 10,780
Increase in amortization of finance costs related
to the mortgage debt and line of credit.......... 245 489
------- -------
Net increase in interest expense.................. $ 1,155 $ 8,709
======= =======
</TABLE>

F-14
<PAGE>

LBA PROPERTIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT SHARE DATA)

2. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
(T)Increase in depreciation expense to reflect a full
period of depreciation for the 1996 Acquired
Properties, the 1997 Acquired Properties and the
Acquisition Properties utilizing a 39-year useful
life for buildings and a seven-year useful life
for improvements.................................. $1,679 $ 6,781
Increase in depreciation due to the fair value of
Units or cash paid in excess of book value of
interests in the Properties acquired from the
nonaffiliates....................................... 289 578
------ -------
Net increase in depreciation expense............. $1,968 $ 7,359
====== =======
Historical depreciation on the Combined LBA
Predecessors........................................ $3,727 $ 2,970
Additional depreciation on the 1996 and 1997 Acquired
Properties:
Pro forma depreciation as if the 1996 and 1997
Acquired Properties were purchased on January 1,
1996.............................................. 3,550 7,101
Historical depreciation recorded by the Combined
LBA Predececessors for the 1996 and 1997 Acquired
Properties........................................ (2,845) (2,269)
------ -------
Net increase in depreciation expense (the pro forma
adjustment for the six months ended June 30, 1997
includes only the 1997 Acquired Properties)....... 705 4,832
Depreciation on the Acquisition Properties........... 974 1,949
Depreciation on the price in excess of book value.... 289 578
------ -------
$5,695 $10,329
====== =======
(U)To reflect adjustment for minority interests of %
in the Operating Company.......................... $ $
====== =======
(V)Pro forma common shares outstanding represents the
shares to be issued and common
share equivalents reduced by shares, the
proceeds of which result solely in an increase in
cash to be used for reserves and working capital
and not used to repay debt or acquire property as
part of the Offering transaction.
</TABLE>

F-15
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying balance sheet of LBA Properties, Inc., a
Maryland corporation, as of October 6, 1997. This balance sheet is the
responsibility of the management of LBA Properties, Inc. Our responsibility is
to express an opinion on the balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of LBA Properties, Inc., a Maryland corporation, at
October 6, 1997 in conformity with generally accepted accounting principles.

LOGO
/s/ Ernst & Young LLP
Newport Beach, California
October 6, 1997

F-16
<PAGE>

LBA PROPERTIES, INC.

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 6,
1997
----------
<S> <C>
ASSETS.............................................................. $--
====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies.......................................
Common stock, $.01 par value, 1,000,000 shares authorized,
shares issued and outstanding...................................... $--
----
$--
====
</TABLE>

See accompanying notes.

F-17
<PAGE>

LBA PROPERTIES, INC.

NOTES TO BALANCE SHEET

1. ORGANIZATION

Unless defined otherwise herein, capitalized terms used in these notes to
the balance sheet have the same meaning as defined elsewhere in this
Prospectus. These footnotes should be read in conjunction with the Prospectus.
LBA Properties, Inc. (the "Company") is a Maryland corporation which was
formed on October 6, 1997 to acquire a portfolio of commercial real estate
properties (the "Properties") and continue the real estate business of LBA,
Inc. ("LBA"), a California corporation, its principals and certain other
entities. Substantial ownership interests in the entities that own interests
in the operations and Properties are held by LBA, Inc., AEW/LBA Acquisition
Co., L.L.C., AEW/LBA Acquisition Co. II, L.L.C., AEW/LBA Acquisition Co. III,
L.L.C., Phil A. Belling and Steven R. Layton, the majority owners of LBA,
Inc., and other affiliates (the "LBA Predecessors"). The LBA Predecessors are
engaged in owning, acquiring, managing, leasing and renovating commercial real
estate properties in Southern California.

The Company will be the sole managing member of a newly formed limited
liability company (the "Operating Company"). The Operating Company will
initially hold all the interests in the Properties. The Company will conduct
substantially all of its business through the Operating Company. As the sole
managing member of the Operating Company, the Company will have exclusive
power to manage and conduct the business of the Operating Company, subject to
certain limited exceptions.

Concurrently with the consummation of a proposed public offering of the
Company's Common Stock (the "Offering"), the Company and the Operating
Company, together with the owners and members of the LBA Predecessors
including certain unaffiliated investors (collectively, the "Participants"),
will engage in certain formation transactions (the "Formation Transactions").
The Formation Transactions have been designed to (i) consolidate the ownership
of the Properties and the commercial real estate business of the Company in
the Operating Company, (ii) facilitate the Offering, (iii) provide a vehicle
for future acquisitions, (iv) enable the Company to comply with certain
requirements under the federal income tax laws and regulations relating to
REITs, and (v) preserve certain tax advantages for the Predecessor Entities
and the Participants.

2. COMMITMENTS AND CONTINGENCIES

The Company will become a party to various legal actions resulting from the
operating activities to be transferred to the Operating Company. These actions
are incidental to the transferred business and management of the Company does
not believe that these actions will have a material adverse effect on the
Company.

3. RISKS AND UNCERTAINTIES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company 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. Actual results could differ materially from those
estimates in the near term.

4. INCOME TAXES

After the Offering, the Company intends to make an election to be taxed as a
real estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code (the "Code"). As a REIT, the Company generally will not
be subject to federal income tax if it distributes at least 95% of its taxable
income for each tax year to its stockholders. REITs are subject to a number of
organizational and operational

F-18
<PAGE>

LBA PROPERTIES, INC.

NOTES TO BALANCE SHEET--(CONTINUED)

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.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to state and local income taxes and to federal income tax and excise
tax on its undistributed income.

5. EQUITY INCENTIVE PLAN

As disclosed elsewhere in this Prospectus, the Company will adopt the LBA
Properties, Inc. 1997 Equity Incentive Plan (the "Equity Incentive Plan") to
provide incentives to attract and retain officers, key employees and outside
directors.

The Equity Incentive Plan will be administered by the Compensation Committee
and provide for the granting of stock options, restricted stock, unrestricted
stock, deferred stock units, performance share awards, dividend equivalent
rights or other stock-based awards. Stock options may be granted in the form
of "incentive stock options," as defined in Section 422 of the Code, or non-
statutory stock options.

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes a fair value method for
accounting for stock-based compensation, such as option plans, but does not
require that the new method be adopted. The Company may elect to continue
following the methodology in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, whereby the compensation expense is
measured as the difference between the exercise price of the option and the
stock price on the measurement date with the fair value of options disclosed
in the footnotes in the financial statements. SFAS 123 is not expected to
adversely affect the Company's future reported results.

6. RECENTLY ISSUED ACCOUNTING STANDARDS

During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 Earnings Per Share ("SFAS 128"), No.
129 Disclosure of Information About Capital Structure ("SFAS 129"), No. 130
Reporting Comprehensive Income ("SFAS 130"), and No. 131 Disclosures About
Segments of an Enterprise and Related Information ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.

SFAS 128 specifies the computation, representation and disclosure
requirements for earnings per share. SFAS 129 established standards for
disclosing information about an entity's capital structure such as information
about securities, liquidation preference of preferred stock and redeemable
stock. SFAS 130 specifies the presentation and disclosure requirement of
reporting comprehensive income which includes those items which have been
formerly reported as a component of shareholders' equity. SFAS 131 establishes
the disclosure requirements for reporting segment information.

The management of the Company believes that, when adopted, SFAS 128, 129,
130 and 131 will not have a significant impact on the Company's financial
statements.

F-19
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Owners of the LBA Predecessors

We have audited the accompanying combined balance sheets of LBA
Predecessors, as defined in Note 1, as of December 31, 1996 and 1995, and the
related combined statements of operations, owners' equity and cash flows for
each of the three years in the period ended December 31, 1996 and the
financial statement schedule included on the index at F-1 of this Prospectus.
These financial statements and schedule are the responsibility of the
management of the LBA Predecessors. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of LBA
Predecessors at December 31, 1996 and 1995, and the combined results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the combined financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.

/s/ Ernst & Young LLP
Newport Beach, California
September 10, 1997

F-20
<PAGE>

LBA PREDECESSORS

COMBINED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1997 1996 1995
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Commercial real estate properties................. $221,102 $105,073 $27,296
Cash and cash equivalents......................... 3,882 7,068 1,685
Restricted cash................................... 12,416 4,029 --
Due from affiliates............................... 53 289 6
Other assets...................................... 15,447 4,670 1,326
Investments in noncombined entities............... 16,905 15,936 --
-------- -------- -------
Total assets.................................... $269,805 $137,065 $30,313
======== ======== =======
LIABILITIES AND OWNERS' EQUITY
Mortgage loans and lines of credit................ $131,993 $ 27,902 $ 863
Accounts payable and accrued liabilities.......... 3,417 4,524 205
Unearned rent..................................... 528 520 338
Tenant security deposits.......................... 852 465 240
-------- -------- -------
Total liabilities............................... 136,790 33,411 1,646
Owners' equity.................................... 133,015 103,654 28,667
-------- -------- -------
Total liabilities and owners' equity............ $269,805 $137,065 $30,313
======== ======== =======
</TABLE>

See accompanying notes.

F-21
<PAGE>

LBA PREDECESSORS

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------- ---------------------
1997 1996 1996 1995 1994
------- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Rental.................................. $10,853 $4,069 $ 9,819 $3,860 $ --
Tenant recoveries....................... 1,020 450 1,023 510 --
Management and consulting............... 1,021 1,109 2,203 2,153 2,145
Parking and other....................... 583 428 697 241 --
Interest................................ 204 70 227 35 --
------- ------ ------- ------ ------
Total revenue......................... 13,681 6,126 13,969 6,799 2,145
------- ------ ------- ------ ------
Expenses
Rental property operating............... 3,762 1,870 4,759 1,168 --
Real estate taxes and insurance......... 1,522 661 1,593 522 --
Depreciation and amortization........... 2,902 933 2,722 629 25
Interest................................ 2,894 892 2,007 40 5
General and administrative.............. 1,461 748 2,295 1,771 1,575
Total expenses........................ 12,541 5,104 13,376 4,130 1,605
------- ------ ------- ------ ------
Equity in net income of noncombined enti- 708 -- 242 -- --
ties..................................... ------- ------ ------- ------ ------
Net income................................ $ 1,848 $1,022 $ 835 $2,669 $ 540
======= ====== ======= ====== ======
</TABLE>

See accompanying notes.

F-22
<PAGE>

LBA PREDECESSORS

COMBINED STATEMENTS OF OWNERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<S> <C>
BALANCE--January 1, 1994.............................................. $ 320
Owners' contributions............................................... --
Owners' distributions............................................... (615)
Net income--1994.................................................... 540
--------
BALANCE--December 31, 1994............................................ 245
Owners' contributions............................................... 26,905
Owners' distributions............................................... (1,152)
Net income--1995.................................................... 2,669
--------
BALANCE--December 31, 1995............................................ 28,667
Owners' contributions............................................... 113,747
Owners' distributions............................................... (39,595)
Net income--1996.................................................... 835
--------
BALANCE--December 31, 1996............................................ 103,654
Owners' contributions (unaudited)................................... 118,187
Owners' distributions (unaudited)................................... (90,674)
Net income--six months ended June 30, 1997 (unaudited).............. 1,848
--------
BALANCE--June 30, 1997 (unaudited).................................... $133,015
========
</TABLE>

See accompanying notes.

