CAPITAL AUTOMOTIVE REIT, S-11/A, 1998-02-11

CAPITAL AUTOMOTIVE REIT
S-11/A, 1998-02-11
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
REGISTRATION NO. 333-41183
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 4
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CAPITAL AUTOMOTIVE REIT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENT)

MARYLAND 54-1870224
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1925 NORTH LYNN STREET, SUITE 306
ARLINGTON, VIRGINIA 22209
[ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES]

THOMAS D. ECKERT DAVID S. KAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT AND CHIEF FINANCIAL
TELEPHONE NO. (703) 469-1300 OFFICER
TELEPHONE NO. (703) 469-1300

1925 NORTH LYNN STREET, SUITE 306
ARLINGTON, VIRGINIA 22209
FACSIMILE NO. (703) 469-1106
[NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, AND FACSIMILE NUMBER
INCLUDING AREA CODE OF AGENT FOR SERVICE]

----------------
COPIES TO:
GEORGE P. STAMAS, ESQ. GEORGE C. HOWELL, III, ESQ.
JOHN B. WATKINS, ESQ. JACK A. MOLENKAMP, ESQ.
WILMER, CUTLER & PICKERING HUNTON & WILLIAMS
2445 M STREET, N.W. RIVERFRONT PLAZA, EAST TOWER
WASHINGTON, D.C. 20037-1420 951 EAST BYRD STREET
TELEPHONE NO. (202) 663-6000 RICHMOND, VA 23219-4074
FACSIMILE NO. (202) 663-6363 TELEPHONE NO. (804) 788-8200
FACSIMILE NO. (804) 788-8218

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
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest
(par value $.01 per
share)............... 24,277,794 $16.00 $388,444,704 $133,946
</TABLE>
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(1) The Company has previously paid the Commission the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

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

SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1998
PROSPECTUS
20,000,000 COMMON SHARES
CAPITAL AUTOMOTIVE REIT

[LOGO OF CARS APPEARS HERE]
COMMON SHARES OF BENEFICIAL INTEREST

----------

Capital Automotive REIT (the "Company") is a newly organized self-
administered and self-managed Maryland real estate investment trust formed to
invest in the real property and improvements used by operators (the "Dealers")
of multi-site, multi-franchised motor vehicle dealerships ("Dealerships") and
motor vehicle related businesses located in major metropolitan areas throughout
the United States. The Company is the first publicly-offered real estate
investment trust ("REIT") formed primarily to acquire and lease back real
property and improvements for use by Dealers. The Company has entered into
agreements to acquire
(continued on next page)

----------

SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN MATERIAL
RISKS TO BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON SHARES,
INCLUDING, AMONG OTHERS:

. Inability of the Company to close the acquisition of any initial property
or close such acquisition as scheduled due to delays or issues relating to
title, zoning, encumbrances or other events that may arise in connection
with a real estate acquisition, which may adversely affect the financial
results of the Company and distributions to shareholders, although the
Company is not currently aware of any event that would prevent the Company
from acquiring any Initial Property;

. Dependence on the ability of Lessees to pay rent to the Company, which
ability may be affected by risks inherent in operating Dealerships and
related businesses, and which failure to pay rent would adversely affect
the financial results of the Company;

. Conflicts of interest between the Company and certain Trustees of the
Company, and the potential influence of such Trustees or their affiliates
with respect to the business of, and decisions affecting, the Company,
which may affect the sale or refinancing of certain properties or
enforcement of certain agreements;

. The Company's lack of operating history and management's lack of
experience operating a REIT;

. Approximately 66% of the net proceeds of the Offering (assuming the
Underwriters do not exercise their over-allotment option) have not been
committed to specific investments; the Company may face significant
competition in acquiring additional properties, which may inhibit the
Company's ability to achieve its investment objectives; the shareholders
will not have the opportunity to evaluate such acquisitions by the
Company;

. The Company's limited control over the management of the properties, which
may affect the maintenance and repair of those properties; and

. Adverse tax consequences of failing to qualify as a REIT and the decrease
in funds available to pay distributions to shareholders resulting from
taxation as a regular corporation.

----------

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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Common Share........................... $ $ $
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Total(3)(4)................................ $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $1,650,000, including reimbursement of certain out of pocket
expenses of Friedman, Billings, Ramsey & Co., Inc., the Representative of
the Underwriters, including reimbursement of fees and expenses of its
counsel. The Company has granted to the Representative warrants to purchase
1,277,794 Common Shares (equal to 4% of the Common Shares to be outstanding
on the closing of the Offering (excluding exercise of the Underwriters'
over-allotment option) on a fully diluted basis). The Common Shares
issuable upon exercise of the Warrants have been registered by the Company.
See "Underwriting." Approximately $2,525,000 of the net proceeds of this
Offering will be used to repay indebtedness to FBR Group, Inc., an
affiliate of the Representative. See "Use of Proceeds."
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 3,000,000 additional Common Shares on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
(4) The Underwriters have agreed to reserve up to 2% of the Common Shares
offered hereby for sale to certain persons associated with the Company,
including executive officers and Trustees of the Company and their
families, at the Price to Public net of underwriting discounts and
commissions. To the extent such reserved shares are sold to such
individuals, the total Underwriting Discounts and Commissions will be
reduced. See "Underwriting."

----------

The Common Shares are offered by the Underwriters subject to receipt and
acceptance by the Underwriters, approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offers and to reject orders in whole
or in part. It is expected that delivery of the Common Shares will be made in
New York, New York on or about , 1998.

----------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is , 1998
<PAGE>

[Map Showing Location by State of Initial Properties]

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON SHARES
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three
quarters.
<PAGE>

(continuation of cover page)

36 properties, of which 20 are located in the Washington, D.C. Metropolitan
Area. The Company will lease back its properties toto Dealers or their
affiliates under long-term leases that require the lessee to pay all taxes,
utilities, insurance, repairs, maintenance and other expenses (commonly
referred to as "triple net" leases). Sixteen of those properties will be
acquired from affiliates of John J. Pohanka and Robert M. Rosenthal, who have
agreed to join the Board of Trustees of the Company upon closing of this
Offering.

All of the Company's common shares of beneficial interest, par value $.01
per share (the "Common Shares"), offered hereby are being sold by the Company.
To assist the Company in maintaining its qualification as a REIT, ownership of
Common Shares by any person is generally limited to 9.9% of the outstanding
Common Shares. Prior to the Offering, there has been no public market for the
Common Shares. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for listing of the Common Shares on
The Nasdaq Stock Market National Market under the symbol "CARS." See
"Glossary" beginning on page G-1 for the definition of certain terms used in
this Prospectus.

Assuming (i) conversion of units of limited partnership interest of Capital
Automotive L.P. ("Units") into Common Shares (which are redeemable beginning
on the first anniversary of the date of issuance by the holder), (ii) exercise
of warrants to acquire Common Shares or Units to be issued to the
Representative or affiliates of the Company, (iii) exercise of options to
acquire Common Shares or Units to be issued to executive officers of the
Company, and (iv) the purchase of $13 million of Common Shares by Mr. Pohanka
and his family in this Offering, Trustees and executive officers of the
Company would collectively own 28.92% and the Representative and FBR Asset
Investment Corporation would collectively own 9.71% of the outstanding Common
Shares (27.20% and 8.77% if the Underwriters' over-allotment option is
exercised in full), subject to the 9.9% limitation on ownership of Common
Shares by a shareholder. See "Principal Shareholders of the Company."

FBR Asset Investment Corporation, an affiliate of the Representative of the
Underwriters, has agreed to acquire 1,792,115 Common Shares in a private
placement that will close concurrently with this Offering at the initial
public offering price, net of underwriting discounts and commissions.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
PROSPECTUS SUMMARY......................................................... 1
THE COMPANY................................................................ 1
RISK FACTORS............................................................... 3
THE INITIAL PROPERTIES, LEASES AND DEALERSHIPS............................. 6
STRATEGY................................................................... 10
SUMMARY SELECTED FINANCIAL INFORMATION..................................... 11
BENEFITS TO RELATED PARTIES................................................ 12
STRUCTURE OF THE COMPANY................................................... 14
FORMATION TRANSACTIONS..................................................... 15
DISTRIBUTIONS.............................................................. 16
TAX STATUS OF THE COMPANY.................................................. 16
THE OFFERING............................................................... 17
RISK FACTORS............................................................... 18
Inability of the Company to Close the Acquisition of Property or Close
such Acquisition as Scheduled........................................... 18
The Company is Dependent upon Dealers Generating Sufficient Revenues From
Their Operations to Permit the Lessees to Pay Rent and Fulfill Their
Other Obligations Under the Leases...................................... 18
Dependence on Lessees for Payment of Rent and Performance of Lease
Terms ................................................................ 18
Dependence on Guarantors for Payment of Rent and Performance of Lease
Terms Upon Default of Lessee ......................................... 19
The Company Has No Rights Under,
or Control Over, Franchise Agreements ................................ 19
Rejection of Leases Under Federal Bankruptcy Codes..................... 19
Inability of the Company to Resell or Re-Lease Properties.............. 20
Responsibility for Uninsurable Losses.................................. 20
General Risks Associated With Operating Dealerships and Related
Businesses.............................................................. 21
Dependence on Manufacturers for Supply of Motor Vehicles............... 21
Restrictions in Franchise Agreements that Govern Ability of Dealerships
to Sell Motor Vehicles or its Assets or Properties.................... 21
Mature Industry and Cyclicality With Limited Growth Potential.......... 22
Dealership Competition for Sale of Motor Vehicles...................... 22
</TABLE>
<TABLE>
<S> <C>
Restrictions that Could Limit Supply of Motor Vehicles................. 22
Conflicts of Interest Among the Company and Certain Trustees............. 22
Ability of Certain Trustees to Influence the Company................... 23
Terms of Initial Sale of Initial Properties by Affiliates of Messrs.
Pohanka and Rosenthal................................................. 23
Terms of Initial Leases for Lease of Initial Properties to Affiliates
of Messrs. Pohanka and Rosenthal...................................... 23
Ability of Certain Trustees and Their Affiliates to Influence the Sale
or Refinancing of the Initial Properties.............................. 23
Purchase Prices of Properties Have Not Been Based on Independent
Appraisals and as a Result the Market Capitalization of the Company May
Exceed the Fair Market Value of the Company's Properties if Determined
by Appraisal............................................................ 24
The Company's Lack of Operating History; No Assurance that the Company
Will Be Able to Generate Sufficient Revenue to Make or Sustain
Distributions to Shareholders........................................... 24
There Can Be No Assurance that the Company Will Complete Any Additional
Acquisitions of Properties.............................................. 25
Risk That the Company Could Be Treated as an Investment Company if
Proceeds Have Not Been Invested Within One Year ........................ 25
Risk of Leverage......................................................... 25
The Company will not Exercise Control Over the Management or Maintenance
of the Properties....................................................... 26
Dependence on Key Personnel.............................................. 26
Geographic Concentration of the Initial Properties in Certain Markets
Renders the Company Vulnerable to Local Economic Conditions............. 26
General Real Estate Investment Risks..................................... 26
General Risks of Real Estate Investment................................ 27
Real Estate Tax Increases.............................................. 27
Operating Expenses Increases .......................................... 27
Risks Associated with Illiquidity of Real Estate....................... 27
Governmental Regulations; Environmental Matters.......................... 27
Environmental Laws..................................................... 27
Americans with Disabilities Act of 1990................................ 28
</TABLE>

i
<PAGE>

<TABLE>
<S> <C>
Other Regulations...................................................... 29
Competition with Other Companies with Similar Business Objectives and
Strategies.............................................................. 29
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................. 29
Tax Liabilities as a Consequence of Failure to Qualify as a REIT....... 29
Adverse Effects of REIT Minimum Distribution Requirements.............. 30
Consequences of Failure to Qualify as a Partnership.................... 30
Risks Regarding Characterization of Initial Leases..................... 30
Other Tax Liabilities.................................................. 31
The Ownership Limit...................................................... 31
Certain Tax and Anti-takeover Provisions May Inhibit a Change in Control
of the Company.......................................................... 31
Ownership Limit........................................................ 31
Removal of Trustees; Vacancies......................................... 32
Preferred Shares....................................................... 32
Maryland Business Combination Statute.................................. 32
Changes in Policies...................................................... 32
No Prior Market for Common Shares........................................ 32
Effect on Market Interest Rates on Share Prices.......................... 33
Possible Adverse Effects on Share Price Arising from Common Shares
Eligible for Future Sale................................................ 33
USE OF PROCEEDS............................................................ 34
CAPITALIZATION............................................................. 36
DILUTION................................................................... 37
CONFLICTS OF INTEREST POLICIES............................................. 38
SELECTED FINANCIAL INFORMATION............................................. 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 41
Overview................................................................. 41
Results of Operations.................................................... 41
Pro Forma Results of Operations.......................................... 41
Environmental Matters.................................................. 42
Liquidity and Capital Resources.......................................... 42
BUSINESS OF THE COMPANY AND PROPERTIES..................................... 44
Overview................................................................. 44
Strategy................................................................. 46
The Initial Leases, Properties and Dealerships........................... 47
Typical Initial Lease Terms............................................... 51
Use of the Properties................................................... 51
Amounts Payable under the Leases; Net Provisions........................ 51
Maintenance, Alterations, Additions or Improvements..................... 51
Insurance............................................................... 52
Damage to, or Condemnation of, a Property............................... 52
Financial Covenants..................................................... 53
Assignment and Subletting............................................... 53
Indemnification......................................................... 53
Environmental Matters................................................... 54
Events of Default....................................................... 54
Right of First Offer and Option to Purchase Property.................... 55
Governing Law........................................................... 55
Washington, D.C. Metropolitan Area ....................................... 56
Governmental Regulations Affecting the Properties......................... 56
Environmental Laws...................................................... 56
Americans with Disabilities Act of 1990................................. 56
Franchise Agreements...................................................... 57
Competition............................................................... 58
Other Investment Policies................................................. 58
Employees................................................................. 58
Legal Proceedings......................................................... 58
MANAGEMENT.................................................................. 59
Trustees, Executive Officers and Key Employees............................ 59
Committees of the Board of Trustees....................................... 61
Audit Committee......................................................... 61
Executive Committee..................................................... 61
Executive Compensation Committee........................................ 61
Compensation of Trustees.................................................. 61
Executive Compensation.................................................... 61
Employment Agreements..................................................... 62
1998 Equity Incentive Plan................................................ 62
Option Grants in Connection with the Formation Transactions............... 63
Indemnification of Trustees and Officers.................................. 64
STRUCTURE AND FORMATION OF THE COMPANY...................................... 65
Structure of the Company.................................................. 65
Formation Transactions.................................................... 65
Benefits to Related Parties............................................... 66
Lock-Out Provisions....................................................... 68
Benefits of the UPREIT Structure.......................................... 68
Acquisition of the Initial Properties from the Initial Sellers............ 68
RELATED TRANSACTIONS........................................................ 69
Transactions with Trustees................................................ 69
</TABLE>

ii
<PAGE>

<TABLE>
<S> <C>
Dealer Warrants......................................................... 69
Acquisitions of Initial Properties...................................... 69
Initial Leases.......................................................... 69
Sale of Common Shares in this Offering.................................. 69
PARTNERSHIP AGREEMENT...................................................... 70
Management............................................................... 70
Indemnification.......................................................... 70
Transferability of Interests............................................. 70
Extraordinary Transactions............................................... 71
Issuance of Additional Units............................................. 71
Capital Contributions and Additional Funds............................... 71
Awards Under Plan........................................................ 71
Distributions............................................................ 71
Operations............................................................... 72
Limited Partner Redemption Rights........................................ 72
Tax Matters.............................................................. 72
Term..................................................................... 72
PRINCIPAL SHAREHOLDERS OF THE COMPANY...................................... 73
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............................... 74
Authorized Shares........................................................ 74
Common Shares............................................................ 74
Preferred Shares......................................................... 75
Restrictions on Ownership and Transfer................................... 76
Certain Provisions of Maryland Law and of the Declaration of Trust and
Bylaws.................................................................. 78
Business Combinations.................................................. 78
Control Share Acquisitions............................................. 79
Limitation of Liability and Indemnification............................ 79
Maryland Asset Requirements............................................ 80
Meetings of Shareholders............................................... 80
COMMON SHARES ELIGIBLE FOR FUTURE SALE..................................... 81
General................................................................ 81
Underwriting Warrants.................................................. 82
Dealer Warrants........................................................ 82
Conversion of Units.................................................... 82
</TABLE>
<TABLE>
<S> <C>
Registration Rights..................................................... 82
FEDERAL INCOME TAX CONSEQUENCES............................................. 83
Taxation of the Company as a REIT......................................... 83
General................................................................. 83
Requirements for Qualification.......................................... 84
Income Tests............................................................ 84
Asset Tests............................................................. 88
Annual Distribution Requirements........................................ 89
Partnership Anti-Abuse Rule............................................. 89
Failure to Qualify...................................................... 90
Taxation of Holders of Common Shares...................................... 90
U.S. Shareholders....................................................... 90
Backup Withholding...................................................... 92
Taxation of Tax-Exempt Shareholders..................................... 92
Non-U.S. Shareholders................................................... 92
Ordinary Dividends...................................................... 93
Return of Capital....................................................... 93
Capital Gain Dividends.................................................. 94
Sales of Common Shares.................................................. 94
Backup Withholding...................................................... 94
Other Tax Consequences.................................................... 95
Tax Aspects of the Operating Partnership.................................. 95
Classification as a Partnership......................................... 95
Partnership Allocations................................................. 96
Tax Allocations with Respect to the Properties.......................... 97
Basis in Operating Partnership Interest................................. 98
Sale of the Properties.................................................. 98
UNDERWRITING................................................................ 99
LEGAL MATTERS............................................................... 101
EXPERTS..................................................................... 101
ADDITIONAL INFORMATION...................................................... 102
INDEX TO FINANCIAL STATEMENTS............................................... F-1
GLOSSARY.................................................................... G-1
</TABLE>

iii
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial information, including the historical and pro forma
financial statements and notes thereto, appearing elsewhere in this Prospectus.
This Prospectus contains forward looking statements that involve risks and
uncertainties. The Company's actual operations may differ significantly from
the results discussed in the forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"could," "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.

Unless otherwise indicated, the information contained in this Prospectus
assumes: (i) the consummation of the transactions described under "Structure
and Formation of the Company" (collectively, the "Formation Transactions")
contemporaneously with the closing of this Offering, (ii) an initial public
offering price of $15.00 per Common Share (representing the midpoint of the
price range), (iii) the purchase by FBR Asset Investment Corporation of
1,792,115 Common Shares at the assumed initial public offering price (net of
underwriting discounts and commissions), and (iv) that the Underwriters' over-
allotment option will not be exercised.

This Prospectus includes statistical industry data regarding Dealerships and
Related Businesses. Unless otherwise indicated, such data is taken or derived
from information published by (i) the Industry Analysis Division of the
National Automobile Dealers Association ("NADA") in its NADA Data 1996 and NADA
Data 1997, and on the "NADANET" web-site located at
"www.nadanet.com/news/nadadata/econfyi.htm," (ii) Crain Communications Inc. in
its Automotive News 100-Year Almanac, 1996 Market Data Book and 1997 Market
Data Book, (iii) ADT Automotive, Inc. in its 1997 Used Car Market Report, (iv)
the Bureau of the Census in the U.S. Department of Commerce in its Statistical
Abstract of the United States 1996 from the National Data Book, or (v) the
Washington Business Journal, thirteenth annual The Book of Lists, 1997-1998.

Unless the context otherwise requires, all references to (i) the "Company" in
this Prospectus include Capital Automotive REIT and its sole subsidiary,
Capital Automotive L.P., a Delaware limited partnership (the "Operating
Partnership"), or either of them, and (ii) the Dealers, the Initial Sellers and
Sellers (as hereafter defined) and the Initial Lessees and Lessees (as defined
hereafter) and the Representative also refer to persons or entities who are
their affiliates ("Affiliates") as defined in Rule 405 of the Securities Act of
1933, as amended (the "Securities Act") where the context requires. See
"Glossary" beginning on page G-1 for the definition of certain other terms used
in this Prospectus.

THE COMPANY

The Company is a newly organized self-administered and self-managed Maryland
REIT formed on October 20, 1997 to invest in the real property and improvements
used by operators ("Dealers") of multi-site, multi-franchised motor vehicle
dealerships ("Dealerships") and motor vehicle related businesses ("Related
Businesses") located in major metropolitan areas throughout the United States.
The Company is the first publicly-offered REIT formed primarily to acquire and
lease back properties for use by Dealers (the initial real estate and
improvements are referred to as the "Initial Properties" or together with any
future real estate and improvements are referred to as the "Properties").

1
<PAGE>

of such construction, renovation or expansion. The Company believes that its
acquisition strategy will provide sellers with an opportunity (i) to acquire
liquidity, while maintaining ownership and control of the Dealerships or
Related Businesses, (ii) to diversify their investments, (iii) to obtain funds
to expand the operations of their Dealerships or Related Businesses, and (iv)
to facilitate their estate planning. The Company has adopted a policy, which
may be changed by the Board of Trustees without shareholder approval, to limit
the debt to total market capitalization ratio to not more than 50%.

The Company has entered into agreements to acquire 36 Initial Properties on
which 54 franchisees of 24 brands of motor vehicles are located. Twenty of the
Initial Properties are located in the Washington, D.C. Metropolitan Area, which
Initial Properties are operated by four of the top 20 Dealers in the
Washington, D.C. Metropolitan Area, as measured by total new vehicles sold in
1996. Other Initial Properties are located in Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. Dealers located on
the Initial Properties sell domestic and imported luxury, family, economy and
sport utility vehicles, and trucks and vans, including Mercedes-Benz, Honda,
Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda, Infiniti, Jaguar, Acura,
Lincoln-Mercury, Mitsubishi and Nissan. The Initial Properties will be
purchased from their owners, who are Affiliates of the Dealers (the "Initial
Sellers" or together with any future sellers, the "Sellers") and will be leased
back to the Dealers or their Affiliates (the "Initial Lessees" or together with
any future lessees, the "Lessees"). The Initial Leases will be long-term leases
that require the Initial Lessees to pay all operating costs of the Initial
Properties, as well as all taxes, utilities, insurance, repairs, maintenance
and other expenses (commonly referred to as "triple net" leases).

The Initial Lessees are Affiliates of the Pohanka Automotive Group
("Pohanka"), the Rosenthal Automotive Organization ("Rosenthal"), Sheehy Auto
Stores ("Sheehy"), Cherner Automotive Group ("Cherner"), Cross-Continent Auto
Retailers, Inc. ("Cross-Continent"), Good News Auto Mall ("Good News") and
Kline Automotive Group ("Kline"). Each of the Dealership groups has received
numerous industry awards. See "Business of the Company and Properties."
Collectively, Initial Sellers affiliated with Pohanka, Rosenthal, Sheehy and
Cherner will own 1,204,342; 3,438,298; 295,439; and 103,470 Units in the
Operating Partnership, respectively. Mr. Pohanka and his family have advised
the Representative that they intend to purchase $13 million of registered
Common Shares in this Offering at the initial public offering price. Messrs.
Pohanka and Rosenthal also will have the right to acquire an aggregate of
1,414,158 Units (equal to 4% of the Common Shares to be outstanding on the
closing of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis). Messrs. Pohanka and Rosenthal have agreed to
join the Company's Board of Trustees prior to the closing of the Offering.

Thomas D. Eckert, President and Chief Executive Officer, Scott M. Stahr,
Executive Vice President and Chief Operating Officer, Donald L. Keithley,
Executive Vice President of Business Development, and David S. Kay, Vice
President and Chief Financial Officer, the Company's executive officers, have
22; 12; 38; and 10 years of experience, respectively, in the real estate,
financial and motor vehicle industries, although they do not have experience
managing or operating a REIT. Following the Offering, the Company's executive
officers will own or have the right to acquire in the aggregate 106,667 Common
Shares and 2,368,107 Units (equal to 7% of the Common Shares to be outstanding
on the closing of the Offering (including exercise of the Underwriters' over-
allotment in full) on a fully diluted basis) pursuant to options granted under
the Company's 1998 Equity Incentive Plan (the "Plan"). See "Management--1998
Equity Incentive Plan."

Certain conflicts of interest could exist between the Company and Mr. Pohanka
or Mr. Rosenthal in his capacity as a Trustee of the Company and as Affiliates
of certain Initial Sellers and Initial Lessees. Messrs. Pohanka and Rosenthal
may exert influence over the Company in connection with (i) the terms of the
contribution agreements and leases for Initial Properties or future Properties
to be acquired from any one of them, (ii) the exercise and terms of the right
of first offer and repurchase right of an affiliated Initial Lessee under an

2
<PAGE>

Initial Lease, (iii) the decision to sell or refinance a Property, (iv) the
terms of any "lock-out" restrictions, that limit the ability of the Company to
sell or refinance particular Properties, and (v) the enforcement of Initial
Leases and agreements with Mr. Pohanka or Mr. Rosenthal or their respective
Affiliates. The Company has adopted certain policies that are designed to
eliminate or minimize certain potential conflicts of interest. See "Conflicts
of Interest Policies."

Assuming (i) conversion of Units to Common Shares upon exercise of redemption
rights (which are redeemable beginning on the first anniversary of the date of
issuance by the holder), (ii) exercise of warrants to acquire Common Shares or
Units to be issued to the Representative or affiliates of the Company, (iii)
exercise of options to acquire Common Shares or Units to be issued to executive
officers of the Company, and (iv) the purchase of $13 million of Common Shares
by Mr. Pohanka and his family in this Offering, Trustees and executive officers
of the Company would collectively own 28.92%, and the Representative and its
Affiliates would collectively own 9.71% of the outstanding Common Shares
(27.20% and 8.77% if the Underwriters' over-allotment option is exercised in
full), subject to the 9.9% limitation on ownership of Common Shares by a
shareholder. See "Principal Shareholders of the Company."

The Company's principal executive offices are located at 1925 North Lynn
Street, Suite 306, Arlington, Virginia 22209. Its telephone number is
(703) 469-1300.

RISK FACTORS

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

. Inability of the Company to close the acquisition of any Initial Property
or close such acquisition as scheduled due to delays or issues relating
to title, zoning, encumbrances or other events that may arise in
connection with a real estate acquisition, which may adversely affect the
financial results of the Company and distributions to shareholders
although the Company is not aware of any event that would prevent the
Company from acquiring any Initial Property;

. Dependence on the ability of Lessees to pay rent and perform their
obligations under the Leases, which ability may be affected by risks
inherent in operating Dealerships or Related Businesses, including, but
not limited to, (i) the ability of Dealers to access financing, (ii)
competitive factors, including consolidation of ownership, (iii) the
expansion or contraction of the motor vehicle retail industry,
(iv) performance of Dealers under their Franchise Agreements with
Manufacturers, (v) general factors affecting Manufacturers, including
union and labor issues, product safety issues, health and safety
regulations, environmental regulations, consumer tastes and preferences,
recalls and litigation, (vi) governmental regulation, including health,
safety and environmental regulation, and (vii) general economic factors
that affect new and used motor vehicle sales and leases;

. Conflicts of interest between the Company and Mr. Pohanka or Mr.
Rosenthal, who have agreed to join the Board of Trustees prior to the
closing of this Offering and who are Affiliates of certain Initial
Sellers and Initial Lessees, and the potential influence of those
Trustees and their Affiliates over the business and affairs of the
Company, including, but not limited to, (i) negotiation of the terms of
the contribution agreements and Initial Leases for the Initial Properties
to be acquired from any one of them, (ii) operation of the Company's
ongoing businesses, including conflicts associated with the tax
consequences to certain Initial Sellers, which, together with certain
provisions of the Partnership Agreement, may influence the Company's
decision to sell or finance, or to prepay debt secured by, certain
Properties, (iii) potential election by the Lessee to exercise its right
of first offer or option to purchase the Properties at the end of the
initial Lease term or any renewal term and negotiation of the terms of
such acquisitions, (iv) the terms of any lock-out restrictions, that
limit the ability of the Company to sell or refinance particular
Properties, and (v) the enforcement of the Initial Leases or other
agreements;

. The lack of operating history of the Company and management's lack of
experience operating a REIT;

3
<PAGE>

. Approximately 66% of the net proceeds of the Offering (assuming the
Underwriters do not exercise their over-allotment option) has not been
committed to specific investments; the Company may face significant
competition in acquiring additional Properties, which may inhibit the
Company's ability to achieve its investment objectives and necessitate
the investment of the proceeds of this Offering in short-term or
government securities that could produce a lower yield to the Company
than could be generated from an investment in real estate. The
shareholders will not have the opportunity to evaluate such acquisitions
by the Company;

. The Company's limited control over the management of the Properties,
which could affect the maintenance and repair of the Properties;

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

. The possibility that the consideration paid by the Company for certain
Properties acquired by the Company may exceed fair market values
estimated by other methodologies, such as third party appraisals (such
consideration has been or will be determined through negotiations with
the Seller, wherein the Company considers (i) the Property's market value
based on its analysis of comparable property sales, (ii) the rents and
terms of the Lease at which the Property will be leased back to the
Seller, (iii) the potential for appreciation of the value of the Property
over the Lease term and any renewal term, (iv) the characteristics of the
Property, including the size, configuration, and zoning, (v) the
condition of the real estate and improvements, and assessment of its
useful life, and (vi) alternative uses for the Property);

. Inability to obtain consents required under certain Franchise Agreements
that impose restrictions relating to the sale or transfer of certain
assets or Property of certain Dealerships without the consent or waiver
of Manufacturers, which could result in the Company being unable to
acquire certain Initial Properties or additional Properties;

. The Company's dependence on key officers and Trustees of the Company,
including Thomas D. Eckert, President and Chief Executive Officer, Scott
M. Stahr, Executive Vice President and Chief Operating Officer, Donald L.
Keithley, Executive Vice President of Business Development, and David S.
Kay, Vice President and Chief Financial Officer, the loss of whom could
adversely affect the management of the Company. The executive officers
will receive substantial compensation from the Company. See "Management--
Executive Compensation;"

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

. The geographic concentration of the Initial Properties primarily in
suburban communities of Washington, D.C., which could render the Company
vulnerable to local economic conditions and other local factors;

. General risks relating to commercial real estate ownership and
investment, including, but not limited to (i) the effect of economic and
other conditions on real estate values, including, those associated with
cyclical weaknesses in the real estate markets, (ii) the general lack of
liquidity of investments in real estate, (iii) competition from other
real estate investors seeking properties of the types which the Company
intends to acquire or finance, (iv) the inability of Lessees to make rent
payments, (v) the possibility that the Company may not be able to replace
existing Lessees, if necessary, or reposition properties for alternative
uses, (vi) governmental regulation, including, changes in use, zoning,
health and safety and environmental requirements, (vii) potential for
unknown or future environmental or other liabilities, and (viii)
uninsurable losses;

. Limitations on the Company's ability to sell or refinance certain
Properties, which could adversely effect the financial performance of the
Company;

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

4
<PAGE>

. Failure by the Company to invest a significant portion of the proceeds of
this Offering in Properties within one year of closing of the Offering,
which could result in the Company investing any unused proceeds in
certain government securities in order to avoid registering as an
investment company and becoming subject to the requirements of the
Investment Company Act of 1940, as amended (the "Investment Company
Act");

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

. The Company intends to use leverage, generally with a ratio of debt to
total market capitalization of not more than 50%. This policy may be
changed by the Board of Trustees without the approval of the
shareholders. If the Company modifies this strategy to permit a higher
degree of leverage and incurs additional indebtedness, debt service
requirements would increase accordingly, and such an increase could
adversely affect the Company's financial condition and results of
operations. In addition, increased leverage could increase the risk of
default by the Company on its debt obligations, with the potential for
loss of the Properties secured thereby, cash available for distribution,
and asset values, of the Company;

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

. The possible reduction of the market price of the Common Shares or
dilution on a per share basis, due to the potential future sale of
additional Common Shares or the issuance of Units as consideration for
the acquisition of Properties; and

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

5
<PAGE>

THE INITIAL PROPERTIES, LEASES AND DEALERSHIPS

The Company has entered into agreements to acquire 20 Initial Properties that
are located primarily in suburban communities of the Washington, D.C.
Metropolitan Area. The locations of the additional 16 Initial Properties
include Colorado, the eastern shore of Maryland, Nevada, Pennsylvania, Texas
and southern Virginia. The Company's interest in each Initial Property includes
the land, buildings and improvements, related easements and rights and
fixtures. The Company will not own or lease any personal property, furniture or
equipment at any Initial Property, all of which will be owned or leased from
third parties or by the respective Initial Lessees. The Initial Properties are
generally zoned for a wide range of commercial uses and typically have frontage
on major transportation arteries with high traffic patterns, high visibility,
bright signage, and ease of entrance and exit. The improvements on the Initial
Properties generally consist of one or more retail showrooms, office space
(which may or may not be contained in separate buildings), adjacent full
service and repair facilities, parts and accessories departments, and in many
cases, acreage set aside for used car sales, body shops and parking for
inventory.

Set forth below is certain information relating to the Initial Properties:
<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Rosenthal Infiniti,
Mazda/Nissan........... Tysons Corner, VA $ 23,873,587 12.0 84,384
Rosenthal Nissan, Acura,
Mazda & Isuzu.......... Gaithersburg, MD 11,855,771 8.4 68,898
Rosenthal Honda &
Jaguar................. Tysons Corner, VA 11,454,528 7.8 46,836
Rosenthal Chevrolet &
Jeep/Eagle............. Arlington, VA 6,779,469 5.2 67,000
Rosenthal Mazda......... Arlington, VA 5,356,973 2.2 16,176
Rosenthal Storage Lot... Arlington, VA 4,890,991 4.7 32,349
Rosenthal Body Shop..... Tysons Corner, VA 1,057,392 0.9 16,000
------------ ----- -------
Subtotal............. $ 65,268,711 41.2 331,643
============ ===== =======
Pohanka Acura &
Chevrolet/GEO(4)....... Chantilly, VA $ 7,651,113 5.1 48,571
Pohanka Saturn/Isuzu
Oldsmobile & GMC
Truck(4)............... Marlow Heights, MD 4,326,150 5.9 38,377
Pohanka Saturn(4)....... Bowie, MD 4,064,550 5.3 22,679
Pohanka Honda(4)........ Marlow Heights, MD 3,700,387 2.3 40,769
Pohanka Lexus(4)........ Chantilly, VA 3,438,343 2.3 15,111
Pohanka Cadillac,
Hyundai, Nissan &
Kia(4)................. Fredricksburg, VA 3,432,650 6.2 42,473
Pohanka Undeveloped
Dealership Lot(4)...... Chantilly, VA 2,459,742 7.1 --
Pohanka Hyundai &
Subaru(4).............. Marlow Heights, MD 1,556,465 2.6 15,372
Pohanka Body Shop(4).... Marlow Heights, MD 694,575 2.7 2,550
------------ ----- -------
Subtotal............. $ 31,323,975 39.5 225,902
============ ===== =======
Sheehy Ford & Kia....... Springfield, VA $ 6,308,000 6.6 51,512
Chapman Ford Sales(5)... Philadelphia, PA 3,000,000 7.9 --
Sheehy Lincoln-Mercury &
Mitsubishi............. Woodbridge, VA 2,565,925 3.1 24,597
Sheehy Ford............. Marlow Heights, MD 2,132,000 4.6 26,400
------------ ----- -------
Subtotal............. $ 14,005,925 22.2 102,509
============ ===== =======
Cherner Lincoln-
Mercury................ Annandale, VA $ 6,322,909 5.3 43,884
============ ===== =======
T. West Sales & Service
(Toyota)............... Las Vegas, NV $ 13,205,000 8.8 126,685
Douglas Motors
(Toyota)............... Denver, CO 8,905,000 6.5 148,461
Plains Chevrolet........ Amarillo, TX 4,705,000 16.1 121,425
Westgate Chevrolet...... Amarillo, TX 4,405,000 8.0 48,000
Midway Chevrolet........ Amarillo, TX 3,105,000 12.2 43,262
Quality Nissan.......... Amarillo, TX 1,005,000 3.4 16,947
------------ ----- -------
Subtotal............. $ 35,330,000 55.0 504,780
============ ===== =======
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Price Buick & Pontiac... Salisbury, MD $ 1,344,826 3.3 12,500
Good News Body Shop..... Salisbury, MD 1,268,500 6.2 12,200
Good News Olds-Cadillac-
GMC Truck.............. Salisbury, MD 830,300 3.5 14,700
Good News Honda......... Salisbury, MD 586,560 2.4 11,800
Towne Toyota & Mercedes-
Benz................... Salisbury, MD 568,500 2.3 12,100
Good News Nissan........ Salisbury, MD 449,400 1.2 17,200
Good News Mazda......... Salisbury, MD 413,000 1.4 12,400
------------ ----- ---------
Subtotal............. $ 5,461,086 20.3 92,900
============ ===== =========
Kline Toyota
Greenbrier/Kline
Chevrolet.............. Chesapeake, VA $ 6,984,755 11.2 71,280
Kline (Land)............ Chesapeake, VA 1,525,245 14.0 --
------------ ----- ---------
Subtotal............. $ 8,510,000 25.2 71,280
============ ===== =========
Total $166,222,606 208.7 1,372,898
============ ===== =========
</TABLE>
- --------
(1) The Company currently intends to close the acquisitions of the Initial
Properties within 60 days of the date of closing of this Offering, except
that the acquisition of the Cross-Continent Initial Properties located in
Las Vegas, Nevada and Denver, Colorado are scheduled to close in July 1998.
(2) The purchase prices for the Initial Properties are allocated among the
initial selling groups as follows:

<TABLE>
<CAPTION>
ALLOCATION OF PURCHASE PRICE
---------------------------------------
APPROXIMATE
TOTAL PURCHASE ASSUMED ESTIMATED
SELLING GROUP PRICE CASH MORTGAGE DEBT(A) UNITS
------------- --------------- ------------ ---------------- ---------
<S> <C> <C> <C> <C>
Pohanka Automotive
Group.................. $ 31,323,975 $ -- $13,258,844 1,204,342
Rosenthal Automotive
Organization........... 65,268,711 -- 13,694,242 3,438,298
Sheehy Auto Stores...... 14,005,925 -- 9,574,333 295,439
Cherner Automotive
Group.................. 6,322,909 -- 4,770,863 103,470
Cross-Continent Auto
Retailers, Inc. ....... 35,330,000 35,330,000 -- --
Good News Auto Mall..... 5,461,086 5,461,086 -- --
Kline Automotive Group.. 8,510,000 8,510,000 -- --
--------------- ------------ ----------- ---------
Totals............... $ 166,222,606 $ 49,301,086 $41,298,282 5,041,549
=============== ============ =========== =========
</TABLE>
- --------
(a) Based on mortgage debt outstanding as of December 31, 1997.
(3) Includes an aggregate of approximately $1.4 million attributable to
estimated acquisition fees and expenses (including transfer taxes,
recordation taxes and title insurance but excludes $1.5 million
attributable to estimated consulting and attorneys' fees). The Initial
Sellers who are Affiliates of Pohanka, Rosenthal, Sheehy or Cherner may
elect to receive the portion of the purchase price relative to acquisition
fees or expenses either in cash or in Units.

(4) The Company expects to enter into a line of credit with NationsBank, N.A.
in the amount of $10 million and to borrow $5 million at closing of this
Offering. The line of credit will be secured by a blanket mortgage or
mortgages (the "Pohanka Mortgage") on all of the Initial Properties to be
acquired from Affiliates of Mr. Pohanka (collectively, the "Pohanka
Properties"). The Pohanka Mortgage will accrue interest payable monthly in
arrears at a floating interest rate equal to 90 day Libor + 1.50%. The line
of credit will mature in August 1998. At maturity, a balloon principal
payment in the aggregate amount of the then outstanding borrowings plus any
accrued and unpaid interest will be due and payable, unless the line of
credit is renewed or is refinanced as is currently contemplated by the
Company. The line of credit may be paid in full at any time without
prepayment penalty or premium. In addition, approximately $2.5 million of
the line of credit will be guaranteed by Affiliates of Mr. Sheehy and
approximately $2.5 million will be guaranteed by Affiliates of Mr.
Rosenthal.
(5) The Company will acquire the land but not the improvements occupying the
land of Chapman Ford Sales.

7
<PAGE>

real estate taxes and other governmental charges, insurance, utilities,
service and maintenance and, therefore, will be on a "triple-net" basis. The
Initial Leases also require the Initial Lessees to undertake and pay for any
additions, repairs, renovations and improvements to the Initial Properties
after receiving the consent of the Company, unless the Company decides, at its
option, to pay for such expenditures, which would be on terms to be
negotiated. Upon expiration or termination of the Initial Leases, the Initial
Leases generally provide that additions, repairs, renovations and improvements
will become the Property of the Company. Each Initial Lease will require the
Initial Lessee to operate the Initial Property only for the same purpose for
which it was used on the Company's purchase date, unless the Company consents
to a different use.

The annual rent for the first year (the "Initial Annual Base Rent") under
each Initial Lease has been negotiated by the Company to produce an
appropriate yield to the Company (based on the Company's determination of the
appropriate return on the Company's investment considering (i) the purchase
price for the Property, (ii) the credit worthiness of the Lessee, (iii) the
rental rates for similarly situated properties in the geographic location in
which the Property is situated, (iv) the characteristics of the Property, (v)
the cost to the Company of the funds used to acquire the Property, and (vi)
the return that the Company could realize from alternative investments) on
that Initial Property's purchase price (including acquisition fees and
expenses). The yield to the Company from an investment in Properties will
differ from the yield to shareholders from an investment in the Common Shares.
The Initial Annual Base Rent and the adjusted annual base rent for each year
thereafter (the "Annual Base Rent") will be adjusted upward periodically based
on a factor of the CPI. The CPI adjustments range from one-half of CPI
adjusted every other year to full CPI adjusted every year. Certain Initial
Leases establish minimum and maximum periodic adjustments, that range from
zero to 3% of base annual rent. The Company will have general recourse to the
Initial Lessees, but the Initial Lessees' payment obligations under the
Initial Leases will be unsecured.

8
<PAGE>

Set forth below is certain information relating to the Initial Lessees:
<TABLE>
<CAPTION>
INITIAL ANNUAL LEASE FIXED
LESSEE (DEALERSHIPS)(1)(2) LOCATION BASE RENT EXPIRATION TERM EXTENDED TERM(3)
-------------------------- ------------------ -------------- ---------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc.
d/b/a Rosenthal Nissan/Mazda(4)....... Tysons Corner, VA $ 2,506,727 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Mazda....................... Arlington, VA 621,408 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Chevrolet/Jeep/Eagle
(Storage Lot)......................... Arlington, VA 562,464 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda(4).................... Tysons Corner, VA 511,866 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Jaguar(4)................... Tysons Corner, VA 511,854 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a Geneva
Management (Related Business)......... Arlington, VA 453,600 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Isuzu....................... Gaithersburg, MD 451,418 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Nissan Gaithersburg............. Gaithersburg, MD 350,214 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Acura....................... Gaithersburg, MD 330,111 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet/Jeep/Eagle.. Arlington, VA 312,476 Feb. 2008 10 years 2-10 year options
Maryland Imported Cars, Inc.
d/b/a Gaithersburg Mazda(5)........... Gaithersburg, MD 261,308 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (2-acre lot)(4)....... Tysons Corner, VA 178,997 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (Body Shop)(4)........ Tysons Corner, VA 126,887 Feb. 2008 10 years 2-10 year options
--------------
Subtotal............................ $ 7,179,330
==============
Pohanka Properties, Inc. (Chevrolet/GEO
and Acura)(6)......................... Chantilly, VA $ 841,622 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc.
(Saturn, Isuzu, Oldsmobile & GMC
Truck)(6) ............................ Marlow Heights, MD 475,877 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Saturn)(6)........................... Bowie, MD 447,101 Feb. 2008 10 years 2-10 year options
Pohanka Properties, Inc. (Honda)(6) ... Marlow Heights, MD 407,043 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc. (Lexus)(6).... Chantilly, VA 378,218 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Cadillac, Hyundai, Nissan, Oldsmobile
& Kia)(6)............................. Fredricksburg, VA 377,592 Feb. 2008 10 years 2-10 year options
Pohanka Virginia Properties Partnership
(Undeveloped Dealership Lot)(6)....... Chantilly, VA 270,658 Feb. 2008 10 years 2-10 year options
Pohanka Properties, Inc. (Hyundai &
Subaru)(6)............................ Marlow Heights, MD 171,211 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc. (Body
Shop)(6).............................. Marlow Heights, MD 76,403 Feb. 2009 11 years 2-10 year options
--------------
Subtotal............................ $ 3,445,725
==============
Sheehy Ford of Springfield, Inc. (Ford
& Kia)................................ Springfield, VA $ 662,340 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc.(7)................... Philadelphia, PA 330,000 Oct. 2007 9 years 2-10 year options
Sheehy Lincoln-Mercury, Inc. (Lincoln-
Mercury & Mitsubishi)................. Woodbridge, VA 282,252 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc....................... Marlow Heights, MD 255,840 Feb. 2008 10 years 2-10 year options
--------------
Subtotal............................ $ 1,530,432
==============
Cherner Lincoln Mercury-Annandale,
Inc................................... Annandale, VA $ 695,520 Feb. 2008 10 years 2-10 year options
==============
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
INITIAL
LESSEE ANNUAL BASE LEASE FIXED
(DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
------------------- -------------- ----------- ---------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
T. West Sales & Service,
Inc. (Toyota) (8)...... Las Vegas, NV $ 1,452,000 Feb. 2008 10 years 2-10 year options
Douglas Motors, Inc.
(Toyota)(8)............ Denver, CO 979,000 Feb. 2008 10 years 2-10 year options
Plains Chevrolet,
Inc.(8)................ Amarillo, TX 517,000 Feb. 2008 10 years 2-10 year options
Westgate Chevrolet,
Inc.(8)................ Amarillo, TX 484,000 Feb. 2008 10 years 2-10 year options
Midway Chevrolet,
Inc.(8)................ Amarillo, TX 341,000 Feb. 2008 10 years 2-10 year options
Quality Nissan,
Inc.(8)................ Amarillo, TX 110,000 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............. $ 3,883,000
===========
Good News Salisbury,
Inc.(9)................ Salisbury, MD $ 469,920 Feb. 2008 10 years 2-10 year options
Price Buick-Pontiac,
Inc., and The Price
Organization(10)(11)... Salisbury, MD 154,080 Dec. 2006 8 years N/A
-----------
Subtotal............. $ 624,000
===========
Kline Chevrolet Sales
Corp.(12).............. Chesapeake, VA $ 960,000 Feb. 2008 10 years 3-10 year options(13)
===========
Total.............................. $18,318,007
===========
</TABLE>
- --------
(1) See the historical financial statements for Geneva Enterprises, Inc. and an
affiliated company and summary financial information of Cross-Continent.
(2) The Company believes that all the Initial Properties are adequately covered
by insurance.
(3) If any Initial Lease is renewed for a second Extended Term, the Annual Base
Rent will be renegotiated at the time of renewal by the parties to reflect
the fair market rate at the renewal date.
(4) The Initial Lessees may assign these Initial Leases (subject to compliance
with certain conditions to the satisfaction of the Company), to a limited
liability company to be formed by Mr. Rosenthal or his Affiliates as
members.
(5) Guaranteed by Geneva Enterprises, Inc.
(6) Each Initial Lease with an Affiliate of Pohanka Automotive Group will be
guaranteed by each other Initial Lessee and Dealership affiliated with the
Pohanka Automotive Group.
(7) The occupant is Chapman Ford Sales, which is an unrelated third party.
(8) Guaranteed by Cross-Continent.
(9) Master Lease covering all Initial Properties acquired from Affiliates of
Good News Automotive, Inc. other than Price Buick-Pontiac.
(10) The occupant is Price Buick Pontiac, which is an unrelated third party.
The Company is assuming an existing Lease among Price Buick-Pontiac, Inc.
and The Price Organization (Lessees) and Meyers and Rose (Lessor) dated
December 10, 1991 and terminating December 31, 2006.
(11) Guaranteed by Warren A. Price and Good News Salisbury, Inc.
(12) Guaranteed by Kline Imports Chesapeake, Inc. The Property is occupied by
both Kline Chevrolet and Kline Toyota (sublease to Kline Chesapeake).
(13) If the Company is required by the Initial Lessee to pay for repairs to
such Initial Property in an amount in excess of $50,000 during the 29th
lease year, the Initial Lessee will be required to extend such Initial
Lease for a third 10-year term at a rental rate equal to fair market
value.

In addition to selling new vehicles, many Dealers lease new vehicles and
sell used vehicles. Lease arrangements typically provide Dealers with a source
of late-model, off-lease vehicles for its used vehicle inventory. Dealers also
provide service and parts primarily for the vehicle makes and models that they
sell or lease, and perform both warranty and non-warranty service work. In
general, parts departments support the sales and service divisions. Dealers may
also sell factory-approved parts at retail to their customers or at wholesale
to independent repair shops. Dealers arrange third party financing for their
customers, sell vehicle service contracts and arrange selected types of credit
insurance for which they receive financing fees, subject to a charge-back
against a portion of the finance fees if contracts are terminated prior to
their scheduled maturity.