F-23
<PAGE>

LBA PREDECESSORS

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------- ------------------------
1997 1996 1996 1995 1994
--------- -------- -------- -------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES
Net income..................... $ 1,848 $ 1,022 $ 835 $ 2,669 $540
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Equity in net income of
noncombined entities........ (708) -- (242) -- --
Depreciation and
amortization................ 2,902 933 2,722 629 25
Amortization of loan fees.... 109 47 108 -- --
Changes in assets and
liabilities
Increase in restricted
cash...................... (8,387) (4,692) (4,029) -- --
Decrease (increase) in due
from affiliates........... 236 (49) (283) (6) (29)
Increase in other assets... (11,250) (1,649) (3,680) (968) (47)
Increase (decrease) in
accounts payable and
accrued liabilities....... (1,107) 916 4,319 145 13
Increase (decrease) in
unearned rent............. 8 (294) 182 338 --
Increase in tenant security 387 146 225 240 --
deposits.................. --------- -------- -------- -------- ----
Net cash provided by (used in) (15,962) (3,620) 157 3,047 502
operating activities.......... --------- -------- -------- -------- ----
CASH FLOWS FROM INVESTING AC-
TIVITIES
Acquisitions of commercial real
estate properties............. (113,200) (50,830) (73,326) (27,316) --
Commercial real estate proper-
ties improvements............. (5,367) (1,087) (6,945) (546) --
Increase in investments in (261) -- (15,694) -- --
noncombined entities.......... --------- -------- -------- -------- ----
Net cash used in investing ac- (118,828) (51,917) (95,965) (27,862) --
tivities...................... --------- -------- -------- -------- ----
CASH FLOWS FROM FINANCING AC-
TIVITIES
Proceeds from mortgage loans
and lines of credit........... 104,475 27,210 29,791 742 124
Repayments on mortgage loans
and lines of credit........... (384) (281) (2,752) (5) (1)
Owners' contributions.......... 118,187 51,986 113,747 26,905 --
Owners' distributions.......... (90,674) (23,146) (39,595) (1,152) (615)
--------- -------- -------- -------- ----
Net cash provided by (used in) 131,604 55,769 101,191 26,490 (492)
financing activities.......... --------- -------- -------- -------- ----
Net increase (decrease) in cash
and cash equivalents.......... (3,186) 232 5,383 1,675 10
Cash and cash equivalents--be- 7,068 1,685 1,685 10 --
ginning of period............. --------- -------- -------- -------- ----
Cash and cash equivalents--end $ 3,882 $ 1,917 $ 7,068 $ 1,685 $ 10
of period..................... ========= ======== ======== ======== ====
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period for $ 2,372 $ 783 $ 1,768 $ 40 $ 5
interest...................... ========= ======== ======== ======== ====
</TABLE>

See accompanying notes.

F-24
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

1. ORGANIZATION

Unless defined otherwise herein, capitalized terms used in these notes to
the combined financial statements have the same meaning as defined elsewhere
in this Prospectus. These footnotes should be read in conjunction with the
Prospectus. The entities below are currently engaged in owning, acquiring,
managing, leasing and renovating commercial real estate properties located in
Southern California. Substantial ownership interests in the entities that own
interests in the operations and properties below are held by LBA, Inc.,
AEW/LBA Acquisition Co., L.L.C., AEW/LBA Acquisition Co. II, L.L.C., AEW/LBA
Acquisition Co. III, L.L.C., Phil A. Belling and Steven R. Layton, the
majority owners of LBA, Inc., and other affiliates (the "LBA Predecessors").

The owners and members of the LBA Predecessors, including certain
unaffiliated investors (collectively, the "Participants") will, concurrently
with a proposed public offering, enter into a series of transactions with LBA
Properties, Inc., a Maryland corporation, to form a real estate investment
trust (the "Company") to continue and expand the business of the LBA
Predecessors. All of the properties owned by the entities (the "Properties")
have been managed by LBA, Inc. since their acquisition by the LBA
Predecessors.

In connection with the proposed Offering, in those instances where the
financial interests held by the LBA Predecessors are also controlling
interests, the entities have been combined in the accompanying financial
statements (the "Combined Entities"). Where controlling interests are not held
by the LBA Predecessors, the entities are accounted for as investments in
noncombined entities utilizing equity accounting (the "Noncombined Entities").
The balances and operations of certain properties owned by the entities of the
LBA Predecessors, which have been sold or will not be included in the
transactions with the Company, have been excluded from the accompanying
financial statements.

The following is information on the Combined Entities and Noncombined
Entities, and properties owned by such entities which will be included in the
transactions with the Company as well as properties currently under contract:
<TABLE>
<CAPTION>
ACQUISITION
ENTITY NAME PROPERTY NAME CALIFORNIA CITY DATE
----------- ------------- --------------- -----------
<S> <C> <C> <C>
COMBINED ENTITIES
- -----------------
LBA, Inc., a California Operating Management Company -- --
corporation ("LBA")
AEW/LBA Acquisition Co.,
L.L.C., a . Huntington Beach R & D I Huntington Beach March 1995
California limited
liability . Huntington Beach R & D II Huntington Beach March 1995
company ("AEW/LBA I") . Huntington Beach R & D III Huntington Beach March 1995
. Huntington Beach Plaza I & II Huntington Beach March 1995
. Vista Sorrento Plaza San Diego March 1995
. Tower Plaza Office Temecula March 1995
. Tower Plaza Professional Center Temecula March 1995
. Tower Plaza Business Center Temecula March 1995
. Highlands I Temecula March 1995
. Highlands II Temecula March 1995
. Tower Plaza Retail Temecula March 1995
. Temecula Land Temecula March 1995
. 4440 Von Karman Newport Beach October 1995
. 600 Corporate Pointe Culver City January 1996
</TABLE>

F-25
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION
ENTITY NAME PROPERTY NAME CALIFORNIA CITY DATE
----------- ------------- --------------- -----------
<S> <C> <C> <C>
COMBINED ENTITIES
(CONTINUED)
AEW/LBA Acquisition Co.
II, . 5161 Lankershim Los Angeles March 1996
L.L.C., a California . Poway Industrial Poway April 1996
limited . 1501 Hughes Way Long Beach June 1996
liability company . 3901 Via Oro Long Beach June 1996
("AEW/LBA II") . Scripps Ranch San Diego June 1996
. Westridge San Diego June 1996
. Via Frontera Rancho Bernardo September 1996
. 1919 Santa Monica Santa Monica October 1996
. Cymer Technology Center San Diego December 1996
. Carlsbad Corporate Center Carlsbad January 1997
. Torreyanna Science Park Torrey Pines January 1997
. Sorrento Valley Science Park San Diego February 1997
. Savi Tech Center Yorba Linda February 1997
. Skypark Office Plaza San Diego March 1997
. One Venture Irvine March 1997
. The Plaza Fountain Valley May 1997
. Airport Commerce Center Ontario May 1997
. Hunter Business Center Ontario May 1997
. HDS Plaza San Bernardino June 1997
. Governor Park Plaza San Diego June 1997

<CAPTION>
ACQUISITIONS SUBSEQUENT TO
JUNE 30, 1997
--------------------------
<S> <C> <C> <C>
. 150 East Colorado Pasadena July 1997
. Centrelake Plaza Ontario July 1997
. Havengate Rancho Cucamonga August 1997
. Comcast Land Ontario August 1997
. Von Karman Corporate Center Irvine September 1997
<CAPTION>
NONCOMBINED ENTITIES
- --------------------
<S> <C> <C> <C>
CAL Portfolio VI,
L.L.C., a . Camarillo Business Center Camarillo October 1996
Delaware limited . South Coast Executive Park Costa Mesa October 1996
liability . City Centre I Orange October 1996
company ("CAL VI") . Orange Financial Center Orange October 1996
. Newport-Irvine Office Newport Beach October 1996
. Yorba Linda Business Center Yorba Linda October 1996

Spectrum Chicago Avenue, . Chicago Avenue Business Park Riverside December 1996
L.L.C., a California
limited liability
company
Spectrum Huntington . Huntington Commerce Center Huntington Beach March 1997
Center, L.L.C., a
California limited
liability company
<CAPTION>
ACQUISITIONS SUBSEQUENT TO
JUNE 30, 1997
--------------------------
<S> <C> <C> <C>
Spectrum Waples Street, . Uniden Building San Diego July 1997
L.L.C., a California
limited liability
company
Spectrum Lambert Plaza, . 1800 Lambert Brea August 1997
L.L.C., a California
limited liability
company
<CAPTION>
PROPERTIES UNDER
CONTRACT
- ----------------
<S> <C> <C> <C>
. Shoreham Building San Diego To be acquired
. Cymer Land San Diego To be acquired
</TABLE>

All significant balances and transactions between the LBA Predecessors have
been eliminated in the combined financial statements.

F-26
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

Proposed Transactions

Concurrently with the consummation of an initial public offering of the
Company's Common Stock (the "Offering"), which is expected to be completed in
1997, the Company and a newly formed limited liability company (the "Operating
Company"), together with the Participants will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions have
been designed to (i) consolidate the ownership of the Properties and the
commercial real estate business of the Company in the Operating Company, (ii)
facilitate the Offering, (iii) provide a vehicle for future acquisitions, (iv)
enable the Company to comply with certain requirements under the federal
income tax laws and regulations relating to REITs, and (v) preserve certain
tax advantages for the Predecessor Entities and the Participants.

The operations of the Company will be carried on primarily through the
Operating Company and its subsidiaries in order to assist the Company and the
Participants in forming the Company under the Internal Revenue Code of 1986.

The Company will be the sole managing member in the Operating Company and
the Participants will transfer certain property and operating interests in the
Combined Entities and Noncombined Entities (collectively, the "Combined LBA
Predecessors") in exchange for Units in the Operating Company, Common Stock in
the Company and/or cash.

The transfer of property and operating interests of the LBA Predecessors to
the Operating Company for cash, Common Stock in the Company or Units in the
Operating Company will be accounted for at the historical cost of their
interests in the LBA Predecessors similar to a pooling of interests. All
transfers by nonaffiliates will be accounted for at the fair value of the
Units issued and/or cash consideration paid.

2. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1996 and 1995, and the reported amounts of revenue and expenses
for the three years in the period ended December 31, 1996. Actual results
could materially differ from those estimates in the near term.

Commercial Real Estate Properties

Commercial real estate properties are stated at cost less accumulated
depreciation and include land, buildings and improvements. Expenditures for
ordinary maintenance and repairs are expensed to operations as incurred.
Significant replacements and betterments which improve or extend the useful
life of the asset are capitalized. Except for amounts attributable to land,
operating properties are depreciated over their estimated useful lives. The
estimated useful lives (and depreciation method) by category are as follows:

<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
ASSET CATEGORY (AND DEPRECIATION METHOD)
-------------- ------------------------------------
<S> <C>
Buildings........................... 39 years (straight-line)
Building improvements............... Five to ten years (double-declining)
Tenant improvements................. Life of lease (straight-line)
</TABLE>

F-27
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS 121"), requires impairment losses to be recorded on long-lived assets
held for investment when indicators of impairment are present and the future
cash flows (undiscounted and without interest charges) estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are held for sale
which are required to be recorded at the lower of the assets' fair value less
cost to sell or the assets' carrying amount. As of December 31, 1996,
management believes that no indications of impairment exist relating to its
commercial real estate properties. All commercial real estate properties are
held for investment as of December 31, 1996.

Cash and Cash Equivalents

All highly liquid investments purchased with a remaining maturity of three
months or less are considered to be cash equivalents.

Restricted Cash

The restricted cash at December 31, 1996 of $4,029 is required by a lender
of the LBA Predecessors' mortgage loans (Note 5) for interest, tax and working
capital reserves. The lender holds a security interest in these restricted
funds which are subject to the supervision and approval of the lender.

Organizational Costs

Organizational costs are amortized by the LBA Predecessors using the
straight-line method over five years.

Deferred Lease Commissions

Leasing commissions are amortized on a straight-line basis over the term of
the related lease.

Loan Fees

Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements using the level yield method.

Interest Rate Swap Agreements

The LBA Predecessors enter into interest rate swap agreements to effectively
convert a portion of its variable-rate borrowings into fixed-rate obligations.
The interest rate differential to be received or paid is recognized over the
lives of the agreements as an adjustment to interest expense.

Rental Income

Rental income, including rental abatements and contractual fixed increases
attributable to operating leases, is recorded on an accrual basis as it is
earned over the life of the lease using the straight-line method. Rent
receivables are evaluated for collectibility. At December 31, 1996 and
December 31, 1995, the LBA Predecessors have recorded deferred rent (included
in other assets) receivable from tenants in the amount of $854 and $385,
respectively, which the LBA Predecessors expect to collect over the remaining
life of these leases. Deferred rent amortization for the year ended December
31, 1996 was $469. Operating expense recoveries due from tenants for common
area maintenance, real estate taxes and other recoverable costs are recognized
in the period the expenses are incurred.

F-28
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

Fair Value of Financial Instruments

The carrying amounts of the LBA Predecessors' financial instruments
approximate their fair values as of December 31, 1996.

Profit Sharing Plan

LBA has a profit sharing plan covering substantially all full-time
employees. LBA made a discretionary contribution to the plan totaling
approximately $52, $19 and $7 for the three years ended December 31, 1996,
1995 and 1994, respectively, which is included in general and administrative
expenses.

Stock Options

Pursuant to an agreement dated June 1, 1997, LBA granted 1,700 options to
purchase shares of LBA's common stock (the "Stock Options") to two employees.
The Stock Options vest in full and are exerciseable immediately prior to the
earlier of the occurrence of the Offering or December 31, 2000. Stock issued
to these two employees through the exercise of the Stock Options are subject
to certain repurchase provisions in instances of termination of employment
prior to December 31, 2000. LBA has recorded compensation expense reflecting
the difference between the assumed initial public offering price and the
exercise price of the Stock Options.

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). The new accounting standards prescribed by SFAS 123
are optional, and LBA Predecessors have elected to account for the Stock
Options as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. The effect of applying the SFAS 123
fair value method to LBA Predecessors' Stock Options for the year ended
December 31, 1996 would result in net income that is not materially different
from amounts reported.

Income Taxes

The combined entities that make up the LBA Predecessors consist of limited
liability companies, partnerships and a Subchapter S corporation. Taxable
income is recorded on the separate tax returns of the membership unit holders
and individual partners and, accordingly, no provision for income taxes has
been recorded in the accompanying financial statements.

Per Share Data

Per share data are not relevant since the LBA Predecessors represents a
presentation of the operations of a group of companies.

Unaudited Interim Statements

The combined financial statements as of June 30, 1997 and for the six months
ended June 30, 1997 and 1996 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods. All such adjustments are of
a normal, recurring nature.

F-29
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

3. COMMERCIAL REAL ESTATE PROPERTIES

The commercial real estate properties are located in Southern California and
consist primarily of office buildings, industrial buildings and land. At
December 31, commercial real estate properties consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Land.................................................... $ 24,864 $ 6,547
Buildings and improvements.............................. 72,740 20,212
Tenant improvements..................................... 10,529 1,103
-------- -------
108,133 27,862
Accumulated depreciation................................ (3,060) (566)
-------- -------
$105,073 $27,296
======== =======
</TABLE>

Noncancelable operating leases with tenants expire on various dates through
2010. Future minimum rents due on noncancelable operating leases from the LBA
Predecessors' commercial real estate properties as of December 31, 1996 are as
follows:

<TABLE>
<S> <C>
1997............................................................. $13,249
1998............................................................. 11,541
1999............................................................. 9,206
2000............................................................. 8,569
2001............................................................. 7,804
Thereafter....................................................... 16,489
-------
$66,858
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Subsequent to December 31, 1996 through September 10, 1997, the LBA
Predecessors purchased additional properties for an aggregate purchase price
of $181,600.

4. OTHER ASSETS

Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred lease commissions.................................. $1,626 $ 69
Loan fees................................................... 612 50
Rent receivables............................................ 144 205
Deferred rent............................................... 854 385
Other receivables........................................... 367 392
Furniture and fixtures...................................... 278 232
Prepaid and other assets.................................... 1,248 116
------ ------
5,129 1,449
Accumulated depreciation and amortization................... (459) (123)
------ ------
$4,670 $1,326
====== ======
</TABLE>

F-30
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
5. MORTGAGE LOANS AND LINES OF CREDIT

Mortgage loans and lines of credit consist of the following as of December
31:
<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
AEW/LBA I Mortgage Loan......................................... $26,805 $--
A mortgage loan dated February 1996. The loan matures in
February 1999 and contains provisions for a one-year extension
and scheduled principal repayments. The loan currently bears
interest at LIBOR (for the applicable interest period selected
by AEW/LBA I) plus 2.25% (7.93% as of December 31, 1996). The
spread over the LIBOR increases to 2.5% during the third year
of the loan. All income-producing properties owned by AEW/LBA
I as of February 16, 1996 were pledged as collateral for the
loan. The loan contains scheduled principal repayments and
minimum release prices on each property pledged as collateral.
LBA Unsecured Lines of Credit and Notes Payable................. 1,097 863
Various unsecured lines of credit and notes payable with
maturities from 1997 through 1999. The lines of credit and
notes payable currently bear interest at fixed and variable
rates ranging between 8.25% and 9.75% as of December 31, 1996.
------- ----
$27,902 $863
======= ====
</TABLE>

In March 1997, AEW/LBA II entered into a $50,000 bridge credit agreement
(the "Bridge Loan") with a financial institution. In May 1997, AEW/LBA I and
AEW/LBA II (collectively, the "Borrower") entered into a credit agreement (the
"Credit Agreement") for an amount up to $192,805 with the same financial
institution and received $131,281 in proceeds from the Credit Agreement. The
remaining availability may be used in whole or in part to acquire new
properties. The Credit Agreement proceeds were used to pay off the outstanding
principal and interest on the AEW/LBA I Mortgage Loan and the Bridge Loan and
to make distributions to the members. The Credit Agreement is for a two-year
period and contains provisions for a one-year extension. The Credit Agreement
bears interest at the Borrower's option at LIBOR plus 1.75% or the prime rate.
At the closing of the Credit Agreement, the Borrower entered into a six-month
swap agreement with a base rate of 6.06%. The interest rate, inclusive of
credit spread for the first six months of the credit agreement, is 7.81%. All
of the income-producing properties owned by the Borrower as of the funding of
the Credit Agreement were pledged as collateral for the Credit Agreement.

During 1996, the LBA Predecessors incurred and expensed $1,899 of interest
of which $112 was payable at December 31, 1996.

Included in interest expense for the year ended December 31, 1996, is $108
of amortized loan fees.

F-31
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

Scheduled principal payments on the mortgage loans and lines of credit for
the years ending December 31 are as follows:

6. INVESTMENTS IN NONCOMBINED ENTITIES

The following are the LBA Predecessors' investments in various entities
which own commercial real estate properties in which the LBA Predecessors do
not own controlling financial interests. These investments are accounted for
utilizing the equity method of accounting. Under such accounting method, the
net equity investment of the LBA Predecessors is reflected on the combined
balance sheets and the combined statements of operations include the LBA
Predecessors' share of net income from the entities. The LBA Predecessors'
stated ownership interest in each entity is as follows:

<TABLE>
<CAPTION>
LBA
PREDECESSORS'
ENTITY OWNERSHIP %
------ -------------
<S> <C>
CAL Portfolio VI, L.L.C...................................... 50%
Spectrum Chicago Avenue, L.L.C. ............................. 10%
Spectrum Huntington Center, L.L.C............................ 10%
</TABLE>

F-32
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
Condensed combined balance sheets and operating information is presented
below for all Noncombined Entities.

CONDENSED COMBINED BALANCE SHEETS OF NONCOMBINED ENTITIES

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
<S> <C> <C>
Assets:
Commercial real estate properties............ $74,484 $70,617
Other assets................................. 5,945 5,066
------- -------
Total assets............................... $80,429 $75,683
======= =======
Liabilities and Owners' Equity:
Mortgage loan................................ 40,448 40,448
Other liabilities............................ 1,406 1,509
LBA Predecessors' equity..................... 16,905 15,936
Other owners' equity......................... 21,670 17,790
------- -------
Total liabilities and owners' equity....... $80,429 $75,683
======= =======

CONDENSED COMBINED STATEMENTS OF OPERATIONS OF NONCOMBINED ENTITIES

<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
<S> <C> <C>
Revenue........................................ $ 6,738 $ 2,136
------- -------
Expenses:
Property operating expenses.................. 2,110 671
Real estate taxes and insurance.............. 610 169
Depreciation and amortization................ 825 248
Interest..................................... 1,586 553
------- -------
Total Expenses............................. 5,131 1,641
------- -------
Net income................................. $ 1,607 $ 495
======= =======
Equity in Net Income:
LBA Predecessors........................... $ 708 $ 242
Other owners............................... 899 253
------- -------
$ 1,607 $ 495
======= =======
</TABLE>

The significant accounting policies used by the Noncombined Entities are
similar to those used by the LBA Predecessors.

F-33
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

Commercial Real Estate Properties of Noncombined Entities

The commercial real estate properties are all located in Southern California
and consist of office and industrial buildings, as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Land............................................................ $20,529
Buildings and improvements...................................... 49,923
Tenant Improvements............................................. 408
-------
70,860
Accumulated Depreciation........................................ (243)
-------
$70,617
=======
</TABLE>

Mortgage Loan Payable of Noncombined Entities

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
CAL VI Mortgage Loan.............................................. $40,448
A mortgage loan dated October 1996. The loan matures in October
2000 and contains provisions for a one-year extension and sched-
uled principal repayments. The loan currently bears interest at
LIBOR (for the applicable interest period selected by CAL VI)
plus 1.75% (7.28% as of December 31, 1996). All income-producing
properties owned by CAL VI were pledged as collateral for the
loan. The loan contains scheduled principal repayments and mini-
mum release prices on each property pledged as collateral. During
1996, no principal repayments were made on the loan.
-------
$40,448
=======
</TABLE>

Subsequent to the funding of the CAL VI Mortgage Loan, CAL VI entered into
three interest rate swap agreements ("Swaps") for the outstanding indebtedness
on the CAL VI Mortgage Loan. Based on the Swaps, CAL VI makes payments at
fixed interest rates to the counterparty to the Swaps. In return, the
counterparty makes payments to CAL VI based on the variable rate of the CAL VI
Mortgage Loan. The management of the LBA Predecessors believe that the effect
of any party to the Swap not performing to the terms of the Swap would not
adversely affect the financial statements of the LBA Predecessors. The
following summarizes the notional amount, termination date and fixed interest
rate of the Swaps at December 31, 1996:

<TABLE>
<CAPTION>
NOTIONAL FIXED
AMOUNT TERMINATION DATE INTEREST RATE
-------- ----------------- -------------
<S> <C> <C>
$8,000 November 12, 1997 7.315%
14,500 May 12, 1998 7.415%
17,948 May 15, 1999 7.585%
-------
$40,448
=======
</TABLE>

F-34
<PAGE>

LBA PREDECESSORS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
7. COMMITMENTS AND CONTINGENCIES

The LBA Predecessors' commitments and contingencies include the usual
obligations incurred by real estate owners and operators in the normal course
of business. In the opinion of management, these matters will not have a
material adverse effect on the LBA Predecessors' financial position, results
of operations or cash flows.

The LBA Predecessors are aware that contamination from certain activities or
operations may exist at some of its commercial real estate properties.
Although there can be no assurance, the LBA Predecessors are not aware of any
material environmental liability, for which it believes it will be ultimately
responsible, that could have a material adverse effect on its financial
condition or results of operations. However, changes in applicable
environmental laws and regulations, the uses and conditions of properties in
the vicinity of the LBA Predecessors' commercial real estate properties, the
activities of its tenants and other environmental liabilities of which the LBA
Predecessors are unaware with respect to its commercial real estate
properties, could result in future environmental liabilities.