10
<PAGE>

STRATEGY

The Company's primary objective is to become an owner and lessor of
Properties used by Dealers throughout the United States for the primary purpose
of generating rental income in order to provide the Company with predictable
streams of cash flow to maximize shareholder value. To achieve these
objectives, the Company plans to:

. Implement an aggressive, yet disciplined, acquisition program by
purchasing Properties used by Dealers of multi-site, multi-franchised
Dealerships or Related Businesses that have demonstrated historic growth,
are well managed, and have been maintained in good condition, and whose
location and characteristics will be suitable for alternative use by:

. Diversifying geographically by acquiring Properties located primarily
in major consolidated metropolitan statistical areas ("CMSAs") in
order to minimize the potential adverse impact of economic downturns
in certain markets;

. Leveraging the contacts and experience of the Company's management to
develop relationships with Dealers;

. Maintaining long-term working relationships with Dealers, by providing
capital for multiple acquisitions of Properties on a market-by-market
basis; and

. Taking advantage of opportunities created by the fragmented ownership
of Dealerships and Related Businesses, and the large number of
suitable locations with adequate roadway frontage, high visibility and
appropriate zoning.

. Use the Company's UPREIT structure to acquire Properties in exchange for
cash or Units, or a combination of cash and Units, thereby deferring some
or all of a Seller's potential taxable gain, and enhancing the ability of
the Company to consummate transactions and to structure more competitive
acquisitions than other real estate companies in the market that may lack
the Company's access to capital and the ability to acquire Properties for
Units.

. Use several valuation mechanisms, including calculations of discounted
cash flow, evaluations of comparable sales and leases of properties,
analysis of the alternative uses of the Properties, and evaluation of the
Dealers' financial strength, to determine the purchase price and lease
terms for the Properties.

. Lease back the Properties to Lessees on a triple-net basis, thereby
eliminating brokerage, re-leasing and similar costs and the risk of high
Lessee turnover due to the generally historic long-term operation of
Dealerships or Related Businesses at Property locations.

. Negotiate Lease covenants designed to minimize the likelihood of loss to
the Company, by permitting the Company to establish the ability of
affiliated Lessees (together with any guarantors) to pay rent by bi-
annually monitoring compliance with a rent coverage ratio ("Rent Coverage
Ratio") of 1.5 to 1 or require the Lessee to provide additional security
in the form of a guarantee of an Affiliate.

. Utilize a variety of other financing sources, that may include the
issuance of Units or other equity securities or debt securities, or a
combination thereof, and enter into a bank credit facility, that will be
used to leverage Properties, acquire additional Properties and for
working capital purposes as a means to gain positive spread on
investment. The Company's policy is to operate with a debt to total
market capitalization ratio of not more than 50%, which policy may be
changed from time to time by the Board of Trustees.

11
<PAGE>

SUMMARY SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary selected historical and pro forma
financial information for the Company. The unaudited pro forma operating
information is presented as if the Formation Transactions had occurred as of
the beginning of the period indicated and therefore incorporates certain
assumptions that are included in the Company's Unaudited Pro Forma Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on October 20, 1997. The unaudited
pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been had the
Formation Transactions, in fact, occurred on such date or at the beginning of
the period indicated, or to project the Company's financial position or results
of operations at any future date or for any future period. The historical and
unaudited pro forma financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
PRO FORMA FOR THE
PERIOD FROM PRO FORMA
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
OCTOBER 20, 1997 1996
----------------- ------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental income(1)................................ $13,901 $15,887
General and administrative expenses(2).......... 3,063 3,500
Depreciation(3)................................. 2,207 2,522
Minority interest(4)............................ 1,545 1,765
Interest expense................................ 411 470
Net earnings to Common Shareholders............. 6,675 7,630
Net earnings per Common Share................... 0.86 0.99
Weighted average Common Shares outstanding(5)... 7,718 7,718
<CAPTION>
PRO FORMA HISTORICAL
OCTOBER 20, OCTOBER 20,
1997 1997
----------------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Real estate owned, at cost...................... $166,223 $ --
Total assets.................................... 384,298 --
Debt outstanding under line of credit........... 5,000 --
Minority interest............................... 71,014 --
Total shareholders' equity...................... 306,960 --
</TABLE>
- --------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Initial Leases as if all Initial Properties had been
subject to the Initial Leases for the entire period. Excludes rental income
of approximately $2.4 million and $2.1 million for the year ended December
31, 1996 and the period ended October 20, 1997, respectively, for two of
the Initial Properties as these Initial Properties are currently being
developed for use.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over a 20-year period.
(4) Represents approximately 18.8% of the Operating Partnership's net earnings.
(5) Represents the number of Common Shares whose proceeds will be used to repay
mortgage debt assumed and to acquire the Initial Properties. If the total
number of Common Shares issued in the Offering and the FBR Offering had
been used, weighted average Common Shares outstanding would be 21,792 for
both the year ended December 31, 1996 and for the period ended October 20,
1997, resulting in net earnings per Common Share of $0.35 and $0.31 for the
year ended December 31, 1996 and the period ended October 20, 1997,
respectively.

12
<PAGE>

BENEFITS TO RELATED PARTIES

The following table sets forth the benefits of the Formation Transactions to
the executive officers and trustees of the Company:

Affiliates of Messrs. Pohanka and Rosenthal will lease
such Initial Properties from the Company and will
continue to control the operations of the Dealership
or Related Business operated on those Initial
Properties. Each of Messrs. Pohanka and Rosenthal
will receive warrants to acquire Units equal to 2% of
the outstanding Common Shares following the Offering
(including exercise of the Underwriters' over-
allotment option in full) on a fully diluted basis at
the initial public offering price .

Beginning one year after the closing of the Offering,
the right to convert the Units held by them for Common
Shares, subject to the Ownership Limitation. Purchase
by Mr. Pohanka and his family of up to $13 million of
Common Shares in this Offering at the initial public
offering price, of which a portion may be purchased
net of underwriting discounts and commissions because
executive officers and Trustees may acquire in the
aggregate up to 2% of the offered Common Shares at
the initial public offering price (net of
underwriting discounts and commissions).

Executive Officers...... Salary and bonus as executive officers of the Company
as described under "Management--Executive
Compensation." Options to acquire Common Shares and
Units equal to 3% (Thomas D. Eckert), 1.625% (Scott
M. Stahr), .75% (Donald L. Keithley) and 1.625%
(David S. Kay) of the outstanding Common Shares
following the Offering (including exercise of the
Underwriters' over-allotment option in full) on a
fully diluted basis at the initial public offering
price.

The executive officers and Trustees may acquire in the
aggregate up to 2% of the Common Shares in this
Offering at the initial public offering price (net of
underwriting discounts and commissions). The executive
officers have advised the Representative that they
currently intend to purchase an aggregate of
approximately 122,000 Common Shares in this Offering.
</TABLE>

13
<PAGE>

In addition to the foregoing, the Representative of the Underwriters and its
Affiliates will receive certain benefits in connection with the Offering in
addition to its compensation as an underwriter (see "Underwriting") as set
forth below:

<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
Friedman, Billings,
Ramsey Group, Inc...... Repayment of the loan made to the Company in the amount
of up to approximately $2.5 million, plus interest
thereon at the rate of 10% per annum.

FBR Asset Investment
Corporation........... Purchase of 1,792,115 Common Shares at the initial
public offering price (net of underwriting discounts
and commissions). Such purchaser will have certain
"demand" and "piggy-back" registration rights with
respect to such Common Shares. See "Common Shares
Eligible for Future Sale--Registration Rights."
</TABLE>

14
<PAGE>

STRUCTURE OF THE COMPANY

The Company will be the sole general partner of the Operating Partnership.
The Company will contribute the proceeds of the Offering to the Operating
Partnership in exchange for Units representing approximately 81.2% of the
partnership interests in the Operating Partnership (the terms and conditions of
which will correspond to the Common Shares). The Company will conduct
substantially all of its business, and will hold all of its interests in the
Properties, through the Operating Partnership. As the sole general partner of
the Operating Partnership, the Company will have the exclusive power to manage
and conduct the business of the Operating Partnership, subject to certain
exceptions set forth in the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement"). See
"Partnership Agreement."

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

[OWNERSHIP STRUCTURE DIAGRAM APPEARS HERE]

15
<PAGE>

FORMATION TRANSACTIONS

The following transactions have been or will be completed in connection with
the completion of the Offering:

. The initial business concept of the Company was formulated by certain
individuals who became executive officers of the Company. In the course
of their prior employment, these individuals had substantial experience
in providing professional accounting and financial consulting services to
motor vehicle dealerships and to the real estate industry. These
individuals were acquainted with the Representative, who has substantial
experience in providing investment banking and financial advice to
companies in the real estate and motor vehicle dealership businesses, and
is acquainted with numerous Dealers, including Mr. Pohanka. The
Representative was instrumental in providing financial and investment
banking advice, initial capital through a loan from Friedman, Billings,
Ramsey Group, Inc., introductions to certain Dealers, including Mr.
Rosenthal, and administrative support. The Representative may be deemed a
promoter of the Company under the Securities Act.

. Concurrently with the closing of the Offering, FBR Asset Investment
Corporation, an Affiliate of the Representative, will acquire 1,792,115
Common Shares in a private placement at the initial public offering price
(net of underwriting discounts and commissions) (the "FBR Offering").

. Concurrently with the closing of the Offering, the Company will
contribute the net proceeds of the Offering and the FBR Offering to the
Operating Partnership in exchange for 21,792,115 Units.

. At closings scheduled within 60 days of the closing of the Offering, the
Company will acquire certain Initial Properties from Cross-Continent,
Good News and Kline in exchange for cash consideration of $13.1 million,
$5.5 million and $8.5 million, respectively.

. At closings scheduled for July 1998, the Company will acquire certain
Initial Properties from Cross-Continent for cash consideration of
approximately $22.1 million.

. At closings scheduled within 60 days of the closing of the Offering, the
Company will acquire Initial Properties from Pohanka, Rosenthal, Sheehy
and Cherner in exchange for 1,204,342; 3,438,298; 295,439; and 103,470
Units of the Operating Partnership, respectively. The Operating
Partnership will acquire certain Initial Properties subject to existing
mortgage debt of $41.3 million (the "Mortgage Debt"). The Company will
pay Mortgage Debt of approximately $13.3 million, $13.7 million, $9.6
million and $4.8 million assumed from Pohanka, Rosenthal, Sheehy and
Cherner, respectively, in full at the closing of the purchase of such
Initial Properties. See "Use of Proceeds" and "Business of the Company
and Properties--The Initial Leases, Properties and Dealerships" for a
description of the consideration to be paid and Mortgage Debt to be
assumed by the Company with respect to the Initial Sellers.

. The Operating Partnership will use the aggregate net proceeds of the
Offering and the FBR Offering of $302.4 million ($344.2 million if the
Underwriters' over-allotment option is exercised in full) as described in
"Use of Proceeds."

. Dealers or their Affiliates will enter into long-term triple-net Leases
with the Company with respect to the Initial Properties.

. Each of Messrs. Pohanka and Rosenthal, who will be Trustees of the
Company and Affiliates of certain Initial Sellers and Initial Lessees,
will receive warrants representing the right to acquire up to 707,079
Units (equal to 2% of the Common Shares to be outstanding on the closing
of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis), at an exercise price equal to the
initial public offering price of the Common Shares, such warrants to be
exercisable beginning on the closing of the Offering and for a period of
five years thereafter (the "Dealer Warrants").

. The Company will obtain a $10 million line of credit from NationsBank,
N.A., and will borrow approximately $5 million at the closing of the
Offering (approximately $2.5 million of which will be guaranteed by
Affiliates of Mr. Rosenthal and approximately $2.5 million of which will
be guaranteed by Affiliates of Mr. Sheehy).

16
<PAGE>

DISTRIBUTIONS

The Company plans to pay regular quarterly distributions to its shareholders
of at least 95% of its taxable income (as defined in Section 857(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) each year so as to
qualify for the benefits accorded to a REIT under the Code. The Board of
Directors may vary the dividend which will be distributed to holders of the
Common Shares based upon the actual results of operations of the Company,
including (i) the timing of the investment of the proceeds of the Offering and
the FBR Offering, (ii) the rent received from the Lessees, (iii) the ability of
the Lessees of the Properties to meet their obligations under the Leases, and
(iv) the operating expenses of the Company. See "Description of Shares of
Beneficial Interest" and "Partnership Agreement."

TAX STATUS OF THE COMPANY

The Company will elect to be taxed as a REIT under Sections 856-859 of the
Code, commencing with its taxable year ending December 31, 1998. A REIT is
subject to a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its REIT taxable
income each year, determined without regard to the deduction for dividends paid
and by excluding any net capital gains. If the Company qualifies for taxation
as a REIT, the Company generally will not be subject to federal income tax at
the corporate level on income it distributes currently to its shareholders. If
the Company fails to qualify as a REIT for federal income tax purposes in any
taxable year, the Company will be subject to federal income tax (including any
alternative minimum tax) on its taxable income at regular corporate rates and
distributions to the shareholders in any such year will not be deductible by
the Company. See "Risk Factors--Adverse Consequences of Failure to Qualify as a
REIT; Other Tax Liabilities" and "Certain Federal Income Tax Considerations--
Failure to Qualify" for a more detailed discussion of the consequences of the
failure of the Company to qualify as a REIT for federal income tax purposes.
The Company may be subject to certain federal, state and local taxes on its
income and property notwithstanding its qualification for federal income
taxation as a REIT.

17
<PAGE>

THE OFFERING

Common Shares Offered
Hereby...................... 20,000,000

Common Shares to be
Outstanding after the 21,792,115(1)
Offering...................

Use of Proceeds............. Approximately $49.3 million for the acquisition
of certain Initial Properties, $41.3 million for
repayment of Mortgage Debt, $2.5 million for
repayment of the FBR Loan, and the balance of
$209.2 million for the acquisition of additional
Properties and general working capital purposes.
See "Use of Proceeds."

Proposed Nasdaq Symbol......
CARS
- --------
(1) Includes the Common Shares being offered hereby and the Common Shares to be
acquired by FBR Asset Investment Corporation. Excludes 5,041,549 Common
Shares reserved for issuance upon redemption of the Units issuable in
connection with the acquisition of certain Initial Properties; 2,555,587
Common Shares and Units reserved for issuance pursuant to the Plan, of
which options to purchase 106,667 Common Shares and 2,129,472 Units have
been granted to executive officers of the Company; 1,277,794 Common Shares
issuable upon exercise of the Underwriting Warrants and 1,277,794 Common
Shares issuable upon conversion of 1,277,794 Units issuable upon exercise
of the Dealer Warrants. See "Structure and Formation Transactions,"
"Management--1998 Equity Incentive Plan," "Related Transactions" and
"Partnership Agreement."

18
<PAGE>

RISK FACTORS

In addition to the other information presented in this Prospectus,
prospective shareholders should carefully consider the following material
risks before purchasing Common Shares in the Offering. Each of these factors
could adversely affect the ability of the Company to make expected
distributions to shareholders.

This Prospectus contains "forward-looking statements" which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, the acquisitions, financing or leasing of
Properties, the Company's operations, performance, financial condition, plans,
strategies, growth and prospects. Any statements contained in this Prospectus
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, the use of
forward-looking terminology such as "may," "will," "could," "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. These
statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including those
described below in this "Risk Factors" section and elsewhere in this
Prospectus.

INABILITY OF THE COMPANY TO CLOSE THE ACQUISITION OF PROPERTY OR CLOSE SUCH
ACQUISITION AS SCHEDULED

The contribution agreements for the Initial Properties contain, and the
contribution agreements for the acquisition of future Properties will contain,
closing conditions typically required in connection with the acquisition of
commercial real estate. Those closing conditions include the receipt of a
survey, title insurance commitment and phase I environmental audit acceptable
to the Company. Information that may come to the attention of the Company
could disclose easements, title restrictions, other claims to title, zoning
irregularities, restrictive covenants, encumbrances or environmental
conditions that may otherwise cause the Company to conclude that the
acquisition of that Property is not in the best interests of the Company. In
such case, the Company could refuse to purchase such Property, or enter into
negotiations to resolve the relevant conditions, which could prevent, delay,
or result in a change of the terms of, the acquisition. In such event, it
could take the Company a longer time to invest the proceeds of this Offering
in Properties or adversely affect the timing of the investment of proceeds of
this Offering, which could have an adverse effect on the financial results of
the Company and distributions to shareholders. The Company is not currently
aware of any event that would prevent the Company from acquiring any Initial
Property.

THE COMPANY IS DEPENDENT UPON DEALERS GENERATING SUFFICIENT REVENUES FROM
THEIR OPERATIONS TO PERMIT THE LESSEES TO PAY RENT AND FULFILL THEIR OTHER
OBLIGATIONS UNDER THE LEASES

The Company will be dependent upon the payment of rent and the performance
of other Lease obligations, such as maintenance of the Properties, payment of
taxes, utilities and other charges and maintenance of insurance, by the
Lessees under the Leases. If the Lessees default in the payment of rent or
performance of other obligations, the Company could be required to declare a
default under the Lease and pursue its legal and equitable remedies, including
the eviction of the Lessee. If the Lease has been guaranteed, the Company
could attempt to collect under such guaranty. There is no assurance that any
Lessee will continue to pay rent or perform under a Lease or that the Company
can recover under a guaranty. In addition, if a Lessee or guarantor sought
protection under the bankruptcy laws, the Lease could be rejected and the
Company's ability to collect rent or pursue its legal or equitable remedies
(such as specific performance of a Lease term) could be adversely affected.
Furthermore, even if the Company was successful after undertaking any action,
it could incur substantial legal fees and the costs of leasing the Property to
a replacement Lessee. There is no assurance that the Company will be able to
relet a Property, relet the Property to a Dealer for use as a Dealership or
Related Business, or relet the Property on substantially equivalent or better
terms than the prior Lease, in which event the financial results and
operations of the Company could be materially adversely affected. These risks
are discussed below:

Dependence on Lessees for Payment of Rent and Performance of Lease
Terms. The Lessees of the Properties will either be the Dealers or Affiliates
of those Dealers. None of the Initial Leases with affiliated

19
<PAGE>

Dealers is cross-defaulted with each other. A Lessee may or may not generate
sufficient cash flow to be able to perform its obligations under its Lease.
Any Lessee may change or terminate its business, or engage other management to
operate a Property. See "Business of the Company and Properties--General
Initial Lease Terms--Financial Covenants." Nonperformance by the Lessees or
Affiliates who guaranty (the "Guaranties") the payment of rent and performance
of other obligations of the Lessees (the "Guarantors") could adversely affect
the ability of the Company to pay or maintain distributions or otherwise
operate its business. The failure of a Lessee to perform under a Lease could
require the Company to declare a default, evict the Lessee, repossess the
Property, find another tenant for the Property or resell the Property.

Dependence on Guarantors for Payment of Rent and Performance of Lease Terms
Upon Default of Lessee. The Company will enter into separate Initial Leases
with each Dealer using an Initial Property. Certain Initial Leases will be
guaranteed by Affiliates of the Initial Lessees. The Guaranties will be of
payment and not of collection. There is no assurance that upon a default any
or all of the Guarantors will perform under a Guaranty. In the event of a
default under a Guaranty, the Company's remedy will be limited to seeking
payment from such Guarantor. Failure of a Guarantor to perform under a
Guaranty will not constitute a default under the Initial Lease pursuant to
which a Guarantor is an Initial Lessee. Because Messrs. Pohanka and Rosenthal
are Trustees of the Company, the Company's decision whether or not to pursue
payment from certain Guarantors could be influenced by Mr. Pohanka or Mr.
Rosenthal in his capacity as a Trustee. See "Risk Factors--Conflicts of
Interest."

The Company Has No Rights Under, or Control Over, Franchise Agreements. In
general, a Manufacturer enters into a Franchise Agreement directly with the
Dealer, who may or may not be the Lessee of the Property. Upon expiration or
termination of a Lease, for default or otherwise, the Company will have no
rights under the relevant Franchise Agreements with the Manufacturer. Any
rights under the Franchise Agreements will accrue to the signatories to those
agreements. In addition, upon termination or non-renewal of any Franchise
Agreement, the Company will not have any rights to require the Manufacturer or
the Lessee to continue to operate a Dealership at a Property. Although a
Lessee may be obligated under a Lease to continue to pay rent and perform its
other obligations, there is no assurance that the Lessee will do so. If an
Initial Lessee moves a franchised Dealership or stops operating a franchised
Dealership from a Property, the Initial Leases provide that the Initial Lessee
has 24 months in which to replace or reopen the Dealership before such action
becomes an event of default under the Initial Lease. However, if a Property is
vacant for an extended period of time, that Property could be at a greater
risk of being vandalized, suffer an uninsured loss or of not being properly
maintained despite the lease provisions intended to minimize those risks. In
addition, if the Company ultimately declared a default, pursued its legal and
equitable remedies and regained possession of the Property, the Company could
be required to expend more funds to restore the Property and experience more
of a delay renting the Property than if the Property had not been vacant for
that period. The Company may enter into similar Lease provisions with other
Lessees.

Rejection of Leases Under Federal Bankruptcy Codes. Any or all of the
Lessees (or Guarantors) may seek the protection of the federal Bankruptcy
Code, which could result in delays in rent payments or in the rejection and
termination of a Lease and thereby cause a reduction in the Company's cash
flow and the amounts available for distributions to its shareholders. No
assurance can be given that any Lessee (or Guarantor) will not seek protection
under the Bankruptcy Code in the future or, if any Lessee (or Guarantor) does
seek such protection, that it will assume its Lease (or Guaranty) and continue
to make rent payments in a timely manner. If any Lease (or Guaranty) is not
assumed following bankruptcy the Company's cash flow and the amounts available
for distribution to its shareholders may be adversely affected.

If a Lessee filed bankruptcy, it initially would have at least 60 days to
decide whether to assume the Lease. That period could be extended by order of
the Bankruptcy Court. During the period before the Lease was assumed or
rejected, the Lessee would not be required to pay amounts due under the Lease
for the period before the bankruptcy was filed. If the Lease was assumed, the
Lessee would be required to pay all amounts then due under the Lease, but
would not be required to pay interest on those amounts.

20
<PAGE>

If a Lease was rejected by a bankrupt Lessee, the rejection would be treated
as a breach of the Lease and the Company would have a claim for damages
resulting from the breach. However, the claim would be limited to an amount
equal to the rent reserved under the lease, without acceleration, for the
greater of one year or 15% (but not more than three years) of the remaining
term of the Lease, plus rent already due but unpaid. In addition, the
Company's rejection claim ordinarily would be treated as a general unsecured
claim, and would be paid only to the extent that funds were available to pay
general unsecured claims against the Lessee. There can be no assurance that
any such payment would be sufficient to pay the amounts due under the lease.

Inability of the Company to Resell or Re-Lease Properties. The failure of a
Lessee to perform under a Lease could require the Company to declare a
default, repossess the Property, find another tenant for the Property or
resell the Property. There is no assurance that the Company will be able to
lease such Property to a Dealer, or to successfully reposition the Property
for other uses, or if a replacement tenant or a different use would support
the same or higher level of lease payments. Moreover, there can be no
assurance that any individual Lessee will elect to extend a Lease upon
expiration of its Fixed Term, which would also force the Company to find a
suitable replacement tenant.

The Company may or may not be able to sell a Property if or when the Company
decides to do so. The real estate market is affected by many factors, such as
general economic downturns, availability of financing, interest rates and
other factors, including supply and demand, that are beyond the control of the
Company. The Company cannot predict whether it would be able to sell any
Property for the price or on the terms set by the Company, or whether any
price or other terms offered by a prospective purchaser would be acceptable to
the Company. The Company cannot predict the length of time needed to find a
willing purchaser and to close the sale of a Property. The number of
competitive Properties operated as Dealerships or Related Businesses in a
particular area could have a material adverse effect on the Company's ability
to lease a Property in the event of loss of a Lessee.

The Company may not be able to sell a Property as is. The Company may be
required to expend funds to correct defects, such as defects related to the
environment, health or safety or maintenance or repair. The Company may also
be required to make improvements before a Property can be sold. There is no
assurance that the Company will have funds available to correct defects or
make improvements. Furthermore, the expenditure of funds to correct defects or
make improvements may adversely affect the funds available for investment by
the Company or Actual Cash Available for Distribution to shareholders.

If the Property is not occupied or if rent is not being paid or is being
paid in an amount that is insufficient to cover operating expenses, the
Company could be required to expend funds with respect to that Property,
including expenses relating to taxes, insurance, utilities and maintenance of
the Property. In connection with the acquisition of a Property, the Company
may agree on restrictions that prohibit the sale of that Property for a period
of time or impose other restrictions, such as a limitation on the amount of
debt that can be placed or repaid on that Property. Such provisions would
restrict the ability of the Company to resell or re-lease a Property.

The Company may grant a Lessee a right of first offer or option to purchase
a Property. The Lessee may exercise the option to purchase only at the end of
an Extended Term. The Lessee may exercise the right to first offer only if the
Company decides to sell the Property. The terms for the purchase of the
Property under the right of first offer must be satisfactory to the Company in
its discretion. The purchase price under the option to purchase would be
determined by appraisal based on the highest and best use of the Property.
There is no assurance that the Lessee will exercise that right or that the
price offered by the Lessee in the case of a right of first offer will be
adequate. Furthermore, if a Lessee affiliated with a Trustee exercises its
right of first offer or option to purchase a Property, such Trustee could
influence the Company's decision to sell the Property. In addition, the
Company's ability to sell a Property subject to an existing Lease could be
adversely affected by the Lease provisions relating to the right of first
offer or option to purchase.

Responsibility for Uninsurable Losses. Each Lease requires the Lessee to
maintain insurance on the Properties and insure against customary risks, such
as fire, vandalism and malicious mischief, extended coverage perils, physical
loss perils, commercial general liability, flood (when the Property is located
in whole or in

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material part in a designated flood plain area) and workers' compensation
insurance. There are, however, certain types of losses (such as from
environmental events, pollution, hurricanes, floods, earthquakes or wars) that
may be either uninsurable or not economically insurable. In addition, there is
no assurance that material losses in excess of insurance proceeds will not
occur. Although the Lease requires the Lessee to restore the Property
substantially to the condition it was in prior to the loss, should the Lessee
fail to restore the Property the Company could lose both its capital invested
in, and anticipated profits, from such Property. See "Business of the Company
and Properties--The Initial Leases, Properties and Dealerships" and "Business
of the Company and Properties--Typical Initial Lease Terms--Insurance."

GENERAL RISKS ASSOCIATED WITH OPERATING DEALERSHIPS AND RELATED BUSINESSES

The Company's strategy is to concentrate on acquisitions of Properties used
in the operation of Dealerships and Related Businesses. As a result, the
Company will be subject to risks inherent in investments in that industry. The
effects on Actual Cash Available for Distribution to shareholders resulting
from a downturn of businesses within the industry will be more pronounced than
if the Company had diversified its investments in Properties used for a
variety of different purposes. The success of the operations of a Dealership
also depends on general economic and other factors. The factors affecting
motor vehicle sales include rates of employment, income growth, interest
rates, other national and local conditions, automotive innovations and general
consumer sentiment. These risks are discussed below:

Dependence on Manufacturers for Supply of Motor Vehicles. Dealers operate
Dealerships pursuant to written Franchise Agreements with Manufacturers. The
ability of each Lessee to pay rent and perform its other obligations under a
Lease will be dependent to a significant extent on its relationship with the
Manufacturer on whom it is dependent for its inventory of new motor vehicles
and parts. A reduction in the availability of motor vehicles or parts, and
certain popular models in particular, could have an adverse effect on sales.
In addition, the financial condition of the Manufacturer, marketing programs
and expenditures, vehicle design, production capabilities and management of
the Manufacturer affect sales. Events such as strikes and other labor actions
by unions, or negative publicity concerning a particular Manufacturer or
vehicle model, product recalls and litigation also affect sales. Many of these
factors are beyond the control of the Company and could, at one time or
another, negatively impact a Lessee and therefore the Company.

The Dealers affiliated with the Initial Lessees generally operate
Dealerships that sell the products of more than one Manufacturer. The sales
mix of makes and models of motor vehicles that account for a material portion
of the sales of such Dealers changes periodically, among other things, as a
result of changes in consumer taste, the aging of certain models, the redesign
of certain models or the introduction of new models. Therefore, sales of the
makes or models of one Manufacturer today may not reflect the level of future
sales of that Manufacturer's products. Although a Lessee's dependence on any
one Manufacturer may be lessened by its relationship with a number of
different domestic and import Manufacturers, adverse conditions affecting some
or all of the Manufacturers that account for a significant portion of sales
could materially adversely affect a Lessee's ability to pay rent (or if a
lease is guaranteed, an affiliated Guarantor's ability to honor its Guaranty)
or such Lessee's ability to otherwise continue as an occupant of an Initial
Property.

Restrictions in Franchise Agreements that Govern Ability of Dealerships to
Sell Motor Vehicles or its Assets or Properties. Manufacturers exercise a
great degree of control over Dealerships, and the Franchise Agreements provide
for termination or non-renewal for a variety of causes. The Company believes
that each Initial Lessee is in compliance in all material respects with all of
their Franchise Agreements. These Franchise Agreements generally expire at
various times between one and five years, although some Franchise Agreements
have no specific expiration date and continue in effect unless terminated
under certain limited circumstances. The Company is not aware of any refusal
by a Manufacturer to renew a Franchise Agreement with Affiliates of an Initial
Lessee, and has no reason to believe that each Initial Lessee will not be able
to renew all of its Franchise Agreements upon expiration thereof. There can be
no assurance, however, that any of the Franchise Agreements will be renewed or
that the terms and conditions of such renewals will be favorable to the
Dealer. If a Manufacturer terminates or declines to renew one or more
Franchise Agreements for Dealerships operated on

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<PAGE>

any Property, such action could have a material adverse effect on the ability
of the Lessee to pay rent and perform its other obligations and, therefore, on
the ability of the Company to pay distributions. Actions taken by
Manufacturers to exploit their bargaining position in negotiating the terms of
such renewals or otherwise could also have a material adverse effect on the
Company by adversely affecting the ability of such Lessee to pay rent, any
Guarantor to honor its Guaranty or the Lessee's ability to otherwise continue
as an occupant of such Property.

Certain Franchise Agreements also contain restrictions on the sale or
transfer of assets or real property necessary for operation of the
Dealerships, or may contain rights of first refusal in favor of certain
Manufacturers to purchase those assets or real property. There are no
assurances that certain Manufacturers will consent to the sale of, or waive
prior rights to purchase, certain Properties that the Company may negotiate to
acquire, when such consents or waivers are required. Failure to receive all or
some of the required consent or waiver could have a materially adverse effect
on the ability of the Company to acquire the Initial Properties and additional
Properties. If the Company acquired a Property for which Manufacturers'
consent was required but not obtained, the Manufacturer could seek legal
recourse against the Company and/or the Seller or could impair the Company's
ability to obtain clear title or to finance the Property. Also, such an event
could impair the relationship between the Dealer and Manufacturer. The
contribution agreements for the Initial Properties, and the contribution
agreements for future Properties will, require the Seller to indemnify the
Company if the Company does not acquire clear fee simple title to the
Property. See "Business of the Company and Properties--Franchise Agreements."

Mature Industry and Cyclicality with Limited Growth Potential. The United
States motor vehicle industry generally is considered a mature industry in
which minimal growth is expected in unit sales of new vehicles. The motor
vehicle industry is cyclical and historically has experienced periodic
downturns, characterized by oversupply and weak demand. Many factors affect
the industry, including general economic conditions and consumer confidence,
the level of discretionary personal income, interest rates and credit
availability.

Dealership Competition for Sale of Motor Vehicles. The operation of
Dealerships and Related Businesses is a highly competitive undertaking.
Dealers compete with other Dealerships selling the same or similar makes of
new and used vehicles, Dealers offering other models, buyers and sellers of
used vehicles, service center chains and independent service and repair shops,
some or all of which may offer motor vehicles, services or repairs at a lower
price, provide faster service or offer faster delivery than Dealerships or
Related Businesses operated by Affiliates of the Lessees. These competitors
may be larger and have greater financial and marketing resources than
Affiliates of the Lessees. In addition, certain Manufacturers have publicly
announced that they may directly enter the retail market in the future which
could have a material adverse effect on some or all of the Affiliates of
Lessees. In addition, the industry is undergoing consolidation, as Dealers who
represent single or a limited number of Manufacturers are acquired by Dealers
that represent many Manufacturers.

Restrictions that could Limit Supply of Motor Vehicles. Certain motor
vehicles retailed by Dealers, as well as certain major components of vehicles
retailed by Dealers, are imported. Accordingly, the revenues generated by
those Dealerships could be adversely affected by import restrictions on
certain jurisdictions, export restrictions by certain jurisdictions, and could
be dependent to some extent upon general economic conditions in and political
relations with foreign countries, including Japan. Recently, Congress has been
considering the United States' trade relations with Japan, and actions by
Congress could restrict the importation of motor vehicles from Japan.
Additionally, fluctuations in currency exchange rates may adversely affect
sales of motor vehicles produced by Manufacturers of imports. Imports into the
United States may also be adversely affected by increased transportation
costs.

CONFLICTS OF INTEREST AMONG THE COMPANY AND CERTAIN TRUSTEES

Certain conflicts of interest could exist between the Company and Mr.
Pohanka or Mr. Rosenthal in his capacity as a Trustee of the Company and
Affiliates of certain Initial Sellers and Initial Lessees. Messrs. Pohanka
and Rosenthal could significantly influence the business and operations of the
Company in connection with (i) the terms of the contribution agreements and
Leases for Initial Properties or future Properties to be acquired from

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<PAGE>

any one of them, (ii) the exercise and terms of the right of first offer and
repurchase right of an affiliated Initial Lessee under an Initial Lease, (iii)
the decision to sell or refinance a Property, (iv) the terms of any "lock-out"
restrictions, that limit the ability of the Company to sell or refinance
particular Properties, and (v) the enforcement of Initial Leases and
agreements with Messrs. Pohanka or Rosenthal or his affiliate. Mr. Pohanka and
his family have advised the Representative that they intend to purchase up to
$13 million of registered Common Shares in this Offering. The Company has
adopted certain policies that are designed to eliminate or minimize certain
potential conflicts of interest. See "Benefits to Related Parties" and
"Conflicts of Interest Policies."

The following descriptions set forth the principal conflicts of interest,
including the relationships through which they arise, and the policies and
procedures implemented by the Company to address those conflicts.

Ability of Certain Trustees to Influence the Company. Messrs. Pohanka and
Rosenthal, each an Affiliate of certain Initial Lessees and Initial Sellers,
have agreed to join the Board of Trustees prior to the closing of the
Offering. Upon completion of the Offering, assuming (i) conversion of the
Units issued to Affiliates of Messrs. Pohanka and Rosenthal to acquire Initial
Properties into Common Shares, (ii) exercise of the Dealer Warrants and
conversion of the Units to Common Shares, and (iii) the purchase of $13
million of Common Shares in this Offering by Mr. Pohanka and his family, Mr.
Pohanka and his Affiliates will own 9.56% and Mr. Rosenthal and his Affiliates
will own 14.27% of the outstanding Common Shares (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted and converted
basis. The Units may be redeemed for Common Shares at the option of the
Company up to the Company's 9.9% ownership limit for Common Shares. Waiver of
the ownership limit for Trustees or their Affiliates under the Company's
Amended and Restated Declaration of Trust (the "Declaration of Trust")
requires the approval of a majority of the Independent Trustees of the Company
as defined in "Management." See "Conflicts of Interest Policies." Messrs.
Pohanka and Rosenthal, as Trustees and as major holders of Common Shares or
Units, will be in a position to exercise influence over the operations and
affairs of the Company.

Terms of Initial Sale of Initial Properties by Affiliates of Messrs. Pohanka
and Rosenthal. The terms of the sale of certain Initial Properties and the
Initial Leases with Affiliates of Messrs. Pohanka and Rosenthal may be more
advantageous with respect to their Properties than the terms the Company will
attempt to negotiate with Sellers of future Properties.

Terms of Initial Leases for Lease of Initial Properties to Affiliates of
Messrs. Pohanka and Rosenthal. To the extent that Initial Lessees affiliated
with the Trustees exercise their rights to extend the Initial Lease for a
second Extended Term, the Initial Lessees will be required to negotiate a new
Base Annual Rent based on fair market value at the time of exercise of the
second Extended Term. The Trustees, to the extent they continue to sit on the
Board, may influence those negotiations and the terms of any such agreement.
In addition, the Trustees can influence the decision whether or not to take
action against an Initial Lessee or Guarantor affiliated with a Trustee in the
event of a default. The terms of any related party agreement or the
declaration of any default will require the authorization of a majority of the
Independent Trustees of the Company. See "--The Company is Dependent Upon
Dealers Generating Sufficient Revenues From Their Operations to Permit the
Lessees to Pay Rent and Fulfill Their Other Obligations Under the Leases--
Dependence on Guarantors for Payment of Rent and Performance of Lease Terms
Upon Default of Lessee."

Ability of Certain Trustees and Their Affiliates to Influence the Sale or
Refinancing of the Initial Properties. The Initial Lessees who are Affiliates
of certain Trustees have entered into Initial Leases that grant certain rights
to the Initial Lessees to repurchase the Initial Properties at such time as
the Company shall determine to sell an Initial Property and upon expiration of
an Extended Term of the Initial Lease. Mr. Pohanka or Mr. Rosenthal could
influence the Company's decision to sell, and the terms of sale of, any
Initial Property to an affiliated Initial Lessee. These Initial Lessees could
experience different and more adverse tax consequences compared to those
experienced by shareholders or other holders of Units upon the sale of, or
reduction of mortgage indebtedness on, certain Initial Properties. While the
Company, as the sole general partner of the Operating Partnership, has the
exclusive authority to determine whether and on what terms to sell or finance
certain Properties, such parties may have different objectives regarding the
appropriate pricing and timing of any

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<PAGE>

sale of, or reduction of mortgage indebtedness on, such Properties. Affiliated
Trustees of the Company could influence the Company not to sell particular
Properties, or not to incur additional, or conversely, not to pay off
outstanding, indebtedness on particular Initial Properties, even though such
sales or financing might otherwise be financially advantageous to the Company
and its shareholders.

Pursuant to the lock-out provisions, the Company may not sell (except in
certain events, including certain transactions that would not result in the
recognition of any gain for tax purposes), or may be required to maintain
certain debt levels, for periods ranging from four to seven years on certain
Initial Properties to be acquired from Affiliates of Mr. Pohanka or Mr.
Rosenthal. Thus, the lock-out provisions materially restrict the Company from
selling or otherwise disposing of such Initial Properties. The lock-out
provisions apply even if it would otherwise be in the best interests of the
shareholders for the Company to sell one or more of such Initial Properties,
reduce the outstanding indebtedness with, respect to any of such Initial
Properties or not refinance such indebtedness on a nonrecourse basis at
maturity, or increase the amount of indebtedness with respect to such Initial
Properties. Such possible future limitations, together with the lock-out
provisions, may restrict the ability of the Company to sell substantially all
of its assets, even if such a sale would be in the best interests of its
shareholders. See "Structure and Formation of the Company."

The lock-out provisions could impair the ability of the Company to take
actions during the lock-out period that would otherwise be in the best
interests of the shareholders and, therefore, may have an adverse impact on
the value of the Common Shares (relative to the value that would result if the
lock-out provisions did not exist). In particular, the lock-out provisions
could preclude the Company from participating in certain major transactions
that could result in a disposition of the Company's assets or a change in
control of the Company even though that disposition or change in control might
be in the best interests of the shareholders.

PURCHASE PRICES OF PROPERTIES HAVE NOT BEEN BASED ON INDEPENDENT APPRAISALS
AND AS A RESULT THE MARKET CAPITALIZATION OF THE COMPANY MAY EXCEED THE FAIR
MARKET VALUE OF THE COMPANY'S PROPERTIES IF DETERMINED BY APPRAISAL

The valuations of the Company's Properties have not, and in the future may
not, be determined by independent third-party appraisals. Therefore, the
consideration being paid by the Company for certain Properties may exceed the
fair market value of such Properties if determined by third-party appraisals.
The Company considers several methods of valuation including the review and
analyses of comparable properties and leases, discounted cash flow
calculations, valuing alternative uses of the Property, and evaluating the
financial strength of prospective Lessees. To the extent that Properties may
be purchased from Sellers whose affiliates hold positions with the Company,
including certain Trustees, the use of such valuation methodologies, and the
basis of negotiation of the purchase price, for such Properties may be
susceptible to conflict of interests. In connection with the acquisition of
Properties other than the Initial Properties, the Operating Partnership may
assign a value to Units for the purpose of determining the number of Units to
be issued in an acquisition below the market price at which the Common Shares
have been trading, which would result in the issuance of a greater number of
Units to the Seller.

Furthermore, management believes it is appropriate to value the Company as
an operating enterprise rather than at the values that could be obtained from
a liquidation of the Company or of individual Properties. Accordingly, the
valuation of the Company has been determined based on the factors set forth in
the section captioned "Underwriting." See "Underwriting." Because the
liquidation value of the Company may be less than the value of the Company as
a going concern, shareholders may suffer a loss in the value of their Common
Shares if the Company is required to sell the Properties or any other assets.

THE COMPANY'S LACK OF OPERATING HISTORY; NO ASSURANCE THAT THE COMPANY WILL BE
ABLE TO GENERATE SUFFICIENT REVENUE TO MAKE OR SUSTAIN DISTRIBUTIONS TO
SHAREHOLDERS

The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient
revenue from operations to pay operating expenses of the Company and make or
sustain distributions to shareholders. See "Distributions." The Company also
will be subject to the

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<PAGE>

risks generally associated with the formation of any new business. The
Company's management has extensive experience in the real estate industry but
has no experience operating a real estate investment trust and working
together.

The Company's ability to make and sustain cash distributions is based on
many factors, including the ability of the Company to make additional
acquisitions, investment of the proceeds of this Offering, ability to
negotiate favorable Lease terms, the Lessee's performance under Leases and
anticipated operating expense levels, which may not prove accurate and actual
results may vary substantially from estimates. Some of the factors are beyond
the control of the Company, and a change in any such factor could affect the
Company's ability to pay future distributions. No assurance can be given as to
the Company's ability to pay or maintain distributions. Neither is there an
assurance that the level of distributions will increase over time, that
contractual increases in rent under the leases of the Properties or the
receipt of rental revenue in connection with future acquisitions of Properties
will increase the Company's Actual Cash Available for Distribution to
shareholders. However, in the event of a default or a lease termination, there
could be a decrease or cessation of rental payments and thereby a decrease in
Actual Cash Available for Distribution. See "Distributions."

THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL COMPLETE ANY ADDITIONAL
ACQUISITIONS OF PROPERTIES

Apart from the Initial Properties, all except two of which the Company
expects to acquire within 60 days of the closing of the Offering, and two of
which the Company expects to acquire in July 1998, the Company has not
completed any acquisitions, financings or dispositions of Properties. There
can be no assurances that additional acquisitions of Properties or
opportunities to finance the development of Properties on terms that meet the
Company's investment criteria will be available to the Company or that the
Company will be successful in capitalizing on such opportunities.

Approximately 66% of the net proceeds of the Offering have not been
committed to the acquisition of Properties on the date of this Prospectus. The
Company cannot predict whether it will make future acquisitions for cash or
Units or any combination thereof.

Shareholders will not have an opportunity to approve or evaluate for
themselves the Properties acquired by the Company, the terms of such
acquisitions or the terms of the Leases. Shareholders must depend upon the
ability of management of the Company with respect to the selection of
Properties. Management has limited experience investing in Properties that are
used by Dealerships and Related Businesses.

RISK THAT THE COMPANY COULD BE TREATED AS AN INVESTMENT COMPANY IF PROCEEDS
HAVE NOT BEEN INVESTED WITHIN ONE YEAR

In order to maintain the Company's exemption from regulation under the
Investment Company Act, the Investment Company Act requires, among other
things, that the Company be primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate,
within one year of the closing of the Offering. If the Company does not invest
a significant portion of the proceeds of this Offering in Properties within
one year of the closing date, the Company may temporarily invest any unused
proceeds in certain government securities that could yield lower returns than
other investments in order to avoid registering as an investment company and
becoming subject to the requirements of the Investment Company Act.

RISK OF LEVERAGE

The Company intends to use leverage, generally with a ratio of debt to total
market capitalization of not more than 50%. This policy may be changed by the
Board of Trustees without the approval of the shareholders. If the Company
modifies this strategy to permit a higher degree of leverage and incurs
additional indebtedness, debt service requirements would increase accordingly,
and such an increase could adversely affect the Company's financial condition
and results of operations. In addition, increased leverage could increase the
risk of default by the Company on its debt obligations, with the potential for
loss of the Properties secured thereby, cash available for distribution, and
asset values, of the Company.

In determining an appropriate level of leverage, the Company will utilize
its market capitalization rather than the aggregate book value of its assets.
The Company has chosen to use market capitalization because it

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<PAGE>

believes that the book value of its assets (which is primarily the historic
cost of real property less depreciation) may not always 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. Although the Company will consider factors other
than market capitalization in making decisions regarding the incurrence of
debt (such as the purchase price of Properties to be acquired with debt
financing, the estimated market value of the Properties to be financed, and
the ability of particular Properties and the Company as a whole to generate
cash flow to cover expected debt service and to make distributions), there can
be no assurance that management decisions based on the ratio of debt to total
market capitalization (or to any other measures of asset value) will not
adversely affect the expected level of distributions to shareholders.

THE COMPANY WILL NOT EXERCISE CONTROL OVER THE MANAGEMENT OR MAINTENANCE OF
THE PROPERTIES

The Lessees will control the management or maintenance of the Properties
under the Leases. The Leases will generally require that the Lessees operate
the Properties in an efficient and professional manner and maintain the
Properties in good order, repair and appearance. During the terms of the
Leases, the Company will not have the authority to require any Lessees to
operate the Properties in a particular manner or to govern any particular
aspect of their operation except as set forth in the Leases. Thus, even if the
Company believes a Lessee is operating a Property in a manner adverse to the
Company's interests, the Company will not be able to require such Lessee to
change its method of operation. The Company is limited to seeking redress only
if a Lessee violates the terms of the Lease, in which case the Company's
primary remedy is to seek to enforce the Lease or terminate the Lease or, in
certain circumstances, proceed under a Guaranty, if any, and seek to recover
damages from such Lessee or to the extent applicable, any Guarantor of such
Lease.

DEPENDENCE ON KEY PERSONNEL

The loss of the services of Thomas D. Eckert, the Company's President and
Chief Executive Officer, Scott M. Stahr, the Company's Executive Vice
President and Chief Operating Officer, Donald L. Keithley, the Company's
Executive Vice-President of Business Development, or David S. Kay, the
Company's Vice President and Chief Financial Officer of the Company, could
have a material adverse effect on the Company, its operations and its business
prospects. The executive officers will receive substantial compensation from
the Company. See "Management--Executive Compensation," "Management--Employment
Agreements." The Company's success also depends upon its ability to attract
and maintain qualified personnel.

GEOGRAPHIC CONCENTRATION OF THE INITIAL PROPERTIES IN CERTAIN MARKETS RENDERS
THE COMPANY VULNERABLE TO LOCAL ECONOMIC CONDITIONS

Twenty Initial Properties representing approximately 70% of the aggregate
purchase prices for Initial Properties will be concentrated in the Washington,
D.C. Metropolitan area. The Company's revenues and the value of the Initial
Properties may be affected by a number of factors, including the local
economic climate (which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, changing demographics and other factors). In
addition, local competitive conditions will affect the performance of the
Dealerships and Related Businesses. There can be no assurance that the Company
will be able to expand geographically, or that any such expansion will
adequately insulate it from the adverse effects of local or regional economic
conditions. See "Business of the Company and Properties--Washington, D.C.
Metropolitan Area."

GENERAL REAL ESTATE INVESTMENT RISKS

The Company's investments will be subject to the risks generally incident to
the ownership of real property, including: (i) reliance on the Lessees to pay
rent and perform their other obligations under the Leases, to generate
revenues to meet fixed obligations, and cover debt service on borrowings; (ii)
adverse changes in national or local economic conditions; (iii) changes in the
investment climate for real estate; (iv) changes in real estate tax rates and
other operating expenses; (v) adverse changes in governmental rules and fiscal
policies; (vi) acts of God which may result in uninsured losses; (vii) the
financial condition of the Sellers and Lessees; and (viii) other factors which
are beyond the control of the Company. These factors are discussed below:

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<PAGE>

General Risks of Real Estate Investment. 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 rental income
earned and capital appreciation generated, as well as property operating and
other expenses incurred. If the Company's Properties do not generate revenues
sufficient to meet operating expenses the Company may have to borrow amounts
to cover fixed costs, and the Company's Actual Cash Available for Distribution
may be adversely affected.