8. RELATED PARTY TRANSACTIONS

Included in due from affiliates are management and consulting fees due
associated with properties owned by affiliates.

F-35
<PAGE>

LBA PREDECESSORS

SCHEDULE III
COMMERCIAL REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION TOTAL COSTS
-------------------- ------------- -----------------------------------
ACCUMULATED
SQUARE BUILDING AND LAND AND BUILDINGS AND DEPRECIATION ENCUMBRANCES YEAR
PROPERTY NAME FOOTAGE LAND IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS TOTAL (1) (2) BUILT
------------- --------- ------- ------------ ------------- ------------ ------------- -------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Huntington Beach
R&D I........... 27,731 $ 391 $ 611 $ 7 $ 391 $ 618 $ 1,009 $ 39 $ 595 1986
Huntington Beach
R&D II.......... 11,968 217 339 2 217 341 558 21 324 1986
Huntington Beach
R&D III......... 21,568 498 780 5 498 785 1,283 49 647 1986
Huntington Beach
Plaza I & II.... 52,186 461 1,881 149 461 2,030 2,491 190 1,296 1984
Vista Sorrento
Office.......... 69,386 889 2,967 333 889 3,300 4,189 231 1,996 1983
Tower Plaza
Office.......... 72,350 934 3,906 142 934 4,048 4,982 274 2,398 1988
Tower Plaza
Professional
Center.......... 19,301 92 415 15 92 430 522 39 295 1983
Tower Plaza
Business Center. 12,483 30 123 10 31 132 163 10 82 1983
Highlands I..... 26,856 147 682 12 156 685 841 50 514 1988
Highlands II.... 41,210 561 841 6 561 847 1,408 67 751 1990
Tower Plaza
Retail.......... 144,225 1,306 4,872 904 1,306 5,776 7,082 297 3,628 1997
Temecula Land... -- 815 51 -- 815 51 866 2 -- --
4440 Von Karman. 42,904 196 3,311 199 197 3,509 3,706 243 1,867 1975
600 Corporate
Pointe.......... 273,339 4,584 18,794 1,419 4,630 20,167 24,797 895 12,412 1989
5161 Lankershim. 178,317 1,634 9,520 3,453 1,645 12,962 14,607 337 -- 1985
1501 Hughes Way. 77,060 1,996 3,006 144 2,008 3,138 5,146 63 -- 1982
3901 Via Oro.... 53,195 1,103 1,599 116 1,111 1,707 2,818 34 -- 1982
Scripps Ranch... 43,560 389 2,008 75 393 2,079 2,472 42 -- 1986
Westridge....... 48,850 987 1,756 269 1,003 2,009 3,012 38 -- 1989
Via Frontera.... 77,920 1,751 2,741 56 1,766 2,782 4,548 32 -- 1982
1919 Santa
Monica.......... 44,096 1,682 4,547 54 1,690 4,593 6,283 24 -- 1989
Poway
Industrial...... 112,000 691 2,763 72 699 2,827 3,526 65 -- 1990
Cymer Technology
Center.......... 137,164 3,371 8,404 49 3,371 8,453 11,824 18 -- 1989
--------- ------- ------- ------ ------- ------- -------- ------ -------
1,587,669 $24,725 $75,917 $7,491 $24,864 $83,269 $108,133 $3,060 $26,805
========= ======= ======= ====== ======= ======= ======== ====== =======
</TABLE>
- ----
(1) The depreciable life for buildings and improvements ranges from five to
forty years.
(2) All of these properties are collateral for mortgage loans totaling
$26,805. The encumbrance allocated to an individual property is based on
the related individual release price. The remaining $1,097 of debt is not
secured by real estate.

F-36
<PAGE>

LBA PREDECESSORS

SCHEDULE III
COMMERCIAL REAL ESTATE PROPERTIES AND
ACCUMULATED DEPRECIATION
(CONTINUED)

DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)

A summary of activity of combined commercial real estate properties and
accumulated depreciation is as follows:

<TABLE>
<CAPTION>
COMMERCIAL REAL ESTATE PROPERTIES
---------------------------------
DECEMBER 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period......... $ 27,862 $ -- $ --
Acquisition of land, building and im-
provements............................ 73,326 27,316 --
Improvements........................... 6,945 546 --
------------ ----------- --------
Balance at end of period............... $ 108,133 $ 27,862 $ --
============ =========== ========
<CAPTION>
ACCUMULATED DEPRECIATION
------------------------
DECEMBER 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period......... $ 566 $ -- $ --
Depreciation expense................... 2,494 566 --
------------ ----------- --------
Balance at end of period............... $ 3,060 $ 566 $ --
============ =========== ========
</TABLE>

F-37
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying balance sheet of CAL Portfolio VI, L.L.C.,
a Delaware limited liability company ("CAL VI"), as of December 31, 1996, and
the related statements of operations, members' capital and cash flows for the
period October 30, 1996 (inception) through December 31, 1996. These financial
statements are the responsibility of the CAL VI's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CAL Portfolio VI, L.L.C.
at December 31, 1996, and the results of its operations and its cash flows for
the period October 30, 1996 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Newport Beach, California
September 10, 1997

F-38
<PAGE>

CAL PORTFOLIO VI, L.L.C.

BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Commercial real estate properties...................... $69,300 $68,599
Cash and cash equivalents.............................. 1,665 830
Restricted cash........................................ 1,977 2,901
Due from affiliates.................................... 128 26
Other assets........................................... 1,978 1,204
------- -------
Total assets......................................... $75,048 $73,560
======= =======
LIABILITIES AND MEMBERS' CAPITAL
Mortgage loans......................................... $40,448 $40,448
Accounts payable and accrued liabilities............... 636 578
Due to affiliates...................................... 48 438
Unearned rent.......................................... 246 227
Tenant security deposits............................... 470 453
------- -------
Total liabilities.................................... 41,848 42,144
Members' capital....................................... 33,200 31,416
------- -------
Total liabilities and members' capital............... $75,048 $73,560
======= =======
</TABLE>

See accompanying notes.

F-39
<PAGE>

CAL PORTFOLIO VI, L.L.C.

STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 30,
SIX MONTHS 1996 THROUGH
ENDED JUNE 30, DECEMBER 31,
1997 1996
-------------- --------------
(UNAUDITED)
Revenue
<S> <C> <C>
Rental.......................................... $6,175 $2,065
Tenant recoveries............................... 108 34
Interest........................................ 80 21
------ ------
Total revenue................................. 6,363 2,120
------ ------
<CAPTION>
Expenses
<S> <C> <C>
Rental property operating....................... 2,053 687
Real estate taxes and insurance................. 576 168
Depreciation and amortization................... 764 226
Interest........................................ 1,586 553
------ ------
Total expenses................................ 4,979 1,634
------ ------
Net income........................................ $1,384 $ 486
====== ======
</TABLE>

See accompanying notes.

F-40
<PAGE>

CAL PORTFOLIO VI, L.L.C.

STATEMENT OF MEMBERS' CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE PERIOD OCTOBER 30, 1996 THROUGH DECEMBER 31, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
AEW/LBA
ACQUISITION
CO. III, CG 6,
L.L.C. L.L.C. TOTAL
----------- -------- --------
<S> <C> <C> <C>
Initial capital contribution.................... $ 33,675 $ 63,212 $ 96,887
Contributions................................... 565 565 1,130
Distributions................................... (18,775) (48,312) (67,087)
Net income...................................... 243 243 486
-------- -------- --------
Members' capital--December 31, 1996............. 15,708 15,708 31,416
Contributions (unaudited)....................... 200 200 400
Net income (unaudited).......................... 692 692 1,384
-------- -------- --------
Members' capital--June 30, 1997 (unaudited)..... $ 16,600 $ 16,600 $ 33,200
======== ======== ========
</TABLE>

See accompanying notes.

F-41
<PAGE>

CAL PORTFOLIO VI, L.L.C.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD
SIX MONTHS OCTOBER 30,
ENDED 1996 THROUGH
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 1,384 $ 486
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 764 226
Amortization of loan fees.......................... 58 19
Changes in assets and liabilities
Increase in restricted cash...................... 924 (2,901)
Increase in due from affiliates.................. (102) (26)
Increase in other assets......................... (882) (1,227)
Increase in accounts payable and accrued
liabilities..................................... 58 578
Increase (decrease) in due to affiliates......... (390) 438
Increase in unearned rent........................ 19 227
Increase in tenant security deposits............. 17 453
------- --------
Net cash provided by (used in) operating activities.. 1,850 (1,727)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of commercial real estate properties.... -- (67,612)
Commercial real estate properties improvements....... (1,415) (1,209)
------- --------
Net cash used in investing activities................ (1,415) (68,821)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage loans......................... -- 40,448
Owners' contributions................................ 400 98,017
Owners' distributions................................ -- (67,087)
------- --------
Net cash provided by financing activities............ 400 71,378
------- --------
Net increase in cash and cash equivalents............ 835 830
Cash and cash equivalents--beginning of period....... 830 --
------- --------
Cash and cash equivalents--end of period............. $ 1,665 $ 830
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest............. $ 1,528 $ 375
======= ========
</TABLE>

See accompanying notes.

F-42
<PAGE>

CAL PORTFOLIO VI, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)

NOTES TO FINANCIAL STATEMENTS

(IN THOUSANDS)

DECEMBER 31, 1996

1. ORGANIZATION

CAL Portfolio VI, L.L.C., a Delaware limited liability company ("CAL VI"),
was formed on October 30, 1996 (inception) by CG 6, L.L.C., a Connecticut
limited liability company ("Cigna"), and AEW/LBA Acquisition Co. III, L.L.C.,
a California limited liability company ("AEW/LBA III") (collectively referred
to as the "Members"), for the purpose of continuing the operations of six
office and industrial real estate assets (the "CAL VI Properties") previously
owned by affiliates of Cigna.

Each Member's liability is limited pursuant to the Beverly-Killea Limited
Liability Company Act. The term of CAL VI shall continue until December 31,
2006 unless earlier dissolved pursuant to provisions, as defined, of the
Operating Agreement dated October 30, 1996 between the Members.

Pursuant to the Operating Agreement, Cigna received credit for an initial
capital contribution of $63,212 based on their interest in the CAL VI
Properties (net of costs and prorations) and cash contributed in the amount of
50% of CAL VI's transaction costs, and AEW/LBA III received credit for an
initial capital contribution of $33,675 based on their interest in the CAL VI
Properties (net of costs and prorations) and cash contributed in the amount of
50% of Cigna's interest in the CAL VI Properties less 50% of AEW/LBA's
interest in the CAL VI Properties (net of costs and prorations). Additional
capital contributions for additional capital needs shall be made by the
Members in proportion to their percentage interests, 50% for Cigna and 50% for
AEW/LBA III. The Members are not entitled to any return or interest on
contributions to CAL VI. Net income and net losses are allocated to the
Members in proportion to their respective percentage interests.

Contemporaneously with the initial capital contributions, Cigna received a
distribution for the cash contributed by AEW/LBA III as a part of their
initial capital contribution and 50% of the CAL VI's transaction costs paid by
AEW/LBA III and AEW/LBA III received a distribution for 50% of the CAL VI's
transaction costs paid by them. Distributions of distributable cash, as
defined, shall be distributed to the Members in proportion to their respective
percentage interests.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Commercial Real Estate Properties

Commercial real estate is stated at cost less accumulated depreciation and
includes land, buildings and improvements. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. Significant
replacements and betterments which improve or extend the useful life of the
asset are capitalized. Except for amounts attributable to land, operating
properties are depreciated over their estimated useful lives. The estimated
useful lives and related depreciation method by category are as follows:

<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
ASSET CATEGORY (AND DEPRECIATION METHOD)
-------------- -----------------------------
<S> <C>
Buildings................................... 39 years (straight-line)
Tenant improvements......................... Life of lease (straight-line)
</TABLE>

Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of
("SFAS 121"), requires impairment losses to be recorded on long-lived assets
held for investment when indicators of impairment are present and the future
cash flows (undiscounted and without interest charges) estimated to be
generated by those assets are less than the assets'

F-43
<PAGE>

CAL PORTFOLIO VI, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are held for sale which are required to be recorded at the lower of the
asset's fair value less cost to sell or the asset's carrying amount. As of
December 31, 1996, management believes that no indications of impairment exist
relating to its real estate properties. All commercial real estate properties
are held for investment as of December 31, 1996.

Organizational Costs

Organizational costs are amortized by CAL VI using the straight-line method
over five years.

Deferred Lease Commissions

Leasing commissions are amortized on a straight-line basis over the term of
the related lease.

Loan Fees

Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements using the level yield method.

Interest Rate Swap Agreements

CAL VI enters into interest rate swap agreements to effectively convert a
portion of its variable-rate borrowings into fixed-rate obligations. The
interest rate differential to be received or paid is recognized over the lives
of the agreements as an adjustment to interest expense.

Rental Income

Rental income is recorded on an accrual basis as it is earned over the life
of the lease using the straight-line basis. All rent receivables are evaluated
for collectibility. At December 31, 1996, CAL VI has recorded deferred rent
(included in other assets) receivable from tenants in the amount of $61, which
CAL VI expects to collect over the remaining life of these leases (Note 5).

Income Taxes

It is the intent of CAL VI and its Members that CAL VI be treated as a
partnership for income tax purposes. Income taxes on any income or losses
realized by CAL VI are the obligation of the Members.

Fair Value of Financial Instruments

The carrying amounts of CAL VI's financial instruments approximate their
fair value as of December 31, 1996.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the management of CAL VI to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of December 31, 1996, and revenues and expenses for the period
then ended. Actual results could materially differ from those estimates in the
near term.

F-44
<PAGE>

CAL PORTFOLIO VI, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

3. RESTRICTED CASH

The restricted cash at December 31, 1996 of $2,901 is required by the lender
of CAL VI's mortgage loan (Note 6) for interest, tax and working capital
reserves. The lender holds a security interest in these restricted funds which
are subject to the supervision and approval of the lender.

4. COMMERCIAL REAL ESTATE PROPERTIES

Real estate is located in Southern California and consists principally of
office and industrial buildings. At December 31, 1996, real estate consists of
the following:

<TABLE>
<S> <C>
Land............................................................. $19,879
Buildings and tenant improvements................................ 48,942
-------
68,821
Accumulated depreciation......................................... (222)
-------
$68,599
=======
</TABLE>

Future minimum rents due on noncancelable operating leases from the CAL VI
Properties for the years ending December 31 are as follows:

<TABLE>
<S> <C>
1997.............................................................. $19,158
1998.............................................................. 15,776
1999.............................................................. 10,271
2000.............................................................. 7,491
2001.............................................................. 4,228
Thereafter........................................................ 6,096
-------
$63,020
=======
</TABLE>

5. OTHER ASSETS

Other assets consist of the following at December 31, 1996:

<TABLE>
<S> <C>
Deferred lease commissions........................................ $ 345
Loan fees......................................................... 583
Rent receivables.................................................. 84
Deferred rent..................................................... 61
Prepaid assets.................................................... 120
Deposits.......................................................... 12
Organizational costs.............................................. 22
------
1,227
Accumulated amortization.......................................... (23)
------
$1,204
======
</TABLE>

6. MORTGAGE LOAN

During 1996, CAL VI entered into a loan agreement (the "Loan") with a
financial institution and received $40,448 in proceeds from the Loan. The Loan
matures on October 31, 2000 and contains provisions for a one-year extension
and scheduled principal repayments. The Loan currently bears interest at LIBOR
(for the applicable interest period selected by CAL VI) plus 1.75% (7.28% as
of December 31, 1996). The CAL VI Properties are pledged as collateral for the
Loan. The Loan contains scheduled principal repayments and

F-45
<PAGE>

CAL PORTFOLIO VI, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

minimum release prices on each property pledged as collateral. During 1996, no
principal repayments were made on the Loan.

Subsequent to the funding of the Loan, CAL VI entered into three interest
rate swap agreements (the "Swaps") for the outstanding indebtedness on the
Loan. Based on the Swaps, CAL VI makes payments at fixed interest rates to the
counterparty to the Swaps. In return, the counterparty makes payments to CAL
VI based on the variable rate of the Loan. The management of the LBA
Predecessors believe that the effect of any party to the Swap not performing
to the terms of the Swap would be insignificant to the financial statements of
the LBA Predecessors. The following summarizes the notional amount,
termination date and fixed interest rate of the Swaps at December 31, 1996:

<TABLE>
<CAPTION>
NOTIONAL AMOUNT TERMINATION DATE FIXED INTEREST RATE
--------------- ----------------- -------------------
<S> <C> <C>
$ 8,000 November 12, 1997 7.315%
14,500 May 12, 1998 7.415%
17,948 May 15, 1999 7.585%
-------
$40,448
=======
</TABLE>

During 1996, CAL VI incurred and expensed $534 of interest of which $159 was
payable at December 31, 1996.

Included in interest expense for the period October 30, 1996 through
December 31, 1996, is $19 of amortized loan fees.

Scheduled principal payments on the Loan for the years ending December 31
are as follows:

7. RELATED PARTY TRANSACTIONS

Fees and Reimbursements
- -----------------------

Affiliates of AEW/LBA III, including LBA, Inc. (collectively, "LBA"),
receive compensation for various services provided to the Company as defined
in the Asset Management Agreement and the Umbrella Incentive Fee Agreement, as
amended, between CAL VI, AEW/LBA III and LBA (collectively, the "Management
Agreements"). Fees and reimbursements earned by LBA, or an affiliate thereof,
during the period October 30, 1996 through December 31, 1996 and any related
amounts payable at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
INCURRED PAYABLE
-------- -------
<S> <C> <C>
Base management fee expense.............................. $ 38 $ 38
Capitalized acquisition fee.............................. 400 400
---- ----
$438 $438
==== ====
</TABLE>

Included in property operating expenses in the accompanying statement of
operations for the period October 30, 1996 through December 31, 1996, are
property management fees earned by unaffiliated third-party management
companies of $45.

F-46
<PAGE>

CAL PORTFOLIO VI, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS)

Base Management Fees

LBA receives base management fees for asset management services provided to
each property, calculated monthly at a rate of 0.0275% (0.33% annually) of the
property's purchase price. Base management fees are payable on a monthly
basis.

Acquisition Fee

The Management Agreements allow LBA to receive an acquisition fee of $400
for their efforts relating to the acquisition of the Properties.

Property Management Fees and Lease Commissions

LBA shall receive a property management fee with respect to any period for
which LBA is authorized and directed to provide property management services,
leasing agent services or both for a property. The property management fee
shall include the following: (a) if LBA performs property management services
with respect to any property, LBA shall be entitled to a fixed component of
the property management fee, payable monthly in the fixed amount for each
property; and (b) if LBA is directed and authorized to perform the services of
the property's exclusive leasing agent, LBA shall be entitled to receive
leasing commissions consistent with the then market schedules for the type and
location of the pertinent property.

For the period October 30, 1996 through December 31, 1996, no property
management fees or lease commissions were earned by LBA.

Disposition Fees

LBA is entitled to receive a disposition fee in connection with a sale or
disposition of a property. The amount of the disposition fee is equal to 0.5%
of the net sales proceeds.

For the period October 30, 1996 through December 31, 1996, no disposition
fees were earned.

Acquisition Reimbursements

Included in due from affiliates as of December 31, 1996, is $26 due from an
affiliate of Cigna for rental income collected in connection with the
acquisition of the CAL VI Properties.

8. COMMITMENTS AND CONTINGENCIES

CAL VI's commitments and contingencies include the usual obligations
incurred by real estate owners and operators in the normal course of business.
In the opinion of management, these matters will not have a material adverse
effect on CAL VI's financial position.

CAL VI is aware that contamination from certain activities or operations may
exist at some of the Properties. Although there can be no assurance, CAL VI is
not aware of any material environmental liability, for which it believes it
will be ultimately responsible, that could have a material adverse effect on
its financial condition or results of operations. However, changes in
applicable environmental laws and regulations, the uses and conditions of
properties in the vicinity of the Properties, the activities of its tenants
and other environmental liabilities of which CAL VI is unaware with respect to
its Properties, could result in future environmental liabilities.

F-47
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying combined statements of revenue and certain
expenses of the 1996 CIGNA Acquired Properties for the period January 1, 1996
to the dates of acquisition (as defined in Note 1) and the years ended
December 31, 1995 and 1994. These combined statements of revenue and certain
expenses are the responsibility of the management of the 1996 CIGNA Acquired
Properties. Our responsibility is to express an opinion on the combined
statements of revenue and certain expenses based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenue
and certain expenses are free 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.

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 LBA Properties, Inc. Certain expenses (described in Note 1)
that would not be comparable to those resulting from the proposed future
operations of the properties are excluded and the statements are not intended
to be a complete presentation of the revenue and expenses of the properties.

In our opinion, the combined statements of revenue and certain expenses
present fairly, in all material respects, the combined revenue and certain
expenses, as defined above, of the 1996 CIGNA Acquired Properties for the
period January 1, 1996 to the dates of acquisition (as defined in Note 1) and
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-48
<PAGE>

1996 CIGNA ACQUIRED PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
1996 TO THE DECEMBER 31,
DATES OF ---------------
ACQUISITION 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Revenue
Rental............................................ $8,809 $11,461 $11,781
Tenant recoveries................................. 214 439 449
Parking and other................................. 37 59 55
------ ------- -------
Total revenue................................... 9,060 11,959 12,285
------ ------- -------
Certain expenses
Rental property operating......................... 2,526 3,323 3,411
Real estate taxes and insurance................... 1,138 1,503 1,459
------ ------- -------
Total certain expenses.......................... 3,664 4,826 4,870
------ ------- -------
Excess of revenue over certain expenses....... $5,396 $ 7,133 $ 7,415
====== ======= =======
</TABLE>

See accompanying notes to combined statements of revenue and certain expenses.

F-49
<PAGE>

1996 CIGNA ACQUIRED PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE PERIOD JANUARY 1, 1996 TO THE DATES OF ACQUISITION AND
THE YEARS ENDED DECEMBER 31, 1995 AND 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying combined statements of revenue and certain expenses include
the combined operations of eight commercial real estate properties located in
Southern California which were acquired in 1996 (the "1996 CIGNA Acquired
Properties") by the LBA Predecessors, as defined elsewhere in this Prospectus,
from a related entity. All of the properties were acquired from a single
seller.

The 1996 CIGNA Acquired Properties are as follows:

<TABLE>
<CAPTION>
SOUTHERN APPROXIMATE
CALIFORNIA RENTABLE DATES OF ACQUISITION
PROPERTY NAME LOCATION SQUARE FOOTAGE ACQUISITION PRICE
------------- ------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C>
1501 Hughes Way......... Long Beach 77,060 June 11, 1996 $ 5,000,000
3901 Via Oro............ Long Beach 53,195 June 11, 1996 2,700,000
Camarillo Business
Center................. Camarillo 154,216 October 31, 1996 9,562,000
South Coast Executive
Park................... Costa Mesa 60,605 October 31, 1996 2,750,000
City Centre I........... Orange 139,806 October 31, 1996 11,900,000
Orange Financial Center. Orange 305,493 October 31, 1996 29,000,000
Newport-Irvine Office... Newport Beach 74,224 October 31, 1996 6,600,000
Yorba Linda Business
Center................. Yorba Linda 167,142 October 31, 1996 7,800,000
--------- -----------
1,031,741 $75,312,000
========= ===========
</TABLE>

Basis of Presentation

The accompanying statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of LBA Properties, Inc. The accompanying
statements were prepared on a combined basis because the 1996 CIGNA Acquired
Properties were acquired from a single seller which is also an affiliate of
the LBA Predecessors. There are no interproperty accounts to be eliminated.