The Leases require the Lessees to maintain the Properties and to return the
Properties to the Company at the end of the Lease term in good condition,
normal wear and tear excepted. The Company intends to collect one month's rent
as a security deposit from each Lessee. If the Lessee does not return the
Property to the Company in good condition, there is no assurance that the
security deposit will be sufficient to restore a Property, in which event the
Company would be required to expend its own funds to do so, which could be
significant.

Real Estate Tax Increases. Certain local real property tax assessors may
seek to reassess certain of the Properties as a result of the Formation
Transactions or future acquisitions of such Properties, which could result in
those Properties being subject to higher real estate tax rates. The Leases
permit the Company to pass through such increases to the Lessees for payment
but there is no assurance that renewal Leases or future Leases will be
negotiated on the same basis and no assurance that the Lessees will be able to
make such payments.

Operating Expense Increases. The Properties will be subject to operating
risks common to commercial real estate in general, any or all of which may
adversely affect the Company. The Properties will be subject to increases in
tax rates, utility costs, operating expenses, insurance costs, repairs and
maintenance and administrative expenses. While the Initial Properties will be
leased on a triple net basis, renewals of Leases or future Leases may not be
negotiated on that basis, in which event the Company will have to pay those
costs. If the Company is unable to lease Properties on a triple-net basis or
if the Lessees fail to pay required tax, utility and other impositions, the
Company could be required to pay those costs which could adversely affect
funds available for future acquisitions or the Company's Actual Cash Available
for Distribution.

Risks Associated With Illiquidity of Real Estate. Equity real estate
investments are relatively illiquid and therefore may tend to limit the
ability of the Company to react promptly to changes in economic or other
conditions. In addition, certain significant expenditures associated with
equity real estate investments (such as interest payments, real estate taxes
and maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investments.

GOVERNMENTAL REGULATIONS; ENVIRONMENTAL MATTERS

The Dealers and their Affiliates and the Company are subject to a wide range
of federal, state and local laws and regulations, such as local licensing
requirements, consumer protection laws and regulations relating to gasoline
storage, waste treatment and other environmental matters, including:

Environmental Laws. All real property and the operations conducted on real
property are subject to federal, state and local laws and regulations relating
to environmental protection and human health and safety, including those
governing wastewater discharges, air emissions, the operation and removal of
underground and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials and the
remediation of contamination associated with such disposal. Certain of these
laws and regulations may impose joint and several liability on certain
statutory classes of persons including lessees, owners or operators, for the
costs of investigation or remediation of contaminated properties, regardless
of fault or the legality of the original disposal.

The past and present business operations of the Dealers that are subject to
such laws and regulations include the use, storage, handling and contracting
for recycling or disposal of hazardous or toxic substances or wastes,
including environmentally sensitive materials such as motor oil, waste motor
oil and filters, transmission fluid, antifreeze, freon, waste paint and
lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline
and

28
<PAGE>

diesel fuels. The Company, Dealers, Lessees and Sellers may be subject to
other laws and regulations as a result of the past or present existence of
certain underground and/or above-ground storage tanks at the Properties. The
Dealers, Lessees or Sellers, like many of their competitors, have incurred,
and will continue to incur, capital and operating expenditures and other costs
in complying with such laws and regulations.

Certain laws and regulations, including those governing air emissions and
underground and above-ground storage tanks, have been amended so as to require
compliance with new or more stringent standards as of future dates. The
Company cannot predict what other environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found
to exist in the future. Compliance with new or more stringent laws or
regulations, stricter interpretation of existing laws or the future discovery
of environmental contamination may require expenditures by the Company or
additional expenditures by the Dealers, Sellers or Lessees and their
Affiliates, some of which may be material. There can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability, or (ii) the current environmental condition of the
Properties will not be affected by the operations of the Dealerships or
Related Businesses or their Affiliates, by the condition of the land or
operations in vicinity of the Properties (such as the presence of underground
storage tanks) or by the activities of unrelated third parties. Under various
federal, state and local laws, ordinances and regulations, a current or
previous owner, developer or operator of real estate may be liable for the
costs of removal or remediation of certain hazardous or toxic substances at,
on, under or in its property. The costs of such removal or remediation could
be substantial. See "Business of the Company and Properties--Government
Regulations Affecting the Properties--Environmental Laws."

Limited environmental investigations have been conducted at certain of the
Initial Properties, with the results set out in "Phase 1 reports" prepared by
consultants retained by the Dealers and their Affiliates. The Phase 1 reports
describe environmental conditions of concern at certain of the Initial
Properties, including actual and potential releases of petroleum products from
underground storage tanks and the presence of asbestos-containing materials.
Based on the Phase 1 reports, the Company estimates that the aggregate cost
expected to remedy identified environmental conditions of concern will not be
material to the Company.

The Initial Sellers are obligated to indemnify the Company for any third
party claims based on environmental conditions, including claims by subsequent
purchasers of the Property, at a minimum until such time as any relevant
statute of limitations has run. In addition, the Initial Lessees and their
Affiliates are obligated to comply with, indemnify and hold harmless the
Company and its officers, directors, employees, shareholders, agents and
Affiliates from, and to assume the cost of compliance with, all laws and
regulations applicable to its Dealerships and Related Businesses, including
environmental laws and remediation requirements. However, if any Initial
Seller and Initial Lessee fail to comply with such requirements, the Company
could be forced to pay such costs, which at such time could be significant,
and then seek reimbursement of those costs from the Initial Seller and the
Initial Lessee. Moreover, in the event remedial action addressing
environmental conditions of concern identified in the Phase 1 reports is not
conducted by the Initial Sellers or Initial Lessees or their Affiliates
pursuant to environmental laws and regulations, it is possible that the
existence of those conditions could impede the Company's ability to sell or
re-lease the affected Initial Properties in the future or negatively impact
future sales or rental proceeds.

Americans With Disabilities Act of 1990. In addition, the Properties are
required to comply with Title III of the Americans with Disabilities Act of
1990 (the "ADA") to the extent that such properties are "public
accommodations" and/or "commercial facilities" as defined by the ADA. Although
the Company believes that each of the Initial Properties is in substantial
compliance with the ADA, no assurance can be given that any investigation of
the Initial Properties will not reveal non-compliance with the ADA or that the
requirements of the ADA will not be changed. Although the Lessee will have
primary responsibility for complying with the ADA, there is no assurance that
the Lessee will comply, or that the Company would be reimbursed by the Lessee
if the Company had to make expenditures to comply with the ADA. See "Business
of the Company and Properties--Governmental Regulations Affecting the
Properties--Americans With Disabilities Act of 1990."

29
<PAGE>

Other Regulations. The Properties are and will be subject to state and local
fire, life-safety and similar requirements. The Leases will require that each
Lessee comply with all regulatory requirements. Failure to comply with those
requirements could result in the imposition of fines by governmental
authorities, awards of damages to private litigants, or restrictions on the
ability to conduct business on such properties.

COMPETITION FROM OTHER COMPANIES WITH SIMILAR BUSINESS OBJECTIVES AND
STRATEGIES

The Company believes that it is the first publicly-offered REIT to focus
primarily on consolidating the Properties used by Dealers or Related
Businesses under one ownership structure. A subsidiary of Kimco Realty
Corporation, a diversified public real estate investment trust, has announced
that it will pursue the acquisition of properties used by Dealerships. Other
public or private entities may also target these types of properties for
acquisition, and some of those companies may have greater financial resources
or general real estate experience than the Company. Those entities will
compete with the Company in seeking Properties for acquisition and disposition
and re-leasing of Properties to Dealers as they become available. The Company
believes that competition for properties will primarily be on the basis of
acquisition price and rental rates. Competition could have the effect of
increasing acquisition prices and decreasing rents, which would have an
adverse affect on the financial results of the Company and distributions to
shareholders.

In addition, the Representative may promote or underwrite offerings by other
companies or real estate investment trusts that could have objectives
substantially similar to the Company's and which may compete directly with the
Company.

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

Tax Liabilities as a Consequence of Failure to Qualify as a REIT. The
Company intends to operate its business so as to qualify as a REIT under the
Code commencing with its taxable year ending December 31, 1998. Although
management believes that the Company will be organized and will operate in
such a manner, no assurance can be given that the Company will be able to
operate in a manner so as to qualify as a REIT or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and others on a quarterly or more frequent 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. The complexity of these provisions and of the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets in partnership form. In
addition, no assurance can be given that new legislation, regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification. The Company, however, is not
aware of any pending tax legislation that would adversely affect the Company's
ability to operate as a REIT.

Wilmer, Cutler & Pickering, counsel to the Company, will deliver its opinion
to the Company regarding the Company's ability to qualify as a REIT. See
"Certain Federal Income Tax Considerations--Taxation of the Company as a REIT"
and "Legal Matters." Such legal opinion will be 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.
Wilmer, Cutler & Pickering has no obligation to advise the Company or its
shareholders of any subsequent change in the matters stated, represented or
assumed or of any subsequent change in applicable law. Such legal opinion is
not binding on the IRS or any court.

If the Company fails to qualify as a REIT in any taxable year, except as to
certain failures for which there may be statutory relief or imposition of
intermediate sanctions in the form of monetary penalties, the Company would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates and would not be allowed
a deduction in computing its taxable income for amounts distributed to its
shareholders. This treatment would reduce the net earnings of the Company
available for investment or distribution to shareholders because of the
additional tax liability to the Company for the years involved. In addition,
unless entitled to relief under certain statutory provisions, the Company also
would be

30
<PAGE>

disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. See "Certain Federal Income Tax
Consequences--Taxation of the Company as a REIT--Failure to Qualify." Although
the Company currently intends to operate in a manner designed to qualify as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Company to fail to qualify as a REIT or may cause
the Board of Trustees to revoke the Company's REIT election.

Adverse Effects of REIT Minimum Distribution Requirements. To obtain the
favorable tax treatment accorded to REITs under the Code, the Company
generally will be required each year to distribute to its shareholders at
least 95% of its REIT taxable income. The Company will be subject to income
tax on any undistributed REIT taxable income and net capital gain, and to a 4%
non-deductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the
sum of (i) 85% of its ordinary income for the calendar year, (ii) 95% of its
capital gain net income for such year, and (iii) 100% of its undistributed
income from prior years.

The Company intends to make distributions to its shareholders to comply with
the distribution provisions of the Code and to avoid federal income taxes and
the non-deductible 4% excise tax. The Company's income will consist primarily
of its share of the income of the Operating Partnership, and the Company's
cash flow will consist primarily of its share of distributions from the
Operating Partnership. Differences in timing between the receipt of income and
the payment of expenses in arriving at taxable income (of the Company or the
Operating Partnership) and the effect of non-deductible capital expenditures,
the creation of reserves or required debt amortization payments could in the
future require the Company to borrow funds through the Operating Partnership
on a short-term or long-term basis to meet the distribution requirements that
are necessary to continue to qualify as a REIT. In such circumstances, the
Company might need to borrow funds to avoid adverse tax consequences even if
management believes that the then prevailing market conditions generally are
not favorable for such borrowings or that such borrowings are not advisable in
the absence of such tax considerations.

Distributions by the Operating Partnership are determined by the Company, as
general partner, and are dependent on a number of factors, including the
amount of Actual Cash Available For Distribution, the Operating Partnership's
financial condition, any decision by the Company's Board of Trustees to
reinvest funds rather than to distribute such funds, the Operating
Partnership's capital expenditure requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Trustees deems relevant. There can be no assurance that the
Company will be able to continue to satisfy the annual distribution
requirement so as to avoid corporate income taxation of the earnings that it
distributes.

Consequences of Failure to Qualify as a Partnership. Wilmer, Cutler &
Pickering will deliver an opinion to the Company stating that, assuming that
the Operating Partnership is being operated in accordance with its
organizational documents, the Operating Partnership has been and will continue
to be treated as a partnership, and not as a corporation, for federal income
tax purposes. Such opinion is not binding on the IRS. If the IRS were to
challenge successfully the status of the Operating Partnership as a
partnership for federal income tax purposes, the Operating Partnership would
be taxable as a corporation. In such event, the Company would cease to qualify
as a REIT for federal income tax purposes. The imposition of a corporate tax
on the Operating Partnership with a resulting loss of REIT status of the
Company, would reduce substantially the amount of cash available for
distribution to the Company's shareholders.

Risks Regarding Characterization of Initial Leases. Wilmer, Cutler &
Pickering is of the opinion that each Initial Lease will be treated as a true
lease for federal income tax purposes. Such opinion is not binding on the IRS.
If the IRS were to challenge successfully the characterization of the Initial
Leases as true leases, the Operating Partnership would not be treated as the
owner of the Property in question for federal income tax purposes and the
Operating Partnership would lose tax depreciation and cost recovery deduction
with respect to such Property, which in turn could cause the Company to fail
to qualify as a REIT. Although the Company will use its best efforts to
structure any leasing transaction for Properties acquired in the future such
that the Lease

31
<PAGE>

will be characterized as a "true lease' and the Operating Partnership will be
treated as the owner of the Property in question for federal income tax
purposes, the Company will not seek an advance ruling from the IRS and may not
seek an opinion of counsel (except with respect to the Initial Leases) that it
will be treated as the owner of any leased Properties for federal income tax
purposes, and thus there can be no assurance that future leases will be
treated as true leases for federal income tax purposes.

Other Tax Liabilities. Even if the Company qualifies as and maintains its
status as a REIT, it may be subject to certain federal income taxes if it has
a certain amount of non-qualified income. For example, if the Company has net
income from a "prohibited transaction," such income will be subject to a 100%
tax. See "Certain Federal Income Tax Consequences--Taxation of the Company as
a REIT--Requirements for Qualification." In addition, the Company will be
subject to state and local taxes on its income and property.

THE OWNERSHIP LIMIT

For the Company to maintain its qualification as a REIT under the Code, not
more than 50% in value of the outstanding shares of beneficial interest of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first taxable year for
which the election to be treated as a REIT has been made).

To ensure that the Company will not fail to qualify as a REIT under this and
other tests under the Code, the Company's Declaration of Trust, subject to
certain exceptions, authorizes the Board of Trustees to take such actions as
are necessary and desirable to preserve its qualification as a REIT and to
limit any person to direct or indirect ownership of no more than (i) 9.9% of
the number of the outstanding Common Shares, or (ii) 9.9% of the number of
outstanding Preferred Shares or any series of Preferred Shares (the "Ownership
Limit"). The Company's Board of Trustees, upon receipt of a ruling from the
IRS, an opinion of counsel or other evidence satisfactory to the Board and
upon such other conditions as the Board may establish, may exempt a proposed
transferee from the Ownership Limit; provided that such exemption would not
result in the termination of the Company's status as a REIT. The Company has
waived the Ownership Limit with respect to the Representative and its
Affiliates to permit ownership of the Common Shares. The Company's Declaration
of Trust and the Operating Partnership's Partnership Agreement contain
provisions that require the approval of a majority of the Independent Trustees
of the Company for waiver of the Ownership Limit with respect to any Trustee
or his Affiliates. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer." The foregoing restrictions on
transferability and ownership will continue to apply until (i) the Board of
Trustees 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, and (ii) there is
an affirmative vote of two-thirds of the votes entitled to be cast on such
matter at a regular or special meeting of the shareholders of the Company.

The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Shares or otherwise be in the best interest of
the shareholders. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer."

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

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

Ownership Limit. The Ownership Limit provides that no person or entity may
own, or be deemed to own more than 9.9% of the Common Shares or Preferred
Shares of the Company, unless waived by the Board of

32
<PAGE>

Trustees. See "--The Ownership Limit." The foregoing ownership limitations may
have the effect of precluding acquisition of control of the Company without
the consent of the Board of Trustees and, consequently, shareholders may be
unable to realize a premium for their shares over the then-prevailing market
price (a premium is customarily associated with such acquisitions). See
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer."

Removal of Trustees; Vacancies. The Company's Declaration of Trust provides
that a Trustee may only be removed upon the affirmative vote of holders of
two-thirds of the outstanding Common Shares of the Company. Vacancies may only
be filled by the Board of Trustees. This requirement makes it more difficult
to change the management of the Company by removing and replacing Trustees.

Preferred Shares. The Declaration of Trust permits the Board of Trustees to
issue up to 20 million Preferred Shares, issuable in one or more classes or
series. The Board of Trustees may classify or reclassify any unissued
Preferred Shares and establish the preferences and rights (including the right
to vote, participate in earnings, and to convert into Common Shares) of any
such Preferred Shares. Thus, the Board of Trustees could authorize the
issuance of Preferred Shares with terms and conditions which could have the
effect of discouraging a takeover or other transaction in which holders of
some or a majority of the Common Shares might receive a premium for their
Common Shares over the then-prevailing market price of such Common Shares. See
"Description of Shares of Beneficial Interest--Preferred Shares."

Maryland Business Combination Statute. Under the MGCL, as applicable to
Maryland REITs, certain "Business Combinations" (including certain issuances
of equity securities) between a Maryland REIT such as the Company and any
person who owns 10% or more of the voting power of the Company's beneficial
interests or an Affiliate of the trust which, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more
of the voting shares of beneficial interest of then-outstanding voting shares
of beneficial interest of the Company (an "Interested Shareholder"), are
prohibited for five years after the most recent date on which the Interested
Shareholder became an Interested Shareholder. Thereafter, any such "Business
Combination" must be approved by a super-majority shareholder vote unless,
among other things, the holders of shares of beneficial interest receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. As permitted by the MGCL, the Declaration of Trust
exempts any "Business Combinations" involving the issuance of Common Shares to
any Initial Seller upon the exchange of Units acquired by any of them in
connection with the Formation Transactions or the acquisition by any of them
of any additional shares of beneficial interest in the Company. Accordingly,
the five-year prohibition and the super-majority vote requirement will not
apply to any "Business Combinations" between the Sellers and the Company. As a
result, the Sellers may be able to enter into "Business Combinations" with the
Company, which may or may not be in the best interests of the shareholders,
without the super-majority shareholder approval. See "Description of Shares of
Beneficial Interest--Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws--Business Combinations."

CHANGES IN POLICIES

The major policies of the Company, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the Board of Trustees. Although it has no
present intention to do so, the Board of Trustees may amend or revise these
and other policies from time to time without a vote of the shareholders.
Accordingly, shareholders will have limited control over changes in policies
of the Company.

NO PRIOR MARKET FOR COMMON SHARES

Prior to this Offering, there has been no public market for the Common
Shares. Although the Company has applied for listing of the Common Shares on
the Nasdaq National Market, there can be no assurance that an

33
<PAGE>

active trading market will develop. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price of the Common Shares after the
Offering. See "Underwriting."

EFFECT OF MARKET INTEREST RATES ON SHARE PRICES

One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield on the price paid for Common Shares
from distributions by the Company. Thus, an increase in market interest rates
may lead purchasers of Common Shares to demand a higher annual yield, which
could adversely affect the market price of the Common Shares.

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

No prediction can be made as to the effect, if any, of future sales of
Common Shares, or the availability of shares for future sales, on the market
price of the Common Shares. Sales of substantial amounts of Common Shares
(including approximately up to 5,041,549 Common Shares issuable upon the
exchange of Units, issued in connection with the acquisition of the Initial
Properties; up to 2,828,314 Common Shares issuable upon exercise of options
under the Plan; up to 1,792,115 Common Shares issued to FBR Asset Investment
Corportion; up to 1,277,794 Common Shares issuable on exercise of the
Underwriting Warrants and up to 1,414,158 Common Shares issuable on conversion
of the Units issued on exercise of the Dealer Warrants, (all assuming exercise
of the Underwriters' over-allotment option in full)), or the perception that
such sales could occur, may adversely affect prevailing market prices for the
Common Shares. Such Common Shares and Units will be deemed to be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may
not be transferred unless such Common Shares or Units have been registered
under the Securities Act or an exemption from registration is available,
including any exemption from registration provided under Rule 144. In general,
upon satisfaction of certain conditions, Rule 144 permits the sale of certain
amounts of restricted securities one year following the date of acquisition of
the restricted securities from the Company and, after two years, permits
unlimited sales by persons unaffiliated with the Company.

Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company will have 21,792,115 Common Shares outstanding
(24,792,115 Common Shares if the Underwriters' over-allotment option is
exercised in full), of which 20,000,000 Common Shares (23,000,000 Common
Shares if the Underwriters' over-allotment option is exercised in full) will
be freely tradeable in the public market by persons other than "Affiliates" of
the Company without restriction or registration under the Securities Act. The
Company's officers and Trustees have agreed not to offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose of
(or announce any offer, sale, offer of sale, contract of sale, grant of any
option to purchase or other sale or disposition of) any Common Shares or other
shares of beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Units or Common Shares or other shares of
beneficial interest of the Company (other than pursuant to the Plan) for a
period of two years following the effective date of this Offering, without the
prior written consent of the Representative, subject to certain limited
exceptions. The Representative, at any time and without notice, may release
all or any portion of the Common Shares or Units subject to the foregoing
lock-up agreements.

If the Company exercises its option to deliver Common Shares upon the
redemption of Units, the Partnership Agreement provides that the Company will
deliver registered Common Shares to the holder. The Company has also granted
demand and piggyback registration rights to register the Common Shares being
privately placed with FBR Asset Investment Corporation. See "Common Shares
Eligible for Future Shares--Registration Rights."

The Company may issue from time to time additional Common Shares or Units in
connection with the acquisition of Properties. See "Business of the Company
and Properties--Strategy." The Company anticipates that it will file a
registration statement with respect to the Common Shares issuable upon
exercise of options under the Plan following or concurrent with the completion
of this Offering. Such registration statement generally will allow Common
Shares covered thereby to be transferred or resold with fewer restrictions
under the Securities Act. See "Common Shares Eligible for Future Sale."

34
<PAGE>

USE OF PROCEEDS

The proceeds to the Company from the sale of the Common Shares offered
hereby, net of the estimated underwriting discounts and expenses of the
Offering, are expected to be approximately $277.4 million ($319.2 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price per share of $15.00. In addition, the Company
will receive an aggregate of $25 million from the proceeds of the FBR
Offering. The Company will use the net proceeds of the Offering to acquire
21,792,115 Units (24,792,115 Units if the Underwriters' over-allotment option
is exercised in full) (representing an 81.2% interest in the Operating
Partnership (83.1% if the Underwriters' over-allotment option is exercised in
full)). The Operating Partnership will use the net proceeds of the Offering as
follows:

<TABLE>
<CAPTION>
PROCEEDS OF
PUBLIC
OFFERING AND
FBR OFFERING
------------
(IN
THOUSANDS)
<S> <C>
Gross Offering Proceeds.......................................... $325,000
--------
Less Public Offering Expenses:
Estimated Offering Expenses.................................. $ 1,650
Estimated Underwriting Discounts and Commissions............. 21,000
--------
Subtotal................................................... $ 22,650
========
Repayment of FBR Loan (1)........................................ $ 2,525
--------
Repayment of Mortgage Debt Assumed on Certain Initial Properties
(Loan Balance as of December 31, 1997):
Pohanka Automotive Group (2)................................. $ 13,259
Rosenthal Automotive Organization (3)........................ 13,694
Sheehy Auto Stores (4)....................................... 9,574
Cherner Automotive Group (5)................................. 4,771
--------
Subtotal................................................... $ 41,298
========
Acquisition of Certain Initial Properties:
Cross-Continent Auto Retailers............................... $ 35,330
Good News Auto Mall.......................................... 5,461
Kline Automotive Group....................................... 8,510
--------
Subtotal................................................... $ 49,301
========
Amount Available for Future Investment in Properties and for
General Working Capital Purposes................................ $209,226
========
</TABLE>
- --------
(1) The proceeds of the FBR Loan were used to pay the operating expenses of
the Company pending the closing of this Offering. The FBR Loan is payable
on the earlier of (a) demand or (b) the closing of this Offering and
accrues interest at the rate of 10%.
(2) The two assumed mortgage loans mature on April 7, 2003 and November 1,
2000, respectively, and accrue interest at a weighted average interest
rate of 8.5% as of December 31, 1997.
(3) Three of the four assumed mortgage loans mature on June 1, 2006 and the
fourth assumed mortgage loan matures of October 1, 2007. The four assumed
mortgage loans accrue interest at a weighted average interest rate of
7.95% as of December 31, 1997.
(4) Three of the six assumed mortgage loans mature on May 29, 2002 and the
other three mortgage loans are payable on demand. The six assumed mortgage
loans accrue interest at a weighted average interest rate of 8.24% as of
December 31, 1997.
(5) The two assumed mortgage loans mature on July 21, 2005 and July 21, 2000,
respectively, and accrue interest at a weighted average rate of 8.22% as
of December 31, 1997.

35
<PAGE>

The Company expects to enter into a bank line of credit with NationsBank,
N.A. for $10 million and to borrow approximately $5 million at closing
(approximately $2.5 million of which will be guaranteed by Affiliates of Mr.
Rosenthal and approximately $2.5 million of which will be guaranteed by
Affiliates of Mr. Sheehy). The NationsBank line of credit will be secured by
the Pohanka Properties. See "The Initial Properties, Leases and Dealerships."
While the Company may engage from time to time in discussions regarding
potential acquisitions, it has not entered into any agreement as of the date
of this Prospectus to make any such acquisition. Pending the described uses,
any remaining net proceeds will be invested in short-term readily marketable
interest-bearing securities, interest-bearing bank accounts, certificates of
deposit, money market securities, U.S. government securities or mortgage-
backed securities.

36
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 20, 1997, and pro forma as adjusted to give effect to the completion
of the Offering (assuming no exercise of the Underwriters' over-allotment
option) and the completion of the concurrent FBR Offering. The table should be
read in conjunction with the historical and unaudited pro forma financial
information of the Company included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
HISTORICAL OCTOBER 20,
OCTOBER 20, 1997
1997 (UNAUDITED)
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt outstanding under Line of Credit.................. $-- $ 5,000
Minority Interest...................................... -- 71,014
Shareholders' Equity:
Preferred Shares of Beneficial Interest:
Preferred Shares, par value $.01 per share; 20 mil-
lion authorized; no shares outstanding historical;
no shares outstanding pro forma................... -- --
Common Shares of Beneficial Interest:
Common Shares, par value $.01 per share; 100
million authorized; 10 shares outstanding
historical; 21,792,115 shares outstanding pro
forma as adjusted(1).............................. -- 218
Additional Paid-in Capital........................... -- 306,742
---- --------
Total Shareholders' Equity......................... -- 306,960
---- --------
Total Capitalization............................... $-- $382,974
==== ========
</TABLE>
- --------
(1) Excludes 3,000,000 Common Shares reserved for the Underwriters' over-
allotment option, 5,041,549 Common Shares reserved for issuance upon
redemption of the Units issuable in connection with the acquisition of
certain Initial Properties, 2,828,314 Common Shares and Units reserved for
issuance pursuant to the Company's Plan, of which options to acquire
106,667 Common Shares and 2,368,107 Units have been granted, 1,277,794
Common Shares issuable upon exercise of the Underwriting Warrants and an
aggregate of 1,414,158 Common Shares issuable upon conversion of Units
issuable upon exercise of the Dealer Warrants (in each case assuming
exercise of the Underwriters' over-allotment option in full). See
"Structure and Formation of the Company," "Management--1998 Equity
Incentive Plan" and "Related Transactions."

37
<PAGE>

DILUTION

The Company expects there will be no substantial difference between the
initial public offering price per Common Share and effective cash cost per
Common Share paid in the Offering and the FBR Offering. Accordingly, the
Company expects there will be no material dilution to new investors purchasing
Common Shares in this Offering, except for the payment of Underwriters'
discounts and commissions and other expenses of this Offering. The Company
expects that the dilution per Common Share will be approximately $.91,
determined by subtracting pro forma net tangible book value, after giving
effect to the Offering and the Formation Transactions, from the initial public
offering price paid by a new investor for a Common Share.

38
<PAGE>

CONFLICTS OF INTEREST POLICIES

The Company could be subject to various conflicts of interest arising from
its relationship with Mr. Pohanka or Mr. Rosenthal, who have agreed to join
the Board of Trustees of the Company prior to the closing of this Offering,
and certain Initial Sellers and Initial Lessees who are Affiliates of Mr.
Pohanka or Mr. Rosenthal. In order to mitigate any potential conflicts of
interest, the Company's Declaration of Trust contains a requirement that any
transaction involving the Company and a Trustee or an Affiliate of any Trustee
or any agreement to which they are a party or an increase in the Ownership
Limit for any Trustee or his Affiliate will require the approval of a majority
of the Independent Trustees of the Company. However, there can be no assurance
that these policies will be successful in all cases in eliminating the
influence of the Trustees, and if they are not successful, decisions could be
made that might fail to reflect fully the interest of the shareholders. See
"Risk Factors--Conflicts of Interest." The potential conflicts include:

Ability of Messrs. Pohanka and Rosenthal to Influence the Company. Assuming
(i) conversion of the Units issued to Affiliates of Messrs. Pohanka and
Rosenthal to acquire certain Initial Properties into Common Shares, (ii)
exercise of the Dealer Warrants and conversion of the Units to Common Shares,
and (iii) the purchase of $13 million of Common Shares in this Offering by
Mr. Pohanka and his family, Mr. Pohanka and his Affiliates will own 9.56% and
Mr. Rosenthal and his Affiliates will own 14.27% of the outstanding Common
Shares (including exercise of the Underwriters' over-allotment option in full)
on a fully diluted and converted basis. The Units may be redeemed for Common
Shares at the option of the Company, up to the Company's 9.9% ownership limit
for Common Shares. The approval of the majority of the Independent Trustees of
the Company will be required to waive the Ownership Limit for Trustees or
their Affiliates under the Company's Declaration or Trust. As Trustees and
major holders of Common Shares or Units, Messrs. Pohanka and Rosenthal will be
in a position to exercise influence over the operations and affairs of the
Company.

Terms of Sale and Lease of Properties. The Company has separately negotiated
the terms of the acquisition of the Initial Properties to be acquired by the
Company and the terms of the Initial Leases for those Initial Properties with
each of the Initial Sellers, including with each of Mr. Pohanka and Mr.
Rosenthal. Because Messrs. Pohanka and Rosenthal will join the Board as
Trustees, they may have had greater leverage to negotiate the terms of the
contribution agreements and Initial Leases covering the Initial Properties to
be sold by their respective Affiliates.

Exercise of Rights and Obligations under Agreements with Company. Each of
the contribution agreements for the acquisition of Properties and the Leases
for such Properties contain certain continuing covenants, including, but not
limited to, obligations relating to (i) indemnification, (ii) payment of rent,
(iii) delivery of information, (iv) maintenance and repair of Properties, (v)
use of the Properties, and (vi) assignment and subletting. Failure to meet any
or all of the above obligations could constitute an event of default under the
relevant agreement or otherwise provide the Company with legal recourse to
seek enforcement of the obligation or monetary damages. Because Messrs.
Pohanka and Rosenthal will be Trustees of the Company, each of them could
influence the Company's decision to take legal action or otherwise declare a
default with respect to the failure of any related Seller or Lessee to perform
its obligations under any Agreement with the Company.

Ability of Messrs. Pohanka and Rosenthal and Their Affiliates to Influence
the Sale or Refinancing of the Initial Properties. The Initial Lessees, who
are Affiliates of Messrs. Pohanka and Rosenthal, have entered into Initial
Leases that grant certain rights to the Initial Lessees to repurchase the
Initial Properties at such time as the Company shall determine to sell an
Initial Property or upon expiration of an Extended Term of the Initial Lease.
Messrs. Pohanka or Rosenthal could influence the timing of the Company's
decision to sell, the selection of a particular Initial Property to be sold,
and the decision of the Company to accept or reject any offer by any Initial
Lessee or third party. These Initial Lessees could experience different and
more adverse tax consequences compared to those experienced by shareholders or
other holders of Units upon the sale of, or reduction of mortgage indebtedness
on, or financing of, certain Properties. While the Company, as the sole
general partner of the Operating Partnership, has the exclusive authority to
determine whether and on what terms to sell or finance certain Properties,
such parties may have different objectives regarding the appropriate pricing
and timing of any sale of, or reduction of mortgage indebtedness on, such
Properties. Messrs. Pohanka or Rosenthal could influence the Company not to
sell particular Properties, or not to incur additional, or conversely, not to
pay off outstanding,

39
<PAGE>

indebtedness on particular Initial Properties, even though such sales or
financing might otherwise be financially advantageous to the Company and its
shareholders.

Pursuant to the lock-out provisions, the Company may not sell (except in
certain events, including certain transactions that would not result in the
recognition of any gain for tax purposes) or may be required to maintain
certain debt levels, for periods ranging from four to seven years on certain
Initial Properties to be acquired from Affiliates of Mr. Pohanka or Mr.
Rosenthal. Thus, the lock-out provisions materially restrict the Company from
selling or otherwise disposing of such Initial Properties without obtaining
the consent of such Initial Sellers. The lock-out provisions apply even if it
would otherwise be in the best interests of the shareholders for the Company
to sell one or more of such Initial Properties, reduce the outstanding
indebtedness with respect to any of such Initial Properties or not refinance
such indebtedness on a nonrecourse basis at maturity, or increase the amount
of indebtedness with respect to such Initial Properties. In addition, the
lock-out provisions could preclude the Company from participating in certain
major transactions that could result in a disposition of the Company or a
change in control of the Company even though that disposition or change in
control might be in the best interests of the shareholders.

<PAGE>

SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary selected historical and pro forma
financial information for the Company. The unaudited pro forma operating
information is presented as if the Formation Transactions had occurred as of
the beginning of the period indicated and therefore incorporates certain
assumptions that are included in the Company's Unaudited Pro Forma Financial
Statements. The unaudited pro forma balance sheet information is presented as
if the Formation Transactions had occurred on October 20, 1997. The unaudited
pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been had the
Formation Transactions, in fact, occurred on such date or at the beginning of
the period indicated, or to project the Company's financial position or
results of operations at any future date or for any future period. The
historical and unaudited pro forma financial information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
PRO FORMA FOR THE
PERIOD FROM PRO FORMA
JANUARY 1, 1997 YEAR ENDED
THROUGH DECEMBER 31,
OCTOBER 20, 1997 1996
----------------- ------------
(UNAUDITED) ---
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental income(1)........................... $13,901 $15,887
General and administrative expenses(2)..... 3,063 3,500
Depreciation(3)............................ 2,207 2,522
Minority interest(4)....................... 1,545 1,765
Interest expense........................... 411 470
Net earnings to Common Shareholders........ 6,675 7,630
Net earnings per Common Share.............. 0.86 0.99
Weighted average Common Shares
outstanding(5)............................ 7,718 7,718
<CAPTION>
PRO FORMA HISTORICAL
OCTOBER 20, OCTOBER 20,
1997 1997
----------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Real estate owned, at cost................. $166,223 $ --
Total assets............................... 384,298 --
Debt outstanding under line of credit...... 5,000 --
Minority interest.......................... 71,014 --
Total shareholders' equity................. 306,960 --
</TABLE>
- --------
(1) Represents rental income from the Initial Lessees recorded in accordance
with the terms of the Initial Leases as if all Initial Properties had been
subject to the Initial Leases for the entire period. Excludes rental
income of approximately $2.4 million and $2.1 million for the year ended
December 31, 1996 and the period ended October 20, 1997, respectively, for
two of the Initial Properties as these Initial Properties are currently
being developed for use.
(2) Represents management's estimates of general and administrative expenses.
(3) Represents depreciation of the building and improvements as allocated from
the purchase prices of the Initial Properties over a 20-year period.
(4) Represents approximately 18.8% of the Operating Partnership's net
earnings.
(5) Represents the number of Common Shares whose proceeds will be used to
repay mortgage debt assumed and to acquire the Initial Properties. If the
total number of Common Shares issued in the Offering and the FBR Offering
had been used, weighted average Common Shares outstanding would be 21,792
for both the year ended December 31, 1996 and for the period ended October
20, 1997, resulting in net earnings per Common Share of $0.35 and $0.31
for the year ended December 31, 1996 and the period ended October 20,
1997, respectively.

41
<PAGE>

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

OVERVIEW

The Company was organized as a Maryland REIT on October 20, 1997, and
intends to make an election to qualify under the Code as a REIT commencing
with its taxable year ending December 31, 1998. Substantially all of the
Company's initial revenues are expected to be derived from: (i) rents received
under long-term triple-net Leases of Properties operated as Dealerships and
Related Businesses, including 36 Initial Properties the Company anticipates
acquiring upon the completion of this Offering and which the Company
thereafter will lease back to the Initial Lessees pursuant to the Initial
Leases (which are in some cases guaranteed by affiliated Guarantors) and (ii)
interest earned from the temporary investment of funds in short-term
investments. The Initial Base Annual Rent for each Initial Property under the
Initial Leases is initially set at a fixed amount and the Base Annual Rent
will be adjusted upward periodically based on a factor of the CPI. The CPI
adjustments range from one-half of CPI adjusted every other year to full CPI
adjusted every year. Certain Initial Leases establish minimum or maximum
adjustment rates that range from zero to 3% of base annual rents.

The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, professional fees and various expenses incurred in the process of
acquiring additional Properties. The Company will be self-administered and
managed by its executive officers and staff, and will not engage a separate
advisor or pay an advisory fee for services, although the Company will engage
legal, accounting, tax and financial advisors from time to time.

The primary non-cash expense of the Company will be the depreciation of its
Properties. The Company expects to depreciate buildings and improvements on
the Initial Properties over a 39.5-year and 20-year period for tax and
financial reporting purposes, respectively. The Company will not own or lease
any personal property, furniture or equipment at any Initial Property.

The Company also expects to employ leverage, using a combination of debt or
other equity securities and a bank credit facility, to fund additional
investments, and will incur long and short-term indebtedness, and related
interest expense, from time to time. See "Risk Factors--There Can be No
Assurance That the Company Will Complete Any Additional Acquisitions of
Properties or that the Company Will Not be Treated as an Investment Company."

The Company intends to make distributions to its shareholders in amounts not
less than the amounts required to maintain REIT status under the Code. The
Company's ability to make distributions will depend on actual results of
operations, including (i) the timing of the investment of the proceeds of the
Offering and the FBR Offering, (ii) the rent received from the Lessees, (iii)
the ability of the Lessees of the Properties to meet their obligations under
the Leases, and (iv) the operating expenses of the Company.

RESULTS OF OPERATIONS
The Company has had no operations prior to October 20, 1997 (the date of
organization). The Company's future results of operations will depend upon the
Company's receipt of payments under the Initial Leases, the acquisition of the
additional Properties, and the terms of any other investments the Company may
make.

PRO FORMA RESULTS OF OPERATIONS

The aggregate acquisition price for the Initial Properties will be $166.2
million, including the assumption of aggregate indebtedness of $41.3 million.
The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Properties, rental income would have been $15.9
million for the year ended December 31, 1996 and $13.9 million for the period
ended October 20, 1997. This rental income does not include $2.4 million and
$2.1 million for the year ended December 31, 1996 and the period ended October
20, 1997, respectively, for the two Initial Properties referred to above.
Estimated expenses, including depreciation and amortization, general and
administrative expense, and interest expense, would have been $6.5 million and
$5.7 million for the year ended December 31, 1996 and the period ended October
20, 1997, respectively. These expenses do not include $.4 million and .3
million for the year ended December 31, 1996 and the period ended

42
<PAGE>

October 20, 1997, respectively, for the two Initial Properties referred to
above. Net earnings would have been $7.6 million or $0.99 per Common Share for
the year ended December 31, 1996, and $6.7 million or $0.86 per Common Share
for the period ended October 20, 1997 (net earnings per Common Share would
have been $0.35 and $0.31 for the year ended December 31, 1996 and the period
ended October 20, 1997, respectively, if the Common Shares outstanding had
included the Offering and the FBR Offering). Pro forma rental income is
recorded in accordance with the terms of the Initial Leases as if all of the
Initial Leases had been in effect for the entire period. Additional
information relating to the adjustments and assumptions made for pro forma
results of operations is reflected in the Company's Unaudited Pro Forma
Financial Statements, located elsewhere in this Prospectus. See "Selected
Financial Information."

Environmental Matters. Each Initial Lease and Contribution Agreement
provides for various representations and warranties by the Initial Lessee and
Initial Seller, respectively, relating to environmental matters with respect
to each Initial Property. The Phase 1 reports indicate that petroleum products
have been released from leaking underground storage tanks removed from three
of the Initial Properties and asbestos is present at two of the Initial
Properties. Each Initial Lease and Contribution Agreement requires the Initial
Lessee to indemnify and hold harmless the Company from and against third party
liabilities, costs and expenses imposed upon or asserted against the Company
or the Initial Property on account of, among other things, any federal, state
or local law, ordinance, regulation, order or decree relating to the
protection of human health or the environment in respect of the Initial
Property. Each Initial Lessee is obligated to comply with all environmental
laws. Notwithstanding the environmental laws impose liabilities on the owner
of property. The Company, therefore, could incur liabilities regardless of the
Initial Lease provisions, especially if the Initial Lessee defaults on its
obligations to the Company.

LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that the proceeds of the Offering and the FBR
Offering, together with its cash from operations, and any bank credit facility
anticipated to be available to the Company, will provide adequate liquidity to
acquire additional Properties, conduct its operations, fund administrative and
operating costs, interest payments and acquisitions, and allow distributions
to shareholders in accordance with the Code's requirements for qualification
as a REIT and to avoid any corporate level federal income or excise tax.

In order to qualify as a REIT for federal income tax purposes, the Company
will be required to make substantial distributions to its shareholders. The
following factors, among others, will affect Funds from Operations and will
influence the decisions of the Board of Trustees regarding distributions: (i)
increases in Annual Base Rent under the Leases; and (ii) returns from short-
term investments pending application of the net proceeds of the Offering.
Although the Company will receive most of its rental payments on a monthly
basis, it intends to make distributions quarterly. Amounts accumulated for
distribution will be invested by the Company in short-term investments.

Under the terms of the Initial Leases, each Initial Lessee is responsible
for substantially all expenses associated with the operation of the related
Initial Property, such as taxes and other governmental charges, insurance,
utilities, service, maintenance and any ground lease payments. See "Business
of the Company and Properties--The Initial Properties, Leases and
Dealerships." As a result of these arrangements, the Company does not believe
it will be responsible for any major expenses in connection with the Initial
Properties during the terms of the respective Initial Leases. The Company
anticipates entering into similar Leases with respect to additional
Properties. After the terms of any respective Lease expires, or in the event a
Lessee is unable to meet its obligations, the Company anticipates that any
expenditures it might become responsible for in maintaining the related
Property will be funded by cash from operations and, in the case of major
expenditures, possibly by borrowings. To the extent that unanticipated
expenditures or significant borrowings are required, the Company's Funds from
Operations and liquidity may be adversely affected.

Other than the purchase of the Initial Properties (including the repayment
of Mortgage Debt) and the repayment of the FBR Loan, the Company has no
commitments to make other capital expenditures at the date of this Prospectus.
The Company may raise additional long-term capital by issuing, in public or
private transactions,

43
<PAGE>

debt or other equity securities, but the availability and terms of any such
issuance will depend upon the market and other conditions. The Company
anticipates that as a result of its initially low ratio of debt to total
market capitalization and its intention to maintain such ratio at no more than
50%, it will be able to obtain financing for its long-term capital needs.
However, there can be no assurance that additional financing or capital will
be available on terms acceptable to the Company. The Company intends to enter
into a bank credit facility with NationsBank, N.A. for $10 million,
approximately $5 million of which will be drawn down at the closing of the
Offering. The NationsBank line of credit will be secured by the Pohanka
Properties. See "Business of the Company and Properties--The Initial Leases,
Properties and Dealerships. The Company also intends to obtain an additional
line of credit for acquisition of Properties after the closing of this
Offering and may borrow additional amounts in connection with the acquisition
of additional Properties, the renovation or expansion of Properties, or, as
necessary, to meet certain distribution requirements imposed on a REIT under
the Code.

Acquisitions will be made subject to the investment objectives and policies
to maximize both current income and long-term growth in income described
elsewhere in this Prospectus. The Company's liquidity requirements with
respect to future acquisitions may be reduced to the extent the Company uses
Common Shares or Units as consideration for such purchases.

44
<PAGE>

BUSINESS OF THE COMPANY AND PROPERTIES

OVERVIEW

The Company is a newly organized self-administered and self-managed Maryland
REIT formed on October 20, 1997 to invest in the real property and
improvements used by Dealers of multi-site, multi-franchised Dealerships and
Related Businesses located in major metropolitan areas throughout the United
States. The Company is the first publicly-offered REIT formed primarily to
acquire and lease back Properties for use by Dealers.

The Company has entered into agreements to acquire 36 Initial Properties on
which 54 franchisees of 24 brands are located. Twenty of the Initial
Properties are located in the Washington, D.C. Metropolitan Area, which
Initial Properties are operated by four of the top 20 Dealers in the
Washington, D.C. Metropolitan Area, as measured by total new vehicles sold in
1996. Other Initial Properties are located in Colorado, the eastern shore of
Maryland, Nevada, Pennsylvania, Texas and southern Virginia. Dealers located
on the Initial Properties sell domestic and imported luxury, family, economy,
and sport utility vehicles, trucks and vans, including Mercedes-Benz, Honda,
Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda, Infiniti, Jaguar, Acura,
Lincoln-Mercury, Mitsubishi and Nissan. The Initial Properties have been
purchased from the Initial Sellers, each of whom is an Affiliate of a Dealer
and will be leased back to the Initial Lessees. The Initial Leases will be
long-term leases that require the Initial Lessees to pay all operating costs
of the Initial Properties, as well as all real estate taxes, utilities,
insurance, repairs, maintenance and other expenses (commonly referred to as
"triple net" leases).

The Initial Lessees are Affiliates of Pohanka, Rosenthal, Sheehy, Cherner,
Cross-Continent, Good News and Kline. Intial Sellers affiliated with Pohanka,
Rosenthal, Sheehy and Cherner will own 1,204,342; 3,438,298; 295,439; and
103,470 Units, respectively, in the Operating Partnership. Each of Messrs.
Pohanka and Rosenthal will also have the right to acquire 707,079 Units (equal
to 2% of the Common Shares to be outstanding on the closing of the Offering
(including exercise of the Underwriters' over-allotment option in full) on a
fully diluted basis). Messrs. Pohanka and Rosenthal have agreed to join the
Company's Board of Trustees prior to the closing of the Offering. Mr. Pohanka
and his family have also advised the Representative that they intend to
purchase up to $13 million of registered Common Shares in this Offering.

The Company has employees located in Chicago, Los Angeles and Naples,
Florida who will be responsible for identifying and negotiating acquisitions
of Properties. The Company expects to identify Dealers through existing
contacts, existing Sellers, participation in professional organizations or
through other methods or by Dealers contacting the Company.

Thomas D. Eckert, President and Chief Executive Officer, Scott M. Stahr,
Executive Vice President and Chief Operating Officer, Donald L. Keithley,
Executive Vice President of Business Development, and David S. Kay, Vice
President and Chief Financial Officer, the Company's executive officers, have
22; 12; 38; and 10 years of experience, respectively, in the real estate,
financial and motor vehicle industries, although they do not have experience
managing or operating a REIT. Following the Offering, the Company's executive
officers will own or have the right to acquire in the aggregate of 106,667
Common Shares and 2,368,107 Units (equal to 7% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted basis)
pursuant to options granted under the Company's Plan. See "Management--1998
Equity Incentive Plan."

The Pohanka Automotive Group, led by its Chairman, John J. Pohanka, has been
in business for almost 80 years. The Pohanka family began operating
dealerships in 1919, and the business' current leader, Mr. Pohanka has been
involved in the automotive industry for almost 50 years. Today the second and
third generation of the Pohanka family lead the business' operations. In 1996,
the Pohanka Automotive Group Dealerships sold 11,900 new and used motor
vehicles. The Pohanka Automotive Group is currently comprised of nine
Dealerships, each of which is located in the Washington, D.C. Metropolitan
Area. Under Mr. Pohanka's leadership, the Pohanka Automotive Group's
Dealerships have received numerous awards, including the Time Magazine Quality
Dealer Award. The Company has entered into agreements to purchase all of the
Properties used by the Pohanka Automotive Group.

45
<PAGE>

The Rosenthal Automotive Organization, led by its Chairman, Robert M.
Rosenthal, has been in business for over 40 years. With 19 franchises, the
Rosenthal Automotive Organization is the 14th largest automotive group in the
United States in terms of total new vehicles sold in 1996. In 1996, the
Rosenthal Automotive Organization Dealerships sold more than 31,500 new and
used motor vehicles. Under Mr. Rosenthal's leadership, the Rosenthal
Automotive Organization's Dealerships have received numerous national and
local awards, including the Time Magazine Quality Dealer Award, the
International American Automobile Dealers/Sports Illustrated Dealer of
Distinction, the Acura Precision Team Award, the Jaguar Pride of Jaguar Award,
and the Mazda President's Award. The Company has entered into agreements to
purchase seven of the 13 Properties used by the Rosenthal Automotive
Organization or its Affiliates (which are substantially all of the Properties
owned by the Rosenthal Automotive Organization).