The accompanying statements are not representative of the actual operations
for the periods presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the 1996 CIGNA Acquired Properties have been excluded. Excluded expenses
consist of interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of the
1996 CIGNA Acquired Properties.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

F-50
<PAGE>

1996 CIGNA ACQUIRED PROPERTIES

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

Unaudited Interim Statements

The combined interim financial statements for the 1996 interim period
include the revenue and certain expenses for the period prior to acquisition
by the LBA Predecessors. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the respective interim periods. All such adjustments are of a
normal, recurring nature.

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996...................................... $ 9,673
1997...................................... 7,832
1998...................................... 6,140
1999...................................... 3,725
2000...................................... 2,486
Thereafter................................ 1,981
-------
$31,837
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

The 1996 CIGNA Acquired Properties are generally leased to tenants under
lease terms which provide for the tenants to pay for increases in operating
expenses in excess of specified amounts.

F-51
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Chicago Avenue Business Park for the year ended December 31, 1995. This
statement of revenue and certain expenses is the responsibility of the
management of the Chicago Avenue Business Park. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

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 LBA Properties, Inc. Certain expenses (described in Note 1) that would
not be comparable to those resulting from the proposed future operations of
the property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the property.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Chicago Avenue Business Park for the year ended December 31, 1995,
in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-52
<PAGE>

CHICAGO AVENUE BUSINESS PARK

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1996 TO YEAR ENDED
DECEMBER 20, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental.............................................. $459 $252
Tenant recoveries................................... 21 23
Parking and other................................... -- --
---- ----
Total revenue..................................... 480 275
---- ----
Certain expenses
Rental property operating........................... 144 118
Real estate taxes and insurance..................... 40 41
---- ----
Total certain expenses............................ 184 159
---- ----
Excess of revenue over certain expenses......... $296 $116
==== ====
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-53
<PAGE>

CHICAGO AVENUE BUSINESS PARK

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Chicago Avenue Business Park located in Southern California
which was acquired on December 20, 1996 by the LBA Predecessors, as defined
elsewhere in this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of Chicago Avenue Business Park have been excluded. Excluded expenses consist
of interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of
Chicago Avenue Business Park.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

The interim financial statement for the 1996 interim period includes the
revenue and certain expenses for the period prior to acquisition by the LBA
Predecessors. In the opinion of management, such financial statement reflects
all adjustments necessary for a fair presentation of the results of the
interim period. All such adjustments are of a normal, recurring nature.

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 410
1997....................................................... 338
1998....................................................... 312
1999....................................................... 300
2000....................................................... 29
Thereafter................................................. --
------
$1,389
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Chicago Avenue Business Park is generally leased to tenants under lease
terms which provide for the tenants to pay for increases in operating expenses
in excess of specified amounts.

F-54
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Via Frontera for the year ended December 31, 1995. This statement of
revenue and certain expenses is the responsibility of the management of Via
Frontera. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Via Frontera for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-55
<PAGE>

VIA FRONTERA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1996 TO YEAR ENDED
SEPTEMBER 17, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................. $366 $526
Tenant recoveries.................................. 71 19
Parking and other.................................. 1 2
---- ----
Total revenue.................................... 438 547
---- ----
Certain expenses
Rental property operating.......................... 40 53
Real estate taxes and insurance.................... 27 52
---- ----
Total certain expenses........................... 67 105
---- ----
Excess of revenue over certain expenses........ $371 $442
==== ====
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-56
<PAGE>

VIA FRONTERA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Via Frontera located in Southern California which was acquired
on September 17, 1996 by the LBA Predecessors, as defined elsewhere in this
Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of Via Frontera have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of Via Frontera.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 354
1997....................................................... 414
1998....................................................... 400
1999....................................................... 143
2000....................................................... 114
Thereafter................................................. 197
------
$1,622
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Via Frontera is generally leased to tenants under lease terms which provide
for the tenants to pay for increases in operating expenses in excess of
specified amounts.

F-57
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Westridge for the year ended December 31, 1995. This statement of revenue
and certain expenses is the responsibility of the management of Westridge. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Westridge for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-58
<PAGE>

WESTRIDGE

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
1996 TO DECEMBER 31,
JUNE 18, 1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................. $ 91 $287
Tenant recoveries.................................. 7 18
Parking and other.................................. -- --
---- ----
Total revenue.................................... 98 305
==== ====
Certain expenses
Rental property operating.......................... 16 24
Real estate taxes and insurance.................... 22 47
---- ----
Total certain expenses........................... 38 71
---- ----
Excess of revenue over certain expenses........ $ 60 $234
==== ====
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-59
<PAGE>

WESTRIDGE

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Westridge located in Southern California which was acquired on
June 18, 1996 by the LBA Predecessors, as defined elsewhere in this
Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of Westridge have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of Westridge.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 83
1997....................................................... --
1998....................................................... --
1999....................................................... --
2000....................................................... --
Thereafter................................................. --
----
$ 83
====
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Westridge is generally leased to tenants under lease terms which provide for
the tenants to pay for increases in operating expenses in excess of specified
amounts.

F-60
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 1919 Santa Monica for the year ended December 31, 1995. This statement of
revenue and certain expenses is the responsibility of the management of 1919
Santa Monica. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of 1919 Santa Monica for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-61
<PAGE>

1919 SANTA MONICA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 27, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................... $748 $ 982
Tenant recoveries.................................... 51 78
Parking and other.................................... 81 106
---- -----
Total revenue...................................... 880 1,166
---- -----
Certain expenses
Rental property operating............................ 196 218
Real estate taxes and insurance...................... 118 158
---- -----
Total certain expenses............................. 314 376
---- -----
Excess of revenue over certain expenses.......... $566 $ 790
==== =====
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-62
<PAGE>

1919 SANTA MONICA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of 1919 Santa Monica, an office building located in Southern
California which was acquired on October 27, 1996 by the LBA Predecessors, as
defined elsewhere in this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of 1919 Santa Monica have been excluded. Excluded expenses consist of
interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of 1919
Santa Monica.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 735
1997....................................................... 541
1998....................................................... 360
1999....................................................... 148
2000....................................................... 148
Thereafter................................................. 210
------
$2,142
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

1919 Santa Monica is generally leased to tenants under lease terms which
provide for the tenants to pay for increases in operating expenses in excess
of specified amounts.

F-63
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying combined statements of revenue and certain
expenses of the 1997 MetLife Acquired Properties for the years ended December
31, 1996 and 1995. These combined statements of revenue and certain expenses
are the responsibility of the management of the 1997 MetLife Acquired
Properties. Our responsibility is to express an opinion on the combined
statements of revenue and certain expenses based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenue
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the combined statements of revenue and certain expenses
present fairly, in all material respects, the combined revenue and certain
expenses, as defined above, of the 1997 MetLife Acquired Properties for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-64
<PAGE>

1997 METLIFE ACQUIRED PROPERTIES

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, YEARS ENDED
1997 TO THE DECEMBER 31,
DATES OF -------------
ACQUISITION 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenue
Rental.............................................. $1,356 $5,138 $5,145
Tenant recoveries................................... 187 1,345 1,386
Parking and other................................... 3 19 31
------ ------ ------
Total revenue..................................... 1,546 6,502 6,562
------ ------ ------
Certain expenses
Rental property operating........................... 213 938 1,169
Real estate taxes and insurance..................... 138 529 626
------ ------ ------
Total certain expenses............................ 351 1,467 1,795
------ ------ ------
Excess of revenue over certain expenses......... $1,195 $5,035 $4,767
====== ====== ======
</TABLE>

See accompanying notes to combined statements of revenue and certain expenses.

F-65
<PAGE>

1997 METLIFE ACQUIRED PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying combined statements of revenue and certain expenses include
the combined operations of three commercial real estate properties located in
Southern California which were acquired in 1997 (the "1997 MetLife Acquired
Properties") by the LBA Predecessors, as defined elsewhere in this Prospectus,
from affiliated third parties. All of the properties were acquired from a
single seller.
The 1997 MetLife Acquired Properties are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
SOUTHERN RENTABLE
CALIFORNIA SQUARE DATES OF ACQUISITION
PROPERTY NAME LOCATION FOOTAGE ACQUISITION PRICE
------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Savi Tech Center.......... Yorba Linda 341,446 February 27, 1997 $23,675,000
Skypark Office Plaza...... San Diego 202,164 March 12, 1997 18,950,000
Governor Park Plaza....... San Diego 104,065 June 30, 1997 11,350,000
------- -----------
647,675 $53,975,000
======= ===========
</TABLE>

Basis of Presentation

The accompanying statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of LBA Properties, Inc. The accompanying
statements were prepared on a combined basis because the 1997 MetLife Acquired
Properties were acquired from a single seller which is also an affiliate of
the LBA Predecessors. There are no interproperty accounts to be eliminated.

The accompanying statements are not representative of the actual operations
for the periods presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the 1997 MetLife Acquired Properties have been excluded. Excluded expenses
consist of interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of the
1997 MetLife Acquired Properties.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statements

The combined interim financial statements for the 1997 interim period
include the revenue and certain expenses for the period prior to acquisition
by the LBA Predecessors. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the respective interim periods. All such adjustments are of a
normal, recurring nature.

F-66
<PAGE>

1997 METLIFE ACQUIRED PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(CONTINUED)
2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 5,005
1998....................................................... 4,807
1999....................................................... 3,516
2000....................................................... 2,647
2001....................................................... 2,597
Thereafter................................................. 7,102
-------
$25,674
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

The 1997 MetLife Acquired Properties are generally leased to tenants under
lease terms which provide for the tenants to pay for increases in operating
expenses in excess of specified amounts.

3. AUDITED REVENUE IN EXCESS OF CERTAIN EXPENSES

The following represents the combined revenue in excess of certain expenses
for Skypark Office Plaza and Governor Park Plaza for the year ended December
31, 1994. Such information is not available for Savi Tech Center, however,
management is not aware of any factors that would be material to the
understanding of the property's operating results.

<TABLE>
<S> <C>
Revenue
Rental.......................................................... $2,352
Tenant recoveries............................................... 176
Parking and other............................................... 4
------
Total revenue................................................. 2,532
------
Certain Expenses
Rental property operating....................................... 790
Real estate taxes and insurance................................. 301
------
Total certain expenses........................................ 1,091
------
Excess of revenue over certain expenses..................... $1,441
======
</TABLE>

F-67
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying combined statements of revenue and certain
expenses of the Airport Commerce Center and the Hunter Business Center for the
year ended December 31, 1996. These combined statements of revenue and certain
expenses are the responsibility of the management of the Airport Commerce
Center and the Hunter Business Center. Our responsibility is to express an
opinion on the combined statements 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 statements of revenue
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the combined statements of revenue and certain expenses
present fairly, in all material respects, the combined revenue and certain
expenses, as defined above, of the Airport Commerce Center and the Hunter
Business Center for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-68
<PAGE>

AIRPORT COMMERCE CENTER AND HUNTER BUSINESS CENTER

COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
1997 TO DATES DECEMBER 31,
OF ACQUISITION 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................ $682 $1,707
Tenant recoveries................................. 3 6
Parking and other................................. 11 25
---- ------
Total revenue................................... 696 1,738
---- ------
Certain expenses
Rental property operating......................... 164 279
Real estate taxes and insurance................... 63 151
---- ------
Total certain expenses.......................... 227 430
---- ------
Excess of revenue over certain expenses....... $469 $1,308
==== ======
</TABLE>

See accompanying notes to combined statements of revenue and certain expenses.

F-69
<PAGE>

AIRPORT COMMERCE CENTER AND HUNTER BUSINESS CENTER

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying combined statements of revenue and certain expenses include
the combined operations of two commercial real estate properties located in
Southern California which were acquired in 1997 by the LBA Predecessors, as
defined elsewhere in this Prospectus, from nonaffiliated third parties. Both
of the properties were acquired from a single seller.

Information on Airport Commerce Center and the Hunter Business Center is as
follows:

<TABLE>
<CAPTION>
SOUTHERN APPROXIMATE
CALIFORNIA RENTABLE DATES OF ACQUISITION
PROPERTY NAME LOCATION SQUARE FOOTAGE ACQUISITION PRICE
- ------------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Airport Commerce Center...... Ontario 213,127 May 29, 1997 $ 9,275,000
Hunter Business Center....... Ontario 106,782 May 21, 1997 3,967,000
------- -----------
319,909 $13,242,000
======= ===========
</TABLE>

Basis of Presentation

The accompanying statements were prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of LBA Properties, Inc. The accompanying
statements were prepared on a combined basis because the Airport Commerce
Center and the Hunter Business Center were acquired from a single seller and
are controlled by the LBA Predecessors. There are no interproperty accounts to
be eliminated.

The accompanying statements are not representative of the actual operations
for the periods presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the Airport Commerce Center and the Hunter Business Center have been
excluded. Excluded expenses consist of interest, depreciation and amortization
and property general and administrative costs not directly comparable to the
future operations of the Airport Commerce Center and the Hunter Business
Center.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statements

F-70
<PAGE>

AIRPORT COMMERCE CENTER AND HUNTER BUSINESS CENTER

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

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $1,133
1998....................................................... 730
1999....................................................... 540
2000....................................................... 388
2001....................................................... 184
Thereafter................................................. 181
------
$3,156
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

The Airport Commerce Center and the Hunter Business Center are generally
leased to tenants under lease terms which provide for the tenants to pay for
increases in operating expenses in excess of specified amounts.

F-71
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Sorrento Valley Science Park for the year ended December 31, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of Sorrento Valley Science Park. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Sorrento Valley Science Park for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-72
<PAGE>

SORRENTO VALLEY SCIENCE PARK

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1,
1997 TO YEAR ENDED
FEBRUARY 20, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental.............................................. $270 $1,567
Tenant recoveries................................... 4 16
Parking and other................................... 2 3
---- ------
Total revenue..................................... 276 1,586
---- ------
Certain expenses
Rental property operating........................... 46 261
Real estate taxes and insurance..................... 30 147
---- ------
Total certain expenses............................ 76 408
---- ------
Excess of revenue over certain expenses......... $200 $1,178
==== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-73
<PAGE>

SORRENTO VALLEY SCIENCE PARK

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Sorrento Valley Science Park, an office building located in
Southern California which was acquired on February 20, 1997 by the LBA
Predecessors, as defined elsewhere in this Prospectus, from nonaffiliated
third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of Sorrento Valley Science Park have been excluded. Excluded expenses consist
of interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of
Sorrento Valley Science Park.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

The interim financial statement for the 1997 interim period includes the
revenue and certain expenses for the period prior to acquisition by the LBA
Predecessors. In the opinion of management, such financial statement reflects
all adjustments necessary for a fair presentation of the results of the
interim period. All such adjustments are of a normal, recurring nature.

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 1,626
1998....................................................... 1,687
1999....................................................... 1,689
2000....................................................... 1,664
2001....................................................... 683
Thereafter................................................. 446
-------
$ 7,795
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Sorrento Valley Science Park is generally leased to tenants under lease
terms which provide for the tenants to pay for increases in operating expenses
in excess of specified amounts.

F-74
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of HDS Plaza for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of HDS Plaza. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of HDS Plaza for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-75
<PAGE>

HDS PLAZA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
1997 TO DECEMBER 31,
JUNE 11, 1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................. $687 $1,410
Tenant recoveries.................................. 7 50
Parking and other.................................. 5 4
---- ------
Total revenue.................................... 699 1,464
---- ------
Certain expenses
Rental property operating.......................... 188 449
Real estate taxes and insurance.................... 45 103
---- ------
Total certain expenses........................... 233 552
---- ------
Excess of revenue over certain expenses........ $466 $ 912
==== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-76
<PAGE>

HDS PLAZA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of HDS Plaza, an office building located in Southern California
which was acquired on June 11, 1997 by the LBA Predecessors, as defined
elsewhere in this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of HDS Plaza have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of HDS Plaza.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 1,218
1998....................................................... 1,180
1999....................................................... 919
2000....................................................... 865
2001....................................................... 891
Thereafter................................................. 2,837
-------
$ 7,910
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

HDS Plaza is generally leased to tenants under lease terms which provide for
the tenants to pay for increases in operating expenses in excess of specified
amounts.

F-77
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of The Plaza for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of The Plaza. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of The Plaza for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-78
<PAGE>

THE PLAZA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
1997 TO DECEMBER 31,
MAY 28, 1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental.............................................. $ 571 $1,429
Tenant recoveries................................... -- --
Parking and other................................... 2 36
----- ------
Total revenue..................................... 573 1,465
----- ------
Certain expenses
Rental property operating........................... 202 488
Real estate taxes and insurance..................... 50 125
----- ------
Total certain expenses............................ 252 613
----- ------
Excess of revenue over certain expenses......... $ 321 $ 852
===== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-79
<PAGE>

THE PLAZA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of The Plaza, an office building located in Southern California
which was acquired on May 28, 1997 by the LBA Predecessors, as defined
elsewhere in this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of The Plaza have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of The Plaza.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $1,408
1998....................................................... 1,359
1999....................................................... 1,359
2000....................................................... 976
2001....................................................... 915
Thereafter................................................. 1,966
------
$7,983
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

The Plaza is generally leased to tenants under lease terms which provide for
the tenants to pay for increases in operating expenses in excess of specified
amounts.

F-80
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Havengate for the year ended December 31, 1996. This statement of revenue
and certain expenses is the responsibility of the management of Havengate. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Havengate for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-81
<PAGE>

HAVENGATE

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................ $ 556 $1,070
Tenant recoveries................................. 11 4
Parking and other................................. 8 2
----- ------
Total revenue................................... 575 1,076
----- ------
Certain expenses
Rental property operating......................... 128 238
Real estate taxes and insurance................... 47 90
----- ------
Total certain expenses.......................... 175 328
----- ------
Excess of revenue over certain expenses....... $ 400 $ 748
===== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-82
<PAGE>

HAVENGATE

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Havengate located in Southern California which was acquired on
August 28, 1997 by the LBA Predecessors, as defined elsewhere in this
Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of Havengate have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs
not directly comparable to the future operations of Havengate.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 699
1998....................................................... 874
1999....................................................... 646
2000....................................................... 226
2001....................................................... 191
Thereafter................................................. 933
------
$3,569
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Havengate is generally leased to tenants under lease terms which provide for
the tenants to pay for increases in operating expenses in excess of specified
amounts.

F-83
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Von Karman Corporate Center for the year ended December 31, 1996. This
statement of revenue and certain expenses is the responsibility of the
management of Von Karman Corporate Center. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of the Von Karman Corporate Center for the year ended December 31,
1996, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-84
<PAGE>

VON KARMAN CORPORATE CENTER

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................. $2,524 $4,364
Tenant recoveries.................................. 131 345
Parking and other.................................. 9 33
------ ------
Total revenue.................................... 2,664 4,742
------ ------
Certain expenses
Rental property operating.......................... 794 1,443
Real estate taxes and insurance.................... 203 407
------ ------
Total certain expenses........................... 997 1,850
------ ------
Excess of revenue over certain expenses........ $1,667 $2,892
====== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-85
<PAGE>

VON KARMAN CORPORATE CENTER

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Von Karman Corporate Center located in Southern California which
was acquired on September 10, 1997 by the LBA Predecessors, as defined
elsewhere in this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the Von Karman Corporate Center have been excluded. Excluded expenses
consist of interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of the
Von Karman Corporate Center.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 4,559
1998....................................................... 4,238
1999....................................................... 3,710
2000....................................................... 3,009
2001....................................................... 1,679
Thereafter................................................. 1,845
-------
$19,040
=======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Von Karman Corporate Center is generally leased to tenants under lease terms
which provide for the tenants to pay for increases in operating expenses in
excess of specified amounts.

F-86
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of Centrelake Plaza for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of
Centrelake Plaza. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of Centrelake Plaza for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-87
<PAGE>

CENTRELAKE PLAZA

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................... $ 553 $1,530
Tenant recoveries.................................... 61 111
Parking and other.................................... 3 19
------ ------
Total revenue...................................... 617 1,660
------ ------
Certain expenses
Rental property operating............................ 202 365
Real estate taxes and insurance...................... 73 150
------ ------
Total certain expenses............................. 275 515
------ ------
Excess of revenue over certain expenses.......... $ 342 $1,145
====== ======
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-88
<PAGE>

CENTRELAKE PLAZA

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of Centrelake Plaza located in Southern California which was
acquired on July 31, 1997 by the LBA Predecessors, as defined elsewhere in
this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the Centrelake Plaza have been excluded. Excluded expenses consist of
interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of the
Centrelake Plaza.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $1,061
1998....................................................... 912
1999....................................................... 760
2000....................................................... 497
2001....................................................... 214
Thereafter................................................. 517
------
$3,961
======
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

Centrelake Plaza is generally leased to tenants under lease terms which
provide for the tenants to pay for increases in operating expenses in excess
of specified amounts.

F-89
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
LBA Properties, Inc.

We have audited the accompanying statement of revenue and certain expenses
of 150 East Colorado for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of 150
East Colorado. 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of 150 East Colorado for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
Newport Beach, California
August 25, 1997

F-90
<PAGE>

150 EAST COLORADO

STATEMENTS OF REVENUE AND CERTAIN EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenue
Rental............................................... $377 $798
Tenant recoveries.................................... 2 4
Parking and other.................................... 5 37
---- ----
Total revenue...................................... 384 839
---- ----
Certain expenses
Rental property operating............................ 118 255
Real estate taxes and insurance...................... 52 92
---- ----
Total certain expenses............................. 170 347
---- ----
Excess of revenue over certain expenses.......... $214 $492
==== ====
</TABLE>

See accompanying notes to statements of revenue and certain expenses.

F-91
<PAGE>

150 EAST COLORADO

NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The accompanying statements of revenue and certain expenses reflect the
operations of 150 East Colorado located in Southern California which was
acquired on July 29, 1997 by the LBA Predecessors, as defined elsewhere in
this Prospectus, from nonaffiliated third parties.

Basis of Presentation

The accompanying statements are not representative of the actual operations
for the period presented, as certain expenses that may not be comparable to
the expenses expected to be incurred by the Company in the future operations
of the 150 East Colorado have been excluded. Excluded expenses consist of
interest, depreciation and amortization and property general and
administrative costs not directly comparable to the future operations of the
150 East Colorado.

Revenue Recognition

Rental revenue is recognized on a straight-line basis over the terms of the
related leases.

Risks and Uncertainties

Unaudited Interim Statement

2. COMMERCIAL REAL ESTATE PROPERTIES

The future minimum lease payments to be received under existing operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 586
1998....................................................... 592
1999....................................................... 585
2000....................................................... 520
2001....................................................... 417
Thereafter................................................. 626
------
$3,326
======
</TABLE>

The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.

150 East Colorado is generally leased to tenants under lease terms which
provide for the tenants to pay for increases in operating expenses in excess
of specified amounts.