The Sheehy Auto Stores, led by its Chairman, Vincent A. Sheehy, were
established in 1965. Mr. Sheehy entered the automotive business in 1945. Mr.
Sheehy is a past chairman of the Ford Dealer Advertising Fund and a past
director of the National Automobile Dealers Association. Mr. Sheehy's
Dealerships have won numerous awards including the North American Customer
Excellence Awards in 1995, 1996 and 1997 and the President's Circle Award in
1996. The Sheehy Auto Stores sold approximately 14,500 motor vehicles in 1996.
The Company has entered into agreements to purchase four Initial Properties
used by the Sheehy Auto Stores.

The Cherner Automotive Group first began operating in the mid-1920's in
Washington, D.C. Jonathan and Andrew Cherner took over management of the
Dealerships in 1993. Jonathan Cherner is a board member of the Washington
Lincoln Mercury Dealers Association, the Washington Area Isuzu Dealer
Advertising Association and the Isuzu National Dealer Council. Andrew Cherner
is an active member of Kia's National Dealer Council and the Lincoln Mercury
Regional Marketing Committee. The Cherner Automotive Group sold approximately
4,200 motor vehicles in 1996. The Company has entered into agreements to
purchase one Initial Property used by Cherner Automotive Group.

Cross-Continent, led by its Chief Executive Officer, Bill Gilliland, was
created in 1996 by reorganizing the ownership of six Dealerships controlled by
Mr. Gilliland. Cross-Continent became a publicly-traded company on September
23, 1996, and is listed on the New York Stock Exchange under the symbol "XC."
Prior to this, Mr. Gilliland had been involved in the automotive industry for
over 30 years. Cross-Continent owns and operates 11 Dealerships and Related
Businesses located in Amarillo, Texas, Oklahoma City, Oklahoma, Denver,
Colorado and Las Vegas, Nevada, certain of which have been in continuous
operation under various owners since the 1920s. Since its 1996 initial public
offering Cross-Continent has acquired seven Dealerships located in Oklahoma
City, Oklahoma, Denver, Colorado, and Las Vegas, Nevada. The Company has
entered into agreements to purchase six Properties used by Cross-Continent.

Good News, led by its Chairman, Roy L. Meyers, Jr., has been in business for
20 years. With Dealerships located on the eastern shore of Maryland that
represent nine franchises, the Good News sold 4,200 new and used motor
vehicles in 1996. Under Mr. Meyers' leadership, the Good News Dealerships have
won several awards, including top dealership awards from Honda, Toyota,
Nissan, Mazda and GMC Truck. The Company has entered into agreement to
purchase seven of the Properties used or owned by the Good News.

The Kline Automotive Group, led by its Chairman and President, James M.
Kline, has been in business for over 70 years. The Kline family began
operating dealerships in 1926, and the business' current leader, Mr. Kline has
been involved in the automotive industry for over 40 years. In 1996, the Kline
Automotive Group's Dealerships sold over 16,400 new and used motor vehicles.
The Kline Automotive Group is currently comprised of six Dealerships located
in southern Virginia and the Washington, D.C. metropolitan area. Under Mr.
Kline's leadership, the Kline Automotive Group's Dealerships have received
numerous awards, including the Toyota President's Award, Board of Governor's
Award and Leadership Board Award and the Chevrolet Sales Volume Campaign
Award. The Company has entered into agreements to purchase two of the
Properties used by the Kline Automotive Group.

New and used franchised motor vehicle retailing, including the sale of
trucks, minivans, and sport utility vehicles, parts and services, and other
ancillary businesses, is the largest consumer retail sector in the United
States, with approximately $500 billion in 1996 sales. Sales by franchised
motor vehicle retail dealerships are estimated to account for one-fifth of the
nation's total retail sales of all products and merchandise. In 1996, the

46
<PAGE>

100 largest Dealership groups generated less than 10% of total sales revenue
and controlled approximately 5% of the over 22,000 existing franchised
Dealerships, demonstrating the fragmentation of the industry. The Company
believes that the size and the fragmentation of the industry and the
increasing capital needs of Dealers provide an attractive environment in which
the Company can seek to implement its primary business strategy. The current
trend is for Dealers to consolidate their operations to increase efficiency
and their competitive position. That trend should facilitate the Company's
strategy of acquiring Properties from Dealers with multi-site, multi-
franchised and diversified locations.

The Company believes that because the real property and improvements are
single use properties used by a single industry, that type of property is a
major and discrete sector of the national retail real estate industry.
Industry sources estimate that Dealerships have over $40 billion currently
invested in Dealership-related real estate. The Company believes that those
properties present attractive acquisition and financing opportunities because
they have locations with frontage on, and visibility from, major thoroughfares
and zoning for a wide range of alternative uses. In the event that such
properties can no longer be leased to Dealers, the Company believes that they
can be redeveloped for other commercial or residential uses.

STRATEGY

The Company's primary business strategy is to acquire a diversified
portfolio of Properties used by Dealers throughout the United States,
including Properties used by new motor vehicle retail dealerships, used motor
vehicle retail dealerships, motor vehicle auctioneers, and service, repair or
parts businesses. In addition, the Company intends to commit to purchase
Properties under construction, renovation or expansion upon completion of such
construction, renovation or expansion. The Company believes that its
acquisition strategy will provide sellers with an opportunity (i) to acquire
liquidity, while maintaining ownership and control of the Dealerships or
Related Businesses, (ii) to diversify their investments, (iii) to obtain funds
to expand the operations of their Dealerships or Related Businesses, and (iv)
to facilitate their estate planning.

The Company's primary objective is to become an owner and lessor of
Properties used throughout the United States for the primary purpose of
generating rental income in order to provide the Company with predictable
streams of cash flow to maximize shareholder value. To achieve these
objectives, the Company plans to:

. Implement an aggressive, yet disciplined, acquisition program by purchasing
Properties used by Dealers of multi-site, multi-franchised Dealerships or
Related Businesses that have demonstrated historic growth, are well
managed, and have been maintained in good condition, and whose location and
characteristics will be suitable for alternative use by:

. Diversifying geographically by acquiring Properties located
primarily in major CMSAs in order to minimize the potential adverse
impact of economic downturns in certain markets;

. Leveraging the contacts and experience of the Company's management
to build and maintain long-term relationships with Dealers;

. Maintaining long-term working relationships with Dealers, by
providing capital for multiple acquisitions of Properties on a
market-by-market basis, thereby enhancing efficiency and value; and

. Taking advantage of opportunities created by the fragmented
ownership of Dealerships and Related Businesses, and the large
number of suitable locations with adequate roadway frontage, high
visibility and appropriate zoning.

. Use the Company's UPREIT structure to acquire Properties in exchange for
cash or Units, or a combination of cash and Units, thereby deferring some
or all of a Seller's potential taxable gain, and enhancing the ability of
the Company to consummate transactions and to structure more competitive
acquisitions than other real estate companies in the market that lack the
Company's access to capital and the ability to acquire Properties with
Units.

. Use several valuation mechanisms, including calculations of discounted cash
flow, evaluations of comparable sales and leases of properties, analysis of
the alternative uses of the Properties and evaluation of the Dealers'
financial strength, to determine the purchase price and lease terms for the
Properties.

47
<PAGE>

. Lease back the Properties to Lessees on a triple-net basis, thereby
eliminating brokerage, re-leasing and similar costs and the risk of high
Lessee turnover due to the general historic long-term operation of
Dealerships or Related Businesses at Property locations.

. Negotiate Lease covenants designed to minimize the likelihood of loss to
the Company, by permitting the Company to establish the ability of the
Lessees (together with any Guarantors) to pay rent by bi-annually
monitoring compliance with a Rent Coverage Ratio of 1.5 to 1 or require the
Lessee to provide additional security in the form of a Guarantee of an
Affiliate.

. Utilize a variety of other financing sources, that may include the issuance
of Units, or other equity securities or debt securities, or a combination
thereof; and enter into a bank credit facility that will be used to
leverage Properties, acquire additional Properties and for working capital
purposes as a means to gain positive spread on investment. The Company's
policy is to operate with a debt to total market capitalization ratio of
not more than 50%, which policy may be changed from time to time by the
Board of Trustees.

THE INITIAL LEASES, PROPERTIES AND DEALERSHIPS
The Company has entered into agreements to acquire 20 Initial Properties
that are located primarily in suburban communities of the Washington, D.C.
Metropolitan Area. The locations of the other 16 Initial Properties include
Colorado, the eastern shore of Maryland, Nevada, Pennsylvania, Texas and
southern Virginia. The Company's interest in each Initial Property includes
the land, buildings and improvements, related easements and rights and
fixtures. The Company will not own or lease any personal property, furniture
or equipment at any Initial Property, all of which will be owned, or leased
from third parties or by the respective Initial Lessee. The Initial Properties
are generally zoned for a wide range of commercial uses and typically have
frontage on major transportation arteries with high traffic patterns, high
visibility, bright signage, and ease of entrance and exit. The improvements on
the Initial Properties generally consist of one or more retail showrooms,
office space (which may or may not be contained in separate buildings),
adjacent full service and repair facilities, parts and accessories
departments, and in many cases, acreage set aside for used car sales, body
shops and parking for inventory.

The Company will own fee simple title to the Initial Properties, with the
exception of Rosenthal Chevrolet, a portion of which is subject to a ground
lease. The sites of the Initial Properties are generally subject to standard
and customary utility and other easements, certain covenants and restrictions
and certain reciprocal easements regarding access. Fourteen of the Initial
Properties are secured by Mortgage Debt that will be paid in full from the
proceeds of this Offering. The Pohanka Properties will secure the line of
credit that the Company expects to obtain from NationsBank, N.A. in the amount
of $10 million. See "Use of Proceeds."

48
<PAGE>

<TABLE>
<CAPTION>
AGGREGATE
GROSS
LAND LEASEABLE
PURCHASE AREA BUILDING
DEALERSHIPS(1) LOCATION PRICE(2)(3) IN ACRES AREA (SQ. FT.)
-------------- -------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Sheehy Ford & Kia....... Springfield, VA $ 6,308,000 6.6 51,512
Chapman Ford Sales(5)... Philadelphia, PA 3,000,000 7.9 --
Sheehy Lincoln-Mercury &
Mitsubishi............. Woodbridge, VA 2,565,925 3.1 24,597
Sheehy Ford............. Marlow Heights, MD 2,132,000 4.6 26,400
------------ ----- ---------
Subtotal............. $ 14,005,925 22.2 102,509
============ ===== =========
Cherner Lincoln-
Mercury................ Annandale, VA $ 6,322,909 5.3 43,884
============ ===== =========
T. West Sales & Service
(Toyota)............... Las Vegas, NV $ 13,205,000 8.8 126,685
Douglas Motors
(Toyota)............... Denver, CO 8,905,000 6.5 148,461
Plains Chevrolet........ Amarillo, TX 4,705,000 16.1 121,425
Westgate Chevrolet...... Amarillo, TX 4,405,000 8.0 48,000
Midway Chevrolet........ Amarillo, TX 3,105,000 12.2 43,262
Quality Nissan.......... Amarillo, TX 1,005,000 3.4 16,947
------------ ----- ---------
Subtotal............. $ 35,330,000 55.0 504,780
============ ===== =========
Price Buick & Pontiac... Salisbury, MD $ 1,344,826 3.3 12,500
Good News Body Shop..... Salisbury, MD 1,268,500 6.2 12,200
Good News Olds-Cadillac-
GMC.................... Salisbury, MD 830,300 3.5 14,700
Good News Honda......... Salisbury, MD 586,560 2.4 11,800
Towne Toyota & Mercedes-
Benz................... Salisbury, MD 568,500 2.3 12,100
Good News Nissan........ Salisbury, MD 449,400 1.2 17,200
Good News Mazda......... Salisbury, MD 413,000 1.4 12,400
------------ ----- ---------
Subtotal............. $ 5,461,086 20.3 92,900
============ ===== =========
Kline Toyota
Greenbrier/Kline
Chevrolet.............. Chesapeake, VA $ 6,984,755 11.2 71,280
Kline (Land)............ Chesapeake, VA 1,525,245 14.0 --
------------ ----- ---------
Subtotal............. $ 8,510,000 25.2 71,280
============ ===== =========
Total $166,222,606 208.7 1,372,898
============ ===== =========
</TABLE>
- --------
(1) The Company currently intends to close the acquisitions of the Initial
Properties within 60 days of the date of closing of this Offering, except
that the acquisition of the Cross-Continent Initial Properties located in
Las Vegas, Nevada and Denver, Colorado are scheduled to close in July
1998.
(2) The purchase prices for the Initial Properties are allocated among the
initial selling groups as follows:

<TABLE>
<CAPTION>
ASSUMED ALLOCATION OF PURCHASE PRICE
--------------------------------------
ASSUMED
TOTAL PURCHASE APPROXIMATE ESTIMATED
SELLING GROUP PRICE CASH MORTGAGE DEBT(A) UNITS
------------- --------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C>
Pohanka Automotive
Group.................. $ 31,323,975 $ -- $13,258,844 1,204,342
Rosenthal Automotive Or-
ganization............. 65,268,711 -- 13,694,242 3,438,298
Sheehy Auto Stores...... 14,005,925 -- 9,574,333 295,439
Cherner Automotive
Group.................. 6,322,909 -- 4,770,863 103,470
Cross-Continent Auto Re-
tailers, Inc. ......... 35,330,000 35,330,000 -- --
Good News Auto Mall..... 5,461,086 5,461,086 -- --
Kline Automotive Group.. 8,510,000 8,510,000 -- --
--------------- ----------- ----------- ---------
Totals............... $ 166,222,606 $49,301,086 $41,298,282 5,041,549
=============== =========== =========== =========
</TABLE>
- --------
(a) Based on mortgage debt outstanding as of December 31, 1997.
(3) Includes an aggregate of approximately $1.4 million attributable to
estimated acquisition fees and expenses (including transfer taxes,
recordation taxes and title insurance and costs of other services but
excludes $1.5 million attributable to estimated consulting and attorneys'
fees). The Initial Sellers who are Affiliates of Pohanka, Rosenthal,
Sheehy or Cherner may elect to receive the portion of the purchase price
relating to acquisition fees or expenses either in cash or in Units.

(4) The Company expects to enter into a line of credit with NationsBank, N.A.
in the amount of $10 million and to borrow $5 million at closing of this
Offering. The line of credit will be secured by the Pohanka Mortgage on
the Pohanka Properties. The Pohanka Mortgage will accrue interest payable
monthly in arrears at a floating interest rate equal to 90 days Libor +
1.50%. The line of credit will mature in August 1998. At maturity, a
balloon principal payments in the aggregate amount of the then outstanding
borrowings plus any accrued and unpaid interest will be due and payable,
unless the line of credit is renewed or is refinanced as is currently
contemplated by the Company. The line of credit may be paid in full at any
time without prepayment penalty or premium. In addition, approximately
$2.5 million of the line of credit will be guaranteed by Affiliates of Mr.
Sheehy and approximately $2.5 million will be guaranteed by Affiliates of
Mr. Rosenthal.
(5) The Company will acquire the land but not the improvements occupying the
land of Chapman Ford Sales.

49
<PAGE>

Concurrently with the Company's acquisition of the Initial Properties, the
Company will lease them back to the Initial Lessees pursuant to the Initial
Leases. The Company expects that the Initial Leases will be for the Fixed
Terms ranging from eight to 11 years and may be extended for one or two
Extended Terms of ten years at the option of the respective Initial Lessee.
The Initial Leases will require the Initial Lessees to pay substantially all
expenses associated with the operation of the Initial Properties, such as real
estate taxes and other governmental charges, insurance, utilities, service,
maintenance and, therefore, will be on a "triple-net" basis. The Initial
Leases also require the Initial Lessees to undertake and pay for any
substantial additions, repairs, renovations and improvements to the Initial
Properties after receiving the consent of the Company, unless the Company
decides, at its option, to pay for such expenditures, which would be on terms
to be negotiated. Upon expiration or termination of the Initial Leases, the
Initial Leases generally provide that additions, repairs, renovations and
improvements will become the Property of the Company. Each Initial Lease will
require the Initial Lessee to operate the Initial Property only for the same
purpose for which it was used on the Company's purchase date, unless the
Company consents to a different use.

50
<PAGE>

The Initial Annual Base Rent under each Initial Lease has been negotiated by
the Company to produce an appropriate yield to the Company (based on the
return on the Company's investment) considering (i) the purchase price of the
Property, (ii) the credit worthiness of the Lessee, (iii) the rental rates for
similarly situated properties in the geographic location in which the Property
is situated, (iv) the characteristics of the Property, (v) the cost to the
Company of the funds used to acquire the Property, and (vi) the return that
the Company could realize from alternative investments on that Initial
Property's purchase price (including acquisition fees and expenses). The yield
to the Company from an investment in Properties will differ from the yield to
shareholders from an investment in the Common Shares. The Initial Annual Base
Rent and the Annual Base Rent will be adjusted upward periodically based on a
factor of the CPI. The CPI adjustments range from one half of CPI adjusted
every other year to full CPI adjusted every year. Certain Initial Leases
establish minimum and maximum periodic adjustments that range from zero to 3%
of base annual rent. The Company will have general recourse to the Initial
Lessees, but the Initial Lessees' payment obligations under the Initial Leases
will be unsecured.

Set forth below is certain information relating to the Initial Lessees:
<TABLE>
<CAPTION>
INITIAL
ANNUAL BASE LEASE FIXED
LESSEE (DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
-------------------------- ------------------ ----------- ---------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc.
d/b/a Rosenthal Nissan/Mazda(4)....... Tysons Corner, VA $ 2,506,727 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Mazda....................... Arlington, VA 621,408 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Chevrolet/Jeep/Eagle
(Storage Lot)......................... Arlington, VA 562,464 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda(4).................... Tysons Corner, VA 511,866 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Jaguar(4)................... Tysons Corner, VA 511,854 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a Geneva
Management (Related Business)......... Arlington, VA 453,600 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Isuzu....................... Gaithersburg, MD 451,418 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Nissan Gaithersburg............. Gaithersburg, MD 350,214 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Acura....................... Gaithersburg, MD 330,111 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc.
d/b/a Rosenthal Chevrolet/Jeep/Eagle.. Arlington, VA 312,476 Feb. 2008 10 years 2-10 year options
Maryland Imported Cars, Inc.
d/b/a Gaithersburg Mazda(5)........... Gaithersburg, MD 261,308 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (2-acre lot)(4)....... Tysons Corner, VA 178,997 Feb. 2008 10 years 2-10 year options
Geneva Enterprises, Inc. d/b/a
Rosenthal Honda (Body Shop)(4)........ Tysons Corner, VA 126,887 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............................ $ 7,179,330
===========
Pohanka Properties, Inc. (Chevrolet/GEO
and Acura)(6)......................... Chantilly, VA $ 841,622 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc.
(Saturn, Isuzu, Oldsmobile and GMC
Truck)(6) ............................ Marlow Heights, MD 475,877 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Saturn)(6)........................... Bowie, MD 447,101 Feb. 2008 10 years 2-10 year options
Pohanka Properties, Inc. (Honda)(6) ... Marlow Heights, MD 407,043 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc. (Lexus)(6).... Chantilly, VA 378,218 Feb. 2009 11 years 2-10 year options
Pohanka Virginia Properties Partnership
(Cadillac, Hyundai, Nissan, Oldsmobile
& Kia)(6)............................. Fredricksburg, VA 377,592 Feb. 2008 10 years 2-10 year options
Pohanka Virginia Properties Partnership
(Undeveloped Dealership Lot)(6)....... Chantilly, VA 270,658 Feb. 2008 10 years 2-10 year options
Pohanka Properties, Inc. (Hyundai &
Subaru)(6)............................ Marlow Heights, MD 171,211 Feb. 2009 11 years 2-10 year options
Pohanka Properties, Inc. (Body
Shop)(6).............................. Marlow Heights, MD 76,403 Feb. 2009 11 years 2-10 year options
-----------
Subtotal............................ $ 3,445,725
===========
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Sheehy Ford of
Springfield, Inc. (Ford
& Kia)................. Springfield, VA 662,340 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc.(7).... Philadelphia, PA 330,000 Oct. 2007 9 years 2-10 year options
Sheehy Lincoln-Mercury,
Inc. (Lincoln-Mercury &
Mitsubishi)............ Woodbridge, VA 282,252 Feb. 2008 10 years 2-10 year options
Sheehy Ford, Inc........ Marlow Heights, MD 255,840 Feb. 2008 10 years 2-10 year options
--------------
Subtotal............. $ 1,530,432
==============
</TABLE>

51
<PAGE>

<TABLE>
<CAPTION>
INITIAL
LESSEE ANNUAL BASE LEASE FIXED
(DEALERSHIPS)(1)(2) LOCATION RENT EXPIRATION TERM EXTENDED TERM(3)
------------------- -------------- ----------- ---------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Cherner Lincoln Mercury-
Annadale, Inc. ........ Annandale, VA $ 695,520 Feb. 2008 10 years 2-10 year options
===========
T. West Sales & Service,
Inc. (Toyota) (8)...... Las Vegas, NV $ 1,452,000 Feb. 2008 10 years 2-10 year options
Douglas Motors, Inc.
(Toyota)(8)............ Denver, CO 979,000 Feb. 2008 10 years 2-10 year options
Plains Chevrolet,
Inc.(8)................ Amarillo, TX 517,000 Feb. 2008 10 years 2-10 year options
Westgate Chevrolet,
Inc.(8)................ Amarillo, TX 484,000 Feb. 2008 10 years 2-10 year options
Midway Chevrolet,
Inc.(8)................ Amarillo, TX 341,000 Feb. 2008 10 years 2-10 year options
Quality Nissan,
Inc.(8)................ Amarillo, TX 110,000 Feb. 2008 10 years 2-10 year options
-----------
Subtotal............. $ 3,883,000
===========
Good News Salisbury,
Inc.(9)................ Salisbury, MD $ 469,920 Feb. 2008 10 years 2-10 year options
Price Buick-Pontiac,
Inc. and The Price
Organization(10)(11)... Salisbury, MD 154,080 Dec. 2006 8 years N/A
-----------
Subtotal............. $ 624,000
===========
Kline Chevrolet Sales
Corp.(12).............. Chesapeake, VA $ 960,000 Feb. 2008 10 years 3-10 year options(13)
===========
Total.............................. $18,318,007
===========
</TABLE>
- --------
(1) See the historical financial statements for Geneva Enterprises, Inc. and
an affiliated company and summary financial information of Cross-
Continent.
(2) The Company believes that all the Initial Properties are adequately
covered by insurance.
(3) If any Initial Lease is renewed for a second Extended Term, the Annual
Base Rent will be renegotiated at the time of renewal by the parties to
reflect the fair market rate at the renewal date.
(4) The Initial Lessees may assign these Initial Leases (subject to compliance
with certain conditions to the satisfaction of the Company), to a limited
liability company to be formed by Mr. Rosenthal or his Affiliates as
members.
(5) Guaranteed by Geneva Enterprises, Inc.
(6) Each Initial Lease with an Affiliate of Pohanka Automotive Group will be
guaranteed by each other Initial Lessee and Dealership affiliated with the
Pohanka Automotive Group.
(7) The occupant is Chapman Ford Sales, which is an unrelated third party.
(8) Guaranteed by Cross-Continent.
(9) Master Lease covering all Initial Properties acquired from Affiliates of
Good News Automotive, Inc. other than Price Buick-Pontiac.
(10) The occupant is Price Buick Pontiac, which is an unrelated third party.
The Company is assuming an existing Lease among Price Buick-Pontiac, Inc.
and The Price Organization (Lessees) and Meyers and Rose (Lessor) dated
December 10, 1991 and terminating December 31, 2006.
(11) Guaranteed by Warren A. Price and Good News Salisbury, Inc.
(12) Guaranteed by Kline Imports Chesapeake, Inc. The Property is occupied by
both Kline Chevrolet and Kline Toyota (sublease to Kline Chesapeake).
(13) If the Company is required by the Initial Lessee to pay for repairs to
such Initial Property in an amount in excess of $50,000 during the 29th
lease year, the Initial Lessee will be required to extend such Initial
Lease for a third 10-year term at a rental rate equal to fair market
value.

The Dealerships are operated pursuant to written Franchise Agreements with
Manufacturers that, among other things, (i) generally designate the location
or geographic area in which the Dealerships have the right to sell and service
motor vehicles, (ii) impose requirements on the size, design, layout and
maintenance of showrooms and other structures, and (iii) provide guidelines
relating to matters such as advertising, inventory maintenance, personnel
training, and the use and display of the Manufacturers' trademarks, service
marks and designs. In addition, Dealers have entered into related agreements
with certain Manufacturers that establish financial covenants, and that, in
certain cases, restrict changes in control of the Dealerships without the
consent of such Manufacturers. Certain of the Franchise Agreements contain
certain restrictions relating to the sale or transfer of assets or Properties
necessary for the operation of the Dealership, or grant the Manufacturer a
right of first refusal to purchase such assets or Properties. The Franchise
Agreements generally have terms of one to five years, and have historically
been renewed by the Manufacturers in the ordinary course of business. Such
Dealers have never had their Franchise Agreements involuntarily terminated by
a Manufacturer nor has a Manufacturer failed to renew a Franchise Agreement
upon request for renewal by such Dealer. See "Business of the Company and
Properties--Franchise Agreements."

52
<PAGE>

Dealers affiliated with the Initial Lessees sell domestic and imported
luxury, family, economy and sport utility vehicles, trucks and vans including,
Mercedes-Benz, Honda, Toyota, Lexus, Chevrolet, Saturn, Ford, GMC, Mazda,
Infiniti, Jaguar, Acura, Lincoln-Mercury, Mitsubishi and Nissan. The
diversification of Manufacturers decreases the risks associated with changes
in consumer preferences and dependence on any single brand, Manufacturer or
market.

In addition to selling new vehicles, many of those Dealers lease new
vehicles and sell used vehicles. Lease arrangements could provide Dealers with
a steady source of late-model, off-lease vehicles for its used vehicle
inventory. Dealers also provide service and parts primarily for the vehicle
makes and models that they sell or lease, and perform both warranty and non-
warranty service work. In general, parts departments support the sales and
service divisions. Dealers may also sell factory-approved parts at retail to
their customers or at wholesale to independent repair shops. Dealers arrange
third party financing for their customers, sell vehicle service contracts and
arrange selected types of credit insurance for which they receive financing
fees, subject to a charge-back against a portion of the finance fees if
contracts are terminated prior to their scheduled maturity.

TYPICAL INITIAL LEASE TERMS

In general, the Company's Initial Leases will include the following general
lease terms. The Company expects to negotiate substantially the same terms
with Lessees of additional Properties.

Use of the Properties. Generally the Initial Leases will require the Initial
Property to be continuously operated for the same purposes as they were used
on the Company's purchase date unless the Company consents otherwise. The
Initial Leases will generally require that the Initial Lessee or any permitted
assignee operate the Initial Properties in an efficient and professional
manner.

Amounts Payable Under the Leases; Net Provisions. During the Fixed Term and
any Extended Terms, each Initial Lessee or its assigns will pay the Initial
Annual Base Rent and Annual Base Rent, which will be payable in monthly
installments. The Initial Annual Base Rent and Annual Base Rent will be
adjusted upward periodically based on a factor of the CPI, ranging from one-
half of CPI adjusted every other year to full CPI adjusted every year. Certain
Initial Leases establish minimum or maximum adjustments that range from zero
to 3% of base annual rent.

Each Initial Lease is what is commonly referred to as a "triple net" lease,
under which each Initial Lessee is required to pay thereunder rent and
substantially all expenses associated with operation of a particular Initial
Property. Such expenses include all taxes, assessments and levies, excises,
fees, and all other governmental charges with respect to such Initial
Property, and all charges for insurance, utilities, service, repair and
maintenance, including, without limitation, electricity, telephone, trash
disposal, gas, oil, water, sewer, communication and all other utilities used
in each Initial Property, and any ground lease payments. Each Initial Lessee
will generally be obligated to comply with all laws, contracts, covenants and
restrictions affecting an Initial Property and to perform all obligations
under any ground lease affecting an Initial Property.

Maintenance, Alterations, Capital Additions or Improvements. The Initial
Lessee or its assigns generally is obligated, at its sole cost and expense, to
maintain its Initial Property in good order, repair and appearance and to make
structural and non-structural, interior and exterior, foreseen and unforeseen,
and ordinary and extraordinary repairs and replacements, which may be
necessary and appropriate to keep such Initial Property in good order, repair
and appearance (excluding ordinary wear and tear) or which may be required by
any governmental authority, including those required to continue to satisfy
any licensure requirements related to the operation of the Dealership or
Related Business. The Company will not be required to build or rebuild any
improvements to any Initial Property, or to make any repairs, replacements,
alterations, restorations or renewals to any Initial Property.

The Initial Lessee or its assigns, at its sole cost and expense, generally
may make alterations, additions, changes and/or improvements to each Initial
Property with the prior written consent of the Company, provided that the
value and primary intended use of such Initial Property (determined in the
Company's reasonable judgment) is not impaired. The Company may, but is under
no obligation to, provide or arrange construction, permanent or other
financing for any addition, alteration or improvement, the terms of which will
be separately

53
<PAGE>

negotiated. Typically, all improvements, additions, alterations and
replacements constructed upon each Initial Property by the Initial Lessee
during the Fixed Term or an Extended Term of an Initial Lease will be the sole
property of the Initial Lessee until the expiration or early termination of
such Initial Lease, at which time all improvements, additions, alterations and
replacements will become the Property of the Company. All machinery,
equipment, furniture, furnishings and other personal property installed at the
expense of an Initial Lessee on any Initial Property will remain the property
of such Initial Lessee and may be removed by such Initial Lessee at the
expiration or earlier termination of the Initial Lease.

Insurance. Each Initial Lease provides that the Initial Lessee will maintain
insurance on the related Initial Property under the Initial Lessee's insurance
policies providing for the following coverages in such amounts as are or shall
customarily be insured against with respect to properties similar to the
Initial Properties, including: (i) fire, vandalism and malicious mischief,
extended coverage perils and all physical loss perils, (ii) commercial general
public liability, (iii) flood (when the Initial Property is located in whole
or in material part in a designated flood plain area), earthquake and other
similar hazards as may be customary for comparable properties in the area,
(iv) worker's compensation and (v) such other insurance as the Manufacturer
under the relevant Franchise Agreement or any holder of a mortgage, deed of
trust or other security agreement on such Initial Property (a "Company
Mortgagee") may reasonably require, which at the time is usual and commonly
obtained on commercially reasonable terms in connection with properties
similar in type of building size and use to the Initial Property and located
in the geographic area where the Initial Property is located. The foregoing
insurance policies would name the Company and any company mortgagee as
additional insureds or loss payees, as applicable. Each Initial Lease
specifies the deductibles for insurance covering each class of risk.
Notwithstanding, there will be risks for which insurance will not be
obtainable or will be prohibitively expensive. In such event, an Initial
Lessee's ability to restore the Initial Property may be dependent on its
internally generated funds or borrowing capacity.

Damage to, or Condemnation of, a Property. In the event of any insurable
damage or destruction to any Initial Property, the Initial Lessee is required
to submit complete and detailed plans and specifications to the Company, and
upon authorization of the Company (which will not be unreasonably withheld or
delayed), will have the obligation to promptly repair or restore the same, at
the Initial Lessee's expense so as to make such Leased Property at least equal
in value to such Initial Property immediately prior to such occurrence and as
nearly similar to it in character as is practicable and reasonable. Typically,
the Annual Base Rent, real estate taxes and other impositions on the
particular Initial Property will be proportionately abated during the time of
restoration, but only to the extent of any rental interruption insurance
proceeds actually received by the Company. If any Initial Property is damaged
by an insurable event to such an extent that the Initial Property is
"completely destroyed" (which will be sufficient damage to such Leased
Property such that the Company and the Initial Lessee agree to that
classification) or "partially destroyed" (which will be damage to such Initial
Property such that the Initial Property will not be suitable for use by a
Dealership or Related Business (as determined by a reasonable Dealer in light
of standard trade practices) within a specified period after the date of the
occurrence of such damages), the Initial Lessee may elect to terminate the
relevant Initial Lease upon notice to the Company. In the event of the
termination of the Initial Lease upon an Initial Property being "completely
destroyed" or "partially destroyed," typically, the Initial Lessee will have
no obligation to repair, rebuild or replace such Initial Property, and the
entire insurance proceeds will belong to the Company.

Generally, under the Initial Lease terms, if at any time during the Term or
any Extended Term, any Initial Property is totally and permanently taken by
right of eminent domain or by conveyance made in response to the threat of the
exercise of such right ("Condemnation"), the Initial Lease will terminate as
to Initial Property so taken as of the date the condemning authority has the
right to possession of the Initial Property being condemned. Generally, the
Initial Lessee will be required to pay all outstanding applicable rent and
other charges through the date of termination. The Initial Lease generally
will not terminate if the condemnation occurred due to the failure of the
Initial Lessee to maintain such Initial Property, whether or not such failure
constituted an event of default at the time of the Condemnation.

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<PAGE>

If a portion of an Initial Property is taken by condemnation, the Initial
Lease generally will remain in effect as to such Initial Property if such
Initial Property is not thereby rendered unsuitable for use as a Dealership or
Related Business. In such event, the Company will retain the amount of any
award received by the Company, is obligated to apply such award to restore the
Initial Property, and any excess after such application will be retained by
the Company. Any award made by the condemning authority to the Initial Lessee
will belong to the Initial Lessee.

Financial Covenants. Substantially all affiliated Initial Lessees and
Guarantors, if any, as a group will be required to maintain a Rent Coverage
Ratio of at least 1.5 to 1 as of the date of the Initial Lease and at 24 month
intervals thereafter, computed as the aggregate of net income before taxes
plus mortgage interest, rent expense, depreciation, compensation of principals
of the Initial Lessees, management fees plus the annual LIFO adjustment and
other non-cash expenses, less recurring capital expenditures and gain (loss)
on sale of real estate, dividends and/or profits taken out of the Initial
Lessees and Guarantors if any, divided by the aggregate of the Initial
Lessees' and Guarantors', if any, obligations under the Initial Leases. In
addition, the Initial Lessee will be required to comply with all financial
covenants imposed by Manufacturers with whom the Initial Lessee has a
Franchise Agreement. These covenants have been designed to minimize the
likelihood of loss to the Company, by permitting the Company to establish the
ability of affiliated Initial Lessee's (and any Guarantors) to pay rent. The
Company will monitor bi-annually the Initial Lessee's compliance with the Rent
Coverage Ratio and, if an Initial Lessee is in breach, the Initial Lessee may
cure by providing additional security such as a Guaranty of an Affiliate.

Assignment and Subletting. The Initial Leases generally provide that each
Initial Lessee may not, without the prior written consent of the Company
(which will not be unreasonably withheld) or upon compliance with conditions
established by the Company, assign, mortgage, pledge, hypothecate, encumber or
otherwise transfer any Initial Lease or sublease any Initial Property, in
whole or in part, except to an Affiliate. Generally, an assignment of the
Initial Lease includes any change of control of the Initial Lessee. In the
event that (i) the Company withholds any consent to any assignment or transfer
of such Initial Lease or any interest herein, and (ii) such assignee or
transferee is approved by the relevant Manufacturer for continuation as a
franchisee, there will be a presumption that such assignment or transfer was
reasonable and the Company will have the burden of rebutting such presumption
and of proving that such consent was in fact reasonably withheld (or that such
conditions were reasonable). The Company will also receive an assignment of
all management, operating or service agreements relating to the maintenance,
management, possession or use of an Initial Property. Certain Initial Lessees
affiliated with Mr. Rosenthal may assign their Leases (subject to compliance
with certain conditions, including the requirements of the applicable
franchise agreement, to the satisfaction of the Company) to a limited
liability company to be formed by Mr. Rosenthal or his affiliates as members.

Generally, if the Company withholds its consent to any assignment or if the
Company establishes conditions to approval of any assignment but such
conditions have not been complied with to the satisfaction of the Company, the
Initial Lessee will continue to be primarily liability under the Initial
Lease. Any assignment or other transfer of all or any portion of the Initial
Lessee's interest in an Initial Lease in violation of the restrictions on
assignment or subletting will be voidable at the Company's option.

Generally, if the Initial Lessee requests the assignment of an Initial Lease
with respect to less than the entire Initial Property, and such Initial
Property is not a separate subdivided lot, the Company may condition its
approval of an assignment upon a showing that the Initial Lessee has taken the
actions necessary to sever and spin-off one or more of such parcels of such
Initial Property from such Initial Lease.

The Initial Lessee will need the Company's prior approval before entering
into any sublease, license agreement or other arrangement which would have the
effect of causing all or a portion of the amount received or accrued by the
Company under the Initial Leases to be treated as other than "rents from real
property" within the meaning of Section 856(d) of the Code.

Indemnification. Generally, an Initial Lessee will be required to indemnify,
and will be obligated to save harmless, the Company generally from and against
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) and actual or consequential damages imposed upon or asserted against
the Company, its

55
<PAGE>

officers, directors, employees, shareholders, agents or Affiliates on account
of, among other things, (a) the use, condition, operation or occupancy of the
Initial Properties; (b) any activity, work, or thing done, or permitted or
suffered by the Initial Lessee in, on or about the Initial Properties; (c) any
acts, omissions, or negligence of the Initial Lessee or any person claiming
under the Initial Lessee, or the contractors, agents, employees, invitees, or
visitors of the Initial Lessee or any such person; (d) any breach, violation,
or nonperformance by the Initial Lessee or any person claiming under the
Initial Lessee or the employees, agents, contractors, invitees, or visitors of
the Initial Lessee or of any such person, of any term, representation,
warranty, covenant, or provision of this Initial Lease or any law, ordinance,
or governmental requirement of any kind; (e) any injury or damage to the
person, property or business of Lessee, its employees, agents, contractors,
invitees, visitors, or any other person entering upon any Initial Property
under the express or implied invitation of the Initial Lessee; (f) any
accident, injury to or death of persons or loss or damage to any item of
property occurring at any Initial Property; (g) any environmental law or any
pollution or other threat to human health or the environment at, arising out
of or relating to any Initial Property, and (h) any brokers' or agents' fees
and commissions. If any action or proceeding is brought against the Company or
any of its employees, or agents by reason of any such demand, claim, or cause
of action, the Initial Lessee, upon notice from the Company, will defend the
same at the Initial Lessee's expense with counsel reasonably satisfactory to
the Company. In the event the Company reasonably determines that its interests
and the interests of the Initial Lessee in any such action or proceeding are
not substantially the same and that Initial Lessee's counsel cannot adequately
represent the interests of the Company, the Company shall have the right to
hire separate counsel in any such action or proceeding and the reasonable
costs thereof shall be paid for by the Initial Lessee. The Initial Lessees'
obligations to indemnify the Company will continue after the expiration or
earlier termination of the Initial Lease until the later of (i) two years
following the date of the Initial Lease, (ii) the expiration of the period 90
days after the date the Company has actual knowledge of the existence of a
claim covered by indemnification, or (iii) 90 days after the expiration of the
applicable statute of limitations for claims arising from, or relating to, any
environmental law or any pollution or other threat to human health or the
environment.

Environmental Matters. Generally, the Initial Leases provide for various
representations and warranties by the Lessee relating to environmental matters
with respect to each Initial Property. Each Initial Lease also requires the
Initial Lessee to indemnify and hold harmless the Company from and against all
liabilities, costs and expenses imposed upon or asserted against the Company,
the Initial Lessee or the Initial Property on account of, among other things,
any federal, state or local law, ordinance, regulation, order or decree
relating to the protection of human health or the environment in respect of
the Initial Property (irrespective of whether there has occured any violation
of any environmental law). Such Initial Lessee is required to comply with all
environmental laws. See "--Governmental Regulations Affecting the Properties--
Environmental Laws."

Events of Default. Generally, the following events, among others, will
constitute "Events of Default" under the Initial Leases: (a) the Initial
Lessee fails to pay in full any installment of rent, or any other monetary
obligation payable by the Initial Lessee to the Company hereunder, within ten
days after notice is given by the Company to the Initial Lessee (except that
after two defaults within any 12 month period, any further default during such
12 month period will constitute an immediate event of default); (b) the
Initial Lessee fails to observe and perform any covenant (other than the
covenant in respect of insurance), and certain conditions or agreements
required to be performed by the Initial Lessee and such failure continues for
a period of 20 days after written notice thereof is given to Lessee by the
Company; or if, by reason of the nature of such default, the same cannot with
due diligence be remedied within said 20 days, such failure will not be deemed
to continue if the Initial Lessee proceeds promptly and with due diligence to
remedy the failure and diligently completes the remedy thereof; provided,
however, said cure period will not extend beyond 40 days if the facts or
circumstances giving rise to the default are creating a further harm to the
Company or the subject Initial Property and the Company makes a good faith
determination that the Initial Lessee is not undertaking remedial steps that
the Company would cause to be taken if the Initial Lease were then to
terminate; (c) if the Initial Lessee (i) admits in writing its inability to
pay its debts generally as they become due, (ii) files a petition in
bankruptcy or a petition to take advantage of any insolvency act, (iii) makes
an assignment for the benefit of its creditors, (iv) is unable to pay its
debts as they mature, (v) consents to the appointment of a receiver of itself
or of the whole or any substantial

56
<PAGE>

part of its property, or (vi) files a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state
thereof; (d) if the Initial Lessee, on insolvency proceedings or on a petition
in bankruptcy filed against it, is adjudicated as bankrupt or a court of
competent jurisdiction enters an order or decree appointing, without the
consent of the Initial Lessee, a receiver of Lessee of the whole or
substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of the Initial Lessee under the federal
bankruptcy laws or any other applicable law or statute of the United States or
any state thereof, and such judgment, order or decree is not vacated,
dismissed or set aside within 60 days from the date of the entry thereof; (e)
if the estate or interest of the Initial Lessee in an Initial Property or any
part thereof is levied upon or attached in any proceeding and the same is not
vacated or discharged within 15 days after commencement thereof (unless the
Initial Lessee is contesting such lien or attachment in accordance with the
Initial Lease); (f) any representation, warranty or covenant made by the
Initial Lessee on behalf of itself or an Affiliate in the Initial Lease or in
any certificate, demand or request made pursuant hereto proves to be
incorrect, in any material respect, as of the date of issuance or making
thereof; (g) conviction of Lessee of a crime or offense constituting a felony
in the jurisdiction in which committed or under federal law, which conviction
results in termination of the related franchise; (h) termination or
relinquishment of the franchise or license pursuant to which an Initial Lessee
conducts business on or from the Initial Property, provided that such event
shall not constitute an Event of Default if (i) no other Event of Default
shall have occurred and be continuing, and (ii) at a date no later than 24
months following such date of termination or relinquishment, the Initial
Lessee has entered into written new or amended franchises or licenses for
operation of the Dealership or Related Business at the Initial Property
satisfactory to the Company in its discretion applying commercially reasonable
standards; (i) default under any franchise or license pursuant to which Lessee
conducts business at a Property, if in the Company's judgment such default in
light of commercially reasonable standards and industry practice would have a
material adverse effect on the Initial Lessee or the Initial Property; (j) a
final, non-appealable judgment or judgments for the payment of money not fully
covered (excluding deductibles) by insurance is rendered against the Initial
Lessee and the same remains undischarged, unvacated, unbonded, unappealed or
unstayed for a period of 15 consecutive days; (k) the Initial Lessee shall
fail to observe the covenant in respect to insurance; or (l) except after the
effective date of a permitted assignment, if the Initial Lessee is liquidated
or dissolved or proceedings for that purpose or for the purpose of selling or
divesting the Initial Lessee of all or substantially all of its assets have
been brought.

Subject to the Initial Lease, the Company may exercise any one or more of
the following remedies upon the occurrence of an event of default: (i) the
Company may terminate the Initial Lease, (ii) exclude the Initial Lessee from
possession of the Initial Property, and (iii) use reasonable efforts to lease
such Initial Property to others. If an Initial Lease is terminated with
respect to all or a portion of the Initial Property, the Initial Lessee will
remain liable to the Company for damages in an amount equal to the rent and
other sums which would have been owing by the Initial Lessee as to the Initial
Property for the balance of the Fixed Term or Extended Term as if the Lease
had not been so terminated, less the net proceeds, if any, of any re-letting
of the Initial Property by the Company subsequent to such termination, after
deducting all the Company's expenses in connection with such re-letting. In
the event of any event of default, the Company may cause the Initial Lessee to
vacate the Initial Property without terminating the Initial Lease. In
addition, the Company may exercise any other rights that it may have under law
or under the leases. However, except in certain circumstances or for certain
Initial Lessees, there will be no cross defaults between or among any Initial
Property to any other Initial Property leased to affiliated Initial Lessees.

Right of First Offer and Option to Purchase Property. The Initial Lessees
under the Initial Leases may have a right of first offer to purchase the
Initial Property if the Company decides to sell the Initial Property. The
Company will notify the Initial Lessee of its intention to sell the Initial
Property and the Initial Lessee will have 30 days to extend an offer,
including specifying the purchase price for the Initial Property. The Company
may reject the offer, at its discretion based on its reasonable judgment. If
the Company rejects the Initial Lessee's offer, it may sell the Initial
Property to a third party on other terms if the purchase price is higher or
the Company reasonably believes such terms are more advantageous than the
terms proposed by the Initial Lessee. In addition, upon expiration of any
Extended Term, provided that there is no event of default, the Initial Lessee
has an option

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<PAGE>

to purchase the Initial Property at a purchase price equal to the mean of the
closest two appraised values of the Initial Property to be determined by three
independent appraisers.

Governing Law. Each Initial Lease will be governed by and construed in
accordance with the law of the Commonwealth of Virginia (but not including
such state's conflict of laws rules) except when the law of the state in which
the Property is located is required to control.

WASHINGTON, D.C. METROPOLITAN AREA

The Company will own 20 Initial Properties in the Washington, D.C.
Metropolitan Area representing approximately 70% of the aggregate purchase
prices for the Initial Properties. According to Population Estimates Program,
Population Division, U.S. Bureau of the Census, December 1997 Internet
Reference, the 1996 mid-year population of the Washington, D.C. metropolitan
area was 4,563,123, an increase of 8.1% from the 1990 census (compared to a
6.7% increase for the United States as a whole). According to the U.S.
Department of Commerce, Economics and Statistics Administration, Bureau of
Economic Analysis, per capita income for the Washington, D.C. metropolitan
area for 1995 was $30,824, compared to $24,594 for U.S. metropolitan areas
generally. According to the U.S. Department of Labor, Bureau of Labor
Statistics, Philadelphia Regional Office, the average annual unemployment rate
for calendar year 1996 in Virginia was 4.4%, and the corresponding figure for
the first nine months of 1997 was 4.2%. According to that same source, the
average annual unemployment rate for calendar year 1996 in Maryland was 4.9%,
and the corresponding figure for the first nine months of 1997 was 4.7%.

GOVERNMENTAL REGULATIONS AFFECTING THE PROPERTIES

Environmental Laws. Under various federal, state and local laws, ordinances
and regulations, a current or previous owner, developer or operator of real
estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. The costs of
such removal or remediation could be substantial. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person.

The Company is not aware of any environmental liability that the Company
believes would have a material adverse effect on the Company's business,
financial condition or results of operations. Based on certain environmental
"Phase 1 reports" (described under "Risk-Factors--Governmental Regulations;
Environmental Matters" above), the Company estimates that the aggregate cost
of addressing environmental conditions at certain of the Initial Properties
identified in the Phase 1 reports will not be material. In addition, the
Initial Sellers of such Initial Properties have agreed to indemnify the
Company for third party claims based on those conditions at a minimum until
such time as the relevant statutes of limitations have expired, and the
Initial Lessees and their Affiliates are obligated to comply with
environmental laws and remediation requirements and hold harmless the Company
and its officers, directors, employees, shareholders, agents and Affiliates
from any failure to comply with those requirements. No assurance can be given,
however, that all potential environmental liabilities have been identified,
that no prior owner or operator or other person created any material
environmental condition not known to the Company or that future uses,
conditions or legal requirements (including, without limitation, those that
may result from future acts or omissions or changes in applicable
environmental laws and regulations) will not result in the imposition of
environmental liabilities. The Initial Lessees and the Initial Sellers have
made certain representations in the Initial Leases and Contribution
Agreements, respectively, regarding the environmental matters and will
indemnify the Company for third party claims arising from breach of such
representations. There can be no assurance that such indemnification will be
available or uncontested, however, or that any environmental conditions of
concern at such time which are not remediated by the Initial Sellers or
Initial Lessees and their Affiliates will not impede the ability of the
Company to sell or re-lease the Initial Properties in the future or negatively
impact future sales or rental proceeds.

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Americans With Disabilities Act of 1990. The Initial Properties and any
subsequently acquired Properties must comply with Title III of the ADA to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires that
public accommodations "reasonably accommodate" individuals with disabilities
and that new construction or alterations made to "commercial facilities"
conform to accessibility guidelines unless "structurally impracticable" for
new construction, or technically infeasible for alterations. The Company
believes that the Properties substantially comply with all present
requirements under the ADA and applicable state laws. Under the Leases, the
Lessee is responsible for all costs associated with compliance with the ADA.
However, noncompliance with the ADA could result in the imposition of
injunctive relief, fines, an award of damages to private litigants or
additional capital expenditures to remedy such noncompliance.