F-92
<PAGE>

[ARTWORK]

[PHOTOGRAPH OF 5161 LANKERSHIM BUILDING]

[PHOTOGRAPH OF AIRPORT COMMERCE CENTER]

[PHOTOGRAPH OF METROPOLITAN OFFICE PARK]
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN 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 PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

SUMMARY TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 19
The Company............................................................... 31
Business and Growth Strategies............................................ 34
Use of Proceeds........................................................... 40
Distributions............................................................. 42
Capitalization............................................................ 43
Dilution.................................................................. 44
Selected Combined Financial Data.......................................... 45
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 48
Southern California Economy and Property Markets.......................... 54
Business and Properties................................................... 74
The Credit Facility....................................................... 95
Management................................................................ 96
Policies with Respect to Certain Activities............................... 105
Structure and Formation of the Company.................................... 108
Certain Transactions...................................................... 111
Principal and Management Stockholders..................................... 112
Description of Capital Stock of the Company............................... 113
Operating Agreement....................................................... 116
Certain Provisions of Maryland Law and the Company's Charter and Bylaws... 119
Shares Available for Future Sale.......................................... 122
Federal Income Tax Consequences........................................... 124
Underwriting.............................................................. 134
Experts................................................................... 136
Legal Matters............................................................. 136
Additional Information.................................................... 136
Glossary.................................................................. 137
Index to Financial Statements............................................. F-1
</TABLE>

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

Until , (25 days after the commencement of this Offering), all dealers
effecting transactions in the Shares, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery require-
ment is in addition to the obligation of the dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.

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

LBA PROPERTIES, INC.

Common Stock

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

PROSPECTUS
, 1997

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

Joint Lead Managers

Lehman Brothers
Smith Barney Inc.

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table itemizes the expenses incurred by the Company in
connection with the offering of the shares of the Common Stock being
registered. All the amounts shown are estimates except the registration fees
of the Securities and Exchange Commission and the National Association of
Securities Dealers.

<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
Registration Fee--Securities and Exchange Commission............... $114,696
NASD Fee........................................................... 30,500
New York Stock Exchange Listing Fee................................ *
Transfer Agent's and Registrar's Fees.............................. *
Printing Fees...................................................... *
Legal Fees and Expenses (other than Blue Sky)...................... *
Accounting Fees and Expenses....................................... *
Blue Sky Fees and Expenses (including fees of counsel)............. *
Miscellaneous Expenses............................................. *
--------
Total............................................................ $ *
========
</TABLE>
- --------
* To be completed by amendment.

ITEM 32. SALES TO SPECIAL PARTIES.

None.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.

[to be completed]

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Charter, as amended, and Bylaws, as amended, provide certain
limitations on the liability of the Company's Directors and officers for
monetary damages to the Company. The Charter, as amended, and the Bylaws, as
amended, obligate the Company to indemnify its Directors and officers, and
permit the Company to indemnify its employees and other agents, against
certain liabilities incurred in connection with their service in such
capacities. These provisions could reduce the legal remedies available to the
Company and the stockholders against these individuals. See "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws--Limitation
of Liability and Indemnification."

The Company's Bylaws, as amended, require it to indemnify its officers,
Directors and certain other parties to the fullest extent permitted from time
to time by Maryland law. Maryland General Corporation Law ("MGCL") permits a
corporation to indemnify (a) any present or former Director of officer who has
been successful, on the merits or otherwise, in the defense of a proceeding to
which he was made a party by reason of his service in that capacity, against
reasonable expenses incurred by him in connection with the proceeding and (b)
any present or former director or officer against any claim or liability
unless it is established that (i) his act or omission was committed in bad
faith or was the result of active or deliberate dishonesty, (ii) he actually
received an improper personal benefit in money, property or services or (iii)
in the case of a criminal proceeding, he had reasonable cause to believe that
his act or omission was unlawful. The MGCL also permits the Company to provide
indemnification and advance expenses to a present or former director or
officer who served a predecessor of the Company in such capacity, and to any
employer or agent of the Company or a predecessor of the Company.

The Company has entered into indemnification agreements with each of its
executive officers and Directors. The indemnification agreements require,
among other matters, that the Company indemnify its officers and

II-1
<PAGE>

directors to the fullest extent permitted by law and advance to the officers
and Directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, the Company must also indemnify and advance all expenses incurred
by officers and Directors seeking to enforce their rights under the
indemnification agreements and may cover officers and Directors under the
Company's Directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides additional assurance to Directors and officers
that indemnification will be available because, as a contract, it cannot be
modified unilaterally in the future by the Board of Directors or the
Stockholders to eliminate the rights it provides. It is the position of the
SEC that indemnification of directors and officers for liabilities under the
Securities Act of 1933, as amended (the "Securities Act") is against public
policy and unenforceable pursuant to Section 14 of the Securities Act.

ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

Not applicable.

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.

(a) [financial statements]

(b) Exhibits. The following is a complete list of Exhibits filed or
incorporated by reference as part of this registration statement.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 --Form of Purchase Agreement
*2.1 --Omnibus Option Agreement by and among LBA Properties, Inc.,
LBA, Inc., LBA Fund I, Inc., AEW/LBA Acquisition Co. II,
LLC and the Grantors and LBA Owners named therein dated as
of October 16, 1997
*2.2 --Omnibus Option Agreement by and among AEW/LBA Acquisition
Co. II, LLC and the Grantors named therein dated as of
October 16, 1997
*2.3 --Omnibus Option Agreement by and among AEW/LBA Acquisition
Co. II, LLC and the Grantors named therein dated as of
October 16, 1997
*3.1 --Articles of Incorporation of the Company
*3.2 --Bylaws of the Company
*3.3 --Amended and Restated Articles of Incorporation of the
Company
*3.4 --Certificate of Incorporation of
*3.5 --Amended and Restated Bylaws of
*5.1 --Opinion of Goodwin, Procter & Hoar llp regarding legality of
the issuance of the Common Stock
*8.1 --Opinion of Goodwin, Procter & Hoar llp regarding tax matters
*10.1 --Amended and Restated Operating Agreement of the Operating
Company
*10.2 --Equity Incentive Plan
*10.3 --Form of Employment and Non-Competition Agreement between the
Company and
*10.4 --Form of Indemnification Agreement between the Company and
each of its directors and executive officers
*10.5 --Registration Rights Agreement among the Company and the
persons named therein
*10.6 --Option Agreement for Centerpoint Land
*10.7 --Option Agreement for 2181 Dupont
*10.8 --Option Agreement for Brea Tech Center
*10.9 --Option Agreement for Rockwell
*21.1 --Schedule of Subsidiaries of the Company
23.1 --Consent of Ernst & Young LLP
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
*23.2 --Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1)
23.3 --Consent of Cushman & Wakefield of California, Inc.
23.4 --Consent of Steven R. Layton
24.1 --Powers of Attorney (included on page II-4)
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.

ITEM 37. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 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 director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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 and will be governed by the final adjudication of such issue.

(b) 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 purposes 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-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, LBA Properties,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newport Beach, State of California, on this 16th day
of October, 1997.

LBA Properties, Inc.

/s/ Phil A. Belling
By: __________________________________
PHIL A. BELLING
CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF EXECUTIVE
OFFICER

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Phil A. Belling and Marc L. Davidson as
such person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or any
Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto each said attorney-
in-fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that any said attorney-in-fact and agent,
or any substitute or substitutes of any of them, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Phil A. Belling Chairman of the October 16, 1997
- ------------------------------------ Board of
PHIL A. BELLING Directors, Chief
Executive Officer,
and Director
(Principal
Executive Officer)

/s/ Perry Schonfeld Chief Financial October 16, 1997
- ------------------------------------ Officer (Principal
PERRY SCHONFELD Financial Officer)

/s/ Marc L. Davidson Director October 16, 1997
- ------------------------------------
MARC L. DAVIDSON

/s/ Thomas C. Rutherford Controller and October 16, 1997
- ------------------------------------ Principal
THOMAS C. RUTHERFORD Accounting Officer
</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ------------ ----------- --------------
<C> <S> <C>
*1.1 --Form of Purchase Agreement
*2.1 --Omnibus Option Agreement by and among LBA Properties, Inc., LBA, Inc.,
LBA Fund I, Inc., AEW/LBA Acquisition Co. II, LLC and the Grantors and
LBA Owners named therein dated as of October 16, 1997
*2.2 --Omnibus Option Agreement by and among AEW/LBA Acquisition Co. II, LLC
and the Grantors named therein dated as of October 16, 1997
*2.3 --Omnibus Option Agreement by and among AEW/LBA Acquisition Co. II, LLC
and the Grantors named therein dated as of October 16, 1997
*3.1 --Articles of Incorporation of the Company
*3.2 --Bylaws of the Company
*3.3 --Amended and Restated Articles of Incorporation of the Company
*3.4 --Certificate of Incorporation of
*3.5 --Amended and Restated Bylaws of
*5.1 --Opinion of Goodwin, Procter & Hoar llp regarding legality of the
issuance of the Common Stock
*8.1 --Opinion of Goodwin, Procter & Hoar llp regarding tax matters
*10.1 --Amended and Restated Operating Agreement of the Operating Company
*10.2 --Equity Incentive Plan
*10.3 --Form of Employment and Non-Competition Agreement between the Company and

*10.4 --Form of Indemnification Agreement between the Company and each of its
directors and executive officers
*10.5 --Registration Rights Agreement among the Company and the persons named
therein
*10.6 --Option Agreement for Centerpoint Land
*10.7 --Option Agreement for 2181 Dupont
*10.8 --Option Agreement for Brea Tech Center
*10.9 --Option Agreement for Rockwell
*21.1 --Schedule of Subsidiaries of the Company
23.1 --Consent of Ernst & Young LLP
*23.2 --Consent of Goodwin, Procter & Hoar llp (included in Exhibit 5.1)
23.3 --Consent of Cushman & Wakefield of California, Inc.
23.4 --Consent of Steven R. Layton
24.1 --Powers of Attorney (included on page II-4)
27.1 --Financial Data Schedule
</TABLE>
- -------
* To be filed by amendment.

<PAGE>

EXHIBIT 23.1

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated August 25, 1997, September 10, 1997 and October 6,
1997, in the Registration Statement (Form S-11 No. 333- ) and related
Prospectus of LBA Properties, Inc. dated October 17, 1997.

/s/ Ernst & Young LLP
Newport Beach, California
October 16, 1997

<PAGE>

EXHIBIT 23.3

[Letterhead of Cushman & Wakefield]

October 16, 1997

Mr. Steven R. Layton
President and Chief Operating Officer
LBA Properties, Inc.
4440 Von Karman Avenue
Suite 150
Newport Beach, CA 92660

Dear Mr. Layton:

In connection with the initial public offering of common stock by LBA
Properties Inc., we hereby consent to the use of our report and our name in
the Registration Statement on Form S-11, to the reference to us as experts in
the section therein under the caption "Experts" and to the filing of our
report as an exhibit to the Registration Statement.

Sincerely,

CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.

/s/ James W. Myers, MAI
- ------------------------------------------
James W. Myers, MAI
Senior Director

<PAGE>

EXHIBIT 23.4

Consent to be Named as a Director of LBA Properties, Inc.

I hereby consent to be named as a person to become a director of LBA
Properties, Inc., a Maryland corporation (the "Company"), in the registration
statement on Form S-11 filed by the Company with the Securities and Exchange
Commission with respect to the public offering of Common Stock of the Company.

/s/ Steven R. Layton
_____________________________________
Name: Steven R. Layton
Date: October 16, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
FINANCIAL STATEMENTS OF LBA PREDECESSORS FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 16,298 11,097
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 269,805 137,065
<CURRENT-LIABILITIES> 0 0
<BONDS> 131,993 27,902
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 133,015 103,654
<TOTAL-LIABILITY-AND-EQUITY> 269,805 137,065
<SALES> 0 0
<TOTAL-REVENUES> 13,681 13,969
<CGS> 0 0
<TOTAL-COSTS> 9,647 12,484
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,894 892
<INCOME-PRETAX> 1,848 835
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,848 835
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,848 835
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>