FRANCHISE AGREEMENTS

Each Dealer operates its Dealership pursuant to a written Franchise
Agreement with the applicable Manufacturer. The typical automotive Franchise
Agreement specifies the locations at which the Dealer has the right and the
obligation to sell motor vehicles and related parts and products and to
perform certain approved services in order to serve a specified market area.
The designation of such areas and the allocation of new vehicles among
Dealerships are subject to the discretion of the Manufacturer, which generally
does not guarantee exclusivity within a specified territory. A Franchise
Agreement may impose requirements on the Dealer concerning such matters as the
showrooms, the facilities and equipment for servicing vehicles, the
maintenance of inventories of vehicles and parts, the maintenance of minimum
net working capital and the training of personnel. Compliance with these
requirements is closely monitored by the Manufacturer. In addition,
Manufacturers require the Dealers to submit a financial statement of
operations on a monthly basis. The Franchise Agreement also grants the Dealers
the non-exclusive right to use and display the Manufacturer's trademarks,
service marks and designs in the form and manner approved by the Manufacturer.

Each Franchise Agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the operations of a
Dealership and the names and ownership percentages of the approved owners of
the Dealership and contains provisions requiring the Manufacturer's prior
approval of changes in management or transfers of ownership of the Dealership.
Each Initial Lessee's Dealerships are owned, directly or indirectly, by such
Initial Lessee. Several Manufacturers include provisions in their Franchise
Agreements that prohibit transfers of assets or real property considered
necessary for the conduct of the Dealership or similar restrictions that could
prohibit or require the prior consent of a Manufacturer before a Seller can
sell and the Company can purchase a Property.

Most Franchise Agreements expire after a specified period of time, ranging
from one to five years, and the Company believes that each Initial Lessee
expects to renew any expiring agreements in the ordinary course of business.
The typical Franchise Agreement provides for early termination or non-renewal
by the Manufacturer under certain circumstances such as change of management
or ownership without Manufacturer approval, insolvency or bankruptcy of the
Dealership, death or incapacity of the dealer manager, conviction of a dealer
manager or owner of certain crimes, misrepresentation of certain information
by the Dealer or owner to the Manufacturer, failure to adequately operate the
Dealership, failure to maintain any license, permit or authorization required
for the conduct of business, or material breach of other provisions of the
Franchise Agreement. The Dealership is typically entitled to terminate the
Franchise Agreement at any time without cause.

The motor vehicle franchise relationship is also governed by various federal
and state laws established to protect Dealers from the general unequal
bargaining power between the parties. The following discussion of state court
and administrative holdings and various state laws is based on management's
beliefs and may not be an accurate description of the state court and
administrative holdings and various state laws. Under the laws of most states,
despite the terms of contracts between the Manufacturers and the Dealers,
Manufacturers may not unreasonably withhold approval of a transfer of a
Dealership, or reject a prospective transferee of a Dealership who is of good
moral character and who otherwise meets the Manufacturer's written, reasonable
and uniformly applied standards or qualifications relating to the prospective
transferee's business experience

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and financial qualifications. In addition, under the laws of certain states,
franchised Dealerships may challenge Manufacturers' attempts to establish new
franchises in the franchised dealers' markets, and state regulators may deny
applications to establish new Dealerships for a number of reasons, including a
determination that the Manufacturer is adequately represented in the market.
The laws of certain states also limit the ability of Manufacturers to
terminate or fail to renew franchises.

COMPETITION

The Company believes that it is the first publicly-offered REIT to primarily
focus on consolidating the Properties utilized by Dealerships or Related
Businesses under one ownership structure. A subsidiary of Kimco Realty
Corporation, a public diversified real estate investment trust, has publically
announced that it will pursue the acquisition of properties used by motor
vehicle dealerships. Other public or private entities may also decide to
pursue the same or similar strategy, some of which may have greater financial
resources or general real estate experience than the Company. Those entities
will compete with the Company in seeking Properties for acquisition and
disposition or, land for development. The Company believes that competition
for properties will primarily be on the basis of acquisition price and
negotiation of rents. Lessees or their Affiliates may own other Properties
that will not be acquired by the Company and which may instead be sold to
competitors. See "Risk Factors--Competition with Other Companies with Similar
Business Objectives and Strategies."

OTHER INVESTMENT POLICIES

The Company will engage in the investment in Properties used by Dealerships
and Related Properties. The Company has established no limit on the amount
that can be invested in any one Property. The Company does not intend to
acquire Properties used by businesses other than Dealerships and Related
Businesses. Pending investment in real estate, the proceeds of this Offering
and the FBR Offering will be invested in various short term investments. See
"Use of Proceeds." The Company currently does not intend to invest in
mortgages (including participating and convertible mortgages), the securities
of other issuers, except in connection with acquisitions of indirect interests
in Properties (normally through partnership interests in special purpose
partnerships owning title to Properties) or generally to make loans to third
parties. The Company does not intend to underwrite the securities of other
issuers. The Company currently has no plans to repurchase or otherwise
reacquire its shares or the shares of others (except pursuant to the
redemption rights of holders of Units). The Company may change its policies
with respect to the above activities without the approval of its shareholders.
In any event, any activities of the Company with respect to investments in
securities of other issuers will be subject to the asset and gross income
tests necessary for REIT qualification for federal income tax purposes.

EMPLOYEES

As of January 11, 1998, the Company had 11 employees. None of the employees
is represented by a collective bargaining unit. The Company believes that its
relationship with its employees is good.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings. Pursuant to the Leases,
the Lessees will indemnify the Company from and against all liabilities, costs
and expenses imposed upon or asserted against the Company as owner of the
Properties on account of certain matters relating to the operation of the
Properties by Lessee and, where appropriate, the ownership of the Properties
prior to their acquisition by the Company. See "--Typical Initial Lease
Terms--Indemnification."

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MANAGEMENT

TRUSTEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John J. Pohanka(1)...... 69 Chairman of the Board of Trustees
Thomas D. Eckert........ 50 President and Chief Executive Officer, Trustee
Scott M. Stahr.......... 41 Executive Vice-President and Chief Operating Officer
Donald L. Keithley...... 58 Executive Vice-President of Business Development
David S. Kay............ 31 Vice President and Chief Financial Officer
Robert M. Rosenthal(1).. 69 Trustee
John E. Reilly(1)(2).... 71 Trustee
William E.
Hoglund(1)(2).......... 63 Trustee
William R. Swanson(1)... 50 Trustee
</TABLE>
- --------
(1) The Company anticipates that Messrs. Pohanka, Rosenthal, Reilly and
Hoglund will become members of the Board of Trustees prior to the
effective date of this Offering. Mr. Swanson will become a member of the
Board of Trustees immediately after the closing of this Offering.
(2) Members of Audit Committee.

The Company's Declaration of Trust requires that within 90 days of the
closing of this Offering, the Board of Trustees will increase the size of the
Board of Trustees to not less than nine and not more than 15 members, a
majority of whom will be unaffiliated with the Company, the Sellers, the
Lessees or the Representative (the "Independent Trustees"). Each Trustee will
hold office until the next annual meeting of shareholders of the Company and
his successor is elected and qualified.

John J. Pohanka will be the Chairman of the Board of Trustees. Mr. Pohanka
is the Chairman of the Pohanka Automotive Group. Mr. Pohanka has been involved
in the automotive industry for almost 50 years, and is a member of the second-
generation of the Pohanka family to be involved in the automotive industry,
with the first Pohanka dealership having been founded in 1919. The Pohanka
Automotive Group is currently comprised of eight Dealerships, each of which is
located in the Washington, D.C. Metropolitan Area. In 1996, the Pohanka
Automotive Group's Dealerships sold more than 11,900 new and used motor
vehicles. The Pohanka Automotive Group's Dealerships have received numerous
awards, including the Time Magazine Quality Dealer Award. Mr. Pohanka has been
active in a number of national and local industry and business groups during
his career, having served as past President of the National Automobile Dealers
Association, a past President of the National Capitol Area Automotive Trade
Association, and a past Chairman of the National Institute for Automotive
Service Excellence, a group which he co-founded. Mr. Pohanka also is a co-
founder of the National Automobile Technicians Educational Foundation. Mr.
Pohanka is a graduate of Princeton University.

Thomas D. Eckert is the Company's President and Chief Executive Officer and
is a member of the Board of Trustees. From 1983 to 1997, Mr. Eckert was
employed by Pulte Home Corporation ("Pulte"), the largest homebuilding firm in
the U.S. Most recently, Mr. Eckert served as President of Pulte's Mid-Atlantic
Region, which included oversight of the company's land acquisition,
development and homebuilding operations from Virginia to New Jersey. Mr.
Eckert is a former director of PHM Mortgage Company and is currently a
director of the Munder Funds, a $6.2 billion mutual fund group, and the
Celotex Corporation, a building products manufacturing entity with $700
million in annual revenues. Prior to working at Pulte, Mr. Eckert was employed
with the public accounting firm of Arthur Andersen LLP for over seven years.
Mr. Eckert is a graduate of the University of Michigan. From November 1996 to
November 1997, Mr. Eckert was a director of the FBR Funds, a diversified
family of mutual funds affiliated with the Representative.

Scott M. Stahr is the Company's Executive Vice-President and Chief Operating
Officer. From 1985 to 1997, Mr. Stahr was a Principal at LaSalle Partners, a
Chicago-based real estate investment firm. In that role, Mr. Stahr was
responsible for sourcing, underwriting and negotiating acquisitions of office,
retail, parking and industrial properties. Mr. Stahr has also advised and
provided consulting services to corporate and institutional clients on

61
<PAGE>

the acquisition, disposition and value enhancement of their real estate-
related holdings. Prior to joining LaSalle Partners, Mr. Stahr was a
practicing attorney with a broad commercial litigation and real estate
practice. Mr. Stahr is a graduate of the University of Virginia and holds a
J.D. from the University of Texas.

Donald L. Keithley is the Company's Executive Vice-President of Business
Development. Mr. Keithley was the J.D. Power and Associates Partner in charge
of Dealer Relations from 1984 to 1997. In 1996, Mr. Keithley authored "The
Revolution in Automotive Retailing: A Perspective of the New Millennia," a
book which addresses the rapidly evolving changes in the dealership franchise
system. He has given numerous presentations on this subject to executives
within the industry. Before his tenure at J.D. Power and Associates, Mr.
Keithley was employed by the Toyota Motor Company and the Ford Motor Company
for numerous years. Mr. Keithley received a Masters in Business Administration
from the University of California at Los Angeles, and currently serves on the
Business Advisory Council for Loyola Marymount University.

David S. Kay is the Company's Vice-President and Chief Financial Officer.
Prior to joining the Company, Mr. Kay was employed by the public accounting
firm of Arthur Andersen LLP in Washington, D.C. for approximately ten years.
His areas of expertise included emerging companies in the automotive, retail,
and distribution industries. While at Arthur Andersen LLP, Mr. Kay provided
clients with consultation regarding mergers and acquisitions, business
planning and strategy and equity financing. He also has several years of
experience in capital formation projects, roll-up transactions, and initial
public offerings for motor vehicle dealerships across the nation. Mr. Kay has
participated on an NADA task force and has given presentations at NADA
conventions and at other industry seminars. Mr. Kay is a graduate of James
Madison University.

Robert M. Rosenthal will be a member of the Board of Trustees. Mr. Rosenthal
is the Chairman of the Rosenthal Automotive Organization. Mr. Rosenthal has
been involved in the automotive industry for 50 years and during that time has
founded more than 35 Dealerships. Mr. Rosenthal is a second-generation member
of the Rosenthal family involved in the automotive industry. His father's
association with Chevrolet began in 1919. With 19 current Dealerships, the
Rosenthal Automotive Organization was the nation's 14th largest automotive
group in terms of total new and used vehicle retail sales. In 1996, the
Rosenthal Automotive Group Dealerships sold more than 31,500 new and used
motor vehicles. Under Mr. Rosenthal's leadership, the Rosenthal Automotive
Organization's Dealerships have received numerous national and local awards,
including the Time Magazine Quality Dealer Award, the International American
Automobile Dealers/Sports Illustrated Dealer of Distinction, the Acura
Precision Team Award, the Jaguar Pride of Jaguar Award, and the Mazda
President's Award. Mr. Rosenthal has been active in a number of national and
local industry and business groups during his career, including, the
Washington New Automobile Dealers Association, of which he has served as a
past Director and President, the National Capitol Automobile Dealers
Association, the Chief Executives Organization and the World Business Council.
He also serves on the Board of Directors of First Virginia Bank and is an
officer and trustee of the Phillips Collection. Mr. Rosenthal is a graduate of
Temple University.

John E. Reilly will be a member of the Board of Trustees. Currently, Mr.
Reilly is serving as a consultant to American Isuzu Motors, Inc. From 1980
until his retirement in 1997, Mr. Reilly was employed by American Isuzu
Motors, Inc. At the time of his retirement, Mr. Reilly was serving as a Senior
Executive Advisor. His previous assignments at American Isuzu Motors, Inc.
included serving as Chairman and Senior Vice President. During his tenure, Mr.
Reilly oversaw the initial establishment of the Isuzu franchise in the U.S.
marketplace. Prior to his employment with American Isuzu Motors, Inc., Mr.
Reilly held a number of positions within the automotive industry, including
positions with General Motors Corporation, Toyota and Volkswagen of America.
Mr. Reilly has also served three terms as the Chairman of the Association of
International Automobile Manufacturers. Mr. Reilly attended Boston College and
Boston College Law School and is a graduate of Siena University.

William E. Hoglund will be a member of the Board of Trustees. From 1956
until his retirement in 1994, Mr. Hoglund was employed by General Motors
Corporation. At the time of his retirement in 1994, Mr. Hoglund

62
<PAGE>

was serving as an Executive Vice President and member of the General Motors
Corporation Board of Directors. His previous assignments at General Motors
Corporation included serving as Corporate Comptroller, Chief Financial
Officer, President of Saturn, General Manager of the Pontiac Division, and
Group Executive for the Buick-Oldsmobile-Cadillac Group. Currently, Mr.
Hoglund is a director of the Mead Corporation, Detroit Diesel Corporation and
the Sloan Foundation. Mr. Hoglund is a graduate of Princeton University and
received a Masters in Business Administration from the University of Michigan.

William R. Swanson will be a member of the Board of Trustees. Mr. Swanson
has been a Managing Director of Friedman, Billings, Ramsey & Co., Inc., the
Representative, in its real estate investment banking group since February
1994. The Representative may be considered a promoter of the Company under the
Securities Act. From 1993 to 1994, Mr. Swanson served as President of H.G.
Smithy Company, Inc., a full service commercial, multi-family and mortgage
servicing real estate company headquartered in Washington, D.C. From 1991 to
1993, Mr. Swanson headed Equity Management Associates, a real estate
consultation company. Mr. Swanson began working for LaSalle Partners, Ltd. in
1973 as the controller of the firm's first public fund and as the financial
officer for its development subsidiary. Mr. Swanson then served as a Managing
Director of LaSalle Partners from 1982 until his departure in 1991. While with
LaSalle Partners, he managed and directed the firm's acquisition and
development activities for the southeastern region of the United States. Mr.
Swanson received a Bachelor of Science in Accounting from the University of
Illinois at Urbana-Champaign and upon graduation joined KPMG Peat Marwick as a
CPA and tax specialist.

COMMITTEES OF THE BOARD OF TRUSTEES

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

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

Executive Compensation Committee. Promptly following the closing of the
Offering, the Board of Trustees of the Company will establish an Executive
Compensation Committee to determine compensation for the Company's executive
officers and to implement and administer the Company's Plan.

COMPENSATION OF TRUSTEES

The Company intends to pay its Trustees who are not employees of the Company
or affiliated with a Seller $15,000 a year for their services as Trustees.
Each non-employee Trustee (other than Messrs. Pohanka and Rosenthal) also will
receive a grant of options to purchase 15,000 Units under the Company's Plan
upon election or appointment to the Company's Board of Trustees. See "--1998
Equity Incentive Plan."

EXECUTIVE COMPENSATION

The Company was organized in October 1997, did not conduct any prior
operations and, accordingly, did not pay any compensation to its executive
officers for the year ended December 31, 1996. The following table below 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
other executive officers. The Company will

63
<PAGE>

assign certain of its rights and obligations under the employment agreements,
as amended (the "Employment Agreements"), with the executive officers to the
Operating Partnership, which will also employ the executive officers and will
pay their compensation.

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)(2) OPTIONS
--------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Thomas D. Eckert......................... 350,000 958,345
President and Chief Executive Officer
Scott M. Stahr........................... 225,000 519,104
Executive Vice President and
Chief Operating Officer(3)
Donald L. Keithley....................... 200,000 239,586
Executive Vice President of
Business Development
David S. Kay............................. 150,000 519,104
Vice President and Chief Financial
Officer
</TABLE>
- --------

(1) This reflects the initial annual base salaries payable to Mr. Stahr and
Mr. Keithley for the 12-month period beginning on the date of commencement
of each officer's Employment Agreement and to Mr. Eckert and Mr. Kay for
the 12-month period beginning on October 27, 1997. See "--Employment
Agreements."
(2) Each executive officer named above will be eligible for a bonus of up to
100% of their initial base salary. In addition, Mr. Keithley is also
eligible for an additional incentive bonus of $200,000.
(3) Mr. Stahr received a signing bonus of $250,000 to compensate him for
terminating his employment with his prior employer.

EMPLOYMENT AGREEMENTS

The Company has entered into Employment Agreements with each of the
executive officers named in the table above. The Company has assigned the
Employment Agreements to the Operating Partnership and the Operating
Partnership has assumed these Agreements effective as of January 1, 1998.
These Agreements are for a four year term and provide that the executive
officers agree to devote their full business time to the operation of the
Company (except as the Company otherwise agrees, including on behalf of the
Operating Partnership). The term is shortened to June 30, 1998 if the Company
has not completed its initial public offering by such date. The Employment
Agreements permit the Company to terminate the executives' employment with
appropriate notice for or without cause. In general, cause is defined to
include (i) engaging in dishonesty relating materially to performance of
services or obligations contained in the Employment Agreements, (ii)
conviction of any misdemeanor (other than minor infractions) involving fraud,
breach of trust, misappropriation, or other similar activity or any felony,
(iii) performance of duties in a grossly negligent manner; or (iv) wilful
breach of the Employment Agreement in a manner materially injurious to the
Company. In addition, executives may resign for good reason (generally defined
in the Agreements to include the Company's failure to comply with the
agreements' material terms, the reduction of responsibilities and duties or,
for Mr. Eckert, his involuntary departure from the Board of Trustees),
relocation, or a change of control. In general terms, a change of control
occurs (i) if a person, entity, or group (with certain exceptions) acquires
more than 40% of the Company's then-outstanding voting securities, (ii) if the
Company merges into another entity unless prior Company shareholders have at
least 60% of the combined voting power of the securities in the merged entity,
or (iii) the liquidation, dissolution, or sale or disposition of substantially
all of the Company's assets.

If the executives' employment ends for any reason, the Company will pay
accrued salary, bonuses already determined, and other existing obligations. In
addition, if the Company terminates the executives' employment without cause
or any of them resigns for good reason, the Company will be obligated to pay
(i) a lump sum payment of severance equal to 24 months' salary, (ii) payment
of premiums for the period of group health coverage, if any, to which he is
entitled by law, and (iii) a pro rata annual bonus for the year of
termination. Notwithstanding the foregoing, the Company has not agreed to pay
severance and provide the foregoing benefits if the executives' employment
ends because of expiration or non-extension of their agreements. Friedman,

64
<PAGE>

Billings, Ramsey Group, Inc., an affiliate of the Representative, has agreed
to employ Messrs. Eckert and Kay for a period of up to one year if the
Offering is not completed for any reason at substantially the same salaries
and equivalent benefits as set forth in their respective employment
agreements. See "Underwriting."

While employed and for a one-year period after employment, the executives
have agreed not to compete with the Company by working with or investing in
any enterprise engaged in forming or operating Dealerships or that invest
primarily in Dealerships or Related Businesses or properties used by
Dealerships or Related Businesses or that provide real estate financing to
Dealerships or Related Businesses.

1998 EQUITY INCENTIVE PLAN

The Company (including the Operating Partnership) has established the Plan
for the purpose of attracting and retaining trustees, executive officers and
other key employees. Each option granted pursuant to the Plan shall be
designated at the time of grant as either an "incentive option" or as a "non-
qualified option." If the grant is for an "incentive option," the Company will
issue options for Common Shares. If the grant is for "non-qualified options"
the Company intends to issue options for Units.

The Plan provides for the grants of options ("Options") to purchase a
specified number of Common Shares or Units. Under the Plan, Common Shares and
Units in an aggregate number equal to 8% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment in full) on a fully diluted basis will be
available for grants. Contemporaneously with the completion of the Offering,
the Company will grant Options for an aggregate number of Common Shares and
Units equal to 7% of the Common Shares to be outstanding on the closing of the
Offering (including exercise of the Underwriters' over-allotment option in
full) on a fully diluted basis (the "Initial Grants") to the following key
officers and employees of the Company: Thomas D. Eckert, Scott M. Stahr,
Donald L. Keithley and David S. Kay. Participants in the Plan, who may be
trustees, officers or employees of the Company, or its subsidiaries or
Company-owned partnerships, will be selected by the Executive Compensation
Committee. See also "--Compensation of Trustees."

The Plan authorizes the Executive Compensation Committee to grant incentive
Options for Common Shares at an exercise price to be determined by it,
provided that such price cannot be less than 100% of the fair market value of
Common Shares on the date on which the Option is granted. The exercise price
of non-qualified Options will be at 100% of the fair market value of Units on
the date the Option is granted as determined by the Executive Compensation
Committee.

The Initial Grants will become exercisable, subject to certain conditions
being met, at a rate of 25% per year over four years commencing on the first
anniversary of their date of grant and will have a term of ten years. The
exercise price of the Options issued under the Initial Grants will be the
initial public offering price of the Common Shares. The exercise price for any
Option is generally payable in cash or, in certain circumstances, by the
surrender, at the fair market value on the date on which the Option is
exercised, of Common Shares. The Plan provides that exercise may be delayed or
prohibited if it would adversely affect the Company's REIT status.

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

The Company also anticipates that it will grant Options to its non-employee
Trustees (other than Messrs. Pohanka and Rosenthal). The exercise price for
any of these Options will generally be payable in cash or, in certain
circumstances, by the surrender, at the fair market value on the date on which
the Option is exercised, of Common Shares.

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

65
<PAGE>

The following table contains information concerning the grant of Share
Options under the Company's Plan expected to be made for the year ending
December 31, 1998. The table also lists potential realizable values of such
options on the basis of assumed annual compounded share appreciation rates of
5% and 10% over the life of the Options.

OPTION GRANTS IN CONNECTION WITH THE FORMATION TRANSACTIONS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM
NAME AND UNDERLYING GRANTED TO EXERCISE OR (IN THOUSANDS)
PRINCIPAL OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
POSITION GRANTED(1) FISCAL YEAR PER SHARE DATE(2) 5%(3) 10%(3)
--------- ---------- ------------ ----------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Eckert........ 958,345 37.5% $15 $9,040 $22,910
President and Chief
Executive Officer
Scott M. Stahr.......... 519,104 20.3 15 4,897 12,410
Executive Vice
President and
Chief Operating Officer
Donald L. Keithley...... 239,586 9.4 15 2,260 5,728
Executive Vice
President of Business
Development
David S. Kay............ 519,104 20.3 15 4,896 12,410
Vice President and
Chief Financial Officer
</TABLE>
- --------
(1) The Options granted will become exercisable at a rate of 25% per year over
four years commencing on the first anniversary of their date of grant.
(2) The expiration date of the Options will be ten years after the date of the
grant.
(3) The potential realizable value is reported net of the option price, but
before the income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% from the
date of grant to the expiration date of the Options.

INDEMNIFICATION OF TRUSTEES AND OFFICERS

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

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

66
<PAGE>

STRUCTURE AND FORMATION OF THE COMPANY

The Company was formed on October 20, 1997. The Operating Partnership was
formed on November 13, 1997.

STRUCTURE OF THE COMPANY

The Company will be the sole general partner of the Operating Partnership.
The Company will contribute the proceeds of the Offering to the Operating
Partnership in exchange for Units representing approximately 81.2% of the
partnership interests in the Operating Partnership (the terms and conditions
of which will correspond to the Common Shares). The Company will conduct
substantially all of its business, and will hold all of its interests in the
Properties, through the Operating Partnership. As the sole general partner of
the Operating Partnership, the Company will have the exclusive power to manage
and conduct the business of the Operating Partnership, subject to certain
exceptions set forth in the Partnership Agreement. See "Partnership
Agreement."

The following diagram depicts the ownership structure of the Company and the
Operating Partnership upon completion of the Offering and the Formation
Transactions (as defined below):

[DIAGRAM OF OWNERSHIP STRUCTURE APPEARS HERE]

FORMATION TRANSACTIONS

The following transactions have been or will be completed in connection
with the completion of the Offering:

67
<PAGE>

the Representative, who has substantial experience in providing
investment banking and financial advice to companies in the real
estate and motor vehicle dealership businesses, and is acquainted
with numerous Dealers, including Mr. Pohanka. The Representative was
instrumental in providing financial and investment banking advice,
initial capital through a loan from Friedman, Billings, Ramsey Group,
Inc., introductions to certain Dealers, including Mr. Rosenthal, and
administrative support. The Representative may be deemed a promoter
of the Company under the Securities Act.

. Concurrently with the closing of this Offering, pursuant to the FBR
Offering, FBR Asset Investment Corporation, an Affiliate of the
Representative, has agreed to acquire 1,792,115 Common Shares in a
private placement at the initial public offering price (net of
underwriting discounts and commissions).

. Concurrently with the closing of the Offering, the Company will
contribute the net proceeds of the Offering and the FBR Offering to
the Operating Partnership in exchange for 21,792,115 Units.

. At closings scheduled within 60 days of the closing of the Offering,
the Company will acquire certain Initial Properties from Cross-
Continent, Good News and Kline in exchange for cash consideration of
$13.1 million, $5.5 million and $8.5 million, respectively.

. At closings scheduled for July 1998, the Company will acquire certain
Initial Properties from Cross-Continent for cash consideration of
approximately $22.1 million.

. At closings scheduled within 60 days of the Offering, the Company
will acquire Initial Properties
from Pohanka, Rosenthal, Sheehy and Cherner in exchange for
1,204,342; 3,438,298; 295,439; and 103,470 Units of the Operating
Partnership, respectively. The Operating Partnership will acquire
certain Initial Properties subject to existing mortgage debt of $41.3
million. The Company will pay Mortgage Debt of approximately $13.3
million, $13.7 million, $9.6 million and $4.8 million assumed from
Pohanka, Rosenthal, Sheehy and Cherner, respectively, in full at the
closing of the purchase of such Initial Properties. See "Use of
Proceeds" and "Business of the Company and Properties--The Initial
Leases, Properties and Dealerships" for a description of the
consideration to be paid and Mortgage Debt to be assumed by the
Company with respect to the Initial Sellers.

. The Operating Partnership will use the aggregate net proceeds of the
Offering and the FBR Offering of $302.4 million ($344.2 million of
the Underwriters' over-allotment option is exercised in full) as
described in "Use of Proceeds."

. Dealers or their Affiliates will enter into long-term triple-net
Leases with the Company and may enter into other agreements with the
Company with respect to the Initial Properties.

. Each of Messrs. Pohanka and Rosenthal, who will be Trustees of the
Company and Affiliates of certain Initial Sellers and Initial
Lessees, will receive warrants representing the right to acquire up
to 707,079 Units (equal to 2% of the Common Shares to be outstanding
on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully diluted
basis), at an exercise price equal to the initial public offering
price of the Common Shares, such warrants to be exercisable beginning
on the closing of the Offering and for a period of five years
thereafter.

. The Company will obtain a $10 million line of credit from
NationsBank, N.A. and will borrow approximately $5 million at the
closing of the Offering (approximately $2.5 million of which will be
guaranteed by Affiliates of Mr. Rosenthal and approximately $2.5
million of which will be guaranteed by Affiliates of Mr. Sheehy).

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<PAGE>

BENEFITS TO RELATED PARTIES

The following table sets forth the benefits of the Formation Transactions to
the executive officers and trustees of the Company:

<TABLE>
<CAPTION>
PERSON RECEIVING BENEFIT NATURE AND AMOUNT OF BENEFIT
- ------------------------ ----------------------------
<S> <C>
John J. Pohanka and
Robert M. Rosenthal..... 1,204,342 Units and 3,438,298 Units, respectively, in
connection with the sale of the Initial Properties, and the
repayment of approximately $13.3 million and $13.7 million
in principal amount of debt, respectively. The receipt of
Units will permit the deferral of taxes on the sale of such
Initial Properties. In addition, the Company will be
prevented from selling, financing or repaying debt secured
by certain Initial Properties. See "Structure and Formation
of the Company--Lock-out Provisions."
Affiliates of Messrs. Pohanka and Rosenthal will lease such
Initial Properties from the Company and will continue to
control the operations of the Dealership or Related Business
operated on those Initial Properties.
Each of Messrs. Pohanka and Rosenthal will receive Dealer
Warrants to acquire Units equal to 2% of the outstanding
Common Shares following the Offering (including exercise of
the Underwriters over-allotment option in full) on a fully
diluted basis at the intial public offering price.
Beginning one year after the closing of the Offering, the
right to convert the Units held by them for Common Shares,
subject to the Ownership Limitation.
Purchase by Mr. Pohanka and his family of up to $13 million
of Common Shares in this Offering at the initial public
offering price, of which a portion may be purchased net of
underwriting discounts and commissions because executive
officers and Trustees may acquire in the aggregate up to 2%
of the offered Common Shares at the initial public offering
price (net of underwriting discounts and commissions).
Executive Officers...... Salary and bonus as an executive officer of the Company as
described under "Management--Executive Compensation."
Options to acquire Common Shares and Units equal to 3%
(Thomas D. Eckert), 1.625% (Scott M. Stahr), .75% (Donald L.
Keithley) and 1.625% (David S. Kay) of the outstanding
Common Shares following the Offering (including exercise of
the Underwriters' the over-allotment option on a fully
diluted basis) at an assumed initial public offering price.
The executive officers and Trustees may acquire in the
aggregate up to 2% of the Common Shares in this Offering at
the initial public offering price (net of underwriting
discounts and commissions). The executive officers have
advised the Representative that they currently intend to
purchase an aggregate of approximately 122,000 Common Shares
in this Offering.

Friedman, Billings, Ram- Repayment of the loan made to the Company in the amount of
sey Group, Inc......... up to approximately $2.5 million, plus interest thereon at
the rate of 10% per annum.
FBR Asset Investment Purchase of 1,792,115 Common Shares at the initial public
Corporation............ offering price (net of underwriting discounts and
commissions). Such purchaser will have certain "demand" and
"piggy-back" registration rights with respect to such Common
Shares. See "Common Shares Eligible for Future Sale--
Registration Rights."
</TABLE>

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<PAGE>

LOCK-OUT PROVISIONS

The Contribution Agreements contain "Lock-out Provisions" that restrict the
Company's ability to sell, or require the Company to maintain indebtedness on,
certain Initial Properties for periods ranging from zero to seven years
following the completion of the Offering, which will enable certain
participants in the Formation Transactions to defer certain tax consequences
associated with the Formation Transactions. See "Risk Factors--Conflicts of
Interests Among the Company and Certain Trustees--Ability of Certain Trustees
and Their Affiliates to Influence the Sale or Refinancing of the Initial
Properties--," "Business of the Company and Properties," "Management" and
"Related Transactions."

BENEFITS OF THE UPREIT STRUCTURE

The benefits of the Company's UPREIT status and structure include the
following:

. Access to Capital. The Company's structure will, in the Company's judgment,
provide it with greater access to capital for refinancing and growth.
Sources of capital include the Common Shares sold in the Offering and
possible future issuances of debt or equity through public offerings or
private placements. The financial strength of the Company should enable it
to obtain financing at advantageous rates and on acceptable terms.

. Growth of the Company. The Company's structure will allow shareholders,
through the ownership of Common Shares, and Sellers, through their
ownership of Units, to participate in the growth of the real estate market
through an ongoing business enterprise. In addition to the existing
portfolio of Initial Properties, the Company gives shareholders and Sellers
an interest in all future investment in those Properties.

. Liquidity. The Company's structure allows shareholders and Sellers the
opportunity to liquidate their capital investment through the disposition
of Common Shares or the conversion of Units into Common Shares. Pursuant to
the Partnership Agreement and subject to certain conditions, each Unit held
by the Company or any Seller may be redeemed for cash or, at the option of
the Company, exchanged for one Common Share (subject to adjustment).

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

ACQUISITION OF THE INITIAL PROPERTIES FROM THE INITIAL SELLERS

The Operating Partnership will acquire the Initial Sellers' interests in the
Initial Properties pursuant to Contribution Agreements with each Initial
Seller negotiated on an arm's length basis. The obligations of the Initial
Sellers to transfer such Initial Properties pursuant to the Contribution
Agreements is or will be conditioned upon the completion of the Offering, the
closing of the transactions contemplated by the Initial Leases and the
Contribution Agreements, and normal and customary conditions to the closing of
real estate transactions, including the consents of lenders, if required. In
addition, in certain circumstances, the Initial Sellers' will be required to
deliver the consent of certain Manufacturers under the applicable Franchise
Agreements to the sale of certain Initial Properties. The Initial Sellers are
in the process of obtaining such lender or Manufacturer consents, if
applicable, and expect to obtain all necessary consents prior to the
acquisition of the related Initial Properties. The Contribution Agreements
also contain representations and warranties to the Operating Partnership
concerning the ownership and operation of the Initial Properties and
environmental matters and certain other covenants, representations and
warranties customarily found in real estate purchase agreements. Claims for
indemnification for any breach under the Contribution Agreements could be made
by the Operating Partnership for approximately two years from the completion
of the Offering, subject to longer periods for breaches relating to
environmental matters. Although each Initial Seller is obligated during the
Indemnification period to maintain a net worth equal to the purchase price for
the relevant Initial Property, there is no assurance that an Initial Seller
will be able to satisfy its indemnification obligation.

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<PAGE>

RELATED TRANSACTIONS

TRANSACTIONS WITH TRUSTEES

Dealer Warrants. Messrs. Pohanka and Rosenthal are Trustees of the Company
and principals of certain Initial Sellers. They will each be granted the
Dealer Warrants.

Acquisition of Initial Properties. Mr. John J. Pohanka is Chairman of
Pohanka Automotive Group. Upon consummation of this Offering, the Company will
purchase nine of the Initial Properties from Affiliates of Pohanka Automotive
Group for aggregate consideration of approximately $31.3 million through the
issuance of 1,204,342 Units and the assumption of $13.3 million of mortgage
debt. The Company has agreed not to sell, and to maintain specified levels of
debt on, the Initial Properties acquired from Affiliates of Mr. Pohanka for
periods ranging from four years to seven years, with most being subject to a
four year lock-out period.

Mr. Robert M. Rosenthal is Chairman of Rosenthal Automotive Organization.
Upon consummation of this Offering, the Company will purchase seven of the
Initial Properties from Affiliates of Rosenthal Automotive Organization for
aggregate consideration of approximately $65.3 million to be paid through the
issuance of 3,438,298 Units and the assumption of $13.7 million of mortgage
debt. The Company has agreed not to sell, and to maintain specified levels of
debt on, the Initial Properties acquired from Affiliates of Mr. Rosenthal for
periods ranging from five to seven years, with most being subject to a seven
year lock-out period.

Initial Leases. The Company will enter into Leases with Affiliates of
Pohanka Automotive Group for nine Initial Properties for aggregate initial
annual base rent of approximately $3.4 million. See "Business of the Company
and Properties--The Initial Properties, Leases and Dealerships."

The Company will enter into Initial Leases with Affiliates of Rosenthal
Automotive Organization for seven Initial Properties for aggregate initial
annual base rent of approximately $7.2 million. See "Business of the Company
and Properties--The Initial Properties, Leases and Dealerships."

Sale of Common Shares in This Offering. Mr. Pohanka has advised the
Representative that he and his family intend to purchase $13 million of
registered Common Shares in this Offering at a purchase price per share equal
to the initial public offering price, of which a portion may be purchased net
of underwriting discounts and commissions because executive officers and
Trustees may acquire in the aggregate up to 2% of the offered Common Shares
following the Offering (including exercise of the Underwriters' the over-
allotment option on a fully diluted basis) at an assumed initial public
offering price.

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PARTNERSHIP AGREEMENT

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

MANAGEMENT

The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. The Company will initially
hold approximately 81.2% of the Units of the Operating Partnership, including
its interest held as a limited partner of the Operating Partnership (a
"Limited Partner"). The Company will conduct substantially all of its business
through the Operating Partnership. Pursuant to the Partnership Agreement, the
Company, as the sole general partner of the Operating Partnership, will
generally have full, exclusive and complete responsibility and discretion in
the management and control of the Operating Partnership, including the ability
to cause the Operating Partnership to enter into certain major transactions,
including acquisitions, dispositions and refinancings and to cause changes in
the Operating Partnership's line of business and distribution policies.

Limited Partners of the Operating Partnership will have no authority to
transact business for, or participate in the management or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement and as
required by applicable law. The Company, as general partner and without the
consent of the Limited Partners, may amend the Operating Partnership
Agreement; provided however, that any amendment (i) affecting the conversion
factor or redemption right in a manner adverse to the Limited Partners, (ii)
adversely affecting the rights of the Limited Partners to receive
distributions or allocations of profit or loss (other than in connection with
the issuance of additional Units), (iii) imposing on the Limited Partners any
obligation to make additional capital contributions, or (iv) affecting the
Limited Partners' registration rights, requires the consent of two-thirds of
the Limited Partners (excluding any Units held by the Company in its capacity
as a Limited Partner). Further, the Company, without the consent of the
Limited Partners (including the Company in its capacity as a Limited Partner)
holding at least two-thirds of the Units, may not sell, transfer or convey all
or substantially all of the assets of the Operating Partnership, including
without limitation a sale, assignment, transfer to another public or private
company or approve a merger or consolidation of the Operating Partnership. The
Limited Partners have no right to remove the Company as general partner of the
Operating Partnership.

INDEMNIFICATION

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

TRANSFERABILITY OF INTERESTS

Except for a transaction described in the following paragraph, the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership. A Limited Partner may transfer its interests in the
Operating Partnership to a transferee subject to certain conditions,
including, the written consent of the Company and compliance with federal
securities laws and applicable state securities and blue sky laws, provided
further that such transfer does not cause the Operating Partnership to be
treated as an association taxable as a corporation for federal or state income
tax purposes and does not cause the Company to cease to comply with
requirements under the Code for qualification as a REIT. Such transferee will
be admitted as a substitute Limited Partner only upon assumption of all
obligations of the transferor Limited Partner, and the consent of the Company,
as general partner.

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EXTRAORDINARY TRANSACTIONS

The Partnership Agreement provides generally that the Company may not engage
in any merger, consolidation or other combination with or into another person
or sale of all or substantially all of its assets, or any reclassification,
recapitalization or change of outstanding Common Shares (a "Business
Combination"), unless the holders of Units will receive, or have the
opportunity to receive, the same consideration per Unit as shareholders
receive per Common Share in the transaction and no more than 75% of the equity
securities of the acquiring entity shall be owned by the Company or its
Affiliates. If, in connection with a Business Combination, a purchase, tender
or exchange offer (the "Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding Common Shares, each holder of
Units shall be given the option to exchange its Units for the greatest amount
of cash, securities or other property which a Limited Partner would have
received had it (i) exercised its right to cause its Units to be redeemed by
the Operating Partnership (the "Redemption Right") and pursuant to the
Company's option to issue Common Shares in exchange for Units, received Common
Shares immediately prior to the expiration of the Offer, and (ii) sold,
tendered or exchanged pursuant to the Offer the Common Shares received upon
the exercise of the Redemption Right. In addition, the Company may merge into
or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or
surviving entity (the "Surviving Entity"), other than Units held by the
Operating Partnership's general partner, are contributed to the Operating
Partnership as a Capital Contribution in exchange for Units with a fair market
value equal to the value of the assets so contributed as determined by the
Surviving Entity in good faith, and (ii) the Surviving Entity expressly agrees
to assume, or acknowledge and ratify, all obligations of the General Partner
under the Partnership Agreement.

ISSUANCE OF ADDITIONAL UNITS

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

CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDS

The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or prior capital
contributions, the Company may borrow such funds from a financial institution
or other lender or through public or private debt offerings and lend such
funds to the Operating Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. The Partnership Agreement
and the Plan also provide that in the event the Company issues additional
shares of beneficial interest (including any issuance of Common Shares
pursuant thereto), the Company is required to contribute to the Operating
Partnership as an additional capital contribution any net proceeds from such
issuance in exchange for additional partnership interests with preferences and
rights corresponding to the beneficial interests so issued. As an alternative
to borrowing funds required by the Operating Partnership, the Company may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate
basis. Conversely, the partnership interests of the Limited Partners will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company.

AWARDS UNDER THE PLAN

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

DISTRIBUTIONS

The Partnership Agreement provides that the Operating Partnership shall
distribute cash on a quarterly basis (or more frequently at the election of
the Company, as general partner), pro rata in accordance with the partners'
respective percentage interests.

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<PAGE>

OPERATIONS

The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT, unless the Company otherwise ceases to qualify
as a REIT and to ensure that the Partnership will not be classified as a
publicly traded partnership under the Code. Pursuant to the Partnership
Agreement, the Operating Partnership will assume and pay when due, or
reimburse the Company for payment of, all expenses it incurs relating to the
ownership and operation of, or for the benefit of, the Operating Partnership
and all costs and expenses relating to the operations of the Company.

LIMITED PARTNER REDEMPTION RIGHTS

Beginning one year after the issuance of the Units, the Limited Partners
will have the right to redeem their Units for cash based on the average market
price of the Company's Common Shares for the twenty days immediately preceding
the five trading days prior to the exercise of the right to have Units
redeemed by the Operating Partnership. Under the Partnership Agreement, the
Operating Partnership may redeem Units for cash (calculated as provided in the
preceding sentence) prior to the expiration of the one-year holding period for
Units to the extent that a Limited Partner has pledged his Units to secure a
loan and has thereafter defaulted on such loan. The Company, in its sole
discretion, may assume the obligations of the Operating Partnership to redeem
Units, in which case the Company will have the option, in its sole discretion,
to exchange the Units for cash or the issuance of a like number of Common
Shares. The Company may not exchange any Common Shares for Units if actual or
constructive ownership of such Common Shares would (i) violate the Ownership
Limit, (ii) result in the Company's shares being owned by fewer than 100
persons, (iii) result in the Company being "closely held" within the meaning
of Section 856(h) of the Code, (iv) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common
Shares by such Limited Partner to be "integrated" with any other distribution
of Common Shares for purposes of complying with the registration provisions of
the Securities Act. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer." Following the expiration of the
foregoing restrictions, any Common Shares issued to the Company or any of the
Limited Partners upon redemption of their Units may be sold in the public
market pursuant to the registration statements which the Company will be
obligated to file under the Partnership Agreement. See "Common Shares Eligible
for Future Sale."

TAX MATTERS

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

TERM

The Operating Partnership will continue in full force and effect until
December 31, 2073 or until sooner dissolved and terminated (i) upon the
dissolution, bankruptcy, insolvency or termination of the Company (unless the
Limited Partners elect to continue the Operating Partnership), (ii) upon the
passage of 90 days after the sale or other disposition of all, or
substantially all the assets of the Operating Partnership, or (iii) upon the
election by the Company, as general partner, that the Operating Partnership
should be dissolved, or (iv) by operation of law.

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<PAGE>

PRINCIPAL SHAREHOLDERS OF THE COMPANY

The following table sets forth certain information regarding the expected
beneficial ownership of the Common Shares immediately following the
consummation of the Offering and the Formation Transactions, by (a) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Shares, (b) each Trustee of the Company, (c) each executive officer of
the Company and (d) all Trustees and executive officers of the Company as a
group (excluding exercise of the Underwriters' over-allotment option in full).
Unless otherwise indicated in the footnotes, all of such interests are owned
directly, and the indicated person or entity has sole voting and investment
power. The number of shares represents the number of Common Shares the person
holds or the number of Common Shares into which Units held by the person are
exchangeable (if the Company elects to issue shares or Units rather than pay
cash upon such exchange). The executive officers and Trustees of the Company
have agreed not to sell Common Shares (including Common Shares issued on
exercise of Units), without the consent of the Representative, for a period of
two years following completion of the Offering. See "Partnership Agreement--
Limited Partner Redemption Rights."

<TABLE>
<CAPTION>
NUMBER OF
COMMON NUMBER OF
SHARES PERCENTAGE OF COMMON SHARES PERCENTAGE OF
BENEFICIALLY COMMON SHARES BENEFICIALLY COMMON SHARES
OWNED PRIOR OWNED PRIOR TO OWNED AFTER OWNED FOLLOWING
NAME TO THE OFFERING THE OFFERING(1)(2) THE OFFERING(2) THE OFFERING(3)
---- --------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Thomas D. Eckert(3)(4).. 10 100% -- (8) -- (8)
Scott M. Stahr(3)(4).... -- -- -- (8) -- (8)
Donald L.
Keithley(3)(4)......... -- -- -- (8) -- (8)
David S. Kay(3)(4)...... -- -- -- (8) -- (8)
John J.
Pohanka(1)(4)(5)(6).... -- -- 866,667 3.8%
Robert M.
Rosenthal(1)(4)(5)..... -- -- -- --
FBR Asset Investment
Corporation(7)......... -- -- 3,069,909 13.3%
Trustees and Executive
Officers as a group
(eight persons)........ 10 100% 988,531 4.5%
</TABLE>
- --------
(1) Affiliates of Mr. Pohanka and Mr. Rosenthal will own an aggregate of
1,204,342 Units and 3,438,298 Units respectively, that are not redeemable
for a period of one year from the date of issuance. If the holder chooses
to redeem the Units, the Operating Partnership may redeem them for cash,
or at the option of the Company, they may be redeemed for Common Shares.
However, the aggregate number of Units redeemable for Common Shares is
subject to the Ownership Limit and certain other limitations.
(2) The total number of Common Shares outstanding used in calculating the
percentage assumes that none of the Units is redeemed for Common Shares.
(3) Mr. Eckert owns 10 Common Shares prior to the Offering, which the Company
intends to repurchase immediately prior to the effective date of the
Offering. Excludes Options held by Messrs. Eckert, Stahr, Keithley and Kay
to acquire 26,667; 26,667; 26,667; and 26,667 Common Shares and 931,678;
492,437; 212,919; and 492,437 Units, respectively, which are not
exercisable within 60 days from the date of the Prospectus.
(4) The address for the executive officers and Trustees of the Company is c/o
1925 North Lynn Street, Suite 306, Arlington, Virginia 22209. Messers.
Pohanka and Rosenthal will join the Board of Trustees of the Company
immediately prior to the effective date of the Offering.
(5) Does not assume redemption of Units for Common Shares issued on exercise
of the Dealer Warrants that will be subject to a one year holding period
from the closing date of the Offering. Assuming (i) conversion of the
Units issued upon acquisition of Initial Properties acquired from
Affiliates of Mr. Pohanka and Affiliates of Mr. Rosenthal, (ii) exercise
of the Dealer Warrants and conversion of the Common Shares to be issued on
exercise of Units, and (iii) the purchase of $13 million of registered
Common Shares by Mr. Pohanka and his family, Mr. Pohanka and his
Affiliates and Mr. Rosenthal and his Affiliates will own 2,709,906 and
4,077,195 of the outstanding Common Shares at the closing of the Offering,
respectively, representing 9.56% and 14.27% of "Common Shares Owned
Following the Offering," respectively, on a fully diluted and converted
basis. The total number of Common Shares outstanding used in calculating
these percentages assumes that all of the Units are redeemed for Common
Shares.
(6) Assumes Mr. Pohanka and his family purchases $13 million of Common Shares
in the Offering.

(7) Includes Common Shares to be issued on exercise of the Underwriting
Warrants issued to the Representative, an Affiliate of FBR Asset
Investment Corporation. Excludes an estimated 49,810 Common Shares
issuable upon redemption of an estimated 49,810 Units indirectly
beneficially owned by an employee of the Representative who is the
daughter of Vincent A. Sheehy and a partner in certain Initial Sellers
Affiliated with Mr. Sheehy to which the Representative disclaims
beneficial ownership.
(8) Represents less than 1%.

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<PAGE>

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

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

AUTHORIZED SHARES

The Declaration of Trust provides that the Company may issue up to 100
million Common Shares, par value $.01 per share, and 20 million Preferred
Shares, par value $.01 per share. Upon completion of the Offering and the
consummation of the Formation Transactions, there will be 21,792,115 Common
Shares issued and outstanding.

As permitted by the Maryland REIT Law, the Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of the Trust, to classify or reclassify any unissued Common
Shares or Preferred Shares into one or more classes or series of shares of
beneficial interest by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
distributions, qualifications or terms or conditions of redemption of such new
class or series of shares of beneficial interest, or amend the Declaration of
Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Trust has authority to issue. The Company believes that the power of
the Board of Trustees to issue additional shares of beneficial interest will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The
additional shares of beneficial interest, including possibly Common Shares,
will be available for issuance without further action by the Company's
shareholders, unless action by the shareholders is required by applicable law
or the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. Although the Board of Trustees
currently has no intention of doing so, it could authorize the Company to
issue a class or series that could, depending on the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for the Common Shares and might
otherwise be in the best interests of the shareholders.

The Maryland REIT Law provides that no shareholder of the Company will be
personally liable for any obligation of the Company solely as a result of his
or her status as a shareholder of the Company. The Declaration of Trust
provides that no shareholder shall be liable for any debt or obligation of the
Company by reason of being a shareholder nor shall any shareholder be subject
to any personal liability in tort, contract or otherwise to any person in
connection with the property or affairs of the Company by reason of being a
shareholder. The Company's Bylaws further provide that the Company shall
indemnify each present or former shareholder against any claim or liability to
which the shareholder may become subject by reason of being or having been a
shareholder and that the Company shall reimburse each shareholder for all
reasonable expenses incurred by him in connection with any such claim or
liability. Inasmuch as the Company carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited
to situations in which the Company's assets plus its insurance coverage would
be sufficient to satisfy the claims against the Company and its shareholders.

COMMON SHARES

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of shares of beneficial interest and to the provisions of the Declaration of
Trust regarding the restriction of the transfer of shares of beneficial
interest, holders of Common Shares will be entitled to receive distributions
on shares if, as and when authorized and declared by the Board of

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<PAGE>

Trustees out of assets legally available therefor and to share ratably in the
assets of the Company legally available for distribution to the shareholders
in the event of the liquidation, dissolution or winding-up of the Company
after payment of, or adequate provision for, all known debts and liabilities
of the Company.

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

Holders of Common Shares have no conversion, sinking fund, redemption,
exchange or appraisal rights, and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.

Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the real estate investment trust's
declaration of trust. The Company's Declaration of Trust provides for approval
by a majority of all the votes entitled to be cast on the matter in all
situations permitting or requiring action by the shareholders except with
respect to (a) the intentional disqualification of the Company as a real
estate investment trust or revocation of its election to be taxed as a real
estate investment trust (which requires the affirmative vote of the holders of
two-thirds of the number of Common Shares entitled to vote on such matter at a
meeting of the shareholders of the Company), (b) the election of Trustees
(which requires a plurality of all the votes cast at a meeting of shareholders
of the Company at which a quorum is present), (c) the removal of Trustees
(which requires the affirmative vote of the holders of a two-thirds the
outstanding voting shares of the Company), (d) the amendment of the
Declaration of Trust by shareholders (which requires the affirmative vote of a
majority of votes entitled to be cast on the matter, except under certain
circumstances specified in the Declaration of Trust which require the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter), and (e) the dissolution of the Company (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter). Under the Maryland REIT Law, a declaration of trust may permit the
trustees by a two-thirds vote to amend the declaration of trust from time to
time to qualify as a real estate investment trust under the Code or the
Maryland REIT Law without the approval of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees. As
permitted by the Maryland REIT Law, the Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of the Trust, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number
of shares of any class of shares of beneficial interest that the Trust has
authority to issue.

The registrar and transfer agent and registrar for the Common Shares is
American Stock Transfer & Trust Company.

The Company has applied for trading of the Common Shares on the Nasdaq
National Market System under the trading symbol "CARS."

PREFERRED SHARES

Preferred Shares may be issued from time to time, in one or more series, as
authorized by the Board of Trustees. Prior to the issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and the
Declaration of Trust to fix for each series, subject to the provisions of the
Declaration of Trust, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions,

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<PAGE>

qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board of Trustees has the power to establish the preferences,
powers and rights of each series of Preferred Shares, it may afford the
holders of any series of Preferred Shares preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of Preferred Shares could have the effect of delaying or preventing a
change of control of the Company that might involve a premium price for
holders of Common Shares or otherwise be in their best interest. The Board of
Trustees has no present plans to issue any Preferred Shares.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

For the Company to qualify as a REIT under the Code, among other things, no
more than 50% in value of its outstanding shares of beneficial interest may be
owned, actually or constructively under the applicable attribution rules of
the Code, by five or fewer individuals (as defined in the Code to include
certain tax-exempt entities other than, in general, qualified domestic pension
funds) during the last half of a taxable year (other than the first year for
which the election to be taxed as a REIT has been made) or during a
proportionate part of a shorter taxable year (the "Five or Fewer
Requirement"). In addition, if the Company, or an owner of 10% or more of the
Company, actually or constructively owns 10% or more of a Lessee of the
Company, the rent received by the Company (either directly or through any such
partnership) from such Lessee will not be qualifying income for purposes of
the REIT gross income tests of the Code. A REIT's stock or beneficial
interests must also be owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year (other than the first year for which an election to be treated as
a REIT has been made).

Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, shares in excess of
the Ownership Limitation. Any transfer of Common Shares or Preferred Shares
that would (i) result in any person owning, directly or indirectly, Common
Shares or Preferred Shares in excess of the Ownership Limitation, (ii) result
in the Common Shares and Preferred Shares being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii)
result in the Company being "closely held" within the meaning of Section
856(h) of the Code, or (iv) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856 (d) (2) (B) of the Code, shall be null and void, and the intended
transferee will acquire no rights in such Common Shares or Preferred Shares.
The Company has waived the Ownership Limit with respect to the Representative
and its Affiliates to permit them to own the Common Shares.

Subject to certain exceptions described below, if any purported transfer of
Common Shares or Preferred Shares would (i) result in any person owning,
directly or indirectly, Common Shares or Preferred Shares in excess of the
Ownership Limitation, (ii) result in the Common Shares and Preferred Shares
being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iii) result in the Company being "closely held" within
the meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, the Common or Preferred Shares
will be designated as "Shares-in-Trust" and transferred automatically to a
trust (the "Share Trust") effective as of the close of business on the
business day before the purported transfer of such Common Shares or Preferred
Shares. The record holder of the Common Shares or Preferred Shares that are
designated as Shares-in-Trust (the "Prohibited Owner") will be required to
submit such number of Common or Preferred Shares to the Company for
registration in the name of the Share Trust. The Share Trustee will be
designated by the Company, but will not be affiliated with the Company. The
beneficiary of the Share Trust (the "Beneficiary") will be one or more
charitable organizations that are named by the Company.

Shares-in-Trust will remain issued and outstanding Common Shares or
Preferred Shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The Share Trust will receive all

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dividends and distributions on the Shares-in-Trust and will hold such
dividends and distributions in trust for the benefit of the Beneficiary. The
Share Trustee will vote all Shares-in-Trust. The Share Trustee will designate
a permitted transferee of the Shares-in-Trust, provided that the permitted
transferee (i) purchases such Shares-in-Trust for valuable consideration and
(ii) acquires such Shares-in-Trust without such acquisition resulting in a
transfer to another Share Trust and resulting in the redesignation of such
Common Shares or Preferred Shares as Shares-in-Trust.

The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date for which was on or after the date that such shares
became Shares-in-Trust. Upon sale or other disposition of the Shares-in-Trust
to a permitted transferee, the Prohibited Owner generally will receive from
the Share Trustee, the lesser of (i) in the case of (a) a purported transfer
in which the Prohibited Owner gave value for Shares and which transfer
resulted in the transfer of the Shares to the Share Trust, the price per
share, if any, such Prohibited Owner paid for the Shares or (b) a case in
which the Prohibited Owner did not give value for such Shares (e.g., if the
Shares were received through a gift or devise), the price per share equal to
the Market Price (as defined below) on the date thereof, (ii) the price per
share received by the Share Trustee from the sale of such Shares-in-Trust. Any
amounts received by the Share Trustee in excess of the amounts to be paid to
the Prohibited Owner will be distributed to the Beneficiary. Unless sooner
sold to a permitted transferee, upon the liquidation, dissolution or winding
up of the Company, the Prohibited Owner generally will receive from the Share
Trustee its share of the liquidation proceeds, provided, however, the
Prohibited Owner may not receive amounts in excess of (i) the price per share
such Prohibited Owner paid for the Common Shares or Preferred Shares that were
designated as Shares-in-Trust or (ii) in the case of a gift or devise, the
Market Price per share on the date of such transfer.

The Shares-in-Trust will 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 created such Shares-in-Trust (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust or (ii) the date the
Company determines in good faith that a transfer resulting in such Shares-in-
Trust occurred.

"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
("NYSE") or, if the Common Shares or Preferred Shares are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Shares or Preferred
Shares are listed or admitted to trading or, if the Common Shares or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, on the National Market System of the Nasdaq Stock Market or, if the
shares are not listed for trading on the National Market System, the last
quoted price, or if not so quoted, the average of the closing bid and asked
prices in the over-the-counter market, as reported by Nasdaq or, if such
system is no longer in use, the principal automated quotation system that may
then be in use or, if the Common Shares or Preferred Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Shares
or Preferred Shares selected by the Board of Trustees. "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Common Shares or Preferred Shares are listed or admitted to trading is open
for the transaction of business or, if the Common Shares or Preferred Shares
are not listed or admitted to trading on any national securities exchange or
stock market, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.

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Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common Shares
or Preferred Shares that were transferred to a Share Trust, will be required
(i) to give immediate written notice to the Company of such event and (ii) to
provide to the Company such other information as the Company may request in
order to determine the effect, if any, of such transfer on the Company's
status as a REIT.

The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the outstanding Common Shares and Preferred
Shares, within 30 days after January 1 of each year, to provide to the Company
a written statement or affidavit stating the name and address of such direct
or indirect owner, the number of Common Shares and Preferred Shares owned
directly or indirectly, and a description of how such shares are held. In
addition, each direct or indirect shareholder shall provide to the Company
such additional information as the Company may request in order to determine
the effect, if any, of such ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limitation.

The Ownership Limitation generally will not apply to the acquisition of
Common Shares or Preferred Shares by an underwriter that participates in a
public offering of such shares. In addition, the Board of Trustees, upon
receipt of a ruling from the Service or an opinion of counsel and upon such
other conditions as the Board of Trustees may direct, may exempt a person from
the Ownership Limitation under certain circumstances. However, the Board may
not grant an exemption from the Ownership Limit to any proposed transferee
whose ownership, direct or indirect, of shares of beneficial interest of the
Company in excess of the Ownership Limit would result in the termination of
the Company's status as a REIT. The foregoing restrictions will continue to
apply until (i) the Board of Trustees 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, and (ii) there is an affirmative vote of two-thirds of the
votes entitled to be cast on such matter at a regular or special meeting of
the shareholders of the Company. The Company has waived the Ownership Limit
with respect to the Representative and its Affiliates to permit them to own
the Common Shares.

The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.

All certificates representing Common Shares or Preferred Shares will bear a
legend referring to the restrictions described above.

CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE DECLARATION OF TRUST AND BYLAWS

The following paragraphs summarize certain provisions of Maryland law and of
the Declaration of Trust and the Bylaws of the Company. This summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the MGCL, the Maryland REIT Law, the Declaration of Trust and the
Bylaws of the Company. The business combination provisions and, if the
applicable provision in the Bylaws is rescinded, the control share acquisition
provisions of the MGCL, the provisions of the Declaration of Trust on the
removal of Trustees and the advance notice provisions of the Bylaws could have
the affect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Shares or otherwise be in their best interest.

Business Combinations. Under the MGCL, as applicable to Maryland REITs,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland REIT and any person
who beneficially owns ten percent or more of the voting power of the REIT's
shares or an affiliate of the REIT who, at any time within the two-year period
prior to the date in question, was an Interested Shareholder (as defined
below) or an affiliate of such an Interest Shareholder are prohibited for five
years after the most recent date on which the Interested Shareholder becomes
an Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such REIT and approved by the
affirmative vote of at least (a) 80% of

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the votes entitled to be cast by holders of the REIT' outstanding voting
shares of beneficial interest, and (b) two-thirds of the votes entitled to be
cast by holders of the REIT's outstanding voting shares of beneficial interest
other than shares held by the Interested Shareholder with whom or with whose
Affiliate the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares of beneficial interest and the
consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its shares. These provisions of the MGCL do not
apply, however, to business combinations that are approved or exempted by the
board of trustees of the REIT prior to the time that the Interested
Shareholder becomes an Interested Shareholder. As permitted by the MGCL, the
Declaration of Trust exempts any "Business Combinations" involving the
issuance of Common Shares to any Initial Seller upon the exchange of Units
acquired by any of them in connection with the Formation Transactions or the
acquisition by any of them of any additional shares of beneficial interest in
the Company. Accordingly, the five-year prohibition and the super-majority
vote requirement will not apply to any "Business Combinations" between the
Initial Sellers and the Company. As a result, the Initial Sellers may be able
to enter into "Business Combinations" with the Company, which may or may not
be in the best interests of the shareholders, without the super-majority
shareholder approval.

"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or an affiliate of the REIT which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of
beneficial interest of the REIT.

Control Share Acquisitions. The Declaration of Trust will contain a
provision exempting from the control share acquisition statute any and all
acquisitions by any person of the Company's shares of beneficial interest.
There can be no assurance that such provision will not be amended or
eliminated at any point in the future. The MGCL, as applicable to Maryland
REITs, provides that "control shares" of a Maryland real estate investment
REIT acquired in a "control share acquisition" have no voting rights except to
the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter, excluding shares of beneficial interest owned by the acquiror
or by officers or trustees who are employees of the trust. "Control shares"
are voting shares of beneficial interest which, if aggregated with all other
such shares previously acquired by the acquiror or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions. A person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the Board of Trustees to call a
special meeting of shareholders to be held within 50 days of demand to
consider the voting rights of the shares. If no request for a meeting is made,
the Company may itself present the question at any shareholders' meeting.

Limitation of Liability and Indemnification. The Maryland REIT Law permits a
Maryland real estate investment trust to indemnify and advance expenses to its
Trustees, officers, employees and agents to the same extent as permitted by
the MGCL for trustees and officers of Maryland corporations. The MGCL permits
a corporation to indemnify its present and former trustees and officers, among
others, 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 in those or other
capacities unless it is established that (a) the act or omission of the
trustees or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the trustee or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the trustee or officer had reasonable cause to
believe that the act or omission was unlawful. However, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In accordance with the MGCL, the Bylaws of the Company require
it, as a condition to advancing expenses, to

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obtain (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 statement 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
Declaration of Trust authorizes the Company to indemnify its officers and
Trustees to the maximum extent permitted by Maryland law. The Declaration of
Trust and Bylaws also permit the Company to indemnify any employee or agent of
the Company or a predecessor of the Company. The Bylaws require the Company to
indemnify each Trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.

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

Maryland Asset Requirements. To maintain its qualification as a Maryland
real estate investment trust, the Maryland REIT Law requires that the Company
hold, either directly or indirectly, at least 75% of the value of its assets
in real estate assets, mortgages or mortgage related securities, government
securities, cash and cash equivalent items, including high-grade short-term
securities and receivables. The Maryland REIT Law also prohibits using or
applying land for farming, agricultural, horticultural or similar purposes.

Meetings of Shareholders. The Bylaws provide for annual meetings of
shareholders to elect the Board of Trustees and transact such other business
as may properly be brought before the meeting. Special meetings of
shareholders may be called by the President, the Board of Trustees or the
Chairman of the Board and shall be called at the request in writing of the
holders of 50% or more of the outstanding shares of beneficial interest of the
Company entitled to vote.

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

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COMMON SHARES ELIGIBLE FOR FUTURE SALE

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

The executive officers and Trustees of the Company have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise sell or dispose (or announce any offer,
sale, offer of sale, contract of sale, grant of any option to purchase or
other sale or disposition) of any Units or Common Shares or other shares of
beneficial interest of the Company, or any securities convertible or
exercisable or exchangeable for any Units or Common Shares or other shares of
beneficial interest of the Company (other than pursuant to the Plan) for a
period of two years following the effective date of this Offering, without the
prior written consent of the Representative. The Representative, at any time
and without notice, may release all or any portion of the Common Shares
subject to the foregoing lock-up agreements.

The Common Shares owned by "Affiliates" of the Company and the Common Shares
issuable upon exchange of Units, including Units issued upon conversion of the
Dealer Warrants, will be "restricted securities" under Rule 144 promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated with
them in accordance with Rule 144) who has beneficially owned "restricted
securities" (defined generally as securities acquired from the issuer or an
Affiliate of the issuer in a transaction not involving a public offering) for
at least one year, and including the holding period of any seller of
securities unless such seller is an Affiliate, would be entitled to sell
within any three-month period a number of Common Shares that does not exceed
the greater of 1% of the then-outstanding number of Common Shares or 1% of the
average weekly trading volume of the Common Shares on the Nasdaq National
Market during the four calendar weeks preceding each such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated with them in
accordance with Rule 144) who is not deemed to have been an Affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, notice requirements or public information requirements. An
"Affiliate" of the Company is a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or under common
control with, the Company.

The Company has established the Plan for the purpose of attracting and
retaining executive officers, Trustees and other key employees. See
"Management Incentive Plan." Contemporaneously with the completion of the
Offering, the Company will issue in the aggregate options to purchase an
aggregate of 106,667 Common Shares and 2,368,107 Units (equal to 7% of the
Common Shares to be outstanding on the closing of the Offering (including
exercise of the Underwriters' over-allotment option in full) on a fully
diluted basis) to executive officers and will reserve an additional number of
Common Shares and Units equal to 1% of the Common Shares to be outstanding on
the closing of the Offering (including exercise of the Underwriters' over-
allotment option in full) on a fully diluted basis for future issuance under
the Plan. The Company intends to file a registration statement under the
Securities Act registering the Common Shares reserved for issuance upon the
exercise of

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options granted under the Plan and redemption of Units issued under the Plan.
See "Management--Incentive Plan." This registration statement is expected to
be filed as of the date of the Prospectus and to become effective
automatically upon the effective date of registration of the Common Shares.

Underwriting Warrants. The Representative of the Underwriters will receive
Underwriting Warrants representing the right to acquire a number of Common
Shares equal to 4% of the Common Shares to be outstanding on the closing of
the Offering (excluding exercise of the Underwriters' over-allotment option in
full) on a fully-diluted basis, at the initial public offering price of the
Common Shares, exercisable beginning on the closing date of the Offering and
for a period of five years thereafter, as compensation for its assistance in
the formation and structuring of the Company, identifying key managers of the
Company and raising the initial capital necessary to form the Company.
However, the Underwriting Warrants and any Common Shares received upon
exercise of the Underwriting Warrants may not be sold or otherwise transferred
(except to executive officers of the Representative or members of the selling
group) for a period of one year following the closing of the Offering.

Dealer Warrants. Each of Messrs. Pohanka and Rosenthal, Trustees of the
Company, will be granted the Dealer Warrants representing the right of each of
them to acquire 1,414,158 Units (equal to 2% of the Common Shares to be
outstanding on the closing of the Offering (including exercise of the
Underwriters' over-allotment option in full) on a fully-diluted basis), at the
initial public offering price, exercisable beginning on the closing of the
Offering and for a period of five years thereafter.

Conversion of Units. If the Company exercises its option to deliver Common
Shares upon the redemption of Units, the Partnership Agreement provides that
the Company will deliver registered Common Shares to the holder. The Company
will bear the expenses of registering those Common Shares.

Registration Rights. The Company has granted certain "demand" and
"piggyback" registration rights to FBR Asset Investment Corporation with
respect to the Common Shares acquired by it in the FBR Offering. Subject to
certain conditions, the demand registration rights permit holders of such
shares to request one demand registration. Subject to certain conditions, the
piggyback registration rights permit the holders of such shares to include
their Common Shares in the registration by the Company of its equity
securities other than in connection with the registration by the Company under
the Securities Act of any of its securities, (i) in connection with any
corporate reorganization, or (ii) in connection with an employee benefit plan.
FBR Asset Investment Corporation may not offer, pledge, sell, dispose of or
otherwise transfer the Common Shares acquired in the FBR Offering for a period
of one year following the closing of the Offering, without the consent of the
Representative.

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FEDERAL INCOME TAX CONSEQUENCES

The following summary of the taxation of the Company and the material
federal income tax consequences to holders of the Common Shares is for general
information only, and is not tax advice. The tax treatment of a holder of
Common Shares will vary depending upon the holder's particular situation, and
this discussion addresses only holders that hold Common Shares as capital
assets and does not purport to deal with all aspects of taxation that may be
relevant to particular holders in light of their personal investment or tax
circumstances, or to certain types of holders (including dealers in securities
or currencies, banks, tax-exempt organizations, except as described herein,
life insurance companies, persons that hold Common Shares that are a hedge or
that are hedged against currency risks or that are part of a straddle or
conversion transaction) subject to special treatment under the federal income
tax laws. This summary is based on the Code, its legislative history, existing
and proposed regulations thereunder, published rulings and court decisions,
all as currently in effect and all subject to change at any time, perhaps with
retroactive effect.

SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON
SHARES, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP AND SALE IN THEIR PARTICULAR CIRCUMSTANCES AND
POTENTIAL CHANGES IN APPLICABLE LAWS.

TAXATION OF THE COMPANY AS A REIT

General. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 859 of the Code, commencing with its taxable year ending
December 31, 1998. The Company believes that, commencing with such taxable
year, it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code.

In the opinion of Wilmer, Cutler & Pickering, commencing with its taxable
year ending December 31, 1998, the Company will be organized in conformity
with, and its proposed method of operation will enable it to meet, the
requirements for qualification and taxation as a REIT under the Code.
Shareholders should be aware, however, that opinions of counsel are not
binding upon the Internal Revenue Service or any court. In providing its
opinion, Wilmer, Cutler & Pickering is relying upon representations received
from the Company that its proposed method of operation will satisfy the
requirements to be treated as a REIT under the Code. The qualification and
taxation of the Company as a REIT depends upon its ability to meet, through
actual annual operating results, distribution levels, share ownership
requirements and the various qualification tests imposed under the Code.
Accordingly, while the Company intends to qualify to be treated as a REIT, no
assurance can be given that the actual results of the Company's operations for
any particular year will satisfy such requirements. Wilmer, Cutler & Pickering
will not monitor the compliance of the Company with the requirements for REIT
qualification on an ongoing basis. Accordingly, no assurance can be given that
the actual results of the Company's operations for any particular year will
satisfy such requirements.

The sections of the Code applicable to REITs are highly technical and
complex. Certain aspects thereof are summarized below.

As a REIT, the Company generally will not be subject to federal corporate
income tax on its net income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation"
(at the corporate and shareholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its undistributed items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or
(ii) other non-qualifying income from foreclosure property, it will be subject
to tax at the highest

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corporate rate on such income. Fourth, if the Company has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property, other than foreclosure property, held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test, multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of
its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year, and
(iii) 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. Seventh, if the Company acquires any asset
from a C corporation (i.e., generally a corporation subject to full corporate-
level tax) in certain transactions in which the basis of the asset in the
hands of the Company is determined by reference to the basis of the asset (or
any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the ten-year period
beginning on the date on which such asset was acquired by the Company (the
"Recognition Period"), then, pursuant to Treasury regulations that have not
yet been issued and to the extent of the excess of the fair market value of
the asset as of the date of the Company's acquisition over the Company's
adjusted basis in such asset on such date, such gain will be subject to tax at
the highest regular corporate rate. The results described above with respect
to assets acquired from a C corporation assume that the Company will make an
election pursuant to Internal Revenue Service Notice 88-19.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or
directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which
would otherwise be taxable as a domestic corporation, but for Sections 856
through 859 of the Code, (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (5) the
beneficial ownership of which is held by 100 or more persons, (6) during the
last half of each taxable year, not more than 50% in value of the outstanding
shares of which is owned, directly or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) and (7) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) to (4) must be met during
the entire taxable year and that condition (5) 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 (5) and (6) will not apply
until after the first taxable year for which an election is made to be taxed
as a REIT.

The Company's Declaration of Trust provides for restrictions regarding the
ownership and transfer of the Company's shares of beneficial interest, which
restrictions are intended to assist the Company in satisfying the share
ownership requirements described in (5) and (6) above. The ownership and
transfer restrictions pertaining to the Common Shares are described under the
heading "Description of Shares of Beneficial Interest--Restrictions on
Ownership and Transfer."

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 of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests described below. The Company's
proportionate share of the assets and gross income of the Operating
Partnership will be treated as assets and gross income of the Company for
purposes of applying the requirements described herein.

Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property") or from certain types of

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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, dividends, interest and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing).

Pursuant to the Leases, the Lessees will lease from the Company the land,
buildings and improvements comprising the Properties for initial terms ranging
from eight to 11 years. The Leases will be "triple-net" leases which will
require the Lessees to pay substantially all expenses associated with the
operation of the Properties, such as real estate taxes, insurance, utilities,
services, maintenance and other operating expenses and any ground lease
payments. During the Fixed Term and the Extended Terms of the Leases, the
Lessees will pay the Initial Annual Base Rent and, thereafter, the Annual Base
Rent which will be payable in monthly installments. Initial Base Annual Rent
and Annual Base Rent will be adjusted upward periodically based on a factor of
the CPI, ranging from one-half of CPI adjusted every other year to full CPI
adjusted every year, which may be subject to periodic minimum or maximum
adjustment rates-ranging from zero to 3%, respectively.

Rents under the Leases (the "Rent") will constitute "rents from real
property" only if the Leases are treated as true leases for federal income tax
purposes and are not treated as service contracts, joint ventures, financing
arrangements or some other type of arrangement. The determination of whether
the Leases are true leases depends on an analysis of all surrounding facts and
circumstances. In making such a determination, courts have considered a
variety of factors, including the following: (i) the intent of the parties;
(ii) the form of the agreement; (iii) the degree of control over the property
that is retained by the property owner (e.g., whether the lessee has
substantial control over the operation of the property or whether the lessee
was required simply to use its best efforts to perform its obligations under
the agreement); (iv) the extent to which the property owner retains the risk
of loss with respect to the operation of the property (e.g., whether the
lessee bears the risk of increases in operating expenses or the risk of damage
to the property); and (v) the extent to which the property owner retains the
burdens and benefits of ownership of the property.

Wilmer, Cutler & Pickering is of the opinion that each Initial Lease will be
treated as a true lease for federal income tax purposes. Such opinion is not
binding on the IRS. Such opinion is based, in part, on the following facts:
(i) the Company and the Lessees intend for their relationship to be that of a
lessor and lessee and such relationship will be documented by lease
agreements; (ii) the Lessees will have the right to exclusive possession and
use and quiet enjoyment of the Properties during the term of the Leases; (iii)
the Lessees will bear the cost of, and be responsible for, day-to-day
maintenance and repair of the Properties, and will dictate how the Properties
are operated, maintained, and improved; (iv) the Lessees will bear all of the
costs and expenses of operating the Properties during the terms of the Leases;
(v) the Lessees will benefit from any savings in the costs of operating the
Properties during the terms of the Leases; (vi) the Lessees will generally
indemnify the Company against all liabilities imposed on the Company during
the term of the Leases by reason of (a) injury to persons or damage to
property occurring at the Properties, or (b) the Lessees' use, management,
maintenance or repair of the Properties; (vii) the Lessees are obligated to
pay substantial fixed rent for the period of use of the Properties; (viii) the
Lessees stand to incur substantial losses (or reap substantial gains)
depending on how successfully it operates the Properties; (ix) the useful
lives of the Properties are significantly longer than the terms of the Leases;
and (x) the Company will receive the benefit of any increase in value, and
will bear the risk of any decrease in value, of the Properties during the
terms of the Leases. If the IRS were to challenge successfully the
characterization of the Initial Leases as true leases, the Operating
Partnership would not be treated as the owner of the Property in question for
federal income tax purposes and the Operating Partnership would lose tax
depreciation and cost recovery deductions with respect to such Property, which
in turn could cause the Company to fail to qualify as a REIT. See "--Annual
Distribution Requirements."

Shareholders should be aware that there are no controlling Treasury
regulations, published rulings, or judicial decisions involving leases with
terms substantially similar to those contained in the Leases that address
whether such leases constitute true leases for federal income tax purposes. If
the Leases are recharacterized as

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financing arrangements or partnership agreements, rather than true leases,
part or all of the payments that the Company receives from the Lessees may not
be considered rent or may not otherwise satisfy the various requirements for
qualification as "rents from real property." In that case, the Company likely
would not be able to satisfy either the 75% or 95% gross income tests and, as
a result, would lose its REIT status. Although the Company will use its best
efforts to structure any leasing transaction for Properties acquired in the
future such that the Lease will be characterized as a "true lease' and the
Operating Partnership will be treated as the owner of the Property in question
for federal income tax purposes, the Company will not seek an advance ruling
from the IRS and may not seek an opinion of counsel (except with respect to
the Initial Leases) that it will be treated as the owner of any leased
Properties for federal income tax purposes, and thus there can be no assurance
that future leases will be treated as true leases for federal income tax
purposes.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the terms "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. The Company has represented that Rent paid
by the Lessees for the Properties will be a fixed amount, and will not be
based in whole or in part on the net income of any person with respect to the
Properties. Thus, the Rent should also satisfy this requirement.

A second requirement for qualification of the Rent as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of any Initial Lessee or any other Lessee of the Properties (a "Related
Party Tenant"). The constructive ownership rules generally provide that if 10%
or more in value of the shares of the Company are owned, directly or
indirectly, by or for any person, the Company is considered as owning the
shares owned, directly or indirectly, by or for such person. The applicable
attribution rules, however, are highly complex and difficult to apply, and the
Company may inadvertently enter into leases with Lessees who, through
application of such rules, will constitute Related Party Tenants. In such
event, rent paid by the Related Party Tenant will not qualify as "rents from
real property," which may jeopardize the Company's status as a REIT. The
Company will use its best efforts not to rent any property to a Related Party
Tenant (taking into account the applicable constructive ownership rules),
unless the Company determines in its discretion that the rent received from
such Related Party Tenant is not material and will not jeopardize the
Company's status as a REIT.

Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property". The Rent attributable to the
personal property associated with a property is the amount that bears the same
ratio to total rent for the taxable year as the average of the adjusted bases
of the personal property in the property at the beginning and at the end of
the taxable year bears to the average of the aggregate adjusted bases of both
the real and personal property comprising the property at the beginning and at
the end of such taxable year (the "Adjusted Basis Ratio"). The Company will
not lease any personal property to the Initial Lessees pursuant to the Initial
Leases. Accordingly, Rent received by the Company should satisfy this
requirement. If the Company were to lease personal property in connection with
a future lease, the Company intends to satisfy the 15% test described above.

A fourth requirement for qualification of the Rent as "rents from real
property" is that the Company cannot furnish or render noncustomary services
to the Lessees of its properties, or manage or operate such properties, other
than through an independent contractor who is adequately compensated and from
whom the Company itself does not derive or receive any income provided,
however, that the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not considered "rendered to the occupant" of the
property. Provided that the Leases are respected as true leases, the Company
should satisfy this requirement with respect to the Rent because it will not
perform any service for the Lessees. If the Company were to provide services
to a Lessee that are other than those usually or customarily provided in
connection with the rental of space for occupancy only, amounts received by
the Company for such services would not be treated as "rents from real
property" for purposes of the REIT gross income tests but would not cause
other amounts received with respect to the property to fail to be treated as

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"rents from real property" unless the amounts received in respect of such
services, together with amounts received for certain management services,
exceed 1% of all amounts received or accrued by the Company during the taxable
year with respect to such property. However, if the 1% threshold is exceeded,
then all amounts received or accrued by the Company with respect to the
property will not qualify as "rents from real property." The Leases do not
provide for the Company to render any noncustomary services to the Lessees.
Further, the Company will not offer any services to the Lessees.

Based on the foregoing, the Rent should qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests. As described
above, however, there can be no complete assurance that the Service will not
assert successfully a contrary position and, therefore, prevent the Company
from qualifying as a REIT.

On an ongoing basis, the Company will use its best efforts not: (i) to
charge rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above); (ii) to rent any property to a Related
Party Lessee (taking into account the applicable constructive ownership
rules), unless the Company determines in its discretion that the rent received
from such Related Party Lessee is not material and will not jeopardize the
Company's status as a REIT; (iii) to derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease); and (iv) to perform services considered to be
rendered to the occupant of the property, unless such services generate rents
not in excess of 1% of all amounts received or accrued during the taxable year
with respect to such property, other than through an independent contractor
from whom the Company derives no revenue or if the provisions of such services
will not jeopardize the Company's status as a REIT. Because the Code
provisions applicable to REITs are complex, however, the Company may fail to
meet one or more of the foregoing.

As part of its acquisition strategy, the Company may provide financing to
Operators for the development of Dealerships or Related Businesses and earn
interest with respect to such financings. The term "interest," as defined for
purposes of the 75% and 95% gross income tests, generally does not include any
amount received or accrued (directly or indirectly) if the determination of
such amount depends in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "interest" solely by reason of being based on a fixed percentage
or percentages of receipts or sales. In addition, an amount received or
accrued generally will not be excluded from the term "interest" solely by
reason of being based on the income or profits of a debtor if the debtor
derives substantially all of its gross income from the related property
through the leasing of substantially all of its interests in the property, to
the extent the amounts received by the debtor would be characterized as "rents
from real property" if received by a REIT. Furthermore, to the extent that
interest from a loan that is based on the cash proceeds from the sale of the
property securing the loan constitutes a "shared appreciation provision" (as
defined in the Code), income attributable to such participation feature will
be treated as gain from the sale of the secured property, which generally is
qualifying income for purposes of the 75% and 95% gross income tests.

Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income test. However, if the Company receives interest income with
respect to a loan that is secured by both real property and other property and
the highest principal amount of the loan outstanding during a taxable year
exceeds fair market value of the real property on the date the Company
acquired the loan, the interest income from the loan will be apportioned
between the real property and the other property, which apportionment may
cause the Company to recognize income that is not qualifying income for
purposes of the 75% gross income test. The Company intends to structure any
such financing arrangements such that it will continue to qualify as a REIT.

The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected to the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default

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was imminent) on a lease of such property or on an indebtedness owed to the
REIT that such property secured, (ii) for which the related loan was acquired
by the REIT at a time when default was not imminent or anticipated and (iii)
for which such REIT makes a proper election to treat such property as
foreclosure property. However, a REIT will not be considered to have
foreclosed on a property where such REIT takes control of the property as a
mortgagee-in-possession and cannot receive any profit or sustain any loss
except as a creditor of the mortgagor. Under the Code for taxable years of
REITs beginning after August 5, 1997, property generally ceases to be
foreclosure property with respect to a REIT on the last day of the third
taxable year following the taxable year in which the REIT acquired such
property (or longer if an extension is granted by the Secretary of the
Treasury). The foregoing grace period is terminated and foreclosure property
ceases to be foreclosure property on the first day (i) on which a lease is
entered into with respect to such property that, by its terms, will give rise
to income that does not qualify under the 75% gross income test or any amount
is received or accrued, directly or indirectly, pursuant to a lease entered
into on or after such day that will give rise to income that does not qualify
under the 75% gross income test, (ii) on which any construction takes place on
such property (other than completion of a building, or any other improvement,
where more than 10% of the construction of such building or other improvement
was completed before default became imminent) or (iii) that is more than 90
days after the day on which such property was acquired by the REIT and the
property is used in a trade or business that is conducted by the REIT (other
than through an independent contractor from whom the REIT itself does not
derive or receive any income).

The net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held
primarily for sale to customers in the ordinary course of a trade or business.
The Company believes that no asset owned by the Company or the Operating
Partnership will be held for sale to customers and that a sale of any such
asset will not be in the ordinary course of the Company's or the Operating
Partnership's business. Whether an asset is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular asset. Nevertheless, the Company will attempt to
comply with the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company can comply with the safe-
harbor provisions of the Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."

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 such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its federal income
tax return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. As discussed above under "--General," even if these relief
provisions apply, a tax would be imposed with respect to the excess income.

Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) real estate assets held by the Company's
qualified REIT subsidiaries and the Company's allocable share of real estate
assets held by partnerships in which the Company owns an interest, (ii) for a
period of one year from the date of the Company's receipt of proceeds of an
offering of its shares of beneficial interest or long-term (at least five
years) debt, stock or debt instruments purchased with such proceeds and (iii)
stock issued by another REIT), cash, cash items and government securities.
Second, not more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities
(other than securities issued by another REIT) 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

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securities (other than securities issued by another REIT). All of the Initial
Properties will qualify as real estate assets. The Company intends to select
future investments so as to remain in compliance with REIT asset qualification
tests.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (A) the sum of (i) 95% of
the Company's "real estate investment trust taxable income" (computed without
regard to the dividends paid deduction and the Company's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property
minus (B) the sum of certain items of non-cash income. In addition, if the
Company disposes of any asset acquired from a C corporation in a carryover
basis transaction during its Recognition Period, the Company will be required,
pursuant to Treasury regulations which have not yet been promulgated, to
distribute at least 95% of the built-in gain (after tax), if any, recognized
on the disposition of such asset. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its "real estate
investment trust taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. Furthermore,
if the Company should fail to distribute during each calendar year at least
the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year, and (iii) 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 satisfy the annual distribution
requirements.

The Company may elect to retain and pay income tax on the net long-term
capital gain it receives in a taxable year. In that case, the Company's
shareholders would include in income their proportionate share of the
Company's undistributed long-term capital gain. In addition, the shareholders
would be deemed to have paid their proportionate share of the tax paid by the
Company, which would be credited or refunded to the shareholders. Each
shareholder's basis in his shares would be increased by the amount of the
undistributed long-term capital gain included in the shareholder's income,
less the shareholder's share of the tax paid by the Company. Such amount would
be treated as having been distributed for purposes of the 4% excise tax
described above.

It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
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. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable
share dividends.

The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Operating Partnership is the owner for federal income tax
purposes of all of the Properties. As a result, the Company expects that
depreciation deductions with respect to all such Properties will reduce its
"REIT taxable income". If the Service were to successfully challenge this
position, the Company might be deemed retroactively to have failed to meet the
distribution requirement and would have to rely on the payment of a
"deficiency dividend" in order to retain its REIT status.

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

Partnership Anti-Abuse Rule. The United States Treasury Department has
issued a regulation (the "Anti-Abuse Rule") under the partnership provisions
of the Code (the "Partnership Provisions") that authorizes the Service, in
certain "abusive" transactions involving partnerships, to disregard the form
of the transaction and

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recast it for federal tax purposes as the Service deems appropriate. The Anti-
Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal
purpose of substantially reducing the present value of the partners' aggregate
federal tax liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business
(including investment) activities through a flexible economic arrangement that
accurately reflects the partners' economic agreement and clearly reflects the
partners' income without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined based on all
of the facts and circumstances, including a comparison of the purported
business purpose for a transaction and the claimed tax benefits resulting from
the transaction. A reduction in the present value of the partners' aggregate
federal tax liability through the use of a partnership does not, by itself,
establish inconsistency with the intent of the Partnership Provisions.

The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate
bases in such property. In addition, the limited partners have the right,
beginning one year after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the corporation's option) equal to the fair market value of their
respective interests in the partnership at the time of the redemption. The
example concludes that the use of the partnership is not inconsistent with the
intent of the Partnership Provisions and, thus, cannot be recast by the
Service. Based on the foregoing, Wilmer, Cutler & Pickering is of the opinion
that the Anti-Abuse Rule will not have any adverse impact on the Company's
ability to qualify as a REIT. However, the Anti-Abuse Rule is extraordinarily
broad in scope and is applied based on an analysis of all of the facts and
circumstances. As a result, there can be no assurance that the Service will
not attempt to apply the Anti-Abuse Rule to the Company. If the conditions of
the Anti-Abuse Rule are met, the Service is authorized to take appropriate
enforcement action, including disregarding the Operating Partnership for
federal tax purposes or treating one or more of its partners as nonpartners.
Any such action potentially could jeopardize the Company's status as a REIT.

Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in
any year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company will also 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.

TAXATION OF HOLDERS OF COMMON SHARES

U.S. Shareholders. As used herein, the term "U.S. Shareholder" means a
holder of Common Shares who (for United States federal income tax purposes) 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, or (iv) a
trust with respect to the administration of which a court within the United
States is able to exercise primary supervision and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.

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

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gain from the sale and exchange of a capital asset (to the extent that they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Shareholder has held his Common Shares.
U.S. Shareholders that are corporations may, however, be required to treat up
to 20% of certain capital gain dividends as ordinary income.

Recently enacted legislation (The Taxpayer Relief Act of 1997 (the "1997
Act")) reduces the maximum rate on long-term capital gains of non-corporate
taxpayers from 28% to 20% (10% for taxpayers in the 15% tax bracket). The
lower rates generally apply to sales or exchanges of capital assets occurring
after May 6, 1997. However, the reduced long-term capital gains rates are
currently only available for sales or exchanges of capital assets held for
more than 18 months. Any long-term capital gains from the sale or exchange of
depreciable real property that would be subject to ordinary income taxation
(i.e., "depreciation recapture') if it were treated as personal property will
be subject to a maximum tax rate of 25% instead of the 20% maximum rate for
gains taken into account after July 28, 1997. In Notice 97-64, released
November 10, 1997, the IRS described temporary regulations to be published in
the near future pursuant to which a REIT may designate a capital gain dividend
as a 20% rate gain dividend, an unrecaptured section 1250 gain distribution in
the 25% rate group or as a 28% rate gain distribution.

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

Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Shareholder of Common Shares will not be treated as passive activity
income, and, as a result, U.S. Shareholders generally will not be able to
apply any "passive losses" against such income or gain.

Upon any sale or other disposition of Common Shares, a U.S. Shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the Common Shares for tax purposes. Such gain or loss will
be capital gain or loss if the Common Shares have been held by the U.S.
Shareholder as a capital asset. Long-term capital gain of an individual U.S.
Shareholder is generally subject to a maximum tax rate of 28% in respect of
property held for more than one year and the maximum rate is reduced to 20% in
the case of property held in excess of 18 months. In general, any loss
recognized by a U.S. Shareholder upon the sale or other disposition of Common
Shares of the Company that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions received by such U.S. Shareholder from
the Company which were required to be treated as long-term capital gains.

U.S. Shareholders holding Common Shares at the close of the Company's
taxable year will be required to include, in computing their long-term capital
gains for the taxable year in which the last day of the Company's taxable year
falls, such amount of undistributed long-term capital gains as the Company may
designate in a written notice mailed to its shareholders. The Company may not
designate amounts in excess of the Company's undistributed net capital gain
for the taxable year. Each U.S. Shareholder required to include such a
designated amount in determining such shareholder's long-term capital gains
will be deemed to have paid, in the taxable year of the inclusion, its
proportionate share of the tax paid by the Company in respect of such
undistributed net capital gains. U.S. Shareholders subject to these rules will
be allowed a credit or a refund, as the case may be, for the tax deemed to
have been paid by such shareholders. U.S. Shareholders will increase their
basis in their Common Shares by the difference between the amount of such
includible gains and the tax deemed paid by the shareholder in respect of such
gains.

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Backup Withholding. The Company will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Shareholder that does not provide the Company
with his correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status to the Company.

Taxation of Tax-Exempt Shareholders. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based
on that ruling, provided that a tax-exempt shareholder (except certain tax-
exempt shareholders described below) has not held its Common Shares as "debt
financed property" within the meaning of the Code and such Common Shares are
not otherwise used in a trade or business, the dividend income from Common
Shares will not be UBTI to a tax-exempt shareholder. Similarly, income from
the sale of Common Shares will not constitute UBTI unless such tax-exempt
shareholder has held such Common Shares as "debt financed property" within the
meaning of the Code or has used the Common Shares in a trade or business.

For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from
an investment in the Company's Common Shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its Common
Shares. Such prospective shareholders should consult their own tax advisors
concerning these "set aside" and reserve requirements.

Notwithstanding the foregoing, however, a portion of the dividends paid by a
"pension-held REIT" will be treated as UBTI to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code, and (iii) holds more than 10% (by value) of the equity
interests in the REIT. Tax-exempt pension, profit-sharing and stock bonus
funds that are described in Section 401(a) of the Code are referred to below
as "qualified trusts."

A REIT is a "pension-held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code provides that stock owned
by qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself) and (ii) either (A) at least one qualified trust holds more than
25% (by value) of the interests in the REIT or (B) one or more qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the gross income (less direct expenses related thereto) of the
REIT from unrelated trades or businesses (determined as though the REIT were a
qualified trust) to (ii) the total gross income (less direct expenses related
thereto) of the REIT. A de minimis exception applies where this percentage is
less than 5% for any year. The Company does not expect to be classified as a
"pension-held REIT."

Tax-exempt entities will be subject to the rules described above, under the
heading "--U.S. Shareholders" concerning the inclusion of the Company's
designated undistributed net capital gains in the income of its shareholders.
Thus, such entities will, after satisfying filing requirements, be allowed a
credit or refund of the tax deemed paid by such entities in respect of such
includible gains.

Non-U.S. Shareholders. The rules governing U.S. federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a limited summary of
such rules. Prospective Non-U.S. Shareholders should consult with their own
tax advisors to determine the impact of U.S. federal, state and local income
tax laws with regard to an investment in Common Shares, including any
reporting requirements.

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Ordinary Dividends. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by the Company of U.S. real
property interests (discussed below) and other than distributions designated
by the Company as capital gain dividends, will be treated as ordinary income
to the extent that they are made out of current or accumulated earnings and
profits of the Company. Such distributions to Non-U.S. Shareholders will
ordinarily be subject to a withholding tax equal to 30% of the gross amount of
the distribution, unless an applicable tax treaty reduces that tax. However,
if income from the investment in the Common Shares is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business,
the Non-U.S. Shareholder generally will be subject to tax at graduated rates
in the same manner as U.S. Shareholders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax if the
shareholder is a foreign corporation).

The Company expects to withhold U.S. tax at the rate of 30% on the gross
amount of any dividends, other than dividends treated as attributable to gain
from sales or exchanges of U.S. real property interests and capital gain
dividends, paid to a Non-U.S. Shareholder, unless (i) a lower treaty rate
applies and the required form evidencing eligibility for that reduced rate is
filed with the Company or the appropriate withholding agent or (ii) the Non-
U.S. Shareholder files an IRS Form 4224 (or a successor form) with the Company
or the appropriate withholding agent claiming that the distributions are
"effectively connected" income.

Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate.

Under the recent Final Regulations that are proposed to be effective for
distributions made after December 31, 1998 (the "New Withholding
Regulations"), however, a Non-U.S. Shareholder who wishes to claim the benefit
of an applicable treaty rate would be required to satisfy applicable
certification requirements. In addition, under the Final Regulations, in the
case of Common Shares held by a foreign partnership, (x) the certification
requirement would generally be applied to the partners in the partnership and
(y) the partnership would be required to provide certain information,
including a United States taxpayer identification number. The New Withholding
Regulations provide look-through rules in the case of tiered partnerships.
Shareholders that are partnerships or entities that are similarly fiscally
transparent for federal income tax purposes, and persons holding Common Shares
through such entities, may be subject to restrictions on their ability to
claim benefits under U.S. tax treaties and should consult a tax advisor.

The New Withholding Regulations also require a corporation that is a REIT to
treat as a dividend the portion of a distribution that is not designated as a
capital gain dividend or return of basis and apply the 30% withholding tax
(subject to any applicable deduction or exemption) to such portion, and to
apply the FIRPTA withholding rules (discussed below) with respect to the
portion of the distribution designated by the REIT as capital gain dividend.
The New Withholding Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. THE DISCUSSION
SET FORTH IN "TAXATION OF NON-U.S. SHAREHOLDERS" DOES NOT TAKE THE NEW
WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE NON-U.S. SHAREHOLDERS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW
WITHHOLDING REGULATIONS.

Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gain dividends which are not
attributable to or treated as attributable to the disposition by the Company
of a U.S. real property interest generally will not be subject to U.S. federal
income taxation, except as described below.

Return of Capital. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest,
will not be taxable to a Non-U.S. Shareholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Shareholder's
Common

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Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition of
its Common Shares, as described below. If it cannot be determined at the time
a distribution is made whether such distribution will be in excess of current
and accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Shareholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.

Capital Gain Dividends. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by
the Company of U.S. real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Shareholder as if such gain were effectively connected
with a U.S. business. Thus, Non-U.S. Shareholders will be taxed on such
distributions at the normal capital gain rates applicable to U.S. Shareholders
(subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of nonresident alien individuals). The Company is
required by applicable Treasury regulations under FIRPTA to withhold 35% of
any distribution that could be designated by the Company as a capital gain
dividend. However, if the Company designates as a capital gain dividend a
distribution made prior to the day the Company actually effects such
designation, then (although such distribution may be taxable to a Non-U.S.
Shareholder) such distribution is not subject to withholding under FIRPTA;
rather, the Company must effect the 35% FIRPTA withholding from distributions
made on and after the date of such designation, until the distributions so
withheld equal the amount of the prior distribution designated as a capital
gain dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's U.S. tax liability.

Sales of Common Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or exchange of Common Shares generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT
in respect of which at all times during a specified testing period less than
50% in value of the stock is and was held directly or indirectly by foreign
persons. It is currently anticipated that the Company will continue to be a
"domestically controlled REIT," and, therefore, that the sale of Common Shares
will not be subject to taxation under FIRPTA. However, gain not subject to
FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the
Common Shares is treated as "effectively connected" with the Non- U.S.
Shareholder's U.S. trade or business, in which case the Non-U.S. Shareholder
will be subject to the same treatment as U.S. Shareholders with respect to
such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, or maintains an office or a
fixed place of business in the United States to which the gain is
attributable, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. A similar rule will apply to
capital gain dividends not subject to FIRPTA.

If the Company were not a domestically-controlled REIT, a Non-U.S.
Shareholder's sale of Common Shares would be subject to tax under FIRPTA only
if the selling Non-U.S. Shareholder owned more than 5% of the class of Common
Shares sold at any time during a specified period (generally the shorter of
the period that the Non- U.S. Shareholder owned the Common Shares sold or the
five-year period ending on the date of disposition). If the gain on the sale
of Common Shares were to be subject to tax under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. Shareholders with
respect to such gain (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of such Common Shares would be required to withhold 10% of
the gross purchase price.

Backup Withholding. Backup withholding tax (which generally is withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) and information reporting will generally not apply to
distributions to Non-U.S. Shareholders outside the United States that are
treated as (i) dividends subject to the 30% (or lower treaty rate) withholding
tax discussed above, (ii) capital gains dividends, or (iii) distributions
attributable to gain from the sale or exchange by the Company of United States
real property interests. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Common Shares by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply,

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however, to a payment of the proceeds of a sale of Common Shares by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or
business in the United States, or (c) is a "controlled foreign corporation"
(generally, a foreign corporation controlled by United States shareholders)
for United States tax purposes, unless the broker has documentary evidence in
its records that the holder is a Non-U.S. Shareholder and certain other
conditions are met, or the shareholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of a
sale of Common Shares is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a Non-U.S. Shareholder, or otherwise establishes an exemption.
Backup withholding is not an additional tax. A Non-U.S. Shareholder may obtain
a refund of any amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.

OTHER TAX CONSEQUENCES

The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders are urged to consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.

TAX ASPECTS OF THE OPERATING PARTNERSHIP

The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.

Classification as a Partnership. The Company will be entitled to include in
its income its distributive share of the Operating Partnership's income and to
deduct its distributive share of the Operating Partnership's losses only if
the Operating Partnership is classified for federal income tax purposes as a
partnership rather than as a corporation or an association taxable as a
corporation. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
(i) it is not expressly classified as a corporation under Section 301.7701-
2(b)(l) through (8) of the Treasury Regulations; (ii) it does not elect to be
classified as an association taxable as a corporation; and (iii) it is not
treated as a corporation by virtue of being classified as a "publicly traded
partnership."

The Operating Partnership will not request a ruling from the Service that it
will be classified as a partnership for federal income tax purposes. Instead,
at the Closing, Wilmer, Cutler & Pickering will deliver its opinion that,
based on the provisions of the Partnership Agreement, certain factual
assumptions and certain representations described in the opinion, the
Operating Partnership will be treated for federal income tax purposes as a
partnership and not as an association taxable as a corporation. Unlike a tax
ruling, an opinion of counsel is not binding upon the Service, and no
assurance can be given that the Service will not challenge the status of the
Operating Partnership as a partnership for federal income tax purposes. If
such challenge were sustained by a court, the Operating Partnership would be
treated as a corporation for federal income tax purposes, as described below.
In addition, the opinion of Wilmer, Cutler & Pickering is based on existing
law, which is to a great extent the result of administrative and judicial
interpretation. No assurance can be given that administrative or judicial
changes would not modify the conclusions expressed in the opinion.

Under Section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership"
(except in situations in which 90% or more of the partnership's gross income
is of a specified type). A partnership is deemed to be publicly traded if its
interests are either (i) traded on an established securities market, or (ii)
readily tradable on a secondary market (or the substantial equivalent
thereof). While the Units will not be traded on an established securities
market, they could possibly be deemed to be traded on a secondary market or
its equivalent due to the Redemption Rights enabling the partners to dispose
of their Units.

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Under Treasury regulations governing the classification of partnerships
under Section 7704 (the "PTP Regulations"), the classification of partnerships
is generally based on a facts and circumstances analysis. However, the
regulations also provide limited "safe harbors" which preclude publicly traded
partnership status. Pursuant to one of those safe harbors, interests in a
partnership will not be treated as readily tradable on a secondary market or
the substantial equivalent thereof if (i) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act, and (ii) the partnership does not have
more than 100 partners at any time during the partnership's taxable year. In
determining the number of partners in a partnership for this purpose, a person
owning an interest in a flow-through entity (i.e., a partnership, grantor
trust, or S corporation) that owns an interest in the partnership is treated
as a partner in such partnership only if (x) substantially all of the value of
the person's interest in the flow-through entity is attributable to the flow-
through entity's interest (direct or indirect) in the partnership and (y) a
principal purpose of the use of the tiered arrangement is to permit the
partnership to satisfy the 100-partner limitation.

The Operating Partnership is expected to have less than 100 partners. The
Operating Partnership has not issued any Units required to be registered under
the Securities Act. Thus, the Operating Partnership presently qualifies for
the safe harbors provided in the PTP Regulations. If the Operating Partnership
were to have more than 100 partners (including, in certain circumstances,
persons owning interests through flow-through entities), it nevertheless would
be treated as a partnership for federal income tax purposes (rather than an
association taxable as a corporation) if at least 90% of its gross income in
each taxable year (commencing with the year in which it is treated as a
publicly traded partnership) consists of "qualifying income" within the
meaning of Section 7704(c)(2) of the Code (including interest, dividends,
"real property rents" and gains from the disposition of real property (the
"90% Passive-Type Income Exception"). For purposes of this test, Rents
received from greater than 10% owners of lessees, which owners also own 5% or
more of the interests in the Operating Partnership would not qualify as rents
from real property. Because of the substantial ownership of the Operating
Partnership by certain of the Initial Lessees (or their Affiliates), the
Operating Partnership currently would not be eligible for the 90% Passive-Type
Income Exception. Thus, if the Operating Partnership were to have more than
100 partners (including, in certain circumstances, persons owning interests
through flow-through entities), the Company would be required to place
appropriate restrictions on the ability of the Limited Partners to exercise
their redemption rights as and if deemed necessary to ensure that the
Operating Partnership does not constitute a publicly traded partnership.
However, there is no assurance that the Operating Partnership will at all
times in the future be able to avoid treatment as a publicly traded
partnership. The Company intends to conduct its operations in such a way as to
continue to fall within a safe harbor from publicly traded partnership status.

If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company
would not be able to satisfy the income and asset requirements for REIT
status. See "--Taxation of the Company as a REIT--Income Tests" and "--
Taxation of the Company as a REIT --Asset Tests." In addition, any change in
the Operating Partnership's status for tax purposes might be treated as a
taxable event, in which case the Company might incur a tax liability without
any related cash distribution. See "--Taxation of the Company as a REIT--
Annual Distribution Requirements." Further, items of income and deduction of
the Operating Partnership would not pass through to its partners, and its
partners would be treated as stockholders for tax purposes. Consequently, the
Operating Partnership would be required to pay income tax at corporate tax
rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing the Operating
Partnership's taxable income.

The following discussion assumes that the Operating Partnership will be
treated as a partnership for federal income tax purposes.

Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply

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with the provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. Generally, Section 704(b) and the Treasury Regulations
promulgated thereunder require that partnership allocations respect the
economic arrangement of the partners.

If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of
Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder.

Tax Allocations With Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties contributed by Initial Sellers
who are Affiliates of Pohanka, Rosenthal, Sheehy or Cherner) that is
contributed to a partnership in exchange for an interest in the partnership
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 contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The Operating
Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the Partnership Agreement will
require such allocations to be made in a manner consistent with Section 704(c)
of the Code.

In general, the Initial Sellers who are Affiliates of Pohanka, Rosenthal,
Sheehy or Cherner will be allocated depreciation deductions for tax purposes
which are lower than such deductions would be if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed
assets (including the Properties) which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to the
Initial Sellers and the Company will generally be allocated only its share of
capital gains attributable to appreciation, if any, occurring after the
closing of the Offering. This will tend to eliminate the Book-Tax Difference
over such life of the Operating Partnership. However, the special allocation
rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
assets in the hands the Operating Partnership will cause the Company to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds,
which might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "--Taxation of the Company as a REIT--Annual
Distribution Requirements." The foregoing principles also apply in determining
the earnings and profits of the Company for purposes of determining the
portion of distributions taxable as dividend income. The application of these
rules over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had the Company purchased the contributed
assets entirely for cash.

The Treasury Regulations under Section 704(c) of the Code allow partnerships
to use any reasonable method of accounting for Book-Tax Differences so that
the contributing partner receives the tax benefits and burdens of any built-in
gain or loss associated with the contributed property. Under the Partnership
Agreement, the General Partner has the discretion to determine which of the
methods of accounting for Book-Tax Differences (specifically approved in the
Treasury Regulations) will be elected with respect to any properties
contributed to the Partnership. With respect to certain of the Initial
Properties, the Partnership has agreed to utilize the "traditional method with
ceiling rule" of eliminating the Book-Tax Difference with respect to such
Properties, except that the Operating Partnership will be permitted to utilize
a so-called "curative allocation" in connection with a sale of certain Initial
Properties in accordance with a special rule in the Treasury Regulations. The
use of this method may result in the Company being allocated less
depreciation, and therefore more taxable income in a given year than would be
the case if a different method for eliminating the Book-Tax Difference were
chosen. In such event, distributions to shareholders will be comprised of a
greater portion of taxable income as opposed to a return of capital than would
have been the case if another method were utilized. The Company has not

99
<PAGE>

determined which of the alternative methods of accounting for Book-Tax
Differences will be elected with respect to its properties to be contributed
to the Operating Partnership in the future.

Basis in Operating Partnership Interest. The Company's adjusted tax basis in
its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed to the Company
and (c) by constructive distributions resulting from a reduction in the
Company's share of indebtedness of the Operating Partnership.

If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss
will be deferred until such time and to the extent that the Company has
adjusted tax basis in its interest in the Operating Partnership. To the extent
that the Operating Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the Operating Partnership (such
decreases being considered a cash distribution to the partners), exceeds the
Company's adjusted tax basis, such excess distributions (including such
constructive distributions) constitute taxable income to the Company. Such
taxable income will normally be characterized as a capital gain, and if the
Company's interest in the Operating Partnership has been held for longer than
the long-term capital gain holding period (currently one year), the
distributions and constructive distributions will constitute long-term capital
gain. Under current law, capital gains and ordinary income of corporations are
generally taxed at the same marginal rates.

Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to
customers in the ordinary course of the Operating Partnership's trade or
business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "--Taxation of the Company as a REIT--
Income Tests." Such prohibited transaction income may also have an adverse
effect upon the Company's ability to satisfy the income tests for
qualification as a REIT. See "--Taxation of the Company as a REIT--Income
Tests." Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends
to hold the Properties for investment with a view to long-term appreciation,
to engage in the business of acquiring, providing financing for the
development of, owning, and operating the Properties (and other similar
properties) and to make such occasional sales of the Properties, including
peripheral land, as are consistent with the Operating Partnership's investment
objectives.

100
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below and the
Underwriters, for whom Friedman, Billings, Ramsey & Co., Inc. is acting as
Representative, has severally agreed to purchase, the number of Common Shares
offered hereby set forth below opposite its name.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. ..........................
----
Total........................................................
====
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to purchase all the Common Shares offered hereby if
any are purchased. The Company has agreed to indemnify the Underwriters
against certain civil liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.

The Underwriters propose initially to offer the Common Shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such offering price less a concession not
to exceed $ per Common Share. The Underwriters may allow and such dealers
may reallow a concession not to exceed $ per Common Share to certain other
dealers. After the Common Shares are released for sale to the public, the
offering price and other selling terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option exercisable during a
30-day period after the date hereof to purchase, at the initial offering price
less underwriting discounts and commissions, up to an additional 3,000,000
Common Shares for the sole purpose of covering over-allotments, if any. To the
extent that the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase that number of
additional Common Shares which is proportionate to such Underwriter's initial
commitment.

The Underwriters have agreed to reserve up to 2% of the Common Shares
offered hereby for sale to certain persons associated with the Company,
including executive officers and Trustees of the Company and their families,
at the initial public offering price net of underwriting discounts and
commissions. To the extent such reserved shares are sold to such individuals,
the total underwriting discounts and commissions will be reduced.

The Company has agreed to grant to the Representative the Underwriting
Warrants representing the right to acquire 1,277,794 Common Shares, an amount
equal to 6.385% of the Common Shares offered hereby (excluding exercise of the
Underwriters' over-allotment option) and equal to 4% of the Common Shares to
be outstanding on the closing of the Offering (excluding exercise of the
Underwriters' over-allotment option) on a fully diluted basis. The
Underwriting Warrants will be exercisable on the closing date of the Offering
and for a period of five years thereafter at the initial public offering price
of the Common Shares. The Underwriting Warrants and the underlying Common
Shares issued upon exercise of the Underwriting Warrants may not be sold,
transferred, assigned or hypothecated for one year following the date of this
Prospectus, except to officers or partners of the Representative or members of
the selling group. The Company has also registered the Common Shares
underlying the Underwriting Warrants. The Underwriting Warrants enable the
Representative to profit from a rise in the market price of the Common Shares.
Dilution to the Common Shares will occur if the Underwriting Warrants are
exercised at a time when the exercise price is less than the market price of
the Common Shares. In addition, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected because the
holders of the Underwriting Warrants can be expected to exercise them at a
time when the Company likely would be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriting
Warrants.

Prior to the Offering, Friedman, Billings, Ramsey Group, Inc. an affiliate
of the Representative, established in the Company's favor a short-term
revolving loan facility on a secured basis in the principal amount of up to
approximately $2.5 million. Any outstanding loan amount and any accrued
interest are due and payable in full from the net proceeds of this Offering on
the closing date of this Offering.

101
<PAGE>

FBR Asset Investment Corporation, an Affiliate of the Representative of the
Underwriters, has subscribed to purchase 1,792,115 Common Shares in a private
placement at a purchase price equal to the initial price to the public (net of
underwriting discounts and commissions). FBR Asset Investment Corporation may
not offer, pledge, sell, dispose of or otherwise transfer the Common Shares
acquired in the FBR Offering for a period of one-year following the closing of
the Offering, without the consent of the Representative.

The Company has agreed to reimburse the Underwriters for their out-of-pocket
expenses, including fees and expenses of counsel to the Underwriters.

The Company has granted to the Representative of the Underwriters
preferential rights for three years from the date of the Registration
Statement, assuming completion of the Offering, to act as the exclusive
underwriter for, or advisor to, the Company in specified transactions or
offerings for customary fees to be mutually agreed to by the parties.

An employee of the Representative is the daughter of Vincent A. Sheehy and
is a partner in certain of the Initial Sellers Affiliated with Mr. Sheehy. As
a result of being a partner, that employee could be deemed the indirect
beneficial owner of an estimated 49,810 of the Units to be issued to
Affiliates of Mr. Sheehy.

Thomas D. Eckert, the Company's President and Chief Executive Officer, and
David S. Kay, the Company's Chief Financial Officer, have agreements with
Friedman, Billings, Ramsey Group, Inc. providing that if the Offering is not
completed for whatever reason, Friedman, Billings, Ramsey Group, Inc. will
employ them at a rate equal to their respective annual salaries and benefits
provided under their respective employment agreements with the Company for up
to one year following the abandonment of the Offering.

In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Shares in the open market to cover syndicate short
positions or to stabilize the price of the Common Shares. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
if the syndicate repurchases previously distributed Common Shares in syndicate
covering transactions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Common
Shares above independent market levels. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.

Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price has been determined by negotiation
between the Company and the Representative. Among the factors considered in
making such determination were the history of, and the prospects for, the
industry in which the Company will compete, an assessment of the Initial
Properties and the Company's prospects for future earnings, the general
conditions of the economy and the securities markets, and the prices, dividend
yields and other financial characteristics of comparable publicly traded
REITs. There can, however, be no assurance that the price at which the Common
Shares will sell in the public market after this Offering will not be lower
than the price at which they are sold by the Underwriters.

The Company has been advised by the Representative that it and certain other
Underwriters intend to make a market in the Common Shares. However, the
Underwriters are not obligated to do so and such market making may be
interrupted or discontinued at any time without notice at the sole discretion
of the Underwriters. Application has been made by the Company to list the
Common Shares in The Nasdaq National Market under the symbol "CARS," but one
of the requirements for listing and continued listing is the presence of two
market makers for the Common Shares. The presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the
development or liquidity of any market for the Common Shares.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales of the Common Shares offered hereby to any accounts
over which they exercise discretionary authority.

102
<PAGE>

Common Shares or other shares of beneficial interest of the Company, or any
securities convertible or exercisable or exchangeable for any Units or Common
Shares or other shares of beneficial interest of the Company (except for
Options granted under the Plan) for a period of two years from the effective
date of this Offering. The Representative, at any time and without notice, may
release all or any portion of the Common Shares subject to the foregoing lock-
up agreements.

The Representative may be considered a promoter of the Company under the
Securities Act. William R. Swanson, a Managing Director of the Representative,
will join the Board of Trustees of the Company following the closing of this
Offering.

LEGAL MATTERS

Certain legal matters in connection with the Offering will be passed upon
for the Company by Wilmer, Cutler & Pickering, Washington, D.C. and for the
Underwriters by Hunton & Williams, Richmond, Virginia. In addition, the
description of federal income tax consequences contained in this Prospectus
under "Federal Income Tax Consequences" is, to the extent that it constitutes
matters of law, summaries of legal matters or legal conclusions, the opinion
of Wilmer, Cutler & Pickering.

EXPERTS

The financial statements of the Company as of October 20, 1997 included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

The financial statements of Geneva Enterprises, Inc. and Affiliated Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Walpert, Smullian & Blumenthal, P.A. independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.

103
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 under the Securities Act,
with respect to the Common Shares offered hereby (the "Registration
Statement"). This Prospectus, which is part of the Registration Statement,
does not contain all the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Shares, reference is made to the Registration Statement and
such exhibits filed therewith. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.

For further information with respect to the Company and the Common Shares,
reference is made to the Registration Statement and such exhibits, copies of
which may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, Suite 1300, New York, New York 10048. The Commission also
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file documents with the
Commission, including the Company, and the address is http://www.sec.gov.

Following the closing of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and will, therefore, be required to file reports, proxy
and information statements and other information with the Commission pursuant
to the reporting requirements of Section 13(a) thereof, in addition to any
other legal or Nasdaq requirements. Such reports, statements and information
can also be inspected and copied at the Commission's offices and web site
listed above.

104
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
INTRODUCTION TO FINANCIAL STATEMENTS...................................... F-2
CAPITAL AUTOMOTIVE REIT:
Report of Independent Public Accountants--Arthur Andersen LLP........... F-3
Balance Sheet as of October 20, 1997.................................... F-4
Notes to Balance Sheet.................................................. F-5
Introduction to Pro Forma Financial Statements (Unaudited).............. F-9
Pro Forma Balance Sheet as of October 20, 1997 (Unaudited).............. F-10
Pro Forma Statement of Operations for the Year Ended December 31, 1996
(Unaudited)............................................................ F-11
Pro Forma Statement of Operations for the Period Ended October 20, 1997
(Unaudited)............................................................ F-12
Notes to Pro Forma Financial Statements (Unaudited)..................... F-13
GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY:
Independent Auditors' Report--Walpert, Smullian & Blumenthal, P.A. ..... F-16
Combined Balance Sheets as of December 31, 1996 and September 30, 1997
(Unaudited)............................................................ F-17
Combined Statements of Income for the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1996 (Unaudited) and 1997
(Unaudited)............................................................ F-18
Combined Statements of Changes in Stockholders' Equity for the Year
Ended December 31, 1996 and the Nine Months Ended September 30, 1997
(Unaudited)............................................................ F-19
Combined Statements of Cash Flows for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1996 (Unaudited) and 1997
(Unaudited)............................................................ F-20
Notes to Combined Financial Statements.................................. F-21
CROSS-CONTINENT AUTO RETAILERS, INC.:
Summary Historical Financial Information................................ F-28
</TABLE>

F-1
<PAGE>

INTRODUCTION TO FINANCIAL STATEMENTS

The following pages present the audited financial statements of the Company
and Geneva Enterprises, Inc. and Affiliated Company ("Geneva") as well as
summary historical financial information for Cross-Continent Auto Retailers,
Inc. ("Cross-Continent"). The audited financial statements of Geneva and the
summary financial information for Cross-Continent have been included in this
Prospectus to present the financial condition and historical operations of the
significant Initial Lessees, in order to show their ability to make base
rental payments under the Initial Leases. Only Geneva, who is the Lessee (or
has guaranteed the rent of the Lessee) of all the Rosenthal properties
acquired, and Cross-Continent have been presented, as they represent Initial
Lessees for which the purchase price of the related Initial Property under
lease represents greater than 20 percent of the aggregate purchase price of
all of the Initial Properties, and therefore are considered significant. As
Cross-Continent is a publicly traded entity, registered with the Securities
and Exchange Commission, only summary historical financial information has
been provided; however, audited historical financial statements and other
information as filed with the Securities and Exchange Commission is publicly
available.

Financial Statements of the Operating Partnership have not been presented,
as it has not had any significant activity since its inception in November
1997. The Operating Partnership will commence activity concurrent with the
closing of the Offering.

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited the accompanying balance sheet of Capital Automotive REIT (a
Maryland real estate investment trust, the "Company") as of October 20, 1997.
This financial statement is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement 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 financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Capital Automotive REIT as of
October 20, 1997, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Washington, D.C.,

February 3, 1998

F-3
<PAGE>

CAPITAL AUTOMOTIVE REIT

BALANCE SHEET

AS OF OCTOBER 20, 1997

<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $ --
-----
Total assets........................................................... $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities........................................................ $ --
-----
Common stock, par value $.01, 10 shares issued and outstanding........... --
Additional paid-in capital............................................... 100
Stock subscriptions receivable........................................... (100)
-----
Total stockholders' equity............................................... --
-----
Total liabilities and stockholders' equity............................. $ --
=====
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-4
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO BALANCE SHEET

AS OF OCTOBER 20, 1997

NOTE 1--THE COMPANY

Capital Automotive REIT (the "Company") was formed as a Maryland real estate
investment trust on October 20, 1997 and was initially capitalized on such
date through the sale of 10 shares of common stock for a $100 stock
subscription receivable. The Company's mission is to invest in the real
property and improvements used by operators of motor vehicle dealerships and
related businesses, through its ownership interest in Capital Automotive L.P.
(the "Operating Partnership"). After its formation, the Company will
consolidate the Operating Partnership due to its control as sole general
partner. The accompanying balance sheet includes all accounts of the Company.

The Company's sole activity through October 20, 1997, consisted of the
organization and start-up of the Company. Accordingly, no statement of
operations is presented.

The Company is in the process of filing a Registration Statement for
approximately 20.0 million shares of common stock (the "IPO"). Contingent upon
the consummation of the IPO, the Company will be liable for organization and
offering expenses in connection with the sale of the shares of the common
stock offered. The Company will contribute the proceeds from the IPO to the
Operating Partnership in exchange for 20.0 million units in the Operating
Partnership.

Contingent on the closing of the IPO, FBR Asset Investment Corporation, an
affiliate of Friedman, Billings, Ramsey & Co., Inc. ("FBR"), the
representatives of the underwriters in the IPO, will separately purchase
1,792,115 common shares of the Company at the initial public offering price
(net of underwriting discounts and commissions) (the "FBR Offering"). The
Company will contribute the proceeds from the FBR Offering to the Operating
Partnership in exchange for an equal number of units in the Operating
Partnership.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INCOME TAXES

The Company intends to qualify as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as amended. As a real estate
investment trust, the Company is required to distribute at least 95% of its
taxable income to shareholders and meet certain other requirements.

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CONCENTRATION OF RISK

The Company is in the development stage, and therefore is subject to several
risk factors, including the following:

. The lack of operating history of the Company;

. Dependence on the ability of lessees to pay rent or perform obligations
under leases;

. Taxation of the Company as a regular corporation if it fails to qualify
as a real estate investment trust;

. The Company's dependence on key officers and trustees of the Company;
and

. The general risks relating to commercial real estate ownership and
investment.

F-5
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO BALANCE SHEET--(CONTINUED)

NOTE 3--RELATED PARTY TRANSACTIONS

In October 1997, and amended as of January 30, 1998, Friedman, Billings,
Ramsey Group, Inc., an affiliate of FBR, issued to the Company a short-term
revolving line of credit in the amount of approximately $2.5 million. Draws on
the line of credit are to be used by the Company for organizational costs and
offering costs, are due on demand and are to be repaid with the proceeds from
the IPO. Draws on the line of credit bear interest at a rate of 10 percent per
annum.

NOTE 4--SUBSEQUENT EVENTS

ACQUISITIONS

Since October 20, 1997, the Company, through the Operating Partnership, has
committed to acquire real property and improvements from the affiliates of
seven motor vehicle dealers (the "Dealers") for a total purchase price of
approximately $166.2 million, for which approximately $75.6 million will be
paid with units in the Operating Partnership (valued at the same price as the
Company's shares sold in the IPO), $41.3 million will consist of mortgage debt
assumed by the Company, and the remaining $49.3 million will be paid with the
proceeds of the IPO. The mortgage debt assumed will also be repaid with the
proceeds of the IPO. These acquisitions are contingent on the completion of
the IPO as discussed above. Summarized financial information for the Dealers
(on a combined basis) as of September 30, 1997 and for the year ended December
31, 1996 and the nine months ended September 30, 1997, is as follows
(unaudited, in thousands):

BALANCE SHEET

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Inventory (dealer)............................................. $197,419
Real estate, net............................................... 39,471
Other assets................................................... 225,440
--------
Total assets................................................... $462,330
========
Mortgage and other debt........................................ $269,934
Other liabilities.............................................. 76,721
Shareholders' equity........................................... 115,675
--------
Total liabilities and shareholders' equity..................... $462,330
========
</TABLE>

F-6
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO BALANCE SHEET--(CONTINUED)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Sales revenue................................ $ 1,784,366 $ 1,271,428
Cost of sales................................ (1,567,565) (1,119,370)
Net operating income......................... 216,801 152,058
Other income (expense)....................... 14,825 (8,910)
Selling, general and administrative.......... (211,226) (126,078)
----------- -----------
Net income................................... $ 20,400 $ 17,070
=========== ===========
</TABLE>

RENTAL INCOME

As part of the acquisitions described above, the Company will enter into
lease agreements (the "Leases") with the operators of the Dealers (the
"Lessees"). The Leases generally have initial terms of eight to eleven years,
and generally may be extended upon the same terms and conditions for one or
two additional ten year terms, at the option of the Lessees. The Leases are
triple-net leases and require the Lessees to pay substantially all expenses
associated with operations, including taxes, insurance, utilities, service,
maintenance and ground lease payments. In addition, the majority of the Leases
are guaranteed by parent entities to the Lessees, but the Leases are not
cross-defaulted. Base rent will be increased annually over the term of the
Leases by a factor of the consumer price index. Future minimum rental payments
will be received as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
- ------------------
<S> <C>
1998............................................................... $ 14,353
1999............................................................... 18,318
2000............................................................... 18,318
2001............................................................... 18,318
2002............................................................... 18,318
Thereafter......................................................... 97,963
--------
$185,588
========
</TABLE>

STOCK OPTION PLANS

The Company has established a plan (the "Plan") for the purpose of
attracting and retaining trustees, executive officers and other key employees.
Each option granted pursuant to the Plan shall be designated at the time of
grant as either an "incentive share option" or as a "non-qualified share
option." Options in the amount of 8 percent of the aggregate number of the
Operating Partnership's units outstanding (on a fully diluted basis and
including exercise of the overallotment option) are available for grant under
the Plan. The options will become exercisable, subject to certain conditions,
at a rate of 25 percent per year over a four year period, commencing on the
first anniversary of the date of grant and with a term of ten years.

Concurrent with the closing of the IPO, the Company will grant options in
the amount of 7 percent of the aggregate number of the Operating Partnership's
units outstanding as a result of the IPO (including exercise of the
overallotment option), fully diluted for the FBR Offering, warrants issued
(see below) and the acquisitions described above. Such options will be granted
under the Plan to several key officers and employees of the Company,
exercisable at the IPO price.

F-7
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO BALANCE SHEET--(CONTINUED)

STOCK WARRANTS

As part of the IPO, the Company will issue warrants to two affiliates of the
Dealers, representing the right to acquire units in the Operating Partnership
in the aggregate amount of 4 percent of the Operating Partnership's
outstanding units as a result of the IPO, fully diluted for the FBR Offering,
management stock options FBR warrants (see below) and the acquisitions
described above. In addition, the Company will issue warrants to FBR,
representing the right to acquire 1,277,794 shares of common stock of the
Company. These warrants are exercisable on the effective date of the IPO and
for a period of five years thereafter, with an exercise price equal to the IPO
price.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of its four
executive officers. The Company will assign the employment agreements to the
Operating Partnership effective January 1, 1998. The agreements are for a four
year term and provide that the executive officers agree to devote their full
time to the operation of the Company (except as the Company otherwise agrees,
including on behalf of the Operating Partnership). The term is shortened to
June 30, 1998 if the Company has not completed its initial public offering by
such date.

Two of the Company's executive officers have agreements with FBR providing
that if the IPO cannot be completed, FBR will employ each of them for a term
of one year (or until the individual finds new employment) at a compensation
equal to that under their current employment agreement.

F-8
<PAGE>

CAPITAL AUTOMOTIVE REIT

PRO FORMA BALANCE SHEET AS OF OCTOBER 20, 1997 AND
PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND THE PERIOD ENDED OCTOBER 20, 1997

(UNAUDITED)

The following unaudited pro forma balance sheet gives effect to: (i) the
completion of the Offering and the concurrent FBR Offering, (ii) the
acquisition of certain of the Initial Properties, (iii) the commencement of
the Initial Leases, and (iv) certain other transactions described in the notes
hereto as though such transactions occurred on October 20, 1997.

The following unaudited pro forma statements of operations give effect to
(i) the completion of the Offering and the concurrent FBR Offering, (ii) the
acquisition of certain of the Initial Properties, (iii) the commencement of
the Initial Leases, and (iv) certain other transactions described in the notes
hereto as though such transactions occurred at the beginning of the presented
period.

The following unaudited pro forma data is not necessarily indicative of what
the actual financial position or results of operations of the Company would
have been as of the date or for the period indicated, nor does it purport to
represent the financial position or results of operations for the Company for
future periods.

F-9
<PAGE>

CAPITAL AUTOMOTIVE REIT

PRO FORMA BALANCE SHEET
AS OF OCTOBER 20, 1997

(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA(H)
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Cash...................................... $-- $277,350 (A) $211,725
5,000 (B)
(41,298)(C)
(49,301)(D)
25,000 (F)
1,324 (G)
(350)(B)
Land...................................... -- 115,784 (D) 115,784
Building and improvements................. -- 50,439 (D) 50,439
---- --------
Total real estate......................... -- 166,223
Other assets.............................. -- 350 (B) 350
---- --------
Total assets.......................... $-- $384,298
==== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage payable.......................... $-- $ 41,298 (D) $ --
(41,298)(C)
Line of credit............................ -- 5,000 (B) 5,000
Security deposits payable................. -- 1,324 (G) 1,324
---- --------
Total liabilities..................... -- 6,324
---- --------
Minority interest......................... -- 71,014 (D)(E) 71,014
Shareholders' equity:
Common stock............................ -- 200 (A) 218
18 (F)
Additional paid-in capital.............. -- 277,150 (A) 306,742
4,610 (D)
24,982 (F)
---- --------
Total shareholders' equity............ -- 306,960
---- --------
Total liabilities and shareholders'
equity............................... $-- $384,298
==== ========
</TABLE>

The accompanying notes are an integral part of this unaudited pro forma balance
sheet.

F-10
<PAGE>

CAPITAL AUTOMOTIVE REIT

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA(H)
---------- ----------- ------------
<S> <C> <C> <C>
Total revenue.......................... $-- $15,887 (I) $15,887
Depreciation and amortization.......... -- 2,522 (D) 2,522
General and administrative expense..... -- 3,500 (J) 3,500
Interest expense....................... -- 470 (B) 470
---- -------
Total expenses....................... -- 6,492
---- -------
Net income before minority interest.... -- 9,395
Minority interest...................... -- (1,765)(E) (1,765)
---- -------
Net income applicable to common
shareholders.......................... $-- $ 7,630
==== =======
Shares of common stock outstanding used
to compute earnings per share......... 7,718 (K)
=======
Earnings per share of common stock
outstanding........................... $ 0.99
=======
</TABLE>

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

F-11
<PAGE>

CAPITAL AUTOMOTIVE REIT

PRO FORMA STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 20, 1997

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA (H)
---------- ----------- -------------
<S> <C> <C> <C>
Total revenue.......................... -- $13,901 (I) $13,901
Depreciation and amortization.......... -- 2,207 (D) 2,207
General and administrative expense..... -- 3,063 (J) 3,063
Interest expense....................... -- 411 (B) 411
--- -------
Total expenses....................... -- 5,681
--- -------
Net income before minority interest.... -- 8,220
Minority interest...................... -- (1,545)(E) (1,545)
--- ------- -------
Net income applicable to common
shareholders.......................... -- $ 6,675
=== =======
Shares of common stock outstanding used
to compare earnings per share......... 7,718(K)
=======
Earnings per share of common stock
outstanding........................... $ 0.86
=======
</TABLE>

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

F-12
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO PRO FORMA FINANCIAL STATEMENTS

(UNAUDITED)

(A) Represents 20.0 million shares of common stock issued in the initial
public offering, at $15.00 per share with a par value of $.01 per share.
Adjustments consist of the following (in thousands):

<TABLE>
<S> <C>
Proceeds of offering............................................... $300,000
Underwriters discount.............................................. (21,000)
Offering expenses.................................................. (1,650)
--------
Net proceeds....................................................... $277,350
========
Common stock....................................................... $ 200
Additional paid-in capital......................................... 277,150
--------
Net proceeds....................................................... $277,350
========
</TABLE>

(B) Represents a draw of $5.0 million on a $10.0 million line-of-credit
intended to be obtained by management upon closing of the Offering and
guaranteed by one of the Initial Properties. The $5.0 million draw will be
guaranteed by certain of the Initial Sellers for tax purposes. Draws on the
line of credit are assumed to bear interest at a rate of 8 percent. Costs in
the amount of $350,000 are assumed to be incurred in connection with obtaining
this line-of-credit and future long-term financing. These costs will be
capitalized and amortized into interest expense over the term of the line
(assumed to be five years).

(C) Represents the immediate repayment of the mortgage debt assumed from the
Initial Properties with proceeds from the Offering. See "Use of Proceeds"
elsewhere in this Prospectus.

(D) Represents contribution of the Initial Properties for units of the
Operating Partnership (assuming the IPO price of the Company's Common Shares),
assumption of mortgage debt, and cash. In the opinion of management, the
purchase price of the real property acquired estimated fair value as of the
date of commitment to acquire. In addition, the purchase price of real
property includes approximately $1.4 million in acquisition costs to be paid
by the Company. The purchase price of real property has been allocated 65%/35%
between land and buildings, respectively, for purposes of the unaudited pro
forma financial statements with the exception of two of the cross-continent
properties, which are being developed for use. Final allocations will be
calculated and recorded by the Operating Partnership upon closing. Adjustments
are comprised of the following (in thousands):

<TABLE>
<CAPTION>
TOTAL LAND BUILDING
-------- -------- --------
<S> <C> <C> <C>
Rosenthal......................................... $ 65,269 $ 42,425 $22,844
Pohanka........................................... 31,324 20,361 10,963
Sheehy............................................ 14,006 9,104 4,902
Cherner........................................... 6,323 4,110 2,213
Cross-Continent................................... 35,330 30,703 4,627
Good News......................................... 5,461 3,550 1,911
Kline............................................. 8,510 5,531 2,979
-------- -------- -------
$166,223 $115,784 $50,439
======== ======== =======
Units issued-Minority interest.................... $ 71,014
Units issued-Additional paid-in capital........... 4,610
Cash paid......................................... 49,301
Mortgage debt assumed............................. 41,298
--------
$166,223
========
</TABLE>

F-13
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)

Depreciation is computed using the straight-line method assuming estimated
useful lives of 20 years for the buildings and improvements.

(E) Minority interest is calculated at approximately 18.8 percent of the
Operating Partnership's partners' capital and net income. The ownership of the
Operating Partnership is as follows (in thousands):

<TABLE>
<CAPTION>
$ UNITS %
-------- ------ ----
<S> <C> <C> <C>
Partners' capital:
Certain Initial Sellers.............................. $ 75,624 5,042 18.8%
The Company.......................................... 302,350 21,792 81.2%
-------- ------ ----
Total.............................................. $377,974 26,834 100%
======== ====== ====
</TABLE>

(F) Represents 1,792,115 shares of common stock issued to FBR at the initial
public offering price (net of underwriting discounts and commissions of $1.05
per share of Common Stock or $1,881,721).

(G) Represents security deposits to be received from the Initial Lessees in
the amount of one month's base rent. Does not include approximately $.2
million in security deposits for two of the Cross-Continent Initial
Properties, as these Properties are currently being developed for use.

(H) The Company, as sole general partner of the Operating Partnership, will
have, subject to certain protective rights of the Limited Partners, full,
exclusive and complete responsibility and discretion in the management and
unilateral control of the Operating Partnership. Such responsibilities permit
the Company to enter into certain major transactions including acquisitions,
dispositions and refinancings, and to cause changes in the Operating
Partnership's line of business and distribution policies. Further, the Company
may not be replaced as general partner by the Limited Partners, except in
certain limited circumstances. Accordingly, for accounting purposes, the
Company is considered to control the Operating Partnership and the
accompanying unaudited pro forma financial statements consolidate the accounts
of the Company and the Operating Partnership. Financial statements of the
Operating Partnership have not been presented as it has not had any activity
since its inception.

(I) Represents payments of base rent from the Initial Lessees to the Company
calculated on a pro forma basis as if the beginning of the period presented
was the beginning of a lease year. Base rent adjustments have been calculated
from signed lease agreements (subject to consummation) which have initial
terms ranging generally from 8 to 11 years, with the first year annual rent
negotiated to produce a yield on the initial purchase price (approximately 11
percent). Amounts do not include approximately $2.4 million and $2.1 million,
for the periods ended December 31, 1996 and October 20, 1997, respectively, in
base rent for two of the Cross-Continent properties, as these properties are
currently being developed for use.

(J) Adjustment represents management's estimate for legal, audit, office
costs, salaries and other general and administrative expenses to be paid by
the Company, based on its current activity, as follows (in thousands). This
amount may increase based on additional acquisition activity:

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 20,
1996 1997
------------ ------------
<S> <C> <C>
Salaries and benefits--executive officers........ $1,800 $1,575
Other salaries and benefits...................... 400 350
Directors and officers insurance................. 300 263
Legal and accounting............................. 250 219
Directors fees and travel........................ 150 131
Travel and entertainment......................... 250 219
Office rent, telephone, supplies and other
administrative.................................. 250 219
Other............................................ 100 87
------ ------
Total.......................................... $3,500 $3,063
====== ======
</TABLE>

F-14
<PAGE>

CAPITAL AUTOMOTIVE REIT

NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)

Salaries and benefits are based upon employee contracts with the respective
employees and executive management. Other amounts are based upon management's
estimates of expenses to be incurred given the Company's level of operations
and related administrative requirements.

(K) Shares of common stock outstanding represent the number of shares whose
proceeds will be used to repay mortgage debt assumed and to acquire the
Initial Properties. If the total number of shares issued in the Offering and
the FBR Offering had been used, shares of common stock outstanding would be
approximately 21.8 million for both the year ended December 31, 1996 and for
the period ended October 20, 1997, resulting in earnings per share of common
stock outstanding of $0.35 and $0.31 for the year ended December 31, 1996 and
the period ended October 20, 1997, respectively.

F-15
<PAGE>

To The Board of Directors
Geneva Enterprises, Inc. and Affiliated Company

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying combined balance sheet of Geneva
Enterprises, Inc. and Affiliated Company as of December 31, 1996, and the
related combined statements of income, changes in stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company'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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Geneva
Enterprises, Inc. and Affiliated Company as of December 31, 1996 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ Walpert, Smullian & Blumenthal,
P.A.
Baltimore, Maryland
November 6, 1997

F-16
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

COMBINED BALANCE SHEETS

(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................ $ 1,556 $ 3,805
Accounts receivable
Customers...................................... 9,211 10,900
Contracts-in-transit........................... 9,864 8,791
Finance reserves............................... 635 906
Factory........................................ 2,670 2,095
Related parties................................ 2,318 1,902
Other.......................................... 963 195
Current portion of notes receivable--related
parties......................................... 3,089 3,968
Inventories...................................... 62,373 44,873
Prepaid expenses................................. 354 411
-------- --------
Total Current Assets......................... 93,033 77,846
-------- --------
Notes Receivable--related parties--Less Current
Portion........................................... 394 --
-------- --------
Property, Plant and Equipment--
At Cost
Land........................................... 881 881
Buildings and improvements..................... 639 639
Leasehold improvements......................... 3,237 3,251
Parts and services equipment................... 3,545 3,600
Furniture and fixtures......................... 4,788 4,888
Service vehicles............................... 832 804
-------- --------
13,922 14,063
Less: Accumulated depreciation and
amortization.................................. (10,189) (10,521)
-------- --------
3,733 3,542
-------- --------
Other Assets....................................... 61 93
-------- --------
Total Assets................................. $97,221 $81,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities................................
Bank overdraft................................... $ 5,626 $ 1,164
Notes payable--vehicles floor plan............... 64,228 47,913
Notes payable to related parties................. 1,624 1,124
Accounts payable.................................
Trade.......................................... 5,106 6,832
Related parties................................ 2,439 440
Customer deposits................................ 717 650
Accrued salaries and commissions................. 1,505 1,622
Other accrued liabilities........................ 6,406 8,308
-------- --------
Total Current Liabilities.................... 87,651 68,053
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common Stock..................................... 23 23
Additional paid-in capital....................... 3,969 4,532
Stockholders' notes receivable................... (820) (820)
Retained earnings................................ 6,398 9,693
-------- --------
Total Stockholders' Equity................... 9,570 13,428
-------- --------
Total Liabilities and Stockholders' Equity... $ 97,221 $ 81,481
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-17
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

COMBINED STATEMENTS OF INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Sales.......................................... $489,065 $374,352 $397,371
Cost of Sales.................................. 434,502 334,181 355,823
-------- -------- --------
Gross Profit............................... 54,563 40,171 41,548
-------- -------- --------
Other Operating Income
Finance...................................... 5,927 4,971 4,590
Insurance.................................... 629 556 396
Warranty..................................... 2,960 2,388 1,758
Miscellaneous................................ 7,683 6,514 8,512
-------- -------- --------
17,199 14,429 15,256
-------- -------- --------
Selling, General, Administrative
and Interest Expenses......................... (68,768) (51,867) (53,509)
-------- -------- --------
Net Income................................. $ 2,994 $ 2,733 $ 3,295
======== ======== ========
</TABLE>

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

F-18
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
STOCK- TOTAL
COMMON STOCK ADDITIONAL HOLDERS' STOCK-
------------- PAID-IN NOTES RETAINED HOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
------ ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1,
1996................... 550 $25 $4,261 $(1,428) $3,367 $ 6,225
Net income.............. 2,994 2,994
Collections on
stockholders' notes
receivable............. -- -- -- 608 -- 608
Proceeds from stock
issuance............... 19 -- 650 -- -- 650
Stock retirements....... (20) (2) (942) -- 37 (907)
---- --- ------ ------- ------ -------
Balance--December 31,
1996................... 549 23 3,969 (820) 6,398 9,570
Net income (unaudited).. -- -- -- -- 3,295 3,295
Proceeds from stock
issuance (unaudited)... -- -- 563 -- -- 563
---- --- ------ ------- ------ -------
Balance, September 30,
1997 (unaudited)....... 549 $23 $4,532 $ (820) $9,693 $13,428
==== === ====== ======= ====== =======
</TABLE>

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

F-19
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED ----------------
DECEMBER 31, 1996 1996 1997
----------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flow From Operating Activities
Net income............................... $ 2,994 $ 2,733 $ 3,295
------- ------- -------
Adjustments to reconcile net income to
net cash (used in)/provided by operating
activities:
Depreciation and amortization.......... 585 421 360
Gain on disposition of property and
equipment............................. (8) -- --
Forgiveness of debt from affiliate..... -- -- (500)
Changes in Assets and Liabilities
(Increase)/Decrease in Assets:
Accounts receivable.................... (959) (1,741) 872
Inventories............................ (8,490) 13,001 17,500
Prepaid expenses....................... (74) (293) (57)
Other assets........................... 271 261 (32)
Increase/(Decrease) in Liabilities:
Accounts payable....................... (986) (448) (273)
Customer deposits...................... 69 98 (67)
Accrued salaries and commissions....... 505 238 117
Other accrued liabilities.............. (1,259) 1,550 1,902
------- ------- -------
Total Adjustments.................... (10,346) 13,087 19,822
------- ------- -------
Net Cash (Used In)/Provided By
Operating Activities................ (7,352) 15,820 23,117
------- ------- -------
Cash Flow From Investing Activities
Advances to related parties.............. (433) (91) (550)
Loans to stockholders.................... (1,402) (1,072) --
Repayment from related parties........... 52 52 65
Proceeds from sale of property and
equipment............................... 57 -- --
Purchases of property and equipment...... (467) (190) (169)
------- ------- -------
Net Cash Used In Investing
Activities.......................... (2,193) (1,301) (654)
------- ------- -------
Cash Flow From Financing Activities
Stock retirements........................ (907) (907) --
Capital contributions.................... 650 650 563
Net borrowings under floor plan.......... 7,897 (11,776) (16,315)
Repayments of notes payable to related
parties................................. (761) (647) --
Collections on stockholders' notes
receivable.............................. 607 548 --
Increase/(Decrease) in bank overdraft.... 1,883 (2,187) (4,462)
------- ------- -------
Net Cash Provided By/(Used In)
Financing Activities............... 9,369 (14,319) (20,214)
------- ------- -------
Net (Decrease)/Increase in Cash and Cash
Equivalents............................... (176) 200 2,249
Cash and Cash Equivalents--Beginning of
Year...................................... 1,732 1,732 1,556
------- ------- -------
Cash and Cash Equivalents--End of Year..... $ 1,556 $ 1,932 $ 3,805
======= ======= =======
</TABLE>

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

F-20
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS

NATURE OF BUSINESS

Geneva Enterprises, Inc. and Affiliated Company (the Company) has as its
principal business activity the sale and service of new and used vehicles in
the Washington, D.C. metropolitan area.

PRINCIPLES OF COMBINATION

The accompanying combined financial statements include the accounts of the
following entities which are affiliated through common ownership:

. Geneva Enterprises, Inc., which includes the accounts of the following
divisions (collectively called the Divisions):

Rosenthal Nissan/Mazda Rosenthal Chevrolet
Rosenthal Infiniti Landmark Honda
Rosenthal Gaithersburg Nissan Rosenthal Acura
Rosenthal Jaguar Rosenthal
Rosenthal Honda Cadillac/Buick/Isuzu
Rosenthal Mazda Geneva Management

All the Divisions except Geneva Management sell new and used vehicles
and related parts and service. Geneva Management provides management
services to all the Divisions, other related companies and outside
companies.

. Maryland Imported Cars, Inc.

All significant intercompany and interdivisional accounts and transactions
have been eliminated upon combination.

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Cash and Cash Equivalents: Cash and cash equivalents are comprised of
highly liquid instruments purchased with original maturities of three months
or less.

B. Concentration of Credit Risk: The Company maintains part of its cash in
bank deposit accounts at financial institutions, where the balances, at times,
may exceed federally insured limits. At December 31, 1996, the Company's cash
balance exceeded the insured limit by approximately $2,271,000.

Included in receivables at December 31, 1996 are significant concentrations
of amounts due from customers located in the Baltimore and Washington, D.C.
metropolitan areas. The Company generally requires no collateral in extending
credit to its customers other than the vehicles which are sold.

C. Accounts Receivable: The Company has established a mandatory write-off
policy for all receivables older than 90 days. At December 31, 1996, no
allowance for uncollectible accounts was deemed necessary.

D. Inventories: Inventories are stated at cost. Cost is determined by the
last-in, first-out (LIFO) method for new vehicles and parts and accessories,
and the specific cost method for used vehicles.

E. Property and Equipment and Related Depreciation and
Amortization: Equipment is recorded at cost and is depreciated using
accelerated methods over its estimated useful lives which range from 5 to 7
years. Buildings and leasehold improvements are amortized using the straight-
line method over its estimated useful lives which range from 31 1/2 to 39
years.

F. Recognition of Finance Fees and Insurance Commissions: The Company
arranges financing for its customers' vehicle purchases and arranges insurance
in connection therewith. The Company receives a fee from the financial
institution for arranging the financing and receives a commission for the sale
of an insurance policy.

F-21
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The Company is charged back for a portion of this fee should the customer
terminate the finance or insurance contract before its scheduled term or
before specified dates under arrangements with such institutions. The
estimated allowance for these chargebacks (approximately $3,426,000 at
December 31, 1996) is reflected in Other Accrued Liabilities and is based upon
the Company's historical experience for prepayments or defaults on these
contracts. Finance reserves are fees due to the Company from financial
institutions for fees on contracts arranged to finance vehicle purchases.

G. Income Taxes: The Company has elected by consent of its stockholders, to
be taxed under the provisions of Subchapter "S" of the Internal Revenue Code,
whereby the Company's income is treated for federal and state income taxes
substantially as though the Company were a partnership. No provision for
income taxes has been reflected in the financial statements, since taxable
attributes flow through to the individual stockholders.

H. Major Suppliers: The Company purchases substantially all of its new
vehicles and parts and accessories from a limited number of suppliers.

I. Advertising Expense: The Company expenses costs associated with
advertising as incurred. Total advertising expense for the year ended December
31, 1996, the majority of which was purchased through an affiliated company
(Note 8), was approximately $6,642,000.

J. 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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

K. Interest: The Company earned approximately $260,000 in interest
reimbursements during the year ended December 31, 1996, which has been netted
against interest expense. These interest reimbursements compensated the
Company for incurring interest on floor plan notes for vehicle purchases which
were not received on the Company's lot until after the obligations were
incurred. The Company incurred floor plan and other interest expense of
$3,485,000 during the year ended December 31, 1996.

L. Interim Financial Statements: The accompanying unaudited financial
statements as of September 30, 1997 and for the nine month periods ended
September 30, 1997 and 1996 have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been omitted, the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. Operating results for the nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. These unaudited financial statements should
be read in conjunction with the accompanying audited financial statements and
related footnotes as of and for the year ended December 31, 1996. In the
opinion of the Company, the unaudited financial statements contain all
adjustments (consisting only of normal recurring items) necessary for a fair
presentation of the results for the nine month periods ended September 30,
1997 and 1996.

F-22
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

M. Basis of Accounting: The accompanying combined financial statements are
prepared in accordance with generally accepted accounting principles. In
addition to these financial statements, Geneva Enterprises, Inc. and Maryland
Imported Cars, Inc. issue separate financial statements on the basis of
accounting each company uses for income tax purposes, which is a comprehensive
basis of accounting other than generally accepted accounting principles. The
differences between generally accepted accounting principles and the income
tax basis of accounting relating to retained earnings and net income are as
follows:

<TABLE>
<CAPTION>
INCOME
GAAP TAX BASIS DIFFERENCES
------- --------- -----------
<S> <C> <C> <C>
Retained Earnings/(Deficit), January 1,
1996......................................
Geneva Enterprises, Inc. ................ $ 4,395 $ 9,040 $(4,645)
Maryland Imported Cars, Inc. ............ (1,029) (916) (113)
------- ------- -------
$ 3,366 $ 8,124 $(4,758)
======= ======= =======
Net Income/(Loss)--1996
Geneva Enterprises, Inc. ................ $ 3,771 $ 3,342 $ 429
Maryland Imported Cars, Inc. ............ (777) (751) (26)
------- ------- -------
$ 2,994 $ 2,591 $ 403
======= ======= =======
Retained Earnings/(Deficit), December 31,
1996
Geneva Enterprises, Inc. ................ $ 8,166 $11,841 $(3,675)
Maryland Imported Cars, Inc. ............ (1,768) (1,629) (139)
------- ------- -------
$ 6,398 $10,212 $(3,814)
======= ======= =======
</TABLE>

N. Fair value of Financial Instruments: The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair
value of financial instruments approximates their recorded values due
primarily to the short-term nature of their related interest rate or their
maturities. In the opinion of management, the fair value of the notes payable
described in Note 4 and the notes receivable described in Note 7 is considered
unestimable due to the related party nature of such financial instruments.

NOTE 2--INVENTORIES

The classification of inventories is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
New vehicles.................................................... $59,110
Parts and accessories........................................... 5,684
-------
64,794
Less: Allowance to reduce carrying value to LIFO basis.......... (12,122)
-------
52,672
Used vehicles................................................... 9,701
-------
$62,373
=======
</TABLE>

If the first-in, first-out (FIFO) method had been used for new vehicles and
parts and accessories inventories, net income would have been approximately
$2,474,000 for the year ended December 31, 1996 and $2,097,000 and $2,371,000
for the nine month periods ended September 30, 1997 and 1996, respectively.

F-23
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--WHOLESALE FINANCE LIABILITY

The Company finances its acquisition of new and certain used vehicle
inventories through floor plan facilities with financial institutions. These
floor plan facilities are in the form of revolving credit arrangements
evidenced by floor plan notes, and are collateralized by new vehicle
inventories. The balance under the floor plan facility with respect to any
particular vehicle is due when the vehicle is sold. Floor plan notes payable
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
First Virginia Bank, bearing interest at LIBOR plus 1.75%. The
borrowing rate was approximately 7.34% at December 31, 1996... $43,881
NationsBank, bearing interest at the prime interest rate. The
prime interest rate at December 31, 1996 was 8.25%............ 13,642
Jaguar Credit Corporation, bearing interest at variable
interest rates. The weighted average interest rate at December
31, 1996 was 6.25%............................................ 4,672
Citizens Bank & Trust Co. of Maryland, bearing interest at the
prime interest rate........................................... 2,033
-------
$64,228
=======
</TABLE>

Management believes that the fair value of the Company's floor plan debt
approximates its recorded value based on the floating nature of the related
interest rates.

Vehicles securing floor plan notes of approximately $6,639,000 were sold
prior to December 31, 1996. The notes were paid in January 1997.

NOTE 4--NOTES PAYABLE TO RELATED PARTIES

Notes payable to related parties consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Notes payable to uncombined affiliated company, due on
demand, interest payable at a variable rate based on the
prime rate as determined by First Virginia Bank
(approximately 8.75% at December 31, 1996).................. $ 500
Notes payable to stockholders, due on demand, interest
payable annually at a variable rate based on the prime rate
as determined by First Virginia Bank (approximately 8.75% at
December 31, 1996). ........................................ 437
9% notes payable to stockholders, due on demand, interest
payable annually............................................ 64
Note payable to stockholder, due on demand, with interest
payable annually at a variable rate based on the prime rate
as determined by First Virginia Bank (approximately 8.75% at
December 31, 1996). ........................................ 287
8.50% subordinated notes payable to stockholders, due on
demand, interest payable annually. ......................... 336
------
$1,624
======
</TABLE>

Interest expense on the notes payable to related parties was approximately
$161,000 for the year ended December 31, 1996. Although certain of the above
notes are due on demand, they may not be paid in the next year.

Other Operating Income includes $500,000 resulting from forgiveness of
indebtedness by an uncombined affiliated company.

F-24
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--LEASES

The Company leases most of the premises it occupies under operating leases
with related parties. The majority of the leases have initial 10-year terms
with options to renew the leases for additional 5 year periods. The basic
annual rental is subject to adjustment every two years based on the Consumer
Price Index for the Metropolitan Washington area.

Future minimum rental commitments under noncancellable leases are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997............................................................... $ 7,109
1998............................................................... 6,660
1999............................................................... 5,894
2000............................................................... 5,777
2001............................................................... 5,700
Thereafter......................................................... 25,879
-------
$57,019
=======
</TABLE>

Rent expense charged to operations amounted to approximately $7,396,000 for
the year ended December 31, 1996.

NOTE 6--SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was approximately $3,482,000 during the year ended
December 31, 1996.

NOTE 7--RELATED PARTY TRANSACTIONS

Accounts Receivable and Accounts Payable--Related Parties: Included in
related parties' receivable and payable balances are amounts due from and
payable to uncombined companies under common ownership control.

Notes Receivable: The Company has entered into various note receivable
agreements to fund amounts to uncombined affiliated companies, stockholders
and employees. The following notes are due from stockholders or uncombined
affiliated companies under common control (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Stockholders, due on demand, non-interest-bearing.............. $1,402
Stockholder, due on demand, non-interest-bearing............... 400
Stockholder, due on demand, non-interest-bearing............... 75
Stockholder, due on demand, interest payable annually at 5%.... 133
Stockholder, due on demand, interest payable annually at 5%.... 719
Stockholder, due on demand, interest payable at 10%............ 20
Stockholder, due on demand, interest payable at 10%............ 15
Stockholder, due October 21, 1998, non-interest bearing........ 394
Related Party, due on demand, non-interest-bearing............. 157
Related Party, due on demand, interest payable annually at 9%.. 168
-------
3,483
Less: Current portion.......................................... (3,089)
-------
Long-Term Portion............................................ $ 394
=======
</TABLE>

F-25
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Interest income on the above notes was approximately $61,000 for the year
ended December 31, 1996.

During 1993, the Company issued 30,794 shares of common stock to existing
stockholders in exchange for notes totaling $1,598,000. The notes are due on
demand, but no later than December 31, 1997. Interest is due only if the
respective stockholder's employment ends. Upon separation of service, interest
would be computed on a cumulative basis at the short-term blended federal rate
for demand instruments as announced year to year by the Internal Revenue
Service (4.58% at December 31, 1996) for each year the notes were outstanding
and would be recorded in the year that employment ends. During the year ended
December 31, 1996, one of the stockholders terminated his employment. As a
result, approximately $43,000 was recognized as interest income during the
year ended December 31, 1996. As of December 31, 1996, the total outstanding
balance on these notes was approximately $820,000.

Advertising Expenditures: The Company incurred approximately $6,503,000 for
the year ended December 31, 1996 in advertising expenses purchased through an
affiliated company.

Inventory Purchases and Sales: The Company purchased and sold certain new
and used vehicles, at cost, to uncombined affiliated dealerships during the
year ended December 31, 1996.

Management Fees: Management fees earned from uncombined affiliated companies
amounted to approximately $450,000 for the year ended December 31, 1996.

NOTE 8--CONTINGENCIES

The Company is a party to various legal actions and claims arising during
the ordinary course of business. Although the total amount of liability with
respect to these legal actions and claims cannot be ascertained, management of
the Company believes that any resulting liability should not have a material
effect on the results of operations or the financial position of the Company.

In January, 1996, the Company and certain affiliates entered into a long-
term employment agreement (the "Agreement") with its President and Chief
Operating Officer (the "COO") which is effective January 1, 1996 through
December 31, 2000. The terms of the Agreement call for the Company and certain
affiliates to grant the COO an additional 2% ownership interest in the Company
and certain affiliates for each year of the Agreement. Per the Agreement,
compensation expense is to be computed at 2% of each respective Company's
adjusted net book value (FIFO basis) at each year-end discounted by 50%. For
the year ended December 31, 1996, the Company recognized approximately
$261,000 as compensation expense in connection with the Agreement. In
addition, the Agreement gives the COO a stated minimum compensation each year
through December 31, 2000. Should the COO be terminated for any reason, the
unearned compensation for the remainder of the Agreement will become due and
is to be paid over 48 months at the prime interest rate. Furthermore, should
the Company and certain affiliates be sold prior to December 31, 2000, or if
the COO is terminated for any reason, the COO is to receive a minimum of
$5,000,000 for his stock holdings acquired under this agreement.

NOTE 9--RETIREMENT PLAN

In 1995, the Company adopted a discretionary 401(k) retirement and profit-
sharing plan. All full-time employees having one year of continuous service
and who are at least 21 years of age at the specified entry dates are eligible
to participate. The Company makes a matching contribution of 20% of the first
5% for compensation each plan participant defers. The Company's contribution
for the year ended December 31, 1996 was approximately $149,000.

F-26
<PAGE>

GENEVA ENTERPRISES, INC. AND AFFILIATED COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--STOCKHOLDERS' EQUITY

Stockholders' equity is comprised of the following as of December 31, 1996
(in thousands):

<TABLE>
<CAPTION>
STOCK-
ADDITIONAL HOLDERS'
COMMON PAID-IN NOTES RETAINED
STOCK CAPITAL RECEIVABLES EARNINGS TOTAL
------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Geneva Enterprises, Inc. .... $ 5 $3,650 $(820) $8,166 $11,001
Maryland Imported Cars,
Inc. ....................... 18 319 -- (1,768) (1,431)
--- ------ ----- ------- -------
$23 $3,969 $(820) $6,398 $ 9,570
=== ====== ===== ======= =======
</TABLE>

Common stock of the Companies with the following shares authorized, issued
and outstanding as of December 31, 1996 is as follows:

<TABLE>
<CAPTION>
SHARES
ISSUED
PAR SHARES AND
VALUE AUTHORIZED OUTSTANDING
----- ---------- -----------
<S> <C> <C> <C>
Geneva Enterprises, Inc. ....................... $ .01 1,000,000 531,286
Maryland Imported Cars, Inc. ................... $1.00 25,000 18,000
--------- -------
1,025,000 549,286
========= =======
</TABLE>

NOTE 11--SUBSEQUENT EVENT

As part of General Motors' Project 2000 marketing strategy, Geneva
Enterprises, Inc. transferred and sold the Cadillac and Buick franchises from
its Rosenthal Cadillac/Buick/Isuzu division to General Motors in October 1997.

F-27
<PAGE>

CROSS-CONTINENT AUTO RETAILERS, INC.

SUMMARY HISTORICAL FINANCIAL INFORMATION

AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997

IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET

<TABLE>
<CAPTION>
AS OF
------------------------------------------
DECEMBER 30, 1996(A) SEPTEMBER 30, 1997(B)
-------------------- ---------------------
<S> <C> <C>
Inventory (dealer)...... $ 48,168 $ 56,718
Real estate, net........ 13,391 27,390
Other assets............ 80,887 96,080
-------- --------
Total assets............ $142,446 $180,188
======== ========
Mortgage and other long-
term debt.............. $58,195 $ 92,804
Other liabilities....... 25,733 24,268
Shareholders' equity.... 58,518 63,116
-------- --------
Total liabilities and
shareholders' equity... $142,446 $180,188
======== ========
</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1996(A) SEPTEMBER 30, 1997(B) SEPTEMBER 30, 1996(B)
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
Sales revenue........... $ 321,583 $ 359,193 $217,824
Cost of sales........... (271,650) (296,756) (184,449)
--------- --------- --------
Net operating income.... 49,933 62,437 33,375
Selling, general and
administrative......... (38,796) (47,590) (25,930)
--------- ---------
Income before interest
and taxes.............. 11,137 14,847 7,445
Interest expense........ (3,193) (4,066) (2,594)
--------- --------- --------
Income before taxes..... 7,944 10,781 4,851
Income tax provision.... (3,362) (4,157) (2,186)
--------- --------- --------
Net income.............. $ 4,582 $ 6,624 $ 2,665
========= ========= ========
</TABLE>
(A) Financial information as of and for the year ended December 31, 1996 has
been summarized from the audited financial statements of Cross-Continent
as filed with the Securities and Exchange Commission on Form 10-K.

(B) Financial information as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 has been summarized from the unaudited
financial statements of Cross-Continent filed with the Securities and
Exchange Commission on Form 10-Q.

F-28
<PAGE>

GLOSSARY

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

"Actual Cash Available for Distribution" means net earnings plus
depreciation and amortization and minus capital expenditures and principal
payments on indebtedness.

"ADA" means the Americans with Disabilities Act of 1990, as amended, and the
regulations promulgated under the authority conferred thereby.

"Affiliates" means an affiliate as defined in Rule 405 of the Securities
Act.

"Annual Base Rent" means the annual base rent each Lessee or its assigns
will pay to Lessor each Lease year following the first Lease year annual base
rent which will be payable in monthly installments.

"Audit Committee" means the audit committee of the Board of Trustees of the
Company.

"Beneficiary" means the qualified charitable organization selected by the
Company which would receive the automatic transfer of any Shares-in-Trust.

"Board of Trustees" means the board of trustees of the Company.

"Book-Tax Difference" means, with respect to appreciated or depreciated
property that is contributed to a partnership, the amount of unrealized gain
or unrealized loss associated with the property at the time of contribution,
which is generally equal to the difference between the fair market value of
the contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution.

"Business Combination" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, recapitalization or change of outstanding Common
Shares.

"Bylaws" means the bylaws of the Company, as amended.

"CMSA" means consolidated metropolitan statistical area.

"CARS" is the proposed trading symbol of the Company on The Nasdaq Stock
Market National Market.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the United States Securities and Exchange Commission.

"Common Shares" means the common shares of beneficial interest, par value
$.01 per share, of the Company.

"Company" means Capital Automotive REIT, a Maryland REIT, and its
subsidiaries, including the Operating Partnership.

"Contribution Agreements" means the respective contribution or purchase
agreements between the Company and the Sellers relating to the acquisition of
the Properties or interests therein owned by the Sellers.

G-1
<PAGE>

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

"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.

"CPI" means the Consumer Price Index, the economic index issued by the U.S.
Department of Labor indicating price increases or decreases for the U.S.
economy.

"Dealer" means the signatory to the Franchise Agreement, or the operator of
a Dealership or Related Business.

"Dealer Warrants" means warrants that each of Messrs. Pohanka and Rosenthal
will receive to each purchase a number of Units equal to 2% of the Common
Shares to be outstanding on closing of the Offering (including exercise of the
Underwriters over-allotment option in full) on a fully diluted basis, at the
initial public offering price of the Common Shares, exercisable beginning on
the closing date of the Offering and for a period of five years thereafter.

"Dealerships" means franchised motor vehicle dealerships.

"Declaration of Trust" means the Amended and Restated Declaration of Trust
of the Company.

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

"Events of Default" means events of default under any Leases as generally
outlined in the Prospectus.

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

"Executive Committee" means the executive committee of the Board of Trustees
of the Company.

"Executive Compensation Committee" means the executive compensation
committee of the Board of Trustees of the Company.

"Extended Term" means the one or two additional ten year terms for which the
respective Initial Leases may be extended at the option of the respective
Initial Lessees.

"FBR Loan" means the short term secured revolving loan in the principal
amount of $2,525,000 extended by Friedman, Billings, Ramsey Group, Inc. to the
Company.

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

"Fixed Term" means the initial term of eight to 11 years that the Initial
Leases will generally have.

"Formation Transactions" means those transactions relating to the
organization of the Company and the Operating Partnership, including the (i)
transfer of certain Initial Properties to the Company in exchange for Units,
(ii) transfer of certain Initial Properties to the Company for cash, (iii) the
Offering and the FBR Offering, (iv) the contribution of the net proceeds of
the Offering and the FBR Offering by the Company to the Operating Partnership
in exchange for Units, and (v) the offering and qualification of the Company
as a REIT for federal income tax purposes for the taxable year beginning
December 31, 1998, all as described under "Structure and Formation of the
Company--Formation Transactions."

G-2
<PAGE>

"Franchise Agreements" means certain Dealer Sales and Service Agreements and
related agreements, and the standard terms and conditions incorporated by
reference in such agreements, entered into between Manufacturers and
Dealerships.

"GAAP" means generally accepted accounting principles in the United States.

"Independent Trustee" means trustees who are not affiliated with the
Company, the Sellers, the Lessees or the Representative.

"Initial Annual Base Rent" means the first year's rent under any Lease.

"Initial Grants" means the Options that the Company will grant to certain
key officers and employees of the Company upon completion of the Offering.

"Initial Leases" means the leases pursuant to which the Company will lease
back the Initial Properties to the Initial Lessees on a triple net basis.

"Initial Lessees" means the Lessees of the Initial Properties.

"Initial Sellers" means the respective Sellers of the Initial Properties
from whom the Company will acquire the Initial Properties.

"Initial Properties" means the 36 Properties that the Company currently has
entered into contracts to acquire.

"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland real estate investment trust's shares of
beneficial interest or an Affiliate of the REIT which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then outstanding voting shares of
beneficial interest of the trust.

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

"IRA" means an individual retirement account as defined by the Code and the
applicable Treasury Regulations.

"IRS" means the United States Internal Revenue Service.

"Lease" means any Lease pursuant to which the Company will lease Properties
back to Lessees on a triple net basis.

"Lessee" means any owner or operator of a Dealership to whom the Company
will lease back a Property.

"Limited Partner" initially means, any of the Company and the limited
partners, each of which holds Units and is a limited partner of the Operating
Partnership.

"Manufacturers" means motor vehicle or parts manufacturers (or authorized
distributors thereof).

G-3
<PAGE>

Common Shares or Preferred Shares are not listed or admitted to trading on any
national securities exchange on the National Market System of the Nasdaq Stock
Market or, if the shares are not listed for trading on the National Market
System, the last quoted price, or if not so quoted, the average of the closing
bid and asked prices in the over-the-counter market, as reported by Nasdaq or,
if such system is no longer in use, the principal automated quotations system
that may then be in use or, if the Common Shares or Preferred Shares are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Shares or Preferred Shares selected by the Board of Trustees. "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Shares or Preferred Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.

"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.

"MGCL" means the Maryland General Corporation Law, as amended.

"Mortgage Debt" means the $41.3 million of indebtedness secured by certain
Initial Properties that will be assumed by the Company pursuant to the
relevant Contribution Agreements.

"NADA" means the National Automobile Dealers Association.

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

"Non-U.S. Shareholder" means a holder of Common Shares who is a nonresident
alien individual, foreign corporation, foreign partnership, foreign trust or
estate or other foreign shareholder.

"Nasdaq" means The Nasdaq Stock Market, Inc.

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

"Operating Partnership" means Capital Automotive L. P., a Delaware limited
partnership having its principal offices at 1925 North Lynn Street, Suite 306,
Arlington, Virginia 22209.

"Options" means incentive options to acquire Common Shares or non-qualified
options to acquire Units, which the Company (including the Operating
Partnership) is authorized to grant pursuant to the 1998 Equity Incentive
Plan.

"Ownership Limit" means the prohibition in the Declaration of Trust limiting
any person to direct or indirect ownership of no more than (i) 9.9% of the
number of outstanding Common Shares, or (ii) 9.9% of the number of ownership
Preferred Shares or any series of Preferred Shares.

"Partnership Agreement" means the Amended and Restated Limited Partnership
Agreement of the Operating Partnership.

"Plan" means the 1998 equity incentive plan established by the Company and
the Operating Partnership, as further described in this Prospectus under the
caption entitled "Management--1998 Equity Incentive Plan."

"Pohanka Mortgage" means the mortgage or mortgages on the Pohanka Properties
that secure the NationsBank, N.A. line of credit in the amount of $10 million.

"Pohanka Properties" means all of the Initial Properties acquired by the
Company from Affiliates of John J. Pohanka.

"Prohibited Transferee" means any purported transferee of Common Shares who
would otherwise violate the Ownership Limit or such other limit as provided in
the Declaration of Trust.

"Prohibited Owner" means any purported owner of Common Shares who would
otherwise violate the Ownership Limit or such other limit as provided in the
Declaration of Trust.

G-4
<PAGE>

"Properties" means any real property and improvements acquired, or to be
acquired, from time to time, by the Company.

"Prospectus" means the prospectus used in connection with the Offering.

"Recognition Period" means the ten-year period beginning on the date a
"built-in gain asset" is acquired by the Company.

"Registration Rights" means those certain registration rights granted to FBR
Asset Investment Corporation in connection with the Formation Transactions.

"Registration Statement" means the registration statement on Form S-11 filed
with the Commission in connection with the Offering.

"REIT" means a self-managed real estate investment trust as defined by the
Code and the applicable Treasury Regulations.

"REIT Requirements" means the requirements for qualifying as a REIT.

"Related Businesses" means any motor vehicle related businesses.

"Rent Measurement Date" means the date of execution of a Initial Lease and a
date ending at each 24- month interval thereafter.

"Rent Measurement Period" means the 24-month prior period ending on each
Rent Measurement Date.

"Rent Coverage Ratio" means a ratio of at least 1.5-to-1 as of the date of
the Lease and at each Rent as of the date of the Initial Lease and at 24-month
intervals thereafter, computed on an aggregate basis for all affiliated
Initial Lessees and Guarantors, if any, as the aggregate of net income before
taxes plus mortgage interest, rent expense, depreciation, compensation of
principals of the Initial Lessee, management fees plus the annual LIFO
adjustment and other non-cash expenses, less recurring capital expenditures
and gain (loss) on sale of real estate, dividends and/or profits taken out of
the Initial Lessees and Guarantors, if any, divided by the aggregate of the
Initial Lessee's (and Guarantor's, if any), obligations under the Initial
Leases.

"Representative" means Friedman, Billings, Ramsey & Co., Inc.

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

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

"Seller" means any owner from whom the Company acquires a Property.

"Share Trust" means a trust which holds Common or Preferred Shares of
beneficial interest of the Company which have been designated as Shares-in-
Trust.

"Shares-in-Trust" means Common or Preferred Shares of beneficial interest of
the Company which are automatically converted on a one for one basis and
transferred to the Share Trust upon a purported transfer of such Common Shares
or Preferred Shares which is violation of the applicable restrictions on
transfer.

"Tax Counsel" means the law firm of Wilmer, Cutler & Pickering, which has
acted as a special tax counsel to the Company in connection with the offering
and the preparation of the Prospectus.

G-5
<PAGE>

"Total market capitalization" means the sum of the aggregate market value of
the outstanding Common Shares, assuming the full exchange of all Units for
Common Shares, plus the Company's total outstanding debt.

"Treasury Regulations" means the rules and regulations promulgated by the
United States Department of the Treasury under the Code, as such rules and
regulations are amended from time to time.

"Triple-Net Basis" means the leasing of a Property to a Lessee pursuant to a
Lease under which a Lessee is responsible for the base rent in addition to the
costs and expenses in connection with and related to property taxes, insurance
and repairs and maintenance applicable to the leased space.

"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) is an estate or trust which is subject to
taxation in the United States regardless of the source of its income or which
is under the primary supervision or authority of a United States court or a
United States fiduciary.

"United States" or "U.S." means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.

"Units" means units of partnership interests representing the equity in the
Operating Partnership.

"Underwriters" means Friedman, Billings, Ramsey & Co., Inc. and members of
the underwriting syndicate as set forth in the section captioned
"Underwriting" in this Prospectus.

"Underwriting Warrants" means warrants that Friedman, Billings, Ramsey &
Co., Inc., the Representative of the Underwriter of, will receive exercisable
for a number of Common Shares equal to 4% of the number of Common Shares to be
outstanding on closing of the Offering (excluding exercise of, the
Underwriters over-allotment option) on a fully diluted basis, at an exercise
price equal to the initial public offering price of the Common Shares,
exercisable beginning on the closing date of the Offering and for a period of
five years thereafter.

G-6
<PAGE>

================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SE-
CURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON
SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
The Company.............................................................. 1
Risk Factors............................................................. 3
The Initial Properties, Leases and Dealerships........................... 6
Strategy................................................................. 10
Summary Selected Financial Information................................... 11
Benefits to Related Parties.............................................. 12
Structure of the Company................................................. 14
Formation Transactions................................................... 15
Distributions............................................................ 16
Tax Status of the Company................................................ 16
The Offering............................................................. 17
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 34
Capitalization........................................................... 36
Dilution................................................................. 37
Conflicts of Interest Policies........................................... 38
Selected Financial Information........................................... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 41
Business of the Company and Properties................................... 44
Management............................................................... 59
Structure and Formation of the Company................................... 65
Related Transactions..................................................... 69
Partnership Agreement.................................................... 70
Principal Shareholders of the Company.................................... 73
Description of Shares of Beneficial Interest............................. 74
Common Shares Eligible for Future Sale................................... 81
Federal Income Tax Consequences.......................................... 83
Underwriting............................................................. 99
Legal Matters............................................................ 101
Experts.................................................................. 101
Additional Information................................................... 102
Index to Financial Statements............................................ F-1
Glossary................................................................. G-1
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

================================================================================
================================================================================

20,000,000 COMMON SHARES

[LOGO OF CARS APPEARS HERE]

CAPITAL AUTOMOTIVE REIT

COMMON SHARES OF BENEFICIAL INTEREST

---------------
PROSPECTUS
---------------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

, 1998

================================================================================
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
SEC registration fee............................................. $ 134,040
NASD fee......................................................... 30,500
The Nasdaq Stock Market fee...................................... 50,000
Blue Sky fees and expenses....................................... 5,000
Printing and engraving expenses.................................. 300,000
Legal fees and expenses.......................................... 600,000
Accounting fees and expenses..................................... 200,000
Representative's Reimbursement of Expenses....................... 320,000
Miscellaneous.................................................... 10,460
----------
Total.......................................................... $1,650,000
==========
</TABLE>

ITEM 31. SALES TO SPECIAL PARTIES

See response to Item 32.

ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities
Act.

(1) Simultaneously with the completion of the Offering, the Company will cause
the Operating Partnership to issue to the Initial Sellers who are Affiliates
of Pohanka, Rosenthal, Sheehy and Cherner, Units at the initial public
offering price in exchange for their respective interests in the Initial
Properties.

(2) Simultaneously with the completion of the Offering, the Company will grant
options to purchase an aggregate number of Common Shares and Units equal to
3%, 1.625%, .75% and 1.625% of the Common Shares to be outstanding on closing
of the Offering (including exercise of the Underwriters' over-allotment
option) on a fully diluted basis to Messrs. Eckert, Stahr, Keithley and Kay,
respectively, exercisable at the initial public offering price under the
Company's Incentive Plan.

(3)Simultaneously with the completion of the Offering, FBR Investment Asset
Corporation will purchase 1,792,115 Common Shares at the initial public
offering price (net of underwriting discounts and commissions).

(4) Simultaneously with the completion of the Offering, the Company will issue
to each of Messrs. Pohanka and Rosenthal the Dealer Warrants which will be
exercisable for an aggregate number of Units equal to 2% of the Common Shares
to be outstanding on closing of the Offering (including exercise of the
Underwriters' over-allotment option) on a fully diluted basis, exercisable at
the initial public offering price.

(5) Simultaneously with the completion of the Offering, the Company will issue
to Friedman, Billings, Ramsey & Co., Inc. the Underwriting Warrants, which
will be exercisable for a number of Common Shares equal to 4% of the Common
Shares to be outstanding on closing of the Offering (excluding exercise of the
Underwriters' over-allotment option) on a fully diluted basis, exercisable at
the initial public offering price.

ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS

The Declaration of Trust and By-laws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a

II-1
<PAGE>

proceeding to the maximum extent permitted from time to time under Maryland
law. The MGCL, as applicable to Maryland REITs, currently provides that
indemnification of a person who is a party, or threatened to be made a party,
to legal proceedings by reason of the fact that such a person is or was a
trustee, officer, employee or agent of a corporation, or is or was serving as
a trustee, officer, employee or agent of a corporation or other firm at the
request of a corporation, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, is mandatory in certain circumstances and
permissive in others, subject to authorization by the board of trustees, a
committee of the board of trustees consisting of two or more trustees not
parties to the proceeding (if there does not exist a majority vote quorum of
the board of trustees consisting of trustees not parties to the proceeding),
special legal counsel appointed by the board of trustees or such committee of
the board of trustees, or by the shareholders, so long as it is not
established that the act or omission of such person was material to the matter
giving rise to the proceedings and was committed in bad faith, was the result
of active and deliberate dishonesty, involved such person receiving an
improper personal benefit in money, property or services, or, in the case of
criminal proceedings, such person had reason to believe that his or her act or
omission was unlawful.

The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.

The Company intends to purchase an insurance policy which purports to insure
the officers and trustees of the Company against certain liabilities incurred
by them in the discharge of their functions as such officers and trustees,
except for liabilities resulting from their own malfeasance.

ITEM 34. TREATMENT OF PROCEEDS FROM COMMON SHARES BEING REGISTERED

Not Applicable.

ITEM 35. FINANCIAL STATEMENT AND EXHIBITS.

(a) FINANCIAL STATEMENTS

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

(b) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1** Underwriting Agreement
3.1** Amended and Restated Declaration of Trust of Capital Automotive
REIT
3.2** Amended and Restated Bylaws of Capital Automotive REIT
4.1** Specimen Common Share certificate
5.1** Opinion of Wilmer, Cutler & Pickering regarding the validity of
the Common Shares being registered
8.1** Opinion of Wilmer, Cutler & Pickering regarding tax matters
8.2*** Amended Opinion of Wilmer, Cutler and Pickering regarding tax
matters.
10.1** Form of Agreement of Limited Partnership of Capital Automotive
L.P.
10.2** Form of Indemnification Agreement
10.3** Form of 1998 Equity Incentive Plan
10.4** Employment Agreement by and between the Company and Thomas D.
Eckert
10.5** Employment Agreement by and between the Company and Scott M. Stahr
10.6** Employment Agreement by and between the Company and Donald L.
Keithley
10.7** Employment Agreement by and between the Company and David S. Kay
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8** Form of Option Agreement
10.9** Form of NationsBank, N.A. Credit Agreement
10.10* FBR Asset Investment Purchase Agreement
10.11** FBR Registration Rights Agreement
10.12** Pohanka Contribution Agreement dated as of November 21, 1997, as
amended
10.13** Rosenthal Contribution Agreement dated as of November 21, 1997, as
amended
10.14** Sheehy Contribution Agreement dated as of November 24, 1997, as
amended
10.15** Cherner Contribution Agreement dated as of November 24, 1997, as
amended
10.16** Cross-Continent Auto Retailers, Inc. Purchase Agreement dated as
of December 31, 1997, as amended
10.17** Form of Pohanka Lease Agreement
10.18** Form of Rosenthal Lease Agreement
10.19** Form of Sheehy Lease Agreement
10.20** Form of Cherner Lease Agreement
10.21** Form of Cross-Continent Lease Agreement
10.22** Form of Underwriting Warrant
10.23** Form of Dealers' Warrant
10.24** Form of Guaranty Agreement with Affiliate of John J. Pohanka
10.25** Form of Guaranty Agreement with Affiliate of Robert M. Rosenthal
10.26** Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc. Loan
Agreement
10.27** Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc. Security
Agreement
10.28** Form of Guaranty Agreement with Cross-Continent Auto Retailers,
Inc.
10.29** Meyers Family Limited Partnership L.P. (Good News) Purchase
Agreement dated as of January 10, 1998
10.30** Form of Good News Lease Agreement
10.31** Form of Guaranty Agreement with Good News Salisbury, Inc. and
Warren A. Price
10.32** Kline Purchase Agreement dated as of January 12, 1998
10.33** Form of Kline Lease Agreement
10.34** Form of Guaranty Agreement with Kline Imports Chesapeake, Inc.
10.35** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Thomas D. Eckert
10.36** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Scott M. Stahr
10.37** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Donald L. Keithley
10.38** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and David S. Kay
10.39** Meyers Family Limited Partnership (Good News) Purchase Agreement
dated as of January 10, 1998
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1** Subsidiaries of the Company
23.1** Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1
and 8.1)
23.3** Consent of Arthur Andersen LLP dated November 24, 1997
23.4** Consent of Walpert, Smullian & Blumenthal, P.A. dated November
24, 1997
23.5** Consent to be named Trustee of John J. Pohanka
23.6** Consent to be named Trustee of Robert M. Rosenthal
23.7** Consent to be named Trustee of John D. Reilly
23.8** Consent to be named Trustee of William E. Hoglund
23.9** Consent of Arthur Andersen LLP dated January 13, 1998
23.10** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 13,
1998
23.11** Consent of Arthur Andersen LLP dated January 16, 1998
23.12** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 16,
1998
23.13** Consent to be named Trustee of William R. Swanson
23.14** Consent of Arthur Andersen LLP dated February 3, 1998
23.15** Consent of Walpert, Smullian & Blumenthal, P.A. dated February 3,
1998
23.16*** Consent of Arthur Andersen LLP dated February 10, 1998
23.17*** Consent of Walpert, Smullian & Blumenthal, P.A. dated February
10, 1998
24.1 Power of Attorney (included on signature page in Part II of the
initial filing)
</TABLE>
- --------
**Previously filed
***Filed herewith

II-4
<PAGE>

ITEM 36. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the provisions described under Item 34 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

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

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

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS
AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF
VIRGINIA, ON FEBRUARY 10, 1998.

Capital Automotive REIT

/s/ Thomas D. Eckert
By: _________________________________
THOMAS D. ECKERT PRESIDENT AND
CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON
FEBRUARY 10, 1998 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.

Each person whose signature appears below hereby constitutes and appoints
each of Thomas D. Eckert and David S. Kay as his attorney-in-fact and agent,
with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or 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 exhibits thereto and other
documents in connection therewith or in connection with the registration of
the Common Shares under the Securities Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying
and confirming all that such attorney-in-fact and agent or his substitutes may
do or cause to be done by virtue hereof.

SIGNATURE TITLE DATE

/s/ Thomas D. Eckert President and Chief
_____________________________________ Executive Officer February 10,
THOMAS D. ECKERT and Trustee 1998
(principal
executive officer)

/s/ David S. Kay Vice President and
_____________________________________ Chief Financial February 10,
DAVID S. KAY Officer (principal 1998
financial officer)

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1** Underwriting Agreement
3.1** Amended and Restated Declaration of Trust of Capital Automotive
REIT
3.2** Amended and Restated Bylaws of Capital Automotive REIT
4.1** Specimen Common Share certificate
5.1** Opinion of Wilmer, Cutler & Pickering regarding the validity of
the Common Shares being registered
8.1** Opinion of Wilmer, Cutler & Pickering regarding tax matters
8.2*** Amended Opinion of Wilmer, Cutler and Pickering regarding tax
matters.
10.1** Form of Agreement of Limited Partnership of Capital Automotive
L.P.
10.2** Form of Indemnification Agreement
10.3** Form of 1998 Equity Incentive Plan
10.4** Employment Agreement by and between the Company and Thomas D.
Eckert
10.5** Employment Agreement by and between the Company and Scott M. Stahr
10.6** Employment Agreement by and between the Company and Donald L.
Keithley
10.7** Employment Agreement by and between the Company and David S. Kay
10.8** Form of Option Agreement
10.9** Form of NationsBank, N.A. Credit Agreement
10.10** FBR Asset Investment Purchase Agreement
10.11** FBR Registration Rights Agreement
10.12** Pohanka Contribution Agreement dated as of November 21, 1997, as
amended
10.13** Rosenthal Contribution Agreement dated as of November 21, 1997, as
amended
10.14** Sheehy Contribution Agreement dated as of November 24, 1997, as
amended
10.15** Cherner Contribution Agreement dated as of November 24, 1997, as
amended
10.16** Cross-Continent Auto Retailers, Inc. Purchase Agreement dated as
of December 31, 1997, as amended
10.17** Form of Pohanka Lease Agreement
10.18** Form of Rosenthal Lease Agreement
10.19** Form of Sheehy Lease Agreement
10.20** Form of Cherner Lease Agreement
10.21** Form of Cross-Continent Lease Agreement
10.22** Form of Underwriting Warrant
10.23** Form of Dealers' Warrant
10.24** Form of Guaranty Agreement with Affiliate of John J. Pohanka
10.25** Form of Guaranty Agreement with Affiliate of Robert M. Rosenthal
10.26** Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc. Loan
Agreement
10.27** Amendment No. 1 to Friedman, Billings, Ramsey Group, Inc. Security
Agreement
10.28** Form of Guaranty Agreement with Cross-Continent Auto Retailers,
Inc.
10.29** Meyers Family Limited Partnership L.P. (Good News) Purchase
Agreement dated as of January 10, 1998
10.30** Form of Good News Lease Agreement
10.31** Form of Guaranty Agreement with Good News Salisbury, Inc. and
Warren A. Price
10.32** Kline Purchase Agreement dated as of January 12, 1998
10.33** Form of Kline Lease Agreement
10.34** Form of Guaranty Agreement with Kline Imports Chesapeake, Inc.
10.35** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Thomas D. Eckert
10.36** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Scott M. Stahr
10.37** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and Donald L. Keithley
10.38** Amended and Restated Employment Agreement by and between Capital
Automotive L.P. and David S. Kay
</TABLE>
- --------
** Previously filed
*** Filed herewith
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39** Meyers Family Limited Partnership (Good News) Purchase Agreement
dated as of January 10, 1998
21.1** Subsidiaries of the Company
23.1** Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1
and 8.1)
23.3** Consent of Arthur Andersen LLP dated November 24, 1997
23.4** Consent of Walpert, Smullian & Blumenthal, P.A. dated November
24, 1997
23.5** Consent to be named Trustee of John J. Pohanka
23.6** Consent to be named Trustee of Robert M. Rosenthal
23.7** Consent to be named Trustee of John D. Reilly
23.8** Consent to be named Trustee of William E. Hoglund
23.9** Consent of Arthur Andersen LLP dated January 13, 1998
23.10** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 13,
1998
23.11** Consent of Arthur Andersen LLP dated January 16, 1998
23.12** Consent of Walpert, Smullian & Blumenthal, P.A. dated January 16,
1998
23.13** Consent to be named Trustee of William R. Swanson
23.14** Consent of Arthur Andersen LLP dated February 3, 1998
23.15** Consent of Walpert, Smullian & Blumenthal, P.A. dated February 3,
1998
23.16*** Consent of Arthur Andersen LLP dated February 10, 1998
23.17*** Consent of Walpert, Smullian & Blumenthal, P.A. dated February
10, 1998
24.1 Power of Attorney (included on signature page in Part II of the
initial filing)
</TABLE>
- --------
*To be filed by amendment.
**Previously filed
***Filed herewith

<PAGE>

Exhibit 8.2

[LETTERHEAD OF WILMER, CUTLER & PICKERING APPEARS HERE]

Amended Opinion of Wilmer, Cutler & Pickering

February 11, 1998

Capital Automotive REIT
1925 North Lynn Street, #306
Arlington, Virginia 22204

Capital Automotive REIT
-----------------------
Qualification as Real Estate Investment Trust
---------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Capital Automotive REIT, a Maryland real
estate investment trust (the "Trust"), in connection with the preparation of a
Form S-11 registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission on November 26, 1997 (No. 333-41183), as
amended through the date hereof, with respect to the offering and sale (the
"Offering") of up to 23,000,000 common shares of beneficial interest, par value
$0.01 per share, of the Trust (the "Common Shares"), and the Trust's
contribution of (i) a portion of the net proceeds of the Offering to Capital
Automotive, L.P., a Delaware limited partnership (the "Operating Partnership"),
in exchange for a 1% general partnership interest in the Operating Partnership
and (ii) the remainder of the net proceeds of the Offering to the Operating
Partnership in exchange for a limited partnership interest in the Operating
Partnership. You have requested our opinion regarding certain U.S. federal
income tax matters in connection with the Offering. Unless specifically defined
otherwise, all terms used herein have the meaning set forth in the Registration
Statement.

The Operating Partnership will acquire real property and improvements
in properties used by automotive retail dealerships (the "Properties"), from the
current owners of
<PAGE>

Capital Automotive REIT
February 11, 1998
Page 2

such Properties (the "Sellers"). The Operating Partnership will lease the
Properties to the Sellers or their affiliates (the "Lessees") pursuant to
substantially similar leases (the "Leases").

In giving this opinion letter, we have examined the following:

1. the Trust's Declaration of Trust, as duly filed with the
Department of Assessments and Taxation of the State of Maryland on October 20,
1997;

2. the Trust's Amended and Restated Declaration of Trust, as duly
filed with the Department of Assessments and Taxation of the State of Maryland
on February 3, 1998;

3. the Amended and Restated Bylaws of the Trust dated as of February
3, 1998;

4. the Registration Statement, including the prospectus contained as
part of the Registration Statement (the "Prospectus");

5. the Agreement of Limited Partnership of the Operating
Partnership, dated as of November 21, 1997, among the Trust, as general partner,
and Scott M. Stahr as limited partner;

6. a form of First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated February __, 1998, among the
Trust, as general partner, and several limited partners (the "Partnership
Agreement");

7. the forms of Initial Leases among the Operating Partnership and
the Initial Lessees;

8. the various agreements between or among the Operating Partnership
and each Seller or Sellers for the purchase or contribution of each Property or
Properties; and

9. such other documents as we have deemed necessary or appropriate
for purposes of this opinion.
<PAGE>

Capital Automotive REIT
February 11, 1998
Page 3

In connection with the opinions rendered below, we have assumed, with
your consent, that:

1. each of the documents referred to above has been duly authorized,
executed, and delivered; is authentic, if an original, or is accurate, if a
copy; has not been amended; and any unexecuted documents have been or will be
executed substantially in the form and content reviewed by us;

2. during its taxable year ending December 31, 1998 and subsequent
taxable years, the Trust will operate in such a manner that will make the
representations contained in a certificate, dated February 11, 1998 and executed
by a duly appointed officer of the Trust (the "Officer's Certificate"), true for
such years;

3. the Trust will not make any amendments to its organizational
documents, the Partnership Agreement or any other agreements, after the date of
this opinion that would affect its qualification as a real estate investment
trust (a "REIT") for U.S. federal income tax purposes for any taxable year;

4. each partner of the Operating Partnership (each, a "Partner")
that is a corporation or other entity has a valid legal existence;

5. each Partner has full power, authority, and legal right to enter
into and to perform the terms of the Partnership Agreement and the transactions
contemplated thereby;

6. each Partner has been motivated in acquiring its partnership
interest by such Partner's anticipation of economic rewards apart from tax
considerations; and

7. no action will be taken by the Trust, the Operating Partnership
or the Partners after the date hereof that would have the effect of altering the
facts upon which the opinions set forth below are based.

In connection with the opinions rendered below, we also have relied
upon the correctness of the representations contained in the Officer's
Certificate. For the purposes of rendering this opinion, we have not made an
independent investigation of the facts set forth in any of the aforementioned
documents, including without limitation the Prospectus and the Officer's
Certificate. We have consequently relied upon your representations that the
information presented in such documents or otherwise furnished to us accurately
and completely describes all material facts relevant to this opinion. After
reasonable inquiry, no facts have come to our attention that would cause us to
question the accuracy and completeness of the facts
<PAGE>

Capital Automotive REIT
February 11, 1998
Page 4

contained in the documents and assumptions set forth above, the representations
set forth in the Officer's Certificate, or the Prospectus in a material way.

Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussion in
the Prospectus under the caption "Federal Income Tax Consequences" (which is
incorporated herein by reference), we are of the opinion that:

(a) commencing with the Trust's taxable year ending December 31, 1998,
the Trust will qualify to be taxed as a REIT pursuant to sections 856
through 859 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Trust's organization and proposed method of operation will enable
it to continue to meet the requirements for qualification and taxation as a
REIT under the Code;

(b) the descriptions of the law and the legal conclusions contained in
the Prospectus under the caption "Federal Income Tax Consequences" are
correct in all material respects, and the discussion thereunder fairly
summarizes the federal income tax consequences that are likely to be
material to a holder of the Common Shares;

(c) the Operating Partnership will be treated for federal income tax
purposes as a partnership and not as a corporation or association taxable
as a corporation or, as of the date hereof, a publicly traded partnership;
and

(d) each Initial Lease will be treated as a true lease for federal
income tax purposes.

In addition, we confirm our opinions contained in the Prospectus under the
caption "Federal Income Tax Consequences."

We will not review on a continuing basis the Trust's compliance with the
documents or assumptions set forth above, or the representations set forth in
the Officer's Certificate. Accordingly, no assurance can be given that (i) the
actual results of the Trust's operations for any given taxable year will satisfy
the requirements for qualification and taxation as a REIT or (ii) the Operating
Partnership will continue not to be treated for federal income tax purposes as a
publicly traded partnership.

The foregoing opinions are based on current provisions of the Code and
the Treasury regulations thereunder (the "Regulations"), published
administrative interpretations thereof, and published court decisions. The
Internal Revenue Service has not issued Regulations
<PAGE>

Capital Automotive REIT
February 11, 1998
Page 5

or administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. No assurance can be given that the law will not
change in a way that will prevent the Trust from qualifying as a REIT, or the
Operating Partnership from being classified as a partnership for federal income
tax purposes.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Wilmer, Cutler &
Pickering under the caption "Federal Income Tax Consequences" in the Prospectus.
In giving this consent, we do not admit that we are in the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder by the Securities
and Exchange Commission.

The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinions expressed herein after the date of this letter. This opinion
letter is solely for the information and use of the addressees, and it may not
be distributed, relied upon for any purpose by any other person, quoted in whole
or in part or otherwise reproduced in any document, or filed with any
governmental agency without our express written consent.

Very truly yours,

Wilmer, Cutler & Pickering

/s/ Robert B. Stack
-----------------------------
By Robert B. Stack, a Partner

<PAGE>

EXHIBIT 23.16

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report on
Capital Automotive REIT (and to all references to our firm) included in or made
a part of this Registration Statement.

Washington, D.C.,
February 10, 1998

<PAGE>

EXHIBIT 23.17

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report on
Geneva Enterprises, Inc. and Affiliated Company (and to all references to our
firm) included in or made a part of this Registration Statement.

Baltimore, Maryland
February 10, 1998